And welcome to the Q3 Presentation of 2019 for MUI. Together with me to present, I have CFO, Ivan Windheim, and I think we will just go right into it. In terms of this quarter for us, operational EBIT went from EUR 207,000,000 in Q3 2018 to €148,000,000 in this quarter. We produced well in all areas, both farming, feed and also consumer products had record high volumes. Very happy with the production in feed and in consumer products.
A lot of promotions going on in the consumer product area right now, so high activity. Reason for the drop in operational EBIT is the development in prices in this quarter on the back of high supply. The global supply grew by 13%, took us somewhat by surprise and is above our guiding. But then again, we know that the consumers in the world this quarter spent 5% more on salmon than they did in the corresponding quarter the year before. So even with a drop in prices there, the demand is very strong for salmon.
And if we then take high activity in promotions and growth in most markets into account, I will say that the demand story still stands. We had in moving positive contribution from contracts in most of our operations. We had increased farming costs and we had our fair shares of biological issues and incidents in this quarter. I'll come back to those when we come to the different countries. We started up in Scotland successfully producing FEED as we speak, still in commission phase, but soon ready to go full speed ahead in our Scottish operation.
We completed acquisition of Corstramen for licenses in Region Mid, which will give us many good sites in a good area for farming just south of Stadt. Quarterly dividend, the Board decided to pay out NOK 2.6 per share in and to be paid out in Q4. Turnover wise, north of EUR 1,000,000,000 this quarter, one of the highest or the highest quarter ever in turnover. Operational EBIT down as I said and harvest volume at 117,000 tonne compared to 110,000 tonne in Q3 2018. If we then look at salmon prices, as we wrote on the first page, quite volatile spot prices in all market, a downward trend that has kind of peaked up again after the quarter.
We see increasing prices both in Norway, in Chile and in the North American market towards the big or after the quarter ended, but still not untypical. I think you can see if you look at these years going back here, quite high prices in Q1, Q2, then dropping prices and then gradually increasing prices. I think that's probably the trend for this industry, if any. Price achievement, excellent price achievement for our operation in this quarter, 110% in our Norwegian operation, up from 102% in Q3 in 2018, 120% in Scotland, up from 114 In Canada, we are in the spot market, also dragged down a little bit there as you can see on the superior percentage. So 95%, down from 102% and 103% price shipment in Chile.
So here we are satisfied. In terms of the EBIT bridge from Q3 in 20 18, you can see the major change here is in farming and this is the majority of the reduction of the SEK 61,000,000 you can see there is price driven or spot price on salmon. Slightly up in cost as well. I'll come back to that when I come into the different operations. In terms of the Norwegian operation, it's a mixed picture here.
The result fell from EUR 160,000,000 in Q3 2018 to EUR 103,000,000 or EUR 104,000,000 in Q3 2019. Harvest volume slightly down from 71,000 tonne to 63,000 tonne and operational EBIT from 2.25 to 1.64. Good price achievement and we'll come back a little bit to the different regions here. Low volumes and quite high cost, they go often together in region South. I think we'll see improvement in region South already in Q4.
In region Mid, we've had some issues. I'll come back to that when we come into region Mid, but we've harvested a lot of smaller sized fish and we have had sea lice as a concern. We are in control of the sea lice situation as we speak, but some areas there to improve upon going forward. Region Nord, stable, good performance in the quarter and low cost. The Norwegian sales portfolio here and the contract picture going forward, we have as normal increased increasing amount of contracts in Q4 2019, slightly north of the volume we had in Q4 2018.
And we are on par in Q1 2019 with Q1 2020 with Q1 2019. It's almost 2020. Then to the different regions. Regions South, as I said, I think this is a one off. We harvested very low volumes for 5,000 tonne for the quarter, close to 5,000 tonne.
And that had its reason in small stocking pattern here in this quarter. And then one site that we had to take out early because of restriction on that site at smaller fish. But all in all, we also have good growth in this operation right now, so especially in Roulan and Agder. So we will come back stronger here in the next quarter. Region Mid, our biggest region, struggled in some areas, specifically around Zunmara, Wolfshorn with sites that was actually in very good condition in June, June, July with very low lice levels.
And then we got lice in on those sites. We had one well boat that went on ground or onto the rocks. That was a big well boat planned for this area. And in addition, we struggled with another service vessel. So here we need to improve capacity.
We need to have spare capacity. We were too low on that and need to improve on that going forward. So that gives obviously a big drop in operational EBIT and that comes obviously you get hit both ways. When you harvest smaller fish, you have higher cost and when you have harvest smaller fish, you get lower price. So both factors works well or actually doesn't work well on the operational EBIT.
I think Region Nord will stand out as one of the best performers also in this quarter as they've done for many, many quarters to come. SEK 2.28 is a good operational EBIT in this quarter, slightly down from the quarter in 2018, but still prices are down substantially as well. Scotland, EUR 26,200,000 in operational EBIT, up from EUR 12,300,000 in the corresponding quarter in Q3 2018. Harvest volume were high, 19,000, close to 20,000 tonne, up 10,000 tonne in the quarter and operational EBIT about at the same level. Price on spot In the spot market, obviously, took down some in Scotland as well.
Volume worked the other way around. And non seawater cost was slightly up and that for the most part lies treatments. We have had some issues here. 1 algae bloom at one site called rum took out quite a bit of fish for us in this quarter. And we have also a few other diseases here that we've been struggling with.
So cost wise, the cost in Scotland or ZAP in the quarter, we expect it also to go up in Q4 based on also coming in with much lower volumes in Q4 in 2019. Canada, this consists of both Canada East and Canada West, these numbers. We had issue in our Newfoundland operation in Canada East. We operate both in New Brunswick and Newfoundland on the East Coast of Canada. And what happened was we got extreme warm seawater north of 20 degrees on surface level with very and prolonged no waves, no current on these sites.
The previous owner has obviously farmed in this area for many years, has never experienced anything like it. So this shows that we are in farming. We are depend upon nature in many ways and had used very shallow nets, only 8 meter deep nets on the sites where we were struck with this incident. That is just too shallow. We had we took over this operation about 1 year ago and have built 1 brand new site with bigger cages, deeper nets, did not get didn't lose 1 fish there.
So I think we have the actions going forward ready. We need to get it because the sites are more than deep enough. So it's more tradition and how to say it, farming practice from before that made this happen. So we lost 2,600,000 fish in total and that is a catastrophe for operations like this. And for those of you that's never been into algae blooms or major mortalities, that puts a really toll on the organization.
You have to work day and night to clean this up. It's not the most fun job in the world. And I have to say that our workers in Canada are really doing a good job with not the best of equipment. It's always easy to be a fish farmer in Norway where you have support industries. Here you have to very much manage on your own.
I think we have a good plan for this reason going forward. For those of you who have been there, it's a fantastic area to farm fish in done right, also close to the U. S. Border. So I think we together with the government and together with good competence and also gradually building up a service industry here we'll manage well going forward in this area.
And then again, there's no guarantee in fish farming. If it's land based, ocean based, anywhere, because we are working with live individuals. So you can have issues like this. But again, a good plan and good experience should make us better going forward. Chilean operation, delivering very well, I would say, Operational EBIT, a little bit better than last year, up with about €1,000,000 Obviously, the 14,000 tonnes in this quarter had the operational EBIT margin at 1.32.
I think that will go well compared to any other Chilean operations. They are now in a political situation, which is challenging in Chile. We have not what we have done is to put together a team, which we always do in situations and try to focus on safety for our employees in the Chilean operation and have not been hit so hard with the protests and can still continue working. But it is something that the government need to solve to make this good going forward. Issues around sea life in Chile.
We've been speaking about that for a while. We work on different types of treatments. The good thing about Chile is that many of the treatments we are using and have been using in Norway that doesn't work anymore, works well there. And the good thing is that the Chilean sea lice is different sea lice and much more or easier to deal with in many ways than the Norwegian sea lice. So I think that we can cope with.
What we still need is a more predictable regulatory environment. I've spoken about that many times that can really make Chile into the salmon nation. Then I think the sound is still there. Fantastic. Island Fair Islands, small operation, a little bit down in Fair Islands, some issues around there and no in Ireland from the quarter before.
This is low volume production will be hit when you have low volumes on high cost and so forth. And in the Faroe Islands, we harvested from a site that has never performed. We have only 3 sites in Faroe Islands, one fantastic, the best site in Faroe Islands. So when we harvest from there, really good result and one that is not so good and I third that's medium. So this quarter it was the bad side.
I think going forward we will see improvement in the Faroe Island operation. Consumer Products, what's good to see here is obviously the revenues are high, the volumes are high. It's high activity in an area that really creates demand. This is the girls and guys that is actually creating the food we're eating and that is creating the demand we see for salmon. And we see strong consumption rates in almost all markets where we operate, maybe with exception of Russia and Japan, strong demand and strong growth in France again, in Germany, U.
K. Market is going well. Margin pressure in this segment, we are hampered with high raw material contracts there into this division. There is competition here in this field, but I think in a way it's a good thing for this operation and for the salmon industry as a whole that we have a good functioning value added operation. Onto feed, fish feed operation delivered well, record high volume.
I would say that going from 1 to 2 factories that should give record high volumes and it does. Scotland is coming on and coming on well. Norway had its best quarter ever volume wise and I think earnings wise as well 100,000 tonne from this factory in Bjorgen and EBIT margin at 7% in the Norwegian operation isolated. Still so Scotland took us a little bit down, but it's coming. And we are self sufficient in our European operation here during 2020.
With that, Ivan, I think it's good to look more into financials and markets and more on guiding on harvest volumes.
Thank you, Alfergier, and good morning, everyone. As usual, we start with the P and L. As Alfredge already has said, record high turnover for our Q3 this time and also for the first time above €1,000,000,000 top line growth of 3%. So not as much as the growth we had on volumes, but that is explained by lower salmon prices. Operation EBIT, EUR 148,000,000, down from last year, driven by 1st and foremost the price, but also a somewhat higher cost level.
Biomass adjustment this time around as high as or as low as negative EUR 250 €1,000,000 driven by the same spot price or prices. Income from associated companies still first and foremost Nova Sea, €12,700,000 This is our share bottom line, the underlying profit or EBIT per kilogram at very attractive levels also this time, EUR 2.13, although somewhat lower than what we achieved in Movi Norway in North. Net financial items, negative €10,000,000 So it's quite normal, although the buildup is, yes, as usual, made up by various components. Underlying earnings per share this quarter, EUR 0.20 cash flow per share, EUR 0.15 Harvest volumes, EUR 117,000 tons, the highest ever. So very satisfactory.
Then over to the balance sheet. The total balance sheet now amounts to €5,700,000,000 It's up by EUR 700,000,000 year over year, driven by IFRS 16, which we have been through previously, almost EUR 400,000,000. And the reminder is mainly due to organic growth through CapExes and the acquisition of core, Straumann and the consolidation we we did in the Q3. Net working capital, quite stable, but please note that we have increased our biomass in sea by 12,000 tonnes during the quarter. So not year over year, but during the quarter.
And the lion's share here is Norway. The cash flow statement, good cash flow this quarter, relative good earnings and not much tie up in working capital led to a good cash flow from operations. Net CapEx, EUR 61,000,000 a little bit low and we will get back to the forecast for the year where we can comment on it more in-depth. The acquisition of Kosterman, EUR 51,000,000. The rest of the cash flow statement is quite normal.
So we went from €1,100,000,000 in net interest bearing debt to north of €1,200,000,000 Then over to the cash flow guidance. We maintain our working capital guidance of EUR 150,000,000 for this year. We have already touched based upon the CapEx forecast, we have decided to maintain it at €290,000,000 But if anything, the risk is on the downside. We have a few delays in one of in some of our projects. Interest expenses, taxes are unchanged.
The dividend, Alferg, has already been through. In terms of our financing, no changes since last quarter. We have a very solid financing with sufficient facilities and at very attractive terms, at least in our view. So much about financials. Then over to fundamentals.
First, we go through the supplies for the quarter. I must say much higher than what we expected, 13% year over year is a really high number. It's a long time since we have seen such an increase. And you know from the past that this is more than what the market can absorb in the short term without changing the cement prices. So the prices stay, as you have already seen, they dropped substantially from the Q2 to the Q3.
Our original forecast was between 3% 7%, and I think the consensus was about 5%. So the question is how could this happen? And as far as we are concerned, the growth conditions in more or less all the areas have been very good this year. Plus we also have some still have some biological issues. So this combined has driven the harvest to a record high level in the Q3.
Yes,
you have already commented on the prices. This is year over year, so down in Europe by 13%, in Americas, 5% to 7%. It depends on which currency you look at and in which part of the American segments. But the prices dropped further in America in October. So in October, this the change in price in Europe and Americas, they are quite equal.
So there's a month lag there. That being said, prices have increased from the bottom also in Americas. And if the industry supply outlook for next year comes true, we think that we will have a good supply demand balance next year. As Alfraggio said here, we had a very good underlying demand in the quarter. When we include contract prices, we see an increase in the value of consumed salmon of approximately 5%.
So again, the underlying demand is good. If you address the various markets, good growth in EU, 12%. All the major markets, they are growing well, France, Germany, U. K, but also Spain. Russia has been poor for a long time.
You know why? So we do not spend so much time on it this time. The U. S, the biggest single market is also growing at very decent figures, 12%. Brazil is growing.
China also grows. So when we are when we have the right products for China, I. E, large sized salmon, then the market is there. So it's just about producing and then selling the right products for them. Also rest of Asia grew very well in the quarter, in total 14%.
So again, the underlying demand, as we see it, is still strong. But a 13% increase in supply year over year, that's simply too much also for the salmon markets. So if consensus is right that industry supply outlook will go down in the 4th quarter and also next year, then we think this will also give us a better price environment going forward. For this year, we have increased our supply outlook a little bit in line with Kontal. So we apply a range.
So now 6% to 8%, last time we had 4% to 7%. Next year, in the neighborhood of 1% to 6%, which is in line with consensus of 4%. And again, if these numbers come true, we think it bodes well for the supply demand balance next year. Then over to our own volumes. We maintain our 2019 guidance of 430,000 tonnes.
Some country changes, but just minor, the same for Norway and Scotland, Canada get taken down by 1,000 tonnes. Chile, we have taken up by 2,000,000 and Ireland Ferros, we have taken down by 500 tons. So just minor changes for 'nineteen and the total number we maintain. For next year, we aim at 450,000 tons. This growth will 1st of most take place in Norway, 260,000 tonnes.
Bear in mind that we have 235 standard licenses in Norway, plus a few R and D and the likes. That means that the volumes we have this year is not satisfactory in terms of utilization. So one of our key priorities going forward is to improve our utilization of the licenses in Norway. Norway is also normally the most profitable area we grow the salmon. So with this context, we think EUR260,000,000 as a target for next year is reasonable.
We also have the biomass in C to support this REF, a record high biomass as of the Q3. And this is and this record is mainly explained by Norway. So we have the individuals in sea right now. So yes, all else being equal, we think that the next year's forecast is likely. Then Olferg, I would like to leave the word to you again.
Thank you. Thank you. Thank you, Ivan. Just quick to sum up the outlook, already said a few times, but based on the numbers, we think the fundamentals remain strong in the salmon universe. We see good demand, good response in all markets and increased retail promotions in the most important markets based on this, I call it, a setback on with lower prices.
Significant volumes, we've seen just been through it in Q3, gives reduced biomass for future harvest. Fish will form a price at €5,800,000 for the next 12 months. For us, a record high 3rd quarter. At the same time, we keep our guidance for at €4.30 and up it to 4.50, 20,000 tonne for next year based on what we know we have of fish in the ocean and taking into account the same biological situation as this year. And I think that is fair.
Field plant in Scotland will be up and running full speed within the Q4. That's our aim. And then the dividend again at NOK 2.6 per share. So with that, I think we should open up for questions. Kim here has a microphone and is sitting next to one that will present himself with name and employer for the camera and then we'll go on.
Thank you. It's Torit Tunsert, Inspire Market and Markets. I have two questions for you. The first one is related to the CapEx in 2020 next year. I know you don't give guidance for 2020 yet, but the direction, could you say something about that?
To start with the first part of the question, we do not guide for next year. So it's a little bit early. But we will revert to this after the Q4. So I apologize.
The second question relates to Chile and the very high sea lights we have now. Are going into the summer and spring there. You say that you are quite well prepared, but what do you think about the industry as a whole? Are they prepared for the summer coming up?
I think it's hard for us to answer for the rest of the industry. But we have maintained a steady stocking number, a steady around number of smalt going into the ocean, try to utilize our best sites. We have many and taking maybe a little bit more defensive approach. At the same time, you can say we have had a good growth also in Chile. It's always challenging with when you get more fish in the ocean.
At the same time, if we believe the small stocking numbers, they are coming down. So I think it's about getting capacity right and best practice in place. We work with the other players as well to try to minimize the impact of sea life. But it can be a challenge if you don't have the equipment ready. We know that from our own experience.
But the good thing is that many methods works there. And for example, fresh water in Chile has a much better effect on the Calgo slice compared to the lice we have in Norway. So treatment time in Chile with fresh water is 1 hour and you have good clearance. In Norway, you need to go to 6, 7, 8 hours with fresh water to get good clearance. So that gives you better capacity.
That is not exactly answering your question, but kind of touching on it.
Okay. Thank you. Maybe just one last question and it relates to Norway and Stremen. And to clarify, is it approximately 4000, 5000 tonnes related to Stremen in 20?
Yes. We calculate on the 4,000 tonnes from Stremen next year. Okay. Thank you.
Karl, Millian Anderson, Pareto. You guide on quite a big reduction in volumes in Canada, which of course is related to the accident on the East Coast. Can you say something about how things are going on the West Coast? You have previously basically harvested more volumes on the West Coast and you know guide for the whole group in Canada. And can you also say something about how the discussions are with the government regarding the suspended licenses and how you think about the East Coast like in the next coming years?
Yes. West Coast of Canada, it's also, let's say, a challenging area to farm in many ways. We know that. We have we work on many channels there. We have always maybe it's the best protected farms in the world in terms of algae blooms.
They are there. We have set up good systems for many of the biological issues on the West Coast. It's a tough place to farm, but it's close to the U. S. Market.
So on par, it's still high cost West Coast Canada as well, but we think that will improve. There are issues on the West Coast as well with First Nation Agreements and so on, but we are working on getting new sites and keeping up our production. So basically a stable production going forward on the West Coast. On the East Coast, we have dialogue obviously with the government here and I think it goes both ways. It's we are new there.
We need to learn their ways and how they expect us to operate. And I think we also can benefit from even better cooperation going forward here. In terms of we did a mistake, I have to be honest about that. We reported obviously all the mortality on we had 6 sites with mass mortality here. And then we had a few sites with lower mortality that we should have reported immediately.
We did a mistake there a little bit because the organization was stressed out. They thought they had reported and so this is going back and forth. On the other hand, I think a good dialogue on that's much more important is how to secure and how to improve going forward. I think that will be constructive because we have a lot to offer to the East Coast of Canada in terms of farming practices. So I should have a meeting with the Premier and the Minister of Fisheries hopefully next week.
I made all my days available going forward here. So we are ready and we have a lot to discuss. So hopefully that will come through.
Thank you. Kolbjorn Iskorgen, Nordea Markets. Follow-up on the Canadian issues. Mr. Trudeau, the newly elected Prime Minister, suggested in the election campaign that they should take all the fish farms on the West Coast on land, which will obviously impact you together with a few others.
What are your consideration and risk on that? And also, what's the risk of I mean, your ten licenses in the East has been suspended. What's the risk of permanently losing them? That's sort of the follow-up question on Canada. And then a general question.
We have seen over the past quarters that you have guided and reported higher costs. After a period of, let's say, 2, 3 years in the past with stable costs, do you see cost generally creeping up now to a new level? Or is this just a series of one off incidents quarter by quarter? Thanks.
Let's continue with Canada first. I think for our operation, if you go to the West Coast and through those statements on moving everything on land, I think what we need to do is to work and explain how fish farming is working also to the higher political level in Canada. Also the benefits in terms of if you think maybe if the issue around environment, many would say the biggest question these days is around climate gas emission and so forth. And then you would think and we know that ocean farming is the most efficient way of any to produce protein to people, at least animal protein or fish protein. So if you really need want to improve the environment, then you should actually go for more fish farming.
Then the way the regulation is structured in Canara is that the province and the federal government have quite a bit of different positions than in Norway. The province is very strong in terms of licenses, operational and so forth. The federal government basically deals with fish health and that's it. So I think and what he said was 2025 just in pre election. So I think now the election is over and I think it's time to sit down and work with the government here to explain to the federal government also what we are doing and try to convince them that this is the best thing after sliced bread.
So the risk there, it's always a risk in what we do, but 6,000, 7000 jobs depending on it in British Columbia, quite important industry for that part of the world, not for Canada as a whole, but for that part of the world. So I think we are we have 6, 7 years to work on it and a lot of water is going to go into the ocean before that. And then you said Canada East and permanently losing those 10 licenses. I don't think that will happen. We have 59 licenses in this area.
We are not affected by this in any way in terms of stocking or anything because we're not planning on using these licenses anyway for 2020 or 2021. So I think that will come in. And when we explain them the plans going forward, I think as before the province of Newfoundland has been very supportive actually to fish farming. So I think that will we will work through it.
Okay.
The cost side. The cost side. Yes, yes, sorry, Corbjorn. No, no. I think there was a lot of one off in this quarter.
We will see somewhat higher cost in Canada. Think Norway will be more or less stable in costs going down in South, high in the middle, but north is low. So Norway fairly stable. Scotland will be up. That has to do with the biological situation.
And also what sites we are harvesting from. If you see you look at Scotland, you see areas that does extremely well and some that come in doesn't do that well. So I would say, in general more of a stable cost environment going forward. Yeah, would be my take on it, Ivan, if you want to.
Yes. So for the Q4 compared to the Q3, our expectation is quite stable cost development. But in general, there is an underlying inflation in this. And if we compare our forecast costs for this year to last year, we are up by 2.5% roughly. And we know that feed prices are up by 4%, 5%.
The input factors we put in the feed, they are subject to fierce competition. Some of them are actually a scarce resource. So in addition, we also have the biology we have. So cost fighting is a never ending game. And you called on have followed this for many years and the direction has just been up.
So and I think over time, we will see this same direction until we come up with something which is much more efficient than what we do today. 1st and foremost, the driver here is in addition to the feed components, the lice. So just a few years back, we were at completely different cost levels. And I do not think we will see any substantial decrease in costs before we can cope with the lies better than what we do today.
Okay. Dan Murphy, Kepler. First of all, just a quick follow-up on the cost side. We're seeing now that fish meal prices are dropping and it also appears that have you seen that feed prices are about to come down a little bit just on the comment just now?
We produce feed ourselves and we also buy feed externally. So the feed prices are not expected to go down in the next quarter or next 2 quarters according to our take. And there are a lot of components. Also bear in mind that fish mill is not that important anymore.
And another question. You're seeing 10% rolling growth in Norway and you say that you have quite good biomass growth in Norway compared to your total biomass figure. But we've also seen in the last couple of years that harvest weights have come down quite significantly. What sort of small field are you expecting for next year? Is it going up or is it stable or going down or how is your productivity assumptions?
We do not like to be too detailed, but our internal measurement of harvest rates in Norway is quite stable really. So when you look at it, it's quite surprising that they are as stable as they are. So I cannot confirm your hypothesis there. So and for next year, we just assume this year. And as Alfalje said earlier here, we have had our share at least of the biological issues this year.
So I think personally the starting point is good. I think the forecast is very much likely. But then we know that as Alpergus said, things may happen again. We don't know. There are no guarantees in this.
This is biology, life and death. And unfortunately, you do not get more lives, you just lose. So but again, based upon what we know today, we think this forecast is reasonable.
Okay. We have one question from Jan Molnes from Holberg Foner. He is asking how does the Chilean situation affect Movie Chile? Yes, I answered a little bit
on that earlier, but it does affect because we have always no matter what happens, in Chile there are volcanoes and earthquakes and so we're used to dealing with the crisis. So we have a team working with our people making sure that safety go first. So the effect is there has been curfew in Perth Du Mont. That means that we have to send our people home about 1 early 1 hour early, so they get in before this goes into play. We have had a few containers stopped in Santiago, approximately 500 ton.
And that's basically it for our case for now.
Lars Jensen, Carnegie. 4th quarter is typically the most important one for contract negotiations. Could you say something about the dynamics at least compared to the previous years? I know you don't give indications on pricing zone, but dynamics is helpful.
No, I can say you are right about the 4th quarter is important quarter also for contract negotiation. We negotiate contracts all year, but for contract it's important. And as any time, it's contracts is always tough negotiations on prices and so this year.
But the prices that we see on fish pool is like a fair comparison?
Again, we don't really comment on prices going forward and try to avoid that.
Thank you.
Then I think we are about done as far as I can see. So have a great day and thank you for coming.