ForFarmers N.V. (FFARM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for holding, and welcome to the Presentation Annual Results ForFarmers 2021. [Operator Instructions] I would now like to hand over the conference to Ms. Caroline Vogelzang. Please go ahead.

Thank you, Reyla. Good morning, all and all those very well-known analysts to us. Thank you for joining this call in which we will present the 2021 results of ForFarmers on a morning, which is a very interesting morning after the dreadful news that we read in the newspapers this morning as well. I'm joined here, as usual, today with our CEO, Yoram Knoop; Roeland Tjebbes, our CFO; and Pieter Wolleswinkel, our COO, responsible for the Netherlands and Belgium and as you all know, nominated to be member -- to become a member of the Executive Board in April coming. We posted the presentation, which we will lead you through this morning on our corporate site just after we posted the press release, and I've seen that you all had the chance to read the press release, and thank you for a morning note. We will be presenting this presentation via the webcast and we will also be posting the audio webcast on our site afterwards, the tape of the audio webcast. Before we start, as usual, I want to draw your attention to our disclaimer statement, which I think today is more relevant than ever. And we want to make quite clear that when we present forward-looking statements, they're done based on the knowledge we had at the time that we made the forward-looking statements. And as we all know, as proven this morning again, the world can change in a flip second. With that, I'd like to pass the floor to Yoram.

Thank you, Caroline. Good morning, gentlemen, because as I believe we don't have any women on the line. But indeed, as Caroline already alluded to quite shocking events of last night that obviously makes this even a mark -- this as a special occasion to be able to share our '21 results with yourselves. If we look at '21, indeed, we consider '21 already as a quite a turbulent year, which was heavily impacted with -- by the challenges that are undoubtedly known to you all. Very much rising raw materials, certainly -- and especially fourth quarter, exploding energy costs and in general, faced with the challenges of animal diseases with bird flu and African swine fever on top of the pressure that the agricultural sector is on already. Yet, these challenges -- challenging times, it's especially then when we believe that our mission and for the future of farming and creating a sustainable future for all of our stakeholders, becomes especially relevant. And with that in light that, again, will take you through the rest of the presentation. If we look at '21, indeed, those very much increased input costs have played a role in our results. And we have not been able to fully pass on all of those costs yet. And this has led to an underlying EBITDA reduction of around 19%. Nevertheless, our intent is to declare a dividend in line of what we did the previous year, which is EUR 0.29 per share. And in terms of the acquisitions that we completed, we're actually very pleased with the financial results of both as well as with the progress that we have made more or less complete full integration on both. And basically, they have delivered results ahead of our business plan. So that has strengthened our business. If we look at the underlying business, clearly has been impacted by, again, the closure of many restaurants. And this has put some volume pressure on our business as well, but especially the margin pressure, not being able to quick enough pass through these input costs has played a role in these results. Clearly, African swine fever has continued to play a role. It is still very much in Germany. But as such, it plays a big role in keeping the swine price in Europe at a very low level. So it is affecting the industry as a whole. And avian flu, large number of countries where that is now present, Netherlands, Poland, U.K., Germany and Belgium and is still active as we talk today. In terms of our own steps in light of these challenges to drive our efficiency, happy to report the progress that we've made here about 100 FTEs less on a like-for-like basis, saving us, on an annualized basis, about EUR 5 million. And that means we are very well on track with the previously announced plans. And the same applies with our progress in terms of innovation. We have a number of projects now in the pilot space and we expect further progress over time. Sustainability very much in our DNA. A number of initiatives launched that I will come back later. But overall, I feel we are pleased here with the progress that we've been able to report. Yes, at the same point in time, clearly, this has been a very challenging year for our customers with significant pressure on the liquidity. Fortunately, the situation for dairy and for poultry has improved during the year. So the second half has been much more favorable prices. There, have actually recovered in dairy now beyond the rising raw material costs. So there, the future looks a bit brighter, yet pig remains a real concern where many customers are losing money, and there is no light at the end of the tunnel, so to say. The other element where we have responded is a change in the way we govern this company or a change in modification. We wanted to become more agile. So not only more lean, but also more responsive to local changes and local needs. So we've actually strengthened the role of the local Managing Directors. We recruited our new Managing Director in Poland and in Germany. That organization is up and running now. And as you, I'm sure you've heard, I will be stepping down at the general meeting in April. The search for my succession is going on. And it's -- as soon as we have more news, we will obviously let you know, but it's also good maybe to mention that if this will take more time, Roeland Tjebbes, our CFO, will actually play the role over of Interim CEO. So the -- we will continue to be, again, local, but obviously, we will use the size of our operation to make sure we leverage our skill and our best practices. In terms of strategy, we have commenced on a strategy evaluation of our Build to Grow strategy. That work has started, but it will take several months. Obviously, the new CEO will have a serious look at that as well. So we expect the conclusions of that strategy review to be published in the second half of this year. If you look at the development by country or in general, in fact, if you look at the graph, and the graph actually says it all. Yes, there is now inflation in many of the products meat, milk and eggs. However, that inflation is actually trailing significantly the rising input costs. So whereas there has been increased, it's by far not sufficient to cover the full input costs that we believe will be a question of time, certainly in light of the recent developments of last night. We believe that there is a high level of probability that raw materials will continue to be on the high end, if not rise further. If we look particularly at the various countries. In the Netherlands, it's good that we finally have a cabinet that now seems to be moving forward with a plan to deal with especially the nitrogen issue. There is no concrete targets that they are going to focus on in terms of reducing animal numbers. However, if you look at all of the plans that exist and that are being rolled out, first of all, they will require a significant amount of time. They will be very regional. The probability that ultimately, they will lead to a lower number of animals, we believe is very high, and that is part of our plans as well. The -- especially in poultry, in meat -- poultry meat, we see a significant change to more welfare standards, which we believe is a healthy one. In our more animal welfare this is apparently what the consumer is prepared to pay for. However, this also in time will lead to fewer animals in the Netherlands. Last night, actually, Belgium revealed a new plan, and it seems that, to a large extent, they are following the Netherlands. So we also expect a similar trend in Belgium. And in Germany, the -- Germany is obviously a significant swine country. And there is -- given the African swine fever, there's overcapacity, and it's unlikely that those export markets that we were so dependent on like China will fully resurface and self-sufficiency there is creeping up. So we expect over time, a further reduction in the number of swine in Germany. We do see, and this applies to other countries as well, good prospects in ruminants, especially on the automatic robot milking system where we are positioned well, we see there ongoing growth. Relating to Poland. There, we see some light at the end of the tunnel. We saw some of the barns, which were emptied in the beginning of the year being refilled due to better profitability. In effect, we have been able to grow in Poland in all species. And even though there is still avian influenza, the impact of there doesn't seem to be as severe as in the previous year. And then last but not least, United Kingdom, first, full Brexit year. This has led to enormous amount of instability and shortages, especially labor related, both into -- at slaughterhouses, but also in terms of drivers. And the good thing is we've been able to really deliver our customers with a high level of service. And we are now seeing a gradual stabilization in the U.K. With that, I would like to actually hand it over to our CFO, Roeland Tjebbes, who will go more deeply into the numbers itself.

Yes. Thank you, Yoram. Good morning to all of you. Let me start with the first slide, which is on the underlying EBITDA. Otherwise, I will compare the figures of this year with the previous year, so 2021 versus 2022.

2021 versus 2020.

Say again?

2021 versus 2020.

Sorry, 2020 -- did I say '22. Sorry, excuse me, 2020. And focusing on the three elements, which we always do, it is foreign exchange, M&A effects and like-for-like. So the autonomous items. And on this first slide, I will focus on the underlying results, so that's without the incidentals and as always, there is a slide on the alternative performance measures later on in this deck. Compound feed, total feed, both of them quite stable and the compound feed volumes were 0.2% higher than the year before. This is, of course, two sides of the coin. One is the good contribution of our 2 acquisitions, De Hoop and Mühldorfer at 3.4%, that's the M&A effect. And like-for-like, we are trending down 3.2%. Basically, what Yoram already alluded on, it's about volumes of swine industry in most of our countries, not in Poland, but all the other countries, we see declining volumes on the pig sector. And in the Netherlands, we had the impact of corona, especially in the first half. When it comes to ruminant volumes, impacted by, like I said, corona in both the beef industry as the other ruminant volumes. We made good progress in the AMS robotic milking in a lot of our countries that is helping in mitigating this downward trend on ruminant volumes. The winning species is the poultry specie because the poultry volumes are up in the Netherlands, in the U.K. and in Poland. And for the first time, I believe, ever, the biggest specie for farmers at the moment is poultry. So that's a nice contribution to this volume. If we then look at the gross profit, I will go directly to the like-for-like items, that's minus 4.5% because of, again, lower volume, and there is also lower gross profit. And you might remember, in the first half, we had this unfavorable contract -- contracts in Germany, which was -- we guided that, it's about EUR 4 million that's also impacting the gross profit. The good thing is that we see that the gross profit in some of our segments are up, but not far enough to be honest, to mitigate all raw material increases and also to mitigate the impact of energy costs, which are significantly higher. You see that in the underlying operating expenses, like-for-like 2.4% up, and that's about EUR 9 million. The biggest item being this energy part. You might have seen already in our annual report in Note 11 that last year, we had total energy of about EUR 30 million, and that has grown with EUR 13 million, 1-3, towards EUR 43 million. But that is a big increase, and we were not able to pass that fully to our customers. The good thing here is that although these increases are there, we were also able to lower the cost of FTE. Yoram already says it that we were able to, with our savings programs, our efficiency programs to lower the number of FTE by 100, and this is, of course, helping in organizing lower operating expenses. The total EBITDA, as you can see on the slide on the right-hand side, is about EUR 78 million which is helped by the good performance of De Hoop and Mühldorfer, which are adding 9.4%. That is more or less EUR 9 million. And like-for-like, we are down with more than 28%. And on the next slide, you will see our profit development a bit further down in towards our profit and loss account. Maybe some highlights to point out, we see that the net finance result is a bit higher. That is because of the interest on our debt. That's more debt because of the acquisitions and also because of higher working capital levels. We have seen like Yoram showed on the first -- one of the first slides, a higher input cost for feed, the grains and soys. And depending on how you look at it, it's about between 15% to 20% higher cost for working capital. The share of profit of equity accounted investees, it's a nice buzzword for our 50-50 joint venture in HaBeMa, the transhipment activities and feed activities in Germany, dipping in quite nicely again with a result of EUR 3.8 million, which is in line with the year before. The underlying income tax expenses, as you can see, trending down because of lower profit, also less income tax expenses. And the underlying profit because of the items I just mentioned, you see that the underlying profit is 27% lower than the year before and it's up to EUR 29 million. And this is, as you are aware, the basis for our regular dividend deposit. On the next slide, you will see some of the profit ratios. As you can see for yourself, the effective tax rate was impacted by the change in effective tax rate for both the Netherlands and the U.K. They raised their taxes -- their effective tax rate because of corona, and that is impacting our effective tax rate. And another element here is that we lowered our DTA in Poland. That's also impacting the effective tax rate. On the bottom of this slide, you can see the return on average capital inflows for both EBITDA and EBIT. And because of the lower result, it's trending down for 2021. And maybe some highlights for our capital structure. As you are aware, the total assets has been growing because of the higher working capital elements for inventory and receivables. And of course, the acquisitions tipped in to a higher total assets. Equity went up with EUR 2 million -- EUR 4 million, sorry, EUR 4 million, and that is a bit of a mixed bag. Last year, you might remember we had to take a hit in the equity because of the pension fund in the U.K. Now this year, we see it turns around again. There's a EUR 22 million profit, or at least, a benefit in our equity because of the good performance in the U.K. of the pension funds. So this is good news. As you are aware, this is only a balance sheet item. So it's noncash and it doesn't hit the P&L. And a positive mix effect here predominantly because of the British pound. And as you will see, we added EUR 12 million to our equity being the net profit of last -- of this year. The equity went down of course and restarted as the share buyback early December last year. And the year-to-date, in December, we had EUR 7 million of the buyback. And of course, last year, we paid out EUR 28 million of dividend. Solvency, still strong. I would say, 38 -- 39%. And also good to highlight our ratio for overdue receivables, and we see a lot of pressure at the farm gate. A lot of our clients are in the stress because of the higher feed prices and lower end prices that caused us a lot of stress at farm, but we were able to make sure that our clients pay in time. So that's a job well done by our clients and our [indiscernible] control and salespeople because the percentage went down from 12.5% to 11.6%. The net debt is up against last year, mainly driven again by M&A and the higher working capital levels. You can see that as well in the cash flow statement and the first -- the line item the cash from operating activities is again impacted by working capital and the lower result of the EBITDA, and lower EBITDA is impacting this. And the investing activities is impacted by the acquisitions. And as you might have seen already in our press release or in our annual report, there is a bit higher regular CapEx over expenditure than the year before. Like I said, we focus firstly on the underlying results, but our total result is obviously also impacted by the incidental items, the alternative performance measures. You might be aware that we have 4 different causes for that impairments, this is combinations and divestments, restructuring and other. Last year, we were impacted by the goodwill impairment in Poland. That's the main driver for the EUR 32 million of total APM for 2020. And this year, we see that the biggest element is in business combinations and divestments that has to do with the amortization of acquired intangible assets. If you do an acquisition, you need to evaluate your clients, and we amortize on that, that's EUR 8.4 million, and that is in the [indiscernible] EUR 6.7 million on EBIT in the cluster of business combinations and divestments. Now to other elements you see with restructuring, cost is higher than the year before. It has to do with, for example, our warehouse project. We have a new warehouse where we have the -- like goods altogether, and there were some change of people and that cost money. That's what you see over here and some other restructurings. And in the column, other, as we highlighted already at the first half, there are some claims which we provided for. So totally, we end up to EUR 70 million. Then the results per cluster, we have 3, the Netherlands, Belgium, Poland and Germany and the U.K. We start with the Netherlands, Belgium, more or less stable volume. There's two sides to the coin as well over here. We see a good contribution by De Hoop and Mühldorfer which added to higher volumes but we see decline in all segments, predominantly in pigs. Like I already said, Yoram said it as well, the impact of the world restructuring. We have some animal diseases also on the poultry side. And in the first year -- in the first half of the year was impacted by COVID. Good to point out that we see growth in volumes for both Pavo and Reudink and they contribute growth to the volume development. The gross profit is EUR 2.6 million higher than the year before, impacted by De Hoop. And of course, the other side is lower volume is leading to lower gross profit. And as you can see on the slide, and you'll see it also on this slide, which are coming, for all our clusters we saw that it's hard to push the margin to higher levels for both raw materials and the cost in order to get to higher gross profits per tonne. We see some of our clusters that it's stable or higher, but it's not enough to mitigate the higher energy cost. And this is what you see over as well on the underlying operating expenses, higher costs for energy mitigated by the FTE savings, which I already discussed. Total EBITDA is minus EUR 11 million. And as you can see, the return on average capital employed to ROCE is on acceptable levels for this cluster. Germany, Poland, stable volume, as you can see. We see that the volumes in Germany were impacted by the African swine fever. So on the pig sector, lower volumes oversupply in the market, which led to less feed for us as in the whole industry, which is leading to lower volumes in Germany. This was mitigated by higher volumes for poultry in Poland, and we see that after corona volumes are picking up again. Gross profit and operating expenses in line with the other clusters, impacted by higher raw materials and higher energy costs. And in this cluster, you might be aware, like I said before, this cluster is impacted by the unfavorable contracts which we have in the first half in Germany of EUR 4 million. Then to the United Kingdom, stable volume, it's a bit down driven by the loss of a client, which we, I think, in Q3 already discussed with you guys, that's a bit lower, but we are filling up the gaps from this client. And you see that we are showing growth in our poultry sector. And like I said, we see that in a lot of our clusters that poultry is growing and also in this cluster the United Kingdom. The gross profit is impacted by -- positively by FX effect. If you take it out, then you can see the same picture as the other clusters, as we see lower gross profit because of lower volume. And we see that we are not able to pass on fully higher energy costs. And the high energy cost is also the main driver for the higher underlying expenses. In summary, if we look at the key data, like Yoram already said, we are able and willing to pay out EUR 0.29 of dividend, at least that's our proposal for the Annual Meeting of Shareholders, that's EUR 0.19 based on our underlying net profit [ x60% ]. And it's our dividend policy and extra dividend of EUR 0.10. As you can see here, revenues are up, that's not only because of the acquisitions. It's also because we were able to apply price increases. But like I said, not enough to mitigate all the raw material increases and energy costs. We are, as a company, are more and more focusing on an integrated reporting. So on the right-hand side in green, you can see the performance of our ESG targets and sustainability targets, positive effects on the greenhouse gas emissions and positive -- I only pick out a couple and also a positive effect on less safety incidents than the year before. So in summary, like I said, we see a positive contribution of our M&A, positive volumes in Poland and poultry. I think that our cost program is ahead of plan, which is also contributing to better EBITDA performance. And in some other countries, we see that the gross preperformance is a bit higher than the year before, but like I said, not enough to mitigate all cost increases. And that Yoram is, in a nutshell, the results of 2021 for ForFarmers.

Thank you, Roeland. I'll continue then with a strategic update and outlook. First of all, again, sustainability. Sustainability is one of our key values, and it's becoming a bigger and bigger component of everyday's life. In that light, it's also worth pointing out because that is not so well known that 64% of all our raw materials used or sold are, in fact, nonhuman edible grow or byproducts of the food industry. So our industry and obviously, we do as much as we can there, are playing a pivotal role in upgrading the use of those materials to human consumption and thereby helping to reduce the impact on our environment. As Roeland already mentioned, large number of initiatives with actually good results thus far, with a couple of elements that I would like to point out. The biggest element in terms of greenhouse gases is actually not coming from our direct operations or logistics. No. It is actually coming from the source in terms of raw materials. So this is also one of the reasons why we've also made a commitment in terms of Scope 3 in terms of reducing the CO2 footprint there. And in that light, happy to report that we actually reasonably launched an initiative which allows the farmers in the Netherlands to reduce their CO2 footprint by 10% by using a new innovative solution from us. Another one worth pointing out, especially in light of the events in Ukraine, is that we recently started with an initiatives with farmers around our location in Deventer where we actually use their own produced manure to get to a green biogas. And by directly using that in our plant, we're able to reduce the consumption of normal gas by 85% going forward. A few other elements that I would like to draw your attention on. In terms of partnerships, you probably know us and you see many of those ForFarmers book -- trucks driving around, which is the vast majority of the volume we do. But we also supply, especially our specialty products in bags and that has a completely different supply chain. And this is a supply chain that has been undergoing some changes. Here, we got into an outsource arrangement where both transport as well as the warehousing of those activities has now been outsourced. Relating to customer excellence, we started with our e-business in the Netherlands last year, and very pleased to see the uptake of that. I can now report that over 70% of all customers in the Netherlands -- of all our customers in the Netherlands are now frequent users of that module, highlighting the progress that we've been able to make in terms of servicing them. That module is now in the process of being rolled out to Belgium and the U.K. next. Another highlight, I would say, is the fact that if one looks at the tremendous challenges and interruptions that the global supply chain has seen last year, that despite of that, our customer service has not been impacted. Actually, it has been at a very high level. So whilst we had to make a number of modifications, again, we've been able to take care of our customers. In terms of operational excellence, in general, good progress. We are further optimizing our manufacturing footprint. We've announced plans, and we are very close now to the closure of our [ burning ] site in the Eastern part of Germany, which we will be integrating into our [indiscernible] facility in Eastern Germany. And almost on a similar past in Belgium, we're doing the same thing. We are investing in our [ Izegem ] sites. And we are -- we'll be closing our Ingelmunster site and basically bringing that business to [ Izegem ]. Also in terms of business process optimization, one of the key initiatives we have to strengthen our processes and make them more standard and uniform, good progress. We're now really in the implementation phase. A number of initiatives have already been implemented and more to come during the remainder of this year. Last but not least, M&A continues to be another key pillar of our strategy. Already reported the progress in terms of integration, which is, again, more or less complete on both acquisitions. At the same point in time, we continue to look for M&A. The first priority is truly the existing countries that we operate in today. We do notice, and certainly considering the challenges that our business is facing, that the consolidation seems to be accelerating. So we believe that will lead to more opportunities as well. And although you're never sure until you reach the finish, at least happy to report that our pipeline looks reasonably okay. When we talk about some of these examples, I already mentioned a few. But when we look specifically at the use of processed animal protein, this is one of the initiatives we have to enhance further the circularity of our business and with that, also in the environment. In the U.K., we did see a further increase in the use of byproducts, and we won a few chunks of business that allows us to have a broader range of products available for existing customers. When we come to the outlook by sector. Fortunately, the milk price did recover and is now at a level that despite the very much increased cost of both feed and fertilizers, ruminant partners, dairy farmers actually can make money again. The global demand for these types of products that they make is quite healthy. So we foresee that this can lead to them focusing more on output, and we are moderately optimistic in terms of the prospects of that sector going forward. With swine, that is not the situation. We -- the business was highly dependent on significant exports to Asia, which have been far reduced. And whilst China has been building its own infrastructure and the probability that export will not resurface to the extent that we've seen before is quite high. With African swine fever still being very much present in Germany, we believe that there will be ongoing pressure on the swine sector in Western Europe, which will also lead to further reduction in terms of animal numbers. And last but not least, poultry is -- continues to be the specie that enjoys strongest global growth. The increases for additional welfare concepts will play a role. This will lead to fewer animals, but will allow those who are positioned well to take advantage of that in terms of quality and ability to generate decent returns. So virtual integrations will play even a bigger role. And short term, clearly, bird flu is still there. But it seems to be a resurfacing element year-on-year, although I have to say that it seems to be stronger this year certainly in the Netherlands than in previous year. When we come to the guidance that we provide the markets, this is obviously impacted by the situation in Ukraine in the -- in quarter 3, but in quarter 4, we saw a significant impact in terms of our results in terms of these rising raw materials, especially the energy situation. Well, that will continue to play a role in a way that we believe that our margins, our underlying EBITDA will be substantially impacted, especially during the first half of the year. We do believe that prices will continue to go up, prices for our products. But whether we can pass that increase cost onto the market quick enough, will continue to be a key question with, again, a lot of volatility expectations for raw material markets considering the Ukraine situation. The evaluation of our strategy is ongoing. The process has started. Again, we expect to be able to share conclusions by -- probably by quarter 3. And as mentioned, I will be stepping down during the general meeting. The search for my successor is going on. But if there is no replacement in time, Roeland Tjebbes, our current CFO, will act as an Interim CEO until that successor has been put in place. And with that, I would like to open it up for any questions.

[Operator Instructions] And the first question is coming from Mr. Christophe Beghin, Kempen.

I have a bit more open question. I fully understand that these market circumstances are fully challenging, not only because of what's happening in Ukraine and -- but in general. My question is afterward, I've read, of course, and you referred to it during the presentation on what's going to happen in the Flanders region with impact from natural gen restrictions, et cetera. I'm really questioning, is this a tipping point on what is going to happen as well in Germany? Of course, we do not know. But to what extent can you adjust to these elements because -- yes, what steps can you take? Is it then better to vertically integrate? Is it better to -- yes, it's a bit a more open question. I know, Yoram, but what is your opinion on that as market leader company in this industry?

Yes. Virtual integration is something that you see much stronger in poultry but not typically in dairy. And in the vertical integration in swine, you see in countries like Spain, but it's not very much prevailing in Western Europe. But those strategic options will certainly be reevaluated as part of the strategic analysis that we'll be making. One of the benefits Christophe that we have is obviously with our market presence and the number of sites we have, we actually are able to adjust quite easily in terms of volumes. If you have 1 or 2 sites and volume goes down, that becomes problematic, right? So this will certainly enhance the overall consolidation in the market. And again, there, we want to be one of the winners that will -- that should reap benefits out of this more challenging situation. And let's not forget [ also what's Roeland said ].

Maybe following up -- yes, go ahead.

Continuing to grow, if you talk about organic, one of the businesses that is growing. If you look at this automatic milking robot system, which now, like in the Netherlands, 30% of the market is already making use of that. That is higher than in most other countries. As farmers are becoming larger and are more -- becoming more professional, that will only increase and increase. And again, that's not necessarily a bad thing because we are -- with our data approach, we are well positioned in that segment.

And maybe a follow-up. Of course, the impact of governmental decisions to primarily livestock farmers, the impact to the overall industry, but on ForFarmers as well is, to what extent you have exposure, of course, to these high-polluting farms? Do we have an idea to what extent ForFarmers is having clients that will be pushed into the exit of the industry in, for instance, the Flanders region?

Let me refer to your question to Pieter Wolleswinkel, who's our Managing Director for Netherlands and Belgium.

Yes. Obviously, also the news from Belgium only came in yesterday, so we need to further understand the details of it. In general, we see that we have a presence in Belgium from the west to the east with a factory in Western Flanders but also supplying feed from the Netherlands. So all in all, in general, we see both for Belgium as for the Netherlands that governmental decisions effect is fully in line with the percentages that you see in a particular country. So also, for Belgium, that will be my initial thought. But as said, let's wait until we see the full details of it and especially also the pace of implementation.

[Operator Instructions] And the next question is coming from Mr. Eric Wilmer, ABN-ODDO.

I've got a few. Let me ask them one by one. My first question is on other operating expenses, which were up 15% year-on-year. I was just wondering what are the main drivers here? And how should we look into this cost item into 2022?

Yes. In the operating expenses, what we see is the -- we have some higher costs for, for example, IT licenses, which is in there. And we also have the impact of external personnel in this column, which is included there. So those are the two biggest elements in the column, other operating expenses for that matter.

And [indiscernible] especially the last when you mentioned external personnel, how should we look into that for this year? Is there something you can say there?

What you see that because of the progress we were running at that we want everyone to slim down on our FTEs and sometimes you need some people to step in between in order to make sure that we can deliver to our clients. But it's not a structural item for that matter. Then, of course, happen when we decide what Yoram discussing on next steps with footprint optimizations, but it's, let's say, normal basis that we have some. But last year, we had some bit more.

Okay. Very clear. And secondly, I was wondering if you could talk a bit about the sequential cost inflation that you're seeing in the first month of Q1, this year, versus Q4 last year. So basically, raw materials, energy, labor, could you talk a bit about that, please?

Yes. For all three of them, it's still increasing. And I think we -- like we said in today's call that we need to find the balance in the whole value chain in order that also our clients can pass on their raw materials in -- sorry, their price increases towards slaughterhouses and producers and in the end, retailers and we as consumers should be able to absorb these higher inventory costs. But raw materials have been not to the extent of Q4. It has been increasing a bit in the first month. And since this morning and -- of last night, you see that grain prices on materials also have increased it a lot again. And for labor, in the Netherlands, we were still working with the unions. Also there, we expect that the inflation will be there and here to stay for the remainder of this year.

Okay. And what are your -- I believe Russia and Ukraine are major corn and wheat markets. What are your main raw materials from this market? And obviously, we all remember in 2019, there was an unfavorable trading position. I think that also has something to do with the Russian market. Is there a change in -- given very likely upcoming inflationary pressures from the current conflict. Can there be a change in your buying policy again towards such raw materials? Or will it certainly not change?

Yes, if I may answer that question. So the first question, what raw materials, especially the grain complex, wheat, corn, Ukraine is a very important region. Obviously, it is not a unique region that we source from. If that would be the case, we would be in a different situation. But we see in general, and that is, I would almost say, a common practice that prices -- harvest yields determine whether the raw materials come from either France or Ukraine or North America. And obviously, macroeconomics play a very important role in that. That is also what we saw in 2019. By that time, we've adjusted the policy. I would, in this phase, not foresee that we need to change it. We work according to the updated policy. And we feel confident that with that policy, we can work consistently for the coming months in the situation that we are in. Obviously, we also need to be very clear. It is -- we've only heard 5 hours ago, the situation that occurred in the Ukraine. So there's a lot of uncertainty, I think from 48 to 72 hours will determine pretty much how markets will be affected for, let's say, the longer run, let's say, for the coming months.

And then my last question, I believe you still have an implied ambition of achieving EUR 125 million to EUR 135 million underlying EBITDA by 2025. Now you reported less than EUR 80 million underlying investment this year, and it seems that for last year, sorry, and it seems for debt for this year, it will also likely come in at a similar case level. That means a rather steep step up in the 3 following years. So from your planned reshaping of the strategy that you talked about, I believe you will say something more in Q3, but -- and I realize we're not there yet, but maybe just to give us some flavor, will this mainly be a story about savings or mainly story about M&A?

Yes. Thank you, Eric, for your question. It's too soon to call. So we will -- we are in the -- and we started the process of looking at strategy. And as you pointed out, we are, of course, aware that we are not making the EUR 100 million guidance, which we provided unfortunately. And that's one of the reasons why we are doing this evaluation or update of the strategy, but it's too early to tell and to guide whether it's M&A or savings or increases of our prices. So we will guide that and we comment that after the summer in Q3, hopefully, with more guidance there. But for now, yes, like you said, we will work on it, but nothing more to share today.

And the next question is coming from Mr. Eric Wilmer, ABN-ODDO -- sorry. The question was from Mr. [ Dan Alberts ], but he withdrew his question. [Operator Instructions]

Sorry, am I live? I keep getting knocked out of the call. So I'm not sure I heard everything.

You're on. you can speak now.

Yes, you're live.

Yes. Okay. So yes, I was also wondering about the strategy, but you basically already answered it, whether you were considering bold moves like a divestiture of one of the non-Dutch markets to play a bigger role in the Netherlands. But as you're already cautious to say whether it would be M&A or cost focus, I think this is also off the table. So that was my question. So no questions further for me.

[Operator Instructions]

I do have one submitted question, by the way, from Guy Sips who could not be in the active mode but he's in the listen mode. And he sent me a question. Germany, Poland, we stated that competition was intense in all sectors. The fierce battle for market share led to ForFarmers concluding a number of contracts, which, as announced in the first half, turned out to be unprofitable. Was that for Germany or Poland or both? And what will the impact be on full year 2022 sales and EBITDA?

The EUR 4 million was for Germany. It's an unfavorable contract in Germany. And the impact was EUR 4 million on both EBITDA and sales because, yes, the sales price should have been -- the sales contract should have been EUR 4 million higher. The impact for 2022 is and which to be zero, of course, because we have learned from our mistakes. So we have procedures in place that will not happen again. So that's the answer. The EUR 4 million only impacts in the first half of 2021 and is for -- within the cluster for the country, Germany.

There are no further questions. Please continue.

Thank you. With that, I think we've come to the end of the analyst audio call and there we see Christophe with a rebound question.

Yes. Can you hear me? A very small follow-up, if I'm allowed? I didn't have the time yet to fully go through the annual report, of course. But maybe some words on -- is it still the objective to fully acquire Tasomix? Or how can you maybe share some thoughts on this?

Whether we want to buy the additional 40% of Tasomix, if that's still the intent?

We say it's still the intent. We have not said before that it was our intent. We always talked about it is a possibility, and it remains a possibility because we have the call option and they have the put option. But at this point in time, I can tell you that the relationship is working well. And we -- whilst we continue to have the option, there is no firm plan in place to do so Christophe, at this point in time.

Yes. Okay. But still wondering, just to understand what is holding you back? Or what would be a positive of fully acquiring the company? Can you maybe explain that a bit more?

I believe it has been hugely beneficial to answer for the new markets with someone who is extremely knowledgeable about that market. On top, you know that certainly for the Pionki facility, there was also a significant amount of volume associated with the fact that they represent an integration. The good thing is the volume in Pionki has grown with them, but also with third parties. So the -- I would say, the dependency on the other shareholder since the beginning has certainly reduced. We also have a new MD not coming from the shareholder who is in place and who is running the operation well. But at the same point in time, we have no urgency to, at this point in time, to change the shareholding.

Yes. Okay. And maybe some comments on Pionki? I understand that the volumes are not ramping up due to several elements. But is that -- did that already improve in 2021, specifically for Pionki? Because we know that was...

Pionki volume is moving up. So we have seen year-on-year quite significant increases. So the utilization is actually very much moving in the right direction.

As I don't see any more -- yes, exactly, I don't see any more questions -- people in the waiting to put their questions to us, at least not during this audio webcast. Well, and I fully know that you know to find us if you do have additional questions and look forward to answering those. So for now, thank you so much for joining us again, and we look forward to speaking to you at the half year results. And also, I'd like to thank Yoram, as this is Yoram's last presentation of results for ForFarmers to you lot. So with that, thank you. See you later and hear you later.

Bye-bye.

Ladies and gentlemen, this concludes this ForFarmers Event Call. ForFarmers Event Call, you may now disconnect your lines. Thank you.