Mowi ASA
Q4 2020 Earnings Call Transcript

Published: 17 Feb 2021

[Ivan Vindheim:]

Good morning, everyone, and welcome to the presentation of Mowi's Fourth Quarter Results 2020. My name is Ivan Vindheim. I'm the CEO of Mowi, and with me today to present the financial figures and the fundamentals, I have our CFO, Kristian Ellingsen. As usual, we start with highlights. The operational EBIT of €49 million was in line with the trading update we released on the 17th of January. The second wave of COVID-19 has obviously had a high impact on our numbers this quarter through significantly lower prices. The shortfall we have seen in the very important foodservice market has not been fully offset by the fantastic growth we have seen in the retail market. The net effect, approximately 5%. Retail market up by approximately 20% according to our numbers and foodservice down by 35%. All-time high quarterly and full year Farming volumes this year, 127,000 tonnes in the quarter and 440,000 tonnes on a full year basis. In addition to that, we also had record high volumes in the other divisions, Consumer Products and Feed. So I would like to take this opportunity to say thank you to you all, my colleagues out there for making this happen. We have been through an extremely challenging year with the COVID-19 pandemic.

[Kristian Ellingsen:]

Thank you very much for that Ivan, and thank you for a very good walk-through. Good morning to everybody. So then we move on to the financials, and we start with the profit and loss as usual. The top line shows revenue of approximately €1 billion. It is down 9% from Q4 '19, even though volumes were 9% higher. So achieved prices were down approximately 20% versus a salmon spot price decline in Europe and Chile of approximately 28%. Operational EBIT, €49 million, where the price decline explains 125% of the decrease from Q4 '19. That means that this effect is partly offset by lower costs and higher volumes. And when it comes to the items between operational EBIT and financial EBIT, there is a positive net fair value adjustment of biomass, this time around, €20 million, mainly related to increased biomass in sea and also improved prices at the end of the quarter in Americas compared with the end of the third quarter. Restructuring costs, write-downs and impairment losses are mainly related to Canada West under the government decision there to phase out salmon farming in Discovery Islands. Most of the accounting effects are taken in Q4 '20, and one provision will also be made in Q1. In total, the cash effect of these items are €6 million. This is mainly related to FTE reductions and the decommissioning costs. Income from associated companies, mainly related to Nova Sea. And the operational result is €1.03 per kilo, which was a strong margin, although somewhat lower than the €1.29 in Mowi Region North this time. Net financial items, €1 million this time as interest costs were offset by positive currency effects. And then we see that the key metrics for 2020 are impacted by the more than 50% lower operational earnings versus 2019. And we also note that return on capital employed for the year, behind our 12% target in a very challenging year but still ended at 8.3%, which is decent. Then we move on to the balance sheet. Relatively stable assets as we see from the third quarter. On the other side of the balance sheet, we see that Mowi's financing position, the financial position is still solid. Covenant equity ratio of 52%. Net interest-bearing debt is €1,458 million, so relatively stable from the third quarter. And the assets held for sale here, €60 million. That's related to DESS Aqua. And we have an accounting gain of approximately €54 million, nonoperational in Q1, which means that we have a cash inflow of approximately €114 million. Then we move on to the cash flow. We see that the cash inflow matched more or less cash outflow in the quarter. NIBD, stable. Cash flow items for Q4 and 2020 were in line with the guidance, except working capital, which was lower than expected, €57 million for the year versus a guiding of €90 million. This was due to less tie-up of working capital in sales and marketing related to lower prices and thus, lower accounts receivable. In Farming, the effect of volume tie-up to a record high biomass in the sea of 326,000 tonnes lightweight was offset by improved costs on stock, which we, of course, are satisfied with.

[Ivan Vindheim:]

Right. So thank you, Kristian. So the procedure is, as usual, first, we take the outlook, and then we open up for questions facilitated by our IRO, Kim Dosvig. So as already said, we strongly believe in a market recovery during 2021. We also believe in a tighter market balance. Kristian has just shown here that the supply growth for 2021 is expected to be as low as 2%. So under normal circumstances, that bodes well for prices and earnings. And then it's up to the future to decide. Low price level and a shift in demand towards more elaborated products is expected to boost demand, also post COVID-19. And in that regard, Mowi is well positioned to capitalize on this recovery. Farming volume is -- guidance for '21 is reiterated, 445,000 tonnes. Sustainability aspects are extremely important and will become even more important going forward. And further to this -- those, it's extremely encouraging to see that Mowi, again, is ranked as the world's most sustainable animal protein producer. And I would also like to say that farm salmon, in general, is ranked as the most sustainable animal protein. It's just to take the list of companies in the Coller FAIRR index, and you see salmon farming companies, they really have a good footprint in the right end of the scale. We'd also like to take the opportunity to give us all a friendly reminder of the digital market -- the Capital Markets Day we are arranging on the 17th of March 2021. There will be -- we will have a thorough strategy and business update by Mowi's group management team. So you are all welcome to follow us. Unfortunately, digital this time. But that's how it is. So with this, Kim Dosvig, then we open up for questions. And if Kristian can join me up here with at least 2 meters distance. Good. Thanks.

[A - Kim Dosvig:]

All right. So we have received some questions from the web. The first question is from Lars Konrad Johnsen at Carnegie. He's got a question about the dividend policy. How should we understand the former net debt target of €1.4 billion now with the updated dividend strategy?

[Ivan Vindheim:]

Right. So that target of €1.4 billion is unchanged. But as we say in the policy, it will be addressed on regular basis. So it's not carved in stone, but it's not changed this time.

[Kim Dosvig:]

Okay. And then another question on the dividend policy from Alexander Jones, Bank of America. Can you please elaborate on the reasoning behind the new dividend policy and whether we should take this as a signal of higher CapEx spend to come?

[Ivan Vindheim:]

Right. So over time, we have been asked by a lot of investors and potential investors what our previous policy -- dividend policy actually mean, because in the end of the day, it was 100% discretionary. So in order to meet this or try -- yes, as an effort to fill this gap, the Board has adjusted the dividend policy to make it more predictable, more transparent. So we are tying ourselves to the mast with regard to the ordinary quarter dividend. So at least 50% will be distributed under normal circumstances. And you know how it is. If you end up in a pandemic, then you have a normal situation, but the normal is always the normal. That doesn't mean that the company will start to retain excess capital. That capital will also be distributed going forward but in the form of extraordinary dividend. So again, this is just a hand-out to investors to try to make this more predictable going forward. I would like to state that dividend has been and will be an important part of Mowi's financial strategy. We have marketed ourselves as a dividend company since the merger in 2006, and nothing has changed. So please do not read more into it than this.

[Kim Dosvig:]

Very good. And then a question from Martin Kaland from ABG. He's got 2 questions. The first one on Consumer Products. You have reported strong margins in Consumer Products since Q2 2020. Should we expect similar strong margins as long as we have lockdowns and demand is reallocated from foodservice to retail? Or are there additional seasonal effects we should take into account short term?

[Ivan Vindheim:]

So nothing has happened really with the season, but this shift towards more elaborated products boost, of course, the earnings and the demand for our products in Consumer Products. And then you also make more money. Some of this, we also believe will stay there in a post-COVID-19 situation. So we are growing this over time, but that you could see a temporary effect in a post-COVID-19 situation. I guess it's likely, but it's not back to start to put like that. And I also think we will see seasonality going forward. And I think most of you understand what that means. So towards Christmas, then you have high season and Easter, for instance. And then you have some other parts of the year where it's a little bit slower. But in general, we think we will continue to grow Consumer Products. And we strongly believe in this leg. And our consumers, they are getting more and more requiring. So the days where you could just farm a salmon and sell it is over. I'm not afraid, I'm very happy for it. So the market is evolving, and we are evolving accordingly.

[Kim Dosvig:]

Okay. And then his second question is related to biology in Norway. We have seen favorable growth conditions in Norway towards the year-end of Q4, but seawater temperatures now looks to be colder than normal. How is the biology looking at the moment? And do you expect a more challenging winter than normal?

[Ivan Vindheim:]

It's really hard to predict the weather. But we are finished with January. January was great in terms of growth and seawater temperatures. I think everyone knows that. Then temperatures have fallen into February. And towards end of January, that, of course, has an impact on growth, but we are just talking about a few weeks. I think it's hard to read much of 2021 into the development in a few weeks. So let's see. The most important part of the growth season is, as you all know, in the second half of the year. So he was addressing in Norway. And in Norway, we are, I would say, in okay shape and has had a good start of the year. But what's the comp? Who knows? There are still 11 months to work through here. So no one knows. It's a good question. It's really hard to answer it, I must say.

[Kim Dosvig:]

Okay. Then 2 questions from Jann Molnes from Holberg Fondene. The first one is on the CapEx projects. If we can elaborate some more about the CapEx projects we have in sea for 2021.

[Kristian Ellingsen:]

Yes. In general, we are investing in new sites. We are investing in equipment. So this is a general part of the investment program in Farming. The major part of the Farming investments are fresh water investments, but still seawater is a significant part of this. So this is Norway, it's Scotland, it's Canada and also Chile. So I guess it's many different types of investments. So I guess it's difficult to be too specific there.

[Kim Dosvig:]

Okay. And then his second question is about Canada East. Can you elaborate somewhat more about the turnaround plan for Canada East? Does it have anything to do with the biology or politics?

[Ivan Vindheim:]

It's not politics at all. It's all about running a good farming operation with all that entails

[Kim Dosvig:]

Okay. Then reverting to dividends. Carl-Emil Johannessen from Pareto. He is asking, will the Board make a decision every quarter whether the company can pay an extraordinary dividend? Or will this be something that will be evaluated once or twice per year?

[Ivan Vindheim:]

Once or twice or 4 times per year, that's hard to say. It depends on the situation. But on a regular basis then, I look at our balance sheet every day. So -- and I assume our Board does the same. So regular means constantly. Balance sheet is something you have to build and take care of over time. And if you have a poor brick in the wall, you have to change it. So this is not something you take up 1 or 2 times per year. This is also part of work you do constantly. This is everyday business. And I guess, Kristian, he can nod on this.

[Kristian Ellingsen:]

Definitely.

[Ivan Vindheim:]

This is what he does among other things.

[Kim Dosvig:]

Okay. Then shifting gear back to biomass from Christian Nordby at Kepler. He is asking about the biomass. You have a very strong biomass growth. Does this imply that your harvest guidance is somewhat conservative? Can you comment on winter wounds problems in 2021 versus last year?

[Ivan Vindheim:]

Yes. So to start with biomass, yes, so we have record high biomass at year-end. So it's absolutely supportive for our volume guidance, but the volume guidance still stands. So that's the number we believe in. And we also like to deliver on guidance, and that's not always easy in this industry because you start with one individual. From there, it can only go wrong. So this normal distribution you learned at school and I learned at school, it doesn't look like it in this industry, unfortunately. So 445,000 tonnes is the guidance. And we have a good opening balance, you could say. So we believe in it. Then winter sores was a huge problem in the entire Northern Hemisphere last year, not only in Norway but also in the Faroes and in Canada. So hard to say why, but I guess weather was a very important component. This year, I'm not -- I'm now only talking for ourselves. We have a normal level. As you know, winter sores is a seasonal issue. So you normally have it every year. But this year is very -- at least so far, very different to what we experienced last year. So knock on wood, so far, it's under control.

[Kim Dosvig:]

Okay. Then a question from Fearnley from Nils Olav Thommesen. He's asking about the contract share. What are your expected contract shares in the different regions for 2021 as a whole?

[Ivan Vindheim:]

Then I'm afraid we have come into an area we cannot be transparent. So this is this is day-to-day business. And our market strategy, I think, we have to keep to ourselves. So I must apologize and go to the next question.

[Kim Dosvig:]

Yes. Then the last question so far is from -- going back to Bank of America, Alexander Jones. He's got a question about the new aquaculture strategy in Norway, if we can elaborate on what the Norwegian government might do this summer in terms of this new aquaculture strategy offshore that they have announced.

[Ivan Vindheim:]

That would just be speculation from our side. And we don't know more than the rest. So I think this is thoroughly addressed, at least the little bit know so far, in the media. So I'm afraid our knowledge limits to that level. But they have said they will congress during the year and maybe also this spring, and I believe they will do so. So meanwhile, we are waiting in excitement, all of us.

[Kim Dosvig:]

That concludes the questions from the web.

[Ivan Vindheim:]

Thank you, Kim, and thank you, everyone. And we'll meet again, hopefully, already as soon as the 17 of March when we have our Digital Capital Markets Day. Stay safe. Take care.