U.S. Markets open in 5 hrs 6 mins

Edited Transcript of MHG.OL earnings conference call or presentation 30-Oct-19 3:00pm GMT

Q3 2019 Mowi ASA Earnings Call

STAVANGER Nov 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Mowi ASA earnings conference call or presentation Wednesday, October 30, 2019 at 3:00:00pm GMT

TEXT version of Transcript


Corporate Participants


* Kim Galtung Dosvig

Mowi ASA - Head of Treasury & IR Officer




Operator [1]


Good day and welcome to the Mowi ASA Third Quarter 2019 Conference Call.

Today's conference is being recorded.

At this time, I would like to turn the conference over to Mr. Kim Dosvig. Please go ahead, sir.


Kim Galtung Dosvig, Mowi ASA - Head of Treasury & IR Officer [2]


Yes. Thank you, and welcome to the third quarter conference call for Mowi.

We announced our quarterly earnings this morning. The webcast is available online. So the purpose of this call is to go through the presentation and open up for questions in the end.

So going on to Page 3 highlights. Q3 operational EBIT of EUR 148 million in the quarter, record-high turnover on all-time high volumes in all business areas, Feed, Farming and also Consumer Products.

On the back of increased supply by 13% year-over-year, prices declined in the quarter. We had positive contributions from our contracts, hence the price achievement was above 100% in the quarter. Having said or mentioning the 13% supply increase, if we look at the value of salmon consumed, we see that the demand continues to develop good with a 5% growth year-over-year.

Farming costs increased in the quarter, driven by biological incidents. The Scottish feed plant opened successfully. That's in commissioning phase at the moment. We completed the acquisition of K. Strømmen in Norway. They had 4 licenses in Region Mid, so that was a good addition. And the Board resolved to pay dividend of NOK 2.60 per share, which is payable now in the fourth quarter.

Page 4, key financials. Some of the highlights were more than EUR 1 billion in operational revenue in the quarter, up 3% year-over-year. Operational EBIT declined on the back of reduced prices. Underlying EPS of EUR 0.2 in the quarter; net cash flow per share of EUR 0.15; and harvest volumes of 117,000 tonnes, which is a 6% increase year-over-year, and that's record-high volumes for Mowi.

Page 5. Salmon prices declined in the quarter. And we have the table in the report and also for the back in the presentation with all the percentages. And so far in October, because of, so far, less supply coming into the market, we have seen somewhat of a price recovery.

Price -- sorry, Page 6. Price achievement was above 100% in all markets where we have contract share above 0%. So you see we have contracts of 34% in Norway, 41% in Scotland and 33% in Chile. And all of those contracts were contributing positively to our price/mix, in comparison to the spot price.

Page 7, operational EBIT bridge. As we see the Farming division, their results was EUR 61 million lower year-over-year, mainly caused by reduction in price, about 3/4 and about 1/4 increase in costs in terms of the deviation year-over-year, plus some volume -- plus the volume effects.

And then going into the regions, Page 8, Norway. We see that the operational EBIT was EUR 104 million in the quarter on harvest volumes of 63,000 tonnes, slightly down year-over-year. Operational EBIT of EUR 1.6 million, which is also a reduction year-over-year. However, the price achievement was good because of the contract sales.

And then some comments on the various regions: Region South harvested very low volumes at only 5,000 tonnes. And one site was harvested out early, which meant that the costs for Region South in the quarter was high. We've had good production in sea during the quarter, and we are expecting a sharp volume recovery in the fourth quarter. In Region Mid, it was a challenging quarter with harvesting smaller-sized fish and some lice harvesting towards the end of the quarter. Sea lice level is a concern. However, it has improved going into the fourth quarter. Region North, we've had stable and good performance.

And then our contracts on Page 9. We see that the contracting volumes are more or less the same year-over-year both in Q4 '19 and also in Q1 '20. The regions, I mentioned. I will not repeat.

And then going on to Scotland on Page 11. We see that the contributions have been mostly positive, driven by increased harvesting. We have doubled the harvest volumes year-over-year. However, prices have also declined in the Scottish entity. We had algal blooms and some fish health issues towards -- in the quarter, which has impacted the cost performance. And we expect costs to increase in Q4 due to lower harvesting volumes and a continuation of the challenging biological conditions.

Results in Canada were close to 0 in the quarter. Improved results -- sorry, results were impacted by reduced prices and a challenging environment -- environmental conditions in the quarter. We've had a mortality incident on the East Coast, which we reported to the market some weeks ago. We lost 2.6 million fish on the East Coast due to low oxygen levels and driven by high seawater temperatures. And we had to recognize a loss of EUR 4.6 million in the quarter related to the mortality. And we are currently in discussions with the authorities to rectify or to find a good solution for the temporary suspension of 10 licenses on the East Coast. Having said that, costs are expected to remain high for the Canadian entity in the fourth quarter.

In Chile, we had stable results and a good price achievement in the quarter. We harvested more or less the same volumes, 14,000 tonnes. The reduced spot prices were more or less offset by good contributions from the contracts. And we see that sea lice levels are higher in Chile in the third quarter compared to last year, it has declined slightly towards the end of the quarter. And we are working on generally funding -- or improving our capacity for treating sea lice both in the short term but also in the long term. Costs are expected to increase in the fourth quarter as we harvest from sites with a higher cost level.

And then Ireland and Faroes on Page 14. Reduced results from Mowi Ireland on higher costs due to biological challenges, and we expect that costs will go up further in the fourth quarter as volumes are reduced. And Mowi Faroes, they had a good price achievement but were also impacted by reduced prices, yes.

And then moving on to Consumer Products on Page 15. This was a quarter where we had record-high sold volumes. And we see that consumption rates in all of the key markets France, Germany, U.K. but also in Spain and Italy have been very good. Volumes in the Americas has increased significantly through our processing plants, but we are seeing that margins in the European VAP segment is strong. So there is strong competition in Europe. The 2.1% EBIT margin in the quarter, and that's including all the bulk sales as well. So if we exclude the bulk sales, the margin was in fact 3.1%. Many retailers have initiated promotional campaigns in various countries during the quarter, and this should also support demand going forward.

Feed. Because we opened up a new feed plant -- or the Scottish feed plant is undergoing commissioning in the quarter. On the back of that, we recorded record-high volumes produced and sold for the feed business area. The Scottish feed plant is in the commissioning phase. And we included a picture here on the right-hand side. The official opening of the pier took place on the 28th of August. Feed Norway had a good quarter and good operations and a 7% EBIT margin. Now we are approaching self-sufficiency in our feed requirements in Europe for next year.

And then moving on to the financials section on Page 18, profit and loss. As I mentioned, more than EUR 1 billion in revenue for the quarter, a negative fair value adjustment of EUR 215 million because of reduced prices. This is mark-to-market valuation of our biomass in sea, for the most part. And then we have income from associated companies of EUR 12.7 million, this is Nova Sea. They delivered an EBIT of EUR 2.13 per kilo in the quarter on 17,500 tonnes. So another good quarter for Nova Sea. And then I've mentioned already some of other key figures, 17% return on capital employed in the quarter and year-to-date 20.%

Okay. Moving on to the financial position on Page 19. Our total assets have increased by some EUR 700 million year-over-year, driven by the leases, IFRS 16; the acquisition of the 4 licenses in Region Mid; CapEx; and also increased biomass in sea. So we have 12,000 tonnes of more biomass in sea which is also driving our inventory levels higher. And the equity ratio of 53%, so it's good.

And the cash flow, on the next page, starting net interest-bearing debt of EUR 1.1 billion and ending net interest-bearing debt of EUR 1.23 billion. So this is more or less as guided. And working capital, we're trying more capital as we're growing our biomass in sea. CapEx is slightly lower than guided, so there are some potential delays on some projects, which might impact the full year guidance, although we have kept it unchanged for now.

And then moving on to Page 21, cash flow guidance. Working capital is unchanged. The CapEx, I mentioned, and potentially some delays, hence there is some risk that, that number might be lower. And the other items are unchanged.

The financing on Page 22 is the same. Bank financing, secured bond financing, the unsecured Schuldschein loan, and our long-term net debt target is unchanged at EUR 1.4 billion.

And then on the market side on supply. As already mentioned, supply was significantly higher than the guided range of 3% to 7%. So supply ended up at 13% in the quarter. More supply out of all of the key regions Norway, Scotland and also Chile. So the Norwegian supply was higher because growth in sea was very good. We had -- it's been a growth -- good growth conditions, in fact, for Norway throughout the year with warmer winter temperatures and, in fact, lower summer temperatures in sea. So the growth conditions have been good. Feed sales have been high, and consequently, harvesting has also been high.

So the increased harvesting was driven by both good growth but also because of sea lice pressure. So we see that in some areas the harvest rates were low. So it was a combination of both of those 2 factors. And the same in Scotland, more growth than guided because of increased growth in sea, but also some sea lice problems towards the end, which forced some farmers to harvest the fish early. And Chile also harvested more than guided.

So this, of course, put pressure on salmon prices. And we see that on the next page, on Page 24. However, on the following page, we see that the market has consumed more or less the same in percentage terms. So 13% higher consumption rates year-over-year, which is on par with the supply increase. And all -- and notwithstanding the lower spot prices, we see that contract prices have contributed positively. Hence, the demand growth in the quarter measured in euro terms has increased by an approximately 5% according to our estimates.

So good demand continues globally. In fact, in -- all of the key European markets have grown double digits, France, Germany, U.K. and Spain, in the quarter. U.S. grew by some 12% in the quarter, China 12% and Asia 14%. So a good development. Asia is growing, and China in particular, once they have access to the right sizes. So Asia is generally a big fish market, and we had access to big fish in the third quarter.

Okay. Moving on to Page 26. The supply outlook for Q4 is 0% to 5%. And for 2020, the midpoint is 3% to 4% globally. So this is typically supportive for prices, so supply has been high in Q3. And we expect the supply growth to come down but still to remain positive going forward. And these supply figures also supported by the biomass figures we see.

And then over to our own volume guidance in Mowi. We are maintaining 430,000 tonnes in the quarter. And next year, in 2020, we are projecting to grow to 450,000 tonnes, so to grow by some 20,000 tonnes. In 2019, we recover from 375,000 tonnes, so growth of 55,000 tonnes, which is a recovery year for us and then we'll continue to improve in 2020.

So in Norway, we have a good growth. Some growth in Scotland. Reduction in Canada because of East Canada, mainly. In Chile, it's more or less the same, and that's the same in Ireland and Faroes.

And then the outlook. Sector fundamentals remain strong on good demand. We have seen good demand response in all of the key markets, as I mentioned. And we also gain more confidence as the retailers have -- or are running more promotions now than what they did previously. Significant harvest volumes we've had in Q3 has reduced the potential growth going forward to more in the single-digit growth range -- mid-single-digit growth range. The forward price remains at 4 -- EUR 5.8 which is good.

The record-high third quarter biomass for Mowi supports the volume guidance we published this morning. We have about, as I mentioned, 12,000 tonnes more biomass in sea compared to the same quarter last year. The feed plant is finalizing commissioning. And the dividend payment for the fourth quarter -- or in the fourth quarter will be NOK 2.6 per share.

So that concludes the Q3 presentation. And so operator, if there is any questions, please address those. Thank you.


Operator [3]


(Operator Instructions) There are no questions over the audio at this time.


Kim Galtung Dosvig, Mowi ASA - Head of Treasury & IR Officer [4]


Okay. Well, in that case, I think this concludes the third quarter results. So we are looking forward to seeing many of you on the road in the coming days.

So thanks for participating.


Operator [5]


This concludes today's call. Thank you for your participation. You may now disconnect.