Good day, and welcome to the MHG quarterly report Q2 2018 international conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Alf-Helge Aarskog. Please go ahead, sir.
Thank you, and welcome to the presentation of the Q2 result for 2018 for Marine Harvest. I will go through the report and open up for questions after we've gone through the presentation. Highlights for this quarter was operational EBIT of EUR 175 million in the quarter. What we see that is positive in terms of the market development is very strong demand in most markets and value growth in terms of sale of salmon, almost in all markets where we operate. The result in Norway and Chile was very good, the best second quarter we've ever had. That is for both units on improved costs, obviously also on high prices, and this compared year-over-year, so to Q2 2017. In terms of financing, we issued a euro bond at EUR 200 million with a tenure of 2.15 or coupon of 2.15%.
We see this as good and cheap financing for the company. In this quarter, we also had to reduce our volume guidance with 28,000 tons. I will come back to the details of that when I go through the different units and the reasoning behind it. This is excluding Northern Harvest. The dividend for the quarter, the board decided to pay out NOK 2.6 per share, and this will be paid out in Q3 2018. We then go into key financials. We see on the top-line side about the same revenue as Q2 2017 at EUR 888 million. Operational EBIT within [inaudible], but it's down from EUR 197.9 to EUR 175.2 in this quarter. Harvest volume is about the same, around 78,000 tons for both quarters.
If we go to the price development in the quarter, we have the slight price increase in Europe, or about stable prices in Europe. Come back to the details on a later slide. Slight increase in Chile 13%, close to 14% increase in North American prices for salmon compared to the same quarter in 2017. Go to price achievement. That's a function of the contract share. We have the spot price and the quality of the fish. In Norway, we achieved 91% of the reference price or the spot price on the back of 48% contracts. Contracts took the price achievement down somewhat because of then higher spot prices. The superior share was slightly below what we expect. We would like to stay above 90% in quality of the fish. Scotland, 104% price achievement compared to 97% in 2017 in the Q2 .
High contract share here, 69%, and high superior share at 95%. Canadian salmon is basically in the spot market. We achieved slightly lower than the reference price here because of lower quality than expected. In terms of Chile, there we have a 91% price achievement compared to 97% in 2017, Q2. This on the back of 29% contracts and 86% superior share. Below our expectation in superior share. We go into the development of operational EBIT for the company. It was close to EUR 198 million in Q2 in 2017. We see that feed is about the same as Q2 last year. Farming is reduced with EUR 12.9. Mostly, the reason for that is Scotland and Canada performing at a lower level than what they did in Q2 2017. It's also driven somewhat by volume reduction in harvest in Scotland for this quarter in 2018.
Markets approximately the same and consumer products slightly down. This has to do with what we see as the Easter effect of Atlantic salmon and the demand before Easter. Easter was in Q1 this year compared to last year when it was in Q2. Explanation here is very volatile spot prices and some of our raw material going into consumer products is spot based and then you run the risk of not making as much money on this when these prices are changing. That takes us to this year's result, NOK 175.2. Over to Norway. As already stated, a good quarter for the Norwegian operation, EUR 126.7 million as result, compared to EUR 98.4 million. Harvest volume was up, closing in on 50,000 tons compared to 39,000 tons last year.
You see also per kilo we made more money, and this is on the back of volume obviously, but reduced feed cost on fish harvested and also a scale effect in terms of higher volume in this quarter. Then we have on the negative end, that is the development towards the end of Q2 and a little bit into Q3 and in July and August, where we see especially region south being hampered with some diseases. It's most likely a ripple effect of treatment of sea lice that makes the fish weaker and then you have to harvest out earlier, and that gives you lower harvest weight. We see going forward that we have to reduce our harvest weight for the Norwegian operation. In total with 14,500 tons, 80% of this is in region south, in the southern part of Norway.
We still, because of region north and region mid, expect cost to continue to decrease, also in the third quarter compared to what we saw in Q2 2018. We look at the contract portfolio. We see the contract portfolio is slightly above what it was the same contracts going forward or same quarters in Q3. A little bit above 25,000 tons in Q3 and a little bit above or around 27,000 tons in Q4 2018. Rather stable and on good prices or corresponding prices to what we got in Q2 2018. If you look into the Norwegian operation, these are rather big units producing more than 50,000 tons each. We see region south here in terms of operational EBIT per kilo lag quite a bit behind the other regions. The region north is really performing very well.
Region mid in the middle of Norway. We see the southern part of region mid not as good as the northern part of region mid this time around. We see region south being about one third of the result in region north. This is linked back to what I spoke about in terms of biological issues in region south. All in all, the result is slightly better than what it was last year. If we go into the Scottish operation, what's kind of standing out here is the reduced volume in this quarter, down to 9,000 tons from close to 19,000 tons in Q2 2017. On back of this, a reduction in result both specifically per kilo from NOK 3.10 to NOK 2.38, but also in absolute money from NOK 57.5 million to NOK 21.3 million. I think the result is good, but it's driven by higher prices.
The cost is up because of lower volumes, and you can see also other saltwater and the fixed cost linked to that also being up. We do not think there will be huge improvement in the Q3 in Scotland in terms of cost, but we see room for growth there in 2019. Had to reduce the harvest volume here to 5,000 tons in the H2 , and this is on the back of a little bit low smolt stocking in 2017 or 2016, 2017, and then biological issues in this region. Canada also had a challenging quarter. Somewhat reduced volume from 9,300 tons to 8,000 tons, but more so reduced operational EBIT, even though we had good price achievement or good prices in this region for the quarter. We have struggled somewhat with jellyfish, some low O2, some gill issues on the fish in this region.
We do not see any improvement in Q3 for Canada directly. We have invested on the other side from not in BC, but in East Canada or New Brunswick and Newfoundland to be specific. We estimate this unit to harvest 8,000 tons for the H2 , about 18,000 tons for the year, 18.5. That will give us another region to raise salmon in. Which we think has great potential combined with the assets we had there from before. That was Gray Aquaculture, which we bought a couple of years ago. Chile, on the other side, had a very good Q2 , actually the best in the history of Mowi [inaudible] this on high prices and also on reduced cost.
We think and we know because the sites we're going to harvest from in Q3 will have slightly higher cost than what we did in Q2. We still think that the Q3 will be okay for Chile. Recent consolidation where Agrosuper was bought or is about to buy AquaChile, I think it's positive for the long-term development of the industry in Chile. We had one negative incident in Chile in July. We had a rather large escape, which happened because of strong winds and waves on one site where the structure of the cages failed. We're working to find what really happened there. We know that the moorings held up, it's the structure of the cages. The cages were not old. They were put in place in 2017 and should withstand the weather that we faced there.
This is investigation ongoing to find a final solution and hopefully see that this never happens again. There were 900,000 fish at site when the storm happened. We were able to rescue 250,000 fish and move them to another site, and we have fished about 45,000 fish with the gill nets after escape, but there are still approximately 600,000 fish missing. Some of them we will catch, but absolutely not all of them. Ireland, Faroe Islands, strong market conditions. We had low volumes in both these smaller units, but okay result, I would say, and a really positive market for organic salmon, which we produce in Ireland. We go on to consumer products. Consumer products had good volumes and good growth in revenue, but the earnings was down from EUR 19.2 million to EUR 13.1 million.
This is on the back of the raw material prices described before, but also the Easter effect, as I also mentioned earlier in conversation. What I think is really good is the strong consumption of salmon in this segment, and we see that basically in all markets where we are in. We had one incident in France. We had a smokehouse in France called Kritsen that burned down in July. It is fully insured both in terms of the buildings but also continuity insurance for this. We expect limited cash effect for this incident. We have been able to route some of the production into our Scottish unit, into our unit in Holland, and some into Poland, and now we're evaluating our structure in France and where and how we will rebuild this market again. Feed. Feed is in a high-competition area in Norway as we speak.
We had good production in the quarter and a seasonally record high. Higher feed prices year-over-year, but offset of raw material prices being up on the raw material used in this quarter. Well, pressures in the market on margins and this result is also slightly hampered by the construction of the new feed plant in Scotland and some of the expenses is booked directly into the feed operation as we speak or in this quarter. We go on to take a look at financials a little bit around the markets and harvest volumes going forward. We have been through the numbers in profit and loss, at least the big numbers. I think I just move on to the financial position. We see that total asset is up by approximately EUR 300 million.
Still the adjusted equity ratio now is 49.7%, down from 58.1% in the same quarter or same time last year and down from 51.7% year-end. In terms of cash flow and interest-bearing debt, the net interest-bearing debt started the period with EUR 856 million. Basically, we are growing the business in terms of volume and there are some inventory delays in value-added, but change in working capital was EUR 43 million. CapEx about in line with the same period last year and in line with budget. All in all, we ended the net interest-bearing debt at EUR 950 million towards the end of the quarter. We also bought 5.7 licenses in this quarter in Norway, and that's also accounted for in this statement. In terms of cash flow guidance, working capital build-up of EUR 120 million support further organic growth.
I think we have more biomass in sea, and I think we see this materialize in 2019. CapEx, I think the number is about the same as it was in last quarter. What we're focusing on in CapEx is continued freshwater expansion and growing the smolt slightly bigger to avoid and to reduce biological impact in sea. We have one freshwater facility being built now in Northern Norway, one in Region Mid, and we have completed one in Scotland in Inchmore. We also do seawater expansion projects both in Scotland into new sites, in Canada, and in Chile. We have the major investment in Scotland, the feed plant, in with NOK 60 million in this overview. On consumer products, we're moving out of a plant in Miami, moving into a bigger plant. We are rebuilding and opening up the second facility and doubling capacity at Duckt rap.
Ducktrap is a smokehouse in Maine. This is on the back of high demand for our products, and we have basically grown out of our facilities. Northern Harvest, EUR 215 million. Farming capacity mentioned, interest paid was EUR 40 million, taxes paid in the quarter was EUR 140 million. The dividend we have been through before. Financing, I think the only new thing here is that the EUR 300 million bond issued in June 2018, the remaining is the same as it was before. If you then go into supply development. The supply in the quarter was up globally 5.2% compared to the same quarter in 2017. Norway was up eight, then Scotland, Faroe Islands, and Ireland were down. Chile maybe where we missed a little bit on the guidance, were up 19%. That was more than we expected.
All in all, 5.2% growth on the back of stable or increasing prices is telling us that the demand in the marketplace is good. If you look at prices, Norwegian salmon priced in EUR was slightly down 0.8%, in NOK because of exchange rate, up 1.1%. Chilean salmon up slightly between 2.5% in $ or 1%, 2.5%. North American salmon up 12%-14% in the currency it's sold in the U.S. Stable or increasing price development in the quarter on the back of higher volumes. If you then look at where the salmon ended up in the marketplace, you see Europe is growing at 6.9%, or EU is growing 6.9%. Russia is up 50% in the quarter and 26% on a rolling 12 months compared to the past 12 months. Seems like Russia gradually is coming back.
This is fish from Chile and fish from the Faroe Islands. You have other Europe also being up. In total, Europe is up 9.1%, so a really strong development in the European market. Same goes for U.S., up 14.3% this quarter compared to the same quarter last year on good prices. Brazil is up. All in all, total Americas, some slight reduction here in other countries in Middle America and Latin America, but still very good numbers, close to 10% increase in volume in the Americas. China opened up for Norwegian salmon and has continued to open up for more regions in Norway. This has led to increased export to China and Hong Kong with 48% in the quarter. Japan is one of the few markets that's down. Some salmon that went into China before went to Vietnam.
I think that has stopped with the opening up of China as a buyer of Norwegian salmon. Strong development also here. Total increase of 8.1% in the quarter into the different markets. If you look at the supply outlook for 2018, I think we will see somewhat more harvesting now in the few months to come, especially in Norway and to a certain extent in Chile. Kontali, which these numbers are derived from, expects about 5%-7% increase in 2018. Kontali revised down its 2019 estimate, and we agree with that. On a global scale, they're down to 4%-5% growth in Europe and 2% in Americas. That is because we believe that more fish will be taken out on lower weights in 2018 and does not reach the market in 2019.
Our guidance, just to be specific on that, we took down the volume from 400,000 tons to 380,000 tons, including 8,000 tons from Northern Harvest. Norway, already been through, but 14,500 tons down. Scotland 5,000 tons down. Canada reduced by 6,500 tons. Chile down 2,500 tons. That has to do with escape incident and fish lost there. Ireland is slightly down and Faroe Islands is increased by 1,500 tons for the remaining of the year. If you then look at the output going forward here, it's clear that the demand for salmon is strong in most markets, I would say. Fish price going forward is at EUR 6.4 for the next 12 months. Growth in China supported by the removal export restriction from Norway is clearly helping. Supply outlook again is favorable for 2019.
For us, the acquisition of Northern Harvest combined with the Gray assets that we or the Gray Aquaculture company that we bought earlier give us a new dimension on the east coast of Canada. Then dividend, I mentioned, but I will repeat it. It's NOK 2.6 per share and will be paid out as ordinary dividend during Q3. A little bit marketing at the end. Marine Harvest will have a capital market day 13th of November in Edinburgh, Scotland. I hope to see many of you there. With that, I will turn this over to the conference host and open up for question.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you would like to, please use your speaker phone to unmute your phone. We'll pause for a moment to allow everyone an opportunity to signal. Again, that is star one for questions. We'll take our first question from Gaurav Nigam from Catamaran.
Thank you for taking my question, sir. My question is on the Chile operations of Mowi. As I understand from the press release and in the comments that the problem was due on the cages that we had installed in 2017. I want to specifically understand, is it because of the quality of the cages or the nets that we are using? If that is the case, what are we doing about it so that it doesn't happen in future? Thank you.
Yes. This was about the escape incident in Chile, what happened and what are we doing about it. Try to describe it. This was a site called Punta Redonda. It's south of Puerto Montt. In Chile, we are not allowed to go out to the site when the storm is ongoing because of these navy regulations. What happened was that the mooring system, what holds the cages in place, held up. We use the same system as in Norway there. What broke was the cages itself. The cages itself were new. They were put in place 2017, so not even a year old. They should, according to specification, hold up. They broke in the connection or where these steel cages are connected to each other. When this happens, the mooring system holds up.
They will have the opportunity to break the net. What we are doing, we have reviewed obviously specification from the vendor or from the supplier here. Certainly we have already enforced all our other cages from this supplier with chains in all corners and all lengths. So far our finding is that the cages in this case should have held this weather and this episode should not have happened. There are still investigation ongoing. The question again, what are you doing about it? Immediately we reinforced all similar types of cages with chains in all junctions, to make sure that they are not falling apart.
All the nets here were in jeopardy, not because they were old, they were new nets. When the steel structure breaks, they will towards the end break the nets. That is not possible to avoid as in this case, unfortunately. We have done a lot short term to secure that it doesn't happen again. We have also started to investigate or have third-party engineers in place to find out what was wrong with this structure because it, to be honest with you, should have taken this weather.
Okay. Thank you.
Once again, if you would like to ask a question, please press star one. We'll take our next question from Sam Glover with Tideway Investment Partners.
Hello, good afternoon. Thank you for taking my questions, three for me. Firstly, just looking at the supply or lack of supply growth this year. I note that at the start of the year 2018, I believe you were guiding for around 410,000 tons. That was sort of low double-digit supply growth. Growing significantly ahead of the industry. Unfortunately, it looks like you're going to now be below the industry growth. Why is this happening? What are you doing to turn that around into 2019?
That's the first question. Second question, can you update us, please, on the outstanding convertible and what the situation is there going into H2? Finally, just to clarify on the Chile situation, the escape, I noticed that you flagged a NOK 35 million hit to EBIT in your report. Can you just clarify, is that the total cost you're anticipating, or can we expect an additional provision for regulatory fines, et cetera, on top of that? Thank you.
Yes. In terms of supply growth, you are correct. It was around 410 when we started the year. Excluding Northern Harvest, we are now at 372. Why is this happening? Specifically, the reason is not all of it, but a major reason is one region in Norway, which has its issues biologically. I think we have seen other companies guide down as well in this region today. We have also reduced our volume in Canada and in Scotland. I think Scotland is on the right track for 2019. What we are doing there is new sites, even more focus on sea lice issues. In terms of Canada, there is no quick fix. The reason for the reduction in Canada is a combination of, this is on the west coast of Canada, a combination of low oxygen in the water, and gill health.
The gills are what takes up oxygen from the water. In combination with the jellyfish in the area, that has hurt the gill of the fish, make us harvest them out earlier, and thus lower volume going forward. There's no quick fix in Canada. That's more nature that happens from time to time on the west coast. Again, that can come back and be better in 2019. In terms of the outstanding convertible bond, it's currently deep in the money. The first potential to convert this into equity is in November, the board has not decided what to do when that time comes around. The escape. I think if you refer to NOK 35 million, that is correct, that is EUR 3.5 million, just to be specific on the number.
That is losses due to, obviously, the fish are not there to be harvested and lost the income. In terms of fines from the government or potential fines, that is not in that amount, and we have yet to see any numbers from the government, whether they're going to fine us or not. The issue in Chile is that there is no standard. We are using a weakened standard for the moorings and that part of the equipment. There is no ISO standard. In Norway, we have something called NS 9415, NS 9415 or Norwegian Standard 9415 for all components. The government does not have that in place in Chile. No matter what, we will look at all angles here, and also the supplier of these cages have a responsibility. Any fines are not in this number, or any potential fine is correct to say. Does it answer your questions?
Very clear. Thank you.
Once again, if you would like to ask a question, please press star one. It appears there are no further questions at this time. Mr. Aarskog, I'd like to turn the conference back to you for any additional or closing remarks.
Okay, I will thank you all for attending the conference. We will be back with Q3 in October of 2018. Thanks a lot.
That concludes today's presentation. Thank you for your participation. You may now disconnect.