Mowi ASA
OSE:MOWI
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Mowi ASA
Earnings Call Analysis
Q3-2024 Analysis
Mowi ASA
In its recent earnings call, Mowi reported an impressive €1.44 billion in operating revenues for Q3, which represents a 6% increase from the previous year, driven by record harvest volumes of 161,000 tons. This marked the company's highest quarterly revenue to date and reflects a consistent strategy of growth, with expectations of harvesting 520,000 tons in 2025 and aiming for 600,000 tons by 2029, showcasing a longer-term growth trajectory.
The operational profit for the quarter stood at €173 million, which, despite the pressures from lower market prices, translates to an annualized return on capital employed of 12.6%. The company's profits were impacted by biological challenges such as fish lice and high sea temperatures affecting operational costs. Still, this quarter is notable for demonstrating Mowi's resilience and operational efficiency in navigating these industry dynamics.
Mowi's blended farming costs decreased slightly from €5.84 per kilo in Q2 to €5.72 in Q3, signaling effective cost management, although costs remain elevated due to seasonal effects. The company anticipates that its blended farming cost in Q4 will remain on par with or lower than the current quarter, aided by declining feed prices, which had fallen significantly from peak levels.
The financial position of Mowi appears strong, with a reduction in net interest-bearing debt from €1.88 billion to €1.77 billion, just shy of the long-term target of €1.7 billion. The company also experienced a substantial release of working capital amounting to €99 million during the quarter. Over the next year, Mowi expects a saving of approximately €25 million in interest payments due to lower rates, further strengthening its financial standing.
The consumer products segment achieved record operational profit of €44 million, benefiting from seasonally low raw material prices. Similarly, Mowi Feed reported an all-time high EBITDA of €25 million, reflecting the success of the company's expansive farming volumes. Despite lower prices affecting some markets, segments like feed and consumer products indicate robust demand and operational performance.
Looking ahead, Mowi expects a tighter market balance due to lower supply leading into the holiday season, potentially impacting salmon prices positively. While global supply is expected to see modest growth of about 2% next year, Mowi is optimistic about sustaining its growth trajectory, as evidenced by an enhanced outlook compared to the overall industry's performance, which is forecasted at 1%-2% growth.
Mowi remains committed to organic growth, having achieved a compound annual growth rate (CAGR) of 4.8% in farming volumes compared to the industry average of 2.7%. With clear volume objectives set for the coming years, Mowi aims to continue outpacing its peers while maintaining a stringent focus on operational efficiency and market adaptability.
In a bid to reward shareholders, Mowi's Board has announced a quarterly dividend of NOK 1.50 per share following the third quarter, reflecting the company's financial health and commitment to returning value to its investors amidst challenging market conditions.
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Good morning, everyone, both in the room and online. That was a little taste of the technological revolution taking place in flow-based salmon farming these days. My name is Ivan Vindheim, and I'm the CEO of Mowi and together with our CFO, Kristian Ellingsen. I will take you through the numbers this morning and to the best of my and our ability to give a few appropriate comments to them. And after the presentation, our IRO, Kim Dosvig, will routinely host a Q&A session for those of you who are following the presentation online, can submit your questions or comments in advance or as we go along by e-mail. Please refer to our website at mowi.com for the necessary details.
This lever, I think, will leave for a self study. So with the pleasantries practicalities and the disclaimer out of the way. I think we are ready for the highlights of the quarter. And as the first bullet point reads, Mowi posted EUR 1.44 billion in operating revenues in the third quarter, which translated into an operational profit of EUR 173 million, which is in accordance with our trading update on the 15th of October.
And if you are to sum up the quarter in just a few words, I think it's fair to say it will be remembered for its record high operating revenues, driven by all-time high quarterly harvest volumes of 161,000 tons, which is in line with our volume guidance and which is another step towards 500,000 tonnes for the year, which will be a milestone achievement for us as it will be the first time in Mowi's 60 years history we crossed for us a magic 500,000 tonnes in mark and which is equivalent to a growth of 5.3% year-over-year.
For next year, we expect to harvest 520,000 tonnes, which is the next step towards next volume milestone of 600,000 tonnes, which we seek to reach in 2029. And which is equivalent to a growth of 4% year-over-year if we compare 2025 to 2024. So Mowi's idiosyncratic growth continues, and it's still surpassing that to the -- by the industry by a large margin. Because as we can see from the chart, as recently as in 2018, we harvested 375,000 tonnes, which means we have grown on farming volumes by as much as 145,000 tonnes over the past few years or a CAGR of 4.8% versus 2.7% for the industry.
And this growth has in practice been organic growth as we have lost more capacity than what we have bought in the period. So a big thank you to my 11,600 colleagues in 26 countries for their tireless efforts to make this happen. It's of course, much, much appreciated. Otherwise, prices in the third quarter were relatively soft, I would say, due to seasonal high industry supply and our realized blended farming costs, i.e., weighted pharma costs for our 7 farming countries was impacted by seasonal issues with lice and gills in Norway, compounded this year by record high sea temperatures from Central Norway northwards, in addition to being hit by phytoplankton in British Colombia.
So I think it's fair to say that our realized blended farming cost of EUR 5.72 per kilo in the third quarter was somewhat higher than what we expected and what we were hoping for, although it's down from EUR 5.84 per kilo in the second quarter and EUR 6.05 per kilo in the first quarter. So the coastland and is still down, driven by lower feed prices. Feed accounts for, as you know, more than 40% of cost in the books.
When it comes to 2 other divisions, both consumers and feed enjoyed strong quarter with record high results and the feed part also record high volumes, both capitalizing on record farming volumes in the quarter. And finally, the Board of Directors has decided to distribute the quarterly dividend of NOK 1.50 per share after the third quarter. I think that does it for the highlights of the quarter. So now on to key financial figures. Kristian will, as usual, going back on these numbers later this morning, so as not to be too repetitive. I think I will just touch briefly upon the most important ones now and leave the rest for later. And turnover profit, I think we skip as we have just been through them.
So if you start with cash, net interest-bearing debt came in at EUR 1.77 billion in the third quarter, which is down from EUR 1.88 billion in the second quarter due to partly a release of working capital as a result of lower standing biomass cost. And EUR 1.77 billion is also quite close to our long-term debt target of EUR 1.7 billion. Equity ratio was a healthy 48% at the end of the quarter. So I think we can say we have a strong balance sheet.
Furthermore, underlying earnings per share was EUR 0.21, whilst the annualized return on capital employed was 13%. And finally, in terms of retail margins through the value chain, farming in Europe, which accounts for 4 out of every 5 kilos of atlantic salmon we produce in Mowi once again stood out as the margin winner due to both cost and price. So nothing new under the sun in that respect. Then prices in the quarter. As expected, prices in Europe corrected down in the third quarter from record levels in the first half of the year on seasonal higher industry supply.
And prices in Americas continue to be soft in the wake of the cost of living crisis there. But as I said previously, we expect the salmon consumption in Americas to gradually pick up the pace in parallel with Western economy is continuing to recover on lower interest rates and higher real wages. And more generally speaking, in the short term, we believe that seasonal lower industry supply in the run up to Christmas and into the New Year will be a positive price trigger in addition to the Christmas demand itself. So in other words, we believe in a tighter market balance in the coming months than what we have seen recently, which under normal circumstances should bode well for our price achievement.
Speaking of it, our own price achievement in the quarter was 14% above the reference price, which is the standard we'd like to hold ourselves to internally. Positively impacted by contract share of 21% in the quarter and contract prices above the prevailing spot price, but negatively impacted by lower harvest rates in Norway as a result of already addressed seasonal issues with gills and lice compounded by record high sea temperatures in parts of Norway. In our 6 other farming countries, however, harvest weights very good in the quarter and superior share was excellent across the board.
Then it's time to have a look at the different business entities and we start as usual with Mowi in Norway, the locomotive of our business model. And if you take the numbers first, operating profit was EUR 146 million from Mowi Norway in the third quarter, whilst margin was EUR 1.38 per kilo and harvest volumes record high 106,000 tons. As you can see from the chart here, both profit and margin are down year-over-year due to lower spot prices and a little assistance from a relatively low contract share for Mowi Norway in the quarter. Because harvest volumes are substantially up year-over-year from 86,000 tonnes in the third quarter last year to 160,000 tonnes this year.
And cost is relatively stable, although it's somewhat higher than what we expected and what we were hoping for due to already addressed seasonal issues with gills and lice compounded by record high sea temperatures from Central Norway in Northwoods, which lingered on into October, but November looks better.
And in terms of string jellyfish, we have just had a few sporadic cases so far. So nothing of significance. And no signs of winter sores, but it's still early days. And finally, as the last bullet point reads, the FX hit in the wake of the unprecedented weakening of the NOK we saw last year and our long production and accounting cycle, caused Mowi Norway, EUR 18 million in the third quarter or EUR 0.17 per kilo versus our Norwegian peers.
So adjusted for that, our operating profit would have been EUR 164 million in the quarter, not EUR 146 million. and our EBIT margin, EUR 1.55 per kilo and not EUR 1.38 per kilo. So please take that into account when you do your own benchmark comparisons for Norway for the third quarter. Then the breakdown of the margins for the different regions in Mowi Norway in the quarter. As you can see from this chart, it was a rather mixed bag this time around due to already addressed issues with biology, so as not to be too repetitive. I think we'll leave it at that and move on to the last slide on Move Norway, our sales contract portfolio.
Contract share was 16% for Mowi Norway in the third quarter and was without a spot on our guidance, these contracts contributed as already said, positively to our earnings. As for the fourth quarter, we expect the contract share to be about 21% with relatively stable contract prices quarter over water. And finally, as regards to next year, since we are negotiating new contracts, as we speak, we cannot say much about that today other than to ask for your understanding, that we will revert to it in February at our fourth quarter release.
In the meantime, we must keep things close to the chest for commercial reasons. Then it's time to have a look at our 6 other farming countries, and we'll start with Mowi Scotland. Mowi Scotland delivered a good quarter, biologically, I would say, much better than last year and particularly taking into account a season and obviously helped or with help from a lower sea temperatures. And this resulted in an operating profit of EUR 13 million for our Scottish operation in the quarter, which is up from EUR 9 million in the comparable quarter last year due to lower cost because as we can see from this chart, price achievement is slightly down year-over-year, and volumes are quite stable at 15,000 tonnes.
As for the fourth quarter, I think we can say things are developed well so far, knock on wood. Then overseas to Chile. Mowi Chile also delivered a set of good biological metrics in the third quarter, I would say, but soft prices in Americas unfortunately, weighed once again on an otherwise good quarter for our Chilean operation. So despite being based on realized cost in Mowi farming in the quarter, margins came, therefore, to a modest EUR 0.59 per kilo for Chilean salmon, and paired with 23,000 tonnes harvest volumes, this translated into an operational profit of EUR 14 million in the quarter, which is up from EUR 9 million in the third quarter last year.
And soft prices were also a recurring theme in Mowi Canada in the quarter. And combined with algae issues and elevated mortality in British Columbia, this resulted in a loss of EUR 4 million in the quarter. On a positive note, however, biology in Canada East was good and margin was positive EUR 0.64 per kilo. And biology in Canada West in British Columbia recovered in September and has been good so far in the fourth quarter.
And finally, in terms of our strategic review of British Colombia, we have nothing new to report this morning other than that we have started a process and that it's well underway, and we will revert with more information when we have some. Then the time has come for our 2 smallest farming entities, Mowi Ireland and Mowi Faroes. And if we take Mowi Ireland first, operational profit was EUR 4.3 million for our Irish operation in the quarter, which is a good result, I would say, given the time of year. Margin was EUR 1.18 per kilo and harvest volumes 3,700 tonnes.
In Mowi Faroes, we saw relatively soft earnings and margin in the quarter to the Faroes. With operation profits of EUR 1.8 million by means of a margin of EUR 0.61 per kilo or 3,100 tonnes harvest volumes, adversely impacted by harvesting from a high-cost site in the quarter in addition to being 100% exposed to the spot price. Because biological metrics were once again strong for Faroes operation with a monthly mortality rate of 0.2% and a biological feed commercial ratio of 1.02 just to mention a few. It doesn't get much better than that.
Then our Icelandic operation. Operational profit was EUR 1.3 million for Arctic Fish in the third quarter, whilst margin was EUR 0.37 per kilo and harvest volumes 3,400 tonnes. And both profit and margin we had a mark of 100% spot price exposure in the quarter in a market with soft spot prices. Because biologic performance was good in Iceland in the quarter with, for example, a monthly mortality rate almost on par with Mowi Faroes, showcasing some of the potential in Iceland, if we can get framework conditions right and scale this up.
With that, I think we can conclude Mowi farming and move on to Consumer Products, our downstream business. Operating profit was record high EUR 44 million for consumer products in the third quarter, capitalizing on record high farming volumes and seasonal low raw material prices in addition to good operational performance more or less across the board, and which is up from EUR 40 million in the third quarter last year. So I think we can say we still see good demand for our products.
Then last 1 out this morning, Mowi Feed. Mowi Feed also capitalized on record-high farming volumes in the quarter and to date for that matter, and this translates into an all-time high operational EBITDA of EUR 25 million for our feed operation on all-time high sold volumes of 191,000 tonnes. And this is up from EUR 20 million in operational EBITDA in the third quarter last year on then 169,000 tonnes.
Our Feed performance was evidently strong in the quarter and year-to-date demonstrated by all the volume records, which is, of course, extremely important for us as the world's largest salmon farmer by far. So I think I say things go in the right direction for our feed operation. So with that Kristian, I think we are ready for the financial figures and fundamentals. Thank you so far.
Thank you very much, Ivan. Good morning, everyone. I hope you are all doing well. As usual, we start with the overview of profit and loss, which shows an all-time high revenue of EUR 1.44 billion. This is up 6% on the highest volumes ever harvested. Operational EBIT was EUR 173 million, where the movement from Q3 '23 is explained by lower market prices. But still, this translates into an annualized return on capital employed of 12.6%, i.e., above the target level.
When it comes to the items between operational EBIT and financial EBIT, the difference is mainly explained by the net fair value adjustment of biomass, which was colored by lower salmon prices. With regards to income from associates, there have been industry-wide biological issues in Northern Norway. And the operational result for Nova Sea was EUR 1.21 per kilo, which was below Mowi Region North in Q3.
Our underlying earnings per share was EUR 0.21, while cash flow per share was EUR 0.34, positively influenced by the working capital movement. We then move on to the balance sheet where total assets are somewhat down from the year-end '23 driven by current items. And Mowi's financial position is strong with a 51% covenant equity ratio. The cash flow was strong in the quarter. In addition to the contribution from EBITDA, there was a working capital release in Q3 of EUR 99 million, of which approximately EUR 70 million were related to farming and lower biomass cost at stock driven by lower feed prices.
Then there was also some release related to accounts receivable and inventory in Mowi feed. CapEx was EUR 54 million adjusted for payment of EUR 58 million related to the traffic light auction in June. Net interest-bearing debt was improved during the quarter from EUR 1.88 billion to EUR 1.77 billion at the end of Q3, somewhat above the long-term target of EUR 1.7 billion. The 2024 full year cash flow guidance has been adjusted somewhat with a net positive effect of the changes from the Q2 guiding of EUR 30 million.
Working capital buildup this year is estimated to EUR 100 million, CapEx to EUR 290 million, interest payments EUR 115 million and taxes EUR 285 million. When it comes to the overview of the financing, this is unchanged from the previous quarter. And consequently, we leave this for self study.
But speaking of financing, we would take this opportunity to remind everyone of the positive effects of being financed in Euro versus Norwegian kroner. Euribor is consistently lower than NIBOR. And this gap is expected to increase based on interest forward curves. We get the full effect of this with our floating rate -- sorry, floating rate-based financing.
And for 2025, we expect a saving of around EUR 25 million related to lower rates compared with 2024. Historically, there has been a significant advantage to be financed in euro instead of Norwegian kroner. This removes FX fluctuations. There has also been a saving for Mowi of over EUR 100 million the last 10 years. And the forward curves indicate that this advantage is very much valid also in the coming years as we see here with 1.6 percentage points lower euro rate versus NOK rate.
And consequently, this supports a lower cost of capital for companies financed in euro, such as Mowi. Another positive cash effect is related to our most important input factor, namely Feed. Last year, we saw a decline in prices for vegetable-based commodities. And this year, the marine ingredients have followed suit. The marine ingredients represent about 20% of total food cost. And these prices are down above 30% from the peak, following a good first fishery season for Anchovy in Peru and also prospects of a good second season, which commenced now in November. The quota for both the first and second season this year have been above the 10-year average as shown here in the graph and the yield was also good in the first season this year.
Consequently, feed prices have continued to trend down, and the year-to-date effect is around 6%. We then move on to market fundamentals. Global supply increased by 5%, which was in line with the guiding we gave in Q2. This was a new quarterly record high level for global supply, driven by Norway. This was a result of increased small stocking, good production in the quarter, but also early harvesting from rising industry biological challenges, particularly at the end of the quarter and standing biomass and September in Norway is down 0.5% from last year for the industry.
The value of the consumption remained at the peak level. In Europe, consumption in volume terms increased by 8% with continued positive retail developments and positive market activity effects of promotions. Foodservice was relatively stable. Consumption in the U.S. was stable as opposed to the strong growth we have seen for many years now. Food service consumption offset some retail growth, and the U.S. is behind the recovery curve compared with Europe.
But we believe that demand will improve in due course. In Asia, there was good growth in all markets, 5% in total. And the record high seasonal supply took its toll on prices in the quarter, but we expect a much tighter market balance in the coming months on lower supply. And when we analyze biomass data, the biomass, number of individuals, current trends in the various countries. We estimate industry supply growth for 2025 of modest 2% with a risk on the downside. The split is then shown here between the various countries. And this means that the 2% is consistent also with what we believe then for the coming years when it comes to supply growth. We are in a structural undersupply scenario where supply is definitely down from the previous decade as we see it.
But when it comes to our own volumes, we maintain the guidance of 500,000 tonnes in 2024, and for 2025, we guide on 520,000 tonnes, supported by record high biomass in sea of 329,000 tonnes live weight. And this 520,000 tonnes is the next step to our next milestone of 600,000 tonnes expected volume in 2029, as we see here on the graph with reference to the Capital Market Day and information we provided back in September.
And this is then a continuation of our good growth trajectory the last years, where we have gone from lagging behind on volume growth to being ahead on volumes. This, in the end, is the most important volume value earnings driver in the business.
And we would also like to take this opportunity to remind everyone of our good track record when it comes to actually delivering on our volume guidance. We have a plus 0.2% positive deviation when it comes to our guidance and what we actually deliver on. This is done over the last 5 years versus minus 7.9% for our listed peers. So this provides confidence as we see it.
Then it's over to Ivan for some comments on the outlook.
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. And I said earlier this morning, the third quarter was another record-breaking quarter for Mowi in terms of top line and growth. And by extension, we have maintained our volume guidance of 500,000 tonnes for this year, which would be a milestone achievement for us as it will be the first time in Mowi's 60 years history we crossed for us a magic 500,000 tonnes mark and which is equivalent to a growth of 5.3% year-over-year.
For next year, we expect to harvest 520,000 tonnes, which is the first step towards next volume milestone of 600,000 tonnes, which we seek to reach in 2029, and which is equivalent to a growth of 4% year-over-year if we compare 2025 to 2024. So Mowi's idiosyncratic growth continues, and it's still surpassing that to the wider industry by a large margin, because as recently as in 2018, we harvested only 375,000 tonnes in Mowi, which means you have grown farming volumes by as much as 145,000 tonnes over the past few years, with a CAGR of 4.8% versus 2.7% for the industry.
And this growth in fact in practice has been organic growth. Otherwise, as we also said earlier this morning, we expect a tighter market balance in the coming months than what we have seen recently, which under normal circumstances should bode balance in the coming months than what we have seen recently, which under normal circumstances should bode well for our price achievement.
And further on that note, in all humility, we believe that Kontali is overshooting again with the industry supply growth estimate of 5% for next year. And as Kristian just showed us, our peers have a history of promising much more volumes than they ultimately deliver. So with our parts, believe that industry supply growth next year, once again, will be at the low end at a modest 2%. And if anything, we believe the risk is on the downside.
And finally, as the last bullet point reads, we expect the realized blended farming cost in the fourth quarter on par with or lower than that of the third quarter, depending on biological cost because the cost trend is down driven by lower feed prices. And this will sooner or later manifest itself further in the P&L cost. So with that, Kristian and Kim, I think we are ready for the Q&A session. So if Kristian can please join me on the stage, and Kim can run or administer the Mic.
Christian Nordberg, Arctic Securities. It's obviously a lot of uncertainty regarding string gel efficient winter winds, but what are your expectations regarding downgrades or superior share for the coming winter?
That's a really good question. And I think the 100% honest answer is that no one knows. Nothing that has happened so far will impact that question. That's my -- that's my mere assertion. So we have had a few cases so far, as we said during the presentation, but nothing of significance. And also limited to region Mid, so it is Central Norway. So -- but let's see, this week, those cases have been in retreat, but what next week brings, or the week after, no one knows.
And like you say, there's been quite a lot of sea lice treatments in Northern Norway. How do you think that will impact the wound situation and later downgrades in the coming winter?
Well, it's obviously not positive. But having said that, we also have taken several other measures. So the net effect of this, I still hope will be much better than last year. But of course, the more you handle the fish well, the more biological issues you get. That's the name of the game in biological production.
Martin Kaland, ABG Sundal Collier. You mentioned that feed prices have come down some 6% from the year-to-date, and that might also be from the peak levels, but what is the potential drop based on the recent feed prices or ingredient prices in your view?
IIt's a tough one. We never guide on future costs, so we take the next quarter and in the end of the day, it depends on the biological cost, right? So it doesn't help if you're input factors drop when your biological issues increase. But hopefully, the third quarter was an exception to the rule. Last year was a good year for us in Mowi Norway and also the year before that and this year has been a troublesome year if we are completely honest with each other.
So -- but normally, things fluctuates also in biology. So let's hope the next year is getting much better and that we also can have 100% of these tailwinds from lower input factors because I think we have had our share of setbacks in recent months in Norway.
Okay. Then a question from the web from [indiscernible]. If you can comment on the growth outlook in Norway. We guide on 3.3% for growth in Mowi Norway versus industry growth of only 1% to 2%. If you can comment on the reasoning why Mowi is growing more than the industry.
Well, as Kristian just showed us here, we have grown more than the industry for many years, and that's our plan to continue with. So I think it -- it is as easy as that and as difficult as that. It's not easy to deliver growth in this industry. You need investments, you need a lot of focus and you need an organization that is very supportive and ship shaped.
But if you look at our numbers now, we have grown our business now since -- volume-wise, since 2017, actually. So -- and our clear goal is to continue with this growth trajectory. And i.e., then we also will outgrow the rest of the industry and the other listed peers.
Alex Aukner from DNB Markets. So just a question regarding dividends and your net interest-bearing debt targets, typically or historically, it's been linked to supply growth, net interest-bearing debt per kilo produced. You now announced new targets, significant growth. The Feed division, the Consumer Products division is now generating healthy profits. What should we expect in terms of the net interest-bearing debt target going forward? Is that up for revision?
Yes, absolutely, absolutely. If we can continue to grow this business and also continue to grow our cash flow, then we can also handle more debt and also increase our dividend capacity. So absolutely, everything is connected to everything else here. That's it.
No more questions from the web.
Then it only remains for me to thank everyone for the attention. I hope to -- we hope we see you back already in February at the fourth quarter release. Meanwhile, take care and have a great day ahead. Thank you.