Marine Harvest's (MNHVF) CEO Alf-Helge Aarskog on Q4 2015 Results - Earnings Call Transcript

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Marine Harvest ASA (OTCPK:MNHVF) Q4 2015 Results Earnings Conference Call February 17, 2016 10:00 AM ET


Alf-Helge Aarskog - CEO

Ivan Vindheim - CFO


Marius Gaard - Swedbank

Kolbjørn Giskeødegård - Nordea Markets

Maarten Bakker - ABN

Henning Lund - Pareto Securities

Alexander Aukner - DnB Markets

Bruce Diesen - Fearnleys

Alf-Helge Aarskog

Good morning, and welcome to the presentation of the Fourth Quarter for Marine Harvest and Fourth Quarter of 2015. Together with me to present today I have the CFO, Ivan Vindheim and he will come back to the numbers in more details later on in the presentation.

We just go straight to the highlights for this quarter, an operational EBIT of NOK837 million. Good contribution here from Norwegian fish, approximately or not approximately NOK809 million was -- came from Norwegian fish through value added and through sales. All time high result in Feed, we produced or sold 884,000 ton of fish feed, that's a new record for us and we also made an EBIT of NOK74 million, which is another new record for the Feed segment. One major negative incident or surprise for us in this quarter was the start-up of our operation in Rosyth, we lost NOK95 million on this one factory in the quarter. I will come back to that in more detail later on.

In terms of demand, strong demand both in Europe and in Asia. In Europe supply up by 4.6% and prices in the currency they buy fish in was up 6.2%. In terms of the conditions in America, maybe one of the toughest quarters pricewise in -- on Chilean fish and even for Canadian fish. Supply was up 10.8% in this quarter. Prices on Canadian fish down 12.7% in gutted equivalent prices and down 22% compared to the fourth quarter in 2014 on Chilean fish. And that -- and the prices on Chilean fish in this quarter probably lowest at least in historical times.

In terms of financing, we issued convertible at €340 million at a coupon of 0.125% which makes our financing more flexible and better for the future. The Board has decided to pay out the dividend here at NOK1.40 per share.

Some key financial numbers, top line growth for Marine Harvest in 2015 was good. We were -- we increased the top line by 10% and in the fourth quarter by 17%. As you can see the operational EBIT down from slightly north of NOK1 billion to NOK837 million in the quarter -- in the fourth quarter of 2015. And the majority here or the explanation is NOK181 million lost in Chile compared to the result in Q4 2014. So, that's the biggest impact factor and then also the loss in our value added entity has an impact on this number. Volumes slightly up from 105,000 tons in Q4 2014 to 110,000 tons in Q4 2015.

If we then take a look at the salmon prices, the underlying prices in Europe has been good and increasing, as I already stated 6.2% up in euros in the quarter on a supply growth at 4.2%. In terms of Americas, very low prices during the fourth quarter but we have seen a re-bounce end of December and into -- continued into January and even also into February. So, prices are up in Chile with approximately US$1, since the bottom in the fourth quarter. It obviously will have a impact on earnings but it's still far from putting our Chilean operation into a profitable level. But it's heading in the right direction. Canadian prices are as well down, but not as much as the Chilean prices.

And then if you look at price achievement and here just to start with the Norwegian prices, it's important to -- if you look at the NASDAQ price for the fourth quarter, it's at NOK45 or slightly above NOK45. It's then important to remember that that is not the volume weighted price, so the NASDAQ price in October was around NOK40. The NASDAQ price in November, NOK42, and the NASDAQ price in December NOK51. And when you then do the math here you can soon get the -- or the wrong picture in terms of how is the cost of Marine Harvest compared to the price, because if we have a look at volume in October and November as we had. And in addition have wrong sizes of fish because we are post harvest especially in Region Mid. The achieved price is certainly not NOK45.

But still we managed to be there around 100%. So based on contract, even though the contracts are not at NOK45 we achieved about the same as NASDAQ in -- on all the fish in a volume weighted scenario. On Scottish fish, 110% on some good contracts. It's important to note that the Scottish fish is in high competition with Norwegian fish at the moment and is challenged there in terms of profitability. Canada no contracts and we are about at spot price and Chile is slightly down and slightly down the major explanation there is the weaker market in Brazil where we have been strong historically or a weaker price achievement in Brazil.

Then to explain to go from the operational EBIT in Q4 2014 to Q4 2015, you will see here Feed doing slightly better, Farming obviously a worst performance and the majority here is already explained with the Chilean activities. But also here is higher cost in most of the other operations and mostly due to biology. And then you see Markets and Consumer Products being NOK29 million worse and I'll explain that in more detail when we get to that operation.

Then to the Norwegian operations -- just change this a little bit so I can read what's on it. Good result in the quarter in total now at NOK12.14 per kilo is a good result, there is no doubt about that but it's highly price driven, cost is up and -- but so are prices. And to me the cost development is concerning, basically throughout the sector, especially in areas where we have really issue with sea lice and I'll get back to that when we go and comment to the different regions. We have however booked 5% increase MAB on 15 licenses in Region South, in the region out there where we are not treated for sea lice for -- whereas now -- since the last six years, we are way beyond the limit. So there are different scenarios in the Norwegian Farming area.

If you then look at contract portfolio, worth to mention here is that the contract volume in January was its highest 79% and that's on the back of lower volumes and lack of fish that has already been harvested during Q4. For the first quarter 2016 contract share is 56% slightly above, actually our limit, we should stop at 50%, but because of lower harvest volumes and fish already harvested in Region Mid, we surpassed that limit in this quarter.

In terms of the different regions, quite a variation in terms of profitability NOK8.9 per kilo in Region South. It's probably a good performance in that region per se, still some issues around PD, CMS and in part of this region which goes up to [indiscernible] in Norway. We still have issues with sea lice. Region West, decent or actually a very good result NOK16.2 per kilo up from Q4 2014, but also here a lot of extra cost is going in to keeping sea lice down. The worst performing region in this quarter is Region Mid, NOK4.5 in margin and this is on the back of harvesting out 2 kilo to 3 kilo fish and everybody that understands their cost development of farm fish understands that 2 kilo to 3 kilo fish has a much higher cost than a harvest fish at 4 kilo to 5 kilo.

So high cost on the fish and also when you harvest out smaller fish you drop down in price. So you get it from both sides, lower price, higher cost and this is because we had to harvest out, two or three sites during this quarter because we lost control over sea lice and the whole area in fact lost control over sea lice. I think the action that's been taken over the last few months with investments in new equipment will help the situation for 2016 but it's still not over. This has to be taken seriously.

Region North which goes from Foula and up to [indiscernible] is in a much, much better situation in regard to sea lice. Here the situation in general is better than over the last -- if you have looked at this in a five years perspective, well you see here the loss to sea lice have not been better over the last five years, So a different scenario. So I think the Region North going forward will perform well. Then what is the solution? Well, the government has come up with incentive for the farming companies in Norway to develop new technology and you can apply for licenses if you have good projects that solves issues around sea lice, escaped fish, maybe even taking out particles from feed system, potential feed spills from farming operations.

We have started with one concept and applied for 14 licenses there and this is a system that is interesting, still every early days. But if we can get this to work the way we want it to work both in terms of fish logistics looks very promising, in terms of certainly sea lice and in terms of escaped fish the same. And also we try to take out the particles and use that for energy and this has a lot of advantages compared to today's problem. Cost wise, well, we will not do this if we are not decreasing cost of production and when we know that the Norwegian Farming industry is using between NOK3 billion and NOK5 billion just on sea lice and in addition to that a lot of cost regards to mortality, it can be a solution.

So we will hopefully if we get licenses approved start up in this fall. And then take it from there gradually moving up and our target is to have one site to be able to harvest out 14,000 tons to 15,000 tons out of that one site, MAB around 10,900 ton to do that, at huge cost improved the concept and without impact on environment. That is interesting.

Scotland, and here be aware of that the Scottish number is impacted by Rosyth which is the value added operation which I will come back to. They lost NOK95 million in this quarter and NOK87 million on Scottish fish that had a direct impact of NOK5.53 per kilo on the Scottish operation. But in addition to that there is still room for improvement both in terms of sea lice and algae blooms that we have had in Scotland in this quarter and we in fact expect cost to increase going forward. We have taken action in Scotland, changed operation in Q1, but we will not see the result of that before the second half of 2016.

Then over to Canada and our Canadian operation despite a market that is going very much against them and remember they had reduction in prices there in Canadian dollars of 12.7%, still made money, and in that regard performed fairly well. But also there, challenges in regards to biology going forward. Chilean operation, one good sign there is that smolt -- smolt transfer over time now is going down. We have seen that over the last 4 to 5 months it's down 17% in total and I will say finally it's still we think that can save the Chilean industry is a strong reduction in biomass.

It's not happened because of regulation. I think maybe finally financial loss kicks in and if you do not have money it's hard to farm fish. So hopefully this will help both in terms of a tighter market and also in regards to better biology. But the long-term solution for Chile is in fact to get better regulations and more predictable regulations, so we cannot just kick in and start over again if now prices that they probably will go up that you just can go in and transfer more smolt. So discipline here is essential to get this business to work.

Ireland and Faroe Islands, good contribution from Faroe Islands at NOK16 per kilo in this quarter. Remember we didn't -- we have 290,000 tons in the quarter. Ireland at breakeven level. Both places we expect in fact costs to go up. In the Faroe Islands though I think price achievement will make up for the cost increase. But also in Faroe Islands it's worth paying attention to biology going forward.

In regards to consumer products, so lot of a positive things happening in the marketplace. No doubt the expansion of new products both in Germany, in the U.K., in Southern Europe is really growing the category of salmon and that is underpinned and we've seen that also in regards to prices, what they've achieved in first quarter but obviously also in the fourth quarter of '15. This result of NOK89 million compared to NOK117 million in Q4 of 2014, is impacted by this one factory Rosyth with NOK95 million. In fact if we had adjusted for that result it would have been 5.3% EBIT margin for consumer product in the quarter which would have been okay.

But we have failed in Scotland and the start-up costs too with the contract to a major retailer in U.K. has been a challenge for us, there is no doubt. And there is a few reasons for that, one is that we got maybe much more volume than expected, because the previous supplier withdrew. And we have had extreme focus on delivery to the client, making sure that the client gets his products. And we have achieved that target, so 97% order fulfillment is extremely good. So, the customer is happy but has cost us a lot of money in terms of we had to -- we basically started up the factory from zero, took in 300, 400 people and had to train them in filleting and so on and especially on yield we failed in December particularly. And that is a part of it should have been avoided, there is no doubt about it. Recovery plan is in place, we have taken action but we still think that we will lose NOK50 million in the first quarter of 2016. And then gradually break even.

Feed it's on a different planet. This is -- we as you know compare feed prices to -- we still buy quite a bit of feed, but based on the benchmark with the producers we manage to make NOK74 million in this quarter, 7.8% EBIT margin. More impressive is that we are able to increase the output of this factory, we did 95,900 tons of production in the quarter compared to 67,000 tons last year and are delivering a high percentage in this quarter on our Norwegian volume. So, good production, we think we'll be able to do about 310,000 tons of fish feed in 2016 out of this factory and it still can be fine tuned which is interesting and the feed is also performing well on our fish.

And I think on the back of the success the Board has approved a new investment in Scotland, that will be a factory and that will produce approximately 170,000 tons and will supply our operations in Ireland and Scotland, in Faroe Islands and certainly also fresh water diets to the whole of Europe which is interesting segment in terms of profitability. So, we will continue with this and gradually develop the business. This investment will happen in 2017 and 2018 and we will -- our plan is to be ready for delivery in May, 2018 when our contracts with the other feed suppliers run out in Europe.

Then Ivan, it's all yours on financials.

Ivan Vindheim

Thank you, Alf-Helge. And good morning, everybody. As usual we start with the P&L. The fourth quarter saw us make a turnover of approximately NOK8.1 billion which is up approximately 17% year-over-year. For the full year we made approximately NOK28 billion which is year-over-year increase of approximately 10%. Operational EBIT in the fourth quarter NOK837 million which is heavily impacted by the losses in Chile and Rosyth, as Alf-Helge has already touched upon. So, we don't in the P&L. As usual big positive by math adjustments in the fourth quarter on the back of increasing prices towards the end of the quarter, NOK946 million.

Net financial items this time highly impacted by the increase in share price and the fair valuation or mark-to-market valuation of the convertible bonds. Earnings per share -- the underlying earnings per share NOK1.27 this quarter for 2015 as a whole NOK4.70 per share and net cash flow per share negative NOK1. We will come back to the explanation of the negative numbers there and NOK0.30 per share for 2015 full year. Harvest volumes in the fourth quarter 110,000 tons approximately somewhat down compared to our guidance after the third quarter, but year-over-year an increase of 5%.

2015 full year volumes 420,000 tons which is more or less in line with the volumes for 2014. Return on capital employed fourth quarter annualized 13.1% and for 2015 as a whole 12.6%.

So much about the P&L. Then over to the balance sheet, so what we call financial position these days, the total balance sheet amounts to approximately NOK40 billion at year-end up from NOK37 billion compared to year-end 2014 or the last year or the previous year. The increase is mainly explained by organic growth, FX and cost increase. Net interest-bearing debts at year-end a NOK9.6 billion and an equity ratio of approximately 45%.

Then over to the cash flow statement, we started the quarter with an net interest-bearing debt of NOK8 million, we made an EBITDA of approximately NOK1.2 billion, then we tied up working capital as planned and in line with the forecast NOK0.7 billion, paid taxes of approximately NOK0.1 billion which is also in line with the forecast and in total we had NOK0.2 billion in cash flow from operations. So the negative cash flow per share in the fourth quarter is mainly explained by the tie-up of working capital. We know that this industry is seasonal and we also know that the first and the second quarter are the quarters where we release this tie-up of working capital.

In terms of CapEx NOK554 million also in line with the forecast, other investments NOK160 million, it's related to the remainder of the licenses in the Acuinova acquisition. Net interest expenses paid NOK108 million, other items NOK525 million that amount is related to the convertible bond we issued in the fourth quarter and the capitalization of the equity element of it. To be precise NOK484 million. Dividend distributed NOK630 million which corresponds to NOK1.40 per share and FX effects mainly on -- not mainly but purely on the net interest paying debt balance NOK156 million negative. So, all-in-all NOK9.6 billion and that's in net interest-bearing debt at year-end and at least according to ourselves in line with our internal forecast and what we have tried to guide the market on.

And then over to the cash flow guidance for 2016, in terms of working capital tie-up much more than this year NOK300 million, capital expenditures NOK1.8 billion. Please bear in mind that total depreciation for this year is approximately NOK1.4 billion, and when I say this year I mean 2016. And for 2015 it was NOK1.25 billion approximately. Interest expenses NOK270 million, tax payables according to the loss estimates from our advisors NOK700 million. We have based upon or the Board has based upon 2016 volumes and [daily] business increased or revised the net interest-bearing debt targets from €950 million to €1.05 billion.

Quarterly dividend, as said by Alf-Helge NOK1.40 per share and it is to be paid out the 2nd of March and I think actually it is 26th of this month. We have just released -- our stock note is also released, I will read it after this presentation. We have also reached a point where we have decided to start to report in euros. Marine Harvest has managed it's cash flow in euros since 2006. As you know, the predominant cash flow in the farming industry is euros, accounting for more than 50% of our net cash flow. Our financing is also more or less in euros. So as from the first quarter of 2016, we will also start to report our numbers in line with what we actually do. So this is the last quarter with NOK. So we have also taken the liberty to present all the cash flow guidance here in euros, so next time, you'd only see euros in this slide.

Then overview of financing, one big change since the last time we talked, we issued our convertible bond in November of €340 million, extremely effective terms according to ourselves, 0.125% coupon and a conversion premium of 35%. This is by far the best terms that we have received on financing so far, so we're very happy with that issuance. So much about the financial numbers.

Then over to supply and demand, we start with supply and the historical numbers as we used to do. Supply increased in the fourth quarter of approximately 7% that was more than what we foresaw and expected due to required harvesting in Norway and biological issues or challenges in Chile. Our forecast, when we started the quarter was 1%. These numbers had obviously an impact on the supply numbers for 2016. We will revisit it later on the in the presentation. Recovery volumes from Scotland as expected and also strong growth from Canada as volumes have recovered, both for Marine Harvest but also for one of the other farmers in that region, there are not many farmers in that region.

Reference prices then, the development in Europe was good despite it was 4%, increase in the market currency euros was 6%, so i.e., stronger demand than the supply. In NOK terms even higher but that is due to FX. For Americas unfortunately it was the other way around, in the market currency U.S. dollars it was substantially down as much as 21.7% for Chile and 12.7% for North America, if we compare price back to farmers. According to growth at the bottom half, we bottomed out during the fourth quarter, the price increased towards year end.

I am talking about Americas now, and has continued to increase so far in January and normally we see this pattern because of demand season which has demand but I also think it's right to say that the prices of Americas they also increased on the back of higher prices in Europe and in Europe the prices, our decrease was actually in December as well, have been historical good. And the 17% decline in volumes which Alf-Helge talked about that effect I do not think we'll see before we reach 2017. We're still below breakeven levels in Chile, so although we are improving, it's still far from great.

Then over to demand, we will say in total we will say demand is extremely good, I think in the end the price is the final proof for that, of course with some adjustments. And if we look into the various regions, strong demand in EU and Asia which are the main markets particularly the first one. These markets I have already commented on. Demand wise Americas have been challenging in 2015 and so we really hope that we now see the start of better times. But in the end of day in order to get this fixed in the long run, we need some stronger tools which Alf-Helge mentioned.

But again, we really hope that we have -- maybe I will finish with the bottom. Impress demand in Brazil, they're struggling with their economy and they're also struggling with their currency. So adjusted for that it's extremely impressive the demand we see in that region. China, Hong Kong still affected by lack of large-sized salmon but also trading barriers. We haven't see any help from the governments in the previous year.

So much about demand then over to supply, the supply situation from a price point of view, not from a customer point of view, is good. It looks like there will be a shortage of salmon in 2016 and this will obviously have impact on prices. I think we have already seen it so far this year. So from a price point view, it looks good. For the long-term players it's not that good [indiscernible] markets. Then you need to increase the production and the tons of fish and we did not build this industry with such numbers. So hopefully some of the [losses] we see within the industry can help to turn this around, because they're going forward, so it's very hard to see that we will have any significant supply increase if we do not sort out the biological issues we are experiencing in the various regions.

Then obviously our internal volumes, we are growing further much. Last year we were stable, this year we are aiming for a small drop, we have taken down the guidance since last time we met, by 4,000 tons due to Chile and biological issues there. In terms of the other regions we are stable and I also think these numbers support the previous slide we have been through.

With that I would like to say thank you and pass over to Alf-Helge .

Alf-Helge Aarskog

Thank you very much, Ivan. Just to sum up and look a little bit ahead, market balance here and the outlook for that is to be tight going forward and that is supported by future prices which I think is must be at record high levels. It's around NOK50 per kilo and €5.1 per kilo for the entire 2016. In terms of consumer demand strong both in Europe and Asia. In Americas we see improvement but it's still early days and it's still challenging market condition for Chile and salmon also going forward in the near future. Board has decided as already mentioned to pay out a dividend of NOK1.4 per share and euros is the currency as from next quarterly presentations. So all numbers will be in currency going forward for Marine Harvest. It's going to be a challenge both for you and for me, but I will give it a go and this has to be in the currency we actually should have reported in for a long time.

Then I would like to invite you all to Bjugn to take a look at world's most modern feed plant and at the same time we'll have a Capital Markets Day on June 1st and June 2nd. So, more information there will follow shortly. So, with that I will say thank you for this time and then open up for question. So, please state your name and employer and we will try to answer our best.

Question-and-Answer Session

A - Alf-Helge Aarskog

Marius was first in line.

Marius Gaard

Marius Gaard, Swedbank. Two questions. I think exceptional items you have reported for Norway, probably one of the highest ever we seen and you also guide on high cost in the first half of 2016. So is this level of exceptional items that level we are going to -- should expect over the first part of '16? And then second one is on the Faroe Islands, you raised some concerns about the biology there, can you expand a little bit what you mean about that?

Alf-Helge Aarskog

Yes, exceptional items as you know sea lice treatments is higher in the third quarter -- in the fourth quarter normally because of temperature and so on. So, a reduction there in first quarter and second quarter is to hope for and will most likely happen on exceptional items. In terms of what's going to happen in third quarter and fourth quarter in this year in 2016, well it depends a lot on how well prepared the industry is in the different regions. There's gone a lot of investments into equipment that will remove lice with flushers and so on and the rest that hopefully will help on this issue. But it's too early to say and it is about discipline in the industry and I think especially the Region Mid everybody has been hurt terribly bad and I think everybody is much better prepared for the coming seasonal sea lice. Then as I said, and you correctly pointed out, also in the Faroe Islands, it's not -- there is now plenty of sea lice in that region either, so we've to be prepared and pay attention to what's going on also there.

More questions, there's one in the back there. Yes, there's Kolbjørn.

Kolbjørn Giskeødegård

Kolbjørn Giskeødegård, Nordea Markets. Two questions from me as well. First about the contract share. As you pointed out you have a very high contract share for various reasons. Just one fundamental question were you too bearish on the price outlook or expectations for 2016 when you entered into because the volumes is also higher in absolute terms from the contracts you signed last year? Or is this just part of your industrial approach sort of having more volumes on long-term conditions? And the second one goes on the CapEx guidance. It's down for 2016 compared to 2015 but what should we expect from '17 when you're launching this egg and in addition you're also building a new feed factory, can you say something about that? Thanks.

Alf-Helge Aarskog

I can do the contracts and you can do the CapEx afterwards, but let's talk with the contracts first. Certainly it's a part of changing business model to a certain extent. We have larger and larger retail clients, where we gradually have to renew contracts going forward and that's where we will see also enough returns in volume wise. We're up from 23,000 ton guide in Q1, 22,000 tons, 23,000 tons in the last quarter to 30,000 ton volumes which is probably what you point out correctly. And that has to do with rolling over contracts and also taking contracts on fairly good prices with big clients. And I think long-term strategy that is a good move. We might miss out on some spot margins. And then Ivan if you can say something about CapEx for '16.

Ivan Vindheim

I think it will start with saying that we are not guiding on the 2017 CapEx, now. That the process is that the Board approves the budget in December, so we are almost one year anticipating events. But the egg is one of the big news these days, they are dependent on the application of the licenses. So, based upon that we kind of plan, because we don't know the size of the projects. We do not know if we get any licenses. And with no licenses, there will be no project into your CapEx. So I think, we have to go out to the market when we have more information about that project, at the moment, it's pure an R&D project with no approved CapEx there. In terms of the feed factory that is to be built mainly in 2017, '18 and the total numbers you know. So the pacing of its about 60/40, I'd say on top of my mind. And that project is approved, so you already know.

Maarten Bakker

Maarten Bakker, ABN. We've seen very high price list at the start of the year, I'm just wondering what price do you see industrial buyers being more reluctant to take all of this, is there some limit in euros or in NOK, where you see some less willingness to buy?

Alf-Helge Aarskog

It's a tough question to answer and it's like almost hypothetical but what we see is less volatility in prices in euros, we see future prices, as we already said at €5.1 going forward which is record high. Where that breaking point is hard to say, what we see is, demand is good for salmon in general and there are -- it's also about what kind of products you are able to develop and what margin you're taking after the different products. So it's hard to give a good answer on that exact question. So it's a very good question but I don't think maybe there is one good answer either to that question. But we see prices trending up also in euros not only in NOK which is good and which Ivan also commented on really underpin the NOK, the proof is in the pudding and that people are willing to pay for this which they are doing.

Henning Lund

Henning Lund, Pareto Securities. Can you say something more about the Rosyth plant, if you get contracts a part of that losses that's one question. Can you also say something more about the Chilled segment and is that Europe or is it also including the U.S.? And also a few comments on the ongoing discussions on the regulations in Chile?

Alf-Helge Aarskog

Yes. If we start with Rosyth, just give you a brief background on that. We got Rosyth when we bought Morpol, it was empty shell, totally empty plant and we've been supplying major retailer in the U.K. for many years really in terms of fish and they wanted us to also take on production of value added which we think long-term, is a great idea because we can continue to develop products and that's really why we are here. This is a big contract, it's around several thousand tons of value added products so I'll not go in detail on that but it's a huge contract and we got everything over few months and more than actually what was planned in December, because of the previous supplier kind of withdrew.

So we took on that challenge probably bigger than we were setup to do and had planned to do and failed, in many aspects especially around the cost side of things. But we succeeded in one part which is very important, we delivered on our promises and we delivered great products, so the customer is very happy. In long-term I believe that will pay off. But again to come back to what needs to happen to turn this around, it is about training people. We're moving from Poland and here and management from other places and we will get this right. But maybe we underestimated the challenge of taking on such a big contract with few people overnight. So that is a mistake and the only thing we can do with that is to regret and make sure we don’t make it again. That was on the Rosyth side.

In terms of Chilled and Chilled is basically for us is Morpol and Kritsen both delivered great result. As I already mentioned Morpol had EBIT result of around 5.4% -- 5.3%, 5.4% in the quarter and Kritsen was well making good money on smoked salmon in this quarter. So the Chilled part which is a big part of operation is doing well. Then onto the last question which was Chilean regulations and that is the slow moving operation to say at least. I think the government should go in and take part in the discussion, change the law, change the regulation for the future and really make some impact. We're trying with coming up with industry alternatives and voluntary solutions, but with many players and a not consolidated industry that is hard to make right to say as such. So as of now, there is no solutions or regulations in Chile. There is that.

Alexander Aukner

Alexander Aukner, DnB. You're guiding down the volumes in Norway versus the third quarter '15 while your own volume guidance is kept unchanged, is that because you’re shifting volumes from '15 into '16 or it something else?

Alf-Helge Aarskog

You want to answer that Ivan.

Ivan Vindheim

I can. Are you asking about our numbers or.

Alexander Aukner

What was your guidance on Norwegian volumes to drop but your volumes from Norway is not dropping?

Ivan Vindheim

That's through maintained, because we had a reserve when we released our forecast to the market in the third quarter. Not a big reserve, a smaller reserve. So we are confident with our own numbers. In terms of the total numbers, the numbers of course consisting of the entire industry, this is very hard to me to confirm number per number, but based upon that individuals, the average product weight you see we're quite convinced about that we will see a decline in 2016 for Norway, we're. And yes, once again about own numbers, we're quite confident with that we will deliver it, but that being said, it's today the 17th February, so there is still 10 months to go and much can happen. This is about temperatures, this is about weather obviously, it's about biology, et cetera. A lot of unknown factors but based upon information we have we are confident with our own numbers.

Alexander Aukner

Okay. Second question just regarding the biology you seemed to be quite concerned and it seems to be increasing in all different producing regions, is this an unfortunate coincidence or should we be more concerned?

Alf-Helge Aarskog

Certainly when we comment like what I said was maybe a bit little more mixed picture especially if you go into Norway and I can do it again. In northern part of Norway for Marine Harvest lice situation has not been better in five years that's Region North. So maybe not so concerned in that region seems to be under good control. Region Mid uncertain, we've made investments. Its winter time we'll see in the fall, but back on the back what happened in 2015 well we better be prepared.

Alexander Aukner


Alf-Helge Aarskog

No it's fair point, but I think well it's certainly not as good as we hoped for and just to look at the cost side of things, which seems to be the biomass levels maybe are above what nature can take in the way we produce as of now. With the solution we have to certain biological issues especially sea lice and to a certain extent if you go to Chile SRS, I think that's fair to say and that's why we're looking at new solutions, trying to find new ways to farm fish, trying to find new ways to deal with sea lice both in terms of sea lice strategy and other ways. And if we don’t change things around, this is not going not grow into 2016 target and 6 times more fish.

Bruce Diesen

Bruce Diesen, Fearnleys. With the current switch you were seeing in Russia with a shift to more frozen fish, are you selling less fish to Russia from your Chilean business than your competitors so well? Are you benefitting from the premiums they are paying in Russia for the frozen fish or aren't you selling to Russia from Chile?

Alf-Helge Aarskog

We're selling to Russia from Chile but we are certain that we get our money, that's also part of the business. So if people pay advance with us, so we take advantage of, if we can secure our money, that's more important for us than anything else. And then we hope that the Russian market will be open for Norwegian fish shortly.

Alf-Helge Aarskog

That's it. Thank you very much for coming.

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