Yes. I think the time is there. So welcome, everyone. Good morning to all of you out there, and welcome to the presentation of MoVI's Q2 results. My name is Iman Windheim.
And with me today, we have our CFO, Christian Ellingsen. As usual, we start with highlights, quite an extensive list this time, I must say, in an eventful quarter. Operation EBIT of €99,000,000 in line with the trading update released 15th July. Operations have been running close to normal despite the COVID-nineteen pandemic. We are maintaining strict measures and do whatever we can to secure the health and safety of our employees.
Prices have been largely impacted by COVID-nineteen. We have seen a steep downward trajectory in the wake of it. In terms of farming volumes, 104,000 tonnes, 2,000 tonnes above guidance. We are taking down our full year guidance by 8,000 tons, all of it in Scotland due to biological issues this year in that region. Then in costs, farming down from €4.62 per kilo to €4.47.
We have low cost performance in MoVI and we also have high cost performance in MoVI and we have a broad portfolio consisting of 6 farming regions. So this is the average. MoVI Norway, Movie Ferros and Movie Chile, they are below and Scotland, Ireland and Canada, they are above. All time high earnings in Mobi Island for our organic salmon, very impressive. We also saw record results and record volumes for a second quarter in consumer products.
On the back of the shift we have seen in demand from the foodservice segment to the retail segment. Under the prevailing circumstances, the Board has not found it appropriate to distribute a dividend for the 1st and the second quarter. So much about the highlights, then over the key financials. Christian will walk us through this in detail later this morning. So I will just touch base upon turnover, €910,000,000 down despite an increase for volumes of 6%.
So and the explanation is, as we have already mentioned, price reductions year over year in the wake of the COVID-nineteen pandemic. This has also resulted in a decline in operational profit, which was, as already said, €99,000,000 against €211,000,000 last year. The margins, we will come back to later on in the presentation when we address the various regions. We already talked a little bit about prices. As you can see from the curves there, steep decline in prices this year.
We start at record high levels and at least I thought this would be another great year for MoVI and the salmon industry. But this pandemic has absolutely ruined the party. We also think the fall will be challenging, but we are more optimistic to next year and for the long run. We'll come back to that later on. In terms of price achievements, good in the quarter, I would say, a little bit below our reference price in Norway due to downgrades, knock on effect from the winter and winter source, but we had a small contribution from our contracts.
So all in all, okay. Scotland, 112%, very good. Canada, 95%, slightly below the reference price also due to the winter and knock on effect from it and winter source. In Chile, price achievement was impressive 122 percent. Operation EBIT, we saw a profit increase in all our entities apart from farming, a huge decline in farming, mainly driven by the price decline, which we have already been through.
Costs are also somewhat up year over year. Then over to our most important farming region, Norway, operational EBIT of €60,000,000 this quarter, so 60% of the profit in Norway, that's normal, 56,000, 57,000 tonnes, so higher volumes compared to last year, also higher than the Q1, which is good. Volumes are important in this industry. Operation EBIT margin, €106 per kilogram, reasonably good, I would say. Bear in mind that Moi is a euro company and we are using euro as a function of currency in Moe Norway.
So consequently, we have not benefited from the weakening of the NOK we saw in the Q2, which was press damped. Over time, in steady state, carrying more in Norway in euro or Norway, it doesn't matter, it's neutral. But when the NOK is weakening, we lose compared to our peers. When the NOK is strengthening, we win. But we all know that we haven't seen a strengthening of the NOK since 2012.
So over the last years, we have had some tailwind from the currency in Norway. Having said that, being a euro company gives us a much cheaper financing and euro is by far the most important currency in our cash flow. So we still think our strategy is the right one. But in the second quarter, FX was playing a role. Normally, it's not.
And we do not like to talk about FX in Moi. We like to talk about fish and markets and the rest. But we had to make an exception this time around. So we apologize for that. Yes, contracts we have already been through.
Operation EBIT per kilo per region, okay in Mid and North, also an okay cost level. We have started to phase in a new generation, which is better. Our July numbers improved. So are crossing our fingers for the rest of this very, very important season in which we are. South, a poor quarter on low volumes.
We harvested out 2 CIC sites that is R and D, which always carry high cost. In addition, we also took out some wheat fish. So the Q2 is not representative for Region South and we expect improvements in the Q3. And July was much better. Then over to the contract portfolio.
I guess a lot of you are interested in this one. This is for Norway, unstable, no changes since last time, but we are going into the contract season. So the next few months to come will be important to us with regard to prices and price achievement next year. Scotland, EUR 14,000,000 margin of close to €1, reasonably good, I would say, in a challenging environment. Production cost was very high in the Q1.
They are substantially down in the second quarter. Because we have harvested from performing site better performing sites. Having said that, the biology in Scotland has been challenging this year. It was also challenging last autumn. And as of today, we see a higher cost unfortunately in the Q3 as we saw in the second quarter.
So a heads up on cost in Scotland. Then Canada, negative numbers driven by very weak prices in Americas. Canada is and will most likely be a high cost region. So then you know how it is when prices decline. You get the hit or the biggest hit where you have or where you carry it at the highest cost.
And we saw cost was coming down in the second quarter, which is encouraging. We also hope for better improvement going forward. But in general, cost level in Canada is high and with the current spot prices that you see, then it's a challenging environment. The fish from Canada goes 1st and foremost into the U. S.
Market as whole fish, somewhat filled out. And that are not the products that the market ask for these days, rough the COVID-nineteen situation. Chile, a good quarter, I would say €12,000,000 with the prices we saw is impressive. So relatively speaking, I think Chile was our best region this quarter, although it was not in absolute terms. Margin, €0.82 so quite close to Norway.
It's again really impressive. And thanks to the downstream setup we have in the U. S, we are in a position where we can produce and sell the right products and that we have benefited a lot from. At the same time, we have both satisfactory cost and biology in Chile. So the situation in Chile, current price environment, it's, of course, very challenging.
But we see that with our business model, we stand out this quarter. And we also think it will be so going forward as long as we have this pandemic ongoing. We'd also like to take the opportunity to say that we are carrying limited frozen inventory. If we take out the inventory, which is sold, we are close to 0. So we are on our toes, you could say.
And we have started this challenging second half season. Ireland and Faroes, fantastic results this quarter. If you start with Ireland, EUR 15,000,000, 15 percent of Moi's profit in the quarter on 4,000 tonnes. That is all time high in absolute terms, not margins wise, but in absolute terms, 4,000 tonnes for this entity is a high number, but very impressive. We are also satisfied with the numbers for our Faroes salmon, good cost with good price achievement on for them, high volumes gives a good result.
So altogether, we made 21,000,000 euros in what we, at least back in the days, called others. That's more than 20% of profit. So it shows that being diversified, having a broad portfolio is beneficial. And yes, so we are happy with that. Consumer Products have done a great job in the quarter.
They have kept our volumes going. Without consumer products, I don't think we would have managed that with our size. So yes, we are very grateful for this power value chain, particularly this time. As already said, all time high profits on all time high volumes for our 2nd quarter. Value added margin, 4.1 percent.
And as we say here in the bottom, the COVID-nineteen pandemic underlines once again the strategic value of this downstream operations operational footprint we have. So again, we have much to thank Consumer Products for this quarter. They will also be very important to the coming autumn. Then over to sales, 2nd quarter is better than the Q1, but it's still low season. So having said that, I think the second quarter was a reasonably good quarter.
Operational EBIT of EUR 6,000,000 margin of 4.1% is okay, higher than last year. Very good production in Norway. We are ramping up in Scotland and the self sufficiency ratio in Europe was 95%. Then over to costs again, I would say. We have seen an increasing costs in the industry and in movie over the years.
And I guess you also could say that the pace has increased too. We started a cost saving program in 2018 and have saved cost of EUR 180,000,000 to date, which is good, through more than 700 separate initiatives. So we are working with our cost base. In addition, we try to improve biology, increase survival ratio, etcetera. So this is the cost base and hard work really.
So we are quite satisfied with the cost saving program, but we still see that cost is increasing. We have cost pressure from a tougher biology but also from stricter regulation and all of the other input factors. And we cannot sit still and not address it. So we have to do more. Labor cost is number 2 cost in Moi accounting for 60% of total cost.
And so far, we haven't worked very hard on headcount anymore. We have had a growth strategy. We have grown significantly over the years. But now we think it's time to also see can we do this more efficiently. So the Board has decided to introduce our productivity program in our cost saving program, where we are targeting a 10% reduction in headcount for Moi as is by 2024.
The strategy is still to grow the company. So the aim is to be a net job creator also in the future, but maybe different jobs. This we will do through automation, digitalization, so I. E. Using existing and new technology, but also through improving our production processes and rightsizing of the organization.
In terms of all the details, I think we must ask for some times, We will revert to it when it's relevant, when the timing is there. But now we have been given the task. Now we will start to work on it. We have some ideas. We have some preliminary thinking, but the announcements, they will come later.
Then Christian, can you please walk us through the financial figures and fundamentals? The floor is yours.
Thank you very much, Johan. Good morning, everybody. I hope you are well and safe and enjoy our update on Moi and on our Q2 results. I will start with the overview of profit and loss, where the top line shows operational revenue of €911,000,000 down from Q2 'nineteen on lower prices. The reduction in operational EBIT as we see here down 53% is almost in its entirety explained by reduced farming prices.
And the operational EBITDA of €99,000,000 translates into a return on capital employed as you see here in the last figure, 12.2%, which is above our target of 12%. But of course, ROCE and the other key metrics such as underlying earnings per share, operational EBIT margin, they are all impacted by the more than 50 percent reduction in earnings. If you look at the items between operational EBIT and financial EBIT, as usual, the largest individual item is the net fair value adjustment of biomass. This is a negative this time on lower salmon prices. If you look at associated companies, this is mainly related to our associated company NovaSeas, which had very good results and operations in the Q2.
So we congratulate NovaSeas on good results and we see an EBIT per kilo as much as €1.7 from NovaSea. And net financial items, negative €14,000,000 this time. Interest costs are reduced from Q2 'nineteen. That is as expected. But on the other hand, we are affected by negative currency effects over P and L.
So that gives us a slightly more negative number this time around. Then we can move on to the overview of the financial position, which shows stable total assets from Q2 'nineteen, €5,600,000,000 When it comes to equity and liabilities, equity ratio is a healthy 51.2% as we see here and net interest bearing debt is slightly below the long term target of €1,400,000,000 The cash flow statements shows that net interest bearing debt moved from 1 point €357,000,000 to €1,380,000,000 so relatively stable. We saw a large tie up of working capital in the quarter, €74,000,000 That is related to sales and marketing with €24,000,000 on tie up of accounts receivable as sales increased versus the Q1 of this year. Feed tied up €26,000,000 mainly due to buildup of inventory before the peak season. And farming had a special effect of EUR 21,000,000 in VAT payments in Norway delayed from Q1 to Q2 as part of the COVID-nineteen aid package from the authorities.
We also see that taxes paid is a bit low at this time. Taxes remaining to be paid this year will mainly be paid in Q3, but also some in Q4. And in Norway, tax payments scheduled originally in Q2 were postponed to Q3 as part of the COVID-nineteen aid package. Yeah, net interest and financial items paid as guided €10,000,000 And as it's written here in the margin, we purchased 2.25 licenses in the Norwegian capacity auction in August for approximately €29,000,000 to be paid now in the 3rd quarter. Yes, and then we have the cash flow guidance for the year.
We maintain mainly our cash flow guidance for 2020 except for taxes paid guided slightly down. The CapEx projects are progressing more or less as planned. And as Ivan commented, when it comes to dividends, this is an important part of Mohe's financial strategy, but under the prevailing circumstances, the board has decided that it's not appropriate to distribute a quarter dividend for the 1st and second quarter. Yes, and we have a solid financing. No changes here since the last quarter.
We have no long term debt maturing until Q2 2022. We have cash and undrawn lines of about €550,000,000 and we have a very good relationship with lenders in our bank syndicate, DNB, Nordea, ABN AMRO, Rabobank, Tonske Bank and SEB. Then we move on to the supply and demand section. As we see here, global supply increased by 3% from Q2 'nineteen. That is driven by 10% growth in Chile as we see here.
That is on good production and high average weights in Chile. But if we look ahead, supply growth in Chile is expected to be low in the second half of twenty twenty and negative in 2021. Small stockings are significantly down in Chile, down 12% year to date July. And prices, we as we see here, we all know that we start at very good levels in 2020, but prices fell as a result of COVID-nineteen, first in Asia and then in the rest of the markets. In the second quarter, we saw a drop of 19% in Norway and more than 20% in Americas where the food service share is larger and COVID-nineteen more challenging.
The global supply outlook indicates a tighter supply and demand balance if we look past the short term. And then we have the volume by market and of course COVID-nineteen significantly impacted trade flows and channel logistics in the Q2. The foodservice segment represents around 40% to 45% of global consumption and this segment as we all know was heavily impacted by COVID-nineteen. In many countries, lockdown measures eased somewhat and demand improved somewhat. Retail sales have been strong.
So we have seen that that has offset some of the demand shortfall, but the net effect is a demand reduction of about 10% resulting in lower prices in the Q2. In Europe, we have seen strong retail sales growth in the key markets such as Germany, France and the UK. That has been positive of course and has offset some of the foodservice demand reduction. In the U. S, we see that consumption increased by 3% despite the closed on of foodservice, increased retail sales and particularly prepacked products very positive.
Brazil on the other hand declined by 24% as the foodservice segment is very large in that market and the COVID-nineteen situation very challenging. In Asia, we see that consumption increased by 11% from Q2 'nineteen. Air freight rates have improved since the peak on better capacity. In fuel service, demand had almost recovered before the 2nd wave of COVID-nineteen started. It's important to stress that we believe of course that there is still a very good underlying demand for salmon.
That has not changed the underlying fundamental demand for this product. And the increased home consumption we have seen now in this period where more people are cooking at home, prepared healthy salmon products at home represents a potential. When it comes to the supply outlook, the outlook is a modest growth. You see the range here 2% to 5% in 2020 and a low growth of 1% in 2021, driven by lower growth in Chile. And this gives a tight market outlook given continued COVID-nineteen recovery.
This is the range here from Q3 2% to 7% and Q4 1% to 5%. And when it comes to our own volume guiding, as Johan commented upon, we have guided down the Scottish volumes by 8,000 tonnes due to biological issues and increased mortality. The reminder of the 2020 volume guidance isn't changed, so that gives a net figure of 442,000 tonnes. Then Yvonne, then I would like to hand the word over to you to discuss the outlook.
Yes, outlook. So this goes without saying. In the short term, COVID-nineteen has impacted the market dynamics and prices negatively. And then we are talking about the foodservice segment that accounts for 40% to 45% of the market. But in the longer term, our view is unchanged.
We really belong in this. We believe in this. We see a strong underlying demand. So this is, in our mind, COVID-nineteen driven. We get often a question when will we see a recovery?
Well, if I am to answer, I would say it's purely dependent on the COVID-nineteen situation. So we believe that when we have a vaccine in place, then the sentiment will change and things will normalize quite soon with regard to the salmon. So we are optimistic in the long term. We also believe in 2021. We do the supply side is constrained.
And with the market recovery, that should give rise for a tight market balance and improvements compared to this year. How good and how much depends on how long time this will take. We don't know, of course. Meanwhile, we will continue to capitalize on the current shift we see in demand from foodservice to retail. We are integrated, and we have the right business model for this.
So I think relatively speaking, we will do quite well. And we also do believe that food service sorry, consumer products will continue to make good results. We are, as said previously in the presentation, expecting a volatile autumn. We know that volumes are increasing. We know that the COVID-nineteen situation is ongoing.
So power market is out. So for the autumn, I think it's about work ourselves through it. But again, we have the right business model to come through this in a reasonably good way. Then cost, cost is important. Cost fighting is a never ending story.
The development we have seen in this industry and in Moi is concerning. So we have to address it. We have to take further measures. We believe in this new productivity program. There are always potentials.
We've also been through a long period with significant growth that also does something with the organization. Sometimes you have to take a brief and look around and see if this is the smartest way to do this. So we think we will deliver on the target set by the Board, I. E, reducing headcount by 10% as is by 2024. At the same time, our growth strategy is still valid.
It's still our main strategy. So the aim is also to be a net job creator in the future. So this last part is an important part of the message. So nothing has changed. In 2016, we started our well boat venture and we have now built 10 vessels which are in operations, 2 are under construction and 2 new ones will be contracted in near term.
So we have developed a full fledged wellbore company. We think the timing is right to initiate a divestment process for our stake in this company. This has never been defined as a core asset for MOWI. It was an opportunistic move back in 'sixteen and the strategy has been clear all the way that when the timing is right, we will divest it. So now we will start the work doing that.
The outcome we will revert to when the timing is or when the time is right. So much about outlook. Then I think the time has come for Q and A. Kim, our IRO, will administrate it. Christian, our CFO, will join.
So Dan, I think the floor is yours, Kim.
Okay. Thanks. The first question is from Alexander Jones from Bank of America, Merrill Lynch. The first question is on costs. Can you give any color on where you see farming costs in the 3rd quarter from EUR 447,000,000 reported this quarter?
And given the new productivity program launched today, it would be helpful if you can give any view on where you see costs going over the medium term net of this program relative to the cost levels reported in the past year?
As indicated before, we believe that costs will improve in the second half. We will see higher volumes and we also harvest from generation, which currently has better performance. You see that the Q3 has started good, but we now enter a season, which is more challenging biological wise and it's still too early to give the final answer and we will not sort of give any detailed numbers, but we still believe in improved costs. That is still the case. And Ivan commented that Norway, region's south had high costs in the Q2 and that is expected to improve in the Q3.
And when it comes to the productivity program and cost savings, as Ivan commented, we have had cost saving programs since 2018 where we have realized significant cost savings. Even though costs have increased on 1st and foremost more challenging biology, but also regulations and generally cost increases for the impact factors. So we now include productivity, we now include labor costs in the program that is a major cost component and that is of course important to address also labor costs, but still the main driver for costs will remain to be biology. So we don't expect to see any major shifts in costs until we have more fundamentally better solution when it comes to life treatments and related issues.
Okay. His second question is on the license auction. Can you please give more color on your approach to the recent Norwegian license auction and whether the relatively low share of licenses won by Maui, at least compared to your existing market share, reflects a more cautious view on the value of those licenses than peers, a desire to preserve balance sheet capacity given COVID or some other factors?
I can take it, yes. In general, we never comment on our M and A strategy and we will not make an exception this time either. What we did was what fitted with our plans this time around. So we do not have much more to say than that.
Okay. And then a question from Sebastian Bray. He represents Berenberg. He has also a question on cost. Could Maui provide any quantitative guidance on the blended farmer cost improvement relative to Q2 levels of 447 expected from the new farming the new generation of salmon and cost savings over the next 2 years?
We usually aren't that detailed that we're giving specific numbers for the cost development. There are many factors impacting this. So I think I will leave it at that. I don't know if you have any further comments, Himans.
No, I like your answer. So stick to it.
Okay. And then his second question is on the cost savings program. Will one off charges related to the 10% headcount reduction be excluded from operational EBIT going forward? And are the cost savings front and or back end loaded?
So maybe I can take this one. So very valid questions, but a little bit early. So this we must revert to and meanwhile ask for forgiveness.
Okay. And then Karl Emil, Johannessen at Pareto. He is asking, do you expect consumer products to continue to deliver the same strong margins but
we But we think as long as we have this situation with COVID-nineteen ongoing, consumer products will continue to leverage on the shift that we have seen in demand from foodservice to retail. And it takes time to copy our business model and set up. So for the 3rd Q4, yes, I believe at least I personally believe in a continuation.
And then his second question is on cost. Should we expect cost in Norway to come down longer term measured in euro if the NOK euro exchange rate remains unchanged?
I don't know, Shailai, how are you?
Yes, I guess all else being equal, but I guess currency is also hard to predict.
What I was of course, if the NOK is strengthening, that will help us in the short term. But in the long term, this is neutral in steady state. So it depends on the horizon really because let's say it at some point it was at 13. Let's say 13 was a new number, then it would have been neutral after generation. So it's after cycle from ag to plate.
So this is the dynamic here is short term. That's when you see the difference. So it's a little bit tricky to answer that question. So where is as Christian says that, where is what is the new FX? So let's say the new FX is 10 or 10.5.
After cycle, this is again neutral. So it sounds maybe a little bit peculiar, but just to pick up the pen and put down the numbers. So it's the same really. So it's just a change that matters. And that change is normally rather small.
So we do not talk about FX. But as we all see in the second quarter, there was a quarter that stood out FX wise. It was unprecedented. We have never seen this, at least in my time. I guess if you go even further back, we have seen it in combination with wars, etcetera.
But in a normal economy, we don't see that. We didn't we were not even close in the financial crisis in 'eight, 'nine. So yes.
Okay. Then moving on to Martin Karlan from ABG. He has some questions. The first one is on the shift in demand. Is it possible to quantify the approximate activity level of the Horeca segment for salmon compared to normal activity?
Any signs of improvement? I don't
know how specifically it should be, but we're talking about a significant reduction the foodservice or RAC segment. I don't know if you should give any percentages, Johan?
This is not easy, of course, but we have calculated our net effect number internally, which we believe in. So I guess we can share it with the rest of the world. So do not be shy, Christian.
We, of course, believe that foodservice segment to be down significantly, but retail as we know is also up
All right. And do you expect the activity level in consumer products to remain stable or increase going into the second half?
Yes. Well, there are more volumes in the second half. You also have Christmas, although maybe Christmas a little bit different this year. So if I had a Christmas, which I have not, I would say yes. Something else will surprise me really.
So yes.
Okay, very good. And then moving over to farming in Scotland. Is the biology in Scotland still challenging also on the younger generation of fish? Do you expect this to improve in the short to medium term?
Well, we actually thought in an improvement by now, but we haven't seen it. So and the Q3 hasn't started at the best. So we gave a heads up on the Q3 and I still think we should take that under advisement, so to speak. In the long run, of course, all of us that have followed the farming and salmon farming for a long time, we know that this goes in wave. So Scotland will come back absolutely.
But the second sorry, the 3rd quarter will not provide any improvements, I'm afraid. At least that's the stance we have today.
And then Christian Nurbi in Kepler. He has a question also in relation to farming in Scotland. And he's asking if you can elaborate on the biological issues in Scotland, what where are the issues in the second quarter? And can you do something to mitigate these effects or these problems going forward?
Another good question. So when people are before their laptop, they seem to have too good time to cooperate questions. Yes, so Scotland and the second quarter and also the first quarter. CMAS is an increasing issue also in Norway, but much to much more extent in Scotland. 30% of mortality is actually related to CMS.
And this is a result from the mechanical treatment that we started on in 'fifteen, 'sixteen. So this has made CMS, Gartesberg in Norwegian, a big issue or to be a big issue. On a positive note, the heritability factor for CMS is quite high, 45%. So this is something we can solve through breeding, through selection, but that will take time. CMS is caused by virus and there's no vaccine available.
So unfortunately, there is no quick fix. It's about not stressing the fish and not handling it, try to avoid lice. So then again, you have to keep the lice away. So good husbandry, good farming. When you have it, there is unfortunately no quick fix.
But over time, this can be sold through breeding. That is our view, I. E, using the traits of the salmon. So obviously, CMS is a part of the selection program in Moab breeding. We also had we also have had algaes in Scotland.
That is mother nature. We have that once in a while. So that's something that comes and go hard to control. Lies in general, but we also have struggled with Pastorella not in the second half, but we had big issues last autumn, which has impacted cost in the first half since we are harvesting out some of that fish now. Pastorella scayensis, which is a bacterial disease.
So there we have a vaccine and we have started to vaccine all the fish. So hopefully, Pasteurella is something that we can lay behind us, but we don't know. So this is the first version of this vaccine. In general, the seawater is warmer in Scotland. Fjords are more shallow.
So it's more challenging to be a salmon farmer in Scotland than in Norway. So in terms of cost, Scotland has and will most likely be a higher cost performer than Norway. But the profit over time has been really good. Return on capital employed far above our requirements. So it belongs in the portfolio.
But I don't think I will stand here and say that someday that Scotland now is the best cost performer in the summer world simply because the geography and the nature is different. But in the past, we have had very good figures in Scotland. So we and Scotland will strike back. But yes, the last quarters, we have struggled a little bit.
Okay. And then moving on to a different topic, branding. Can you give an update on the overall brand development in the quarter? Has the higher retail demand helped your Maui brand launch in France, for example?
Well, so unfortunately, COVID-nineteen hampers the launch of the brand. So we had the big with both France and the U. S. This year. And then retail is key.
And the environment hasn't been ready for it. So to a large extent, we have put off some of the launches. We have done so many in e commerce, but we need our disease free world, I think, before we are ready to speed up branding again.
Very good. And then moving on to another analyst, Lars Konrad Johansen from Carnegie. He has two questions. The first one is on cost and the cost cutting program. And he is asking you're addressing headline count in the new cost cutting program, but what do you do to improve the underlying farming cost?
And what cost level should we expect out of Norway over the medium term?
I guess the cost level we have already commented upon. When it comes to the concrete actions on farming, the biological side. Maybe you want to say something about that, Johan?
Yes. So we are taking a lot of measures. This is a long list. And we also are trying out new things. But we do not like to elaborate so much about it in a forum like this.
We have competitors out there. So some of this we must protect. But there are a lot of measures ongoing. So we are fighting cost on all levels. And just to put all doubt aside, the main driver of cost in this industry is biology.
So it's not the people, it's not inflation or regulation or the rest. It's biology, biology, biology. So that is number key in MOWI. But back to all the measures we take, we do not want to reveal it. Okay.
And
then his second question is on the supply demand outlook for the second half. You say that you expect a volatile autumn driven by seasonality and COVID-nineteen market disruptions. How do you see the supply demand dynamics over the coming two quarters? And how do you think that this will affect the contract renegotiations with the larger clients towards year end?
When it comes to the autumn and the time ahead, as we have already explained, of course, we are in a very challenging situation in foodservice and that will continue to impact us. And yes, that will improve when we have a more clarified COVID-nineteen situation with regards to a vaccine, a recovery, but it's difficult for us to give any precise answers on that development. But our belief is of course that this is short term and that we'll see a recovery after the short term. When it comes to contracts, we are into the processes now and I don't think we want to go into too much details when it comes to that.
I think we have to negotiate the contracts with our clients first. But we are going into very important months with regard to contracts. So and you all can read Fishburne and the expectations. So I think the backdrop is rather clear for all of us. And then we'll see how we can work around it.
It's also about the number of contractvolumes we enter into. So but this is again not something we want to elaborate on. This is a business secret. So I have to apologize and ask for forgiveness, but we have to keep some to ourselves.
Okay. And then Alexander Ochner from DNB. He is asking, are you looking at other noncore operations to divest in addition to DAS Aquaculture?
Yes, good question. But as we already have said, in general, we do not comment on M and A and such stuff. These are things we must come back to if we come back to it. So this is the strategy and the strategy discussions, they belong in the boardroom and not on this podium. So again, I apologize.
And then finally, Niels Tomassen. He has one question in relation to Maui's smalt stocking program for this year in Chile. And he's asking if the stocking if the expected stocking has been changed due to COVID-nineteen?
No, it has not. So in line with plans and in line with previous years. So no surprises from Chile in that regards for our part.
So that concludes the questions we have received. So do you have any closing remarks?
Well, I would just like to say thank you for having us and stay safe. Let's hope this is over and then we can meet sooner rather than later.