Mowi Asa

Good morning, everyone. My name is Ivan Windheim, and I'm the CEO of Movi. And it's my pleasure to wish you all welcome to the presentation of Movi's second quarter results of 2022. With me today to present our financial figures and fundamentals, I have, as usual, our CFO, Christian Ellingson. And after the presentation, our IRO, Kim Dostryk, will routinely host a Q&A session. But those of you who are following the presentation or webcast can submit your questions via email in advance or as we go along. Please refer to our website at smovy.com for the necessary details. The disclaimer, I think we leave for self-study. Then we are ready for the highlights. The second quarter goes down in history as the best quarter ever for Moe financially. Both turnover-wise and earnings-wise, we got turnover of 1.23 billion euro and operation profit of 320 million euro. On record high, salmon spot prices, driven by a strong post-pandemic demand and a global supply contraction of 6.7% year-over-year for the quarter, and includes release of frozen inventory in Chile last year. So kudos to the organization for this achievement. It's, of course, much appreciated. For the sake, an operational profit of €320 million is also in line with the trading updates of the 18th of July. Furthermore, blended farming costs, i.e. weighted farming costs for our six farming countries, was 5.10 euro per kilo in the second quarter, up from 4.78 euro per kilo in the first quarter due to the first and foremost underlying inflation. Speaking of which, inflation has hit more or less every corner of the global economy and farmed Atlantic salmon has been no exception so far. On a positive note, however, several commodity prices have been on the retreat lately, so maybe we have at least seen some kind of a peak for now. In particular, feed prices, which account for more than 40% of cost in books. Time will show. In terms of the farming volumes, we harvested 103,000 tons gutted weight in the second quarter, slightly above the guidance of 99,000 tons. And in general, seawater growth was good in the quarter with a good biological feed conversion ratio. When it comes to our other divisions, Consume Products has delivered another set of satisfactory results, I would say, considering the record high raw material prices. And the feed division, on its part, has been through low season with all that entails, so both our feed volumes and our feed profits are colored by that, although feed volumes were record high for our second quarter. Other than that, the feed performance was very good in the second quarter. Last but not least, the board of directors has declared a quarterly dividend of 2.30 NOK per share, equivalent to 50% of underlying earnings per share, and in line with the dividend policy. That, I think, does it for highlights. Then over to key financials. Christian will, as usual, go in depth on financial figures on his session, so to not disrupt the course of events, we will just touch briefly upon the most important ones now. And first, turnover, which we have already been through. MoE recorded an operational revenue of 1.23 billion euro in the second quarter, and that was record high, up by 23% year-over-year on 5% lower volumes. Operating EBITDA of €320 million, we have also already commented on, more than doubled compared with last year and all-time high by a wide margin. Cash flow was good in the quarter, at least when we adjust for a tie-up of working capital and net interest-bearing debt came in at €1.24 billion. well within our long-term target of 1.4 billion euro. An equity ratio was of healthy 52.4%. Furthermore, underlying earnings per share in the quarter was 46 euro cent, and annualized return on capital employed was 31.6%, well above our long-term target of 12%. In terms of regional margins through the value chain, they range from good to great for all entities in the quarter, I would say, apart from Chile and Scotland. We will get back to the explanation shortly. But first, briefly about prices. The Atlantic salmon standing in the markets and its ability to set new records time and time again never ceases to amaze me. But what we bore witness to in the second quarter was almost beyond comprehension. Reference prices of 10.62 euro per kilo in Europe and 8.25 and 9.45 US dollar per kilo in America for salmon of Chilean and Canadian origin are not only unprecedented, but also the highest on record by a wide margin, driven by, as already said, a strong post-pandemic demand and a global supply contraction in the quarter. As you can see from the graph, prices have come down lately on higher seasonal supply. This is in line with normal seasonal patterns, and prices are still at a reasonably good level, I would say. Then our own price performance. Overall price achievement was 16% below the reference price in the quarter due to first and for most the record high salmon spot prices and our fixed contracts at lower prices. In addition to that, price achievement was negatively impacted by knock-on effects of winter source in Norway earlier this year and quality downgrading. So much about prices. Now briefly about the EBIT waterfall. Overall, operation EBIT increased from 137 million euro to 320 million euro year-over-year. This was in its entirety driven by increased earnings in farming as a result of higher prices. Farming volumes are in the same period somewhat down and farming costs up due to inflation. Other businesses were approximately neutral year over year. Then it's time to address the various business entities and as usual we start with the largest and by far most important one, Mowi Norway. Operation EBIT was 235 million euro for Moe Norway in the quarter, up from 93 million euro in the comparable quarter last year. Both prices and earnings are record high for Moe Norway. EBIT margin was 3.93 euro per kilo this year versus 1.66 euro per kilo last year. As the graph clearly demonstrates, this was caused by higher prices and somewhat higher volumes. Having said that, at the same time, we did not truly benefit from the record high spot prices in the quarter in Movinove due to a contract share of 27%, in addition to the already mentioned winter source earlier this year. In terms of overall biology in the quarter, it was reasonably good, and we saw, among other, improvement in production and biological feed conversion ratio year over year. Then the breakdown of the margins for the different 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 4.45 euro per kilo on lowest cost, although it was adversely impacted by, as already mentioned, winter stores earlier this year, in addition to a less favorable site mix year-over-year with a higher proportion from production area 7 this year. Harvest volumes are also down by approximately 20% year-over-year, which has impacted dilution of cost negatively. Region Mid received a margin of 4.03 euro per kilo. Realized cost was like for Region North, negatively impacted by winter source earlier this year. in addition to CMS related costs in the quarter. Regivest on its part achieved a margin of 3.83 euro per kilo in the quarter and improved by that its relative position year-over-year on substantially higher volumes. Although harvest profile was far from optimal as we harvested very low volumes in April when the prices were the highest. In general, production and biology has been better for Region West so far this year compared with last year. Last one out, Region South achieved a soft margin of 3.06 euro per kilo in the quarter, heavily impacted by advanced harvesting of Azutra sites due to issues with source and gills. In addition, harvest volumes were also very low, which impacted dilution of cost. On the positive side, over on that, the biology and biological performance was very reasonably good for the region south in the second quarter. We had, in particular, very good seawater growth. Then, our Norwegian contract portfolio. Due to optimistic market view for this year, we decided last fall to keep our contract share at the low end for Norway to capitalize on this. This strategy obviously hit the bull's eye in the second quarter with a contract share of as low as 27% in a quarter with record high spot prices. To be prepared for the coming autumn season and higher seasonal supply, we have upped our contract volumes by 8,000 tonnes since last time we met at attractive terms. When it comes to next year, for competitive reasons, we must keep our cards close to the chest for now, so we have unfortunately no comments to it today. Scotland. Operation profit for Moray Scotland was €21 million in the quarter, down from €30 million in the second quarter last year due to substantially lower volumes, 13,000 tonnes versus 19,000 tonnes. Margin was stable year over year, 1.60 euro per kilo versus 1.56 euro per kilo due to a higher cost. As we have touched upon previously, our 2022 harvest in Scotland is heavily impacted by poor production on stocks grown from externally sourced eggs. We introduced in Scotland in absence of other options in the aftermath of the Norwegian export ban on eggs in 2019. On a positive note, however, the last part of this stock is harvested out in the third quarter, so we expect to start to see improvements for that point onwards, which hopefully will materialize in better cost performance in the fourth quarter. As far as prices are concerned, price achievement for our Scottish fish is also significantly up year over year, although obviously held back by a contract share of 69% in the quarter. Moby-Chile, on its part, saw stable earnings and margins year-over-year in the quarter. Operation profit was 15 million euro, similar to last year, whereas margin was 1.07 euro per kilo. Both on the low side, unfortunately, due to higher cost and a high counter share of 63%. In the case of the latter, it negatively impacted by low seasonal volumes. Year-over-year volumes are, however, stable, 14,000 tons versus 15,000 tons. In terms of cost, cost level has been increasing for our Chilean operation over the past two years as issues with SRS and tenosybarculum have increased in magnitude. The vaccine that was introduced a few years back seems to have lost some efficacy and is something we are looking into as we speak. SRS and tenosybarculum are both bacterial diseases, so this is double unfortunate as it leads to more use of antibiotics with the negative consequences that has. To conclude, Moritz Schiller, on a positive note, both production and overall biologic performance was better in the second quarter this year compared with the second quarter last year. Then far north to Mowi Canada. Mowi Canada turned a profit of €31 million in the quarter against a loss of €7 million in the second quarter last year. This was driven by significantly higher prices, 100% spot exposure and lower costs. Volumes on their brand are somewhat down from 13,000 tonnes to 10,000 tonnes. as we harvested a minimum in Canada East in the quarter. Canada West has a margin of 3.87 euro per kilo. And overall production and biological performance were reasonably good for Canada West in the quarter. In terms of the political situation for Canada West, we have not much more to report today than what is already known. But to recap a little, we have just received our two years renewal of our license in British Columbia to allow for what the Canadian government calls a transition plan for salmon farming in this area what the content of this transition plan is and what we are transitioning to are yet to be decided next step now is public consultations including consultations with first nations and the industry and even on our side continue to work unabashed with all levels of the canadian government and first nations to secure our future for sustainable and viable salmon farming in this area so much about canada west As far as MoE Canada East is concerned, we have, as already said, harvested a minimum in the quarter. Perhaps most important now, biology has been under reasonably good control this summer. In particular, the life situation is much better this year than previous years, knock on wood. We have also used the quarter well organizationally and strengthened the team with, among other, a new highly skilled and experienced MD from Scotland who knows both MoE and our best practices and standards in depth. I think this will be a valuable and important addition to our operation in Atlantic Canada. In the end of the day, it's all about the people. Finally, our heads up on cost for MoE Canada for the third quarter as we harvest from sites that are higher cost level than in the second quarter. Then it's time to address Maui Island and Maui Faroes, our two smallest farming entities. For the salmon of Irish origin, they made an operation EBIT 9 million euro in the quarter on 2.80 euro per kilo in margin on 3,300 tons harvest volumes. Please note that the market for the organic salmon is to a large extent a contract market, so Moby Island did not benefit from the fantastic spot prices we saw in the second quarter. Biology was reasonably good in Moby Island in the first half of the year, so cost was down accordingly in the second quarter. In the third quarter, however, we expect higher costs as we have faced issues with pancreas disease compounded by compromised gill pathology due to zoo planting. In the Faroes, operation EBIT came to 10 million euro by means of an impressive margin of 5.78 euro per kilo enabled by 100% spot exposure on 1,800 tons harvest volumes. So much about Mowi Farming, then over to Mowi Consumer Products. Consumer Products made an operation profit of €18 million in the quarter, up from €16 million last year, thanks to higher margins in absolute terms. Because volumes were down from 58,000 tons product weight last year to 53,000 tons product weight this year, following the drop in farming volumes. Return on sales in total and for value added only were approximately neutral year-over-year at 2.4% and 2.5%. Not neutral, but stable. The high raw material prices we have seen have undoubtedly made it more challenging for consumer products in the short term. Having said that, I think we have handled the situation reasonably well so far, so a big thanks to the organization for this. In terms of overall demand, it was strong in more or less all markets in the second quarter. We also see good development in demand so far in the third quarter, although summer holiday season has slowed it somewhat down in some markets, but nothing out of the ordinary. This is typical seasonal patterns. Then our latest addition to the Moe family, Moe feed. As said initially this morning, the second quarter is characterized by low season for Moe feed, with all that entails. Operation EBIT was stable year-over-year, €3 million in the second quarter this year versus €3 million in the second quarter last year. Feed volumes are, on the other hand, up significantly from 96,000 tons to 111,000 tons on good seawater growth for Moe farming, which also has led to record high feed volumes for our second quarter. Overall feed production was satisfactory in the quarter. The same was the feed performance. Thank you, Christian. The floor is all yours for walking us through the financials and fundamentals. Thank you so far.

Thank you very much, Ivan, and good morning to everybody. Hope everybody is doing well. As usual, we start with the statement of profit and loss, where the top line shows a record high revenue for both the second quarter. and also for the first half of the year of 2022. As we see from the table here, Q2 revenue was 1.2 billion Euro, up 23% from Q2 last year on higher prices, while sole volumes were slightly down compared with the second quarter last year. This was connected with lower harvest volumes in Scotland and Canada. When it comes to operational EBIT of €320 million, that translates into an impressive return on capital employed of as much as 31.6% annualized in the second quarter and underlying earnings per share of €0.46. All of these figures are connected and are 2.3 to 2.4 times the figure last year. Net cash flow per share includes an effect of increased working capital, which we will take a look at in the cash flow statement. Year-to-date operational EBIT of 527 million euro. That's higher than the full year of 2021 and also record high. And when it comes to the figures between operational EBIT and IFRS financial EBIT, we see that most of them cancel out, except the net fair value adjustment of biomass of €140 million due to improved prices. Income from associated companies includes a very strong operational result from NovoCity. of €460 per kilo, so we congratulate them on a good quarter this time around. When it comes to net financial items, they were as expected and minor in total. Then we move on to the balance sheet. The financial position is strong with an equity share of 52%. Net interest and debt still below the long-term target of 1.4 billion euro. Non-current assets, you see here in the first row, that's stable from year end 2021. while there is some movement on current assets and current liabilities, i.e. working capital items. And as reflected here in the cash flow statement on this slide, we see that there is an increase in the net working capital items of 101 million euro in the second quarter. That's related to biomass in C. receivables on higher prices and feed inventory for preparation for the peak season for feed demand. As Ivan just showed us, we saw that produced volumes were higher than sold volumes in the feed segment. We also see that the tax payments increased from last year on higher earnings. And we see that we paid out almost 100 million euro in dividend in the quarter. That's the NOC 1.95 based on the Q1 results. When it comes to the cash flow guidance for the year of 2022, we have lifted the estimated working capital tie up for the year from 90 million Euro to 200 million Euro. This is due to higher salmon prices leading to increased accounts receivable. Cost inflation increases the biomass tie up, especially related to feed inflation. Our cost saving initiatives and activities, they continue unabated to at least partly offset some of this pressure. But of course, feed prices have increased now for the last one and a half year. And we all know that feed is the single most important input factor in our salmon that we produce. We see a recent price decline on raw material commodities and this might indicate an inflection point. We expect growth across the value chain with continued volume growth and this ties up working capital. The other items are unchanged as we see from the previous time we met. CapEx at record high 300 million euro where the freshwater investments represents the largest individual part including the ongoing post-mold program in Norway. Interest paid 35 million euro, taxes at 130 and the second quarter dividend of NOC 2.3 per share which is payable in the third quarter. This slide gives an overview of our financing and there are no changes here from the first quarter and we see that no debt is maturing until June 2023. Then over to supply and demand fundamentals. And of course, with the best quarter financially ever, market fundamentals have played an important role. And we see from this table here that global supply declined in the quarter. The global supply from the salmon producing regions was down by 3%, as reflected here. This is only part of the story because we remember that last year there was a release of 26,000 tons frozen inventory in Chile built up during the pandemic year of 2020. And when factoring in this, the figure for Americas goes from plus 9% to minus 5%. And there was in fact a global supply contraction of 7%, shedding further light on the record high prices also in Americas in the quarter. Supply from Norway decreased 5% on lower opening biomass. This was as expected. Average harvest rates were quite stable, and so we're closing biomass in Norway for the market. Also in Scotland, supply decreased as expected on lower opening biomass and lower growth. In Chile, supply was higher than expected from the salmon producing companies. A higher number of fish was harvested as biological challenges caused some advanced harvesting and the record high prices might also have accelerated some harvest plants in Chile. And here on this table, we see the consumption of salmon and there we see this 7% drop reflected here in the numbers. Nevertheless, the value of salmon consumed reached a new record high level in the second quarter. There was a strong underlying growth of salmon demand across all markets. The food service segment saw further reopenings in Europe and in the US. In Europe, there were good consumption levels in retail in the quarter, but of course somewhat impacted by food service recovery and less volumes available. In the US, demand was strong in the quarter with continued focus on pre-packed salmon and positive effects of e-commerce. In Asia, we see that consumption decreased by 19% on less supply and challenging logistics with reduced air cargo capacity and thereby high air freight costs. And when it comes to prices, they were record high. Average spot price for Norwegian salmon reached €10.6 per kilo in the quarter, up 72% year-on-year, and reached a weekly peak of €12.8 per kilo. And record high prices also in Americas. Prices at these levels have never been experienced before and shows the potential to continue to increase the value of the salmon category given that the supply continues to grow. We believe that the potential for salmon is fantastic. Consumption is still relatively low compared with other proteins. Salmon is 1% of land-based proteins in the world. Average salmon consumption in Europe, that's only once a month on average. Product features are excellent and so is the alignment with important global megatrends. So we expect salmon to continue to stand out versus other proteins. Demand growth strong in the quarter and during the past 10 years, the annual growth rate for demand has been impressive, 9.1%. And so much for demand. Supply, of course, played an important role. Supply reduction of 7% also contributed to the tight salmon market. And in the markets, we have recently seen that prices have adjusted somewhat down in Europe on higher seasonal supply. And summertime in Europe, very hot summer. In America, higher seasonal supply. And we see that the Canadian price is also somewhat impacted by the record high sockeye wildcatch. When it comes to industry supply growth, volumes in the second half of 2022 is expected to grow between minus 1% to plus 3%, giving a total for 2022 of minus 1%. So in the next 12 months, supply growth is estimated to a modest 2% on a global level. And this suggests a tight market. When it comes to our own volume guidance, that's maintained at 460,000 tons for the year of 2022. So with that, Ivan, I leave the word to you to go through the outlook statement.

Thank you for that, 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 Dusvik. As said a few times already, we are optimistic about the market prospects and the supply side looks constrained the next 10 months with a global supply growth of as little as 2% according to Contali. Those have a fantastic first half year behind us price-wise, which really demonstrates how strong the demand for the salmon is, in particular when it's supply shortage. So all the higher seasonal volumes obviously have an impact on price achievement in the second half of the year compared with the first half of the year. We still believe in good prices going forward. And with Moe's diverse and integrated value chain and organizational agility, we think we are in a great position to capitalize on this. In terms of cost and inflation, what we all bear witness to as we speak gives cause for concern to all and sundry. There is no doubt about that. But hopefully, the recent decline in severed commodity prices at least signals that we have reached some kind of a peak for now. Time will show. Meanwhile, we believe the salmon will continue to stand out versus other animal protein sources due to its great product features, its low feed conversion ratio, low energy use, and not to mention its superior sustainability credentials. In terms of harvest volume guidance for 2022, we have, as Christian just showed us, maintained it at 460,000 tonnes, so no changes there. And finally, the Board of Directors has declared a quarterly dividend of 2.30 not per share, equivalent to 50% of underlying earnings per share. Then I think we are ready for the Q&A session, Kim. So if Christian, please can join me on the stage.

Hi, Alex Aukner from DMB. So two questions. The first, are you seeing some switching between the various proteins given the price fluctuations? And the second question is on the cost side. In Norway, you don't really seem to give any guidance, and that normally means flat costs. Is that correct for Q3? Is the increase in feed costs basically cancelled out by the higher volumes?

Thank you, Alexander. Maybe we should start with the last question, cost, Christian.

Yeah. So as we see it now, we see no indications that cost will increase from the level we are at in the second quarter to the third and the fourth quarter for the group. So that's the information we have at this point. So no cost increases on a blended level.

Okay, then just a quick follow-up on that. Based on the outlook statement, you say you indicate an infection point in terms of the price increases. So how long does it take for those prices to feed through your P&O?

Yeah, so there is, of course, the fact that we buy raw materials to be covered in the near term. So we have operational security to have the feed we need. And then... Of course, we buy for the coming months. And, you know, the raw materials we purchase and feed, they will, of course, be less expensive over time given a reduction in these commodity prices. But it takes some time to... So, of course, first purchase those materials, and then it's part of the growth cycle for the salmon. So it takes some time before it kicks into the P&L. But, yeah, cash-wise, it has an immediate effect, and then it takes some time before we see the cost decrease. But the point is that we think this latest reduction in raw material commodities gives some hope that we have seen the top at least. Hope.

Yeah.

And then the first question, Ivan.

So far, the demand has been good. And first off, we are obviously fantastic. Summer holiday season always plays a role in this part of the year. So no, we haven't seen any switch to other proteins so far. So I think we are good. Knock on wood.

Thank you.

Two questions also here. First, on contracts. You have, as you say, been entering into some more contracts for second half of the year. Is this something that you have done lately, and is it possible to, or should we assume that the prices have been lifted from where the contracts have been earlier, or let's say the contracts that you entered into last year? And second one, on dividend, maybe not you that decide that, but previous quarters you have been paying an extraordinary dividend because your debt level has been lower than, let's say, the guiding. No, you don't. Is this related to the working capital build-up or any other things that is leading to, let's say, less dividend than previous quarters in terms of percentage of EPS? Yes.

Thank you, Colonel. So we start with the first question in terms of contract volumes for Norway for the second half of the year. As we said during the presentation, we have up to about 8,000 tons at very different prices than for the rest of the portfolio. So we have taken advantage of a very good market for those volumes. Yeah, so in hindsight, the only thing I can say is that this contract market is unfortunately slim, so the limitation is actually how much you can do. So I think that will be a good business for us. In terms of dividends and extra-ordinary dividends, what the board has committed to is the ordinary dividend, which is 50% of the underlying earnings per share. So that happens by default unless something very special happens, like the pandemic. In terms of the extra-ordinary dividend, that's to the board's discretion, and it's a long list of assessments they do. And we cannot expect or extra when I give them every quarter. This is just an instrument to distribute surplus cash, right? So in some quarters, we have a break. So I don't think you should read so much into it, really. Yeah, welcome.

Kevin, we have one question from the web. Christian at Kepler is asking about demand. Do you see any difference in demand patterns between the two major regions, EU and U.S., given the overall strong inflationary pressure on consumers?

Shall I start? So you know it's very early days there really and so far as you have seen from the prices etc. the demand has been fantastic in the first half of the year so and who knows what to come but at least so far as I said to Karl-Hein Miller we are good and going forward Normally, the American market is stronger than the European market, but I guess this depends on the slowdown and how it plays out. But we haven't seen any kind of weakness so far. So, again, a little bit repetitive, but I think they're good. So, it's really hard to answer that question. Neutral so far.

And I guess you can also add that historically, salmon demand has shown resilience. Also, in times should there be more of a slowdown in the economy, you see that the demand value for salmon increased both in in 2008, 2009, 2010. That was the last major crisis, financial crisis. I mentioned during my presentation some of the factors we think will in any case, support salmon demand. It is only 1% of the proteins. It is relatively infrequently bought, so it doesn't represent a major part of household spending. Also, we have the megatrends supporting this. People are more preoccupied with health than they were before, also before the pandemic. We see these good product features and, of course, also the sustainability credentials. We also see, of course, you know, any slowdown will also probably impact the air freight, which is current at a very high level in certain markets like Asia, where we've seen a reduction in consumption in this quarter. And that, of course, could also be supported for a demand there. So there are several factors, I believe, that in any case will support salmon on a global level.

That's the demand side. In addition, we also have the supply side, which is very constrained, right? So I think we will work ourselves through this in good shape also this time around.

Okay. No further questions from the web. So that concludes the Q&A.

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