Quarterly Report • May 10, 2017
Quarterly Report
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| Main figures 1) | Q1 2017 | Q1 2016 | 2016 |
|---|---|---|---|
| EUR million | |||
| 2) Operational revenue |
892.0 | 809.5 | 3 509.8 |
| Operational EBITDA 3) | 256.8 | 147.7 | 842.7 |
| Operational EBIT 3) | 219.8 | 111.9 | 700.2 |
| EBIT | 88.3 | 192.7 | 991.2 |
| Net financial items | 136.5 | -28.4 | -232.0 |
| Profit or loss for the period | 212.4 | 128.0 | 539.3 |
| Cash flow from operations | 247.8 | 150.1 | 693.2 |
| Total assets | 4 491.1 | 4 253.5 | 4 810.4 |
| NIBD 4) | 842.0 | 960.1 | 890.0 |
| Basic EPS (EUR) | 0.47 | 0.28 | 1.20 |
| Underlying EPS (EUR) 5) | 0.36 | 0.18 | 1.13 |
| Net cash flow per share (EUR) 6) | 0.39 | 0.21 | 1.23 |
| Dividend declared and paid per share (NOK) | 2.80 | 1.40 | 8.60 |
| ROCE 7) | 33.7% | 18.1% | 28.1% |
| Equity ratio | 47.9% | 45.9% | 43.0% |
| Adjusted equity ratio 8) | 45.1% | 43.8% | 40.1% |
| Harvest volume (GWE, salmon) | 83 768 | 96 613 | 380 621 |
| Operational EBIT per kg (EUR) - Total 9) | 2.62 | 1.16 | 1.84 |
| Norway | 2.52 | 1.87 | 2.18 |
| Scotland | 3.12 | 0.68 | 0.91 |
| Canada | 3.42 | 1.97 | 2.53 |
| Chile | 1.87 | -1.55 | 0.11 |
1) This interim report is unaudited. Please refer to the Annual Report (part 4) and appendix to this quarterly report (available on-line) for detailed descriptions and reconciliations of Alternative Performance Measures (non-IFRS measures).
2) Operational revenue: Revenue and other income, including realized gain/loss from currency derivatives related to contract sales of Norwegian origin, and excluding change in unrealized salmon derivatives.
3) Calculated by excluding the following items from financial EBITDA/EBIT: Change in unrealized internal margin, change in unrealized gains/losses from salmon derivatives, net fair value adjustment on biomass, onerous contract provisions, restructuring costs, income from associated companies, impairment losses of fixed assets/intangibles and other non-operational items. Operational EBIT also includes realized gain/loss from currency derivatives related to contract sales of Norwegian origin. A reconciliation between Operational EBIT and financial EBIT is provided on the next page, and we also refer to the appendix to this quarterly report (available on-line) for further information. The largest individual difference between Operational EBIT and financial EBIT is the net fair value adjustment on biomass according to IFRS (and the
related onerous contracts provision), which is a volatile figure impacted by estimates of future salmon prices as well as other estimates. 4) NIBD: Total non-current interest-bearing debt, minus total cash, plus current interest-bearing debt and plus net effect of currency derivatives on interest-bearing debt. 5) Underlying EPS: Operational EBIT adjusted for accrued interest payable, with estimated weighted tax rate - per share.
6) Net cash flow per share: Cash flow from operations and investments, net financial items paid and realized currency effects - per share.
7) ROCE: Annualized return on average capital employed based on EBIT excluding net fair value adjustment on biomass, onerous contract provisions and other nonoperational items / Average NIBD + Equity, excluding net fair value adjustment on biomass, onerous contract provisions and net assets held for sale, unless there are material transactions in the period.
8) Adjusted equity ratio: Calculated by excluding net fair value adjustment on biomass and onerous contracts provision (both net after tax) from equity, and net fair value adjustment on biomass from sum of equity and liabilities.
9) Operational EBIT per kg including allocated margin from Feed and Sales and Marketing.
The Group's profits hinges on its ability to provide customer value from healthy, tasty and nutritious seafood, farmed both cost effectively and in an environmentally sustainable way that maintains a good aquatic environment and respects the needs of the wider society.
(Figures in parenthesis refer to the same quarter in 2016.)
| (EUR million) | Q1 2017 | Q1 2016 |
|---|---|---|
| Operational EBIT | 219.8 | 111.9 |
| Change in unrealized margin | -1.8 | 3.0 |
| Gain/loss from derivatives | -6.3 | -3.8 |
| Net fair value adjustment on biomass including onerous contracts |
-122.5 | 73.9 |
| Restructuring costs | -0.2 | -2.5 |
| Income from associated companies | -0.1 | 10.3 |
| Impairment losses on fixed assets/intangibles | -0.6 | -0.1 |
| EBIT | 88.3 | 192.7 |
Operational EBIT amounted to EUR 219.8 million in the quarter (EUR 111.9 million) on the back of record high achieved prices. The contribution from Feed was EUR 0.1 million (EUR 1.6 million), and Farming contributed EUR 204.7 million (EUR 90.4 million). Markets contributed EUR 13.3 million (EUR 18.6 million) and Consumer Products contributed EUR 9.6 million (EUR -0.6 million).
Operational EBIT of EUR 219.8 millionin the period was negatively impacted by exceptional items in the amount of EUR 25.2 million (refer to Note 6).
Earnings before financial items and taxes (EBIT) came to EUR 88.3 million (EUR 192.7 million). EBIT includes a net fair value adjustment on biomass including onerous contracts of EUR -122.5 million (EUR 73.9 million), mainly due to drop in salmon forward prices.
| (EUR million) | Q1 2017 | Q1 2016 |
|---|---|---|
| Interest expenses | -11.9 | -11.9 |
| Net currency effects | 1.1 | -1.0 |
| Other financial items | 147.3 | -15.5 |
| Net financial items | 136.5 | -28.4 |
Other financial items include an decrease in the fair value of the conversion liability component of the convertible bond of EUR 143.6 million due to the reduction of the Marine Harvest share price, and positive change in fair value of other financial instruments of EUR 5.3 million.
| (EUR million) | Q1 2017 | Q1 2016 |
|---|---|---|
| NIBD beginning of period | -890.0 | -999.7 |
| Operational EBITDA | 256.8 | 147.7 |
| Change in working capital | 59.6 | 34.5 |
| Taxes paid | -59.7 | -26.0 |
| Other adjustments | -8.9 | -6.2 |
| Cash flow from operations | 247.8 | 150.1 |
| Net Capex | -57.0 | -41.0 |
| Other investments | -10.0 | -0.8 |
| Cash flow to investments | -67.0 | -41.8 |
| Net interest and financial items paid | -4.7 | -4.7 |
| Other items | -10.0 | -12.4 |
| Convertible bonds converted | 21.1 | 0.0 |
| Dividend / return of paid in capital | -142.8 | -67.0 |
| Translation effect on interest-bearing debt | 3.6 | 15.4 |
| NIBD end of period | -842.0 | -960.1 |
Cash flow from operations amounted to EUR 247.8 million (EUR 150.1 million). The first quarter saw a seasonal release of net working capital, offset by tax payments.
Net Capex was EUR 57.0 million (EUR 41.0 million). Investments related to the new feed factory in Scotland, as well as fresh water expansions in our farming regions, are the main drivers behind the increased Capex compared to the first quarter of 2016. Other investments includes payment of EUR 12.1 million related to the purchase of farming assets on the East Coast of Canada (refer to Note 13), partly offset by contributions from associated companies.
A quarterly dividend of EUR 142.8 million (EUR 67.0 million), as announced in the report for the fourth quarter of 2016, has been distributed as repayment of paid in capital.
| GUIDING PRINCIPLE | AMBITION | ACHIEVEMENT |
|---|---|---|
| Profitability | ROCE exceeding 12% | Q1 33.7% |
| YTD 33.7% |
||
| Solidity | Long term NIBD target: | March 31, 2017 |
| EUR 1 050 million | EUR 842 million | |
| Farming NIBD / kg EUR 1.8 | Farming NIBD / kg EUR 1.3 |
| Feed | Farming | Sales and Marketing | Other | Group 1) | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Markets | Consumer Products |
|||||||||||
| EUR million | Q1 2017 |
Q1 2016 |
Q1 2017 |
Q1 2016 |
Q1 2017 |
Q1 2016 |
Q1 2017 |
Q1 2016 |
Q1 2017 |
Q1 2016 |
Q1 2017 | Q1 2016 |
| External revenue | 5.0 | 2.0 | 7.6 | 23.3 | 543.7 | 463.8 | 335.6 | 318.6 | 0.0 | 1.8 | 892.0 | 809.5 |
| Internal revenue | 58.5 | 62.5 | 564.3 | 486.4 | 145.7 | 146.3 | 5.7 | 8.7 | 5.2 | 5.4 | 0.0 | 0.0 |
| Operational revenue | 63.6 | 64.5 | 571.9 | 509.7 | 689.4 | 610.0 | 341.3 | 327.3 | 5.2 | 7.2 | 892.0 | 809.5 |
| Operational EBIT | 0.1 | 1.6 | 204.7 | 90.4 | 13.3 | 18.6 | 9.6 | -0.6 | -8.0 | 1.9 | 219.8 | 111.9 |
| Change in unrealized margin | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -1.8 | 3.0 |
| Gain/loss from derivatives | 0.0 | 0.0 | 39.7 | -3.5 | 0.4 | 0.0 | -39.9 | 3.5 | -6.4 | -3.8 | -6.3 | -3.8 |
| Net fair value adjustment on biomass, onerous contract provisions |
1.4 | -0.3 | -123.9 | 75.7 | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -1.5 | -122.5 | 73.9 |
| Restructuring costs | 0.0 | 0.0 | 0.0 | -2.5 | -0.1 | 0.0 | 0.0 | 0.0 | -0.1 | 0.0 | -0.2 | -2.5 |
| Income from associated companies | 0.0 | 0.0 | 0.0 | 10.3 | 0.0 | 0.0 | 0.0 | 0.0 | -0.1 | 0.0 | -0.1 | 10.3 |
| Impairment losses of fixed assets | 0.0 | 0.0 | -0.6 | 0.0 | 0.0 | 0.0 | 0.0 | -0.1 | 0.0 | 0.0 | -0.6 | -0.1 |
| EBIT | 1.5 | 1.3 | 120.0 | 170.4 | 13.5 | 18.6 | -30.3 | 2.8 | -14.6 | -3.3 | 88.3 | 192.7 |
| Operational EBIT % | 0.2% | 2.5% | 35.8% | 17.7% | 1.9% | 3.0% | 2.8% | -0.2% | na | na | 24.6% | 13.8% |
1) Group adjusted for eliminations.
Marine Harvest monitors the overall value creation of the operations based on the salmon's source of origin. For this reason Operational EBIT related to our Feed and Sales and Marketing operations is allocated back to the country of origin. The table below and upcoming performance review provide information consistent with the value creation methodology.
Other units reported Operational EBIT of EUR -8.0 million in the quarter (EUR 1.9 million). The currency effects of foreign currency purchases against EUR are recognized as income/cost of EUR 2.6 million in Marine Harvest Markets Norway and Marine Harvest ASA respectively (in the first quarter of 2016, the corresponding effect was EUR -5.3 million).
| SOURCES OF ORIGIN | ||||||||
|---|---|---|---|---|---|---|---|---|
| EUR million | Norway | Scotland | Canada | Chile | Ireland | Faroes | Other | Group |
| OPERATIONAL EBIT | ||||||||
| Farming | 108.9 | 50.2 | 28.7 | 10.9 | 0.8 | 5.1 | 204.7 | |
| Sales and Marketing | ||||||||
| Markets | 7.1 | 3.8 | 1.5 | 0.9 | 0.0 | 0.0 | 0.0 | 13.3 |
| Consumer Products | 7.5 | 1.4 | 0.0 | 0.0 | 0.1 | 0.0 | 0.6 | 9.6 |
| Subtotal | 123.5 | 55.4 | 30.2 | 11.9 | 0.9 | 5.2 | 0.6 | 227.7 |
| Feed | 0.1 | 0.1 | ||||||
| Other entities 1) | -8.0 | -8.0 | ||||||
| Total | 123.6 | 55.4 | 30.2 | 11.9 | 0.9 | 5.2 | -7.4 | 219.8 |
| Harvest volume (GWE, salmon) | 49 026 | 17 772 | 8 852 | 6 336 | 633 | 1 148 | 83 768 | |
| Operational EBIT per kg (EUR) 2) | 2.52 | 3.12 | 3.42 | 1.87 | 1.48 | 4.51 | 2.62 | |
| - of which Feed | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | |
| - of which Markets | 0.14 | 0.21 | 0.17 | 0.14 | 0.00 | 0.00 | 0.16 | |
| - of which Consumer Products | 0.15 | 0.08 | 0.00 | 0.00 | 0.17 | 0.02 | 0.11 | |
| ANALYTICAL DATA | ||||||||
| Price achievement/reference price (%) 3) | 93% | 97% | 99% | 91% | na | 100% | 95% | |
| Contract share (%) | 54% | 41% | 0% | 25% | 86% | 5% | 43% | |
| Quality - superior share (%) | 94% | 96% | 89% | 88% | 85% | 84% | 93% | |
| Exceptional items incl in Operational EBIT | -22.8 | -0.7 | 0.0 | -1.4 | -0.2 | 0.0 | -25.2 | |
| Exceptional items per kg (EUR) | -0.47 | -0.04 | 0.00 | -0.22 | -0.38 | 0.00 | -0.30 | |
| GUIDANCE | ||||||||
| Q2 2017 harvest volume (GWE) | 45 000 | 16 500 | 9 000 | 9 000 | 3 500 | — | 83 000 | |
| 2017 harvest volume (GWE) | 242 000 | 58 500 | 42 000 | 45 000 | 9 500 | 6 000 | 403 000 | |
| Q2 2017 contract share (%) | 57% | 43% | 0% | 31% | 75% | 0% | 46% |
1) Corporate and Holding companies
2) Including Corporate and Holding companies
3) Sales and Marketing Price achievement
Continued strong demand and a decline in global supply resulted in record high salmon prices in the quarter. The salmon price increased significantly year over year in all markets.
Global harvest of Atlantic salmon amounted to 470 600 tonnes in the first quarter, a decrease of 4% compared to the same quarter in 2016. Despite the reduced harvesting in Chile as a result of the algal bloom in 2016, the global reduction in harvesting was slightly less than expected. The main driver for this was more harvesting than expected from Norway.
| Supply | Q1 2017 | Change vs | 12 month | Q4 2016 |
|---|---|---|---|---|
| Tonnes GWE | Q1 2016 | change | Tonnes GWE | |
| Norway | 249 700 | 2.5% | -3.2% | 289 500 |
| Scotland | 33 900 | 0.6% | -8.5% | 36 600 |
| Faroe Islands | 14 900 | -11.8% | -6.8% | 20 100 |
| Ireland | 3 300 | 13.8% | -9.2% | 3 800 |
| Total Europe | 301 800 | 1.5% | -4.1% | 350 000 |
| Chile | 119 500 | -17.1% | -21.8% | 115 700 |
| North America | 31 600 | -5.1% | 1.8% | 37 200 |
| Total Americas | 151 100 | -14.9% | -16.9% | 152 900 |
| Australia | 13 000 | 7.4% | -6.0% | 11 400 |
| Other | 4 700 | 9.3% | 10.8% | 4 100 |
| Total | 470 600 | -4.2% | -8.2% | 518 400 |
Supply from Norway increased by 2.5% compared to the first quarter of 2016. The increase was more than expected and mainly driven by biological challenges in relation to sea lice and PD. Early harvesting of fish resulted in more fish being made available in the market. Notwithstanding the early harvesting, average weights have increased slightly as biomass growth has been better than expected. This is also evident from growth in total feed sales in the quarter.
Scottish volumes were approximately unchanged compared to the same period last year which was slightly less than expected. Scotland harvested an increased share of large sized fish in the quarter. Volumes from the Faroe Islands declined by 12% in the quarter compared to the same quarter in 2016 as early harvesting in relation to ISA materialized in the quarter.
Volumes from Chile decreased by 17% compared to the first quarter of 2016. The reduction was driven by the algal bloom in March 2016. However, the decline was less than expected as a higher number of fish was harvested. This has somewhat reduced the biomass available for harvesting throughout the remainder of 2017.
In North America volumes were approximately unchanged compared to the first quarter in 2016. This was in line with expectations. Supply originating from Canada continues to be relatively stable.
| Q1 2017 | Change vs | Q1 2017 | Change vs | |
|---|---|---|---|---|
| Reference prices | Market | Q1 2016 | NOK | Q1 2016 |
| 1) Norway |
EUR 7.27 | 18.2% | NOK 65.32 | 11.5% |
| Chile 2) | USD 6.18 | 43.8% | NOK 52.13 | 40.7% |
| Chile, GWE 3) | USD 7.45 | 59.9% | NOK 62.87 | 56.4% |
| North America 4) | USD 4.03 | 37.8% | NOK 34.00 | 34.8% |
| North America GWE 3) | USD 8.41 | 44.5% | NOK 70.97 | 41.4% |
1) NASDAQ average superior GWE/kg (gutted weight equivalent)
2) Urner Barry average D trim 3-4 lbs FOB Miami
3) Reference price converted back-to-plant equivalent in GWE/kg 4) Urner Barry average GWE 10-12 lbs FOB Seattle
In the market currency, EUR, prices in Europe increased by 18% compared to the first quarter of 2016. Salmon prices increased by 44% in Miami and 38% in Seattle in USD terms.
| Market | Q1 2017 | Change vs | 12 month |
|---|---|---|---|
| distribution | Tonnes GWE | Q1 2016 | change |
| EU | 206 400 | -8.1% | -5.3% |
| Russia | 13 300 | -28.9% | -35.3% |
| Other Europe | 18 400 | 5.1% | -8.7% |
| Total Europe | 238 100 | -8.7% | -8.0% |
| US | 98 100 | -4.8% | -5.2% |
| Brazil | 20 400 | -26.1% | -23.1% |
| Other Americas | 25 400 | 6.3% | -4.3% |
| Total Americas | 143 900 | -6.9% | -8.0% |
| China/Hong Kong | 17 400 | -13.4% | -3.2% |
| Japan | 13 900 | -6.1% | -0.7% |
| South Korea / Taiwan | 10 300 | -6.4% | -12.3% |
| Other Asia | 20 900 | 11.8% | 0.4% |
| Total Asia | 62 500 | -3.3% | -3.3% |
| All other markets | 27 300 | 7.9% | 2.6% |
| Total | 471 800 | -6.6% | -6.9% |
Global consumption declined by 7% in the first quarter compared with the same period in 2016. The overall consumption of salmon was approximately the same as the volumes harvested, hence inventory changes in the quarter were limited.
Reduced supply has negatively impacted salmon consumption in the quarter in all main markets. In value terms, however, demand is higher than ever.
Consumption in the EU in value terms was up by approximately 10% year over year. Particularly, the Benelux markets developed favorably in the quarter. France, on the other hand, continues to be challenging. In Russia, consumption decreased by 29% compared to the first quarter of 2016, primarily as sourcing from Chile and Faroe Islands is directed towards the higher paying fresh European and US market.
US consumption decreased by 5% compared to the same quarter in 2016. The decline continues to be less than the reduction in supply from Chile and Canada as producers in those countries prioritize selling into the US market. A significant increase in imports of large sized fish from Europe materialized in the quarter. In value terms the US market grows and develops favorably. In Brazil, consumption declined by 26% compared to the same quarter in 2016. The lack of available Chilean salmon continues to constrain the volumes available for the Brazilian restaurant market.
Consumption in the Asian market developed favorably in the quarter as exports from Europe to Asia has on a relative basis increased compared to other markets. Large sized fresh whole salmon in particular has driven the increased trade flow.
Source: Kontali and Marine Harvest
Total salmon revenues in the first quarter were distributed as shown in the graph below. Europe is by far the largest market for Marine Harvest's salmon with 68% of the total revenues (69%). France, Germany and UK are the main markets for our products. As a result of the ban on the import of salmon from most European production countries, our sales to Russia originate from the Faroe Islands and Chile.
The Group's main species is Atlantic salmon. The sales revenue distribution across products was as follows in the first quarter:
Fresh whole salmon represented 44% of total sales revenues (40%), while fresh smoked salmon and fresh and frozen elaborated salmon together accounted for 44% (48%). The share of smoked and elaborated products decreased compared to the first quarter of 2016.
In the first quarter we continued our efforts to further develop existing brands. We are pleased to announce that the organizers of the Brussels Seafood Excellence Global Awards 2017 chose eight of Marine Harvest's products as finalists in the competition for best retail product and best food service industry product. Thus, Marine Harvest was the leading seafood company in the competition.
In the US, our Ducktrap smoked seafood facility continues to expand its business and strengthen its market position as a leader in the US smoked seafood category. The Ducktrap brand remains a trusted, well-recognized and preferred brand among discerning customers and chefs in the US, with 4% volume growth in the first quarter of 2017 compared to the first quarter of 2016.
Prices in all markets were significantly higher than in the first quarter of 2016 due to strong demand and lower volumes available for harvest.
Price achieved by the farming units in Norway, Scotland, Canada, Chile and Faroes.
The global reference price was 28% higher in the first quarter of 2017 compared to the first quarter of 2016. The combined global price achieved was 5% below the reference price in the period. In the first quarter of 2016, the global price achieved was 10% below the reference price. The contribution from contracts relative to the reference price was negative in the first quarter of both 2016 and 2017, but the relative effect was larger in 2016.
| Markets | ||||
|---|---|---|---|---|
| Q1 2017 | Norwegian | Scottish | Canadian | Chilean |
| Contract share | 54% | 41% | 0% | 25% |
| Quality - superior share | 94% | 96% | 89% | 88% |
| Price achievement | 93% | 97% | 99% | 91% |
Average price achievement is measured against reference prices in all markets (NASDAQ for Norwegian, Scottish and Faroese salmon, and Urner Barry for Chilean and Canadian salmon).
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operational EBIT | 123.6 | 100.9 |
| EBIT | 63.5 | 114.3 |
| Harvest volume (GWE) | 49 026 | 53 984 |
| Operational EBIT per kg (EUR) | 2.52 | 1.87 |
| - of which Feed | 0.00 | 0.03 |
| - of which Markets | 0.14 | 0.16 |
| - of which Consumer Products | 0.15 | 0.11 |
| Exceptional items incl in op. EBIT | -22.8 | -18.1 |
| Exceptional items per kg (EUR) | -0.47 | -0.34 |
| Price achievement/reference price | 93% | 88% |
| Contract share | 54% | 55% |
| Superior share | 94% | 93% |
Operational EBIT amounted to EUR 123.6 million (EUR 100.9 million) in the first quarter, the equivalent of EUR 2.52 per kg (EUR 1.87). The profitability of the four Norwegian regions varied significantly, with EUR 0.90 per kg separating the highest performing region (Region South) from the lowest performing region (Region North).
Financial EBIT amounted to EUR 63.5 million (EUR 114.3 million).
All-time high salmon price is the main contributor to the strong earnings in the first quarter. However, contracts and cost increases driven by higher feed and lice mitigation costs partially offset the effect of significantly higher spot prices. Exceptional items related to mortality and lice mitigation negatively impacted Operational EBIT by EUR 22.8 million in the first quarter (EUR 18.1 million).
The reference price for Salmon of Norwegian origin increased by 18% compared to the first quarter of 2016 due to strong demand and lower supply. The average reference price in the first quarter was EUR 7.27 per kg.
Marine Harvest had a contract share of 54% for salmon of Norwegian origin in the first quarter, compared to 55% in the first quarter of 2016.
The overall price achieved was 7% below the reference price in the quarter (12% below). Average contract prices improved in the quarter, but were still not at the same level as spot prices in the period. The superior share was 94% (93%).
Harvested volume in the first quarter was 49 026 tonnes gutted weight (53 984 tonnes gutted weight). The harvest volume was lower than in the comparable quarter last year. This is due to lower production following biological challenges, as well as lower opening biomass.
The cost level increased in Regions West, Mid and North compared to the first quarter of 2016, but decreased in Region South. The biological cost 1) of harvested fish increased by 15% compared to the first quarter of 2016.
The cost of feed per kg harvested salmon was up by 13% compared to the corresponding quarter in 2016 as a result of increased feed conversion ratios and increased feed prices. Feed conversion ratios have been negatively impacted by reduced feeding appetite following mechanical lice treatments.
As in previous periods, sea lice mitigation costs have been high for the harvested generation. The health cost per kg salmon harvested in the first quarter of 2017 increased by 10% compared to the corresponding quarter in 2016. However, the health cost per kg decreased by 10% from the all-time high level in the fourth quarter of 2016, and sea lice levels were reduced or stable compared to the first quarter of 2016 in all regions. Nevertheless, the primary challenge for the Norwegian farming operations continues to be sea lice, and substantial effort is devoted to mitigating and resolving this challenge.
The estimated exceptional cost related to sea lice mitigation amounted to EUR 17.0 million (EUR 15.5 million) in the first quarter of 2017. Per kg harvested, exceptional sea lice mitigation costs amounted to EUR 0.35 (EUR 0.32) in the quarter.
Incident based mortality losses in the amount of EUR 5.8 million have been recognized in the quarter, mainly caused by gill issues and CMS. Losses from incident-based mortality in the first quarter of 2016 amounted to EUR 2.6 million, of which EUR 1.7 million was related to sea lice.
______ _______________________________________________ ________________
1) As defined in the Annual Report, section "Analytical information". Total of feed cost and other seawater costs, before transportation to the processing plant.
| Regions | South | West | Mid | North | Total |
|---|---|---|---|---|---|
| EUR million | Q1 2017 | Q1 2017 | Q1 2017 | Q1 2017 | Q1 2017 |
| Operational EBIT | 39.1 | 33.3 | 38.1 | 13.2 | 123.6 |
| Harvest volume (GWE) |
13 052 | 12 162 | 17 494 | 6 318 | 49 026 |
| Operational EBIT per kg (EUR) |
2.99 | 2.74 | 2.18 | 2.09 | 2.52 |
| Superior share | 96% | 94% | 93% | 92% | 94% |
| Regions | South | West | Mid | North | Total |
| EUR million | Q1 2016 | Q1 2016 | Q1 2016 | Q1 2016 | Q1 2016 |
| Operational EBIT | 17.2 | 38.1 | 14.1 | 31.6 | 100.9 |
| Harvest volume |
(GWE) 11 189 18 544 9 055 15 196 53 984
per kg (EUR) 1.54 2.06 1.56 2.08 1.87
Superior share 94% 94% 93% 92% 93%
Operational EBIT
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operational EBIT | 55.4 | 8.5 |
| EBIT | 18.0 | 11.9 |
| Harvest volume (GWE) | 17 772 | 12 620 |
| Operational EBIT per kg (EUR) | 3.12 | 0.68 |
| - of which Markets | 0.21 | 0.29 |
| - of which Consumer Products | 0.08 | -0.53 |
| Exceptional items incl in op. EBIT | -0.7 | 0.2 |
| Exceptional items per kg (EUR) | -0.04 | 0.01 |
| Price achievement/reference price | 97% | 85% |
| Contract share | 41% | 59% |
| Superior share | 96% | 92% |
Operational EBIT amounted to EUR 55.4 millionin the first quarter (EUR 8.5 million), the equivalent of EUR 3.12 per kg (EUR 0.68). The record high results in the quarter is due to strong prices, increased harvest volume and harvesting from good performing sites. In the comparable quarter of 2016, Operational EBIT was negatively impacted by allocated losses of EUR 6.8 million from the Rosyth processing plant. This plant was profit-making in the first quarter of 2017.
Financial EBIT amounted to EUR 18.0 million (EUR 11.9 million).
The reference price in local currency was up by approximately 33% in the first quarter of 2017 compared to the first quarter of 2016. The price level reflects strong demand and reduced supply of salmon of Scottish origin following health issues in 2016.
The overall price achieved was 3% below the reference price in the quarter (15% below). The relative improvement in price achievement is mainly due to improved margin on sales from the Rosyth processing plant, which was loss-making in the first quarter of 2016. Compared to spot prices, contracts impacted the price achievement negatively for the first quarter of both 2017 and 2016.
The first quarter harvest volume was 17 772tonnes gutted weight which is an increase from the corresponding quarter in 2016 (12 620 tonnes) due to higher average weight and hence more biomass in sea at the start of the year, combined with strong production and improved fish health.
The cost level per kg harvested decreased in the first quarter of 2017 compared to the first quarter 2016, due to harvesting from good performing sites and scale effects from increased volumes.
Biological costs per kg decreased by 4% in the first quarter of 2017 compared to the corresponding quarter of 2016. The cost of feed per kg harvested salmon was up by 1% compared to the corresponding quarter of 2016 as a result of increased feed prices. Other seawater costs decreased by 10% due to improved biology and scale effects from increased volumes. The level of sea lice was reduced compared to the first quarter of 2016.
Non-seawater costs per kg have increased compared to the first quarter of 2016, mainly due to incident-based mortality. In the first quarter of 2017, incident-based mortality of EUR 0.7 million was recognized due to CMS at two sites. In the comparable quarter, net effect from incident-based mortality was positive due to effect from insurance on prior incidents.
As a result of improved biology, growth performance has been favorable in the quarter. The company will continue to have a strong focus on feeding and improved growth in order to further streamline and optimize its operations.
As we were harvesting from good performing sites in the first quarter, the cost level is expected to increase going forward.
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operational EBIT | 30.2 | 22.8 |
| EBIT | 12.8 | 48.8 |
| Harvest volume (GWE) | 8 852 | 11 551 |
| Operational EBIT per kg (EUR) | 3.42 | 1.97 |
| - of which Markets | 0.17 | 0.27 |
| - of which Consumer Products | 0.00 | 0.00 |
| Exceptional items incl in op. EBIT | 0.0 | 0.0 |
| Exceptional items per kg (EUR) | 0.00 | 0.00 |
| Price achievement/reference price | 99% | 101% |
| Contract share | 0% | 0% |
| Superior share | 89% | 88% |
Operational EBIT amounted to EUR 30.2 millionin the first quarter (EUR 22.8 million), the equivalent of EUR 3.42 per kg (EUR 1.97). The increase in Operational EBIT compared to the first quarter of 2016 is mainly due to improved spot market prices.
Financial EBIT amounted to EUR 12.8 million (EUR 48.8 million).
Market prices for fresh whole Canadian salmon remained strong in the first quarter on continued high demand. However, there has been downward pressure on prices due to increased European export into the North American market.
The average price per lb gutted weight (Urner Barry 10-12 lb) was USD 4.03 per lb, which is an increase of 38% from the first quarter of 2016.
Price achievement in the first quarter was 1% below the reference price (1% above in the first quarter of 2016). There were no contracts for salmon of Canadian origin in the first quarter of 2017 or 2016. The superior share was 89% in the quarter (88%).
Harvested volume was 8 852 tonnes gutted weight in the first quarter, a decrease from the comparable quarter last year (11 551 tonnes). The decrease is mainly due to lower opening biomass in sea.
The cost level in the first quarter of 2017 was higher than in the comparable quarter of 2016. Biological costs per kg salmon harvested in the quarter increased by 13% compared to the first quarter of 2016. The cost of feed per kg harvested salmon was up by 6% compared to the corresponding quarter in 2016 as a result of increased feed prices and increased feed conversion ratio. Other seawater costs increased by 21%, mainly due to negative scale effects from decreased volumes.
Production has been somewhat lower than in the first quarter of 2016, due to lower opening biomass in sea, and colder than usual temperatures. Improved operational practices have shortened the life cycles and given a slightly different harvest pattern.
No incident-based mortality has been recognized in the first quarter of 2017 or 2016.
Marine Harvest Atlantic Canada has been established In the first quarter of 2017, Marine Harvest completed the transaction related to purchase of farming assets on the East Coast of Canada. The assets were acquired from the Receiver of the Gray Aqua Group. Marine Harvest is currently working on staffing the newly established Marine Harvest Atlantic Canada organization, and is preparing a production plan and an investment framework.
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operational EBIT | 11.9 | -23.9 |
| EBIT | 31.4 | 8.7 |
| Harvest volume (GWE) | 6 336 | 15 384 |
| Operational EBIT per kg (EUR) | 1.87 | -1.55 |
| - of which Markets | 0.14 | 0.21 |
| - of which Consumer Products | 0.00 | 0.00 |
| Exceptional items incl in op. EBIT | -1.4 | -9.5 |
| Exceptional items per kg (EUR) | -0.22 | -0.62 |
| Price achievement/reference price | 91% | 95% |
| Contract share | 25% | 9% |
| Superior share | 88% | 87% |
Operational EBIT amounted to EUR 11.9 millionin the first quarter (EUR -23.9 million), the equivalent of EUR 1.87 per kg (EUR -1.55). A strong price increase compared to the first quarter of 2016 is the main driver behind the increased results. In addition, the cost level has improved, as costs in the first quarter of 2016 were heavily impacted by the algal bloom in region X. Significantly reduced harvest volumes following the algal bloom is also the main driver behind the price increase.
Financial EBIT amounted to EUR 31.4 million (EUR 8.7 million).
The Urner Barry reference price for Chilean salmon was up by 44% compared to the first quarter of 2016. This is mainly a result of strong demand and lower harvesting volumes in the industry following the algal bloom. The average price per lb fillet in the quarter (Urner Barry D-trim 3-4 lb) was USD 6.18.
North America remains the most important market for salmon of Chilean origin. Shortage of Chilean salmon in general has been a key driver of prices to record-high levels.
Price achievement for Chilean salmon was 9% below the reference price in the quarter. Price achievement was negatively impacted by maturity issues detected in three sites.
The contract share was 25% in the quarter, compared to 9% in the first quarter of 2016.
Harvested volume was 6 336 tonnes gutted weight in the first quarter (15 384 tonnes). The significant reduction is a result of the algal bloom.
Operational cost in box was USD 5.38 per kg (USD 5.30 per kg in the first quarter of 2016, adjusted for exceptional items related to the algal bloom).
Incident based mortality losses in the amount of EUR 1.4 million were recognized in the first quarter, mainly related to a low-scale algal bloom and SRS. In the first quarter of 2016, EUR 9.5 million was recognized related to incident based mortality, mainly caused by the algal bloom.
As described in previous quarters, the recent complex regulatory changes for fish farming in Chile are expected to contribute to an increase of the cost level going forward. Price achievement in the second quarter is expected to be negatively impacted by maturity issues at some sites.
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operational EBIT | 0.9 | -2.6 |
| EBIT | 13.4 | -1.4 |
| Harvest volume (GWE) | 633 | 1 410 |
| Operational EBIT per kg (EUR) | 1.48 | -1.84 |
| - of which Markets | 0.00 | 0.03 |
| - of which Consumer Products | 0.17 | 0.00 |
| Exceptional items incl in op. EBIT | -0.2 | -1.8 |
| Exceptional items per kg (EUR) | -0.38 | -1.25 |
| Price achievement/reference price | na | na |
| Contract share | 86% | 84% |
| Superior share | 85% | 87% |
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operational EBIT | 5.2 | 3.9 |
| EBIT | 3.2 | 8.0 |
| Harvest volume (GWE) | 1 148 | 1 664 |
| Operational EBIT per kg (EUR) | 4.51 | 2.34 |
| - of which Markets | 0.00 | 0.05 |
| - of which Consumer Products | 0.02 | 0.00 |
| Exceptional items incl in op. EBIT | 0.0 | -0.2 |
| Exceptional items per kg (EUR) | 0.00 | -0.15 |
| Price achievement/reference price | 100% | 105% |
| Contract share | 5% | 0% |
| Superior share | 84% | 86% |
Operational EBIT amounted to EUR 0.9 million in the first quarter (EUR -2.6 million), which was EUR 1.48 per kg (EUR -1.84 per kg). Achieved prices were 19% higher in the first quarter of 2017 than in the first quarter of 2016, and 17% higher than in the fourth quarter of 2016.
Financial EBIT amounted to EUR 13.4 million (EUR -1.4 million).
Operational costs have been reduced by 22% in the first quarter of 2017 compared to the first quarter of 2016. The cost reduction is caused by lower biological costs, partially offset by higher indirect costs due to scale effects. In addition incident based mortality in the first quarter of 2016 negatively impacted the operational cost by 0.9 EUR/kg compared to the first quarter of 2017.
Incident-based mortality of EUR 0.2 million has been recognized in the quarter, an improvement from the EUR 1.8 million recognized in the first quarter of 2016.
Harvest volume was 633 tonnes gutted weight, which is somewhat lower than in the comparable quarter of 2016 (1 410 tonnes). Harvesting has been slowed down in the first quarter in order to increase harvest weights and volumes in later quarters.
Operational EBIT amounted to EUR 5.2 million (EUR 3.9 million), which was EUR 4.51 per kg (EUR 2.34 per kg). There were no incident based mortality in the Faroe Islands operations in the first quarter of 2017.
Financial EBIT amounted to EUR 3.2 million (EUR 8.0 million).
Operational costs are down by 11% compared to the first quarter of 2016, partially offset by negative scale effects due to decreased harvest volume and effects of high mortality in December 2016. Our Faroese operations are subject to a two year cycle resulting in alternating years with high and low volume. As a consequence, there will be no harvesting from February to September in 2017. As a result of good growth in the generation to be harvested in the fall of 2017, the estimated harvest volume has been increased compared to the guidance from the fourth quarter.
In 2016, a 4.5% fee on harvesting revenue was applied by the authorities in the Faroe Islands. In the first quarter of 2017, the fee negatively impacted Operational EBIT by EUR 0.4 million (EUR 0.5 million).
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operating revenues | 341.3 | 327.3 |
| Operational EBIT 1) Operational EBIT % EBIT 2) |
9.6 2.8% 9.1 |
-0.6 -0.2% -0.3 |
| Volume sold (tonnes product weight) | 26 538 | 30 099 |
| Exceptional items | 0.0 | 0.0 |
| Volume share salmon Revenue share salmon |
73% 80% |
75% 79% |
1) Operational EBIT for salmon in Consumer Products is also included in the results per country of origin.
2) After elimination of unrealized gain on group-internal hedging contracts.
Operational EBIT for Consumer Products was EUR 9.6 million(EUR -0.6 million). Earnings have improved by EUR 10.2 million compared to the first quarter of 2016, of which EUR 8.6 million is related to improved results of the Rosyth plant. The Operational EBIT margin was 2.8% (-0.2%).
Financial EBIT2) amounted to EUR 9.1 million (EUR -0.3 million).
Operational EBIT for our Fresh operations in the first quarter of 2017 was above the comparable quarter of 2016. In general, the increase is due to operational improvements, but also successful promotions and adaption of sales prices to the upsurge in raw material costs. In 2016, the results were heavily impacted by preparation costs and start-up costs for the Rosyth plant.
For our Chilled operations, earnings have been affected by lower volumes, partly offset by higher achieved prices. Volumes have been adversely impacted by effects from the development in sales prices. Also, the Easter holiday, which traditionally is a high season for our Chilled products, was in the second quarter of 2017 instead of the first quarter as in 2016.
Consumer Products' operating revenues were EUR 341.3 million (EUR 327.3 million). Average price achieved per sold volume in the first quarter of 2017 has increased compared to the first quarter of 2016. Sales prices have improved due to adjustments of prices to reflect significantly increased raw material prices.
Total volume sold in the first quarter of 2017 was 26 538 tonnes product weight. The volume has decreased for both Fresh and Chilled sales.
We are experiencing good sales growth in Benelux and the UK. Germany and France continue to be very important regions for the products of Consumer Products. However, higher retail prices have hampered sales to retail customers. We continue our efforts to grow sales through the introduction of new products and through cross-selling of existing products.
Both our Fresh operations and Chilled operations were profitmaking in the first quarter. Processing costs have increased due to scale effects from reduced volumes.
| Consumer Products | Q1 2017 | ||
|---|---|---|---|
| EUR million | Fresh | Chilled | Total |
| Volume sold (tonnes prod wt) | 11 195 | 15 343 | 26 538 |
| Operational EBIT | 5.2 | 4.5 | 9.6 |
| Operational EBIT per kg (EUR) | 0.46 | 0.29 | 0.36 |
| Consumer Products | Q1 2016 | ||
|---|---|---|---|
| EUR million | Fresh | Chilled | Total |
| Volume sold (tonnes prod wt) | 12 481 | 17 618 | 30 099 |
| Operational EBIT | -6.9 | 6.3 | -0.6 |
| Operational EBIT per kg (EUR) | -0.55 | 0.36 | -0.02 |
| EUR million | Q1 2017 | Q1 2016 |
|---|---|---|
| Operating revenues | 63.6 | 64.5 |
| Operational EBIT | 0.1 | 1.6 |
| Operational EBIT % | 0.2% | 2.5% |
| EBIT | 1.5 | 1.3 |
| Feed sold volume | 49 042 | 53 807 |
| Feed produced volume | 51 699 | 50 407 |
Operational EBIT for Feed is also included in the results per country of origin (currently only Norway).
Operational EBIT was EUR 0.1 million (EUR 1.6 million) in the first quarter of 2017. The Operational EBIT margin was 0.2% (2.5%).
Financial EBIT amounted to EUR 1.5 million (EUR 1.3 million).
Operating revenues were EUR 63.6 million in the first quarter (EUR 64.5 million). Volumes sold in the first quarter were 49 042 tonnes, compared to 53 807 tonnes in the first quarter of 2016.
Sold volume is impacted by reduced demand for feed in the Norwegian farming operations. The first quarter is also traditionally a low season for our feed operations. However, estimated demand in the peak season of 2017 remains strong.
Volumes sold in the first quarter of 2017 accounted for 91% of total feed delivered to our Norwegian farming operations (86% in the first quarter of 2016).
We maintain our focus on our efficiency improvement projects and our recent plant upgrades have resulted in an annual production capacity of ca. 330 000 tonnes.
Feed prices are set at market terms and benchmarked against third parties. As the largest buyer of salmon feed globally, we are able to efficiently benchmark our own feed against third party suppliers both with regards to price and quality.
Operational EBIT per kg decreased in the first quarter of 2017 compared to the same quarter last year.
Underlying raw material costs have increased in the quarter, and currency effects have also been unfavorable for costs of raw materials utilized in our feed production. Raw material costs per kg produced volume are expected to decrease somewhat in the second quarter. The quota for the first anchoveta season of 2017, as announced by Peruvian authorities, represents an increase of 56% compared to last year. This is expected to have positive effect on the prices of fishmeal and fish oil, which are input factors in the production of feed.
Given the significant increase in fish feed self-sufficiency, we target further reduction in the third party share of feed going forward. We continue to develop our production of smolt and broodstock diets to reduce the dependency on third party feed purchases in this area.
Marine Harvest has been granted approval by local authorities to build the feed plant in Scotland, and constructions at the site have now started. For further information, refer to the Events section of this report.
Our operations and long-term profitability ultimately depend on sustainable and environmentally responsible interactions with the natural environment. We rely on qualified personnel to maintain fish health, avoid escapes and minimize the environmental impact of our operations.
Marine Harvest has a target of zero fish escapes and is constantly striving to prevent escapes and improve methods, equipment and procedures that can minimize or eliminate escapes. Unfortunately, there were 2 escape incidents in the first quarter; 1 in Norway with 1 escaped fish and 1 in Canada with 2 escaped fish (in the first quarter of 2016 there were 5 incidents with 6 900 fish escaped in total; 2 in Norway, 2 in Canada and 1 in Ireland)
Pancreas Disease (PD): 3 new sites were diagnosed with PD in the first quarter, compared to 4 in the first quarter of 2016.
Amoebic Gill Disease (AGD): High presence of a microscopic amoeba named Paramoeba perurans can cause AGD, with elevated mortality and reduced performance. Since 2013, the amoeba has also been found in Norway. The presence of the amoeba increases with higher seawater temperatures. Treatments were carried out in several of our farming entities. Marine Harvest's fish health teams and seawater production departments take immediate action when AGD appears.
Infectious Salmon Anaemia (ISA): No new sites were diagnosed with ISA in the first quarter. Our monitoring and surveillance continues and we maintain strict measures to immediately harvest out sites with ISA according to regulatory requirements.
Marine Harvest actively works to reduce the sea lice load in all farming units. Canada, Scotland, Chile, Faroes and regions North and South in Norway reported lower sea lice levels at the end of the first quarter of 2017 compared to the end of the first quarter of 2016. Ireland and regions Mid and West in Norway reported stable lice levels at the end of the first quarter of 2017 compared to the end of the first quarter of 2016.
The share of fish undergone medicinal treatments against sea lice has been reduced by 50% in the first quarter of 2017 compared to the first quarter of 2016. The capacity of non-medicinal solutions has increased in the operating units, reducing the dependency on medicinal treatments. Extensive development and testing of non-medicinal tools and methods continues in collaboration between Marine Harvest's Global R&D and Technical department and operating units.
Salmonid Rickettsial Septicaemia (SRS) is caused by an intracellular bacterium which occurs mainly in Chile. SRS is treated using licensed antibiotics and is the primary reason for our use of antibiotics in our operations. In the first quarter, treatment was carried out at several sites in Chile.
Mortality caused by SRS were significantly reduced in first quarter of 2017 compared to first quarter of 2016, but SRS is still a major biological concern in Chilean salmon farming. A new vaccine was launched in 2016. The industry has positive expectations, but the effect under commercial conditions is still to be verified.
Marine Harvest focuses on preventing the development and spread of infectious diseases. If fish get infected, they are treated with approved medicines. In the first quarter, our use of antibiotics was 88 grams per ton biomass produced compared to 104 grams per ton in the first quarter of 2016.
In 2013, we announced our commitment to have 100% of our farms ASC certified by 2020. As of the close of the first quarter of 2017 we had 61 sites certified (44 in Norway, 3 in Chile, 4 in Ireland, 7 in Canada, 2 in Scotland and 1 in Faroes).
Several additional sites have been audited and are expected to be certified in 2017. Marine Harvest is taking the lead in ASC implementation and we are committed to demonstrate an environmentally responsible development in our organization.
For further information regarding sustainability and biological risk management, reference is made to the 2016 Annual Report and our sustainability reporting at the Global Salmon Initiative (GSI).
The Global Salmon Initiative (GSI) is a leadership initiative by global farmed salmon producers, including Marine Harvest, focused on making significant progress towards fully realizing a shared goal of providing a highly sustainable source of healthy protein, while minimizing the environmental footprint and continuing to improve social contribution.
The article "The business of sustainable salmon" in the American online newspaper Huffington Post from 18 April gives a positive overview of the GSI, its establishment, activities and overall ambitions.
| GUIDING PRINCIPLE - ISSUE | AMBITION | Q1 2017 Achievement |
|---|---|---|
| Ensure sustainable wild-farmed interaction in the farming activity |
Zero escapes | Two escape incidents and 3 fish lost (five incidents with 6 900 fish lost in the first quarter of 2016) |
| Ensure healthy stocks minimizing diseases and losses in the farming activities |
Monthly survival rate of at least 99.5% within 2020 |
Average monthly survival rate in the quarter of 99.0% (98.7% in the first quarter of 2016) |
The safety, self-respect and personal pride of our employees cannot be compromised if Marine Harvest is to succeed as a company and maintain good relationships with local communities.
In the first quarter, the Group recorded 36 Lost Time Incidents (LTIs), which is a decrease from 63 in the first quarter of 2016.
Measured in LTIs per million hours worked (rolling average), the figure has improved to 9.08 from 11.11 in 2016.
Absenteeism has increased to 5.8% from 5.1% in the same quarter of 2016. Absenteeism is at the same level as in the fourth quarter.
During the first quarter, a total of 42 employees were on different types of international assignments in the group.
In the first quarter, the Special Negotiating Body (SNB), representing European employees, and the Central Management Representatives (CMR) of Marine Harvest met. The SNB decided to continue the process to develop, together with the CMR, an agreement for information and consultation at European level.
| GUIDING PRINCIPLE - ISSUE | AMBITION | Q1 2017 Achievement |
|---|---|---|
| Safe jobs | No lost time incidents (LTI) | LTIs per million hours worked was 9.08. Programs are in place to reduce the number. |
| Healthy working environment | Absenteeism < 4% | Absenteeism of 5.8% in the quarter. |
We aim to continually deliver healthy, tasty and responsibly produced seafood to our customers to deliver long-term financial profitability.
The potential of the seafood market is undisputed, including markets such as USA, Brazil, Russia and China. At the moment, the US is by far the largest salmon market, with an annual consumption of ca. 410 000 tonnes. The US consumes ca. 1.3 kg salmon per capita per year. By comparison, an average EU citizen eats ca. 2.5 kg every year. Had US consumers eaten as much as their EU counterparts, the market would almost double. The US' ongoing health situation, changing consumer behavior and the growing accessibility of healthy and tasty seafood which is easy to prepare, make for an exciting future for the industry. Recent Marine Harvest initiatives in the US market include the opening of a new plant in Dallas, Texas at the end of 2016, and the decision to build a new plant near Vancouver in Canada. Marine Harvest will continue its activities to develop the US market in 2017, including the introduction of more value-added products.
Market size and consumption per capita
There is great potential for increased sales of salmon products in Asia. As business practices and eating habits vary between different countries in the Asian market, Marine Harvest differentiates our marketing strategies from country to country. Our premium brand in Japan, Mowi, is perceived as an exclusive and healthy product. In Taiwan, our Supreme Salmon brand has introduced a ready-to-cook line to increase consumer's awareness and inspire them to cook our product in new ways.
Rebel Fish is a differentiated concept that offers six different seasonings and excels in convenience, ease of use and taste. Customers and consumers have welcomed our recent packaging makeover of our Rebel Fish brand and the marketing campaign carried out in movie theaters. We will strengthen our focus and efforts in development of sales of the Rebel Fish products during 2017.
We are pleased to announce that the organizers of the Brussels Seafood Excellence Global Awards 2017 chose eight of Marine Harvest's products as finalists in the competition for best retail product and best food service industry product. Thus, Marine Harvest was the leading seafood company in the competition. The eight products in the finals were: Cod Mousseline, Salmon Roll, Christmas Baubles, Mini-wraps, Mini-tartare, Wooden Basket Salmon Crumble, BBQ Salmon Tournedos and Mediterranean Whitefish Tortilla.
Marine Harvest is planning to add a freshness indicator to its products in Europe, in order to give consumers a tool that shows accurate and real time freshness and shelf life. The plan is to introduce "Keep-it" indicators in ten European markets by 2019. Test launches will take place in selected countries in 2017. Throughout the cold chain, "Keep-it" will track the actual temperature impact on the fish product in real time, thus enabling a more dynamic and precise shelf life than traditional date stamping. Our aim is to provide a better tool for producers, retailers and consumers than today's static date stamp.
To increase consumption of salmon and other fish in the US market, it is necessary to increase knowledge of how to prepare the food. Our web page thesalmonkitchen.com has been established to help bring down barriers to salmon preparation at home. Through social media we aim to assist consumers in their everyday cooking. The website features delicious seafood recipes, nutritional facts about salmon, a store locater along with more information about our products.
| GUIDING PRINCIPLE - ISSUE | AMBITION | Q1 2017 Achievement |
|---|---|---|
| Food quality and safety | Supply seafood with valuable health benefits for its quality and documented safety |
Health targets met |
| Product innovation | Marine Harvest wants to play an important role in the design and use of products to satisfy customer needs. |
Continuous effort with existing brands |
In the first quarter of 2017, Marine Harvest completed the transaction related to purchase of farming assets on the East Coast of Canada. The assets were acquired from the Receiver of the Gray Aqua Group. Marine Harvest is currently working on staffing the newly established Marine Harvest Atlantic Canada organization. Jamie Gaskill has been appointed Managing Director of the new company. Mr Gaskill, who is a Canadian citizen, comes from the position as Managing Director of Marine Harvest Norway Region South. Prior to his assignment in Norway he was the Production Director at Marine Harvest Canada, and has extensive operational experience from both coasts of Canada. Marine Harvest Atlantic Canada is now preparing a production plan and an investment framework. Please refer to note 13 for more information regarding the purchase.
As described in the report for the fourth quarter, the Norwegian Directorate of Fisheries has informed Marine Harvest Norway that the closed-end farming composite "Egg" concept qualifies in general for the development licenses scheme and that the authorities may award development licenses for this project. In the first quarter, the Directorate of Fisheries has also informed Marine Harvest Norway that the "Donut" concept qualifies in general and may be awarded development licenses. Marine Harvest Norway is pleased with this positive feedback. We will continue to work with the authorities, and hope they will reach a final conclusion soon in order for the projects to commence. In addition to the above mentioned concepts, Marine Harvest Norway has also applied for development licenses for two other concepts: The "Beck Cage" concept has been rejected by the Directorate of Fisheries, and we have not received any notifications regarding the application for the "Ship" concept.
Marine Harvest Ireland has entered into an agreement with Mannin Bay Salmon Company to grow organic salmon on sites in Bertraghboy Bay in Galway. The five year agreement will see collaboration on the production of three crops of salmon meaning continuity of supply for local processor, Kilkieran Salmon and the MHI Rinmore Processing plant in Donegal. Marine Harvest Ireland will supply new pens, marine vessels and related infrastructure in addition to management and technical support.
Fernando Villarroel has been appointed new Managing Director of Marine Harvest Chile. He has been working in the aquaculture sector since 1997 and holds degrees in management and in financial auditing from Universidad Austral de Chile. Mr Villarroel comes from the position as Chief Operating Officer (COO) of Cermaq Canada. In his new position, he will be reporting to the COO Farming Chile and Norway, Per-Roar Gjerde.
Marine Harvest has been granted approval by local authorities to build the feed plant in Scotland. The construction work has now started, and at this stage in the process, the primary activity is piling. The construction of the EUR 110 million plant is expected to be completed in the second half of 2018. The state-of-the-art feed plant will employ 55 people in a diverse range of permanent jobs and will be one of the most efficient and sustainable fish feed plant globally.
Marine Harvest will also start to investigate the business case for the construction of a small scale fish meal and fish oil plant in Scotland as part of a drive to utilize all edible by products from salmon processing and, at the same time, provide a more sustainable solution for salmon mortality.
Construction of the feed plant at Kyleakin has started. At this stage, the primary activity is piling.
Marine Harvest and Espersen have entered into a strategic partnership for processing and distribution of whitefish products. Through our extensive distribution network, Marine Harvest will distribute chilled whitefish products produced by Espersen, with focus on value-added products such as loins and fillets. With this partnership, Marine Harvest is able to offer European customers an even wider assortment of chilled seafood products than today.
DESS Aquaculture Shipping, the joint venture between Marine Harvest and Deep Sea Supply, has exercised its option to build another wellboat. The vessel has a contractual delivery date in the second quarter of 2018, and will enter into a five year contract with Marine Harvest Norway. The joint venture has contracted a total of two wellboats and one harvest vessel.
As described in the report for the fourth quarter, the Board of Directors resolved to delist Marine Harvest's American Depositary Shares ("ADSs") from the New York Stock Exchange ("NYSE") and to terminate the registration of the ADSs and shares under the U.S. Securities Exchange Act of 1934. The delisting of the ADSs from NYSE has been performed in the first quarter. The ADSs are traded in the OTC market in the US. The Marine Harvest share will continue to be listed on the Oslo Stock Exchange.
In February and March, Marine Harvest ASA issued 2,214,887 new shares, as bondholders representing EUR 21.1 million of the EUR 375 million convertible bond loan issued by Marine Harvest ASA exercised the option to convert bonds to equity. The option is in accordance with the bond agreement. The conversion price was EUR 9.5273 per share for EUR 21.0 million and EUR 9.3458 for EUR 0.1 million, and each new share was issued with a nominal value of NOK 7.50. Following the completion of these conversions, Marine Harvest ASA's share capital was NOK 3,392,254,50, divided into 452,300,539 total shares, each with a nominal value of NOK 7.50.
In May, Marine Harvest exercised its right to redeem the remaining outstanding bond loan at par value plus accrued interests. The loan agreement provides the bondholders the period up to and including 11 May 2017 to convert their bonds into shares. The remaining outstanding loan amount is EUR 353.9 million and the current conversion price is EUR 9.3458 per share. If bondholders decide to convert all remaining bonds into shares, Marine Harvest will issue approximately 37.9 million new shares. Bonds that are not converted into shares will be redeemed at par value plus accrued interest on 6 June 2017.
On May 10, Marine Harvest ASA entered into a Term Sheet to refinance its existing bank facility with a senior secured five year EUR 1,206 million multi-currency revolving credit facility with DNB, Nordea, ABN Amro, Rabobank, Danske Bank and SEB. The Facility includes an accordion increase option, which provides flexibility for the parties to agree on an increased size of the Facility by additional EUR 200 million during the term of the Facility. The principal financial covenant of the Facility is an equity ratio of no less than 35%. The refinancing is subject to final documentation.
Marine Harvest has published the 2017 version of the Industry Handbook. Please refer to our web site at marineharvest.com for details.
The Board of Directors has decided to pay out a quarterly dividend of NOK 3.00 per share to the shareholders in the form of repayment of paid in capital, subject to approval from the Annual General Meeting on 1 June 2017.
The operational result was a new first quarter record high. All business areas contributed positively to the results, led by the Farming division. On the back of continued strong demand for salmon the prices reached new highs in most markets. Marine Harvest's comprehensive portfolio of sales contracts continued to roll over on improved prices which in turn contributed to record high realized prices. The Consumer Products segment continues to develop and results were positively impacted by operational improvements. The Feed business area had a seasonal slowdown and performance was therefore as expected lower than in previous quarter.
Earnings from Farming Norway were very good in the quarter. Notwithstanding a high contract share, the achieved salmon price in the quarter was record high. Realized prices improved mainly as contract prices rolled over on higher prices. Production costs in the Norwegian farming operations increased in the quarter and were negatively impacted by seasonal harvesting volumes. Cost to stock is high and the Board therefore expect costs to remain elevated in the next quarter.
The challenges in relation to sea lice continue, however, the Board notes the significant shift in treatment methodology so far in 2017. Non-medicinal treatments and cleanerfish are now the predominant mitigators of sea lice. Marine Harvest has so far in 2017 reduced the medicinal treatments extensively compared to 2016, and the Board expects that this shift will contribute to reduce the sea lice challenge. The Board will carefully monitor how the situation develops.
The Board commends the Scottish organization with the impressive results achieved in the quarter. In particular, the low production cost is pleasing. The favorable cost development comes as a result of the completed reorganization, but also harvesting from some good sites with low cost to stock.
The Canadian farming operations continue to deliver solid results. The acquisition of the Gray Aqua Group was completed in the quarter. Marine Harvest is currently not present on the East Coast of Canada, and as such, the Board is excited about this opportunity. The addition of farming salmon on the East Coast of Canada to Marine Harvest's geographic diversified farming structure fits extremely well. A Managing Director of the new East Coast entity has been appointed and an investment framework and a production plan for the new region is currently being undertaken.
The Chilean farming operations also delivered good results in the quarter. Realized prices were good and volumes will gradually recover to pre algal bloom levels going forward. A new Managing Director of Marine Harvest Chile has been appointed and the Board is confident that recent organizational changes in Chile will strengthen the operations ahead.
Despite increased raw material costs and Easter sales not falling in the first quarter this year, Consumer Products delivered improved results compared to last year. The Board is satisfied that both the Fresh and Chilled segments contributed with positive results. Both operational improvements and shorter lead time to adjust sales prices to compensate for increased raw material costs were the main contributors to the improved results. The Board is encouraged about the strategic partnership with Espersen for processing and distribution of whitefish products. Marine Harvest is already processing a significant amount of non-salmon products, and this partnership will ensure that customers are offered an even wider product selection going forward. The Board is also supportive of the ongoing activities in the North American market, including the introduction of more value-added products and initiatives to improve market access to fresh fish.
The first quarter is the low season for Feed, and as such, volumes and operational results are seasonally low. The Board is pleased with the approval of the new feed plant in Scotland, and that the construction work has commenced. The plant is expected to be completed in the second half of 2018.
Demand for salmon continues to be good and supported by several megatrends. Consumption of fresh salmon and in particular the growth of the sushi segment is truly impressive. Such developments will be further supported by Marine Harvest's commitment to grow the downstream operations and continued focus on new product development. Salmon is currently sold into more than 150 countries worldwide. Furthermore, the Board is excited about the prospects for growth in China as trade between Norway and China normalizes.
The supply growth for 2017 is expected to increase by approximately 3% by Kontali Analyse. This is an increase of one percentage point from the previous quarter. The 12 month forward Nasdaq price is currently EUR 6.5 per kg (NOK 62 per kg).
A quarterly dividend of NOK 3.00 per share will be distributed in the form of repayment of paid in capital, subject to approval from the Annual General Meeting on 1 June 2017.
Please refer to Highlights from the first quarter of 2017 (year to date) on page 2 of this report.
Marine Harvest has not identified any additional risk exposure beyond the risks described in note 3 of this report and the 2016 Annual Report.
Reference is also made to the Planet section and the Outlook section of this report for other comments to Marine Harvest's risk exposure.
Bergen, May 9, 2017 The Board of Directors of Marine Harvest ASA
| Ole-Eirik Lerøy CHAIRMAN OF THE BOARD |
Lisbet K. Nærø DEPUTY CHAIR OF THE BOARD |
Cecilie Fredriksen | Ørjan Svanevik |
|---|---|---|---|
| Paul Mulligan | Jean-Pierre Bienfait | Birgitte Ringstad Vartdal | |
| Lars Eirik Hestnes | Stein Mathiesen | Unni Sværen | Alf-Helge Aarskog CHIEF EXECUTIVE OFFICER |
| Unaudited, in EUR million | Note | Q1 2017 | Q1 2016 | 2016 |
|---|---|---|---|---|
| Revenue | 4 | 893.7 | 804.8 | 3 510.2 |
| Cost of materials | -406.6 | -443.0 | -1 782.2 | |
| Net fair value adjustment biomass | 5 | -215.7 | 88.0 | 386.2 |
| Salaries and personnel expenses | -114.8 | -109.7 | -440.0 | |
| Other operating expenses | -123.6 | -105.2 | -472.5 | |
| Depreciation and amortization | -37.0 | -35.8 | -142.5 | |
| Onerous contract provisions | 93.2 | -14.1 | -108.7 | |
| Restructuring cost | -0.2 | -2.5 | -5.4 | |
| Other non-operational items | 0.0 | 0.0 | 1.3 | |
| Income from associated companies | -0.1 | 10.3 | 62.6 | |
| Impairment losses | -0.6 | -0.1 | -17.7 | |
| Earnings before financial items (EBIT) | 88.3 | 192.7 | 991.2 | |
| Interest expenses | 7 | -11.9 | -11.9 | -48.4 |
| Net currency effects | 7 | 1.1 | -1.0 | 26.9 |
| Other financial items | 7 | 147.3 | -15.5 | -210.5 |
| Earnings before tax | 224.8 | 164.4 | 759.2 | |
| Income taxes | -12.4 | -36.4 | -219.9 | |
| Earnings for the period, continued operations | 212.4 | 128.0 | 539.3 | |
| Profit from discontinued operations, net of tax | 0.0 | 0.0 | 0.0 | |
| Profit or loss for the period | 212.4 | 128.0 | 539.3 | |
| Other comprehensive income | ||||
| Currency translation differences | -14.0 | 3.1 | 49.0 | |
| Currency translation associated companies | -1.4 | 0.0 | 6.9 | |
| Items to be reclassified to P&L in subsequent periods: | -15.4 | 3.1 | 55.9 | |
| Actuarial gains (losses) on defined benefit plans, net of tax | 0.0 | 0.0 | -3.4 | |
| Other gains and losses in comprehensive income | 0.0 | -3.8 | 0.9 | |
| Items not to be reclassified to profit and loss: | 0.0 | -3.8 | -2.5 | |
| Other comprehensive income, net of tax | -15.4 | -0.7 | 53.4 | |
| Total comprehensive income in the period | 196.9 | 127.3 | 592.7 | |
| Profit or loss for the period attributable to | ||||
| Non-controlling interests Owners of Marine Harvest ASA |
0.3 212.1 |
0.0 128.0 |
-0.3 539.6 |
|
| Comprehensive income for the period attributable to | ||||
| Non-controlling interests | 0.3 | 0.0 | -0.3 | |
| Owners of Marine Harvest ASA | 196.7 | 127.3 | 593.0 | |
| Basic earnings per share (EUR) | 8 | 0.47 | 0.28 | 1.20 |
| Diluted earnings per share (EUR) | 8 | 0.23 | 0.28 | 1.20 |
| Dividend declared and paid per share (NOK) | 2.80 | 1.40 | 8.60 |
| Unaudited, in EUR million | Note | 31.03.2017 | 31.12.2016 | 31.03.2016 |
|---|---|---|---|---|
| ASSETS | ||||
| Licenses | 763.3 | 764.3 | 738.4 | |
| Goodwill | 267.0 | 268.0 | 261.9 | |
| Deferred tax assets | 6.7 | 2.6 | 9.4 | |
| Other intangible assets | 31.5 | 32.4 | 27.6 | |
| Property, plant and equipment | 1 037.2 | 1 008.1 | 952.4 | |
| Investments in associated companies | 174.1 | 175.0 | 129.8 | |
| Other shares and other non-current assets | 3.6 | 5.4 | 3.1 | |
| Total non-current assets | 2 283.5 | 2 255.8 | 2 122.7 | |
| Inventory | 244.9 | 248.2 | 268.7 | |
| Biological assets | 5 | 1 352.5 | 1 573.8 | 1 166.3 |
| Current receivables | 516.3 | 625.1 | 599.1 | |
| Cash | 92.8 | 103.9 | 94.9 | |
| Total current assets | 2 206.5 | 2 551.0 | 2 129.0 | |
| Asset held for sale | 1.1 | 3.5 | 1.8 | |
| Total assets | 4 491.1 | 4 810.4 | 4 253.5 |
| Equity | 2 151.4 | 2 068.4 | 1 951.7 |
|---|---|---|---|
| Non-controlling interests | 1.2 | 0.9 | 0.9 |
| Total equity | 2 152.6 | 2 069.3 | 1 952.7 |
| Deferred tax liabilities | 413.1 | 453.5 | 399.4 |
| Non-current interest-bearing debt | 798.8 | 993.4 | 1 054.9 |
| Other non-current liabilities | 291.1 | 451.1 | 254.8 |
| Total non-current liabilities | 1 503.0 | 1 898.0 | 1 709.1 |
| Current interest-bearing debt | 136.0 | 0.1 | 0.1 |
| Other current liabilities | 699.4 | 843.1 | 591.6 |
| Total current liabilities | 835.4 | 843.1 | 591.8 |
| Total equity and liabilities | 4 491.1 | 4 810.4 | 4 253.5 |
| 2017 | Attributable to owners of Marine Harvest ASA | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Unaudited, in EUR million | Share capital |
Other paid in capital |
Shared based payment |
Foreign currency translatio n reserve |
Foreign currency translation reserve associated companies |
Other equity reserves |
Total | Non controlling interests |
Total equity |
| Equity 01.01.2017 | 351.8 | 657.5 | 4.6 | 209.8 | 6.9 | 837.7 | 2 068.4 | 0.9 | 2 069.3 |
| Comprehensive income | |||||||||
| Profit | 212.1 | 212.1 | 0.3 | 212.4 | |||||
| Other comprehensive income | -12.4 | -1.4 | -1.6 | -15.4 | -15.4 | ||||
| Transactions with owners | |||||||||
| Share based payment | -1.2 | -5.5 | -6.7 | -6.7 | |||||
| Bond conversion | 1.9 | 34.0 | 35.9 | 35.9 | |||||
| Repayment of paid in capital | -83.6 | -59.2 | -142.8 | -142.8 | |||||
| Total equity end of period | 353.7 | 607.9 | 3.4 | 197.4 | 5.5 | 983.5 | 2 151.4 | 1.2 | 2 152.6 |
| 2016 | Attributable to owners of Marine Harvest ASA | ||||||||
|---|---|---|---|---|---|---|---|---|---|
| Unaudited, in EUR million | Share capital |
Other paid in capital |
Shared based payment |
Foreign currency translatio n reserve |
Foreign currency translation reserve associated companies |
Other equity reserves |
Total | Non controlling interests |
Total equity |
| Equity 01.01.2016 | 351.8 | 1 075.6 | 6.1 | 160.4 | — | 300.6 | 1 894.6 | 0.9 | 1 895.6 |
| Comprehensive income | |||||||||
| Profit | 539.6 | 539.6 | -0.3 | 539.3 | |||||
| Other comprehensive income | 49.4 | 6.9 | -2.9 | 53.4 | — | 53.4 | |||
| Transactions with owners | |||||||||
| Share based payment | -1.5 | -2.7 | -4.2 | -4.2 | |||||
| Repayment of paid in capital | -418.1 | -418.1 | -418.1 | ||||||
| Business combinations | 1.4 | 1.4 | 0.3 | 1.7 | |||||
| Other changes | 1.7 | 1.7 | 1.7 | ||||||
| Total Equity 31.12.2016 | 351.8 | 657.5 | 4.6 | 209.8 | 6.9 | 837.7 | 2 068.4 | 0.9 | 2 069.3 |
| Unaudited, in EUR million | Q1 2017 | Q1 2016 | 2016 |
|---|---|---|---|
| Earnings before taxes (EBT) | 224.8 | 164.4 | 759.2 |
| Interest expense | 11.9 | 11.9 | 48.4 |
| Currency effects | -1.1 | 1.0 | -26.9 |
| Other financial items | -147.3 | 15.5 | 210.5 |
| Net fair value adjustment and onerous contracts | 122.5 | -73.9 | -277.5 |
| Income/loss from associated companies | 0.1 | -10.3 | -62.6 |
| Depreciation and impairment losses | 37.6 | 35.9 | 160.2 |
| Change in working capital | 59.6 | 34.5 | -14.9 |
| Taxes paid | -59.7 | -26.0 | -92.6 |
| Restructuring and other non-operational items | 1.2 | -2.6 | -4.8 |
| Other adjustments | -1.8 | -0.3 | -5.8 |
| Cash flow from operations | 247.8 | 150.1 | 693.2 |
| Proceeds from sale of fixed assets | 0.0 | 0.2 | 12.4 |
| Payments made for purchase of fixed assets | -57.0 | -41.2 | -211.6 |
| Proceeds from associates and other investments | 2.1 | 0.0 | 17.1 |
| Proceeds from sale of shares | 0.0 | 0.0 | 52.3 |
| Purchase of shares and other investments | -12.1 | -0.8 | -2.8 |
| Cash flow from investments | -67.0 | -41.8 | -132.6 |
| Proceeds from new interest-bearing debt | 0.0 | 0.0 | 45.0 |
| Down payment of interest-bearing debt | -42.0 | -7.3 | -151.8 |
| Net interest and financial items paid | -4.7 | -4.7 | -22.9 |
| Realized currency effects | -2.2 | -7.1 | 14.8 |
| Repayment of paid in capital | -142.8 | -67.0 | -418.1 |
| Cash flow from financing | -191.7 | -86.1 | -533.0 |
| Change in cash in the period | -11.0 | 22.3 | 27.6 |
| Cash - opening balance 1) | 88.0 | 60.1 | 60.1 |
| Currency effects on cash - opening balance | 0.2 | -0.4 | 0.3 |
| Cash - closing balance 1) | 77.2 | 82.0 | 88.0 |
1) Excluded restricted cash
Marine Harvest (the Group) consists of Marine Harvest ASA and its subsidiaries, including the Group's interests in associated companies.
These interim financial statements are prepared in accordance with International Accounting Standard 34 Interim Financial Reporting as issued by the International Accounting Standards Board (IASB) and as adopted by the European Union (EU). The interim financial statements do not include all of the information and disclosures required by International Financial Reporting Standards (IFRSs) for a complete set of financial statements, and these interim financial statements should be read in conjunction with the annual financial statements. The interim report is unaudited.
All significant accounting principles applied in the consolidated financial statement are described in the Annual Report 2016 (as published on the OSE on April 6, 2017). No new standards have been applied in 2017.
Significant fair value measurements in accordance with IFRS 13:
Biological assets are, in accordance with IAS 41, measured at fair value, unless the fair value cannot be measured reliably. Broodstock, smolt and live fish below 1 kg are measured at cost less impairment losses, as the fair value cannot be measured reliably.
Biomass beyond this is measured at fair value, and the measurement is categorized into Level 3 in the fair value hierarchy, as the input is unobservable input. Live fish over 4 kg are measured to full net value, while a proportionate expected net profit at harvest is incorporated for live fish between 1 kg and 4 kg. The valuation is completed for each Business Unit.
The valuation is based on an income approach and takes into consideration unobservable input based on biomass in sea for each sea water site, estimated growth rate on site level, mortality in the Business Unit, quality of the fish going forward, costs and market price. Special assessment is performed for sites with high/low performance due to disease or other special factors. The market prices are set for each business unit, and are derived from observable market prices where available.
In accordance with IAS 41.16, a provision for onerous contracts is recorded by assessing if there are contracts in which the unavoidable costs of meeting the Group's obligations under the contract (where fair value adjustment of biological assets is included in the unavoidable costs) exceed the economic benefits expected to be received.
Derivative financial instruments (including interest swaps, currency swaps and salmon derivatives) are valued at fair value on Level 2 of the fair value hierarchy, in which the fair value is calculated by comparing the terms agreed under each derivative contract to the market terms for a similar contract on the valuation date.
The conversion liability component is, subsequent to initial recognition, measured at fair value. The measurement is categorized into Level 2 in the fair value hierarchy, using a valuation technique based on observable data.
The preparation of financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting principles and recognized amounts of assets, liabilities, income and expenses. The most significant estimates relate to the valuation of biological assets and intangible assets. Estimates and underlying assumptions are reviewed on an ongoing basis, and are based on the management's best assessment at the time of reporting. All changes in estimates are reflected in the financial statements as they occur.
Marine Harvest is exposed to a number of risk factors: Operational risks, strategic risk, reporting risk and compliance risk. The Risk Management section in the Annual Report contains a detailed description of risks and mitigation actions.
For management purposes, Marine Harvest is organized into three Business Areas, Feed, Farming and Sales and Marketing. Feed and Farming are separate reportable segments. Sales and Marketing is divided in two reportable segments, Markets and Consumer Products.
The performance of the segments is monitored to reach the overall objective of maximizing the Operational EBIT per kg. Consequently, reporting is focused towards measuring and illustrating the overall profitability of harvested volume based on source of origin (Operational EBIT/kg).
The same accounting principles as described for the Group financial statements have been applied for the segment reporting. Inter-segment transfers or transactions are entered into under normal commercial terms and conditions, and the measurement used in the segment reporting is the same as used for the actual transactions.
Unrealized internal margin from sale of fish feed from Feed to Farming is eliminated in the Group financial statements until the fish that consumed the feed is sold. In the segment reporting the internal profit is included for Business Area Feed.
| BUSINESS AREAS | Feed | Farming | Sales and Marketing | Eliminations | TOTAL | ||
|---|---|---|---|---|---|---|---|
| EUR million | Markets | Consumer Products |
|||||
| Q1 2017 | |||||||
| External revenue | 5.0 | 7.6 | 543.7 | 335.6 | 0.0 | 0.0 | 892.0 |
| Internal revenue | 58.5 | 564.3 | 145.7 | 5.7 | 5.2 | -779.4 | 0.0 |
| Operational revenue | 63.6 | 571.9 | 689.4 | 341.3 | 5.2 | -779.4 | 892.0 |
| Gain/loss from derivatives | 0.0 | 39.4 | 0.4 | 0.0 | 1.6 | -39.7 | 1.7 |
| Revenue in profit and loss | 63.6 | 611.3 | 689.8 | 341.3 | 6.8 | -819.1 | 893.7 |
| Operational EBITDA | 2.0 | 232.2 | 14.5 | 15.2 | -7.1 | 0.0 | 256.8 |
| Operational EBIT | 0.1 | 204.7 | 13.3 | 9.6 | -8.0 | 0.0 | 219.8 |
| Change in unrealized internal margin | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -1.8 | -1.8 |
| Gain/loss from derivatives | 0.0 | 39.7 | 0.4 | -39.9 | -6.4 | 0.0 | -6.3 |
| Net fair value adjustment on biological assets | 1.4 | -217.1 | 0.0 | 0.0 | 0.0 | 0.0 | -215.7 |
| Onerous contract provisions | 0.0 | 93.2 | 0.0 | 0.0 | 0.0 | 0.0 | 93.2 |
| Restructuring cost | 0.0 | 0.0 | -0.1 | 0.0 | -0.1 | 0.0 | -0.2 |
| Income from associated companies | 0.0 | 0.0 | 0.0 | 0.0 | -0.1 | 0.0 | -0.1 |
| Impairment losses and write-downs | 0.0 | -0.6 | 0.0 | 0.0 | 0.0 | 0.0 | -0.6 |
| EBIT | 1.5 | 120.0 | 13.5 | -30.3 | -14.6 | -1.8 | 88.3 |
| Q1 2016 | |||||||
| External revenue | 2.0 | 23.3 | 463.8 | 318.6 | 1.8 | 0.0 | 809.5 |
| Internal revenue | 62.5 | 486.4 | 146.3 | 8.7 | 5.4 | -709.2 | 0.0 |
| Operational revenue | 64.5 | 509.7 | 610.0 | 327.3 | 7.2 | -709.2 | 809.5 |
| Gain/loss from derivatives | 0.0 | -3.1 | 0.0 | 0.0 | -5.3 | 3.7 | -4.7 |
| Revenue in profit and loss | 64.5 | 506.6 | 610.0 | 327.3 | 1.9 | -705.5 | 804.8 |
| Operational EBITDA | 3.8 | 116.3 | 19.6 | 4.9 | 3.0 | 0.0 | 147.7 |
| Operational EBIT | 1.6 | 90.4 | 18.6 | -0.6 | 1.9 | 0.0 | 111.9 |
| Change in unrealized internal margin | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | 3.0 | 3.0 |
| Gain/loss from derivatives | 0.0 | -3.5 | 0.0 | 3.5 | -3.8 | 0.0 | -3.8 |
| Net fair value adjustment on biological assets | -0.3 | 89.9 | 0.0 | 0.0 | -1.5 | 0.0 | 88.0 |
| Onerous contract provisions | 0.0 | -14.1 | 0.0 | 0.0 | 0.0 | 0.0 | -14.1 |
| Restructuring cost | 0.0 | -2.5 | 0.0 | 0.0 | 0.0 | 0.0 | -2.5 |
| Income from associated companies | 0.0 | 10.3 | 0.0 | 0.0 | 0.0 | 0.0 | 10.3 |
| Impairment losses and write-downs | 0.0 | 0.0 | 0.0 | -0.1 | 0.0 | 0.0 | -0.1 |
| EBIT | 1.3 | 170.4 | 18.6 | 2.8 | -3.3 | 3.0 | 192.7 |
| BUSINESS AREAS | Feed | Farming | Sales and Marketing | Eliminations | TOTAL | ||
|---|---|---|---|---|---|---|---|
| EUR million | Markets | Consumer Products |
|||||
| 2016 | |||||||
| External revenue | 16.6 | 50.0 | 2 068.4 | 1 371.9 | 2.8 | 0.0 | 3 509.8 |
| Internal revenue | 364.9 | 2 173.9 | 666.1 | 29.5 | 19.9 | -3 254.3 | 0.0 |
| Operational revenue | 381.6 | 2 223.9 | 2 734.5 | 1 401.4 | 22.7 | -3 254.3 | 3 509.8 |
| Gain/loss from derivatives | 0.0 | -43.9 | -5.7 | 0.0 | 4.1 | 45.9 | 0.4 |
| Revenue in profit and loss | 381.6 | 2 180.0 | 2 728.8 | 1 401.4 | 26.9 | -3 208.4 | 3 510.2 |
| Operational EBITDA | 35.4 | 690.7 | 82.1 | 42.0 | -7.4 | 0.0 | 842.7 |
| Operational EBIT | 28.1 | 585.9 | 77.9 | 19.7 | -11.4 | 0.0 | 700.2 |
| Change in unrealized internal margin | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 | -22.1 | -22.1 |
| Gain/loss from derivatives | 0.0 | -42.4 | -5.7 | 44.3 | 12.1 | 0.0 | 8.3 |
| Net fair value adjustment on biological assets | -1.3 | 389.1 | 0.0 | 0.0 | -1.5 | 0.0 | 386.2 |
| Onerous contract provisions | 0.0 | -108.7 | 0.0 | 0.0 | 0.0 | 0.0 | -108.7 |
| Restructuring cost | 0.0 | -4.6 | 0.0 | -0.9 | 0.0 | 0.0 | -5.4 |
| Other non-operational items | 0.0 | 1.3 | 0.0 | 0.0 | 0.0 | 0.0 | 1.3 |
| Income from associated companies | 0.0 | 62.8 | 0.0 | 0.0 | -0.2 | 0.0 | 62.6 |
| Impairment losses and write-downs | -13.5 | -17.9 | -0.2 | 0.4 | 0.0 | 0.0 | -31.2 |
| EBIT | 13.3 | 865.5 | 72.0 | 63.5 | -1.0 | -22.1 | 991.2 |
| EUR million | Norway | Scotland | Canada | Chile | Other | TOTAL |
|---|---|---|---|---|---|---|
| Fair value adjustment on harvested fish in the statement of comprehensive income | ||||||
| Q1 2017 | -176.6 | -69.0 | -34.9 | -14.6 | -4.5 | -299.6 |
| Q1 2016 | -119.8 | -11.3 | -16.4 | -14.7 | -4.1 | -166.3 |
| 2016 | -661.1 | -77.3 | -100.6 | 15.0 | -45.7 | -869.6 |
| Fair value adjustment on biological assets in the statement of comprehensive income | ||||||
| Q1 2017 | 10.5 | 17.2 | 17.8 | 35.1 | 16.5 | 97.1 |
| Q1 2016 | 138.4 | 18.7 | 42.4 | 47.3 | 7.6 | 254.3 |
| 2016 | 836.9 | 183.4 | 156.9 | 32.0 | 46.6 | 1 255.8 |
| Fair value adjustment on incident based mortality in the statement of comprehensive income | ||||||
| Q1 2017 | -3.5 | -8.8 | — | -0.9 | — | -13.2 |
| Net fair value adjustment biomass in the statement of comprehensive income | ||||||
| Q1 2017 | -169.6 | -60.5 | -17.1 | 19.6 | 11.9 | -215.7 |
| Q1 2016 | 18.6 | 7.4 | 26.0 | 32.6 | 3.5 | 88.0 |
| 2016 | 175.8 | 106.1 | 56.4 | 47.0 | 0.9 | 386.2 |
| Volumes of biomass in sea (1 000 tonnes) | ||||||
| 31.03.2017 | 241.0 | |||||
| 31.12.2016 | 253.4 | |||||
| Fair value adjustment on biological assets in the statement of financial position | ||||||
| 31.03.2017 | ||||||
| Fair value adjustment on biological assets | 262.4 | 54.9 | 61.6 | 38.3 | 25.8 | 443.0 |
| Biomass at cost* | 909.5 | |||||
| Total biological assets | 1 352.5 | |||||
| 31.12.2016 | ||||||
| Fair value adjustment on biological assets | 432.9 | 116.0 | 78.7 | 19.0 | 13.9 | 660.5 |
| Biomass at cost* | 913.3 | |||||
| Total biological assets | 1 573.8 | |||||
| * Includes costs related to seawater, freshwater, broodstock and cleaningfish | ||||||
| Reconciliation of changes in carrying amount of biological assets | ||||||
| Carrying amount 01.01.2017 | 1 573.8 | |||||
| Cost to stock | 299.6 | |||||
| Net fair value adjustment | -215.7 | |||||
| Mortality for fish in sea | -8.4 | |||||
| Cost of harvested fish | -287.6 | |||||
| Other | 0.3 | |||||
| Currency translation differences | -9.5 | |||||
| Total carrying amount of biological assets as of 31.03.2017 | 1 352.5 | |||||
| Price sensitivities effect on fair value | ||||||
| The sensitivities are calculated based on a EUR 0.1 change of the salmon price in all markets (fish between 1-4 kg is measured proportionately based on their level of completion). |
||||||
| 10.2 | 2.1 | 2.0 | 1.8 | 0.7 | 16.8 | |
| Onerous contracts provision (included in other current liabilities in the statement of financial position) | ||||||
| 31.03.2017 | 31.8 |
|---|---|
| Currency translation differences | 0.4 |
| Change in onerous contracts provision in the statement of comprehensive income | (93.2) |
| 31.12.2016 | 124.6 |
| EUR million | Q1 2017 |
|---|---|
| Sea lice mitigation MH Norway | 17.0 |
| Incident-based mortality MH Norway | 5.8 |
| Incident-based mortality MH Scotland | 0.7 |
| Incident-based mortality MH Canada | 0.0 |
| Incident-based mortality MH Chile | 1.4 |
| Incident-based mortality MH Faroes | 0.0 |
| Incident-based mortality MH Ireland | 0.2 |
| Exceptional items in Operational EBIT | 25.2 |
| EUR million | Notes | Q1 2017 | Q1 2016 | 2016 |
|---|---|---|---|---|
| Net interest expenses | -11.9 | -11.9 | -48.4 | |
| Net currency effect on long term positions | -1.1 | -2.0 | 11.6 | |
| Net currency effects on short term positions | 4.5 | -11.2 | -15.5 | |
| Net currency effects on short term currency hedges | -1.0 | 13.1 | 5.6 | |
| Net currency effects on long term currency hedges | -1.3 | -0.9 | 25.2 | |
| Net currency effects | 1.1 | -1.0 | 26.9 | |
| Change in fair value financial instruments | 5.3 | 18.0 | 20.8 | |
| Change in fair value conversion liability component of convertible bonds | 9 | 143.6 | -33.3 | -230.0 |
| Net other financial items | -1.6 | -0.1 | -1.3 | |
| Other financial items | 147.3 | -15.5 | -210.5 | |
| Total financial items | 136.5 | -28.4 | -232.0 |
Basic Earnings per share (EPS) is calculated on the weighted average number of shares outstanding during the period.
Convertible bonds that are "in the money" are considered to have a dilutive effect if EPS is reduced when assuming a full conversion into shares at the beginning of the period and reversing all its effects on earnings for the period. On the other hand, if the effect of the above increases EPS, the bond is considered anti-dilutive, and is then not included in diluted EPS. The adjustments to earnings are interest expenses, currency gains/losses and changes in fair value of conversion liability component, adjusted for estimated taxes. Average diluted number of shares is also affected by the share price based bonus call options to senior executives.
The conversion liability component on the 2014 convertible bond was "in the money" at the end of the reporting period, and the effect on EPS was dilutive, and the convertible bond is therefore included in diluted EPS. The conversion liability component on the 2015 convertible bond was not "in the money" at the end of the reporting period, and a dilution effect has not been calculated.
EUR million
| Statement of financial position | Statement of comprehensive income | ||||
|---|---|---|---|---|---|
| Non-current | Conversion liability components | Net interest | Other financial | ||
| interest bearing debt |
2014-bond | 2015-bond | expenses | items | |
| Initial recognition | |||||
| EUR 375 mill 2014-bond | 309.8 | 59.0 | |||
| EUR 340 mill 2015-bond | 283.1 | 51.6 | |||
| Subsequent measurement | |||||
| Recognized 2014, 2015 and 2016 | |||||
| Interest effects | 44.8 | -54.0 | |||
| Change in fair value of conversion liability components | 263.3 | 65.7 | 329.0 | ||
| Net recognized 2014 and 2015 | -54.0 | 329.0 | |||
| Recognized 2017 | |||||
| Q1 2017 | |||||
| Coupon interest | -0.9 | ||||
| Amortized interest | 7.6 | -5.8 | |||
| Converted | -21.1 | -16.5 | |||
| Change in fair value of conversion liability components | -102.5 | -41.0 | -143.6 | ||
| Net recognized end of period | 624.3 | 203.3 | 76.3 | -6.7 | -143.6 |
The value of the debt liability component and conversion liability component was determined when the bond was issued. The fair value of the debt liability component was calculated using a market interest rate for an equivalent, non-convertible bond. The residual amount was the fair value of the conversion liability component at initial recognition.
The carrying amount of the debt liability component of the convertible bond is classified as non-current interest-bearing debt, and the conversion liability component is classified as other non-current financial liabilities in the statement of financial position.
For information about issue of shares in 2017 through partial conversion of bond, see the "Events" section of this report.
| No of shares | Share capital (EUR million) |
Other paid in capital (EUR million) |
|
|---|---|---|---|
| Share Capital | |||
| Issued at the beginning of 2017 | 450 085 652 | 351.8 | 657.5 |
| New shares issued 1) | 2 214 887 | 1.9 | 34.0 |
| Repayment of paid in capital | -142.8 | ||
| Issued at the end of period | 452 300 539 | 353.7 | 548.7 |
| Treasury Shares | Cost (EUR million) | ||
| Treasury shares at the beginning of 2017 | 0 | 0 | |
| Treasury shares purchased in the period | 697 348 | 11.0 | |
| Treasury shares sold in the period | -697 348 | -3.3 | |
| Treasury shares end of period | 0 | Trade loss 2) : |
7.7 |
1) For information about issue of shares in 2017 through partial conversion of bond, see the "Events" section of this report.
2) The trade loss arises from sale of shares under the share option scheme for senior executives from 2013.
| Name of shareholder | No. of shares | % |
|---|---|---|
| Geveran Trading Co Ltd | 79 551 603 | 17.59% |
| Folketrygdfondet | 30 712 577 | 6.79% |
| Clearstream Banking S.A. | 24 093 064 | 5.33% |
| State Street Bank & Trust Comp | 10 945 262 | 2.42% |
| Citibank, N.A. | 8 652 989 | 1.91% |
| State Street Bank & Trust Comp | 8 517 767 | 1.88% |
| State Street Bank & Trust Comp | 8 444 535 | 1.87% |
| J.P. Morgan Bank Luxembourg S.A. | 8 425 747 | 1.86% |
| State Street Bank & Trust Comp | 6 118 416 | 1.35% |
| Jupiter European Fund | 5 795 670 | 1.28% |
| J.P. Morgan Chase Bank, N.A., London | 4 522 365 | 1.00% |
| J.P. Morgan Chase Bank, N.A., London | 4 306 697 | 0.95% |
| Invesco Funds | 4 255 073 | 0.94% |
| Euroclear Bank S.A./N.V. | 4 102 664 | 0.91% |
| Verdipapirfondet DNB Norge (IV) | 3 411 461 | 0.75% |
| KLP Aksjenorge Indeks | 3 097 483 | 0.68% |
| The Bank Of New York Mellon SA/NV | 2 983 052 | 0.66% |
| J.P. Morgan Chase Bank, N.A., London | 2 798 639 | 0.62% |
| The Bank Of New York Mellon SA/NV | 2 741 262 | 0.61% |
| State Street Bank & Trust Comp | 2 665 020 | 0.59% |
| Total 20 largest shareholders | 226 141 346 | 50.00% |
| Total other | 226 159 193 | 50.00% |
| Total number of shares 31.03.2017 | 452 300 539 | 100% |
In December 2016, Marine Harvest was nominated by the Receiver of the assets owned by the Gray Aqua Group to purchase the assets. Gray Aqua is based on the East Coast of Canada. The acquisition price on a cash and debt free basis was CAD 17 million (equivalent to EUR 12.1 million). The acquisition has been accounted for as a business combination. Marine Harvest has established Marine Harvest Atlantic Canada as the owner of the acquired assets.
At the date of completion of the transaction, March 31, 2017, Marine Harvest could exercise rights over the assets, and hence had obtained control. Thus, March 31, 2017 has been identified as the acquisition date, and the assets have been consolidated into the group financial statements as of this date.
The acquisition is important from a strategic point of view, as it further broadens Marine Harvest's global farming footprint in a country where we are already present on the West Coast. The market for salmon in North-East America continues to develop very favorably, and the acquisition represents as such a compelling value proposition.
The acquired assets include one hatchery in New Brunswick, two farming licenses in New Brunswick, seven farming licenses in Newfoundland, and one processing plant in Newfoundland. Currently no fish has been stocked in the above mentioned licenses. In addition, Gray Aqua has applied for 17 farming licenses in Newfoundland which are yet to be approved. Marine Harvest is currently working on staffing the newly established Marine Harvest Atlantic Canada organization, and is preparing a production plan and an investment framework.
A preliminary purchase price allocation (PPA) was carried out per end of March 2017. The values were preliminary allocated to licenses (EUR 6.8 million) and fixed assets (EUR 5.3 million) in the consolidated statement of financial position per March 31, 2017. Transaction costs amounted to EUR 0.3 million, and except from this, the business combination has not impacted the consolidated statement of comprehensive income in the first quarter of 2017.
This report may be deemed to include forward-looking statements, such as statements that relate to Marine Harvest's goals and strategies, salmon prices, ability to increase or vary harvest volume, production capacity, future capital expenditures and investments and the expected returns therefrom, trends in the seafood industry, restructuring initiatives, exchange rate and interest rate fluctuations, expected research and development expenditures, business prospects and positioning with respect to market, demographic and pricing trends, strategic initiatives, financial target (including ROCE and NIBD), planned operational expenses, product demand and trends, supply trends, expected price levels, and the effects of any extraordinary events and various other matters (including developments with respect to laws, regulations and governmental policies regulating the industry and changes in accounting policies, standards and interpretations) on Marine Harvest's business and results. Forward-looking statements are typically identified by words or phrases, such as "believe," "expect," "anticipate," "intend," "estimate," "may increase," "may fluctuate," "plan," "goal," "target," "strategy," and similar expressions or future or conditional verbs such as "may," "will," "should," "would," and "could." Forward-looking statements are Marine Harvest's current estimates or expectations of future events or future results. Actual results could differ materially from those indicated by these statements because the realization of those results is subject to many risks and uncertainties. Marine Harvest ASA's annual report for the year ended December 31, 2016contains additional information about factors that could affect actual results, including: changes to the price of salmon including the value of our biological assets; hedging risks; risks related to fish feed; economic and market risks; environmental risks; operational risks; risks related to escapes, disease and sea lice; product risks; risks related to our acquisitions; financing risks; regulation risks including relating to food safety, the aquaculture industry, processing, competition and anti-corruption; trade restriction risks; litigation risks; tax and accounting risks; strategic and competitive risks; and reputation risks. All forward-looking statements included in this report are based on information available at the time of the release, and Marine Harvest assumes no obligation to update any forwardlooking statement.
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