Mowi Asa

Good morning, everyone. My name is Ivan Vindheim, and I'm the CEO of Movi. And it's my pleasure to wish you all welcome to the presentation of Movi's fourth quarter results of 2021. With me today to present our financial figures and fundamentals, I have as usual our CFO, Kristian Ellingson. And after the presentation, our IRO, Kim Dersvik, will routinely host a Q&A session where you can submit your questions in advance or as we go along by email. Please refer to our website at movi.com for the necessary details. The disclaimer I think we leave for self-study. Then highlights. Despite the escalation of the pandemic with the new Omicron variant and new close-downs in many markets, The fourth quarter saw increasing prices towards the end of the quarter, which have continued into the new year. Driven by both strong demand and supply growth that has begun to slow down after a period of high growth. With this backdrop, Movi made an operation profit of 146 million euro, which is tripling since last year and in line with the trading update of the 17th of January. And despite a challenging pandemic environment, we have managed, with few minor exceptions, to keep our many farms and factories running normally. So, yet again, a big thank you to all of our 12,000 employees who have made that happen. It's much appreciated. Then the farming cost of 4.62 euro per kilo in the quarter was stable from the third quarter. Furthermore, we harvested 115,000 tons in the quarter, more than guidance due to good growth conditions and some conservatism in our guidance figures. and some advanced harvesting driven by biological issues in some regions. This adds up to all-time high farming volumes for Mowi for 2021 of 466,000 tonnes, equivalent to 6% or 26,000 tonnes organic growth year over year. And last year was also a record high year. This is both encouraging and very important as farming volumes and thereby farming volume growth are the mainstay of our business model. From one farming pillar to another, sustainability. As we have said numerous of times, sustainability is deeply ingrained in the moviculture and at the heart of everything we do. It was therefore with great pleasure and pride we were notified before Christmas that we for the third year in a row were on the top of the Colfair Index that ranks the world's largest animal protein producers on sustainability. This shows that Norway is at the forefront when it comes to sustainable food production. And personally, I must say I feel extremely honoured and humbled to be allowed to lead such a company and organization that once again excels in this way. Please also note that the upper end of the Color Fair Index is dominated by salmon farming companies. This is maybe equally important. It shows that aquaculture and salmon farming in particular are most definitely part of the solution to the green shift. So much about farming for now. For consumer products part, we had yet another good quarter earnings and volume wise. And 2021 also turned out to become the best year ever for consumer products with record high earnings and volumes of 96 million euro and 248,000 tons product rate respectively. Our field division also had a respectable quarter in a rather challenging sourcing environment and in a market subject to fierce competition. And field performance was good, which is of utmost importance to us. Last but not least, the Board of Directors has declared a quarterly dividend of 1.40 NOK per share. equivalent to 70% of underlying earnings per share, of which 50% is ordinary dividend and 20% is extraordinary dividend. Then over to key financials. Christian will, as usual, go in depth on financial figures under his session, so to not disrupt the course of events, we'll just touch briefly upon the most important ones now. Moe recorded record high quarterly revenues of 1.15 billion euro in the quarter, up by 14% year over year. Full year turnover was 4.207 billion euro, and it's also all time high on, as already said, record high volumes in both farming and consumer products. Operating EBIT of 146 million euro, we have already commented on, tripled since last year. Cash flow was good in the quarter, adjusted for seasonality and tie-up of working capital, and net interest-bearing debt came in at 1.257 billion euro, well within our long-term target of 1.4 billion euro. Underlying earnings per share in the quarter was 20 euro cents, and annualized return on capital employed was 16.5%, above the long-term target of 12%. In terms of region margins through the value chain, they were reasonably good in Norway in the quarter, particularly from production area six and northwards. Whereas our farming regions abroad, this time, was more of a mixed bag. You will get back to the explanations shortly when we go through the various business entities. But first, briefly about prices. As already said, we saw increasing prices towards year-end, which have continued into the new year, driven by both strong demand and a supply growth that has slowed down. Compared to the fourth quarter last year, prices were up by an impressive 49% in Europe and 42% and 20% respectively for salmon of Chilean and Canadian origin in the American markets. In other words, a very strong salmon market the way we see it. Christian will elaborate more on prices and supply under his session. But first, our own relative price performance. Overall price performance for Norway was 2% below the reference price in the quarter, held back by Norway and Canada East this time around. All other regions were on or better than the reference price in the quarter. Our Norwegian volumes suffered from contracts substantially lower than the prevailing spot price in the quarter, plus some negative deviations related to size distribution and quality. Canada East, on the other hand, was yet again negatively impacted by its phylogical issues. Briefly about the EBIT waterfall. Overall operation EBIT increased from 49 million euro last year to 146 million euro this year for the fourth quarter. This was in its entirety driven by increased earnings in farming as a result of higher spot prices. Farming volumes are in the same period down and costs up. Other businesses contributed with 13 million euro less earnings-wise year over year. Then it's time to address the various business entities, and as usual, we start with the largest and most important one, Mowi Norway. Operation EBIT was 125 million euro in the quarter, up from 59 million euro in the comparable quarter last year. EBIT margin was 1.76 euro per kilo this year, versus 0.75 euro last year, i.e. an improvement of 135%. year-over-year. As the graph clearly demonstrates, this is caused by higher prices. Cost is stable and volumes are down from 78,000 tons to 71,000 tons. That said, foliar volumes for mowing nowhere for 2021 were record high at 273,000 tons, up from 262,000 tons in 2020, which also was a record high year. Finally, We expect higher realized costs in the first quarter due to lower volumes and less dilution of costs combined with higher feed prices last year. Then the breakdown of the regions in Norway. Margin-wise, it was a mixed bag also this time around following the coastline. Region North stands yet again out as the margin winner with impressive 2.37 euro per kilo on very low costs. 34.8 NOK per kilo in the quarter. Region North is Norway's by far largest farming entity and harvested approximately 100,000 tons from production area 7 to production area 12 in 2021. Region Mid achieved a margin of 1.68 euro per kilo in the fourth quarter with a production cost of 39.3 NOK per kilo and harvested approximately 60,000 tons from production area 6. For both region north and region mid, we had reasonably good biology in the quarter. There is a pattern in Norway that the further south you get, the more challenging the biology becomes. And for region west and region south part, it was a rather challenging quarter. biologically with particular gill issues that led to some elevated mortalities and some advanced harvesting. With this backdrop, region west and region south recorded an EBIT per kilo of 1.15 and 1.09 euro per kilo respectively. In terms of volumes, region west harvested 65 000 tons from production area four and five whereas region south harvested close to 50 000 tons from production area one two and three done our norwegian sales contract portfolio in 2021 we deliberately decided to keep the contract share low at 24 percent to capitalize on the expected market recovery after a very challenging 2020 with COVID-related market disruptions. This strategy served us well, and due to our optimistic market view for 2022, we have decided to maintain this strategy with a contract share in the low end at 26%, or 70,000 tonnes, though at significantly higher prices. Issues with GILS and CMAS in the third quarter continued unfortunately into the fourth quarter for our Scottish operation. In addition to that, we also struggled with poor performing external eggs we introduced in Scotland in lack of other opportunities in the aftermath of the Norwegian egg export ban which was imposed in 2019. We have phased out this egg supplier but unfortunately these eggs accounts for close to half of our stock in the first half of 2022. With this backdrop, Mowi Scotland made an operation profit of 7 million euro, substantially down from the 20 million euro we made last year due to higher cost. And EBIT per kilo of 61 euro cents against 1.57 euro per kilo last year. Mowi Chile, on the other hand, So a significant improvement in operation EBIT year-over-year in the fourth quarter, from minus 10 million euro to positive 11 million euro this year. An EBIT margin of 64 euro cent against negative 49 euro cent last year, driven by much higher prices. Cost is up as we harvested from sites with a higher cost level following a prolonged period of challenging environmental conditions after the algae bloom last year. However, on a positive note, production on the 2021 year-class was good in the quarter. MoE Canada broke even in the fourth quarter against a loss of 14 million euro last year. And yet again, there were big differences between the farming regions in this business entity. Canada turned a profit of €8 million or €1.07 per kilo versus a loss of €6 million last year. Both cost and biology were good in the quarter and prices are, as addressed initially this morning, up by 20% year over year. Canada East, on the other hand, had unfortunately yet another disappointing quarter with a loss of close to €8 million after seeing incident-based mortality losses of €6.2 million in the quarter related to challenging environmental conditions and sea life. As stated before, we are not happy with the development in Canada East after the acquisition of Northern Harvest in 2018. Our performance has simply not lived up to the Mowi standard, and it's not only because of a challenging biology. Further to this, we have hired a new, very experienced production director from Mowi Scotland to secure that we apply Mowi's best practice also in this region going forward. Then it's time for Mowi Islands and Mowi Faroes. For salmon of Irish origin, we made an operation EBIT of 1.5 million euro. This is down from the 3.1 million euro we made last year due to higher cost as a consequence of toxic algae bloom in Bantry Bay in South Ireland. In the Faroes, operation EBIT improved from negative 1.1 million euro in the fourth quarter last year due to positive 5.3 million euro this year on the back of significantly higher prices, improved costs and higher volumes. That was all about farming. Then over to sales and marketing and more specifically consumer products. As already touched upon on the highlights, consumer products has had yet another good quarter with an operation EBIT of 26 million euro. which marks the end of yet another record high year for consumed products, with a total EBIT of 96 million euro on 248,000 tons product weight, which is also record high. Return on value-added sales was 4.1% in 2021, and this will include bulk sales 3.6%, equivalent to a return of decent 15.3%. 15.3% for 2021 return on capital employed for what it takes. The demand for elaborate products have been strong throughout the year and the fourth quarter was no exception. Also partly driven by good Christmas demand. We also see good development in demand in more or less all markets and the fourth slash fifth wave of COVID has not impacted the market negatively so far. Our latest addition to the Mowi family, Mowi Feed. Feed turned a respectable profit of €8 million in the quarter in what we said earlier this morning, a rather challenging sourcing environment and in a market subject to fierce competition, down from €14 million last year. Return on sales for 2021 full year was 2.7% versus 4.6% in 2020. and demonstrates how slim the margins are right now in the feed market due to overcapacity. However, that said, we expect the margins to gradually improve in the coming years as current overcapacity will be counteracted with farming volume growth going forward. Return on capital employed for the feed division for 2021 was 7.6%. And operationally, our seed has performed well with very good RGI's, which have laid the foundation for the record high farming volumes we have seen for Moe in Europe. Then, Christian, the floor is all yours for walking us through the financial figures and fundamentals. Thank you so far.

Yes. Thank you very much, Ivan, and good morning, everybody. We start, as usual, with the statement of profit and loss, where the top line shows revenue of €4.2 billion for the year of 2021, up 12% from 2020, on 6% higher farming volumes, and the rest explained by higher prices. Increased revenue is the main driver behind the increased operational EBIT, both for the fourth quarter and for the year as a whole. With regards to the items between operational EBIT and financial EBIT, we see a net fair value adjustment positive this time around. 19 million euro explained by higher prices. with regards to income from associated companies. That's mainly related to our associated company, NovaSea, which had a good result operationally of 1.92 Euro per kilo, although somewhat behind the industry leader, Moe region North with 2.37 in the quarter. Underlying earnings per share in the quarter, 20 Eurocent, three times the number in Q4 last year, on the higher operational EBIT. Net cash flow per share in Q4 impacted by working capital tie-up and CapEx, both large in the quarter. But the corresponding cash flow per share for the full year was 85 Eurocent, which was good. Return on capital employed above the 12% target for the year at 13.4% and for Q4 even better at 15.5%. Then we take a look at the balance sheet or the financial position and with a covenant equity ratio of 55%, Moe's financial position is very strong. And then we move on to the cash flow and that interest-bearing debt. We had a very good cash flow for the year of 2021. We see that that cash flow was approximately 200 million euros, and that's including a dividend paid of 227 million euros. In Q4, there was a significant working capital tie-up, as you see here, €122 million, mainly related to accounts receivable and also biomass in C. The figure for the year ended at a tie-up of €26 million, somewhat behind the guiding. Cutbacks for the year. of 240 million Euro for 2021, excluding licenses. That's 25 million Euro behind the guiding due to COVID-19 related delays in our projects. But we carry that forward to 2022, as we will come back to shortly. Taxes paid, interest paid for the year, slightly below the guiding, but no significant differences there. And then we ended the year at 1.257 billion euro in net interest bearing debt, well below the 1.4 billion euro target. We then take a look at the cash flow guidance for 2022. Working capital tie up, we guide for 90 million euro, down 30 from the previous guiding. Capital expenditure, €300 million. We have these pandemic-induced delays of €25 million, which we carry forward into 2022. We continue to invest throughout the value chain, including freshwater investments, €80 million, including the project at Fjæra Norway South, we have Höjko in mid, we have Noheim in mid, Höjko also in west. They are the largest freshwater projects and we also see here that we invest in seawater equipment, new sites, etc. Approximately 50 million euro on those items. With regards to processing, we are investing in several plants, including our primary processing facility in Scotland. And we continue with automation investments in consumer products to support the productivity program. Interest paid down from 2021 estimated to 35 million euro. And the guidance for tax payment is 130 million euro. And then the quarterly dividend is payable in the first quarter. Quarter dividend of 1.4 NOK per share. Then a few comments about costs and cost savings. We start with the picture seen now for several years that farming blended costs per kilo. has been rather stable since 2016. We see a CAGR of 2.2%, which is less than inflation. That means that more farming has a period of actually decreasing cost in real terms. That being said, the cost level is still too high nominally, impacted by more challenging biology, more handling of the fish, more expensive treatment technologies. There is an underlying pressure in biology. We see that the increase in health and mortality costs here are higher than the overall cage are both for health costs and mortality costs. And of course we address biology. We address farming utilization of licenses. We have many different initiatives. We described that at length in our capital market day last year. For more information, we also remind you of that material there. Cost-cutting initiatives are important, demonstrated by the fact that costs have been stable in a period with high underlying cost pressure. And we need a continued cost focus to combat the increasing feed prices, more challenging biology, and more complex regulations. While we continue to work on costs, we take some comfort in the fact that Norway has a good cost performance versus Piers. This has to be analyzed region by region due to our unique global farming footprint. If we start with Norway, cost in 2021 below €4, lower than in 2020, good cost performance in our most important and largest region. We are clear number one in region north, PO7 and up. Outstanding operation. A cost leader. License utilization close to 1,300 tons per license. Mortality reduced from the year before. And volumes at almost 100,000 tons. We are number one also in region south. We have worked hard on cost improvements. Also on operational improvements in region south. In region mid, PO6. We are somewhat behind. We have had a year now impacted by somewhat more challenging biology. But the summary is that this region also performs well with a potential of becoming even better. Region West, a challenging area with a separate action plan. But the overall picture is that we perform very well in Norway on cost. We see in Chile, we are number one. Canada, we are number one. Scotland number two, Faroes number two, and number one also in the order category. So a good cost performance for Mowi over time. With regards to our cost saving program for 2021, we realized cost savings of 45 million euro in annualized cost savings. That's well above the target of 25 million euro. We had a split of approximately 25 to 30 million euros related to the productivity program, meaning that that's the biggest part of this program. That's related to a more efficient way of working, reduction of FDEs. We have cut 1,000 FDEs in this program. We have increased yield. We have improved our operations. This is hard work, and these are real permanent savings to our cost picture. We also have procurement savings related to improved agreements, managing the spend, going through all the categories, working hard on different types of measures, whether it's frame agreements, whether it's tough negotiations, hard work also here. Both treatments have also managed a cost reduction there. And all in all, If you look at the picture since 2018, we have a total cost saving annually of €182 million, over a thousand different initiatives throughout our operations. We have initiated a new €25 million cost program now for 2022, split more or less 50-50 on procurement and productivity order savings. So far, around 223 different initiatives. And we see also from the graph here on the screen that the largest savings are related to productivity, different measures in operations. We see both treatments, a big category, salary. We see that procurement is also a category, but not the largest one. So there's still a potential to work on this and continue to work hard on fighting costs to combat this underlying pressure that we see in the industry. And as I said, an important part of this is to deliver on the productivity program, and that is what we are doing. Since the start, we have kept over a thousand SVEs. Two-thirds of the targets communicated back in 2020 when we launched this. We see the salary expenses now account for 15% of our cost base. It used to be 16%, so we have had a reduction. still the second largest cost item for the group. There is, of course, still a potential here. If you take the farming volumes in this period, they are up 7%. While we also have a 7% reduction of FTEs in the period, that amounts to a productivity improvement of 14%. So if you look at the target we communicated, that was actually on as is volume. So in that sense, we are over delivering on the 10% productivity target. We continue to work on this in 2022. FD reductions will, to a large extent, be managed through natural turnover, retirement, reduced overtime, reduced contracted labor. And our expectation is, of course, to continue to grow and improve operation, extend operation, and be a net job creator in the coming years. When it comes to our financing, that's very solid. And this picture here is unchanged since the previous presentation. No changes here. We have a strong liquidity. We have available credit lines through the sustainability linked facility we have with the banks and with our different bonds. No debt is maturing until June 2023. And our lenders in the bank syndicate are DNV, Nordea, ABN Amro, Rabobank, Danske Bank, S&D and Kredit AGK. Then over to the fundamentals. Supply development is where we start. And we had a good supply growth in the fourth quarter. Global supply growth of 4% versus Q4 last year. That was above the guiding, and that was driven by higher volumes in Norway and in Chile. In Norway, plus 10% we see here. We harvested in Norway in the industry more individuals following good growth conditions during 2021. Also, some early harvesting due to yield issues and other challenges. Average rates continue to improve. 2021 saw the best average rates since 2015 for the industry. But the high harvesting has reduced the growth potential for 2022, and biomass year-end in Norway is down 3% versus 2020 for the industry. Chile, negative growth, minus 7%, we guided for an even larger decrease. The larger volumes versus expectations were driven by more fish being harvested at lower rates related to SRS, early harvesting, also taking advantage, of course, of good prices and being ahead of the algal season. Year-end standing biomass in Chile for industry is down 6%. That's before taking into account the algal bloom, which has impacted the industry now in the first quarter. Approximately 2 million fish lost. When it comes to consumption, increased by 3% versus Q4 last year. Food service generally improved during the quarter. Some concerns about the Omicron variant when this was new and uncertain, but we had a very good development and this has continued now in the first quarter. Retail sales remains at very strong levels. We see EU plus the UK plus 4%. Retail remained high in all major markets in Europe. Penetration and frequency rates record high. We see food service recovered notably in Europe, but still below 2019 levels. So still a potential there. Russian consumption decreased on lower volumes available from Chile. The U.S. up 6%. Despite lower volumes from Chile, a higher share of Chilean volumes went to the U.S. at the expense of other markets such as Brazil and Russia. We also saw more imports into the U.S. from Europe this quarter. Asia plus 13%. China up as much as 61%. Norway exports higher volumes to China than 2019, but reduced volumes again from Chile. Reference prices increased from a low base. In Europe, market prices increased by 49% and 40% in America. Prices have continued very good now in the first quarter. strong demand, seasonably reduced supply. And we see here that the supply outlook for 2022 is very modest. We have 0% estimated growth in 2022 versus 2021. Approximately 0% in Europe, minus 2% in America. And for Q1, the estimate is minus 9%. So the supply and demand fundamentals look very positive in the coming periods. When it comes to our own volumes, we have unchanged volume guidance since the last presentation, 460,000 tons. And then we can conclude my part, and we can move over to Ivan and the Outlook section.

Thank you, Christian. Much appreciated. Then it's time to conclude with some closing remarks before we wrap it all up with a Q&A session hosted by our IRO, Kim Dustvik. I said a few times already, we are very optimistic about the market prospects going forward. Current prices are good and supply growth has come down after a period of high growth. Latest Contali figures suggest 0% supply growth in both Europe and America this year, and our internal figures indicate the same. So, we believe in continued good price achievement going forward. And with Moe's diverse and integrated value chain and low contract share, we think we are in a good position to capitalize on this. In terms of harvest volume guidance for 2022, we have, as Kristin just told us, maintained it at 460,000 tons. And finally, the Board of Directors has declared a quarterly dividend of 1.40 NOK per share, equivalent to 70% of underlying earnings per share, of which 50% is ordinary and 20% is extraordinary. Done, Kim. I think the time has come for Q&A session. So, if Christian can please join me on the stage.

Thank you, Ivan. So, we have received some questions. So, starting with demand, two questions there. Can you comment on the demand-supply balance, short and medium term? And the second one, how much of the demand growth is driven by the sushi segment?

I can start, Christian. We are very optimistic about the market prospects going forward. The underlying demand has begun for not only years but for decades and right now there is no supply growth. neither in Europe nor in America. And the way we see it, there will also be limited supply growth in the coming year. So again, we are very optimistic in the short term, but we're also very optimistic in the medium term. In the long term, no one knows. So we will not speculate on that. Good question about the sushi part of this. According to our internal intel, intelligence the sushi market accounts for approximately 20% of the total salmon market which is close to 3 million tons so and this and this share has increased substantially over the past few years so it definitely plays an important role in this and we think this will only continue in Asia the sushi consumption is 70% of total consumption but in Europe it's only 10% and the same goes for for US, which is the largest single market for salmon. So to put it like that, sushi has played an important role so far, and we think it will play an even more important role going forward.

Then some questions on consumer products and contracts. How are margins in consumer products developing so far this year considering the higher spot prices? Are you able to transfer higher spot prices over to consumers?

It's very early days, so I think this question we must revert to next time we meet. But so far we are fine. But again, come on, we have just finished off January, so it's like running a marathon. We are finished with the first five kilometers, so it's a little bit early to talk about the run at this point.

Question on farming in Norway region north. A good relative performance versus peers so far this quarter. Can you elaborate on the biological and financial performance?

As Christian said and I said, we had a very good production last year with good biology and things go well in this region. It's not only about people, it's also about geography. This is for production areas 7 to 12. which is maybe the best area in the salmon world to grow the salmon in. So we also expect to see a good development going forward, and that region will stand out as a margin winner compared to both peers and internally.

Good. Then a question on the taxonomy sustainability. Have you heard any updates on this from the commission or other sources and the next steps for the taxonomy in terms of the salmon farming industry?

This one, I think we leave for the CFO, Christian.

Yes, I will. Sorry to give some comments on that. There are no major news. The EU platform for sustainable finance is still working on establishing criteria for seafood and for the salmon sector. This work has taken some time and we expect that to be a little bit delayed. The platform has worked a lot with the energy sector and will come to other sectors now in the coming periods. We know that the salmon sector and seafood, those are regulated industries. So we think that there are many good starting points for establishing criteria for our industries. And we look forward, of course, to seeing those proposals. And then there will be a hearing process when the platform for September Finance will comment their suggestions. And then countries, companies and industry organizations can comment their input in that hearing process. And then the final place of the salmon sector and seafood will then be decided by the EU Commission at some point in time. So we have to just continue to work on On our part, in the meantime, we continue to cut emissions. We cut 25% Scope 1 and 2 emissions in 2021. We have avoided 2 million tons of carbon emissions every year through our mix of protein production. Salmon is a very efficient protein. And 98% of our volumes are sustainable certified. And we are part of the solution. So we are positive to this work. But no major news as of now on that area.

Good. Then the last question received so far on the productivity program and the cost program. Can you please elaborate on the recent achievements and targets for 2022?

I think Christian can answer this one too.

Yeah, when it comes to the productivity program, I think we can start by saying that we have had good achievement so far, around 1,000 FTEs I mentioned in my section in the presentation. We see that around 75% of this comes in sales and marketing, more specifically consumer products. the processing side. The rest is mainly farming. And we have set ambitious targets for our processing plants on operational excellence, on improvements. And we are delivering on those targets, but we still have a way to go. So we are continuing with new targets now for 2022. And to elaborate a little bit, I guess we can say that this is a mix of different types of realizations. We see that we have more of an FDE culture now in Moe than we did, a more cost-aware culture, a more FDE-aware culture. And then you can always realize some gains just from that. Then we have the equipment side. We have invested in automation and continue to do so. The largest part of the investment program in consumer products is related to automation. We also work very hard on improving our processes. The sales and marketing organization does a very good job there. And we can work more efficiently, get more out of the volumes we have. We can also mention that we have closed some factories, but that's not the biggest part of this. That's through working more efficiently and having more focus on using equipment to do this better. So we don't want to disclose all our secrets, but I guess those are some inputs that we can at least give.

Good. So that concludes the questions from the web this morning.

Right. Then it only remains for me to thank everyone for the attention. We hope to see you back in May at our first quarter release. Meanwhile, take care and have a great day ahead. Thank you.