Welcome to the presentation of the Q1 of 2014 for Marine Harvest. To present today, Ivan Windheim, our CFO and myself, Alfael Gorskull. I have to show you this, and then we'll continue to the highlights of this quarter. First of all, it's another good quarter for Marine Harvest, an EBIT of just north of NOK 1,000,000,000. Most of all, I think we can say that this is due to a very strong market in the quarter, 4% growth in supply and still very good prices.
For Marine Harvest, we have had high contract coverage or rather high contract coverage in this quarter, 40% in the Norwegian operations and 64% or above 60%, at least, in our Scottish operations. That takes a toll on the total operating profit. In terms of other areas to improve going forward, in this quarter, we have struggled in some regions in Norway in regards to cost. And I will come back to that and explain why later on. Another good thing, I don't know if I should say it's good, we actually really wanted to keep the Shetland and Orkney operations.
But at least we were able to sell them to a decent price, I think both for the buyer and for the seller and managed to do that within the time limit set. We got 122,000,000 GBP 122,500,000 for this, which comes in good. In terms of financing, we issued a convertible bond at favorable terms in this quarter. This gives us better financial flexibility going forward, and we're very happy with the terms. Quarterly dividend, the Board will propose this dividend of NOK5 per share to the AGM to be hold in Bergen on the 22nd May this year.
Just some key numbers. Quite a growth in turnover in the group, up from NOK 3,700,000,000 in the Q1 of 2013 to closing in on NOK 5,900,000,000 in sales in the Q1 of 2014. Cash flow at NOK 1,200,000,000 compared to NOK 351,000,000 in the Q1 of 2013. Maybe at least personally I've expected higher cash flow in this quarter, but there has been or we have seen very good water temperatures in this quarter and good biomass growth, so not the normal decline in biomass. So we're tying up more cash into the biomass.
And also, it's worth mentioning that the prices have been very good in the Q1 of 2014, making receivables higher on the other end. But still okay. Net interest bearing debt ended just north of SEK 7,500,000,000 and Ivan will come back and explain more about the net interest bearing debt target that is set for this quarter going forward. Harvest volume, 92,000 tonne, very good growth, 80,000 ton in the Q1 of 2013. We've taken out quite a bit of the growth in marine harvest already in the Q1 at good prices, which we are very happy about.
This just shows the price increase in this quarter. The supply growth already mentioned at 4%. Strong prices really in all markets. One market stands out in particular and that is the North American market for Canadian salmon. It's it has been very strong in the Q1.
In terms of price achievement in the different regions, obviously impacted in regards to the contract share. Norwegian fish, we achieved only 94% of the target here targeted at 100% or more actually is our target. And this is natural in a price environment with record high prices. Scotty salmon, also there we see 64% on contract, achieving slightly better prices than in the Q1 of 20 13, which also had a lot of contracts. So I would say the Scottish operation is maybe in a more mature stage than the rest of the operations, longer term contracts working more with retail chains, maybe not taking out the top, top margin every quarter, but over time a very sustainable business.
Canadian fish achieved good prices in the quarter. If you comment there, it's a slightly low superior share compared to what we expect. We expect to be north of 90% superior. Some winter ones during the winter air or ones on the fish takes down the cheap price. It's graded down to ordinary fish.
So it's not a big impact on the price, but still takes down the superior share. Chilean fish, we achieved good money in the Brazilian market for Chilean fish and had a good price achievement in that market. Just some comments on the different regions. In Norway, we it's obviously our most important region, almost 30% or closing in on 30% of the EBIT result from the farming unit in Norway. Prices, very good in the quarter.
I've already mentioned the contract impact here. But what we see in this quarter in particular is higher cost and especially I will come back to it, but in region north, region mid is impacted here. And this has a lot to do with the SEA LIES treatment to be able to stay underneath the set threshold on SEA LICE, we spent increasing the amount of money. That is something that is a concern for the operation going forward. This just shows the contract portfolio in Marine Harvest.
In the Q1 around 40%, some 23,000 tonne contracted. The same volume is contracted for the Q2. Then it gradually drops, which is natural because contract negotiations are ongoing keep we keep doing contracts at least at a slightly higher price for every contract, which is good. But we believe in longer term contracts in this business to have a better predictability of our income. We have entered into our 2nd 3 year contract during this quarter, which shows that the business is changing.
And I think if you can do that with retail partners and build business, this is starting to become an industry. If we look at the different regions in Norway, we see quite a big variation in terms of operational EBIT. In region West, bearing in mind 40% contract share, 16 NOK per kilo is very good. Also, I will see we're pleased with the result in the region South, 13 or closing in on 14 NOK in that region is good. Then we have we are challenged in 2 regions, region mid and region north.
Region north, we've had 2 cases of ISA in this quarter, harvested out one site in Uhland and one site in Trungs in the old Jokullfjord, which really takes a toll on the profit. In addition to that, we have harvested out one site at 2.53 kilos because of a very high sea lice load in region Nord. Obviously, when you have to harvest out fish at 2.53 kilo, the cost is higher. That is self explanatory, and the price is lower in terms of at least in normal terms. So this has been a challenging quarter for Region Nord.
We expect them to bounce back, but there's no doubt that what we see in some areas in Norway in terms of sea lice will have an impact on profit going forward if we cannot find the solutions. We're working hard and we are getting better at it as we speak, but there is no silver bullet so far. And I think in terms of just releasing growth now like some people are talking about average MAB and so forth, all science in Norway says that is I shouldn't say crazy, but at least they are close to saying crazy because they see the situation like it is. Region Mid has not the best quarter because of the harvested out sites that has come into the quarter with PD or PD in previous quarters and have a high cost in this area. Superior share, quite decent in all our operations.
Scotland, steady going business, good result, somewhat high feed cost. They're also working on sea life, AGD, but mortality is under control and good superior share and very good feed conversion rate in this region. So all in all, good biology, solid market, long term contracts. We're very happy with the Scottish operation. Even better, but maybe in a more, call it, unstable way is the Canadian operation, a record high quarter for for the Canadian operation, NOK 19.1 in EBIT per kilo.
What we know is that normally the Q1 is the best quarter in Canada. We also know that the prices have been record high. We know they made good improvements in our we have made good improvements in our operations there. But the volume here is down. What we've done in Canada is actually taking out sites, concentrating on the best performing sites and then building back up the business.
This has taken out one of the issues we were talking about quarter after quarter, which was Qudovo in Canada and low profit and turned it into a more sustainable business. But remember, this is basically all spot, so a different model from Scotland. In our Chilean operation, it's a decent result NOK 6.7 per kilo is good. But I think it's fair to say that it's not where we want to be in the best salmon markets ever. We need the Chilean business to perform alongside with the other businesses north of NOK 10 per kilo.
And to get there cost reduction is necessary. We have written the cost here as high. This is 4.7 kilo gutted including transportations and processing that I think is important to bear in mind. But still, we think this is way too high. We continue to treat for sea lice.
We see obviously improvement when you get a new drug approved, which is Salmo san. That works. The problem is that if you have a high load of sea lice, it doesn't work for very long. So that is a challenge. Also the structural here is not optimal.
We know that there was a case of ISA in Chile in the Q1. Serna Peska, which is kind of the Martel Zina in Chile said, harvest out force out harvest. The company went to the court and got that sentence void. And so the fish is still there with ISA dying. That tells me maybe this case is maybe special, but that tells me that that is possible.
And that's not comforting when you want to grow a business that is sustainable for the long run. So there is some structure and still some regulatory frameworks that needs to be strengthened and improved to make sure that this region can be good for the long term. That said, we are okay with the result isolated, but it's not stabilized. 2 other regions I will comment quickly on. Faroe Islands had an EBIT margin of very close to NOK 21 per kilo, hard to beat.
And we made around NOK 8.7 per kilo in Ireland in this quarter. Fero Islands, even if it's small volumes for marine harvest, it's nice money. SEK 44,000,000 on SEK 2,000,000 is the way to go. Then over to our value added operations. We are in the phase of restructuring in the value added business.
This is finalized in this quarter, at the end of this quarter. Then we will see the new business emerging from this case. And it's no doubt that we are disappointed in the result. On the other hand, it has been very high prices and we have not been able to pass the raw material cost through to the customer in the speed that the raw material price has increased. Partly structural here and we are working hard on improving it and we'll see from Q3 on if this has really come into play.
That is what we expect. Mulpul, obviously a tough quarter for Mulpul as well in salmon price environment like we have seen. We report a slight loss. We breakeven in this operation around NOK44 per kilo. And if the price spot price should be in that level or slightly below, this business will make money.
They continue to develop market and really have had a good operational performance in the quarter. And we are very happy about the business and keep working on to integrating into marine harvest going forward. Then on to the fish feed project. This is one of the later pictures. This plant is finished.
If you see the white tanks there on your right hand side, That is the LNG supply into the factory. It's the raw material silo state construction of the pier here is all settled. We expect to start up in June as planned and fully go into production gradually. It's a very exciting project. We have learned a lot and we've learned a lot about fish feed also during this project that we didn't know before.
So I'm excited and very optimistic in terms of what this will bring to the group. One thing we've already decided on, which is basically one of the strategic reasons why to go into this, is to clean the fish oil from the North Atlantic being used in this operation. We can do it now because we don't have anybody else to we supply ourselves. And this has been an ongoing criticism against Norwegian salmon. Even the Norwegian advices for health or for food intake states that pregnant women should not eat salmon more than 2 times.
By changing this one simple decision that's increased to 75 times per week. So then if you eat salmon more than 75 times per week, I think there are other problems that are bigger. So it's just to take out the doubt. And this is just an example how we can use this as a tool and as an integrated part of our operation. So very happy that we have been able to do this.
We've also contracted 2 bulk carriers to ship out feed and another bag vessel. So we are ready to go and excited about this project. Then I think Ivan will take guide you through financial harvest volumes and markets going forward and then we'll stop
after that. Thank you, Oltega, and good morning, everybody. As usual, we start with the P and L. Turnover of NOK 5,900,000,000 in the Q1, that's record high for our Q1, up more than NOK 2,000,000,000 compared to the Q1 of 2013, of which NOK 1,000,000,000 is related to the consolidation of MORPOL. This is the Q1 we have consolidated MORPOL.
Rest is volumes and the salmon price, which was extremely high in the Q1. Operational EBIT NOK 1,090,000,000 that is also a new record. It's actually all time high. In the Q4 of 2010, we made NOK 1,000,000,000, so a small increase due to 1st and foremost a fantastic salmon price. The volumes in this quarter was lower than what was the case for the Q4 of 2010.
Further down in the P and L, negative fair value adjustment of NOK 208,000,000 due to a lower selling price at the end of the quarter compared to the end of Q4. Profit from associated companies NOK 14,000,000 which is more or less related to NovaSeq. You can find more details about NovaSeq in the appendix. They had approximately 6,000 tons in the Q1 and EBIT per kilo of NOK 50, which is good. And their volume forecast for 2014 is 40,000 tons, up from 35,000 tons in 2013.
I will not spend much time on the IFRS EBIT, etcetera. We just jump down to the earnings per share. The underlying earnings per share for this quarter was NOK 1.75 per share. 92,000 tons as Alfaghi has already mentioned in total NOK 12.05 per kilo and our return on capital employed annualized of 21.5%. So much about the P and L.
Then over to the balance sheet. No major changes since the Q4. Total balance sheet amounts to NOK 32,800,000,000 equity ratio approximately 50 percent and net interest bearing debt over equity approximately 46%, I. E. Well within our financial targets.
Net interest bearing debt NOK 7,500,000,000 We started the quarter at NOK 7,800,000,000 cash flow from operations as Alpergy has already mentioned here NOK 1,200,000,000 somewhat lower than what we expected when we started this quarter due to the fantastic salmon price, but also due to an exceptional good growth in sea, very favorable seawater temperatures, which has led to higher receivables. So operational wise very good, but cash wise it ties up working capital obviously. CapEx, net NOK 373,000,000 net interest expenses as paid NOK86 1,000,000 of the items NOK60 1,000,000 more or less FX dividend distributed NOK 510,000,000 this is adjusted for withholding tax. All in all sorry, the FX effect on net interest bearing debt approximately NOK 100,000,000 this quarter. And all in all NOK 7,500,000,000 in net interest bearing debt.
Cash flow guidance, working capital buildup this year still NOK 800,000,000. It was flattish in the Q1. We foresee a drop or I. E. Release of working capital in the second quarter before we start to build up the working capital again in the Q3 Q4.
Normally Q4 is the quarter we tie up the lion's share of the working capital. Capital expenditures approximately €1,700,000,000 the same guidance as we released in the 4th quarter. So we do not go through it this time. Interest expense that's for this year, this is payable interest NOK 360,000,000 and run rate is NOK 300,000,000. The run rate takes into account the convertible bond we issued just a few days ago.
Tax payables, a record low NOK 250,000,000. Million. Last time, I think, we had NOK 280 million there. But after the auditors have audited this item, it's down to NOK 250 million. Quarterly dividend NOK 5 per share.
It will be distributed after the General Assembly, 22nd May. It takes some time. So I guess in the beginning of June will be the payment date. Net interest bearing debt targets, SEK 7,500,000,000. This takes into account this year's volume of 417,000 tons.
This corresponds to NOK 50 per kilo, a number we have mentioned before. Just want to mention that we also allocate some debt to value add dead Moorpool and feed. I guess the rest of the equation you can do yourself. But if there are any questions, please address it afterwards. If you read the report, you will see that the Board says that this target is not carved in stone.
For instance, unsecured notes as convertible bonds will open up for flexibility as to that number. Also, if we do something on the M and A side, this may change. So this is as is of today. Financing, the old bank facility was extended by 1 year in this quarter, somewhat better terms, but more or less else the same. We issued our equivalent bond last year at very favorable terms, we thought back then.
And this year, we issued another one at even better terms. And I think the wording on slide 2 was favorable. But to be frank, we are extremely satisfied with these terms. In addition, we have a straight bond of €1,250,000,000 which we also issued last year. This gives us an extremely good balance sheet as is and it also gives us extremely good flexibility strategic wise.
So much about the financial figures, then over to supply and demand. We start as usual with the Q1. The supply in the Q1 was somewhat above what we foresaw back in the Q4. In Europe, it was bullseye. But the Chilean volume was a little bit higher than what we thought would be.
If you read the numbers from Chile in detail, you will see that some of this volume is put on frozen storage. That said, the Chilean supply volume will decrease in the Q2 due to seasonality. So we do not think that there will be any problems with that frozen volume, but not all of that volume has gone into the market. Rest of the regions were more or less on what we forecasted. The Southern price, as already mentioned several times, was fantastic both in Europe, but also in North America.
Higher volumes in Chile led to a smaller increase in South America. I think the NOS of 46.56 in Norway is record high. Then the demand side, flattish development in Europe also flattish supply, so not a surprise. U. S.
A. Continues to develop very well, an increase of 6% Russia, price sensitive, down 12% Fresh Seal, extremely good growth of 31% on the back of higher children supply And Asia also continues to develop well. Then the industry supply outlook for 2014. We have increased the supply outlook a little bit since last time due to the increased supply in Chile. It's up 30,000 to 40,000 tons and it's more or less all related to Chile.
In
the Q2, we believe that we will start to see 2 digit growth in Europe. In addition, we also know that seasonality starts. So most likely, we will see lower prices at some point in the Q2 than what we have seen in the Q1. The number we don't know and but we know that the demand in the Q1 was extremely impressive. So we are very curious about how much of the supply increase the good demand can absorb.
But 100%, we do not think it's very likely. In total, for the year, we are also up to 30,000 to 40,000 tons compared to what we forecasted on last time. That's 2014. 2015 is not on this slide, but then we think the supply will decrease again. So we are still optimistic.
We think that 2015 will be a good year with good salmon prices. But a drop in the salmon price from a very high level this year may happen, but we don't know. Then over to our own harvest volumes. I said a couple of times, an extremely good growth in the Q1, in particular in Norway, increased our volumes in the Q1 from 80,000 tons not in Norway, but in total from 80,000 tons in the forecast to 92,000 tons when we reported the actual numbers. This has led to an increase in our annual forecast from 405,000 to 417,000 tons.
So I. E, the growth is already taken out. The lion's share of growth was in Norway. We have increased the forecast from 255,000 to 264,000 tons. Chile is up from 57,000 to 60,000 tons.
Canada up from 28,000 to 29,000 tons and the other regions are more or less stable. So in total 417,000 tons, 21% growth year on year. That was all. Then I would like to pass the word on to Alper again. Thank you.
Thank you, Wimal. Yes, just to sum up and look a little bit ahead. What we see in the forward market here is strong prices. They are at NOK 38.8 per kilo for Q2 and Q4 twenty fourteen. Already mentioned by Ivan, we see higher supply growth in the near future.
So I would expect that we will see a drop in prices, which also the future prices indicate. So and then in terms of what we are working on these days, obviously, we are right now finalizing the first feed plant. We will start to look into where to place the second one and do that over the fall and then continue the development of this division. It's very exciting. Then in terms of the farming area, there are 2 countries where we really try to follow what happens in the marketplace in Norway and in Chile.
We've stated that we will take part of the consolidation that we think will happen in Chile going forward. In Norway, we all know that it's not cheap to grow, but at least we will follow what happens. Then the integration, the structural changes in the value added operations in Europe is a big task to make this into even more successful business going forward and take a lot of management attention. In terms of the biology, which determines a lot, if you look if you think back in the region north in Norway had a record high margin in the Q4 of 2013. This quarter, they were down among the lowest in margin in our operation due to ISA, due to sea lice actions in Norway.
It's very important to keep on the allure tear. We always do that, but this is industry issue. So both in Norway now and also in Chile, it's even if you get the new drug like we've done in Chile, it lasts for a few months and then it's back to basic. It's the structural solution we need to find in the sea life issue. And that's not medical treatments because a parasite gets resistant towards that.
So even if I have said this before, it's still not the time to change the regulation regime in Norway into a regime that will increase growth and in fact make it very hard to control. How to control the rolling MAB in practical terms has not been fully exploited. So we believe that to stick to the old regulatory regime in Norway is wise, but at the same time get in place the biological indicators so we know when to grow. And this has to do with how many seal less treatments and so on you should do on a site. In terms of the quarterly dividend, NOK5 per share already mentioned, but 22nd May is the date for the AGM in Bergen.
You're all welcome. It's only a flight away. I guess the hard way to fly, but still it's a nice city. So you're welcome to come there. And overall, very positive in terms of the market side, the demand side going forward and some concerns on the biology side that we need to solve.
So with that, I will open up for questions. And please feel free to shoot and we will try to answer. And please state your name and employer so we can hear it on the tape. I think Marius can start. Marius
Gokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokhokh CapEx? And the second question is with respect to the comments in the report about the use listing as separate direct use listing. Can you say something about why you're doing it? And how you're going to do it? And when you will do it?
Okay. To repeat, I'll answer the first question. So on the feed plant, we will start what we have narrowed in, it will be somewhere between Brnoonsund and Sjervoy. And then it is up to the to find the right place, needs a deepwater pier and access to water and access to energy and so forth. In terms of we will find the location.
We are already getting good at kind of making it a project and project plans and CapEx plans in that part. So then we will present it for the board and then the board will decide. And I think the decision, the final decision on that project will happen sometime in the first half of twenty fifteen. 2nd question, Iman, if you can help me out with that one.
Yes. Currently, we have an ADR program. Norwegian Confidence, they are not allowed by Norwegian law to have its share listed on New York Stock Exchange. So the ADR program, I don't know if you know what it is, but it's in practice a synthetic share, which is more costly to trade than an ordinary share. So consequently, we are trying to change Norwegian law, so we can also list our share on New York Stock Exchange.
We cannot see that this should be, I don't know, any dynamite into it, because we only want to help our shareholders, but changing the law is not an easy thing to do. So we are working on it. Yes, so the project is started and when we have any news, we will revert to you. So but this time, we found it right to just mention it in the report. So we haven't made big points out of it in the PowerPoint because this will take some time.
If there are any further questions, we can take it in detail afterwards. This is very technical. So but some of you are interested in technicalities, so.
More questions?
One question about capacity and further expansion. Now you have expanded into feed and you have also expanded very much into processing. And you state that you are seeking growth opportunities in Norway and Chile, Assuming that you will not have any green licenses when the total round is concluded, can you share some thoughts about how where you see this growth coming up? Obviously, Norway is very expensive for you and we see that there are opportunities in Chile at substantially lower prices. Can you share any thoughts around this?
Thanks.
It's a good question. I already mentioned on the feed side we can obviously grow there. On the processing side, it will be, as we see it, organic growth there or and also focusing on the restructuring and getting the business right. That will be the focus there. In terms of growing in farming, which is an area of very much importance for us, we will obviously not comment on specific projects in that regard.
But we work continuously on this, try to get deals done. Sometimes we are successful, some most times not, to be honest with you. And that has to do with prices and structures and finding the right solutions and so forth. I see in today's newspapers that we spent a lot of time on that project earlier. We will always be working on projects in this regard.
And we see the likelihood of doing something is probably higher in Chile right now than in Norway. There's no doubt about that. But also there it needs to fit into our business strategy. Very vague answer, but I know that's what you get on those kinds of questions. Okay Henning?
Henning Gren, Pareto. Back to Chile. Can you tell us what do you think is going to trigger the consolidation in Chile now when it hasn't happened the last 2 or 3 years? I think we can assume that the price expectations on Chilean assets are increasing right now. So what should drive the consolidation now?
I think the reasoning amongst companies in Chile is that the only really solution to the Chilean issues are consolidation. I think most of the industry is agrees on this fully. It's 27, 28 companies in Chile today still with issues. So I think to find a good sustainable platform for the Chilean industry, you will see actions there. And something has happened, but maybe not the big move so far.
And we all know there are companies for sale in Chile as we speak and then it's a matter of being able to agree on the price.
Georgios, Abigailsson, Ocholera. Two questions. Firstly, looking at now that you have reported the numbers for the cheap prices in Norway and also looking at the contracts volume that you started contracting more than 1 year ago for this quarter. Could you say something about the impact on the margin? It looks from the reported numbers, it's about what negative NOK 3.
And would that price level also be the one to expect in Q2, the implicit contract price then? [SPEAKER LARS CHRISTIAN
BACHER:] Well, we do not report or forecast prices in detail due to obvious reasons. But you know the percentage and you know the spot price and you know you have to subtract quality and transportation cost. So that part of the calculation is not very difficult. Going forward, it will because we are contracting during the year and we have seen an increasing salmon price now since late 2012. So obviously the contract price will also increase going forward, but you will not see big steps.
We are talking about I think gradually increase.
Would you also expect the contracts price for the second half of the year to be higher than the one reported in or the one you actually had in Q1? I do. And secondly, looking at the performance in Chile cost wise or margin wise at least, you outperformed one of your key competitors quite nicely. Could you say something about the intensity of for instance sea lice treatments in your own operations versus the industrial average and also perhaps versus your own intensity 1 year ago in Q1 2013?
Yes. The intensity is still high. And this is part of why we think what we think. It's on average 8 to 10 times per cycle and that is way too many sea life treatments over a cycle. We would be happy if we could be at 3.
That would be kind of a sustainable number 3 to 4 not more. So that really shows you what we are up against and it is actually in fact a very good question because it goes right straight to the heart of the problem.
But is the intensity lower in Q1 this year than
it was last year? No. Because we have to stay under the threshold of 9 lice and the impact is still high.
So you should not expect a positive cost impact from lower sea life treatments going forward?
Not directly from lower CLAS treatments going forward. I don't see that so far. What another issue that we also see in Chile is SRS. These things are kind of linked. It used to be SRS in Scotland too in the old days.
When you clean up your act, you can get rid of it. Increasing a number of or increasing use of antibiotics in regards to SRS in Chile is not a good sign. So Salmo san will help, no doubt. It will help maybe for a year. And but with the frequency of treatments, there are other measures that needs to be taken to kind of solve this.
And that then we're talking about kind of taking out areas with fish, making the zones bigger even and working on alternative treatments that does not involve any chemicals. So that can be to expand on that, that can be everything from washing the fish with somewhat warm water to using brass. One good news and we should bring the good news to there is we found a wrasse fish in Chile now actually out on an island that eats sea lice from salmon. And this is positive. And then it takes time to learn how to farm it and if you can apply the same technique as we do in Norway and so on to get it.
So there is some good news too, but it's a long way to go. More questions? If not, thank you very much for coming and