Royal FloraHolland expects loss of several millions in 2020

Royal FloraHolland (RFH) expects that the impact of the coronavirus will result in a loss of several millions of euros. This was announced by financial director David van Mechelen during the presentation of the Annual Report 2019 (which included a €5.6-million profit). However, the continuity of the auction is not compromised.

“We’re expecting a great loss for 2020 and we’ll have to make use of our credit facility”, said David van Mechelen. The auction was in a good place before the coronavirus. But this crisis is hitting the auction hard. The turnover achieved via the auction during period 3 was 350 to 400 million euros less than last year. That’s 40% of the turnover that was realised during the same period in 2019.

To mitigate the effects of the coronavirus crisis, the auction has applied for the governmental Covid-19 emergency fund. To reduce their costs, they’ve also let go of external services and agency workers. And they’ve cut back on certain investments, like major building maintenance.

Extra loans

But the measures they’ve taken so far, won’t be enough to absorb the current income and profit losses, expect Van Mechelen and CEO Steven van Schilfgaarde. When the coronavirus crisis began, RFH had an entirely unused credit facility of €195 million. They’ll have to start making use of it this year.

CFO David van Mechelen. Photo Royal FloraHolland.

Royal FloraHolland is also talking to their banks (Rabobank, ING and ABN Amro) about additional credit facilities. Van Mechelen: “We won’t be able to stay in the black this year, so we’ll have to borrow money.” It’s the only way to ensure Royal FloraHolland’s continuity. The financial director says that the rates for growers and buyers will stay the same this year.

Royal FloraHolland is also accelerating the introduction of their strategy. They’ll go ahead with their investments in 100% digital via Floriday, nationwide auctioning by 2021 and new logistics services and payment methods. Their branch in Eelde serves as a showcase this year. The auction is testing new concepts here, for dealmaking as well as new logistics services and auctioning methods. According to Van Schilfgaarde, acceleration is of outmost importance now. “To help us get out of the crisis in the best possible way, we must accelerate both our cost savings and the implementation of our strategy.”

Economic contraction

The auction isn’t planning to sell any of their locations, assures Van Schilfgaarde. “We have a clear strategy for the delivery of plants and flowers to all buyers, under the direction of RFH. Buyers are in different locations. We’ll always continue to provide our services from the three export locations. If nationwide auctioning leads to a more effective and efficient use of our logistics processes and spaces, that will provide growth opportunities for other companies.”

With regards to the longer term, Van Schilfgaarde says: “We’re preparing for a situation of economic contraction. The predictions range from -1% to -10%. If there’s going to be a major economic crisis throughout Europe, we’ll be facing a drop in demand. There’s always a correlation between plant and flower sales and economic growth.”

The CEO doesn’t expect to see a significant change in the way in which consumers buy plants and flowers. The market shares of retail and specialist shops won’t change much. “E-commerce is accelerating though, and direct sales are increasing. The drop in clock sales is happening faster than anticipated. That’s also one of the reasons why we’re speeding up the development of our logistics services for direct sales.”

€5.6-million profit

The presented annual report outlined that Royal FloraHolland traded 12.3 billion products in 2019, which was an increase of 1.5%. The turnover achieved by growers through the auction grew by 3.1%, reaching € 4.8 billion (2018: € 4.6 billion). Cut flowers (+3.0%), as well as indoor plants (+3.4%) and garden plants (+2.6%) were responsible for the increase in turnover.

The higher turnover was a result of higher volumes and higher average prices. With € 368 million, the auction’s revenues remained the same as in 2018. They made a €5.6-million profit, mainly because of lower operating expenses.

Just like in previous years, 2019 showed a further shift from clock sales to direct sales between growers and buyers. In 2019, clock sales accounted for 40.7% (2018: 42.3%) of the total turnover, while the direct flows accounted for 59.1% (2018: 57.7%).

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