Mowi ASA

OSE:MOWI

Earnings Call Transcript 2022-Q4

[Ivan Vindheim, CEO]

Good morning, everyone and welcome to the presentation of Mowi's Fourth Quarter Results of 2022. My name is Ivan Vindheim, I'm the CEO of Mowi and with me today to present the financial figures and fundamentals, I have as usual our CFO, Kristian Ellingsen and after presentation, our IRO, Kim Dosvig will routinely host the Q&A session. [Operator Instructions] Please refer to our website at mowi.com for necessary details. Disclaimer, I think we leave for self-study as usual.

Then we're ready for the highlights of the quarter, a quarter that marks the end of our record high year for Mowi financially, with operation revenues totalling €4.95 billion and operation profit of €1,005 million or €1.0 billion if you like. This is an historic moment for us as it's the first time in Mowi's close to 60 years history across the €1 billion mark in operation profit.

There are tens of millions of hours of hard work behind this achievement. So big thank you to all of my 11,500 colleagues in 25 countries who have made it happen. It's of course much appreciated. For fourth quarter only, Mowi recorded an operation revenue of €1.36 billion which was also record high and operation profits came to €239 million second best fourth quarter to date on season strong prices, I would say, driven by a reasonably good demand and our modest supply, actually global supply contraction of 2% year-over-year at least before we adjust for inventory movements. Including inventory movements, supply was stable year-over-year.

For the sake, an operation profit of €239 million is also in line with the trading update of the 16 of January. Furthermore, blended farming cost, farming costs for our six farming companies was €5.25 per kilo in the quarter and but that's relatively stable compared with the third quarter. Year-over-year however, cost is significantly up due to inflation and then first and foremost feed inflation and we expect a slight increase in release from stock cost in the first quarter due to this, in addition to seasonally lower dilution of cost because of lower volumes.

The underlying inflation we are witnessed over the past 18 months is unprecedented. So hopefully 2023 can offer some tailwinds on input costs; time will show. In terms of farming volumes, we harvested 131,000 tons in the quarter, which was slightly above the guidance of 127,000 tons adding up to 464,000 tons for 2022 in total.

For 2023, we expect to harvest directed [ph] 484,000 tons, which is equivalent to our growth of 4.3% year-over-year. As late as in 2018, we harvested 375,000 tons in Mowi, which means we have grown our farming volumes by as much as 109,000 tons over the past five years or 5.2% annually.

This is a above market growth and our clear goal is to continue to capture market sharing in the standing category by growing our farming volumes in the coming years, both organically and acquisitory, because farming volumes are in the end of day, the mainstay of our business model, that's what's everything hinges on in this industry and the demand for more salmons seems to be good.

Otherwise it was with great pleasure we -- or Mowi was once was once again ranked as the world's most sustainable animal protein producer by the prestigious Coller FAIRR. This is the fourth year in a row and as we've said numerous of times, sustainability is deeply ingrained in the Mowi culture and at the heart of everything we do. So this is more definitely our recognition and sincerely appreciate internally and personally I'm going to say it's very humbling to allow to lead such a company and organization that excel in this way in this important field.

And speaking of pleasures, it was also with great pleasure we just before year, received the approval of our acquisition of 51% of the shares in Arctic Fish, one of the leading salmon farming companies in Iceland. We have a separate slide on Iceland later in the presentation, so I think we leave it at that for in now.

When it comes to over divisions, consumer products, our downstream business has delivered another great set or another set of great results in the quarter, which runs so far, record high year for consumer products and operation EBITDA of €112 million on 229,000 tons of product weight. This corresponds to return on capital employed of solid 16.5%.

Our fee division can also put behind its best year to date in operation EBITDA of €47 million on 517,000 tons of feed, which is equivalent to our return of capital employed of satisfactory 13.1%. Fee performance was also strong last year, the fourth quarter included, which is of course of utmost importance to us by virtue being the world's largest salmon farmer.

However, notwithstanding all these records, everything is so far from rosy in the salmon universe, at least in the Norwegian, not in the Norwegian at part at least. And then I'm thinking on the category event on the 20th of September last year when the Norwegian left-wing government proposed to raise the tax level from 22% to unsustainable, 62% on Norwegian salmon farming or about 80% with Norwegian valve tax.

Such a tax level is completely unprecedented in a global agriculture industry and would impose major limitations on future growth and development of the Norwegian salmon industry if it's put in action. The public consultation response process and then on the 04 of January, that as expected, expected massive resistance to the proposal among the majority of the respondents, as many as eight out of 10 are against it from professors to small farmers along the Norwegian coastline. So there is no lack of warnings of the negative consequences of this tax proposal.

Everyone looks out for their own interests of course, but even manual municipalities, the main beneficiaries of this tax, at least according to their government, are skeptical as they fair the havocs it will recon current and future jobs in their local communities, which I think is well founded. If this will make a difference, it's another story and remains to be seen.

Now the political process has started and for our part to continue to work with all levels of Norwegian politics and organizations to try and turn this in our view and the business proposal into a viable framework for the Norwegian salmon industry also going forward. With regard to timetable, we do not expect to have a clarification until after Easter, at least a formal clarification and most likely not until close to the summer.

Last but not least, the board of directors has decided to distribute the quarterly dividend of NOK1.7 per share after the fourth quarter, which compares with 50% of underlying earnings per share and as such is in accordance without dividend policy.

That I think does it for the highlights for the quarter. Turn over to key financials. Kristian shall go in depth of financial figures on his sessions, so to not disrupt the course events, we'll just touch briefly upon the most important ones now. And first let's turn over, which we already have been through when we recorded an operational revenue of €4.95 billion in 2022, which was record high and up by 80% year over year.

Underlying volumes were quite stable last year across our business. So this is mainly explained by good market conditions and higher prices for all our divisions. For the fourth quarter only, Mowi recorded an operation revenue as set of €1.36 billion, which is also record high and by coincidence up by 80% as well year-over-year.

Operational EBITDA of €1,005 million we have already commented on all some high wide margin and almost doubled compared with 2021. As we addressed on the highlights, we have grown our farming volumes extensively over the past few years, which we capitalized on to the full in 2022 when the prices finally come back in Euro after two troubles on pandemic years where we as a Euro company did not benefit from the weakening of the NOK contrary to our Norwegian peers.

Cash flow in the quarter was highly impacted by tie up of working capital and capital expenditures in addition to closing of the Arctic Fish acquisition and net interest-bearing debt came in at €1.76 billion. Excluding Arctic Fish, net interest-bearing debt would've been €1.51 billion and adjusted for temporarily build-up of working capital, it would've been below a long term debt target of €1.4 billion.

In the case of the latter, we will revert to long-term debt target when we know the outcome of the Norwegian tax process. I think that's enough about cash for now. Just let me get back to further details later.

Otherwise, equity ratio was of healthy 49% at the end of the year and the underlying earning per share was €1.43 for the year and €0.33 for the quarter. And finally analysed return on capital employed was 24% for the year and 20% for the quarter both available [ph] by long-term target of 12%.

In terms of region margins through the value chain, Mowi invested once again out positively whereas our operations in the British Isles were disfigured by another biologically challenging quarter in the aftermath of a record warm summer. We may get back to explanation shortly when we go through the various business entities, but first briefly about prices.

As already said, we saw season strong prices in the fourth quarter, which have continued into the New Year on a reasonably good demand and on a modest supply. Compared to the fourth quarter 2021, reference price was up by 17% in Europe and up by 7% in Americas for Salmon of Chilean region. The salmon of Canadian origin reference price was up by 10% in Americas in the quarter year-over-year. Kris will elaborate more on prices and supplied demand under his session.

Turn quickly about our own relative price performance. Overall price achievements was good for Mowi in the fourth quarter and on or above the reference price for all our fish apart from Canna East where we harvest out some ice fish in the quarter. So perishable was also good in that fourth quarter.

Then briefly about the EBIT waterfall, as we can see from the graph here, operation EBIT increased from €146 million Euro in the fourth quarter, 2021 to €239 million in the fourth quarter of 2022. This was mainly driven by increased earnings in farming as a result of higher prices and volumes, partly offset by higher cost, but also the other businesses contributed positively this time around with strong operation performance and results across the board.

Then it's time to address the various business entities and first one out is as usual Mowi Norway, our largest and most important entity by far. Operator EBIT was €198 million four Mowi Norway in the quarter, which is the third best quarter to date, at least according to my records and up from €125 million euro in the comparable quarter of 2021. EBIT margin was €2.28 euro per kilo in the quarter versus €1.76 euro per kilo in the fourth quarter of 2021.

As the graph clearly demonstrates, this was caused by higher prices and volumes, partly offset by inflation and first and foremost feed inflation. In terms of biological performance, it's improved in the quarter year-over-year and also for 2022 as a whole and by extension, I think it's fair to say that Mowi Norway has been on a formidable journey over the past few years.

As the graph shows we harvested 210,000 tons in Mowi Norway as late as in 2017 versus record high 294,000 tons in 2022, which means we have grown our farming volumes in Norway organically by as much as 84,000 tons of the past five years or 6.9% annually and without putting, Mowi Norway towards the top of license utilization and production efficiency in Norway. Mission [ph] has laid the foundation for the record high results we saw last year. So a big thank you to our Norwegian farming organization for this achievement. It's highly, highly appreciated.

Then the breakdown of the margins for the different regions in Norway in the quarter, region [ph] once again out as the margin winner with €2.65 per kilo on lowest cost and on strong price performance, but neither region West Norwegian South were far behind this time around with margins of €2.35 per kilo and two €2.21 per kilo on good operation performance, I would say taken into consideration their geographical location.

Region Mid, on the other hand was slagging behind in the fourth quarter with a soft margin of €1.47 per kilo adversely impacted by harvesting 50% of the volumes in October at seasonally low prices in addition to more issues than normal last year with in particular sea lice.

Otherwise it deserves a mention that both Region North and Region South harvested record high volumes last year and all our entities in Norway recorded record high results, which is of course great. Then on Norwegian sales contract portfolio; in 2021 and 2022, we deliberately decided to keep our contract level low for our Norwegian volumes to capitalize on the expected post pandemic market recovery. In hindsight, I think we can safely say that this strategy has served us well.

For 2023, we have decided to keep our contract level relatively low as well at least so far, partly due to uncertainty related to the Norwegian tax scheme at least initially, but also due to our skewed harvest profile. In terms of contract prices for 2023, they are significantly higher than last year.

Then it's time to address the over-performing countries and first one out is Mowi, Scotland. The fourth quarter turned unfortunately out to become a another biologically challenging quarter for our solid tried Scottish organization. Now with issues with SRS Salmon Rickettsial Syndrome. Normally, although we are by this bacteria disease in this waters, which changed in the fourth quarter, probably triggered by an unusual warm summer; actually the warmest on record and used issues with micro jellyfish, the Mid Atlantic, which did not only cause mortalities, but also a weak fish health in general.

Against this backdrop, Mowi, Scotland, recorded a soft operation profit of €7 million in the quarter of €0.67 per kilo. Volumes have also been impacted by this and total 10,000 tons for the quarter and 48,000 tons for the year, both on the weak side.

On a positive note to our cold water sub done wonders for the fish shelf in Scotland and by extension, we have harvested large size fish so far in the new year which should prepare the ground for improve KPIs, knock on wood.

Then Chile; Mowi Chile saw increased earnings and margins year-over-year in the quarter on higher prices and volumes, partly offset by higher costs for their part as well due to inflation. In terms of numbers, operation EBIT was €20 million in this quarter versus €11 million in the comparable quarter of 2021. Our margin was up from 0.64 euro per kilo to 1.08 euro per kilo. Volumes are also up aside from 16.5000 tons to 18.500 tons. In general, both production and biology were recently good for our Chilean operations in the fourth quarter.

Then fobbing off to Mowi Canada; Mowi Canada turn a profit of €60 million in the fourth quarter against our breakeven result in the fourth quarter of 2021. This was driven by higher prices as well as cost increased year-over-year for our Canadian operations too due to in inflation. Volumes however, were stable 11,000 tons versus 10,000 tons.

In Canada West, we achieved strong operation profit of €21 million or €2.15 per kilo, which is a significant improvement from €8 million or €1.0 -- €1.07 per kilo last year or in the fourth quarter of 2021.

As far as Canada East is concerned, we harvested very low volumes in the quarter. On top of that, they were related to harvesting of ISA fish at high cost and low prices in addition to low dilution of cost or after low volumes. In terms of overall biology for Canada East, it has improved compared with previous years from which we expect to start gradually benefiting in 2023. I guess I should add knock on wood to this one as well.

Then our two smallest forming entities, Mowi Island and Mowi Faroes. For Simon Irish origin, we made a loss of €3 million in the quarter following issues with SRS as in Mowi Scotland. We also expect a week first quarter due to this, in addition to all the biological issues lost year. Our biomass in sea is low and we will prioritize biomass growth going forward and take advantage of colder waters during the winter and improved fish health. In Faroes, operational EBIT came to €5.5 million positively by means of a margin of €1.7 to €5 per kilo on 3,000 tons. Harvest volumes.

Then our latest addition to the Mowi family, Arctic Fish, as already said on the highlights, it was been great pleasure just before year and received the approval of the acquisition of 51% of the shares in Arctic Fish, one of the leading Atlantic salmon farmers. Iceland is Mowi's seventh farming country and was the last spot missing from our geographical footprint. Now we are looking forward to further develop the company together with the owners and the highly competent and motivated organization.

Iceland is namely one of the very few areas left that still offer extensive organic growth opportunities in conventional farming. And on top of that, Icelandic waters also provide excellent growth and living conditions for the salmon, which is key in this.

In 2023, we expect to harvest 15,000 tons in Iceland and in terms of reporting, we will start to report on the figures as from the first quarter onwards. The balance sheet is also already in our balance sheet. So as I am referring to that P&L figures. So much about Mowi farming, turn over to Mowi consumer products, our downstream business.

Consumer products made any impressive operation profit of €43 million in thick water, which is record [ph]. In terms of overall demand, it was good or more or less all markets in quarter. You also see a reasonably good development in the demand so far in the New Year, notwithstanding the economic slowdown we are facing.

Last one out Mowi feed. As said initially this morning, Mowi feed can also put behind its best year but also its best quarter today with an operation EBITDA of €47 million and €21 million respectively, which corresponds to a return on capital employ or satisfactory 13.1% for 2022.

Fee performance also strong in 2022 as said, the fourth quarter included, which is of course of paramount importance to us as the world's largest salmon farmer. In terms of volumes, we sold 149,000 tons in the fourth quarter and 517,000 tons for the year. And as is proper, I would like to commend our feed organization for this great results in what has been a challenging sourcing environment.

Then Kristian, the floor is all yours for walking us through the financials and fundamentals. Thank you so far.

[Kristian Ellingsen, CFO]

Thank you very much, Ivan. Good morning, everybody. Hope everybody is doing well. As usual, we start with the profit and loss and this statement here shows group revenue increased year-over-year for both Q4 and for the year. The full year figure was record high €4.9 billion following all time high achieved prices driven by a strong market and reduced contract share for Norwegian origin.

Strong revenues and volumes and competitive costs, gave a record high operational EBIT for the year and for the quarter at the same level as the third quarter and we will go further into costs in a few slides.

In financial EBIT; the fair value adjustment on biomass was positive on higher prices. Nova Sea, our associated company where we are the largest owner with the 49% of the shares had an operational result of €2 per kilo that was above MOI Norway region mid, but below the other regions in Mowi, Norway, impacted by some biological issues and lower rates.

Net financial items, as expected paid interests of approximately €12 million in addition to unrealized accounting effects, underlying apps increased in line with the operational EBIT and return on capital employed annualized 20.3% for the quarter, and 23.7% for the year driven by farming, but also strong return in consumer products and feed well below -- well, sorry, well above the 12% target. Cash flow per share impacted by working capital tie up, we come back to that in the cash flow statement shortly.

We then move over to the balance sheets. These numbers include consolidation of Arctic Fish and that's the main driver behind the change from the third quarter. Mowi's financial position is very strong with the 52% covenant equity ratio.

With regards to the cash flow and the NIBD, we see that the cash flow from operations was impacted by a working capital tie up of €229 million in the quarter, mainly related to temporary buildup of working capital and sales and marketing, feed and biomass in farming.

Other investments include €108 million for the shares in Arctic Fish, partly offset by dividends from Nova Sea. Excluding the acquisition of Arctic Fish, NIBD would've been €1.51 billion i.e. without the share purchase under consolidation of their inhibit.

As it looks now, we expect the net release of working capital this year in the amount of approximately €150 million, as many of the items this year have been of a temporary nature, including delays in the supply chain. Given the current information, we expect the release in the first half of the year of approximately €200 million related to accounts receivable, inventory and effects on payables.

When it comes to CapEx the guarding is €370 million euro including Arctic Fish with €30 million euro. With regards to the structural CapEx, this includes €70 million approximately in freshwater investments including postal projects in in Norway, which were already underway when the decision was made to hold back on expansion projects in Norway following the resource rent tax proposal. The same also with the ongoing [indiscernible] processing plant project in Norway.

Also, Arctic Fish has high investments this year in a new processing facility and also expansion of the small facility. With regards to the interest paid, this is expected to increase to approximately €70 million this year and taxes estimated to €175 million.

If we look further into the cost situation the backdrop is that we have been able to keep costs stable for the last five years until 2022. We see that indicated here also in the growth, a CAGR of 1.8%, that's less than annual inflation. Cost initiatives have offset the underlying cost pressure in farming.

However, the post-COVID inflation impacted cost figures in 2022, but the entire cost increase of €0.62 can be attributed to inflation as biological performance has improved year-over-year, and the by far most important driver here is feed inflation as feed prices have increased significantly.

But continued cost focus is very important. We need to combat increasing feed prices, biological measures, and more complex regulations as best we can. And we also would like to mention that we have the cost performance, which is good relative to peers. We are number one or number two in the various regions we operate over time.

And then with regards to the cost saving program, we over delivered on the targets we set ourselves for the 2022 program. The €48 million annualized savings we achieved last year related to the productivity program, yield and efficiency, procurement savings and order savings and the accumulated annual savings since these programs started back in 2018, amount to €230 million related to various procurement, contract improvements, productivity, order savings.

One example of the latter is that we achieved our target set for 2022 when it came to travel costs. We cut that by 50% compared with 2019 on avoiding unnecessary traveling and utilizing digital tools. We have initiated a new program now for 2023. This year, it also includes energy savings. We target 3% cut on annual energy usage in Mowi, amounting to approximately 28 gigawatt hours.

And one important result of these cost programs in addition of course to the P&L effect and the cash effect, is that we have built a more cost conscientious organization, cost culture or teams across the company have a stronger cost culture than what was the case some years ago. And we think it's important to maintain this focus and continue to monitor and to follow up and to seek barriers improvement all across the value chain.

When it comes to the productivity program, this is of course an important part of the overall cost saving program. And salary cost is the number two cost item in our P&L, €613 million for the year of 2022. We are proud to have achieved 9% FDE reduction in 2022 versus the start of the program in 2020. And this period, volumes have increased 6%, don't forget that. So we have in fact increased productivity with regards to FTEs and volumes by 15%, but we believe it's possible to have a further reduction in FTEs now in 2023 by working smarter, utilizing automation and right sizing and this will to a large extent be sold by natural turn over as it's also stated here.

Then we move over to fundamentals, first sustainability. We have cut our CO2 emissions for scope one and two by 9% the last year as much as 33% reduced comparing with 2019. With regards to scope three i.e. the suppliers and value chain, we have together with our partners managed 10% cut since 2019, and that's a good achievement, I would say.

In the end Scope 3 emissions are the most important part of the total here. So we are progressing well on our ambitious long-term targets in Mowi in this respect. And if you put this little bit into context, we have avoided two million tons also in 2022 annualized savings of CO2 compared with what have been the case if you replaced our proteins with a mix of other land-based proteins.

So salmon is definitely on the right side of sustainability. We have a good starting point with salmon being such an efficient protein, but these results don't come by themselves and we are product, we have been ranked number one on the Coller FAIRR Index now for the fourth time in a row. And we also have several other good rankings that's also reflected here on the slide.

A large part of our financing is also green or sustainability linked, including the bank facility, which is the backbone of our financing in Mowi. So we have linked financial performance to sustainability performance. The current mix is 81%, including Arctic Fish and the target is to be at a 100% in 2026.

We have a very solid financing in place and we are comfortable with that. And very good relationship with our core banks in DMB, Nordea, ABN Amro no Rabobank and Danske Bank, SAB and KABI [ph].

Okay, cool and the market fundamentals starting with the supply development in the quarter, adjusted for inventory movements than global supply was stable. So some additional comments to the supply situation. We saw that there were lower volumes than expected in Norway and Scotland in the quarter, partly offset by higher volumes than expected in in Chile.

In Norway, there was some early harvesting, lower weights and lower feed consumption than expected, biomass in Norway, down 3% for the market versus last year. In Chile, more harvesting than expected but biomass down also here, down 5% versus last year.

And here we see that the supply to the markets was stable year over year. And it's also very positive of course to see that the prices and the value of the salmon consumed was up approximately 20% than Q4 and 2022 was a record year when it came to the salmon market, with consumption totaling €21 billion up as much as 30% for the year.

When it comes to demand and consumption, we see in Europe, food service continued to improve and in the fourth quarter, retail sales were higher than before the pandemic, but decreased from the high level seen during the last years. In the US, consumption increased by 8% despite the very harsh winter weather in December. When we look at our own trading and consumer product figures in the US, we increased volumes by even more, 13%. So the numbers in the US were strong in the quarter. In Asia, however, we saw a consumption decline by 3%, higher than normal air freight still, and also limited availability of large size fish from Europe.

So it has been a record year price wise and after a seasonal downward adjustment after the summer, we have seen a good development during the winter and the blended euro price increase in Q4 was approximately 20% and then with regards to the expected supply growth, with lower biomass in Norway in Chile, the expected supply growth for 2023 is on the low side 2% and in Q1 we are looking at the supply contraction of between 0% and minus 5%, so constraint supply side going forward.

When it comes to our own volumes, 2022 was another year where we not only reached our harvest volume guidance, but also over delivered on the guiding we set. With regards to 2023 volumes, they now include Arctic Fish estimated to 15,000 tons. Total figure as we see here, is 484,000 tons for the year. In Scotland, we expect the volume recovery from a challenging 2022. We expect growth in Chile on overall good performance, while Canada West will be reduced following the loss of licenses in the Discovery Island area and also a site mix. Canada West is expected to be around 25,000 tons from 2024 onwards.

And with the 484,000 tons harvest volume gardens, we have increased volumes by as much as 109,000 tons over the last five years, equivalent to 5.2% annual growth versus industry at 4%. And there is an intrinsic potential here to grow volumes well above 500,000 tons.

Then, it's over to Ivan for some comments on the prospects ahead of us.

[Ivan Vindheim, CEO]

Thank you, Kristian, much appreciated. Nice time to conclude this on closing remarks before we wrap it all up; Q&A session hosted by our IRO; Kim Dosvig. As already said, the fourth quarter mark the end of our record year for Mowi financially with operational revenues totalling €4.95 billion and with an operational profit of €1005 million.

I just said an historic moment for us as is the first time in Mowi's close to 60 years history across their magic €1 billion market in operational profit. And further this, I think we must say that 2023 has started off on a good note with seasonally strong prices so far; on our reasonably good demand and our modest supply.

How this will develop further on the demand side, also course including ourselves, but normally the salmon first well in challenging economic times and the supply side looks supportive with an expected global supply growth of as low as 2% for 2023 according to [indiscernible]. So in other words, it's a good start to the new year.

Having said that and addressed earlier this morning, everything is though unfortunately not -- is though unfortunately far from rosy in the salmon universe, that is not the Norwegian part of it because the Norwegian government's infamous resource around tax proposal is hanging over us all and costs a dark cloud of the future prospects for the Norwegian salmon industry going if forward. An unprecedented tax level of 62% or 80% with Norwegian tax is simply not sustainable and would impose major limitations on future growth and development if it's put in action and thereby cause irreparable damage to current and future jobs in there are thousands along the Norwegian coastline.

Because the additional billions of not going to resource run tax payments going forward, will not be replaced by external capital infusions and therefore deteriorate our and the industry's investment capacity. There is no such thing as a free launch. Not here either. And I must admit that it really passes me that the Norwegian Ministry of Finance, in all seriousness, appear to believe that this tax proposal is neutral on future investments. Go figure, or Norwegian [indiscernible].

Nevertheless, the public consultation response process ended on the 04 of January, with a sad, massive protest from the majority of the respondents, including many of the local municipalities. So now the political process has started and we will, for our part to continue to work with all levels of Norwegian politics and organizations to try and turn this in our view, anti-business proposal into a viable framework for the Norwegian salmon industry also going forward.

With regard to timetable, we do not expect to have a clarification until after Easter, at least not a formal clarification, and most likely not until close to the summer.

So much about politics in terms of full year farming volume guidance, we expect to harvest us Kristian just showed us 484,000 tons in 2023, which is equivalent to a growth of 4.3% year-over-year, double of the expected industry supply growth and our continuation of the growth trajectory. Kristian just walked us through.

A clear goal is name is to continue to capture market chain and salmon category in the years to come and as you all know, in our industry, it's all about the farming volumes.

Otherwise, a heads up on blender farming costs for the first quarter as we expected to increase slightly, quarter over quarter due to seasonally lower dilution in addition to previous inflation. That being said, we hope to see a deep line in cost to stock this year on falling input prices. That's at least our take as of today.

And finally, the board of directors has decided to distribute a quarterly dividend of NOK1.70 per share after the fourth quarter, which compares with 50% of underlying earnings per share and as such is in line without dividend policy.

Then I think we are ready for the Q&A session, Kim. So if Kristian can please join me on the stage.

[Kristian Ellingsen, CFO]

So we have the first question from the web this time. Alexander Jones, Bank of America. He's asking -- he's got two questions on demand. The first one, can you give us an update on what you're seeing in terms of latest demand trends? And the second one in China; how do you expect China's relaxation of COVID curves to affect salmon demand this year? And what do you believe is the long-term outlook for Chinese consumption?

[Ivan Vindheim, CEO]

Yes. So if we start with demand, I would say that prices have been good now for a significant period of time. We have seen, of course -- we saw the seasonal decline following the summer last year. But the salmon has fared well during this autumn and this winter. And in the end, the best indicator of demand and the market is prices and we continue to see good prices in the market.

In the Q4, volumes and developments were good. As mentioned in my section, we saw that volumes were still ahead of pre-pandemic levels in retail and also good development in food service. And then we are in challenging economic time. So time will show how this develops going forward, but still, prices are good and development in the market has been good.

And then when it comes to China, China is a market which used to be around 5%. Looking at the 2019 situation before the pandemic. Now it is significant lower I guess around 3%. There is a significant potential for China. We see still air freight rates that is expected, of course to improve at some point. We know that China is predominantly a food service market. There is a significant potential for more home consumption, and we have our presence there. So I think Mowi is well set to benefit from improving market conditions in China, which we of course expect now with the reopening over time.

[UnidentifiedAnalyst]

[indiscernible] Could you say something about the winder wound situation in Norway this year compared to last year?

[Ivan Vindheim, CEO]

Thank you for the question. It's still an issue how this evolve during the winter is a little bit early to say, but we already see signals of winter source at the normal sites or the usual sites. So most likely it'll be an issue this year, but from Mowi's part, I think we are doing okay so far, but again, still early days.

[UnidentifiedAnalyst]

[indiscernible] Danske Bank. Just a question on the strong development in the consumer products market. Could you elaborate a little bit more on how you see the margins going forward, just based on how do you -- how you see the demand developing going into Q1 and also just operationally?

[Ivan Vindheim, CEO]

As we said during the presentation here, so far, it has been reasonable. So there are no -- there are no in indications of a slowdown, but as Kristian just said, we are in uncharted waters, right? So, if this slow down turns into a recession and it becomes deep and also persistent and this can change, but so far I think we all good.

It's just to look at our prices so far this year, and now I'm talking about 2023, it's amazing. It's fantastic. It's the best start of the year ever at least in my time in this industry. So far so good, but again, we are humbled, so we are not -- we don't know about the future, right? So it is about how does the economy -- world economy in general develop and salmon is our global product.

Food service has been fantastic off the pandemic, so that market has really come back at the expense partly of retail, of course because then people go out instead of eating home, but in total as Kristian shoulder, a really fantastic development so far but again, he knows about the future.

[Christian Nordby, Kepler Cheuvreux]

Christian Nordby, Kepler Cheuvreux. We saw that you made some contracts now for first half, 2023. Is the contract market more functioning now than it did a few months ago?

[Ivan Vindheim, CEO]

Yes, it is.

[Christian Nordby, Kepler Cheuvreux]

Is that because of the comments on achieved prices or is it something else from the politicians?

[Ivan Vindheim, CEO]

No, that's because, the farmers has been there all the time. The problem has been the supply, right instead the farmers, including ourselves. But with the statement we have heard from the government we take it for granted that the non-prize will not be an issue at least this year when it comes to taxation. Beyond that, who knows that's actually not decided yet. So challenging, but on a positive note, the salmon market is, or the salmon contract market is a one year contract market, so this doesn't really impact our operation anymore.

[Christian Nordby, Kepler Cheuvreux]

And your net debt target, is that something you're looking into post-acquisition of Arctic Fish?

[Ivan Vindheim, CEO]

Well I guess you should ask the CFO about that. So…

[Kristian Ellingsen, CFO]

Yeah, so I think it makes sense to now see happens with the resource we're in tax situation. We have some clarity on that, hopefully in a reasonable amount of time and then we come back to that after that.

[Martin Kaland, ABG Sundal Collier]

Martin Carlan, ABG. It sounds like you have had some notable issues in Central Norway. At the same time, costs into Q1 are only guided slightly higher, volume guidance, largely unchanged. Does that imply that the other regions in Norway are performing so much better, or is the situation also better in Central Norway going into Q1?

[Ivan Vindheim, CEO]

I think in relative terms mid has had or had more challenging lost year than the others, as you say yourself. And now we are six weeks into the New Year. So a little bit early to conclude on 2023. But nothing has changed really. So it's the same pattern now, but in this industry you have a bad year and then all of a sudden have a good year. So things fluctuate.

So, I don't think necessarily 2022, will be the new standard for mid Norway going forward, at least I do not believe. So you have normal locations in this. So, and overall, I think, and I started during the presentation Mowi Norway had a fantastic year. So I think this must be at least relative speaking, the best year so far in our history. And in absolute terms, it's absolutely our best year. It's just to have a look at our numbers, and so far we are doing fine, but again, six weeks into the new year, that's still early.

[Kim Dosvig, IR Officer]

Any more questions? No. So that concludes the Q&A session.

[Ivan Vindheim, CEO]

Right? That only remains for me to thank everyone for the attention.