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

The 2018 acquisitions through business combinations related to transport vehicles which were obtained as part of the Maatman acquisition. These vehicles were sold during 2018. Furthermore, the land site Doetinchem (the Netherlands) has been reclassified to asset held for sale. The land has a book value of nil and a fair value of €0.9 million.

In 2017 transportation vehicles were reclassified from property, plant and equipment to assets held for sale as a result of the announced strategic partnership between ForFarmers the Netherlands and Baks. Furthermore, during 2017 a storage facility, customer relationships and goodwill were classified as assets held for sale due to the sale of agriculture activities to CZAV. These assets were sold in 2018.