company announcement no. 4/2017 interim report q3 2017€¦ · (q3 2016: dkk 387 million) as a...

Company announcement no. 4/2017

Interim Report Q3 2017

Axzon improved profitability in Q3 2017

Axzon reported stable revenue of DKK 384 million in Q3 2017

(Q3 2016: DKK 387 million) as a decline in pig prices in Poland

at the end of September 2017 reduced the Group’s herd value

and reported revenue.

Earnings before interest, tax, depreciation and amortization

(EBITDA) for Q3 2017 increased to DKK 110 million (Q3 2016:

DKK 100 million), corresponding to an EBITDA margin of 28.8%

(Q3 2016: 25.8%). Earnings growth in the quarter was mainly

attributable to a higher contribution from the Group’s Pig and

Arable segments.

The Pig segment maintained a high efficiency level and lifted

earnings based on a relatively high price level on live pigs in

Axzon’s three markets; Russia, Ukraine and Poland. The impact

of declining pig prices in Europe in late Q3 was mitigated by

Axzon’s diversified geographical presence as prices in Russia

and Ukraine were stable.

The higher average prices on live pigs had an adverse impact on

Axzon’s Food segment in Q3, which was partly offset by

increasing sales of Axzon’s new RWA (raised without

antibiotics) and GMO-free product groups. These innovations

ensure diversification from ordinary products and should

contribute to reducing the impact from the volatile and

fluctuating markets for live pigs and bulk meat products.

Despite challenging weather conditions in the quarter, Axzon’s

Arable segment performed well and built a large stock of good-

quality grain for the coming feeding season with satisfactory

yields above the level in the comparison period.

The Energy segment increased production and efficiency in Q3

2017 compared to a Q3 2016 marked by technical challenges.

Free cash flow for Q3 2017 amounted to DKK -37 million (Q3

2016: DKK 1 million). While Axzon’s operating cash flow

improved significantly to DKK 104 million in Q3 2017, the

Group’s financing activity was higher due to payment of

dividends of DKK 78 million and capital expenditures at the

level of DKK 42 million.

Outlook for 2017

Based on positive developments in the first nine months of

2017, Axzon now expects the EBITDA margin to reach 27-28 %

against former expectations of 26-27 %, reflecting continued

high efficiency. Revenue guidance is adjusted to DKK 1,600-

1,700 million against former expectations of DKK 1,700-1,800

million in 2017, reflecting assumptions of fewer slaughter pigs

in the Food segment and declining market prices on live pigs in

Q4.

- - - - - -

“We improved profitability and maintained revenue largely

unchanged in the third quarter of 2017, which was positively

impacted by relatively high pig prices and a continuation of

Axzon’s high production efficiency. The good financial and

operational results this quarter were realized despite

challenging weather conditions as the harvest and reseeding of

grain and oilseeds were complicated by the wet and relatively

cold summer in Poland in particular. We have secured the

significant stock of quality grain needed for the coming feeding

season, and based on our well-diversified business, Axzon

remains on-track to deliver growth and a significantly higher

level of profitability in 2017 despite the volatile market

situation,” says CEO Tom Axelgaard.

Selected financial highlights and key ratios DKK million Q3 2017 Q3 2016 9M 2017 9M 2016 2016

Total revenue 384 387 1,326 1,172 1,494

EBITDA 110 100 382 266 328

EBITDA margin 28.8% 25.8% 28.8% 22.7% 21.9%

EBITDA fixed herd price 114 61 332 192 281

Net income 29 36 150 88 95

Free cash flow (37) 1 101 (13) 18

Net interest-bearing debt

1,186 1,220 1,185

*EBITDA 2016 includes special items of DKK 16 million due to African Swine Fever outbreak on a Russian farm

Interim Report Q3 2017 Axzon A/S

Axzon A/S, Vesterbrogade 4a, 1620 Copenhagen V. CVR-NR. 26438624 2

Further information

Tom Axelgaard, CEO, tel.: +45 4037 2379

Hans Henrik Pauk Pedersen, CFO tel.: +45 4040 8413

Financial calendar 2018

28 February 2018: Annual report 2017

10 April 2018: Annual general meeting

29 May 2018: Interim report Q1 2018

29 August 2018: Interim report Q2 2018

29 November 2018: Interim Report Q3 2018

Forward-looking statements

This interim report contains “forward looking statements”. Undue reliance should not be placed on forward-looking statements

because they relate to and depend on circumstances that may or may not occur in the future and actual results may differ

materially from those in forward-looking statements. Forward-looking statements include, without limitation, statements regarding

our business, financial circumstances, strategy, results of operations, financing and other plans, objectives, assumptions,

expectations, prospects, beliefs and other future events and prospects. We undertake no obligation, and do not intend to publicly

update or revise any of these forward-looking statements, unless prescribed by law or by stock exchange regulation.

Axzon at a glance

Axzon is an international producer of high quality pork products operating in Poland, Ukraine and Russia based on Danish

production standards. The company is to a large extend self-sufficient and masters the whole production chain from field to fork,

from growing crops for feed, breeding and slaughtering pigs including using the manure in biogas facilities to produce electricity

and organic fertilizer for the fields. In Poland, Axzon is certified as CO2 neutral in the entire production chain and operates

according to the highest standards in terms of animal welfare, transparency in the production and sustainable production methods



Table of contents

Review

Financial Highlights and Key Ratios ........................................................................................................................................................4

Management’s Review ............................................................................................................................................................................5

Outlook ....................................................................................................................................................................................................7

Development in segments .......................................................................................................................................................................8

Management statement ........................................................................................................................................................................12

Financial statement

Income Statement .................................................................................................................................................................................13

Statement of Comprehensive Income ...................................................................................................................................................14

Assets ....................................................................................................................................................................................................15

Liability and Equity ................................................................................................................................................................................16

Cash Flow Statement .............................................................................................................................................................................17

Statement of changes in equity .............................................................................................................................................................18

Notes .....................................................................................................................................................................................................19

Quarterly Financial Highlights and Key Ratios .......................................................................................................................................25

Glossary .................................................................................................................................................................................................26



Financial Highlights and Key Ratios

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016 2016

Income statement

Revenue 384 387 1,326 1,172 1,494

Gross profit 134 117 445 317 532

EBITDA 110 100 382 266 328

EBITDA fixed herd price 114 61 332 192 281

EBIT 72 60 264 157 172

Financial items, net 23 14 74 46 63

Profit/(loss) for the period 29 36 150 88 95

Cash flow

Operating activity 104 86 229 168 227

Investing activity (42) (31) (99) (111) (139)

Financing activity (99) (54) (30) (70) (71)

Free cash flow (37) 1 101 (13) 18

Balance sheet

Non-current assets 2,378 2,445 2,378 2,445 2,440

Net working capital 579 495 579 495 506

Net operating assets 2,957 2,940 2,957 2,940 2,946

Total assets 3,274 3,144 3,274 3,144 3,163

Equity 1,771 1,720 1,771 1,720 1,735

Net interest-bearing debt 1,186 1,220 1,186 1,220 1,185

Share ratios

Earnings per share, DKK 0.5 0.7 2.8 1.7 1.8

Key financials Group

Gross margin 34.8% 30.2% 33.5% 27.0% 35.6%

EBITDA margin 28.8% 25.8% 28.8% 22.7% 21.9%

EBIT margin 18.7% 15.4% 19.9% 13.4% 11.5%

Free cash flow / Revenue -9.6% 0.2% 7.6% -1.1% 1.2%

Cash conversion -51.5% 1.5% 38.2% -8.2% 10.2%

NIBD/EBITDA fixed herd price LTM

2.8

4.2

Equity ratio

54.1% 54.7% 54.9%

Axzon Bond Obligor Group*

Revenue 352

1,196

EBITDA 96

338

EBITDA fixed herd price 101

290

NIBD

1,020

EBITDA fixed herd price LTM 369

NIBD/EBITDA fixed herd price LTM

2.8 *Bond Obligors consists of: Axzon A/S, Poldanor SA, Prime Food SA and Danosha ltd.



Management’s Review

Business development

Axzon’s business performance was stable in Q3 2017, and

profitability increased following positive developments in the

Pig and Arable segments in particular.

Pig prices were 14 % higher in Q3 2017, and Axzon’s pig sales

were stable at 315 thousand pigs with feed price 3% lower than

in the comparison period. This had a significant positive impact

on earnings, even though the group’s herd value was negatively

affected by a decline in pig prices in Poland in late Q3 2017.

The Arable segment performed well despite difficult weather conditions and improved earnings significantly.

Income statement

Revenue

Revenue for Q3 2017 was DKK 384 million (Q3 2016: DKK 387 million) with the comparison period positively impacted by a DKK 39 million increase in herd value due to higher prices compared to the previous quarter. At the end of Q3 2017, pig prices had declined slightly in Poland compared to the previous quarter, which impacted the herd value and revenue negatively by DKK 4 million in Q3 2017.

Consequently, revenue adjusted for herd price changes from the previous quarter (Revenue at fixed herd price) increased 11 % to DKK 388 million in Q3 2017 (Q3 2016: DKK 348 million). Higher average pig prices realised in Q3 2017 across the Group’s markets was the primary growth driver. The selling price per kilo meat in Q3 2017 was DKK 12.71 (Q3 2016: DKK 11.14), and the pig prices in DKK increased 10 %, 38 % and 7 % in Poland, Ukraine and Russia, respectively, compared to Q3 2016.

For the first nine months of 2017, revenue was DKK 1,326 million (9M 2016: DKK 1,172 million), and revenue at fixed herd price was DKK 1,376 million (9M 2016: DKK 1,247 million).

Gross profit

Gross profit for Q3 2017 increased to DKK 134 million (Q3 2016: DKK 117 million) due to strong performance in the Pig and Arable segments. The gross margin was 34.8 % in Q3 2017 (Q3 2016: 30.2 %).

The group’s gross profit for the first nine months of 2017 came to DKK 445 million (9M 2016: DKK 317 million) corresponding to a gross margin of 33.5 % (9M 2016: 27.0 %).

SG&A

Sales, general and administrative expenses amounted to DKK 23 million in Q3 2017 (Q3 2016: DKK 17 million). The increase was largely related to legal fees paid due in connection with refinancing.

In the first nine months of 2017, the group’s sales, general and administrative expenses were DKK 62 million (9M 2016: DKK 51 million).

EBITDA

EBITDA for Q3 2017 grew 11 % to DKK 110 million (Q3 2016: DKK 100 million). The higher pig prices contributed positively to the improved EBITDA during the quarter, which was slightly impacted by a declining trend in prices in Poland beginning in September 2017.

The herd revaluation was impacted by the price decline in Poland, which was partly offset by increasing prices in Ukraine and Russia. In total, the herd prices impacted EBITDA in the Pig segment by DKK -4 million in Q3 2017. EBITDA at fixed herd price was DKK 114 million in Q3 2017 (Q3 2016: DKK 61 million).

EBITDA for the first nine months of 2017 was DKK 382 million (9M 2016: DKK 266 million) corresponding to an EBITDA margin of 28.8 % (9M 2016: 22.7 %). EBITDA at fixed herd price was DKK 332 million (9M 2016: DKK 192 million).

EBIT

Earnings before interest and tax (EBIT) amounted to DKK 72 million in Q3 2017 against DKK 60 million in Q3 2016. The EBIT margin thus grew to 18.7 % in Q3 2017 compared to 15.4 % in Q3 2016.

For the first nine months of 2017, EBIT was DKK 264 million (9M 2016: DKK 157 million) corresponding to 19.9 % (9M 2016: 13.4 %).

Net financials

Net financial expenses for Q3 2017 increased to DKK 23 million (Q3 2016: DKK 14 million) as the effect of Axzon’s refinancing

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DKKm Revenue and EBITDA margin

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impacted interest expenses in July. Net financials stabilized at a lower level in the remainder of the quarter at DKK 6 million per month.

For the first nine months of 2017, net financial expenses were DKK 74 million (9M 2016: DKK 46 million).

Foreign exchange adjustments had an impact of DKK -20 million in Q3 2017 (Q3 2016: DKK -9 million) driven mainly by the increase of debt in EUR and partly by a lower UAH.

Net Profit

Net profit amounted to DKK 29 million (Q3 2016: DKK 36 million) in Q3 2017 and DKK 150 million (9M 2016: DKK 88 million) in the first nine months of 2017.

The comprehensive income was DKK -25 million in Q3 2017 and comprises the profit for the period of DKK 29 million and exchange adjustments of foreign group enterprises of DKK -54 million. In the first nine months of 2017, comprehensive income was DKK 113 million.

Balance Sheet

At 30 September 2017, Axzon’s balance sheet amounted to DKK

3,274 million (2016: 9M DKK 3,144 million).

At 30 September, equity increased to DKK 1,771 million (2016:

9M DKK 1,720 million) due to the profit in the period offset by

dividend payment of DKK 78 million in Q3 2017 and exchange

adjustments. The equity ratio was stable at 54.1 % (9M 2016:

54.7 %) at 30 September 2017.

Net interest-bearing debt was DKK 1,186 million at the end of

September 2017 (9M 2016: DKK 1,220 million).

Net working capital amounted to DKK 579 million at 30

September 2017 (9M 2016: DKK 495 million).

Cash flow

Cash flow from operating activities for Q3 2017 increased to

DKK 104 million (Q3 2016: DKK 86 million) due to improvement

in working capital. Cash flow from operating activities was DKK

229 million in the first nine months of 2017 (9M 2016: DKK 168

million).

Free cash flow for Q3 2017 amounted to DKK -37 million (Q3

2016: DKK 1 million). The change was mainly attributable to a

dividend payment of DKK 78 million in Q3 2017. This also

impacted free cash flow for the first nine months of 2017,

which came to DKK 101 million (9M 2016: DKK -13 million).

Events after the balance sheet date

On 10 November 2017, Axzon announced the prospectus on the listing of its EUR 135 million bonds with maturity date on 26 May 2021.

On 15 November 2017, Axzon held an Extraordinary General Meeting. The shareholders resolved to elect Mrs. Helle Okholm a new member of the Board of Directors and furthermore adopted proposals to authorize the Board of Directors to increase the share capital of Axzon A/S to facilitate a private placement of new shares as well as to change the rule of power to bind the company.



Outlook

Based on positive developments in the first nine months of

2017, Axzon now expects the EBITDA margin* to reach 27-28 %

against former expectations of 26-27 %, reflecting continued

high efficiency. Revenue guidance is adjusted to DKK 1,600-

1,700 million against former expectations of DKK 1,700-1,800

million.

Axzon still expects to sell around 1.25 million pigs in 2017, and

the revised revenue guidance thus reflects assumptions of

fewer slaughter pigs in the Food segment and declining market

prices on live pigs in Q4 to a level slightly above the beginning

of the year, reflecting historical seasonality in prices and

current market outlook.

Assumptions

The outlook for Axzon‘s financial development in 2017 has

been prepared taking into account a number of circumstances,

including how the Group’s markets are expected to be affected

by the general economic activity, fiscal measures and general

uncertainty, which affects consumer behaviour and thus the

development in pig and food prices.

The outlook is sensitive to changes in year-end pig prices due to

the fair value adjustment of the herd value, which affects

revenue cf. note 3 to this report and profitability as reflected by

the difference between EBITDA reported and EBITDA at fixed

herd price in the income statement.

Outlook 2017

DKK million Outlook 2017 2016

Revenue 1,600 - 1,700 1,494

EBITDA margin 27 - 28 % 21.9 %

*In the H1 2017 interim report, Axzon expressed the outlook for profitability in 2017 in terms of an EBITDA of DKK 440-480 million

(corresponding to an EBITDA margin of 26-27% at the previous revenue guidance of DKK 1,700-1,800 million) and EBIT of DKK 280-

320 million.



Development in segments in Q3 2017

Pig

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016

External revenue 196 162 574 409

Internal revenue 109 116 307 307

Change in fair value (5) 18 48 67

Revenue 300 296 929 783

Gross profit 115 107 374 242

EBITDA 102 99 341 216

EBITDA margin 34.0% 33.4% 36.8% 27.6%

EBITDA fixed herd price 114 61 332 192

The number of sows in the Pig segment was stable at 41,503 in

Q3 2017 (Q3 2016: 41,341), and the segment accounted for 54

% of Group revenue before segment eliminations (Q3 2016: 53

%). Segment revenue was DKK 300 million for Q3 2017 (Q3

2016: DKK 296 million). EBITDA for Q3 2017 amounted to DKK

102 million corresponding to an EBITDA margin of 34.0 % (Q3

2016: DKK 99 million and EBITDA margin 33.4 %).

The pig price increased 14 % to an average 12.71 DKK per kilo in

Q3 2017 (Q3 2016: DKK 11.14 per kilo). Feed price per ton

simultaneously declined 3 % to DKK 1,616. These developments

entailed a 15 % improvement of the meat-to-feed ratio to 7.85

from 6.69 in the comparison period.

In Poland, pig prices went down at the end of September 2017,

entailing a decline in herd value and thus affecting negatively

the change of biological assets and revenue, respectively.

Axzon improved the efficiency level slightly in terms of sold pigs

per sow reaching 30.72 in Q3 2017 compared to 30.62 in Q3

2016. The feed conversion ratio for the Group was stable at

2.71 kilo feed per kilo meat in Q3 2017.

22.482(54.1 %)

13.912(33.5 %)

5.109(12.3 %)

Number of sows by country

Poland Ukraine Russia

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6

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12

14

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DKK per kiloPig price and meat to feed ratio

Pig price (carcass weight) Meat to feed ratio (RH)

20

25

30

35

Q1 2016Q2 2016Q3 2016Q4 2016Q1 2017Q2 2017Q3 2017

Pigs sold per sow per year



Food

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016


Internal revenue - - - -

Total revenue 201 208 583 592

Gross profit 0 6 9 40

EBITDA (4) 0 (4) 25

EBITDA margin -2.0% 0.2% -0.7% 4.2%

The Food segment comprises the slaughterhouse and food processing plants located in Poland, accounting for 36 % of Group revenue before segment eliminations in Q3 2017 (Q3 2016: 37 %). Revenue was DKK 201 million in Q3 2017 (Q3 2016: DKK 208 million), and EBITDA for Q3 2017 came to DKK -4 million corresponding to an EBITDA margin of -2.0% (Q3 2016: DKK 0 million and 0.2 %).

Livestock prices on the Polish market rose by 14 % from the same period last year. On that background, the Food segment

saw a significant decline in margins and the volume of processed meat and MAP (fresh meat in case ready), with MAP volume decreasing 28 % in Q3 2017 compared to same period last year. The margin decline in processed meat was primarily caused by long sales price contracts, which were unprofitable in Q3 2017 due to the hike in raw material prices.

In addition, profitability was impacted by higher labor costs and lower capacity utilization.

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Tonnes Tonnes sold by product group

Total MAP Processed Deboned



Energy

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016





EBITDA 2 1 13 0

EBITDA margin 11.6% 7.4% 23.1% 0.0%

The Energy segment consists of nine biogas plants of which

eight are situated in Poland and one in Ukraine. In Q3 2017, the

Energy segment accounted for 3 % of Group revenue before

segment eliminations (Q3 2016: 2 %). The segment generated

revenue of DKK 17 million and EBITDA of DKK 2 million

corresponding to an EBITDA margin of 11.6 % (Q3 2016:

revenue DKK 13 million, EBITDA DKK 1 million and EBITDA

margin 7.4 %).

The plants produced 15.254 MWh in Q3 2017 (Q3 2016: 13.900

MWh) and the development was mainly attributable to an

engine breakdown in Ukraine in the comparison period.

Efficiency in Q3 2017 was stable around 85 % for the eight

Polish plants, while the plant in Ukraine reported efficiency of

56 % due to technical issues impacting the engine’s operations.

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MwHEnergy

Produced MwH Efficiency (%)

0200400600800

1.0001.2001.400

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Revenue/total MwH



Arable

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016



Change in fair value (71) (62) 21 24



EBITDA 12 (0) 31 20

EBITDA margin 26.4% (0,5%) 22.1% 15.5%

In Q3 2017, the Arable segment revenue accounted for 8 % of

Group revenue before segment eliminations (Q3 2016: 6 %).

The segment’s revenue came to DKK 44 million with EBITDA of

DKK 12 million corresponding to an EBITDA margin of 26.4 %

(Q3 2016: revenue DKK 34 million, EBITDA DKK 0 million and

EBITDA margin -0.5 %).

At the end of the quarter, 73 % of the harvest was completed,

leaving corn and corn for silage yet to be harvested. The yields

have been satisfying with record levels reached in both Ukraine

and Russia. The harvest has been very difficult and slightly

below average in Poland due to challenging weather

conditions, and the quality of the grain has been negatively

affected. Efficient drying and storing will eliminate the risk of

poor feed quality in the coming season.

The average grain crops yield for the Group was 5.62

tonne/hectare in Q3 2017 (Q3 2016: 5.37 tonne/hectare).

*27% not yet harvested *38% already seeded

Wheat 20%

Oil seeds 22%

Triticale 7%

Corn for silage*

24%

Corn for harvest*

3%

Barley 15%

Other 9%

Harvest 2017* - split of total 27,779 hectares cultivated

Wheat 23%

Oil seeds 13%

Triticale 12%

Corn for silage 24%

Corn for harvest

5%

Barley 15%

Other 8%

Planned split of 28,254 hectares for 2018 harvest*



Management statement The Executive Board and the Board of Directors have presented

the Interim Report of Axzon A/S. The interim Report has today

been considered and adopted.

The Interim Report, which has not been audited or reviewed by

the Company’s independent auditors, was prepared in

accordance with IAS 34 “Interim Financial Reporting” as

adopted by the EU and additional Danish disclosure

requirements for listed companies.

In our opinion, the Interim Financial Statements give a true and

fair view of the financial position of the Group at 30 September

2017 as well as of the results of the Group operations and cash

flows for the period 1 January – 30 September 2017.

In our opinion, Management’s Review gives a true and fair

account of the development in the activities and financial

circumstances of the Group, of results of operations for the

period and of the overall financial position of the Group, and a

description of the key risks and uncertainties facing the Group.

Copenhagen 29 November 2017

EXECUTIVE MANAGEMENT

Tom Axelgaard Hans Henrik Pauk Pedersen Kristian Brokob

CEO CFO COO

BOARD OF DIRECTORS

Anders Christen Obel Niels Rauff Hansen Anders Bundgaard

Chairman Deputy Chairman

Jens Blach Jens Jørgen Nielsen Erling Bech Poulsen

Helle Okholm



Income Statement

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016

Sales 446 414 1,232 1,053

Grants & other income 14 16 26 29

Change in fair value of bio assets (76) (44) 68 90

Revenue 384 387 1,326 1,172

Cost of goods sold 250 270 882 855

Gross profit 134 117 445 317

SG&A 23 17 62 51

EBITDA before special items 110 100 382 266

Special items - - - -

EBITDA 110 100 382 266

EBITDA fixed herd price 114 61 332 192

Depreciation 39 40 119 110

EBIT 72 60 264 157

Net Financials 23 14 74 46

Foreign exchange adjustments 20 1 40 22

Profit before tax 29 35 150 89

Tax for the period 0 (1) 0 1

Net profit for the period 29 36 150 88

Earnings per share (DKK) 0.5 0.7 2.8 1.7

Diluted earnings per share (DKK) 0.5 0.7 2.8 1.7



Statement of Comprehensive Income

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016


Other comprehensive income

Items that may be reclassified to the income statement:

Value and exchange adjustments of foreign group enterprises

(54) 47 (37) (41)

Total (54) 47 (37) (41)

Items that may not be reclassified to the income statement:

Revaluation of non-current assets

-

-

- -

Total

-

-

-

-

Total other comprehensive income (54) 47 (37) (41)

Total comprehensive income (25) 83 113 46



Assets

DKK million 9M 2017 9M 2016 2016

Goodwill 94 92 99

Other intangible assets - 0 -

Intangible assets 94 92 99

Land and buildings 1,389 1,410 1,423

Leasehold improvements 124 135 128

Plant and machinery 421 444 436

Operating equipment, fixtures and fittings 114 129 130

Property, plant and equipment in progress 102 94 98

Tangible assets 2,150 2,211 2,214

Financial investments 5 6 8

Financial assets 5 6 8

Basic Herd 128 136 121

Biological assets, basic herd 128 136 121

Total non-current assets 2,378 2,445 2,442

Biological assets, sales herd 245 227 215

Arable stock, WIP 66 76 49

Inventories 233 217 231

Biological assets and inventories 544 520 496

Trade receivables 83 67 67

Receivables from group enterprises - - 7

Other receivables 66 52 59

Prepayments 34 17 17

Receivables 183 137 151

Cash and cash equivalents 170 42 75

Total current assets 896 699 721

TOTAL ASSETS 3,274 3,144 3,163



Liability and Equity

DKK million 9M 2017 9M 2016 2016

Share capital 531 531 531

Revaluation reserve 513 577 626

Retained earnings 1,311 1,179 1,126

Foreign exchange adjustments (600) (576) (562)

Minority interest 15 9 14

Total Equity 1,771 1,720 1,735

Provision for deferred tax 5 4 5

Other provisions 2 1 3

Borrowings 1,153 686 804

Deferred income 10 11 10

Subordinated loans from Polen Invest A/S 90 130 140

Long-term liabilities 1,261 833 962

Borrowings 58 396 303

Subordinated loans from Polen Invest A/S 23 27 -

Trade payables 83 83 66

Trade payables group enterprise - - 13

Current income tax liabilities - - -

Other provisions 6 5 3

Other payables 36 53 76

Other payables group enterprise 32 22 -

Deferred income 5 5 5

Short-term liabilities 243 592 466

Total liabilities 1,503 1,424 1,428

TOTAL LIABILITIES AND EQUITY 3,274 3,144 3,163



Cash Flow Statement DKK million Q3 2017 9M 2017 Q3 2016 9M 2016


Adjustments for non-cash operating items 81 205 67 177

110 355 103 264

Change in working capital, incl. herd 17 (87) (2) (49)

Cash flow from operating activities before financial income and expenses 127 268 101 215

Net financials (23) (38) (14) (46)

Cash flow from ordinary activities 104 229 87 169

Corporation tax paid 0 (0) 1 (1)

Cash flow from operating activities 104 229 86 168

- - - -

Purchase of property, plant and equipment (43) (105) (27) (108)

Sale of property, plant and equipment 1 6 (4) (3)

Purchase / sale of intangible assets and fixed assets investments - (0) (0) 1

Cash flow from investing activities (42) (99) (0) (111)

Proceeds from borrowings 56 1,269 31 217

Repayment of borrowings (78) (1,221) (85) (287)

Change in subordinated loans from Polen Invest A/S - - - - Proceeds on disposals of partial interest in subsidiary that does not involve loss of control - - - -

Dividends payed to shareholders (78) (78) - 0

Cash flow from financing activities (99) (30) (0) (70)

Change in cash and cash equivalents (37) 101 1 (13)

Cash and cash equivalents at 1 January 211 75 57 57

Exchange adjustments (4) (6) (16) (2)

Cash and cash equivalents at 30 September 170 170 42 42



Statement of changes in equity DKK million Share capital

Acc. Exchange adj. Reserve

Retained earnings

Asset revaluation

Minority interest

Total

Equity at 1 January 2017 531 (562) 1,126 626 14 1,735

Changes in equity in 2017 - - - - - -

Net profit for the period

-

- 147

- 2 150


- (18) 2 (19) (1) (37) Realized part of revaluation reserve

-

-

-

-

- -

Total comprehensive income

- (18) 150 (19) 1 113

Dividend paid to shareholders

- - (78) - - -

Total shareholders

-

- (78)

-

- (78)

Total changes in equity 1/1 - 30/9 2017

- (18) 72 (19) 1 35

Equity at 30/9 2017 531 (580) 1,198 606 15 1,771

Equity at 1 January 2016 531 (534) 1,032 635 10 1,673

Changes in equity in 2016 - - - - - -

Net profit for the period

-

- 87

- 1 88


- (40) 58 (58) (2) (41) Realized part of revaluation reserve

-

-

-

-

-

Total comprehensive income

- (40) 145 (58) (1) 46

Dividend paid to shareholders

-

-

-

-

-

-

Total shareholders

-

-

-

-

-

-

Total changes in equity 1/1 - 30/9 2016

- (40) 145 (58) (1) 46

Equity at 30/9 2016 531 (574) 1,177 577 9 1,720



Notes Note 1 – Significant Accounting Policies; Accounting Estimates and Judgements

The Interim Report is presented in accordance with IAS 34

“Interim Financial Reporting” as adopted by the EU and

additional Danish disclosure requirements for interim financial

reporting of listed companies.

The accounting policies are changed regarding the income

statement where the presentation is changed from analysis of

expenses by nature to an analysis of expenses partly by

function in order to better reflect the management of the

group. EBITDA is considered to be a key financial figure for the

group stakeholders, why the depreciation is kept in one line.

Otherwise the accounting policies are unchanged from those

applied in the Annual Report for 2016, to which reference is

made.

Gross profit fully split by nature (presentation applied until 2016)

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016

Gross profit reported 134 117 445 317

Staff expenses 46 53 138 135

SG&A (13) (10) (33) (27)

Gross profit by nature 167 160 550 425

Herewith the Group presents the Income Statement for

continuing business based on a classification of the costs by

function in order to show the earnings before special non-

recurring items, depreciation and amortization (EBITDA).

Depreciation, amortization and impairment of tangible and

intangible assets are therefore separated from the individual

functions, presented on separate lines.

Income Statement - Split by function (depreciations)

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016

Revenue 384 387 1,326 1,172

Cost of goods sold including depreciations and amortizations (287) (304) (993) (953)


SG&A, including depreciations and amortizations (25) (23) (70) (62)

Other operating items - - - -

EBIT 72 60 264 157

Depreciations and amortizations consist of:

Amortizations of intangible assets - - - -

Depreciations of tangible assets (39) (40) (119) (110)

Total depreciations and amortizations (39) (40) (119) (110)

Depreciations and amortization are divided into:

Cost of goods sold (37) (34) (111) (98)

SG&A expenses (2) (6) (7) (11)

Total depreciations and amortizations (39) (40) (119) (110)

Accounting Estimates and Judgements

The preparation of interim financial reporting requires that

management make accounting estimates and judgements

which affect the application of accounting policies and

recognised assets, liabilities, income and expenses. Actual

results may deviate from these estimates.

The key estimates made by management in applying the

Group’s accounting policies and the key uncertainties relating



to the estimates are the same when preparing the interim

financial reporting as when preparing the Annual Report 2016.

Property Plant and Equipment are measured at fair value

according to the methods in the Annual Report 2016. It has

been assessed that there have not been any significant changes

in the value of those in the period.

Note 2 - Geographical information

The Group operates in three principal geographical areas – Poland, Ukraine and Russia.

Revenue from sale by country of operations

DKK million Q3 2017 Q3 2016 9M 2017 9M 2016

Poland 284 286 810 741

Ukraine 123 82 295 196

Russia 39 47 127 116

Total sales 446 414 1,232 1,053



Note 3 – Biological assets measured at fair value

The change in the value of biological assets for 9M 2017 is as stated in the below table.

The total change in fair value is included in revenue reported in the income statement.

Change in fair value in biological assets

DKK million 9M 2017 9M 2016

Pigs, basic herd 1 January 121 131

Change in fair value 11 6

Foreign exchange adjustments (4) (0)

Pigs, basic herd 30 September 128 136

Pigs, sales herd 1 January 215 170



Pigs, sales herd 30 September 245 227

Pigs, total herd 1 January 336 301

Change in fair value due to volume (2) (8)

Change in fair value due to price 49 74

Foreign exchange adjustments due to price (10) (3)

Pigs, total herd 30 September 373 363

Arable stock, WIP 1 January 49 54



Arable stock, WIP 30 September 66 76



Note 4 – Segment reporting

The Group's results break down as follows on segments:

Q3 2017

DKK million Pig Food Energy Arable Other Eliminations Total

External revenue 196 201 14 47 (7) 9 460

Internal revenue 109 - 3 67 0 (180) -

Change in fair value (5) - - (71) - - (76)

Total revenue 300 201 17 44 (7) (171) 384

Gross profit 115 (0) 2 11 6 - 134

EBITDA 102 (4) 2 12 (1) - 110

EBITDA - margin 34.0% -2.0% 11.6% 26.4% 12.6% - 28.8%


9M 2017


External revenue 574 583 42 53 10 (4) 1,258

Internal revenue 307 - 12 67 0 (387) -

Change in fair value 48 - - 21 - - 69

Total revenue 929 583 54 142 10 (391) 1,326

Gross profit 374 9 14 33 15 - 445

EBITDA 341 (4) 13 31 1 - 382

EBITDA - margin 36.8% -0.7% 23.1% 22.1% 11.7% - 28.8%




Q3 2016


External revenue 162 208 10 53 5 (7) 431

Internal revenue 116 - 3 43 - (163) -

Change in fair value 18 - - (62) (0) - (44)

Total revenue 296 208 13 34 5 (169) 387

Gross profit 107 6 1 1 1 - 117

EBITDA 99 0 1 0 (0) - 100

EBITDA - margin 33.4% 0.2% 7.4% -0.5% -2.5% - 25.8%


9M 2016


External revenue 409 592 21 59 21 (20) 1,082

Internal revenue 307 - 12 43 - (363) -

Change in fair value 67 - - 24 (1) - 90

Total revenue 783 592 34 126 20 (383) 1,172

Gross profit 242 40 1 24 11 - 317

EBITDA 216 25 (0) 20 6 - 266

EBITDA - margin 27.6% 4.2% 0.0% 15.5% 27.5% 22.7%



Note 5 – Summary of bond terms

Issuer Axzon A/S

Security package: First ranking security over material assets and share pledges

Original Guarantors: Poldanor SA, Danosha LLC, Prime Food Sp. z.o.o., Finansax APS.

Status of the bond: Senior secured

Currency: EUR

Initial debt amount: EUR 135 million

Total framework: EUR 270 million

Other facilities: Super senior RCF up to DKK 125 million, governed under an inter-creditor agreement with bondholders. Basket of DKK 80 million for factoring.

Tenor: 4 years

Pricing: 3m EURIBOR + 450bps p.a., quarterly interest payments, EURIBOR floor of 0.0 %

Rating: Unrated

Call options: Non call during the first 24 months, then 50/25/0 % of initial coupon after 24/36/42, month respectively.

Incurrence test: NIBD/EBITDA LTM fixed herd price (net leverage) of < 2.75x for any additional debt raised.

Restricted payments: Dividends or cash contributions to Restricted Subsidiaries are payable up to Net Leverage of < 2.75x

Information covenant: Annual audited statements, quarterly unaudited reports.

General undertakings: Inter alia restrictions on distributions, mergers, demergers, acquisitions, disposals, financial indebtedness, negative pledge, financial support, subsidiary distribution customary for a HY bond.

Change of control: Investor put at 101 %

Equity claw: 35%

Listing of bonds: Nasdaq Copenhagen.

Trustee: Nordic Trustee.

Governing law: Danish law.



Quarterly Financial Highlights and Key Ratios DKK million

Q3 2017 Q3 2016 Q2 2017 Q2 2016 Q1 2017 Q1 2016

Income statement

Revenue 384 387 536 418 406 368

Gross profit 134 117 196 102 115 99

EBITDA 110 100 176 84 96 82

EBITDA fixed herd price 114 61 131 33 87 98

EBIT 72 60 135 49 57 48

Financial items, net 23 14 34 17 17 15

Profit/(loss) for the period 29 36 80 52 41 (0)

Cash flow

Operating activity 104 86 78 54 47 27

Investing activity (42) (31) (29) (44) (28) (36)

Financing activity (99) (54) 120 (12) (50) (3)

Free cash flow (37) 1 169 (2) (31) (12)

Balance sheet

Non-current assets 2,378 2,445 2,434 2,455 2,507 2,415

Net working capital 579 495 611 485 566 477

Net operating assets 2,957 2,940 3,045 2,940 3,073 2,902

Total assets 3,274 3,144 3,426 3,143 3,278 3,091

Equity 1,771 1,720 1,874 1,673 1,842 1,618

Net interest-bearing debt 1,186 1,220 1,171 1,112 1,218 1,284

Key financials Group

Gross margin 34.8% 30.2% 36.6% 24.4% 28.3% 26.8%

EBITDA margin 28.8% 25.8% 32.7% 20.1% 23.7% 22.4%

EBIT margin 18.7% 15.4% 25.1% 11.8% 14.0% 13.0%

Free cash flow / Revenue 9.6% 0.2% 31.5% -0.4% -7.6% -3.2%

Cash conversion -51.5% 1.5% 125.3% -3.7% -54.5% -24.8%

NIBD/EBITDA fixed herd price LTM 2.8 -

3.2 - - -

Equity ratio 54.1% 54.7% 54.7% 53.2%

56.2% 52.3%



Glossary

GENERAL Group Consists of Axzon A/S, Poldanor SA, Prime Food Sp. Z.O.O, Danosha LLC, OOO Dan-Invest LLC and Finansax APS FINANCIAL Cash conversion Free cash flow divided by earnings before interest and taxes (EBIT) EBITDA fixed herd price Earnings before interest, tax, depreciations and amortization (EBITDA) excluding price regulation of herd value for the period NIBD/EBITDA LTM fixed herd price Net Interest-Bearing Debt divided by earnings before interest, tax, depreciations and amortization (EBITDA) rolling for the last twelve months excluding price regulation of herd value SG&A Sales, general and administrative expenses PRODUCTION

ASF

African swine fever

Arable stock, WIP

The arable stock in the fields which is not yet harvested

Basic herd

The part of the pig herd, which consists of sows, maiden gilts and boars

Bio assets

Biological assets (mainly pigs and grain)

Bioenergy

Energy produced based on biological resources

Biosecurity

Level of measures taken to prevent infection by contagious diseases

Certificates on biogas

Energy units used for calculating extra price for sold kWh on top of market price (based on political decisions)

Crop split

The split between the different types of crops grown in the fields

Cultivated land

Land used for crop production

Efficiency

Measurable technical results from the production

Feed conversion ratio

Kilo of feed used for one kilo meat produced (live weight)

Immunization strategy

Strategy for improving the immunity of the pigs mainly by vaccination

Live weight

Weight of the pig before slaughtering and deboning

MAP

A packing method where the products are packed in a sealed and protected atmosphere to increase the period from manufacturing to last sales date

Meat-to-feed ratio

Price of one kilo meat (carcass weight) divided by the price of one kilo feed

Oil seeds

Crops that contain oil. Typically rape seed, soya and sunflower

Piglets

Pigs in farrowing before they are weaned from the sow

Pig price

Price per kilo pig meat in carcass weight

Processed products

Meat products which have been cooked, smoked or salted

Sales herd

The part of the pig herd that consists of piglets, weaners and slaughter pigs

Carcass weight

Weight of the pig in kilos of meat after slaughtering and deboning

Slaughter pigs

Pigs from 30 kilo live weight to slaughter (app. 110 kilo)

Weaners

A pig in the period between weaning from the sow and slaughter pig (app. 6.5-30 kilo)

company announcement no. 4/2017 interim report q3 2017€¦ · (q3 2016: dkk 387 million) as a...

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