Mowi Asa

Good morning everyone and welcome to the presentation of Movi's first quarter results. My name is Ivan Vindam and with me today to present the financials, markets and harvest volumes, I have our CFO Kristian Erlingsen. As usual, we start with highlights. First, profit, operation EBIT, our main figure, 109 million euro in the quarter. with the trading update of the 20th of April. I guess we should start describing the quarter as a very special quarter for Move and I guess for the world as a whole. We started with close to record high prices at the beginning of the quarter. And as the COVID-19 pandemic escalated into a world pandemic of unprecedented character, we saw a sharp decline in prices. I think this is the sharpest decline at least I have seen in my time in this industry. However, despite the extensive lockdown measures we have seen, we have run our operations close to normal, thanks to our fantastic 15,000 employees. So I would like to take the opportunity to thank all of them for making this happen. At the same time, we have managed to secure health and safety of us all, which is also very important. In MUVI, HSE is always priority number one. That being said... A lot of external and internal measures to avoid infections, we have incurred more costs, and we are also incurring more costs right now. On a positive note, they will disappear when the world and the movie returns to normal in not too long time, hopefully. Farming volumes of 83,000 tons in line with our guidance for the quarter. We saw record high volumes in consumer products of 52,000 tons. driven by a shift of volumes to retail at the expense of food service. The food service segment has, as I assume you're all aware of, taken the biggest toll of the lockdown measures. We also saw seasonal record high volumes in feed, 94,000 tons, also seasonal record high volumes for Norway. As you may know, we have two feed factories, one in Norway, one in Scotland. We have seen good growth in Norway during the quarter, and this increased demand has also resulted in record high volumes for the Norwegian factory. The Scottish factory has started on its first full year, so that they deliver record high volumes, I guess, is something we can take for granted. As announced in the trading update of 20th April, the board has decided to postpone the decision of the first quarter dividend until the second quarter. Then over to key financials. I will not say too much about it here. Christian, our CFO, he will work us thoroughly through this later on in the presentation. But as already said, operational profit of €109 million in the quarter. Net interest-bearing debt €1.356 billion, so below our long-term debt target. A very good cash flow in the quarter since we have untied working capital. This is the season for that. So net cash flow per share of 19 euro cent versus underlying EPS of 14 euro cent. Harvest volumes we have already touched base upon. Margins we will revert to later on when we address the various segments. I've already commented a little bit on summer prices. As you can see from the graph here, we started at close to record high price levels in all regions. But after the beginning of the year, I think we have seen the sharpest decline, at least in recent times. So a very strange quarter here. for movie, for the industry, but also for the world as a whole. In terms of price achievement, not great this quarter, I would say. For Norway, we are impacted by downgrades. A superior share of 89% in the quarter is somewhat lower than what we would like, driven by a winter source. We have seen a problem with winter source both in Norway, Faroes, and in Canada this quarter. This has taken its toll on price achievement, unfortunately. On a positive note, we think this will improve going forward. Norway is also impacted by negative contribution from contracts in the quarter. Those contracts will most likely give us a positive contribution in the second quarter. The Scottish price achievement, good in the quarter, 101%. Canada, 92%. 100% of the Canadian volumes are sold in the spot market. So this is compared to spot. Winter source is one power explanation. But also the reference price, earn a bury. It looked like earn a bury lagged a little bit versus the market development in the quarter. Bear in mind that earn a bury is not... It's not an online reference price. Unaberry is a manual reference price with its weaknesses. So I think a part of this is also because of the way we measure Unaberry. This also goes for the Chilean fish. In addition, we also had low superior quality, as you can see from numbers, 85%, driven by SRS-related source. So not winter source, but SRS. related source. In addition we also sold a big proportion of our volumes to Brazil and in the first quarter the Brazilian spot prices were lower than in the American quarter. So far at least in the second quarter those prices are much more similar. So much about price achievement and over to the operational EBIT waterfall and Farming is the big change component this time around. Down 83 million euro year over year. More than half of this is because of the low volumes, 83,000 tons this quarter compared to over 100,000 tons last year. But also a part of it is cost. For the other segments or business areas, we have more or less a flat dish development. Then over to our biggest business area, our biggest segment, farming, Norway. Overall, a decent quarter I would say. We'll come a little bit back to the spread in margins between the regions. I think it's right to say that the biology and production in the quarter has been good. But what we are mashing here is what we call RFS, released from cost stock. And a major part of that cost is related to 2019. And 2019 was a very challenging year for us, biological-wise. The particular generation we have been harvested from, 18GS0, have been troublesome for us. This has resulted in low volumes, high cost of stock, and also a lack of economies of scale. So, production-wise, a good quarter, I would say, but in terms of the recognized RFS volumes, etc., not satisfactory, but driven first and foremost by a challenging 2019 production. We hope that if the production we have now continues going forward, this will lead to improvements in RFS costs for the Norwegian production, particularly for the second half. It goes without saying that the COVID-19 has taken its toll on the Norwegian prices. In terms of price achievement, we have already commented duly on that. Somewhat low because of the problem with the winter source. Then over to the regions. Not a big spread this time around. North 1.77, 1.72 in south and 1.54 in mid. Having said that, bear in mind the lion's share of volumes in north was in March. March was the month, as you may know, with the lowest price. So just for that, North would have been above 2 euro in margin. So we had a reasonably good quarter for North, although the margin here indicates... differently. But again, timing of volumes was not great for North this time. South 1.72 I think is a good margin in this region. South is a much more challenging region than North and also Mid. In terms of the margin for mid, 1.54 is not something we are satisfied with. It should deliver better. The main explanation is the generation we are harvesting from, low volumes. And again, 2019 was a challenging year for our Norwegian operations, particularly for region mid. Hopefully this will improve going forward, at least the start of the year. has been good. Then over to our contract portfolio for Norway. Contracts these days are absolutely very important with the decline we have seen in the short spot prices. A stable contract volume portfolio also for the second quarter and third quarter. We saw a drop in prices from the fourth quarter into the first quarter, 0.5 euro, so 0.5 euro. Going into the second quarter and third quarter, we have stable contract prices. Then Scotland. Scotland have been through a prolonged period of challenging biology. We had algae bloom last September. We also have struggled with pastorella and sea lice. So RFS cost for Scotland in the second quarter is very high and far too high. On a positive note, it looks better now. It looks like biology is improving. The fish has started to grow. So we are expecting improved cost numbers for Scotland going forward. Positive contribution from sales contracts. The Scottish market is to a large extent a contract market. contrary to most of the other markets in the salmon world. Then over to Canada. Low volumes this quarter, 8,000 tons. Volumes will increase going forward. Normally that leads to improved costs, more economies of scale, etc. We had a very challenging year for Canada last year. If you remember, we had the mass mortality in Canada East. lost a lot of fish. We also were struggling with the biology in the West. These numbers are obviously highly impacted by low volumes and RFS numbers for Canada is impacted by the 19 biology. But with higher volumes, with our normalization in East going forward, We are expecting a better RFS development in the time ahead, but this will come gradually. So don't put too much expectations into next quarter. It's also very encouraging to see that we have gotten the 10 licenses that were temporarily suspended last year back. So this is very encouraging and very important with regard to our growth strategy in Canada. It's of utmost importance that we have support from the government. We have all the time claimed that we did anything wrong. This was caused by by mobile nature and I think the review which have been carried out has proven that to be right so again very very encouraging to get this news the last bullet points harvest volume to increase for the remainder of the year as already said that should help with regard to both cost and operational performance on land. Then over to Chile. Relatively good results, I would say, driven by high contribution from consumer products. 1.2 euro is good in the quarter, and I think it's a long time since I've seen such a low spread between the Chilean margin and the Norwegian margin. We have negative scale effects on cost due to low volumes, almost 20,000 tons last year. as against below 14,000 tons this year. That takes it toll on cost, it always do. Biology in Chile is stable and we are not carrying any frozen inventory. I see there is a lot about frozen inventory in Chile in the media right now. Amidst this COVID-19 situation we have, and for good reasons, but we do not hold any significant frozen inventory in Chile. So we are in a good position in that regard. Then over to Ireland and Faroes. We didn't harvest in Ireland in the quarter, but we had a good biology, good growth. So I think things are running well in Ireland right now and also improved situation year over year. With regard to the Faroes operations, we are harvesting from our best site in the Faroes right now, Oyndafjordir. A great margin, as you can see, almost 2.8 euro, which is great, although the perishery is low, 80%, driven by, as we already have addressed a few times, winter sows, so very good results in Faroes. in our ferro operations in the quarter. Then over to consumer products. As stated in the highlights, record high volumes sold in the first quarter. Unfortunately, the contracts we entered into during the fall of 2019, they are not good. I'm talking about Europe, where we have our biggest lag. So those contracts, they take its toll on the overall margin. Consume products in the US is really good in a quarter, very good numbers. Asia, okay. So Europe is the disappointing part. On a positive note, we see a shift towards more and more in retail led by the COVID-19 situation we have. That helps for our European operation. So we are expecting better earnings in consumer products going forward. I also think we should say that we didn't get any help from Easter season this year. Normally, when we have Easter, we have a peak season. Only the Christmas season is better. But this time, unfortunately, there was no help from Easter season. because of the obvious reasons. Then over to feed. First quarter is a low quarter for feed. That's the part of the year the salmon grows the least because of sea water temperatures. Despite that, we had a good quarter, record high volumes, as we already have said. particularly impressing in Norway driven by good demand and good growth in our Norwegian farming operation 95% self-sufficiency rate in a quarter is also very satisfactory that means that we are producing and consuming the feed we produce ourselves So, with that, Christian, the floor is yours. You can walk us through the financials, markets, and harvest volumes. Thank you.

Thank you for that, Ivan. So, good morning to everybody. We will take a look at the financials, markets, and harvest volumes, and as usual, We have the quarterly material with all the details. So please take a look at that as well, and you will find more information in addition to what we say here in the presentation. We start with the overview of profit and loss. We have the top line. It shows operational revenue of 885 million euro, which is... 10% down from the comparable quarter, mainly due to lower volumes. We see that harvest volumes are 20% down. Sales volumes are somewhat lower down than that. But this is mainly driven by volumes. And the effect of lower volumes is partially offset by higher achieved prices in our market segment and also in consumer products. If we take a look at the operational EBIT, 109 million euro, down 44% from Q1 2019, again, mainly driven by the volume decrease. But also, as Ivan commented, higher costs and also lower earnings in consumer products. Then we have the items between operational EBIT and financial EBIT. And this time we have a negative fair value adjustment of biomass of 159 million euro, which is mainly due to lower prices at the end of the quarter. Associated companies, 2 million euro. This is mainly Novacit. And translated into operational earnings per kilo, this was as much as €2.96 per kilo on 9,300 tons. So, another very good quarter for Nova Sea. This is an impressive margin on good operational performance and also good timing of sales. Net financial items, 40 million euros negative, this time impacted by unrealized currency effects, mainly due to the weakening of the Norwegian kroner. And the key figures listed here, underlying apps, net cash flow per share, margin, and return on capital employed, they are impacted by the lower operational earnings. And the dividend paid is the Q4 dividend paid in the beginning of March. So we move on to the financial position. As we see here, the financial position is solid, as demonstrated in these figures. We also see that the figures are relatively stable from year end 2019. Non-current assets, 3.2 billion euro, very stable. Current assets we see are down approximately 340 million euro, where around 170 of that is explained by release of receivables, and around 160 is then the net reduction in fair value adjustment on biomass. So that are the main explanations. And if you move on to the other side of the balance sheet, we have the debt side. We have net interest bearing debt of 1.4, 1357, so still a little bit below the target. And we have the equity with a healthy equity ratio of 51% adjusted. So a solid financial position for Mowi. This table shows the cash flow in the quarter. Cash flow from operations, as commented also by Ivan, includes a large seasonal release of working capital, 76 million euros. This is mainly related to release of receivables in sales and marketing. As you know, they have the high season in the fourth quarter. And then we get the payments now in Q1. And then we didn't have the tie-up effect related to the Easter sales this year. So the total effect is higher than last year. Tax payment stable from Q1 2019. Other adjustments, €12 million. That includes insurance payment for the factory in Critson. Net capex 73 million euro includes 80 million euro related to purchase of MAB growth in Norway, the fixed price growth, 1% growth. The payment came now in the first quarter. This is the 1.49 licenses we acquired there in that fixed price purchase. And then we have the net interest on financial items paid, 17 million euro this time. This is impacted by fixed interest rate swaps and also fees related to the new green bond we had in January. And going forward, this item is expected to be reduced on lower swaps, and we don't have a fee effect. So the payment will be around 10 million euro this time. going forward in the next quarters. The dividend we've already commented upon. And accordingly, good cash flow, nibbed pretty stable, moved from 13.37 to 13.57 during the quarter. So still below the target level. If you look at the cash flow guidance for this year, we maintain the working capital build-up of 90 million euro. We are growing this company. We have extra volumes in farming. We are also growing in downstream. So this ties up capital. With regards to the CapEx guidance, we maintain the 265 million euro figure. That is excluding the effects from the traffic light system. We have already paid 18 million euros related to this. So already we have 265 plus 18 equals 283 for the year. And then the authorities have announced an auction for the remainder of the growth, which will also come. And if you look at this 265 million euro figure, this includes investments in equipment, but also more complex building projects, like the freshwater investments and the debut plant in Krypton, for instance. So, of course, due to COVID-19, there may be some delays in these projects. It's a little bit too early to assess all the potential consequences with regards to that. But the risk is on the downside, i.e. underspent. But no delays impacting small output or volumes going forward. Interest paid and taxes paid. There we have... the guidance maintained for those items. Then we can take a look at the financing. It's very important these days with the elevated uncertainty across the world. We have a very solid balance sheet. We have a good financing. We have ample liquidity, around 580 million euros in cash and undrawn lines, as also stated here. A total committed financing almost 2 billion euro. And then we have the long-term target of 1.4 billion euro. I would say that the maturity schedule for our interest-bearing debt is favourable with regards to the elevated uncertainty regarding COVID-19. We issued a green bond, as you know, in January, just before the market turmoil started. And we have no interest-bearing debt maturing before the second quarter of 2022. The bank facility is the backbone of our funding, where the lenders are D&B, Nordea, ABN Amro, Rabobank, Danske Bank, and SAB, all of which we have a very good relationship with. We have the 200 million euro unsecured bond maturing in 2023, the green bond in 2025, and the Schultzstein loan in 2026. We then move from financials over to the more fundamentals in the market during the quarter. We start with the supply side. Supply growth globally was around 2%, as we see here. That was in the high end of expectations. Norway increased more than expected. We had good growth conditions and a higher number of fish harvested. Scotland, however, they decreased 17%, as you see here. That was lower volumes than guided. They had a challenging biology in 2019 for the Scottish players, including us, and that was prolonged into the first quarter, combined with unusually harsh weather in Scotland. And the weather also impacted Scotland, sorry, impacted ferals down 20%. many winter storms, and also distribution challenges to Russia and China for the ferros, for the industry. Chile increased 9%. That was more than expected. Expectation was 3% to 8%. So we had a higher number of fish harvested, particularly in January and February. That was a sort of a delay from the end of 2019 when we had the social unrest issues in Chile. So consequently, we had much larger volumes in the beginning of 2020. March, however, was impacted by COVID-19, so lower harvesting in March in Chile. Yeah, and we can take a new look at the prices. Ivan has already given some comments. Year over year, prices increased in Europe, as we see here, 6%, also in Canada, but they were lower in Chile. And prices, they started at very good levels, second highest levels ever in January. And that is due, of course, to the reduced supply, you know, after the autumn of 2019, where you had early harvesting in 19, a lot of volumes on the market, prices fell accordingly. Then volumes were lower, demand very strong. So you had a big increase in prices. So you start in January at higher levels. And then of course, COVID-19, caused the prices to fall during the quarter, the lockdown measures which impacted food service, and the volumes normally going to that segment in the market. First, of course, related to China, then to the rest of Asia, and then the main hit on prices came mid-March onwards. And historically, you see in the first quarter that you always, or you usually get a little help from the Easter season, a little during that period of time on a period during the year when volumes are seasonally lower. But that effect was not there this year. On the contrary, so the prices fell almost 50% this time. So it's a dramatic decrease in prices. And in Chile, prices were down year over year. The supply growth was high, as I said, in the beginning of the quarter. So Chilean prices did not get as a lift as the prices in Europe and Canada did. And then COVID-19 caused prices to fall also for that origin. The decrease in prices continued in April and also in the beginning of May. But then we have had now a recent increase in prices in Europe. as some countries are gradually reopening. Very positive that several countries have either gradually reopened or indicated that they will relax lockdown measures in the time ahead. We are now seeing improved demand in several important summer markets, such as France, Spain, Germany, and promotional activity in the European retail segment has also picked up recently. So, the prices in Europe are ticking somewhat up. If you take a look at demand, then we see that consumption increased by 0.4 in the quarter versus the comparable quarter. And, yeah, we have stated that already. Consumption patterns were, of course, very impacted by the extensive COVID-19 lockdown measures during the quarter, particularly food service, but also wet counters in retail being impacted. And these reductions have partially been offset by increased retail sales. So very good development in retail. Okay. So, of course, probably some loyal salmon buying end customers are now buying salmon in retail to a larger extent than usual, and potentially also new retail end customers, which we hopefully will keep also going forward. If we look at the different regions, then You can see that the effects are somewhat connected to the time span of the COVID-19 situation. We see that Asia was the first region impacted by COVID-19. They fell 11% year over year. They also have a larger food service share, 75% more or less, versus 35-40% globally. They've also experienced difficult logistics in the quarter. significantly increased air freight rates, shortages of passenger planes. So volumes are accordingly down in Asia in the quarter. But it's very positive that we know over the last month, I've seen a very positive development in especially China and Korea. Much of the sourcing into China and Korea are with cargo planes. And Norwegian export volumes of salmon into China have steadily improved, have actually now exceeded 19 levels for the same weeks. South Korea develops also well, while development in the other Asian markets is somewhat more challenging still. Then Europe, which was the second region hit by COVID-19, consumption increased 2%. versus Q1-19. And then COVID-19 came a little bit later to the U.S. This is where, of course, as you know, the epicenter is right now. Consumption increased 5% in the Americas in the quarter with a negative impact on food service activity, but some of the shortfall has been replaced by increased sales in the retail channel. So very good demand in the U.S. for pre-packed products. Of course, the cost of air freight has also impacted the trade flows to the U.S. So that means that we have a difference between supply and demand. As we see in the supply figures, more or less 548. Here we have 538, more or less. There's a difference of 10. So that is related to build up of frozen inventories in Chile mainly, as Ivan also commented upon. Our projection of inventories in Chile are in the level of 50 to 60,000 tons. Mower Chile carries limited frozen inventories. We have benefited from our integrated value chain in the Americas, our U.S. plants, So we carry limited inventory. So this is the next picture during the quarter, but I think it's very important to emphasize the very positive development we are now seeing with the improved demand on the gradual reopening. As we also state here in the last bullet point, we expect this to continue going forward. Then we can take a look at supply going forward for the industry. For 2020, we expect a modest supply growth, 2-4% for the year, down from 7% increase back in 2019. And the Norwegian figures, growth estimated to 2-4%, as we see here, which is in line with the Contalius estimate of 3%. For Chile, we estimate the growth of... three to five percent. Contaglia estimates five percent. We have more individuals of the harvest-ready generations in C year over year, but there are also some effects which may dampen potential volume growth in Chile going forward. We have SRS and we also have the COVID-19 situation. For the UK, growth estimated to minus three to plus one also in line with the Contales estimate. And you see also, of course, that the second half of the year, now in 2020, volume growth is higher than the first half of the year. More individuals and higher weights for the 19G S1 generation, as opposed to the 18G S0s we have been harvesting now in the first quarter and for the first half of the year. If you take a look going forward into the future, which is always difficult, of course, but we have our projections and our estimates. And for 2021, we expect a growth as low as 2%. This suggests a tighter market balance given a continued COVID-19 recovery, a recovery which we have already signs of being there. starting to happen. And of course this is related also to less individuals year-over-year for the 19 GS0s, the generation to be harvested in the first half of 2021. So this has a support in the numbers. If you take a look at our own volume guidance, We maintain the 450,000 ton guidance for 2020. We do some minor adjustments between the regions, but we stick to the total guidance. We have a higher number of individuals in sea year over year, and we also have a favorable development in mix with an increase in Norway and a decrease in Canada. Okay, so much for the market side. Then I will leave the word back to Ivan to give some comments about the outlook and the road ahead for the company.

Yes, thank you, Christian. Thank you for a thorough walkthrough of financials, markets, and our harvest volumes. Then over to Outlook. The COVID-19 pandemic has undoubtedly impacted us in a short term with regard to dynamics, prices, and cost. That being said, Movi is capitalizing on an integrated value chain to meet the shift from food service demand to retail demand, and to be a little bit blunt, without our big downstream leg, I don't think we could have managed this. So I thank all our employees to begin with. I also would like to thank them again for making this happening. We have been through a very challenging time, but we have... done reasonable well under the prevailing circumstances. As Christian said, we have started to see improvements in some of the markets as some of the countries have started to reopen. First we saw it in China, Korea and now this has moved on to Europe and most of the big markets there. Although UK is lagging a little bit, they are a little bit behind us in this pandemic. In America, it's still challenging price-wise. They are low, but we expect to see the same patterns also in America when they start to reopen there, hopefully not in a long time. Supply outlook for 2021, low, 2%. So with increased demand going forward and a low supply outlook, we also believe in strengthened prices. So with the pattern we already have started to see signs of that that will continue. As stated by Christian, we are maintaining our volume guidance of 450,000 tons for this year. And as we said earlier in the presentation, we are harvesting from our troublesome 18GS0 generation. Hopefully, when we gradually start to harvest from the 19th generation, we will see improvements in our RFS released from cost stock. Increased volumes will also help The volumes in the first quarter was very low for us, 83,000 tons. Before we wrap up, we would also like to say thank you to the government for the proposal we had yesterday, where they proposed to discard the resource tax in Norway. Norway is, as you know, our most important region. Salmon farming is also very important for Norway, and we think it is of utmost importance that we get rid of this resource tax. So again, thank you. This is very, very good news, potentially. With that, we open up for a Q&A led by our IRO, Kim Dusvik. So, are there any questions coming in?