2.2.1 Basis of preparation

2.2.1.1 1. ForFarmers N.V.

ForFarmers N.V. (the ‘Company’) is a public limited company domiciled in the Netherlands. The Company’s registered office is at Kwinkweerd 12, 7241 CW Lochem. The consolidated interim financial statements for the financial year ended 31 December 2018 comprise ForFarmers N.V. and its subsidiaries (jointly the 'Group' or 'ForFarmers') and the Group’s interest in its joint venture HaBeMa.

As at 31 December 2018, the capital interest and voting rights in the Company is distributed as follows: 

ForFarmers N.V. is an internationally operating feed company that offers Total Feed solutions for conventional and organic livestock farming. ForFarmers gives its very best “For the Future of Farming”: for the continuity of farming and for a financially secure agricultural sector.

2.2.1.2 2. Basis of accounting

Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (EU-IFRSs, hereafter stated as IFRS) and section 2:362 sub 9 of the Netherlands Civil Code.

The consolidated (and company) financial statements were approved for issuance by the Executive Board and Supervisory Board on 12 March 2019. The Group’s financial statements will be subject to adoption by the Annual General Meeting of Shareholders on 26 April 2019.

The consolidated financial statements are prepared in accordance with the going concern principle.

Changes in accounting policies in 2018

IFRS 9 Financial instruments and IFRS 15 Revenue from contracts with customers are effective as of 1 January 2018 and the Group has initially applied these standards at 1 January 2018. Under the transition methods chosen, comparative information has not been restated.

IFRS 9 introduces new requirements for classification and measurement, impairment and hedge accounting of financial instruments. The transition to the new measurent requirements of IFRS 9 resulted in an impact of €97 thousand (net of taxes), which has been recorded in retained earnings at 1 January 2018. Refer to the consolidated statement of changes in equity. Furthermore, the classification of financial instruments has been changed, refer to Note 32A for the new and old classification.

As a result of the adoption of IFRS 9, the Group has adopted consequential amendments to IAS 1 Presentation of Financial Statements, which require net (reversal of) impairment of financial assets to be presented in a separate line item in the statement of profit or loss. Previously, the Group’s approach was to include the net (reversal of) impairment of trade receivables in other operating expenses. Consequently, the Group reclassified an amount of €1,821 thousand in the comparative figures.

IFRS 15 establishes a new five-step model which applies to revenue arising from contracts with customers. Under IFRS 15 revenue is recognised at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The impact of IFRS 15 is not material and the Group has adopted IFRS 15 using the socalled cumulative effect method.

For standards issued but not yet effective a reference is made to Note 41.

Comparative information

When necessary prior year amounts have been adjusted to conform to the current year presentation.

Accounting policies

Details of the Group’s significant accounting policies are included in Notes 39 and 40.

2.2.1.3 3. Functional and presentation currency

These consolidated financial statements are presented in euro, which is the Company’s functional currency. All amounts have been rounded to the nearest thousand, unless otherwise indicated. The subsidiaries' functional currencies are mainly the euro, pound sterling and Polish zloty. Most of the transactions, and resulting balance occur in the local and functional currency. The following exchange rates have been applied during the year: 

2.2.1.4 4. Use of judgements and estimates

In preparing these consolidated financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual valuation of assets and liabilities may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis, taking into account the opinions and advice of (external) experts. Changes to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

A. Judgements

Information about judgements made in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements is included in the following notes:

• revenue: whether the Group acts as an agent in the transaction rather than as a principal (Note 8);
• consolidation: whether the Group has de facto control over an investee (Note 33);

B. Assumption and estimation uncertainties

The estimates and assumptions considered most critical are:

• measurement of defined benefit obligations: key actuarial assumptions (Note 15);
• recognition of deferred tax assets: availability of future taxable profit against which carry forward tax losses can be used (Note 16);
• useful life of property, plant and equipment and intangible assets (Notes 17 and 18);
• impairment test: key assumptions underlying recoverable amounts (Note 18);
• valuation of trade and other receivables (Note 21); and
• recognition and measurement of provisions and contingencies: key assumptions about the likelihood and magnitude of an outflow of resources relating to provisions (Note 30).
• measurement of put option liabilities and contingent considerations as a result of business combinations (Note 31).

C. Measurement of fair values

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

When measuring the fair value of an asset or a liability, the Group uses market observable data as far as possible. Fair values are categorised into different Levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).

The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

The Group recognises transfers between Levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. If the inputs used to measure the fair value of an asset or a liability might be categorised in different Levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same Level of the fair value hierarchy as the lowest Level input that is significant to the entire measurement.

If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price.

The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value on initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique for which any unobservable inputs are judged to be insignificant in relation to the measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the transaction price. Subsequently, that difference is recognised in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.

The Group has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for over­seeing all significant fair value measurements, including Level 3 fair values, and reports directly to the CFO.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that these valuations meet the requirements of IFRS, including the Level in the fair value hierarchy in which the valuations should be classified.

Significant valuation issues are reported to the Group’s Audit Committee.

Further information about the assumptions made in measuring fair values is included in the following notes.

Share-based payment arrangements (Note 14)

For depositary receipts granted to employees, the fair value of the depositary receipts is based on the market price of the entity’s shares as publically listed, and if necessary adjusted to take into account the terms and conditions upon which the depositary receipts were granted.

Property, plant and equipment and investment property (Notes 17 and 19)

The fair value of property, plant and equipment and investment property recognised as a result of a business combination, is the estimated amount for which property could be exchanged between a willing buyer and a willing seller in an arm’s length transaction wherein the parties have each acted knowledgeably. The fair value of items of property, plant and equipment and investment property is based on the market approach and cost approaches using quoted market prices for similar items when available and depreciated replacement costs when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration as well as functional and economic obsolescence.

Intangible assets, excluding goodwill (Note 18)

The fair value of patents and trademark names acquired in a business combination is based on the discounted estimated royalty payments that are expected to be avoided as a result of the patents or trademarks being owned. The fair value of customer relationships acquired in a business combination, is determined using the multi-period excess earnings method. The fair value of other intangible assets is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.

Inventories (Note 22)

The fair value is determined based on the estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.

Biological assets (Note 23)

Where there is an active market for biological assets, the quoted price in that market is the appropriate basis for determining the fair value of that asset. If an active market does not exist, one or more of the following methods are used to estimate the fair value:

• most recent transaction price (provided that there has not been a significant change in economic circumstances between the date of that transaction and the balance sheet date);
• market prices for similar assets with adjustments to reflect differences.

In measuring fair value of biological assets, management estimates are required for the determination of the fair value. These estimates and judgements relate to the average weight of an animal, mortality rates and the stage of the animal’s life.

Derivatives (Note 32)

The fair value of derivatives is determined using available market information or estimation methods. In case of estimation methods, the fair value is approximated:

• by inference from the fair value of its components or of a similar instrument, in case a reliable fair value can be demonstrated for its components or for a similar instrument; or
• using generally accepted valuation models and techniques.

Financial instruments, other than derivatives (Note 32)

The fair value at the first recognition of trade and other receivables, trade and other payables, outstanding for longer than a year, is determined on the present value of future cash flows, discounted at market interest at the balance sheet date (amortised cost), taking into account possible write-offs due to impairments or uncollectability (applicable if it regards an asset). When determining the effective interest rate, premiums or discounts, at the moment of acquisition, and transaction costs are taken into account.

2.2.2 Results for the year

2.2.2.1 5. Operating segments

A. Basis for segmentation

The Group has the following reportable segments:

• The Netherlands
• Germany / Belgium / Poland
• United Kingdom

The Group’s products include compound feed and blends, feed for young animals and specialities, raw materials and co-products to seed and fertilisers. Core activities are production and delivery of feed and providing Total Feed solutions based on nutritional expertise.

Each country is a separate operating segment, but can be aggregated into strategic clusters and reportable segments depending on similarity of economic characteristics, given that the nature of the products and services, the nature of the production processes, the type of customer, the methods used to distribute the products, and the nature of the regulatory environment, is similar. In 2018, the Group included the activities of Tasomix in Poland (see note 6) in the reportable segment Germany / Belgium / Poland.

The Group’s Executive Committee reviews internal management reports of each operating segment on a monthly basis, and its members are considered as the chief operating decision making body.

There are various levels of integration between the segments. This integration includes, amongst others, transfers of inventories and shared distribution services, respectively. Inter-segment pricing is determined on an arm’s length basis. Information on the accounting policies for segmentation is included in Note 40.

B. Information about reportable segments

Information related to each reportable segment is set out below.

2.2.2.1.1

2.2.2.1.2

The column Group / eliminations represents both amounts as result of Group activities and eliminations in the context of the consolidation.

Other non-current assets for this purpose consist of investment property, non-current trade and other receivables and deferred tax assets.

The working capital consists of inventories, biological assets, current trade and other receivables less current trade and other liabilities.

The Group is not reliant on any individually major customer.

C. Reconciliation of profit

The reconciliation between the reportable segments’ operating profits and the Group’s profit before tax is as follows:

Finance costs increased by €1.7 million mainly caused by the effect of discounting of the put option liability to acquire the remaining 40% interest of Tasomix at a discount rate higher than 10% and the discounting of the contingent considerations (earn-out obligations) for the acquisitions.

2.2.2.2 6. Business combinations

Acquisitions 2018

The Group acquired four businesses in 2018 with the following applicable purchase considerations:

The provisional fair values of the identifiable assets and liabilities of the acquired businesses as at the date of acquisition were:

The acquisition-related costs are costs incurred to effect the business combinations such as transaction costs, due-diligence fees and (legal) advisory costs. These costs have been included in other operating expenses.

2.2.2.2.1

Tasomix Group (Poland)

On 19 February 2018 the Group and the owners of Tasomix signed an agreement in which the Group acquired 60% of the shares of Tasomix Sp. z o.o., Tasomix 2 Sp. z o.o., Kaboro Sp. z o.o. and Tasomix Pasze Sp. z o.o. (collectively hereafter “Tasomix”), a large and innovative feed company, mainly active in the poultry sector. Tasomix has experienced management and some 250 employees. Tasomix operates two production facilities (in Biskupice and Kaboro) with a joint capacity of approximately 450,000 tonnes and is currently manufacturing its first quantities of feed in its new facility in Pionki. In 2017 Tasomix produced 402,000 tonnes of feed. Normalised revenues in 2017 were PLN451 million (€105.9 million^[1]). Normalised EBITDA in 2017 was PLN33 million (€7.8 million^[1]).

2 July 2018 was the acquisition date, after all conditions for closing the earlier announced 60% share purchase transaction were fulfilled including approval by the competition authorities.

ForFarmers paid PLN 242 million (at acquisition date €55.1 million) in cash and received 60% of the shares. The enterprise value for 100% of the shares amounted to €92.0 million. The payment was done in PLN, but hedged through forward currency exchange contracts and foreign currency swaps in the period between date of agreement and acquisition date. Including the negative €0.6 million currency effect of this hedge (net of tax), the payment amounts €55.7 million. This payment relates to the activities of two operational mills, a new head office and an initial payment for the new feed mill. A second payment ('earnout') for this transaction (i.e. the 60% stake in Tasomix) will be made in 2021, the amount which fully depends on specified operational targets to be delivered by the new feed mill relating to its 2019/2020 EBITDA and is measured at fair value. For this purpose the Group has included €6,893 thousand as contingent consideration, which represent its fair value at the date of acquisition (2 July 2018). As at 31 December 2018 the contingent consideration had increased to €7,428 thousand due to the effect of discounting (see Note 32).

ForFarmers fully consolidated the Tasomix results as of 2 July 2018 based on the anticipated acquisition method, since the agreement includes a call and put option for the remaining 40% shares. The put option liability, which has to be paid in PLN, has been valued and amounts to €29,956 thousand, which represent its fair value at the date of acquisition (2 July 2018). As at 31 December 2018 the put option liability had increased to €32,279 thousand (see Note 32). The increase of this liability relates to the fair value change of the put option due to the discounting effect (€1,792 thousand) which has been recognised as financial expense in the statement of profit or loss, and a foreign currency translation impact (€531 thousand) which has been recognised through other comprehensive income within equity's translation reserve (arising from the translation of the financial statements of foreign operations).

From the date of acquisition (i.e. 6 months ended 31 December 2018), revenue of Tasomix amounted to €62.5 million and the result after tax was a loss of €1.8 million. This loss includes local integration costs, the additional amortisation and depreciation on the fair value adjustments of the (intangible) assets, as well as the financial expenses related to the fair value adjustment of option and the earn-out. Acquisition-related costs recognised at the Group (i.e. cost to effect the business combination) are not included in this loss.

The trade and other receivables comprise gross contractual amounts due of €35,743 thousand, of which €1,271 thousand was expected to be uncollectible at the acquisition date. This has been included in the valuation on the date of acquisition.

The goodwill concerns the value of expected synergies arising from the acquisition. Goodwill is allocated entirely to the Germany/Belgium/Poland cluster, since the business activities of Tasomix are integrated within this Cluster.

Possible impairments, amortisation respectively depreciation related to newly recognised goodwill, customer relations, step-up on trademark respectively property plant and equipment are not deductible for income tax purposes.

^[1]euro amounts are calculated based on the average exchange rates of the relating year (PLN versus euro)

Maatman (Netherlands)

On 2 July 2018 the group and the owners of VOF Maatman signed an agreement in which the ForFarmers Netherlands acquired the assets of VOF Maatman Veevoeders en Kunstmest (hereafter “Maatman”), a feed company focussed on the Poultry sector, predominantly in the North of the Netherlands and Germany. Maatman generated a turnover of some €30 million and an EBITDA of approximately €0.9 million in 2017 from the sale of approximately 105,000 tonnes of feed. Maatman had outsourced the feed production to third parties (of which a main part to ForFarmers). The transport activities (15 bulk trailers) of Maatman were part of the transaction. Furthermore, Maatman had sixteen staff members, including the current two managers who were also owners of the company. Ten staff members form part of the transaction and one of the previous owners will temporary remain to supervise a smooth integration of Maatman into ForFarmers.

3 September 2018 was the acquisition date, after all conditions of the asset transaction were fulfilled including approval by the German competition authorities.

The acquisition of Maatman is accounted for according to the acquisition method, whereby the purchase consideration was based on an enterprise value of €8,276 thousand. This consists of a payment of €6,246 thousand and a deferred payment to be paid out as contingent consideration in one year time depending on the achievement of operational targets specified in advance (earn-out). The fair value of this contingent consideration amounted €2,030 thousand at acquisition date (3 September 2018) and as at 31 December 2018 had increased to €2,045 thousand due to the effect of discounting (see Note 32).

From the date of acquisition (i.e. 4 months ended 31 December 2018), Maatman contributed €0.8 million of revenue and a result after tax of €0.2 million profit. This result includes local integration costs, the additional amortisation and depreciation on the fair value adjustments of the (intangible) assets, as well as the financial expenses related to the fair value adjustment of the earn-out. Acquisition-related costs recognised at the Group (i.e. cost to effect the business combination) are not included in this result.

The trade and other receivables are equal to the gross contractual amounts of €4,147 thousand, since these are all expected collectible at the acquisition date.

The goodwill concerns the value of expected synergies arising from the acquisition. Goodwill is allocated entirely to the Netherlands cluster. The goodwill and customer relations recognised are deductible for income tax purposes (i.e. both goodwill and customer relations can be amortised for tax purposes).

Voeders Algoet (Belgium)

On 12 June 2018 ForFarmers announced the acquisition of Voeders Algoet, a feed company established in Zulte, close to the Belgian ForFarmers sites. As a result, ForFarmers strengthened its position as feed company in Belgium with the offer of Total Feed solutions. Voeders Algoet sold around 150,000 tons of compound feed to swine and ruminant farmers. In the broken financial year (1 July to 30 June) 2016/2017, the company generated sales of approximately €40 million with an EBITDA of approximately €2 million. Voeders Algoet’s current management and 22 staff formed part of the transaction. In addition, the transport activities (12 bulk trailers) of Voeders Algoet were part of the transaction. As a result, ForFarmers is starting its own transport activities in Belgium. Over time, Voeders Algoet’s feed production will probably be transferred to the current ForFarmers factories in Izegem and Ingelmunster.

1 October 2018 was the acquisition date, after all conditions of the share transaction were fulfilled including approval by the Belgian competition authorities.

The acquisition of Voeders Algoet is accounted for according to the acquisition method, whereby the purchase consideration was based on an enterprise value of €15,539 thousand. This consists of a payment of €14,359 thousand and a conditional deferred payment, to be paid out in two years time, depending on the achievement of operational targets specified in advance (earn-out). The fair value of this contingent consideration amounted to €1,180 thousand at acquisition date (1 October 2018) and as at 31 December 2018 had increased to €1,187 thousand due to the effect of discounting (see Note 32).

From the date of acquisition (i.e. 3 months ended 31 December 2018), revenue of Voeders Algoet amounted to €10.4 million and the result after taxes was a loss of €0.4 million. This loss includes local integration costs, the additional amortisation and depreciation on the fair value adjustments of the (intangible) assets, as well as the financial expenses related to the fair value adjustment of the earn-out. Acquisition-related costs recognised at the Group (i.e. cost to effect the business combination) are not included in this loss.

The trade and other receivables comprise gross contractual amounts due of €7,518 thousand, of which €1,422 thousand was expected to be uncollectible at the acquisition date. This has been included in the valuation on the date of acquisition.

The goodwill concerns the value of expected synergies arising from the acquisition. Goodwill is allocated entirely to the Germany/Belgium/Poland cluster, since Voeders Algoet is integrated into ForFarmers Belgium.

Possible impairments respectively amortisation related to newly recognised goodwill respectively customer relations are not deductible for income tax purposes.

Van Gorp (Netherlands)

On 2 October 2018 ForFarmers' subsidiary Reudink B.V. and Van Gorp-Teurlings Beheer B.V., the owners of Van Gorp Schalkwijk B.V. signed an agreement in which Reudink B.V. acquired 100% of the shares of Van Gorp Schalkwijk B.V. (together with its 100% subsidiary Van Gorp Biologische Voeders B.V. hereafter indicated as “Van Gorp”), a feed company focussed on the production of organic compound feed, predominantly to customers in the Netherlands and Belgium. Van Gorp Schalkwijk was the owner of the premises of the company in which Van Gorp Biologische Voeders B.V. produces its compound feed. These premises are located in Schalkwijk. Van Gorp generated a turnover of around €31 million in 2017 with an EBITDA of €1.2 million from the sale of approximately 67,000 tons of feed. Van Gorp had twelve staff members, including the current managing director, who will remain involved for the time being to facilitate a smooth integration.

Since no regulatory approval was required for this acquisition, the effective date of the acquisition was equal to the date of announcement (2 October 2018).

The acquisition of Van Gorp is accounted for according to the acquisition method, whereby the purchase consideration was based on an enterprise value of €9,137 thousand. This consists of a payment of €8,798 thousand  and a number of conditional deferred payments to be paid out in a time-frame of 1 to 3 years, depending on the achievement of operational targets specified in advance (earn-out). The fair value of this contingent consideration amounted to €339 thousand at acquisition date (2 October 2018) and as at 31 December 2018 had increased to €341 thousand due to the effect of discounting (see Note 32).

From the date of acquisition (i.e. 3 months ended 31 December 2018), revenue of Van Gorp amounted to €6.9 million and the result after tax was a profit of €0.1 million. This result includes local integration costs, the additional amortisation and depreciation on the fair value adjustments of the (intangible) assets, as well as the financial expenses related to the fair value adjustment of the earn-out. Acquisition-related costs recognised at the Group (e.g. cost to effect the business combination) are not included in this result.

The trade and other receivables comprise gross contractual amounts due of €2,364 thousand, of which €105 thousand was expected to be uncollectible at the acquisition date. This has been included in the valuation on the date of acquisition.

Possible impairments respectively amortisation related to newly recognised goodwill respectively customer relations are not deductible for income tax purposes.

Full year impact of all business combinations occurred during 2018

If all acquisitions had occurred on 1 January 2018, management estimates that total revenue of all business combinations in 2018 would have been €197.6 million, total underlying EBITDA would have been €10.0 million and the result after tax would have been a loss of €3.3 million. This loss is mainly due to the effect of discounting of the contingent considerations and the put-option valuation for the remaining 40% of the shares of Tasomix at a discount rate of more than 10% (see Note 32).

Herewith, in 2018 the Group consolidated revenues would have been €2,522 million, Group consolidated underlying EBITDA would have been €106.9 million and Group consolidated profit for year would have been €57.5 million. In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose on the date of acquisitions would have been the same if the acquisitions had occurred on 1 January 2018.

Acquisitions 2017

Acquisition Wilde Agriculture Ltd. (United Kingdom)

On 25 May 2017 the Group acquired full control of Wilde Agriculture Ltd. The purchase consideration amounts to €2.0 million of which €0.5 million is a contingent consideration. The fair values of the acquired assets has been determined at €2.1 million, including €0.9 million cash and cash equivalents. The fair values of the assumed liabilities amount to €0.6 million. The related goodwill of €0.5 million is mainly attributable to the anticipated synergy benefits with the integration of Wilde Agriculture Ltd within the United Kingdom cluster. The goodwill has, therefore, been allocated to this cluster. This acquisition does not have a material effect on the Group in the context of the disclosure requirements of IFRS 3 Business Combinations.

Measurement of fair values

2.2.2.3 7. Disposals

Disposals 2018

During 2018 ForFarmers disposed its agriculture activities to CZAV. This concerned non-livestock feed related products (e.g. fertilizers, crop protection products and seeds) that ForFarmers supplied to Dutch farmers. CZAV acquired these activities and the associated storage facility on 5 February 2018. ForFarmers received €5.7 million on the completion date of the transaction, which resulted in a gain of €4.5 million.

Disposals 2017

There were no disposals during 2017.

2.2.2.4 8. Revenue

The geographic distribution of the revenue is as follows:

The distribution of the revenue per category is as follows:

The increase of the revenue by €186.0 million includes a negative currency impact of €5.6 million. Furthermore, the net effect of acquisitions and disposals results in a positive effect on revenue of €80.7 million, mainly in compound feed. This results in a like-for-like increase of €110.9 million. This like-for-like increase is a result of higher volume, as well as higher expenses for utilities/fuel and increased prices for raw material past on to customers.

The other revenue mainly relates to the sale of single, moist and liquid feed, other trading products, and services (these categories are individually all not material for separate presentation). The in 2018 sold agriculture activities were part of this category, which resulted in a divestment effect of €1.9 million.

2.2.2.5 9. Cost of raw materials and consumables

The increase in the cost of raw materials and consumables is caused by a net effect of acquisitions and divestments of €71.0 million, an increase in volume, and an increase in the price of raw materials, partly offset by a negative currency impact of €4.5 million.

In 2018 an amount of €30 thousand (2017: €40 thousand) has been provided for as obsolete inventories, of which the cost is included in the cost of raw materials and consumables.

2.2.2.6 10. Other operating income

2018

The other operating income in 2018 mainly relates to the a gain of €4.5 million in relation to the sale of the agriculture activities to CZAV, refer to Note 7 for more information.  Furthermore, Forfarmers received a supplementary payment of €0.4 million for the sale of Adaptris (2015) in the United Kingdom.

2017

Other operating income 2017 mainly consist of a subsequent payment regarding the disposal of Adaptris of €0.3 million (United Kingdom) and the disposal of other operating assets in the Netherlands of €0.2 million.

2.2.2.7 11. Operating expenses

The increase of the operating expenses amounts to €26.1 million, despite a decrease of €1.1 million caused by a currency impact. The net effect of acquisitions and divestments amounts to €12.2 million. The like-for-like increase of the operating expenses was €15.0 million.

A. Other operating expenses

The other operating expenses increased by €17.8 million, despite a decrease of €0.5 million caused by a currency impact. The net effect of acquisitions and divestments is €6.6 million. The like-for like increase of the other operating expenses amounts to €11.7 million. The increase in other operating expenses is mainly due to higher expenses for utilities, fuel, transport and maintenance. The sales expenses increased mainly due to increased costs for exhibitions and events. Furthermore the IT and Insurance are higher in 2018.

B. Research and development expenses

In 2018 the Group incurred an amount of €5.7 million (2017: €5.6 million) relating to research and development expenses. These expenses mainly comprise personnel expenses of nutrition specialists, product managers and laboratory workers. 

C. Auditor’s fee

The following fees were charged by KPMG Accountants N.V. to the Company, its subsidiaries and other consolidated companies, as referred to in Section 2:382a (1) and (2) of the Netherlands Civil Code.

The fees mentioned in the table for the audit of the financial statements relate to the total fees for the audit of the financial statements, irrespective of whether the activities have been performed during the financial year. The remaining auditor´s costs (the 'Other audit engagements'), were charged to the financial year in which the services were rendered.

The engagements other than the audit of the financial statements consist of agreed-upon procedures regarding board remuneration, bonus targets, sustainability and bank covenants. Furthermore, several subsidy audits are performed by KPMG.

The increase of the auditor's fee is mainly due to the acquisitions. 

2.2.2.8 12. Net finance costs

The other interest income mainly comprises interest received on long-term outstanding receivables (loans) and positive bank balances.

As a result of the revaluation of the Polish zloty, partly off set by the devaluation of the pound sterling, a small gain was incurred in 2018 relating to foreign exchange results. In 2017 a loss was incurred due to the devaluation of the pound sterling.

The effect of discounting the contingent considerations relates to the acquisitions, refer to Note 6 for more information. The effect of discounting the  put option liability relates to the acquisition of Tasomix (Poland), refer to Note 6 for more information.

The other interest expenses mainly comprise interest paid on bank loans and other financing liabilities.

The other financial expenses include amortisation of €0.4 million (2017: €0.4 million) which relates to capitalized cost in relation to financing arrangement concluded in 2014, as further disclosed in Note 29.

2.2.2.9 13. Earnings per share

A. Basic earnings per share

The calculation of basic earnings per share has been based on the following profit attributable to ordinary shareholders and weighted-average number of ordinary shares outstanding.

The increase of the basic earnings per share is caused by the share buy-back programme. For the number of ordinary shares outstanding as at 31 December a reference is made to Note 26.

B. Diluted earnings per share

The calculation of diluted earnings per share is equal to the calculation of basic earnings per share, since no new shares have been issued in 2017 and 2018. See Note 26 for further information.

2.2.3 Employee benefits

2.2.3.1 14. Share-based payment arrangements

A. Description of the share-based payment arrangements

The Group distinguishes two participation plans. One plan relates to members of the Executive Committee and senior management (applicable as of 2014), the other plan relates to other employees (applicable as of 2015). Both plans have further details set out for employees in The Netherlands ("The Netherlands participation plan") and for employees in the United Kingdom, Germany and Belgium (collectively the “Foreign participation plan”). The number of participants in all current participation plans is 19.1% (2017: 24.2%) of the number of employees of the Group.

The participation plans are annual plans only applicable for the respective year to which they relate, any additional participation plans are considered new plans. New participation plans can only be executed upon approval of the Supervisory Board and on the basis of authorization by the Annual General Meeting of Shareholders for the purchase of shares related to the participation plan.

Participation plans 2018

On 26 April 2018, the Group launched two employee participation plans. One plan relates to members of the Executive Committee and senior management, the other plan relates to other employees. For both plans the participants are required to remain in service for 36 consecutive months to be entitled to the discount on the depositary receipts being purchased. The employees are entitled to buy depositary receipts at a discount of 13.5% (employees) or 20% (Executive Committee and senior management) on the fair value of the depositary receipt at the grant date, for which additional depositary receipts are provided. The conditions of both plans are consistent with the participation plans applicable for 2017.

During 2018, 46 employees (of which 11 foreign employees) participated in the participation plan for the Executive Committee and senior management and 583 employees (of which 143 foreign employees) participated in the participation plan for other employees.

The number of depositary receipts granted with respect to the 2018 participations plans were as follows:

In 2018 no granted depositary receipts were cancelled as a result of leavers.

Participation plans 2017 and 2016

In 2017 and 2016 the Group offered two 2017 participation plans to the employees. One plan relates to members of the Executive Committee and senior management, the other plan relates to other employees. For both plans the participants are required to remain in service for 36 consecutive months to be entitled to the discount on the depositary receipts being purchased. The employee is entitled to buy depositary receipts at a discount of 13.5% (employees) or 20% (Executive Committee and senior management) on the fair value of the depositary receipt at the grant date, for which additional depositary receipts are provided. The conditions of both plans are consistent with the participation plans applicable for 2015, except for the participation plan of 2017 where the lock-up period of the depositary receipts for the Executive Committee and senior management have been extended to 5 years compared to 3 years for the 2015 and 2016 plans.

During 2017, 35 employees (of which 7 foreign employees) participated in the participation plan for the Executive Committee and senior management and 297 employees (of which 59 foreign employees) participated in the participation plan for other employees.

The number of depositary receipts granted with respect to the 2017 participations plans were as follows:

In 2018 no (2017: 133) granted depositary receipts were cancelled as a result of leavers.

During 2016, 34 employees (of which 8 foreign employees) participated in the participation plan for the Executive Committee and senior management and 319 employees (of which 61 foreign employees) participated in the participation plan for other employees. The number of depositary receipts granted with respect to the 2016 participations plans were as follows:

In 2018 a total of 2,584 (2017: 750) granted depositary receipts were cancelled as a result of leavers.

Differences between the Netherlands and Foreign plans

Key differences between the Netherlands and Foreign participation plans for the additional depositary receipts are:

• The Netherlands: A service related vesting condition applies, in that the original value of the discount is repaid by the employee to the Group if the employee leaves within 3 years after allocation. All allocated depositary receipts were granted in 2018, 2017, 2016 and 2015 respectively .
• Foreign participation plan: A service related vesting condition applies, in that the employee will not be entitled to receive the additional depositary receipts if employee leaves within 3 years after allocation. Additional depositary receipts for foreign employees are held in custody by the Company during the term and are issued to the foreign employees at settlement date. The total cost to the Company for the additional depositary receipts, including the cash-settled employee tax obligations, is limited to the total value of the discount provided to Dutch participants.

Participation plans 2015 and 2014

The participation plans 2015 and 2014 are completed.

B. Measurement of fair values

Participation plans 2018

The value of the depositary receipts of the Company, for which the employee (members of the Executive Committee, senior management and other employees) could buy their depositary receipts, was determined as the average closing price in the 5 trading days during the period 2 May - 8 May 2018 and amounted to €11.72 per share.

Participation plans 2017

The value of the depositary receipt of the Company, for which the employee (members of the Executive Committee, senior management and other employees) could buy their depositary receipts, was determined as the average of the closing prices in the 5 trading days during the period 2 - 8 May 2017, which amounted to €8.66 per share.

Participation plans 2016

The value of the depositary receipt of the Company, for which the employee (members of the Executive Committee, senior management and other employees) could buy their depositary receipts, was determined as the average of the closing prices on the Euronext in the 5 trading days during the period 19 - 25 April 2016, which amounted to €6.24 per share.

For all participation plans, the fiscal obligations for a foreign employee are based on the fair value of the depositary receipt at the date of settlement.   

C. Amounts recognised in statement of profit or loss and statement of financial position

The expenses are recognised in the statement of profit or loss over the term of the participation plan (3 years), see Note 15F. The depositary receipts for the employees in the Netherlands participation plan were fully granted in the respective years. The non-vested portion was not recognized within profit and loss, but rather as other receivables within trade and other receivables of €472 thousand (2017: €565 thousand) of which €307 thousand was classified as current (2017: €382 thousand). The cumulative share-based payment reserve relating to the Foreign participation plan amounts to €111 thousand (2017: €233 thousand).

2.2.3.2 15. Employee benefits

Separate employee benefit plans are applicable in the various countries where the Group operates.

For details on the employee benefit expenses, see Note 15F.

A. Post-employment plans and funding

The Group contributes to the following post-employment plans which are described per cluster.

The Netherlands

In the Netherlands the employees of different subsidiaries were covered by two post-employment plans upto and until 2015. An insured defined benefit plan was in place for (former) employees of Hendrix, which company was acquired by the Group in 2012. Furthermore, an insured defined contribution plan was in place for (former) ForFarmers employees. Effective per 1 January 2016, the Group entered into a new post-employment plan that is applicable for all Dutch employees, leaving all post-employment rights accrued until 31 December 2015 in the old post-employment plans.

Therefore, both former post-employment plans are closed as of 31 December 2015. An insurance company administers the obligations under that plan. As of that date no further obligations will remain under the former ForFarmers post-employment plan. Under the former Hendrix post-employment plan, for the pension rights accrued up to 31 December 2015, the Group will remain committed to pay the related guarantee premiums and as such accounts for the plan as a defined benefit plan.

From 2016 onwards, pension rights will be accrued under the new plan on the basis of collective defined contribution. Together with this new post-employment plan, the Group has also agreed on a defined contribution plan for employees with a salary above €54,614 (2018). An insurance company will be administering the obligations under both plans as of 1 January 2016.

The net liability related to the defined benefit plans in The Netherlands per 31 December 2018 amounts to €12,653 thousand (31 December 2017: €13,097 thousand). The decrease in this liability is mainly caused by the increase in the interest rate, whereby the change in the financial assumptions was recognized in other comprehensive income.

Germany / Belgium / Poland

The German subsidiaries have, for a limited number of persons, an in-house defined benefit plan that is already closed so no new obligations are being incurred. The commitments were calculated on the basis of actuarial calculations in the course of which the applicable discount rate was taken into account. Actuarial results are recorded directly into equity as other comprehensive income. The German defined benefit plan is unfunded.

In addition to the in-house defined benefit plan, a defined contribution plan is in place for all other employees of the German subsidiaries.

The net liability related to the defined benefit plans in Germany per 31 December 2018 amounts to €4,817 thousand (31 December 2017: €5,149 thousand).

The Belgian subsidiaries have two insured benefit plans for their employees which qualify as defined benefit plans. The net liability related to the defined benefit plans in Belgium per 31 December 2018 amounts to €124 thousand (31 December 2017: €138 thousand).

The Polish subsidiaries do not have a pension plan. In accordance with local regulations the employees receive an one month salary when they retire. 

United Kingdom

In the United Kingdom, two defined benefit plans exist. The first plan relates to (former) employees of BOCM PAULS Ltd., which company was acquired by the Group in 2012. As per 1 October 2006, this plan was closed, so no new obligations are being incurred.

The second plan is a small defined benefit plan that relates to (former) employees of HST Feeds Ltd., which company was acquired by the Group in 2014. Also for this plan no new post-employment rights are being built up. Both defined benefit plans in the United Kingdom are funded plans, for which the funding requirements are based on the pension fund’s actuarial measurement framework set out in the funding policies of the plan.

From October 2006, a new plan exists on the basis of defined contribution. An insurance company administers the obligations under that plan.

The net liability related to the defined benefit plans in the United Kingdom per 31 December 2018 amounts to €11,089 thousand (31 December 2017: €23,302 thousand). The decrease of this liability is mainly caused by the increase in the interest rate, whereby the change in the financial assumptions was recognized in other comprehensive income. Based on a High Court ruling in the United Kingdom pension schemes are required to equalise male and female members' benefits for the effect of guaranteed minimum pensions (GMPs). This resulted in incidental past service costs of €904 thousand, which is recorded in the income statement in 2018.

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B. Movement in net defined benefit (asset) liability

The following table shows a reconciliation from the opening balance to the closing balances for net defined benefit liability and its components.

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The remeasurement gain (actuarial loss/gain and return on plan assets) of €12.0 million (2017: gain €5,158 thousand) after tax amounted to €9,870 thousand (2017: gain €4,168 thousand), see Note 16B. The change in the actuarial 'remeasurement result', compared to 2017, is mainly due to an increase in the discount rate in 2018 (in 2017, there was also an increase in the discount rate) and the return on the plan assets. For none of the defined benefit pension plans, the fair value of the plan assets exceeds the defined benefit obligation.

Based on a High Court ruling in the United Kingdom pension schemes are required to equalise male and female members' benefits for the effect of guaranteed minimum pensions (GMPs). This resulted in incidental past service costs of €904 thousand, which is recorded in the income statement in 2018.

In 2017 the Group agreed to make an additional contri­bution of £10.0 million (€11.7 million) to make up a portion of the deficit in the BOCM PAULS Ltd. pension plan.

C. Plan assets

Periodically, an Asset-Liability Matching study is performed in which the consequences of the strategic investment policies are analysed. Based on market conditions a strategic asset mix has been made between shares, bonds, real estate, cash and other investments in predominantly active markets, which is comprised as follows in the plan assets:

D. Defined benefit obligation

Risk exposure

The defined benefit plans expose the Group to actuarial risks, such as longevity risk, currency risk, interest rate risk and market (investment) risk.

Actuarial assumptions

The principal actuarial assumptions at the reporting date (expressed as weighted averages) were the following:

Assumptions regarding future mortality have been based on published statistics and mortality tables:

• The Netherlands (funded plans): AG2018 (2017: AG2016)
• Germany (unfunded plans): RT Heubeck 2018G (2017: RT Heubeck 2005G)
• Belgium (funded plans): MR/FR-5 (2017: ditto)
• UK (funded plans): CMI Mortality Projects Model “CMI_2017” (2017: "CMI_2016")

The current longevities underlying the values of the defined benefit obligation at the reporting date were as follows (expressed as weighted averages):

As at 31 December 2018, the weighted-average duration of the defined benefit obligation was 18.3 years (31 December 2017: 18.0 years).

Sensitivity analysis

Possible changes at the reporting date to one of the relevant actuarial assumptions, which could reasonably be expected, keeping other assumptions constant, would have affected the defined benefit obligation of €262 million (31 December 2017: €285 million) by the amounts shown below:

Employer contributions

The Group expects to pay €3.4 million in contributions to its defined benefit plans in 2019 (for 2018 an amount of €3.4 million was expected).

E. Other long-term service plans

The liabilities and expenses related to other long-term service plans mainly relate to anniversary benefits for employees in The Netherlands, Germany and Belgium and to a long-term incentive plan for the Executive Committee. Furthermore, the Polish employees receive in accordance with local regulations a one month salary when they retire. 

F. Employee benefit expenses

The employee benefit expenses increased by €7.1 million, despite a decrease of €0.4 million due to a currency effect and an increase of €2.6 due to the net effect of acquisitions and divestments. As a result the like-for-like increase amounts to €4.9 million. The increase is caused by the increase of the number of employees and averages salary increases.

The expenses relating to the equity-settled share-based payments relate to the depositary receipts and shares granted to the employees according to the employee participation plans as disclosed under Note 14.

The interest charges related to the defined benefit plans amounting to €924 thousand (2017: €1,083 thousand) are recognised in the finance costs.

Refer to Note 15A for further details on the post-employment plans.

The increase by 329 full-time equivalents is mainly caused by acquisitions, to a large extent Tasomix (Poland), and strenghtening of the organisation (in 2017: increase by 52; due to the further strenghtening of the organisation and related to the increase in sales volume).

2.2.4 Income taxes

2.2.4.1 16. Income taxes

A. Amounts recognised in statement of profit or loss

The total tax expense excluded the Group’s share of tax expense of the equity-accounted investees of €662 thousand (2017: €907 thousand), which has been included in ‘share of profit of equity accounted investees, net of tax’, see Note 16G.

B. Amounts recognised in Other Comprehensive Income (OCI)

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Within the Group, loans are agreed between the different subsidiaries. The loans in the United Kingdom and the loans to Polish entities are considered to form part of the net investment in the subsidiaries, and as such foreign exchange differences on these loans are recorded directly through other comprehensive income. For income tax purposes these foreign exchange differences are taxable or tax deductible.

As the foreign exchange differences are recorded through other comprehensive income, the related current tax impact is also recorded through other comprehensive income for a positive amount of €355 thousand in 2018 (2017: €290 thousand positive).

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C. Reconciliation of effective tax rate

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The change in tax rate 2018 (€1.2 million impact) mainly relates to the in 2018 enacted updated tax rates in the Netherlands with changes in 2019 up to and including 2021 (refer to Note 16F). The increase of the non-deductible expenses is mainly caused by acquisition costs, non-deductible interest expenses of the contingent considerations and the put option liability and amortisation of the intangible assets as a result of the acquisitions.

The recognition of deferred tax assets (€0.8 million) relates to the recognition of deferred tax assets in Germany (refer to Note 16E). The prior year adjustments 2018 mainly relate to one off impact of final submitted income tax returns of previous years.  

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D. Movement in deferred tax balances

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The Group expects that its accruals for tax liabilities are adequate for all open years based on its assessment of many factors, including interpretations of tax law and prior experience. The Group off-sets tax assets and liabilities if, and only if, it has a legally enforceable right to do so. The Group recognises deferred tax assets to the extent that it is considered probable based on business forecasts that sufficient taxable profits will be available.

E. Unrecognised deferred tax assets

In 2018 all deferred tax assets regarding tax losses carried forward have been recognised in Germany as the Executive Committee has established that future taxable profits should be available against which these losses can be utilised (2017: not all deferred tax assets were recognised). The not recognized deferred tax assets 2017 were included in the balance of unrecognised losses for €3.2 million at 31 December 2017, with a tax effect of €0.9 million. The tax losses can be carried forward indefinitely, but the Executive Committee applies a ten year period to determine the adequacy whether tax losses can be utilised.

Furthermore, deferred tax assets have not been recognised in respect of tax losses incurred on the sale of real estate in the United Kingdom amounting to €8.4 million (31 December 2017: €2.7 million), with a tax effect of €1.5 million (31 December 2017: €0.5 million). These tax losses can only be utilised against a future tax gain on the sale of specific assets such as real estate. As the Executive Committee does not have plans to dispose real estate, the recovery of the deferred tax asset is highly uncertain and as such not recognised. 

F. Tax Group

The Company and the Dutch subsidiaries, in which the Company has a 100% interest, form a tax group for the purpose of income tax, of which ForFarmers N.V. is the head of the tax group.

For VAT, a comparable tax group exists for the Dutch subsidiaries. The total current receivable or liability towards the tax authorities is accounted for in the statement of financial position of the head of the tax group. Settlement of taxes within this tax group takes place as if each company is independently liable for tax. Each participating subsidiary is jointly and separately liable for possible liabilities of the tax group as a whole. As of 1 January 2018 Coöperatie FromFarmers U.A. is no longer part of the VAT tax group and ForFarmers N.V. is the head of the VAT tax group.

A number of companies in Germany form a tax group for the purposes of income tax (‘Organschaft’ for Körperschaftsteuer and Gewerbesteuer). Settlement of taxes within this tax group takes place as if each company is independently liable for tax.

The companies in the United Kingdom form a tax group for the purposes of income tax (‘Group Relief’) and VAT. Settlement of taxes within this tax group takes place as if each company is independently liable for tax.

 In the other countries there is no tax group.

The above-mentioned effective tax rate deviates from the statutory tax rate mainly due to the impact of the following items: 

Netherlands

The effective tax rate is lower than the statutory tax rate due to amongst others innovation box benefits, and the tax impact due to the change in future tax rates in the Netherlands. Based on the enacted Dutch tax law, the Dutch corporate income tax rates will decrease from 25% to 22,55% per January 1, 2020 and per January 1, 2021 to 20,5%. All deferred tax calculations are updated based on deferred tax rates. This adjustment has a positive impact on our Dutch DTL position.

Germany

The effective tax rate is lower due to recognition of the deferred tax assets relating to the net operating losses.

Belgium

The effective tax rate is higher because of non-tax deductible items.

Poland

The effective tax rate is lower due to usage of subsidies for regional investments.

UK

The effective tax rate is especially in 2017 lower because of prior year adjustments. In 2018 this effect was smaller.

G. Taxes on equity-accounted investees

Corporate income taxes on the results of HaBeMa are settled with the tax authorities by ForFarmers GmbH, Germany (indirect shareholder). The results of HaBeMa are accounted for based on the equity method and are presented net of tax in the consolidated statement of profit and loss. These corporate income tax charges are deducted from the share of profit of equity-accounted investees for an amount of €662 thousand (2017: €907 thousand).

Trade taxes ('Gewerbesteuer') applicable to HaBeMa are borne by the entity itself.

2.2.5 Assets

2.2.5.1 17. Property, plant and equipment

A. Reconciliation of carrying amount

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The larger investment projects in 2018 consist of trucks (€6.4 million), investments to finalize the new production facility Exeter (€2.9 million), the construction of a biomass plant (€4.1 million), investments in IT (€3.0 million) and the reopening of the second feed mill in Deventer (€2.3 million). The reversal of impairment of €0.6 million relates to the reopening of a second mill in Deventer (Netherlands).

The other movement of €1.2 million relates to the reversal of the impairment of the reopened mill in Deventer. This other movement has no impact on the results and on the originial book value of the tangible fixed assets.

As part of the periodic reassessment of the estimated remaining useful life of property, plant and equipment the depreciation periods and if applicable the residual value of the property, plant and equipment have been revised, as from 1 January 2017.   In general, this resulted in an extension of the useful life whereby depreciation expenses based on these revised depreciation terms are €2.4 million lower compared to the depreciation terms previously used. In the Netherlands, Germany and Belgium the depreciation expenses decreased and in the United Kingdom the depreciation expenses increased.  The reassessment of the estimated remaining useful life of property, plant and equipment has not result in any changes in 2018.

Furthermore, items that were incorrectly classified were corrected, which resulted in a reclassification within property, plant and equipment and between tangible and intangible assets.

Of the 2018 additions of €45.1 million (2017: €38.2 million) an amount of €41.7 million (2017: €36.6 million) has been paid at year end. The remaining has been recognized as a liability.

B. Impairment loss

There were no indications in 2018 for an impairment of property, plant and equipment. As a result of the supply chain optimalisation in the United Kingdom in 2017, a production location has been impaired by €1.9 million during 2017.

C. Leased other operating assets

The Group leases some other operating assets under a number of finance leases. The corresponding finance lease obligations are accounted for under loans and borrowings. As at 31 December 2018, the net carrying amount of leased equipment was €1,271 thousand (2017: €101 thousand). The net effect of acquisitions and divestments is €1,209 thousand and relates to Tasomix (Poland). The like-for like decrease of €39 thousand was caused by the fact that several leased assets have been replaced by assets owned.

2.2.5.2 18. Intangible assets and goodwill

A. Reconciliation of carrying amount

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The 'acquisitions through business combinations' of €76.7 million relate to the acquisition of Maatman, Van Gorp (both the Netherlands), Algoet (Belgium) and Tasomix (Poland) (2017: total of €1,056 thousand acquired intangible assets and goodwill of Wilde Agriculture Ltd.) see Note 6.

The reclassification from property, plant and equipment relates to software which was incorrectly classified, see also Note 17.

B. Amortisation

The amortisation of customer relations, trademarks and software of €6,917 thousand (2017: €6,332 thousand) is included in the depreciation, amortisation and impairment expense.

C. Impairment test

(i) Impairment testing for cash generating units containing goodwill

Annually the Group performs its goodwill impairment test in the third quarter. Moreover, the test is conducted any other time if there is a trigger for goodwill impairment. Goodwill is monitored and tested at the level of the cash generating units. The Group evaluates, amongst others, the relationship between the recoverable amount and the carrying amount in the evaluation of indicators of potential impairment.

Goodwill is allocated as follows to the cash generating units:

The increase of goodwill is a result of the acquisition of Maatman, Van Gorp (both the Netherlands), Algoet (Belgium) and Tasomix (Poland), see also Note 6. The change of goodwill in the United Kingdom is caused by a change of the foreign exchange rate.

Information about the net realisable value including the key assumptions

For the goodwill impairment test, the recoverable amount of the various cash generating units was based on its value in use, determined by discounting the future cash flows to be generated from the continuing use of the cash generating units. The fair value measurement was categorised as a Level 3 fair value based on the inputs in the valuation technique used (see Note 4).

The key assumptions used in the estimation of value in use per cash generating unit in 2018 were as follows.

The key assumptions used in the estimation of value in use per cash generating unit in 2017 were as follows.

The used discount rate was a pre-tax measure based on the yield of 30-year government bonds, issued by the government in the relevant market and in the same currency as the cash flows, adjusted for a risk premium to reflect both the increased risk of investing in equities generally, and the systemic risk of the specific cash generating unit.

The average EBITDA growth rates were based on expectations of future outcomes of gross profits taking into account past experience of the average growth of recent years and estimated sales volumes in tonnes. To estimate the forecasted gross profit, primarily an assessment has been made on margin development, and not on sales price development. The commodity price development is hard to predict, however it is charged through to customers. In determining the developments in the expenses the volume, inflation and cost savings are considered.

The value in use of the cash generating units is determined based on the budget 2018 (2017: budget 2017) and the 5 year plan. For the period after 2023 a growth rate equal to the terminal value growth rate is used, which is common practice in the market.

Result of the goodwill impairment test and sensitivity analysis

The result of the goodwill impairment test of the cash-generating units in 2018 shows that the recoverable amount exceeds the carrying amount of the cash generating units, and no impairment was required (2017: same outcome).

The recoverable amount exceeds the carrying amount significantly for the cash flow generating units the Netherlands, Germany/Belgium and Poland. For the cash flow generating unit United Kingdom the difference between the recoverable amount and carrying amount has increased to €30.9 million (£27.4 million) (2017: €7.8 million, £7.1 million), mainly as a result of a lower discount rate (0.5%) and a lesser part due to the improved forecasted future operating performance.

In 2018 a reasonable adjustment of the assumptions, as part of our sensitivity analysis, did not result in recoverable amounts below the carrying amounts of these cash generating units. However, a reasonable adjustment of the assumptions of the cash flow generating unit of the United Kingdom could result in a limited but still positive difference between the recoverable amount and the carrying amount. The maximum fluctuation of the assumptions which could result in a recoverable amount equal to the carrying amount, are included in the table below:

A reasonable change in the assumptions could have resulted in a recoverable amount below the carrying amount of the cash flow generating unit in the 2017 goodwill impairment test for the United Kingdom.

The key assumptions used in the goodwill impairment test 2017 of the United Kingdom and the changes to these assumptions which would have resulted in a recoverable amount equal to the carrying amount are included in the table below:

(ii) Impairment on intangible assets other than goodwill

Like goodwill the Group recognised no impairment on other intangible assets in 2018 and 2017.

2.2.5.3 19. Investment property

A. Reconciliation of carrying amount

Investment property comprises a number of Industrial properties that are no longer in use for the Group's feed activities. The reclassification to tangible fixed assets relates to the reopening of the second feed mill in Deventer.

B. Fair value information 

The fair value of investment property was determined by external, independent property valuators, having appropriate recognised professional qualifications and experience, and taking into account sales prices which have currently been agreed upon.

The fair value measurement for investment properties was €0.7 million (31 December 2017: €2.1 million) and has been categorised as a Level 3 fair value based on the information derived from market transactions. The decrease in the fair value is due to the reclassification to tangible fixed assets as a result of the reopening of the second feed mill in Deventer.

The following table shows the valuation technique used in measuring the fair value of investment property, as well as the significant unobservable inputs used.

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2.2.5.4 20. Equity-accounted investees

The table below shows the amount of equity-accounted investees:

The table below shows share of profit of equity-accounted investees, net of tax:

Joint venture

HaBeMa Futtermittel Produktions- und Umschlagsgesellschaft GmbH & Co. KG (HaBeMa) is the only joint venture in which the Group participates. HaBeMa is one of the Group’s suppliers and is principally engaged in trading of raw materials, storage and transhipment, production and delivery of compound feeds in Hamburg, Germany.

HaBeMa is structured as a separate vehicle and the Group has a residual interest in the net assets of the entity. Accordingly, the Group has classified its interest in HaBeMa as a joint venture. The Group does not have any commitments or contingent liabilities relating to HaBeMa, except for the purchase commitments of goods as part of the normal course of business.

Corporate income taxes on the results of HaBeMa with regards to the residual interest of the Company are settled with the tax authorities by ForFarmers GmbH, Germany (indirect shareholder).

The results of HaBeMa are accounted for based on the equity method and are presented net of tax in the consolidated statement of profit and loss. These corporate income tax charges are deducted from the share of profit of equity-accounted investees for an amount of €662 thousand (2017: €907 thousand). Trade taxes ('Gewerbesteuer') applicable to HaBeMa are borne by the entity itself.

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The following table summarises the financial information of HaBeMa as included in its own financial statements, adjusted for differences in accounting policies. The table also reconciles the summarised financial information to the carrying amount of the Group’s interest in HaBeMa.

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2.2.5.5 21. Trade and other receivables

2.2.5.5.1

The increase of trade and other receivables is mainly due to the effect of acquistions of €47.0 million.  

The non-current trade and other receivables consist of:

• Receivables that will be due after one year, that are largely interest-bearing and mainly include loans to customers for which, if possible, securities were provided in the form of feed equivalents, participation accounts and real estate.

• The policy is not to provide loans to employees.
  Loans to Dutch employees, of which the level of interest is equal to the interest on Dutch state loans and at least equal to the interest referred to in Article 59 of the Wages & Salaries Tax Implementing Regulation 2001. The repayment of the loans is a minimum of 7.5% per annum of the principal amount starting from 2015. As a collateral with respect to repayment, a lien was established on the depositary receipts purchased with the loan amount, the market value of which per balance sheet date exceeds the balance of the loans. These loans have been provided as part of the participation plan 2007-2009. No new loans will be provided to employees.

The prepayments, other receivables and accrued income mainly consist of unbilled revenue to customers and prepayments to suppliers.

Information about the Group’s exposure to credit and market risks, and impairment losses for trade and other receivables, is included in Note 32.

2.2.5.6 22. Inventories

The increase in inventories is mainly caused by acquisitions and the increase in the raw material prices. At 31 December the share of the acquired and divested entities is approximately €6.9 million. The remaining increase is driven by the increasing raw material prices.

Other inventories include trading inventories which are part of the Group’s Total Feed business, and include, amongst others, specialty trade products, fertilizers and seeds. The increase of other inventrories is mainly due to the increase in the raw material prices.

In 2018, an amount of €30 thousand was added to the provision of inventories (2017: €40 thousand).

For important purchase commitments reference is made to the explanation of the commitments and contingencies under Note 36.

2.2.5.7 23. Biological Assets

A. Reconciliation of carrying amount

As at balance sheet date the poultry livestock comprises of 902,756 animals (2017: 934,732 animals) with a value of €4.3 million (2017: €4.7 million). The poultry livestock relate to hens and a number of roosters, reared to an age ranging between 16 and 20 weeks, which are sold to hatcheries. The entire inventory is a current balance.

B. Measurement of fair values

Fair value hierarchy

The fair value measurement for the roosters and hens is based on the full production costs plus a proportional share of the margin to be realised at sale. No active market with quoted market prices exists for these hens and therefore, the Executive Committee considers the most recent market transaction price to be the most reliable estimate for fair value resulting in a fair value hierarchy Level 3.

Level 3 fair values

The following table shows a breakdown of the total gains (losses) recognised in cost of raw materials and consumables in respect of Level 3 fair values (poultry livestock). The non-realised part of the adjustment in fair value is part of the revaluation of the biological assets at the balance date.

Valuation techniques and significant unobservable inputs

The following table shows the valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable inputs used.

2.2.5.7.1

2.2.5.7.2

C. Risk management of biological assets

The Group is exposed to the following risks relating to its livestock.

Regulatory and environmental risks

The Group is subject to laws and regulations in various countries in which it operates. The Group has established environmental policies and procedures aimed at compliance with local environmental and other laws.

Supply and demand risk

The Group is exposed to risks arising from fluctuations in the price and sales volume of poultry livestock. The Executive Committee performs regular industry trend analyses for hens and rooster volumes and pricing.

Risks related to animal diseases

The Group is exposed to the regular risks relating agricultural activities, amongst others risks related to diseases. The Group follows the developments in the market closely and adjusts its policy where required.

2.2.5.8 24. Cash and cash equivalents

The outstanding deposits are saving accounts which can be withdrawn immediately without cost. As such the Group considered these to be part of cash and cash equivalents.

The cash and cash equivalents are at the free disposal of the Group. The decrease in cash and cash equivalents is mainly caused by acquisitions, investments in assets, the during 2018 completed share buy back program, and paid dividends, partly compensated by realised EBITDA.

2.2.5.9 25. Assets held for sale