The market showed strong ability to absorb 30% industry growth Prices in line with Q1 - Down 24% in Europe and ~35% in the US compared to Q2 2011 Satisfactory performance in Norway - excellent result in Scotland Operational EBIT NOK 231 million Strong seasonal cash flow reinforced by measures taken - NIBD reduced by NOK 759 million to NOK 5 177 million 4 192 Operating revenue NOK million 3 636 4 254 3 846 4 005 894 Operational EBIT NOK million 457 403 276 231 Harvest volume (GW) tonnes 104 589 96 700 99 165 79 932 83 076 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12
Highlights Marine Harvest Group - main figures NOK million Q2. 12 Q2. 11 YTD Q2. 12 YTD Q2. 11 2011 Operational revenue and other income 4 005 4 192 7 851 8 134 16 024 Operational EBIT 1) 231 894 507 1 857 2 717 EBIT Net financial items Profit or loss for the period 69-218 -132 381 400 685 512-137 270 1 034 1 209 238 173 1 004 1 121 Cash flow from operations 918 1 614 1 485 2 637 2 798 Total assets Net interest-bearing debt (NIBD) 21 665 5 177 21 946 5 799 21 665 5 177 21 946 222 789 5 799 6 467 Earnings per share (NOK) ROACE 2) Equity ratio NIBD/Equity -0.04 4.9% 50.8% 47.0% 0.19 25.8% 47.3% 55.9% 0.08 5.5% 50.8% 47.0% 0.28 0.31 24.1% 15.5% 47.3% 47.6% 55.9% 59.6% Harvest volume (gutted weight tonnes, salmon) 99 165 79 932 195 861 155 155 342 820 Operational EBIT - NOK per kg Norway Scotland Canada Chile 3) 3.37 7.11-4.18 0.60 13.10 13.68 4.15-20.92 3.36 6.42-2.11 1.42 13.32 9.10 13.33 10.26 7.09 1.29 4.12 4.04 1) Excluding change in unrealised gains/ /losses from salmon derivatives, fair value adjustment of biomass, onerous contracts provisions, results from f associated companies, restructuring costs and write-downs of fixed assets/intangibles. 2) ROACE: Annualised return on average capital employed based on EBIT excluding fair value adjustment of biomass and onerous contracts provisions /average (NIBD + Equity) 3) Operational EBIT per kg including allocated margin from Sales and marketing. For 2011 the numbers are estimated. Summary of the second quarter 20122 The average price level dropped by approximately 24% for Norwegian salmon and approximately for 34% Chilean and Canadian salmon compared to last year. However, the salmonn prices were inn line with the average pricess in the first quarter. Marine Harvest s global price achievement was approximately 3% above the reference level, helped by a contract share of o 33% in Norway in the quarter. Harvest volume increased by 24% compared to the same quarter last year, to 99 165 tonnes gutted weight, due to good growth g conditions. Operational EBIT of NOK 231 million, a significant decrease compared to the second quarter 2011, duee to reduction in the salmon prices. Global farming costs per kg were slightly reduced compared to the second quarter of 2011. The result in MH Scotland was excellent, and MH Norway delivered a satisfactory result given certain adverse biological events e in the quarter. The result in MH VAP Europe was disappointing. Strong cash flow from operations of NOK 9188 million, driven by a release of working capital of NOK 614 miillion. Net financial items of NOK -218 million, influenced by negative changes in the fair value of o the interest swaps of NOK -79- million and of the equity conversion option of NOK -135 million. Net interest-bearing debt decreased by NOK 759 million to NOK 5 177 million in the quarter, and the NIBD/Equity ratio ended at 47.0%. Negative earnings per share of NOK 0.04 in the quarter, while the equity ratio increased during the period to 50.8%. 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 second quarter were NOK 3 960 million (NOK 4 393 million). Excluding the net change in unrealised salmon derivatives, operational revenue and other income amounted to NOK 4 005 million (NOK 4 192 million). Cash flow Marine Harvest Group NOK million Q2. 12 Q2. 11 Spot prices dropped 24% in Europe and 34% in Americas compared to the second quarter of last year. Harvest volume was 99 165 tonnes gutted weight, 24% above the second quarter of 2011. Operational EBIT was NOK 231 million (NOK 894 million) a significant reduction compared to 2011 due to lower prices. Operating expenses in absolute terms increased compared to 2011 as a result of volume growth. Exceptional items included in operational EBIT represented NOK 97 million in the quarter (ref note 5). Marine Harvest Group Q2. 12 Q2. 11 NOK million Operational EBIT 231 894 Change in unrealised salmon derivatives -45 201 Fair value on biomass -134-701 Onerous contracts provision 0-1 Restructuring cost 0 2 Income from associated companies 17-13 Impairment losses 0-1 EBIT 69 381 Earnings before interest and taxes (EBIT) were NOK 69 million (NOK 381 million). The net change in unrealised salmon derivatives was NOK -45 million (NOK 201 million), mainly due to increase in salmon future prices. The fair value adjustment on biomass was NOK -134 million (NOK -701 million) due to reduction both in market prices and biomass in sea. Income from associated companies amounted to NOK 17 million in the quarter (NOK -13 million). Financial items Marine Harvest Group NOK million Q2. 12 Q2. 11 Interest expenses - 93-98 Net currency effects 92 143 Other financial items - 217 356 Net financial items - 218 400 Net currency effects amounted to net NOK 92 million (NOK 143 million) mainly due to realised gain on long-term cash flow hedges of NOK 62 million (NOK 43 million). Other financial items amounted to NOK -217 million in the quarter (NOK 356 million). The change in fair value of the equity conversion option of the convertible bond was NOK -135 million (NOK 396 million) and the change in fair value of the interest swaps NOK -79 million (NOK -15 million) in the period. Earnings before interest and taxes (EBIT) 69 381 Adjustment for - fair value adjustment and onerous contracts 133 703 - income/loss from associated companies -17 13 - depreciation and impairment losses 171 162 Change in working capital 614 328 Taxes paid -47 40 Other adjustments -6-13 Cash flow from operations 918 1 614 Purchase of fixed assets -169-255 Acquisitions and proceeds from investments 20 60 Cash flow from investments -150-195 Changes in interest-bearing debt -705 1 409 Net interest and financial items paid -58-57 Realised currency effects 60 86 Dividend distributed 0-2 667 Net equity paid-in / Purchase own shares 0 42 Cash flow from financing -703-1 188 Currency effects on cash - opening balance 2-25 Net change in cash and cash equivalents in the period 67 207 Cash flow from operations amounted to NOK 918 million (NOK 1 614 million). The cash flow was impacted by reduced working capital of NOK 614 million (NOK 328 million), supported by the measures taken in the second half of 2011 to preserve cash flow. The reduction in working capital was partly due to seasonable reduction of biomass in sea of NOK 344 million (NOK 39 million), as harvested volume was higher than produced volume. In addition trade receivable decreased with NOK 90 million and trade payable increased with NOK 116 million in the quarter. Cash outflow from investments amounted to NOK 150 million (NOK 195 million). Year to date the outflow related to purchase of fixed assets amounts to NOK 254 million (NOK 517 million). The reduction is in line with the announced reduction in capex for 2012. Net cash outflow from financing was NOK 703 million (NOK 1 188 million), mainly related to down payment of interest-bearing debt. In the second quarter of 2011, dividend of NOK 2 667 million was distributed. Marine Harvest Group Page 3
Financial position Net interest-bearing debt Marine Harvest Group NOK million 30.06.2012 31.03.2012 Non-current assets 12 774 12 699 Current assets 8 891 9 346 Total assets 21 665 22 044 Equity 11 008 11 042 Non-current liabilities 7 872 8 558 Current liabilities 2 785 2 444 Total equity and liabilities 21 665 22 044 Net interest-bearing debt decreased by NOK 759 million in the second quarter, to NOK 5 177 million. Currency effects decreased interest-bearing debt by NOK 9 million. The convertible bond, with a nominal value of EUR 225 million, was recognised at EUR 205 million (NOK 1 542 million) at the end of the quarter. The fair value of the equity conversion option increased by NOK 135 million during the quarter to NOK 175 million, and was recognised as a non-current interest-free liability. Cash and cash equivalents 314 248 Net interest-bearing debt 5 177 5 936 NIBD/Equity 47.0 % 53.8 % Equity ratio 50.8 % 50.1 % 11.00 Currency exchange rates towards NOK GBP EUR CAD USD Total assets amounted to NOK 21 665 million at the end of the second quarter, a decrease of NOK 379 million compared to the previous quarter. The decrease is mainly related to a reduction in biomass in sea, as the harvest volume was higher than the produced volume in the quarter. Total liabilities decreased by NOK 345 million, to NOK 10 657 million, mainly related to down payment of interest-bearing debt. 9.00 7.00 5.00 Total equity decreased by NOK 34 million from the first quarter to NOK 11 008 million. The NIBD/Equity ratio decreased from 53.8% to 47.0% and the equity ratio increased from 50.1% to 50.8% compared to the previous quarter. Global market overview Global harvest volumes of Atlantic salmon increased by 30% compared to the second quarter of 2011, to approximately 421 000 tonnes gutted weight. The percentage growth was somewhat lower than the one observed for the first quarter of 2012, but the absolute volume was approximately 20 000 tonnes higher. Supply Q2 2012 Change vs 12 month tonnes GW Q2 2011 change Norway 252 700 25.7% 18.6% Chile 79 300 97.8% 109.4% North America 33 000 25.0% 10.0% Scotland 30 200-10.4% 5.2% Faroe Islands 14 700 17.6% 32.3% Other 10 800-0.9% 1.8% Total 420 700 29.6% 25.2% The largest volume addition originated in Norway, which added approximately 52 000 tonnes compared to the second quarter of last year. This constituted a 26% growth compared to the second quarter of 2011, which was in line with the growth observation made in the first quarter. The strong growth in the first half was driven by production decisions made in 2010, whilst prices were at peak levels. The output was enforced by the historic mild winter in 2012, which has accelerated the production cycle compared to a normal year. This factor will continue to positively impact output during the remainder of the year, partly at the expense of volumes in 2013. The growth in the second half is however expected to diminish substantially. The strong growth in Norway came in parallel with the on-going aggressive 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, a strong volume growth is expected in the coming quarters due to the successive increase in number of fish reaching harvestable size. Marine Harvest Group Page 4
Although modest in volume, the percentage growth in North America was high in the quarter. This was mainly due to a normalisation of output after lower than normal volumes in 2011. Growth in the Faroe Island was driven by the main player s strategy of increasing capacity utilisation to a higher plateau level in 2012. The reduction in output from Scotland was mainly driven by Marine Harvest s temporary reduction in volume in 2012. Reference prices Q2 2012 Change vs Q2 2012 Change vs NOK Q2 2011 market 4) Q2 2011 Norway 1) NOK 26.91-26.1% EUR 3.56-23.5% Chile 2) NOK 20.22-30.1% USD 3.43-35.5% North America 3) NOK 14.32-28.3% USD 2.43-33.9% 1) Average superior price per kilo gutted weight (NOS/FHL FCA 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 second quarter of 2011. The reference price in Norway (measured in the currency of the market) however increased by 3% compared to the previous quarter. The price reductions were significantly stronger in the US when comparing to the same period of 2011. The reference prices for Chilean salmon in Miami and Canadian salmon in Seattle were also reduced by 4% and 2% respectively compared to the first quarter. Market Q2 2012 Change vs 12 month distribution tonnes GW Q2 2011 change EU 195 800 18.8% 15.8% US 78 700 28.8% 26.1% Russia 32 500 63.3% 49.0% Brasil 16 200 116.0% 88.5% Japan 14 400 84.6% 59.9% China/Hong Kong 12 400 31.9% 23.5% Other 71 200 29.9% 24.8% Total 421 200 29.5% 24.2% The market channels were adopted to deal with the high throughput in the quarter and end demand was sufficiently strong to absorb the available volume at prices which left positive margins with most producers. As a result of the high availability, Atlantic salmon was heavily marketed to both existing markets and new segments and geographies. As for previous quarters, the emerging markets experienced a significantly higher growth rate than the traditional markets for Atlantic salmon. EU consumption increased by 31 000 tonnes in the quarter. Growth was observed in both traditional and in new salmon markets. The ongoing economic downturn in the region did not seem to impact the demand in any material way. The Chilean industry s core markets, the US and Brazil, both continued the strong trend seen in previous quarters. The Russian market continued to stand out in terms of end demand with its 64% growth in the quarter. 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. The trend seen in previous quarters with respect to trans-atlantic flow of Atlantic salmon continued in the second quarter. The flow from Europe to the US dropped by 6 000 tonnes (26%), and the flow from Chile to Europe increased by 2 000 tonnes (56%). The catch of wild salmon species is expected to drop in 2012 compared to 2011, which was a peak year. Source: Kontali 230 000 PRICE AND GLOBAL VOLUME ALLOCATION TO THE EU MARKET 6 85 000 PRICE AND GLOBAL VOLUME ALLOCATION TO THE US MARKET 6 220 000 210 000 5 80 000 5 Tonnes (HOG) 200 000 190 000 180 000 170 000 160 000 4 3 2 EUR per kg (HOG) 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 Q2 2012 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Tonnes (HOG) 75 000 70 000 65 000 60 000 4 3 2 USD per lb 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 Q2 2012 Q3 2007 Q3 2008 Q3 2009 Q3 2010 Q3 2011 Q4 2007 Q4 2008 Q4 2009 Q4 2010 Q4 2011 Volume EU Reference price Norway, HOG (Oslo) Volume USA Reference price North America, HOG (Seattle) Reference price Chile, Fillets (Miami) Marine Harvest Group Page 5
Business areas and segment reporting Marine Harvest Group MH Sales and Marketing MH Farming MH Other MH Group 1) MH Markets MH VAP Europe NOK mill Q2 12 Q2 11 Q2 12 Q2 11 Q2 12 Q2 11 Q2 12 Q2 11 Q2 12 Q2 11 External revenue 2 936 3 035 979 1 077 71 95 19 22 4 005 4 192 Internal revenue 380 477 4 14 2 640 2 945 19-7 0 0 Operational revenue and other income 3 316 3 512 984 1 090 2 710 3 039 38 15 4 005 4 192 Operational EBIT 103 36-5 1 157 897-24 - 35 231 894 Fair value adj on biomass, onerous contracts 0 0 0 0-134 - 707 0 5-133 - 703 Change in unrealised salmon derivatives 0 0 0 0 0 0-45 201-45 201 Restucturing costs 0 0 0 2 0 0 0 0 0 2 Income from associated companies 0 0 0 0 17-13 0 0 17-13 Write-down of fixed assets/intangibles 0 0 0-1 0 0 0 0 0-1 EBIT 103 36-5 2 40 178-69 171 69 381 Operational EBIT% 3.1 % 1.0 % -0.5 % 0.1 % 5.8 % 29.5 % na na 5.8 % 21.3 % 1) MH Group adjusted for eliminations. Total operating revenues in the second quarter amounted to NOK 4 005 million (NOK 4 192 million). The reduction was a result of a significant reduction in the spot price for salmon compared to 2011, somewhat mitigated by a 24% 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 second quarter amounted to NOK 231 million (NOK 894 million). MH Farming contributed with an operational EBIT of NOK 157 million (NOK 897 million), while MH Sales and Marketing had an operational EBIT of NOK 98 million (NOK 37 million). MH Markets generated an operational EBIT of NOK 103 million (NOK 36 million), while the result in MH VAP Europe was disappointing in the quarter and ended at NOK - 5 million (NOK 1 million). Other units reported a loss of NOK 24 million including a profit of NOK 2 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 an income/ cost of NOK 4 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 Canada, and Kudoa claims and discard costs in Canada. Total costs related to exceptional items included in the operational EBIT in the second quarter amounted to NOK 97 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 second quarter of 2012 has once again shown that the salmon markets are able to absorb a substantial increase in supply year over year. This high volume increase for the industry of 30% compared to the second quarter of 2011, translated into a competitive market environment in fresh bulk sales and processing in Europe, with sales volume growth supported by an increased number of promotions. The French smoked market was very competitive in the period due to lower consumption. The quarterly performance in MH Markets was strong, while MH VAP Europe delivered a loss in the period. 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 second quarter. Compared to the second quarter of 2011, sales to the American and Asian markets have increased in absolute values, while salmon revenues from the European VAP and bulk markets have declined. The decline in the European market is a result of the price reduction compared to last year. Within the regional markets, sales to Brazil increased significantly in the period due to increased volume available from MH Chile (volume up more than 300% compared to the second quarter of 2011). Sales to Central Eastern Europe also continued the positive trend seen in previous months with an increase in revenues of 15% compared to 2011. 60% 50% 40% 30% 20% 10% 0% Sales revenue by Geography (salmon % revenues) EU ex VAP EU VAP Americas Asia Rest of the world Q2-2011 Q2-2012 Marine Harvest Group Page 6
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 second quarter: Frozen elaborated salmon 8% Frozen whole salmon 1% Sales by products 2012 Other products 10% The main product is fresh whole salmon, representing 54% of total sales by revenue. Smoked and elaborated salmon (fresh and frozen total) accounted for 35% of total sales revenues in the period, which is an increase of 2 percentage points from the second quarter of 2011. Work continues to increase the share of elaborated salmon, and in the second quarter Marine Harvest opened its new processing facility in Boulogne, France which will enable the Group to capitalise on the customer portfolio and facilitate growth within a market category with attractive growth rates and margins. The facility has a production capacity of 6 000 tonnes MAP salmon products that can easily be expanded to 12 000 tonnes (~ 24 000 tonnes gutted weight). Fresh elaborated salmon 21% Fresh whole salmon 54% Fresh smoked salmon 6% MH Markets Volume development Volume sold was 24% higher in the second 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, USA and Brazil. In addition to the increased own harvest, external sourcing has also slightly increased compared to the second quarter of 2011. Price achievement Despite significantly increased supply compared to the same period last year, reference prices in general developed favourably during the quarter. The overall price achievement was relatively strong in the period as spot and contract sales were above the reference price level for most origins, while the cost of quality downgrading was limited for salmon of all origins excepting Canada (Kudoa) and to some extent Norway as guided after the first quarter. NOK per kg gw 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 - Global price achieved vs reference price * Q2 2011 Q2 2012 Reference price Achieved price * Price achieved and reference price combined for the five farming units, Norway, Scotland, Canada, Chile and Faroes. The combined global price achieved in MH Markets was 3% above the reference price level in the quarter. The corresponding price achievement in the second quarter of 2011 was in line with the reference price mainly due to a less favourable contract portfolio. 115% 110% 105% 100% 95% 90% 85% 80% Average prices achieved (incl all qualities) vs reference price - second quarter 2012 vs second quarter 2011 Norway Scotland Canada Chile Faroes Index 2011 Index 2012 MH Markets Q2 2012 Norwegian Scottish Canadian Chilean Contract share 33% 58% 9% 35% Quality - superior share 84% 97% 88% 92% The average price achievement is measured vs reference prices in all markets (NOS for Norwegian, and Faroese salmon, derived NOS (NOS + NOK 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. Salmon of all origins except Canada achieved prices above the reference price level in the second quarter with contribution both from spot prices above the reference price level and contract prices at Marine Harvest Group Page 7
favourable terms. Salmon of Canadian origin did not achieve prices above the reference level in the second quarter due to the effects of soft flesh (Kudoa) contributing to claims and reduced selling prices, but the Canadian price achievement has improved in relative terms compared to last year. Marine Harvest has noticed an increased interest from major customers to enter into global long-term supply contracts and coordination of marketing activities (partnerships). To be better positioned to create additional value and broaden the market potential, both long term partnerships and global agreements have been entered into during the last quarter. Based on the current price level, the contract contribution will remain positive going forward. MH Markets in Europe The market was able to absorb a year over year increase in the Norwegian industry s export volumes of 26% in the second quarter, at increasing prices compared to the first quarter of 2012. 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 second quarter was driven by Russia. The development in the quarter 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. The single largest market for Norwegian salmon in the second quarter was according to the Norwegian export statistics for salmon, France. 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. 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. Fillet volumes remained high into the US market during the quarter. The second quarter was the first full quarter after the removal of the import tax on Norwegian fresh whole salmon, but no significant impact was noted in the US whole fish market. The start-up of the season for wild salmon influenced farmed salmon sales on the west coast towards the end of 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 second quarter was strong, with total volumes of Norwegian origin up more than 40 % compared to the second quarter of 2011. The Norwegian export statistics show that in addition to the positive development in the main market (Japan), the substantial growth in emerging Asian markets continues. Compared to 2011, the premium vs. NOS on salmon of Scottish origin has increased as a result of favourable demand and limited availability of spot volumes. In China, market access is limiting total consumption of Norwegian salmon. As a global producer, Marine Harvest 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 8
MH VAP Europe VAP Europe NOK million Q2 12 Q2 11 20 VAP Europe Q2 2012 - Operational EBIT Operating Revenues 984 1 089 Operating EBIT - 5 1 0-20 -40 Operating EBIT% -0.5% 0.1% Volume sold (tonnes prod wt) 15 022 14 604-60 -80 Exceptional items included in operational EBIT 0 0-100 -120 Op EBIT Q2 2011 Price Volume Raw M aterials Other Translation Op EBIT Q2 2012 Prices and volume Marine Harvest VAP Europe s operating revenues were NOK 984 million in the second quarter (NOK 1 089 million). Volume sold was 3% higher than in the second quarter in 2011 while the average price achieved was 10% 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 increased by 6% in the period compared to 2011. Fresh salmon sales have picked up as a result of lower prices, but market pressure and unfavourable mix (increased bulk sales) negatively influenced the margins achieved. The French market for smoked salmon remained challenging in the second quarter, due to increased competition more cautious consumer behaviour. Sales of Atlantic salmon accounted for 65% of the total sales value in the second quarter of 2012 (68%). VAP Europe Salmon Other species Q2 12 Q2 11 Q2 12 Q2 11 Volume share 60% 59% 40% 41% Revenue share 65% 68% 35% 32% Gross Margin share 64% 52% 36% 48% Costs and Operational EBIT The results were disappointing in the second quarter with an operational EBIT of NOK - 5 million (NOK 1 million). Of this, NOK -3 million was contribution from sale of salmon (mainly salmon of Norwegian origin), while NOK -2 million came from sale of other species. As indicated in the graph, Marine Harvest VAP Europe was not able to improve margins during the quarter as the benefit of reduced raw material prices was eliminated by lower sales prices and increased costs. 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 second quarter of 2011. Other costs were also negatively influenced by accruals related to the share price based bonus scheme of NOK 3 million (reversal NOK 7 million in the second quarter of 2011). The EBIT margin in VAP for the quarter was - 0.5% (0.1%). The focus on increasing the value added component of the Group s own salmon continues. As announced, Marine Harvest opened its new production plant in Boulogne-sur-mer on 28 May. The plant will focus on production of modified atmosphere packaging (MAP) products, in line with the Group s previously communicated strategy of expanded elaborated products capacity. A new organization structure will be implemented in Marine Harvest VAP Europe in the third quarter in order for the business unit to take the next step in its development towards market leadership in Europe. Marine Harvest Group Page 9
MH Farming The purpose of the farming organisation is to apply best production practices across geographies in order to optimise production performance Q2/2012 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 second quarter of 2012 was 24% higher than in the second 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 line with guiding, volume of Scottish origin was down compared to last year due to an uneven stocking pattern. Cost development NOK per kg gutted weight 27.0 25.0 23.0 21.0 19.0 17.0 15.0 Global Farming - full cost Q2 2011 vs Q2 2012 Cost per kg Q2 2011 Feed Oth SW Cost Non SW Cost Cost per kg Q2 2012 As indicated in the graph, Marine Harvest Global Farming has been able to reduce costs compared to the second quarter of 2011. The feed cost for harvested fish was higher than in the same period in 2011. Other sea water costs were also higher than in 2011 due to higher smolt costs (vaccination) and increased repair and maintenance costs as a result of reduced capex level in 2012. Global lice mitigation costs have also increased slightly. Higher volume and cost reductions have contributed to the positive development in nonseawater costs compared to 2011, but the main driver for the positive development in these costs is reduced mortality as the second quarter of 2011 was significantly impacted by mortality in Norway. 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 first quarter of 2012, feed prices remained stable in the period, in line with what was indicated in the first quarter report. The prices in the third quarter of 2012 will increase as feed raw materials prices now trend significantly upwards, marine raw materials in particular, but also vegetable sources. Marine raw material prices are influenced by lower than expected quotas for the fisheries in Peru, while poor weather conditions in Brazil and Argentina have reduced the soy harvest and thus contributed to price pressure in the market for soy proteins. Raw material substitution is applied to reduce the cost of feed, but given the general increase in all raw material prices, this will only to a limited degree mitigate higher feed prices going forward. Higher feed prices will influence the cost of harvested fish starting fourth quarter 2012. 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 second quarter there were no escape incidents. Two escape incidents were reported in Marine Harvest Norway in the second quarter of 2011. Antibiotics: Marine Harvest has focus on preventing infectious diseases and limiting their spread. If fish get infected, they are treated with approved medications. In the second quarter, the total use of antibiotics corresponded to 9 grams per tonne biomass produced compared to 49 grams per tonne in the second quarter of 2011. ISA and PD: There were no ISA outbreaks in Marine Harvest in the second quarter of 2011 and 2012. There were 4 sites diagnosed with PD in Norway in the second quarter of 2012 compared to 7 in 2011. The related mortality has not been material. One of the PD sites is located north of the Hustadvika barrier. The affected fish is harvested out in line with regulations from the Food Safety Authorities. There are currently two cages still to be harvested out at the farm. For the industry total there were 3 sites diagnosed with PD north of Hustadvika in the period. All cases, both clinical cases and cases with virus detection in this area are caused by a different strain of the PD virus than in other parts of the country (SAV3 compared to SAV2). A new regulation from the Norwegian Food Safety Authorities controlling further spread of SAV2 is currently out on hearing. In Scotland and Ireland, there was one site diagnosed with PD in the second quarter of 2012 compared to three sites in the second quarter of 2011. Sea lice: Marine Harvest actively works to reduce the sealice count in all farming units. All regions reported higher sea lice levels at the end of the second quarter of 2012 compared to the second quarter of 2011. Marine Harvest Chile continues to work to promote good sea lice practices and new regulations have been introduced in Chile to improve lice control in the industry. 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 10
Operational performance and analytical data per country of origin In order to follow the overall value creation, Marine Harvest in addition to reporting on the functional organisation, 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. The table below and the next pages of the report provide comprehensive analytical data to ease the understanding and modelling along this axis. Marine Harvest Group - analytical figures SOURCES OF ORIGIN NOK million Norway Scotland Canada Chile Irland Faroes Other 1) MH Group OPERATIONAL EBIT MH FARMING 156 62-50 - 9 3-5 157 MH SALES AND MARKETING MH Markets 63 19 6 15 1 0 103 MH VAP Europe - 3 0 0 0 0 0-2 - 5 SUBTOTAL 216 81-44 6 4-5 - 2 255 Other entities 2) -24-24 TOTAL 216 81-44 6 4-5 - 26 231 Harvest volume (gutted weight tonnes, salmon) 64 021 11 354 10 577 9 638 1 717 1 857 99 165 Operational EBIT per kg (NOK) 3) 3.37 7.11-4.18 0.60 2.30-2.54 2.58 - of which MH Markets 0.98 1.70 0.52 1.51 0.39 0.25 1.04 - of which MH VAP Europe -0.05-0.02 0.00 0.00-0.09 0.00-0.05 ANALYTICAL DATA Price achievement/reference price (%) 4) 102% 109% 95% 109% 103% 103% Contract coverage (%) 33% 58% 9% 35% Quality - superior share (%) 84% 97% 88% 92% 92% 94% 87% Exceptional items (NOK million) 5) 74-23 - - - 97 Exceptional items per kg (NOK) 5) 1.16-2.16 0.00 - - - 0.98 GUIDANCE Q3 2012 harvest volume (gutted weight tonnes) 57 000 12 000 9 000 9 000 2 000 1 000 90 000 2012 harvest volume (gutted weight tonnes) 248 000 41 000 38 000 38 000 9 000 6 000 380 000 Q3 2012 contract share (%) 34% 52% 0% 17% 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 Marktes' price achievement to third party and MH VAP Europe 5) Exceptional items impacting operational EBIT Norway Salmon of Norwegian Origin NOK million Q2 12 Q2 11 Operational EBIT Norwegian Orgin Q2 2011 vs Q2 2012 Operational EBIT 216 709 Harvest volume 64 021 54 112 Operational EBIT/kg 3.37 13.10 Exceptional items included in operational EBIT 74 91 Exceptional items included in operational EBIT/kg 1.16 1.68 800 700 600 500 400 300 200 100 0 Op EBIT Q2 2011 Price Volume Feed Oth SW costs Non SW costs Op EBIT Q2 2012 Operational EBIT per kg Operational EBIT in the second quarter amounted to NOK 216 million (NOK 709 million), which was NOK 3.37 per kg (NOK 13.10). 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. Marine Harvest Group Page 11
Price and volume development Compared to the second quarter of 2011, the spot prices have been significantly reduced as a result of increased supply. During the quarter spot prices were volatile, showing a downward trend towards the end of the quarter as harvest was increased. The development in the fresh commodity market in Europe was good in the period. The overall price achieved was 2% 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 33% for salmon of Norwegian origin in the second quarter. The adjustment for quality downgrading was more negative than normal in the quarter. Marine Harvest has experienced good growth over the last months, which contributed to record level harvest volumes for a second quarter at 64 021 tonnes gutted weight (54 112 tonnes). Costs and operations Feed and lice mitigation costs have increased slightly compared to the second quarter of 2011. Although feed prices have been reduced from their peak level mid-2011, the harvested biomass is still influenced by high historic prices. Other sea water costs have also increased due to increased vaccination costs. As in previous periods, sea lice mitigation costs have been high for the harvested generation. The estimated exceptional cost in the second quarter was NOK 0.71 per kg (NOK 0.81), which in absolute terms amounted to NOK 45 million (NOK 44 million). Year to date sea lice mitigation costs are NOK 0.68 per kg (NOK 0.71) or NOK 86 million in absolute terms (NOK 73 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 11 million was recognised in the period (NOK 47 million). The mortality was related to losses of broodstock due to predation, treatment losses and mortality when moving fish from a site damaged by a hurricane. PD has not caused significant mortality in the period. The detection of PD virus at one site north of Hustadvika resulted in early harvest in line with the regulations from the Food Safety Authorities. The estimated profit reduction and extra costs related early harvest were NOK 18 million in the quarter. Total exceptional costs included in operational EBIT amounted to NOK 74 million in the second quarter (NOK 91 million). Non-seawater costs were lower in the second quarter of 2012 than in the same period in 2011 mainly due to scale effects and high exceptional mortality in 2011. Seawater growth was good in the second quarter, but compared to the first quarter negatively influenced by less favourable sea water temperatures in some regions. Scotland Salmon of Scottish Origin NOK million Q2 12 Q2 11 Operational EBIT 81 178 Harvest volume 11 354 13 014 Operational EBIT/kg 7.11 13.68 Exceptional items included in operational EBIT 0 0 Exceptional items included in operational EBIT/kg 0.00 0.00 200 180 160 140 120 100 80 60 40 20 0 Operational EBIT Scottish Orgin Q2 2011 vs Q2 2012 Op EBIT Q2 2011 Price Volume Feed Oth SW costs Non SW costs Translation Op EBIT Q2 2012 Operational EBIT per kg Salmon of Scottish origin continues the excellent performance, and operational EBIT in the second quarter amounted to NOK 81 million (NOK 178 million), which was NOK 7.11 per kg (NOK 13.68). The margin reduction was a result of the general reduction in market prices combined with lower volume. Price and volume development The spot prices for fresh whole salmon of Scottish origin were in the quarter lower than one year ago, following the general trend in the global salmon market. The favourable contract portfolio and good spot price achievement contributed to prices above the reference and the overall price achieved for salmon of Scottish origin was 9% above the reference price in the quarter. The contract share was 58%. With a 97% superior share, the negative adjustment for quality downgrading was very low in the second quarter. As guided in the first quarter, harvest volume has been reduced by 13% compared to 2011 to 11 354 tonnes gutted weight (13 014 tonnes), due to an uneven stocking pattern (2009 vs 2010). Marine Harvest Group Page 12
Costs and operations Benefiting from improved feed conversion, Marine Harvest Scotland has observed a reduction in the feed cost per kg for biomass harvested in the quarter. Other seawater costs have increased compared to the second quarter last year. Non-seawater costs were negatively affected by the reduction in 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, but an increase was recorded towards the end of the quarter related to gill amoeba which could influence the cost level going forward. Favourable seawater temperatures contributed to good growth. Canada Salmon of Canadian Origin NOK million Q2 12 Q2 11 Operational EBIT - 44 32 Harvest volume 10 577 7 772 Operational EBIT/kg -4.18 4.15 Exceptional items included in operational EBIT 23 23 Exceptional items included in operational EBIT/kg 2.16 2.92 Operational EBIT per kg 100 80 60 40 20 0-20 -40-60 -80-100 Operational EBIT Canadian Orgin Q2 2011 vs Q2 2012 Op EBIT Q2 Price Volume Feed Ot h SW cost s Non SW costs Translat ion Op EBIT Q2 2011 2012 Operational EBIT amounted to NOK - 44 million in the second quarter (NOK 32 million), which was NOK -4.18 per kg (NOK 4.15). The reduction in margin was mainly a result of lower prices and write down of broodstock of NOK 6 million. Claims due to the effects of Kudoa (soft flesh) continue to influence the achieved price. As of June 2012, there is limited volume remaining in sites affected by Kudoa. Price and volume development The second quarter spot prices for fresh whole Canadian salmon decreased compared to the first quarter of 2012, and were significantly down also compared to the second quarter of 2011. Increased supply of Chilean salmon is the main driver for the price reduction, but increased wild catch also impacted supply towards the end of the quarter. The market is expected to remain challenging for some time due to the increase in supply from Chile. The price achievement was disappointing in the period only reaching 95% of the reference price level. Both spot and contract sales contributed negatively to the price achievement compared to the reference price. The contract share for salmon of Canadian origin was 9% in the second quarter. The effect of soft flesh (Kudoa) continues to influence the price performance through claims and reduced prices. The last farms stocked prior to implementation of the Kudoa mitigation plan are in the process of being harvested out and Kudoa effects are expected to be significantly reduced going forward. Marine Harvest has experienced good growth over the last months, which has contributed to increased harvest volume in the second quarter compared to 2011 at 10 577 tonnes gutted weight (7 772 tonnes). Costs and operations Favourable development in the biological performance has contributed to cost reductions in all areas except feed compared to the second quarter of 2011. The biomass cost of fish harvested in the second quarter of 2012 was 7% lower than the cost of fish harvested in the second quarter of 2011. The growth improving initiatives taken in previous quarters have contributed to the positive development. In the second quarter of 2011, contribution from gain on sale of a hatchery positively influenced non-seawater costs. Similarly, the 2012 figure is negatively influenced by write down of broodstock in the amount of NOK 6 million due to stock consolidation. The underlying cost improvement in this category is thus better than indicated in the graph. The restructuring of the operations is progressing according to plan. Kudoa remained an issue for fish harvested in the period, and exceptional costs, related to discards and claims, included in operational EBIT amounted to NOK 23 million in the second quarter (NOK 23 million). Marine Harvest Group Page 13
Chile Salmon of Chilean Origin NOK million Q2 12 Q2 11 Operational EBIT Chilean Orgin Q2 2011 vs Q2 2012 Operational EBIT 6-24 200 Harvest volume 9 638 1 164 Operational EBIT/kg 0.60-20.92 0-200 -400 Exceptional items included in operational EBIT 0 10 Exceptional items included in operational EBIT/kg 0.00 8.42-600 -800 Op EBIT Q2 2011 Price Volume Feed Oth SW costs Non SW costs Translation Op EBIT Q2 2012 Operational EBIT per kg Operational EBIT amounted to NOK 6 million in the second quarter (NOK - 24 million), which was NOK 0.60 per kg (NOK -20.92). Although prices have been significantly reduced compared to last year, the substantial volume increase has contributed to margin improvement. In the graph the positive volume impact is split between volume and the volume driven non-seawater costs. Price and volume development The spot prices for fresh fillets of Chilean origin were lower in the second quarter of 2012 than in the previous quarter and were also significantly down compared to the second quarter of 2011 when prices were record high due to limited availability of Chilean salmon. The industry s 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). For the quarter in total, the US market was challenging, while the Brazilian and Japanese markets were strong. The US market is expected to be challenging for some time due to the increase in Chilean supply. The price achievement was good reaching 109% 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 35% in the second quarter. The adjustment for quality downgrading was low in the period. Harvest volume increased to 9 638 tonnes gutted weight (1 164 tonnes), due to increased stocking in 2010 and 2011. 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. The negative volume effect is, as indicated above, a result of negative margin on sales in the second quarter of 2011. Non-seawater costs are positively affected by the increased harvest volume through scale effects. There was no extraordinary mortality accounted for the in period (NOK 10 million in the second quarter of 2011). Marine Harvest s biological development in the second quarter was good although the biological concerns remain. New regulations have been implemented, but additional regulations are required to secure sustainable salmon farming in Chile going forward. Ireland Salmon of Irish Origin NOK million Q2 12 Q2 11 Operational EBIT 4 11 Harvest volume 1 717 1 673 Operational EBIT/kg 2.30 6.40 Exceptional items included in operational EBIT 0 0 Exceptional items included in operational EBIT/kg 0.00 0.00 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 second 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. Harvest volume in the period was 1 717 tonnes gutted weight (1 673 tonnes). Salmon of Irish origin achieved an operational EBIT of NOK 4 million in the second quarter of 2012 (NOK 11 million). Operational EBIT per kg harvested in the period was NOK 2.30 (NOK 6.40). Marine Harvest Group Page 14
Faroes Salmon of Faroese Origin NOK million Q2 12 Q2 11 Operational EBIT - 5 24 Harvest volume 1 857 2 197 Operational EBIT/kg -2.54 11.12 Exceptional items included in operational EBIT 0 0 Exceptional items included in operational EBIT/kg 0.00 0.00 Salmon of Faroese origin achieved an operational EBIT of NOK -5 million in the second quarter (NOK 24 million). The negative margin development is mainly price driven. Cost wise, both feed and other costs have increased compared to 2011 as the current harvest generation has suffered from increased biological challenges. Other costs are somewhat affected by the reduced volume harvested. Harvest volume in the second quarter was 1 857 tonnes gutted weight (2 197 tonnes). Events during and after closing of the quarter People Change of CFO Jørgen Kristian Andersen will step down from his position as CFO in Marine Harvest ASA at the end of July. The Board expresses gratitude to Mr Andersen's excellent contribution in developing the company over the last five years. Ivan Vindheim has been appointed as new CFO. Mr Vindheim comes from the position as CFO in Lerøy Seafood Group ASA and holds an MSc in Economics and Business Administration from NHH, and an MBA from the same school. He is a State Authorized Public Accountant and a Certified European Financial Analyst. He will take up the CFO position 1 August. VAP Europe A new organisational structure will be implemented in Marine Harvest VAP Europe, in order for the business unit to take the next step in its development towards market leadership in Europe. The reorganization will centre operation around 3 business lines, Fresh, Frozen and Chilled, with focus on profitable customer management and day to day operations. The business lines will be supported by departments for Business Development and Projects, Finance/IT and HR/Communications. The new organisation will be fully implemented by 1 September. Profit Norwegian aquaculture ownership limitations in breach of EEA law The EFTA Surveillance Authority has reached a preliminary conclusion regarding the ownership limitations in the Norwegian regulations stating that the Norwegian cap on controlling more than 25% of fish farming concessions is in breach of the fundamental EEA right of establishment. Annual General Meeting 4 June The Annual General Meeting of Marine Harvest ASA was held in Bergen 4 June. The General Meeting expanded the scope of the previous resolution relating to the outstanding EUR 225 million convertible bond so as to permit the share capital of the company to be increased by up to NOK 405 million in the event of conversion. Furthermore, the Board proxies to purchase up to 10% of the Company s own shares and to increase the share capital by up to 5%, were renewed. The authority to the Board to raise loans with a right to convert the principal to share capital, with a conversion right up to 640 million shares, was also renewed. Tor Olav Trøim was elected as a new Board member. In addition Stein Mathiesen has been elected as a new employee representative to the Board. Product Marine Harvest Canada receives BAP certification In June Marine Harvest Canada achieved the Global Aquaculture Alliance s Best Aquaculture Practices (BAP) certification for 5 marine salmon sites. Third party audits of the BAP Salmon Farms Standard will continue at all remaining Salmon farms with the ambition to have all operational farms certified by 2013. The BAP standard for Salmon Farms ensures the environmental impacts of aquaculture water quality, feed resource conservation, fish escapes and wildlife interaction are reduced or eliminated. It also covers community, animal health and welfare as well as food safety aspects of farming operations. Marine Harvest Group Page 15