Good day. Welcome to the Marine Harvest Group Meeting Event Information Q3 2016 quarterly report international conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kim Galtung Døsvig. Please go ahead, sir.
Hello, and good afternoon. Welcome to the Q3 2016 conference call for Marine Harvest. We announced our earnings today with an all-time high operational EBIT of EUR 880 million. This was a record-high operating result for the group, driven by high salmon prices on strong demand and a decline in supply. We are seeing significant biological challenges in some areas in our operation, in particular in Norway and Scotland, which I will come back to later on the call. The positive operational EBIT from our Chilean farming operation was also good for the quarter. We returned to positive terrain after reporting red numbers since Q4 2014. That improvement was also driven by strong prices. Within the feed segment, we recorded a record-high production and consequently, record-high operating results. The feed business continues to deliver good results.
The board declared a quarterly dividend of NOK 2.3 per share, which is up from the underlying dividend from last quarter of NOK 2.1. Moving on to page four, the key financials. Year-over-year revenue was up 13% to EUR 850 million. That's driven by an increase in prices. The harvest volumes in the quarter were down 8%. However, the operating EBIT was up by 131% due to the strong contributions, in particular, from the farming segment. Moving on to page five. We see that prices in Europe are at seasonal high levels. The NASDAQ price for the quarter ended at about EUR 6.3 per kilo, and so far into the fourth quarter, prices are at even higher levels. The same goes for the Asian market. Prices in the Americas also continue to improve.
Prices in Miami for Chilean salmon are at record high levels, prices for Canadian salmon in Seattle are also at close to record high levels. This pricing trend with higher prices has continued into Q4 in those markets, too. Moving on to page six, the price achievement in Norway of 91% was negatively impacted by the contract share in the quarter of 40%. We have engaged in long-term contracts with clients below the prevailing spot price in the quarter, impacting the achieved price. The superior share, on the other hand, was good at 91%, which impacted price achievement positively. You see the other price achievements by region.
Scotland is also impacted by a high contract share of 70%, whereas the achieved price in Canada was more or less the same as the spot price because all of the volumes were sold on spot, and in Chile we beat the reference price by 4 percentage points. Page seven, the EBIT bridge. As already mentioned, the improved results were significantly impacted positively by the farming regions Norway and Canada and the Faroes. Also Chile. The feed division delivered better results year-over-year. So did the markets operation. Of course, the flip side is within consumer products. That segment is impacted by the high raw material price. Earnings declined somewhat year-over-year. Moving into the different business areas, page eight, Norway. A record-high operating result of EUR 128 million on slightly higher volumes with an EBIT of EUR 1.98 per kilo.
You see in the graph that the improved results were mainly driven by price but also volume, negatively influenced by higher costs on the feed side, but also on other seawater costs. Both of those two cost buckets are negatively influenced by the higher sea lice pressure we have experienced in the quarter. You see that the exceptional items per kilo at EUR 0.52 increased significantly year-over-year. We have harvested fish slightly earlier than what we expected because of the challenging biology. We have also seen higher mortality due to the higher frequency of lice treatments. This has accelerated some of the volumes in Q3, which has impacted our volumes on the negative side for Q4. We have reduced our volume guidance for Q4, and this has also impacted our expected harvesting volumes for the first half of 2017.
Consequently, we expect a high contract share for that time period. Costs in Norway for Q4 are expected to remain high. Page nine. The contract portfolio is seasonally higher in Q4, so that is typical. Q1 volumes have already been secured of about 28,000 tons. This is the reason why the contract share is above 50% for the first quarter. That was quick, the operating results by region in Norway. Moving on to page 11, Scotland. Scotland was also experiencing higher salmon prices in the quarter. However, we have reduced our volumes compared to last year due to the same reason as described in our Norwegian operation. Biological challenges continue to put pressure on our operation in Scotland, and this has also resulted in higher health and feed costs in the quarter. We are in the middle of changing our farming operations around in Scotland.
It will take some time. We are feeding in a slightly different way, and we're also changing our stock patterns a little bit. And hence, we'll harvest from different sites in 2017. It will take time to improve costs, but we are on the right track. Moving on to page 12 in Canada. Canada delivered a very good quarter. Fantastic prices in the U.S. market at the moment for Canadian fish. Good operations, good volumes in Canada, on the west coast of Canada. We have harvested larger sized fish, and this has, of course, improved our cost position, but also improved the cost achievement on the higher sized fish where we're getting a premium for that type of fish. The cost trend in Canada is stable, so that's positive compared to Scotland and Norway. Page 13 in Chile.
The Chilean operation is back in black figure, which is very good to see. Prices have increased significantly compared to the last quarter last year. We have reduced the volumes due to the algae bloom experienced in March 2016. Costs have come down compared to the second quarter. They have been more or less stable to slightly higher. If you look at the bar charts, you see that other seawater costs and non-seawater costs are slightly up due to the lack of scale due to the algae blooms. The Chilean regulator has now implemented the first part of the new set of regulations. According to our assessment, this will increase the number of sites we require to run our operation going forward and also costs. However, it's good to see that we have a new set of regulations which will hopefully improve the situation going forward.
It's also worth mentioning that the biology in Chile is slightly better recently due to, in particular, the positive effects of a new vaccination program. We have used less antibiotics than we used before. The biology in the quarter was moving in the right direction. Page 14, Ireland and Faroes. Good contributions from the Irish operation on higher prices, in particular, for the quarter. In the Faroes, very good contribution. Much of the salmon from Faroes are sold at a premium, and costs have also been reduced in the quarter. We are very pleased about the operations in Faroes. Page 15, consumer products. We have seen that the results have been impacted by the high salmon price. It's challenging for that business area in that kind of raw material price environment.
However, we are seeing good growth in revenues and sold volumes as many of the markets within Europe where the consumer product segments are selling their products, they continue to grow. We see a continued growth in the German, U.K. markets, the Benelux, and also Spain, Portugal, and Italy. The Rosyth plant in Scotland was delivering break-even results in the quarter as expected. That's good to see that the new management team has executed according to the revised operational plan. We do expect the positive demand developments to continue as we continue to launch new products and also promote new packagings and new product lines within the segment within the various countries we are selling to. That's good.
On the feed business area on page 16, we're also delivering a record-high quarter, both operational EBIT, a good margin of 8.8%, and volume sold is at record high levels. We have submitted the planning application for the new feed plant in Scotland. That's also on track and when that application is accepted then we'll continue to start the building the plant, which will take about one and a half years. Moving on to the financial section of the presentation. I'm not going to go through all of the numbers but on page 18, some of the key figures. We have touched on the operational EBIT. The quarter is also impacted by the higher salmon prices and the increase in biomass. We have to mark-to-market our biomass. You see the net fair value adjustment of EUR 97 million is impacting reported EBIT significantly in the quarter.
The net financial items is negatively impacted by the rise in share price as we have to mark-to-market the two convertible bonds. That's moving in the opposite direction. Underlying EPS for the quarter was NOK 0.29 and net cash flow per share was NOK 0.26. Return on capital employed of about 30% was also a record high. Page 19, just a short comment on our balance sheet. The balance sheet is up by about 10% year-over-year. Net debt of NOK 877 million and the equity ratio of about 44%. Page 20, good cash flows in the quarter. We're building biomass at this time of the year, that's affecting working capital negatively. We are tying up EUR 20 million of working capital in the quarter, we expect that to continue into the fourth quarter.
The CapEx of EUR 50 million is in line with guidance, and we have also paid out dividends in the quarter of EUR 155 million. Page 21, no significant changes on the cash flow guidance. Interest expenses have been reduced by EUR 5 million due to the lower debt, and tax payables has been increased by EUR 10 million due to the higher profits in some of our entities. Then moving on to page 23 on the supply development. We saw a 7.7% decline in supply year-over-year, which is unprecedented. Very, a significant reduced volumes of 40,000 tons. We have never seen that before. This was as expected, as guided in the previous quarterly release. But we see that the supply contraction is coming from Chile due to the algae bloom, also in Norway and Scotland, where we have biological challenges, supply is reduced year-over-year.
Prices we have talked about on the market. 25, and we see that most arrows on this slide is in red or negative. Of course, this is correlated to the reduced supply. The salmon market is more or less a fresh market. What is produced is consumed in the same quarter to a large extent. However, in value terms, if you add on the price layer to these volume developments, we see that most markets are increasing significantly in value. Apart from Brazil, which is down, and also Russia is down. We have seen the lack of European large-sized salmon is affecting exports into the Asian markets. On a relative basis, more salmon is consumed within Europe.
Russia is impacted by the lack of Chilean salmon, frozen Chilean salmon has been reduced in the quarter as more Chilean salmon has been sold into the higher-paying fresh U.S. market. We also see less Chilean salmon being exported into Brazil and more sold into the U.S. and some into Asia. Asia, as mentioned, is impacted by the lack of large-sized salmon. Some markets in Asia are taking down their purchasing of salmon if they don't get the right 6+ kg salmon. The underlying demand trends in Asia continues to be very good. On page 26, we see that the industry supply outlook for Q4 is more or less as guided previously, a reduction of about 10%. For 2017, we expect 0%-6% growth. Some growth in Europe and a little bit less in the Americas.
This leads to the supply situation for 2017 to remain tight as we see it. Our own volumes on page 27, it's expected to increase year-over-year. When you compare it to the previous two years in 2014 and 2015, we see that volumes are down, in particular in Chile. However, in 2017, we see a partial recovery of volumes in Norway and Chile, and the Faroes will also be going down due to the fallowing of sites in 2017. To sum it up on page 28, we expect the market balance to remain tight for 2017. The biological challenges in Norway and Scotland will continue in relation to sea lice. We see a continued strong demand for salmon across, in particular Europe and Asia, but also the U.S. continues to improve.
The new regulations in Chile will impact the number of sites for use, hence impacting costs negatively. The dividend of NOK 2.3 will be paid in capital as in previous quarters. With that, Operator, I'd like to open up for questions.
Certainly. Ladies and gentlemen, if you wish to ask a question at this time, please press the star or asterisk key followed by the digit one on your telephone keypad. Please ensure the mute function on your telephone are switched off to allow your signal to reach our equipment. If you wish to cancel your request, please press star two. Again, please press star one to ask a question. Now, o ur first question comes from the line of Fredrik Ivarsson of Kepler Cheuvreux. Please go ahead.
Yeah, I can. Thank you. Just back on the contract share, looking at the contract share for Norway, for instance, you will end up around 50% this year, and it looks like you will end up at around 50% also in 2017. I wonder, is there any reason we should see 50% as a more normal run rate in terms of contract coverage, or is this only due to the low volumes?
Hello, Fredrik. Yeah, that's a good question. The band is unchanged. The guideline from the board is for a contract share in Norway of between 22.5%-50%. In short, the high contract share is due to the lower volumes harvested than expected. When we signed the contracts earlier this year, we expected our volumes to be slightly higher than what we forecast today. I wouldn't say that 50% is the new norm. Typically, we are around 40%. There's no underlying change there.
Perfect. Thank you.
As a reminder, it is star one t o ask a question at this time. We will pause for just a moment to allow everyone an opportunity to signal. There are currently no further questions. As a final reminder to ask a question at this time, please press star one. If there are no further questions, I would like to turn the call back to our speaker for any additional closing remarks.
Okay. Thanks for dialing into the conference call. That concludes the earnings call for Marine Harvest. Thank you, and speak shortly. Bye-bye.
Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.