Mowi ASA
Q1 2021 Earnings Call Transcript

Published: 19 May 2021

[Ivan Vindheim:]

Good morning, everyone. My name is Ivan Vindheim and I'm the CEO of Mowi. It is a great pleasure. I wish you all welcome to the presentation of Mowi's first quarter results of 2021. Also this time around digitally. On that note, I hope you are all doing fine out there under the prevailing circumstances and that we can all meet again physically in not too distant future. With me today to walk us through our financial figures and fundamentals I have, as usual, our CFO Kristian Ellingsen. And after the presentation our IRO, Kim Dosvig, will facilitate a Q&A session via e-mail, where you can submit your questions in advance or as we go along. Please refer to our website at mowi.com for the necessary details. The disclaimer, I think, we leave for self study. Then highlights. Overall, I would say the first quarter turned out to become a reasonably good quarter for Mowi, both operationally and financially. Despite the pandemic, we have managed to keep our more than 200 farms and 35 factories in 25 countries, running close to normal by means of maintaining the strictest biosecurity measures all across our business. At the same time, we have also managed to keep our people safe. So a big thanks to all our 12,200 employees that have made that happen. It's much appreciated.

[Kristian Ellingsen:]

Thank you very much, Ivan. Good morning, everybody. Hope everybody is doing well. As usual, we start with the profit and loss statement where the top-line shows operational revenue of €1 billion up 16% from Q1 2020 on significantly higher volumes partly offset by the 19% lower achieved prices. Operational EBIT €109 million equivalent to return on capital employed of 12.7%, which is above the 12% target and thus satisfactory. Operational EBIT stable from Q1 2020, which is a good achievement given that COVID-19 has had a full impact on our numbers this quarter. And the effect of lower realized prices was offset by reduced farming costs higher volumes and improved earnings in sales and marketing first and foremost our Consumer Products division. Then a few comments on the items between operational EBIT and financial EBIT. We see a net fair value adjustment of biomass of plus €88 million this time around on higher prices at the end of the quarter.

[Ivan Vindheim:]

Thank you, Kristian. Much appreciated. That is time to conclude, before we wrap it all up with a Q&A session facilitated by our IRO, Kim Dosvig. As said a few times already, we are optimistic about the market prospects going forward. The market is the way we see it on the road to full recovery. Concurrently, we have built new markets gradually during the pandemic and the recovery of the foodservice segment after the pandemic we think will only bolster an already strong demand for the Atlantic salmon. Combined with a modest supply outlook for 2021 of 2% and 0%, the next 12 months, that bodes well for prices going forward. With Mowi's low contract share and integrated value chain, we are in a good position to capitalize on this. In terms of harvest volumes, we maintain our full year harvest guidance of 445,000 tonnes. And lastly, and as already stated, the Board of Directors has declared an ordinary quarterly dividend of NOK 0.77 per share equivalent to 50% of underlying earnings per share. Then Kim, I think we are ready for the Q&A session. So if Kristian can come up here on the podium. One, at least one meter from me. Okay, Kim, we are ready.

[A - Kim Dosvig:]

That's very good. So we have some questions from the equity analysts. The first one from Carl-Emil, Johannessen Pareto. He has two questions. How do you expect the price achievement in Norway and the UK versus the reference price to develop in the second quarter? That's the first one.

[Kristian Ellingsen:]

Yes. So maybe I can take this one. So we never comment on prices in advance. So – and that would also be illegal. So this is – so you have to play by the rules. So the answer is that we'll revert to this when we release our numbers in August after the summer.

[Kim Dosvig:]

And his second question, do you expect the same volumes and margins in Consumer Products also after the pandemic?

[Ivan Vindheim:]

We do not guide on future earnings and future margins. But the long-term target, ex branding is 5% for consumer products. So nothing has changed in that regard. But giving exact and precise guidance for the future that we don't do.

[Kim Dosvig:]

Okay. Moving on to Christian Nordby in Kepler. He has a question on volume distribution. Is the volume distribution within 2021 part of a strategy that we can extrapolate into 2022 and beyond, or should we expect to see a more normal seasonal distribution in the coming years?

[Ivan Vindheim:]

In terms of harvest profile?

[Kim Dosvig:]

Harvest profile, right.

[Ivan Vindheim:]

Yes. So the target is always to have it as balanced as possible. But that's always a challenge because of biology and Mother Nature. But that's always a challenge because of, biology and Mother Nature. But again, that's always the long-term target. So I guess, the answer is, we hope, that we are more balanced, yeah, in the years to come, than what we have been in the previous years. But I guess, it remains to be seen.

[Kim Dosvig:]

And then, a follow-up question on that from Alexander Aukner in DNB. He has got two questions. The first one, on the harvest profile in the U.K, it seems unusually front-end loaded, any reasons for the high share of harvest in H1 versus H2 this year?

[Ivan Vindheim:]

Well, it's a broad picture. First, we have been through a very good growth period in Europe, not only in the first quarter, but particularly in the third and fourth quarter of last year. In addition, we also have a strategy in Scotland to get out our volumes before the challenging third quarter season. So I guess, it's mixed, it's twofold. So -- but, it's ideal to put it like that, keeping more volumes than what you have to into the third quarter is never a good strategy in Scotland, because of high seawater temperatures. Bear in mind, that the temperatures in Scotland they are higher than what we are used to in Norway. And they also have more shallowed waters. And that doesn't help either.

[Kim Dosvig:]

Okay. Then his second question is on, COVID-19. It seems like, you're guiding on retail sales to have a positive effect post-COVID-19. Do you expect further retail demand in 2021, on top of the growth already seen last year, or do you mean a general positive effect on long-term basis?

[Ivan Vindheim:]

So -- yeah, so this is not to offend anyone, to start with that. But the demand for salmon has grown for more than 50 years. So in the long-term, I personally believe that, the COVID-19 is -- and now it's maybe an offense to someone, but that's not the intention. But in long-term, I personally think, COVID-19 is, just a bump in the road really. We will continue to grow the retail markets. We will also continue to grow the foodservice market. So the demand for the salmon will just continue in our view. And we will do our share to make that happen. The salmon ticks off all the boxes. So in addition, we also have the mega trends. And we are also elaborating more than, what we have done in the past. So this will just go on. That's our take.

[Kim Dosvig:]

Okay, very good, moving on to, Nils Thommesen in Fearnley, he has a follow-up questions -- follow-up question on Consumer Products. How do you expect the margin development in Consumer Products for the remainder of 2021? Will we see similar margins, as we saw in 2020, or will the margins be diluted by foodservice activity coming back?

[Ivan Vindheim:]

Yeah. I guess we touched on this question a few minutes ago. So we do not guide on future margins, neither for consumer products, nor for the rest of our business. But in general, on rising or increasing prices, Mowi will become more profitable. So -- but we have an integrated value chain. Sometimes you win in one part of it, sometimes in another part of it. But that the profitability will increase going forward. If the prices continue to increase, that part I think you all can expect and yeah.

[Kim Dosvig:]

Okay. Then, changing topic, Alexander Jones from Bank of America, he has a question on branding. What has been the customer feedback, so far, on the wallet? And is this different in the different regions? And how does the pricing premium that, are willing to charge consumers are willing to pay, compared to your expectations?

[Ivan Vindheim:]

Yeah. Again, we have to be a little bit careful about, what we talk about when it comes to prices and market strategy. So, this -- first we have business secrets. But second we also have some rules we have to play by. We have -- in general, we have increased our branding activities this spring. So, we are launching the Mowi brand in many new markets including bricks-and-mortars in the US in bricks-and-mortars in the UK. We also are launching in Belgium, Italy, partly in Spain. We are also addressing Chile, Brazil, Colombia. So, the activity level is increasing and the response in general is very good. But when it comes to pricing of products, et cetera that part we you must keep to ourselves at this point in time. But -- and it's not so easy for you I know to travel around and see what the prices in the shelf are. But I guess through some -- yes, through some help from your colleagues out there you can get the numbers. But the specifics we will not reveal on this webcast that would be wrong.

[Kim Dosvig:]

Okay. And then a question from the investor community from Bjørn Wicklund. He is asking about feed, how should we model feed prices going forward among others taking into account that soybean prices have doubled in the past nine months?

[Ivan Vindheim:]

Yes. So, temporarily commodities are inflated. So, the cost is increasing. But we have been through such periods previously. So, assuming that this is permanent, I would not do because all commodity prices have a tendency to revert to mean or to average. So, -- but in the short-term Wicklund is right. Soy is up but the same goes for the other commodities. So, the short-term development is unfortunately negative. But again we have been there before. And I guess we will see a mean reversion also this time around when the negative factors are played out.

[Kim Dosvig:]

Okay. Then another question from the investors . How do you think Mowi is handling the algae bloom in Chile better than the other players?

[Ivan Vindheim:]

Yes. So, we don't like to talk about our peers or about our colleagues and friends in the other companies. We like to talk about our self. But I think we have managed well this time around. We learned a lesson back in 2016. So, now we have sophisticated mitigation systems in place that really helped us this time around. In addition you also need some luck in this. So, even the best farmer runs into problem once in a while. So, Mother Nature is a very important component in this. But all in all I think we managed well really. And not only because of luck, but also because of the mitigation systems we have in place and a good husbandry and good people. So, good people and good equipment really makes a difference too. So, you need both. Luck good people and the right equipment. I guess that sums it off.

[Kim Dosvig:]

And then his second question is on sales in Asia if we can comment on the sales development in that region.

[Ivan Vindheim:]

Yes. So, maybe you Kristian can take this one.

[Kristian Ellingsen:]

We have seen a very good development in Asia in the quarter as we stated. Most regions in Asia have seen a good volume development with China is still as we said minus 27% versus Q1 last year. But in general, we've seen a double-digit growth in the various regions. And we believe also China is on the road to recovery. There have been some issues related to Chilean imports and some positive developments when it comes to Norwegian region into China. So right now we are seeing some new lockdowns in some of the regions, but difficult to say exactly how that will play out. But we believe in any case that any impacts on foodservice is temporary and we will continue to see reopenings over time in Asia and a combination of increases in foodservice and retail.

[Kim Dosvig:]

And then a follow-up question from Bjørn Wicklund. He is asking us if we can comment on our perspectives for farmed salmon becoming compliant with the EU taxonomy?

[Ivan Vindheim:]

So that's a tricky one. So if you ask us our personal view is I guess it's a no brainer. We really think to salmon, it ticks off all the boxes. But in the end of the day, it's not up to us to decide. So -- and it looks like it will take time before the commission conclude. Also for the other industries, this doesn't seem straightforward, but salmon is the part of solution in our view. And if we really want to take down the greenhouse gas emissions, we have to change the way we consume food, food is accounting for 25% of the greenhouse gas emissions. So it makes a difference. And Salmon is the most sustainable animal protein out there in terms of greenhouse gas emissions. So it makes sense to eat more salmon, more fish, it's also very healthy. So we live longer, we also become smarter. So again, eat more salmon. And then we of course also have to produce more salmon. That's been a little bit challenging for the industry over the past few years, but it looks like there is some underlying growth in that regard. So to back to the commission and this taxonomy it's really hard to answer. We don't know. But our personal view I guess is quite obvious.

[Kim Dosvig:]

Yeah. And that concludes the questions we have received so far from the investors and analysts.

[Ivan Vindheim:]

Thank you, Kim, and thank you to all of you who spent time on us this morning. And things are improving out there. Let's hope that we get 100% ship shape all of us markets, economies, societies et cetera. We meet again in August. Meanwhile take care all of you.