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

Good morning, everyone, and welcome to today's earnings webcast and conference call. Please note that this event is being recorded. [Operator Instructions] I will now hand over the call to today's host. Please go ahead.

Yes. Thank you, Lynn, and welcome from ForFarmers, where we will be presenting our results of the first 6 months of 2026. I'm here in Latam with Marloes Hotlink, our CFO; and Rob Kies, our COO. We'll start with the key events of this period. From there, Marloes will give the insights on the financial results, and we'll close off with the management agenda for the remainder of the year. After that, as always, the opportunity to ask questions. If we look back at those first 6 months, we can be extremely satisfied. After a very good 2025, we see a continuation of our strong results and also a further growth of market share, fully aligned with our strategic ambition. We recognize 2 success factors under that, the local approach, strong local teams serving customers with much dedication. The dedication is there also at our headquarters, obviously, to do well for our customers to the farmers and also comes back in the good technical results that we can deliver on farm at this point in time. The Netherlands, very good results with solid volumes. Germany, the compound feed business did well, but we saw especially a step-up in our storage and transshipment activities. Poland, strong performance, both on volume as on profit, and we are very pleased to announce today that we have received an approval from the Polish Competition Authority for the transaction of KS, which means that we can close off later on this year. The U.K., the results remain satisfactory, although somewhat lower after an exceptionally 2025. We see that our total volume has increased approximately 5% and also compound feed went up more than 3% -- the basis of that is the consolidation of the joint venture in Germany and also the acquisition of Beuke Laars in the Netherlands in November last year has contributed. If we look on a like-for-like base, we recognize a stable picture, both for total volume as for compound feed. From an operational profitability perspective, we see that our EBITDA has increased with close to 40% and EBIT with 60%. So big steps up. And that also comes back in our underlying net profit that has increased from EUR 23 million last year to EUR 37 million this year in the first 6 months. The return on average capital employed, if we look back 12 months, we were at the level of 14% and also there, a major step up to 22% at the end of June 2026. It is quite clear that the market has an increasing volatility if we compare it to 2025. Obviously, much impact comes from the geopolitical developments. Energy prices went up, also more volatility in the raw material prices and the latter is also further supported by recent drop and low water levels in the Netherlands. The impact of animal diseases has been declining since Q2, yet it is also quite clear that has affected our like-for-like volumes or compound feed volumes in the first 6 months, and we still see that the poultry industry is recovering with regards to restocking of the farms. The farm gate prices, broiler and egg prices have stabilized coming from a record level. The milk prices are at a clearly lower level compared to 12 months ago. But the good thing is that we see a recovery in the past months and also in the last week, the milk price went up further. The pig prices has continued to decline. So on that much pressure coming from the Chinese import duties. It is good to see that it is bottoming out, and we hope for a soon recovery ahead of us. To our opinion, Forfarmers is well positioned to mitigate these market effects. Especially risk management has received much attention over the past 3 years, and I can clearly state that, that has substantiated our results in the first 6 months. Also, we've indicated before that in an environment that offers more volatility, we need to be able to act on that, especially from a supply chain perspective, and that is what we are working on. Volumes go up, go down every now and then. And also if we now look at the inbound situation, so the receivable of raw materials, it's clearly different than it was before. So I'd like to share an example on the [indiscernible] situation where at this point in time, we cannot use the Teal for our receivable of raw materials. We have participated on that over the past period. We have invested to receive raw materials better via trucks, obviously, very important at this point in time. And we have also renovated our silos, our raw material silos to make sure we can have more storage at this point in time, and that is also helping us in this period. So with that, we can say we are more robust than we were in these kind of situations. The end of June, the Dutch government has presented their nitrogen package with the ambition to restart the permitting process and provide a greater flexibility for the farmers to work on an outbound-based regulation or as we call it, in Dutch dual steering. We still recognize a significant uncertainty with regards to this package. especially on the practical feasibility. We see that multiple policies appear to come in place and some of these even work contrary. So that needs attention and much discussion is still going on as we speak. Also the affordability, what does it mean for the income for farmers, not only in the first years, but also on the long term. And very important, the legal robustness of the proposed measures. We have already indicated or heard the indication from some NGOs that they will go to court again to challenge the measures that the government wants to take. And obviously, the outcome remains uncertain until the verdict has come. So far, the descriptions have been most concrete for the dairy sector, but we also see that for the intensive livestock farming, tighter emissions might be ahead of them. That brings us to the point that what is our goal is for farmers in this. We truly believe that by innovation, we can make most effective progress. Innovation can come from fire feed solutions, but also with regards to on-farm measurements. As an example, we are working at this point in time on manure management steps that can be taken. We're working on pilots together with farmers and also with the province authorities to ensure that we find a scientific base for a legally supported method. We truly believe that this should come at the heart of the nitrogen package that there is an opportunity for farmers to show their craftmanship and their entrepreneurship and to ensure a future-proof farming and also linked to that a competitive Dutch agri food chain towards the future. At this point in time, it's too early to give more indications on the impact for farmers given the uncertainty, as I've just described. Then moving to the clusters. We as always start in the Netherlands, the volume solid and especially on compound feed, we are very satisfied also with the acquisition of Beukelaars. The pig sector clearly shows pressure coming from the buyout scheme in 2025 and also the current market conditions. It is good to recognize that the strong customer gains over the past years provide a solid base for our factory fill. So that helps us to be competitive. The dairy farmers in the Netherlands have not really changed their feeding programs linked to the current milk prices. So that is obviously supporting our business as well. And in addition to that, good developments of our beef volumes and go volumes. Poultry, both layers as broilers did well. Market conditions have been good and also our business and volume position has developed satisfactory. Linked to that, we are starting a joint venture together with Kronans Group. Kruland is part of the PHW Group. And with that, we want to build a future-proof poultry value chain. So what does that mean? That means that in this joint venture, we bring together farms that are offered to us. Earlier this year, as example, we announced that we have acquired a broiler farm and that broiler farm by now is already brought into this joint venture. And as for farmers, we will have a 49% stake in this business. Looking at our other business activities in the Netherlands, we also see a good development. Circular is doing better than last year. So our co-product business, also roading also there the volumes are good. We acquired Furena, a dedicated mill in Germany last year, and we see that the volumes come in as planned and Paro also doing well, our horse business. So that all in all, gives that we are satisfied on our market approach in the Netherlands, which also leads to a very strong underlying operating profitability over the first 6 months. Moving to the East Germany and Poland, volumes clearly up, obviously steered by the joint venture that started the 1st of March 2025. So we still have 2 months of acquisition effect. But also on a like-for-like base, we see a clear increase of about 6%. Poland is doing well, but also Habema, our storage and transshipment activities are doing much better than last year. We see that the German export position is much more competitive, and that helps our business as well. Looking at our feed compound feed activities, we're satisfied. The business was stable, which is quite an achievement given that also the Dutch poultry sector faced quite some issues from the animal diseases, but we were able to compensate it via other species. Poland, very good volume development, especially in the broiler business, and that is a confirmation for the steps that we have taken to invest in our locations to expand the capacity. Those are now delivering returns. So that makes us confident that we need to continue to focus on that, invest on that to further establish a strong position. Earlier this year, we acquired Farmpas, to reasons add capacity and also strengthen our business on the dairy business, on the ruminant business and the integration of that is on track. Then moving to the U.K. The results remain satisfactory, yet somewhat lower than 2025. Two key reasons for that. We do see in the U.K. an impact of lower milk prices, less cows are milk. And in addition to that, we see that the feeding programs are less intensive than in 2025. So that obviously has an effect on the compound feed business and also a margin effect on the co-product business given the change in supply and demand, especially there's less demand coming. So that is one side. In addition, last year, we divested our second location into the reorganization. That means that we have less capacity available deliberately to produce feed, to mill feed for pig integrators. So that is another reason for the decline in the volume that you might recognize. It is good to mention that Forfarmers has acquired a minority stake in Futulo. Futo is a fast-growing beef integration that has the ambition to offer high-quality beef to the U.K. retailer and for farmers. We want to have a long-standing position in the U.K. to supply feed. And by taking these stakes, we find a good foundation under that towards the future. And with that, I would like to give the word to you, Marloes.

Thank you, Pieter. Good morning, everyone. As Pieter indicated, over the past few months, we have been able to continue our strong performance. First of all, on a like-for-like basis, our volume remained stable. Our market positions improved further, and we are gaining market share. Our acquisitions are contributing to further volume improvement, resulting in a growth of 5% versus half year 1 2025. Revenue is strongly correlated with raw material prices, which is why we focus more on the development of volume in relation to the gross profit. Gross profit increased by 12.6%. Excluding acquisition effects, the increase was 9.2%. This demonstrates that our local market approach is working well. Underlying operating expenses increased by 2.7% on a like-for-like basis, mainly driven by higher wage costs and higher transportation costs. Together, this resulted in an underlying EBIT of EUR 57.2 million, a significant improvement compared with EUR 35.8 million in the first half of 2025. Underlying net profit attributable to our shareholders also increased in the same proportion to EUR 37.3 million. Financing expenses decreased as a result of lower interest expenses. Underlying income tax increased, mainly driven by higher profits. The underlying ETR remained broadly in line with the first half of 2025. Noncontrolling interest increased due to the 6-month effect of the joint venture in Germany versus 4 months in 2025, but also because the joint venture in Germany performed better. This results in an underlying earnings per share of EUR 0.42 versus EUR 0.27 in half year 1 2025. The ROCE based on the underlying EBIT increased to 22%, mainly driven by the strong development of the underlying EBIT over the past 12 months. Turning to one-off items and other APMs. Compared with last year, there are 2 major differences. The first one is other operating income. In the first half year of 2025, it was a positive amount of EUR 7.7 million, driven by the sale of factory in the U.K. and the one-off noncash step-up of Habema. The other one is related to operating expenses. In 2026, we see an amount of EUR 3.9 million. These are mainly M&A costs primarily related to KPS. Amortization of previously acquired intangible assets amounts to just over EUR 6 million. With regard to the net financing results, this relates to the unwinding of the discount on the put option liability of our joint venture Cask mix in Poland. And the tax effect on the ATMs is just over EUR 2 million. Now a brief look at the balance sheet. Equity decreased slightly and dividend payment for 2025 was almost entirely offset by the profit contribution from the first half of the year. And the solvency remains strong. Net working capital increased mainly due to the higher trade receivables, largely driven by the growing business of the Polish joint venture. The increase in overdue receivables was limited. The net debt increased to EUR 22.4 million, but remains very low and provides sufficient room for M&A. And then finally, cash flows, almost EUR 45 million was generated from operating activities. This is EUR 90 million lower than in the first half of 2025, driven by higher accounts receivable as well as EUR 7 million higher income tax payments. The cash flow from investing activities amounted to EUR 33 million in 2026 versus EUR 10 million in the first half of 2025. The delta is explained by M&A investments in 2026 on the one hand and the disposal of assets in the U.K. in 2025 on the other. The increase in cash flows from financing activities is mainly driven by higher dividend payments. Together, this results in an increase in the net debt position of EUR 28 million since year-end, bringing the net debt to EUR 22.4 million. And with that, I would like to hand back to Pieter, and he will guide you through the management agenda.

Yes. Thank you, Marloes. Indeed, looking at the remainder of the year in the Netherlands, clear focus to keep on strengthening our market positions in all species that we are active in. And obviously, much attention will go out to support our farmers in the nitrogen plants as they will come towards them. Germany, Poland has start in Poland, big steps to be taken with the closing of KPS. And from there, we can move forward in the integration, integration of obviously KPS within the farmers and integration in the broiler sector to ensure we keep on strengthening our position in the Polish market. In addition to that, we will keep on expanding our feed production capacity in Poland and also towards the ruminants business, as explained before. Same ambition will be there in Germany to strengthen our feed position in the North German market. And in the U.K., we're working on our investment agenda to ensure our long-term position. So that has to do with capacity on one side and also to ensure the right flexibility to serve the different species in what we are active in. We'll do that with a continuous focus on cost control, and I would call flexibility the keyword of today to ensure that in a volatile environment, we are able to deal with the changing circumstances. End of this year, we'll organize a Capital Markets Day to feature an update of the strategy and also to indicate the new financial targets. It is a logical moment in time to do that given our strong results over the past years and also the KPS acquisition that obviously also has a strong impact on the future perspective of Farmers. Having said that, we come to the end of this presentation, and I would like to open the floor for questions.

Yes. Lynn, if you can open the floor for questions.

[Operator Instructions] Our first question is from Henk.

I've got a couple of questions. First of all, during the presentation, you said that one of the priorities in Poland is the integration between Tasomix and KPS. At the same time, you want to expand your capacity over there. What does it mean financially? Is the integration -- are we going to see integration costs filtering through in the second half year for what you're doing in Poland? And secondly, in terms of CapEx, do you have any guidelines where we would -- where we could end up in terms of CapEx at the end of the year? My second question is a bit more of a conceptual or strategic question, if you want. In Poland, thanks to the deal with KPS, you're now moving into livestock yourself. It's a sort of -- how should I call it, forward integration, I believe the expression is. You're doing the same with the joint venture with Humland. Maybe it's my age here, I'm a bit old and then you get cautious. If there are any animal diseases in the old situation, you were a supplier of animal feed. And the worst thing that could happen to you is that you temporarily don't get to deliver food because the livestock is being removed, has to be replaced. Now you're entering into a situation that you risk a double whammy if it's not only the animal food, which is affected, but you also could risk damages because of, well, whatever animals to be removed or whatever. Is the margin potential so attractive that it is worthwhile at the end of the day? Perhaps you could provide me some more background, some more context on that. Those were my questions.

Yes. Thanks, Henk. And obviously, I'm not going to make any comment on your age. Having said that, going back to the questions, integration Kari, obviously, that always brings some cost with it. On the other side, we need to realize that from a shareholder perspective, the companies were already liaised with each other. So the shareholders of Tasomix shareholder of Kari. So that already brings quite a strong connection between the companies. Also, we already supplied as Tasomix almost all of the feeds for the Karieuterarm. So there were already some strong connections. So I would not call that significant on the other side. As always, we need to bring it up also, for example, financial keeping perspective towards for Farmers standard. Looking at CapEx costs, if we reflect on the first 6 months, the CapEx costs are pretty aligned with 2025, and it is clearly our ambition that the CapEx cost that we make remain, as we call it, under control. That is given the fact that we have 40 locations in 4 countries, that means prioritization. So per country, per factory, we have a long-term plan defined, which gives us the opportunity to say what do we need to do at what point in time. Some CapEx that we do are there to ensure that we can have a high-quality feed towards the future. And obviously, when we want to expand -- that means we want to have more business and that also should bring more returns. So that is always linked to business cases. And if the local management comes up with a proposal, that is obviously where we, as a Board, take a look at how robust is the business case. So if the CapEx goes up, it should also be linked to a high business return. I think a vital point that you mentioned is on the livestock and indeed, as you call it, the forward integration. In our strategy, especially in the 2030 strategy, we have defined as one of the pillars that we want to work towards chain integration and especially in the poultry, the broiler business, we see that this development is developing rapidly. So there are several points linked to that. We do it to ensure our future position -- we see, for example, in Poland, there is a different also towards retail or food service customers. They want to see that the broilers are produced and the slaughter process takes place in a very controlled manner. And obviously, if you have it all within one company, the steps that you can take to have control is there also to work on the sustainability journey that obviously comes as a demand from the food customers. So that helps. So we see it as a business upside. Obviously, also there, we look at the returns of the investment that we do. RPS is a significant investment for farmers. We are very pleased to see that we have received full support from our shareholders and now also have the competition authorities standing behind the transaction. So we do it to ensure our long-term position in poultry industry. From a risk perspective, you are right. Obviously, this brings different risk towards our company. That is obviously also the ERM team where we take a look at to ensure we fully understand the risk that come out of such a deal. And indeed, if you are hit with an animal disease, you don't only have some space in the factory, but you also have an empty bar or even spot. On the other side, we also recognize that in this period, opportunities can also come. If in other regions, the bird -- for example, bird flu has a higher impact, the market prices will go up in the remainder of the European regions. So also there, you can have upsides on that. So we take a close look at that, also, for example, to see what can we ensure from a risk management perspective, -- so we recognize the risk, but we also recognize if we don't do it, we take quite a business risk because as a particular -- in a particular point of time, the free feed market as we call it. So that what is supplied directly to farmers and invoice to farmers can reduce if the remainder of the market becomes more integrated. So that is why we take these steps forward, but it is definitely a fair question to ask. And as said, we also do feel that it will be a strong contribution towards the margin potential for our company.

Okay. That's clear. Could I potentially squeeze in a third one, and that's maybe for Marloes. On the deal with I understood that there will be a payment you have to make to your -- to be right, let me put it in those phrases. That's in 3 installments. Will that have a notable impact on your net debt position at the end of the year, Marloes?

Yes, that will. That will be an impact, of course. But as said, Henk, we are well positioned there. So with a very low net debt position right now, I think that is okay.

Okay. So it doesn't restrict you from other M&A activities.

Yes.