Part 1: Critically evaluate the role and value of the fundamental and comparative valuation approach (ratio analysis) in an international context. (500 words)
Part 2: Make a valuation analysis of Mowi ASA as of the end of Q1 2022 (see annual report 2021 and Q1 2022) to make a buy-hold-sell recommendation.
All of this must be done by adopting the point of view of a shareholder.
Quarterly Report Q1 2022 • Operational EBIT of EUR 207 million. Financial EBIT of EUR 264 million • Significantly increased earnings on all-time high Q1 revenue driven by a strong market • Record-high Q1 achieved prices and earnings for Norwegian origin • Improved biological and financial performance in Canada West • Consumer Products with earnings of EUR 21 million on good operational performance • Quarterly dividend of NOK 1.95 per share; NOK 1.44 per share in ordinary dividend and extraordinary dividend of NOK 0.51 per share Harvest volume GWT 125 468 107 977 117 115 115 040 96 600 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Operational EBIT EUR million 109 137 131 146 207 Q1 2 1 Q2 2 1 Q3 2 1 Q4 2 1 Q1 2 2 Operational EBIT EUR per kg 2.55 1.02 1.26 2.56 3.71 1.53 2.14 Nor way Sco tlan d Chi le Can ada Irela nd Far oes Gro up HIGHLIGHTS – FIRST QUARTER 2022 • Operational EBIT of EUR 206.7 million. Financial EBIT of EUR 264.1 million. • Significantly increased earnings on all-time high Q1 revenue of EUR 1 095.3 million (EUR 1 022.4 million) driven by a strong market. • Blended Farming cost per kg increased to EUR 4.78 due to lower seasonal volumes and higher input prices. • Harvest volumes of 96 600 GWT in the quarter, slightly below guidance of 98 000 GWT. • Good growth performance in sea. • Record-high Q1 achieved prices and earnings for Norwegian origin. • Improved biological and financial performance in Canada West. • Consumer Products with earnings of EUR 21.2 million (EUR 32.2 million) on good operational performance and continued strong retail demand, partly offset by significantly increased raw material prices. Sold volume 56 414 tonnes product weight (61 578 tonnes). • Strong financial position with covenant equity ratio of 56.2% and NIBD of EUR 1 177 million. • Quarterly dividend of NOK 1.95 per share; NOK 1.44 per share in ordinary dividend and extraordinary dividend of NOK 0.51 per share. Main figures 1) Q1 2022 Q1 2021 2021 (EUR million) Operational revenue 2) 1 095.3 1 022.4 4 207.6 Operational EBIT 3) 206.7 109.2 522.6 Operational EBITDA 4) 248.9 151.3 690.3 EBIT 264.1 268.3 602.2 Net financial items -2.3 16.4 -8.9 Profit or loss for the period 205.1 233.6 487.9 Cash flow from operations 5) 208.9 168.7 627.6 Total assets 6 335.0 5 996.5 6 259.5 NIBD 6) 1 177.1 1 273.6 1 257.3 Basic EPS (EUR) 0.40 0.45 0.94 Diluted EPS (EUR) 0.40 0.45 0.94 Underlying EPS (EUR) 7) 0.29 0.15 0.71 Net cash flow per share (EUR) 8) 0.30 0.40 0.85 Dividend declared and paid per share (NOK) 1.40 0.32 4.45 ROCE 9) 23.4 % 12.7 % 13.4 % Equity ratio 51.7 % 50.9 % 50.0 % Covenant equity ratio 10) 56.2 % 56.2 % 54.6 % Harvest volume (GWT) 96 600 125 469 465 600 Operational EBIT per kg (EUR) - Total 11) 2.14 0.87 1.12 Norway 2.55 0.98 1.43 Scotland 1.02 1.46 1.20 Chile 1.26 0.40 0.71 Canada 2.56 -0.36 -0.23 Ireland 3.71 4.55 2.09 Faroes 1.53 0.48 1.28 1) This interim report is unaudited. Please refer to part 4 of the Annual Report and the appendix to this quarterly report (available online on our web site) for detailed descriptions and reconciliation of Alternative Performance Measures (non-IFRS measures) including definitions of key figures and reconciliation to IFRS figures. 2) Operational revenue: Revenue and other income, including realised gain/loss from currency derivatives related to contract sales, and excluding change in unrealised salmon derivatives and sales tax in the Faroes. 3) Operational EBIT: Calculated by excluding the following items from financial EBIT: Change in unrealised internal margin, change in unrealised gains/losses from salmon derivatives, net fair value adjustment on biomass, onerous contract provisions, restructuring costs, income from associated companies, impairment losses and write-downs, sales taxes/license fees/production fees and other non-operational items. Operational EBIT also includes realised gain/loss from currency derivatives related to contract sales. A reconciliation between Operational EBIT and financial EBIT is provided on the next page, and we also refer to the appendix to this quarterly report (available online) for further information. The largest individual difference between Operational EBIT and financial EBIT is usually the net fair value adjustment on biomass according to IFRS (and the related onerous contracts provision), which is a volatile figure impacted by estimates of future salmon prices as well as other estimates. 4) Operational EBITDA: Operational EBIT plus depreciations. Effects related to IFRS 16 (leasing) are excluded. 5) Cash flow from operations: Effects related to IFRS 16 (leasing) are excluded. 6) NIBD: Total non-current interest-bearing financial debt, minus total cash, plus current interest-bearing financial debt and plus net effect of currency derivatives on interest-bearing financial debt. Effects related to IFRS 16 (leasing) are excluded. 7) Underlying EPS: Operational EBIT adjusted for accrued interest payable, with estimated weighted tax rate - per share. Effects related to IFRS 16 (leasing) are excluded. 8) Net cash flow per share: Cash flow from operations and investments (capex), net financial items paid and realised currency effects - per share. Effects related to IFRS 16 (leasing) are excluded. 9) ROCE: Annualised return on average capital employed based on EBIT excluding net fair value adjustment on biomass, onerous contract provisions and other non-operational items / Average NIBD + Equity, excluding net fair value adjustment on biomass, onerous contract provisions and net assets held for sale, unless there are material transactions in the period. Effects related to IFRS 16 (leasing) are excluded. 10) Covenant equity ratio: Book equity ratio excluding effects related to IFRS 16 (leasing). 11) Operational EBIT per kg including allocated margin from Feed and Sales & Marketing. Q1|2022 © Mowi 2 PROFIT - Financial results in the quarter The Group’s profits hinge on its ability to provide customer value from healthy, tasty and nutritious seafood, farmed both cost-effectively and in an environmentally sustainable way that maintains a good aquatic environment and respects the needs of wider society. (Figures in parenthesis refer to the same quarter previous year.) (EUR million) Q1 2022 Q1 2021 Operational EBIT 206.7 109.2 Change in unrealised margin 5.1 10.2 Gain/loss from derivatives 12.4 8.9 Net fair value adjustment on biomass 55.4 88.2 Restructuring costs -2.4 -2.3 Production/license/sales taxes -5.4 -4.4 Other non-operational items -2.2 -2.9 Income from associated companies 18.3 61.7 Impairment losses & write-downs -23.9 -0.4 EBIT 264.1 268.3 Operational EBIT amounted to EUR 206.7 million. The increase of EUR 97.5 million from the comparable quarter was mainly due to improved earnings in Farming on higher prices. The contribution from Feed was EUR -3.5 million (EUR -3.0 million), and Farming contributed EUR 180.1 million (EUR 67.5 million). Markets contributed EUR 12.1 million (EUR 14.1 million) and Consumer Products contributed EUR 21.3 million (EUR 32.2 million). Earnings before financial items and taxes (EBIT) came to EUR 264.1 million (EUR 268.3 million). The net fair value adjustment on biomass including onerous contracts amounted to EUR 55.4 million (EUR 88.2 million), mainly due to improved prices at the end of the quarter compared with the previous quarter. Financial EBIT was negatively impacted by impairment losses and write- downs of EUR 23.9 million in Mowi Canada related to the turn- around and revised plans. Income from associated companies of EUR 18.3 million mainly relates to Nova Sea. The corresponding figure of EUR 61.7 million in 2021 was positively affected by the divestment of the shares in DESS Aquaculture Shipping. The operational result for Nova Sea in Q1 2022 was equivalent to EUR 2.81 per kg (EUR 1.56 per kg) on a harvested volume of 7 114 GWT (10 524 GWT). Financial items (EUR million) Q1 2022 Q1 2021 Interest expenses -13.7 -15.7 Net currency effects 12.9 29.0 Other financial items -1.5 3.1 Net financial items -2.3 16.4 Interest expenses in the quarter include costs of EUR 3.3 million (EUR 4.4 million) related to IFRS 16 lease liabilities. Net currency effects are mainly related to unrealised currency gains on hedges and working capital items. Cash flow and NIBD (EUR million) Q1 2022 Q1 2021 NIBD beginning of period* -1 257.3 -1 458.4 Operational EBITDA* 248.9 151.3 Change in working capital -10.9 34.9 Taxes paid -22.2 -24.2 Other adjustments -6.8 6.8 Cash flow from operations* 208.9 168.7 Net Capex -38.6 -31.9 Other investments and dividends received 0.5 93.2 Cash flow to investments -38.1 61.3 Net interest and financial items paid* -10.0 -10.0 Other items -5.8 -10.9 Dividend/return of paid in capital -71.9 -16.2 Currency effect on interest-bearing debt -3.0 -8.1 NIBD end of period* -1 177.1 -1 273.6 *Excluding effects of IFRS 16 Cash flow from operations (excluding effects of IFRS 16) amounted to EUR 208.9 million (EUR 168.7 million). There was a working capital tie-up of EUR 10.9 million in the quarter. In Farming and Sales & Marketing there was a seasonal release of working capital which was more than offset by settlement of payables in Feed. Taxes paid include EUR 10.4 million in production fee in Norway accrued for 2021. Net Capex was EUR 38.6 million (EUR 31.9 million). NIBD at