Good morning, and welcome to the presentation of the third quarter for Marine Harvest in 2018. Together with me to present the results today is Ivan Vindheim, our CFO, and together we will try to take you through the numbers and with some additional comments. This one we drop. The third quarter for Marine Harvest was a very good quarter. Actually, one of the best third quarter ever for our operation. On the back of very good prices for a third quarter, driven by a very strong demand for our salmon in, I would say, in most markets. For us, we had very high harvest volume. We harvested obviously a little bit from Northern Harvest as well this quarter, but especially Norway had good volumes in the third quarter. We completed Northern Harvest and our consumer products operation had good volume growth and okay margins in this quarter as well.
The board has decided that the dividend for the third quarter will be NOK 2.30 per share, that will be paid out in Q4. Just quickly on the numbers, Ivan will get back to this, up 14% on the top line to EUR 990 million compared to EUR 867 corresponding quarter last year. EBIT up by 7% in this quarter. The harvest volume is up by 15%. All in all drivers here were good in the main numbers. If you look at prices, I will just say that the prices for this quarter, when you look into the seasonality here, it is the third quarter, normally the lowest price quarter. If you look historically on it was good prices basically in all markets.
On to price achievement for Marine Harvest in this quarter, and that's built up by contract prices, spot prices, and the quality of the fish. Slightly above the spot price or the Nasdaq price on Norwegian salmon, similar as the third quarter last year but with a contract share of 29%. Superior share here at 92%. Scotland, high price achievement, a lot of fish contracted, and very good quality in this quarter. If you look at Canada, we doesn't have any contracts on our fishing in Canada, and 93% superior share. All in all, we are satisfied with that. Chile is slightly down on superior share, 88%, due to some melanosis in the fish that we think will be better going forward. Good price achievement, 106%, and 24% on contracts.
If we look at this, pretty stable quarter, if you compare to the third quarter last year. What's driving it is really the improved result is really volume. On overall, stable cost in the farming units and a fairly stable price as you can also see here. If you go into the different segments or the different business units, Norway has a strong performance in this quarter. Operational EBIT at EUR 160 million compared to EUR 124 million in 2017. Good spot prices, fairly low contract share in this quarter, also improved cost now for the third quarter in a row. Obviously driven by high volumes, that is important, as you can see from the waterfall here, feed cost is lower or the seawater cost is lower as well. Price slightly down on the fish we sold in this quarter. We look into the regions going forward here, in general, very good performance in Region North.
We have some biological challenges in Region Mid and Region South, this kind of goes worse as you go south in Norway. We're going to have lower volumes in the fourth quarter, we expect costs to increase somewhat because of that. If you then look at the contract portfolio, 21,000 tons in the third quarter, up to around where we usually are in the fourth quarter, around 25,000-26,000 tons, then down again to 22,000-23,000 tons in the first quarter of 2019. This obviously includes prospects, especially for Q1, here are contracts being negotiated going forward. In terms of the results, it's a huge deviation between different regions. I would say Region North is performing exceptionally well cost-wise, volume-wise, in this quarter.
Then we struggle a little bit more as we go south, as I already said. This is a challenge for Marine Harvest and I think also for the industry that we need to fix. It's not like it's going to be almost like it's more than EUR 1 in difference. That's not sustainable over time. We need to fix the issues in Region South. In this regard, our people work probably harder even in Region South than in Region North. A lot of treatments, a lot of activities to take care of the fish. Scotland. The volume here in Scotland is slightly down, 2,000 tons down. We have very low volumes in Scotland this quarter. At the same time, quite high cost, still issues on biology, but good price achievement that takes the result to what it is. We believe Scotland will improve going forward.
The reason for the low volume is partly the stocking pattern that happened more than a year ago. We know that Scotland will come back due to new sites, and better performing stock, and increased stocking on new sites with higher volumes going forward. That will lead to lower cost in this region in 2019. Canada. This is a combination of both the East and West Coast of Canada. I try to sum it up. On the West Coast, we have had major challenges with low oxygen, gill issues, and mortality on some sites. That has been challenging for the organization. In October and into November now, we see more oxygen coming into the water because it's colder and it's more wind in the area and more current, and that helps on this issue.
We think it will get better as we speak, but there's no short-term solution on the sites already affected. Northern Harvest integration is going well, and they're also delivering good results in this quarter, but low volumes. Chile, stable result year-over-year. If you take into account the site that unfortunately escaped, the cost of that, this result would have been even better. There is a EUR 3 million cost to that. Overall, operationally, biology-wise in Chile right now, we are doing very well. Cost-wise, it's relatively stable, but at good cost, and the biological performance is good in Chile as we speak. We see in our operation lower medicine use. Basically, I think I will explain it into that vaccine we're using against SRS have some effect.
We also see, especially in some areas, actually less sea lice now than we have seen before, which is very good. We expect the harvest volume here to increase going forward in 2019, and that's partly because we are recovering after the algae bloom that was in 2016, but also somewhat increased stocking in 2018 on some sites. Unfortunately, the margin is not ideal here. It's still more than 1 EUR or 1 EUR difference in margin compared to Norway. That's maybe the biggest challenge for Chile, to make sure that we get that price gap closed. It's not easy because of the logistic differences we are talking about here. Two small, but performing well units. Ireland, another exceptional quarter, EBIT-wise, EUR 3.46 in this quarter. They are into the organic, call it, almost branded market. They achieve a premium on the fish and do well in that.
Faroe Islands obviously sell a lot to Eastern Europe and have good prices there. We have even bought a processing plant now in the Faroe Islands to make sure that we can hit the East European market at the right days or timing of harvest, which is extremely important to get even better prices in this market. Both units are doing well. Consumer products, if you look at the operating revenue here, it's up from EUR 447 million to EUR 518 million. Significant increase in revenue. In terms of the operational EBIT, it's improved from EUR 14.6 million to EUR 16 million in this quarter. I will say strong consumption, really, and growth in all salmon markets. It is impressive with the price level and again, if you have good products, it shows that the people are willing to pay the price for good food.
This quarter, we have taken a loss of EUR 9 million due to impairment loss because of this fire in Kritsen. It's fully insured, just to be on the safe side, I think this is IFRS accounting as well in terms of this loss. Show some nice picture here of the salmon we deliver into the European market. Also we see strong results here in Asia or especially in the U.S. and also growth in Asia. It's impressive what we can do with this product, which is basically only produced in a few countries, market-wise. Feed, record volume in terms of production. We produced 97,000, almost 100,000 ton feed in this factory in Norway. This was a factory that, if you remember well, was designed for 220,000 ton when we first communicated this factory on capacity.
It's impressive to see what we have been able to do in this factory. We're almost doing the capacity we thought we could do in 0.5 year compared to what we thought we could do in one year. That's good news. The not so good news here is obviously in this market now, it's strong competition and it's going to be stronger. When we get the plant in Scotland online, we will fuel this competition even more. There is an upside to this. We are producing excellent feed. We can almost assign feed to our own fish. Very few of our competitors are able to do that. In terms of our Scottish operation, this is delayed. The major explanation of the delay is actually the power company in Scotland and the monopoly that they have in terms of supplying power to a site.
That took much longer than we expected. It had to do with the right of way over basically one person's ground. Obviously, we should have seen that, but we didn't. That took longer time. Now it is in place, but it makes us delay the start until first quarter for trial production and second half of full production in this feed plant, which is close to finished but needs power to operate. That's the important part. Increased CapEx here, a little bit due to this delay, but also due to the pier construction in Scotland is more expensive than Norwegian piers. Also some equipment in addition here that has become more expensive. That's regretfully, but still that is the case and that's why we communicate it.
Ivan, if you can take us into the financials and the market side.
Thank you, Alf, again. Good morning, everybody. As usual, we start with the P&L. Record high seasonal turnover this time on our best global price achievement in a third quarter, equivalent to a growth of 14%, similar to the volumes. Volumes are also record high for us for a third quarter. Operational EBIT, as Alf just said, also record high in the third quarter, EUR 207 million, driven by volumes and also very good global price achievement, plus a stable cost year-over-year for the farming units. Further down in the P&L, negative biomass adjustment this time of EUR 32 million. Income from associated companies, EUR 10 million. This is Nova Sea underlying earnings, EBIT per kilo of EUR 2.52, which is very good, although somewhat lower than what we achieved in Marine Harvest Region North. Impairment losses related to the fire in Kritsen, EUR 8.8 million.
Net financial items, EUR -77 million, heavily impacted by the increase in share price we saw through the quarter and the fair value adjustment of the last outstanding convertible bond. We will revert to that one later on in this presentation. Underlying earning per share in the quarter, EUR 0.31. Net cash flow per share, EUR 0.17. Third quarter is a quarter we tie up working capital. Volumes we have been through. The same goes for the margins. Return on capital employed, annualized, close to 27%. To sum up, a very good quarter for us. Over to the balance sheet, close to EUR 5 billion, up by EUR 500 million year-over-year because of the Northern Harvest acquisition, but also because of higher biomass in sea year-over-year, approximately we are from 258,000 to 289.
Some is because of Northern Harvest, but the lion's share is organic growth, which is supposed to support our growth in harvest volumes for next year. Over to the cash flow. We started the quarter with a net interest-bearing debt of EUR 951 million, tied up some working capital, some tax expenses, but still a very good cash flow from operations, EUR 209 million. Net CapEx as high as EUR 190 million. I don't think we have had so high CapEx in one quarter before. Heavily impacted by the feed factory and the completion of it in Scotland, but also because of an extensive CapEx program we will have a closer look at later on. All the investments is Northern Harvest. Net interest expenses at the normal level, EUR 10 million.
Dividend is equivalent to the NOK 2.60 per share that the board decided after the second quarter, which ended net bottom line with EUR 1.2 billion in net interest-bearing debt. Over to the cash flow guidance. The working capital guidance is unchanged since last time. Consequently, we will tie up a big amount in the fourth quarter, mainly related to consumer products and the Christmas season. We also hope to build some more biomass, I guess that part is a little bit more uncertain than the seasonal tie-up in consumer products. CapEx expenditures for the year changed from NOK 270 to NOK 295, of which NOK 20 is related to the increased CapEx budget for the feed factory in Scotland. EUR 5 million is the acquisition of the primary processing facility we did in the Faroes, Strendur.
This also includes an upgrade and has made us a fully integrated farmer also in the Faroes. An attractive acquisition, I would say, and also very important to us from a strategic point of view. Now we control the entire value chain, which is the ideal thing in this industry. Northern Harvest, we have talked a lot about, so I will not spend any time on it here. We also have bought farming capacity in Norway, but that was water under the bridge after the second quarter. Interest paid unchanged, EUR 40 million on a full year basis this year. Taxes paid, EUR 10 million lower than what we expected, EUR 130 million for this year. A quarterly dividend after the third quarter of NOK 2.60, which is to be paid in the fourth quarter, NOK 2.60 per share.
Over to the financing. The bank facility is unchanged. We are in the middle of a conversion process for the last outstanding convertible bond. Provided the market we see now, this will be completed in the fourth quarter, i.e., in December, and will be accounted for under equity after the fourth quarter. Equity ratio-wise, it amounts to approximately 9%, like for like, compared to the third quarter. Hybrid bond we did in the second quarter is unchanged, and the long-term debt target is still EUR 1.4 billion. Much about the financial figures. Over to the fundamentals. First, the supply development in the quarter, in the third quarter. A global supply growth of 3%, in line with what we expected, the mix is different. The growth we saw in Europe was much lower, the growth in sea, instead of having a modest growth, harvest volume-wise, we ended at zero growth.
This was offset by a very good growth in Chile. Harvested volumes were impacted by both higher harvest weights, but also by higher harvest of the individuals. All in all, from a global point of view, as expected. Prices, seasonally good in Europe in the third quarter. Also in Northern America and for Chile, we also saw an increase. I think it's right to say that the price achievement for Northern Harvest was higher in the third quarter than what we put in our original guidance internally. Still a very good market in Europe, although percentage-wise, it doesn't look that impressive. Remember that last year's prices were record high. Still a very good market environment. Over to the consumption, the demand. Europe grows in line with the supply growth in Europe. Americas continues with a very impressive two-digit growth.
Asia, this time around, maybe a little bit disappointing, flat-ish. Bear in mind that there has been shortage of a large-size salmon for Asia in the quarter. We have also struggled with access to sanitary qualified fish, particularly for the Chinese market. Adjusted for that, we still find the demand in Asia very good, and we also have faith in the future prospects. This quarter was low compared to what we have seen in the previous quarters. Over to the supply outlook. For the fourth quarter, flat-ish on a global basis, based upon lower growth in Europe. It's taken down compared to the numbers we announced after the second quarter. This low growth we have seen in Europe has also led to lower harvest volume guidance for 2019. Our numbers are a little bit lower than Kontali explained by Norway. Why?
Well, we look at our own numbers. We also look at the biological issues we are facing in Norway. We expect that we, at best, will see some modest growth in Norway next year. All in all, we think, adjusted for demand, there will be a shortage of fish in 2019, which will give a very good ground for the price environment in the quarters to come. It looks good. Over to our internal guidance. For the fourth quarter, we still stick to 110,500 tonnes and 380,000 on a full year basis. Somewhat down in the fourth quarter, but the volume for the third quarter was a little bit up. I'm talking about Norway. All in all, 229,000 for Norway is more or less in line with the number we guided for in the second quarter.
Next year, 236,000 so just a small growth for Norway. This is consistent with the supply outlook we have just been through on the last slide. Scotland, up from 40,000 to 60,000. Scotland this year is very low, so it's up to 60,000. It's actually getting back to previous levels. Alf-Helge explained the stock impact and that we have new sites, et cetera. The growth in Scotland here is a recovery. Over time, it's not a growth. Canada from 42,000 to 55,000. Bear in mind, this is including Northern Harvest. Adjusted for Northern Harvest, we are actually a little bit down. Excuse me, a little bit up, but just a minor amount. Chile, up from 54,000 to 62,000. It's a partial recovery from the algae bloom in 2016. We are at 60,000, 70,000, if I remember correctly, before the algae bloom.
62,000 is not back on track, but we are closing in. Ireland, 9,000 versus 6,500 . Faroe, 7,500 versus 8,000. A modest growth also for Marine Harvest, and in line with the supply outlook we see for the entire industry.
With that, I would like to say thank you and pass the word to Alf-Helge .
Thank you, Ivan. Just to go through the outlook, I think Ivan summed it pretty well already. Strong demand globally. Fish Pool prices have increased since August with EUR 0.04 to EUR 6.8 on the 12-month contract. We have high beliefs in China, and we hope that additional export restriction will be removed, and we see further growth here. On the supply outlook, you've just heard it. They are very favorable in terms of the price environment going forward. Organic growth, we have the potential throughout the value chain. You see in the farming side of things, it's not a lot next year, but it's partial recovery in some of our operations. Feed, we will grow next year, and processing, we will continue to grow in the markets we are in.
I think the first plant that we will open next year is in Miami in January, which increases the capacity in Miami dramatically, actually. That is good because we see the growth in the U.S. market, and we need processing capacity there. A really good market to grow in with new and more consumer-friendly products. Dividend, we already mentioned, but again, NOK 2.6 per share to be paid out in the fourth quarter of 2018. Then again, if you have not signed up for the Capital Markets Day, this is the time to do it.
Kim is here, and this will be in Edinburgh in Scotland. I think it will be a very exciting event. With that, I think we will open up for questions. I'm sure there are some. Just state your name and shortly your employer. We open here. We open here. Kim is already on it.
Thanks. Christian Nordby, Kepler Cheuvreux. Your growth in Chile is remarkably strong, and you're talking about all potentials in volumes in Chile, but how has the new regulation in Chile impacted your potential in Chile? How do you see the government facing you now with this new stocking or increased stocking?
Well, in terms of I will not arrest you, but it's not remarkably strong. It's like we are going back to where we were. We've been down because of this algae bloom, as Ivan mentioned. Now next year, a little bit north of 60,000 ton. Steady state for Marine Harvest is in the 65,000, 70,000 ton range. You're right in terms of from one year to another. That is correct, and there are growth, but it has its explanations. In terms of the regulations, well, they keep changing on us every second week. That was a joke. What has been stated is this 4 kilo per cubic meter that will be in place from January 2019. That will have an effect in terms of the potential to grow, for everybody, really.
Going forward, that might be right in terms of biology and that part, but it's going to be hard for anybody to grow. What's also coming is a proposal, but it's this antibiotic or regulation linked to use of antibiotics. That's still on hearing, but done right, that is a good thing. If they actually link growth to how much antibiotic you use, that would be a good thing. If that's the solution, then I think we are on the right track. We'll see how that comes. I won't speculate, but if it's like those who use 0 g antibiotics going forward are allowed to grow, fantastic. We're all for it. Let's hope that is the case, then maybe we can grow a little bit in the future on the basis of sustainable operations.
Carl-Emil Johannessen , Pareto. Two questions. First on volume guidance. For Norway, you seem to be quite conservative. I remember same time last year, you guided on 245,000 tons in Norway for 2018. Can you say something about your assumptions for 2019 versus what you have seen in 2018 and what you expected in 2018, one year ago? The second one on contracts. I think you've said three quarters in a row that supply outlook for 2019 looks favorable and that fish forward prices are NOK 6.4 and now NOK 6.8. Can you say something about what we can expect on your contract portfolio in terms of prices next year versus this year?
[audio distortion], volume. Volumes.
I can take the volumes. Yeah. Let's start with 2018. You suggested that we have missed our guidance, and that's correct. I started the year with a much higher number than what we are guiding on now. I guess you could say it's a lesson learned that we are a little bit more careful with anticipating biological improvements, to put it like that. This is more like for like.
You don't expect improvements in mortality yields, et cetera, in 2019 versus 2018, or?
We are working every day and night to take down mortality, to increase harvest rates, to do this better, to cope with the sea lice in a better way, et cetera. Yes, we believe in this, but when we are guiding for the next year, it's a short period. We decide to be a little bit more prudent. The assumptions in the guidance here are more prudent for 2019 than what they were for 2018. Hopefully we will beat it big time.
I agree to that. In terms of contracts and prices going forward, we don't really comment on prices going forward. That is just the way we do it. This is contrasting constant negotiations. Obviously, we understand the forward price and we see the market and we see the supply outlook, so we have a high expectation of contracts going forward.
Thank you.
Tore Tønseth, SpareBank 1 Markets. What are your expectations for cost in Norway in 2019? You have mentioned barely, but should we expect them down, or is it the same trend as we have seen in 2018?
Yeah. It depends. In the end, it depends on the volumes. If we can manage to produce 236,000 next year or harvest 236,000 versus close to 230,000 this year, I don't think they will be so very different. If we can manage to take down mortality, increase harvest rates, all this you have heard a lot of times, then you will see some very different cost figures. Before we can fix the biology, I'm afraid that the level we are at right now, not only us, but the industry, is there because the input factors are not declining.
Okay, thank you. Last question. The Faroe Islands, has there been a change in the stocking patterns because you're expecting the same volume in 2019 as you had in 2018? Previously, there's been one good year and one year with lower volumes. Has there been any change?
Yes. We have basically done two things. We have increased our hatchery capacity, and we have started to operate in a new site. It's going to be much more even going forward. It's not fully utilized yet. We haven't taken the full step yet. I think you get it on 9,000 tons next year, and I think we will be 9,000, 10,000, 11,000 tons every year going forward. If we get it right.
One thing more. Northern Harvest in 2019, you mentioned it barely, but the exact volume in 2019? It's 20,000 on 2018.
We didn't say it.
You didn't.
It was on purpose. This is Marine Harvest Canada. We will not report this as west and east and Northern Harvest versus old Marine Harvest. We will integrate this. Well, geographically, it's not that easy, but at least in terms of spirit and culture, et cetera. We have chosen not to report Northern Harvest specifically. I could, but I don't want to give you the number.
Thank you.
You have the total numbers. You have what you need.
Thank you very much.
Vidar Strat, ABG Sundal Collier. A quick question on Canada from me as well. What is now the full capacity that you see in Canada with the Northern Harvest acquisition done and also Gray Aquaculture back? What is the total capacity, and can you give some hint on when we could see this utilized? That is the first question. The second question is related to Chile and the sea lice situation there. We have reports of increased observations of resistant sea lice also in Chile. Is that something you are experiencing, and what is your take on that situation?
Okay. In terms of Canada and full capacity, this is something we are assessing now. We're working on the long-term plan that has to do with really, first and foremost, the hatchery layout on the east coast and what we are doing there. In terms of bays and bay management on the east coast of Canada, we have secured tremendous area. I will not speculate before we have assessed the total area on the capacity on the east coast. That would be wrong. On the west coast, it is in the area of 40,000 to 50,000 tons in that area. We will have to come back to you on the combined Canada because of that. In terms of the sea lice situation in Chile, it's always a concern in terms of resistance towards any medical treatments. That happens with sea lice.
We see signs of it in Chile, too, but we are preparing accordingly. The good thing about the sea lice in Chile is that it is a lot smaller than the Norwegian sea lice, and some of the treatments we are using in Norway will be very effective. We know that. We've tested it in Chile. Maybe not as concerned as in Norway, but obviously, if the industry doesn't take care of the sea lice situation and it comes out of control, then sea lice can be a nightmare. I think the Chilean industry learned that in 2007-2008. We are preparing. Right now, situation is actually quite okay in our operations.
Kolbjørn Giskeødegård, Nordea Markets. A more general question. You were mentioning the Asian market and the potential there. What is Marine Harvest's take on the obvious gap between a very promising growth market and the lack of available fish and sizes, especially from Norway? What's your plan on matching those two factors better than it is now?
I think it goes two ways. I think it goes to work with food health authorities in China and Norway, and learn from each other there and understand that some of the restriction put in place maybe doesn't have any effect on human health at all. We know that. I think that understanding needs to become better. That can increase the capacity or the export potential of fish, because right now there's a lot of restriction on PD, for example. The veterinary governments in China on that. That's one. Then it is for Marine Harvest, at least we have the potential now with more fish from Scotland coming on, also to take a broader look on where we can export the fish into China from both origins.
At the end of the day, which has proven challenging in 2018, and that has been to make sure that you have steady, big fish from Norway at all times. That needs to be solved through solving the biology. To be honest with you, we are not there yet. I don't think anybody is, that you can steady just promise 6+ kilo fish from that site. The sites are being hit with sea lice or being hit by diseases connected to that, PD and CMS and so on, which makes you take them out a little bit too early, and then you don't have the size of fish that China wants.
Do you also consider this as a major challenge to fulfill the potential with the recently signed agreement with Alibaba, for instance?
No. I think this is going to take time. It's not like this is tremendous volumes yet, so it's going to take time before that is the case.
Alexander Aukner from DNB. I see on your outlook slide here, organic growth throughout the value chain. Does that mean M&A is now less available or nothing left to buy?
Absolutely not. I guess to answer that question properly, in terms of feed, we don't buy, we build. In terms of farming capacity, we will look at all kind of farming capacity available, see if this is beneficial for us to go into and buy it if it fits into our strategic plan. In terms of downstream processing units, we have the experience, we can build plants all over the world, and we can make products all over the world. There, we build. That is the full picture.
Thank you.
Lars Johnsen, Fearnley Securities. In terms of, call it the biological situation in Norway, could you try to give us some color on how the summer of 2018 was compared to 2017 and maybe 2016, in terms of the upcoming new status for the Traffic Light System?
Well, I will not take the job of people evaluating the traffic light system. I think it's fair to say that it was very good situation in the first half of the year, maybe even into July, with very low sea lice numbers. Maybe on the back of a cold winter last year and some improved activity or treatments. In the fall, it's been challenging along the coast. I probably should know, but I think they assess this when the wild smolt is going out to sea. For the most part, that's how they assess the traffic light system. I will not speculate on that. On our sea lice numbers at the end of this quarter, actually in Region South, we have had lower sea lice level than we had the corresponding quarter last year, but in Region Mid and Region North, it was slightly higher.
Again, you have to be exact here. Region North had extremely low lice numbers last year. It's a little mix in the situation. I'm not taking on the traffic light judgment hat, thankfully. Any more questions? Seems like we have taken out most of you. Very good. Have a good day or a great day.