Mowi ASA

OSE:MOWI

Earnings Call Transcript 2023-Q2

[Ivan Vindheim, Chief Executive Officer]

Good morning, everyone, both in the room and online. Welcome to the presentation of Mowi's Second Quarter Results of 2022 (sic) [2023]. My name is Ivan Vindheim and I'm the CEO of Mowi. And with me today to present the financial figures and fundamentals, I have, as usual, our CFO, Kristian Ellingsen. And after the presentation, our IRO, Kim Dosvig, will routinely host our Q&A session.

For those who are following the presentation online can submit your questions or comments in advance or as we go along by email. Please refer to our website at mowi.com for the necessary details. Disclaimer, I think, we'll leave for self-study as usual. Then we are ready for the highlights of the quarter.

It was another record-breaking quarter for Mowi, both operationally and financially, with an operational revenue of EUR1.37 billion, and operational profit of EUR300 million, which means that the operational profit was the third-highest to date, whilst the operational revenue was all-time high, driven by our good markets, I would say, in addition to a strong operational performance on our end.

So a big thank you to my 11,500 colleagues in 25 countries across the world for their invaluable efforts in making this happen. It's of course much appreciated. For the sake the operational profit of EUR300 million is also in line with the guidance or trading update we gave in connection on the 14th of July.

Furthermore, realized blended farming costs was EUR5.60 per kilo in the quarter, and -- but that's in line with the comments we gave in connection with the first quarter release, relatively stable quarter-over-quarter. And for all the sake, this is the weighted average farming cost for our seven farming countries.

Cost-to-stock, on the other hand, was slightly down in the quarter compared with the first quarter, and the same was the feed price, which is the main cost driver in this industry. And further to this, we expect a stable realized blended farming cost for the third quarter, all else being equal. In terms of farming volumes, we harvested 107,500 tonnes in the second quarter, which was somewhat above our guidance of 104,500 tonnes, due to first and foremost, good growth in sea. We also saw improved survival rate year-over-year for the seawater.

Otherwise, as in the first quarter release, a heads-up on FX or foreign exchange in the wake of the weakening of the NOK we saw in the first half of the year. Bear in mind that Mowi is a euro company, so we have hedged away the FX gain, our Norwegian peers have benefited from greatly in the first and the second quarter. In the second quarter, this cost us alone EUR42 million, or EUR0.68 per kilo for our Norwegian farming volumes.

So please take that into account when you do your own benchmark comparisons for the second quarter. In steady state, this is of course neutral when expenses have caught up with revenues timing-wise from an FX standpoint. And cash-wise, this goes much quicker than accounting-wise for the six months versus two years, I would say. And when the NOK is strengthening the reverse is true.

The Lord give us and the Lord taketh away, although it has mostly been taketh away for our part of the past decade. Since 2012, the NOK has weakened a staggering 61% versus the euro. Who would have thought that ex-ante or back then. Nonetheless, nothing grows to the sky, and I said in steady state, this is neutral for Mowi Norway versus our Norwegian peers. Historically, euro funding has also been much cheaper than NOK funding, which is another weighty argument in this. But it's enough about FX for now.

When it comes to other divisions, Consumer Products has delivered another set of impressive results in the quarter, I would say. Actually record high for our second quarter, and the same goes for our Feed division. The Feed performance was also strong in the second quarter which was manifested in our farming volumes.

Otherwise, right before summer the Norwegian government's resource rent tax bill was as expected voted into law, albeit in a last-minute compromise with the least possible majority but a marginal tax rate, including corporate tax was reduced down to 47% from 57% in the bill, and down from 62% in the original proposal by the government.

So now we are in full swing internally with tax optimizing our value chain in Mowi Norway and we will revert to the effective tax rate in due course. For our sake, this doesn't mean that we will stop working against this, for us, very disruptive tax and tax model, that work will continue unabated towards the 2025 election in Norway and hopefully a new government coalition and more business-friendly policy. And to make it clear, we will also pursue our interests legally.

Last but not least, the Board of Directors has decided to distribute a quarterly dividend of NOK2 per share after the second quarter, which compares to 50% of underlying earnings per share, and as such is in line with our dividend policy. And then, we have adjusted for the new Norwegian resource rent tax with a conservative approach.

So much about highlights. Then over to key financials. Kristian, will, as usual, go in-depth on financial figures in this session, so as not to be too repetitive, will just touch briefly upon the most important ones now. And first turnover, which we already have been through. Mowi recorded a record-high second quarter operational revenue of EUR1.37 billion, up by 11% year-over-year on 5% higher farming volumes. Operational profit, we have also already commented on, it was third-highest to-date, adding up to a record high first half-year operational profit of EUR621 million. First half-year operational revenue was also record high at EUR2.73 billion.

Cash flow in the quarter, I would characterize as good, at least adjusted for tie-up of working capital and capital expenditures. And net interest-bearing debt came in at EUR1.67 billion, somewhat above our long-term debt target of EUR1.4 billion.

In regards to the latter, we will revert to the long-term debt target when we have concluded on our internal tax optimizing project. Otherwise, equity ratio was a healthy 48% at the end of the quarter, and underlying earnings per share was EUR0.35 and annualized return on capital employed was 20%, both adjusted for the new Norwegian resource rent tax in Norway with a conservative approach.

In terms of EBITDA margins, through the value chain, Mowi Norway and Mowi Faroes stood once again out positively, whereas our Chilean and Canadian operations were negatively impacted by lower price achievement then for the salmon of European origin this time around. We'll get back to the explanation shortly when we go through the different business entities.

But first, briefly about the prices in the quarter. As already said, we saw a good market in the second quarter despite a drop in prices compared with the second quarter last year, due to a global supply contraction of as high as 7% in the second quarter last year versus the supply growth of 1% in the second quarter this year. Another takeaway from this slide is -- was that the price for the salmon of European origin was higher than the salmon of American origin, due to more influx of volumes in American market, which is obviously -- is the main market for the salmon of American origin.

Then quickly about our own relative price performance in the quarter, which I would characterize as good, as it was approximately on the reference price, which is the standard we'd like to hold ourselves to internally. Internal distribution, however, was a mixed bag and deserves an explanation.

Our largest farming entities, Mowi Norway, Mowi Chile and Mowi Scotland, respectively, was below, above, and on the reference price in the quarter due to mainly contracts and then contract prices deviating from the prevailing spot price in the quarter. Total contract share for the Group was 31% in the quarter. The remainder of our farming volumes were exposed to the spot price, but all that entails of timing and quality differences.

Then quickly about the overall operational EBIT from the waterfall. And as you can see from the chart there, it decreased from then record-high EUR320 million in the second quarter last year to EUR300 million in the second quarter this year, a decrease at least measured in euros. Measured in NOK, however, the operational profit increased from NOK3.2 billion in the second quarter last year to NOK3.5 billion in the second quarter this year, which is close to a record high which was in the third quarter this year with an operational profit of NOK3.6 billion.

The mainstay of our business model is Mowi Farming which had another strong quarter, but also the other business entities contributed with strong operational results across the board. This is a timely juncture to address the different business entities.

And first one out is as usual Mowi Norway, our largest and most important entity by far. Operational EBIT was EUR206 million for Mowi Norway in the quarter. It was another strong quarter for Mowi Norway operationally and actually the second-best second quarter-to-date, only beaten by the second quarter last year.

EBIT margin was EUR3.35 per kilo. As addressed on the highlights, as a euro company, Mowi Norway did not benefit from the weakening of the NOK we saw in the first half of the year, which cost us EUR42 million alone in the second quarter or EUR0.68 per kilo. Adjusted for that, EBIT margin would have been EUR4.03 per kilo and not EUR3.35 per kilo.

And as already said, in steady state this is neutral when expenses have caught up with revenues timing-wise from an FX standpoint, and cash-wise this goes much quicker than accounting-wise. Otherwise, we saw a continued good growth in sea for Mowi Farming in the quarter which laid the groundwork or foundation for seasonally record high farming volumes of 61,500 tonnes.

Then shortly about the margins for the different regions in Mowi Norway in the quarter. As we can see from the graph there or chart there, we saw strong margins for both, Region North, Region West and Region South in the quarter with EUR4.02, EUR3.50, and EUR3.82 per kilo, respectively. For the remaining parts, margin was adversely impacted by very low harvest volumes in addition to harvesting from problematic sites. And as we announced in connection with our first quarter release, we have commenced our turnaround plan for this region, which we expect will bring gradually results for future year classes.

Then the Norwegian sales contract portfolio. In 2021 and 2022, we kept our contract levels low for our Norwegian volumes to capitalize on the expected post-pandemic market recovery, which was a strategy that served us well. For 2023, we have maintained this strategy which has been proven right at least so far. So in the second quarter, the contract share was 29%, and as you can see from the chart there, we expect a stable contract level for the second half of the year as well in volume terms. As for the 2029 -- sorry, as for the 2024 contracts, thus far it's too early to talk about today.

Then it's time to address the other farming countries, the first one out is Mowi Scotland. Our Scottish operation enjoyed another encouraging quarter in the second quarter, I would say, after our biologically challenging 2022. And operational profit came to EUR42 million, which stands in stark contrast to the EUR21 million we made in the second quarter last year. Margin was up from EUR1.60 per kilo to EUR2.29 per kilo, whilst harvest volumes were up from 13,000 tonnes to 18,000 tonnes, all of which have been enabled by better egg/smolt quality, in addition to better operational performance in the sea, which takes us overseas to Chile.

Mowi Chile has also improved financial results year-over-year, with an operational profit of EUR25 million in the second quarter versus EUR15 million in the corresponding quarter last year, driven by higher margin, EUR1.83 per kilo versus EUR1.07 per kilo. Harvest volumes were stable at 14,000 tonnes. Despite improved financial figures for Chile year-over-year, I think it's fair to say that our figures were impacted by low -- or seasonally low volumes and by extension lower dilution of costs, in addition to lower price achievement of -- then for the salmon of European origin this time around. Operating metrics, on the other hand, were strong in Mowi Chile in the quarter and improved significantly year-over-year.

Then falling off to Canada. Mowi Canada turned a profit of EUR12 million in the second quarter this year versus record high EUR31 million in the second quarter last year. And as you can see from the chart there, this is explained by both lower prices and higher costs in the case of the latter due to inflation.

Harvest volumes also slightly down year-over-year from 10,000 tonnes to 9,000 tonnes. Biology, I would characterize as good for both Mowi Canada West and Mowi Canada East in the quarter with no major incidents. But as you know, the battle is in the third quarter in this part of the world.

Then it's time to address our two smallest farming entities, Mowi Ireland and Mowi Faroes. For the salmon of Irish origin, we made an operational profit of EUR2 million in the quarter with a margin of EUR1.40 per kilo on 1,600 tonnes. Both achieved margin and harvest volumes are substantially down year-over-year due to knock-on effects from a biologically challenging 2022.

And as previously stated, 2023 is set to be a recovery year for Irish operation. In Mowi Faroes, operational EBIT came to EUR13 million, which is record high for our second quarter, by means of an impressive margin of EUR4.58 per kilo on 3,000 tonnes harvested volume. Operating metrics were also stellar in Mowi Faroes in the quarter.

Then the latest addition to the Mowi family, Arctic Fish. In line with guidance, we did not harvest any meaningful volumes in our Icelandic operations in the seawater. Operationally, I would say, things proceeded to plan and we have resumed harvesting in the third quarter accordingly.

We have also commenced commissioning of our new processing plant in Bolungarvik over the summer. Not too many hiccups so far and we have started off with feed delivery from Mowi Feed and integration of sales in Mowi Sales, both with full effect from the fourth quarter. And finally, we have refinanced bank debt in Arctic Fish at substantially better terms, all of which are important measures to deliver improved operational and financial results in Arctic Fish going forward. So I think we have already come a long way since previous quarter, which was our first quarter in Iceland.

So much about Mowi Farming. Then over to Mowi Consumer Products, our downstream business. Consumer Product saw another impressive quarter in the second quarter, I would say, with an operational profit of EUR37 million, which is record high for a second quarter and up from EUR18 million in the comparable quarter last year, due to strong operational performance, more or less, across the board. In terms of overall demand, it was reasonably good in most markets in the quarter, I would say. And I think it's fair to say that we have seen a reasonably good development in demand so far in the third quarter as well, notwithstanding the economic slowdown we are facing globally.

Last one out Mowi Feed. Generally speaking, the second quarter is still low season for our Feed division. But all that's in place. That said, relatively speaking, I would say, the second quarter was another strong quarter for Mowi Feed. Operational EBITDA of EUR10 million is seasonally record high and up from EUR6 million in the second quarter last year, and sold volumes of 116,000 tonnes versus 111,000 tonnes last year are also record high for our second quarter and confirm the improved growth in Mowi Farming year-over-year. As they say, the proof of the pudding is in the eating.

Then Kristian, the floor is all yours for walking us through the financial figures. Thank you so far.

[Kristian Ellingsen, Chief Financial Officer]

Yes, good morning, everybody. Hope everybody is doing well. As usual, we start with the profit and loss, where the top line shows all-time high revenue for Mowi of EUR1.36 billion. That's on good sales prices and increased volumes.

Revenue and volumes increased in all business areas. And combined with strong operational performance, this led to another good quarter for Mowi when it came to operational EBIT, although somewhat down measured in euros from Q2 last year because of higher realized P&L costs. The main items between operational EBIT and financial EBIT is as usual the fair value adjustment on biomass. This time around, negative EUR98 million, related to the seasonal spot price development.

The income from associated companies, that's mainly related to our associated company Nova Sea, where the operational earnings equals to EUR3.82 per kilo i.e., at a level of Mowi Region South in the quarter and somewhat below Mowi Region North, although improved for Nova Sea from Q1.

Net financial items, as we see, very limited this quarter. Interest costs, as expected, and these were offset by currency gains. Underlying earnings per share EUR0.35 per kilo, sorry, EUR0.35 in this quarter. The Q2 estimate on the resource rent tax in Norway, that had a EUR0.06 impact following a conservative estimate. We will come back to that shortly.

Net cash flow per share EUR0.13, negatively impacted by a working capital tie-up and tax payments, but nevertheless increased from Q2 last year. And that's also the case for the year-to-date figure. Return on capital employed, 20.3%, and that's adjusted for the effect of resource rent tax in Norway, we consider that an extra cost of doing farming in Norway. And unadjusted figure is 23%.

Then some comments about the resource rent tax in Norway. As you all know, the Norwegian Parliament has now approved implementation of 25% resource rent tax for salmon farming in Norway with effect from January 1, 2023, without any transition rules for the biomass in sea per January 1. The total tax rate is 47%, including corporate tax, but only a part of our value chain is in scope for this resource rent tax, namely the seawater phase.

So in order to calculate the correct tax, it's important to determine the correct allocation of profits between the seawater phase and the rest of our value chain, as indicated here on the slide. A tax optimization project is ongoing to determine this, and for the time being and pending our internal project, as well as final regulations from the authorities regarding the setup of the tax, this is not yet fully clear.

For the time being, the resource rent tax for the earnings in the first half of 2023 is highly uncertain, and consequently, an estimate has not been included in the P&L for the resource rent tax on earnings in the first half.

With regards to underlying earnings per share and return on capital employed post resource rent tax, we have applied a conservative approach, consistent with what we did back in Q1. But in accordance with IFRS, we have however included a one-off implementation effect on deferred tax of biomass already in sea, January 1, 2023, and that implementation effect impacts P&L tax costs.

We have some more details on that in the notes. What's important is to note that you can't use that implementation effect to make any final conclusions on the payable tax. This is deferred tax on biomass. It becomes, of course, payable as you harvest the fish, but on the other hand, you also get the deduction for costs you have on the biomass,

The feeding costs, all the other input factors, you get a deduction on that in the resource rent tax calculation. So, again, this is an implementation effect that we book now in the second quarter, and it does not impact our underlying earnings per share.

The tax project that's ongoing to assess the value chain and the correct earnings throughout the value chain. That's ongoing. We need more time to finalize that work, but we reiterate that we currently have applied a conservative estimate in underlying earnings per share and return on capital employed, and we will come back with an update on this in due course.

Then a few comments about FX before we leave the profit and loss. Mowi is a euro company, with the cash flow predominantly in euro, financed in euros. We will also little bit back to that on the next slide, but that means that we remove currency fluctuations when we are a euro company and also present the numbers in euro.

The NOK, as Ivan mentioned, has seen a significant weakening against the euro and dollars over the last decade, 61% versus euro, and 97% versus dollars. Quite considerable numbers, but also leaving a question mark on whether or not it's natural to assume a continued weakening.

But the NOK weakening leads to FX gains for Norwegian peers, and that gain is related to the timing difference between how revenues and costs are impacted by FX. Revenue immediately impacted. Costs, there is a time lag, and the lag is a little bit different if you talk about cash or if you talk about P&L. Cash-wise, approximately six months before a weaker NOK impacts -- the costs impacted by currency.

In the meantime, there is, of course, a gain. And this time period is much longer for the P&L, of course, because of the long production cycle. So in the meantime, there is a gain. And that's gradually reduced as time passes, and it's neutral then in steady state. And the inverse is true when the NOK is strengthening.

Then there is a FX loss for Norwegian peers. So the point is that Mowi has hedged away these effects, but in Q2, the margin difference represents a loss of EUR0.68 per kilo for the Norwegian volumes, or EUR42 million nominally. And this means that the margin for Mowi Norway would have been EUR4.03 per kilo and not EUR3.35 adjusted for this.

Thus, when it comes to cash effects, Mowi had a very real effect of cheaper financing in euro over time. Euro interest rates have historically been significantly lower than NOK rates, as also indicated in the graph here. And over the past 10 years, Mowi has saved approximately EUR100 million on being financed in euro. So consequently, we maintain that we have the right FX strategy. We eliminate FX for fluctuations and also we have cheaper financing.

Then we move on to the balance sheet. The amounts are relatively stable compared with year-end 2022. Mowi has strong financial position with a covenant equity ratio of 51.1% after implementing the resource rent tax in Norway. Adjusted for this, it would have been 53.7%.

The strong operational earnings were partly offset by tax payments and working capital tie-up. Accordingly, net interest-bearing debt moved from EUR1.64 billion to EUR1.67 billion. We come back to an EBITDA target currently at EUR1.4 billion, when we have more insight in this internal tax project as well as on the regulatory side.

Then some comments about the cash flow guidance. With regards to working capital, the positive working capital effects of cheaper non-marine feed ingredients are delayed, that's because of the high fish oil and fish meal prices. And in addition, we are growing volumes throughout the value chain, and that also ties up the working capital.

So this delay related to the feed price development has caused us to revise that estimate also with a look on the working capital tie-ups due to the growth in the value chain. And in your estimate, is a tie-up of EUR100 million. With regards to CapEx, the estimate of EUR380 million is unchanged, including EUR40 million from Arctic Fish. Interest payments forecasted to EUR85 million and tax payments at EUR175 million.

When it comes to our financing, we exercised the EUR200 million accordion option in the bank syndicates, and that has been utilized to repay the 2018 EUR200 million bond in the second quarter. Apart from that, there are no changes to the Mowi financing as such. But with regards to Arctic Fish, that company has been refinanced through a new EUR170 million facility at significantly improved terms.

Then we move on to supply and demand fundamentals, start with supply. And as shown on the slide here, global supply of salmon increased by 0.8% from Q2 last year. That's in line with the guidance we gave. Harvest volumes from Norway increased by 3%. That's at the low end of the guided range. The number of fish harvested increased following higher smolt stocking. Also growth was good in the quarter and standing biomass in sea increased somewhat.

Volumes from Chile increased 7%, that's above guidance, and that's mainly related to early harvesting due to sanitary conditions. Standing biomass end June is down approximately 1% in Chile.

In Scotland, volumes increased by 5%, in line with guidance. That's on higher temperatures which boosted growth but also might of course impact biological performance now in the second half of the year. Volumes from the Faroes reduced by 14%. That's below guidance, and that's related to biomass build-up in the region and somewhat reduced biological performance. Also, volumes from North America reduced by 16%, due to reduced number of licenses.

Yeah, consumption increased by 0.3%, on par with supply growth in Europe, somewhat reduced retail volumes, partly offset by increased foodservice activity. But retail volumes improved in June with increased volumes in several markets, including Germany, Italy and Spain.

So absolutely, the salmon continues to fare well also in challenging economic times. And also we believe that promotional activity in the time ahead, when volumes are high, is expected to further drive end-market growth.

In the US, retail volumes were also somewhat down, partly helped by higher foodservice volumes. Despite a higher cost of living and an uncertain economic outlook, overall salmon demand remained relatively robust in the US, and the US salmon category has grown steadily now for many years and has reached a very impressive 23% global market share.

In Asia, volumes increased by as much as 12%, driven by a strong development in China from COVID-19 re-openings. As China's demand continued to recover, some other Asian markets faced lack of large-sized fish, resulting in reduced volumes. Freight costs continued to improve during the second quarter, which is expected to be positive for the coming periods.

Yeah. And, of course, Q2, another strong quarter when it came to prices with the spot prices for Norway, Chile and Canada, second-highest levels ever for a second quarter. This was driven by good demand and low supply growth. But the quarterly spot prices declined from last year's record high levels. That's where -- those were, of course, fueled by post-pandemic recovery and a global supply contraction last year.

And as expected, spot prices also declined during the quarter on increased supply and the seasonal wild salmon harvest in North America. But we maintain a view on modest growth going forward.

We maintained a 1% growth expectation for the industry for 2023, and for the second half of the year, we expect a modest 3% growth, and the same for the next 12 months. And when it goes to Mowi's own volumes, we maintain the guiding of 484,000 tonnes, and we have a guiding of 137,000 tonnes now in Q3.

Then it's over to Ivan for some comments on the outlook slide.

[Ivan Vindheim, Chief Executive Officer]

Thank you, Kristian. Much appreciated. Then it's time to conclude with some closing remarks before we wrap it all up with our Q&A session hosted by our IRO, Kim Dosvig. As already said earlier this morning, the second quarter was another record-breaking quarter for Mowi, both operationally and financially.

And I think it's fair to say that we are in particular satisfied with delivering improved operating metrics more or less across the board. In terms of the markets and impacts from increased cost of living, we are preferably humble in our understanding how things are going to develop with regard to demand going forward.

As Kristian just said here, normally the salmon fares well in challenging economic times. And firstly, I must say I'm impressed by the level of robustness we have seen in the market for salmon so far.

As for the supply side, which is the other decisive factor in the price equation, we expect as usual to see seasonally high volumes in the coming months before things start slowing down towards Christmas. In medium-term, however, we still expect modest supply growth which under normal circumstances should be supportive for the salmon price.

In terms of farming volume guidance for 2023, we have, as Kristian just showed us here, maintained it at 484,000 tonnes, which is equivalent to a growth of 4.4% year-over-year, which is three percentage points higher than the expected industry growth this year, and a continuation of the growth trajectory we have seen for Mowi over the past few years, surpassing that of the wider industry.

So much about the operations, then over to politics. As I also said earlier this morning, right before summer, the Norwegian resource, excuse me, the Norwegian Government's resource rent tax bill was, as expected, voted into law albeit in a last-minute compromise with the least possible majority, where the marginal tax rate, including corporate tax, was reduced down to 47% from 57% in that bill, and from 62% in the original proposal by the government.

So as such, now we are on full swing internally with tax optimizing our value chain in Mowi Norway and we will revert with a new effective tax rate for Mowi Norway in due course. And as also stated this morning, this doesn't mean that we will stop working against this, for us, very destructive tax and tax model.

That work will continue unabated towards the 2025 election in Norway and hopefully a new government coalition and a more business-friendly policy. And to make it clear, we will also pursue our interests legally.

So with these closing remarks, Kim, I think we are ready for the Q&A session. So if Kristian can please join me on the stage.

[Alexander Aukner, DNB Markets]

Hello. Alexander Aukner from DNB Markets. Three questions from me. Could you give an estimate on resource tax in Q2? Are you making any changes to your feed composition to combat the higher raw material prices? And finally, how is the contract market? Your contract share still seems to be fairly low.

[Ivan Vindheim, Chief Executive Officer]

Yes, shall we start with the tax, Kristian?

[Kristian Ellingsen, Chief Financial Officer]

We'll do that. Yeah. So, of course, this being an implementation quarter, second quarter, is a little bit complicated, of course, but I just want to point out that when it goes to the tax costs, there was no provision for running earnings in the first half and the tax effect on those, and that's because it's still uncertain and we need to come further with our own internal projects and also to have more visibility on the regulatory side. But we have indicated, by using the same conservative approach as back in Q1, that we will have around EUR0.06 impact on underlying earnings per share. That's the impact we have calculated on that alternative performance measure. But we have not included in the tax cost. So -- yeah, so that's at least an answer on the resource rent tax for Q2 isolated.

[Ivan Vindheim, Chief Executive Officer]

Yes. Question number two was the feed prices, if we do anything with our feed formula given the rise in the feed price. And, I guess, then you are first and foremost, referring to the price in NOK not in euro terms. So as we said earlier in this presentation, we saw actually a slight decrease in the second half of the year -- sorry, in the second quarter, and we don't see the same increase in euros, but having said that, we are constantly monitoring our feed formula with respect to the cost, of course, but also with respect to performance. And if we are to pick, we always pick performance. That -- in a good market that always trumpets feed price. The third part of your question was related to contracts. And as we said earlier in this presentation, as for 2024 contracts, thus far too early to talk about today. That we will have to revert to after the third quarter release in November. And for the remainder of the year, which is the second half of the year, we have already given the guidance here that our contracts in volume terms, it's quite stable, but of course, if you measure it in percentage points, it's below the first half of the year because of the harvest volume composition. But that's -- if you look back, you will see the same pattern for earlier years. So there's nothing new under the sun with regard to that, I would say.

[Kim Dosvig, Investor Relations Officer]

Okay. Then we have a question or some questions from the web. The first one from Alexander Jones, Bank of America. He's got a question about Scotland. One of your peers has talked about more challenging environmental conditions in jellyfish-driven mortality into Q3. Can you comment on whether you're seeing similar trends at all in your Scottish operation?

[Ivan Vindheim, Chief Executive Officer]

In general, we have seen increased biological challenges in Scotland due to an increase in seawater temperatures, which we have talked a lot about previously. For this year, knock on wood, the first half year was good with respect to biology. For the third quarter, which is really the tough quarter in this part of the world, it's still early days. July was okay and we haven't run into any major incidents so far in August. But having said that, it's still early days, knock on wood, and this is a very challenging area to farm Atlantic salmon. There is no doubt about that. So we are extremely humbled. But so far, I would say, we are okay. And I guess, than -- better off than our peers, unfortunately, I would like to add to that. We always want the industry to prosper, all of us.

[Kim Dosvig, Investor Relations Officer]

Next question from Alexander Sloane, Barclays. He's got a question about the working capital. Can you give a bit more color on the moving parts within the work -- the change in working capital guidance for 2023? How much of the increase is related to the ingredients parts, fish meal, fish oil, and what's the outlook on prices for those raw materials?

[Kristian Ellingsen, Chief Financial Officer]

Yeah. So with regards to the working capital, we, of course, see now that the non-marine materials, they have a positive price development. But -- and that's, of course, also as expected. But what's not as expected, and compared with the estimates we have applied earlier is that we have much more pressure on the marine ingredients, and then first and foremost fish oil. So as we see it now, it looks like, all in all, it's a stable development when it comes to the whole mix, but that also means that we don't have this reduction effect that we earlier estimated. And that explains mainly the development with regards to the change in the working capital estimate. But also, of course, we are growing volumes. We see that we have good growth in sea, we grow in all business areas. So that also ties up working capital. So that's also an effect. But there's a little bit -- I don't think we go into any further monetary details on the split there. But the main effect is the first one.

[Kim Dosvig, Investor Relations Officer]

And a question from Nils Thommesen, Fearnley, on volumes. Harvest volumes in Norway are relatively low in Q4 '23. Is this intentional to build biomass into 2024, or are you being conservative?

[Ivan Vindheim, Chief Executive Officer]

Well, let me put it like that -- like this. We are comfortable with the harvest volume guidance for 2023. Next question, please.

[Kim Dosvig, Investor Relations Officer]

Christian Nordby, Kepler is asking about El Nino, and if you can comment on the outlook for the Chilean farming season, whether increased seawater temperatures has had an impact on our Chilean operations to-date.

[Ivan Vindheim, Chief Executive Officer]

It's a good question. But bear in mind that it's still wintertime in Chile now, and that's the best part of the year. And we had a very good biology in the first half of the year and it has been good so far in the third quarter for us as well. I'm talking about Chile. But, again, early days, we're humble. We know that things can happen in this industry, so there is no reason to be carried away.

[Kim Dosvig, Investor Relations Officer]

Okay. Thank you. So that concludes the Q&A from the webcast.

[Ivan Vindheim, Chief Executive Officer]

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