Welcome to the presentation of the first quarter of 2014 for Marine Harvest. To present today, Ivan Vindheim, our CFO, and myself, Alf-Helge Aarskog. I have to show you this, 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 billion. 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. It 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. 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. 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 GBP 122 million and GBP 122.5 million 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. We're very happy with the terms.
Quarterly dividend, the board will propose this dividend of NOK 5 per share to the AGM to be held in Bergen on the 22nd of May this year. Just some key numbers. Quite a growth in turnover in the group, up from NOK 3.7 billion in the first quarter of 2013 to closing in on NOK 5.9 billion in sales in the first quarter of 2014. Cash flow at NOK 1.2 billion compared to NOK 351 million in the first quarter of 2013. Maybe at least personally, I've expected higher cash flow in this quarter. We have seen very good water temperatures in this quarter and good biomass growth, not the normal declining biomass. We're tying up more cash into the biomass. Also, it's worth mentioning that the prices have been very good in the first quarter of 2014, making receivables higher on the other end. Still okay.
Net interest-bearing debt under just north of NOK 7.5 billion. 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 tons. Very good growth. 80,000 tons in the first quarter of 2013. We've taken out quite a bit of the growth in Marine Harvest already in the first quarter 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, that is the North American market for Canadian salmon. It has been very strong in the first quarter. 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. This is natural in a price environment with record-high prices. Scottish salmon, also there we see 64% on contract, achieving slightly better prices than in the first quarter of 2013 which also had a lot of contracts. 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 margin every quarter, but over time, a very sustainable business. Canadian fish achieved good prices in the quarter. If you comment there is a slightly low superior share compared to what we expect. We expect to be north of 90% superior. Some winter ones during the winter or wounds on the fish takes down the achieved price.
It's graded down to ordinary fish. 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, 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. This has a lot to do with the sea lice treatment. To be able to stay underneath the set threshold on sea lice, we spend increasingly 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 first quarter, around 40%, some 23,000 tons contracted. The same volume is contracted for the second quarter. It gradually drops, which is natural because contract negotiations are ongoing and we keep doing contracts, at least at a slightly higher price for every contract, which is good. We believe in longer-term contracts in this business to have a better predictability of our income. We have enter into a second three-year contract during this quarter, which shows that the business is changing. 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, NOK 16 per kilo is very good. Also, I will say I'm very pleased with the result in Region South, NOK 13 or closing in on NOK 14 in that region is good. We are challenged in two regions, Region Mid and Region North. Region North, we've had two cases of ISA in this quarter, harvested out one site in Nordland and one site in Troms in the old Jøkelfjorden which really takes a toll on the profit. In addition to that, we have harvested out one site at 2.5, 3 kilos because of a very high sea lice load in Region North. Obviously, when you have to harvest out fish at 2.5, 3 kilos, the cost is higher and that is self-explanatory, and the price is lower at least in normal terms.
This has been a challenging quarter for Region North. 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 are working hard and we are getting better at it as we speak, but there is no silver bullet so forth. 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 lice AGD but mortality is under control and good superior share and very good feed conversion rate in this region. 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 the Canadian operation. NOK 19.1 in EBIT per kilo. What we know is that normally the first quarter is the best quarter in Canada. We also know that the prices have been record high.
We know we have made good improvements in our operations there. 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 CDO in Canada and low profit, and turned it into a more sustainable business. 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. 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. 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. 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 Salmosan. That works. The problem is that if you have a high load of sea lice, it doesn't work for very long. That is a challenge. Also, the structure here is not optimal. We know that there was a case of ISA in Chile in the first quarter. Sernapesca, which is kind of the Mortensen in Chile, said, "Force out harvest." The company went to the court and got that sentence void, the fish is still there with ISA dying.
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. 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. Two other regions I will comment quickly on. Faroe Islands had an EBIT margin of very close to NOK 21 per kilo. Hard to beat. We made NOK 8.7 per kilo in Ireland in this quarter. Faroe Islands, even if it's small volumes for Marine Harvest, it's nice money. NOK 44 million on 2,000 tons is the way to go. Over to our value-added operations.
We are in the phase of restructuring in the value-added business. This is finalized at the end of this quarter. We will see the new business emerging from this case, it's no doubt that we are disappointed in the result. On the other hand, it has been very high prices, 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, we are working hard on improving it, we'll see from Q3 on if this has really come into play. That is what we expect. Morpol. Obviously, a tough quarter for Morpol as well in a salmon price environment like we have seen. We report a slight loss. We break even in this operation around NOK 44 per kilo.
If the spot price should be in that level or slightly below, this business will make money. They continue to develop market really have had a good operational performance in the quarter, we are very happy about the business keep working on to integrating into Marine Harvest going forward. 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 silos. The construction of the pier here is all settled. We expect to start up in June as planned. Fully go into production gradually. It's a very exciting project. We have learned a lot, we learned a lot about fish feed also during this project that we didn't know before.
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. We supply ourself. 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 two times. By changing this one simple decision, that's increased to 75 times per week. If you eat salmon more than 75 times per week, I think there are other problems that are bigger. It's just to take out the doubt.
This is just an example how we can use this as a tool and as an integrated part of our operation. Very happy that we have been able to do this. We've also contracted two bulk carriers to ship out the feed and another bag vessel. We are ready to go and excited about this project. I think Ivan will guide you through financial harvest volumes and markets going forward, and then we sum up after that. Over to you.
Thank you, Alf, and good morning, everybody. As usual, we start with the P&L. Turnover of NOK 5.9 billion in the first quarter. That's a record high for a first quarter, up more than NOK 2 billion compared to the first quarter of 2013. Of which NOK 1 billion is related to the consolidation of Mowi. This is the first quarter we have consolidated Mowi. Rest is volumes and the salmon price, which was extremely high in the first quarter. Operational EBIT NOK 1.090 billion. That is also a new record. It's actually all-time high. In the fourth quarter of 2010, we made NOK 1 billion, NOK 0.62 million. A small increase due to, first and foremost, a fantastic salmon price. The volumes in this quarter was lower than what was the case for the fourth quarter 2010.
Further down in the P&L, negative fair value adjustment of NOK 208 million due to a lower salmon price at the end of the quarter compared to the end of Q4. Profit from associated companies, NOK 14 million, which is more or less related to Nova Sea. You can find more details about Nova Sea in the appendix. They had approximately 6,000 tonnes in the first quarter and EBIT per kilo of NOK 15, which is good, and their volume forecast for 2014 is 40,000 tonnes, up from 35,000 tonnes in 2013. I will not spend much time on the IFRS EBIT, et cetera. We just jump down to the earning per share. The underlying earning per share for this quarter was NOK 1.75 per share, 92,000 tonnes, as Alf Inge has already mentioned. In total NOK 12.05 per kilo and a return on capital employed annualized of 21.5%.
Much about the P&L. Over to the balance sheet. No major changes since the fourth quarter. Total balance sheet amounts to NOK 32.8 billion. Equity ratio approximately 50%, and net interest-bearing debt over equity approximately 46%, i.e., well within our financial targets. Net interest-bearing debt NOK 7.5 billion. We started the quarter at NOK 7.8 billion. Cash flow from operations, as Alf Inge has already mentioned here, NOK 1.2 billion, 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. Operational-wise, very good, but cash-wise, it ties up working capital, obviously. CapEx, net NOK 373 million. Net interest expenses as paid NOK 86 million. Other items NOK 60 million, more or less FX. Dividend distributed NOK 510 million.
This is adjusted for withholding tax. The FX effect on the net interest-bearing debt approximately NOK 100 million this quarter. All in all, NOK 7.5 billion in net interest-bearing debt. Cash flow guidance. Working capital build up this year, still NOK 800 million. It was flattish in the first quarter. We foresee a drop, or i.e., release of working capital in the second quarter before they start to build up the working capital again in the third quarter and fourth quarter. Normally, fourth quarter is the quarter we tie up the lion's share of the working capital. Capital expenditures, approximately NOK 1.7 billion, the same guidance as we released in the fourth quarter, so we do not go through it this time. Interest expenses for this year, this is payable interests, NOK 360 million, and run rate is NOK 300 million.
The run rate takes into account the convertible bond we issued just a few days ago. Tax payables, erect a low NOK 250 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, the 22nd of May. It takes some time, so I guess in the beginning of June will be the payment date. Net interest-bearing debt target, NOK 7.5 billion. 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. I just want to mention that we also allocate some debt to value-added Mowi pool and feed. I guess the rest of 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&A side, this may change. This is as is of today. Financing. The old bank facility was extended by one year in this quarter. Somewhat better terms, but more or less else the same. We issued a convertible bond last year at very favorable terms, we thought back then. This year, we issued another one at even better terms. I think the wording on slide two was favorable, but to be frank, we are extremely satisfied with these terms. In addition, we have a straight bond of NOK 1.25 billion, 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. Much about the financial figures. Over to supply and demand. We start, as usual, with the first quarter. The supply in the first quarter was somewhat above what we foresaw back in the fourth quarter. 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 second quarter due to seasonality, so we do not think that there will be any problems with that frozen volume. Not all of that volume has gone into the market.
Rest of the regions were more or less on what we forecasted. The salmon price, as already mentioned several times, was fantastic, both in Europe but also in North America. High volumes in Chile led to a smaller increase in South America. I think the NOK 46.56 in Norway is record high. 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%. Brazil, extremely good growth of 31% on the back of higher Chilean supply. Asia also continues to develop well. 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 30,000-40,000 tons, and it's more or less all related to Chile.
In the second quarter, we believe that we will start to see 2 digits growth in Europe. In addition, we also know that seasonality starts, so most likely we will see lower prices at some point in the second quarter than what we have seen in the first quarter. The number we don't know, but we know that the demand in the first quarter was extremely impressive, so we are very curious about how much of the supply increase the good demand can absorb. 100% we do not think is very likely. In total, for the year, we are also up 30,000-40,000 tons compared to what we forecasted last time. That's 2014. 2015 is not on this slide, but then we think the supply will decrease again. 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. We don't know. Over to our own harvest volumes. I said a couple of times, an extremely good growth in the first quarter, particularly in Norway. Increased our volumes in the first quarter 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 405,000-417,000 tons. i.e., the growth is already taken out. The lion's share of the growth was in Norway. We have increased the forecast from 255,000-264,000 tons. Chile is up from 57,000-60,000 tons. Canada up from 28,000-29,000 tons.
The other regions are more or less stable. In total, 417,000 tons. 21% growth year-on-year. That was all. I would like to pass the word on to Alf-Tage again. Thank you.
Thank you, Ivan. Just to sum up and look a little bit ahead. What we see in the forward market there is strong prices. They are at NOK 38.8 per kilo for Q2 and Q4 2014. Already mentioned by Ivan, we see higher supply growth in the near future. I would expect that we will see a drop in prices, which also the future prices indicate. 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. Continue the development of this division. It's very exciting. In terms of the farming area, there are two 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, at least we will follow what happens. The integration, the structural changes in the value-added operations in Europe is a big task to make this into an even more successful business going forward. It takes a lot of management attention. In terms of the biology, which determines a lot. If you think back in Region North in Norway, they had the record high margin in the fourth quarter of 2013. This quarter, they were down among the lowest in margin in our operation due to ISA and due to sea lice actions in Norway. It's very important to keep on the alert here. We always do that, this is an industry issue.
Both in Norway now and also in Chile, even if you get the new drug like we've done in Chile, it lasts for a few months, it's back to basics. It's the structural solution we need to find in the sea lice issue. That's not medical treatments because the parasite gets resistant towards that. 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 a rolling MAB in practical terms has not been fully exploited. We believe that to stick to the old regulatory regime in Norway is wise, at the same time get in place the biological indicators so we know when to grow.
This has to do with how many sea lice treatments and so on you should do on a site. In terms of the quarterly dividend, NOK 5 per share already mentioned, the 22nd of 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, still it's a nice city. You're welcome to come there. 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. With that, I will open up for questions and please feel free to shoot and we will try to answer. Please state your name and employer so we can hear it on the tape. I think Marius can start.
Marius Gaard, Carnegie. Two questions. First is on the feed plant. The planning on the second feed plant. Can you give some details on where it's going to be, timeline, capacity, CapEx? The second question is with respect to the comments in the report about the U.S. listing a separate direct U.S. listing. Can you say something about why you're doing this and how you're going to do it and when you will do it?
I'll answer the first question. On the feed plant. We will start, what we have narrowed in, it will be somewhere between Brønnøysund and Kjerringøy. It is up to find the right place, needs a deep water pier and access to water and access to energy and so forth. In terms of we will find a location and we are already getting good at making it a project and project plans and CapEx plans and that part. We will present it for the board and then the board will decide. I think the final decision on that project will happen sometime in the first half of 2015.
Yes. Currently we have an ADR program. Norwegian companies, they are not allowed by Norwegian law to have its share listed on New York Stock Exchange. The ADR program, I don't know if you know what it is, it's in practice a synthetic share, which is more costly to trade than an ordinary share. 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 changing the law is not an easy thing to do. We are working on it. The project is started and when we have any news we will revert to you. This time we found it right to just mention it in the report.
We haven't made a big point 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. Some of you are interested in technicalities so
More questions? Kolbjørn.
Kolbjørn Giskeødegård, Nordea Markets. One question about capacity and further expansion. Now you have expanded into feed and you have also expanded very much into processing. 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 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.
That'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 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, most times not, to be honest with you. 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, we see the likelihood of doing something is probably higher in Chile right now than in Norway. There's no doubt about that, 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 Røssum, Pareto. Back to Chile. Can you tell us what you think is going to trigger the consolidation in Chile now when it hasn't happened the last two or three years? I think we can assume that the price expectations on Chilean assets are increasing right now. What should drive the consolidation now?
Yes. I think the reasoning amongst the companies in Chile is that the only really solution to the Chilean issues are consolidation. I think most of the industry agrees on this fully. It's 27, 28 companies in Chile today still with issues. I think to find a good sustainable platform for the Chilean industry, you will see actions there. Something has happened, but maybe not the big moves so far. 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.
Yes. Georg Liasjø, ABG Sundal Collier. Two questions. Firstly, looking at now that you have reported the numbers for the cheap prices in Norway, and also looking now at the contracts volume that you started contracting more than one year ago for this quarter. Could you say something about the impact on the margin? Looks from the reported numbers, it's about what? Negative NOK 3. Would that price level also be the one to expect in Q2, the implicit contract price then?
Well, we do not report or forecast prices in detail due to obvious reasons. You know the percentage and you know the spot price, and you know you have to subtract quality and transportation cost. That part of the calculation is not very difficult. Going forward, because we are contracting during the year and we have seen an increasing salmon price now since, yeah, late 2012. Obviously the contract price will also increase going forward. You will not see big steps. We are talking about a gradually increase.
Would you also expect the contract 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.
Yeah. 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 one year ago in Q1 2013?
Yeah. The intensity is still high. This is part of why we think what we think. It's on average eight to 10 times per cycle. That is way too many sea lice treatments over a cycle. We would be happy if it could be at three. That would be kind of a sustainable number, three to four, not more. 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.
Is the intensity lower in Q1 this year than it was last year?
No. We have to stay under the threshold of nine lice, and the impact is still high.
We should not expect a positive cost impact from lower sea lice treatments going forward?
Not directly from lower sea lice treatments going forward. I don't see that so far. 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 number of or increasing use of antibiotics in regards to SRS in Chile is not a good sign. Salmosan will help, no doubt. It will help maybe for a year. With the frequency of treatments, there are other measures that needs to be taken to kind of solve this. 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.
To expand on that can be everything from washing the fish with somewhat warm water to using wrasse. One good news, we should bring the good news, too. We found a wrasse fish in Chile now, actually out on an island that eats sea lice from salmon. 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. 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