ForFarmers. Buy (initiating coverage) Growth leader in a consolidating industry. Initiation of coverage 20 April 2015

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1 . EQUITY RESEARCH ForFarmers April 2015 Initiation of coverage 20 April 2015 Buy (initiating coverage) Price (16/04/15) 4.73 Target price (12-mth) 5.30 Forecast total return 16.5% Food & Beverage Netherlands Share data Avg daily volume (3-mth) - Free float (%) 25.9 Market cap ( m) 500 Net debt (1F, m) -55 Enterprise value (1F, m) 445 Dividend yield (1F, %) 4.4 Share price performance, 16 April 2014 to date ( ) Source: Company data ForFarmers Growth leader in a consolidating industry Although investors might see the current dividend yield of 4.4% as the stock s main attraction, we believe that the company s growth ambitions in a stillfragmented European feed market offer even bigger potential for investors. As the European market leader in the Total Feed business, we believe ForFarmers will strengthen its position through leveraging its underutilised balance sheet in the coming years. We initiate with a BUY and TP of Leader in consolidating feed market. The core activities of ForFarmers are: (1) the production and sale of (compound) feed for pigs, poultry and cattle; and (2) the sale of agricultural commodities (fertilizers, crop protection agents, seed and planting materials). In its Horizon2020 document, ForFarmers lays out its strategy for the next five years and expresses its ambition to strengthen the leadership position in Total Feed in Europe (organically and through acquisitions). Plenty of scope for leveraging balance sheet. At a targeted net debt/ebitda of c.2.5x ForFarmers has the financial flexibility to make acquisitions of at least 300m, which could add up to c. 54.5m in EBITDA (based on a scenario of 5.5x 2016F EV/EBITDA) in the coming two-to-three-year period. We believe ForFarmers ambition is to further strengthen its position in existing markets like Germany and Belgium first, before it adds to existing country exposure. Furthermore, developing partnerships with Nutreco and Agrifirm, for example, is also likely to play an increasing role in the strategic ambition to offer a Total Feed approach to customers. Supported by attractive FCF and dividend yield. ForFarmers is planning to switch from the current external trading platform for certificates, to the Euronext Amsterdam stock exchange, in The transfer will probably take the form of a technical listing, where certificates in ForFarmers BV will be converted to ForFarmers NV shares, with no issuance of additional shares. Based on our estimates, ForFarmers offers attractive FCF and dividend yields of 10.0% and 4.4% for 2015F, which should support the transition. Valuation and estimates. We base our target price on a weighted average of forwardmultiple (6.0x 2016F EV/EBITDA) and DCF-based valuation methodologies (applying a WACC of 7.5%). In our view, ForFarmers 4.4% 2015F dividend yield remains attractive versus peers, especially in the current low interest rate environment. As such, we arrive at a target price of 5.30 and hence initiate with a BUY recommendation. ForFarmers currently trades at an attractive 5.4x 2016F EV/EBITDA. Forecasts and ratios Year end Dec ( m) F 2016F 2017F Marco Gulpers, CFA Amsterdam marco.gulpers@ing.com Revenues 2,472 2,292 2,371 2,391 2,418 Normalised EBITDA Normalised net profit Normalised EPS ( ) Normalised PER (x) EV/normalised EBITDA (x) FCF yield (%) Dividend yield (%) Price/book (x) Normalised ROE (%) research.ing.com SEE THE DISCLOSURES APPENDIX FOR IMPORTANT DISCLOSURES & ANALYST CERTIFICATION 1

2 Contents Summary 3 Valuation 7 Peer valuation: Agri peers... 7 Peer valuation: EU meat peers... 7 Peer valuation: Benelux peers... 8 Peer dividend yield... 8 ForFarmers: target price setting... 9 Horizon Horizon 2020 in more detail Estimates and outlook 15 Raw materials: still volatile but bottoming out Farmers: under retailer pressure Feed industry: still highly fragmented review: solid performance Five-year forecast Outlook for Towards best-in-class industry profits Option to act as consolidator 19 Market review 20 Structural demand for protein continues Volume split by country Compound feed production and input Opportunity for European livestock sector Livestock development Compound feed market development for ForFarmers (for each main country) Company description 25 Company profile Core activities Board of ForFarmers Ownership structure ForFarmers: exposure to four main markets Direct peers History Disclosures Appendix 32 2

3 Summary We initiate ForFarmers with a BUY rating and TP of 5.30 The core activities of ForFarmers are: (1) the production and sales of (compound) feed for pigs, poultry and cattle; and (2) the sale of agricultural commodities (fertilizers, crop protection agents, seed and planting materials). For its compound feed activities, ForFarmers has 42 production plants in the Netherlands, Germany, Belgium and UK. The feed is transported from these production plants to more than 25,000 customers, primarily located in or residents of the Netherlands, Germany, Belgium and UK. Fig 1 Feed to Food value chain Source: ING, Company data We base our target price on a weighted average of forward-multiple (6.0x 2016F EV/EBITDA) and DCF-based valuation methodologies (applying a WACC of 7.5%). In our view, ForFarmers dividend yield remains attractive versus peers, especially in the current low-interest-rate environment. We arrive at a target price of 5.30 and initiate with a BUY recommendation. Fig 2 Target price setting Multiple DCF Target price EBITDA 2016F ( m) 93.2 EV/EBITDA 2016F (x) 6.0 Fair value ( ) 5.09 WACC (%) 7.5 EV ( m) DCF Fair value ( ) :50 weighted average target price ( ) 5.30 Source: ING estimates Fig 3 DCF fair value sensitivity ( ) WACC (%) Terminal growth (%) Source: ING estimates 3

4 ForFarmers is planning to switch from the current external trading platform for certificates to the Euronext Amsterdam stock exchange, in Following this transition, current majority shareholder Coöperatie FromFarmers will continue to be involved in the company and will continue to serve the interests of its agrarian stakeholders. The transfer will probably take the form of a technical listing, where certificates in ForFarmers BV will be converted into ForFarmers NV shares, with no issuance of additional shares. Horizon 2020: from volume to value The outlook is now towards 2020 and, during the last financial year, the development of the new Horizon 2020 strategy was completed and a start was made on implementing plans. The new strategy focuses on further enhancing the organisation and realising its ambitions. Focus, creation of value and growth (organically and through acquisitions) are the keywords of Horizon ForFarmers has defined four focal points in Horizon 2020: Focus on attractive segments. A trend towards more demand for nutritional solutions on the farm, meaning a more customised approach for each customer segment. ForFarmers responds to this by taking a differentiated approach to farmers, by adapting to their size and stage in development. Partner in and delivering of the Total Feed portfolio. The Total Feed approach is key to the strategy of serving farmers in the right way. ForFarmers will provide a complete portfolio of Total Feed solutions consisting of high quality advice and products, to deliver the best yield possible. Acquisitions/partnerships. ForFarmers has set itself the goal of reaching the number one or two position in all areas where it is active (already realised in the Netherlands and UK). In markets where this position has not yet been reached, or the business is not yet active, a choice will be made as to whether to grow through acquisitions. Smaller acquisitions, which focus on specific points of the portfolio, will also be looked into. Here, ForFarmers restricts itself to attractive markets in European countries or adjacent European Markets (a European plus approach). One ForFarmers. ForFarmers continued the roll-out of One ForFarmers in This approach is focused on further professionalization of the organisation and optimal use of advantages conferred by economies of scale. Financial strength: balance sheet optimisation through M&A Since ForFarmers is the market leader in the Netherlands and the UK, and aims to consolidate its market position in other key countries of operation, we believe it might focus on potential M&A, especially in Germany and Belgium. ForFarmers used this strategy successfully in the UK to establish market leadership, with a spate of bolt-on acquisitions in the past. Based on a scenario of 5.5x 2016F EV/EBITDA and a cumulative M&A spend of 300m, ForFarmers could add up to 54.5m in additional EBITDA by the end of 2016F. Fig 4 Scenarios for adding potential EBITDA ( m) EV/EBITDA (x) M&A cash out ( m) Source: ING estimates 4

5 Market dynamics The FAO forecasts a doubling of demand for animal products by 2050, based on projections for global population growth, combined with growing disposable income. It is of great importance that this growing demand should be met by sustainably intensified livestock production, capable of mitigating the adverse effects of climate change. The EU feed industry has a history of expertise when it comes to the sustainability of livestock farming, with the gradual and constant improvement in the feed conversion rate (FCR) as the most significant success story in resource efficiency. Over the past 30 years, FCRs have, on average, fallen by 30%, reaching a level of 1.2:1 for farmed fish feed, 1.8:1 for poultry feed and 2.5:1 for pig feed. Livestock farms in the EU 28 consume c.477mt of feed annually, of which roughly a third (158mt) is supplied by compound feed manufacturers (2013 estimates), with the rest being forages, grains and other feed materials mixed on the farm. The steady global increase in demand for animal products for the coming decades creates new opportunities for the EU livestock sector. With the abolition of milk quotas in 2015, the EU dairy sector is set to become the world s largest exporter of dairy products and this could lead to rising feed demand in the EU. The EU-28 represents c.16% of global compound feed production, and ranks third, with the US second and China first. In many food and non-food raw material processing operations, there is more than one product to be derived. Usually, the primary processing of a raw material results in coproducts, which carry high nutritional value (ideal for the animal feed industry). For example, brewer s grain results from the processing of malt in the beer industry; sugar beet pulp is the co-product of sugar production from sugar beet; rapeseed meal results from rapeseed oil production; and corn gluten feed and distillers dried grains with solubles (DDGS) are the main co-products of wet-milling of maize grain for starch and bioethanol production. Each year, the EU feed industry utilises up to c.90mt of several hundred different types of co-product in animal feed. The feed industry thus creates a sustainable outlet for processing industries that are left with a secondary resource. The steady global increase in demand for animal products in the coming decades creates new opportunities for the EU livestock sector. Fig 5 EU-28 feed material consumption in 2013 Feed cereals 48% All Others 5% Minerals & Additives & Vitamins 3% Dried Forage 1% Dairy Products 1% Pulses 1% Cakes & Meals 27% Co-products from Food Industry 12% Oils & Fats 2% Source: FEFAC 5

6 Risks to our recommendation 1) In the currently volatile soft commodity environment, large swings in raw material prices could have a negative impact on ForFarmers. Since the cost of feed is determined for the most part by the prices that ForFarmers pays for its raw materials, the procurement process is crucial. 2) Transition towards Horizon2020 could potentially lead to organisational hiccups, which in turn could lead to temporary financial setbacks as well. Although we believe that ForFarmers takes a conservative approach, the transition from a volume-oriented strategy towards a value-based strategy carries inherent risks. 3) As part of Horizon2020, ForFarmers believes that M&A should be an integral part of its strategy. ForFarmers ambition is to further strengthen its position in existing markets like Germany and Belgium, and there is a risk of deviating from historical multiples paid to realise this ambition (although we strongly believe that management does not wish to jeopardise its strong track record). 6

7 Fig 6 Peer valuation: Agri companies Valuation We look at three different ForFarmers peer groups: agri companies, meat companies and Benelux small and mid cap companies (SMC). Peer valuation: Agri peers Price Rating PER (x) EV/EBITDA (x) P/B (x) (lc) 2015F 2016F 2017F 2015F 2016F 2017F 2015F 2016F 2017F ConAgra Foods Inc NR Archer-Daniels-Midland Co NR Agrium Inc NR NWF Group PLC 1.89 NR Raisio Oyj 4.18 NR Ridley Inc 0.97 NR Mean Median Prices as of 16 April Source: Bloomberg estimates for all above Not Rated (NR) companies Fig 7 Peer valuation: Agri companies EV/EBIT (x) EV/sales (x) EV/FCF (x) 2015F 2016F 2017F 2015F 2016F 2017F 2015F 2016F 2017F ConAgra Foods Inc n/m Archer-Daniels-Midland Co Agrium Inc NWF Group PLC n/m n/m n/m n/m 36.8 n/m Raisio Oyj Ridley Corp Ltd Mean Median Source: Bloomberg estimates for all above Not Rated companies Fig 8 Peer valuation: EU meat companies Peer valuation: EU meat peers Price PER (x) EV/EBITDA (x) P/B (x) (lc)* Rating 2015F 2016F 2017F 2015F 2016F 2017F 2015F 2016F 2017F Atria Oyj NR Bell AG 2, NR Cranswick PLC NR NWF Group PLC 1.89 NR Hilton Food Group PLC 6.13 NR TER Beke SA NR Mean Median Prices as of 16 April. Source: Bloomberg estimates for all above Not Rated (NR) companies Fig 9 Peer valuation: EU meat companies EV/EBIT (x) EV/sales (x) EV/FCF (x) 2015F 2016F 2017F 2015F 2016F 2017F 2015F 2016F 2017F Atria Oyj Bell AG n/m n/m n/m Cranswick PLC n/m NWF Group PLC n/m n/m n/m n/m 36.8 n/m Hilton Food Group PLC TER Beke SA n/m n/m n/m Mean Median Source: Bloomberg estimates for all above Not Rated companies 7

8 Fig 10 Peer valuation: Benelux SMC companies Peer valuation: Benelux peers Price PER (x) EV/EBITDA (x) P/B (x) (lc)* Rating 2015F 2016F 2017F 2015F 2016F 2017F 2015F 2016F 2017F Amsterdam Commodities NV Hold Corbion NV Buy Koninklijke DSM NV Hold TER Beke SA NR Wessanen 6.94 Hold Mean Median *Prices as of 16 April. Source: Bloomberg estimates for all Not Rated (NR) companies. ING estimates for Acomo, Corbion, DSM and Wessanen Fig 11 Peer valuation: Benelux SMC companies EV/EBIT (x) EV/sales (x) EV/FCF (x) 2015F 2016F 2017F 2015F 2016F 2017F 2015F 2016F 2017F Amsterdam Commodities NV Corbion NV Koninklijke DSM NV TER Beke SA n/m n/m n/m Wessanen Mean Median Source: Bloomberg estimates for all Not Rated companies. ING estimates for Acomo, Corbion, DSM and Wessanen Peer dividend yield Fig 12 Dividend yield: Agri peers Dividend yield (%) Payout ratio (%) 2015F 2016F 2017F 2015F 2016F 2017F ConAgra Foods Inc Archer-Daniels-Midland Co Agrium Inc NWF Group PLC Raisio Oyj Ridley Corp Ltd Mean Median Source: Bloomberg estimates for all above Not Rated companies Fig 13 Dividend yield: EU meat peers Dividend yield (%) Payout ratio (%) 2015F 2016F 2017F 2015F 2016F 2017F Atria Oyj Bell AG Cranswick PLC NWF Group PLC Hilton Food Group PLC TER Beke SA Mean Median Source: Bloomberg estimates for all above Not Rated companies 8

9 Fig 15 Dividend-related forecasts Fig 14 Dividend yield: Benelux peers Dividend yield (%) Payout ratio (%) 2015F 2016F 2017F 2015F 2016F 2017F Amsterdam Commodities NV Corbion NV Koninklijke DSM NV TER Beke SA Wessanen Mean Median Source: Bloomberg estimates for all Not Rated companies. ING estimates for Acomo, Corbion, DSM, and Wessanen ForFarmers: target price setting We base our target price on a weighted average of forward-multiple (based on a 2016F EV/EBITDA of 6x) and DCF-based valuation methodologies (applying a WACC of 7.5%). In our view, ForFarmers dividend yield of 4.4% for 2015F remains attractive versus peers, especially in the current low-interest-rate environment F 2016F 2017F 2018F 2019F Dividend per share ( ) Dividend yield (%) Payout ratio (%) If we base our valuation on the last major acquisition ForFarmers made (purchase of the compound feed business from Nutreco, with sales of 938m in 2011 and EBITA of 9.4m), or the equivalent of 10x EV/EBIT, we would arrive at a fair value of Fig 16 Fair value based on EV/EBIT multiple implied in Hendrix UTD acquisition EBIT 2015F ( m) 61 EV/EBIT 2015F (x) 10 Fair value ( ) 5.61 Source: ING estimates We base our target price on a weighted average of forward-multiple (based on 2016F EV/EBITDA of 6x) and DCF-based valuation methodologies (applying a WACC of 7.5%). In our view ForFarmers dividend yield remains attractive versus peers especially in the current low interest rate environment. Fig 17 Target price setting ( ) Multiple DCF Target price EBITDA 2016F ( m) 93.2 EV/EBITDA 2016F (x) 6.0 Fair value ( ) 5.09 WACC (%) 7.5 EV ( m) Fair value ( ) :50 weighted average target price ( ) 5.30 Source: ING estimates 9

10 Fig 18 DCF fair value sensitivity ( ) WACC (%) Terminal Growth (%) Source: ING estimates Fig 19 Discounted cash flow valuation ( m) Figure 19 shows the detailed DCF valuation: F 2016F 2017F 2018F 2019F 2020F 2021F 2022F 2023F 2024F 2025F Income statement extracts Revenue 2,352 2,432 2,453 2,481 2,509 2,538 2,567 2,597 2,567 2,567 2,567 2,567 Growth rate (YoY) (%) EBITDA As a % of revenue Depr. & Amort. (29) (29) (29) (29) (30) (30) (30) (31) (26) (26) (26) (26) As a % of revenue EBIT Tax rate (%) EBIT*(1-t) Add: Depr. & Amort Less: Capex (24) (24) (25) (25) (25) (25) (26) (26) (26) (26) (26) (26) As a % of revenue Chg working capital 3 (0) 5 (3) (3) (3) (3) (3) (3) (3) (3) (3) As a % of revenue Unleveraged FCF PV of future CF % PV of Terminal value % Enterprise value 602 Less: net debt 55 Less: NCI (4) Less: pensions* (71) DCF equity value 582 No of shares (m) 106 DCF per share ( ) 5.50 Source: ING estimates. *we estimate pension liability to increase in 2015 (mainly driven by the UK pension fund). Fig 20 Assumptions for calculation of WACC (%) Symbol Assumption Risk-free rate of return Rf 3.5 Long-term cost of debt Kd 4.5 Equity risk premium Rp 6.3 Beta B 1.00 Tax rate t 25 Target debt to total capital Wd 35 Target equity to total capital We 65 Cost of equity Ke 9.7 WACC Dr 7.5 Source: ING estimates 10

11 Fig 21 Share price performance, 16 April 2014 to date ( ) Source: Company data 11

12 Horizon 2020 In our view, Horizon 2020 is a natural evolution from Route to 2016, which ForFarmers has already more-or-less realised in In our view, Horizon 2020 exemplifies transitions that ForFarmers is making: 1) Transition from volume focus to a more value-oriented approach 2) Transition towards becoming the clear leader in Europe in Total Feed for Animals 3) A clear focus on Europe or adjacent to Europe (so called Europe plus approach) 4) Open to further M&A and partnering 5) Leveraging the One ForFarmers concept even further Fig 22 Horizon 2020 Source: Company data Horizon 2020 in more detail Horizon 2020 builds further on the foundations of Route to 2016, an important driver of developments within the various ForFarmers companies in 2013 and Since then, the organisation has realised many objectives of Route to The outlook is now towards 2020, and during the last financial year, the development of the new Horizon 2020 strategy was completed and a start was made on implementing plans. The new strategy focuses on further enhancing the organisation and realising its ambitions. Focus, creation of value and growth (organically and through acquisitions) are the cornerstones of Horizon ForFarmers has defined four focal points in Horizon 2020, as borne out in Figure

13 Fig 23 Strategic initiatives Source: Company data 1) Focus on attractive segments. Increases in scale, in combination with the pressure on margins from retail and increasing requirements for food safety and sustainability, lead to increasingly complex business operations in the agricultural sector. This widens the demand for nutritional solutions at farms, implying that a more customised approach for each customer segment is required. ForFarmers responds to this by taking a differentiated approach to farmers, adapting to the size and stage of development of each. This entails bringing service levels and costs in line with client segmentation. Fig 24 The customised client and category approach Customized Standardized Small Medium Large Extra large Fig 25 Total Feed business portfolio 2) Partner in and delivering of the Total Feed portfolio. The Total Feed approach is key to the strategy of serving farmers the right way. ForFarmers will provide a complete portfolio of Total Feed solutions consisting of high quality advice and products, to deliver the best yield possible. Hence, ForFarmers will continue to develop and expand its products and services portfolio through strategic partnerships and M&A. Netherlands Belgium Germany UK Partnership Nutreco Cooperation on specialty feed and additives Agrifirm Fertilizers, sowing seeds, crop protection Countrywide farmers Forage activities (fertilizer, grass, maize silage) 3) Acquisitions/partnerships ForFarmers strategy is, in the first instance, focused on organic growth. ForFarmers sets itself the goal of reaching the number one or two position in all areas where it is active (already realised in the Netherlands and UK). In 13

14 markets where this position has not yet been reached, or the business is not yet active, a choice will be made as to whether to grow through acquisitions. In the last financial year, ForFarmers already acquired Wheyfeed Ltd and HST Feeds Ltd in the UK, which have subsequently been integrated. ForFarmers also announced the acquisition of Countrywide Farmers feed and forage business. Smaller acquisitions, which focus on specific points of the portfolio, will also be looked into. Here, ForFarmers restricts itself to attractive markets in European countries and countries adjacent to Europe (the so-called Europe Plus approach). Fig 26 ForFarmers market ranking Netherlands Belgium Germany UK ForFarmers No.1 No.2, No.3 No.4 No.1 Main peer Agrifirm Aveve Deutsche Tiernahrung ABF 4) One ForFarmers. ForFarmers continued the rollout of One ForFarmers in This approach is focused on further professionalization of the organisation and optimal use of advantages conferred by economies of scale. In this respect, support services such as the Nutrition Innovation Centre and Marketing and Communication are being restructured in order to work more efficiently and be more process and segment focused. This process will need more work in 2015 and Fig 27 EU-28 industrial compound feed production in 2013 Others Milk replacers 6% 1% Cattle 27% Poultry & eggs 34% Pigs 32% Source: FEFAC 14

15 Estimates and outlook Raw materials: still volatile but bottoming out The main raw materials that ForFarmers purchases are cereals such as wheat and barley, as well as sunflower, maize, soya and palm oil. Cereal co-products are also an important category, including wheat yeast concentrate, wheat starch, beer yeast and distillers grains. Another category is micro-ingredients such as vitamins, minerals and vegetable oils. Although harvests were satisfactory last year, some raw materials are becoming scarcer. This is caused by an increasing demand for food from a growing global population and the growing demand for the biofuels these raw materials are also used for. In a nutshell, we expect that raw material prices will remain volatile. After a decline in 2014, we expect that 2015F will see stabilisation in soft commodities. Since the cost of feed is determined for the most part by the prices that ForFarmers pays for its raw materials, the procurement process is crucial. Fig 28 Commodities used in animal feed in the Netherlands Soy products 11% Palm oil 3% Rapeseed oil 13% Potato 2% Byproducts sugar 6% Premixes 2% Fats & Oils 2% Citrus pulp 2% Waste 1% Dairy 2% Wheat 53% Other 2% Vegetable products 1% Source: Nevedi Farmers: under retailer pressure Prices achieved for end products supplied by farmers are often not at desired levels, owing to retailer pressure. In addition, increased regulation means that farmers are experiencing continual upward pressure on costs. This can compromise the competitive position of farmers in the north-western European region, compared to farmers in other regions, and has led to further increases in scale in north-west Europe. In recent years, the number of livestock producers has decreased by 3-9% pa. However, as the average farm size has also grown, total feed consumption is expected to remain stable in coming years. Increases in scale in the agricultural sector are likely to continue in the next few years. The farming business is becoming more complex, structurally changing the demand for nutritionally optimal solutions. Demand is broadening, and to an increasing extent requires a differentiated and even more professional approach. 15

16 Feed industry: still highly fragmented Globally, the feed market is extremely fragmented. In the Netherlands, the five largest feed companies together have a market share of c.75%, while the remaining 25% is distributed among c.90 other feed manufacturers. In the UK, the six largest companies have c.54% market share for compound feed and blends. In other European countries there is even greater fragmentation. Germany and Belgium are more similar to the UK. The European market for feed production is characterised by increasing consolidation. Scale is a crucial factor in competing and leading in all regions. As demonstrated in Figure 29, growth development from protein demand is likely to continue to be driven by the increase in poultry demand. (This excludes the uptrend from dairy processing). Fig 29 Growth development by protein demand Source: FAO-OECD (2013) (*) this excludes the uptrend from dairy processing following lifting of quota restrictions The bird flu had a negative effect in 4Q14 and may also impact 1Q15F 2014 review: solid performance In November 2014, the poultry sector was affected by various outbreaks of bird flu in the Netherlands, the UK and Germany. The outbreak has been restricted to some local producers and has been contained. In keeping with the entire sector, ForFarmers customers faced the same restrictive measures imposed by the government to prevent the spread of the disease. We expect some further impact in 1H15F as well. Fig 30 Feed volume up 5% YoY but on lower prices (mt) Netherlands 3,880 3,936 Germany and Belgium 1,925 2,070 UK 2,662 2,883 Total volume 8,467 8,889 We believe that sales continued to be disrupted in the first few months of 2015 as supply and preparation of new broiler chicks was temporarily interrupted by these remedial measures. Fig 31 ForFarmers half-yearly development ( m) 1H13 2H13 FY13 1H14 2H14 FY14 Net revenue 1, , , , , ,293.4 Gross Profit Gross Profit margin (%) Operating Result Operating Result (%)

17 Russian import ban is still having an effect on sales In August 2014, Russia imposed a full import ban on food products from Western companies. This was in addition to an import ban imposed by the Russian authorities in January The swine farming sectors in the Netherlands and Germany in particular are feeling the effects of these sanctions. These countries are highly self-sufficient, with exports becoming an important part of sales. Consequently, pork prices dropped further in Fig 32 Gross profit bridge YoY ( m) 2013 M&A Currency Organic 2014 Gross profit bridge (in 2H14 organic performance includes a negative impact in the UK on gross profit due to DML contracts) The dairy sector in north-western Europe is also feeling the effects of the full import ban. The prices of dairy products were under pressure in the second half of The effect on the poultry market is more limited, since only c.7% of the entire EU export production is intended for the Russian market. Five-year forecast Fig 33 Revenue: geographic breakdown ( 000) We expect the pressure from soft-commodity price reductions to ease from 2H15F onward, and with currency tailwinds (from the UK) as well, we expect ForFarmers to report revenue growth again. We expect volume momentum to turn slightly positive but the main swing factor we see is the (relative) absence of negative pricing of the underlying soft commodities. Furthermore we expect positive translation effects from the UK to be strongly supportive in 2015F F 2016F 2017F 2018F 2019F The Netherlands 1,047,908 1,056, , , , , , ,874 Germany 586, , , , , , , ,432 Belgium 245, , , , , , , ,408 UK 656, , , , , , , ,314 Total 2,564,270 2,472,172 2,292,014 2,370,586 2,390,640 2,417,792 2,445,459 2,473,652 Fig 34 ForFarmers forecasts ( 000) We expect ForFarmers to be able to improve gross margins (by focusing more on value rather than volume) as part of the Horizon2020 strategy. Although we are not yet pencilling in major margin improvements, we do believe that we are quite conservative in our forecasts (Figure 34). We expect cost savings to kick-in further in 2015 and the sales mix to support a gradual improvement in gross margins (part of Horizon2020) F 2016F 2017F 2018F 2019F Net turnover 2,497,914 2,472,172 2,292,014 2,370,586 2,390,640 2,417,792 2,445,459 2,473,652 Cost of raw materials 2,097,021 2,081,803 1,883,928 1,953,363 1,965,106 1,985,007 2,005,276 2,025,921 Gross profit 400, , , , , , , ,731 Gross profit margin (%) EBIT 58,249 43,429 59,101 61,350 64,264 66,122 68,241 68,943 Depreciation & amortisation 23,180 25,866 28,958 28,684 28,927 29,255 29,590 29,931 EBITDA 81,429 69,295 88,059 90,035 93,191 95,377 97,831 98,875 % of sales

18 Outlook for 2015 Current economic conditions and developments in legislation and regulations compel farmers in all segments that ForFarmers is active in, to professionalise further. This offers opportunities to ForFarmers for further growth through segmentation in its customer approach. The expansion of the Total Feed concept also offers ForFarmers the possibility of offering a wide product portfolio to existing and new customers in the four home countries. In 2015, ForFarmers is set to continue investing in the professionalization of the organisation and further implementation of One ForFarmers, to be able to increase operational efficiency. These returns are influenced by: 1) Export restrictions to Russia 2) Changes in consumer needs 3) Changes in legislation and regulations 4) Porcine Epidemic Diarrhoea (PED) outbreaks in the swine segment 5) Increasing milk volumes and decreasing milk prices in the cattle segment. 6) But also the further professionalization and increasing scale of farmers 7) As to the UK the strengthening of the sterling might mean more imports short term but could also mean more focus on self-sufficiency levels for local UK farmers The prices of raw materials are expected to continue fluctuating in 2015 due to the uncertainty regarding world economic developments and political instability. Exchange rate fluctuations between GBP and EUR may also affect the result of ForFarmers. The ForFarmers group expects that in the coming years, in north-west Europe, production volumes of milk will increase and those of beef, pork and eggs will stabilise. The production volume of poultry meat is expected to show a slight increase. Towards best-in-class industry profits Based on ambitions laid out in Horizon 2020 ForFarmers is embarking on a transformational journey, in which it expects to deliver total nutrition solutions and aims to realise best-in-industry profits. In our view, ForFarmers is already best-in-class in the Netherlands, where it is the market leader (closely followed by Agrifirm). This leading position, the consolidated market environment and Total Feed offering all contribute to realising best-in-industry profits. Fig 35 Best-in-industry margins already seen in the Netherlands in 2014 ForFarmers EBITDA margin (%) 3.8 Netherlands (%) 5.3 Germany & Belgium (%) 3.1 UK (%) 3.5 Source: Company data 18

19 Option to act as consolidator With a strong balance sheet, ForFarmers has plenty of scope to act as the consolidator in the highly fragmented European animal feed market. ForFarmers is the market leader in the European feed business. With the Horizon2020 targets in mind, we expect further EBITDA growth in the coming five-year period. Already for 2015 and 2016, we calculate that ForFarmers has the flexibility to spend c. 322m for M&A (see Figure 36). Fig 36 Balance sheet strength ( m) F 2016F EBITDA Net debt 9.5 (23.5) (55.3) (89.0) Target net debt /EBITDA (x) Cumulative M&A flexibility Since ForFarmers is the market leader in the Netherlands and the UK and wishes to consolidate its market position in other key countries of operation, we believe that it will focus on potential M&A especially in Germany and Belgium. ForFarmers used this strategy successfully in the UK to establish market leadership, with a spate of bolt-on acquisitions in the past. Based on a scenario of 5.5x average 2016F EV/EBITDA and a cumulative M&A spend of 300m, ForFarmers could add up to 54.5m in additional EBITDA by end-2016f. Fig 37 Scenarios in adding potential EBITDA ( m) EV/EBITDA (x) M&A cash out Source: ING estimates ForFarmers has the potential to double sales in coming years through M&A, and to employ further financial and operational leverage. Fig 38 Scenarios in adding potential sales ( m) EV/sales (x) ,000 2,667 2,000 1,600 1,333 EV 250 5,000 3,333 2,500 2,000 1, ,000 4,000 3,000 2,400 2, ,000 4,667 3,500 2,800 2,333 Source: ING estimates In our view, ForFarmers will opt to strengthen its position in the German and Belgian markets before it enters other European markets. The current option of potential M&A could act as a catalyst for the shares. Based on that scenario, ForFarmers has the potential to add EPS of c The value per share based on 6x EV/EBITDA could, of itself, be c This optionality might unfold in the coming period, in our view. 19

20 Market review Structural demand for protein continues The FAO forecasts a doubling in demand for animal products by 2050, based on projections for global population growth combined with growing disposable income. It is vitally important that this growing demand be met by sustainably intensified livestock production, also capable of mitigating adverse effects of climate change. Feed conversion rate improved in recent years The EU feed industry has a history of expertise when it comes to the sustainability of livestock farming, with gradual and constant improvement in the feed conversion rate (FCR) as the most significant success story in resource efficiency. Over the past 30 years, FCRs have, on average, fallen by 30%, reaching a level of 1.2:1 for farmed fish feed, 1.8:1 for poultry feed and 2.5:1 for pig feed. Fig 39 Evolution of feed conversion rate for poultry Source: ITAVI Compound feed manufacturers supply roughly a third of total feed Livestock farms in the EU 28 bloc consume c.477mt of feed annually, of which roughly a third (158mt) is supplied by compound feed manufacturers (2013 estimates), with the rest being forages, grains and other feed materials mixed on the farm. The steady global increase in demand for animal products for the coming decades creates new opportunities for the EU livestock sector. With the abolition of milk quotas in 2015, the EU dairy sector is set to become the world s largest exporter of dairy products, something which could lead to rising feed demand in the EU. 20

21 Fig 40 Value of farm production in EU-28 bloc c. 400bn in 2013 Beef, Veal & Milk 23% Other Farm products 57% Pigs 10% Poultry & Eggs 7% Other animal products 3% Source: Eurostat 2013 Volume split by country The volume split of compound feed manufacturers in Europe is highlighted in Figure 41. Fig 41 Industrial compound feed production c.158mt in 2013 Poland 6% Romania 2% Portugal 2% Netherlands 9% Ireland 3% Other 6% UK 10% Belgium 4% Czech Rep 1% Germany 15% Italy 9% Denmark 3% Hungary 3% France 14% Spain 13% Source: FEFAC Compound feed production and input The EU-28 bloc represents c.16% of global compound feed production, and ranks third, with the US second and China first. The animal feed industry is a major user of co-products In many food and non-food raw material processing operations there is more than one product to be derived. Usually, the primary processing of a raw material results in coproducts which carry high nutritional value (ideal for the animal feed industry). For example, brewer s grain results from the processing of malt in the beer industry; sugar beet pulp is the co-product of sugar production from sugar beet; rapeseed meal results from rapeseed oil production and corn gluten feed and distillers dried grains with solubles (DDGS) are the main co-products of wet-milling of maize grain for starch and bioethanol production. Each year, the EU feed industry utilises up to c.90mt of several hundred different types of co-product in animal feed. The feed industry thus creates a sustainable outlet for processing industries left with a secondary resource. 21

22 Fig 42 Feed material consumption in the EU-28 bloc in 2013 Feed cereals 48% All Others 5% Minerals & Additives & Vitamins 3% Dried Forage 1% Dairy Products 1% Pulses 1% Cakes & Meals 27% Co-products from Food Industry 12% Oils & Fats 2% Source: FEFAC Opportunity for European livestock sector The expected steady global increase in demand for animal products in the coming decades creates new opportunities for the EU livestock sector. With the abolition of milk quotas in 2015, the EU dairy sector is set to become the world s largest exporter of dairy products, something which could lead to rising feed demand in the EU. With respect to different livestock end-markets, the industrial compound feed market in the EU-28 bloc is shown in Figure 43. Fig 43 Industrial compound feed in the EU-28 bloc in 2013 Others Milk replacers 6% 1% Cattle 27% Poultry & eggs 34% Pigs 32% Source: FEFAC Livestock development Compound feed production in the EU-28 bloc reached an estimated level of 153.6mt in 2014, 0.6% less than in 2013, according to data provided by FEFAC members. While pigfeed and cattle-feed production dropped by 1.0% and 1.5%, respectively, poultry feed has seen production volumes grow by 0.6%. As a consequence, poultry feed has consolidated its position as the leading segment of EU compound feed production, and is now well ahead of pig feed. 22

23 Fig 44 EU: industrial compound feed production (000t) E Cattle 34,204 35,305 35,465 35,963 38,135 37,867 36,838 38,603 41,207 38,577 39,738 39,949 41,525 42,550 Pigs 43,099 42,582 42,501 42,013 47,903 47,222 48,861 52,951 52,470 49,696 50,206 50,353 49,890 49,431 Poultry 37,158 38,233 38,941 37,561 46,753 45,593 45,067 47,876 49,070 49,418 50,955 50,585 51,519 51,946 Milk replacers 1,838 1,641 1,614 1,600 1,637 1,672 1,571 1,571 1,546 1,468 1,450 1,354 1,312 1,317 Dry pet food , ,074 1,626 1,741 2,221 2,512 2,569 2,384 Others 7,398 7,988 8,174 8,451 9,000 8,570 8,881 9,119 7,373 6,925 7,229 7,107 7,268 7,397 Total 124, , , , , , , , , , , , , ,025 Source: FEFAC In our view, the most important factor that impacted feed production in 2014 was the Russian pig meat embargo that commenced in February 2014, putting additional pressure on pig and dairy farmers in particular. Fig 45 EU27: Cattle heads (000) Fig 46 EU27: Swine heads (000) 96, ,000 94, ,000 92, ,000 90, ,000 88, ,000 86, ,000 84,000 82, , ,000 Source: Eurostat Source: Eurostat Fig 47 Experts EU poultry meat production forecast (000t) With regard to broiler and layer production, a gradual increase over time is expected, with poultry becoming a more significant source of protein. 3,000 PL: 8.6% 2,500 2,000 1,500 DE: -0.9% ES: 4.3% FR: 0.3% IT: 0.3% UK: -0.3% 1, BG: 2.0% DK: -6.1% IE: 0.4% HU: 4.8% PT: 0.0% FI: 3.8% 0 BE BG CZ DK DE EE EL ES FR IE IT CY LV LT HU MT NL AT PL PT RO SI SK FI SE UK Source: Agricultural and Rural development 23

24 Fig 48 Experts EU turkey meat production forecast (000t) DE: -1.3% FR: -2.1% IT: 0.6% PL: 1.4% ES: 0.0% UK: 2.3% BG: 0.0% DK: 0.0% IE: 7.7% BE BG CZ DK DE EE EL ES FR IE IT CY LV LT HU MT NL AT PL PT RO SI SK FI SE UK HU: 3.2% PT: -1.1% FI: -2.8% Source: Agriculture and Rural development Fig 49 Germany: Industrial compound feed production (000t) Compound feed market development for ForFarmers (for each main country) Cattle 7,029 6,656 6,620 6,717 6,544 5,959 5,970 6,322 6,327 5,842 6,120 6,357 6,724 6,906 Pigs 7,075 7,120 7,291 7,444 7,594 7,479 8,142 8,814 9,183 8,913 9,405 9,966 9,721 9,597 Poultry 4,791 4,995 5,068 5,075 5,209 5,235 5,265 5,272 5,442 5,227 5,581 5,820 6,110 6,094 Milk replacers Others Total 19,636 19,474 19,695 20,009 20,139 19,449 20,304 21,310 21,825 20,875 22,019 23,019 23,437 23,479 Source: FEFAC Fig 50 Netherlands: Industrial compound feed production (000t) Cattle 3,541 3,449 3,306 3,388 3,320 3,178 3,140 3,375 3,560 3,364 3,433 3,451 3,543 3,694 Pigs 6,001 5,762 5,309 5,227 5,120 5,378 5,672 5,755 6,107 5,936 5,863 5,734 5,451 5,048 Poultry 3,598 3,466 3,296 2,745 3,080 3,426 3,533 3,407 3,710 3,623 3,793 3,801 3,802 3,748 Milk Replacers Dry pet food Other Total 14,655 14,251 13,349 12,846 13,078 12,979 13,491 13,730 14,643 14,108 14,319 14,134 13,902 13,575 Source: FEFAC Fig 51 Belgium: Industrial compound feed production (000t) Cattle 1,165 1,163 1,046 1,074 1,141 1,040 1,091 1,190 1,162 1,097 1,182 1,244 1,253 1,388 Pigs 3,616 3,456 3,509 3,457 3,456 3,425 3,412 3,563 3,638 3,580 3,666 3,653 3,682 3,716 Poultry 1,310 1,468 1,436 1,313 1,450 1,298 1,264 1,286 1,284 1,326 1,408 1,365 1,392 1,458 Milk replacers Dry Pet Food Other Total 6,303 6,365 6,291 6,150 6,347 5,994 5,958 6,242 6,288 6,185 6,446 6,460 6,547 6,784 Source: FEFAC Fig 52 UK: Industrial compound feed production (000t) Cattle 4,214 4,554 4,443 4,743 4,651 4,435 4,785 4,851 4,874 4,764 4,972 4,869 5,212 5,571 Pigs 2,142 1,988 1,836 1,593 1,648 1,613 1,672 1,739 1,572 1,497 1,617 1,654 1,858 1,858 Poultry 6,037 6,241 6,248 6,159 6,436 6,277 6,113 6,157 6,246 6,236 6,600 6,468 6,606 6,548 Milk Replacers Dry Pet Food Others 1,239 1,201 1,133 1,207 1,335 1,430 1,544 1,593 1,300 1,301 1,504 1,426 1,468 1,648 Total 13,647 13,998 13,674 13,718 14,085 13,770 14,115 14,341 13,993 13,799 14,694 14,418 15,146 15,627 Source: FEFAC 24

25 Company description Company profile ForFarmers is divided into operating companies, which are active in one or more countries. With annual revenue of 2.3bn, gross profit of 408m and a result after tax of 39m, it is mainly active in the ruminant, swine, poultry and horse sectors, ForFarmers is the European market leader in the feed business. ForFarmers has 2,343 employees (fulltime equivalents at year-end). Fig 53 Company profile Source: Company data Core activities The core activities of the ForFarmers group are the production and sale of compound feed for pigs, poultry and cattle and the sale of agricultural commodities (fertilizers, crop protection agents, seed and planting materials). For its compound feed activities, the ForFarmers Group has 42 production plants in the Netherlands, Germany, Belgium and Great Britain. The feed is transported from these production plants to more than 25,000 customers that are primarily located in or residents of the Netherlands, Germany, Belgium and Great Britain. Compound feed is blended from various raw materials (the main ingredients of which are products such as wheat, corn, soymeal, barley, sunflower refuse, turnip cake and citrus cake) and additives. These blends are formulated according to the specific requirements of the relevant animal and the demands of the individual farmer. They are manufactured as meal, pellets or crumbles. Compound feed can be complete feeds that provide all the daily required nutrients or supplements and additional micro-nutrients such as minerals and vitamins. Since most of the costs of compound feed consist of raw materials (80-90%), the purchase of ingredients, and the formulation and optimisation of the feed are important. Figure 54 shows the ForFarmers group's sales volume of compound feed for different species during 2011, 2012 and

26 Fig 54 Sales volumes: compound feed* (t) Pig 1,110,794 1,954,919 2,366,328 Poultry 594,254 1,190,578 1,375,568 Cattle 688,222 1,460,789 2,018,834 Other 82, , ,264 Total 2,476,056 4,885,248 6,390,994 *Compound feed is c.82% of total sales The ForFarmers group is active in north-west Europe. The market of compound feed in this region amounts to c.53.7mt pa. The market share of the ForFarmers group for compound feed in north-west Europe, taking into account the Hendrix and BOCM Pauls acquisitions, is estimated at c.12%. Board of ForFarmers The management team is making progress and is sharpening the company s strategic direction for the next few years, with its ambition laid out in Horizon Fig 55 ForFarmers board of directors Source: Company data Ownership structure Until 2006, c.80-85% of ForFarmers customers were also members of the cooperative. The growth of the company means that as of the beginning of 2014, this figure had reduced to only c.15% of the customer base. Coöperatie FromFarmers, as at 31 December 2014, controlled 68.9% of ForFarmers BV. The cooperative controls 31.1% directly and 37.8% indirectly on behalf of the members. In 2014, the members council resolved that c.17.5% of the capital shall not be held in names of members of the cooperative. Including the certificates of members, the cooperative s control amounted to 74.1%. The remaining 25.9% is in the hands of third parties. FromFarmers has 6,272 members in the Netherlands, Germany and Belgium and is based in Lochem. The management of shareholdings in ForFarmers BV is the cooperative s core business. Switch from trading platform to public stock exchange ForFarmers is planning to switch from the current external trading platform for certificates to the Euronext Amsterdam stock exchange in Following this transition, current majority shareholder Coöperatie FromFarmers will continue to be involved in the company and will continue to serve the interests of its agrarian stakeholders. The transfer will probably take the form of a technical listing, where the certificates in ForFarmers BV will be converted into ForFarmers NV shares with no issuance of additional shares. 26

27 Fig 56 Towards IPO in 2016 Source: Company data ForFarmers: exposure to four main markets In Western Europe, the compound feed industry remains highly fragmented. Only in the Netherlands is the market more consolidated, as the top five companies control 75% of the market and the remaining 25% is in the hands of c.90 compound feed producers. In the UK, the top six companies have c.54% market share. In Figures 57 to 60, we highlight the main markets for ForFarmers and the respective split and trends in livestock demand. Fig 57 Netherlands: Compound feed market (mt) Fig 58 Belgium: Compound feed market (mt) Cattle Pigs Poultry Other Cattle Pigs Poultry Other 27

28 Fig 59 Germany: Compound feed market (mt) Fig 60 UK: Compound feed market (mt) Cattle Pigs Poultry Other Cattle Pigs Poultry Other In the Netherlands, total feed volumes were up 1.4% YoY in In Germany, there was 9.3% YoY growth in total feed volumes. In Belgium, total feed volumes increased by 2.5% YoY in 2014 and in the UK volumes increased by 8.3% (mainly due to HST Feeds and Wheyfeed acquisitions, excluding which volumes fell by 1.7%). ForFarmers is active in different compound feed categories and aims to expand its operations into five countries by In a highly fragmented market, we see plenty of opportunities for external growth. Fig 61 Compound feed categories in which ForFarmers is active Netherlands Germany Belgium UK Cattle x x x x Pig x x x x Poultry x x x x Arable farming x x Simple feed and by products x x x x Direct peers We list a few of the direct peers for ForFarmers below: Nutreco, headquartered in the Netherlands, operates its animal feed segment primarily through the Nanta brand. Agravis sales increased to 7.5bn in 2014, reinforcing its market-leading position in Germany and resulting in market-share gains. Cargill operates in the feed industry globally and has a wide reach in Europe. Agrifirm is headquartered in the Netherlands and active in the animal feed industry. It formed a strategic alliance with ForFarmers for knowledge-sharing and purchase of artificial fertilizers, crop protection products and sowing seeds in December Agrifirm had 2012 sales of 1,15bn. Countrywide Farmers is one of the largest animal feed suppliers in the UK. ForFarmers has already announced the proposed acquisition of Countrywide Farmers feed and forage business, pending approval by UK regulators. Turnover for its most recent fiscal year (2014) fell to 298.2m. ForFarmers already sold towards Countrywide farmers hence the transaction will mainly add profitability as such. Deutsche Tiernahrung Cremer GmbH & Co. Headquartered in Germany, its twelve plants produce c.2.4mt of compound feed annually. De Heus. Headquartered in the Netherlands, it produces animal feed and premixes. 28

29 History The origin of the ForFarmers Group dates back to the beginning of the 20 th century. At the time, many agricultural cooperatives were incorporated, also in the eastern part of the Netherlands. The first cooperatives were locally oriented. The ForFarmers group is mainly the result of mergers of many of these local and regional cooperatives. In December 1989, Coöperatie ABC Gelderland BA (an agricultural cooperative) was incorporated as a result of a merger of Coöperatie Gelderland voor de Land- en Tuinbouw BA and Coöperatie ABC Gelderland BA Fig 62 History of ForFarmers: Built on strong local farmers heritage Source: Company data 29