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OVERVIEW OF ECONOMIC ACTIVITIES
MANAGEMENT COMMENTARY
The Group's consolidated EBITDA in the 1st quarter of the 2020/2021 financial year was -0.48 million euros (1Q 19/20: 1.47 million euros). EBITDA from operations (i.e. before one-offs and revaluation of bioassets) was -0.34 million euros (1Q 19/20: 0.73 million euros). EBITDA from operations was negatively impacted by a decrease in the share of smoked products in sales, which was mainly due to lower sales volumes and prices in Finland in the private label segment; Covid-19’s negative impact on sales in the HoReCa (hotels, restaurants, catering) sector and a decrease in fish market prices - salmon price decreased -9.4% and rainbow trout price decreased -21.4% compared to the same period last year. Due to the above, the gross margin decreased by 4.0 pp compared to the 1st quarter of the previous financial year (1Q 20/21: 9.4% vs. 1Q 19/20: 13.4%).
The net loss for the quarter was 1.44 million euros (1Q 19/20: net profit 0.57 million euros), including an increase in financial expenses of 0.11 million euros due to the increase in interest expenses (investment loan interest 3.25% vs. bond interest 6.25%).
Group sales revenue
The Group's consolidated turnover in the 1st quarter was 12.7 million euros, decreasing by 34.1% compared to the same period last year (1Q 19/20: 19.3 million euros), including a 1.5% decrease in sales in retail chains, 52.1% in the HoReCa sector and 60.9% in wholesale.
The crisis continues in the fish sector and the temporary and partial opening of countries in the summer was too short for the market to recover. As noted in the previous announcement, the HoReCa sector, which accounts for about 1/3 of all salmon and trout trade, both globally and regionally, will not return to previous levels in the next 12 months. As a result, raw material and sales prices have fallen by almost a quarter. To some extent, this is offset by retail sector, but it is not enough. This has led to a situation of oversupply in the market, forcing producers to lower prices. Fish farmers also operate at or below cost price, which is why most of the largest fish farmers have reported a significant reduction in profits or losses.
A larger change in consumption behaviour indicates that the share of fresh fish in sales is increasing and the share of smoked fish in the Finnish market is not growing. This requires a restructuring of today's production models, and new products in our portfolio will be based on fresh fish. At the same time, wholesale sales continue to decline in monetary terms due to the collapse of HoReCa and falling fish prices. Although June-July witnessed a recovery, the arrival of the second wave of the virus has already placed additional restrictions on the HoReCa sector in several countries since August.
On the positive side, the quarter will be characterized by the growth of the volume of the Estonian fish farming, the export of fish farmed by us to Japan and the British government's subsidies for employees on compulsory leave. This year we foresee a decline in the Finnish market, a growth in the Baltics, especially in Estonia, where we have achieved a significant market share in a short time. John Ross Jr. has been very resilient to the crisis and has maintained its profitability and prices of its products despite some decline in turnover. A significant part of the decrease in Finnish turnover is due to the decrease in wholesale, i.e. fresh fish trading, as well as sales prices, as the price of raw materials has also decreased – this is typical for a market with a very large share of private label products.
We are certainly not satisfied with the results of our Finnish units and at the beginning of the calendar year we will start a thorough restructuring of the Finnish units, which should ensure a positive cash flow. The optimization of Finland's cost base is hampered by the fact that the Finnish labour market is inflexible and that the Finnish state has not made efforts to support companies in crisis. We will traditionally end the second quarter (October-November 2020) with a profit, despite the restrictions arising from the corona.
Financial position
The company's net debt was 21.5 million euros as of 30.09.2020 (30.06.2020: 20.7 million euros). As of 30.09.2020, the Group's working capital was negative: current liabilities exceeded the level of current assets by 4.4 million euros (30.06.2019: 4.0 million euros). Current liabilities include liabilities to related parties in the amount of 4.6 million euros (including 1.7 million euros short-term loan with accrued interest from Amber Trust II SCA and 2.9 million euros fair value of non-controlling interest buy-out obligation in JRJ & PRF Ltd. Eliminating short-term liabilities to related parties, with whom the Group has the opportunity to agree on payment terms longer than 12 months, if required, the Group's working capital is positive.
Events of the 1st quarter and future plans for the financial year
This financial year will continue to be affected by Covid-19, and we will certainly see the effects of the ongoing economic crisis materialize in the next financial year. We assume that the recovery of the HoReCa sector will not be seen until 2021. Considering that the share of total global HoReCa in salmon and trout is about 30%, there is an oversupply of both raw materials and finished products in the market due to the corona epidemic.
Based on analysts' and Fishpool's salmon futures prices, price growth and demand growth of up to 9% can be expected only in 2021. The average future price of salmon in 2021 at the date of the report is 5.55 euros per kg compared to 4.40 euros per kg in August 2020.
For PRFoods, the biggest impact is on the market price of fish. This is due to two main reasons: a) the impact on fish farming, b) the change in Finnish retail prices, where the prices of final products react immediately to the fall in raw material prices due to the large share of private label market in the whole market. Due to the decrease in demand for HoReCa, we will see low fish prices until the spring of 2021. This is definitely a good news for consumers. Despite increased production volumes and demand for some products, lower prices do not allow such a large profit to be made in absolute terms.
Considering the situation, we are more optimistic about the future than at the end of the financial year, for the following reasons:
We have implemented a cost-saving program since the 2nd quarter, as a result of which costs will decrease by approximately 0.5 million euros per year. The main theme for the 2020/2021 financial year is the maintenance of a positive cash flow and sustainable operations. Considering the regional position of the Group's companies, we believe that we will be able to cope better with the situation than our competitors.
Covid-19 has created a new situation, but despite this, PRFoods never had to stop production. We will continue to develop PRFoods as an environmentally friendly and high-quality fish farming and processing company.
KEY RATIOS
INCOME STATEMENT
| mln EUR | 3Q 2020 | 2Q 2020 | 1Q 2020 | 4Q 2019 | 3Q 2019 | 2Q 2019 | 1Q 2019 | 4Q 2018 |
| Sales | 12.7 | 15,1 | 18,5 | 25.4 | 19,3 | 21.5 | 18.1 | 26.7 |
| Gross profit | 1.2 | 0,7 | 2,0 | 4.3 | 2,6 | 2.1 | 2.1 | 4.7 |
| EBITDA from operations | -0.3 | -0,4 | 0,0 | 2.1 | 0,7 | 0.3 | 0.2 | 2.4 |
| EBITDA | -0.5 | -0,4 | -0,9 | 1.4 | 1,5 | 0.3 | -0.5 | 0.8 |
| EBIT | -1.1 | -1,0 | -1,4 | 0.7 | 1,0 | -0.3 | -1.0 | 0.2 |
| EBT | -1.4 | -1,2 | -1,8 | 0.6 | 0,8 | -0.4 | -1.2 | 0.0 |
| Net profit (-loss) | -1.4 | -1,3 | -1,7 | 0.5 | 0,6 | -0.6 | -1.2 | 0.2 |
| Gross margin | 9.4% | 4,6% | 10,8% | 17.0% | 13,4% | 9.8% | 11.7% | 17.7% |
| Operational EBITDA margin | -2.6% | -2,6% | 0,1% | 8.4% | 3,8% | 1.4% | 1.1% | 9.1% |
| EBITDA margin | -3.8% | -2,6% | -4,6% | 5.3% | 7,6% | 1.4% | -2.5% | 2.9% |
| EBIT margin | -8.8% | -6,4% | -7,8% | 2.9% | 5,0% | -1.2% | -5.6% | 0.9% |
| EBT margin | -11.3% | -8,1% | -9,8% | 2.2% | 3,9% | -2.0% | -6.5% | 0.1% |
| Net margin | -11.3% | -8,4% | -9,2% | 2.0% | 2,9% | -3.0% | -6.6% | 0.8% |
| Operating expense ratio | 18.2% | 13,9% | 14,3% | 12.5% | 13,4% | 11.7% | 14.1% | 11.2% |
BALANCE SHEET
| mln EUR | 30.09.2020 | 30.06.2020 | 31.03.2020 | 31.12.2019 | 30.09.2019 | 30.06.2019 | 31.03.2019 |
| Net debt | 21.5 | 20.7 | 17,0 | 17.8 | 19,9 | 20.5 | 18.7 |
| Equity | 18.5 | 19.8 | 21,6 | 23.3 | 22,8 | 21.9 | 23.3 |
| Working capital | -4.4 | -4.0 | -2,5 | -3.5 | -3,0 | -3.1 | -1.6 |
| Assets | 57.4 | 57.1 | 56,9 | 60.5 | 62,4 | 62.5 | 63.5 |
| Liquidity ratio | 0.8x | 0.8x | 0,9x | 0.9x | 0,9x | 0.9x | 0.9x |
| Equity ratio | 32.3% | 34.7% | 37,9% | 38.5% | 36,5% | 35.0% | 36.7% |
| Gearing ratio | 53.7% | 51.1% | 44,0% | 43.3% | 46,6% | 48.3% | 44.5% |
| Debt to total assets | 0.7x | 0.7x | 0,6x | 0.6x | 0,6x | 0.7x | 0.6x |
| Net debt to EBITDA op | 12.8x | 7.5x | 5,3x | 5.3x | 5,4x | 5.1x | 5.4x |
| ROE | -7.0% | -9.1% | -5,7% | -3.2% | -4,5% | -6.5% | -8.2% |
| ROA | -2.4% | -3.2% | -2,1% | -1.2% | -1,6% | -2.3% | -3.0% |
Consolidated Statement of Financial Position
| Thousand euros | 30.09.2020 | 30.06.2020 |
| ASSETS | ||
| Cash and cash equivalents | 1,091 | 2,276 |
| Receivables and prepayments | 3,232 | 3,578 |
| Inventories | 8,746 | 7,884 |
| Biological assets | 5,423 | 4,249 |
| Total current assets | 18,492 | 17,987 |
| Deferred income tax | 54 | 54 |
| Long-term financial investments | 232 | 232 |
| Tangible fixed assets | 16,006 | 16,179 |
| Intangible assets | 22,606 | 22,672 |
| Total non-current assets | 38,898 | 39,137 |
| TOTAL ASSETS | 57,390 | 57,124 |
| EQUITY AND LIABILITIES | ||
| Loans and borrowings | 10,322 | 10,611 |
| Payables | 12,385 | 11,132 |
| Government grants | 212 | 211 |
| Total current liabilities | 22,919 | 21,954 |
| Loans and borrowings | 12,261 | 12,368 |
| Payables | 900 | 190 |
| Deferred tax liabilities | 1,934 | 1,920 |
| Government grants | 833 | 873 |
| Total non-current liabilities | 15,928 | 15,351 |
| TOTAL LIABILITIES | 38,847 | 37,305 |
| Share capital | 7,737 | 7,737 |
| Share premium | 14,198 | 14,007 |
| Treasury shares | -390 | -390 |
| Statutory capital reserve | 51 | 51 |
| Currency translation reserve | -397 | -366 |
| Retained profit (-loss) | -3,056 | -1,654 |
| Equity attributable to parent | 18,143 | 19,385 |
| Non-controlling interest | 400 | 434 |
| TOTAL EQUITY | 18,543 | 19,819 |
| TOTAL EQUITY AND LIABILITIES | 57,390 | 57,124 |
Consolidated Statement of Profit or Loss And Other Comprehensive Income
| Thousand euros | 3months 2020/2021 | 3 months 2019/2020 |
| Sales | 12,737 | 19,329 |
| Cost of goods sold | -11,537 | -16,747 |
| Gross profit | 1,200 | 2,582 |
| Operating expenses | -2,322 | -2,598 |
| Selling and distribution expenses | -1,558 | -1,792 |
| Administrative expenses | -764 | -806 |
| Other income / expense | 91 | 128 |
| Fair value adjustment on biological assets | -94 | 846 |
| Operating profit (loss) | -1,125 | 958 |
| Financial income/-expenses | -309 | -203 |
| Profit (loss) before tax | -1,434 | 755 |
| Income tax | -4 | -185 |
| Net profit (loss) for the period | -1,438 | 570 |
| Net profit (loss) attributable to: | ||
| Owners of the company | -1,402 | 513 |
| Non-controlling interests | -36 | 57 |
| Total net profit (loss) | -1,438 | 570 |
| Other omprehensive income (loss) that may subsequently be classified to profit or loss: | ||
| Foreign currency translation differences | -31 | 315 |
| Total comprehensive income (expense) | -1,469 | 885 |
| Total comprehensive income (expense) attributable to: | ||
| Owners of the Company | -1,433 | 828 |
| Non-controlling interests | -36 | 57 |
| Total comprehensive income (expense) for the period | -1,469 | 885 |
| Profit (loss) per share (EUR) | -0.04 | 0.01 |
| Diluted profit (loss) per share (EUR) | -0,04 | 0,01 |
Indrek Kasela
AS PRFoods
Member of the Management Board
Phone:+372 452 1470
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