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

Hello, and welcome to the ForFarmers Annual Results. My name is Jess, and I'll be your coordinator for today's event. However, there will be the opportunity to ask questions. [Operator Instructions] I will now hand over to your host, Caroline Vogelzang, to begin today's call. Thank you.

Thank you, Jess. Good morning, all. Welcome to our audio webcast, which you are attested to, in which we will present the 2022 results of ForFarmers this time around. And one message upfront, but unfortunately, we have to announce that Theo Spierings, our CEO, has suddenly had to tell us that he will not be here today due to personal circumstances, which we find very unfortunate and unhappy. But we, of course, have full understanding for this unfortunate circumstance. Roeland will therefore be leading you through the presentation, and Pieter Wolleswinkel is also on the line. The presentation has been published this morning, as you are accustomed to. It's on our corporate site. We're doing this call, obviously, in English. I'm speaking English at present, and the presentation can be followed through this webcast, and the audio tape of this call will be posted on our corporate site afterwards. Also, as you are also accustom to, we would like to draw your attention to the disclaimer statement in which we stated everything we're saying today is based on the knowledge that we have today, and we all know that the last -- well, the last year, basically, that the world could change in a split second, so please bear this in mind. With that, Roeland, I'd like to pass the floor to you.

Thank you, Caroline. Good morning, all. I will indeed guide you through the presentation. We will start with the highlights of 2022 and some specific -- specifics for the markets we are in. And then I will take a deep dive into the results and with the strategy update. Let's start with the highlights over the last year. Well, to state the obvious, and you can see that in the mid sector in the green part, that 2022 was obviously materially impacted by the war in the Ukraine. What we have seen is that what's quite a issue with the availability of raw materials and also the pricing of raw materials and especially grain. We saw that there was a lack of availability in Q2. A lot of discussions at the time and we saw prices being volatile throughout the year. And the same goes more or less for energy and especially on electricity and gas. And the good thing is, and we are proud of that, that ForFarmers has been able to smoothly provide our customers, our farmers with compound feeds, and that our operations went smoothly during this process. 2022 was like 2018, a year with a dry and warm summer. And this has led to lower water levels in the ditch canals and rivers, which of course, impacted our operations. More transportation on roads instead of on the rivers that had also an impact on our results. Unfortunately, in the last couple of years, we have to report that our operations are impacted by animal diseases. And also this year, we see that the outbreak of avian influenza in some of the countries we're in, especially in the U.K., Netherlands and Poland, is hampering our volume. But also the impact of the African swine fever, which we have been seeing in Germany is something we need to deal with, especially because of the lack of exports towards China, out of Germany and European countries. As you can see on the left-hand side, the top blue corner that the ForFarmers EBIT and EBITDA is only slightly impacted by all of these effects. It's minus 2.7% on EBITDA. But the good thing is if you look at our net profit, the underlying net profit, as you have maybe been seeing in our press release and I will also highlight it later on, it's 4% up. And if you look at the underlying net profit, what will be added to our equity is EUR 4 million, which is 46% higher than the year before. Also on this slide, then I will also discuss it later in our slides is that we -- this year, we will propose to pay out a dividend of EUR 0.20 of the ordinary share, which is 60% of our underlying net profit. And last year, as you are aware, we paid EUR 0.19 normal dividend. So it's EUR 0.01 extra and we paid last year at EUR 0.09 extra dividend, which we don't do this year. On the right-hand side, you see that the prices of our farmers, the products of our farmers, so milk, meat and eggs, have been rising throughout the year, which was needed because of the higher raw materials we needed to have price inflation in the value chain. This was very difficult for us in Q1. As you might remember, Q1 was not the best results for ForFarmers. But as of Q2, we see that for the most of our countries, not all, that we have been able to pass on the higher raw material prices and energy costs towards our clients and our clients were able to absorb these costs and have their prices for their end products also at a higher level. Unfortunately, that's not the case for the pig industry, the pig sector because of the cost of feed is at a higher pace than the end products pricing. So we see that there's quite some turmoil over there and that our pig farms or the pig farms at large are suffering from the situation and are lacking cash. Maybe also good to mention on the left-hand side, blue corner, again that last year, we did the acquisitions of the whole move offer which are now truly ForFarmers companies and contributing to our results, and we are satisfied with that. But we also announced just recently that we have to stop or that we decided to stop, and we discussed that with our partners in the U.K., to stop the proposed joint venture with 2Agriculture. We made the analysis of the cost to be paid in this long process. As you can imagine, a CMA process takes time and you need advisers there. So that comes at a cost. But more importantly, we also thought about what kind of remedies do we need to offer to the CMA in order to get this joint venture over the line. And that's the likelihood of that, together with the remedies, we decided that it's better for us to stop the proposed merger, and that's what we announced just recently. Maybe one item more to mention on this slide. You've seen that Executive Board is at full power. Again, we have the new CEO at Theo, unfortunately, he's not here today. But I can assure you that he's up and running and making an impact in the organization. And as you are aware, we launched our Strategy 2025 just recently in November, and I will highlight where we are with the strategy later on this morning. On next slide, you will see the market developments per country. Let's start with the Netherlands. I think it's not a surprise when I say that a lot of discussion is going on on the whole nitrogen issues in the Netherlands. And as you are aware and for the Dutch speaking people, there was the report of minister [indiscernible] is kind of a mediator to get alignment within the agricultural segment and [ made some that ] report. Now our profits in the Netherlands are working on an agreement -- to get an agreement with all the stakeholders within in the value chain. And while we hope and that's the expectation from the Ministry that before the summer, around summer, there is agreement. And we know and all people will know what will happen to nitrogen and how to solve that within the Netherlands. This year, the Netherlands was also impacted by influenza. And we saw that, for example, in the layer business. And that, of course, impacted the performance and the volume for our company. The pig sector at large, like I said, is material impact. We have the stockers arrangement. We have the warrant restructuring most recently, and that all impacted the number of animals in the Netherlands, which has declined significantly compared to 2021. The same goes more or less for Poland -- sorry, so for Belgium. In Belgium, we see that the declining of the pig herd is enormous, and we have been shrinking in line with that. And by definition, that has an impact on our results. When we look at Germany, we see that the export ban for pig meat from Germany towards especially China has basically stopped. There are less and less exports towards China, China is almost self-sufficient. So that's impacting the pig business in Germany. The good thing in Germany is that we see that the robotic milking is getting more traction and ForFarmers is well equipped to be the front runner there because of our knowledge and capabilities in this sector. The Polish operation has been -- the Polish country -- Poland as a country, of course, has been impacted by the Ukraine situation. The dreadful war has impacted not only our operations, but also normal life in Ukraine, obviously, but also in Poland. A lot of our colleagues in Poland have put -- have been taken in. Indeed, thank you, Caroline, taking in people from Ukraine in order to help them out. But from a volume perspective, we've seen that export from Ukraine towards other countries, especially in Q2 and Q3 were on a lower level and Poland stepped into that gap and produced much more poultry meat. And our operation, as you will see later, also benefited from that. The U.K. was impacted in the first half with lack of personnel in a lot of the slaughter houses and in the value chain because of Brexit and Corona. You might almost forgot about it, but there was still Corona in the first half. And that impacted the way of working in the value chain. And also here, it's a repetition of the other countries, more or less, the pig sector is suffering a lot at the moment in the U.K. because of lack of profitability in that sector. And we have seen that there is 50% less sows in the U.K. which, of course, will impact piglets and [ ethane ] pigs going forward as well. Those were the highlights, let's say, per market for the countries we're in. Let's dive into the financials a bit more and go to the EBITDA development. As you are aware, we always compare '21 to '22 or the year -- first to last year, and we divide our analysis in 3 different buckets: FX, M&A and like-for-like, the autonomous growth. Well, FX and M&A are quite limited. The Polish zloty and the British pound compared to the euro, didn't have a material impact in our M&A, and it's a contribution of [ move over ] and the hope were only for a couple of weeks in this year because after the only track the M&A for the year as M&A and then it will be our like-for-like business. If you look at like-for-like, you see that our total feed volume is down with 6.8%, whereas our compound feed is down 6.8% and 8% down for compound feed. And basically, that means that our [ P&L ] business, our moisture and liquid business that is the coproducts and the residual flows are on a slower decline than our [ coproducts ], which is positive in that view, and they are contributing nicely to the results, but also in our strategy when it comes to going circular thinking it's important that we give another value to coproducts and residual flows. The 8% decline in compound feed is especially in the pig sector. But good to also highlight that in our ruminant sector, we have seen stable volumes with increasing market shares for both the U.K. and the Netherlands. And also poultry has done a -- had a good year when it comes to the broiler sector. The broiler sector was very stable in the countries we're in, but growing in Poland. So that's because of the Ukraine war and our layer business impacted by low profitability for the layer industry, but also impacted by Avian influenza. Gross profit, as you can see, has increased with 13%. And despite the volume decline, our gross profit was up. And as you are aware, that is also needed because we need to take care of other operating -- of our operating expansions. So we were able to pass on higher raw materials for the majority of our countries, but also we had to take care of higher energy costs and the energy costs are part of our operating expenses. If you look at the operating expenses, you see that it's gone up with EUR 60 million, 6-0. And predominantly, that's energy. And the energy, of course, that's gas and electricity but also our transportation cost has increased, as you can see in our annual report, which is online since this morning, has increased with about EUR 7 million. And we also, out of prudence, provided for a little bit more on our doubtful deficit, allowance for bad debt. We added around EUR 3.5 million more to that provision in order for prudency to see if our clients can pay, yes or no, going forward. The last part of the higher operating expenses is, of course, personnel cost has increased because of the wage inflation and also because of a higher number of people in our operations, especially in Poland because of the higher volume. If we put it all together, you will see that our EBIT and EBITDA fractions are lower than the year before, but I would say it's a solid result. And talking about solid results, let's go to the profit development a bit lower if you look at our P&L, our profit and loss account. Now let's take some items out of this. Let's take the underlying net finance result. On average, we had a higher net debt, high net debt comes at cost, interest. So that's why interest went up a bit, but also because of increasing levels for Euribor, LIBOR and important, we pay WIBOR that has also increased significantly throughout the year, and that's why our interest charges, our net finance results are higher than the year before. Our 50-50 joint venture there we [Audio Gap] nice work, the profit of equity accounted investees is our operation of the assessment and feed. In Germany, it's a 50 joint venture. It's called HaBeMa, contributed quite a lot. And so the majority of the EUR 4.5 million is HaBeMa, and they are on a very high and, I believe, even record high result for last year. So adding to our bottom line. Tax expenses have come down, basically because of settlement of previous year. And to put it into perspective, last year, the tax expenses were higher because of the change in the tax rate, especially in the U.K. We have a separate slide on our incidental items, the APM items. But if you would take that out as well, then you will see that our profit for the period at the bottom of the slide is EUR 18.2 million. This is about 46% higher than the year before. Profit ratios. The underlying earnings per share, the EPS is in line with last year. It's a cent higher than last year, has to do, of course, with the higher net profit, but also to do with the share buyback we have been doing this year. And we bought 4 million shares for the amount of EUR 15 million. I know you are aware that we stopped that in early this year that has an impact on the EPS, earnings per share. Effective tax rate, of course, went down because of the lower tax expenses so that helped. And then you will see that our ROACE, ROACE, whatever you want to call it, is on 7.8%. And we are aware that we have to do our homework going forward because we want the ROACE to be at 10% in 2025, and that's 10% on EBIT. That is our goal for 2025. Now let's look at our balance sheet. We see obviously that the total balance sheet, the total assets has increased because of higher raw materials, again, that has an impact on inventories and receivables. Also, they have to put it into perspective, and you might have seen that our cost of sales, our raw materials have been increasing by about 25%, 36%, and that's what you see reflected in higher debtors and higher receivables as well. If you look at the equity, it has increased (sic) [decreased] with EUR 22 million, and the EUR 22 million is basically 3 elements. One, the share buyback program lowered our equity. That's EUR 15 million. Second item is the dividend, which we paid out EUR 26 million last year. Again, it's the normal dividend and the extra dividend, which we paid as a dividend last year. And of course, the cash out was in this year. And we -- the third element, we added the profit, our net profit has been added, of course, to our equity. So we are in the total of EUR 344 million for ForFarmers at the end of 2022. Working capital, as you can see over is stable. One word of caution here is that our trade working capital, so that's only receivables, inventories and creditors has increased with about EUR 60 million to EUR 70 million, but the total working capital that's including other receivables and other payables. If you include that, then you see that working capital is at more or less the same level, a bit higher than last year. But total the trade working capital has increased a lot because of higher raw materials again. The overdues is again declining from 11.6% towards 10.6%, a job well done by our clients, I would like to highlight. And of course, the people working with our clients that they were able to make sure that the clients paid in time. still 10% overdue, but declining. If you look at the declining scale over the last couple of years, its year-on-year we are improving so that it's a job well done by a lot of people and especially by our clients that they are able to pay even in these difficult times, which we have seen the last year. The last item on this slide is the net debt. Net debt has increased with EUR 40 million, 4-0. You will guess already that it has to do with the impact of the share buyback program, which is EUR 15 million higher dividend or the high dividend we paid out last year and the money we had to invest in our working capital. So that's why debt came up with EUR 40 million. Cash flow development. Only some words, I think we basically touched on all of them. Operating activities impacted by trade working capital. Obviously, the net cash flow from investing activities for this year is our regular CapEx, our regular capital expenditures in our -- the several plants and mills we have around the 5 countries we are in. And last year, this number included the acquisitions of the whole move offer. The net cash flow from finance activities is impacted by the share buyback program, which we stopped in March, and it cost us EUR 15 million. I already mentioned the incidental items, and this is the APM items, alternative performance measures. We try to divide it and we succeeded in 4 different buckets, impairments, business combination divestments, restructuring and other. I will not mention them all. You can see them for yourself in our press release that there's a lot of guidance there and also in our annual report, which is like I said on our website since this morning. The biggest one being in the business combination and divestments. There, you will see on the line EBIT, a EUR 9.9 million adjustment. The EUR 9.9 million adjustment has to do with, as you are aware and discussed also in previous years, amortization of acquired clients, it's more or less the same as in last year. As you are aware, if we buy a company, we have to valuate our clients, and we can amortize, depreciate and we don't see that as an operational result and that's why we take it out, and we see that as an APM item. So we have a better view on our operational results. In total, this APM items are much lower, EUR 5 million lower than last year. I would like to spend some time with the 3 different clusters we're in, the Netherlands, Belgium, Poland and Germany is a cluster and the U.K. What you can see in the Netherlands that volume came down, especially because of the pig sector. But don't forget, like I said, we see stable volumes in the ruminant sector and increasing market share. So positive. We see positives also in the poultry sector. But the layer, like I already alluded on, the layer business is impacted by, for example, the influenza. Reudink also served a bit of consumer behavior had a lack of the organic products to be sold in supermarkets and of course, by new legislation, but we think that Reudink is well equipped to deal with the strategy going forward, given that our European Union wants to go to 30% organic agriculture in the near future. You cannot see it on this slide, but our horse feed business called Pavo has also increased their profitability and is nicely contributing to the EBITDA for this cluster. Gross profit, as you can see, went up with EUR 20 million, so that's quite nice. And we were able to pass on raw materials, but not at the extent that we wanted to do, especially in Q2. We started with that with Q1 was quite impacted by the higher raw materials and energy costs, and we were not able to pass it on fully. And you can see that as well, you see EUR 20 million higher gross profit, but even EUR 32 million higher operating expenditures and the higher operating expenditures again has to do with higher energy prices. And if you put it all together, higher gross profits, but higher -- at a higher level, operating expenditures. Of course, our EBIT and EBITDA came down, but still at a very decent ROACE of about 18% on EBITDA and 17% on -- sorry, 17% on EBIT for this cluster. EBITDA is higher. Cluster Germany and Poland, a bit of a mixed bag, as always, because we see declining volumes in -- for swine in the pig business in Germany as we see an increased volume, of course, from the poultry sector in Poland because of the less export out of the Ukraine for poultry meat and like I said, Poland stepped into that gap and is, of course, contributing to higher volumes in Poland for our feed business. The total volume went down with about 8%, but you can see that our gross profit increased quite significantly with EUR 25 million compared to last year. So we basically, we were able to pass on raw materials in the value chain, but also because of good margin management. What we have seen in Germany and Poland, and of course, higher volumes important helped with the higher gross profit. Last year, you might remember we had unfavorable contracts in Germany, across the company, EUR 4 million, of course, also has an impact if you do the like-for-like comparison on the results for this cluster. So EUR 25 million gross profit higher than the year before. EUR 11 million down when it comes to the operational expenditures, again, predominantly on energy. But this cluster had a fantastic return, so to say, on EBITDA. And EBIT has increased with EUR 14 million on EBIT and getting back to or getting back getting to ROACE numbers, the return on average capital employed for this cluster above 10%. And to the cluster United Kingdom. This is the cluster where we saw that the decline of volume was limited compared to the other. So this is 4% down. So it's less than the others. And it has to do with good performance in our broiler sector and in the ruminant sector. Like I said, we were able to gain market share. The difficulty is, of course, in the pig sector even in -- or even as well in the U.K. And last year, for the like-for-like comparison, last year, we lost a big client, which was there for 4 months in 2021 and not any more in 2022. So that's why there's also a deviation for the pig sector. In this slide, you can see that the gross profit but also the underlying expenses both end up with EUR 14 million. So that basically means that our underlying EBITDA and EBIT are on the same level or more or less the same level, a fraction above last year. And so that is a good performance. But our ROACE number is not at the size level because it's at 2% on EBIT. If I try to summarize our financial performance. On this slide, the key data revenue above EUR 3 billion, driven by higher raw materials. It's 25% up. Like I said, we will propose to our Annual Meeting of Shareholders to pay out a dividend of EUR 0.20, which is 60% of our net underlying profit. And as you are aware, more and more, we want to go towards integrated reporting. And you see in the green part of this slide, our, let's say, KPIs on the nonfinancial items. So greenhouse gas emissions, a good performance. Again, down towards last year. And also the LTIs, our lost time injuries, the casualty, so to say, in our plants also came down. So that is a good performance on these nonfinancial items. Then to our update on the strategy. You were aware or most of you were there. We, on the 17th of November, we came with this new -- renewed strategy, the renewed strategy, so to say. We came up with these 5 principles, which you are aware of. And now we are, of course, starting with execution. Yes, it's a pity that Theo Spierings is not here today because his heart is, of course, in the execution of the strategy going forward. And given his background in the agricultural sector, but especially also in [ the company ], which he founded called the Purpose factory, his heart is on ESG at large. So environmental, social and governance. Somebody is helping there and he's bringing guidance and traction, especially to provide sustainable solutions that's close to his heart and his -- yes, he wants to make a difference there. But also when it comes to working together more and more in the supply chain, both with competitors, but also with processors and slaughterhouses, that is also close to his heart. He wants to collaborate there going forward as well. This strategy, of course, will come with also adjustments in our organization. So we are already starting with reshaping, so to say, our operational design. And one of the items there is that we want to have more emphasis on ESG on the sustainability part, and we have a new cluster now with reading our organic feed company with our M&L business, which is the moisture and liquid business, the coproducts or residual flows, together with building new concepts for our farmers. We highlighted that already in November, and now it has been dealt with. So we have this new cluster now going forward on the new leadership as well. Sustainability, the heart, as always, of our operations, heart of our strategy, and I think for you guys, it's not a surprise that animals and feed for animals are crucial for a circular approach. And we have been mentioning this in our annual reports over the last couple of years. And as you are aware, we need animals and to get good valorization of plant-based proteins in the industry in order to create also circularity in our processes. And as you have seen in our annual report, we have about 76% of what we use is nonhuman edible. So that's our products, which we, as a human cannot digest and animals can. So this whole valorization is very important that we give value to stuff that we as humans cannot digest. So basically, in every industry -- or sorry, not in every way you want to look at it, if you want to go circular, you will need animals going forward and animals need feed. The last slide is about our integrated objectives. Like I said, we believe that it's only about the financial targets, but also about the nonfinancial targets. We are growing towards the CSRD and the Corporate Sustainability Reporting Directive, which is mandatory for listed companies as of next year. So we have a [ target ] there to get it organized this year. So much more reporting on nonfinancial items is basically on sustainability at large. And here you can see already what we have been doing for the last year and a couple of years. These are our ambitions but also ongoing circular, which is basically a bit of the whole ESG equation. And these are our targets going forward. And we believe that we want to invest in people, so development of talent is important. And of course, the whole going circular, you can see that in the green bar is in the heart of the operation. In the end, we all want to create value, and we have been guiding that we want to grow to a 10% ROACE on underlying EBIT by the end of 2025. So like I said, homework to do, and we want to pay out a dividend of 40% to 60%, and we are proposing it to our shareholders also this year based on our underlying net profit. And that, I believe, let me see, this is the last slide indeed. In terms of the financials for 2022 and the highlights of the update on the strategy. And I think with that, looking at you, Caroline, we can open up the floor for questions.

Absolutely. Jessica, could you open up the floor for questions, please?

[Operator Instructions] And your first question comes from the line of Guy Sips from KBC Securities.

I have a few questions. First is on the welfare concepts for broilers to retailers. Yes, how is this trend evolving in other countries than in the Netherlands? And the second question is on the doubtful debt provisions. How do you see that evolving into, yes, first or into the start of this year? And then you're discussing or you were claiming that you're improving your market position in the cluster of Belgium, Netherlands. Is that specifically in the Netherlands or also in Belgium? And the last question is on your ROACE target of 10%. This improvement should that mainly come from the U.K. as this is still below this 10%? Or should it be all over [indiscernible] ?

Yes. Pieter will tackle question on the welfare concept, but let me start then with the doubtful debt. Basically, there are rules under IFRS how to cover the provision for doubtful debt, especially in the pig sector. You've seen our clients struggling with on-time payments and you see also some defaults here and there, but limited in our organization. So we are more or less prudent in our provision. And yes, the year has started, of course. So February is almost gone, but no big defaults yet. So that is positive news. And so we are, in my view, good -- on a good way provided for doubtful debt. Pieter will also discuss the market shares for the Dutch and Belgium organization. And when I said we were gaining on market share, that's predominantly in the ruminant sector and probably less than the others, but Pieter will highlight that. And on the ROACE numbers, you are right. U.K. is below that target of 10%. So indeed, there will be some stuff to do in the U.K. But we are a company of 5 different clusters. And there's also ability and willingness to do M&A. We have a leverage of b 1x. So there's still room to invest to get to these ROACE numbers. But you're right, it should come from all clusters. We see that the other clusters are delivering as always, and it's a good thing of a balanced portfolio. If one is lagging behind, the other ones can help. But for sure, we will -- we are talking to our managing directors per country that all of them are aware that they should live up to this internal targets of higher ROACE. So to answer your question, it should come from all sides, but every now and again, Country A will help Country B. And maybe, Pieter, you can answer the questions on the welfare concept on the market share.

Yes. Yes. If I start with the first one, the welfare concept. We see that Europe has committed themselves to as they call the European chicken commitment. So that is already a step forward to the current situation that in Germany and Belgium, will also lead to less chicken per square meters. That is still not as progressive as what we see in the Netherlands with the movement to better life 1 star. We foresee that in Germany and Belgium, that step will only be made if specific retailers will start with it. We see some movements in the Belgium market, for example, from [ Colwright ], we are also in cooperation with that party, but it is clearly behind the progress that has been made in the Netherlands, but we see more and more movement to that situation. If we look to Poland, that is very much you ask, we deliver approach. So depending on the consumer market, the retail demand that determines their way of housing and the way they export the broiler meat. But it is clearly a trend that will be ahead of us. If I go to the second question on the market shares and specifically also for Belgium. We see that we have an intrinsic ambition to grow our market share, but also to make choices. For example, in Belgium, we have announced last year the closure that we announced already in 2021, the closure of one plant and the renovation and upgrade of another plant. By taking that step, we will focus in the Belgium market with production on pigs and on ruminants and we don't produce local broiler and layer feed anymore, given the lack of profitability that we recognized in that region. So by taking choices, we do not grow ourselves as a whole in the country, but per segment, we have the ambition to grow, like Roeland said, especially in ruminants, we are very satisfied on the proposition we delivered to customers the advice we give. So especially in that field, we have made a good step forward in 2022 to grow our market shares.

The next question comes from the line of Daan Arends from Kepler Cheuvreux.

Two questions for me, if I may. Maybe firstly, the profitability in Germany, Poland. It's a big step-up, actually hitting the ROACE target, so very impressive. Should we expect these profitability levels going forward as the new normal? Or do you think things will normalize or mean reverse as you will in the coming few years? That's the first one. The second one is on strategic partnerships. We know that the joint venture in the U.K. did not happen. Is there any other initiatives that you would like to highlight here? And maybe also your opinion on the [indiscernible] set forth by the ACM Director in the Netherlands that agricultural parties should do more price coordination in that light?

Yes. Thank you for your questions, Daan. I will start. So Pieter can already think about the question of the ACM, which is focusing on farmers. I will dive into your other questions. Unfortunately, the answer is no. So this is not -- there were some exceptional results in Poland because of the -- what's happening in the Ukraine. And that's why volumes and margins went up enormously. Of course, we are hoping and we will do our best this year. But as we see now that there's a lot of export again out of the Ukraine, a lower tax rate in [indiscernible]. No, you speak Dutch well. [indiscernible]. So that's impacting the [indiscernible] going forward. So it was there.

But you're right, the input tariffs in the Ukraine. So basically, our Polish operation will get back to other levels than we saw this year. But Germany, because of the -- we don't have -- we didn't have these favorable contracts anymore, has come to more profitable levels. And like I said, we see growing volume for -- in the ruminant sector, especially robotic milking. So that's helping our operations there where we see declining markets for the industry.

And then to strategic partnerships. To answer your question, yes, we are looking at more initiatives. But also no, I will not tell who and where, as you might be guessing. The joint venture in the U.K. is, of course, is only one out of the whole equation. We -- in our strategy, and we have been stipulating that we believe working together in the value chain, but also with partners. And like we have, for example, in Poland, where we are closely working with a partner but also in the Netherlands, for some of the product lines we're in, we believe in partnerships and we believe in strategic partnerships, but we also believe in M&A by itself. So yes, we are working on more initiatives. No, we will not guide you exactly where and how. And then maybe to the question of Pieter -- for Pieter, when it comes to the opinion of the authority ACM on working much more close together on pricing.

Yes. We were satisfied to read the message sent out by the Competition Authority because we see that making the transition whenever when it's about climate, when it's about welfare. This will definitely help if you can make agreements all through the chain on how you come to a fair pricing model -- this is also fully in line with our ambition that the food chain and the agri food chain takes its responsibility to move from A to B. So this would be supportive. On the other hand, we are somewhat reluctant to be too positive because only some years ago, an initiative in the broiler chain was rejected by the Competition Authority in 2020, they revised it. And at that point, they came to the same conclusion that it was the right decision to say no at that point in time. So then my question would be what is now so different legislation-wise, in 3 years that this will really come to opening in the discussions. So summarizing, we are positive about that. On the other hand, if we really come to an execution phase, we are not sure yet what this exactly means and how much space there will be especially in an environment where imports of foreign products is always a risk if the pricing of the domestic products is too high, and that is what we have warned before that we need to be very careful that we really take good care of our agricultural business because we do believe that way it is produced in the Dutch situation is the most sustainable way to produce. So we want to capture that towards the future. But all in all, a very interesting movement.

The next question comes from the line of Fernand Boer from Degroof Petercam.

Fernand de Boer from Degroof Petercam A couple of questions on my side. First of all, on the energy cost, I see in the annual report that was up from, let's say, EUR 41 million to EUR 77 million. Could you say anything about your NC contracts for 2023? Could we see a similar kind of step up? Or is the EUR 77 million actually going down? That's the first question. Then the second one is actually coming back on the ROACE question, maybe the U.K. going up. But if we see in the past, certainly, in the past year, I think the main problem was the decline in the Netherlands, and that's already down for a few years now. So maybe to get the weakest up isn't a solution. But I think to get the better best up could even be a better solution. So what could we expect for the Netherlands and Belgium going forward? That's the second question. And then on the quote Theo Spierings made in the press release, let's say, about being satisfied, being happy with the organization. But at the same time, still saying we need to make adoptions. But especially what he actually said that on the industry, on the -- how do you say it -- that actually is quite amazing how the industry is thinking, et cetera, and that should change. So what should change in his view and what could ForFarmers play a role in that part? Because I think it's very tough to change that industry.

Yes. Thank you for your questions. Yes. Thank you, Fernand. Thank you for your questions. Pieter will think about already the Dutch and Belgium and how to get it to the ROACE numbers. But I will also give my perspective there. You're right. We are not only focusing on the U.K. Of course, we see, as you have been seeing, that the trend is down for the Dutch and Belgian operations. And it also has to do with the decline as you have seen in the pig sector, which has been enormously in the last couple of years. And going forward, of course, we need to see what will happen to the whole nitrogen discussion and how that will impact our operations. With our new strategy, which is about local in the lead, we are changing the way we perceive different product market combinations. So no one size fits all. And so more specific, we will have a strategy per specie, per country, sometimes even per region. So that will help in getting profitability at other levels than today. And before handing it over to Pieter, your last question is valid, of course. I can, of course, not speak for Theo. But the discussions we have been having with him is that, like I said, it's close to his heart. What's happening in the industry at large, he sees that in the Netherlands, a lot of discussions are on nitrogen going forward. And -- but he is also trying to highlight that there is a place for circularity. There is a place for animals and animal feed within Europe, and that we should look for opportunities and capabilities in Europe itself. He also has a strong view on what's happening in Brazil when it comes to deforestation. So he's putting that together and saying, well, we as an industry should have an answer to that, not only for Europe, but also for, let's say, the community at large. And he wants to cooperate with people in the value chain, both up and down, so to say, and left and right. So with competitors, with other players in the industry, with farmers, with retailers, with others in order to get this important problem solved. But he is very aware that we need farmers, we need animals for the whole circular thinking and that there is a place for a company like ForFarmers going forward for sure. And maybe that is a good segue into Pieter, your perspective on getting ROACE levels in the [ levels ] which are already pretty decent because it doesn't decline. And energy cost. Sorry, I forgot about the energy, excuse me, Pieter. Yes, I think you are aware that we changed our policy. We -- in the old days before the Ukraine, but also the energy crisis, which already started earlier than the Ukraine issue. We changed our policies there. In the old days, energy was not even talked about in the budget. Now we start with energy more or less after we discuss the raw materials. And we changed the policy that we are putting layers, several layers of energy hedging for the different countries we're in. So every country local in the lead as their own policy there within our framework. And yes, I will not highlight whether it will be higher or lower or provide guidance on that because that's also as you are aware, information our competitors would like to know if they know what we have our positions on energy. So I will not go into that. which again, has for sure that we change the policy. And in our view, we are -- yes, you never know, of course. But for now, we feel that we are well balanced in our energy cost for 2023. And then I will hand it over to you, Pieter.

Okay. And can you then say what the average length of the hedge is?

Say again. Sorry, what?

What the average length of the hedge is?

No. [indiscernible] Depending on the markets we're in, Fernand. We have layers which are more than, let's say, 1 or 2 or 3 months. And so it will go too far to say per country how far we are because that's competitive information, which is very valid for our friends around us. So yes, you have to -- yes, this is my answer, so to say.

But if you -- maybe because if you cannot comment because of this competitive sensitive information, and if you then take the comment of Theo Spierings to say, "Look, guys, together, we have to think about the entire sector." That's never going to work.

Yes. But now you're putting 2 things in the equation, Fernand, which is, of course, allowed. But I would say that being transparent comes from 2 sides then. Because we are very transparent in our annual report and quarterly update. And I presume you also look at some of our competitors and their annual reports. So we are quite transparent there. When Theo is talking about transparency on energy cost, he's talking about working together on solving all kinds of problems within the industry, and it doesn't necessarily have to mean that we provide guidance and transparency on all specifics of different lines in our P&L. Pieter?

Yes. Yes. Yes, Fernand, I like Europe, your challenge. So we should not only look at the ones that are relatively low on ROACE. And for me, the strategic principles come back in this discussion. We say local in the lead. That means that per country, we also look what a reasonable target is for ROACE, and that is the same way we approach the Netherlands, and that is clearly not 10%, but much higher. And that is also the ambition for the coming years. How to achieve that in left or right, a challenging environment, the principles out of the strategy come back first. Also the sustainability agenda. We truly believe that sustainability also offers opportunities for ForFarmers. We are very well positioned with our organic company roading. We are very well positioned for the use of coproducts. So only 2 examples. And we also think that with all the know-how we have nutritionally about the raw materials we can use, this is also a way to improve our results. That is one. On the other side, we are a company in an environment where the volumes will go down. And that means we need to have control over all costs. So also moving to a lower cost base will be a fundamental movement for the coming years to improve the profitability. So clear on that, the ambition is that we have a very attractive ROACE in the Netherlands also towards the future and the agenda is made for that.

The next question comes from the line of Anne Margaret Crow from Edison Group.

I've just got -- actually, I'm really sorry. I'm going to have to pull out of the queue because I have to go on another call. Can I e-mail a question in and speak later? That would be great.

That's fine Anne.

The next question comes from the line of Eric Wilmer from ABN AMRO ODDO BHF.

I was wondering if you could talk a little bit about your thoughts on potential net working capital relief this year as supply chains are gradually easing. Do you expect your inventories and receivable positions to improve this year after a pretty notable step-up last year? And secondly, I was also wondering if you could talk a little bit more about your M&A activity or maybe taking it a step rather towards M&A activity in this sector at the moment. I think obviously, smaller companies must be in even more difficult position right now, and we've been talking for this -- about this for some time, but deals still do not really seem to materialize. So I was wondering what are your thoughts there.

Yes. So indeed, the working capital levels are coming down because raw materials are coming down. So we see grains for example, like the wheat is declining. Last year, it was above, on average, above 350, even 400 during the summer and nowadays, it's below 300 already. You never know what will happen. Of course, it depends on the harvest. It depends on macroeconomics. But it depends -- we will materialize and it continues, then we will see lower working capital levels. But it also has to do with growth, for example, in Poland, and that will not change. We want to grow in Poland. And Poland has longer payment terms than the other countries. And also, we've seen that we are growing, for example, with Turkey, in some of our countries in Turkey by -- yes, they have a longer cycle and most of the time, we see also there are longer payment terms. But you're right to your question, there will be some relief when it comes to lower levels of especially the grain perspective.

And sorry to interrupt. Do you expect this to be mainly in H1 theme? Or is -- or is it a little bit difficult at this stage to...

Yes, it's difficult at this stage. We don't have a glass ball. And it's depending on, like I said, macroeconomics, what will happen to Ukraine, if there -- if there's a hiccup again, and there's no harvest there or no transport out of the Ukraine then, and the same goes for Russia. And of course, a lot will happen again. So -- but it's also depending on the harvest in the countries where it comes from. So we don't provide guidance on that, Eric. And then to M&A, you're right, there are a lot of companies much more thinking about their future than, I would say, a couple of years ago, if you have a single plant in one of the countries in the pig sector, you're not well off. So we see -- we have been seeing the last couple of years, like in the acquisition we done with hope that we only take M&A targets in the countries we're in when they are appealing to us. So we -- of course, we're -- as one of the front leaders in the whole consolidation, we will be there, but not at our cost and not -- we will not take all parties just for the sake of it. And don't forget, a lot of the smaller companies are privately owned or family owned, and they have a long life, so to say, when it comes to their equity. And only when the cash programs are that big, you could question whether you want them, sometimes we will because sometimes it's good to buy a company close one plant of ourselves or one of them, but we indeed see targets. But don't forget, we want to grow. We will be part of the conservation in all the countries. But for -- especially with, for example, food in the U.K. is a country where we want to improve and also in Poland and what we see as one of the growth areas in the countries we're in. But still and unfortunately, you didn't see it in the last year. I can explain that we had a lot of M&A on the agenda and some, yes, as always, it did not materialize. So that is unfortunate. But our M&A Director and his team are very busy still. And hopefully, the 2023, we can show some more progress there. But we also want to grow outside of the 5 countries we're in, both on compound feed in other countries and growth with other value pockets and nice first words to it, then you should think about other alternative products, for example, or our Pavo business, our horse feed business, our herding, the organic feed business, and so other value pockets where we want to do M&A.

[Operator Instructions] We have no further questions in the queue. So I'll now turn the call back over to your host for some closing remarks.

Thank you, Jess, and thanks to all of you that you joined again today. It was great to hear your voices on the line again. And well, this was it for 2022. We hope to be seeing you very soon and speak to you again very soon. So let's stay in contact. Thank you so much. Have a great day. Bye.

Thank you. Bye-bye.

Thank you for joining today's call. You may now disconnect your lines.