Börsiteade

Pealkiri

PRFoods: Audited Consolidated Annual Report 2019/2020

Teade

Management Commentary

The  financial results of AS PRFoods for  the last quarter of the financial year
have  been strongly affected  by the states  of emergencies declared  due to the
Covid-19 pandemic  in all countries where  the Group companies operate (Estonia,
Finland,  Great Britain and Sweden). In the  year as a whole, the sales decrease
was  8.7% (19/20: 78.3 million euros; 18/19: 85.7 million  euros) and the EBITDA
for  the  financial  year  was  1.9 million  euros  (18/19:  1.7 million euros).
Considering  the  situation  in  the  market  and  comparing  the results of our
competitors,  we can  be satisfied  with the  year. Based  on the results of the
first half of the financial year, we expected a much stronger result. Given that
the  impact of  the outspread  of coronavirus  on global  demand and fish prices
rising  from China  already in  January, was  negative, we  were able to respond
satisfactorily  during  the  second  half  of  the  financial  year,  but it was
extremely  difficult  to  achieve  a  positive  result with the entire market in
descent.

Hotels-Restaurants-Cafees   sector's   (HoReCa)  restrictions  and  the  drastic
decrease  in air transport affected the  company's turnover since mid-March, and
unfortunately  the recovery of the hotel, restaurant and other catering segments
has  been difficult in PRFoods' main markets  in Finland and the United Kingdom.
Due  to the  decline in  salmon and  trout prices,  finished products  have also
become  cheaper,  especially  in  the  Finnish  market, affecting profitability.
PRFoods  withstood  the  Covid-19 pandemic  with  a  strengthened balance sheet,
having  refinanced short-term loans with five-year bonds at the beginning of the
year, and also, we have improved cash flows by keeping the level of raw material
inventory at an optimal level.

Group sales revenue

The  total decrease in turnover compared to  the same period last year was 8.7%
mostly  affected by the  decline of 29.5% in  the financial year's last quarter.
Also, during 2019/2020 there was a change in the product portfolio; the share of
raw  fish and fillets  product group increased  by 4 pp and  the share of smoked
products  decreased  accordingly.  The  share  of  fresh fish and fillets in the
product portfolio is 45.6% (41.7% last year) and the share of smoked products is
38.4% (43.0% last year).

The  sales price of  fresh fish and  fillets is directly  affected by the export
prices  of  salmon  and  trout,  which  have  been on a downward trend since the
beginning of the calendar year. During the reporting period, the market price of
fish  fluctuated significantly,  for example  in March  2020 the market price of
salmon  had decreased by 31.1% and the  price of rainbow trout by 32.0% compared
to  a year ago.  Compared to the  prices two years  ago, the price of salmon had
fallen  by  43.2% and  trout  by  31.7%. Foremost,  it  had a negative impact on
wholesale prices and turnover of fresh fish.

Result for the 12 months of the financial year

The  Group's  consolidated  EBITDA  was  1.9 million  euros  (18/19: 1.7 million
euros), a decrease of 8.0% compared to the previous year. EBITDA from operations
(i.e.  before  one-offs  and  revaluation  of  bioassets)  was 2.8 million euros
(18/19:  4.0 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 in Finland in the private label segment, by the negative impact of
Covid-19 on  sales in the HoReCa sector and  the fall in market prices for fish.
In  the year as  a whole, the  gross margin decreased  by 1.7 pp compared to the
previous financial year (19/20: 12.2% vs 18/19: 13.9%).

The  net loss for  the reporting year  was 1.9 million euros (18/19: 1.5 million
euros),  incl. an increase in financial expenses by 0.3 million euros due to the
increase  in  interest  expenses  (investment  loan interest rate 3.25% vs. bond
interest rate 6.25%).

Financial position

The  company's  net  debt  was  20.7 million euros as at 30.06.2020 (30.06.2019:
20.5 million  euros).  The  Group's  working  capital as at 30.06.2020 was minus
3,967 thousand  euros  as  current  liabilities  include  liabilities to related
parties  in the amount  of 4,046 thousand euros,  which are long-term in nature,
but  due to accounting principles must  be categorised as short-term liabilities
(incl.  short-term loan of 1,500 thousand euros  from Amber Trust II S.C.A (note
26)). By  eliminating short-term liabilities  to related parties,  with whom the
Group  has the opportunity to agree on  payment terms longer than 12 months, the
Group's working capital is positive.

PRFoods  successfully completed a private placement of bonds in January 2020, as
a result of which short-term liabilities in the amount of 9 million euros became
long-term  ones, releasing  cash flows  of about  2 million euros  per year. The
change  in the  debt structure  also has  an impact  on the  company's financial
results,  the impact of financial expenses on PRFoods' net profit is negative by
0.35 million euros per year.

Impact of the coronavirus (Covid-19) pandemic

Due to the imposition of special situation restrictions because of the Covid-19
pandemic,  the  company's  turnover  has  significantly  decreased in the HoReCa
segment  which accounts for approximately 20% of the Group's turnover since mid-
March.  The  decrease  in  sales  in  HoReCa  segment in the last quarter of the
financial  year was  about 70%, which  was unfortunately  not covered by the 7%
growth in retail segment, but rather the share of raw fish and fish fillets with
significantly  lower profit  margins increased  instead of  hot and  cold smoked
products. Taking into account the average gross margin for the first 9 months of
the  year (13.9%), we estimate the  direct negative impact of Covid-19 on EBITDA
of  0.6 million euros. The Group's results were negatively affected primarily by
the  Finnish unit, while the British unit's result remained at the same level as
last year, despite the situation caused by the coronavirus.

In  line with the decline in production,  the Group's companies have reduced the
working  hours and salaries of both  production and office employees by 10-30%.
The  Group's companies in  Estonia and the  United Kingdom have  used the salary
compensation subsidies offered by the states.

The   Group  is  focused  on  cost  and  cash  flow  management  to  ensure  the
sustainability  of its  operations in  the future.  Certainly, larger industries
such  as PRFoods  are better  able to  cope with  such crises, and the company's
activities  are spread  across several  markets. In  some markets, we expect our
positions to strengthen due to reduced competition.

In  March 2020, PRFoods  conducted a  public offering  of bond issues amidst the
period  of crisis which  could not have  been foreseen when  planning the issue,
resulting  in the subscription of bonds  significantly below expectations - 0.9
million  or 47% of the  1.9 million was subscribed,  including 0.5 million bonds
subscribed by PRFoods to sell them after the end of the crisis.

Events 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  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 fish and fish products in
the  market due to the  corona epidemic. The trend  of declining consumption can
also  be seen in other foods, such as meat and milk, as both travel and domestic
restrictions  apply.  However,  in  countries  where  the  coronavirus  has been
successfully combated so far, including Estonia, rapid recovery of HoReCa can be
seen.  As  the  situation  changes  quickly,  it  is difficult to make long-term
predictions.

According  to analysts  and Fishpool's  salmon futures  prices, price growth and
demand  growth of  up to  9% can be  expected only  in 2021. The average futures
price  of salmon for 2021 at the date of the report is 5.55 euros/kg compared to
4.40 euros/kg in August 2020.

For PRFoods, the market price of fish has the biggest impact. 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 also react immediately to the fall in
raw  material prices due to the large share  of the private label in the market.
Due  to the decrease in demand for HoReCa,  we see low fish prices for 2020 as a
whole.  This  is  definitely  good  news  for  consumers.  Despite the increased
production  volumes and demand for some products, lower prices do not allow such
a  large profit  to be  made in  absolute terms.  At the same time, lower prices
allow to significantly increase export volumes.

Considering  the situation, we are more optimistic  about the future than at the
end of the financial year, for the following reasons:

  * John Ross Jr. and Coln Valley have been able to maintain their profitability
    in absolute terms despite a nearly 30% drop in turnover thanks to higher
    profitability of branded products;
  * In the Estonian market, we have been able to sell our products significantly
    better and we see that during the financial year of 2020/2021 we will
    significantly increase our product portfolio of retail products for the
    Estonian market;
  * We have completed the centralization of the management of the Finnish and
    Estonian production units, which started in 2019, including the change of
    management. The merger of Trio Trading and Heimon Kala in Finland has been
    completed. In addition, we built up a new sales team, which had a temporary
    negative impact on sales revenue due to turnover of personnel;
  * We will increase the level of automation in the Estonian and Finnish
    production units, as a result of which we will be able to organize
    production much more efficiently and with fewer people in the future;
  * A larger investment program has taken place in production. We will continue
    with the investment program in fish farming;
  * Positive news from Estonia and Sweden regarding the increase in fish farming
    volumes will enable us to grow fish more efficiently and profitably and
    become one of the largest and most environmentally friendly fish farmers in
    Estonia and Finland;
  * We assume that the direct damage caused by the coronavirus has passed. At
    the same time, the long-term effects of the accompanying economic crisis on
    consumer behaviour as well as on competition are unpredictable.

We  have implemented a cost-saving program since the 4(th) quarter, resulting in
costs  decreasing by approximately 0.4 million  euros per year. The one-million-
euro savings program launched in 2019 has thus been completed. The main focus of
the  financial year of 2020/2021 is maintaining  profitability and growth in the
conditions  of a strong market oversupply.  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 created  a new situation, but despite it, PRFoods never had to stop its
production.  We continue to  develop PRFoods as  an environmentally friendly and
high-quality fish farming and processing company.

Key Ratios of the Group

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 INCOME STATEMENT
 mln EUR (unless stated otherwise)     19/20    18/19    17/18    16/17
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 Sales                                  78.3     85.7     94.9     51.1
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 Gross profit                            9.6     11.9     13.2      3.9
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 EBITDA from operations*                 2.8      4.0      6.0      0.6
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 EBITDA                                  1.9      1.7      4.4      2.0
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 EBIT                                   -0.7     -0.5      2.3      0.7
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 EBT                                    -1.8     -1.2      1.4      0.5
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 Net profit (-loss)                     -1.9     -1.5      1.0      0.2
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 Gross margin                          12.2%    13.9%    13.9%     7.7%
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 Operational EBITDA margin              3.5%     4.7%     6.3%     1.2%
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 EBITDA margin                          2.4%     2.0%     4.7%     3.8%
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 EBIT margin                           -0.9%    -0.5%     2.5%     1.4%
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 EBT margin                            -2.2%    -1.4%     1.5%     1.1%
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 Net margin                            -2.4%    -1.7%     1.1%     0.4%
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 Operating expense ratio               13.4%    12.5%    10.5%     9.6%
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 BALANCE SHEET
 mln EUR (unless stated otherwise)  30.06.20 30.06.19 30.06.18 30.06.17
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 Net debt                               20.7     20.5     18.1      1.0
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 Equity                                 19.8     21.9     23.3     22.7
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 Working capital                        -4.0     -3.1      2.8     11.5
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 Assets                                 57.1     62.5     65.5     33.5
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 Liquidity ratio                        0.8x     0.9x     1.1x     2.3x
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 Equity ratio                          34.7%    35.0%    35.6%    67.8%
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 Gearing ratio                         51.1%    48.3%    43.7%     4.1%
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 Debt to Asset                          0.7x     0.7x     0.6x     0.3x
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 Net debt-to-EBITDA from operations     7.5x     5.1x     3.0x     1.6x
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 ROE                                   -9.1%    -6.5%     4.3%     0.9%
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 ROA                                   -3.2%    -2.3%     2.0%     0.6%
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* before one-offs and fair value adjustment of fish stock


Indrek Kasela
AS PRFoods
Member of the Management Board
Phone: +372 452 1470
[email protected]
www.prfoods.ee