Welcome to the first quarterly presentation for Mowi, this is the presentation of the fourth quarter in 2018. To present today, Ivan Vindheim, our CFO, is here to help me on the numbers. I think we just go straight in to the quarter. That didn't work. First of all, strong quarter for Mowi in the fourth quarter, EUR 213 million as operational EBIT. This is on the back of really good prices in most markets and strong demand.
The fact is that the production grew by close to 5%, or the supply grew by close to 5%. Prices in Europe increased by 12.5% in euros. If you think about that for a second, let that sink in, not many industries that actually can achieve that, a growth in supply of 5% and higher prices. Strong demand.
In terms of our feed operation, we produced 348,000 tons of feed in the plant in Bjugn. That is a record production. If you go back to when we designed that plant, it was designed for 220,000 tons, started up in 2014. A really good year production-wise. Challenging profit-wise, because it's tough competition in the feed world, but maybe even more important right now in terms of making sure that the fish grow well on the feed.
In terms of improvement in cost, this is something we have been working on throughout 2018. We managed EUR 61 million in a cost-cutting program that we launched for previous year. We go into another one this year with new EUR 30 million. A combination of a more professional procurement, which we really have focused on over the last six months, really.
We can see even more structural changes that can be done to achieve this. The low-hanging fruits are taken. In terms of launching our brand strategy and changing the name to Mowi, this we did in November. The first Mowi fish was harvested on the 25th of January, already sold to high-end restaurants.
This is coming, and the products go into retail now during this first half of this year. Very excited about the development here. In terms of dividend, the board decided to pay out NOK 2.6 per share, and this is to be paid out in Q1 2019. Just a little bit around the numbers. Top line grew with 6% in Q4 against Q4 2017. We ended a little bit north of EUR 1 billion. Operational EBIT grew by 18% in this quarter compared to the same quarter last year.
In terms of harvest volume, slightly down 6%. We will come back to explanation of that later on and the guiding going forward. All in all, the quarter, a good quarter, but also a strong year in 2018. All in all, second-best year in Marine Harvest history, or in Mowi's history, I guess this will go a little bit back and forth, but it was in the history of Marine Harvest.
In terms of prices, already mentioned, increased prices in all markets, maybe most impressive, the European market, which I already mentioned the numbers on. Increased supply, higher prices was the result in Q4. Impressive. In terms of our price achievement, good contract coverage or coverage as we predicted before last quarter, but good price achievement in most markets, I would say. Norway is strong. Scotland, especially strong.
Canada is spot market, so as expected, but also Chile has a good price achievement on its contracts. In terms of quality of the fish, good in Norway, excellent in Scotland and decent in Canada and Chile for this quarter. If we look at the bridge from the EUR 181 million we made in 2017 to the EUR 213 we made in the same quarter last year. You see that the major difference here is farming.
That's explained most of it, EUR 33.5 million. Cost, about stable, a little bit up and down in the different production areas. Prices are explaining this. That is the main explanation to the numbers. Over to the different production regions. If you look at Norway, I would say a good result. Regional differences here. Region North, very good result. We come back to the different regions and improved biology.
Region Mid, also a good result for the region. Some biological challenges there. Come back to those when we go into the different regions. In the region South, I think we see improvement, but low harvest volumes in this quarter. The generation of 2017 in region South was not the best. Somewhat increase in cost in Q1 versus Q4 volumes.
If we go on to the contract coverage going forward, you see Q1 and Q2, we are in there with about 20,000 tonnes. A little bit north of 20,000 tonnes. Fairly stable contract coverage, if you compare it to the contract coverage we had one year ago. At okay prices. In terms of the different regions, here you see the result in operational EBIT. We start in the South. All the regions improve, that we should expect when prices are going up.
Improvement in region south to NOK 160 per kilo, NOK 247 in region mid, NOK 274 in region north. Region north, I recognize, I think it's a very good result. Region mid, decent, region south can improve, no doubt about it. All in all, for the Norwegian unit, good result. If you look at Scotland, they improved quite a bit in this quarter from EUR 15.4 million in Q4 2017 to EUR 27.3 Q4 2018.
In terms of harvest volume, it's actually slightly a reduction. Even with the reduction in harvest volume in Q4 2018, you see cost improvement. Price is obviously explaining some of this, but also that the biology in Scotland is improving as we speak. High contract share and good growth, a lot of odds for Scotland will get a good recovery in 2019.
Canada, maybe the region and maybe region on the western side of Canada that we is mostly challenged with in a way at the moment. Still improved result in this region as well to EUR 17.4 million compared to the EUR 9.9 million we had in Q4 2017. Harvest volume slightly up to 12,000 tonnes compared to the 10,000 tonnes.
Still, an area where we have to work our way through the issues, especially some of the areas on the western side of Canada. That has to do with gill issues, especially, but recovering obviously in the wintertime, as it's normal because you have higher oxygen in the water when it's cold. Somewhat increase in cost in Q1 2019 versus Q4 2018, but on the back of lower volumes in this region. In terms of Chile, in regards to biology, quite impressive actually.
One of the best regions in terms of mortality. The SRS vaccine here seems to be working quite good. In the report, you can read about the reduction in antibiotic usage, significant. Really good, but the issue here is, of course, that the logistic cost of Chile is too high. If you look at the margin, CLP 125 against Norway, which were NOK 244, the performance in terms of production in Chile, in fact, is better.
It is not necessarily only the cost here that is the issue. It is unfortunately where we are placed. We need to position the fish now gradually, and we see more and more sites going totally off antibiotics, which is great news, for a higher price going forward. That we intend to do.
All in all, a good quarter also for Chile, and taking into account the prices maybe should have been better. Ireland, Faroe Islands. Good result in Ireland. Faroe Islands, we had some issues there. Basically, a mixed bag of issues. We had somewhat higher cost, somewhat lower quality, and somewhat reduced price achievement in the quarter.
Some mixed bag of explanation for the rather poor result in the Faroe Islands this quarter for us. If we then go into consumer products, record higher revenues shows that making good products sells, so high sale in the quarter. High operational EBIT, but we have to take into account that EUR 10 million out of the EUR 38 million here came from insurance payout in connection with the fire in Kritsen.
That's certainly in its place for sure, because we have been losing money in this unit throughout the year, so it needs to come back and the cost has certainly been spent. Still, it's part of the explanation. Other than that, though, higher volume sold, good earnings in the quarter, and especially fresh portions increased. The chilled or smoked salmon was flattish in development of volumes.
U.S., positive development. The European market is good for the time being. Saying that, there is strong competition in this market, and in combination with Easter being in late April in the next quarter, I think we will see a reduction in result also because of seasonality in the first quarter of 2019, compared to what we had previous year. Feed, already spoken a little bit about that. In terms of operational performance in fish feed in Bjugn, fantastic.
In terms of EBIT, we are struggling. I think most operators in this field have a tough time right now. We made money in the fourth quarter, but obviously we would have liked to make more money or made more money. Key issue though is to make sure that the feed is of excellent quality. The R&D within feed has done an excellent job, and we see really good growth resulting actually in the highest biomass we've ever had in Mowi, at the end of the year.
The feed volume here is up and so is the biomass in sea to m ake sure that the feed is actually giving good results. Especially important in times of strong competition. In terms of the operation in Kyleakin, I was there last week. It's delayed, we've spoken about that before.
Start trial production now in Q2. It's going to be an excellent plant in terms of technology, flexible in terms of raw materials, and can do productions that I think nobody else can do in terms of quality of small pellet or special feed. Really interesting development for us there. I think, obviously, the competition will stay hard in this market for time to come. Maybe it's easing up if you think a little bit in the long run.
In terms of the branding and that part of things, this is really a good tool, because you can design almost the salmon and the feed in the specification you want. Back to this, spoke a little bit about it in the introduction. We achieved EUR 61 million, compared to the target of EUR 50 million as communicated earlier. I think it's impressive, and this goes through the organization.
We've been able to reduce cost in all divisions, but also throughout everything we do, really. I'm impressed with that. I see also that the potential for being even more professional, and you can say, well, you should have done this before. I agree. You can always agree to that, at least when you see a real professional people coming into purchasing, things change. They need to change, because we get offered all kinds of strange solution these days.
It's important to be professional, especially in this area. We also still think we can take out EUR 15 million further cutting cost and making our operations more efficient. This will be taken and done in 2019. Ivan, a little bit on financial markets and harvest volumes before we end it.
Yes. Thank you, Alf-Helge. Good morning, everyone. As usual, it starts with the P&L, a turnover of EUR 1 billion, EUR 74 million this time. It's the second highest turnover for our fourth quarter for Mowi. To- date, operational EBIT EUR 213, also our second-best fourth quarter to- date. Full year numbers, EUR 3.8 billion in turnover, as Alf-Helge said, record high. EUR 73 million in operational EBIT, second best so far.
All in all, financially a very good quarter and also a very good year, I would say. Further down in the P&L, net fair value adjustment this time, EUR 12 million positive, not because of price development in the quarter, but because of a big increase in biomass in sea from 258,000 tons to 305,000 tons. The last number is also record high for Mowi. Income from associated companies, first and foremost, Nova Sea. Low volumes this time around, 5,600 tons.
You find it in the appendix. Then operational EBIT of EUR 1.7. First and foremost explained by low volumes to be Nova Sea. Full year volumes for Nova Sea was approximately 38,000 tons. Again, you find all the numbers in the appendix in the presentation. Net financial items, EUR -55 million, highly impacted by the last fair value adjustment of the outstanding convertible bond. It's now converted.
Plus some FX fluctuations towards year-end impacting the balance sheet recognition, so more accounting-related stuff. Operational EBIT margin in the quarter, close to 20%. Full year, 20%, still very attractive margins. Harvest volumes in the quarter, 106,000 tons, somewhat lower than last year, 375,000 tons on a full year basis. If we adjust for Northern Harvest, we are just south of 370,000 tons. More or less in line with 2017.
Operational EBIT margin for the group as a whole, EUR 2.01. Which is really good. On a return on capital employed, annualized of 26.6% in the quarter, and close to 25% on a full year basis. Much about the P&L. Over to the balance sheet or financial position, which we call it these days. Year-over-year, substantially up on increased biomass in sea, approximately EUR 350 million.
Net CapEx effect from 2018 above depreciation, north of EUR 100, and the acquisition of Northern Harvest about EUR 200. There is more or less only growth in this increase in the total amount of the balance sheet, which is good. Adjusted equity ratio year end 54%, obviously highly impacted by the conversion of the convertible bond. If we had included the IFRS 16 accounting standard, which we are as from the first quarter, it would have been approximately 50%.
The balance sheet will grow by approximately EUR 350 million according to our numbers right now. Net interest-bearing debt in line with the expectation. A very good operational EBITDA in the quarter. The fourth quarter is the quarter we tie up working capital, not only because of farming, but also because of consumer products. Particularly consumer products release their working capital in the first and second quarter.
We are a little bit, or I would say some above the focus we had for year -end 2020. Recall a ton of this is related to phasing of insurance. In practice, it has nothing to do with the normal operations. Adjusted for that, we were quite spot on in terms of working capital tie up for the year. Cost has been stable, actually a little bit down, this is due to growth in the various divisions.
On CapEx, we are somewhat low compared to the latest guidance we gave after the third quarter. If you remember, we increased it from EUR 270 to EUR 295. If you add up the numbers for Mowi as a whole now, you will end at approximately EUR 270. There is some short-term timing issues.
This number may also be seen in connection with the CapEx guidance for 2019, which we will soon visit. Interest expenses, normal. Dividend is dividend. The convertible bond, you are fully aware of. We went from a net interest-bearing debt at the beginning of the quarter of EUR 1.2 billion to EUR 1.037 billion after a quarter. A very healthy financial situation for the group before we start on 2019. On with the cash flow guidance.
Working capital 2019, we expect EUR 150 million to support further growth related to farming, consumer products, but also the opening of the new feed factory in Scotland. CapEx expenditure or capital expenditures, EUR 290 million, again, must be seen in connection with the short-term timing issues we had last year. If you look at the part which is not maintenance, EUR 65 million goes to freshwater expansion projects in Norway, this is a smolt facilities.
We have built a few ones over the last years, and we will continue to do so. We see that the average size of our smolt is increasing, and we think this is very important in terms of also delivering growth in the future, particularly taking into account the biological issues that we see around the world. Seawater expansions, EUR 50 million.
Bear in mind that we are going from 375,000 tons in 2018 to 430,000 tons this year. We need both net cages, barges, et cetera, in order to do that. Consumer products, they are continuing their growth. We are building a factory in the U.S. as we speak. We have also started on several automation projects in Europe, and we are also expanding our operation in Asia.
All in all, a CapEx of EUR 290 million for 2019. Interest expenses, EUR 55 million, and taxes paid, that is payable tax this year. First and foremost related to the profit last year, EUR 140 million. The quarterly dividend of Alf-Helge has just been through NOK 2.60, which is the same as for the last quarter or the third quarter. Over to our financing. We have converted the convertible bond. Further to that conversion, we have increased our bank facility.
In other words, we have exercised our accordion option, EUR 200 million. In total now, we have NOK 1.4 billion in bank financing, roughly our long-term debt target of NOK 1.4 billion. We have a higher bond of EUR 200 million at very attractive terms, as you can see here. Euribor, which is not very high at the moment, as you are aware, + 2.15% in margin. You could, I guess, argue if this is high yield, but at least that's the expression.
To sum up financing, very healthy situation at very attractive terms. I think we are well-supported by the financial position going forward. Much about the financial figures. Over to the fundamentals. First, supply development. Almost 5% in the quarter, somewhat higher than what we expected. All regions were aligned with our guidance after the third quarter, apart from Chile.
Chile has really surprised and impressed on the upside. The biology is looking really good down there. High harvest rates, and I think we must all agree to that they delivered both better results and biological numbers in 2018 than most of us thought was possible. Our commend to them.
Despite higher supply than expected, the price development was really good in the quarter, as Alf-Helge truly pointed out to begin with here. 12%-13% in Europe, but also Americas, really great, 8%-9%. A very good quarter in terms of price. Also price achievement for Mowi as we have been through. I think there is reason to also be positive going forward. In terms of the demand in the various markets, Europe grows more or less, at least on a full year basis, in line with the global supply.
Americas, they have a quicker growth, really impressive also in the fourth quarter. U.S. and Brazil are the two big markets. They are the drivers here. Asia, a little bit disappointing, I would say, particularly China. Japan is flattish. Japan has been flattish for years. I think the expectations for China was somewhat higher than what we saw last year. We still see that there are trade restrictions or barriers through this sanitary regulation, which you are fully aware of.
In addition, they also want big-sized fish, which was a problem in the fourth quarter. China, again, is still an undeveloped market, so we must increase our efforts in China and get out or tap the potentials there, because that is huge. For Mowi's part, we think that the opening of the new factory outside Shanghai will really help us. It will give us selling arguments.
It will also help us to start to work with the retail chains in China. So far, this is very much HORECA. We are still in good shape, but I think since we are summing up 2018 today, I think we must all agree to that 2018 was not good enough. On the positive note, the rest of the world is going great.
A fantastic year demand-wise, or should we say, another fantastic year. No reason to go out of this room with a negative outlook. Over to the supply outlook for 2019. More or less in line with 2018 on a global basis. We are a little bit higher on Chile than what Kontali is, and a little bit lower on Norway than Kontali is. Why, you can ask?
Well, this is our belief. Let's see when we stand here or somewhere else at the end of 2019. Overall, we think that 2019 will be more or less like 2018 on total global supply. In the end of the day, this is a global market, although we tend to see some short-term differences. For first quarter, 49%, somewhat higher than full year.
We think we have seen that January started off with high volumes. If you are following the export volumes for Norway, they don't look so impressive. If you include Scotland and the rest of the world, I think you will see that January has been on the upper range of this interval. Over to our internal volumes. No changes since last time we spoke or presented. Still 430,000 tons. Well supported by the biomass in sea.
If you take 2018 biomass and add it up to the final numbers and do the same for 2019, you will see that the math adds up. Actually, there could be some potential in the numbers. We still have a strong belief in this growth, which is big for Mowi. Again, if you adjust for normal harvest, look a few years back, you will see that this is not more than a recovery. That's it. I would like to say thank you and leave the word to Alf-Helge .
Thank you very much, Ivan. Let's just quickly go through the outlook. There's no reason to believe that demand globally should be weaker based on the supply outlook for what we see. We see a strong market going forward. Fish oil prices for the 12-month period supports that at EUR 6.3 per kilo.
For our own case just described by Ivan here, we have a record high biomass in sea, and that should significantly increase our volumes to the 430,000 ton that we have predicted in 2019. Organic growth for us, going forward, I think almost the best kind of growth, if you ask me, in terms of both feed with the new plant in Scotland coming online, which has high potentials. Also the feed production in Norway.
Farming basically in all units, you just looked at the slide for our own supply outlook, especially Scotland and obviously Canada, but also Chile is coming on strong and also recovery in Norway. In the processing area, we keep on adding on facility and making facilities more efficient going forward. That is highly important for building market.
If you don't have good products, why would you buy it? That is the key essence here. Cost has been described. It's important for us to keep the focus on cost, keep professionalizing this, and we can do more. We know that. Our target is to further reduce cost to EUR 30 million in 2019. In terms of consumers' product, I think we will see a reduction in result in Q1, a little bit around competition in this area, but also the fact that Easter comes late this year.
Mowi branding strategy is going on, really, this is obviously something that just takes time. We already said that when we presented this. This is something that is transforming this company from what it is to be actually more driven from quality throughout the value chain, with focus on the end consumer. I think we can get a lot better in that area in this business. We need that to take out higher prices, better products, higher margins. Key.
In terms of dividend, already said many times, NOK 2.6 per share paid out Q1 2019. With that, I would like to thank you for coming, also open up for question first. We have a few guys with microphones here, please state your name and where you work, we take it from there.
Hello. Christian Nordby, Kepler Cheuvreux. You say that you now sold Mowi fish to restaurants and that you're starting to the retail market in the first half. Can you tell us something about how the restaurants are taking the fish? Are they willing to pay extra? Which markets are you starting in the first half?
Feedback on quality and for what we see on this product is fantastic. The first feedback is really good. We see it with our own eyes, too. You can basically feel the texture, you can see the color, you can see and you can taste the difference. Fantastic product. We have high belief in it.
Kolbjørn Giskeødegård, Nordea Markets.
Okay.
One of the questions on the market, can you say something more about the competition in Europe? How crowded is the market, and to what extent is Chile or the big supply from Chile still blocking from options in overseas markets, Asia and North America for Norwegian salmon? Thanks.
Yeah. In Europe, maybe especially in the smoked market, we have strong competition. We know that there are facilities opening up and this is obviously also dependent on what kind of raw material strategy you have, what kind of belief you have in raw material prices going forward. There is no doubt there is strong competition in that segment. We will feel it for certain. In terms of Chile, your question is blocking into Asia or competing hard in Asia.
I think Chile has done a good job into Asia, but bear in mind that the freight cost from Chile kind of more of outweigh the fact that they have a free trade agreement with China. I think with more focus from the industry in Norway, we should absolutely be in a place where we should be able to compete. Hopefully this is coming.
We have had great success, for example, in Mowi with our factory in South Korea. You saw the growth in South Korea, where you have a factory in the marketplace where you can go directly to retail. We have a high belief, but it's going to take hard work and Chile has done a good job there to place itself in a position in a period where we have been forced out of the market.
Tore Tønseth, SpareBank 1 Markets. Your biomass is up 18% year-over-year, and it seems to be some upside in harvest volume guidance for 2019. Which region is performing better than you expected given that the biomass is 18% up?
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Okay. Secondly, about Chile. You're almost not using any antibiotics in the fourth quarter and compared to rest of the industry is it quite achievement? Is it the SRS vaccine which is the main cause of this, or is it other factors that are having an impact?
I think we have been, not to brag, I don't like to brag too much, but in terms of biosecurity, in terms of smolt quality, I think we have been performing well in Chile over time. I also think if you look at antibiotic usage over time, the transparency we've had over time and focus also have an effect. There's no doubt that the vaccine has helped. We have areas where we are pretty much alone in Chile, if you can say that, which are not using even in region 10, which has not been using antibiotics, which is good. All good, but then again, it's important now to keep focus.
The last question. Are you seeing any resistance towards different chemicals used in treatments of sea lice in Chile?
We always monitor that, and we pay attention to that, and we have a plan in place. I think we have been driving the industry towards change there. We know there are remedies that will work, because the sea lice in Chile, I guess many of you know, it is called Caligus. It is a different lice than the Norwegian Lepeophtheirus. Easier to deal with freshwater treatment. We have a plan in place, and we are working with the industry. So far, also, sea lice treatments in Chile has been good for our case. That is something you have to look at all the time.
Thank you.
Carl-Emil Johannessen, Pareto. Can you say something about your plans for Northern Harvest and what we can expect in terms of growth in East Canada going forward?
A little bit. We are to build a new hatchery there. That is the first part of the deal. Ivan showed it in the CapEx part. We will gradually expand this business. I believe in that, but we have to start with the smolt. Bigger smolt, high potential there, and also obviously better equipment over time is important. Gradually take it up to its potential. We have not guided on volumes there.
Thank you.
Lars Konrad Johnsen, Fearnley Securities. Two questions. Could you give us some details about your thinking around, you said you're lower on Norway compared to Kontali and higher than on Chile? I guess it's something about regulations, biology. Just give us some details about your thinking there. Second question about contract share and what kind of both prices are we seeing from now on, and then what's kind of the long-term strategy in terms of the share?
Should I try? On Norway, Ivan has basically already answered on the guiding of Norway. I think also it's fair to take into account that we have accounted in that part of this. We don't know yet, but part of this will be red in the traffic light system. There's a hearing out there now on how this is going to end up and so forth, but that's also part of the argument, I think, in our calculations. Contract share and prices we certainly don't comment on, and the contracted volumes going forward, you have seen. I showed a slide, it was 21,000 tons and 25,000 tons. You can look at it's there. Yeah. Did you have a follow-up to that, Maud?
Slow for the second half of 2018, and we could see some kind of development.
Yeah. What you see from the numbers here was that the contract were at the same level Q1 2019 as Q1 2018 for us. You saw maybe a slight reduction in Q2, but there's still negotiations going on. That is the contracted volume as we speak. Okay.
Could you maybe repeat or elaborate a bit further on the biological situation on the Faroe Islands and the low margin this quarter there? Was it purely generation-based, or is the biology more, or has been tougher all over the place?
No, I think we have to speak for ourselves. We didn't have a good quarter in the Faroe Islands in the fourth quarter. That was way under expectation for ourselves, and it had to do with several reasons, as already said. Price achievement was one of them. We didn't manage to take out the price we should probably have taken out for the product.
The performance should have been better in the Faroe Islands for our sake. Cost was up on the site we harvested. Also, a third component here, which is quality of the product wasn't the best, as you will see in the report, which also drags down this price achievement. I think it's special probably for our sake. I can only comment on us. We are not happy. More questions? If not, have a fantastic day, and thank you for coming.