Mowi ASA
OSE:MOWI
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
172.65
207.7
|
| Price Target |
|
We'll email you a reminder when the closing price reaches NOK.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Mowi ASA
You don't have any saved screeners yet
Yes. Good morning, everyone, and welcome to the third quarter results and the presentation of it.With me today, I have our CFO, Kristian Ellingsen, he will walk through the financial figures and the fundamentals. My name is Ivan Vindheim. As usual, we start with the highlights. EBIT, EUR 80 million, in line with the trading update. Q3 was a quarter highly impacted by COVID-19 restrictions and our seasonal high supply, which put pressure on salmon prices.The shortfall, we have seen in the foodservice market, has not been fully offset by the strong growth we have in retail sales. According to our intelligence, the net effect is approximately 5% to 10% negative.Despite that, Mowi's operations have been running and are running close to normal despite further COVID-19 restrictions. We have seen a resurgence of COVID-19 in many countries after the third quarter. But again, our operations, they are running as close to normal as we get under the prevailing circumstances. We are maintaining strict sanitary measures to secure the health and safety of our employees but also to secure the quality of our products.Farming volumes in the third quarter, all-time high, 126,000 tonnes. 2020 volume guidance is maintained at 442,000 tonnes. Guidance for 2021, 445,000 tonnes, so i.e., we take a temporary break in our growth trajectory. But that should not be regarded as something that will be permanent. We will come further into details later on in the presentation.Blended farming cost this time around EUR 4.23, down from EUR 4.33 last year in the third quarter and down from EUR 4.47 in the second quarter this year, so i.e., a cost improvement satisfactory. Record high third quarter volumes also in Consumer Products and Feed.Under the prevailing circumstances, the Board considers its of utmost importance to preserve cash and maintain a strong financial position. So we have decided -- or the Board has decided not to distribute a dividend after the third quarter either.Then key financial. I will not spend too much time on it. Kristian will go into details here later on. Top line decline of 6% this time, driven by already mentioned falling prices on seasonal high surprise -- sorry, supply and COVID-19 restrictions.Operational EBIT, EUR 80 million. And harvest volumes, as I said, 126,000 tonnes, up by 8% year-over-year.The margins and the margin spread, we will come back to when we address the various entities. Prices down in the quarter by 11% in Europe in market currency, 20% in Americas as the COVID-19 pandemic epicenter was in Americas in the third quarter. Although we have seen a resurgence now in Europe in the fourth quarter so far, which will impact the price achievement for October, obviously.Asia is looking better. They have a better COVID-19 situation than what is the case in Europe right now and Americas.Price achievement, good in the quarter. Overall, total price achievement was 104% compared to reference price on good superior share and contracts.The EBIT water flow this time not surprisingly highly impacted by the falling prices, farming reduced cost in the quarter, increased volumes. So the price effect is actually higher than the EUR 84 million we see here. In total, the price effect was in the range of EUR 105 million, EUR 106 million.The other divisions -- entities performed well in the quarter. They all improved their earnings. So operational-wise, a good quarter for Mowi, I would say, and reasonably good results taking the situation in which we are into account. But of course, we know that foodservice is a very important market for the salmon, accounting for 35% to 40% of it. And with the COVID-19 pandemic, it goes without saying that, that will have a hit on prices and results accordingly.Then our biggest entity first, Norway. Good growth, relatively good biology in the quarter. However, results, again, highly impacted by COVID-19 and COVID-19 resurgence.In addition, we also had an FX hit in Norway in the quarter. As many of you are already aware of, we are a euro company. We also run Mowi Norway in euro. That means that we do not benefit from the weak and the weakening of the NOK like the Norwegian farmers do. This quarter, the hit was NOK 3.8 per kilogram. In the second quarter, it was NOK 6.5 kilogram.In steady state, it's neutral. If you are running Mowi Norway in euro or in NOK. But the price effect you get immediately, the cost you incur over a 3 years' time cycle, so consequently, you have a lag on the price cost effect. So again, in steady state, this is neutral. But because of the COVID-19 situation, we have seen an unprecedented weakening of the NOK this year, which has highly impacted our Norwegian figures with the FX strategy we have.Cost in the quarter, stable year-over-year, EUR 3.84 equivalent to NOK 38.4 in NOK terms, the relevant FX rate is 10.01 in the quarter. Yes, I don't -- I will not say more about FX. Kristian will go further into details later on in the presentation.Then over to the various regions. Good cost in the north, EUR 3.61 equivalent to NOK 36.1 per kilogram.Region Mid, EUR 3.98 or NOK 39.8, a little bit too high, I would argue. But bear in mind that our Region Mid, it is made up of production area 4, [indiscernible] production area 5 [indiscernible], and production area 6, which is old south [indiscernible]. So consequently, our cost basket is impacted by geography. We see that our cost in production area 6 is substantially better than in production area 4.Region South, NOK 39.3 per kilo or EUR 3.93 per kilogram. A good cost, I would say. Remember that biology is highly impacted by the marine temperature curve. And the longer south you get in Norway, the warmer the seawater is in the summer and in the challenging third quarter.So a relatively good cost position in Region South, also a good cost position in Region North. And in Mid, we have room for improvements. And overall, of course, we also have room for improvements. You can always do something a little bit better. And this is what we try to do every day. We are working along 2 pillars in farming, and that is cost, and that is volumes and growth of volumes.Then over to the sales contract portfolio for Norway, quite stable into the fourth quarter on stable prices, so not any substantial changes there. In terms of next year, we are negotiating contracts for next year as we speak. So we will not go into details in this presentation since its business sensitive. But most of the contracts for next year, they are to be contracted.So with that, I think we move on to Scotland. Reduced results in Scotland on lower prices and also a challenging biology. This obviously impacts our fuel cost in box. That being said, we expect substantial cost improvements into the fourth quarter. We are harvesting bigger fish and biology has improved from the third quarter. So yes, -- so again, we have higher expectations for the cost curve in Scotland in the fourth quarter.Then over to Canada. Canada, I think, is the entity that has been hit the most of -- on price in the third quarter. On a positive note, prices have increased into the fourth quarter for Canada. That bodes well for improvements in results.Stable costs in box year-over-year in the third quarter, but cost level in general in Canada is higher than what we like. So this is something we address going forward. But I do not think we can expect any material improvements in the near future.As you all -- as most of you are aware, it takes 3 years from rod to plate in this industry and seawater phase in Canada is close to 2 years. So that means it takes time to change that performance.Biology in 2020 is impacting our volume guidance for next year. So unfortunately, we have a temporary setback in our growth ambitions in Canada. But that doesn't change the long-term potential here. We still strongly believe that we have good conditions and a good basis for increasing our volumes in Canada substantially going forward.And then I'm thinking particularly of Canada East or East -- Atlantic Canada. Yes, again, prices have increased in Canada or for Canadian fish into the fourth quarter. So all else being equal, that should indicate improved results. But still early days. We are in November, and December is also yet to be seen.Then Chile. Very good biology in Chile, good costs, I would argue. We do not state it here, but I think we stated in the report USD 401, very impressive mortality rates. So in terms of cost, in terms of the farming part, we do well, I would say. But unfortunately, it's a very tough market. The main market for Chilean fish is East Americas, which has been -- yes, the epicenter of the pandemic in the third quarter, but also in -- but also so far in the fourth quarter. So prices in Chile or for the Chilean salmon is money. They're not carrying any frozen inventory in Chile or neither in rest of Mowi. So we have sold all the fish we produced.I also think it's positive to see that we can manage to turn a profit under these circumstances. That is a much stronger achievement than many tend to believe, I think. So aided by the downstream setup we have in the U.S., of course, but also driven by good farming and good cost.Ireland and Faroes, 2 small entities for Mowi, but still 2 important ones. Both turned a reasonable margin in the quarter, EUR 1.87 million in Ireland and EUR 1.2 million in Faroes. So good margins in Ireland and Faroes.And again, remember that all entities outside Norway, they do not benefit from the weakening of the NOK as the Norwegian farmers do. So right now, the Norwegian farmers, they have an advantage to the rest of the farming industry. So when you're reading these margins, you should also put that into perspective. So again, impressive margins according to myself.Consumer Products. Yet another good quarter. We capitalized on the shift you have seen in demand from foodservice to retail. We also expect to benefit from this leg going forward.Feed. As said, record high volumes. And then I mean, record high sold volumes, good growth in Norway in the quarter. Solid operation. The ramp-up phase we are into in Scotland and it's progressing well. In total, this year, we produced 136,000 tonnes in Scotland, but the capacity is 240,000 tonnes. And the aim is to utilize this over time. So again, Feed is progressing well and has had yet another good quarter.Then Kristian, the floor is all yours, and you can walk us through the financials, markets and the volumes. Thank you.
Thank you very much, Ivan. And good morning, everybody. I hope everybody is doing well. As usual, we start with the overview of profit and loss, where the top line shows a revenue of EUR 958 million. This was down 6% from Q3 '19, and that also corresponds to the decrease in achieved prices in farming.The significant price reduction is the main driver behind the 46% decrease in operational EBIT. The decrease was EUR 67 million, of which prices explains EUR 106 million. So lower costs, higher volumes and increased earnings in sales and marketing in Feed partly offset this effect.As usual, the largest item between operational EBIT and financial EBIT is the net fair value adjustment of biomass. This time, EUR 37 million, mainly due to increased biomass and improved prices in Canada at the end of the quarter versus the end of the second quarter.Income from associated companies. This is mainly related to our 48% share of Nova Sea. And this result here turns into an operational earning of EUR 149 per kilo on 11,500 tonnes in the quarter. Costs were at the same level as Mowi Region North. Nova Sea has benefited from the NOK weakening. So another strong result from Nova Sea, which is very good.Net financial items, minus EUR 10 million approximately, so in line with Q3 '19. And as we see, the P&L key figures are impacted by the reduction in operational EBIT, so almost 50% reduction. So underlying earnings per share, down from EUR 0.20 to EUR 0.10 per share.Operational EBIT margin down to 8.4%. But although earnings are reduced, and we are below target levels. The return on capital employed is still over 9% in a quarter with very challenging market conditions.Also this quarter, it is necessary to consider FX effects to fully understand our performance. Ivan commented also upon this, but I will go a little bit further into detail.Mowi and Mowi Norway, as I stated here, has -- they have a functional currency euro. The cash flow is managed in euro, which is the main market currency for salmon. And as a euro company, we eliminate currency fluctuations. And our euro financing means that we have a lower financing cost. But it also means that Mowi Norway does not benefit from the immediate positive effect of the NOK weakening. In 2020, as we see here in the chart, the weakening of the NOK has been unprecedented. This is driven by COVID-19 and the turmoils in the financial markets. And the effect was particularly high as we see in the second quarter, but it's also significant in the third quarter.And to illustrate, the NASDAQ spot salmon price in Q3 '20 versus Q3 '19, that was down 11% in euro terms. But it was lower -- the reduction was lower, as I said, 3% in NOK terms, and the difference is the weakening of the NOK in the period.The difference between the salmon price in euro and NOK is illustrated in the graph below here. And for a NOK farmer, a Norwegian NOK farmer, this FX effect on prices that comes immediately. So that gray area there is a benefit you get immediately. When it comes to farming costs, they are accumulated over the 3-year production cycle for salmon. So consequently, it takes a long time before costs exposed to FX are impacted by this weakening we have seen.So consequently, a NOK farmer benefit from this price cost lag effect in the current environment. But the effect is a lag. It is neutral in steady state. This is very important. And NOK farmer has also a cost exposed to FX, such as Feed, and it has NOK-denominated costs. So over time, the FX exposed to costs, they will drive cost and inventory upwards.Over time, even if the rates stay as they are today, we will reach a steady-state where the lag effect is neutralized. And the lag effect will, of course, be neutralized sooner if the NOK starts to strengthen because you then get an immediate effect with an opposite sign on prices. And this is partly what we have seen now in the third quarter because the effect is lower in the third quarter than it was in the second quarter.The effect -- the FX loss, which is baked into the margin of Mowi Norway is NOK 3.8 in the third quarter, while it was as much as NOK 6.5 in the second quarter.As the FX gives an immediate boost on prices, but costs have been aggregated on a lower FX, the FX loss from the NOK weakening in Q3 that should be attributed to price per kilo and not cost per kilo.Costs are aggregated, as I said, over the production cycle. In our accounting systems, we track -- we have double records in both euro and NOK. So we are able to track the NOK costs for Mowi Norway and the relevant euro NOK rate is 10.01 in the third quarter. That is much lower, as you know, than the spot rate. And that gives the NOK costs which are listed here and as Ivan already commented upon when he talked about the Norwegian farming operations.So much for currency. We move on to the balance sheet, which is relatively stable from 2019. The financial position is solid with an equity ratio of 51.6%. Net interest-bearing debt slightly above the long-term target of EUR 1.4 billion.Yes. And then we have the cash flow and the net interest-bearing debt. We started the period with an EBIT of EUR 1,380 million and ended with EUR 1,459 million, and that translates into a cash flow per share of negative EUR 0.15.There was a seasonable tie-up of working capital, EUR 59 million in the quarter, of which EUR 48 million related to farming, mainly due to increased biomass in sea. And biomass in sea at period end is record high, 322,000 tonnes live weight.We tied up EUR 14 million working capital in sales and marketing, most of which is explained by higher accounts receivable on the EUR 48 million increased sales compared to the second quarter.Paid taxes, as we see, relatively high in the third quarter. This is due to the fact that we delayed some payments from the second quarter due to the COVID-19 aid packages from the authorities in Norway.When it comes to CapEx, this is a number which includes the effect of the MAB auction payment, the MAB auction in Norway, where we acquired 2.25 licenses in Norway. EUR 28 million is that payment.Then we can talk about the cash flow guiding. We maintain the cash flow guidance from the previous quarter. Working capital tie-up year-to-date is around EUR 60 million, and we expect a seasonal tie-up in the fourth quarter in farming and also in sales and marketing.Core CapEx guidance is still EUR 265 million, this is then excluding the MAB growth this year in Norway, the payments related to that and the fixed price part of the scheme and the auction part.Some of the projects this year are somewhat delayed and the risk is still somewhat on the down side, i.e., lower spend this year. But as it looks now, this effect will not be material.Interest payments approximately EUR 45 million, and tax payments approximately EUR 140 million. And under the prevailing circumstances, the Board considers it very important to maintain a strong financial position and preserve cash, and thus has decided not to distribute dividends for the third quarter.Financing. We have approximately EUR 475 million in cash and undrawn lines. We are comfortably within the boundaries set by the equity covenant of 35% as the ratio is currently 51.6%. Mowi has no earnings covenant.And this overview describes our financing, where the backbone is the bank facility, EUR 1.4 billion. The bank facility with DNB, Nordea, ABN AMRO, Rabobank, Danske Bank and SEB, all of which we have a close and good relationship with. And we have no debt maturing until the summer of 2022.Then we move on to market fundamentals in the quarter. We start with the supply development. Supply was -- supply grew by 5% as we see here. This was in line with expectations, somewhat lower growth in Norway, but higher in Chile. In Norway, there were lower harvest weights than expected, a troublesome late summer with early harvesting. While Chile, supply growth as much as 16% higher than expected on high feeding rates, record-high harvest weights. However, small stocking is down 2% year-to-date September. Volumes are expected to decline in 2021. We will come a little bit back to that.Yes. And also to comment briefly on Scotland, where volumes were lower than expected due to impact from algal bloom and environmental challenges in the quarter.Yes. If you look at volume by market, then we have the situation during the quarter that foodservice demand increased at the beginning of Q3. However, as you know, restrictions were tightened over the course of the quarter. Retail demand has been strong in the quarter. This has partly compensated for the lost foodservice demand. But the net effect is still negative between 5% to 10% compared to the situation before COVID-19.We see that in Europe, there was a good growth in EU plus 7%. We have continued to see very strong retail sales in Europe in Q3. The quarter started a bit slow on holiday season, barbecue season, but then improved. And the promotions have increased penetration. Frequency of consumption has increased in all key European markets and retail volumes have increased by 15%, 25% in key European markets such as Germany, U.K., France. Promotions have fueled demand. And the current price level is supportive for the long-term development towards more elaborated products, which we believe Mowi is in the right position to benefit from.Foodservice in Europe was improving in July and August as lockdown measures were somewhat eased, but then we started on the second COVID-19 wave, which we are still in and which is still affecting our key markets.In Americas, we see that there was a strong growth in the U.S., 14%. Retail sales has continued strong. Low prices in combination with increased home consumption, as a result of the lockdown measures, they have boosted the demand and the prepacked sales are very strong, very positive. Also, home deliveries, e-commerce, in-store pickup are continuing to grow.The COVID-19 situation in Americas is still, of course, difficult, but foodservice improved somewhat from Q2, outdoor serving at the start of the quarter. But this is now, of course, reduced as we are approaching a colder time of the year and COVID-19 figures are also difficult.In Asia, there was a bit of a mixed picture. We see all in all Asia down 10%. But in several markets, demand has been relatively good, as illustrated by the figures here. We see very good figures in Japan, Korea, Taiwan increased versus Q3 '19.The COVID-19 situation in Asia is better than in Europe and Americas. They are ahead of the curve, so to say, with the outbreak starting in Asia. So fewer lockdown measures are in place in Asia.Also, air cargo rates continued to drop in the third quarter, although at a slower pace than in the second quarter. And they are, of course, still higher than before COVID-19.And then we have China. As we see significant reduction from Q3 last year. It has, however, picked somewhat up after the second wave with these COVID-19 incidents in China, but weekly volumes are still only 30% of what they were before this second wave. That's at least an improvement from the second quarter when we, at the same time, last quarter, were up only 20%. So we have seen an improvement, nevertheless.Okay. Then we have prices. And of course, with the increased supply of 5% and the net negative COVID-19 effect on demand of 5% to 10%, there has been a hit on spot prices in the quarter. In euro terms, prices are down 11%, as we see here. For Mowi, the reduction in achieved prices was lower than this, so we benefited from contracts in the quarter. All in all, the salmon market has managed decently during this very special situation.Now in Q3, volumes were seasonably high. Volumes are expected to be reduced in November and December. If we look ahead, we believe in our recovery in 2021. We believe that the supply and demand balance will consequently be tighter than this year. And the shift from foodservice to retail, increased penetration and new customers will be beneficial going forward.And the supply outlook, no significant news with regards to 2020. And as we only have a couple of months left of this year, it's time to start focusing on 2021. We expect total supply to grow by minus 1% to 3%. This is in line with Kontali estimate. So this means that in 2021, we will see the biggest reduction in supply year-over-year since 2016 and Chilean algal bloom.In Norway, we expect growth of 2% to 5%. In Chile, we expect a reduction of between 5% and 10%, mainly due to less individuals from lower small stocking. Then we have our own volume guidance. We have grown volumes considerably since 2017, when we were at 370,000 tonnes. We maintain our guiding for this year of 442,000 tonnes. The group is unchanged, but there are some minor differences within the regions between Canada, Chile and Ireland versus the previous guiding, but the total is the same.For 2021, our volume guidance is 445,000 tonnes. Norway stable. Some growth in Scotland and Chile. However, in Canada, volumes are reduced by 5,000 tonnes from 2020 to 40,000 tonnes next year. This is due to high marine temperatures, resultant difficult environmental conditions, which has taken its toll on the biomass available for harvesting next year.However, the long-term potential for Mowi in Canada still good, remains unchanged. So while we are a bit delayed due to a challenging '19 and '20, we believe the potential is still there. This is a temporary halt in our growth plans in Canada.Then Ivan, I will hand over back to you, if you can please go through the outlook?
Thank you, Kristian. The outlook. So to wrap up, and as Kristian said, notwithstanding the current COVID-19 resurgence we see now in October, we still believe in the market recovery next year. We see that current low price level attracts new customers and new segments and fuels the long-term development towards more elaborate products. And we strongly believe that Mowi's extensive downstream business will continue to capitalize on this shift as we have seen in the second and the third quarter.Mowi Feed is expected to continue growing in the years to come, driven by the new Scottish feed plant, bear in mind that we are producing 136,000 tonnes this year as against a capacity of 240,000 tonnes. Following a substantial growth in farming volumes from 370,000 tonnes in 2017, we are, unfortunately, guiding on stable volumes next year of 445,000 tonnes, but as Kristian said here 2, 3 minutes ago, this must be regarded as a temporary break.Mowi farming is working along 2 pillars: one is volumes and volume growth, the other one is cost. We see that there is a great demand for more salmon in the market under normal circumstances. We think there will be a growth in harvest volumes from the industry going forward. And we contemplate to take at least our fair share of it. This, we will address in-depth in the coming Capital Markets Day on March 17 next year, hopefully, in Oslo, if things are under control with regard to hygiene measures.In near term, we believe in a tighter market balance next year, supported by our supply growth as low as 1%. We haven't seen such a figure since the algal bloom in Chile in 2016. So under normal circumstances, this would have indicated very good prices next year. So whatever happens with the COVID-19 situation, we think we will have a tighter market balance next year. We believe in stronger prices next year.We see that we are building markets in retails. We see that we are getting new customers buying more elaborated products. So -- and if we could get the foodservice market back again accounting for 35%, 40% of total market, then this could be interesting. But anyway, we think that the recovery will happen. The question is just at which pace.So with this, I think we can start on the Q&A session, so if Kristian comes back on the podium and our IRO, Kim, can facilitate.
Yes. Then the first question here comes from Carl-Emil Johannessen in Pareto. He's asking, can you say something about -- or can you say something more about the volume guiding in Canada? What is the split between the 2 regions, East and West? And what can we expect longer term? You have previously harvested 40,000 tonnes on the West Coast alone and East Coast Northern Harvest has been about 15,000 tonnes plus significant growth potential.
A good question. So we are not reporting Canada separately. So -- but I think we can address it separately since we have the question. Canada West has been through a challenging year biological-wise. So in Canada West, we are down to approximately 31,000, 32,000 tonnes next year. And if you go back in time, you will see that we had a temporary setback in Canada West '18, '14, we were down to 31%, if I remember correctly; '14, we were down to 28%. So from time to time, we have, unfortunately, biological setbacks in Canada West.It's a challenging area to farm Atlantic salmon because of high marine temperatures in the third quarter, but also because of low DOs. At some farms, the DO saturation is as low as in the 60s. And for those of you who are familiar with DO numbers, then you know that you are at a critical level for which the salmon -- or for what the salmon can take. This is not something you can change. So the nature is as nature is.But obviously, we can always improve, and we think we will do that going forward. One measure we will take is to change the stocking pattern. So carry less biomass into the challenging third quarter. So what you do is that you stock more at once at the expense of 0s. We will also try to change the farm structure, so the site structure, applying fewer but larger sites, and in that way, utilizing more of the good sites.This has a cost effect, but it also has an effect on mortality. There are difference between sites. Plus, we take a lot of the measures. So a long story short, we think Canada West will come back to previous level at around 40,000 tonnes. We have managed that in the past, and we will manage that again.Then over to Atlantic Canada or Canada East, where we have the big growth potential in Canada. So we bought this back in 2018. And in '19, we had, unfortunately, a large mass mortality incident. We lost 2.7 million fish, which took volumes down to record low 4,000, 5,000 tonnes this year. It takes time to come back on track. We are aiming at 10, 11 next year, but the capacity, the potential in Canada East is obviously much higher.So what Kristian said here previously, the growth potential in Canada East is unchanged, and we still have the same target. So -- but unfortunately, we have had a current setback, which will delay us in reaching to those targets. Yes, it was a very long answer. So hopefully, I touched based upon the question, too.
Yes, I think that covers it very well. The next question comes from Martin Kaland in ABG. He's asking -- he's also got a question about volume guidance more in general. If you can share some thoughts about the different regions for 2021 in Norway, Scotland and Chile, in particular.
Yes. So to start with Norway, 260, that is in line with this year, so no growth. That doesn't mean that we do not have growth potential in Norway. But we are -- on industry average when we measure license utilization or MAB utilization to our Norwegian peers, but license utilization is better as farther north we get. So obviously, we have the highest potentials in Region South and Region Mid. This is something we will address going forward. And we will go further into details on this -- yes, on again, the Capital Markets Day that is coming up on 17th of March.We are growing in Scotland next year somewhat. That being said, go back a few years and have a look at the Scottish numbers, we have turned more Scotland from our 40,000 tonnes farmers to 60,000 tonnes farmer. And in good years, 60,000 tonnes plus. I think that is unprecedented if you compare it to our peers.So in Scotland, I think we have been quite successful on our growth strategy so far. That doesn't mean that it's over, and we still have potential to grow this further. And again, this we will come more into details on the Capital Markets Day next quarter or March in the first quarter. And I also think he asked about Chile?
Yes.
So in Chile, we are aiming at 70,000 tonnes next year. We haven't seen 70,000 tonnes in Chile after the ISA crisis in '07-'08. So that's 13 years back. Biology in Chile is good. We have a good biomass number there, supporting this target. So we are reasonably confident in that number. But I guess his question is more about going forward, so 2022 onwards.And we do not guide on 2022 onwards. For Chile, we will also address on the Capital Market Day. But as I assume most of the audience is aware of, there is a traffic -- a so-called traffic light regime in Chile as well. So in order to grow, you have to meet some biological indicators. And still, if you meet it, your growth potential is limited.So all the numbers of licenses you can read about that doesn't carry much value, I'm afraid, under this regime. So Chile is -- all the Chile is different. They also have restrictions on growth, which impact our business down there.So we will utilize the capacity we can, but we will not start to stock and take a big cost hit in order to prioritize volume over cost because remember that the Chilean salmon has a disadvantage to prices. Chile is far from more markets, high transportation costs means that you achieve a lower price over time. So although Chile is competitive in cost, that doesn't help much when you get a poorer price.So we are fine with this. We will not look into a big significant growth for our Chilean operation. We think the size we have today is fine when we take into account risk, but if there are cheap growth opportunities, i.e., meeting the biological figures, then we will utilize it. But Chile is not on the top of the list when it comes to prioritization of our capital allocation in farming going forward.
Okay. Very good. And then another question on the biomass from Alexander Aukner in DNB. He is asking about the record high biomass in sea being 322,000 tonnes, up 7% year-over-year. But the 2021 harvest guidance in line with -- yes, it's in line with the 2020 harvest volumes. So how does this match up?
So the rate or the average rate of this biomass is higher year-over-year due to that we will harvest a record high volume also in the fourth quarter. So you have to adjust for that. But at the same time, it's supportive to meeting the guidance next year. So one thing is to guide, but even more importantly, is it to -- it is to meet the guidance, and that is not always the case. So this is a number we believe in.And of course, if next year turn out to be a great mortality substantially down, et cetera, then there is upside in these numbers. But we like to assume current level and taken into account the improvements we know, but we do not like to be too aggressive on our guidance. We try to meet it as good as we can.But again, of course, mortality in the industry anymore is far too high, so if we could -- particularly out of Norway. So if we could manage to take it down, there is again upside in these numbers. But this is our best guestimate for next year. So -- and I think you should -- I think the audience should take it for what is, it's our estimate.And again, this is a temporary break. It's not on purpose, obviously. And we are not happy with it. So we will address this. The Board will prioritize growth initiatives going forward because, again, the demand for the salmon is great. There is a need for more salmon going forward under normal circumstances. And we want to take our fair share of that growth at least. And over time, we have not. And that is not satisfactory.
Very good. The next question is from Christian Nordby, Kepler Cheuvreux. He's asking about why Mowi only had 100% price achievement in Chile when you had a contract share of 30% in the quarter?
Yes. There were some downgrading in Chile as well as a source, and that impacted the price achievement somewhat. And so that is at least one part of the explanation.
And another part is that we allocate that -- the part of the margin, I think he misses that margin we allocate to consumer products in the margin. So it's two-folded. So overall, we have made money on these contracts. And if you include the contribution margin, the price achievement for the salmon is -- for the Chilean salmon is good. There's also about how do you allocate this? What goes to farming and what goes to our processors?
That's an important point because in general, we don't allocate the sales and marketing and feed margin into the price achievement part of our operation. That's a very important point to note.
Yes. So if we had done so, this part would have looked completely different. So it was a very good question, I must say. So good spotted. So I hope this was, yes, clearing the picture for all of us.
Very good. And then the next question is from Nils Olav Thommesen from Fearnley. He is asking if you can give some color on the overall biology in Norway during Q3 compared to Q3 last year? And how the costs will develop in the next quarters to come in Norway?
So we do not guide on costs going forward. We normally give a heads up in the next quarter if we see that costs will increase, and we have not this time around. So then I have indirectly answered on cost guidance in the fourth quarter.In general, biology, Mowi has been reasonably good in the third quarter, but we are struggling with the same suspects as last year and as previously. So it's -- as everyone knows, third quarter is the most challenging quarter, it follows marine temperatures. And the life is still there. There is still no silver bullet available. We struggle with the [ lice-induced diseases. ] And I will not name them all here because it's a long list.So it's not like nothing has particularly changed. But under the circumstances, I would say that biology is under control and has been reasonably good in the quarter. But again, not great. So don't get me wrong. But I think we managed reasonably well. And into the fourth quarter, marine temperatures, they drop and then biology improved. So when you have a good start of the new quarter, most likely that quarter ends up okay biological-wise, unless you end up in some surprising incident, so okay.
Okay. The next question is from Alexander Jones from Bank of America. He is asking about costs. How do you expect the costs to evolve in Norway and Canada sequentially in the fourth quarter? I guess you already commented on the costs in Norway. So then the question is about Canada.
Yes. I don't think we have given any heads-up on cost for Canada either in the fourth quarter. So it follows the same methodology. So nothing that we know that should change this materially. And in general, at least based upon the intelligence we have today, the fourth quarter is in line -- I'm not talking about the blended cost for total Mowi farming, is in line with the third quarter.But it's October -- sorry, it's in the beginning of November, but we haven't closed our books for October yet, and we also have December. And this is biology. You start with 1 life, and then it can only go wrong. So the distribution of likelihood in this industry is unfortunately a skew. So that means that you never know until you have booked your last figure. But nothing that we know today that should rock any boat when it comes to the cost in the fourth quarter. But again, this can change. We don't know.
And then his second question is on contract negotiations. Can you comment on how price negotiations are going for the next year? And whether you intend to keep the share of volumes contracted roughly similar for 2021 compared to 2020?
But we do not like to go into depth on contracts since we are negotiating, as we speak, and our clients, they're also following this. So I think on this question, we must ask for forgiveness and say that we will revert to it in detail when we -- in rough details when we go through our fourth quarter results. This is about the strategy next year. And we like to be transparent, but there are also limitations to our transparency.
And then there's no more questions from the web.
Thank you. Thank you, and stay safe, everyone, and we meet again in February.