Good day, ladies and gentlemen, welcome to the MHG meeting event information quarterly report international conference call. Today's conference is being recorded, and at this time, I would like to turn the conference over to Mr. Kim Galtung Døsvig. Please go ahead, sir.
Thank you, good afternoon, and welcome to the Marine Harvest second quarter 2016 results conference call. My name is Kim Galtung Døsvig, and I'm the investor relations officer in Marine Harvest. Starting on page three, the highlights. We achieved an operational EBIT of a record high EUR 149 million in the quarter. This was achieved due to unprecedented high prices. Demand is strong and with a reduced supply, this has created a record high EBIT per kilo in our operation. In the second quarter, we also established the aquaculture shipping joint venture. We have announced two new build contracts this morning, which we are very excited about. In the quarter, we also divested the shares in Grieg Seafood.
On the back of this, the board of directors in Marine Harvest decided to pay out a dividend of NOK 3.2 per share, comprising NOK 2.1 in ordinary dividends and NOK 1.1 directly linked to the divestment of the shares in Grieg Seafood. Page four, key financials. Operational revenue increased year-over-year, so did operational EBIT. Cash flow from operations were strong. The net interest-bearing debt was lower in the quarter compared to in 2015. Underlying EPS was EUR 0.24 for the quarter. Return on capital employed was good at around 24%, and we harvested around 87,000 tons in the quarter. Operational EBIT was NOK 1.7 and I'll come back to the country split when we go through the segments. Page five, prices. Prices were very strong in Europe and Asia in the quarter, it reached record highs.
In America, the green and red line, you see that prices kept improving in the Q2 and are close to or at all-time high levels. Page six, price achievement contracts and superior share. We saw in the Q2 that the price achievement in Norway and Scotland was influenced by our high contract share in the period. This has driven down the price achievement relative to the spot price-based reference index. The deviation versus the spot price is mainly due to the contracted prices dragging down achieved price, both for Norway but also in Scotland. In Canada, it's 100% spot. In Chile, we also have a few contracts. The quality of our salmon throughout the operations were good, with the superior share exceeding 90% in all markets. Page seven, operational EBIT comparison.
We see that the increased earnings was driven by the farming segment, which was again caused by the increase in price. We have also experienced an increase in cost, which has dragged down our earnings. The farming segment has contributed to NOK 72 million more in operational EBIT compared to the same quarter last year. In Feed, we experienced steady operations. The results were more or less in line with last year. Same goes for Markets. In Consumer Products, in the high-priced salmon environment which we experienced in the second quarter, it's challenging for the Consumer Products division to make money, hence they lost EUR 10 million compared to the second quarter last year. Page eight, the divisional performance in Norway. We harvested 54,000 tons, or thereabout, in Norway and achieved an operational EBIT per kilo of EUR 2.12.
These results were good but also influenced by the high contract share of around 52% in the quarter. These contracts typically range from six to 12 months, hence they reflect the contract prices we entered into within the last year. At lower prices. In the quarter, we also recognized high costs. The costs are rising, unfortunately, driven by sea lice mitigation costs, but also higher feed costs due to higher feed conversion ratio. We do expect the cost trend, which we have seen in recent years, to continue in the third quarter. Hence, we expect the cost level to be at around the same high level in the third quarter. Page nine. We see that our sales contract portfolio is still around 25,000 tons for the next quarter. We have entered into contracts comprising around 41% of the guided volumes in total for Q3.
In Q4, we have slightly more than 26,000 tons already contracted. This will also impact the realized price in the second half. Page 10. We have seen in Norway that the operational EBIT per kilo has been quite different throughout the four regions. Region North was the best one. Good operations, good volumes, relatively good biology, apart from one site being affected by ISA. That's a virus type of disease which have led to slightly higher costs in the second quarter. In Region Mid, we experienced troublesome biology, this is linked to the second half of 2015. We're still harvesting lower volumes, hence the negative scale effect is still impacting our operation in Region Mid. In total, EUR 2.12 per kilo for our Norwegian operations. In Q3, we have put in a note at the bottom.
We had one ISA outbreak in Region North. This will impact operational results negatively by approximately EUR 8 million in the third quarter. Going on to Scotland on Page 11. We harvested around 11,000 tons. Achieved an operational EBIT of NOK 0.47. The results were impacted by the high contract share. Also the losses at our processing site at Rosyth, which drove down profits by EUR 3.5 million. The biological challenges we have talked about throughout 2015 still affected our operations in the second quarter. Drove costs higher. We do expect costs to remain high in the third quarter. Canada, Page 12. Good operations, good stable volumes. We see on the waterfall chart on the right-hand side that there's been a huge positive price effect compared to the same quarter last year.
The other cost items are not nearly as negative as we saw in Scotland and Norway. Good operations in Canada. Prices are good, but we do expect higher costs in the third quarter, partly driven by lower guided volumes for Q3. In Chile, the story is quite different. Prices have increased in the American market, but in our Chilean operation, we only harvested 7,000 tons on the back of the algae bloom in March and April earlier this year. Hence, we had some additional negative cost recognitions in the quarter of EUR 3.8 million, which dragged down profits. The recently or previously announced restructuring of Marine Harvest Chile was initiated in the quarter, and we will take an impairment of fixed assets, or we did take that in the second quarter, and we also provisioned for some restructuring.
The full cost in books was high at $6.24 per kilo, but this will come down in the third quarter. The new regulations, which were implemented and provided for by the Chilean regulator, have major deficiencies in our view. They still lag or miss many of the elements which we have in the Norwegian regulations, which we do think they should adopt also in Chile. We will advocate for improved and smarter regulations in time to come for Chile. In Ireland and Faroes on page 14. In Ireland, the operational EBIT was NOK 0.86, and this was influenced by higher costs, adverse weather conditions, and biological challenges. In the Faroes, it's quite different. We had good profits. We harvested more than 2,000 tons, and we realized an EBIT per kilo of NOK 2.46, which was very good, and we are pleased with.
Going on to page 15, consumer products. Of course, negatively influenced this quarter by the rising raw material prices. It's very challenging these days for consumer products to make money with the type of spot prices we saw in the second quarter. Notwithstanding that, volume sold was significantly up year-over-year, so underlying demand across Europe continues to be strong and with the sale of products from our Scottish plant at Rosyth, this has also contributed to increased volume sales. We do see a strong demand in Germany and the U.K. continuing, and that's still also the same message for the Benelux region and the southern European markets. The French market, however, continues to be challenging, and that's been challenging for some quarters now. Rosyth is on track to turn around its operation.
The losses for the second quarter was slightly less than the guided EUR 4 million in the last quarter. The breakeven which we communicated in May, we do still expect that to be our guidance for the third quarter. Moving on to page 16 and feed. Another steady quarter for the feed operation. As many of you know, the first half is a low season. We make the majority of our money and the sales in the second half. Having said that, the second quarter was good, an operational EBIT of 4.7%, and we have guided for an increased production of 320,000 tons for the financial year 2016. Page 17, aquaculture shipping and JV. We announced this morning the announcement of two new build contracts. The JV has signed two contracts, one wellboat contract. It's multipurpose, meaning that it can do many different things in a wellboat space.
This will be placed into our Canadian farming operation. The cost is NOK 225 million. That's slightly higher than what we would have paid if we hadn't put on a very large freshwater production unit capability on the vessel. It's a state-of-the-art vessel with a very exciting freshwater capability added on to it. We expect delivery of the vessel in the third quarter of 2017. The second vessel we announced is a different type of vessel. It's a harvest vessel. It not only carries salmon, but it can also kill the salmon on-site, so to say, or in the vessel. This means that it can transport more fish. It can transport more dead fish than alive, hence the unit cost of transportation is very attractive.
The quality means that it will be better than the typical wellboat as we have full control, and it's a closed system. Hence we can transport the dead fish in closed containment systems and also improve the biology that way. From a fish welfare perspective, it's also favorable. The price is NOK 179 million, and we expect delivery in the first quarter of 2018. Moving on to the financial section, and I will not go through all the numbers, just some highlights on page 19. We saw the operational EBIT increase by 78% in the quarter. Revenue increased by 8%, despite the volume decline by 16%. Underlying EPS of 0.24. I will move on to page 24 on supply. We saw a 8.8% supply reduction in the quarter globally. This was in line with our expectations towards the low end of our guided range.
Significant volume declines in Norway, and also in Chile. This volume decline has, of course, meant that the salmon markets have been short of salmon, and prices on page 25 have been very high. Looking at the markets on page 26, many of these arrows are red. If you do take into account that prices have increased significantly, in fact, most of the markets and the vast majority of the markets are still growing by between 6%, 7%, 8% underlying demand growth. The breakdown in Europe, the key markets continue to grow. Russia, as we see, was down due to the high salmon prices. In Asia, we still see very good growth rates. On page 27, we have laid out the volume guidance per quarter, and we see that our guided range is -6% to -8% for 2016.
Midpoint of -7% for the year, for the industry. In 2017, we have referred to the Kontali estimates of a +3% global supply growth next year. We will provide our own supply growth estimate next quarter in November. In 2016, our volume guidance on page 28 has been reduced by 14,000 tonnes compared to the last quarter. Norway is reduced by 9,000 tonnes, and Scotland is down by 5,000 tonnes. This is driven by biological conditions, more treatments, less growth, more starvation. That's been the trend in Norway throughout 2016 and to the same extent in Scotland. Just to wrap it up on page 29, the outlook. The market balance is expected to remain tight as we just mentioned. Prices are at NOK 64 on a future basis, the next 12 months, which is good. Strong consumer demand in Europe and Asia.
The Chilean regulations have major deficiencies, as I mentioned. The aquaculture shipping JV, we're very excited about. This could potentially be a game changer. It will reduce our cost in due course and improve the biology and welfare of our fish. The quarterly dividend of NOK 3.2 per share will be paid out later this month. With that, operator, please open up for any questions.
We take the first question now from Gianmarco Bonacina from EQUITA. Please go ahead, your line is open.
Yes, sir. Good afternoon. Three questions, please. The first one is about regulation. We saw recently some new proposal for regulation. If you can give us an update on the latest documents that have been published and what these could imply for the supply growth in 2017-2018. I saw there was a figure from Kontali. I don't know if this is already including or not the new regulation. The second question on the costs. Just wondering if you were surprised to see that the costs will remain high or will even go higher in the Q3, or if that is in line with your plan. Related, maybe if you can comment something on the treatment for the sea lice. I remember you spoke about cleaner fish, if you have already some positive results from your new strategy. The last quick one about the hedging on Norway.
If we can expect in the second half the hedging price at which you will sell in Norway will be higher, just because the rolling price should be, I think now at a higher level. Thank you.
Thanks for your questions, Gianmarco. To start with the first one, regulations. I guess you refer to the Norwegian recent announcement in regards to the so-called Bremes model. This refers to a voluntary, flexible MAB system, which could potentially increase supply but at a cost. This is only a trial period. The application deadline is first of September. We haven't made up our mind yet. We're still evaluating the potential or the offer. At face value, at least we know that this is a trial system. It will go on for three years until the end of 2019. We will have to pay NOK 1.5 million per license if we are to get hold of the flexible MAB attached to each license. The MAB in itself throughout the year is not increasing.
It's stable. It gives us the flexibility to increase the MAB in certain months at the expense of reducing it in other months. We will continue to evaluate it and we'll get back to the market and make up our mind before the first of September. Kontali, they have incorporated such effects into their forecast. That's what I have to say about that.
Okay.
On the cost side, we're not surprised that the cost remains high. We are harvesting from a biomass which we know the cost of, so the cost in the next few quarters, we have a very good idea of what that will turn out to be. It is in line with our plan. Having said that, it's still very high and too high. That's why we are looking and trying to turn every stone out there and reduce the cost. It will take time and there are no quick fixes. In Norway, we expect costs to remain high, and in the third quarter, of course, it's impacted by the ISA outbreak in region north. That will impact our costs by EUR 8 million negatively. Of course, if it hadn't been for that ISA incident, our cost per unit or production cost would be slightly reduced.
In other regions, it's still high. That's linked of course, to your third question on the treatment for sea lice. We see that the treatment cost is increasing. Of course, the use of cleaner fish of both wrasse and lumpsucker is on some sites very successful, but on other sites less successful. It's still a learning process for us and cleaner fish of course is one of many tools. We're using Hydrolicer, Thermolicer, many type of mechanical delousing equipment, and we're counting lice weekly and we have a 0.1 sea lice threshold. You look at our numbers and you see that, well, our exceptional cost per kilo is still at a record high level. You won't see the benefits of what we are doing for some time still.
Okay. The next question.
On your last question, the hedging, you're right that the contracts which roll over today, they roll over on new prices. In Q3, the contract volumes we have in the contract portfolio is a mix of old prices and new prices, and the same in Q4. It's a slow process to increase the average price in our contract portfolio. Of course, as all the contracts roll over today, they are rolling over on much higher prices. The contract contribution should be a positive effect at today's forward prices going forward.
Okay. Thank you very much.
We take next question now from Fredrik Ivarsson from Kepler Cheuvreux. Please go ahead, your line is open.
Yeah, thanks for taking the question. Just a quick one. Can you just repeat, please, what's the reason for higher costs in Canada? Thank you.
Hi, Fredrik. In Canada, it's both. The feed costs are increasing in general. Biological costs are okay. In Q3, you see in our volume guidance, we're only guiding for 9,000 tons in Canada. In recent quarters, we have harvested around 12,000 tons. In Q4, we are projecting it to go back up to 12. In Q3, it's a scale effect. It's less volumes, but also increasing realized feed costs.
Perfect. Thank you.
Thank you.
As a reminder, if you wish to ask a question, please press star one on your telephone keypad. We take next question from Ivan Vidieri from Tradunen. Please go ahead. Your line is open.
Hi. I would like to know if you're able to use future contracts for hedging of your non-contract activity method at all.
Hello. We could. The contract market is quite illiquid. It's not a very deep market. Hence, the main purpose of the contract market, the way we see it, is to engage in industrial contracts. We use it a little bit for so to say non-contract purposes. That's not the main purpose of it.
Thank you.
There's no questions at this moment.
Okay. Unless there are any other questions, I think this concludes our Q2 2016 earnings conference call. Thanks for dialing in and listening to us. With that, I wish you a good day, and speak to you in due course. Bye-bye.
This concludes today's call, ladies and gentlemen. Thank you for your participation. You may now all disconnect.