Overview of the economic activities
Management commentary
We remind you that since we changed our financial year, the last financial year was extended to 18 months. The financial year that began on 01.07.2018 is of standard length and ends 30.06.2019. In the report, the comparable data from the 4th quarter of 2017 and H2 of 2017 is used. Q2 is calendar year Q4, Q3 is calendar year Q1 and Q4 is calendar year Q2.
Q2 results were disappointing due to loss of several private label contracts in Finland. Increased competition in Finland for large volume private label contracts has increased significantly and profitability of these contracts is under pressure. Traditionally this has given us in Q4 both volume and profitability. The management has taken action by starting a cost-cutting program in our Estonian and Finnish operations, where most significant decrease of profitability occurred. We expect annualized savings to amount to over 300,000 euros in Estonia alone once put in effect at the end of Q3. Management will publish more detailed program in our Q3 report.
Q2 results weighted down H1 results for the group. In total, EBITDA from Estonian and Finnish operations was lower by 2.3 million euros. Trio Trading lower results were planned due to change of fresh fish strategy – stopping trading of fish to other fish processing companies. Heimon Kala and Vettel results require a new approach in the management actions. We will be more aggressive in private label sales in H2 while we prepare to compensate these sales with own label sales directly to retail at higher margins, process that is already underway in Estonia. Unfortunately, this process is taking longer than anticipated due to both internal and external reasons. Externally, the retailers are slow to adapt to changing customer requirements. Internally, the speed of change needs improving. We are happy to announce that first retailers have accepted our shop-in-shop concept and we hope our new retail approach to be scaled up significantly in 2019/2020. We have also completed our John Ross Jr brand overhaul and will launch it in Q3.
Our subsidiary in the UK, John Ross Jr sales grew by 5%, but more importantly EBITDA improved by 35% during first 6 months. It is clear that John Ross Jr is on a path of growing sales and substantially increased profitability after we consolidated operations of John Ross Jr and Coln Valley in Aberdeen.
We expect our UK operations to outperform. We have taken necessary steps to continue supply of raw material to our UK factory as Brexit will clearly add some uncertainty. Management will publish additional information regarding our UK operations.
Biomass revaluation was significantly lower compared to the same period last year. There are two main reasons. We started the season with lower biomass volume and the biomass growth in the beginning of the season was slower, but at the same time better weather in Q3 allowed an additional growth and we delayed most of harvesting until November.
We are actively pursuing new farming licenses in Estonia, and 2 of our applications are already under process. We hope to add some farming capacity already for 2019 season in Estonia and believe that more significant amount of new farming capacity will already be allocated for 2020.
6 months consolidated results are as follows:
- Unaudited consolidated revenue 46.12 million euros, a decrease by -3.86 million euros, i.e. -7.7%.
- Gross margin 16.6%, a decrease by -1.4 percentage points i.e. -7.8%.
- Negative impact from revaluation of biological assets -1.56 million euros (2HY 2017: negative impact -1.66 million euros).
- Negative effect of one-offs on the result -0.02 million euros (2HY 2017: negative impact -0.28 million euros).
- EBITDA from operations +3.48 million euros, a decrease by -2.03 million euros.
- EBITDA +1.90 million euros, a decrease by -1.67 million euros (without one-off effects EBITDA +1.92 million euros, a decrease by -1.93 million euros).
- Operating profit +0.80 million euros, a decrease by -1.71 million euros (without one-off effects operating profit +0.83 million euros, a decrease by -1.97 million euros).
- Net profit +0.36 million euros, a decrease by -1.98 million euros (without one-off effects net profit +0.39 million euros, a decrease by -2.24 million euros).
Quarterly presentation will be published on our website latest at 8th of March.
KEY RATIOS
| Income Statement, EUR mln | 4Q 2018 | 3Q 2018 | 2Q 2018 | 1Q 2018 | 4Q 2017 | 3Q 2017 |
| Sales | 26.7 | 19.4 | 22.1 | 22.7 | 32.0 | 18.0 |
| Gross profit | 4.7 | 3.0 | 1.8 | 2.4 | 6.6 | 2.5 |
| EBITDA from operations | 2.4 | 1.1 | -0.2 | 0.7 | 4.3 | 1.2 |
| EBITDA | 0.8 | 1.1 | 0.3 | 0.6 | 1.6 | 2.0 |
| EBIT | 0.2 | 0.6 | -0.2 | 0.1 | 1.0 | 1.5 |
| EBT | 0.0 | 0.4 | -0.5 | -0.2 | 0.8 | 1.3 |
| Net profit (-loss) | 0.2 | 0.1 | -1.1 | -0.2 | 1.2 | 1.1 |
| Gross margin | 17.7% | 15.2% | 7.9% | 10.6% | 20.5% | 13.6% |
| Operational EBITDA margin | 9.1% | 5.4% | -1.1% | 3.1% | 13.4% | 6.7% |
| EBITDA margin | 2.9% | 5.8% | 1.2% | 2.5% | 4.9% | 11.1% |
| EBIT margin | 0.9% | 3.0% | -1.1% | 0.2% | 3.1% | 8.5% |
| EBT margin | 0.1% | 1.8% | -2.3% | -0.9% | 2.5% | 7.3% |
| Net margin | 0.8% | 0.7% | -5.1% | -1.0% | 3.9% | 6.2% |
| Operating expense ratio | 11.2% | 13.5% | 12.0% | 10.5% | 9.3% | 11.1% |
| Balance Sheet, EUR mln | 31.12.2018 | 30.09.2018 | 30.06.2018 | 31.03.2018 | 31.12.2017 |
| Net debt | 20.0 | 21.9 | 18.1 | 16.7 | 16.6 |
| Equity | 24.2 | 24.1 | 23.3 | 24.3 | 24.7 |
| Working capital | 1.0 | 2.0 | 2.8 | 4.6 | 5.3 |
| Assets | 65.5 | 64.5 | 65.5 | 66.4 | 68.6 |
| Liquidity ratio | 1.0x | 1.1x | 1.1x | 1.2x | 1.2x |
| Equity ratio | 37.0% | 37.4% | 35.6% | 36.6% | 36.0% |
| Debt to total assets | 45.2% | 47.6% | 43.7% | 40.7% | 40.1% |
| Gearing ratio | 0.6x | 0.6x | 0.6x | 0.6x | 0.6x |
| Net debt-to-EBITDA | 5.1x | 3.8x | 3.1x | 2.6x | 3.1x |
| ROE | -4.0% | 0.1% | 0.2% | 8.6% | 5.8% |
| ROA | -1.5% | 0.0% | 0.1% | 4.1% | 2.7% |
Consolidated statement of financial position
| EUR '000 | 31.12.2018 | 31.12.2017 | 30.06.2018 |
| ASSETS | |||
| Cash and cash equivalents | 4,910 | 6,491 | 5,960 |
| Receivables and prepayments | 6,470 | 8,982 | 4,706 |
| Inventories | 11,553 | 11,747 | 12,678 |
| Biological assets | 4,719 | 5,566 | 6,498 |
| Total current assets | 27,652 | 32,786 | 29,842 |
| Deferred income tax | 49 | 222 | 153 |
| Long-term financial investments | 134 | 102 | 134 |
| Tangible fixed assets | 14,569 | 13,225 | 12,764 |
| Intangible assets | 23,046 | 22,294 | 22,604 |
| Total non-current assets | 37,798 | 35,843 | 35,655 |
| TOTAL ASSETS | 65,450 | 68,629 | 65,497 |
| EQUITY AND LIABILITIES | |||
| Loans and borrowings | 14,224 | 10,105 | 12,562 |
| Payables | 12,184 | 17,115 | 14,254 |
| Government grants | 241 | 306 | 216 |
| Total current liabilities | 26,649 | 27,526 | 27,032 |
| Loans and borrowings | 10,706 | 12,957 | 11,487 |
| Payables | 519 | 0 | 0 |
| Deferred tax liabilities | 2,094 | 2,267 | 2,441 |
| Government grants | 1,257 | 1,144 | 1,226 |
| Total non-current liabilities | 14,576 | 16,368 | 15,154 |
| TOTAL LIABILITIES | 41,225 | 43,894 | 42,186 |
| Share capital | 7,737 | 7,737 | 7,737 |
| Share premium | 14,007 | 14,007 | 14,007 |
| Treasury shares | -390 | -390 | -390 |
| Statutory capital reserve | 51 | 48 | 48 |
| Currency translation reserve | -70 | 173 | 7 |
| Retained profit (-loss) | 2,130 | 3,096 | 1,904 |
| Equity attributable to parent | 23,465 | 24,671 | 23,313 |
| Non-controlling interest | 760 | 64 | -2 |
| TOTAL EQUITY | 24,225 | 24,735 | 23,311 |
| TOTAL EQUITY AND LIABILITIES | 65,450 | 68,629 | 65,497 |
Consolidated statement of profit or loss and other comprehensive income
| EUR '000 | 4Q 2018 | 4Q 2017 | 2HY 2018 | 2HY 2017 |
| Sales | 26,729 | 31,992 | 46,122 | 49,982 |
| Cost of goods sold | -22,011 | -25,428 | -38,448 | -40,967 |
| Gross profit | 4,718 | 6,564 | 7,674 | 9,015 |
| Operating expenses | -2,996 | -2,970 | -5,619 | -4,962 |
| Selling and distribution expenses | -2,084 | -2,131 | -3,927 | -3,506 |
| Administrative expenses | -912 | -839 | -1,692 | -1,456 |
| Other income / expense | 136 | 124 | 303 | 114 |
| Fair value adjustment on biological assets | -1,628 | -2,727 | -1,555 | -1,655 |
| Operating profit (-loss) | 230 | 991 | 803 | 2,512 |
| Financial income | 15 | 2 | 19 | 3 |
| Financial expenses | -228 | -204 | -454 | -413 |
| Profit (-loss) before tax | 17 | 789 | 368 | 2,102 |
| Income tax | 205 | 446 | -4 | 241 |
| Net profit (-loss) for the period | 222 | 1,235 | 364 | 2,343 |
| Net profit (-loss) attributable to: | ||||
| Owners of the company | 130 | 1,166 | 229 | 2,279 |
| Non-controlling interests | 92 | 69 | 135 | 64 |
| Total net profit (-loss) | 222 | 1,235 | 364 | 2,343 |
| Other comprehensive income (-loss) that may subsequently be classified to profit or loss: | ||||
| Foreign currency translation differences | -101 | -229 | -77 | -305 |
| Total comprehensive income (-expense) | 121 | 1,006 | 287 | 2,038 |
| Total comprehensive income (-expense) attributable to: | ||||
| Owners of the Company | 29 | 937 | 152 | 1,974 |
| Non-controlling interests | 92 | 69 | 135 | 64 |
| Total comprehensive income (-expense) for the period | 121 | 1,006 | 287 | 2,038 |
| Profit (-loss) per share (EUR) | 0,00 | 0,02 | 0,00 | 0,05 |
| Diluted profit (-loss) per share (EUR) | 0,00 | 0,02 | 0,00 | 0,05 |
Indrek Kasela
AS PRFoods
Member of the Management Board
Phone: +372 452 1470
investor@prfoods.ee
www.prfoods.ee
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