Good morning. Welcome to the presentation of the 3rd quarter of 2014 for Marine Harvest. Together with me today to present, I have Ivan Vindheim, our CFO. A few highlights in this quarter. It's been a quarter recognized really by quite a lot of disturbance in the marketplace. We had the Russian ban coming in in the middle of August. That caused some disruption. Even though and because of that, I think the organization in Marine Harvest has handled the challenges well. We were obviously helped by long-term contracts that gave us an upside. Also, the flexibility in the sales organization and a lot of hard work has given us a good result for the quarter. The operational EBIT in this quarter was NOK 912 million. Another event in this quarter for Marine Harvest was that we started up our first feed plant in Bjugn.
This has been interesting, and it's a challenge for the company because it's a new business division, and it has been fairly successful. I will come back to that one. We also added 40,000 tonnes of farming capacity in Chile, in Region 11 in Chile. This is an integrated unit with maybe one of the best freshwater hatcheries in Chile. A lot of freshwater on the ocean, so it's a very good operation. The farming sites, you can see they have been run down for the last few years because of lack of cash, but they also have a very good processing plant in Puerto Chacabuco in Region 11. This is right in line with what we needed because we have a lot of licenses in Region 11, but we have not utilized any of them so far. The quarterly dividend in this quarter is NOK 1.1 per share.
Just some key financial numbers. I think I just want to highlight the top line here, NOK 6.2 billion in sales compared to NOK 4.3 billion in Q3 of 2013. The year-to-date number is interesting, NOK 18.6 billion so far this year compared to NOK 12.4 billion last year. For us to be able to grow the top line is obviously interesting, but it also shows that the strategy of the company is working. Cash flow, quite good in this quarter, NOK 875 million compared to NOK 559 million in the third quarter 2013. The harvest volume is up 107,000 tonnes in this quarter compared to 80,000 tonnes or 81,000 tonnes in Q3 of 2013. As I started, it's been a challenging quarter in terms of the marketplace.
Prices fell because of the Russian ban. I think I should say fell from a very high level in Q2 of 2014. Still good prices in this business despite of a market for the global market has disappeared around 4% of the global market and close to 10% of the Norwegian market overnight. It takes some time to replace fish into Russia, both from Chile and from the Faroe Islands as we do, so that this didn't have more effect than we actually have seen speaks for a strong demand in our operations. This is a slide just to show you the integrated strategy of the company having 3 business units and how they perform. Here we start with the result of the third quarter of 2013. As we can see here, the feed business yielded a small profit in the first quarter of operation.
We're proud of that. The farming operation were better compared to the third quarter of 2013. The markets operation selling whole fish, and also it includes the Asian operation and our U.S. operation, had a very good quarter. We have loss in the value-added operation. I will come back to that. Mowi, more or less as expected with the low raw material prices, and that in combination with improved operations, had a very good result in this quarter. Others, mostly FX effects from the third quarter of 2013, the currency here played us a little negative role compared to the third quarter of 2013. All in all, just north of NOK 900 million in operational EBIT. One reason for this is good price achievements in most regions.
We can see the Norwegian price achievement here being close to 107%, so 7% better than the comparable price we compare to the NOS price. This obviously has to do with good contracts in the quarter that is helping us, but also good performance from our sales organization. The Scottish operation is highly contracted on good prices. This pays off. In Canada, we basically have zero contracts. We perform in line with the market and the reference price. In Chile, we do better. It has two explanations. One is some fish going to Russia, but also that Marine Harvest has a strong foothold in Brazil. We compare to the reference price here, which is the Urner Barry in Miami. We get more for the fish when we sell it into Brazil than if we fly it into Miami. Some, and into the operations.
In Norway, we made almost NOK 100 million more than in the same quarter last year. This has to do with volumes for the most part, higher volumes, but also a slightly higher price. I think the challenge in Norway these days is biology, and it's biology in most regions. We had a very warm summer, and that has impacted our operation and given us higher cost on harvested fish in this quarter. Especially sea lice, more sea lice treatments. We are in control of the situation, but there are less tools to use, and it's more frequent sea lice treatments, and this is a concern for the operation. It's no doubt. We work hard to solve it, and there are new remedies coming into, not remedies, but new, more non-medical tools coming into the baskets as we speak. The contract portfolio going forward.
We have a very high contract share in the fourth quarter, just north of 50%, 51% of the harvest volume in Norway, also a strong contract portfolio in Q1 of 2015. Even though it's lower than Q4, it is the name of the game that it is because we constantly take contracts in this business. We also have a slightly lower contract share in Q1 2015 because of expectation into the supply of salmon in that quarter. If you look into the different regions and how they perform and compare it to last year, the third quarter last year, we see that in Region South, we perform better than last year, but it's still a challenging area for farming. This is from Sogn og Fjordane in the north down to Agder, east south, I should say. In some areas here, we are heavily challenged with sea lice.
In addition to that, CMS and AGD. Still, I think we handle it well, but going forward, this is a challenge for the industry. Region West performing slightly, maybe slightly worse than expected in this quarter. They do well in our operation but have also faced challenges with sea lice. Region Mid is coming around and has a better quarter than before. Region North performs worse than last year, but Region North is really coming around, so I think we will see better performance in Region North going forward. All in all, decent but not fantastic performance in the different regions here. That has to do with a very challenging summer, as already mentioned. Let's hope for more rain and northerly wind next summer. Scotland. A decent quarter in Scotland as well, but quite, if you think about it, on the back of very good prices.
We have a challenging situation in terms of biology in Scotland. A 13% increase in treatment costs. We have had to increase our AGD prevention measure. AGD is a gill, this is an amoeba that goes on the gill. Also in combination with sea lice and high temperatures, it's challenging. There's one thing to note on Scotland. We will basically drop the volume in Q4 with 50%, and that in combination with the challenging biology will give a much worse result for Scotland in the fourth quarter. Obviously, when you go from 13,700 tonnes down to what we guide around 7,000 tonnes, slightly above or between 6,000 tonnes and 7,000 tonnes, that also has an effect on the economy in this region. The fourth quarter will be a challenge for the Scottish operation. Canada.
A large price drop in the North American market here, but on the other side, lower cost compared to the third quarter of 2013. The reason for the drop is no contracts, and this is a decision we have made a long time ago. We do not go into contracts on Canadian salmon. It goes mostly to the sushi market and in the spot sales. We have seen during the summer some algae blooms in this area, and that will have an effect in the fourth quarter. For the third quarter, the operation has been quite okay. One region that is doing even better is our Chilean operation. Largely, reducing cost. The price has dropped slightly compared to the third quarter of 2013, as you can see from the chart. Volume is up, feed cost is down quite substantially. Other seawater cost is down.
Non-seawater cost is down because of volume. All in all, a very good performance compared to the third quarter of 2013. The reason for this is obviously good management, selection of the best sites of operations. As you know, we don't really utilize our sites in Chile compared to anybody else. It's not all about volume. In this game, it's all about quality of operations. They've done good. Saying that, the costs have been reduced, but saying that, the risk is not over. One of the tools that has helped us in Chile is Salmosan. For those of you that have been farming for many years know how sea lice deals with medical treatments. Resistance is the solution for the parasite. We will not go and say that everything is good in Chile now.
I think our operation maybe is in a special position because of the way we manage our operation here. Ireland, Faroe Islands. Ireland, NOK 2.58 per kilo in a challenging quarter for Ireland, biology-wise. Faroe Islands helped a little bit by the Russian sale in September and has a very good quarter for this quarter. A little change. The Mowi story. I think we have to go back. I think this story really captures what Marine Harvest is all about. Mowi was created and started up in 1964. Mowi comes from the founder of the company, Thor Mowinckel, but it's also the name of the breed in Marine Harvest. We have our own breed of salmon that comes from the Vosso River all the way back to 1964.
We have selected on these fish for many, many generations. We have upped the stake to go heavier into breeding. We decided to do that three years ago, and it's more professional in this field than ever. If you combine a good company, a good breed of salmon with its own feed, an organization that now comes together both on the market side and the branding side in the market, and with development of new products in combination with the best farming sites that we selected already back there in 1964 with good fish, we start to be able to sell a story here and a product that is really different. We control the broodstock, we control the ingredients of the feed. We have special technique in our processing plant to select the best fish for our customers.
This is really what can set us apart. Nobody else can come even close to what Marine Harvest can do in the future in this area. We already started in Asia half a year ago. This is just the start. The concepts will be coming, and we can almost tailor-made and secure the food safety of the products, just as we do with cleaning the fish oil as the only company in the world for the consumer. I think that is a good recipe for the future. Value-added products, this is a challenging operation. They have their market in France, and France has dropped heavily on the smoked side and also are challenged on the fresh side. We have changed the management in our smokehouse. We got the best people from Morpol in France to lead on the change.
Where we really need to change is in this operation. It's just not tolerable to lose money in this business. We will change it because we know that if you are efficient in this business, you can do well. I think the example on the next slide will show you that. Mowi, highly efficient operation, 7.4% EBIT margin in the quarter, basically producing more or less the same products, but just much more efficient. I see this as a very strong result for the quarter. Increase in volume. They have benefited from reduced raw material prices and, all in all, a good operation. Saying that, there's still room for improvement in Morpol. The flow in the factory is far from what we would like to see, and we're working hard on that to make it even better going forward.
All in all, I'm very satisfied with this operation and the third quarter. To the third or maybe the first leg in our operation, fish feed. I think the saying was that this was for Marine Harvest almost impossible to do. I guess at some point in time, we were at least a little bit in doubt, but just a little bit. We're very happy to say that this has gone very well. We've invested close to NOK 900 million in Bjugn. We have got a feed plant that right as we speak has reached 100% capacity. I think actually maybe slightly more than that because in the third quarter when we started up in July, obviously we didn't reach 100% in July, but for the third quarter as a whole, we did.
I don't think you need a high degree in mathematics to understand that this is going quite well at the moment. This gives us about 60% of the requirement in Norway. The target for the operation is obviously to have as low feed cost or feed cost produce as possible, but based on better raw materials and better composition of feed than the rest. We have already started benchmarking in trials on how this feed performs. So far it's very comforting to say that our fish is growing better on this feed and converting better on this feed compared to our competitors. That in addition with benchmarking price, that's where we really get the benefit down the road when we harvest the fish. If we can continue this way, this will be a great investment for Marine Harvest going forward and for the shareholders.
We will start with the really heavy financials. Ivan, it is all to you.
Thank you, Alf-Helge, and good morning everybody. As usual, we start with the P&L turnover. We made NOK 6.2 billion in the third quarter versus NOK 4.3 billion in the same quarter last year. This is an increase of as much as 44%, of which 33% is related to harvest volumes, 107,000 tonnes this quarter as against 81,000 tonnes in the third quarter last year. Operational EBIT NOK 912 million, up from NOK 793 million last year. If you go further down in the P&L, I will just visit the main items there. This time we have something new called change in unrealized margin feed. It is NOK 37 million. This is the profit of feed which is eliminated. The amount is different from the NOK 20 million we report as operating profit. The reason is that the accounting rules do not allow to put indirect costs on the balance sheet.
Consequently, you cannot apply full cost. This is one-off effect this quarter, but we will see the same in the next quarter until we have one year up and running. Fair value adjustment of biomass NOK 74 million. Income from associated companies, i.e., Nova Sea, NOK 51 million. This is including IFRS. Nova Sea made an EBIT per kilo of NOK 10.6 in this quarter on 12,000 tonnes in harvest volumes. In other words, a very good quarter for Nova Sea. For further details, please see the appendix. Net financial items NOK - 520 million. This amount is heavily impacted by the fair value adjustment of the two convertible bonds. The amount is NOK 440 million this quarter, and the reason why is that the share price increased substantially through the quarter and actually closed at all-time high. For further details, see notes nine in the P&L.
Underlying earnings per share this quarter NOK 1.49. Net cash flow per share NOK 0.36. This amount is impacted by the tie-up of working capital. We will revisit the cash flow when we go through the cash flow statement later on in the presentation. Return on capital employed this quarter 19%. Year to date it's 21.5%, well above the long-term target. Operational EBIT including all entities NOK 8.72 per kilo. So much about the P&L. Then over to the balance sheet or what we call financial position these days. The total balance sheet amounts to approximately NOK 32 billion. It's approximately the same as what was the case for the first half year accounts, so no substantial changes since then. Compared to last year, it's up mainly due to organic growth.
Higher biomass plus the feed plant, which we have completed this quarter or actually last quarter. Equity ratio 44.6%. The net interest-bearing debt over equity approximately at the target of 50%. Net interest-bearing debt NOK 7.2 billion. This leads us to the cash flow statement. We started the quarter at NOK 7.0 billion in net interest-bearing debt. Cash flow from operations NOK 875 million, which is lower than the operational EBITDA because of seasonal increase in working capital as expected. That being said, the increase in the fourth quarter will be even higher because then we also have the Christmas receivables for the value added and Morpol. Investments or CapEx gross NOK 610 million this quarter. We are still in line with the budget for this year. The total amount is NOK 1.65 billion. i.e. we expect approximately NOK 0.5 billion in the fourth quarter.
Payable interest NOK 65 million. Amortizations and other financial items NOK 105 million. Dividend NOK 489 million. The difference between NOK 489 million and the NOK 410 million is withholding tax. We paid a huge dividend because of the Meridian divestment in the second quarter. The withholding tax was paid this quarter. Translation effect of interest-bearing debts NOK 154 million. This is related to most of the euro debt we have and the weakening of the NOK. Since we closed the quarter, the strength of the NOK. Since we closed the quarter, the NOK has weakened against the euro, so the net amount as of today is approximately zero. Over to the cash flow guidance. No major changes since last time.
We have increased the forecast for the working capital tie-up this year by NOK 200 million from NOK 800 million to NOK 1 billion due to the organic growth Alf-Helge elaborated on in the start of this presentation. Capital expenditures are still at the forecast we had when we started the year, and which we rephrased in the second quarter. At the moment, we are below the net interest-bearing debt target of NOK 7.5 million, that's because of seasonality. We are investing heavily in our biomass as we speak. We are using a lot of money on CapEx. We are also distributing dividends. Most likely, our net interest-bearing debt at the end of the fourth quarter will be substantially higher than NOK 7.5 billion. That being said, we will adjust this after the board has decided the budget for next year.
We will come back to the forecast et cetera in connection with the release of the fourth-quarter results. As you have already seen, we are increasing the harvesting volume. That isolated gives rise to a higher net interest-bearing debt target. We are also acquiring Acuinova, and that investment we want to leverage. This net interest-bearing target is history, and we will revert to the exact number in connection with the release of the fourth quarter results. Over to your financing. We went through this thoroughly last time, so I won't do that today. I would just once again mention that we do not have a gearing ratio covenant anymore. It's only our equity ratio covenant, which we are extremely satisfied with. This is really important in this industry with respect to the fluctuations we have seen in the past on the salmon price.
Over from the financial figures to supply and demand. We start with the supply. The increase year-on-year was as high as 12% in this quarter as expected. This put pressure on the salmon price, combined with the Russian ban. That being said, we still think that the salmon price, although it went down year-on-year in the third quarter, it was extremely high. In terms of the demand, which I will comment on later on, we think that is still good. Demand for the year as a whole and also last year is great. This really bodes well for 2015 when we see that the supply numbers will go down. If you look at the various regions, the growth in Chile this quarter was as high as 28% on the back of improved biology.
We see that the yield down there has been increasing. The reference price Alf-Helge has already commented on. We see that we are down from record high levels at the beginning of the year. We think that we also this year will see a seasonal pickup towards the end of the year. We also think that the price next year will be good. On the back of lower supply growth. In terms of demand, as already said, a very good demand in the third quarter. Russia is down here at 1%. This number is higher in reality because the Russian ban came in the middle of the quarter. In these numbers, you do not see the full effect. It's no secret that the salmon consumption in Russia is hurting on these sanctions. Europe, very good, 12% at decent prices. The U.S. up as much as 15%.
That being said, the prices in the U.S. are under pressure, particularly in Miami for Chilean salmon. As you saw from the last slide here, the growth in Chile in the third quarter was as high as 28%, and in the year to date, we are talking about 20%-23%, and that's too much for our main market, and we always see pressure on prices. Next year we do not foresee any growth in Chile. Maybe it goes down. That, we think, will lead to higher prices for the Chilean salmon. As we speak, the price in Miami is extremely low. If you convert it to Norwegian Krone, take into account transportation cost and also convert it to whole fish equivalent, we are talking about NOK 26. That's too low for the Chilean industry if you take into account the average production cost down there. Asia, great.
China, Hong Kong, up as much as 22%. Ukraine, obviously down 34%. Over to industry supply outlook. As already mentioned here, we think that the supply growth will go down next year. In the range we are talking about 1%-5% growth. I think the consensus is at 3%. In our minds that looks likely. As of today, based upon the information we have, we are going down from 8%-9% on a global basis. This we think will ignite the salmon prices going forward. We are also expecting to see the Christmas demand this year for Europe. That will also help. All in all, we are still positive on the salmon price going forward. In terms of the fourth quarter, we foresee a growth from -1% to 5%.
We already see the drop in the supply growth we have seen in the third quarter, but also in the second quarter. Also all the volumes. We still think that we will manage to harvest 414,000 tonnes from Marine Harvest as a whole this year. We have made some minor changes, no big ones. In terms of next year, we foresee or we believe in a 4% growth from 414,000 tonnes to 430,000 tonnes. Norway up from 254,000 tonnes to 263,000 tonnes. For Chile, we have a temporary drop from 66,000 tonnes to 55,000 tonnes. This is just temporary. We will increase it again. Canada up from 29,000 tonnes to 37,000 tonnes. Scotland from 49,000 tonnes to 63,000 tonnes. Other units from 15,000 tonnes to 12,000 tonnes. Acuinova is not taking into account in these numbers. We expect to take over the biomass and the fish in December this year.
Most likely next year's volumes of 15,000 tonnes will have a full year effect on our numbers for next year. We will have 445,000 tonnes, which corresponds to an increase year-on-year on 7.5%. Consequently, we can continue with the organic growth we have seen over the past few years, which is important to us. That was all about the P&L supply and harvesting volumes. I would like to pass it over to Alf-Helge again so he can wrap up.
Thank you very much, Ivan.
Yes, just a little bit around the outlook for next year. We've just been through maybe the most important numbers. Limited supply growth expected in the coming periods. Also this obviously has to do with the regulations, but in fact maybe more to do with the biology both in Norway and to a certain extent in Scotland and in Chile. It's important to say that we have in a way hedged. We have a 50% contract share in the fourth quarter at a price slightly below the future prices going forward.
When we see prices forward, we lean on the future prices which are above for both Q4 and for 2015 as a whole. Most important on the production side is to contain and reduce the biological cost. We don't like the development here at all. We have a lot of research projects going on in the field here to try to come up with a solution, but it's fair to say we don't have it yet.
We need, and we will continue to focus on consolidation initiatives. I think it's important both for Norway and Chile to make a sounder and better business for the future. High focus and a lot of time and effort is put into solving the issue in our value-added operation. We cannot just continue the way we're doing in that business. It has to change. At the end of the day or the end of the presentation, just to sum up with the quarterly dividend that is decided to NOK 1.1 per share. With that, we will open up for questions. Paal Svare will find a microphone and then please state your name and employer and we can start from there. Maybe Kolbjørn can start. He's in the back there. I think he has his hand up there.
Question on the contract portfolio. [audio distortion] Have you seen any pressure or been impacted by any negative [audio distortion] on the contract during this challenging price period that we're seeing in Q3? Just also on the internal pricing on the feed division, what are your principles in those dynamics?
Yes. On the, first to the contract question and pressure on contracts. What we did, we had also good contracts in 2011, but then more with processors and a weak counterpart. This time our contract is much more with retailers directly. It's fair to say that we have not seen any pressure on contracts in this period of time. I think a contract is a contract. That's how it works in Marine Harvest. We lose when the spot price is high and the other way around. To your question on internal pricing in the fish feed, it's very simple. The principle is that we still are a net buyer of fish feed. We compare the price, the average price.
We buy fish feed from Skretting, BioMar, and sometimes from EWOS, and then it is the average price in that quarter that we are actually paying to those suppliers that our feed division gets as a basis for the feed. [audio distortion]
[audio distortion]
It's very bad sound here.
Question about the growth plans. You are planning on keeping the 4,000 tonnes increase in Norway next year? Keep the 4,000 tonnes?
No.
Will you keep it in range?
For the whole industry, not for our company.
No, for the whole industry.
Sorry.
You're only guiding on 9,000 tonnes increase for that. Can you explain how you get to that direct volume [audio distortion]
What's 9,000 tonnes of NOK 45? Quick maths.
Okay. So we have 22% of that. We are increasing in line with the industry but not much more. I don't know if you will add further comment to that, Ivan.
We believe in our numbers. In terms of the rest, there is some unutilized capacity out there. We also see the effect of green licenses. This is our forecast. This is what we believe in.
The high temperatures we saw in the first half of the year, has that significantly impacted on production [audio distortion]
We base our prognosis on normalized temperatures. When we always do a budgeting, we do a 10-year forecast or a 10-year historical average on temperature. We have had a couple of years with high temperature this year and in 2012, as you well know. That has an impact dragging the average up. It's average temperature, it's prognosis. By experience, we know that those forecasts, they are subjected to changes when we go along because of the weather, as you have mentioned, but also because of other factors. Any more questions?
You have quite substantial unused capacity in Chile and you're guiding down for January in 2016. What kind of volumes should we expect in 2016? [audio distortion]
We are not guiding on 2016 yet. I think the reason for going down a little bit in 2015 compared to 2016 is more or less very good growth on the fish and then skewing the volume towards 2014 instead of 2015. It's kind of temporary change. 2016, we will absolutely come back to in this at about the same time next year.
Can I get you to answer [audio distortion]. Just to follow up the questions on the [audio distortion] . First, when you say [audio distortion] against the external purchasing costs, given the fact that [audio distortion] comparing that to external purchases, are you comparing [audio distortion]?
I hear you saying that we're kind of only producing standard feed. We are buying the best feed that is so-called the best feed from our suppliers because we believe in high energy feed. The feed we produce in our plant is so far shown to be superior of that. I think we should take away that standard stuff. We compare apples to apples fully. We are not gone so far. This is average. At the end of the day, the most important for us is really to show better growth, better feed conversion ratio, and better quality of the end product. If we are able to do that more efficient because we have a more efficient operation than anybody else, that is just a bonus.
The second [audio distortion] to follow up on my discussion. The Norwegian government [audio distortion] then they have to subject to most stringent sea lice. Have you accounted for how many of your licenses you will convert or reconstruct 5% of the increase in your 2015 numbers? Also, can you perhaps say about [audio distortion] how many of your licenses [audio distortion] ?
Yeah, I understand your question. We will not communicate the details on our calculations of that. What's important for us really is the direction set. I think that the government set a direction that kind of put pressure on coming up with solution for sea lice is a very good kind of incentive. To me, that is the most important signal with this. If you look at we want to grow this industry for the future and the estimates for 2050 is 5 million tonnes from the people that should know this better than anybody. That means really five times as much salmon or close to as we have today. With the same lice numbers that we see today, that is undoable.
What's important here is to set the direction, come up with solutions, and then how many that will use and can use or are able to use the growth the first year, I think is very difficult to say. Depends on what area you are in and so forth. Again, the direction is quite good and is really what has to be, and then it's up to the fish producer, fish farmers to come up with solutions. If we cannot come up with solution, there won't be any growth and there shouldn't be any growth either. That is the fact.
[audio distortion] , what you base your [audio distortion] ?
What we base our 2015 numbers on are the best estimates we have for 2015 for the operation in Marine Harvest. For the Norwegian operation, that is the same. More questions? [Non-English content].
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[Non-English content] Sorry, now I'm into Norwegian as well. Thank you very much for coming. I think you are from Nordmøre, so that's good. Thank you very much for coming and see you next time.