Good morning. If everybody could take a seat, that would be fantastic. Welcome to the Presentation of the Q2 in 2015 for Marine Harvest. Together with me to present the numbers today, I have Ivan Vindheim our CFO, and we will go through the numbers and the quarter in general. First of all, the Q2 for Marine Harvest in 2015 was a challenging quarter.
There are many reasons for that. Seawater temperature, especially in Europe, was low and especially when you came into April and May or May and June, we went way below normal level for seawater temperature. This led to lower growth, and again, harvesting of fish at the smaller size.
When you harvest fish at a small size, one, volume goes down, two, cost of that fish is higher than normal, and even three, price that you achieve for that fish is lower than what you could achieve for optimal size. In terms of production and also in the marketplace, we had a lot of challenges in the Q2.
We also had a few escape incidents. We lost some fish in the northern part of Norway, around 2,000 fish. We also had one escape in Scotland, and it's only to say that most of it is human errors, and we only can regret and continue to work on having zero escapes in our operations. In terms of the marketplace, we saw through the quarter declining prices in the American markets, both on Canadian salmon, on Chilean salmon.
Towards the end of this quarter, we had some of the lowest prices we've seen for Chilean fish in many years. Sorry, I forgot that. In Europe, the prices were declining throughout the quarter. Our contracts though, kept us quite up to speed in the European marketplace. Saying that, it's good to see that during July and August, we've seen strong recovery in the marketplace.
We have seen increased prices both in the European market, but also on Chilean fish and Canadian fish, which bodes well for the future. We expect also a tight supply, going forward. On the back of what I already mentioned in terms of water temperature and reduced growth. In this quarter, we finalized or stopped the merger with AquaChile. We still think that the Chilean industry needs consolidation.
Sometimes there are not a foundation to get that work done. That was the case in this situation. In Chile, we have had challenges both in the marketplace and also in regards to biology, and decided to cut our smolt transfer this year with five million smolt. In fact, take down the number of employees with more than or around 200 people in total.
In the Chilean industry, we need both to get more efficient, but also we need to improve the biological side in Chile. See if we can get this right. The board decided to pay out a dividend of NOK 1.3 per share. Just a few words on key financials. Top line is at the same level as last year, around NOK 6.5 billion for the quarter.
This on the back of 104,000 ton of harvest volume, down around 9% from last year. I will come back to the individual countries when we go through those and the performance there. Back to the market and market prices. You can see from this graph, the prices in Europe still at a relatively good level in Q2, but falling throughout the quarter. It's first in July and August, we're really seeing a bounce back on prices and a stronger market.
In Americas, relatively weak prices throughout the quarter and a falling trend, and falling actually from low levels. That explains much of the poor result, both in our Chilean operation, but also in our Canadian operation. If you look at the price achievement between the different countries, in Norway, we achieved slightly better than the spot market on the back of good contracts.
The superior share here was 90%. In our Scottish operation, good contracts gave us higher than spot price in this market. You can see the Canadian and the Chilean operation being sort of Canada on spot price and Chile slightly above. That has to do with obviously superior share and contract share for the most part.
I think the Norwegian price in fact looks better because we have had a quite a bit of small fish at the end of the quarter. How does this affect our EBIT result in total? If we start with the operating EBIT result from Q2 2014 was slightly north of NOK 1.2 billion. The feed division improved its position in this quarter with NOK 44 million. We see that the lion's share of the reduction is in the farming side of the business.
If we break down this NOK 566 million, it's explained by approximately NOK 270 million in price reduction on a global level. around NOK 100 million is volume effect. The remaining is increased cost. Increased cost also contain currency movements in the quarter when you look at this on a global level. On the market side, as given from last quarter, slight improvement in the consumer product segment, and then ending up at NOK 719 million for the quarter.
If you go into the different segments and take a look at the Norwegian operation, you will see here an EBIT of NOK 627 million. It's clear that the Norwegian operation is extremely important for Marine Harvest in general. Lower spot price here, in fact, more than offset by good contracts. We have seen increased cost during the quarter. There's many reasons for that, but it's lower volume.
It's especially towards the end of the quarter, sale of smaller fish on the back of reduced growth. Also, we have treated for sea lice in this quarter too. You can see that the cost in sea lice treatment is increased throughout the quarter. The pressure from sea lice is still there. If somebody should believe different, it's still an issue. We are constantly working with the strategy to improve the situation.
Feed price on harvested fish or feed cost on harvested fish was also slightly up in the quarter. If you look at the contract portfolio, you'll see here that we had a slight above 20,000 tons contract in this quarter at good prices. At the current stage, we are at the same volume both in Q3 and Q4 for the remaining of the year.
In fact, very satisfied with that situation, both in terms of the volume we have on contract but also the price that we achieve on these contracts. In this marketplace, we are content with actually not having more fish contracted than we have in this scenario. If you look at the different regions in Norway, there are some common explanations here for what I will say is we're not happy with this result.
We should in fact do better, there are some common explanations. Sea lice cost is up, as you will see from the report, in all regions. That's a common denominator. In some regions, especially in region west here, we've harvested the fish at a low size. In that region, cost is up, in fact, more than we would like.
Region south, I think with the moment we have in region south, I am fairly satisfied with the result in region south. Both region mid and region north, in fact region west, we expect better results. We have had few incidents there in terms of one in region north, one in region west of escaped fish, which also we highly regret, and we need to improve.
There is no doubt that in this situation we cannot accept that kind of operation. Scotland. In Scotland we had a tough fall last year. As you can see, it is slightly improving, but we still see the remaining of the effects of the fish or the sites we harvested out in Q2 of 2015 is affected by the issues we had in the second half of 2014.
We expect volume recovery in Scotland during the second half and slightly improved cost as a follow-off of that is expected. On the other hand, it is important for you to notice that the strengthening of the pound has an effect, especially in terms of competition, Scottish salmon against Norwegian salmon. Norwegian salmon today is favored in most market also by currency.
The Canadian operation in this quarter, you can see that we made an EBIT of NOK 25 million, down from NOK 71 million. In general here, you will see that price is the main driver, or in fact, the only driver to take down the result. The other components, both volume and cost-wise, we are performing well. Saying that, opposite of the European summer, the summer on the west coast of Canada has been exceptionally well from a human point of view.
I think from May until today, in fact, it's been extremely dry and temperature between 25 and 30 degrees Celsius. There is a chance for algal blooms and losses in our Canadian operation in the fall on the back of low oxygen in the water and a very hot summer. In Q2, they performed, I would say, extremely well given the conditions. To our Chilean operations.
Operational EBIT, a loss of NOK 61 million in this quarter, coming from a result of NOK 90 million in the Q2 in 2014. Price plays a role also in our Chilean operation. It's been extremely weak prices, but we also have had challenging biology in the area and higher mortality than we like. Cost, as you can see here, full cost in the box in our Chilean operation is at $4.9 per kilo, back to head- on gutted.
This, in fact, exclude insurance coverage that make the result here slightly better than in fact what it is. There's no doubt that we are struggling in Chile and so is the industry. The only future here is to take measures, and what we have chosen to do is, in fact, to reduce production. It's both, as I said earlier, from a biological point of view, but also hopefully that this will have a positive effect on the supply side.
Because the way we are running the operation in Chile now is not sustainable from many points of view. On a positive note, also in the American market side, we've seen recovering prices both in July and August. It's recovering from a very low level, which again, has resulted in these poor numbers. Ireland Faroe Islands.
Extremely good result in the Faroe Islands this quarter with EBIT per kilo around NOK 18. In the Faroe Islands, we do not have any fish to harvest, thus the result is close to zero. We will come back with fish in Faroe Islands especially in Q4 this year then have a much bigger year in 2016.
This goes because we have only really three sites in operation, they will fluctuate a little bit between years. To consumer products. The operating EBIT here improved from NOK 20 million in Q2 2014 to NOK 48 million in the Q2 of 2015. Improving gradually, we're still not at the point where we are satisfied with the result. We expect this unit to deliver an EBIT percentage around 5%.
Q2 is not the highest one in terms of volume. You can see that the volume development here between the Q2 in 2014 and Q2 in 2015 is approximately the same. You have to remember that Easter was in the Q2 of 2014. You have a volume effect there as well.
We're okay satisfied with the development, not entirely satisfied with the result. We see strong growth here both in Southern Europe, Italy, especially in Czech as well, in Germany, very good growth. We also see good growth in the UK market. France, more or less stable. At least it's not falling as it did last year.
One good thing to write home about in the consumer product is that we landed a quite good contract in this quarter, a long-term contract that in fact will fill our new plant in Rosyth in Scotland. We start delivering there in the Q4 of this year. We're extremely happy about that. To the last division in Marine Harvest, Fish Feed. Obviously also have impacted by lower volumes and lower feed volumes because of low temperature.
As you can see of the numbers there, 47,000 tons or slightly more of that sold, but produced 58,000 tons. We produced some feed for storage, and this has to do with less feed fed in the farms due to low temperatures. Result was at 5.3% in this quarter. We are happy about that, and we are extremely happy about the way that production performed.
We had one incident in this quarter, a dust explosion, which was not the best. Even with that, we see extremely good performance. We had to close down the site for one and a half day. Even with that, we see extremely good development in the production performance in feed. With that, I think Ivan will go more into both the financials, the harvest volumes, and the markets. Ivan, the floor is yours.
Thank you, Alf-Helge. Good morning, everybody. As usual, we start with EBIT. The Q2 saw us make a turnover of approximately NOK 6.6 billion. That's quite stable compared to last year, despite a decline in harvest volumes of approximately 9%, down from 114,000 tons to 104,000 tons. The reason why is the new business segment feed. We had a turnover of approximately NOK 0.5 billion, which accounts for approximately 8% of the total turnover.
Operating EBIT of NOK 719 million. Further down in the P&L, I will just touch base on the big items. Net fair value adjustment of biomass, NOK -667 million, on the back of lower seasonal biomass in sea and increasing costs, which Alf already has explained, and some decline in prices measured in local currencies. Restructuring costs of NOK 157 million, of which NOK 88 million is the restructuring of Chile.
The rest is value-added production, approximately NOK 40 million. Net financial items, this time positive NOK 87 million. You will find the reconciliation in the report. Mark-to-market valuations, some FX fluctuations. The interest rate or interest cost, we will visit later on in the presentation. It was quite stable. Underlying earnings per share this quarter, NOK 1.7. Net cash per share, NOK 1.80.
The distributed dividends the last quarter, paid in the Q2, NOK 1.30. Return on capital employed, 9.6% this quarter annualized. Year to date, 12%. So much about P&L. Over to the balance sheet, or what we call the financial position these days. The total balance sheet amounts to now NOK 35 billion, which is up from NOK 31.7 billion the same period last year. The main explanation is the Acuinova acquisition plus organic growth.
Net interest-bearing debt at the end of the quarter, NOK 7.7 billion. Equity ratio of a solid 51%. Cash flow. We started the quarter with net interest-bearing debt of NOK 7.5 billion. We ended at NOK 7.7 billion. Quite stable, but there are some items here in between. Cash flow from operations, NOK 729 million. The Q2 is the main quarter for tax payments, NOK 345 million.
We also saw a positive change in working capital, NOK 118 million. A little bit less than what we expected due to what we produced for inventory in our Feed segment. Bear in mind that the third and Q4 are the growth quarters for salmon in Norway, and in order to maximize our self-sufficiency, we started a little bit earlier. We also have timed our purchases for input factors.
All in all, somewhat lower positive contribution from the working capital, but it's temporary. Net debt at NOK 421 million, in line with our forecast. Other investments, NOK 362 million, which is proceeds from our sale of the Havfisk stake. We also sold our shares in Nova Sea, and we also got the annual dividend from our associate company, Nova Sea. Interest expenses paid this quarter, NOK 60 million.
Other items, NOK -145 million , which is mainly FX fluctuation related to other items than net interest-bearing debt. Dividends distributed, already explained. The FX effect of the net interest-bearing debt, NOK -47 million. All in all, our net interest-bearing debt of NOK 7.7 billion. I also take the opportunity to remind the audience that we are building inventory in the second half of the year.
Consequently, we will see some negative effects of that in the Q3 and mainly in the Q4. We also have Christmas sales for the processing, which is an extensive business segment for Marine Harvest. Over to our cash flow guidance. No changes since last time. Alf-Helge has already said that the board has decided to distribute the NOK 1.30 per share as a quarter dividend.
If there are any questions, I can just take it afterwards. Since there are no changes on this slide. Overview of our financial situation or our financing. We have extended our bank facility from EUR 555 million- EUR 805 million. The reason why is to support current operations, but also to be well prepared for organic growth going forward.
If you put this new amount into the calculator, you will see that our free liquidity or available liquidity is satisfactory, or should I say more than satisfactory. At the same covenant as we have had, 35% equity ratio and no gearing ratio covenant, and at the same interest rate terms. I've said it before, we are very satisfied with our lenders, and we are very satisfied with the terms.
The convertible bonds, no changes. The conversion price is adjusted or amended for the dividend distributed in the quarter. Much about the financial figures. Over to supply development. Global supply growth in the Q2 was in line with our previous guidance. We saw low growth from Norway and Europe as a whole. Substantial supply growth from Canada, as expected, due to recovery there and declining volumes from Chile.
No big surprises on the supply side in the Q2, at least the way we see it. Development in reference prices. The prices in Europe was down, measured in NOK even more down, measured in euros. Here it is very important to bear in mind that the Easter this year was in the Q1 and in the Q2 last year. Adjusted for Easter and Russia, we think that the prices in Europe were decently well.
That's not the story for Americas. They are substantially down. They are below break even, adjusted for insurance coverage. You will see that our loss in Chile in the Q2 was big. The prices have increased in Americas the last four weeks, almost $1 per pound Urner Barry . We also have seen a substantial increase in Europe. Normally we see the same pattern.
Since we are still concerned about Americas going forward. You do not see the same demand in Americas as we do in Europe and Asia. Over to the market distribution. As already said or stated, stable and good demand in E.U., adjusted for Easter sales, Russia, and also FX. Weak demand in Americas at low prices.
Hopefully we bottom out at NOK 3.02 in July, but we don't know. At least it's better as of today. China/Hong Kong down this quarter, influenced heavily by lack of large-sized salmon plus trading barriers for the mentioned salmon. The way we see it's still a positive underlying demand in all main markets apart from Americas. We also see that the Q3 started very good. Prices are up yet to date in Europe by 18%, NOK 6. Adjusted for FX, it's still up 8%.
A challenging Q2, but the Q3 has started very good. That also bodes well going forward this year. I also think we will see seasonality for the remainder of the year, which we see as a tight supply situation for 2016. We are still positive. Over to industry supply outlook.
We have taken it somewhat down since last time we spoke in Europe because of a cold summer. As we will see later on, we have taken down our internal volumes. We also think we will see the same pattern for the rest of the industry. In the Q3, we are at -4% to 4%, i.e., around zero. I think so far, at least from Norway, it's actually negative supply growth, which has really helped on prices.
We also think that the supply growth in the Q4 will be quite limited, and at the same time, we will have the Christmas demand. Although we expect a seasonality effect on prices this year, we think that it still looks good taking these numbers into account. Over to our internal volumes.
We have taken it down from 440,000 tons to 430,000 tons on an annual basis since last time, and mainly Norway, 9,000 tons, due to the cold summer. You see that our Q3 numbers are actually down in Norway compared to the Q2, from 64,000 tons to 56,000 tons. On a global basis, we are quite stable. I guess some of the improvement in prices, you can also read from these figures. Alf- Helge, the floor is yours.
Thank you, Ivan.
Thank you.
Yeah. Going forward, what we see here is a favorable supply outlook, supported by some of the strongest future prices I've seen in a long time. The next 12 months, the prices are around NOK 12.42, or they are NOK 42. On the back of what we've seen both in July and August, I would say a relatively good underlying demand in the European and Asian markets, especially.
The development in Americas still is concerning because we are at a very low price level. Even though we see a recovery also in that market, we are concerned. What we need there is to continue the drive at more value-added products and more convenience for the consumer. In terms of long-term contracts, we have succeeded and in fact getting a five-year contract on our value-added business at good levels. We're really happy about that.
Again, the board has decided a quarterly dividend of 1.3 NOK per share for this quarter. With that, I would like to open up for questions. We have a man here in the front seat with a nice beard for the moment. He will hand you the microphone. Just raise your arm and state your name and employer, and we will get at it. I think we have one up here. Okay, you have one next to you. Very good.
[Georg Lars ABG Sundal Collier] . You're talking about measures implemented in Chile in order to tackle the weak market. Also you refer to the biology in general. Then I guess those considerations apply to Chile as a whole and not only Marine Harvest Chile. Do you see the same initiatives being implemented or considered at least by your competitors or collaborators in Chile?
Good question. I think for our case, we have to worry about Marine Harvest. What we have decided to do here is, in fact, it's both from a biological point of view. We've taken down a small output. We are screening all our licenses. We have 190 of them, so we are in good shape that way. Then we are utilizing the absolutely best licenses we have.
In terms of how this will affect in the marketplace, well, the market decide. In fact, most importantly here is to get good control of the biology. In terms of whether we are seeing this in other companies, I think it's a wise thing to do. I will advise, I cannot advise other companies, but I think it's a good thing to do, and hopefully we will see better operations in the future.
With respect to your own cost level in Chile being the highest now since 2013, do you expect it to return to the lowest level you've seen in the last two years following this restructuring? Where do you see it going?
The cost level in Chile is highly affected by the biological operations. I still think even though you're correct that this quarter it was a rather high cost, at least when you take into account insurance reimbursement there. You will see, depending on if we succeed on the biology, the cost per site will come down, even on a lower volume.
One final question. Regarding U.K. and the cost level there, you said that for the last three or four quarters you've seen historically high mortality rates for the whole of this period. Fair enough. If you haven't said it's probably still correct. Do you see them now normalizing back to historical levels, or are you just seeing them decreasing from that very high level?
In terms of the mortality, just to keep that to the correct information, if I said something different, I said it wrong. The mortality happened in the second half of 2014. Both in the Q1 of 2015 and the Q2 of 2015, the mortality levels in our operation in U.K. has been at a good and normal level.
The effect of the mortality that happened in those two quarters there was still fish left on site, but fewer fish. The cost was up on those sites, and those sites were more harvested out in the Q1, a little bit less harvested out in the Q2. We see a gradual cost improvement. Not a lot in those three quarters, but we expect with higher volumes in all the sites, so that recovery going forward.
Thank you.
I mean, you're taking down the really small stocking in Chile. Certainly you keep the market capital guidance from 2015. You also say that you have organic growth coming. You also say that you have funding from the banks for organic growth. Can you shed some light into the organic growth and what we can expect for 2016?
Again, a question that is slightly tricky because we do not comment on the volume development in 2016 before in the next quarterly presentation. I don't want to detail the growth plans in 2016 at this point in time. You want to add anything to that, Ivan?
No. We will revisit it in the Q3. When I said organic growth, I meant the years to come. You are very short-term oriented in your question. In terms of working capital, you will see the main effect of it actually next year because this is the stockings.
The reduction stocking in the second half, you are not done yet. This is to come yet. The reduced- Sorry. The reduced stocking in Chile.
It's going to be in the second half. You are not done yet?
Obviously, when we take a decision like what we did, we activate it. Obviously, we take out the fry the same day. There were reduced stocking, but that's in the hatchery. Reduced stocking will happen in 2015, and some sites we have cut down. As I said, volume, the stocking is down five million compared to our plan in 2015.
Down five, sorry.
The main cash effect is next year, also in terms of CapEx. You have to wait until the next quarter. Start of 2016.
Thank you. Back to the US market. Have you seen some lately improvements in the volumes? I mean, there has been some positive signals on huge volume increase year-over-year in the last month. Have you experienced that? Or are you seeing something new in the US market and how do you look at this market say in one, two years' time?
I think what we've seen at least over the Q2 into the Q3 is that volume fall in retail prices and actually starting to come down. Seeing that, we've also seen increased prices in the US market. This basically from mid-July and August up. There are positive tendencies there, but also it's early days to say that this is a continued movement up. There are some positive signals. I think we have to work a lot harder with the US market before it's at a sustainable level. We are still way under breakeven price.
[inaudible]. A few questions, but you probably noticed that you have broken this trend of increasing the DPS by 0.1% to keep it flat from Q1. I suppose you could give some explanation why you keep it flat and not increase it or continue to increase it like you've done the previous four quarters.
You should actually ask the board. It's the board that declare the dividend, but I can try. We also align this with the underlying earning per share. In the Q1, we made less money than what we did in the Q1. This time, I think the board find it appropriate to maintain the dividend level.
In terms of guidance, the board do not guide on dividend. They take the liberty to decide what it should be at every quarter going forward. That said, they are very focused on dividend distribution, as you have noticed. You always have to take into account the underlying earnings. Over time, we cannot distribute more than what you make.
The second on the volume guidance. Have you harvested the planned volume in the yields, or if I missed that, you will see this volumes coming out in Q1 next year?
I think you see from our guidance that we've taken down the volume, especially in Q4. Now in the Q3. We take out some more individuals than we likely to achieve the volumes. I think you will see that from most of the industry.
Okay. Last one. On production costs, do you think the production cost on the harvested fish peaked in Q1? How is its production cost trending in Q3 and Q4?
I think what we see in Q3 is that we know that because July, and we almost said August is finished, but it's not. Still we've had low temperature during July, and we have seen harvested volumes and average weights coming out from the industry that's lower than what we like. Obviously, there's a very strong correlation, as you perfectly know, between the size of the fish you harvest and the production cost per kilo. I'm afraid to say that even though feed prices are down, as we know on the raw material side, I think at best the even cost level in Q3.
Ole from DNB Markets. One question about the sea lice situation in Norway to continue with the cost conversation. From the media and also the reports from Nofima, we have had an impression during the first part of this year at least that the situation has been more under control than last year, and that the efforts to treat sea lice has been lower and the result has been better. I hear a slight different message from your presentation. Can you elaborate something about how you view the situation, both from the Marine Harvest point of view and also on behalf of the industry? Thank you.
Yes. I think you are correct in most of what you state there, with the exception maybe of one point. I think we are in control. I think the situation, in fact, looks better in terms of number of lice. It has taken more treatments and more efforts, especially in terms of both new non-medical tools that's coming into the marketplace and more use of RAS. There is at least an initial cost.
We'll see long-term if the number of treatments actually, in fact, goes down. For our company, in fact, maybe there's a difference from region to region, but we have in fact treated more. We are at a lower level, and hopefully that will lead to less treatment going forward during the summer. I see what you're saying, but to get to that point where we are at a lower level, it's taken more effort.
Tore Tønseth, SpareBank 1 Markets. Two questions. The first one in English.
Okay.
The first one on the consumer products. Are you done with the restructuring within Europe? When do you expect to reach the 5% EBIT margin goal or target?
Good question. In terms of being done with restructuring, I think I will say that one of the values in Marine Harvest is to continuously change, so I will never say yes to that. I get more than finally done. We will continue to evolve the operations. In terms of reaching the target, I would not say this is 36.9% and I will retire if I don't get those numbers. That's the target we're working at, and we will get there.
Okay. The second question. Ireland, you had a great results this quarter. Is this like a spike, or is it exceptional good quarter, or do you expect relatively good results from this division going forward?
I think I would like to say that Ireland had an especially good quarter. I don't think we will see a stable trend at that level from Ireland is the answer.
You expect better results now going forward than we have seen in the past few years from this region?
In Ireland, it's borderline biology. Seawater temperatures are high, and when you get it right, they yield big numbers. They've done that. I guess it's tough to look at an investment in biology quarter to quarter. Over time, they have had decent results in Ireland. I think the country reflect that it is a marginal country for fish farming.
Yeah. Of course. Thank you.
More questions? If not, thank you very much for coming and see you in-