Welcome to the presentation of the fourth quarter of Marine Harvest. I think a special welcome to Former CEO of Marine Harvest and the previous Vice Chairman of the Board, Leif Frode Onarheim. It's an honor to have you here. It's great to see that you are still following the company. Very good. Thank you.
Sorry about that.
First of all, 2016 was a record year for Marine Harvest. We made just north of EUR 700 million in one year, and that is, for us, unprecedented. It's more than double of the record from previous years. We are very proud of that, and I think to all our employees around the globe, I just want to say thank you to all of them for a great effort. In the fourth quarter, operational EBIT of EUR 259 million. That was also an extremely good quarter for us.
We had strong operational performance in all operating units. We made money in all over the place. Of course, we can get better and of course, we see room for improvement. It's good for all of us that we are able to show progress in all our operations. This is obviously driven by high salmon price and the supply side of the sector. Again, when you can do it all over the place and really show that this is a global industry and the demand for salmon is strong, we know we can build from there. We can improve on our operational side, we can improve in our marketing side, we can improve in making better products going forward, and we can grow in volumes. Overall, we are satisfied with 2016.
In terms of the main numbers, if you look at the top line, it was just north of EUR 1 billion in Q4, up 17% from the corresponding quarter in 2015. The operational EBIT was EUR 259.4 million, up from EUR 89 million in Q4 2015. 189% increase. If you look at the harvest volumes, they came in at 99,634 tonnes in the quarter, down from 110,500 tonnes in 2015. For the year, 380,000 tonnes harvested. That corresponds to 420,000 tonnes in 2015. The explanation for the reduction in supply is one, the algae bloom in Chile that took out quite a lot of biomass from Marine Harvest, but also the sea lice situation in Norway and forced harvesting in many regions.
If we look at the salmon prices, in this quarter supply were down about 10% and prices in the quarter were up from 52% in the lowest growing market in Europe to 94% in the highest market in North America. Very strong prices in this sector. To our price achievement. Marine Harvest is a company that has a lot of effort into developing new products, into developing good strategic partnership with retailers. We are by nature a company that will have contract and will continue to have contracts also going forward. In this quarter, our contract portfolio was lower than the spot price and that explains the price achievement in Norway. Quality and the quality of our fish were good, 94%. In Scotland the same. Scotland is by even more so a contract market.
We are in there with big retailers and we are developing new product. We are increasing demand for our products continuously and that has to be done step by step by step by step. We will continue to work that way because we believe that at the end of the day, it's amazing what you can actually do with salmon when it comes to product development and actually create demand for the product. That is the nature of the Scottish business and will continue to be so. Canada, all spot, they sell most of their fish on the West Coast, most to restaurants and to sushi segment and we are in the spot market there because it's mostly whole fish. We envision also to gradually change the business there to more value-added products because we think there's a lot to do by developing the North American market.
We've seen that throughout 2016 that demand for salmon in North America has gradually picked up. Chilean fish, some contracts there and a 99% price achievement compared to the spot price and 94% superior fish in the quarter. If you look at the Operational EBIT performance compared to the fourth quarter of 2015. We start at EUR 89.7 million in Operational EBIT for 2015 Q4. You see Feed is improving their performance compared to the same quarter with EUR 2.8 million. Farming is the one unit that is performing or improving the most. That is basically based on price back to farm has increased quite a lot. Markets continue to improve performance, and even Consumer Products are improving their performance with EUR 13.2 million in this quarter compared to the same quarter in 2015. All in all, the EBIT ended, as already said, at EUR 259.4 million.
Into the different business segments and take a look at the different operations. Norwegian operations in Farming is by far the largest one, harvested out 63,000 tons or just north of 63,000 tons, and yielded an Operational EBIT at EUR 171 million in this quarter. Also a new record for Norwegian Farming. Contract share is high, it is 52%, and that has, as already explained, had a negative impact on price. In terms of the biological issues, which is not only sea lice, but for the most part sea lice, that it continues. We don't see a quick fix here. This is hard work over time. It is RAS, it is all the mechanical tools, and it is new farming practices that will come online.
There is no immediate solution, but this is where we are spending absolutely most of our R&D money to come up with better ways to protect the fish from the sea lice, to put it that way. In Q1 and Q2, we will have very low volumes out of Norway, and we expect the cost to increase in these two quarters for this business unit. If you look at the contract portfolio already described, this is like a supertanker. Well, you can swing it a little bit, but we are in the contract business and will continue to be. You see Q4 was high, that is seasonally impacted, and then you see a slight drop in contract level volumes in Q1 and Q2 compared to this corresponding quarters Q1, Q2 in 2016.
In terms of the Norwegian operation split into four different regions and their performance, we see improved performance in all regions, obviously based on price. We have maybe a less spread in this quarter than we've had in many quarters. We've had huge challenges in Region Mid. They have improved. The battle is still not won, but at least we're moving in the right direction. They had EUR 2.33 per kilo in EBIT margin. Comparing that to the best region here is Region West with EUR 2.91. We are much more alone there, and we have changed the structure significantly there, but also there we are struggling. None of these regions are perfect. They have their biological issues, so the potential for improvement here is really big in all of them. It's not going to be done overnight.
It's going to take time, and it's going to take hard work. All in all, EUR 2.7 per kilo in operating EBIT margin in the fourth quarter for the Norwegian operations. Take a look at Scotland. Scotland had a negative result in Q4 2015 at -EUR 4.2 million . They've turned it around. We started a change in management in Q1 in 2016. This is working. They have changed it at least to be positive. We expect Scotland to, one, perform better in the rest of 2017, but also to have a significantly lower cost already in Q1 2017. This process is on track. They had an operational EBIT margin of 1.83%. Not fantastic, but I think we'll see improvements there and cost reduction going forward. Take a look at our Canadian operation. Canada has performed well over time.
If you take a look at the graph here and it really explains from the Q4 2015- Q4 2016, you see it's basically price that's up, all the costs are flat. It's a stable good performance, stable good biology over time, and we expect that to continue. A very good result in Canada with EUR 3.33 per kilo for this quarter. Over to Chile. Chile has been a big challenge for Marine Harvest over time. We have turned the corner. In Q4 2016, we had a very good result, EUR 19.8 million. Operational EBIT at EUR 2.61 per kilo, almost on Norwegian level. That had this explanation. It's not like Scotland and Canada, and it had really good sites.
We harvested out from very good sites, you have to expect a higher cost based on that we will harvest from more high-cost sites in the first two quarters of 2017, but also on very low volumes in these two quarters. We don't get the dilution of the fixed cost effect. All in all, good performance in Q4, also in Chile. From -EUR 1.31-EUR 2.61 per kilo is quite impressive if you ask me. To our smaller unit, Ireland, basically organic salmon, still contributes to a result. High prices and high cost goes together. To the Faroe Islands, which is a small unit, but harvested out 4,000 tons or just north of 4,000 tons in this quarter, and had an Operational EBIT margin of EUR 3.59. That is very good.
They had an incident in the quarter, a storm that took out the experimental site. That had a cost here, the result could have been even better, but EUR 3.59 in the quarter is decent. To consumer products, this is in a marketplace where spot prices are growing like crazy and obviously challenging for a unit that is gradually developing new products and has to go out into the stores and ask for higher prices for their end product all the time. Saying that, we increased our volumes this quarter as well, up from 33,300 tons of finished goods in Q4 2015 to 35,000 tons and just sort of that in 2016, same quarter. We actually also increased our EBIT margin, almost doubled it compared to the fourth quarter of 2015. Obviously, that has its explanation.
We've turned around the British or the Scottish unit, which took us down in Q4 in 2015. Again, this is extremely important for creating demand going forward for the salmon business. We need to create good and better products, and we do so throughout Europe. We're not satisfied with the result, but we are really impressed with the improvement in a very tough marketplace. On to going forward. Well, we will put in the Canadian unit. We're building a plant outside of Vancouver for value-added processing, and we are also expanding this segment into the U.S. I think in the U.S., we have even more potential to get new and better products to consumer and create demand than in Europe, which is encouraging. To our feed business. This is high season for fish feed.
Slightly down on sold volume due to the issues really in fish farming in the fourth quarter and less production. Still, they made an Operational EBIT in this quarter of EUR 10.8 million, up from EUR 8 million the same quarter in 2015. Operational EBIT margin at 10.1%. That is decent for a feed business. We have very good operational results, and we are pretty much self-sufficient. We are on our way with our Scottish operation, slightly delayed on approval time from the government. Other than that, we will have a very good plant in Scotland in a few years to come, which really, I think, will change the Scottish feed game completely. We really look forward to that. Right now, we are at 330,000 tons of capacity in Norway.
When we opened this, we said we could maybe do 220,000 ton, and it's not so long ago. This is progress, and I'm really happy that we went into this business, to say it as it is. Ivan, we are over to financials and supply and demand.
Thank you, Alf-Helge , and good morning, everyone. As usual, we start with the P&L. For the first time in history, Marine Harvest achieved a turnover of over EUR 1 billion, up 17% year-over-year, despite a decline in volumes of approximately 10%. Operational EBIT record high of EUR 259 million, which is up 189% year-over-year. Further down in the P&L, the big items, net fair value adjustment this time, EUR 75 million, mainly explained by the increase in the salmon price we saw throughout the quarter and particularly when we approached the year-end. Income from associated companies, this time EUR 21 million, is related to Nova Sea. They made a EUR 2.76 per kg on 6,000 tonnes. Another great quarter for our associated company. Underlying earnings per share, this time, EUR 0.43 or 43 euro cents , which is also record high.
Net cash flow per share, EUR 0.25, mainly explained by a seasonal tie-up of working capital. Dividend last quarter, EUR 2.3 per share. Much about the P&L. Over to our financial position or what we used to call the balance sheet in the old days. EUR 4.8 billion in total this time, up EUR 0.6 billion year-over-year, mainly explained by inventory and the IFRS adjustments, the lion share. Net interest-bearing debt as low as EUR 890 million, somewhat better than what we expected, because of great earnings, but also because of that our volumes full year for 2016 was much lower than what we forecasted for when we started the year. We haven't managed to tie up or build the biomass needed in order to grow our business. Equity ratio of approximately 43%. Cash flow statement.
We started the quarter with EUR 877 million in net interest-bearing debts and ended at EUR 890 million. More or less the same. EUR 163 million from our operations, a huge tie-up of working capital explained by seasonality. CapEx of EUR 57 million, broadly in line with our forecast. The other items are more or less self-explanatory. Cash flow guidance for 2017. As you all know, we closed our books with 381,000 tonnes of volume output in 2016. When we started the year, the forecast was 440,000 tonnes, i.e. substantially down 60,000 tonnes. Our goal is to get back to that level as soon as we can. In order to do so, we have to invest in working capital. Hopefully we can manage to tie up EUR 125 million, sorry, EUR 120 million this year if we succeed to grow organically in seawater. Capital expenditures, EUR 250 million.
Depreciations in 2016 was EUR 140 million. The forecast this year is EUR 160 million. The exceeding amount is mainly continued investments in our freshwater operations, i.e., building smolt facilities, bigger smolt recirculation technology and so forth. We are also planning to build a feed plant in Scotland. We haven't gotten the final permission yet. Hopefully, we'll get it this month. If we do so, we assume that we will invest EUR 35 million out of EUR 110 million this year. We continue to grow our consumer products, in total EUR 25 million in expansions projects this year. Interests paid more or less in line with last year, EUR 25 million. Taxes paid or payable taxes, EUR 150 million is related to 2016 earnings and is based upon the latest figures we have got from our auditor. Our long-term net interest-bearing debt target stands EUR 1.05 billion.
Quarterly dividend of NOK 2.8 per share this time, distributed as repayment of paid-in capital. Financing, no changes since last time we looked at this slide together. We have seen some early conversions related to our oldest convertible bond, in total EUR 21 million. That bond is traded deeply in the money, and we have a soft call coming up 6th of June. The reason why some decides to convert earlier is due to aforementioned. Beyond that, no changes in our financial setup. As I said many times, we have a strong financing. Much about our financial figures. Over to the fundamentals. We start as usual with supply development in the quarter. We saw a negative global supply growth or a decline of 10.5%, which was in line with the expectations.
Europe, approximately 18,000 tons higher than what we expected, and Chile 15,000 tons lower than what we expected. The last one is mainly explained by a warm summer and advanced harvesting from some of the farmers. Prices, already duly commented on by Alf-Helge. Fantastic prices in the fourth quarter. We have also seen fantastic prices so far in the first quarter. That goes for Europe and that goes also for Americas. Over to demand. A lot of red arrows, but if we convert this table from volumes to euros, it's more or less green all over the place. We saw in the fourth quarter an impressive strong demand globally, both in Europe and Asia. We see that we had some shortage of the big salmon for Asia that impacted our supply to that region somewhat negatively. For U.S., I would say for 2016 as a whole, a great development.
We struggled with the U.S. for some years, in 2016, we have really seen a turnaround. Hopefully, we have started to benefit from all of our market initiatives in that region, and we will continue to do that very important work. With industry supply outlook. Last time when we released our thoughts about this year, we said that the risk was on the downside. It was. We have reduced it now by approximately 2%, more or less in line with the consensus. What we believe now is from a -1%- 4% growth for this year, but we would like to repeat the comment we made last time that we still think the risk is on the downside. We see that the export volumes from Norway is substantially down so far this year.
For the first quarter, between 8% and 12% decline if this continues, we may see some adjustment of the numbers also as we go along. Over to our own numbers. We stick to our forecast of 403,000 tons. We have made some internal adjustments down to 2,000 tons in Norway and up to 2,500 tons in Scotland. Hopefully, we manage to take one big step towards the 440,000 tons this year. You could argue that the start of the year could have been better for all the farmers so far. With that, I would like to say thank you and leave the word to Alf- Helge again. The floor is all yours.
Thank you, Ivan. Just take a little bit look into the future. What we see in terms of market balance, I think the comments from Ivan just said now is very correct. I think we will see a tight supply situation, low supply growth in 2017. Future prices support that. Still very strong future prices at EUR 7.2 per kilo or NOK 65 per kilos for those of you that still uses NOK. The one big challenge here is the sea lice and that is pretty much the uncertainty in the numbers as well, I think. If we get a good year and we do the job and we have invested in a lot of new equipment, and if it works, I think we stand a chance to reach our target at 403,000 ton in Marine Harvest.
I guess especially for the Norwegian volume, I think as Ivan said, the risk is on the downside here on the supply side. We just have to be honest on that. It is early, it is still February and there is a lot of good work to be done, we aim to make it. We are in the process of getting acquisition approved in East Canada. This is New Brunswick, Newfoundland, and it is farming assets. There is no fish, this is the start of a new venture for Marine Harvest if we get it approved, we hope that will be done in this quarter. We have decided to take the company from a Level 2 ADR listing to a sponsored Level 1 ADR program and from the exchange to over-the-counter system.
The reason for that is basically the liquidity in the share has never reached what we saw, and also obviously the cost with that program. That should benefit really all shareholders. We see more and more people trading shares in Oslo and we will continue to have a strong IR representative in the U.S. To the dividend already stated by Ivan, NOK 2.8 per share and then paid out as a repayment of paid-in capital. This is great for shareholders, I think. With that, I think we should open up for questions. If you state your name and number and maybe we'll start with the most difficult first. Who can that be?
I think he's right here.
Oh. He has the microphone. Sorry. Okay.
We'll start with two questions from the web. The first one is from Fredrik Iversen, Kepler Cheuvreux. He's asking, "On the strong results in consumer products, it seems like it is not driven solely by the improvements in Scotland. Can you give some more color on the high margin and what you see as a sustainable margin on a 12-months rolling basis, assuming stable prices?
It's correct. It's not only driven by the change in Rosyth. It's very good margins in Morpol, also in this quarter. Overall, basically all unit has improved from last year. Not only Rosyth but also the other factories we have in Europe.
The second question, "Can you give an update on the egg development concept? When can we expect the final conclusion?
That's a great question. On the final conclusion, the only thing I can say, I don't know, because the only thing the Directorate of Fisheries tell you is that we can't give you any date. I guess that has to be my answer as well. To the update and the first part of the question, we got the concept approved from the Directorate of Fisheries, and then there is some more paperwork to be done. When they will come out with the final license is impossible to tell, unfortunately.
Okay, Marius first.
I have the microphone. Marius Gaard, Swedbank . One question on the cash flow guidance. You are on a quite substantial increase of build-up in working capital, which signal substantial growth potential in 2018 and 2019. Can you say a little bit in what regions you expect to grow? Is the acquisition or upcoming acquisition of Gray Aqua included in this estimate?
Gray Aqua is not included. So far we just have a nomination to buy the assets, we haven't bought it. We're not planning for anything before we have final got it. You're right, this is a signal of our ambitions to get back to the 440,000 tons. We lost 30,000 tons in Norway last year compared to the forecast. We lost 20,000 tons in Chile due to the algae bloom. We lost 10,000 tons in Scotland due to the biological issues we had in Europe. We want to get back to that level as soon as we can. The rest, I think, is up to operational performance, biology, and a lot of factors we can control and cannot control. If we succeed, we spend those money. If we do not succeed, all else being equal, we do not spend that money.
Kolbjørn Giskeødegård, Nordea Markets. One recurring question, I think, from every year, and you have already been into it. The volume guidance and the sort of comparison between your estimates, the two others that has already reported and the zero growth that you are forecasting on a total level. When I add up, it's 34,000 tons of growth from you and the two other companies already reported, and there are also growth from the two next. I think pretty much obvious that there will come volume guidance, and you've already started it. Can you sort of comment, is the risk for zero growth in Norway now from Marine Harvest?
I think it's fair to say it's early in the year. It's February. I think today the fish are there for the volume we are estimating. Then again, back to what I just said, it is early. There is a certain uncertainty in terms of how the summer and fall will play out. That's why I think volume guidance here are on the uncertain side. Maybe not only lucky, but lucky and good in terms of how to deal with sea lice, and that's what going to make or break this. The estimates we always give will be the best estimates we have and what we believe in as of today. Then there is a factor X there.
It's not really a factor X, it's a factor lice that can change it.
Is the growth that you're guiding on dependent on better biological conditions than you saw in the previous two years?
It is, yes. We expect improvements from what we saw the last two years. Absolutely. More questions?
Alexander Aukner, DNB Markets. I guess you answered part of it. It was regarding the weight you're using in your volume guidance. You're expecting biological improvements, which means I'm expecting your guidance to be of a harvest weight, which is closer to the historical average and not what you saw last year, which was record low. That's one thing. The other is it possible to get some color on the pushback you're getting in terms of the prices you're seeing now? Are the consumers actually willing to consume? Are the buyers actually willing to buy at these levels? We heard from Norway Royal yesterday that they were actually signing contracts at close to NOK 17 per kilo, which sounds spectacular. Today we read that SalMar said that their contracts are not as high. Any color on that would be nice. Thanks.
I think we are in maybe quite a different situation. We are in with production in all countries. We have a contracted base there basically, and we will continue to roll over contracts, and we continue to improve our contract price. It obviously depends on where you're coming from. Obviously we see resistance towards increasing prices. If not, the buyers are not doing their job. It's also clear that there is a very good demand for the salmon. If you look at the price increase that came in Q4, it was fantastic. Somebody is certainly buying the fish and are willing to pay for good and healthy food. There will always be resistance when you start increasing prices.
If you go back, let's say three years and then say, "What was the price then?" Then you said, "It's going to increase from EUR 3.5- EUR 3.7," you would have asked the same question. Certainly there will always be resistance, and our measurement here is to develop new, better products, continues to be a strategic alliance with the biggest retailers, and be ahead in terms of value-added products. Anything to add there, Ivan?
No. I think that was a long and a good answer. It's a long answer.
More questions?
Yes. Vidar Strat, ABG Sundal Collier. A little bit more on the growth conditions in Norway. You said that you're expecting improved biological conditions. Is this because you have plans to use, for example, different mechanical treatment methods, specific plans to do things differently in your operation? Are you expecting the overall conditions just to improve because of the temperature or other?
No, I don't expect the overall conditions to improve. I think that is a waste of energy. What we can do something about is what we do. I think this goes from everything. We could start on the list, but it start really with the production planning. Where do you put your big smolt? How much smolt do you have in an area during the last two quarters? Can you use a wellboat and grade out big fish and harvest them so you have less fish and, i.e., less host for the sea lice during the second half? Obviously, you work hard to improve both ballan wrasse and rognkjeks. Hang on. What's lumpsuckers. That shouldn't be possible to forget. The mix between these two fish or species are important. If you have only lumpsuckers, the effect of those are not always the best.
The mix here is important, and there's a lot of details into this battle. From all the different mechanical treatments, we just invested in a new system that we have not used before, which show promising trends. With all this effort and the extra both manpower and money spent in equipment, we hope we can and believe that we can do better than we did last year. Our aim is to get the harvest weight up to normal levels, as Aukner just commented on. Not have to harvest out at lower weight. If you can do that, the volumes will show up.
Do you see any shortage of labor coming because of Brexit, for instance, at your Rosyth plant?
No.
Good.
We don't.
You have a very high harvest in Scotland in the first quarter. Is there some reason for that?
Obviously, we have had a low harvest in Q4, or relatively low harvest in Q4. We've been able to grow the fish to bigger weights on good sites and improve the biology in Scotland. That's really why we have higher volume. We are up to, I think, if I remember correctly, 18,000 ton in Scotland in Q1. It's close to Q1, is it?
Yeah. That is good. More questions?
Marius Gaard, Swedbank again. Since you say that you are expecting an improved performance on the fish this year, do you also expect production cost in Norway to come down in Q3 and Q4?
That follows if we are able to get the volumes that we believe in. The production cost in the second half will come down. First half is very challenging because of low volumes.