1.2.4.1

The operating result over 2015 (excluding incidental items) increased by 8.1% from € 59.6 million in 2014 to € 64.4 million in 2015.

1.2.4.2

1.2.4.3

In 2015 the ‘gain on sale of investments and assets held for sale’ related to the divestment of the 6% stake in a software company in the United Kingdom (+ € 1.1 million). In 2014 this gain was related to the divestment of the international activities of BOCM PAULS International and the divestment of the 50% stake in the horse feed activities of Subli.

In 2015 the Group incurred € 1.3 million costs related to restructuring and an impairment of fixed assets as a result of the planned construction of a new factory for ruminant feed in Exeter (United Kingdom). The incidental costs of € 2.1 million in 2014 were related to the closing of a factory in Deventer.

As a result of the implementation of IFRS, the pension plan for the former Hendrix employees is accounted for as a defined benefit plan for 2015 and 2014. Due to the decrease of the pension accrual rate from 2.0% to 1.875% in 2014, an incidental income of € 3.0 million was reported. For 2015 an incidental cost of € 0.4 million was recorded for the new pension plan that became effective as of 1^st January 2016. For all Dutch employees this pension plan qualifies as a defined contribution plan.

In 2015 the Total Feed volume, including the net effect of acquisitions, increased by 3.8% to 9.1 million tons (2014: 8.8 million tons). The like-for-like volume increase was 1.3%. In the Netherlands cluster a like-for-like growth of 4.0% was realised. In the Germany/Belgium cluster there was a slight decline in volume of 0.6%, caused by the fact that the cluster acted more restrained towards lower profitability longer-term contracts (tenders). In the United Kingdom cluster the like-for-like volume declined by 1.0%. This decline was mainly caused by a drop in demand from ruminant farmers, in particular in the DML segment. Due to acquisitions the total volume in the United Kingdom did, however, increase by 6.4%.

The volume of compound feed of ForFarmers remained stable compared to 2014. An increase was realised in both the ruminant and the poultry sector, the swine sector showed a slight decrease in volume.

In 2015 the revenue increased by 1.0% up to € 2,244.5 million. This increase was mainly the result of currency effects (€ 72.5 million, +3.3%) and acquisition effects (€ 43.7 million, +2.0%). Like-for-like and excluding currency effects the revenue decreased by € 93.0 million (-4.2%) as a result of the lower raw material prices that were passed on to customers. This was partly offset by like-for-like volume growth of 1.3%.

In 2015 the gross profit amounted to € 424.2 million, an increase of € 30.5 million (+7.7%). Excluding currency effects (€ 15.9 million, +4.0%) and net acquisition effects (€ 7.7 million, +1.9%) the gross profit increased by € 6.9 million (+1.8%). The growth was mainly realised in the Netherlands cluster driven by higher Total Feed volume, the application of nutritional knowledge, a better product mix and more specialties sold. There was also moderate growth of gross profit (€ 0.7 million, +1.0%) for the Germany Belgium cluster caused by a better product mix with more specialties. In the United Kingdom cluster gross profit decreased, corrected for currency and acquisition effects, by € 2.1 million (- 1.4%), as a result of lower volumes and margin pressure in the DML segment.

The strategic partnerships with Nutreco and Agrifirm (Crop) made a contribution to the increase of margins, with benefits coming from economies of scale.

The increase in operating expenses in 2015 amounted to € 25.8 million (+7.7%), mainly as a result of currency effects (€ 14.2 million, +4.2%), acquisition effects (€ 7.5 million, +2.2%) and incidental items (€ 2.6 million, +0.8%). The like-for-like increase amounted to € 1.5 million (+0.4%).

Due to the very difficult financial situation of many of our customers, especially in the swine sector on the continent, a net additional € 1.9 million, compared to 2014, was added to the provision for doubtful debts. The further professionalisation of the organisation and the implementation of One ForFarmers resulted in higher operating expenses, almost fully offset by operational efficiencies. Energy costs were lower due to declining prices in the market and improved efficiencies. The operating expenses also include one-off expenses for the preparation of the potential public listing as well as costs caused by the bird flu at the beginning of 2015 of € 0.3 million compared to € 1.0 million in 2014. The number of employees, in fulltime equivalents, was 2,370 at 31^st December 2015, compared to 2,286 at 31^st December 2014. This increase is caused by acquisitions (+47 FTE), strengthening the organisation and the permanent employment of temporary labour.

The operating profit (excluding incidental items) increased by 8.1% to € 64.4 million compared to € 59.6 million in 2014. Taking currency effects and acquisition effects into account the increase amounted to € 3.0 million (+5.0%). The increase was mainly realised by the Netherlands cluster. The operating profit for the Germany/Belgium cluster remained stable. For the United Kingdom cluster there was a decrease due to the DML segment (€ 0.5 million) and additional costs to further strengthen the organisation.

The profit for the year increased by 5.4% to € 50.7 million (2014: € 48.1 million). The refinancing that was completed in October 2014, in 2015 resulted in lower financing costs of € 1.1 million. In addition, the financing costs were affected positively by currency effects (€ 0.3 million additional compared to 2015) and a one-off with regard to the refinancing in 2014 of € 0.6 million.

The effective tax rate increased slightly to 24.2% compared to 23.4% in 2014. There was a higher tax gain in the United Kingdom cluster in 2014 as a consequence of a higher reduction of the nominal tax rate in 2014 compared to 2015, resulting in a decrease in the deferred tax liabilities.

Effect of transition to IFRS on statement of profit or loss 2014

In the context of the proposed listing on the public stock exchange ForFarmers converted its 2015 financial statements (including the comparative figures over 2014) from Dutch GAAP (“Richtlijnen voor de Jaarverslaggeving”) into IFRS. The profit for the year (IFRS) increased from € 48.1 million (Dutch GAAP € 39.0 million) to € 50.7 million.

1.2.4.4

1.2.4.5

The most important differences in terms of the profit for the year are:

1. Joint venture HaBeMa: As a result of the transition to IFRS the HaBeMa joint venture (50%) is no longer proportionally consolidated but accounted for as equity-accounted investee. Consequently, the operating profit for both 2014 and 2015 under IFRS is no longer comparable to the 2013 operating profit under Dutch GAAP, since the participation result under IFRS is accounted for as ‘Share of profit of equity-accounted investees, net of tax’. The transition to IFRS within HaBeMa itself has a positive effect on the net result of HaBeMa amounting to € 0.7 million.
2. Post-employment benefit plans: In particular due to the interest development and the adjustment of the pension accrual rate from 2.000% to 1.875% in the Netherlands, the post-employment benefit expenses over both years show significant variances for the defined benefit plans that were applicable up to 31 December 2015. From 1 January 2016 ForFarmers concluded a new pension plan for its Dutch employees that qualifies as a defined contribution plan. This new plan is part of the integration and harmonisation of the terms and conditions of employment of ForFarmers and Hendrix employees and is one of the last steps in this process. The total impact on the statement of profit or loss amounted +€ 5.7 million of which € 3.0 million related to the adjustment of the pension accrual rate and € 2.7 million related to the application of the ‘projected unit of credit’ method for recognising expenses instead of the pension premium paid. Although these adjustments under IFRS are also considered as amendments in the pension plan, the impact was not reflected under Dutch GAAP, since the post-employment benefit expenses were recognised based on pension premium paid.
3. Amortisation of goodwill and acquisition costs: Under Dutch GAAP goodwill is amortized to the statement of profit or loss, whereas under IFRS goodwill is not amortized, but tested for impairment on a yearly basis. In transition to IFRS the ForFarmers has reversed the goodwill amortization recorded for 2014 (€ 3.1 million). Furthermore, under Dutch GAAP ForFarmers included transaction costs (€ 0.6 million) in the purchase consideration paid and as such in the goodwill balance. Under IFRS these balances are to be recognized in profit or loss when incurred. For 2014 this implies that the transaction costs for the HST Feeds and Wheyfeed business combinations in the United Kingdom were expensed through profit or loss. The positive effect of these two components on the 2014 profit amounts to € 2.5 million.
4. Finance income and finance costs: Under Dutch GAAP ForFarmers accounts for the interest rate swaps through cost-price hedge accounting and these are as such kept off-balance. Under IFRS the interest rate swaps do not qualify for hedge accounting and are valued at fair value. At the transition date (1 January 2014) the fair value of the interest rate swaps is presented under 'Non-current loans and borrowings, including derivatives’. Under Dutch GAAP these interest swaps had, due to the refinancing in 2014, been expensed through profit or loss. Under IFRS this resulted in a positive effect on profit (before tax) of € 1.4 million.

Capital structure and solvency

Group Equity as at 31 December 2015 amounted to € 407.2 million, an increase of € 39.0 million compared to 31 December 2014. On balance this is the effect of the addition of the 2015 profit and the distributed dividend of € 18.7 million. In addition the amount of the currency translation differences of the subsidiary in the United Kingdom was directly charged to equity. A net addition to the pension provision in the United Kingdom of € 4.9 million as a result of higher interest rates at the end of 2015 was also accounted for directly in equity. The solvency increased from 52.7% at the end of 2014 to 55.2% as at 31 December 2015.

The balance of the available cash and cash equivalents minus the bank loans and borrowings amounted to € 33.7 million positive compared to a positive balance of € 25.7 million at the end of 2014 as a result of which there was a net bank balance. The net working capital increased slightly by € 0.1 million to € 129.0 million.

Investments in property, plant and equipment amounted to € 24.9 million and the depreciation on assets (excluding customer bases) amounted to € 22.5 million. The investments related among others to vehicles in the United Kingdom.

Special developments

ForFarmers will build a new factory in Exeter (United Kingdom) with a capacity of 300,000 tons that will replace the current production facility (150,000 tons). As a consequence the strategic position in one of the most important regions in the United Kingdom will be strengthened. The investment will amount to no less than £ 10 million and the construction is expected to take 12 months. Consequently ForFarmers will be able to offer its customers in this region the optimal Total Feed solutions even better, which leads to better service and ultimately lower costs.

2016 Outlook

The market trends do not give a clear indication when the profitability on farm will improve. The geopolitical situation also remains tense and volatility on raw material and currency markets is expected to continue. The changing flow of information regarding harvest expectations have a considerable effect on price setting of important raw materials. The uncertainty about the referendum in the United Kingdom has affected the exchange rate of the British Pound.

The developments in the Netherlands to reduce the phosphate emission may affect the Total Feed sales. The new phosphate regulation is expected to have limited impact on the results of ForFarmers 2016. The long-term prospects for the agricultural sector as a whole in the North of Western Europe did not undergo essential changes as a result of developments in 2015.

Increased regulations, in particular aimed at animal welfare and the environment, confront many farmers with increasing costs. They are consequently, even more than before, looking for solutions to improve efficiency on farm and increase their profitability, also by increasing economies of scale. With the Total Feed approach ForFarmers can support its customers optimally in this respect.

Taking into account the uncertain financial situation in the agricultural sector ForFarmers will continue pursuing a stringent accounts receivable policy. In addition ForFarmers remains focussed on the implementation of operational improvements and the further implementation of Horizon 2020. As a result of, among other things, the aforementioned projects the investments, excluding potential acquisitions, in 2016 will amount to approximately € 35 million.

ForFarmers does not expect major changes in the number of employees.

As of the date of this report no major changes are expected in the financing position.

The ambition remains to further improve profit in the long term and to be part of the best performing companies in the industry.

Taking into account the uncertain prospects ForFarmers does not make any specific statements about the result expectations for 2016.

Subsequent events

There are no subsequent events after balance sheet date.