33 % industry supply growth market prices down 33 % from Q1 2011 Strong demand increased prices from Q4 2011 Strong performance in Scotland Poor results in VAP Europe Operational EBIT of NOK 276 million Cash flow from operations of NOK 567 million Operating revenue NOK million Operational EBIT NOK million Harvest volume (GW) tonnes 3 942 4 192 3 636 4 254 3 846 963 894 457 403 276 75 224 79 932 83 076 104 589 96 700 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12
Highlights Marine Harvest Group - main figures NOK million Q1. 12 Q1. 11 2011 Operational revenue and other income 3 846 3 942 16 024 Operational EBI T 1) 276 963 2 717 EBIT Net financial items Profit or loss for the period 443 81 402 653-162 318 1 1 209 173 121 Cash flow from operations 567 1 022 2 798 Total assets Net interest-bearing debt (NIBD) 22 044 5 936 22 832 4 655 22 789 6 467 Earnings per share (NOK) ROACE 2) Equity ratio NIBD/Equity 0.11 6.0% 50.1% 53.8% 0.09 21.9% 55.7% 36.6% 0.31 15.5% 47.6% 59.6% Harvest volume (gutted weight tonnes, salmon) 96 700 75 224 342 820 Operational EBIT - NOK per Norway Scotland Canada Chile kg 3) 3.35 5.56-0.02 2.20 13.56 12.89 9.28 15.46 9.10 10.26 1.29 4.04 1) Adjusted for unrealised gains/losses from salmon derivatives, fair value adjustment of biomass, onerous contracts provisions, results from associated companies, restructuring costs and write-downs of fixed assets/intangibles. 2) ROACE: Annualised return on average capital employed based on EBIT aligned for fair value adjustment off biomass and onerous contracts provisions /averagee (NIBD + Equity) 3) Operational EBIT per kg including allocated margin from Sales and marketing. For 2011 the numbers are estimated. Summary of the first quarter 2012 Spot prices increased slightly in the quarter compared c to thee fourth quarter of 2011, but were significant below the prices in the first quarter of 2011. The overall price achievement was relatively strong in the quarter as spot and contract sales were above the reference price level. Harvest volume increased by 29% compared to the same quarter last year to t 96 700 tonnes HOG due to good growth conditions and planned organic growth. Operational EBIT of NOK 276 million, down from f NOK 963 million in the first quarter of 2011, due to the reduction in prices. The overall cost level in line with last year with higher volume contributing positively. Both Norway and Scotland delivered good results in a challenging market. Operational EBIT in VAP Europe was disappointing with NOKK 5 million. The EBIT of NOK 443 million was influenced by an increase in the fair value adjustment of biomass of NOKK 167 million. Net financial items of positive NOK 81 million, impacted by currency gains of NOK 154 million due to appreciation of NOK in the period, and change in fair value of shares in Aker Seafoods ASA of NOKK 49 million. Earnings per share was NOK 0.11 in the period, an improvement of NOK 0.02 compared too last year. Cash flow from operations was positive NOK 567 million, after working capital reduction of NOK N 195 million. NIBD decreased by NOK 531 million to NOK 5 936 million during the quarter while the NIBD/Equity ratio ended at 53.8%. Marine Harvest Group Page 2
Financial results in the period (Figures in parenthesis refer to the same quarter in 2011.) Revenues and other income in the first quarter were NOK 3 818 million (NOK 3 942 million). Excluding the net change in unrealised salmon derivatives, operational revenue and other income amounted to NOK 3 846 million (NOK 3 942 million). Spot prices increased slightly in the quarter, compared to the fourth quarter of 2011. Harvest volume was 96 700 tonnes gutted weight, 29% above first quarter 2011. Operational EBIT was reduced to NOK 276 million (NOK 963 million) due to lower prices compared to 2011. Costs were in line with the previous year. Exceptional items included in operational EBIT represent NOK 82 million in the quarter (ref note 5). Marine Harvest Group NOK million Operational EBIT 276 963 Change in unrealised salmon derivatives -29 0 Fair value on biomass 167-312 Onerous contracts provision 19 2 Restructuring cost 0 0 Income from associated companies 11 2 Impairment losses -1-2 EBIT 443 653 Earnings before interest and taxes (EBIT) were NOK 443 million (NOK 653 million). Net change in unrealised salmon derivatives was NOK 29 million (zero). The fair value adjustment on biomass increased by NOK 167 million (NOK -312 million) as the market price was higher at the end of the first quarter than at the end of the fourth quarter 2011. Income from associated companies amounted to NOK 11 million in the quarter. Financial items Q1. 12 Q1. 11 Marine Harvest Group NOK million Interest expenses Q1. 12-96 Q1. 11-95 Net currency effects 154 10 Other financial items 23-77 Net financial items 81-162 Net currency effects amounted to net NOK 154 million (NOK 10 million) due to realised gain on long-term cash flow hedges of NOK 62 million (NOK 38 million) and appreciation of NOK in the quarter. Other financial items amounted to NOK 23 million in the quarter (NOK -77 million). The change in the fair value of the equity conversion option of the convertible bond was NOK -17 million (NOK -149 million), change in the fair value of interest rate swaps was NOK -13 million (NOK 52 million) and the change in fair value of shares in Aker Seafoods ASA, including the shares in Norway Seafoods Group AS, was NOK 49 million (NOK 9 million) in the quarter. Cash flow Marine Harvest Group NOK million Q1. 12 Q1. 11 Earnings before interest and taxes (EBIT) 443 653 Adjustment for - fair value adjustment and onerous contracts -186 310 - income/loss from associated companies -11-2 - depreciation and impairment losses 169 165 Change in working capital 195-74 Taxes paid -34-19 Other adjustments -9-12 Cash flow from operations 567 1 022 Purchase of fixed assets -85-262 Acquisitions and proceeds from investments 3-130 Cash flow from investments -82-393 Changes in interest-bearing debt -434-535 Net interest and financial items paid -92-104 Realised currency effects 21 56 Withholding tax related to dividend 0-14 Net equity paid-in / Purchase own shares 0-2 Cash flow from financing -505-600 Currency effects on cash - opening balance -5-12 Net change in cash and cash equivalents in the period -25 18 Cash flow from operations amounted to NOK 567 million (NOK 1 022 million). Cash flow from operations improved by reduced working capital of NOK 195 million (NOK -74 million). The figure was impacted by the reduction in biomass build up as a result of the reduction in the 2011 smolt stocking. The seasonal payments from customers for Christmas sales contributed to the working capital release. Negative cash effect from margin accounts related to salmon derivatives was NOK 6 million in the quarter (zero). Cash outflow from investments amounted to NOK 82 million (NOK 393 million). The investments have decreased in the quarter in line with the announced cuts in capex for 2012. In the first quarter 2011 Marine Harvest purchased licenses in Norway. Net cash outflow from financing was NOK 505 million (NOK 600 million). Marine Harvest Group Page 3
Financial position Marine Harvest Group NOK million Non-current assets 31.03.2012 12 699 31.12.2011 12 917 Current assets 9 346 9 872 Total assets 22 044 22 789 Equity 11 042 10 842 Non-current liabilities 8 558 9 041 Current liabilities 2 444 2 906 Total equity and liabilities 22 044 22 789 Cash and cash equivalents 248 279 Net interest-bearing debt 5 936 6 467 NIBD/Equity 53.8 % 59.6 % Equity ratio 50.1 % 47.6 % Net interest-bearing debt Net interest-bearing debt decreased by NOK 531 million in the first quarter, to NOK 5 936 million. Currency effects decreased interestbearing debt by NOK 146 million. The effect is due to appreciation of NOK towards the loan currencies, most notably towards EUR in which around 80% of the Group debt is denominated. The convertible bond, with a nominal value of EUR 225 million, was recognised at EUR 203 million (NOK 1 549 million) at the end of the quarter. The fair value of the equity conversion option increased by NOK 17 million during the quarter to NOK 41 million, and was recognised as a non-current interest-free liability. Total assets amounted to NOK 22 044 million at the end of the first quarter, a decrease of NOK 745 million compared to the fourth quarter. The decrease is mainly related to a seasonal reduction in accounts receivable and to a reduction of biomass in sea, as the harvest volume was higher than the produced volume in the quarter. Total liabilities decreased by NOK 945 million, to NOK 11 002 million, partly related to down payment of interest-bearing debt and partly related to the seasonal reduction in accounts payable. Total equity increased by NOK 200 million from the previous quarter to NOK 11 042 million. The NIBD/Equity ratio decreased from 59.6% to 53.8% and the equity ratio increased from 47.6% to 50.1% compared to the previous quarter. 11.00 9.00 7.00 5.00 Currency exchange rates towards NOK GBP EUR CAD USD Marine Harvest Group Page 4
Global market overview Global harvest volumes of Atlantic salmon increased by 33% compared to first quarter 2011, to approximately 400 000 tonnes gutted weight. This is the highest increase for a first quarter ever and significantly higher than in the third (19%) and fourth quarter of 2011 (20%). The seasonal percentage volume drop from the fourth quarter to the first quarter was significantly lower than normal. Supply Q1 2012 Change vs 12 month tonnes GW Q1 2011 change Norway 241 900 27.2% 13.3% Chile 68 600 106.0% 96.2% Scotland 31 100 3.7% 11.0% North America 29 200 17.7% 2.3% Faroe Islands 15 200 67.0% 40.8% Other 13 800 5.3% 2.1% Total 399 800 33.1% 20.2% The largest additions in absolute volumes came from Norway and Chile, which added 52 000 and 36 000 tonnes respectively. North America and the Faroes also contributed with high percentage growth rates but significantly lower absolute volumes. The growth in Norway was mainly driven by large increases in smolt releases during 2010, when prices were at peak levels. Output was reinforced by exceptionally good seawater growth conditions during the latter part of 2011 and the first quarter. A historically mild winter in Norway has kept the seawater warmer than normal and reduced the impact of the usual slow-down of growth during this period. As a consequence, the production cycle of fish in sea has been reduced. This will boost output during the remainder of the year, partly at the expense of volumes in 2013. The volume growth in Chile is part of the general strong rebuilding of the Chilean industry after biological issues depleted the biomass in the region in recent years. Although the current build-up of the industry is gradually impacting biological indicators adversely, volume growth is expected to continue in the coming periods due to the successive increase in number of fish reaching harvestable size. The growth in North America mainly originated on the west coast of USA, where production has normalised after lower than normal output in recent periods. Growth in the Faroe Island was driven by the main player s strategy of increasing capacity utilisation to a higher plateau level. Reference prices Q1 2012 Change vs Q1 2012 Change vs NOK Q1 2011 market 4) Q1 2011 Norway 1) NOK 26.15-34.3% EUR 3.45-32.3% Chile 2) NOK 20.69-34.8% USD 3.57-35.6% North America 3) NOK 14.43-31.7% USD 2.49-32.5% 1) Average superior price per kilo gutted weight (FHL/NSL Oslo) 2) Average C trim price per pound (Urner Barry Miami 2-3 pound) 3) Average superior price per pound gutted weight(urner Barry Seattle 10-12 pound) 4) Market price in local currency Prices in all markets dropped significantly compared to the first quarter of 2011. Compared to the previous quarter, the reference price in Norway, increased by 15%. The reference price in the US cleared at similar levels as during the fourth quarter of 2011, in which period US prices cleared at somewhat higher levels than in Europe. During the second half of 2011 prices were strongly reduced as a result of the supply shock after a long period of relatively flat output to the markets. Market channels were generally put to a test during this period, which slowed down the transfer of lower commodity prices to consumers, particularly in Europe. The increase in European prices compared to the fourth quarter can hence be ascribed to successful expansion of market channels and demand stimulation arising from lower consumer pricing. Market Q1 2012 Change vs 12 month distribution tonnes GW Q1 2011 change EU 181 300 27.0% 13.5% US 69 600 23.8% 19.7% Russia 35 600 72.0% 38.2% Brasil 14 000 86.7% 55.3% Japan 13 300 56.5% 47.3% China/Hong Kong 11 600 24.7% 20.5% Other 71 800 27.5% 21.5% Total 397 200 31.9% 19.7% As a result, the distribution of volumes across markets was more even compared to the second half of 2011, when consumption in Europe lagged other markets. This is a confirmation of the very robust structural demand for salmon, also in this market. Consumption growth in the US continued at similar high levels as during the second half of 2011. Russia continued to stand out as the strongest market also in this period, with a growth in consumption of 72%. The Asian markets also continued the strong growth, although China is still growing at a slower pace due to the continuing trade issues with Norway. Consumption in South America has risen strongly in line with the increased availability of products from Chile. Brazil, being the dominant South American market, grew by 87% and has reached a similar consumption as China and Japan in the quarter. Marine Harvest Group Page 5
Wild catch of salmon was slightly above 830 000 tonnes gutted weight in 2011. Early indications for the 2012 wild catch season indicate a drop compared to 2011. Source: Kontali 230 000 PRICE AND GLOBAL VOLUME ALLOCATION TO THE EU MARKET 6 75 000 PRICE AND GLOBAL VOLUME ALLOCATION TO THE US MARKET 6 220 000 210 000 5 70 000 5 Tonnes (GW) 200 000 190 000 180 000 170 000 160 000 4 3 2 EUR per kg (GW) 65 000 60 000 4 3 150 000 140 000 1 130 000 0 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 2 55 000 1 50 000 0 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q2 2007 Q2 2008 Q2 2009 Q2 2010 Q2 2011 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Tonnes (GW) USD per lb Volume EU Reference price Norway, GW (Oslo) Volume USA Reference price North America, GW (Seattle) Reference price Chile, Fillets (Miami) Marine Harvest Group Page 6
Business areas and segment reporting Marine Harvest s segment reporting reflects the functional organisation that was implemented 1 April 2011. Through the segment axis, the progress and performance of each area of competence can be followed. In order to follow the overall value creation, Marine Harvest also reports based on the salmon s source of origin. This is included in the next chapter of the report Operational performance and analytical data per country of origin. Marine Harvest Group MH Sales and Marketing MH Farming MH Other Eliminations MH Group MH Markets MH VAP Europe NOK mill Q1 12 Q1 12 Q1 12 Q1 12 Q1 12 Q1 12 Q1 11 External revenue 2 789 903 131 23 0 3 846 3 942 Internal revenue 331 6 2 546 12-2 896 0 0 Operational revenue and other income 3 120 909 2 677 36-2 896 3 846 3 942 Operational EBIT 89-5 208-16 0 276 963 Fair value adj on biomass, contracts/unrealized futures - 29 0 188-2 0 157-310 Restucturing costs 0 0 0 0 0 0 0 Income from associated companies 0 0 11 0 0 11 2 Write-down of fixed assets/intangibles 0-1 - 1 0 0-1 - 2 EBIT 61-6 406-18 0 443 653 Operational EBIT% 2.9 % -0.6 % 7.8 % na na 7.2 % 24.4 % Total operating revenues in the first quarter amounted to NOK 3 846 million (NOK 3 942 million). The reduction was a result of a significant reduction in the spot price for salmon compared to 2011, somewhat mitigated by a 29% increase in own volume harvested and sold. With the exception of sales of salmon of Irish origin, eggs, smolt and assets, external revenues are generated in business area Sales and Marketing. External revenues in unit MH Other relates to sales of Sterling White Halibut. Group operational EBIT in the first quarter amounted to NOK 276 million (NOK 963 million). Farming contributed with an operational EBIT of NOK 208 million, while Sales and Marketing had an operational EBIT of NOK 84 million. MH Markets (previously named MH Sales) generated an operational EBIT of NOK 89 million, while the result in VAP Europe was disappointing in the quarter and ended at NOK - 5 million. Other units reported a loss of NOK 16 million including a profit of NOK 4 million coming from Sterling White Halibut. The effect of Marine Harvest Norway s hedging of contract sales in currency towards NOK, with Marine Harvest ASA as counterparty, caused a cost/income of NOK 5 million in Marine Harvest ASA and Marine Harvest Norway respectively. These contracts are not subject to external hedging. Operational EBIT in the period was affected by exceptional items including exceptional lice mitigation costs, mortality in Norway and Chile, and Kudoa claims and discard costs in Canada. Total costs related to exceptional items included in the operational EBIT in the first quarter amounted to NOK 82 million. MH Sales and Marketing The purpose of the Sales and Marketing organisation is to develop the market, maximise the price achievement on sales and the margins on value added product, and optimise logistics The first quarter of 2012 has shown that the salmon markets are able to absorb a substantial increase in supply year over year. This high volume increase was translated into a very competitive market environment in bulk fresh sales and processing in Europe. In the smoked segment there is still a delay in the transfer of reduced raw material prices to the end consumer. The performance in MH Markets (formerly named MH Sales) was strong, while MH VAP Europe delivered negative profit. Geographic market presence Total salmon revenues from the Sales and Marketing organisation (incl MH VAP Europe) were distributed as indicated in the graph in the first quarter. Compared to the first quarter of 2011, commodity sales to EU and sales in the Asian market have increased, while salmon revenues from the VAP organisation and in America have declined in importance. Within the regional markets, sales to Brazil and Central Eastern Europe increased significantly in the period as these markets continue to develop favourably in 2012. 60% 50% 40% 30% 20% 10% 0% Sales revenue by Geography (salmon) EU ex VAP EU VAP Americas Asia Rest of the world Q1-2011 Q1-2012 Marine Harvest Group Page 7
Japan continues to develop positively utilizing the processing plant in Tokyo to create additional value for the customers. Sales by product The Group s main product is Atlantic salmon. The sales revenue distribution across products was as follows in the first quarter: Frozen whole salmon 1% Frozen eleborated salmon 8% Sales by product 2012 Fresh eleborated salmon 21% Other products 10% Fresh whole salmon 54% The main product is fresh whole salmon, representing 54% of total sales by revenue. Smoked and elaborated salmon (fresh and frozen total) account for 35% of total sales revenues in the period, which is an increase of 1 percentage point from the first quarter of 2011. Work continues to increase the share of elaborated salmon, and in the second quarter Marine Harvest will open its new processing facility in Boulogne, France which will enable the Group to capitalise on the customer portfolio and facilitate growth within further elaborated products, a market category with attractive growth rates and margins. Fresh smoked salmon 6% MH Markets Volume development Volume sold was 29% higher in the first quarter of 2012 compared to the same period in 2011. The volume increase came mainly from increased sales of fresh salmon products to Russia, the European market and Brazil. In addition to the increased own harvest, external sourcing has also slightly increased compared to the first quarter of 2011. The combined global price achieved in MH Markets was 4% above the reference price level. The corresponding price achievement compared to the reference price in the first quarter of 2011 was - 4% mainly due to a less favourable contract portfolio. 140% Average prices achieved (incl all qualities) vs reference price - first quarter 2012 vs first quarter 2011 Price achievement Although the quarter was challenging due to significantly increased supply compared to same period last year, spot price levels developed stable to positively during the quarter. Contracts contributed favourably to the price achievement. The overall price achievement was relatively strong in the quarter as spot and contract sales were above the reference price level, while the cost of quality downgrading was limited (excepting Kudoa). 120% 100% 80% 60% 40% 20% 0% Norway Scotland Canada Chile Faroes Index 2011 Index 2012 NOK per kg gw 50.00 40.00 30.00 20.00 10.00 - Price achieved vs reference price * Q1 2011 Q1 2012 MH Markets Q1 2012 Norwegian Scottish Canadian Chilean Contract share 23% 68% 7% 44% Quality share 91% 96% 90% 93% The average price achievement is measured vs reference prices in all markets (NOS for Norwegian, and Faroese salmon, derived NOS (NOS + 4.15 in the quarter) for Scottish salmon, and Urner Barry for Canadian and Chilean salmon). The ambition over time is to exceed the relevant reference price in all markets. Reference price Achieved price * Price achieved and reference price combined for the five farming units, Norway, Scotland, Canada, Chile and Faroes. Salmon of all origins except Canada and Faroes achieved prices above the reference price level in the first quarter with contribution both from spot prices above the reference price level and contract Marine Harvest Group Page 8
prices at favourable terms. The price achievement has improved compared to the same period last year due to favourable contract and spot contribution. Salmon of Canadian origin did not achieve prices above the reference level in the first quarter due to the effects of soft flesh (Kudoa) contributing to claims and reduced selling prices. MH Markets in Americas The volume development for sales in South America was strong in the quarter, with Brazil leading the growth. The rest of Latin and South America are also showing increased appetite for salmon. Based on the current price level, the contract contribution will be marginally positive going forward. MH Markets in Europe The market was able to absorb a year over year increase in Norwegian industry s export volumes of 28% in the first quarter at increasing prices compared to the fourth quarter of 2011. The development supports Marine Harvest s view that the underlying demand is strong as long as the retail prices fully reflect the current raw material prices. The strong sales development in the European market in the first quarter was driven by Russia, the single largest market for Norwegian salmon, just ahead of France, in the Norwegian export statistics for the industry. The development was equally positive in Central Eastern European countries, like Ukraine and the Czech Republic where Marine Harvest continues to take the lead in the market development. During the quarter, the premium vs. NOS on salmon of Scottish origin has increased as a result of favourable demand and limited availability of spot volumes (ref. adjusted reference price for salmon of Scottish origin). Marine Harvest continues to focus on shifting the sales from whole salmon towards fillets, which gives quality improvements for the customer and a positive contribution to the Group s CO2 footprint through reduced transport and packaging material. The increasing fillet volumes imported into the US market reached pre ISA levels during the quarter, which again led to a weak market during Lent. There is still a delay in the transfer of reduced raw material prices to the end consumer both in the fresh and the smoked segment in the US market. The removal of the dumping duties on Norwegian whole fresh salmon did not significantly impact in the US whole fish market during the quarter. On the value added side, both the smoked brand Ducktrap and the fresh processing facilities in Miami and LA showed good development in the quarter, increasing the value adding share of the products in line with Marine Harvest s long term strategy. MH Markets in Asia The sales development in Asia in the first quarter was strong, with total volumes of Norwegian origin up more than 50 % compared to the first three months of 2011. The Norwegian export statistics show that in addition to the positive development in the main market (Japan), there was substantial growth in emerging markets like Thailand (92 %), Malaysia (117 %) and Indonesia (136 %). In China, market access is limiting total consumption of Norwegian salmon. As a global producer, Marine Harvest now supplies the Chinese market with salmon from other origins. The processing activities in Japan and China continue to develop positively, creating additional value for the customers. Marine Harvest Group Page 9
MH VAP Europe VAP Europe NOK million Q1 12 Q1 11 Operating Revenues 909 1 029 Operating EBIT - 5 6 Operating EBIT% -0.6% 0.6% Volume sold (tonnes prod wt) 14 059 14 211 Exceptional items included in operational EBIT 0 0 20 10 0-10 -20-30 -40-50 -60-70 -80 Op EBIT Q1 2011 VAP Europe Q1 2012 - Operational EBIT Price Volume Raw M aterials Other Translation Op EBIT Q1 2012 Prices and volume Marine Harvest VAP Europe s operating revenues were NOK 909 million in the first quarter (NOK 1 029 million). Volume sold was 1% lower than in the first quarter in 2011 while the average price achieved was 9% lower than in the same period in 2011 in EUR. The price reduction was due to a less favourable product mix and lower achieved prices as reduced raw material prices translated into reduced selling prices. The salmon sales volume was slightly reduced in the period compared to 2011. The reduction in volume was mainly a result of reduced sales of frozen salmon products to the US as well as in the European market. The French market for smoked salmon was difficult in the first quarter, due to more cautious consumer spending behaviour. Fresh salmon sales picked up as a result of lower prices, but market pressure and unfavourable mix negatively influenced the margins achieved. Sales of Atlantic salmon accounted for 63% of the total sales value in the first quarter of 2012 (66%). VAP Europe Salmon Other species Q1 2012 Q1 2011 Q1 2012 Q1 2011 Volume share 57% 57% 43% 43% Revenue share 63% 66% 37% 34% Gross Margin share 68% 50% 32% 50% Costs and Operational EBIT The results were disappointing in the first quarter with an operational EBIT of NOK - 5 million (NOK 6 million). Of this, NOK -3 million was contribution from sale of salmon (100% salmon of Norwegian origin), while NOK -2 million came from sale of other species. The EBIT margin in VAP for the quarter was - 0.6% (0.6%). The focus on increasing the value added component of the Group s own salmon continues. As indicated in the graph, Marine Harvest VAP Europe was unable to improve margins during the quarter as the benefit of reduced raw material prices was eliminated by lower sales prices. Moreover, the unit realized a loss on some fixed price sales contracts based on raw material sourced in the spot market. The unfavourable mix, with lower sales of elaborated products, negatively influenced margins and fixed cost absorption as visualised in the graph by the negative development in Other costs compared to the first quarter of 2011. Starting 5 March, Mr Maiko van Der Meer took over the position as managing director of Marine Harvest VAP Europe. Maiko comes from the position as managing director in the Dutch company Royal Smilde, a leading food producer in Holland, and his background and experience will strengthen the VAP organisation. Marine Harvest Group Page 10
MH Farming The purpose of the farming organisation is to apply best production practices across geographies in order to optimise production performance Q1/2012 Improved cost achievement, biological performance and product quality are the main operational targets for this business area. Farming includes all primary processing activities. Volume development Volume harvested in the first quarter of 2012 was 29% higher than in the first quarter of 2011. The volume increase was a consequence of higher volumes of salmon of Norwegian and Chilean origin and is a result of increased smolt stocking and higher production in sea in particular in Norway where the seawater temperatures have been very favourable over the last six months. Cost development NOK per kg gutted weight 27.0 25.0 23.0 21.0 19.0 17.0 15.0 Farming - full cost Q1 2011 vs Q1 2012 Cost per kg Q1 2011 Feed Oth SW Cost Non SW Cost Cost per kg Q1 2012 As indicated in the graph, Marine Harvest Farming global combined has been able to slightly reduce costs compared to the first quarter of 2011. The feed cost for harvested fish was higher than in the same period in 2011. Global lice mitigation costs were also slightly increasing, while other seawater costs have been reduced. Higher volume and cost reductions have contributed to the positive development in non-seawater costs compared to 2011. The global cost reduction programme, initiated to protect the 2012 cash flow, contributes to this development. Feed and other raw material prices Feed prices started to show a slight downward trend in the second half of 2011 after being on a record level in the beginning of the year. Compared to the fourth quarter of 2011, feed prices have remained stable, in line with what was indicated in the fourth quarter report. The prices in the second quarter of 2012 are expected to be in line with the first quarter, but with some uncertainty related to the fishing in Peru, financial instability, and exchange rate volatility. Biological risk management 2012 priorities Escapes: Marine Harvest has a target of zero fish escapes and is constantly striving to prevent escapes and improve methods, equipment and procedures that can minimise or eliminate escapes. In the first quarter there were no escape incidents in Norway, Scotland, Canada, Chile or Ireland, but unfortunately there were two incidents on the Faroes with a total of 2 741 escaped fish, the majority due to storm damage to a net. There were no escape incidents in Marine Harvest in the first quarter of 2011. Antibiotics: In Marine Harvest focus is on preventing infectious diseases and limiting their spread. If fish get infected, they are treated with approved medications. In the first quarter, the use of antibiotics corresponded to 25 grams per tonne biomass produced compared to 155 grams per tonne in the first quarter of 2011. ISA and PD: There were no ISA outbreaks in Marine Harvest in the first quarter of 2011 and 2012. There were 5 sites diagnosed with PD in Norway in the first quarter of 2012 compared to 1 in 2011. The related mortality has not been material. None of the diagnosed sites were north of the Hustadvika barrier. In Scotland and Ireland, there were no sites diagnosed with PD in the first quarter of 2011 and 2012. Sea lice: Marine Harvest actively works to reduce the sealice count in all farming units. In Norway, the sea lice level at the end of March 2012 was in line with March 2011, and lower than in March 2010. In Chile, the sea lice level at the end of the first quarter was lower than at the same time in 2011. Marine Harvest Chile continues to work to promote good sea lice practices and recently contributed with more than 10 years of research about the behaviour of caligus in publishing a new book called Caligidosis in seawater sites. The lice levels in Scotland and Ireland in March were similar to the level at the end of the first quarter of 2011, while the counts on the Faroes and in Canada were higher than the year before. For further information regarding sustainability and biological risk management, reference is made to the Update on sustainability enclosed in the 2011 annual report. Marine Harvest Group Page 11
Operational performance and analytical data per country of origin Marine Harvest s main business activity is production and sales of Atlantic salmon, either as a commodity or as processed products through Marine Harvest s value added seafood operations. Marine Harvest s main objective is to optimise the value creation through the entire value chain. In order to reach this objective, Marine Harvest has implemented a functional organisation, whereby separate management teams are dedicated to the specific requirements of minimising costs and optimizing production in salmon farming (MH Farming) and optimising price and margin achievement of the products in the global markets (MH Sales and Marketing). Marine Harvest believes that this is best achieved through directing the appropriate skillset and attention to the specific requirements and competences of the two business areas respectively. Marine Harvest s segment reporting is aligned with this organization. Reporting continuity based on source of origin Functional organisation based on required skills to optimise overall value creation Cost achievement Farming Norway Farming Scotland Farming Canada Farming Chile Farming Ireland Farming Faroes Total value creation (Op. EBIT/kg) Price achievement Markets Europe Markets Americas 1) Markets Asia 2) Margin achievement External sales VAP Europe External sales Third Party Spot transfers at reference price Spot transfers at reference price External pricing point for Back-to-back on third party contracts Contract prices reflecting third spot and contract sales party contracts Notes: 1) Includes smoking operations in Chile (Delifish) and the US (Ducktrap), and pin-bone out operations in Miami and Los Angeles 2) Includes pin-bone out operations in Japan and China The table below and the next pages of the report provide comprehensive analytical data to ease the understanding and modeling along this axis. 1 In order to follow the overall value creation, Marine Harvest also reports based on the salmon s source of origin. For this reason the salmon related Operational EBIT in MH Markets and MH VAP Europe is allocated back to country of origin. Marine Harvest Group - analytical figures SOURCES OF ORIGIN NOK million Norway Scotland Canada Chile Irland Faroes Other 1) MH Group OPERATIONAL EBIT MH FARMING 170 38-11 1 14-4 208 MH SALES AND MARKETING MH Markets 43 13 11 20 1 1 89 MH VAP Europe - 3 0 0 0 0 0-2 - 5 SUBTOTAL 210 51 0 21 15-3 - 2 292 Other enities 2) -16-16 TOTAL 210 51 0 21 15-3 - 18 276 Harvest volume (gutted weight tonnes, salmon) 62 743 9 207 10 637 9 727 2 658 1 729 96 700 Operational EBIT per kg (NOK) 3) 3.35 5.56-0.02 2.20 5.53-1.74 3.02 - of which MH Markets 0.69 1.45 1.01 2.07 0.40 0.63 0.93 - of which MH VAP Europe -0.05-0.02 0.00 0.00-0.07 0.00-0.06 ANALYTICAL DATA Price achievement/reference price (%) 4) 104% 115% 91% 114% 98% 104% Contract coverage (%) 23% 68% 7% 44% Quality - superior share (%) 91% 96% 90% 93% 93% 93% 91% Exceptional items (NOK million) 5) -58 - -21-3 - - - - 82 Exceptional items per kg (NOK) 5) -0.92 - -1.97-0.31 - - - -0.85 GUIDANCE Q2 2012 harvest volume (gutted weight tonnes) 62 000 9 000 11 000 9 000 2 000 2 000 95 000 2012 harvest volume (gutted weight tonnes) 252 000 37 000 39 000 37 000 9 000 6 000 380 000 Q2 2012 contract share (%) 26% 47% 8% 33% 1) Operational EBIT arising from non salmon speices not allocated to source of origin 2) Sterling White Halibut, Headquarter and Holding companies 3) Excluding Sterling White Halibut, Headquarter and Holding companies 4) MH Markets' price achievement to third party and MH VAP Europe 5) Exceptional items impacting operational EBIT Marine Harvest Group Page 12
Operational performance per country of origin Norway Salmon of Norwegian Origin * NOK million Q1 12 Q1 11 Operational EBIT 210 657 Harvest volume 62 743 48 443 Operational EBIT/kg 3.35 13.56 Exceptional items included in operational EBIT - 58-35 Exceptional items included in operational EBIT/kg -0.92-0.72 700 600 500 400 300 200 100 0 Operational EBIT Norwegian Orgin Q1 2011 vs Q1 2012 Op EBIT Q1 2011 Price Volume Feed Oth SW costs Non SW costs Op EBIT Q1 2012 * Operational EBIT figures for 2011 are estimated Operational EBIT per kg Operational EBIT in the first quarter was NOK 210 million (NOK 657 million), which amounted to NOK 3.35 per kg (NOK 13.56). The reduction in margin was a result of lower achieved prices, as the substantial increase in global supply has contributed to a severe drop in the market prices. Costs have decreased compared to the first quarter of 2011. Price and volume development Compared to the first quarter of 2011, the spot prices have been significantly reduced as a result of increased supply. During the quarter spot prices were volatile, but showing an increasing trend, despite the substantial supply growth. The development in the fresh commodity market in Europe was good in the period. The overall price achieved was 4% higher than the reference price. The favourable contract portfolio and spot price achievement above the reference price level positively contributed to price achievement in the quarter. The effect of realised salmon derivatives contracts is included in the contract price achievement, and the derivatives impact was material in the period. Marine Harvest had a contract share of 23% for salmon of Norwegian origin in the first quarter. The adjustment for quality downgrading was higher than normal in the quarter. Marine Harvest has experienced good growth over the last six months, which contributed to record level harvest volumes for a first quarter at 62 743 tonnes (48 443 tonnes). Costs and operations Increased feed and lice mitigation costs negatively impacted profit in the period. Although feed prices have been reduced from their peak level mid-2011, the harvested biomass is influenced by the high historic feed prices. As in previous periods, sea lice mitigation costs have been high for the harvest generation. The estimated exceptional cost in the first quarter was NOK 0.65 per kg (NOK 0.60), which in absolute terms amounted to NOK 41 million (NOK 29 million). Marine Harvest expects the sealice mitigation costs to be approximately NOK 0.80 per kg harvested in 2012. Exceptional mortality in the amount of NOK 17 million was recognised in the period. The mortality was related to losses during hurricanes in the beginning of the year and mortality due to ice blocking water intake at one fresh water site and biological issues at two other fresh water units. Total exceptional costs included in operational EBIT amounted to NOK 58 million in the first quarter (NOK 35 million). Non-seawater production costs were significantly lower in the first quarter of 2012 than in the same period in 2011, partly due to volume effects, but also benefiting from the cost reduction programme. Nonseawater production costs in the period were NOK 0.47 per kg lower than in the second half of 2010, which is in line with the target set for the end 2011 (ref Capital Markets Day 2010). Seawater growth was very strong in the first quarter due to favourable sea water temperatures. Marine Harvest Group Page 13
Scotland Salmon of Scottish Origin * NOK million Q1 12 Q1 11 Operational EBIT 51 133 Harvest volume 9 207 10 353 Operational EBIT/kg 5.56 12.89 Exceptional items included in operational EBIT 0 0 Exceptional items included in operational EBIT/kg 0.00 0.00 160 140 120 100 80 60 40 20 0 Operational EBIT Scottish Orgin Q1 2011 vs Q1 2012 Op EBIT Q1 2011 Price Volume Feed Oth SW costs Non SW costs Translation Op EBIT Q1 2012 * Operational EBIT figures for 2011 are estimated Operational EBIT per kg Salmon of Scottish origin continues the strong performance, and operational EBIT in the first quarter amounted to NOK 51 million (NOK 133 million), which was NOK 5.56 per kg (NOK 12.89). The margin reduction was a result of the general reduction in market prices combined with lower volume, higher feed cost and a slightly more expensive generation harvested. Price and volume development The spot prices for fresh whole salmon of Scottish origin were reduced in the quarter, following the general trend in the global salmon market. The favourable contract portfolio and good spot price achievement contributed to prices above the reference level in the quarter. The overall price achieved for salmon of Scottish origin was 15% above the reference price in the quarter. The contract share was 68%. The negative adjustment for quality downgrading was very low in the first quarter. Harvest volume decreased by 11% compared to 2011 to 9 207 tonnes gutted weight (10 353 tonnes), due to an uneven stocking pattern (2009 vs 2010). Costs and operations Although the feed cost for harvested biomass has increased, the improvement in the feed conversion rate has mitigated some of the negative effect. Other seawater costs have increased compared to the first quarter last year, as the generation currently harvested, did not reach the same level of cost performance as the generation harvested a year ago. Non-seawater costs were negatively affected by the reduced harvest volume. The biological situation in Scotland remains favourable. The quality of harvested fish is very good. The unit experienced low mortality in the period, while favourable seawater temperatures contributed to good growth. Canada Salmon of Canadian Origin * Operational EBIT Canadian Orgin Q1 2011 vs Q1 2012 NOK million Q1 12 Q1 11 100 80 Operational EBIT 0 88 60 Harvest volume 10 637 9 473 40 20 Operational EBIT/kg -0.02 9.28 0-20 -40 Exceptional items included in operational EBIT - 21-10 -60 Exceptional items included in operational EBIT/kg -1.97-1.06-80 Op EBIT Q1 2011 Price Volume Feed Ot h SW costs Non SW costs Translation Op EBIT Q1 2012 * Operational EBIT figures for 2011 are estimated Operational EBIT per kg The reduction in margin was mainly a result of lower prices. Claims Operational EBIT amounted to NOK 0 million in the first quarter (NOK due to the effects of Kudoa (soft flesh) continue to influence the 88 million), which was NOK -0.02 per kg (NOK 9.28). achieved price. The Canadian result was positively affected by sale of assets and licenses in the amount of NOK 4 million. Marine Harvest Group Page 14
Price and volume development The spot prices for fresh whole Canadian salmon increased compared to the fourth quarter of 2011, but were significantly down compared to the first quarter of 2011 when prices were record high due to limited supply from Chile into the US. For the quarter total, the US market was satisfactory, but the March development was disappointing for a normally strong month including the Lent period. The market is expected to remain challenging for some time due to the expected increases in supply from Chile. The price achievement was disappointing in the period only reaching 91% of the reference price level. Contract sales contributed negatively to the price achievement while spot sales were at par with the reference price. The contract share for salmon of Canadian origin was 7% in the first quarter. The effect of soft flesh (Kudoa) continues to influence the price performance through claims and reduced prices. Kudoa will also influence the price achievement in the second quarter when the last farms stocked prior to implementation of the Kudoa mitigation plan will be harvested out. Marine Harvest has experienced good growth over the last months, which has contributed to increased harvest volume in the first quarter compared to 2011 at 10 637 tonnes (9 473 tonnes). Costs and operations Favourable development in the biological performance has contributed to cost reductions in all areas except feed compared to the first quarter of 2011. The biomass cost of fish harvested in the first quarter of 2012 was 10% lower than the cost of fish harvested in the first quarter of 2011. The growth improving initiatives taken in previous quarters have contributed to the positive development. The gain on sale of assets contributed to the favourable development in the other non-seawater costs. Kudoa remains an issue for fish grown in certain areas, and exceptional costs, related to discards and claims, included in operational EBIT amounted to NOK 21 million in the first quarter (NOK 10 million). Chile Salmon of Chilean Origin * NOK million Q1 12 Q1 11 Operational EBIT Chilean Orgin Q1 2011 vs 2012 Operational EBIT 21 42 Harvest volume 9 727 2 738 Operational EBIT/kg 2.20 15.46 Exceptional items included in operational EBIT - 3 0 Exceptional items included in operational EBIT/kg -0.31 0.00 60 40 20 0-20 -40-60 -80 Op EBIT Q1 2011 Price Volume Feed Oth SW costs Non SW costs Translation Op EBIT Q1 2012 * Operational EBIT figures for 2011 are estimated Operational EBIT per kg Operational EBIT amounted to NOK 21 million in the first quarter (NOK 42 million), which was NOK 2.20 per kg (NOK 15.46). The margin reduction was a result of price reduction, combined with increased feed and other seawater costs as the present harvest generation has experienced slower growth and higher lice mitigation costs than the generation harvested one year ago. Price and volume The spot prices for fresh fillets of Chilean origin remained relatively stable in the first quarter, but were significantly down compared to the first quarter of 2011 when prices were record high due to limited availability of Chilean salmon. The available volumes have increased substantially from 2011 and at present volumes are similar to the pre- ISA level. Prices are at present lower than in 2007 (pre-isa crisis). The normal price increase in the US related to Lent did not materialise this year. For the quarter total, the US market was satisfactory, while the Brazilian and Japanese markets were strong. The US market is expected to be challenging for some time due to expected increases in Chilean supply. The price achievement was good reaching 114% of the reference price level. Both spot and contract sales contributed favourably to the price achievement. The contract share for salmon of Chilean origin was 44% in the first quarter. The adjustment for quality downgrading was low in the period. Harvest volume increased to 9 727 tonnes gutted weight (2 738 tonnes), due to increased stocking in 2010. Marine Harvest Group Page 15
Costs and operations Due to increasing feed prices and higher feed conversion rate, the feed cost per kg harvested has increased compared to last year. Other seawater costs have also increased due to increased sea lice mitigation costs and higher cost of maintenance. Non-seawater costs are positively affected by the increased harvest volume through scale effects. The biological development in the first quarter was good with improved sea water growth and low mortality. As previously announced, Marine Harvest will during 2012 review its long-term strategy for the Chilean operations to evaluate if the growth rate should be adjusted. Extraordinary mortality in the amount of NOK 3 million was accounted for the in period due to disease in the fresh water recirculation unit (NOK 0 million). Ireland Faroes Salmon of Irish Origin * Salmon of Faroese Origin * NOK million Q1 12 Q1 11 NOK million Q1 12 Q1 11 Operational EBIT 15 21 Harvest volume 2 658 1 901 Operational EBIT/kg 5.53 11.11 Exceptional items included in operational EBIT 0 0 Exceptional items included in operational EBIT/kg 0.00 0.00 Operational EBIT - 3 42 Harvest volume 1 729 2 315 Operational EBIT/kg -1.74 17.95 Exceptional items included in operational EBIT 0 0 Exceptional items included in operational EBIT/kg 0.00 0.00 * Operational EBIT figures for 2011 are estimated Salmon of Irish origin achieved an operational EBIT of NOK 15 million in the first quarter of 2012 (NOK 21 million). Operational EBIT per kg harvested in the period was NOK 5.53 (NOK 11.11). Prices remained favourable in the period as the organic salmon market is less exposed to price changes than the commodity market. Sales of organic salmon were higher in the first quarter of 2012 than in the same period in 2011. Cost wise, feed and sea lice mitigation costs have increased compared to 2011. High mortality in the 2012 harvest generation influenced the cost level in the period and will increasingly do so going forward. Mortality cost in the first quarter amounted to NOK 2 million. Harvest volume in the period was 2 658 tonnes gutted weight (1 901 tonnes). * Operational EBIT figures for 2011 are estimated Salmon of Faroese origin achieved an operational EBIT of NOK -3 million in the first quarter (NOK 42 million). In the first quarter of 2011, the unit significantly benefited from sales at very favourable prices in the US market. Cost wise, both feed and other costs have increased compared to 2011. Other costs are affected by the reduced volume harvested. Harvest volume in the first quarter was 1 729 tonnes gutted weight (2 315 tonnes). Marine Harvest Group Page 16
Events during and after closing of the quarter Profit Product Takes full ownership of MH Terminal AS at Gardermoen Marine Harvest Norway has increased its ownership in MH Terminal AS from 49 to 100%. MH Terminal operates Marine Harvest s cold storage and logistics terminal close to the Gardermoen airport outside Oslo in Norway. MH Terminal has a capacity of 120 000 tonnes per year. Considers establishment of feed company Marine Harvest has carried out a pre-study of the business case for establishing a feed company. Based on this pre-study a project is ongoing with the purpose of undertaking detailed assessments of the business case. A decision on whether or not to proceed with the establishment of the fish feed company will be taken once the conclusions from this study are available. People High score on organisational review in Scotland Investors in People, which is the UK s leading people management standard, has assessed the quality of Marine Harvest s Scottish organisation. The external assessor concludes that Marine Harvest has developed a well-motivated and highly engaged workforce that contributes to the success of the business in Scotland. In particular, the implementation of the safety programme Brain Safe was commended. Successful court case against EU commission Marine Harvest has, together with Alsaker Fjordbruk, won a court case against the EU Commission over the previously existing anti-dumping measures. The EU Court annulled the anti-dumping measures. The court rulings definition of community industry, including processors, blocks for future anti-dumping measures against the Norwegian salmon industry. The court ruling may still be appealed by the commission. Marine Harvest Group Page 17