Management Commentary
The financial results of
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
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
Result for the 12 months of the financial year
The Group's consolidated EBITDA was
The net loss for the reporting year was
Financial position
The company's net debt was
PRFoods successfully completed a private placement of bonds in
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
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
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
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
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
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 . andColn 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 andSweden 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 inEstonia andFinland ; - 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 4th quarter, resulting in costs decreasing by approximately
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
INCOME STATEMENT mln EUR (unless stated otherwise) | 19/20 | 18/19 | 17/18 | 16/17 |
Sales | 78.3 | 85.7 | 94.9 | 51.1 |
Gross profit | 9.6 | 11.9 | 13.2 | 3.9 |
EBITDA from operations* | 2.8 | 4.0 | 6.0 | 0.6 |
EBITDA | 1.9 | 1.7 | 4.4 | 2.0 |
EBIT | -0.7 | -0.5 | 2.3 | 0.7 |
EBT | -1.8 | -1.2 | 1.4 | 0.5 |
Net profit (-loss) | -1.9 | -1.5 | 1.0 | 0.2 |
Gross margin | 12.2% | 13.9% | 13.9% | 7.7% |
Operational EBITDA margin | 3.5% | 4.7% | 6.3% | 1.2% |
EBITDA margin | 2.4% | 2.0% | 4.7% | 3.8% |
EBIT margin | -0.9% | -0.5% | 2.5% | 1.4% |
EBT margin | -2.2% | -1.4% | 1.5% | 1.1% |
Net margin | -2.4% | -1.7% | 1.1% | 0.4% |
Operating expense ratio | 13.4% | 12.5% | 10.5% | 9.6% |
BALANCE SHEET mln EUR (unless stated otherwise) | ||||
Net debt | 20.7 | 20.5 | 18.1 | 1.0 |
Equity | 19.8 | 21.9 | 23.3 | 22.7 |
Working capital | -4.0 | -3.1 | 2.8 | 11.5 |
Assets | 57.1 | 62.5 | 65.5 | 33.5 |
Liquidity ratio | 0.8x | 0.9x | 1.1x | 2.3x |
Equity ratio | 34.7% | 35.0% | 35.6% | 67.8% |
Gearing ratio | 51.1% | 48.3% | 43.7% | 4.1% |
Debt to Asset | 0.7x | 0.7x | 0.6x | 0.3x |
Net debt-to-EBITDA from operations | 7.5x | 5.1x | 3.0x | 1.6x |
ROE | -9.1% | -6.5% | 4.3% | 0.9% |
ROA | -3.2% | -2.3% | 2.0% | 0.6% |
* before one-offs and fair value adjustment of fish stock
Indrek Kasela
Member of the Management Board
Phone: +372 452 1470
investor@prfoods.ee
www.prfoods.ee
Attachment
- PRF_annual report 2019_2020
© OMX, source