Good day, and welcome to the MHG Meeting Events Information Quarterly Report International Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Marine Harvest management. Please go ahead.
Thank you, and good afternoon. My name is Kim Galtung Døsvig. I am the Investor Relations Officer at Marine Harvest. Today we will go through the Q4 presentation material, which has been disclosed to the market this morning. Jumping into the presentation, which will be followed by Q&A afterwards, on page three, the highlights. The operational EBIT for the quarter was NOK 837 million. We saw good contributions from our farming segment in Norway. Our sea division delivered an all-time high result, both in terms of volumes and EBIT. The consumer products division had a good quarter. However, it was impacted negatively by operational startup issues at our new plant in Rosyth, Scotland. Overall, Q4 was characterized by strong demand in Europe and Asia.
Prices in Norway, in the market currency euro, were up by 6% in the quarter, which was good in light of a global volume increase of about 7%. In the Americas, the market was improving. It's still challenging in the Americas. Prices are still low. However, prices towards the end of the quarter in December and also into 2016 have improved. Also in Q4, we issued a successful EUR 340 million convertible bond at a very low coupon of 0.125% at a 35% premium. This takes our financial position to being very strong, and also our liquidity position on the back of this transaction has further improved. The board of directors decided to announce a quarterly dividend payment of NOK 1.4 per share for the quarter. Moving on to page four, key financials.
I will not go through all of the numbers, but some of the highlights for the quarter was revenues of NOK 8 billion, which is a 17% increase year-over-year, and about NOK 28 billion for 2015. That's a record for Marine Harvest, which was up 10% year-over-year. operational EBIT, we touched upon NOK 837 million for the quarter, down year-over-year. Net interest-bearing debt for the quarter ended at NOK 9.6 billion. Underlying EPS ended at NOK 1.27. Harvest volumes was about 110,000 tons, which is up 5% year-over-year. For 2015, we harvested about the same as we did in 2014, at 420,000 tons. operational EBIT for the quarter was very different across the regions, which I'll come back to when we go through the divisional operational review. Moving on to page five, prices. Prices were good in Europe, as I commented on earlier.
Very good in NOK terms, also good in euro terms, the market terms. Prices in the Americas are still at a low level, still below breakeven. Our Chilean operation, for example, is still loss-making at today's prices. However, prices did improve towards year-end and also into 2016. Moving on to page seven. Just a few comments on the bridge. Q4 2014, we had an operational EBIT of NOK 1,032. The difference to the results for this quarter was mainly due to a negative contribution from our farming segment of NOK 200 million. The driver for this negative year-over-year change is due to our Chilean operation being loss-making, also increasing costs in general throughout our farming operations, both in Norway also in Scotland and Canada. Our feed division improved results year-over-year by NOK 13 million. Consumer products was down NOK 29 million year-over-year.
NOK 95 million loss was recognized at the Rosyth plant. Excluding that, profits were good for the quarter for the consumer products division. Moving on to page eight, Norway. The results for the quarter ended at NOK 809 million in operational EBIT. Results were heavily impacted by increased prices. The reference price ended at NOK 45 for the quarter, which was up 15% in NOK terms year-over-year. Very good price development. We had a very high contract share, up 73% in December, which impacted results negative, meaning that we didn't have the full spot exposure to the highest spot prices for the end of the year. Cost development for our Norwegian operation is concerning, and we would expect high costs also for the first half of 2016. Moving on to page nine. Here are some details on our contract portfolio.
30,000 tons have been contracted for Q1, meaning that our contract share for Norway is at 56% for Q1. Due to very small volumes in January, the contract share is in fact as high as 79% for January. Page 10 details the operational EBIT for kilo per region. It's quite unusual to see such a high variance in between the operational performance. South being very stable. West was the best-performing region for the quarter, NOK 16.2. Mid being heavily impacted by biological challenges for the quarter. We have seen some sites have been fully harvested out early, meaning that the harvest cost at those sites have been very high. We have also seen the average harvest weight be quite low for region Mid for the quarter, and this has impacted results negatively. North was good and a total of NOK 12.1 for the quarter. Page 11.
In Norway, we have applied for 14 development licenses. The application is based on a new technology called The Egg. The Egg is an enclosed technology producing salmon in a controlled, closed-end environment. This has not been tested yet, so we will build a pilot for 2016 and conduct further tests and verifications for the next few years. We are very optimistic that this could be one of the solutions to solving the biological challenges we have today in Norway. We are also humble that this is only one of many efforts currently seeked in Norway. Moving on to page 12 and Scotland. Operational EBIT for the quarter was a -NOK 30 million, impacted, as I said, by negative contributions from Rosyth. Rosyth was allocated NOK 87 million of the total loss from that plant for the quarter.
Prices have also been weak in GBP terms, driven by increased competition from Norwegian salmon in that market. We continue to see challenging biological conditions going forward for this business unit as we guide costs to further increase for the first half of 2016. The current generation of fish we are harvesting exhibits high costs. Moving on to page 13 in Canada. Overall good performance from our Canadian operation despite a challenging market. We have some positive volume effects due to the higher volumes. Again, low prices in the Americas have impacted EBIT per kilo negatively for the quarter. Prices in Miami was down back to our processing plant as much as 13% for the quarter year-over-year. Higher costs have also driven biological costs higher and also higher feed costs. Chile, page 14. Prices in Chile was down by 22% back to plant for the quarter.
Hence, in this type of price environment, profits have been very poor. On top of that, the biomass in Chile today is still quite high, hence biological conditions are challenging. Full cost in-box has consequently risen to $5.1 / kg for the quarter. Production costs are expected to increase in the first half of 2016. However, we have seen in recent four months of 2015 that the number of smolt stocking is down as much as 17%, meaning that the biomass is on its way down for 2016, but also indicating that biomass should further contract with today's knowledge in 2017. Page 15, Ireland and Faroes. Faroes had, again, a good quarter, good contribution from this segment. Lower costs in Faroes than in our other production regions and good price achievement. Production costs in both Ireland and Faroes are expected to be higher in the first half of 2016.
Consumer products, page 16. Good seasonal demand in Europe, in particular in Southern Europe and Germany, and the U.K. for the quarter. Q4 is the best quarter for consumer products due to Christmas sales. EBIT margin and the overall EBIT level is usually the highest in Q4. That was the case again this quarter. Very good contribution from our chilled segment. We did, however, have startup challenges at the Rosyth. This plant was set up to cater for a big client we were awarded in the U.K., a big retail client, a long-term contract situation. A recovery plan has now been initiated, but it takes some time to sort out the operational efficiency and the plant effectiveness. Hence, we do guide for a NOK 60 million loss in Q1, and we do expect breakeven to be achieved towards the end of the second quarter.
Despite the losses, though, our customer is happy, and we achieved 97% customer fulfillment ratio for the quarter. It's very important to manage your yields in the processing segment, and the losses is a result of poorly managed or poorly achieved yields. The yield will gradually, and it's expected to improve in the months ahead. Moving on to page 17 and feed. We had record results from our feed operation, both in terms of volume and operational EBIT. Production capacity has been increased to approximately 310,000 tons, up from 275,000 tons, which we guided on for last year. This plant has been a huge success. We're very happy about the way it's running and performing. We have announced that we will build a second new feed plant in the next years to come in Scotland, to be precise. A location has not been decided yet.
Once we obtain approvals and the necessary permits, sometime throughout 2016. We will start building the plant in 2017, and the aim is to complete construction and start producing before the summer of 2018. That concludes the operational review. In the next section on financials, I will not go in detail, but on page 22, I think it's worth spending some time on the cash flow guidance. This is new for the year. We do guide on working capital or on several capital items for 2016. Working capital, we do expect to increase that of NOK 300 million to further support organic growth. The CapEx is projected to be NOK 1.8 billion. Please keep in mind that the depreciation for last year was NOK 1.25 billion, and that will increase further to about NOK 1.4 billion for 2016.
This means we have a number of expansion projects planned for 2016 and we focus in particular this year, as we did last year, on freshwater projects. Interest expenses of NOK 270 million and the tax payable of NOK 700 million. Revised NIBD target from EUR 950 million -EUR 1,050 million. The reason for that is increasing farming volumes, but also our business is growing across the group and we can also allocate more debt on our non-farming cash-generating assets. Quarterly dividend, as I mentioned, NOK 1.4 for the quarter. The ex-date in Norway is on February 26th and expected payment is March 2nd. Q4 ends the time when we have reported our financials in NOK. We have managed our cash flows and our funding in euro for many years, actually since 2006.
Starting from Q1 2016, we will have euro as our reporting and functional currency. This will be a change for us. The salmon market is mostly in Europe and in euro. As I mentioned, we manage our cash flows in euro, so there will be no operational changes. This is purely technical and from a reporting point of view. Just a few comments on page 24, supply developments. We have seen a global supply increase of 7% year-over-year for Q4. This was slightly higher than what we projected last quarter, and this is driven by some required harvesting in Norway and also biological challenges in Chile. Scotland and Canada developed more or less as expected. Page 25, we have talked about. Page 26, the global volumes by market, where we see a good underlying demand in Europe and Asia.
Russia, of course, is down by 38%, 33% to be precise in Q4. This is due to the trade sanctions, as expected. Challenging but improving U.S. market. Brazil has developed very nicely. China/Hong Kong is more or less flat year-over-year due to lack of large-sized salmon and also continuing trade restrictions and trade barriers with China and Hong Kong, which is unfortunate. Page 27. Our updated industry guidance on supply for 2016. We expect supply growth to decline for this year by between -6% and -2%. That's more or less evenly spread out for the year. On page 28, our own volumes. We are projecting or guiding on 436,000 tons, that's 4,000 tons less than the previous quarter due to reduced volumes from Chile. All other regions are unchanged.
Summing up on page 29, we see the market balance for salmon continues to be tight for 2016. Future prices are very high at NOK 16/kg for 2016, EUR 5.1 /kg , which is good. Strong demand in Europe and Asia continues. In the Americas, we do expect the market to improve on the back of lower Chilean smolt stocking. The dividends of NOK 1.4 we talked about, euro will be the reporting currency starting from Q1. Also the Capital Markets Day on June 1st and June 2nd has been announced today. This will be held in Bergen, and we hope to see many of you up there for those two days. More details around that event will be released in due course. Operator, that concludes my comments for this quarter. Please open up for questions.
Thank you. If you would like to ask a question at this time, please press star or asterisk key followed by the digit one on your telephone keypad. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. If you find that your question has already been answered, you may remove yourself from the queue by pressing star two. Once again, please press star one to ask a question. We will pause for just a moment to allow everyone to signal. Okay, we will now take our first question from Gianmarco Bonacina from EQUITA. Please go ahead, sir. Your line is open.
Yes. Good afternoon. Sorry for the voice. Few questions. The first one is about the outlook for 2016. Can you please explain what has changed since Q3 when you gave initial indication of a flat market for 2016? Now you are expecting a decline of 4% in global supply. Also, I would like to know if it's fair to assume that given the 20% decline in smolt in Chile, basically in 2017 also, we may see a decline in supply for Chile. If you can comment a little bit more on this new technology, AKVA group technology, because it's not clear exactly how you will farm the salmon. Just a couple of words. The last on the tax for 2016. You are guiding for NOK 700 million.
Just to understand, is that a fixed amount independent of the pre-tax earnings, or it could vary based on, let's say, higher or lower earnings? It's a kind of implied tax rate. Thank you.
Thank you, Gianmarco, for those questions. Starting with your first one on outlook. We have seen that Norway, for example, has developed more negative on the back of biological challenges in Q4. We have seen the number of individuals have been harvested in Q4 at low harvest weights, and this was required to comply. Looking at the biomass structure as of today, we see that there are fewer individuals to harvest from for 2016 than the expectations previous quarter. It's mostly Norway contributing to this negative revision in addition to Chile. In Chile, we have seen that harvesting in Q4 was slightly higher than what we expected, but that was at the expense of volumes for 2016. Some of those volumes have shifted into Q4 2015.
Again, looking at the biomass statistics, we see that the number of individuals have come down and also the harvest weight in recent months have also developed slightly different than what we expected three months ago. That brings me on to 2017 for Chile. You're right, the production time in sea indicates that the reduced smolt stocking should support a further negative growth in 2017. A further decline based on the number of salmon in the ocean today. Of course, you have some variables that could change that, temperature being one of them. Also, of course, if the smolt stockings change or increase dramatically now in the next few months, that fish will also be harvested in 2017. We don't know yet. All the number of fishes is not in the ocean today that will be harvested in 2017.
Based on the smolt stocking to date, it indicates further reduction. Your third question on technology. This is only one of many potential solutions that we are looking at at the moment, and also the industry is looking at. We are the one, in conjunction with our partner, has launched this The Egg enclosed technology. The idea is to have The Egg closed for the whole farming period. The water temperature would be slightly lower because you're getting the water from below The Egg, so deep from the ocean floor, and hence the water temperature is more stable and the growing conditions is more stable. This is very favorable from a farming point of view. There are some good advantages to producing salmon in this technology.
The idea is to have slightly lower feed conversion ratio because you can monitor the feed consumption much more closely. Also from an environmental perspective, in terms of waste and environmental footprint, it's also beneficial. A number of advantages, but still early days. A pilot will be tested in 2016, which will determine the speed of potential further development. This is an application at this stage, we also need to get final approval by the government. On tax, this is cash flow guiding. This is the best estimate we have today. This is tax payments in 2016 based on last year's earning. This is not equivalent to pre-tax earnings. This is the tax payment on a group level, which we expect to pay in 2016. Do you have any further questions or should we move on?
No, just, sorry, one follow-up about The Egg technology. Can you give an idea about the cost just for the infrastructure? Is this a significant cost or it's a small cost? What is the concern you have given the numerous advantages? What is the disadvantage? Is that the cost that is very expensive or? Thank you.
With all sorts of new technologies, it's of course costly to produce a new way or a production unit. With all other technologies, the unit cost of course will come down as we produce more and more of these units. We don't know yet when that will happen. It's too early days to market the economics-
Okay.
-specific unit cost.
Okay.
That will be announced when we get there.
Thank you.
Thank you. As a reminder, please press star one to ask a question. We will now take our next question from Fredrik Ivarsson from Kepler Cheuvreux. Please go ahead. Your line is open.
Thank you. Yeah, firstly, you say that you expect costs in Norway to remain high throughout the first half of 2016, but is it anything that might imply lower cost by the second half of the year, or is that just too early to say?
Hello, Fredrik. We have commented on or guided on the cost in the first half, and that's based on the biomass we have today. If you look in the note, we have a record high biomass cost. The current generation we are harvesting on is a high-cost generation, and that goes for all the different business units. The cost in the second half we haven't commented on yet because it depends on a number of factors. This will be a change in generation as well. It depends on how the first half goes, and it also depends on how the temperature and the biology is in the summer.
Okay, thanks. On the restructuring in Scotland, can you give just a ballpark figure on the expected savings here?
Well, we have said -NOK 60 million for losses in the first quarter, and then breaking even towards the end of the second quarter.
Yeah. I'm more referring to the reduced headcount and the restructuring program.
Labor cost and percentage of total cost is around 7% - 8%. This will not have a significant impact on production cost per kilo. This is something we have to do to ensure that we are rightly positioned. The more important cost variables, feed and biological costs, are much more important in this context. This is more of a necessary step.
Yeah, got you. Speaking about feed, last quarter you stressed that feed prices were to be high or at a high level. We don't really mention that today in the same extent, at least. Can you comment on the current situation and what you expect for 2016?
Well, we have seen that feed prices are expected to be high still. We have seen that the price of marine ingredients have come down a little bit. Also the prices of non-marine ingredients, wheat and the other soft commodities going into the production of feed has also been on the negative side in local currency. When we convert it to NOK, then it is still high. We do expect feed costs to follow the trend, and the trend the last years has been for an increase. There's no change in that.
Okay, thank you. Just the last one. If I correct for the startup issues in the loss side, I get an underlying margin improvement by approximately one percentage point for the consumer products. Can you give some color on that improvement and what's sort of driving that?
Yes, it's mainly the big footprint we have in Poland with Morpol. They had a good quarter. Of course, the fourth quarter should be the best, but you're right, year-over-year is also an improvement. A good operational efficiency at Morpol but also Kritsen in France. Our smoked operation in France had negative earnings in Q4 2014. They have been through changes and efficiency improvements throughout 2015. Q4 was an okay quarter for them. They're also back in making profits. It's mainly Morpol and the smoked operations which has contributed to the positive year-over-year change.
Okay, thanks. Just going forward, do you see any more fine-tuning possibilities in this segment?
There are, because we are introducing more and more automation. Remember that processing is today extremely labor-intensive. We are always trying to look at the different processes. There are lots of different handling and logistics and different teams involved in producing salmon. I think we have a lot to do here in the next few years to improve the production process in the processing segment. We have many plants across Europe, so we are trying to learning from the best ones and by also using better IT systems and software, we can also improve. This will be an ongoing process. There are no particular projects we have highlighted apart from that this is an ongoing program.
Okay, very clear. That's all for me. Thank you.
Thank you.
At this time, there are no further questions. I would like to turn the call back over to you, Mr. Døsvig, for any further closing remarks.
Okay. Thank you all for listening in and sharing your time listening to our update. With that concludes the Q4 earnings update. Thank you.
This will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.