Good morning, welcome to the presentation of the second quarter 2014 for Marine Harvest. To present today, I have our CFO, Ivan Vindheim. He will help me with the details on the numbers, and myself, Alf-Helge Aarskog. You read this and memorized it, we can go continue on to the presentation. First of all, this quarter, I guess, was a surprise to Marine Harvest. We expected a price decrease. The price decrease came, when we see a global supply increase of 16% in this quarter and the prices holding as good as they did, it really speaks for a very strong salmon market. This has resulted in the highest operational EBIT result ever for Marine Harvest, north of NOK 1.2 billion, and also on the back of large harvest volume, 114,000 ton.
I will get back to the increase in regards to the harvest volume. We completed a Meridian sale, and that was divested to Cooke Aquaculture. We started up the feed factory before plan. I'll come back to the details on that. The board has stated that the dividend of NOK 1 will be paid out in this quarter per share. Some key financial figures. If you look at the turnover here, NOK 6.5 billion, nearly 50% up from Q2 2013 on lower prices. It's a tremendous top line growth in the company. In terms of the EBIT number, as I said, NOK 1.2 million and NOK 1.220 million and 114,000 tons in harvest volumes. The EBIT per kilo in the different farming regions, it's fairly similar, NOK 12.16 in Norway and NOK 12.19 in Scotland, NOK 11.01 in Canada, and then Chile at NOK 5.5 standing out on the low end.
The Chilean performance is good compared to what we have seen before. This really shows the development in the price given the supply growth. As I said, 16% increase globally. The price has been trending down, but not as strong as you would expect with a 16% supply growth. The quarterly price has been fairly stable in Americas compared to Q2 2013, but are down compared to Q2 2013 in Europe with 12% in local currency. If you look back and see into Q1, you see a significant price drop in both regions, both Americas and in Europe. The price achievement for Marine Harvest this quarter, back to origin here, we see that we had a decent price achievement in Norway, 35% contract share, 92% superior share is the superior share we are satisfied with. The contract share is strong and it speaks for fairly strong contracts in Norway.
The same is the case for Scotland. Very good quality of the fish in Scotland. Less so in Canada and Chile. Some quality problems in Chile in terms of mature fish, and in Canada, some wounds and some downgraded fish as well. Price achievement in both regions is below what we expect, but still quite good. The Norwegian operation, a strong volume growth in Norway, 28%. Remember, this is on the back or we compare to Q2 2013, which was hampered by lower smolt transfers in the fall of 2011 and the spring of 2012. We are basically taking back where we should be in terms of production. Costs slightly up compared to the second quarter of 2013, but down compared to the first quarter of 2014.
What we have seen in Norway this quarter and over the summer as well is very high seawater temperatures, especially in the southern part of Norway. We see seawater temperature at 16, 17, 18 degrees down deep into the water column, and that has an effect both on biology but also on growth and feed conversion rate. We also have issues in Norway with sea lice. We spend way too much money treating for sea lice and keeping the official limit in terms of government control. This is an issue for the entire industry and something we work hard on and try to figure out solutions for. Up to now, there are no silver bullets. We have regions where we do not treat for sea lice in Norway, but that's usually where we are alone and where we can apply our own strategy.
If you go to Agder and to Sørfold, northern part of Norway, there are pockets in the Norwegian operation that is very good. Overall, the sea lice challenge is high. This is the contract portfolio. 35% in the second quarter, a higher percentage in Q3 2014. We are closing in on 30,000 ton on contracts. Then it proportionally drops going forward as it usually does. We are very well covered both in Q3 and Q4 compared to the harvest volume we are looking into for the next quarters. This on good prices, slightly below the fish spot price, even though it keeps on changing every day. In terms of the different regions, I think we can say that there are different challenges in the different regions in Norway in terms of farming.
In the Region South, which for Marine Harvest goes from Agder in the south to Sogn og Fjordane in the north, there are a lot of challenges in regards to PD and also sea lice is the fact. In this region, S0 usually performs the best, and the performance at NOK 11.6 per kilo in the south is good. We will in this region see the EBIT per kilo and the cost level slightly increase over the fall. That is we are changing into the next generation, and we do not expect as good numbers in the third and fourth quarter for Region South. Region West, it goes from Sogn og Fjordane and up to Hustadvika to natural barriers in terms of growing fish. We have good control in big areas in this region, and we have been performing well over time. We expect that to continue.
Region Mid and Region North did not perform as expected in the 2nd quarter. We expect the cost in both regions to slightly go down and the performance to improve in both these regions going forward. All in all, maybe there's no top region here like everything went perfectly well, but the average performance in Norway is good. In terms of quality of the fish, it's good in most regions. Scotland. We have been performing well in Scotland for a long time. This continues. We harvested 18,000 tons in this quarter in Scotland, and that's a 37% volume increase. That on the back of 44% contract share. Obviously, the contract share goes down when the volume increases to this extent. The reason for harvesting out quite a bit of fish in the 2nd quarter is twofold.
We believe we had good growth and good size fish and believed in good prices in the second quarter. Also we had some issues there in regards to sea lice. Better to take out the fish before it became a problem. The same with AGD. That has been a risk factor in Scotland. Other than that, the status of the biology in Scotland is very good currently, and we expect to have a higher contract share going forward. Closing in. It's 57%, I think. You have to correct me there, Ivan, if I'm wrong, but closer to 57% in the third quarter and closer to 80% in the fourth quarter on good prices. Stable and very good business. The Canadian operation, here we have reduced our harvest volume.
This is also we have to go back quite a bit because the grow-out time in Canada is the longest in our operation, and we cut the smolt transfers on sites with Kudoa. This has a result in a lower harvest volume at this time and going forward this year. 6,500 tons down from close to 9,000 tons in Q2 2013. Decent performance, but some issues here with mature fish and higher feed raw material costs we see in this area. Not the same improvement in feed conversion rate as we see in Scotland, especially in Norway and Chile as well. Obviously you have the effect on a lower volume that you have a fixed cost is not diluted or not cut fast enough in regards to the volume we harvest.
In Chile, we see a positive development in the Chilean operation and especially I think in our operation. We are not using many of our 154 sites, and we've selected the best ones and have a good biology, good smolt in the area. The cost is still high on the back of continuous treatment of sea lice. I think we still treat over one time per month per site, and that obviously drives cost here as well. There is a new drug in Chile that is approved for treating sea lice, Salmosan. That has been used in Norway previously, and that has given relief to the situation in Chile.
We see also better coordination in the region, finally, this will only be solved by consolidation in the Chilean industry and stronger players call it fewer sites and fewer owners and bigger distance between sites and even better controls in terms of zoning. We believe in Chile, and we continue, we will do our very best to take part in the consolidation and be a driving force in the Chilean industry. Ireland and Faroe Islands, good results in both regions. The Irish operation is organic operation almost solely. They achieve a higher price, have a decent margin, has also had some biological issues in the industry. Faroe Islands down from NOK 20 in the quarter, in Q1 per kilo. It's okay, not fantastic. Our Value Added operations has had a challenging quarter in the second quarter as expected.
We have finalized the restructuring in this division in terms of closing down factories. What we see at the same time is that the main market for this division, France, is dropping. 15% year to date down on smoked salmon, 20% year to date down on fresh salmon or the total import into France. That is significant when that market drops away the way it does. It's quite large salmon market. We have divided this into three divisions fresh, chilled, and frozen. Fresh being MAP packed salmon ready to consume into supermarkets, chilled being smoked, and frozen obviously being frozen portions exported also to other countries than Europe. Where we are struggling is in the smoked business. It's fierce price pressure and our French operation are not efficient enough. That is really where we are losing money. We are now continuing to change this division.
We have combined the Morpol smoked management with the management in our smoke operation in VAP. This will be led by the Morpol smoke management going forward, which are by far better operators and has proven that over time than what we have managed to do. I think that will clean up the marketplace and hopefully also give efficiency in production in the one smokehouse we have left in France. Morpol, 2.3% profit. This is basically spot-driven operation, and they made money on a spot price at NOK 40. 10% volume reduction here. They also export into France. We've seen some pressure in the German market on the smoked salmon as well. In the German market, it's been compensated with increased consumption of fresh salmon which is obviously positive.
What we see for the second half in Morpol, seeing the prices that has come down now to around NOK 30 in spot, is a very positive second half. They operate very well in that price range. We'll see better results there in the third and fourth quarter if the spot prices continue at the level we see today. Back to the feed factory. We opened that in June. Our plan was in July. We started to run it, obviously seen start-up problems. If not, that would be strange. On the other hand, we reached in July 2/3 capacity utilization. We got the logistic boats in a little bit late. Some delays in the shipyard, but they started to transport towards the end of July. In this factory, we have a very efficient boat. It's LNG-run.
It has maybe the highest loading capacity of raw material on land compared to any other fish feed factory in the world, and the same for gentle transport of fish feed out into the bulk vessels. We expect to break even in Q3. We are in July at 2/3 capacity and ramping up, and we see day-by-day improvement in operations. To me, this has been a big positive surprise that we managed to get it right so quick, to be honest with you. We will move on to the financials and harvest volumes, and Ivan will take that.
Thank you, Alf-Helge, and good morning, everybody. As usual, we start with the P&L. As Alf-Helge already has said one or two times, all-time high with respect to profit and turnover. Turnover NOK 6.56 billion, as against NOK 4.44 in the same quarter last year. That is equivalent to a growth of 47%. The lion's share is related to the increase in harvest volumes, but the effect of consolidation of Morpol in this quarter, which was not the case in the same quarter last year, has also an effect. Operating profit NOK 1.22 billion. Further down in the P&L, we had some substantial mark-to-market valuations this time. Please note that this is accounting adjustments. They have no cash flow effect, but it's worthwhile mentioning it still.
The biomass adjustment this time was almost NOK 1 billion, NOK 0.9 billion, which is a result of the dropping spot prices in the quarter, plus a seasonal drop in the biomass. Under net financial items, we also have a big mark-to-market valuation of the convertible bonds, somewhat above NOK 400 billion. I also would like to mention income/loss from associated companies, which is an income. That is Nova Sea. They had a great quarter also this time, NOK 14.3 in EBIT per kilo on somewhat about 8,000 tons. Once again, a very good results in Nova Sea. The underlying earning per share this time, NOK 2.05 per share. Cash flow per share NOK 5, which is the same amount as we distributed in the second quarter. Harvesting volumes, 114,000 tons this time as against 79,000 tons last time.
That's a growth of above 40%, which is very satisfactory. EBIT per kilo for the entire operation, NOK 11.1. Return on capital employed, 24%. Much about the P&L. Over to the balance sheet. The balance sheet amounts to NOK 31.7 billion. That's up from NOK 26.2 billion in the same quarter last year. This is mainly explained by the consolidation of Mowi. Equity ratio, 46%, and net interest-bearing debt over equity, 48%. Net interest-bearing debt at the end of the quarter was NOK 7.0 billion, which is NOK 0.5 billion below our net interest-bearing debt target. Over to the cash flow statement. We started the quarter at NOK 7.5 billion in net interest-bearing debt. We made an operational EBITDA of NOK 1.44 billion. Adjusted for working capital and other provisions, the cash flow from operation was NOK 1.3 billion.
We had a CapEx of NOK 334 billion, which is in line with the expectations we had and still have. We got the money from our Meridian divestment, NOK 1.2 billion. Other investments here is mainly dividend from Nova Sea, approximately NOK 70 billion, which is good. Payable interests, NOK 112 billion. Other items here is the recognition of the convertible bond we did, minus or less amortizations. Dividend distributed, almost NOK 2.5 Billion, i.e., NOK 5 per share. The translation effect this time as a result of the strengthening of the EUR versus the NOK 126 billion in minus. All in all, seven-point NOK billion, which is below our target. Bear in mind that the working capital is at its lowest at this part of the year. This is also as it should be. Over to our cash flow guidance. I mentioned the CapEx already.
We are in line with the forecast for this year, so it still stands. In terms of working capital, the same guidance. This we will tie up in the third quarter, but the lion's share is in the fourth quarter. You also have to adjust for the release in the first half of the year. Interest expenses payable run rate NOK 300 million after the refinancing. Tax payables this year, NOK 250 million. As Alf-Helge Aarskog already has said, the quarterly dividend is set at NOK 1 per share this time. Net interest-bearing target NOK 7.5 billion, which is equivalent to NOK 15 per kilo for farming. There will always be some variations due to seasonality. This time we were below. Over to our financing. We have refinanced our bank facilities this quarter at extremely satisfactory terms, both with respect to covenants and interests.
We do not have any gearing ratio covenants anymore, only equity ratio, 35%, which really gives us flexibility, both with respect to the cycle, but also with respect to take part in the consolidation we think will take place going forward, particularly in Chile. We also have an accordion option of EUR 425 million in that bank facility, which give us the flexibility I already have touched base on. The convertible bond, we have two now. I will not go into the details we have presented before. We also have a high yield bond. All in all, a fantastic financing, and I think we have raised almost 11 NOK billion over the 18 last months, which we are really satisfied with. Much about the financial figures. Over to supply and demand. We start with supply as usual.
The supply for the second quarter was high, 16% worldwide, 15% in Europe, and 16% in Americas. All the prices were down compared to the first quarter. They were at fairly decent levels. It really underlines that the demand in the first half of 2014 and particularly in the second quarter was extremely good. The harvesting volumes were somewhat above what we thought when we started the year due to a warm winter in Norway, and which has shortened the production cycle. The biological issues in Chile at the moment are also satisfactory due to, among other things, Salmosan, which has led to higher yields and higher harvesting volumes, both for Marine Harvest and for the industry as a whole. The reference prices, this is year-on-year, quite stable if you compare it to the NOK.
If you compare it to the local currency, you will see that it's down in Europe and quite stable in Americas, although that the price dropped during the 1st half year in Americas. At the moment, the price in Americas are lower than what we saw in the 2nd and not to mention in the 1st quarter. Over to demand consumption. A very good development in all markets apart from Russia/Ukraine. They are price sensitive. If you look at Asia here and combine all the figures, you will see that they have a growth of almost 30%, which is great. We also see a fantastic growth in Brazil. U.S. is okay. All in all, the demand is very satisfactory. Talking about supply and demand and not mention the Russian ban these days is not possible. This is thoroughly commented on by the industry so far.
We share more or less the same view as the rest with respect to the effect. It definitely affects the short-term salmon price. We have seen turbulence, as expected. We think that we will see a redistribution. We already see it has started, we are a part of it. In addition, the underlying demand, we think will absorb the rest. Some short-term turbulence. In medium and long term, we think this will be, I don't know if I should use the word noise, at least that we can deal with it in a proper way. We also think that we will see that the prices will start to pick up towards the end of this year. We also think that 2015 will be a good year all in all. Industry supply outlook. The 2013 figures in total are not changed much.
We are down in Norway due to the 6% regulation by the government, we are up in Chile due to the biological conditions down there, high yields, low mortality. We see that the growth we saw in the second quarter will drop year-on-year. When we look at 2015, this is Kontali figures. We see that the supply growth is quite low, 3% worldwide and 4% in Europe. In terms of going forward, we are still very confident that demand will be good and the salmon will be sold at fairly good levels. Over to our own volumes. We have guided down in Norway from 264,000- 254,000, and we are up in Chile from 60,000- 67,000 tonnes. In total, 414,000 tonnes for 2013 as against 417,000 when we started this year. Just a minor change. That was it all.
I would like to pass the word on to Alf-Helge again.
Thank you very much, Ivan. Just to reinforce the last points Ivan commented on. I think with the Russian sanctions, we'll see some turbulence, and we've seen it already. The price dropped almost immediately after the sanction were put in place. Short-term, noise, and then we see the efficiency in the sales organization, in our own sales organization, rerouting fish from Chile, from the Faroe Islands, coming up with solutions. Long-term and medium-term, this is not a big issue. In terms of what we're really happy about is that the Norwegian government has stated that they will link future growth to sustainability targets. They also stated that they will take away this average MAB, 1st of April. I think both decisions are very smart.
In terms of performance here in what we call consumer products, the combination of VAP and Morpol, we expect that in the next quarter and the next half of the year to strengthen. We also are committed, and we work hard in regards to come up with consolidation solutions both in Norway and in Chile. Especially in Chile, this is key to restructure the industry. There are some very weak players there that this is no news. There are bankrupt companies and the like. It will be very good for the Chilean operation to have fewer and stronger components in that area. Strong contract coverage going forward the next half year and also into 2014, now to 2015. The decision on distribute NOK this quarter, and we pay quarterly dividend, it has been decided. The board doesn't need AGM now to distribute dividend.
They have the proxy to do it. With that, I think we can open up for questions, and we have a person here with a mic, and Kolbjørn has already put his hand up. Please state your name and employer when you ask the question for the record.
Thank you. Kolbjørn Giskeødegård , Nordea Markets. One comment on the effects.
I don't think it's on.
It's on. One comment on the effect of the Russian sanctions. You are one of few companies that are able to actually replace volume from Norway with the volumes from Chile?
Do what we can to make the best out of our business. Marius.
Marius Gaard, Carnegie. A question related to the new MAB or maximum allowed biomass regulation. You have been against a flexible MAB, but now that the government has implemented a flexible MAB, are you going to take advantage of that opportunity? Second, the 10,000 ton reduction in Norway, is that linked to that 6% increase in the MAB so that you can push volumes from Q4- Q1?
Yes, good question. In terms of MAB and use of MAB and flexibility and so forth, driving force in Marine Harvest will always be sustainability. We will not push forward in areas where we have issues in regards to sea lice and in regards to diseases. We have some areas where we do not treat for sea lice. We have not done so in four or five years. Obviously, that can be areas where we can utilize this a little bit. In terms of the volume reduction, it is a combination of those areas where we can do flexibility and move some fish if that is necessary. It's also a result of very warm temperatures, higher harvest in the first half than planned.
In fact, because of high temperatures and lower growth that we expect going forward, especially Region South, to a certain extent, also Region West in the southern part.
Georg, ABG. In terms of lifting selling prices out your customers from your VAP units, I guess right now it's not a matter of pushing them up a lot. Say up until recently, before the price drop, have you seen any indications that they are able to absorb and willing to absorb the higher selling prices for salmon?
Yeah, it's a good question. Depends a little bit about what market you are looking into. We have seen the ability to, let's say, increase prices over time is no doubt. If you look at the French market, it's a combination of maybe the French economy and also TV documentaries or TV programs being negative in regards to salmon in France. In France, it would be hard now to lift prices, obviously, at this stage. I would say almost impossible. In other markets, I would say anything is possible. Maybe not exactly in this moment, but we've been lifting prices in most other markets over some time span. More questions?
Patrick Roquas from Rabobank. Question on your feed production. You are hitting all your targets here. When do you expect to be running at full capacity, and what is holding you back to build your second plant?
Excellent question. In terms of what's holding us back from reaching full capacity, we fine-tune this. This is a brand-new plant. We did 16,000 tonne fish feed in July. As I said, 2/3 of expected capacity. This is fine-tuning to get it right in terms of all the components to go together, and it has to do with the dryer working perfectly the way we would like it to work. Also, we have had some smaller issues. All in all, I think if you compare to any other startup of any new fish feed factory, being at that capacity in that short time is quite good. The last question was.
What is holding you back to build a second plant?
Yeah. First of all, we would like to fine-tune this one. We've said that, and we have also stated that we will look into building a second plant after this is fine-tuned and operational. It is great to have the competence and be completely done and have this plant flowing the way we want it to flow before we add on a second plant. That is something we will look into first half of 2015. We've already started to try to find locations for a second plant. More questions? If not, thank you very much for coming.