© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Yes. I think the time is there. So welcome, everyone. Good morning to all of you out there, and welcome to the presentation of Mowi's second quarter results. My name is Ivan Vindheim. And with me today, we have our CFO, Kristian Ellingsen. As usual, we start with the highlights, quite an extensive list this time, I must say, in an eventful quarter. Operational EBIT of EUR 99 million, in line with the trading update released 15th of July. Operations have been running close to normal despite the COVID-19 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-19. We have seen our steep downward trajectory in the wake of it. In terms of the Farming volumes, 104,000 tonnes, 2,000 tonnes above guidance. We are taking down our full year guidance by 8,000 tonnes, all of it in Scotland due to biological issues this year in that region. Lending costs, Farming down from EUR 4.62 per kilo to EUR 4.47. We have low-cost performers in Mowi, and we also have high cost performers in Mowi, and we have a broad portfolio, consisting of 6 Farming regions. So this is the average Mowi Norway, Mowi Faroes and Mowi Chile, they are below. And in Scotland, Ireland and Canada, they are above. All-time high earnings in Mowi Ireland for our organic salmon, very, very impressive. We also saw record results and record volumes for 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 first and second quarter. So much about the highlights, then over the key financials. Kristian will walk us through this in detail later this morning. So I will just touch base upon turnover, EUR 910 million, down, despite an increase of -- 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-19 pandemic. This has also resulted in a decline in operational profit, which was, as already said, EUR 99 million against EUR 211 million 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, a steep decline in prices this year. We start at record high levels. And at least I thought this would be another great year for Mowi 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 achievement, good, in the quarter, I would say. A little bit below a reference price in Norway due to downgrades, knock-on effect from the winter source, but we had a small contribution from our contracts. So it's 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%. Operational 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 you have already been through. Costs are also somewhat up year-over-year. Then over to our most important Farming region, Norway. Operational EBIT of EUR 6 million in 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 first quarter, which is good. Volumes are important in this industry. Operational EBIT margin, EUR 106 per kilogram, reasonably good, I would say. Bear in mind that Mowi is a euro company, and we are using euro as a functional currency in Mowi Norway. So consequently, we have not benefited from the weakening of the NOK we saw in the second quarter, which was unprecedented. Over time, in steady state, carrying Mowi 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 around. Normally, it's not and you do not like to talk about FX in Mowi. We like to talk about fish 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. Operational EBIT per kilo per region, okay in mid-North, also an okay cost level. We have started to phase in a new generation, which is better. Our July numbers improved. So we 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 CAC sites, that is R&D, which always carry high cost. In addition, we also took out some big fish. So the second quarter is not representative for Region South, and we expect improvements in the third quarter. And July was, yes, 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 come will be important to us with regard to prices and price achievement next year. Scotland, EUR 14 million, margin of close to EUR 1, reasonably good, I would say, in a challenging environment. Production cost was very high in the first quarter. 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 a challenging last autumn. And as of today, we see a higher cost, unfortunately, in the third quarter 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 the prices decline, you get the hit or the biggest hit where you have -- or where you carried the highest cost. We saw cost was coming down in the second quarter, which is 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, we see that it's a challenging environment. The fish from Canada goes, first and foremost, into the U.S. market as a whole fish, somewhat fillets, and that are not the products that the market ask for these days, rough -- the COVID-19 situation. Chile, a good quarter, I would say, EUR 12 million 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, EUR 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, relatively speaking, is good. But taking into account the 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, when we have started this challenging second half season. Ireland and Faroes, fantastic results this quarter. If you start with Ireland, EUR 15 million, 15% of Mowi'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 a good price achievement on -- for them, high volumes gives good results. So altogether, we made EUR 21 million 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 at this time. As already said, all-time high profit on all-time high volumes for our second quarter. Value-added margin, 4.1%. And as we say here in the bottom, the COVID-19 pandemic underlines, once again, the strategic value of this downstream operation footprint we have. So again, you have much to thank Consumer Products for this quarter. They will also be very important the coming autumn. Turn over to Feed. Second quarter is better than the first quarter, but it's still a low season. So having said that, I think the second quarter was a reasonably good quarter. Operational EBIT of EUR 6 million, a 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 Mowi over the years. And I guess you also can say that the pace has increased too. We started a cost-saving program in 2018 and have saved cost of EUR 180 million to date, which is good through more than 700 separate initiatives. So we have been working with our cost base. In addition, we try to improve biology, increase survival ratio, et cetera. 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 the other input factors. And we cannot sit still and not address it, so we have to do more. Labor cost is #2 cost in Mowi, accounting for 60% of total cost. And so far, we haven't worked very hard on headcount in Mowi. 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 Mowi 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'll 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 time. 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, Kristian, can you please walk us through the financial figures and fundamentals? The floor is yours.
Thank you very much, Ivan. Good morning, everybody. I hope you are well and safe and enjoy our update on Mowi and on our Q2 results. I will start with the overview of profit and loss, where the top line shows operational revenue of EUR 911 million. Down from Q2 '19 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 EBIT of EUR 99 million translates into a return on capital employed, as we 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% 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, Nova Sea, which had very good results and operations in the second quarter. So we congratulate Nova Sea on good results, and we see an EBIT per kilo as much as EUR 1.7 from Nova Sea. And net financial items, negative EUR 14 million this time. Interest costs are reduced from Q2 '19. That is as expected. But on the other hand, we are affected by negative currency effects over P&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 '19, EUR 5.6 billion. 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 EUR 1.4 billion. The cash flow statement shows that net interest-bearing debt moved from EUR 1.357 billion to EUR 1.38 billion, so relatively stable. We saw a large tie up of working capital in the quarter, EUR 74 million. That is related to sales and marketing with EUR 24 million on tie up of accounts receivable as sales increased versus the first quarter of this year. Feed tied up EUR 26 million, mainly due to buildup of inventory before the peak season. And Farming had a special effect of EUR 21 million in VAT payments in Norway delayed from Q1 to Q2 as part of the COVID-19 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-19 aid package. Yes. Net interest and financial items paid, as guided, EUR 10 million. And as it's written here in the margin, we purchased 2.25 licenses in the Norwegian capacity auction in August for approximately EUR 29 million to be paid now in the third 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 Mowi's financial strategy, but under the prevailing circumstances, the Board has decided that it's not appropriate to distribute a quarterly dividend for the first and second quarter. 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 EUR 550 million. And we have a very good relationship with lenders in our bank syndicate: DNB, Nordea, ABN AMRO, Rabobank, Danske Bank and SEB. Then we move on to the supply and demand section. As we see here, global supply increased by 3% from Q2 '19. That is driven by 10% growth in Chile, as we see here. That is on good production and high average rates in Chile. But if we look ahead, supply growth in Chile is expected to be low in the second half of 2020 and negative in 2021. Small stockings are significantly down in Chile, down 12% year-to-date, July. On prices, we -- as we see here, we all know that we started at very good levels in 2020, but the prices fell as a result of COVID-19, 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 foodservice share is larger and COVID-19, 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-19 significantly impacted the trade flows and channel logistics in the second quarter. The foodservice segment represents around 40% to 45% of global consumption. And this segment, as we all know, was heavily impacted by COVID-19. 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 second quarter. In Europe, we have seen strong retail sales growth in the key markets, such as Germany, France and the U.K. That has been positive, of course, and has also offset some of the Foodservice demand reduction. In the U.S., we see the consumption increased by 3% despite the closedown 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-19 situation, very challenging. In Asia, we see that consumption increased by 11% from Q2 '19. Air freight rates have improved since the peak on better capacity. In foodservice, demand had almost recovered before the second wave of COVID-19 started. It's important to stress that we believe, of course, that there's 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 when 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-19 recovery. We see the range here from Q3, 2% to 7%; and Q4, 1% to 5%. And when it comes to our own volume guiding, as Ivan commented upon, we have guided down the Scottish volumes by 8,000 tonnes due to biological issues and increased mortality. The remainder of the 2020 volume guidance is unchanged. So that gives a net figure of 442,000 tonnes. Then Ivan -- then I would like to hand the word over to you to discuss the outlook.
So thank you, Kristian. Yes, outlook. So this goes without saying. In the short term, COVID-19 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 -- we believe in this, we see a strong underlying demand. So this is in our mind, COVID-19 driven. We get, often, the question, when will we see a recovery. Well, if I am to answer, I would say it purely depends on the COVID-19 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. And 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 foodservice -- 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-19 situation is ongoing. So part of the 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 Mowi 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 also been through a long period with significant growth, that also does something with the organization. Sometimes you have to take a breath 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 a 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 well boat company. We think the timing is right to initiate our divestment process for our stake in this company. This has never been defined as core asset for Mowi. It was an opportunistic move back in '16, 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 when the timing is -- or when the time is right. So much about outlook. Then I think the time has come for Q&A. Kim, our IRO, will administrate it. Kristian, our CFO, will join. So then, 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 third quarter from EUR 4.47 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 a generation, which currently has a better performance. You see that the third quarter 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 in Norway, which is South had high costs in the second quarter, and that is expected to improve in the third quarter. And yes, 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, first and foremost, more challenging biology, but also regulations and general cost increases for the infrastructures. And 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 cost will remain to be biology. So we don't expect to see any major shifts in the costs until we have more fundamentally better solution when it comes to treatments and related issues.
Okay. This -- his second question is on the license auction. Can you please give more color on your approach to the recent license auction, and whether the relatively low share of licenses won by Mowi, 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&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 Mowi provide any quantitative guidance on the blended pharma 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?
There usually aren't that detail that we've given 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, Ivan.
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-end or back-end loaded?
Yes. 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 Carl-Emil Johannessen at Pareto. He's asking do you expect consumer products to continue to deliver same strong margins and high volumes in the second half of this year.
Yes. It's always hard to predict about the future. But we think as long as we have this situation with COVID-19 ongoing, Consumer Products will continue to leverage on the shift we have seen in demand from foodservice to retail. And it takes time to copy our business model and set up. So for the third and fourth quarter, yes, I believe -- at least, I personally believe in continuation.
And then his second question is on cost. Should we expect costs in Norway to come down longer-term measured in euro if the NOK euro exchange rate remains unchanged?
Yes. I don't know. Shall I or you?
Yes, I guess, all else being equal, but I guess currency is also hard to predict.
Yes, absolutely. What I was -- of course, if the NOK is strengthening, that will help us in the short term. But in long term, this is neutral in steady state. So it depends on the horizon really. Because, let's say, at some point, it was at 13, let's say -- yes, 13 was a new number, then it would have been neutral after generation. So after a cycle from egg to plate. So this is -- the dynamic here is short term, and that's when we see the difference. So it is a bit tricky to answer that question. So -- as Kristian says, -- what is the new FX? But let's say the new FX is 10 or 10.5. After a cycle, this is, again, neutral. So it sounds maybe a little bit peculiar, but just 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've all seen, the second quarter 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, et cetera. But in a normal economy, we don't see that. We didn't -- we're not even close in the financial crisis in '08, '09. So...
Okay. Then moving on to Martin Kaland from ABG. He has some questions. The first one is on the shift in demand. Is it possible to quantify the approximate activity level, the Horeca segment for salmon compared to normal activity? Any signs of improvement?
I don't know how specifically it shall be, but we're talking about a significant reduction in the foodservice or Horeca segment. I don't know if you should give any percentages, Ivan.
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, Kristian.
We, of course, we believe the foodservice segment to be down significantly. But retail, as we know, is also up, compensating partly for this. So we believe the net effect is around 10% to market reduction, all in all.
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 is a little bit different this year. So if I had a crystal ball, which I have not, I would say, yes, something else would 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 third quarter hasn't started the best. So we gave a heads up on the third quarter, and I still think we should take that under advisement, so to speak. In the long run, of course, we -- all of us that have followed Farming and salmon for a long time, we know that this goes in waves. So Scotland will come back, absolutely. But the second -- sorry, the third quarter will not provide any improvements, I'm afraid. At least that's the stance we have today.
And then Christian Nordby 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 were 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 a too good time to come up with questions. Yes, so Scotland, in the second quarter and also the first quarter, CMS is an increasing issue, also in Norway, but to much more extent in Scotland. 30% of mortality is actually related to CMS and this is a result from the mechanical treatment we started on in '15, '16. So this has made CMS, you have to expect in the region, 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 is 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. Then again, you have to keep the lice away. So good husbandry, good farming. But when you have it, there is unfortunately no quick fix. But over time, this can be solved through breathing. That is our view, i.e., using the traits of the salmon. So obviously, CMS is a part of the selection program in Mowi breeding. We also had -- we also have had algae in Scotland. That is Mother Nature, we have that once in a while. So that's something that comes and go, hard to control. Lice, in general, so they also have struggled with Pasteurella, not in the second half, but we have had big issues last autumn, which has impacted cost in the first half since we are harvesting out some of that fish now. Pasteurella skyensis, 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. The fjords are more shallow. So it's more challenging to be a salmon farm in Scotland than 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 requirement, 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 salmon 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 Mowi brand launch in France, for example?
Well, so unfortunately COVID-19 hampers the launch of the brand. So we had the big plans 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 some in e-commerce, but we need a 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 Johnsen from Carnegie. He has 2 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 on the biological side, maybe you want to say something about that, Ivan?
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 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 a number key in Mowi. But back to all the measures we take, we do not want to reveal it.
Okay. 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-19 market disruptions. How do you see the supply demand dynamics over the coming 2 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-19 situation with regards to a vaccine, recovery, but it's difficult for us to give any precise answers on that development. But our belief is, of course, that this is a 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.
No. 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 fish ponds 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 contract/volumes we enter into. So -- but this is, again, not something we want to elaborate on. This is a business secret. I have to apologize and ask for forgiveness, but we have to keep some to ourselves.
Okay. And then Alexander Aukner from DNB. He's asking, are you looking at other noncore operations to divest in addition to DESS aquaculture?
Yes. Good question. But as we already have said, in general, we do not comment on M&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, Nils Thommesen. He has 1 question in relation to Mowi's smolt stocking program for this year in Chile. And he's asking if the stocking -- if the expected stocking has been changed due to COVID-19.
Shall I answer it?
Yes.
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, yes, 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.