Good morning, and welcome to the presentation of the third quarter 2017 for Marine Harvest. Together with me to present today, I have the CFO, Ivan Vindheim, and together we're going to take you through the numbers. First of all, another good quarter, all-time high, the best third quarter ever in Marine Harvest history, with an operational EBIT of EUR 194 million. This quarter, another quarter with high prices and strong demand.
Prices fell compared to the third quarter of 2016, but overall value of salmon sold was higher than any third quarter. Cost decrease in Norway, Chile, and Canada. Seems like we have been able to turn the cost curve, at least start to take it down. This is very good news. We also see continued performance improvements in Consumer Products, basically almost in all our factories in Europe.
The board has decided a quarterly dividend for the quarter at NOK 3.4 per share. Just some key numbers, Ivan will come more into this later on. Top line grew with 2% to EUR 867.8 million, up from EUR 850 million in Q3 2016. Harvest volume fell 2%, down to 95,300 ton, compared to 97,215 ton.
All in all, the equity ratio is up from 40.9% in 2016 in Q3, up to 54.3% in this quarter. A very solid operation from a financial point of view. If you then look at the prices in the different markets, here you see the red line representing Chilean salmon prices, and this is Trim D fillet. They fell by 9.5% in this quarter in US dollar terms. The blue line represents the Norwegian prices, fell around 6.3% in the quarter compared to the third quarter of 2016.
Canadian prices fell less and fell only 4.3% in the quarter. All in all, this is on the back of almost 9% supply increase in the quarter. Again, a very strong market for salmon. We look at the price achievement for our operations. We see that in Norway, the price achievement was up from 91% in the third quarter of 2016 to 107% in this corresponding quarter in 2017. This shows that we benefit from our contract portfolio. Some people will say that it's about time. Scottish salmon, the same price achievement, up to 116%. We have high contract share in Scotland at very okay prices. Canada is spot based and achieve about the spot price in that marketplace. We also benefited somewhat in our Chilean operation from contracts in the U.S., for the most part.
We go on to the bridge from the result in Q3 2016, which was close to EUR 180 million. Feed, slight reduction in performance, a little bit based on volume in the quarter, but also pressure in the feed market. Farming increased their result with EUR 10 million. Markets around zero. Consumer Products improved with EUR 7.8 million. All in all, this bridges this to EUR 194.2 million. We go into the different operations.
We see the Norwegian operation here represents still quite a big chunk of our EBIT. Operational EBIT here was EUR 124.2 million, slightly down from Q3 2016, which we are at EUR 128.3 million. This is on the back of lower volumes. We see the volume here has dropped from 64.6 thousand tons to 55.3 thousand tons in the third quarter 2017. Overall, we see obviously the volume effect is there.
Price increased compared to the same quarter 2016. Other than that, it's rather smaller changes. If you look at the Norwegian operation, we've had a troublesome year in 2017 with our 2016 generation. A lot of biological issues. Several of them, but I would say many gill diseases that is linked to the sea lice treatments and other diseases. We had a few ISA outbreaks as well that has had an impact on this generation.
Looking at the 2017 generation, we see actually great improvement. It's better growth than ever before and also lower mortality than ever before. All in all, this bodes well for operations going forward, especially when we start harvesting on this at the end of the first and beginning of the second quarter of 2018. Into our contract portfolio. This is the contracts for Q3.
We were down to 21,000, 22,000 tons this quarter. In Q4, this will increase up to 26,000 tons, then slightly down as the normal season in Q1 2016, but around 24,000 tons. Continuing on to the different business regions in Norway. It's not a huge spread between regions in this quarter. Again, it is not the best-performing region.
That has a lot to do with the biology in Norway. Between EUR 2.01 and EUR 2.44 per kilo, on average EUR 2.44, up from EUR 1.98 in the same quarter last year. Overall, obviously, this is the mirror of the 2016 generation. We're not really happy with the performance there at all. I think there is room for improvement going forward. All in all, a decent result, especially in region North. Scotland, a good result coming from a tough quarter in 2016. The baseline here is somewhat skewed.
Made EUR 25.4 million compared to EUR 5.9 million in Q3 2016. Good result. Good prices. Improved cost year-over-year. Going forward into the fourth quarter, we're harvesting from somewhat poorer sites. We expect some cost increase in Scotland in the fourth quarter of 2017. As you can see from the bridge there, the Q3 result is good. Prices are up, volumes are slightly up, feed is down, all the seawater cost and non-seawater cost is down as well.
Our Canadian operation ended at EUR 19.3 million, down from EUR 27 million in Q3 2016. Still a decent profit in the quarter. It's been a tough summer and a tough fall environmentally-wise. Very warm in Canada, low oxygen, some algae blooms. We are prepared against that. It means that we, at some point in time, have to stop feeding because of the environmental conditions.
All in all, okay performance in a challenging environment, I guess is the right comment here. If we then look at our Chilean operation, doing well in terms of operational cost, increasing operational EBIT from NOK 9.9 Q3 2016 to NOK 17.8 this quarter on the back of higher volumes. They are coming back from the algae bloom that hit us in March 2016 and impacted Q3 2016, harvest volume-wise.
Operational EBIT is down, and this is because the price of Chilean salmon is the price that is dropping the most, and you can see that on the bridge on the left-hand side or right-hand side from me. Again, better cost performance. Maybe some of the best cost performance we have had in Chile in a long while. Again, price achievement kind of impacts that. We have one site in Region 11 left with some mature fish.
If you noted that on the slide, which showed quality, you saw that Chile had 87% superior fish. That is due to maturation. This will be over after the fourth quarter in 2017. On to two other smaller operations for Marine Harvest, but quite profitable ones. Ireland is bringing in EUR 10.1 million, up from EUR 4.6 million in Q3 2016, on about the same volume. Delivering organic salmon, highly priced, good quality salmon. It's a challenging operation environmentally-wise, but still a good place for Marine Harvest to be in the long run. Faroe Islands, very small for us. Just started harvesting again. 1,000 tons harvested in this quarter compared to 2,600 tons or close to 2,900 tons the same quarter 2016. Now we are getting back into harvesting fish in the Faroe Islands.
We are a little bit on and off there because we have only three sites, unfortunately, I would say, and then you get not the continuous harvest plan. Consumer Products, this is the operation that is smoking and making sushi and all kinds of product in Europe. Here we had growth in top line from EUR 340 million to EUR 368 million on the back of somewhat lower volumes, 28,000 or 28,500 compared to 31,900 ton in the same quarter in 2016. This shows their willingness to pay the extra price for good quality salmon in our operation. We make substantially more money in this quarter compared to the quarter before. Still not quite where we want to be, but at least going in the right direction.
Worth noting that value of sold salmon continue to rise across all markets, and that is a fact in this quarter. On to our feed operation. Seemly, Q3 is the high end of feed. Feed volume sold was about the same as in the quarter before. Shows that the 2017 generation now kicks in for Marine Harvest, and the result is slightly lower in operational EBIT wise and also percentage wise. This has to do with somewhat more pressure on feed prices in the marketplace. We benchmark obviously our operation here, and this is based on the feed we buy, the price we get ourself. On to the growth side of things there. Our factory in Scotland, I think, will be very beneficial for Marine Harvest.
It's coming on as planned and on budget, and this is going to be the first plant on the ocean in Scotland where you have efficiency of both raw material in and finished products out. It's going to change the feed market in Scotland dramatically. Mark my words. It's over to financials. Ivan, you are more than welcome to take on financial and markets going forward.
Thank you, Alf, and good morning, everyone. As usual, we start with the P&L top line growth of 2% this quarter, i.e., EUR 868 million, despite a small decline in harvest volumes by 2%. The explanation is higher achieved prices. Spot price was down in the quarter year-over-year.
Our contract prices blended were significantly higher compared to the third quarter last year. Profit-wise, operational EBIT EUR 194 million, which is up 8% year-over-year. Further down in the P&L, the biggest item, net fair value adjustment of biomass up EUR 27 million, which is due to higher biomass. We increased the biomass during the quarter by 30,000 tonnes. At the end of the third quarter, we have 271,000 tonnes in sea. This is also an increase year-over-year, which is satisfactory, I would say, taking into account the biological issues we have been through this year, particularly in Norway.
Income from associated companies, EUR 13.5 million. This is our 48% stake in Nova Sea. This is also including fair value adjustment of biomass. If you look into the appendices, you will see that the underlying profit is also great this quarter, EUR 2.33 per kilogram on 9,300 tonnes. Another good or satisfactory quarter for Nova Sea. Net financial items, interest expenses, including amortizations, normal this quarter, approximately EUR 12 million. The rest is currency and the fair value adjustment of the outstanding convertible bond. The share price increased during the quarter, which means a negative effect on the P&L because of a higher value of the bond. The financial basic figures, underlying earning per share, EUR 0.29 or EUR 0.29 this quarter. Cash flow per share, EUR 0.12. This is the quarter we tie up working capital.
That's why the cash flow per share is less than 50% of the earnings. Harvest volumes already mentioned, 95,000 tonnes. Blended operational EBIT per kilogram as high as EUR 2.04. All in all, I would say a great quarter earnings-wise. Return on capital employed, close to 30%. Over to the balance sheet. Quite stable year-over-year. Total balance sheet amounts to approximately EUR 4.5 billion.
Net interest-bearing debt, EUR 664 million, and a very healthy equity ratio of 54%. In terms of cash flow, as already said, this is the quarter we tie up working capital. We have done also this quarter this year. EBITDA of EUR 232 million. Change in working capital, EUR 72 million. In total, cash flow from operations, EUR 133 million. CapEx in line with the forecast and the guidance, EUR 58 million. Interest expenses, we have already touched upon.
Dividend is related to the NOK 3.20 per share dividend the board distributed after the second quarter. All in all, we increased the net interest-bearing debt from EUR 551 million to EUR 664 million during the quarter, as expected. We also expect that the net interest-bearing debt will increase further into the fourth quarter and towards year-end. Fourth quarter is a high season for our Consumer Products, and we normally tie up a substantial amount in accounts receivable.
We also hope that our biomass continue to increase a little bit, although the lion's share most likely has taken place in the third quarter. Let's see. That takes us over to the cash flow guidance. No changes to the guidance since last quarter. We still hope and believe in a EUR 120 million tie-up in working capital.
This is related to accounts receivable for Consumer Products, but we're also a further increase in the biomass. The biomass is our bank account. That's what we are to live off next year. Virtually the higher the better, at least in volume terms. CapEx, EUR 250 million. Still the same interest expenses paid, EUR 25 million. Taxes paid, EUR 180 million. As Alf-Helge Aarskog already has said, dividend for the quarter is NOK 3.4 per share. Financing.
No changes to the financing either. We have the power, and we are well-positioned for both further growth and whatever to come. I think the financial situation for Marine Harvest has never been better, at least in recent history. Much about fundamentals. Over to the supply development and the supply development in the third quarter. It was as expected in all areas, I would say.
Up 9% globally, 4% in Norway. Not much to say to that table. We go over to the prices. Prices are down sequentially, but also year-over-year after the recovery we see in Chile, but also on the back of improved biology year-over-year in Europe in general. Notwithstanding the drop in spot prices, Marine Harvest achieved price for the quarter, blended, is higher because of better contracts. For Marine Harvest, it's the other way around. Somewhat better prices in the quarter year-over-year. Demand and markets. For the first time for a few quarters, we have green arrows. We have actually green arrows in all markets apart from Japan. Finally, our consumers are consuming more salmon. If we convert the arrows to euros, they are even darker.
From a demand point of view, we think this has been a great quarter. It turned out to be better than what we expected. All in all, a good still underlying demand supporting development of this product. Particularly impressive to see our 18% growth in Asia. That's really impressive. We also see that Europe has started to eat more salmon and even more in euro terms. Industry supply growth. Not big changes since last time. We still believe in approximately 5% increase for this year. Next year, approximately 7%, in the range 4%-9%. For 2019, 3%. We still foresee a modest supply growth. This indicates a continued tight market balance going forward, although we will see some volatility in the seasons, like in the autumn when we always have a drop in the prices due to seasonal higher volumes.
Over to our own volumes. We have taken down the 2017 guidance by 8,000 tons. Almost all of it is related to Norway and the biological issues Alf-Helge has duly commented on. Going into 2018, we are planning and hoping for a recovery in Norway. We are guiding on 249,000 tons from Norway next year, up from 210,000 tons.
Almost in line with what we harvested in 2015. We have the individuals, we have the biomass, so this is just about achieving the harvest weights and a satisfactory mortality the next year. For Scotland, we have a temporary drop. We are going down from 57,000 tons to 47,000 tons due to a changed stocking pattern. This is temporary. We expect Scotland to grow again from 2019 onwards. Canada, we are planning for an increase in volumes from 41,000 tons to 46,000 tons.
We also are planning for a continued recovery in Chile. It's up from 46,000 to 53,000 tonnes. I.e., to a pre-algae bloom level. Other units, stable 16,000 tonnes, which is more or less equally spread between Ireland and the Faroe. Alf-Helge Aarskog, the floor is all yours. Thank you.
Thank you, Ivan. Just to take a look going forward, already stated by Ivan, Marine Harvest has a very strong financial position. We are a solid finance company. Ready for growth, both organically and otherwise, if we can find good deals around. We continue to grow our operations in the feed side. The factory in Scotland is going as planned. On the farming side, we focus for the most part on the hatchery initiatives. We invest quite a bit in hatcheries.
We also obviously are in research into development licenses and the like, to try to come up with better ways to produce salmon going forward. In Consumer Products, we continue to expand. Last quarter, we opened a factory in Dallas. We are about to open one in Vancouver as we speak, we will again double Duck Trap Smokehouse on the East Coast.
We continue to make our operations more automated and more effective around the globe. I think that is very important because this is about building market, having good products in the most and best-paying markets. Demand, I think we will see continuously strong demand going forward. We see that in this quarter. We know there will be ups and downs. I think week 43 usually is the low in spot prices. This will come back, just a matter of time. Quarterly dividend, as said, NOK 3.40 per share. With that, I think we will open up for questions. Please state your name and your employer, and we will try to answer the best we can. Just behind you.
The first question from the web this time. It's from Gianmarco Bonacina from Equita. He's asking, "How sustainable is the achieved price of 107% in Norway, assuming stable spot prices in the future?
Well, stable spot prices in the future, at what level? It's kind of hard to answer, I guess. Certainly, contract pricing will be on and off. If prices increase dramatically, contract prices usually lag. If spot prices drop, contract prices usually are higher. That's why we have contracts. There's not much more to answer to that.
Vidar Straand, ABG. One question on contract prices. For 2018, what can you do at the present time? If you want to go into a contract now for 2018, what would be the price in the physical market? That's one question. The second question is regarding the supply guidance in Norway on an industry level versus your own figures. There is, I would say, as usual, a strong mismatch as you expect an 18%-19% growth in your own volume, and there is a 7% expected increase in the Norwegian volumes on an industry level. Finally, third question is related to Scotland, that there has been some media attention on the sea lice situation there and any comments about that and your own operation in Scotland would be most helpful.
If I take the contract now, I think timing to do contract right now is pretty bad. We wouldn't do it now because we believe in better prices going forward. Supply guidance Norway, would you comment on that, Ivan?
Yeah, I can. The rest of the industry, they have recovered from, or at least partly recovered from the biological issues a little bit quicker than ourselves. If you compare our numbers to the industry for this year, you will see a special Marine Harvest deviation. If you do the same math for those two years, you will see that those numbers are quite okay. I would say that we are, in all honesty, lagging a little bit compared to the others. We see that the '17 generation, which we start to harvest from in the 2nd quarter next year, is substantially better than what we saw for the '16 generation last year at the same time.
The last question was Scotland and sea lice. We have been working hard on sea lice in Scotland for a long time. It's in some areas in the Hebrides, there has been some issues around sea lice. It's nothing we cannot manage around. We continue to increase our effort on wrasse and wrasse farming, using freshwater for treatment and the like. I think that has nothing to do with the drop in volume we see next year. That has to do with smolt stocking patterns, as we mentioned.
To your 2017 guidance, as you mentioned, you're lagging the industry. Could you help me understand why? You're basically in all the regions, with the exception of the northern part. Your growth should be more or less in line with the market. At least, that's my impression. Also on the 2018 guidance, the volume guidance, is that based on the same mortality and weights as the 2017 guidance?
Let me answer that one. On 2016 generation, performing worse for Marine Harvest than you can say what the others are doing, there are explanations to that. Especially in Region Mid, we have the disease called yersiniosis, that has taken out quite a bit of volume. We have had our fair share in terms of gill diseases. We have had two ISA outbreaks, one in the northern part of Norway and one in the southern part of Norway, taking out the fish.
I think I have to say that we have not been lucky and not good enough on that generation. That is the explanation. Some people say there's rumor around our fish feed, for example. We have tested our fish feed, four benchmark trials in research stations, find our feed performing better or the like, compared to competitor. That is not the case.
Also when you take a look at the 2017 generation and the growth of the 2017 generation, it's never been bigger than we have now at the same time, performing better. Maybe you are unlucky in one generation. It's a fair point, we will address it, and we go through all our operations to try to see what's not good and what can be better. We know there's a huge spread in Marine Harvest Norway in terms of cost from site to site. I know that we have, in some sites, extremely good cost, obviously, and some sites not so good. There's still a room for improvement if you move the average somewhat there. Next question was.
The assumptions for the 2018 guidance.
Yeah. Ivan, if you can-
It's based upon a recovery on harvest weights and mortality, so to more normal levels. In terms of the assumption for the 2017 guidance, they were a little bit more optimistic. We are not planning for repeating 2017 actually.
No, that's okay. It's just the 2017 guidance was based on normalized biology and mortality.
Yeah
which obviously did not happen.
That's true.
Now you're assuming.
The-
normalized mortality and weights, but slightly more conservative than-
Yes
what you did in 2017. Okay, perfect.
Thanks.
That is on the back of what I said earlier, that the mortality is already lower. Yeah.
Carl-Emil Kjølås Johannessen, SEB. Can you say something about the CapEx level for 2018?
A little bit early. We will revert to it thoroughly in February when we release the fourth quarter results. I think we get this question every year. We were prepared. We have the budget meeting in December. That's the date we decide what to spend on CapEx next year. It's just based upon practicalities.
Cordua Nyskörugoa, Nordea Markets. Back to the better performing 2017 generation, is this also related to bigger sizes of smolt? What is your targeted smolt size on average, let's say two, three years ahead? Thanks.
I think it's a combination, Cordua. Obviously, we increase our smolt size somewhat. It's not like it's a revolution in smolt size because we build one freshwater site that increases a little bit. To a certain extent, it has to do with smolt size, but also better production planning. The way we do it now is that we put some big smolt in on the most challenged sites, try to get the fish out of the ocean before the second summer and see. We also do a lot, and we'll do even a lot more passive grading, taking out the big fish continuously. There's a lot of explanation why we think this will be better. The last question was-
It was your long-term target, smolt size.
Yeah. It's not written in stone on long-term target smolt size. I think that will depend on how the sea lice situation develops. The fish grows faster in the sea than in freshwater. There's no doubt about it. If we see solutions to the sea lice issue, I think you will actually take down your smolt size. As of now, as the situation is now, we increase our smolt size, not dramatically, but around 10, 20 gram per year.
Tore Stensrud in Sparbank markets. Looking into 2018, you're seeing improved operational results on the 2017 generation. What kind of cost improvement should we expect in Norway? It's going down, probably.
Yeah. Certainly. I will not set a specific number on that because it depends on how feed prices develop, for the most part. Some of the fish are getting big, but it's still early days. Yes, we believe if this generation continues to perform, the cost will drop. I will not set a specific number.
Okay. Just a follow-up on Scotland and what kind of volumes we should expect towards 2019, because we are dropping now. Are we going back to 2017 levels, or should we expect growth from the 2017 level?
Well, we do not guide the two years ahead.
Is there any growth there? What are the growth expectations for the unit, or is it stable?
Let me put it like this. The long-term target in Scotland is to grow substantially from the number you saw for 2017. Then we will revert to the exact number for 2019 next year at the end of the third quarter.
Okay. Thank you very much.
You're welcome. Not much to thank for. Thanks. Okay. If there are no more questions, I just would like to thank you for coming and wish you all a very good day going forward.