AKVA Group: Annual Report 2009

The market situation for AKVA group was challenging throughout 2009. The global financial crisis meant customers in AKVA group's main markets in Norway, Scotland and Canada held back investments. Furthermore, the Chilean salmon industry faced severe challenges, which led to a significant decline in business volume in this market, reports http://www.megafishnet.com/ with reference to AKVA Group.

A continuing trend in 2009 was structural changes in the industry leading to companies becoming larger. However, the severe financial issues at several large Chilean companies have also opened the door for new players entering the business in this region. AKVA's customers are growing larger and are thereby generally becoming more demanding clients, focusing on the entire value chain.

For AKVA, the above situation resulted in a significant reduction in business volume in 2009 compared to 2008. The revenues from the salmon segment in 2009 were MNOK 407, a reduction of 38% from 2008.

There were two sides to development within species other than salmon in 2009. The Norwegian cod industry experienced severe challenges in 2008 and 2009, with a near-complete halt in investment. As a consequence the total volume pertaining to species other than salmon fell by 19%. In markets outside Norway, the salmon industry's development continued to show a positive trend with growth of about 26%. In global markets, AKVA experienced positive development in several regions, which is expected to spur further deliveries going forward.

Revenue from species other than salmon was MNOK 102 in 2009, which is a decrease of 19% from 2008. Deliveries related to species other than salmon represented 17% (15%) of AKVA's revenues.

Financial accounts and acquisitions

All comments on the profit and loss figures in this report are based on reported figures, except where otherwise stated.

In the comments below on the financial accounts, the 2008 figures are presented in parentheses following the 2009 stated values, when included.

Profit and loss (consolidated)

Operating revenues for AKVA in 2009 were MNOK 599.3 (866.5) - a reduction of 31% compared to 2008.

EBITDA for 2009 was MNOK -11.5 (52.7). The reduction in EBITDA is mainly explained by lower business volumes in Chile and Norway, as well as extra costs on projects related to land-based recirculation. The reduction in Chile is related to the challenging fish-health situation there, while investments in the Norwegian industry have been cautious, following the international financial turmoil and the challenges linked to the sea lice issue in Norway.

Depreciation and amortisation in 2009 were MNOK 30.9 (29.5). The EBIT for 2009 was MNOK -42.4 (23.3). Net financial expenses were MNOK -9.6 (-12.5) and profit before tax was MNOK -52.0 (10.8). The calculated tax for 2009 is MNOK -12.9 (5.3), of which MNOK -14.6 is a change in deferred tax and MNOK 1.7 in current taxes. Net profit for the year was MNOK -39.1 (5.5).

INTECH had operating revenues in 2009 of MNOK 271.2 (467.4), a reduction of 42% from 2008, and showed an operating profit (EBITDA) of MNOK -5.5 (27.7). The reduction is related to a general drop in investments for INTECH products in all salmon-producing markets and must be seen in relation to the turmoil on the financial markets, as well as the sanitary situation in Chile.

OPTECH had operating revenues in 2009 of MNOK 328.2 (399.2), a reduction of 18% from 2008. The operating profit (EBITDA) was MNOK -6.1 (25.1). The fall is due to the same factors that caused the reduction for INTECH, but an increase in recirculation systems and the greater stability of the software business made the relative reduction smaller.

The result per share were NOK -2.27 in 2009 versus NOK 0.32 in 2008. The calculation is based on 17.222.869 average number of shares outstanding. The total number of outstanding shares was 17.222.869 at the end of 2009.

Balance sheet and cash flow (consolidated)

The total assets at the end of 2009 were MNOK 611.3 (676.2). The total liabilities amounted to MNOK 354.7 (366.6) and equity totalled MNOK 256.6 (309.6) giving an equity ratio of 42.0%.

The working capital in the consolidated balance sheet, defined as non-interest bearing current assets less non-interest bearing short-term debt, was MNOK 120.0 (171.7) at the end of 2009, which is a reduction of MNOK 51.7 from the beginning of the year. The reduction is mainly related to the lower business volume.

Equity during 2009 was negatively affected by currency translation differences of MNOK 14.6, of which MNOK 9.5 is related to revaluation of goodwill and other intangible assets, according to IFRS.

Gross interest bearing debt amounted to MNOK 200.0 (197.5) at the end of 2009. Cash and unused credit facilities amounted to MNOK 76.4.

A new MNOK 30 loan arrangement with Innovation Norway was established in the fourth quarter. The agreement was made in close cooperation with the main bank, Sandnes Sparebank, and includes an 18-month period without instalments on all existing long-term loans with the bank. The reduction in instalments in the period will be about MNOK 30.

A Waiver extending through the second quarter 2010 relating to the financial covenants of the major credit facilities and loans was agreed with the company's main bank in the fourth quarter.

The total calculated deferred tax assets on December 31, 2009 amounted to MNOK 31.7, whereof MNOK 24.8 was recognised in the balance sheet. The amount included in the balance sheet is only related to the Norwegian operations.

Net investments in 2009 amounted to MNOK 24.1 (24.6), including MNOK 15.7 (9.1) in capitalised R&D expenses, in accordance with IFRS. The 2008 net investment figure is adjusted for the acquisition that took place to show the underlying level.

Risks factors

The aquaculture industry is associated with a certain level of biological risk, and has historically been subject to cyclicality. AKVA aims to reduce the risks related to the exposure to these factors through diversification of its products and technologies to various fish species and geographical regions.

For AKVA group the financial risks are mainly related to currency risks, interest rate risks, credit risks and liquidity risks. A reduction in currency risks is sought through matching revenues and costs in the same currency, in combination with forward contracts. The group is also exposed to fluctuations in foreign exchange rates when calculating the equity of foreign subsidiaries into NOK.

Historically the group has shown low losses on receivables from customers. For larger projects the group generally receives partial pre-payment from the customers and payments according to the progress of the projects. The credit risk related to customer deliveries is thereby reduced.

AKVA is exposed to fluctuations in the prices of certain raw materials used in some of the main products. The alleviation of this risk is sought through continuous general awareness and specific attention during major contract negotiation periods, as well as by securing the pricing of raw materials immediately after signing firm contracts.

Product development

In 2009 the group invested MNOK 34.5 (25.8) in product development, of which MNOK 15.7 (9.1) was capitalised and MNOK 18.8 (16.7) expensed. The investments were used to further improve existing products and to develop new products. The fact that AKVA has managed to strengthen its relative market shares during recent years can be attributed to, amongst other reasons, the result of its focus on product development.

Organisation and work environment

AKVA group had 428 employees at the end of 2009. In Norway the company employed 180 people. Women accounted for 14% of the Norwegian employees. The company finds it important to have a reasonable gender balance across the different levels of the organisation.

The group aims to strengthen continuously the competence of the employees and the company overall to maintain a position as the leading supplier of technology to the aquaculture industry. Through recruitment, the company seeks to employ people with high competence within all areas of its business.

Total sick leave in AKVA group ASA during 2009 amounted to 3.9% (2.50%). Short-term sick leave amounted to 1.2% (1.56%). No injuries or accidents were registered in the company during 2009.

The board considers the working environment in the company to be satisfactory and has not initiated any particular measures in this area during 2009.

The purpose of the Anti-Discrimination Act is to promote equality, ensure equal opportunities and rights and prevent discrimination based on ethnicity, national origin, descent, skin colour, language, religion or belief. The Group focuses on promoting the purpose of the Act within the Group's operations.

One of the aims of the company is to provide a workplace where there is no discrimination on the grounds of disability. The company works activelyand purposefully to design and organize the workplace so that it is functional for as many as possible.

AKVA group and the external environment

The company has taken adequate measures in its operations to comply with environmental laws and regulations. The company is the only cage supplier to the Norwegian aquaculture industry that has systems to receive and recycle used polyethylene cages. In the company's Akvasmart product range, certain products contribute to optimising the feed utilisation and thereby also reduce feed waste. In this way AKVA's products contribute to reducing environmental impact from the fish-farming industry.

Future outlook

Expectations for 2010 are dominated by uncertainty even if trading conditions are good for the salmon industry.

The order inflow has improved in Q1 2010 compared to 2009, but customers are still holding back on investments.

During 2009, AKVA delivered complete recirculation systems to customers in Chile and Norway, and has expectations of continued positive development within this product area.

It is expected that the salmon industry will continue to consolidate into larger entities, driven by the trend towards integration throughout the entire value chain. AKVA is well positioned to benefit from this development.

Allocation of profit

The board proposes the following application of the profit of AKVA group ASA:

At the end of 2009, AKVA group ASA had equity of MNOK 300.6, comprised of MNOK 17.2 in share capital, MNOK 256.2 in share premium reserve, MNOK 2.2 in other paid-in capital and MNOK 25.0 in other equity. The parent company had no free equity at the end of 2009.