PRF: Consolidated Unaudited Interim Report of AS PRFoods for the 1st quarter of 2020/2021 financial year

OVERVIEW OF ECONOMIC ACTIVITIES

MANAGEMENT COMMENTARY

The Group's consolidated EBITDA in the 1^st 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 1^st 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 1^st 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 1^st 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:

• John Ross Jr. and Coln Valley have been able to maintain their absolute profitability despite a nearly 30% drop in sales due to higher profitability of branded products. The profitability of John Ross Jr. and Coln Valley will increase in the second half of this financial year as we move to fish supply purchases at open market prices, which will allow us to significantly lower the price of raw materials for us.
• In the Estonian retail market, we have been able to sell our products significantly better and we see that in 2020/2021. financial year, we will significantly increase our product portfolio of retail products in Estonia. At the same time, the volume of Estonian retail sales does not compensate for the decline in the local HoReCa market, especially in shipping and hotels.
• 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 Finland and Estonia. We will continue the fish farming investment program. The positive news is that the preparations for the establishment of new fish farms in Estonia are progressing according to plan, which would allow us to double the volume of our fish farms within two years.
• The goal is to become one of the largest and most environmentally friendly fish farmers in Estonia, Finland and Sweden.
• In the summer, it was premature to assume that the damage caused by the coronavirus was over. 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 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

investor@prfoods.ee

www.prfoods.ee

Attachment

• PRF_interim_3m2020_2021