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PRF: Consolidated Unaudited Interim Report of AS PRFoods for the 4th quarter and 12 months of 2018/2019 financial year

OVERVIEW OF ECONOMIC ACTIVITIES

MANAGEMENT COMMENTARY

We remind you that since we changed our financial year, the previous financial year was 18 months long. The current financial year that began on 1 July 2018 is of standard length and ends on 30 June 2019. The comparable data presented in the management report stems from comparable periods: the 4th quarter of the current financial year i.e. the 2nd quarter of 2019 is compared to the 2nd quarter of 2018, and the 12 months of the financial year i.e. the period from 01 July 2018 till 30 June 2019 is compared to the period from 01 July 2017 till 30 June 2018.

PRFoods’ 2018/2019 Q4 sales were 21.5 million euros (last year 22.2 million euros) and full year sales were 85.7 million euros (last year 94.9 million euros). The reasons for decreased sales were mainly lower sales from our Estonian factory to Finland and a decrease in trading of fresh fish in Finland.

Although the quarter’s sales decreased by 3%, gross profit improved by 20% in Q4. Gross profit for the quarter was 2.1 million euros, increasing by 0.3 million (last year 1.8 million). Gross margin improved by 1.9 percentage points and was 9.8%. Full year gross profit was 11.9 million euros, last year 13.2 million euros. Full year gross margin stayed at the same level as last year – 13.9%. Hence, we managed to keep our efficiency, the decrease of gross profit comes simply from a decrease of sales.

The Group’s EBITDA in Q4 was 0.3 million euros, being at the same level as last year. Full year EBITDA was 1.7 million euros, compared to 4.4 million euros last year. EBITDA was mainly affected by a very weak result in Q2 and partly also in Q3 in our Estonian unit. The main problem was over acquisition of raw material in Estonia and Finland and taking into account that trout prices decreased, the realization of inventory resulted in a loss. Today we have put our inventory management on a new footing and our stock is kept at an optimum level.

2018/2019 full year EBITDA from operations was 4.0 million euros, EBITDA including impacts of biomass revaluation and one-offs was 1.7 million euros. 2018/2019 net loss was 1.5 million euros, which was mainly triggered by decrease of biomass fair value caused by lower volume of fish farming and trout price drop. Additionally, decrease of sales volumes and increase of labour costs had a negative impact on the result.

The main activities of 2018/2019 have been related to amending our product portfolio, to reduce low-margin products for more value-added products, which has caused drop in sales. Higher margins do not yet compensate for total gross profit loss from decreased sales.

Poor results in winter period this financial year weighted down the entire year. From Q2 we have improved our efficiency and results in all units.

In order to summarize, main areas affecting loss in profits are:

-              Raw material inventory at higher prices from last year (situation fixed by now).

-              Increase in labour costs temporarily due to merger process and duplication of functions (labour cost optimization started in summer, full effect in place from October).

-              Lower sales to Finland (due to restructuring of production management in Estonia-Finland).

-              Coln Valley relocation costs to John Ross Jr factory (at the same time we got significant cost efficiencies, fully to be realized in 2019/2020 financial year).

-              Change in price of fish affected the biological assets’ i.e. fish farming profitability. The negative impact of revaluation of biological assets was 1.1 million euros higher compared to last year 12 months. The main reason was a drop in harvested volume by 437 tonnes. Also, price of trout decreased by 19.9% in a year. Taking into account that 100% our farmed fish is used in our factories, a change in fair value of biomass reflects an accounting principal. Due to decrease of biological assets the absent additional raw material is purchased from third parties at the same price level as intercompany sales from our own farms to factories.

 From positive side, we can remark:

-              Improvement in operational cash flow.

-              Finishing of large-scale investment programme in Estonia, UK and in fish farms.

-              Saaremaa factory is first BRC-certified fish processor, allowing John Ross Jr products to be produced also in Estonia.

-              Cost cutting programme from merger, resulting in savings of more than 0.5 million euros annually.

-              Onboarding new managers and specialists. From July 2019, we have new CEO for companies in Finland and Estonia. The Group has new CFO and chief accountant.

-              Investments were made to turn PRFoods into the region’s most ecologically conscious fish processor (new packaging lines, solar power in Estonia and Finland)

In essence, 2018/2019 was one of the most challenging years in company’s history. Several circumstances (high inventory levels, decreased trout price, overlapping functions in Estonia and Finland, production restructuring in Estonia, introduction of new products) and launch of several new projects simultaneously resulted in the Group ending the year in loss.

While the Group’s speed of restructuring of production and sales units in Estonia and Finland last year was not satisfactory, the positive development in the Group’s fish farming unit was achieved. The Group expects to receive new farming licences in Sweden and has launched environmental surveys in three areas in Estonia. Presumably these will be carried out in 2019, to begin new farming activities in 2020. In case of positive scenarios, the production volume within next years shall be increased by at least 5,000 tonnes. In addition, a feasibility study for a fish farm in Paldiski, Estonia is launched.

For 2019/2020 financial year the Group expects sales increase by at least 5% and EBITDA improvement of 25-30%. Also, the packaging and product development of Heimon Kala and John Ross Jr have been totally relaunched. Fish purchases in Finland and Estonia are made in consolidated basis, resulting in significant savings in raw material prices.

KEY RATIOS

INCOME STATEMENT 

mln EUR 2Q 2019 1Q 2019 4Q 2018 3Q 2018 2Q 2018 1Q 2018 4Q 2017 3Q 2017
Sales 21.5 18.1 26.7 19.4 22.1 22.7 32.0 18.0
Gross profit 2.1 2.1 4.7 3.0 1.8 2.4 6.6 2.5
EBITDA from operations 0.3 0.2 2.4 1.1 -0.2 0.7 4.3 1.2
EBITDA 0.3 -0.5 0.8 1.1 0.3 0.6 1.6 2.0
EBIT -0.3 -1.0 0.2 0.6 -0.2 0.1 1.0 1.5
EBT -0.4 -1.2 0.0 0.4 -0.5 -0.2 0.8 1.3
Net profit (-loss) -0.6 -1.2 0.2 0.1 -1.1 -0.2 1.2 1.1
Gross margin 9.8% 11.7% 17.7% 15.2% 7.9% 10.6% 20.5% 13.6%
Operational EBITDA margin 1.4% 1.1% 9.1% 5.4% -1.1% 3.1% 13.4% 6.7%
EBITDA margin 1.4% -2.5% 2.9% 5.8% 1.2% 2.5% 4.9% 11.1%
EBIT margin -1.2% -5.6% 0.9% 3.0% -1.1% 0.2% 3.1% 8.5%
EBT margin -2.0% -6.5% 0.1% 1.8% -2.3% -0.9% 2.5% 7.3%
Net margin -3.0% -6.6% 0.8% 0.7% -5.1% -1.0% 3.9% 6.2%
Operating expense ratio 11.7% 14.1% 11.2% 13.5% 12.0% 10.5% 9.3% 11.1%

BALANCE SHEET

mln EUR 30.06.2019 31.03.2019 31.12.2018 30.09.2018 30.06.2018 31.03.2018 31.12.2017
Net debt 20.5 18.7 20.0 21.9 18.1 16.7 16.6
Equity 21.9 23.3 24.2 24.1 23.3 24.3 24.7
Working capital -3.1 -1.6 1.0 2.0 2.8 4.6 5.3
Assets 62.5 63.5 65.5 64.5 65.5 66.4 68.6
Liquidity ratio 0.9x 0.9x 1.0x 1.1x 1.1x 1.2x 1.2x
Equity ratio 35.0% 36.7% 37.0% 37.4% 35.6% 36.6% 36.0%
Gearing ratio 48.3% 44.5% 45.2% 47.6% 43.7% 40.7% 40.1%
Debt to total assets 0.7x 0.6x 0.6x 0.6x 0.6x 0.6x 0.6x
Net debt to EBITDA 5.1x 5.4x 5.1x 3.8x 3.1x 2.6x 3.1x
ROE -6.5% -8.2% -4.0% 0.1% 0.2% 8.6% 5.8%
ROA -2.3% -3.0% -1.5% 0.0% 0.1% 4.1% 2.7%

Consolidated Statement of Financial Position

Thousand euros 30.06.2019 30.06.2018
ASSETS    
Cash and cash equivalents 2,583 5,960
Receivables and prepayments 5,300 4,706
Inventories 11,980 12,678
Biological assets 4,924 6,498
Total current assets 24,787 29,842
     
Deferred income tax 41 153
Long-term financial investments 202 134
Tangible fixed assets 14,535 12,764
Intangible assets 22,969 22,604
Total non-current assets 37,747 35,655
TOTAL ASSETS 62,534 65,497
     
EQUITY AND LIABILITIES    
Loans and borrowings 13,502 12,562
Payables 14,105 14,254
Government grants 234 216
Total current liabilities 27,841 27,032
     
Loans and borrowings 9,540 11,487
Payables 190 0
Deferred tax liabilities 2,010 2,441
Government grants 1,087 1,226
Total non-current liabilities 12,827 15,154
TOTAL LIABILITIES 40,668 42,186
     
Share capital 7,737 7,737
Share premium 14,007 14,007
Treasury shares -390 -390
Statutory capital reserve 51 48
Currency translation reserve -214 7
Retained profit (-loss) -45 1,904
Equity attributable to parent 21,146 23,313
Non-controlling interest 720 -2
TOTAL EQUITY 21,866 23,311
TOTAL EQUITY AND LIABILITIES 62,534 65,497

Consolidated Statement of Profit or Loss And Other Comprehensive Income

Thousand euros 2Q 2019 2Q 2018 12m 2018/2019 12m 2017/2018 18m 2017/2018
Sales 21,485 22,149 85,727 94,871 118,499
Cost of goods sold -19,383 -20,395 -73,830 -81,694 -103,811
Gross profit 2,102 1,754 11,897 13,177 14,688
           
Operating expenses -2,522 -2,658 -10,702 -10,007 -12,423
  Selling and distribution expenses -1,797 -1,924 -7,499 -7,125 -8,841
  Administrative expenses -725 -734 -3,203 -2,882 -3,582
Other income / expense -106 -428 83 -162 -250
Fair value adjustment on biological assets 268 1,099 -1,744 -674 -524
Operating profit (loss) -258 -233 -466 2,334 1,491
Financial income 0 4 23 9 10
Financial expenses -169 -274 -799 -945 -1,034
Profit (loss) before tax -427 -503 -1,242 1,398 467
Income tax -213 -622 -230 -399 -410
Net profit (loss) for the period -640 -1,125 -1,472 999 57
           
Net profit (loss) attributable to:          
Owners of the company -621 -1,051 -1,569 1,001 59
Non-controlling interests -19 -74 97 -2 -2
Total net profit (loss) -640 -1,125 -1,472 999 57
           
Other comprehensive income (loss) that may subsequently be classified to profit or loss:          
Foreign currency translation differences -770 -105 -221 -410 -421
Total comprehensive income (expense) -1,410 -1,230 -1,693 589 -364
           
Total comprehensive income (expense) attributable to:          
Owners of the Company -1,391 -1,156 -1,790 591 -362
Non-controlling interests -19 -74 97 -2 -2
Total comprehensive income (expense) for the period -1,410 -1,230 -1,693 589 -364
           
Profit (loss) per share (EUR) -0.04 -0.03 -0.05 0.02 0.00
           
Diluted profit (loss) per share (EUR) -0.04 -0.03 -0.05 0.02 0.00

Indrek Kasela

 AS PRFoods

 Member of the Management Board

 Phone: +372 452 1470

 investor@prfoods.ee

 www.prfoods.ee

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