EX-99.1 2 a6-kq12016exhibit991.htm EXHIBIT 99.1 SEC Exhibit
 
 
 
Q1
/
2016
/
FIRST QUARTER
 
MARINE HARVEST GROUP
 

Strong Operational EBIT of EUR 112 million
Record-high prices in Europe and Asia
Earnings in Americas impacted by the algal bloom incident in Chile
Initiating restructuring of Marine Harvest Chile
Quarterly dividend of NOK 1.70 per share



© Marine Harvest Group
 
1

 
 
Q1|2016

HIGHLIGHTS - FIRST QUARTER 2016
 
Strong Operational EBIT of EUR 112 million.
Record-high prices in Europe and Asia on high demand and reduced supply.
Strong prices for Marine Harvest Canada, and improving prices for Marine Harvest Chile.
Harvest volume somewhat above guidance for the first quarter.
Increased production cost for Marine Harvest Norway and Marine Harvest Chile, and reduced production costs for Marine Harvest Canada and Marine Harvest Scotland.
Marine Harvest Chile is impacted by exceptional items due to the algal bloom incident.
Initiating restructuring process for Marine Harvest Chile.
Operational EBIT for Consumer Products negatively impacted by losses at the Rosyth plant in Scotland of EUR 7.7 million and the rise in raw material prices. Positive development in our Chilled operations.
Net cash flow per share of EUR 0.21 and underlying earnings per share (EPS) of EUR 0.18.
Return on capital employed (ROCE) 18.1%.
Net interest-bearing debt (NIBD) of EUR 960 million.
A quarterly dividend of NOK 1.70 per share will be paid out to the shareholders as a repayment of paid in capital.

Main figures 1)
Q1 2016

Q1 2015

2015

EUR million
Operational revenue
809.5

735.3

3 121.1

 
 
 
 
Operational EBITDA 2)
147.7

129.7

486.6

Operational EBIT 2)
111.9

95.3

346.8

 
 
 
 
EBIT
192.7

29.0

345.3

Net financial items
-28.4

23.8

-95.2

Profit or loss for the period
128.0

39.7

158.3

 
 
 
 
 
 
 
 
Cash flow from operations
150.1

61.6

233.3

 
 
 
 
 
 
 
 
Total assets
4 253.5

4 136.6

4 196.1

NIBD
960.1

866.5

999.7

 
 
 
 
EPS (EUR)
0.28

0.06

0.36

Underlying EPS (EUR) 3)
0.18

0.14

0.52

Net cash flow per share (EUR) 4)
0.21

-0.04

0.01

Dividend declared and paid per share
0.15

0.14

0.58

ROCE 5)
18.1
%
14.2
%
13.1
%
Equity ratio
45.9
%
51.1
%
45.2
%
 
 
 
 
 
 
 
 
Harvest volume salmon gutted weight tonnes (GWT)
96 613

99 476

420 148

 
 
 
 
 
 
 
 
Operational EBIT per kg (EUR) - Total 6)
1.16

0.96

0.83

 
 
 
 
Norway
1.87

1.52

1.37

Scotland
0.68

0.32

0.35

Canada
1.97

0.58

0.34

Chile
-1.55

-0.73

-0.82

 
 
 
 

1)
This interim report is unaudited. Presentation currency has been changed from NOK to EUR from January 1, 2016, with retrospective application for comparative figures, see Note 2 and Note 13. Q1 2015 figures are restated to include Marine Harvest Chile and Marine Harvest USA as continued operations, as shown in the Q2 2015 report.
2)
Excluding 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.
3)
Underlying EPS: Operational EBIT adjusted for accrued interest payable, with estimated weighted tax rate - per share.
4)
Net cash flow per share: Cash flow from operations and investments, net financial items paid and realized currency effects - per share.
5)
ROCE: Annualized return on average capital employed based on EBIT excluding net fair value adjustment on biomass, onerous contract provisions and other non-operational 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.
6)
Operational EBIT per kg including allocated margin from Feed and Sales and Marketing.

© Marine Harvest Group
 
2

 
 
Q1|2016

PROFIT - FINANCIAL RESULTS IN THE QUARTER
The Group’s profit hinge 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 2015.)
(EUR million)
Q1 2016
Q1 2015
Operational EBIT
111.9

95.3

Change in unrealized internal margin
3.0

1.2

Change in unrealized salmon derivatives
-3.8

-5.5

Net fair value adjustment on biomass
88.0

-73.2

Onerous contract provisions
-14.1

9.6

Restructuring costs
-2.5

0.1

Income from associated companies
10.3

1.4

Impairment losses of fixed assets/intangibles
-0.1

0.1

EBIT
192.7

29.0

Operational EBIT amounted to EUR 111.9 million in the quarter (EUR 95.3 million). The contribution from Feed was EUR 1.6 million (EUR 2.1 million), and Farming contributed with EUR 90.4 million (EUR 75.2 million). Markets contributed with EUR 18.6 million (EUR 18.3 million) and Consumer Products contributed with EUR -0.6 million (EUR -0.2 million).

Operational EBIT of EUR 111.9 million in the quarter was negatively impacted by losses of EUR 7.7 million in our processing plant in Rosyth and EUR 8.4 million related to the algal bloom incident in Chile.

Earnings before financial items and taxes (EBIT) was EUR 192.7 million (EUR 29.0 million), after a net increase in fair value on biological assets of EUR 88.0 million, mainly due to higher prices.

Financial items
(EUR million)
Q1 2016
Q1 2015
Interest expenses
-11.9

-16.6

Net currency effects
-1.0

49.7

Other financial items
-15.5

-9.3

Net financial items
-28.4

23.8

Other financial items include an increase in fair value of conversion liability component of the convertible bond of EUR 33.3 million which is partly offset by a change in fair value of other financial instruments of EUR 18.0 million.



© Marine Harvest Group
 
3

 
 
Q1|2016

Cash flow and NIBD
(EUR million)
Q1 2016
Q1 2015
NIBD beginning of period
-999.7

-1 032.6

Operational EBITDA
147.7

129.7

Change in working capital
34.5

-45.6

Taxes paid
-26.0

-15.2

Other adjustments
-6.2

-7.3

Cash flow from operations
150.1

61.6

Net Capex
-41.0

-58.5

Other investments
-0.8

1.0

Cash flow to investments
-41.8

-57.5

Net interest and financial items paid
-4.7

-14.0

Other items
-12.4

-10.3

Convertible bond converted
0.0

275.7

Dividend / return of paid in capital
-67.0

-56.5

Translation effect on interest-bearing debt
15.4

-32.8

NIBD end of period
-960.1

-866.5


Cash flow from operations amounted to EUR 150.1 million (EUR 61.6 million). Net working capital was reduced in the first quarter due to seasonality and biomass loss in Marine Harvest Chile as a result of the algal bloom incident.

Net Capex was EUR -41.0 million (EUR -58.5 million).

Currency effect on interest-bearing debt of EUR 15.4 million (EUR -32.8 million) during the quarter is mainly due to the strengthening of the EUR against USD.

Quarterly dividend of EUR -67.0 million (EUR -56.5 million), as announced in the report for the fourth quarter of 2015, was distributed as repayment of paid in capital.
GUIDING PRINCIPLE
AMBITION
ACHIEVEMENT
Profitability
ROCE of at least 12% over a cycle (4-5 years)
Q1
18.1%
 
 
YTD
18.1%
Solidity
NIBD target:
March 31, 2016
 
EUR 1 050 million
EUR 960 million
 
Farming NIBD / kg EUR 1.8
Farming NIBD / kg EUR 1.7

© Marine Harvest Group
 
4

 
 
Q1|2016

PROFIT - OPERATIONAL PERFORMANCE AND ANALYTICAL DATA
 
Feed
Farming
Sales and Marketing
Other
Group 1)
 
 
 
 
 
Markets
Consumer Products
 
 
 
 
EUR million
Q1 2016

Q1 2015

Q1 2016

Q1 2015

Q1 2016

Q1 2015

Q1 2016

Q1 2015

Q1 2016

Q1 2015

Q1 2016

Q1 2015

External revenue
2.0

0.1

23.3

10.7

463.8

462.9

318.6

259.9

1.8

1.6

809.5

735.3

Internal revenue
62.5

44.9

486.4

442.5

146.3

80.2

8.7

11.0

5.4

10.1

0.0

0.0

Operational revenue
64.5

45.0

509.7

453.3

610.0

543.2

327.3

270.9

7.2

11.6

809.5

735.3

Operational EBIT
1.6

2.1

90.4

75.2

18.6

18.3

-0.6

-0.2

1.9

-0.1

111.9

95.3

Change in unrealized margin
0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

3.0

1.2

Change in unrealized salmon derivatives
0.0

0.0

-3.5

2.3

0.0

0.0

3.5

-2.3

-3.8

-5.5

-3.8

-5.5

Net fair value adjustment on biomass, onerous contract provisions
-0.3

0.0

75.7

-63.3

0.0

0.0

0.0

0.0

-1.5

-0.3

73.9

-63.6

Restructuring costs
0.0

0.0

-2.5

0.1

0.0

0.0

0.0

0.0

0.0

0.0

-2.5

0.1

Income from associated companies
0.0

0.0

10.3

1.4

0.0

0.0

0.0

0.0

0.0

0.0

10.3

1.4

Impairment losses of fixed assets
0.0

0.0

0.0

0.0

0.0

0.0

-0.1

0.1

0.0

0.0

-0.1

0.1

EBIT
1.3

2.1

170.4

15.7

18.6

18.3

2.8

-2.4

-3.3

-6.0

192.7

29.0

Operational EBIT %
2.5
%
4.8
%
17.7
%
16.6
%
3.0
%
3.4
%
-0.2
 %
-0.1
 %
na

na

13.8
%
13.0
%
1) Group adjusted for eliminations.







Marine Harvest follows 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 country of origin. The table below and upcoming performance review provide information along this line.

Other units reported Operational EBIT of EUR 1.9 million in the quarter (EUR -0.1 million). The currency effects of foreign currency purchases towards EUR are recognized as income/cost of EUR 5.3 million in Marine Harvest ASA and Marine Harvest Markets Norway respectively (in the first quarter of 2015, currency effects of foreign currency sales towards NOK amounted to EUR 6.6 million).
 
SOURCES OF ORIGIN
Other

Group

EUR million
Norway

Scotland

Canada

Chile

Ireland

Faroes

 
 
 
 
 
 
 
 
 
OPERATIONAL EBIT
 
 
 
 
 
 
 
 
Farming
85.1

11.5

19.6

-27.1

-2.6

3.8

 
90.4

 
 
 
 
 
 
 
 
 
Sales and Marketing
 
 
 
 
 
 
 
 
Markets
8.5

3.7

3.1

3.2

0.0

0.1

0.0

18.6

Consumer Products
5.7

-6.7

0.0

0.0

0.0

0.0

0.3

-0.6

Subtotal
99.3

8.5

22.8

-23.9

-2.6

3.9

0.3

108.3

 
 
 
 
 
 
 
 
 
Feed
1.6








1.6

Other entities 1)






1.9

1.9

 
 
 
 
 
 
 
 
 
Total
100.9

8.5

22.8

-23.9

-2.6

3.9

2.3

111.9

 
 
 
 
 
 
 
 
 
Harvest volume (GWT, salmon)
53 984

12 620

11 551

15 384

1 410

1 664

 
96 613

 
 
 
 
 
 
 
 
 
Operational EBIT per kg (EUR) 2)
1.87

0.68

1.97

-1.55

-1.84

2.34

 
1.16

- of which Feed
0.03

0.00

0.00

0.00

0.00

0.00


0.02

- of which Markets
0.16

0.29

0.27

0.21

0.03

0.05

 
0.19

- of which Consumer Products
0.11

-0.53

0.00

0.00

0.00

0.00

 
-0.01

 
 
 
 
 
 
 
 
 
ANALYTICAL DATA
 
 
 
 
 
 
 
 
Price achievement/reference price (%) 3)
92
%
85
%
101
%
95
%
na

105
%
 
93
%
Contract share (%)
55
%
59
%
0
%
9
%
84
%
0
%
 
41
%
Quality - superior share (%)
93
%
92
%
88
%
87
%
87
%
86
%
 
91
%
Exceptional items incl in Operational EBIT
-18.1

0.2

0.0

-9.5

-1.8

-0.2

 
-29.5

Exceptional items per kg (EUR)
-0.34

0.01

0.00

-0.62

-1.25

-0.15

 
-0.31

 
 
 
 
 
 
 
 
 
GUIDANCE
 
 
 
 
 
 
 
 
Q2 2016 harvest volume (GWT)
56 000

12 000

12 000

7 000

1 000

2 000


90 000

2016 harvest volume (GWT)
262 000

54 000

44 000

36 000

8 000

10 000



414 000

Q2 2016 contract share (%)
49
%
63
%
0
%
22
%
0
%
0
%

41
%

1)
Sterling White Halibut, Corporate and Holding companies
2)
Including Sterling White Halibut, Corporate and Holding companies
3)
Sales and Marketing Price achievement

© Marine Harvest Group
 
5

 
 
Q1|2016

MARKET OVERVIEW
Industry
Demand continued to be good in the period and prices increased in all markets. Supply growth was negative in Europe, hence prices developed particularly strong in Europe and Asia. In Americas, prices increased during the quarter due to the algal bloom incident and improved demand. The algal bloom in Chile is expected to influence the global supply and demand balance going forward.

Global harvest of Atlantic salmon amounted to 481 000 tons in the first quarter which was approximately flat compared to the same quarter in 2015. This was slightly higher than expectations driven by more volumes than expected from Norway and Chile.
Supply
Q1 2016

Change vs

12 month

Q4 2015

 
Tons GW

Q1 2015

change

Tons GW

Norway
243 700

-6.1
 %
-0.7
 %
309 900

Scotland
31 000

9.2
 %
2.6
 %
40 800

Faroe Islands
15 900

26.2
 %
2.1
 %
22 500

Ireland
2 300

35.3
 %
29.8
 %
4 100

Total Europe
292 900

-3.1
 %
0.1
 %
377 300

Chile
140 300

5.1
 %
2.3
 %
151 700

North America
32 900

11.9
 %
25.8
 %
36 800

Total Americas
173 200

6.3
 %
6.5
 %
188 500

Australia
10 800

0.9
 %
13.6
 %
11 000

Other
4 100

-2.4
 %
-3.2
 %
4 100

Total
481 000

0.2
 %
2.3
 %
580 900





Volumes from Norway decreased by 6% in the quarter compared to the first quarter of 2015. The decline was slightly less than expected as some farmers harvested early as a result of favorable prices and biological pressure. The average harvest weight has been lower than normal in the period and more individuals than expected have been harvested.

Scottish volumes increased by 9% compared to the same period last year as the industry recovered volume wise from biological challenges seen in the first quarter of 2015. Volumes increased by as much as 26% from the Faroe Islands in the quarter compared to the same quarter in 2015. The growth is mainly driven by Marine Harvest Faroes as we did not have any fish to harvest in the first quarter of 2015.

Volumes from Chile increased by 5% compared to the first quarter of 2015. This was slightly higher than expected and mainly driven by challenging biological conditions in general and forced harvesting seen from some farmers in the beginning of the quarter. However, in March the supply was reduced by 14% as the industry was dealing with the algal bloom incident.

In North America the strong supply growth of 12% was in line with expectations as volumes from Canada continued to grow at good harvest weights.
Reference prices
Q1 2016
Change vs

Q1 2016
Change vs

Market
Q1 2015

NOK
Q1 2015

Norway 1)
EUR 6.15
31.9
%
58.58
43.9
%
Chile 2)
USD 4.30
6.7
%
37.04
18.5
%
Chile, GWE 3)
USD 4.36
9.8
%
37.58
22.0
%
North America 4)
USD 2.92
17.3
%
25.21
30.4
%
North America GWE 3)
USD 5.82
19.5
%
50.17
32.8
%
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 32% compared to the first quarter of 2015. Salmon prices increased by 7% in Miami and 17% in Seattle in USD terms. The price increases were even higher in NOK terms as the NOK weakened versus both EUR and USD in the period.

© Marine Harvest Group
 
6

 
 
Q1|2016

Market
Q1 2016

Change vs

12 month

distribution
Tons GW

Q1 2015

change

EU
221 300

-0.2
 %
3.7
 %
Russia
20 500

11.4
 %
-17.0
 %
Other Europe
17 300

-14.4
 %
-6.1
 %
Total Europe
259 100

-0.5
 %
0.8
 %
US
101 300

12.7
 %
13.4
 %
Brazil
27 600

0.0
 %
4.3
 %
Other Americas
25 700

7.5
 %
3.2
 %
Total Americas
154 600

9.3
 %
9.8
 %
China/Hong Kong
17 600

-3.8
 %
-4.3
 %
Japan
14 400

28.6
 %
2.5
 %
South Korea / Taiwan
10 800

-12.2
 %
4.2
 %
Other Asia
19 600

10.1
 %
2.3
 %
Total Asia
62 400

4.7
 %
0.5
 %
All other markets
24 100

18.7
 %
3.4
 %
Total
500 200

3.9
 %
3.3
 %

Global consumption grew 4% in the first quarter compared with the same period in 2015.

In the EU consumption declined by 0.2% in the quarter. The EU market demonstrated good underlying demand growth across several countries, including in Germany and in Southern Europe. France is still a challenging market, but we see slight improvements. In Russia consumption increased by 11% compared to the first quarter of 2015, as the full effect of the trade sanctions were seen in first quarter of 2015. The Russian salmon market has now stabilised and Chile and Faroe Islands are the two major sourcing areas to Russia.

The good consumption growth seen in the US market continues and volumes increased by 13% in the quarter compared with the same quarter in 2015. Prices in the US increased during the quarter, particular in March due to the algal bloom in Chile. The algal bloom will impact the supply fundamentals and the price outlook amongst market participants. Smolt stockings in Chile continue to significantly contract, and have dropped by as much as 23% over the last six months. Release of approximately 19 000 tonnes of frozen inventory, primarily from Chile, into the global market has contributed to higher consumption than supply in the quarter. In Brazil consumption was flat in the quarter compared to the same quarter last year. This was mainly driven by lack of available volumes in March and Chilean exporters selling salmon into the US market where prices developed stronger.
 
Consumption in the Asian market increased by only 5% in the quarter compared to the same period last year due to shortage of large sized salmon and the prolonged trading barriers in the important Chinese market. In Japan a lack of Coho and trout in the quarter partly explained the high demand for Atlantic salmon.


Source: Kontali and Marine Harvest

© Marine Harvest Group
 
7

 
 
Q1|2016

Marine Harvest
Geographic market presence
Total salmon revenues in the first quarter were distributed as indicated in the graph below. Europe is by far the largest market for Marine Harvest’s salmon with 69% of the total revenues (71%). Strong demand in Germany and Southern Europe drives consumption in Europe for the time being. As a result of the ban on import of salmon from most European production countries, our sales to Russia originate from the Faroe Islands.
Sales by product
The Group’s main specie is Atlantic salmon. The sales revenue distribution across products was as follows in the first quarter:
Fresh whole salmon, represented 40% of total sales revenues (44%), while fresh smoked salmon and fresh and frozen elaborated salmon combined accounted for 48% (45%). The share for smoked and elaborated products decreased somewhat from the fourth quarter of 2015, as the fourth quarter is the traditional peak demand period for our smoked and elaborated products. However, the share for smoked and elaborated products increased compared to the first quarter of 2015, with positive effects from improved operational efficiency in our processing plants and promotions for the Easter holiday.

Branding and product development efforts
We are pleased to announce that the newspaper Lebensmittel Zeitung has awarded Top Brand 2016, in the category smoked/marinated fish, to our Chilled brand Laschinger. We are also glad to see that several Marine Harvest Benelux and France products were in the finals of the 2016 Seafood Expo’s Seafood Excellence Global Award. The special price for convenience was awarded to the product Mini Gourmandises, and the special award for retail packaging was given to our double protection three-web packaging, demonstrated by the product ASC Salmon Traiteur.

In the first quarter we continued our effort to further develop existing brands, including Rebel Fish and Mowi. Our premium brand, Mowi had a positive development in the Asian market compared to the first quarter of 2015, with volume growth of 37%.

Price achievement
Supply contraction contributed to higher prices in North America in the first quarter. Prices in the European market were also significantly higher than in the first quarter of 2015 due to lower volumes available for harvest. Sales in the first quarter of 2015 were partly affected by the market disruptions caused by the Russian ban on salmon of Norwegian and Scottish origin starting in August 2014.

© Marine Harvest Group
 
8

 
 
Q1|2016

* Price achievement to the five farming units, Norway, Scotland, Canada, Chile and Faroes.

The reference price was 26% higher in the first quarter of 2016 compared to the first quarter of 2015. The combined global price achieved was 7% below the reference price in the period. In the first quarter of 2015, the global price achieved was 4% above the reference price. Contribution from contracts relative to the reference price was positive in the first quarter of 2015, but negative in the first quarter of 2016.
Markets
 
 
 
 
Q1 2016
Norwegian

Scottish

Canadian

Chilean

Contract share
55
%
59
%
0
%
9
%
Quality - superior share
93
%
92
%
88
%
87
%
Price achievement
92
%
85
%
101
%
95
%
The average price achievement is measured vs reference prices in all markets (NASDAQ for Norwegian and Faroese, derived NASDAQ (NASDAQ + GBP 0.11) for Scottish salmon, and Urner Barry for Chilean and Canadian salmon). The premium for Scottish salmon compared to NASDAQ was below the normal level due to higher availability of Scottish salmon and reduced availability of Norwegian supply.
The ambition over time is to exceed the relevant reference price in all markets.

© Marine Harvest Group
 
9

 
 
Q1|2016

PROFIT - OPERATIONAL PERFORMANCE
Salmon of Norwegian origin
EUR million
Q1 2016

Q1 2015 restated

 
 
 
Operational EBIT
100.9

99.1

 
 
 
Harvest volume (GWT)
53 984

65 203

 
 
 
Operational EBIT per kg (EUR)
1.87

1.52

- of which Feed
0.03

0.03

- of which Markets
0.16

0.15

- of which Consumer Products
0.11

0.00

 
 
 
Exceptional items incl in op. EBIT
-18.1

-13.0

Exceptional items per kg (EUR)
-0.34

-0.20

 
 
 
 
 
 
Price achievement/reference price
92
%
102
%
Contract share
55
%
33
%
Superior share
93
%
92
%
 
 
 


Operational EBIT per kg
Operational EBIT amounted to EUR 100.9 million (EUR 99.1 million) in the first quarter, which was EUR 1.87 per kg (EUR 1.52). The profitability in the four Norwegian regions showed significant variation in the first quarter with EUR 0.54 per kg separating the best performing region (Region North) from the lowest performing region (Region South). This is due to high biological costs as a consequence of a lower performing generation of fish harvested in the quarter. Spot prices in the first quarter were higher than in the corresponding period in 2015. However, a higher contract share, and cost increase driven by lower average weight and higher feed and lice mitigation costs, partially offset the significant increase in the spot price. Exceptional items related to mortality and lice mitigation amounted to EUR 18.1 million in the first quarter (EUR 13.0 million).

Price and volume development
The reference price for Salmon of Norwegian origin increased by 32% compared to the first quarter of 2015 due to lower supply. The average reference price in the first quarter was EUR 6.15 per kg compared to EUR 4.67 per kg in the first quarter of 2015.

Marine Harvest had a contract share of 55% for salmon of Norwegian origin in the first quarter, compared to 33% in the first quarter of 2015. The overall price achieved was 8% below the reference price in the quarter (2% above) due to negative contract contribution in a market with an increasing spot price. The superior share was 93% (92%).

Harvested volume in the first quarter was 53 984 tonnes gutted weight (65 203 tonnes gutted weight). The volume available for harvest was lower than in the first quarter of 2015 due to advanced harvest in 2015 following lice issues, particularly in Region Mid.























© Marine Harvest Group
 
10

 
 
Q1|2016

Costs and operations
The biological cost of harvested fish increased by 22% compared to the first quarter of 2015. The cost of feed per kg harvested salmon was up by 12% compared to the corresponding quarter in 2015 as a result of increased feed conversion rate and somewhat increased price of feed. 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 2016 continued to increase compared to the corresponding quarter in 2015. The estimated exceptional cost related to sea lice mitigation and losses amounted to EUR 17.2 million (EUR 12.3 million) in the first quarter of 2016. Per kg harvested, exceptional sea lice mitigation costs amounted to EUR 0.32 (EUR 0.19) in the quarter.

Incident based mortality losses in the amount of EUR 2.6 million were recognized in the quarter, of which EUR 1.7 million is included in the cost of lice mitigation and losses above. Losses from incident based mortality in the first quarter of 2015 were EUR 1.6 million.

The primary challenge for the Norwegian farming operations continues to be sea lice, and substantial effort is put in to mitigate and solve the challenge.

The cost development is concerning, and we expect high costs also in the second quarter of 2016.




© Marine Harvest Group
 
11

 
 
Q1|2016

Salmon of Norwegian origin by region
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 (GWT)
11 189

18 544

9 055

15 196

53 984

 
 
 
 
 
 
Operational EBIT per kg (EUR)
1.54

2.06

1.56

2.08

1.87

 
 
 
 
 
 
 
 
 
 
 
 
Superior share
94
%
94
%
93
%
92
%
93
%
 
 
 
 
 
 
 
 
 
 
 
 
Regions
South
West
Mid
North
Total
EUR million
Q1 2015 restated
Q1 2015 restated
Q1 2015 restated
Q1 2015 restated
Q1 2015 restated
 
 
 
 
 
 
Operational EBIT
19.9

34.5

23.0

21.7

99.1

 
 
 
 
 
 
Harvest volume (GWT)
13 868

19 647

16 827

14 862

65 203

 
 
 
 
 
 
Operational EBIT per kg (EUR)
1.43

1.76

1.37

1.46

1.52

 
 
 
 
 
 
 
 
 
 
 
 
Superior share
93
%
93
%
88
%
93
%
92
%

Region South
Operational EBIT was EUR 17.2 million in the first quarter (EUR 19.9 million), or EUR 1.54 per kg (EUR 1.43).
The cost per kg harvested fish was very high in the quarter due to a high number of poor performers, which caused a significant number of discarded fish during harvest and increased feed conversion rate. Mortality, lice mitigation and treatment costs increased biological costs in the first quarter of 2016 compared to the first quarter of 2015.
Volume harvested was 11 189 tonnes gutted weight (13 868 tonnes). The volume reduction contributed to increased non-seawater cost per kg (scale effects).
There was no incident based mortality in the first quarter of 2016.
Seawater production was lower than the comparable quarter in 2015, but positively affected by improved growth conditions.
Sea lice remains a concern. Non-medicinal lice treatment tools are expected to provide better control and increase survival during treatments.

Region West
Operational EBIT was EUR 38.1 million in the first quarter (EUR 34.5 million), or EUR 2.06 per kg (EUR 1.76).
Mortality, lice mitigation and treatment costs increased biological costs in the first quarter of 2016 compared to the first quarter of 2015. Corrective measures will be taken in order to reduce lice challenges and mortality losses relating to treatments, including increased use of non-medicinal lice treatment tools and lice prevention measures.
Volume harvested was 18 544 tonnes gutted weight (19 647 tonnes). The volume decrease contributed to increased non-seawater cost per kg (scale effects).
Seawater production was lower than the comparable quarter in 2015 due to mortality and reduced appetite.
Incident based mortality in the amount of EUR 1.7 million was recognized in the quarter due to lice treatment losses.

© Marine Harvest Group
 
12

 
 
Q1|2016

 








Region Mid
Operational EBIT was EUR 14.1 million in the first quarter (EUR 23.0 million), or EUR 1.56 per kg (EUR 1.37).
The cost per kg harvested fish was very high in the quarter due to high lice mitigation costs and high mortality.
Volume harvested was 9 055 tonnes gutted weight (16 827 tonnes). The volume reduction contributed to increased non-seawater cost per kg (scale effects).
Incident based mortality in the amount of EUR 0.9 million was recognized in the quarter due to tank breakdown at a freshwater site causing smolt losses. The incident is insured, but the final insurance compensation is yet to be determined.
Seawater production was positively affected by favorable temperatures.
Sea lice remains a significant challenge in this region, and we continue our effort to keep adult females at target levels. We plan to increase the use of non-medicinal lice treatment tools.




Region North
The best performing region in Marine Harvest Norway in the first quarter of 2016 measured in Operational EBIT per kg. Operational EBIT was EUR 31.6 million in the first quarter (EUR 21.7 million), or EUR 2.08 per kg (EUR 1.46).
Lice mitigation costs increased biological costs in the first quarter of 2016 compared to the first quarter of 2015. Sea lice levels are generally stable. Non-medicinal lice treatment tools combined with our new sea lice strategy have contributed to the good fish health situation in the region.
Volume harvested was 15 196 tonnes gutted weight (14 862 tonnes).
There was no incident based mortality in the first quarter of 2016.
Seawater production was good in the quarter due to favorable sea water temperatures and a good health situation.

© Marine Harvest Group
 
13

 
 
Q1|2016

Salmon of Scottish origin
EUR million
Q1 2016

Q1 2015 restated

 
 
 
Operational EBIT
8.5

2.3

 
 
 
Harvest volume (GWT)
12 620

7 112

 
 
 
Operational EBIT per kg (EUR)
0.68

0.32

- of which Markets
0.29

0.21

- of which Consumer Products
-0.53

0.00

 
 
 
Exceptional items incl in op. EBIT
0.2

-0.4

Exceptional items per kg (EUR)
0.01

-0.05

 
 
 
 
 
 
Price achievement/reference price
85
%
117
%
Contract share
59
%
68
%
Superior share
92
%
90
%
 
 
 
















Operational EBIT per kg
Operational EBIT amounted to EUR 8.5 million in the first quarter (EUR 2.3 million), which was EUR 0.68 per kg (EUR 0.32). Operational EBIT is negatively affected by allocated losses from the Rosyth processing operation in the amount of EUR 6.8 million.

Price and volume development
The reference price in local currency was up by approximately 38% in the first quarter of 2016 compared to the first quarter of 2015, due to reduced supply from European suppliers, lack of available domestic salmon and strong European demand.

Price achievement for salmon of Scottish origin relative to the reference price is impacted by negative margin on sales from the Rosyth processing plant. Adjusted for this, price achievement is 94%. Negative contract contribution in a market with increasing spot price has also impacted price achievement compared to the first quarter of 2015. In the first quarter of 2015, contract contribution was positive due to favorable contract prices and a high contract share. Although our price achievement compared to the reference price was lower in the first quarter of 2016, the absolute price achieved has increased compared to the first quarter of 2015 mainly due to an increased reference price.

The first quarter harvest volume was 12 620 tonnes gutted weight which is an increase from the corresponding quarter in 2015 (7 112 tonnes). Harvest volumes are now back to a more normal level, while harvest volumes in the first quarter of 2015 were negatively affected by health issues and related mortality losses.

Costs and operations
Even though biological costs were high in the first quarter of 2015 due to biological challenges and mortality, biological costs per kg















© Marine Harvest Group
 
14

 
 
Q1|2016










harvested have increased further by 11% in the first quarter of 2016. This is mainly caused by increased feed costs in the first quarter of 2016 due to higher feed conversion rate and higher feed prices. Other seawater costs have also increased due to higher costs related to treatments.

Non-seawater costs per kg harvested decreased in the first quarter of 2016 compared to the first quarter of 2015 due to lower costs related to incident based mortality as well as positive scale effects from higher volumes. EUR 1.4 million in incident based mortality was recognized in the quarter (EUR 0.7 million), relating to lice treatments. However, net effect from incident based mortality recognized in the first quarter of 2016 was positive with EUR 0.2 million after effect from insurance on prior incidents (EUR -0.4 million in negative net effect in the first quarter of 2015).

Biological challenges continue to contribute to a high cost level for salmon of Scottish origin. A strong GBP towards the NOK in the last quarters has further reduced competitiveness for Scottish salmon. The recent weakening of GBP towards the NOK is expected to have positive effects. Also, the ongoing restructuring process aims to make Marine Harvest Farming Scotland more efficient and sustainable. Consultations with staff have been completed, with 80 lay-offs confirmed. However, it will take some time before the measures taken in Scotland will materialize in improved earnings.

We expect higher costs in the second quarter compared to the first quarter.





© Marine Harvest Group
 
15

 
 
Q1|2016

Salmon of Canadian origin
EUR million
Q1 2016

Q1 2015 restated

 
 
 
Operational EBIT
22.8

6.1

 
 
 
Harvest volume (GWT)
11 551

10 478

 
 
 
Operational EBIT per kg (EUR)
1.97

0.58

- of which Markets
0.27

0.07

- 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
101
%
99
%
Contract share
0
%
0
%
Superior share
88
%
86
%
 
 
 




Operational EBIT per kg
Operational EBIT amounted to EUR 22.8 million in the first quarter (EUR 6.1 million), which was EUR 1.97 per kg (EUR 0.58). The increase in operational EBIT compared to the first quarter of 2015 is mainly due to improved spot market prices and strengthening of the market currency.

Price and volume development
The North American market for fresh whole Canadian salmon was good in the first quarter, with limited imports of larger sizes in the North American market from Europe, reduced supply from Chile and promotions for the Easter holiday. The average price per lb gutted weight (Urner Barry 10-12 lb) was USD 2.83 per lb, compared to USD 2.49 in the first quarter of 2015. Average prices towards the end of the first quarter of 2016 temporarily reached USD 3.60 per lb.
Price achievement in the first quarter was 1% above the reference price (1% below in the first quarter of 2015). There were no contracts for salmon of Canadian origin in the first quarter of 2016 and 2015. The superior share was 88% in the quarter (86%).



















© Marine Harvest Group
 
16

 
 
Q1|2016

Harvested volume was 11 551 tonnes gutted weight in the first quarter (10 478 tonnes). The increase in harvest volume compared to the first quarter of 2015 is mainly due to higher biomass at the beginning of the quarter. Production has been at the same level as in the first quarter of 2015.

Costs and operations
Biological costs per kg salmon harvested in the quarter decreased by 1% compared to the first quarter of 2015. Feed costs were on the same level as in the first quarter of 2015, and higher costs related to mitigation of lice have been offset by reduction of other biological costs. In addition, non-seawater costs have been reduced. All in all, full costs for the harvested fish is down compared to the first quarter of 2015, much due to a good biological situation in our Canadian farming operations. However, we expect higher costs going forward.
There was no incident based mortality in the first quarter of either 2016 or 2015.






© Marine Harvest Group
 
17

 
 
Q1|2016

Salmon of Chilean origin
EUR million
Q1 2016

Q1 2015 restated

 
 
 
Operational EBIT
-23.9

-11.7

 
 
 
Harvest volume (GWT)
15 384

16 067

 
 
 
Operational EBIT per kg (EUR)
-1.55

-0.73

- of which Markets
0.21

0.37

- of which Consumer Products
0.00

0.00

 
 
 
Exceptional items incl in op. EBIT
-9.5

-5.8

Exceptional items per kg (EUR)
-0.62

-0.36

 
 
 
 
 
 
Price achievement/reference price
95
%
112
%
Contract share
9
%
12
%
Superior share
87
%
87
%
 
 
 



Operational EBIT per kg
Operational EBIT amounted to EUR -23.9 million in the first quarter (EUR -11.7 million) which was EUR -1.55 per kg (EUR -0.73). The main drivers behind the increased loss are costs related to the algal bloom incident in Region X and a more challenging biological situation.

Price and volume development
The Urner Barry reference price for Chilean salmon was up by 7% compared to the first quarter of 2015. However, compared to the fourth quarter of 2015, the reference price was up by as much as 35%, due to the algal bloom incident.

Biological issues adversely affecting average harvest weight and quality caused low spot price achievement. The contract share was 9% in the period, compared to 12% in the first quarter of 2015.

Harvested volume was 15 384 tonnes gutted weight in the first quarter (16 067 tonnes).

Costs and operations
Compared to the first quarter of 2015, costs in our Chilean operations have increased further in the first quarter of 2016. Biological costs increased by 11% due to poor growth as a consequence of challenging biology. Non-seawater costs have increased due to the incident based mortality losses. Operational cost in box was USD 5.35 per kg in the first quarter of 2016.

























Incident based mortality losses amounting to EUR 9.5 million were recognized in the first quarter of 2016. The severe algal bloom in February and March caused mass mortality affecting several sites in region X. Incident based mortality losses related to the algal

© Marine Harvest Group
 
18

 
 
Q1|2016

bloom amount to EUR 8.4 million in the first quarter of 2016. This amount represents clean-up costs, insurance policy deductibles and other uncovered costs. Other incident based mortality losses in the first quarter of 2016 relate to SRS (Salmonid Rickettsial Septicaemia) in January. In the same quarter prior year, incident based mortality losses of EUR 5.8 million were recognized related to poor performing smolt and culling of poor performing fish.

Restructuring of Marine Harvest Chile
To manage the current situation of biomass lost due to the algal bloom incident described above, as well as poor financial performance, Marine Harvest Chile has initiated a restructuring process to cut costs to become more competitive in the future. For this purpose, management has decided to restructure the business unit and review all costs, all contractors, all suppliers and all job positions in the company. In order to turn Marine Harvest Chile into a profitable company in the long term, a short-term reduction in our Chile operations is required, and Marine Harvest has decided to reduce its workforce in Chile by up to 500 employees. In connection with the restructuring process, Marine Harvest Chile is expected to recognize a write-down of fixed assets of approximately USD 16 million and a restructuring provision of approximately USD 3 million in the second quarter of 2016. Expected savings are approximately USD 8-10 million per year. Lower volumes will negatively impact production costs per kg for the remainder of the year.









© Marine Harvest Group
 
19

 
 
Q1|2016

Salmon of Irish origin
EUR million
Q1 2016

Q1 2015 restated

 
 
 
Operational EBIT
-2.6

0.0

 
 
 
Harvest volume (GWT)
1 410

616

 
 
 
Operational EBIT per kg (EUR)
-1.84

-0.06

- of which Markets
0.03

0.01

- of which Consumer Products
0.00

0.03

 
 
 
Exceptional items incl in op. EBIT
-1.8

0.0

Exceptional items per kg (EUR)
-1.25

0.00

 
 
 
 
 
 
Price achievement/reference price
na

na

Contract share
84
%
95
%
Superior share
87
%
92
%
 
 
 

Operational EBIT amounted to EUR -2.6 million in the first quarter (EUR 0 million), which was EUR -1.84 per kg (EUR -0.06 per kg).
Achieved prices were 3% higher in the first quarter of 2016 than in the first quarter of 2015.

The cost of harvested fish has increased due to very challenging weather conditions, hampered feeding and biological challenges. Harvest volume was 1 410 tonnes gutted weight (616 tonnes).

Incident based mortality losses in the amount of EUR 1.8 million due to physical damages were recognized in the first quarter (no incident based mortality in the first quarter of 2015).

The appeal period following the issuance of our new license in the South West region has been extended to the end of November 2016. We will therefore not be able to utilize this license in the near term.




 


















© Marine Harvest Group
 
20

 
 
Q1|2016

Salmon of Faroese origin
EUR million
Q1 2016

Q1 2015 restated

 
 
 
Operational EBIT
3.9

-0.1

 
 
 
Harvest volume (GWT)
1 664

0

 
 
 
Operational EBIT per kg (EUR)
2.34

0.00

- of which Markets
0.05

0.00

- of which Consumer Products
0.00

0.00

 
 
 
Exceptional items incl in op. EBIT
-0.2

0.0

Exceptional items per kg (EUR)
-0.15

0.00

 
 
 
 
 
 
Price achievement/reference price
105
%
0
%
Contract share
0
%
0
%
Superior share
86
%
0
%
 
 
 


Operation EBIT amounted to EUR 3.9 million (EUR -0.1 million), which was EUR 2.34 per kg. This is the second quarter in a row with harvesting in the Faroe Islands. There was no harvesting in the first three quarters of 2015.

The majority of the harvested salmon in the first quarter of 2016 was sold to Russia at favorable prices.

Mortality losses amount of EUR 0.2 million due to write-down of smolt destined for third parties. Compared to the fourth quarter of 2015, biological costs have increased by 4%, with lice being an important operational concern. Alternative treatment options have been put in place during the quarter.

In the first quarter of 2016, a fee on harvesting revenue was introduced by the authorities in the Faroe Islands. The fee negatively impacts operational EBIT in the quarter by EUR 0.5 million.



© Marine Harvest Group
 
21

 
 
Q1|2016

Consumer Products
EUR million
Q1 2016

Q1 2015

 
 
 
Operating revenues
327.3

270.9

 
 
 
Operational EBIT
-0.6

-0.2

Operational EBIT %
-0.2
 %
-0.1
 %
 
 
 
 
 
 
Volume sold (tonnes product weight)
30 099

25 814

 
 
 
Exceptional items
0.0

0.0

 
 
 
Volume share salmon
75
 %
69
 %
Revenue share salmon
79
 %
74
 %
 
 
 
Please note that the operational EBIT for salmon in Consumer Products is also included in the results per country of origin.


Operational EBIT
Operational EBIT for Consumer Products ended at EUR -0.6 million (EUR -0.2 million). The operational EBIT margin was -0.2% (-0.1%). Operational EBIT in the first quarter has been heavily affected by the losses in our plant in Rosyth of EUR 7.7 million. However, underlying operational EBIT has improved in the first quarter of 2016 compared to the same quarter previous year.

Consumer Products has activities in two areas: Fresh and Chilled (smoked). For our Chilled operations, we have seen a significant improvement of operational EBIT compared to the first quarter of 2015. For our Fresh operations in Benelux and France, operational EBIT has decreased somewhat compared to the first quarter of 2015. The negative performance of our Rosyth processing plant in Scotland significantly affects operational EBIT for our Fresh operations.

Price and volume development
Consumer Products’ operating revenues were EUR 327.3 million (EUR 270.9 million). The average price achieved per sold volume in the first quarter increased compared to the corresponding quarter in 2015 for both the Chilled and Fresh operations. For our Fresh operations, the price increase has followed the general increase in raw material prices. For our Chilled operations, the price has increased due to sale of seasonal products with higher prices and successful promotions.

Total volume sold in the first quarter of 2016 was 30 099 tonnes product weight, which is an increase of 17% compared to the first quarter of 2015. The volume has increased for both Chilled and Fresh sales. Salmon sales volume has increased by 28%. Salmon’s share is 75% (69%).

We are experiencing good growth in the German and South European markets. Despite increased prices in France, we continue to see some development in this market. In the UK we are experiencing growth due to full range production for a major retail customer.







© Marine Harvest Group
 
22

 
 
Q1|2016



We continue our effort to grow sales through the introduction of new products and through cross-selling of existing products.

Costs and operations
Our Chilled operations were profit-making, while our Fresh operations were loss-making in the first quarter. The losses in our Fresh operations were mainly due to the plant in Rosyth.




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

 
 
 
 
 
 
 
 
Consumer Products
Q1 2015
EUR million
Fresh

Chilled

Total

Volume sold (tonnes prod wt)
9 024

16 790

25 814

Operational EBIT
-0.1

-0.1

-0.2

Operational EBIT per kg (EUR)
-0.01

-0.01

-0.01


Losses in the Rosyth entity in the first quarter were EUR 7.7 million (loss of EUR 1.4 million). Actions have been taken to improve efficiency and yield. However, the coming months will remain challenging for this entity, with a likely loss of approximately EUR 4 million in the second quarter of 2016. We are aiming for break-even during the third quarter of 2016.

For our other Fresh operations, costs are negatively affected by higher raw material costs, as a result of increased salmon prices. Operational EBIT for our Fresh operations amount to EUR -6.9 million in the quarter (EUR -0.1 million), i.e. EUR -0.55 per kg.

In our Chilled (smoked) operations, the contract portfolio has resulted in improved profitability. Operational EBIT for our Chilled operations amounted to EUR 6.3 million in the quarter (EUR -0.1 million), i.e. EUR 0.36 per kg.


© Marine Harvest Group
 
23

 
 
Q1|2016

Feed
EUR million
Q1 2016

Q1 2015

 
 
 
Operating revenues
64.5

45.0

 
 
 
Operational EBIT
1.6

2.1

Operational EBIT %
2.5
%
4.8
%
 
 
 
 
 
 
Feed sold volume
53 807

38 037

Feed produced volume
50 407

36 422

 
 
 
Exceptional items
0

0

 
 
 
Please note that the operational EBIT for Feed is also included in the results per country of origin (currently only Norway).

Operational EBIT
Volumes sold in the first quarter of 2016 were higher than in the first quarter of 2015 mainly due to discontinued third party supply. Operational EBIT was EUR 1.6 million (EUR 2.1 million) in the first quarter of 2016. The operational EBIT margin was 2.5% (4.8%).

Price and volume development
Operating revenues were EUR 64.5 million in the first quarter (EUR 45.0 million). Volumes sold in the first quarter were 53 807 tonnes, compared to 38 037 tonnes in the first quarter of 2015. Volumes sold in the first quarter accounted for 86% of total feed used in our Norwegian farming operations in the first quarter of 2016 (59% in the first quarter of 2015).

The volume increase from the first quarter of 2015 is a result of discontinued third party supply and improved operational efficiency. We continue our efficiency improvement projects and our latest plant upgrades are expected to result in a volume increase which would take the production capacity of the Bjugn plant up to about 310 000 tonnes per year.

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 towards third party suppliers both with regards to price and quality.
Costs and operations
Costs in the first quarter have been negatively impacted by quality claims which have caused a short term increase in production costs. Measures have been taken to solve these issues.

Underlying raw material prices have been stable, but actual costs have increased due to currency effects. It is not expected that Peru will return to being a major source of fish meal and fish oil until the second half of 2016 and other sources have therefore been explored. We continue our work to substitute raw materials in order to develop the optimal diets.

Given the significant increase in fish feed self-sufficiency, we target further reduction in the third party share of feed going forward. We have decided that our location for our new feed plant in Scotland is Kyleakin, and have initiated community consultations.

We also continue our production of smolt and broodstock diets to reduce the dependency on third party feed purchases.


© Marine Harvest Group
 
24

 
 
Q1|2016

PEOPLE - SAFE AND MEANINGFUL JOBS

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.

Employee Health and Safety
In the first quarter, the Group recorded 63 Lost Time Incidents (LTIs), which is an increase of 1 from the first quarter of 2015. Measured in LTIs per million hours worked (rolling average), the figure has been stable year-over-year at 11.11 (11.73).

Absenteeism increased to 5.1% in the first quarter of 2016 from 4.9% in the same quarter in 2015.

Restructuring in Marine Harvest Chile
In order to turn Marine Harvest Chile into a profitable company, a short-term reduction in our Chile operations is unavoidable. Marine Harvest has decided to reduce its manning in Chile by up to 500 employees. We are sorry to see staff leaving, but have to ensure the business is sustainable and fit to meet the challenges we face moving forward.
 
GUIDING PRINCIPLE - ISSUE
AMBITION
Q1 2016 Achievement
 
Safe jobs
No lost time incidents (LTI)
LTIs per million hours worked was 11.11. Programs are in place to reduce the number.
 
 
Healthy working environment
Absenteeism < 4%
Absenteeism of 5.1% in the quarter.
 
 




© Marine Harvest Group
 
25

 
 
Q1|2016

PRODUCT - TASTY AND HEALTHY SEAFOOD

We aim to continually deliver healthy, tasty and responsibly produced seafood to our customers to deliver long-term financial profitability.

Product development efforts continue

Consumer Products in Europe
We continue our branding efforts and are pleased to announce that Laschinger, our Chilled brand in Germany, Austria and Switzerland, has been awarded Top Brand 2016 in the category smoked/marinated fish by the newspaper Lebensmittel Zeitung. We are also glad to see that several of our products were in the finals of the 2016 Seafood Excellence Global Award at the Brussels Seafood Expo. The special price for convenience was awarded to the product Mini Gourmandises, and the special award for retail packaging was given to to our double protection three-web packaging, demonstrated by the product ASC Salmon Traiteur.

Rebel Fish
We also continued our efforts to grow Rebel Fish in the first quarter. The Rebel Fish packaging has undergone a makeover, which made its debut at the 2016 Boston Seafood Show.

Mowi
Our premium brand, Mowi, continued the positive development in the Asian market, with volume growth of 37% compared to the first quarter of 2015.

Skin-packed products in the US
Our fresh skin-packed products in the US market continue the positive development with a growth of almost 50% compared to the fourth quarter of 2015. First quarter sales were approximately 1 330 tonnes product weight for all species combined.

U.S. Dietary Guidelines for Americans praises seafood
The January release of the 2015-2020 U.S. Dietary Guidelines for Americans (DGAs) illustrates a continuous focus by nutrition experts on seafood as a fundamentally important food. Throughout the report seafood is highlighted as an “important source” of nutrients, lauded for its “health benefits” and praised for its role in “reducing risk” of heart disease.



 
GUIDING PRINCIPLE - ISSUE
AMBITION
Q1 2016 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.
 
 

© Marine Harvest Group
 
26

 
 
Q1|2016

PLANET - SUSTAINABLE AND RESPONSIBLE DEVELOPMENT

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.

 



Escape prevention
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 5 escape incidents in the first quarter: 2 in Norway, 2 in Canada and 1 in Ireland. Approximately 6 900 fish escaped in total (38 500 in the first quarter of 2015); 1 300 in Norway (first quarter of 2015: 30 500), 2 600 in Canada and 3 000 in Ireland. There were no escape incidents in our other regions (first quarter of 2015: 8 000 escaped fish in Chile). The reasons were a combination of human error and an issue with the netting material (Canada) and very challenging weather conditions (Ireland). Remediating actions have been taken. The reasons for the escapes in Norway are yet to be determined.

Fish health
Algal Bloom in Chile: The Northern part of Region X was affected by a severe algal bloom (causative agent Chattonella) in the first quarter of 2016. This alga has been detected several times in the past but on this occasion the abundance was of an unprecedented magnitude, resulting in significant mortality. A rapid increase in seawater temperature is believed to be responsible, likely caused by El Niño. Despite early detection and implementation of mitigation measures these were unable to cope with the rapid development of the bloom.

Pancreas Disease (PD): Two new sites were diagnosed with PD in Norway in the first quarter, compared to none in the first quarter of 2015. There was one new site diagnosed with PD in Scotland and one in Ireland in the first quarter of 2016 (two sites in Ireland in the first quarter of 2015). PD was a cause of reduced survival in Norway, Scotland and Ireland in the first quarter.

Amoebic Gill Disease (AGD): High presence of a microscopic amoeba named Paramoeba perurans, has been causing Amoebic Gill Disease, and elevated mortality and reduced performance in Scotland and Ireland. 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. The Group’s fish health teams and seawater production departments take immediate action when challenges arise.

Infectious Salmon Anaemia (ISA): ISA is not considered a major
disease risk in any of our operations by the end of the first quarter. Our monitoring and surveillance continues and we continue to support strict measures to immediately harvest out sites with ISA.

Lice management
Marine Harvest actively works to reduce the sea lice load in all farming units. Canada and region North in Norway reported lower sea lice levels at the end of the first quarter of 2016 than at the corresponding time in 2015. Chile and Regions South, West and Mid in Norway, reported only slight increases compared to the first quarter of 2015, while Scotland and Faroes reported higher sea lice levels than the corresponding period in 2015.

The lice count in Chile is currently controlled by medicines used in rotation, including Salmosan. Extensive commercial testing of non-medicinal tools and approaches continue in collaboration between Marine Harvest's Global R&D and Technical department and operating units.

SRS a growing concern for salmon farming in Chile
Salmonid Rickettsial Septicaemia (SRS) is caused by an intracellular bacterium. It occurs mainly in Chile and over the past months we have seen a significant increase in the need for treatment. 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, and incident based mortality related to SRS was recognized. SRS is currently a major biological concern in Chilean salmon farming. A new vaccine was launched in the first quarter. The industry has positive expectations, but effects in field under commercial conditions are still to be verified.

Medicine use
Marine Harvest focuses on preventing infectious diseases and limiting their spread. If fish get infected, they are treated with approved medicines. In the first quarter, our use of antibiotics was reduced with 66 grams per ton biomass from 170 grams per ton in the first quarter of 2015.

Additional farms ASC certified
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 2016 we had 44 sites certified (35 in Norway, 2 in Scotland, 1 in Ireland, 3 in Canada and 3 in Chile). Several additional sites have been audited and are expected to be certified in 2016. Marine Harvest is taking the lead in ASC implementation and we are committed to

© Marine Harvest Group
 
27

 
 
Q1|2016

demonstrate an environmentally responsible development in our organization. For further information regarding sustainability and biological risk management, reference is made to the 2015 Annual Report.
 
GUIDING PRINCIPLE - ISSUE
AMBITION
Q1 2016 Achievement
 
Ensure sustainable wild-farmed interaction in the farming activity
Zero escapes
Five escape incidents and approximately 6 900 fish lost (three incidents with 38 500 fish lost in the first quarter of 2015)
 
 
Ensure healthy stocks minimising diseases and losses in the farming activities
Monthly survival rate of at least 99.5% within 2020
Average survival rate in the quarter of 98.7% (compared to 98.9% in the first quarter of 2015)
 
 

© Marine Harvest Group
 
28

 
 
Q1|2016

EVENTS DURING AND AFTER THE CLOSE OF THE QUARTER

Restructuring in Marine Harvest Chile
To manage the current situation of biomass lost due to the algal bloom incident, as well as poor financial performance, Marine Harvest Chile has initiated a restructuring process to cut costs to become more competitive in the future. For this purpose, management has decided to restructure the business unit and review all costs, all contractors, all suppliers and all job positions in the company. In order to turn Marine Harvest Chile into a profitable company in the long term, a short-term reduction in our Chile operations is required, and Marine Harvest has decided to reduce its workforce in Chile by up to 500 employees. In connection with the restructuring process, Marine Harvest Chile is expected to recognize a write-down of fixed assets of approximately USD 16 million and a restructuring provision of approximately USD 3 million in the second quarter of 2016. Expected savings are approximately USD 8-10 million per year. Lower volumes will negatively impact production costs per kg for the remainder of the year.

Marine Harvest Norway applies for 14 more development licenses
Marine Harvest has applied for 6 development licenses for testing and development of a new offshore submersible concept called Beck Cage, and 8 development licenses for testing and development of a new closed-end farming concept called Marine Donut. This comes in addition to Marine Harvest's application for 14 development licenses for testing and development of a new closed-end farming composite technology called the Egg, as described in our report for the fourth quarter of 2015. All of these concepts offer advantages to conventional farmed salmon production if successful.
Announced location for our new feed plant
Marine Harvest has announced that our location for the new feed plant in Scotland is Kyleakin, and the process of community consultations has been initiated. The site meets our criteria which includes a central location for our farms, access to a jetty or pier, good road transport links and the availability of power and water supplies at a reasonable cost. The new plant will produce feed for use at our Scottish farms, as well as for Ireland and the Faroes.
Marine Harvest files a complaint against Norway with the ESA
In Marine Harvest’s opinion, the Norwegian levy on fish exports (0.6% of export value) constitutes a violation of the EEA Agreement. The company has therefore filed a complaint against the Norwegian state with the EFTA Surveillance Authority (ESA). In the opinion of Marine Harvest, the way the Norwegian Seafood Council is funded constitutes a state subsidy, which violates the EEA Agreement. The company also considers that the export levy could be an illegal restriction on exports and imports.
Capital Markets Day
Marine Harvest will host a Capital Markets Day on June 1-2 in Bjugn, Norway. In addition to updating the market on the company’s strategy, the program will include site-visits to the feed plant and a farming sea-water site. Site-visits will take place on 1 June and presentations by top management will be held on 2 June. Please contact cmd2016@marineharvest.com with any questions you may have.
Dividend of NOK 1.70 per share
The Board of Directors has decided to pay out a quarterly dividend of NOK 1.70 per share to the shareholders in the form of repayment of paid in capital.








© Marine Harvest Group
 
29

 
 
Q1|2016

OUTLOOK STATEMENT FROM THE BOARD OF DIRECTORS
 
With record high salmon prices in Europe and Asia the quarterly operational result was strong. Salmon prices in the Americas have also improved which has contributed to strong earnings from Marine Harvest Canada. However, the algal bloom incident in Chile caused both operational and financial headwinds. Underlying operational improvements continue in Consumer Products, yet the increasing raw material cost and losses at the Rosyth plant have negatively impacted earnings.

Farming Norway delivered a good result in the quarter. An important part of Marine Harvest’s strategy is to engage in sales contracts with leading retailers and foodservice clients. The price achievement in the quarter was negatively impacted by the contracts in a market with rising spot prices. However, the sales contract structure has enabled the market to develop and grow. Contract provisions have significantly improved the logistic chain and distribution efficiency. Marine Harvest’s comprehensive portfolio of sales contracts continue to stimulate consumer demand but also provide stability in earnings. In light of the current favorable market dynamics, the Board expects existing sales contracts to continue to roll-over on improved prices going forward.

Biological challenges in relation to sea lice continue across many farming areas globally and the Board expects Marine Harvest to focus particularly on overcoming this challenge going forward. The company’s lice management strategy is evolving to improve this issue. Key initiatives include keeping the adult female sea lice level low in all pens, counting lice weekly, treating pens which exceed 0.2 adult female sea lice and the extensive use of cleanerfish. The organization’s focus on employing non-medicinal tools and sharing of best practice will continue. The Board is also positive to test new technologies and farming approaches. Marine Harvest has applied for several development licenses through multiple different concepts including the Egg, Beck Cage and Marine Donut. Such development licenses may contribute to move the industry forward in a sustainable and responsible way.

Marine Harvest Chile experienced a significant setback in the first quarter through the algal bloom incident. Marine Harvest operations have been significantly affected and harvest volumes for 2016 have been revised down. Logistics and processing requirements will naturally be impacted. A restructuring plan of Marine Harvest Chile has been initiated and changes will be implemented in the second quarter. Marine Harvest will continue to advocate for stronger regulations of the fish farming industry in Chile as well as continued consolidation. This should enable the transformation of Chilean fish farming into a sustainable industry with improved biology, sound financial results and safe jobs.

The Board is encouraged by the rising salmon prices in the Americas. This has been particularly positive for Marine Harvest Canada. In combination with stable cost and sound operational management, Marine Harvest Canada was the farming unit with the best EBIT per kg in the quarter except from Marine Harvest Faroes. Marine Harvest’s global farming strategy and scale shows its strength and flexibility when market opportunities emerge and salmon prices adjust to new supply fundamentals.

The Board is disappointed with the situation at our processing plant in Rosyth and management changes have been implemented. Execution of the recovery plan is vital, however, the Board is pleased to note the excellent customer relationship being maintained through this challenging start-up period. The underlying improvements within other entities of Consumer Products are positive. Many of the Chilled and Fresh business lines continue to deliver improved earnings in spite of significant increase in raw material prices. Many operational processes and routines have been improved in the last year and the Board expects further improvements in the periods to come.

2016 is another important year for Marine Harvest in terms of investments across the value chain to support sustainable growth. Such investments are expected to yield good returns and will increase productivity across the Business Areas. Marine Harvest Feed has identified the location of the new feed plant in Scotland at Kyleakin. The rationale of building a new feed plant in Scotland is consistent with the ambition for Marine Harvest of being a fully integrated protein company.

The market balance for 2016 is expected to be tighter than previously expected due to the recent algal bloom in Chile. Global supply growth is forecast to decline by approximately 7% in 2016 by Kontali Analyse. The magnitude of the supply contraction is unprecedented. Year to date the salmon price has been at historical high levels in Europe and Asia. Demand for salmon is strong across several key markets. The 12 month NASDAQ forward price continues to increase to new record levels. The current forward price for the next 12 months is currently EUR 5.9 per kg (NOK 56 per kg).

A quarterly dividend of NOK 1.70 per share will be issued under the authorization granted by the Annual General Meeting. The dividend will be distributed in the form of repayment of paid in capital.

© Marine Harvest Group
 
30

 
 
Q1|2016

SUMMARY YEAR TO DATE

Please refer to Highlights from the first quarter of 2016 (year to date) on page 2 of this report.

RISKS

Marine Harvest has not identified any additional risk exposure beyond the risks described in note 3 of this report and the 2015 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.





Oslo, May 10, 2016
The Board of Directors of Marine Harvest ASA

 
 
 
 
Ole-Eirik Lerøy
Leif Frode Onarheim
Cecilie Fredriksen
Ørjan Svanevik
CHAIRMAN OF THE BOARD
VICE CHAIRMAN OF THE BOARD
 
 
 
 
 
 
Heléne Vibbleus
Lisbet K. Nærø
 
 
 
 
 
 
Lars Eirik Hestnes
Stein Mathiesen
Kjellaug Samland
Alf-Helge Aarskog
 
 
 
CHIEF EXECUTIVE OFFICER


© Marine Harvest Group
 
31

 
 
Q1|2016

Forward looking statements

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 on Form 20-F for the year ended December 31, 2015, including the section captioned “Risk Factors,” contain 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 forward-looking statement.



© Marine Harvest Group
 
32

 
 
Q1|2016

INTERIM FINANCIAL STATEMENTS

CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

The figures for the first quarter of 2015 are restated to include the Group's Chilean and US operations. Please refer to Note 2 for further information.
Presentation currency for the Group has been changed from NOK to EUR from January 1, 2016. Please refer to Note 13 for further information.
Unaudited, in EUR million
Note
Q1 2016

Q1 2015

2015

 
 
 
 
 
Revenue
4
804.8

736.5

3 112.4

 
 
 
 
 
Cost of materials
 
-443.0

-404.0

-1 770.3

Fair value uplift on harvested fish
5
-166.3

-128.0

-457.6

Fair value adjustment on biological assets
5
254.3

54.8

467.7

Salaries and personnel expenses
 
-109.7

-105.0

-427.1

Other operating expenses
 
-105.2

-102.1

-443.2

Depreciation and amortization
 
-35.8

-34.4

-139.8

Onerous contract provisions
 
-14.1

9.6

-0.7

Restructuring cost
 
-2.5

0.1

-15.2

Other non-operational items
 
0.0

0.0

2.4

Income from associated companies
 
10.3

1.4

23.4

Impairment losses
 
-0.1

0.1

-6.8

 
 
 
 
 
Earnings before financial items (EBIT)
 
192.7

29.0

345.3

 
 
 
 
 
Interest expenses
7
-11.9

-16.6

-46.5

Net currency effects
7
-1.0

49.7

4.2

Other financial items
7
-15.5

-9.3

-52.9

 
 
 
 
 
Earnings before tax
 
164.4

52.8

250.1

 
 
 
 
 
Income taxes
 
-36.4

-13.0

-91.6

 
 
 
 
 
Earnings for the period, continued operations
 
128.0

39.9

158.5

 
 
 
 
 
Profit from discontinued operations, net of tax
 
0.0

-0.1

-0.2

 
 
 
 
 
Profit or loss for the period
 
128.0

39.7

158.3

 
 
 
 
 
Other comprehensive income
 
 
 
 
Change in fair value of cash flow hedges
 
0.0

-1.2

-3.6

Income tax effect fair value of cash flow hedges
 
0.0

0.0

1.0

Currency translation differences
 
3.1

74.1

-54.4

Currency translation differences non-controlling interests
 
0.0

0.1

0.1

 
 
 
 
 
Items to be reclassified to P&L in subsequent periods:
 
3.1

73.0

-57.0

 
 
 
 
 
Actuarial gains (losses) on defined benefit plans, net of tax
 
0.0

0.0

-0.9

Other gains and losses in comprehensive income
 
-3.8

-0.4

2.1

 
 
 
 
 
Items not to be reclassified to profit and loss:
 
-3.8

-0.4

1.2

 
 
 
 
 
Other comprehensive income, net of tax
 
-0.7

72.6

-55.8

 
 
 
 
 
Total comprehensive income in the period
 
127.3

112.3

102.5

 
 
 
 
 
Profit or loss for the period attributable to
 
 
 
 
Non-controlling interests
 
0.0

0.1

0.1

Owners of Marine Harvest ASA
 
128.0

39.6

158.2

 
 
 
 
 
Comprehensive income for the period attributable to
 
 
 
 
Non-controlling interests
 
0.0

0.2

0.1

Owners of Marine Harvest ASA
 
127.3

112.1

102.4

 
 
 
 
 
Basic and diluted earnings per share (EUR)
8
0.28

0.06

0.36

Dividend declared and paid per share (EUR)
 
0.15

0.14

0.58



© Marine Harvest Group
 
33

 
 
Q1|2016

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Unaudited, in EUR million
Note
31.03.2016

31.12.2015

31.03.2015

 
 
 
 
 
ASSETS
 
 
 
 
 
 
 
 
 
Licenses
 
738.4

746.6

772.1

Goodwill
 
261.9

259.0

276.2

Deferred tax assets
 
9.4

11.5

17.8

Other intangible assets
 
27.6

27.6

19.1

Property, plant and equipment
 
952.4

963.7

984.8

Investments in associated companies
 
129.8

123.9

114.4

Other shares and other non-current assets
 
3.1

2.5

34.3

 
 
 
 
 
Total non-current assets
 
2 122.7

2 134.9

2 218.7

 
 
 
 
 
Inventory
 
268.7

277.7

273.3

Biological assets
5
1 166.3

1 140.2

1 108.6

Current receivables
 
599.1

569.8

468.5

Cash
 
94.9

71.8

66.7

 
 
 
 
 
Total current assets
 
2 129.0

2 059.4

1 917.0

 
 
 
 
 
Asset held for sale
 
1.8

1.8

0.9

 
 
 
 
 
Total assets
 
4 253.5

4 196.1

4 136.6

 
 
 
 
 
 
 
 
 
 
EQUITY AND LIABILITIES
 
 
 
 
 
 
 
 
 
Equity
 
1 951.7

1 894.7

2 112.5

Non-controlling interests
 
0.9

0.9

2.0

 
 
 
 
 
Total equity
 
1 952.7

1 895.6

2 114.5

 
 
 
 
 
Deferred tax liabilities
 
399.4

391.8

392.5

Non-current interest-bearing debt
 
1 054.9

1 071.4

933.0

Other non-current liabilities
 
254.8

221.5

122.7

 
 
 
 
 
Total non-current liabilities
 
1 709.1

1 684.6

1 448.1

 
 
 
 
 
Current interest-bearing debt
 
0.1

0.2

0.2

Other current liabilities
 
591.6

615.7

573.8

 
 
 
 
 
Total current liabilities
 
591.8

615.9

574.0

 
 
 
 
 
Total equity and liabilities
 
4 253.5

4 196.1

4 136.6



© Marine Harvest Group
 
34

 
 
Q1|2016

CONDENSED CONSOLIDATED STATEMENT OF CHANGE IN EQUITY

2016
Attributable to owners of Marine Harvest ASA
Non-controlling interests
Total equity
Unaudited, in EUR million
Share capital
Other paid in capital
Cash flow hedge reserve
Shared based payment
Foreign currency translation reserve
Other equity reserves
Trans-lation effect

Total
Equity 01.01.2016
351.8

1 075.9

 
6.1

160.4

300.4

 
1 894.7

0.9

1 895.6

Comprehensive income
 
 
 
 
 
 
 
 
 
 
Profit
 
 
 
 
 
128.0

 
128.0

 
128.0

Other comprehensive income
 
 
 
 
-3.6

2.9

 
-0.7

 
-0.7

Transactions with owners
 
 
 
 
 
 
 
 
 
 
Share based payment
 
 
 
-3.2

 
 
 
-3.2

 
-3.2

Sale of non-controlling interests
 
 
 
 
 
 
 
 
 
 
Bond conversion
 
 
 
 
 
 
 
 
 
 
Repayment of paid in capital
 
-67.0

 
 
 
 
 
-67.0

 
-67.0

Treasury shares
 
 
 
 
 
 
 
 
 
 
Total equity end of period
351.8

1 008.9

0.0

2.9

156.8

431.3

 
1 951.7

0.9

1 952.7


2015
Attributable to owners of Marine Harvest ASA
Non-controlling interests
Total equity
Unaudited, in EUR million
Share capital
Other paid in capital
Cash flow hedge reserve
Shared based payment
Foreign currency translation reserve
Other equity reserves
Trans-lation effect
Total
Equity 01.01.2015
342.9

1 051.0

2.7

3.4

73.6

164.6

 
1 638.1

1.8

1 639.9

Comprehensive income
 
 
 
 
 
 
 
 
 
 
Profit