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Edited Transcript of FFARM.AS earnings conference call or presentation 15-Aug-19 8:00am GMT

Half Year 2019 ForFarmers NV Earnings Call

LOCHEM Sep 18, 2019 (Thomson StreetEvents) -- Edited Transcript of ForFarmers NV earnings conference call or presentation Thursday, August 15, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Adrie J. A. van der Ven

ForFarmers N.V. - COO & Member of Executive Board

* Arnout E. Traas

ForFarmers N.V. - CFO, Financial Director & Member of Executive Board

* Caroline Vogelzang

ForFarmers N.V. - Director of IR & Communications

* Yoram Knoop

ForFarmers N.V. - Chairman of Executive Board, CEO & GM

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Conference Call Participants

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* Guy Sips

KBC Securities NV, Research Division - Executive Director Research

* Patrick Roquas

Kepler Cheuvreux, Research Division - Equity Research Analyst

* Paul Hofman

The Idea-Driven Equities Analyses Company - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for holding, and welcome to the audio webcast conference Call regarding ForFarmers 2019 First Half Year Analyst Results Call. (Operator Instructions)

I would now like to hand the call over to Caroline Vogelzang, Director, Investor Relations of ForFarmers.

Go ahead, please, chairperson.

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Caroline Vogelzang, ForFarmers N.V. - Director of IR & Communications [2]

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Thank you, Patricia.

Good morning all. Welcome to our audio webcast and for you the conference call in which we will present and explain more -- further the 2019 first half year results of ForFarmers.

As you are accustomed to, I'm sitting here with Yoram, our CEO; Arnout Traas, our CFO; and, of course, now Adrie van der Ven, our COO, responsible for ForFarmers Germany, Poland and new regions. Adrie will be there for you to answer any questions that you may have after the presentation that will be done by Yoram and Arnout.

The presentation will take approximately, I think, 40 minutes. We'd like to go through the presentation first and then open up for Q&A. And we did send everything this morning. And I think, because I spoke to most of you, that you already indeed saw the press release and saw the presentation.

Before we start, as usual, again, I would like to just point out the notifications and disclaimer page in the presentation as well as the disclaimer in the press release.

And with that, I'd like to hand over to Yoram to do the presentation.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [3]

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Good morning, everyone. First, let me share with you some of the markets and the sector developments as they have occurred the way we see it in 2019.

In general, I think it is fair to state that there has been quite an intensified pressure, both public as well as political, on the agricultural sector as a whole and particularly related to the environmental targets. This is mainly having an impact now on our business in the Netherlands as well as in Germany.

Overall, we can also continue to witness the threats for consumers to -- in Western Europe to consume less pork but more poultry. And we feel that, that trend, again, as expected, will be sustained.

If we go into the particular markets, if we look at the Netherlands, in fact the dairy herd reduced slightly further because of the phosphate measurements that were implemented last year, and we currently believe that the sector is now well below the phosphate ceiling level that was agreed upon and now has, albeit be it limited, but opportunities to show some limited growth again.

The big change, though, happened in the pig sector. You probably realized we've been predicting for a number of years that we were expecting a significant reduction in the pig sector. In fact, that impact was delayed, but now has really started to occur. So we see quite a significant reduction in the number of animals, and we believe that that trend is likely also to be sustained for a while.

Related to Belgium, Belgium has been the country which has been most impacted by animal diseases. The African swine fever, whilst it is still contained and it has not infected a single farm in Belgium, it obviously contributed to lower prices in the sector, to lower volumes in the sector. We are actually moderately optimistic that the situation in Belgium is under control, and we hope that those constraints that are still out there over time will be further reduced. In the meantime, there was also an outbreak of a light bird flu in Belgium that affected the market as well.

Again, if we talk about Germany, especially Western Germany follows a very similar pattern relating to the swine and the animal numbers as we see in the Netherlands. In terms of ruminants, we do see moderate growth in ruminants.

And Poland, Poland is the -- has been showing significant increases again in poultry production. What we've seen is significant investments that have been finalized in terms of slaughter capacity that now is available for markets. At the same point in time, we're seeing that significant investment is also happening on a farm level to expand the number of birds.

African swine fever is somewhat growing and expanding in Poland. But I also would like to remind you that African swine fever has been in Eastern Europe for quite a while, and the countries that have been poorest affected, Bulgaria, Romania, are all countries where we don't participate.

Ruminant sector also in Poland continues to expand quite well. We only play a small role in that, but that sector also has a, we believe, a good future.

When we look at the United Kingdom, there the ruminant sector is quite steady, but what has been having a bit of an impact is the fact that we have seen an extremely mild winter. And as most of the animals in the U.K. are held externally, this has had an impact in terms of the amount of feeds that these animals consume as they were able to consume more roughage.

Obviously, we all know about the uncertainty relating to Brexit.

When we talk about profitability levels of our customers, in general we can see that in terms of dairy and the poultry markets, both broilers and eggs, in fact pricing and profitability levels is probably at a moderate and historic average type of level without massive changes. Where we see massive changes to the positive is the level of profitability that swine customers are now making. And this applies for -- certainly for customers that are breeding farms but also that are fattening pigs.

This is driven on the significant reduction due to African swine fever in terms of the animals in Asia and most noticeably in China. So there is a worldwide significant shortage in terms of swine, and so basically all regions in the world, but probably Europe most, has now got opportunities and is leveraging those opportunities to do significantly more exports to China. We believe that this situation will, for the next 2 years, continue to play a role.

When we come to the -- to our own performance and the highlights thereof in the first part of this year, our volume has once again grown. But the key element here is the -- actually the organic part was a decline in Total Feed. So the volume growth was entirely driven by the acquisitions that we completed last year.

If you look by sector, in ruminants, we have a small decline largely on the -- due to the effect of the smaller herd in the Netherlands. In swine, probably remarkably despite the market pressures, we were still growing in all regions except for a small decline in the U.K., but that increase, again, was driven by the acquisitions that we made last year. And poultry, we see both organic as well as positive, acquisitive effects such that, and you see that on the right-hand side of the chart, if you now look at compound feeds by volume, we are now quite well distributed with about a surge in every specie that we're involved in.

If you look at compound feed in specific, and as we all know, other than specialties, this is largely driving our profitability. The like-for-like decline has been 2.6% and basically driven by the Netherlands, Belgium and U.K.

If you look at the key financials for the first half, I've spoken about the volume impacts. The gross profit declined, despite the acquisitions, by 1.7%. And obviously, as previously already indicated, that is largely on the back of this very unfavorable position that we reported about, but also to the effect that volume, obviously, has been under pressure.

Our underlying EBITDA, 31.5%, in line with our guidance but obviously still disappointing from an absolute point of view.

If you look at working capital, whilst our working capital was slightly higher than before, the positive point to mention is the quality of our receivables continues to improve, meaning that we have a lower percentage of overdue receivables than before.

And with that, I would like to hand it over to Arnout, who will surely go into a lot more detail in terms of explanation and the background behind the numbers.

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [4]

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Good morning to all from a raining Lochem. Here, you see the first sheet of where we compare 2019, first half, with '18 and make a comparable on what is the currency impact, the M&A impact; and the like-for-like is then the remaining part. And you see that the currency impact is immaterial, so I will not focus on that. And what you will see in the whole story line is that we focus on underlying EBITDA, EBIT and net profit, and we'll have a separate sheet on what the incidentals were in the first half this year compared to last year.

I think Yoram already explained the development of the Total Feed. If I look at the like-for-like development on Total Feed and on compound feed, and here you see the gross profit development of minus 8.6%, which is impacted mainly by the unfavorable procurement position in the 3 countries mentioned. And secondly is the volume impact mainly in the Netherlands.

If you look at the underlying EBITDA in total is now EUR 35.8 million, 31.5% lower than last year but within the indication we gave in the trading update beginning May. And also, to make you aware is that within this underlying EBITDA, there is a EUR 2.5 million positive impact of the IFRS 16, which -- but this amount is in line which we indicated at the beginning of this year.

Moving to the next page, then we see underlying EBITDA -- EBIT. And if you make the comparison what is happening in EBITDA versus EBIT, you have to take 2 elements into account: that the introduction of the new accounting rule in IFRS 16 has a positive impact on EBITDA but is almost neutral at EBIT level; and secondly is because we did 4 acquisitions, and the accounting method is that you have to value your customer base and you have to revalue your assets of the acquired companies and then you have to depreciate and amortize that over time, and that has an impact on the underlying EBIT.

If you look at the performance of our joint venture which we have in Germany, which is a joint venture which has partly a production unit for compound feed which we show in our unit; but secondly, it has also trading storage activities, and we see that they had a favorable first half year compared to last year because there were more volumes traded and were transshipped, so that has a positive impact.

The incidental, I will get back to at the later part of this presentation.

And then at the bottom, I would like to focus on the development of the underlying effective tax rate that increased now to 25.6%, is impacted by non-deductibles of several costs mainly also related to M&A.

And secondly, if you compare to last year, you have to keep in mind that last year there were 2 elements in: one is that we capitalized deferred tax assets in Germany, as we mentioned earlier; and secondly, there were some -- a catch-up from prior years, which has a positive impact in that year.

If you then look at our balance sheet. If you look at the increase of the total value, we are almost at EUR 900 million. That increase versus the end of 2018 is mainly due to the introduction of IFRS 16, which is kind of adding EUR 25 million. The solvency ratio, as a consequence, decreased slightly, but we still have a very healthy balance sheet.

And the working capital slightly increased due to more receivables in the Netherlands, but as Yoram indicated before, the overdue ratio -- so that's the part of the receivables which was not paid at the agreed moment -- decreased. And you might recall that over the last years, we have been able to make a reduced debt ratio each year. But at the end of last year, we were not able to do so because the paying habits of our -- of the customers of our acquired companies were not as strict as the ForFarmers customers, but we have been able, as part of the integration of the new activities, to make progress.

If you look at the cash flow development, that is impacted, if you make a comparison with the first half year of last year, by the decreased performance, as explained before, and the working capital. If you look at the investment activities then last year, we saw the arable activities in the Netherlands, which had a positive impact. And if you correct for that, then it's -- we are slightly more investing this year than last year. And the financing activities are more or less equal.

If you then look at the next sheet where we have the alternative performance measures, and that means all the incidentals, which are costs or elements or profits which run through the P&L, which don't immediately relate to the operational performance, we have them here in 3 [buckets]: impairments relation with M&A, restructuring and other. And we give indication on the impact on EBITDA, EBIT and on net financing results, and they are explained in detail on note 12 of the financial statements, which are attached to the press release.

Then, I'd like to dive in to the development of the different clusters and make you aware, as indicated earlier, that as of the 1st of this year, Belgium has been combined to the Netherlands because the similarity of the market developments are more equal with Netherlands than with the cluster of Germany/Poland, and we have restated the 2018 results to make it comparable.

If you look at the Total Feed development, you see a growth, but the growth is mainly driven through the effect of the acquisitions. And there, the negative impact is the lower volumes which we have in Netherlands. And that reflects together with the unfavorable purchase position, but that one has -- all the raw materials related to that have been used in the first half year, so that impacted the gross profit that came out to EUR 116.8 million.

If you look at the ratios at the bottom, those are impacted by the lower gross profit.

If you look at the cluster Germany/Poland, then there you see an increase in Total Feed volume. Gross profit on one side is up because of the acquisition, but also we have been growing, especially in some tender segments in Germany that was good from a volume perspective but less contribution to the gross profit.

If you look at the underlying EBIT, that has been impacted by more overhead cost allocated according to the agreements we have on that to the -- this cluster and also because there were more transportation cost and also higher additional cost in Germany that had an impact. And that also reflects in the ratio at the bottom.

If you look -- for this occasion, we highlighted a little bit more about the performance of our Polish activities. Then, if you look at the volume development, and that is -- it was acquired at the 1st of July last year, we want to indicate what has been the development there, and we -- the Pionki factory is now filled for 30% in that new region to accommodate new customers which are delivering their animals to the new slaughterhouses in that region.

Looking at the EBITDA development of Tasomix, that is impacted by some additional cost to professionalize the organization and some integration costs to bring it up to the required levels for a listed company.

If you look at the last cluster, the U.K., there you see a small decrease in Total Feed volume, as indicated earlier by Yoram, by the mild winter in the U.K. A second element is, as you might recall, in the U.K., we have been focusing on improving the margin in this pig segment. That had a negative impact on the volume, but it had a positive impact on the gross profit. Although the first impression if you look at those figures, you might not see it, but that is because of the negative purchase position, which we have had in the first half year on the ruminant segment.

The operation costs are almost equal if you exclude the impact of the reallocation of overhead cost. And yes, the underlying EBITDA performance has an impact on the ratios, which are at the bottom of this page.

Then Yoram, I would like to hand over back to Horizon 2020 activities to you.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [5]

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Yes. Thanks, Arnout. I'll give you an update in terms of some of the actions and where we stand specifically with Horizon 2020 in terms of attractive segments and the focus thereon. Good to mention that once again, our specialty business that is part of what we offer to our customers continued to grow. And subsequently, you remember last year we opened an old plant. That's where we reinvested in Deventer to make GMO-free ruminant feeds, and the utilization of that plant is already at quite a high level. In fact, the offtake of their product has grown more than we had initially anticipated.

If you look at our partner and deliver the Total Feed portfolio, our approach in the Netherlands is very data driven. So almost all of our customers gives us full access to their data. And then based on that data, we continuously try to help and are able with that data to prove the performance improvements that our customers are experiencing.

We've shared with you before that a part of our approach is to learn and basically apply that process in other regions, which are less data driven, and then you need to make a number of changes to the data platform to make it usable. Well, we've made good progress over the last 6 months in making those steps. So whilst it is a gradual and it won't be a revolutionary step, we see growing use of the data and our systems in both the U.K. and in Germany.

We've also decided to invest in e-business, particularly focused on improving the customer experience. And so we will be rolling that process out in our Dutch business by the end of this year.

And last but not least, partnerships continue to play an important role, and we have further expanded those partnerships. We are going to continue to outsource more of our logistics because of flexibility reasons. But also in production, we found new outsourcing partners, and I will get back to you on the implications of that, to lower and make our workforce more flexible.

In terms of acquisitions, we've made 4 acquisitions last year and, in general, happy with the progress we made on integration. Obviously, the Tasomix business was the first new entry and Asia has been really reporting on ForFarmers' systems now for some time. If we look at Maatman, integration has already been completed. Van Gorp, close to completed and the plant that was associated with that acquisition has been closed. Volume has been moved to our Reudink plant. And also, the Algoet integration is progressing swiftly.

When we talk about One ForFarmers, again this is all about leveraging our knowledge and scale through the -- for the best -- in the best way for the group. After spending much more time, resources and training our staff, good to see that the first half of this year, we see a significant decline in our lost time incidents rate. I will tell you still too high, so we are not happy with this going forwards, but the change there is noticeable.

In terms of the efficiency plans we announced before to save EUR 10 million, first is our cost base in '18, good progress. We are on track. Over the last few months, you've probably seen that we've now announced closure of 4 of our sites before the end of the year. So 2 of those, 1 in the U.K. and the 1 that I just mentioned in the Netherlands, have already been closed. And then Crewe in the U.K. and Helmond later this year will be closed.

We've also -- despite the fact that there was some time left, we have chosen to take the current situation in terms of the interest rates and leverage that to our benefit to agree a new credit facility for 5 years with an option to extend with another 2. This will -- this at favorable conditions.

And last but not least, clearly we've had a major issue with -- and we see very unfavorable position, especially to competition that we've been talking about. And I will say whilst we cannot completely mitigate that risk because not taking positions would increase our risk, we have reviewed and reevaluated the processes that we've been using, and they have led to a change in our policy by which the average coverage that we will have will be slightly shorter from the 2 to 6 months that we've been talking about you -- in general for ForFarmers.

When we talk about deliverables in terms of the strategy, I keep on repeating that this is a business where you don't have patterns. This is a business where you win by really deploying the very best team. And obviously, that doesn't come automatically. You need to continue to invest in that. Well, the last few years, we have built the foundations for doing that. We've built our own training modules like a ruminant academy, a swine academy, leadership development programs. Well, all these programs, they stand, they are there. And now it's simply a question of making sure that we continue year by year to get all of our staff through the various modules that are available.

Ultimately, this business is excelling at farm and in helping our customers to provide superior results and to continue to innovate there. A couple of new concepts again that were rolled out, especially Apollo in poultry has really delivered quite some progress, helping us to gain new customers and subsequently market share. And as mentioned, clearly we're not happy with our financial performance over these 6 months, and we have to show going forward that we can be back on the track that we were on in previous years.

When we look at the outlook per specie, again ruminants moderately positive. Some room again to grow in the Netherlands. We expect in other countries also a light growth. Elements like cheese will continue to be exported more to all the regions. And so we believe overall ruminants will be a decent business to be in.

We are less optimistic, as we've mentioned, about swine. I believe the reduction in consumption of swine in Western Europe will continue. We will also continue to be impacted by government measurements to reduce animal numbers like the ones that we've been talking about in the Netherlands.

On the flip side, there is this African swine fever in Asia in a big way where -- leading to a significant shortage. So yes, there are opportunities for certain countries that have the ability to -- for a number of years to further strengthen their -- the exports. And yes, this will continue to boost customers' profitability in the meantime.

And poultry, we continue to remain optimistic, especially again Poland, which has further opportunities to increase its participation in the European markets as well as look for opportunities to export outside the EU.

Obviously, if we look at the geopolitical situation impacting our business, we do believe that the volatility in raw materials will continue to be present. And the African swine fever, the weather-related elements as well as the political U.S.-China tensions do play a significant role in how these raw materials will develop. Currency, like in terms of sterling, may also be impacted.

The environmental pressure, we don't believe, will move away, and we feel strongly about making our business as sustainably as it possibly can to respond to those pressures.

And as we have mentioned before again, Brexit in the short term leads to quite some uncertainty. If it gets to a hard Brexit, we believe longer term that there is an opportunity for the U.K. producers to become more self-sufficient as the self-sufficiency rate is still very low and the U.K. largely depends on importing European products there.

When we talk again about ForFarmers, as you are used from us, we don't give a forecast for this year. But given the issues that we had in the first 6 months that we shared with you before, we would like to reiterate that we do expect our profits to be below those of '18. The efficiency plans are on track. Again, they will start having an impact probably in the fourth quarter but gradually will come on -- fully onstream.

An important change that I would like to draw some extra attention is on the change that we are making in Germany. We had announced that we were going to build a new plant and -- or plan for building a new plant. And since we have done that, we have been able to develop new, alternative ways to actually continue to deliver the growth that we see in Germany.

I talked about the fact that we have found strategic partners, outsourcing opportunities that give us good cost and especially flexibility options to be able to support that German growth at a much more capital -- in a much more capital-efficient way. So we have decided to not build a plant and take advantage of those opportunities.

At the same point in time, we are now slowly approaching 2020, which you could say is -- with our Horizon 2020 is getting towards the end of that strategy, and that's the reason why we are currently engaged in reviewing that and updating that. So we expect by the middle of next year or at least sometime first half next year to be able to share those with you.

So in summary, growth in volumes but organically a decline. Significant impact in terms of our gross profits largely on the back of the purchasing position and the volume impacts. An EBITDA in line with the guidance we've given but obviously unsatisfactory from our point of view.

Good progress in terms of the integration of the various acquisitions. Still a strong balance sheet that should help us with opportunities going forward. And the efficiency plan is very much on track.

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Caroline Vogelzang, ForFarmers N.V. - Director of IR & Communications [6]

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Thank you, Yoram. That was the presentation. So we now would like to open up for questions and answers. So Patricia, could I hand back to you, so you could organize the Q&A?

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Questions and Answers

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Operator [1]

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Yes. (Operator Instructions) Our first question is from Mr. Patrick Roquas, Kepler Cheuvreux. Go ahead, please, sir.

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Patrick Roquas, Kepler Cheuvreux, Research Division - Equity Research Analyst [2]

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A couple of questions still on the unfavorable raw material position. So the first is could you perhaps more detail what exactly has changed in terms of the policy and also in terms of, let's say, the period that you cover it. And you indicated it used to be 2 to 6 months.

Then secondly, does that imply that, yes, that the potential downside risk is less but also the potential upside that you might have seen in the past is also more limited?

And then thirdly, could you remind us how your purchasing position now compares to your main competitors in the Netherlands?

And then finally, is it fair to assume, let's say, that in absolute terms, the impact of the position was at around EUR 17 million in the first half?

Yes, those are the questions on the raw mat topic.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [3]

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Okay. Maybe starting with the question, Patrick, in terms of the impact of the policy. So again, overall, the policy, that did not require any further approval where typically our purchasing team was entitled to operate in was the 2 to 6 months before that we've been talking about.

We've had a thorough review of the various markets and also in terms of indeed what do competitors do because the reason why we take positions is not because we want to gamble on raw material markets, absolutely not. This is all about risk mitigation. So our approach is largely driven in terms of how is the buying pattern for each of the countries that varies a bit by segment and also what do we typically see that our competitors do.

So given that, we believe that a slightly shorter position than the 2 to 6 months. Again, it could mean -- 2 to 6 months means also there, there's a lot of variability. So that variability that sometimes you are 2 months and time -- sometimes you are 6 months. And that variability will continue to be there depending on the situation. But on average, it will be slightly shorter.

So again, can something like this happen again? Theoretically, yes, it can. Would the impact be then the same? No. Given that you'll be slightly shorter, the impact will be less. Does that mean that you should expect -- I hear this from your question -- on average a lower profit? I don't believe that, that is the situation. I believe, again, that we are not there to speculate. We are there to cover our risk. And now having gone through it again in detail, we believe the best approach to cover our risk is slightly shorter positions.

In terms of the actual number, maybe, Arnout, you want to talk about that one?

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [4]

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No. I think, Patrick, you made a rough calculation coming up to the EUR 17 million. I think you're a little bit on the high side if you keep in mind that there is also in the market more pressure, also looking at volume developments. So I think you have to take that volume impact also into account because that creates margin pressure.

And looking at your question about yes, covering with your competitors?

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [5]

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[Covering] competitors. That is, if you look in the Dutch market, also there you actually have different approaches. You can look at Agrifirm. You can look at De Heus. De Heus at least is known for sometimes taking very long positions. But you don't see those in the market, so I can't really talk about our competitors easily. And then you have also some smaller competitors that sometimes take no positions, sometimes take quite long positions. But I believe the approach we are taking also from the Netherlands mirrors pretty much what the most important players in a market are doing.

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Patrick Roquas, Kepler Cheuvreux, Research Division - Equity Research Analyst [6]

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All right. That's clear. Two short questions, if I may, and then I'll leave it to the others. Firstly, on tax rate for the full year, what do you expect? Any guidance there?

And then secondly, do you still expect that Total Feed volumes organically will be down in the second half?

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [7]

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Maybe -- I expect, Yoram, I'll take the first one, Patrick. The effective tax rate, which we have given for the first half year is also for the total year. So that's our current (multiple speakers) for the year. And -- but then there's the underlying one which you have to take into account, so the 25.6%.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [8]

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And for the question on the volumes, I can't give you an exact number there, but I can give you some stipulation. The pressure on pig, we believe, will continue to be with us if not at -- even at a higher rate.

On the flip side, again I mentioned that in ruminants Netherlands, we've seen a negative so far, the first 6 months, impact given a, call it, delayed impact in terms of the regulation. But there we see some room for some recovery.

If you look at poultry, especially in Poland, we -- our business is growing quite nicely there. We have a new plant that has now been operating for a while and is growing basically month by month, and we expect that that will continue.

So I would say we are, in total, less pessimistic about the volume development second half than what we have seen the first half.

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Operator [9]

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Our next question is from Mr. Paul Hofman, The Idea.

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Paul Hofman, The Idea-Driven Equities Analyses Company - Research Analyst [10]

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Also a number questions from my side. The first one on Germany. You said you'll look for partnerships or you will not have built a plant in -- an additional plant in Germany. On the one hand, it makes sense. On the other hand, yes, your market position is still suboptimal in Germany, so you need to increase market share. At least that's my take.

How do you see that then with the current setup of looking for these partnerships? It will be more challenging in my view to increase your position. What's your view on that? Also, in terms of future M&A, [fill in] M&As in Germany? That's the first question.

Then the second question is also on M&A. There was a growth contribution of 8% in the first half. So I estimate the EBITDA contribution from M&A was around EUR 4 million. Were there still advisory costs included there which are treated as normal costs?

And then the third and a final question on Tasomix. You refer to a 30% utilization rate. Yes, my conclusion is that's more or less in line what you expected, but perhaps you have a different view. Or how was it versus your expectations? And what's realistic to assume by the end of the year? Is that something like 40% to 50% utilization by year-end?

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Adrie J. A. van der Ven, ForFarmers N.V. - COO & Member of Executive Board [11]

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Let me answer the first question as far as the partnerships in Germany and if that would influence our future. I think not. I think that the organic growth that we had foreseen with [Rezo], I think we can now execute through these partnerships. It will -- it could mean the approach that we -- with those partners will develop closer relationships, but I don't think it will affect the growth that we have foreseen for Germany in the coming years. And as far as M&A is concerned, also there we have the same strategy. So from a growth part of Germany, no major change.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [12]

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And we agreed, by the way, that over time, strategically, we want to be stronger in Germany. So that picture has not changed with or without this plant.

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Adrie J. A. van der Ven, ForFarmers N.V. - COO & Member of Executive Board [13]

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No. No, no. And then maybe before Arnout goes in on the M&A or the $4 million impact, I could answer on Tasomix. Yes, we are running at a run rate at the moment of 30%. That was slightly delayed because we -- the customers in general had to get used to us in that region because the Pionki plant is built in a region where we were not before active. But to say an expectation, 40%, 50%, we don't know. We're growing at a steady rate. And the way we grow, and we expect further growth. But to link it to a certain percentage, I cannot do. But we're on a post -- positive trend, and I -- with the current market conditions, I expect that to continue.

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [14]

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Maybe then on the -- one on the M&A, Paul. If you look at [Vitre], all costs related to the M&A as part of underlying, so that is not part of incidental. Let's say if you look at what we shared last year in the first half year, we had advisory costs this year, and we have more cost in professionalization of the acquired companies to bring them from a way of working to the ForFarmers level as required for a listed company. So those are, yes, normal running cost.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [15]

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Well, without getting the synergy that we expect to get from that over time. So right now, we have the cost. We don't have the full benefit of that yet.

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Operator [16]

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Our next question is from Mr. Guy Sips, KBC Securities.

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Guy Sips, KBC Securities NV, Research Division - Executive Director Research [17]

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I have 3 questions. First 2 are related to African swine fever. Can you give us any indication in Poland of your mix of poultry, swine and ruminants? It will be mostly poultry, but -- yes.

And the second question related to that is are you seeing competitors being in problems in -- or Poland or the countries where African swine fever is, yes, is more heavy? And is that perhaps even a potential acquisition target for you? Do you see there opportunities?

And the third question is also related to Tasomix. You're indicating that the earn-out valuation regarding the Polish activities decreased due to the expected realization of the agreed operational targets. Can you highlight a little bit on that and how we could see that?

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [18]

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Okay. Let me -- I suggest that Adrie here talks about the product portfolio in Poland first.

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Adrie J. A. van der Ven, ForFarmers N.V. - COO & Member of Executive Board [19]

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Yes. As far as Tasomix is concerned, Poland is predominantly poultry. I could say that virtually ruminants is nonexistent for us and swine is probably a small balance, and that balance is mainly in the area where there's no swine fever.

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Guy Sips, KBC Securities NV, Research Division - Executive Director Research [20]

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But is it 10%, 15% in that area or is it...

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Adrie J. A. van der Ven, ForFarmers N.V. - COO & Member of Executive Board [21]

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Between 5% and 10%, I would say, in swine.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [22]

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Relating to your question on opportunities for M&A. Yes, you could say if the market is becoming more challenging, especially the competitors who are not as strongly positioned may accelerate their thinking towards other dreams that they may have. So yes, that could come. But let's wait for things to happen.

But indeed, if the business is under pressure, that we believe will further strengthen the need for further consolidation.

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Adrie J. A. van der Ven, ForFarmers N.V. - COO & Member of Executive Board [23]

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And so related to Germany.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [24]

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That is related to Germany, but that is actually applicable in all countries.

Then relating to the earn-out that you've been referring to for Pionki.

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [25]

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Let's say that you see -- in the incidentals, you see that number, that reflects -- relates to all acquisitions, so it does not relate only to Poland.

And secondly, we agreed several operational parameters with the sellers at that time. And especially the working capital component, which relates to start-up had the significant impact, and that had, for us, a positive impact. And that's why you had -- that had a benefit to the nonoperational part of the P&L.

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Guy Sips, KBC Securities NV, Research Division - Executive Director Research [26]

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So does it mean that the lower, let's say, than anticipated profitability of the plant...

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [27]

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No. What I'm mentioning is that -- the working capital to start up the factory, including the working capital related to the customer base, so your receivables outstanding are higher than in the anticipated plan on which we set parameters, and that had a benefit to us. So I'm not talking about profitability, I'm talking about working capital, capital costs.

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Operator [28]

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(Operator Instructions) We have a question from [Pete Heinelona], [NIBC]. Go ahead, please.

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Unidentified Analyst [29]

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Good morning, Yoram (inaudible) Adrie. Two questions, if I may. I was a bit later in the call, so it might have been a repeat one. Apologies for that in advance.

One is the question relating to the purchasing position. Given that we had a maximum of 6 months' period, have we now completely worked through the purchasing issue with -- relating to gross profit, i.e., can we expect a normalized gross profit in the second half?

And the second question relates to the working capital in the Netherlands. You mentioned that this was up. Is there a specific reason for that? Or is it just a timing issue? Or -- and what do you expect from the working capital to happen in the second half, Netherlands, please?

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [30]

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Okay. First of all, the purchasing position, we have consumed the negative purchase position that we've been warning for. It doesn't mean that we -- there are no more purchasing positions because obviously, continuously, you take purchasing positions, but we have consumed the negative versus competition that we've been talking about. So yes, from that point of view, you will see a more normalized situation in the second half.

And relating to the working capital in the Netherlands, again, the profile -- the aging profile of our business is actually gradually improving, so we don't think that that is a fundamental change.

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [31]

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No. And it just depends on the...

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [32]

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Just at the...

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Arnout E. Traas, ForFarmers N.V. - CFO, Financial Director & Member of Executive Board [33]

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Cycles of your different customers, where they are just at June 30 because -- versus December. So yes, if you have more poultry, then you might have a little bit more working capital. Nothing to worry about. As Yoram was indicating, that the quality has improved.

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Unidentified Analyst [34]

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Yes. Indeed, I read that. So I figured that it might have been something with mix or timing. Thanks for clarifying that, Arnout.

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Yoram Knoop, ForFarmers N.V. - Chairman of Executive Board, CEO & GM [35]

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And we also have Adrie on the call to make it.

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Adrie J. A. van der Ven, ForFarmers N.V. - COO & Member of Executive Board [36]

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No problem.

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Operator [37]

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There are no further questions. Please continue.

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Caroline Vogelzang, ForFarmers N.V. - Director of IR & Communications [38]

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Thank you, Patricia.

Well, thank you all again for calling in and being very interactive with us on discussing the results. I am sure we will be in contact after this call again, and I'm looking forward to that.

We will be back to you with our Q3 results end of October, and we all hope to see you soon. Thank you so much. Patricia, we can close the call.

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Operator [39]

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Thank you very much.

Ladies and gentlemen, this concludes the ForFarmers webcast and conference call. Thank you for your attention. You may now disconnect your line. Have a nice day.