Mowi ASA
OSE:MOWI
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Mowi ASA
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Yes. Good morning, everyone. Welcome to the presentation of Mowi's first quarter results. My name is Ivan Vindheim. And with me today to present our financials, markets and harvest volumes, I have our CFO Kristian Ellingsen.As usual, we start with highlights. First, profit, operational EBIT, our main figure, EUR 109 million in the quarter, in line with the trading update of the 20th of April.I guess we should start describing the quarter as a very special quarter for Mowi and, I guess, for the world as a whole. We started with close to record-high prices at the beginning of the quarter. And as the COVID-19 pandemic escalated into a world pandemic of unprecedented character, we saw a sharp decline in prices. I think this is the sharpest decline, at least I have seen in my time in this industry.However, despite the extensive lockdown measures we have seen, we have run our operations close to normal, thanks to our fantastic 15,000 employees. So I would like to take the opportunity to thank all of them making this happen.At the same time, we have managed to secure health and safety of us all, which is also very important. In Mowi, HSE is always a priority #1.That being said, a lot of external and internal measures to avoid infections, we have incurred more cost, and we are also incurring more costs right now. On a positive note, they will disappear when the world and Mowi returns to normal in not too long time, hopefully.Farming volumes of 83,000 tonnes, in line with our guidance for the quarter. We saw record high volumes in Consumer Products of 52,000 tonnes, driven by shift of volumes to retail at the expense of foodservice. The Foodservice segment has, as I assume you are all aware of, taken the biggest toll of the lockdown measures.We also saw seasonal record-high volumes in Feed, 94,000 tonnes, also seasonal record-high volumes for Norway. As you may know, we have 2 feed factories, 1 in Norway, 1 in Scotland. We have seen good growth in Norway during the quarter, and this increased demand has also resulted in record-high volumes for the Norwegian factory. The Scottish factory is -- has started on its first full year, so -- that they deliver a record-high volumes, I guess, is something we can take for granted.As announced in the trading update of 20th of April, the Board has decided to postpone the decision of the first quarter dividend until the second quarter. Then over to key financials. I will not say too much about it here. Kristian, our CFO, he will work us thoroughly through this later on in the presentation. But as already said, operational profit of EUR 109 million in the quarter. Net interest-bearing debt, EUR 1.356 billion, so below our long-term debt target. A very good cash flow in the quarter since we have untied working capital. This is the season for that. So a net cash flow per share of EUR 0.19 versus underlying EPS of EUR 0.14. Harvest volumes, we have already touched base upon. Margins, we will revert to later on when we address the various segments.I've already commented a little bit on salmon prices. As we can see from the graph here, it started at close to record-high price levels in all regions. But after the beginning of the year, I think we have seen the sharpest decline, at least in recent times. So a very strange quarter for Mowi, for the industry, but also for the world as a whole. In terms of price achievement, not great this quarter, I would say. For Norway, we are impacted by downgrades. Superior share of 89% in the quarter is somewhat lower than what we would like, driven by winter sores. We have seen a problem with winter sores both in Norway, Faroes and in Canada this quarter. This have taken its toll on price achievements, unfortunately. On a positive note, we think this will improve going forward. Norway is also impacted by negative contribution from contracts in the quarter. Those contracts will most likely give us a positive contribution in the second quarter. The Scottish price achievement, good in the quarter, 101%. Canada, 92%. 100% of the Canadian volumes are sold in the spot market. So this is spot compared to spot. Winter sores is one probable explanation, but also the reference price, Urner Barry, it looked like Urner Barry lagged a little bit versus the market development in the quarter. Bear in mind that Urner Barry is not -- it's not an online reference price. Urner Barry is a manual reference price with its weaknesses. So I think a part of this is also because of the way we measure Urner Barry.This also goes for the Chilean fish. In addition, we also had low superior quality, as you can see from numbers, right, 85%, driven by SRS-related sores, so not winter sores, but SRS-related sores.In addition, we also sold a big proportion of volumes to Brazil. And in the first quarter, the Brazilian spot prices were lower than in the American quarter. So far, at least in the second quarter, those prices are much more similar.So much about price achievement. Then over to the operational EBIT waterfall. Farming is the big change component this time around, down EUR 83 million year-over-year. More than half of this is because of the low volumes, 83,000 tonnes this quarter, compared to over 100,000 tonnes last year. But also, a part of it is cost. For the other segments or business areas, we have more or less a flattish development. Then over to our biggest business areas -- area, our biggest segment, Farming Norway. Overall, a decent quarter, I would say, we'll come a little bit back to the spread in margins between the regions. I think it's right to say that the biology and production in the quarter has been good. But what we are measuring here is what we call RFS, released from cost stock. And a major part of that cost is related to 2019. And 2019 was a very challenging year for us biological-wise.The -- particularly the generation we have been harvested from, 18GS0, have been troublesome for us. This has resulted in low volumes, high cost of stock and also lack of economies of scale. So production-wise, a good quarter, I would say. But in terms of recognized RFS volumes, et cetera, not satisfactory, but driven, first and foremost, by a challenging 2019 production.We hope that if the production we have now continue, going forward, this will lead to improvements in RFS cost for the Norwegian production, particularly for the second half. It goes without saying that the COVID-19 has taken its toll on the Norwegian prices. In terms of price achievement, we have already commented duly on that, somewhat low because of problem with the winter sores.Then over to the regions. Not a big spread this time around North, EUR 1.77, EUR 1.72 in South and EUR 1.54 in Mid. Having said that, bear in mind, the lion's share of volumes in North was in March. March was the month, as you may know, with the lowest price. So adjusted for that, North would have been about EUR 2 in margins. So we had a reasonably good quarter for North, although the margin here indicates differently. But again, timing of volumes was not great for North this time.South. EUR 1.72, I think, is a good margin in this region. South is a much more challenging region than North and also Mid.In terms of the margin for Mid, EUR 1.54 is not something we are satisfied with. It should deliver better. The main explanation is the generation we are harvesting from, low volumes. So -- and again '19 was a challenging year for our Norwegian operations, particularly for region Mid. Hopefully, this will improve going forward. At least, the start of the year has been good.Then over to our contract portfolio for Norway. Contracts these days are absolutely very important with the decline we have seen in the spot prices. A stable contract volume portfolio, also for the second quarter and third quarter.We saw a drop in prices from the fourth quarter into the first quarter, EUR 0.50. Going into the second quarter and third quarter, we have stable contract prices.Then Scotland, Scotland have been through a prolonged period of challenging biology. We had algae bloom last September. We also have struggled with Pasteurella and sea lice. So RFS cost for Scotland in the second quarter is very high and far too high.On a positive note, it looks better now. It looks like the biology is improving. The fish has started to grow. So we are expecting improved cost numbers for Scotland going forward. Positive contribution from sales contracts. The Scottish market is, to a large extent, a contract market, contrary to most of the other markets in the salmon world.Then over to Canada. Low volumes this quarter, 8,000 tonnes. Volumes will increase going forward. Normally, that leads to improved costs, more economies of scale, et cetera.We had a very challenging year for Canada last year. If you remember, we had the mass mortality in Canada East. Lost a lot of fish. We also were struggling with the biology in the West. These numbers are obviously highly impacted by low volumes and RFS numbers for Canada West is impacted by '19 biology. But with higher volumes, with our normalization in East going forward, we are expecting a better RFS development in the time ahead. But this will come gradually. So don't put too much expectations into next quarter. It's also very encouraging to see that we have gotten the 10 licenses that were temporarily suspended last year back. So this is very encouraging and very important with regard to our growth strategy in Canada. It's of utmost importance that we have support from the government. We have all the time claimed that we did not do anything wrong. This was caused by Mother Nature. And I think the review, which have been carried out, has proven that to be right. So again, very, very encouraging to get this news.Yes. The last bullet point, harvest volume to increase for the remainder of the year, as already said, that should help with regard to both cost and operational performance on land.Then over to Chile, relatively good results, I would say, driven by high contribution from Consumer Products, EUR 1.2, it's good in the quarter. And I think it's a long time since I've seen such a low spread between the Chilean margin and the Norwegian margin.We have negative scale effects on cost due to lower volumes, almost 20,000 tonnes last year as against, yes, below 14,000 tonnes this year. That takes a toll on costs. It always do.Biology in Chile is stable. And we are not carrying any frozen inventory. I see there is a lot about frozen inventory in Chile in the media right now in the -- yes, amidst this COVID-19 situation we have, and for good reasons. But Mowi, we do not hold any significant frozen inventory in Chile. So we are in a good position in that regards.Then over to Ireland and Faroes. We didn't harvest in Ireland in the quarter, but we had good biology, good growth. So I think things are running well in Ireland right now and also improved situation year-over-year.With regard to the Faroes operations, we are harvesting from our best site in the Faroes right now in the Fjord there, a great margin, as you can see, almost EUR 2.8, which is great, although superior share is low 80%, driven by, as we already have addressed a few times, winter sores. So very good results in our Faroes operations in the quarter.Then over to Consumer Products. As stated in the highlights, record high volumes sold in the first quarter. Unfortunately, the contracts we entered into during the fall of '19, they are not good. I'm talking about Europe, where we have our biggest lag. So those contracts, they take its toll on the overall margin.Consumer Products in the U.S. is really good in the quarter, very good numbers. Asia, okay. So Europe is the disappointing part. On a positive note, we see a shift towards more and more in retail, led by the COVID-19 situation we have. That helps for our European operation. So we are expecting better earnings in Consumer Products going forward.I also think we should say that we didn't get any help from Easter season this year. Normally, when you have Easter, we have a peak season, only the Christmas season is better. But at this time, unfortunately, there was no help from Easter season because of the obvious reasons.Then over to Feed. First quarter is a low quarter for Feed. That's the part of the year the salmon grows the least because of seawater temperatures. Despite that, we had a good quarter, record-high volumes, as we already have said, particularly impressive in Norway, driven by good demand and good growth in our Norwegian farming operation. 95% self-sufficiency rate in the quarter is also very, very satisfactory. That means that we are producing and consuming the feed we produce ourselves.So with that, Kristian, the floor is yours. You can walk us through the financials, markets and harvest volumes. Thank you.
Thank you for that, Ivan. So good morning to everybody. We'll take a look at the financials, markets and harvest volumes. And as usual, we have the quarterly material with all the details. So please take a look at that as well. And you will find more information in addition to what we say here in the presentation.We start with the overview of profit and loss. We had a top line, it shows operational revenue of EUR 885 million, which is 10% down from the comparable quarter mainly due to lower volumes. We see that harvest volumes are 20% down. Sales volumes are somewhat lower down -- than that, but this is mainly driven by volumes. And the effect of lower volumes is partially offset by higher achieved prices in our Markets segment and also in Consumer Products.If we take a look at operational EBIT, EUR 109 million, down 44% from Q1 '19, again mainly driven by the volume decrease. But also, as Ivan commented, higher costs and also lower earnings in Consumer Products.Then we have the items between operational EBIT and financial EBIT. And this time, we have a negative fair value adjustment of biomass of EUR 159 million, which is mainly due to lower prices at the end of the quarter.Associated companies, EUR 2 million. This is mainly Nova Sea. And translated into operational earnings per kilo, this was as much as EUR 2.96 per kilo on 9,300 tonnes. So another very good quarter for Nova Sea. This is an impressive margin on a good operational performance and also good timing of sales.Net financial items. EUR 40 million negative. This time impacted by unrealized currency effects mainly due to the weakening of the Norwegian kroner.And the key figures listed here, underlying EPS, net cash flow per share, margin and return on capital employed, they are impacted by the lower operational earnings. And the dividend paid is the Q4 dividend paid in the beginning of March.So we move on to the financial position, as we see here. The financial position is solid, as demonstrated in these figures. We also see that the figures are relatively stable from year-end '19.Noncurrent assets, EUR 3.2 billion, very stable. Current assets, we see are down approximately EUR 340 million, where around EUR 170 million of that is explained by release of receivables and around EUR 160 million is then the net reduction in fair value adjustment on biomass. So that are the main explanations.And if we move on to the other side of the balance sheet, we have the debt side. We have net interest-bearing debt of EUR 1.4 billion, EUR 1,357 million. So still a little bit below the target. And we have the equity with a healthy equity ratio of 51% adjusted. So a solid financial position for Mowi.This table shows the cash flow in the quarter. Cash flow from operations, as commented also by Ivan, includes a large seasonal release of working capital, EUR 76 million. This is mainly related to release of receivables in the sales and marketing. As you know, they have the high season in the fourth quarter, and then we get the payments now in Q1. And then we didn't have the tie-up effect related to the Easter sales this year. So the total effect is higher than last year. Tax payment, stable from Q1 '19. Other adjustments, EUR 12 million. That includes insurance payment for the factory in Kritsen.Net CapEx, EUR 73 million, includes EUR 18 million related to purchase of MAB growth in Norway, the fixed price growth, 1% growth. The payment came now in the first quarter. This is the 1.49 licenses we acquired there in that fixed price purchase.And then we have the net interest and financial items paid, EUR 17 million this time. This is impacted by fixed interest rate swaps and also fees related to the new green bond we had in January. And going forward, this item is expected to be reduced on lower swaps, and we don't have a fee effect, so the payment will be around EUR 10 million going forward in the next quarters. Yes, the dividend, we already commented upon. And accordingly, good cash flow. NIBD, pretty stable, moved from EUR 1,337 million to EUR 1,357 million during the quarter. So still below the target level.If we look at the cash flow guidance for this year, we maintained a working capital buildup of EUR 90 million. We are growing this company. We have extra volumes in farming. We are also growing in downstream. So this ties up capital.With regards to the CapEx guidance, we maintain the EUR 265 million figure. That is excluding the effects from the traffic light system. We, as I said, already paid EUR 18 million related to this. So already, we have EUR 265 million plus EUR 18 million equals EUR 283 million for the year. And then the authorities have announced an auction for the remainder of the growth, which will also come.And if you look at this EUR 265 million figure, this includes investments in equipment, but also more complex building projects, like the freshwater investments and the new plant in Kritsen, for instance. So of course, due to COVID-19, there may be some delays in these projects. It's a little bit too early to assess all the potential consequences with regards to that, but the risk is on the downside, i.e., underspend, but no delays impacting smolt output or volumes going forward. Interest paid and taxes paid, there we have the guidance maintained for those items.Then we can take a look at the financing. It's very important these days with the elevated uncertainty across the world. We have a very solid balance sheet. We have good financing. We have ample liquidity, around EUR 580 million in cash and undrawn lines. As also stated here, a total committed financing, almost EUR 2 billion. And then we have the long-term NIBD target of EUR 1.4 billion. I would say that the maturity schedule for our interest-bearing debt is favorable with regards to the elevated uncertainty regarding COVID-19. We issued a green bond, as you know, in January, just before the market turmoil started, and we have no interest-bearing debt maturing before the second quarter of 2022.The bank facility is the backbone of our funding, where the lenders are DNB, Nordea, ABN AMRO, Rabobank, Danske Bank and SEB, all of which we have a very good relationship with. We have the EUR 200 million unsecured bond maturing in 2023, the green bond in 2025 and the Schuldschein loan in 2026. We then move from financials over to the more fundamentals in the market during the quarter. We start with the supply side. Supply growth globally was around 2%, as we see here. That was in the high end of expectations. Norway increased more than expected. We had good growth conditions and a higher number of fish harvested. Scotland, however, they decreased 17%, as we see here. That was lower volumes than guided. They had a challenging biology in 2019 for the Scottish players, including us, and that was prolonged into the first quarter, combined with unusually harsh weather in Scotland. And the weather also impacted Scotland -- sorry, impacted Faroes, down 20%, many winter storms and also distribution challenges to Russia and China for the Faroes, for the industry. Chile increased 9%. That was more than expected. Expectation was 3% to 8%. So we had a higher number of fish harvested, particularly in January and February, but also sort of a delay from the end of 2019 when we had the social unrest issues in Chile. So consequently, we had much larger volumes in the beginning of 2020. In March, however, it was impacted by COVID-19, so lower harvesting in March in Chile. Yes. And we can take a new look at the prices. Ivan has already given some comments. Year-over-year, prices increased in Europe, as we see here, 6%, also in Canada, but they were lower in Chile.And prices, they started at very good levels. Second-highest levels ever in January. And that is due, of course, to the reduced supply after the autumn of 2019, where you had -- where we had early harvesting in '19, a lot of volumes on the market. Prices fell accordingly. Then, volumes were lower, demand very strong. So we had a big increase in prices. So we started in January at high levels. And then, of course, COVID-19 caused the prices to fall during the quarter, the lockdown measures, which impacted foodservice, and the volumes normally going to that segment in the market.First, of course, related to China, then to the rest of Asia and then the main hit on prices came mid-March onwards. And historically, you see in the first quarter that you always -- we usually get a little help from the Easter season, a little increase during that period of time, on a period during the year when volumes are seasonally lower. But that effect was not there this year, on the contrary. So prices fell almost 50% this time. So a dramatic decrease in prices.Yes. And in Chile, prices were down year-over-year. The supply growth was high, as I said, in the beginning of the quarter. So Chilean prices did not get the same lift as the prices in Europe and Canada did. And then COVID-19 caused prices to fell also in the -- for that origin.The decrease in prices continued in April and also in the beginning of May, but then we have had now a recent increase in prices in Europe as some countries are gradually reopening. Very positive that several countries have now either gradually reopened or indicated that they will relax lockdown measures in the time ahead. We are now seeing improved demand in several important salmon markets, such as France, Spain, Germany. And promotional activity in the European retail segment has also ticked up recently. So prices in Europe are ticking somewhat up.If you take a look at demand, then we see that consumption increased by 0.4% in the quarter versus the comparable quarter. And yes, we have stated that already. Consumption patterns were, of course, very impacted by the extensive COVID-19 lockdown measures during the quarter, particularly foodservice, but also wet counters in retail being impacted. And these reductions have partially been offset by increased retail sales. So very good development in retail.So of course, probably some loyal salmon buying end customers now buying salmon in retail to a larger extent than usual and potentially also new retail end customers, which we hopefully will keep also going forward.If you look at the different regions, then you can see that the effects are somewhat connected to the time span of the COVID-19 situation. We see that Asia was the first region impacted by COVID-19. They fell 11% year-over-year. They also have a larger foodservice share 75%, more or less, versus 35% to 40% globally. They've also experienced difficult logistics in the quarter, significantly increased airfreight rates, shortages of passenger planes. So volumes are accordingly down in Asia in the quarter. But it's very positive that we know, over the last month, we've seen a very positive development in especially China and Korea. Much of the sourcing into China and Korea are with cargo planes. And Norwegian export volumes of salmon into China have steadily improved and have actually now exceeded '19 levels for the same weeks. South Korea develops also well, while developments in the other Asian markets is somewhat more challenging still. Then Europe, which was the second region hit by COVID-19, consumption increased 2% versus Q1 '19. And then COVID-19 came a little bit later to the U.S. This is where, of course, as you know, the epicenter is right now. Consumption increased 5% in the Americas in the quarter, with a negative impact on foodservice activity, but some of the shortfall has been replaced by increased sales in the retail channel. So very good demand in the U.S. for prepacked products.Of course, the cost of airfreight has also impacted the trade flows to the U.S. So that means that we have a difference between supply and demand as we see in the supply figures more or less 548,000. Here, we have 538,000 more or less, so a difference of 10,000. So that is related to a buildup of frozen inventories in Chile mainly, as Ivan also commented upon. Our projection of inventories in Chile are in the level of 50,000 to 60,000 tonnes. Mowi Chile carries limited frozen inventories. We have benefited from our integrated value chain in the Americas, our U.S. plants, so we carry limited inventory. So a bit of a mixed picture during the quarter, but I think it's very important to emphasize the very positive development we are now seeing with the improved demand on the gradual reopening. As we also stated here in the last bullet point, we expect this to continue going forward.Yes. Then we can take a look at supply going forward for the industry. For 2020, we expect a modest supply growth, 2% to 4% for the year, down from 7% increase back in '19. And the Norwegian figures, growth estimated to 2% to 4% as we see here, which is in line with the Kontali's estimate of 3%. For Chile, we estimate the growth of 3% to 5%. Kontali estimates 5%. We have more individuals of the harvest-ready generations in sea year-over-year, but there are also some effects which may dampen potential volume growth in Chile going forward. We have SRS, and we also have the COVID-19 situation. For the U.K., growth estimated to minus 3% to plus 1%, also in line with the Kontali's estimate. And we see also, of course, then that the second half of the year, now in 2020, volume growth is higher than the first half of the year, more individuals and higher weights for the 19GS1 generation as opposed to the 18GS0, we have been harvesting now in the first quarter and for the first half of the year.If you take a look going forward into the future, which is always difficult, of course, but we have our projections and our estimates. And for 2021, we expect a growth as low as 2%. This suggests a tighter market balance, given continued COVID-19 recovery, a recovery which we have already signs of being there starting to happen.And of course, this is related also to less individuals year-over-year for 19GS0s, the generation to be harvested in the first half of 2021. So this has a support in the numbers.If you take a look at our own volume guidance, we maintain the 450,000 tonne guidance for 2020. We do some minor adjustments between the regions, but we stick to the total guidance. We have a higher number of individuals in sea year-over-year. And we also have a favorable development in mix with an increase in Norway and a decrease in Canada. Okay. So much for market side. Then I will leave the word back to Ivan to give some comments about the outlook and the road ahead for the company.
Yes. Thank you, Kristian. Thank you for a thorough walk-through of financials, markets and our harvest volumes.Then over to outlook. The COVID-19 pandemic has undoubtedly impacted us in the short term with regard to dynamics, prices and costs.That being said, Mowi is capitalizing on an integrated value chain to meet the shift from foodservice demand to retail demand. And to be a little blunt, without our big downstream leg, I don't think we could have managed this. So I thank all of our employees, to begin with. I also would like to thank them again for making this happening.We have been through a very challenging time, but we have done reasonably well under the prevailing circumstances. As Kristian said, we have started to see improvements in some of the markets as some of the countries have started to reopen.First, we saw it in China, Korea, and now this has moved on to Europe and most of the big markets there, although U.K. is lagging a little bit. They are a little bit behind us in this pandemic. In Americas, it's still challenging price-wise. They are low, but we expect to see the same patterns also in Americas when they start to reopen there, hopefully not in a long time. Supply outlook for 2021, low 2%. So with increased demand going forward and low supply outlook, we also believe in strengthened prices. So the pattern, we already started to see signs of that, that will continue. As stated by Kristian, we are maintaining our volume guidance of 450,000 tonnes for this year. And as we said earlier on -- or earlier in the presentation, we are harvesting from our troublesome 18GS0 generation. Hopefully, when we gradually start to harvest from the 19 generation, we will see improvements in our RFS, release from cost of stock.Increased volumes will also help. The volumes in the first quarter was very low for us, 83,000 tonnes.Before we wrap-up, we also like to say thank you to the government for the proposal we had yesterday, where they proposed to discard the resource tax in Norway. Norway is, as you know, our most important region. Salmon farming is also very important for Norway. And we think it is of utmost importance that we get -- excuse my language, get rid of this resource tax. So again, thank you. This is very, very good news potentially.With that, we open up for Q&A led by our IRO, Kim Dosvig. So are there any questions coming in?
Yes. So we have some questions from various analysts and investors. So to start with the first one. Alexander Jones from Bank of America. He is asking -- he has got 2 questions on costs. Could you talk through how you see farming costs develop in the second quarter and for the remainder of the year?
To a large extent, we are harvesting from the same generation in all regions, more or less, 18GS0. So the shift in cost, you will not see in the second quarter, although we are expecting lower cost for Scotland. So the 19GS1, which is the first part of generation, we start to harvest from at the end of the second quarter. So the main impact we will see in the second half. And as I guess many of you know, the summer part is an extreme part of the year and for the -- and/or the growth season for the salmon, so it's also very hard to give any exact numbers. But so far, things look better.
Okay. And his second question is regarding the recession. So given salmon's higher price than some of the other proteins, how do you think about possible impacts on demand from lower global incomes going into next year following the pandemic?
Can you read it again, please?
So given the salmon's higher price than some of the other proteins, on a relative basis, how do you think about possible impacts on demand for salmon due to the global incomes going down next year following the pandemic?
Well, we have been through rough times before, and the salmon normally managed very well also when we have recessions. If you go back to the financial crisis in '08, '09, for those of you that remember that, the salmon prices, they were extremely high in the wake of that crisis. So we -- of course, there are limits also for the salmon, but salmon with its features and the megatrends, they -- it really stand out in the protein world. So we think we will manage this also well.
Okay. And then moving on to Pareto from Carl-Emil Johannessen, he is asking, you said the Consumer Products division is impacted negatively by contracts in the first quarter. Will this be opposite in Q2?
No, the contracts are as the contracts are, and they haven't changed. But we have -- we are producing more, and not all of our volumes are contracted. So it's the extra volume we make money on. And when we say Consumer Products, also bear mind that this is Europe. In Americas, we are doing very good right now, also in the first quarter, good earnings. So the fierce competition which we have referred to previously and also this quarter, it's in Europe. So that's where this competition has led to much poorer margins for our contracts than what was the case back in the days.
And then as a follow-up, are you able to improve your margins in this division as demand for the product seems to be very high at the moment, e.g., take out higher similar prices on retail products despite a drop on the raw material side?
We see already increased earnings in Consumer Products, but we have only finished off 1 month in the second quarter. So it's still early days. But again, we see improved earnings in Consumer Products.
Okay. And then moving on to Kolbjørn Giskeødegård from Nordea. He has also 2 questions. The first one on cost in Norway. Will Mowi Norway completely avoid the feed cost increase as your accounts are in euro?
Yes. And indirectly, he's referring to FX, foreign exchange. Yes, so being a euro company helps us on the cost side. The -- a small portion of the basket is in Norwegian krone. So it's not 100%, but not far from. So what we are depending on is the market for raw materials. So, so far, I think we are okay. But what will be the endgame here is really hard to actually forecast on because, in the end, that depends on the raw material markets. But as Kolbjørn knows and we now, the raw material markets, they are quoted in dollars and, to some extent, the euro. So Norwegian krone is not important in the feed basket, that's only labor cost and, yes, some OpEx.
Okay. And then moving on to an operational question on the second quarter performance. So as it looks now, what is the impact from winter sores in Norway, Canada, U.K. and Faroes in the second quarter?
No, it helps because of the season -- roughly named winter sores. So we are approaching spring. That helps. And normally, we don't have the problems we have had this year in the Northern Hemisphere. So the winter sores is not of a new date, but the extension we have -- as we have seen this year, I cannot remember, I must say or admit.
Okay. And then moving on to a question from an investor, [ Andrew Benson ] in Ambienta in London. He is asking on how the branded strategy and the developments are progressing in light of COVID-19?
Yes. So this is not good for -- COVID-19 is not good for our branding strategy and the progress. So we were planning to launch the Mowi brand in retail in France during the second quarter. We also planned an extensive market campaign in U.S. during the second quarter. They have both been postponed, but we have launched Mowi brand in e-commerce in the U.S. And the development so far has been very, very good. We also see in general that the demand for retail products has gone through the roof. So -- and in the longer term, this also could be good for our branding strategy in general, if more consumption goes into retail versus foodservice. But let's see. Normally, consumer behaviors, they take a long time to change. So I see that many people believe that many things will change a lot because of the COVID-19 situation, in which we all are in. But personally, I'm not that sure, really. We like our habits. So -- but some changes we would expect.
Okay. And then his last question is on how the higher airfreight costs have generally impacted Mowi in the first quarter and into the second quarter?
So we can't go into details there because these prices we are actually negotiating. So we can't stand here and say it. But of course, increased airfreight costs have impacted the trade flow. That goes without saying. So lack of planes in the air impacts cost of airfreight for salmon.But for China, I think we are at a quite similar level. So for China, the airfreight cost is not a problem. But for all other countries, they are more or less up, also substantially up. But going into details here, we cannot, I'm afraid. So sorry.
Okay. And then moving on to Lars Konrad Johnsen from Carnegie. He's got a question on cost and the cost outlook in Norway for 2020, and he's asking if the costs should -- if the costs are to remain at the current level into Q2 and how sea cost development for the 19 generation versus the previous 18 generation in terms of second half 2020 cost performance.
So we don't like to go into too many details on cost because this is biology. And much of this, we don't know yet, roughly, the summer season, et cetera. But I said numerous times already, the 18GS0 generation has been troublesome for Mowi. And that is the generation we have been harvesting from in the first quarter and, to a large extent, we will harvest from in the second quarter.So on an overall level, we shouldn't expect too much cost from the first quarter to the second quarter. But going into the second half, and we start on the new generation, as he refers to, then we hope and think that we will see improvements. But again, we have to go through a summer before we are there. So let's see. But at least, right now, things look better.And he was specifically addressing Norway, and the production and growth in Norway in the first quarter was good. That's also -- always a good start, although the first quarter isn't that important for '19 -- sorry, for '20, as a whole.But we see we have a lot of snow in the mountains, and that help normally for the lice. We also have a cold May. That's good. So if you also could have a cold summer, with a lot of melted snow in ocean, that would be great for salmon, not for people that are -- that have to have the vacation over this year. But if we can accept to be in house, then the salmon will thrive. So let's hope for a cold summer with a lot of rain and bad weather, not storms, but rain and cold.
Okay. Then his second question is in relation to Chile and the recent supply chain disruptions down there due to COVID-19. How has this situation affected Mowi? And what do we see, i.e., you, in terms of the current status and outlook for Chile?
Can you take the start of the question? It was long.
So there has been supply chain disruptions in Chile with the supply from Chile out of the market into the U.S. and into various markets. So how has this situation affected Mowi? And how do we see the current outlook for Chile?
Yes. So as a result of these disruptions he is referring to, we have seen a huge increase in frozen inventory in Chile. And as we stated during the presentation, we do not carry any substantial frozen inventory in Chile. So, so far, we have managed good because of the factories, the processing factories we have in the U.S. So as the U.S. introduced lockdown measures, they closed the wet counters. So all sale of fillets, the traditional Chilean product, were more or less off. And you had to switch into the retail segment with prepacked portions, et cetera. And this was fine by us because we have several processing factories in the U.S., which have been running at full capacity. So again, we have managed well. And without this, I think we would have been in the same position as the other farmers in Chile. I don't know -- personally, I don't know when this will change, but I assume this will follow the lockdown measures. So when the U.S. start to reopen, they will also open the wet counters again, and the normal trade will below -- or the trade will go back to normality accordingly.
Okay. And then moving on to Christian Nordby at Kepler Cheuvreux. He is also asking 2 questions. And his first question is, will you have any processing capacity problems if the current retail demand continues as volumes ramp up in the coming quarters?
As long as we can keep people healthy and our factories open, I think we will manage well. So the struggle is actually to avoid infections to keep our factories up and running. We have seen from the meat industry in the U.S., for instance, that this has been a problem. On a positive note, the government, they introduced new regulation that more or less forces the meat producers to keep their production up and running.And we are defined as what they say an essential service in all countries. So we also think we will get the help we need from the various authorities. But of course, there's always a risk that we run into some kind of local infections, issues that could ruin this. But touchwood, so far, we have managed well. And as long as we can, again, keep all our 41 factories up and running, then I think we will also do good going forward.
All right. And then his second question is on global supply outlook for 2021. And 2% was referred to as the global estimate. Is Mowi likely to take market share in this environment? And which region stands out for Mowi into next year?
That's a very good question, but I think we shall revert to that when we release our third quarter results. That's the timing of next year's guiding. So it's far too early to say something certain about that.
All right. And then moving on to Martin Kaland from ABG. He is asking, do you think the current market environment could result in consolidation or structural changes in the VAP industry in Europe, given that profitability has been under pressure for some time?
We -- normally, we do not share our thoughts on M&A, and I don't think we shall do that this time either. It's a good question. And in general, I would say, you normally see consolidations in many industries during such times you're -- in which we are in now. But talking specifically about value-added salmon and Mowi, that I don't think we shall.
And then following up, his second question is, is it possible to quantify the expected improvements in earnings for Consumer Products in the second quarter?
No, we do not guide on earnings. And again, we -- most of the quarter remains to be done. So it wouldn't be right of us to do it either. But so far, we have seen increased earnings in Consumer Products.
Okay. And then the last question from the web so far is from Niklas Hallberg. He's representing KLP. He is asking, as the Horeca demand has been hit in the quarter, retail has surprised positively. What is your assessment from first-time buyers of the increase in volume?
Okay. So the consumers that buy the salmon the first time -- for the first time?
Yes. I think that's his question. So what has been the growth in retail? How much of that has been driven by first-time buyers of salmon?
We haven't any good data on this. It's a very good question, and that's some of the things we are looking into, but we have no data so far that give us any insight on this. But again, a very good question.
And that concludes the questions.
Thank you. Then I would like to say thank you to all of you, and stay safe.