Salmones Camanchaca SA

SGO:SALMOCAM

Earnings Call Transcript 2020-Q2

[Ricardo Garcia Holtz, executive]

Good morning, and good afternoon. Thank you for attending this ninth earnings report of Salmones Camanchaca since we made the IPO, a bit more than 2 years ago. This has been quite extraordinary and unusual quarter, and we expect to do in the next half an hour to 45 minutes, to clear the numbers that we have published this morning.

With that, let me get straight into the agenda, we will look for the highlights of the quarter. I want to get into details of what the pandemic situation is within the company. We'll cover the operational review, as always, will go through market. There is a special occasion this quarter because we are presenting our sixth sustainability report. That Manuel, who's with me today, will cover in some details. We'll review the financials and some of the summary at the end.

What are the main highlights of the quarter, and I want to be very precise because this has been, as I said, a very unusual quarter. The first element in the quarter is a substantial growth on volume. We almost increased by 50% the volume in this quarter compared to the same quarter in the last year. 49-plus something percent growth in the quarter. And when you see the semester of the first 6 months, it's about 42% growth on volume. However, that's not translated into necessarily revenues because of the large impact of the sharp decline on prices as we will cover and see later.

Our EBITDA for the quarter was a loss of $5.8 million, an unfortunate situation that is mostly explained, if not all, by the price condition that we will cover. However, 50% of that $5.8 million loss in EBITDA was explained by the Coho operation. And as you all know, in this first cycle, the Coho production and operation is running under the loss because of the lower density under which it is being stocked in the ocean. So that is sort of an expected outcome on the Coho that applies only for the first cycle that comes from [ '19 ] to [ '20 ].

The third, as I said, and this is one of the most important elements is the decline on price. Our price is $0.188 below the average price of the second quarter 2019. This is mainly explained by the sharp decline in the food service demand. That was more than 50% of Salmones Camanchaca sales, historically. And therefore, we will certainly -- we were certainly impacted by these.

Fourth, in this context of much shorter and lower prices, we reduced our cost. The cost situation was much better than what we had in the second quarter in 2019. You all know that the second quarter for Salmones Camanchaca is always the highest cost within the year because of the seasonality and because it is the fish that has been taken out after the summer, where more challenging conditions prevail in the ocean. And despite that, our cost in the second quarter was about $0.78 below the total cost in 2019 in the same quarter. And therefore, that's a good news. However, in the processing side, we have some challenges that we will be covering because of the COVID situation, both on extra expenses to prevent situations of contagious and because of the scale, but we will get into greater detail.

Very, very unusual weather conditions in the Islotes site area. Very, very unusual rain that caused the flow of water from the mountains and generated this situation that this event that we had in the second quarter that cost a net estimated loss of $4.1 million that was registered in this quarter, net of what we estimate to recover from the insurance.

Another highlights of the quarter is the turnaround of the trout joint venture, good news on the operation. We left behind the conditions that prevail in 2019. We register a profit this year, $1.3 million approximately. That favorable compares to the loss last year. So good news on the trout condition, very stable prices, by the way, also on the trout.

And last, but not least, is that we have kept our estimated for the harvest for 2020 at around 51,000 to 53,000 metric tons of Atlantic, plus about 3,000 metric tons of Coho. So in total, we keep our estimate of about 55,000 metric tons total harvest for the year.

Overall, the highlight of the quarter is extremely unusual conditions in the markets, in the operation and in the weather, as you see from the Islotes, very unusual quarter for us. Despite that, the preventive measures and many actions taken throughout the quarter have kept the company running, and we've kept the business continuity of Salmones Camanchaca, which under these conditions, it's a remarkable situation. We are very pleased to say also that we have no fatalities within our workers. Very, very, very few people have got COVID-19.

So that's essentially the highlights of the quarter. Just a few words on the financial highlights. As I said, there was volume impact of COVID-19 on our operation, particularly on the secondary processing plant, and therefore, our ability to produce value added. We estimated that about 2,000 metric tons WFE of production was not taking place because of the restrictions that we have at the processing plants, in general. That was particularly in April and May, when we were adapting all the operations to these new conditions for operation. So we had, I would say, a large impact on volume in the second quarter that will be recovered throughout the next 6 months. As I said, important is $0.188 of lower price this quarter compared with the same quarter in 2019. That has a direct impact on earnings and EBIT of about $80 million. That is if we have had the second quarter of 2019 prices with the volume that we have in 2020, we would have reported $80 million in revenue and also on EBIT. Very large impact. Have we had the prices of 2019 in the second quarter [Audio Gap] at more than $1 EBIT kilo during this quarter. So very large impact of prices on our earnings and our EBIT. Let me give you an update on COVID-19. This is probably the main subject of the quarter. Only 0.8% of our workers and employees throughout the quarter got COVID-19. That's a very, very low number. And we conducted more than 6,000 tests within the quarter, of which less than 0.5% of them were positive. So that tells you a story about the degree of success of all the measures and actions taken throughout the entire value chain to prevent COVID situations and therefore, be able to keep the continuity of the business. People safety continues to be the #1 priority, not only because that is -- it is important in itself, but because it is the main element that keeps us business continue.

As I said, processing was affected in the secondary plant, mainly also the primary plant. But particularly on the value-added plant, for many restrictions, we reduced the length of the shift. We increased more shifts initially then reduced the shifts again so we were running throughout the quarter of an average of, I would say, about 70% of the capacity of produced value-added products. And that was particularly important in the quarter because throughout what we avoided the HON markets, which were much higher -- or much larger impact impacted on prices. So we privileged the value-added segment and markets. And for that, the restriction of the value-added land was a limiting factor.

We estimated about $800,000 in the quarter. The expense -- the extra expense that we incurred in order to prevent COVID situation within our whole value chain. That is an unexpected expense compared to any operation before this quarter.

Logistics are working, I would say, relatively normal. And we've been able to dispatch both air freights and on our ships the proper volumes. However, on the air freight, we've seen about 30% to 40% increase on the air freight rates.

As I said, large impact on food service demand for salmon throughout the world and particularly in our main market, the U.S. That forced Salmones Camanchaca to shift quickly from food service to retailers in the main markets, such as demand, such as the U.S. and Mexico, our 3 main markets this second quarter. And this shift from food service to retail is particularly important because the rating is a segment less inclined for the longer-term program and contracts that normally Salmones Camanchaca has for its value-added production. So it exposes us more now, more retail, on fluctuations on the short term price, as we will see. There was, in parallel, a very substantial increase in the value-added fraction of our production through the quarter to avoid precisely the HON segments.

And finally, on COVID, we increased the cash position of the company throughout the quarter to make sure that we have enough funds available to confront contingencies I'm pleased to say that at the end of the quarter, we had about a $40 million available cash to Salmones Camanchaca, whether on cash itself, $12 million and/or available financial facility of roughly about $26 million. So very solid financial condition to confront the contingencies of COVID.

So I would say that, that's essentially our highlights of the quarter and also the particular situation of COVID-19. With that, let me pass to Manuel Arriagada, our Managing Director. Manuel will cover the cost conditions and the operations.

[Manuel Arriagada Ossa, executive]

Okay. Hello. Good morning, here in Chile, and good afternoon in Norway. I will cover the operational review for the quarter. Let's start with the evolution of the ex-cage lightweight costs. As you see in the second quarter of this year, the total ex-cage light weight cost was $3.32 per kilo light weight. There is only $0.04 higher than the previous comparable cycle that is the second quarter of 2018. That is the comparable biological cycle. And also is 11% above our target of $3 per kilo light weight.The main reason of that is that in the quarter, we harvested 100% from the 11 region in an area with a lot of sea lice pressure and a lot of SRS also pressure. So we have one of the sites that we harvested in the second quarter has an SRS outbreak. So we have a lot of mortality in the last part of the cycle. That is the reason that explains the extra cost that we had in the second quarter of 2019, even though that -- if we compare with 2019, we have a cost that was 22% lower than 2019 second quarter, where we had a cost of $4.23. The main reason was that in this quarter, we obtained a very high deal that means kilos harvested divided by smolt because the harvest weight was very good, it was 5.3 kilos in the quarter. A lot of sea lice pressure, but in general, the sea lice is under control with an increase in the treatment frequency and because of the still very efficient pharmacological tools. I'm going to cover the sea lice situation in the next slide.

In relation to the processing cost in the quarter, the total processing cost was $1.13 kilos WFE, that is above our target, long-term target of $1 per kilo, mainly due to the COVID-19 situation, as Ricardo explained. Even though that, if we compare the cost of the quarter with the Q2 2019, we were down $0.24 because of the larger scale this year and the secondary plant efficiencies that we are implementing during 2019 and 2020.

Why the cost is impacted in the secondary processing plant because of the COVID. First, because of the volumes, we are reducing the volumes more or less 30%. We are producing more than 90% in value added, especially portions and fillets, only 10% of whole fish. So we need to reduce the production in order to produce value-added and to have a mix with a higher return on raw material because of the price situation because of the COVID, okay?

Also, we have several sanitary measures because of the COVID. The same as Ricardo explained, we are implementing social distancing in the factories, lower density, more shifts. So we have a little reduction in the productivity. Also, we are implementing a lot of PCR tests and so on. So we have an extra cost of more or less $0.07 per kilo because of the COVID situation. That is in the process.

If we go to the finished product cost, we are in line with our long-term targets. That's quite important. This is the farming plus processing cost. We're in $4.15 in the Q2 2020, last 12 months, this is the fourth consecutive quarter with a decline. That is very important. And it is down 2% with the comparable farming cycle that is 2018. Despite we are charging extra farming cost. We are now currently, we are vaccinating 100% of our fish with the new vaccines for SRS, and we are implementing several devices in farming in order to prevent oxygen shortage and also to prevent blooms at ocean sites, we are installing a welling system. So despite of that, we are having a total cost that is 2% down with the comparable cycle of 2020. We are reducing the risk with this kind of measures at sea farms. Regarding the evolution of the guidance and stocking for Salmones Camanchaca, in the second quarter, we harvested 10,700 tons. And in the first half, 34,000 tons of Atlantic. That is 37% more than the first half of 2019. So a very important growth in . As you see for 2020, we expect to have a more stable behavior of the during the year. And we are going to total for Atlantic, a total harvest of in the range of 51,000 to 53,000 tons for the full year.

In relation to the stocking for our company, we maintained our stocking plan for Atlantic, more or less the same. We are going to stop this year around 12 million -- 12 million smolts. So we are in the same level of stocking for Atlantic.

If we talk about -- about the industry, the cumulated figures of the industry until July, from January to July, we haven't seen a decline or a decrease in the stocking in all these pieces. For the industry in Atlantic, Atlantic is 11% down. Coho is 5% down. And Trout is 31% down for the industry. So we are going to see a decline in the harvest for Atlantic, especially since the first quarter of the next year. But for Camanchaca, we are maintaining the stocking number. And the hard decline for the year without major valuations in more or less 52,000 tons in the year.

Regarding the biology, what's happened in the quarter? If we look at the ore biomass mortality, that is the dark blue line, you see that the total mortality is quite high. It was 6.7%. And that is strongly influenced by the Islotes site event. More or less 60% of that number is related to Islotes. In Islotes, we lost around 500,000 fish. So if we excluded the effect of Islotes, the total biomass mortality in the quarter was only 2.7%, okay? So in general, the mortality is in control, despite of the effect of the Islotes site.

If we see now the closed site mortality, it was also high in the quarter, 15.5%. And the main reason of that was that we closed 2 sites from the 11 region with high mortality because of SRS in the last part of the cycle. It is an area with a lot of pressure on SRS and a lot of pressure of sea lice. So we have a high mortality rate of that, okay? Even though that's the evolution of the biology indicators in the quarter was very good, we were able to reduce, if we compare 2020 second quarter with the comparable biological quarter that is Q2 2018, we were able to reduce the feed conversion ratio to 1.18 and we also -- we increased the deal to for 4.5 and also the average weight at 5.2 kilos WFE. So very good evolution of the biologic indicators and we have in the quarter an important mortality because of SRS and the event of the Islotes site.

The sea lice situation, that is an important slide. In the chart, you can see the evolution of the live biomass for the industry. More or less stable during 2020. And the evolution of the sea lice counts, that is the gravity gravid females counts of sea lice. In general, we are seeing a little decrease on the sea lice count in 2020 compared with the same site.

The ] is that all of the pharmacological solution are still very efficient. The azametifos, the efficiency of azametifos, that is the most widely used chemical treatment is more or less stable in the last 12 months in a range of 75% to 80% of efficiency, so very good efficiency for azametifos. We're also using the new product from Pharmaq to is that is Alfaflux with also a very good efficiency. We are still using Lufenuron. So we have a very -- with Lufenuron and Alfaflux, we have a very good protection more or less until 3 kilos. And also since January this year, we started to use the peroxide solutions. We have an own peroxide barge implemented and also with a very, very high efficiency, more than 95% over all females.

So in general, we are using pharma solutions with more frequency. But with a very good efficiency. So we were able in general to control the sea lice situation, for Salmones Camanchaca and also for the industry. Currently, we have only 1 site with high loads. High loads means more than 3 sea lice as account, but only represents 7% of the total volumes. And this site is currently under harvesting at an average weight of 5 kilos, so not big issue in general with sea lice in this first half. This is the operational review.

[Ricardo Garcia Holtz, executive]

Thank you, Manuel. We'll cover quickly market conditions. In this slide, we show the evolution of the prices throughout this year compared to the previous year and compared to the average of the previous 6 years.

So it gives us sort of an overview of what's the condition on the price side during the quarter, and we have highlighted the quarter in a square. The average price for the Chilean salmon in the Miami market, which rules several markets for us was [ $0.130 lower in the second quarter this year on average than in the second quarter of the previous year. So a very substantial reduction in the price, as you can see. And we are currently -- or we were at the 22nd, 23rd week of the year at the lowest price in more than 6 years. Despite the fact that typically in the second quarter, we've seen the largest price or the highest price within every 1 year.

We don't have a position on how quickly the prices will recover. However, I can tell you that during the second quarter of 2020, Chilean volume exports were 2% lower than in the previous year. However, the value of the exports were 22% lower than the same quarter in last year. So that's a 2% lower volume and a 20% lower average price for the Chilean exports. For Salmones Camanchaca in the same measures, we have a 30% increase in our volumes and a 10% increase in the value exported.

What were the main shifts in the marketplace? Essentially, there was a move from other markets to the U.S. in the totality of the Chilean export, the U.S. went up from 45% to 49% in the quarter. Brazil, which is typically an HON market, down from 23% to 18%. China remained at about 11%. Russia declined from 10% to 6% during the quarter. And Japan went up from 7% to 15%, Japan became a very important market in the quarter for the Chilean market. So that's the condition on the price and how the totality of the Chilean export moved looking for being value added, looking for healthier market and away from Brazil mainly and also Russia, mostly because of the blockage of the -- of several plants in the last part of the first quarter.

Now on price achievement of Salmones Camanchaca, much larger fraction of value-added production will be coming in the third and the fourth quarter of 2020. We expect to be the largest ex -- Chilean exporter of portions during the next 4 months, that is September to December. We are probably today the -- or we were probably the #2 in the second quarter, and we will become the largest one, thanks to the many investments and efficiencies made at the processing plant.

Looking for more value added, looking for markets and segments that are less exposed to the volatility. That will also give us not only stability but also better price achievement remaining part of the quarter, despite the many things that we did already in the second quarter. We had, historically, be more focused on the food service segment. Why? Because that segment typically is more inclined to get to agreements, longer-term agreements and contract at certain predefined prices. And that was particularly the one most affected by these pandemic condition in the quarter, and forced us to shift very quickly from the food service where we had more concentration to the retailer market. The retailer market is a more competitive market and also it's a market that is more exposed to the volatility of the prices as they are less inclined to contract for longer-term agreements. Furthermore -- and that exposed us more to the volatility as this graph shows. So as the quarter went on, we have more exposure to the retail market. And that market forced us to adjust quicker to market spot conditions despite the fact that we had an important premium on price compared to the average Chilean market, but still, we're exposed to this decline in the second quarter.

There was also renegotiation contract with the existing food service clients, strategic clients for us, particularly in the North American market, where they needed some price flexibility to move inventories, that was very important for us. So some of the price adjustments that we see there is the consequences of renegotiation, some of the contracts that we had. That's -- the dark side of that was the price adjustments. But the bright side of that was that we kept the movement and the turnaround of the inventory. I'm pleased to say that the inventories throughout the quarter, the second quarter was lower than the inventories in the first quarter. We reduced, I would say, rather substantially the inventories that we had in January until June and still July. So we are running today at an inventory, which is between 15 days and 21 days, 2 to 3 weeks of production. That is a very healthy and manageable inventory for us. So no inventory program for Salmones Camanchaca. That's the bright side of that.

On sales, I mentioned what was the situation at the market in which we open it.S orry. Yes, sorry. This graph tells us a story about how quickly we move from less value-added to more value-added in our production. As you can see, food service, for example, went down from 62% in the second quarter of 2019, to only 34%. That is almost half of our production was cut of the segment, the food service segment. And the other side of the coin that we increased the retailer segment from 37% to 66% of our sales, very, very important. This is the U.S., but if you go from -- to Mexico, for example, in Mexico, we went from 70% food service to only 20% in this quarter. Or Japan, from 70% food service in '19 to only 40% in '20. So as I said, a very important shift from food service to retailers. However, retailers did not compensate for the decline in demand in food service and that explains in part the situation of the prices.

As long as food service does not recover fully, we will probably have a larger fraction in retailers segment than historically. And we will have a little bit more exposure to the fluctuation of the market prices compared to what we used to have before that and what we expect to have going forward.

On the Atlantic sales mix, you can see here that the U.S. increased from -- or decreased, actually, because the second quarter of 2019 was very, very low volume. As you may recall, in the fall, we had a lot of exposure to the U.S. at that time. And today, it is 51%. But very important increase in Japan. Very important decline, I would say, in Mexico from 16% to 12 -- to 12%. So we moved very quickly throughout the market to confront this condition. Brazil and China remain very small to us now. Brazil very unattractive market today, a full commodity market. And China is very, as you know, negligible in terms of imports from Chile.

Very good news on the Coho side. We were able to avoid the Japanese market for almost 50% of our production of Coho this year. Developing markets for what is coming in the next years.

With that, let me jump into sustainability, and Manuel will cover an important, I would say, situation today, which is what we are launching our sixth sustainability report, and Manuel will cover that.

[Manuel Arriagada Ossa, executive]

Yes. As Ricardo mentioned, today, we have published our 2019 sustainability report. That is the sixth version. It is available in our web page, if you want to see. The important thing here for this sustainability report is that it reaffirms our commitment to be the leaders in sustainable operations, our commitment to lead the way in transparency and our commitment to help drive the industry forward in this regard.

It's particularly important the sustainability operation, especially in this COVID pandemia. And why? Because we believe that sustainable salmon farming has to play a key role in order to provide quality employment, in order to develop our local suppliers and also our local communities and finally, and above all, in order to produce healthy protein for the world. So in this COVID scenario, it's just the issues. It's going to play a key role in the economic recovery that we need to have in the coming months.

Okay. Now I'm going to go cover 2 slides in order to highlight the most important topics of the sustainability report. This is our sustainability performance matrix. I will not go into the details, but important thing here is to highlight that our sustainability model has 5 pillars.

Each of -- each of those pillars have several KPIs that are very important because we measure the targets and we track our performance. We have a pillar that is the healthy and nutritious food, second to have healthy ecosystems, prosperous communities, meaningful jobs and profitable and responsible business. So several KPIs that we measure and we follow, okay? You can find the details in the report on the web page.

Some other examples about the indicators of sustainable salmon farming, this is the sustainability indicators that we normally show in this presentation. What is important to highlight, especially in this quarter is the situation of the Islotes site. As I mentioned, the Islotes contingency implies a total mortality of 500,000 fish. An estimation of a escape, and that is the here in relation to the sustainable operation, that is around 37,000 fish escape. But we were able to recapture about 30% of that, more or less 11,000 fish. There is a setback in the quarter for the sustainable operations. We -- of course, we set a lot of operations in the site in order to produce the effect. But still, we have this number of escape incidents. That is more or less 2% of the total biomass on the site.

In relation to the antibiotics, that is also very important. As you see, we were able to reduce the number of antibiotic treatments if we see the comparable quarter that is Q2 2018, we reduced from 2.9 to 2.5. That is very good. But even though that we increased the antibiotic usage in gram of antibiotic per ton produced. And that is mainly because we use hybrid treatment doses because we treat the larger fish, that's the main reason. We are currently developing a set of measures in order to reduce the antibiotic. So this is one of our main targets for the medium term.

In relation to the progress to our main ambitions in the sustainable operations. First, regarding the ASC certification. Now we are in a process. Our objective is to certify, ASC certification, the majority of our sites. We are implementing all of the principles of the standard in all of the sites and the main reason that we don't have all of the sites certified is because of the use of antibiotics anti-parasite, okay? In 2019, we are going to have around -- we have, sorry, 17% of our total harvest certified. And in 2020, we are aiming to have around 50% of the total harvest certified by ASC. So a very important progress in that certification.

In relation to the carbon neutral, our commitment or our goal is to be carbon neutral by 2025. And it is important to mention that this year, we signed a contract, a renewable energy contract 2 years ahead of the target. That allows us to reduce by 13% our carbon emissions. So it's an important achievement of this year in this progress.

In relation to the antibiotic use, our goal is to reduce by 50% the use of antibiotics by 2025. As I explained, we were able to reduce the number of treatments, but we increased the antibiotic use. We are developing several measures in order to accomplish this very challenging goal, like we're working in genetics. We are working in functional fits. We are keeping in order to reduce the length of the cycle. Of course, we are reducing the new vaccines and so on. Implementing several sanitary measures in the sites in order to go to this COVID.

And the last ambition is in relation to the communities, to be an increasingly valuable member of our communities. And this year, we started a new strategy in order to start a risk analysis and management of our community. We started this strategy during the first half of this year. So we are going to have a lot of progress during the next year, okay?

Finally, 1 slide on the Islotes events. As you know, in -- at the end of May, we have a very unusual weather condition in the area so we have the collapse of one of the modules of the site. The model at that time has had 1.7 million smolts. And out of that 30% was the total fish lost. It was 530,000 total fish. The total escape was estimated in 37,000, that is 2% of the total site.

Now the pictures on the right, showing you the current situation of the site. The original module without the [ damage ] and the new module, where we are in the process of transferring the fish, okay? The next economic financial impact in the quarter that we recognized in the non-operational of the P&L is $4.1 million after the insurance deductible. Now Ricardo will continue with the financials.

[Ricardo Garcia Holtz, executive]

Thank you, Manuel. Quickly to finish and start responding to some of the questions. Maybe some of that will also -- we cover here. On the P&L, I think that, again, very important, the price impact. We estimated between $17 million and $18 million impact on the price during the quarter compared to the same prices in the second quarter of 2019. Very important also on the EBIT is the 2.5 -- $2.8 million negative EBIT of Coho during the quarter. We harvested the last part of the first cycle of the Coho during the first half of this year and sold it. That will be reverted in 2021 and onward because we will be stocking Coho at the normal and optimal density. So this is only the first step in that process, which we think will contribute positively to the company in the coming years. Also the -- about $2.5 million better outcome of the joint venture Trout, the Trout joint venture this quarter compared to the quarter of the previous year is also a good news. That is reflected in this waterfall analysis. As you can see, the price deducted $17 million from our EBIT. The cost contributed positively and favorable with $8.3 million to the EBIT. And the Coho also damaged the EBIT by $2.8 million, $2.9 million. So that's the main outcome of the EBIT for the quarter.

On the cash flow side, net cash was down as expected because we built up the cash at the end of the first quarter, precisely to confront the quarter. And there was a positive cash flow from operation of about $14 million during the quarter. There was investments of about $5 million. There was the dividend and taxes paid throughout the quarter. And there was a debt and interest also contributed positively. So that's a situation on the cash flow.

On the debt and the financial debt position, I think that this is very, I would say, healthy. We are running at about a net debt of about $95 million, slightly above the second quarter of '19. Our EBIT -- debt-to-EBIT ratio is 1.42 that is much, much lower than the covenants the requirements of the company. So we feel that's fine. We don't see any major disruptions or problems on the debt side. We have open lines available. We have cash at the end of the quarter of about $12 million in total, about $40 million available liquidity for the company. So no problem on that.

Summary. I think that the most important takeaways of this quarter is, one, our workers are fine. We have no fatality, no one has been severely ill for COVID. We have had less than 1% of our workers that have got COVID, all of them very mild conditions. That has allowed us to keep the business up and running throughout the quarter. That's the most important message of the second quarter.

The second one is that we've kept our promises on the volume despite the adjustments made because of COVID, and volume is up 42% this first half compared to the first half of 2019.

The third message is that the impact of the reduction on the price, the decline of the price was between USD 17 million and USD 18 million on our profitability this quarter. We expect to be less in the coming quarter as we are further moving into value added products and segments. That is products and markets that we think will contribute to the profitability and price achievements in the next few months. As I said, we expect to be #1 in Chile in ocean exports in the fourth quarter of the year. I said also the Coho, the positive turnaround on the trout. And Manuel also covered the condition and very unusual condition in the Islotes. So that is the main messages of the second quarter of 2020. Now we have some questions.

[Ricardo Garcia Holtz, executive]

One refer to the inventories, frozen inventories in Chile, made by Carnegie.There is no public information on inventories. And therefore, I cannot give you a complete precise answer. What I can say is what's happening with Camanchaca. And with Camanchaca, there is no inventory problem, and we are running at a lower inventory, substantially lower inventory than the one that we had initially in the year. We have less than 3 weeks of production.

With me is Juan Carlos Ferrer, the Head of Sales and Marketing in Camanchaca, Head of our offices throughout the world. And Juan Carlos, do you have any word on what do you think -- or Manuel, the situation of inventory, frozen inventories in the market, the Chilean?

[Juan Carlos Ferrer Echavarri, executive]

Well, as Ricardo said, there's no public information about this. I would say that this tissue and it's not the same for everyone in the industry. Probably what you listen in the market is that there's some pressure, especially of those companies, which they were forced because of limitations and the protection capabilities or because of the location of the sites to produce . Those companies might have a higher inventory than what the had in the past, mainly because of the reasons that we all know that the markets for head on have been under a lot of pressure over the last 3, 4 months because of the COVID-19. So those companies might have higher inventories than usual, but all situation, as Ricardo said, it's a very healthy one.

So yes, there might be some pressure of the ] frozen, particularly because of the low prices and the market that takes those products are today demanding very little. That's it, but an accurate figure that I can give you today, it's not possible. But what I can say is that when you go to a coastal, and we have a lot of relationship with the coasters, there's still space available. It's not that there's a problem today with that. That's what I can say.

[Ricardo Garcia Holtz, executive]

Thank you, Juan Carlos. Our second question is about the markets, fundamentals for the second half of 2020 and '21. And questionably, there is a question mark on how quickly the food service demand will recover.

There are millions of people, bright people, energetic people thinking about ways of bypassing these, and there are millions of restaurants and hotels fighting to get back on track. The split of that recovery is uncertain. I don't think that it will happen very shortly, but it will happen in the first half of '21. My belief is we are probably, I would say, 4 to maybe 6 months away from starting vaccination in the main markets. Once that happens, I think that food service will recover quickly. And within the protein world, salmon will be a winner. Why? Because salmon has a peculiarity of being and immune system boost for people. And that will be accounted when people decide what to eat. So if there was any growth on demand, fundamental growth on demand prior to the pandemic, I think that, that will be stronger after the pandemic.

Now how long will it take to get back on that track? It might be, in my view, between 4 and 8 months. And it will happen fully as soon as we start seeing vaccination in the Northern Hemisphere, which I believe will happen in the first quarter of '21.

From DNB, there is a question on CapEx and working capital for the remaining part of the year.

As said in the presentation of the first quarter and reaffirmed this quarter, we have cut our investments plan for 2020 by about 1/3. That is available funds. We have also cut the plans for Coho this year from about 5,000 to about 3,000 metric tons for the year, and that is working capital needs that are being free today as we speak. So that's another source of cushion for the company.

There is no growth on Atlantic this year, and therefore, the biomass is not growing. So we don't see any pressure. We don't have any impact on receivables, and we are collecting, as expected, the receivables that we have. No bad news on that side, we've been very caution on the collections. And therefore, we see no pressure for extra needs of working capital on the country. Some will be released during the second half.

How about the cost, do you expect live cost per kilo for the rest of 2020 to develop similarly as in 2018? Or should we expect higher cost this year due to more sea lice SRS.

I don't think we'll have any major deviation or material deviation from that. There will be pressure or some pressure on the processing side, on the processing because of these extra expenses that we need to have to prevent COVID-19 situations that will continue, in my view, at least for the next 6 months. And there are several, you cannot imagine how many actions and measures have we taken at the processing plants and particularly at the value-added processing plant, which is a cornerstone of our marketing strategy today to prevent contagious, and that's why we have such low numbers. We have about 1,000 people working daily in the plant in different shifts. And yet, we have very, very, very low cases. Almost all of which have been happening outside of our facilities. So I don't think we'll have any additional, as I said, concluding any pressure on the cost side, least of all on the live weight. As Manuel show, we -- our long-term target for cost, WFE, not lightweight, WFE is a total cost of $4.23. That is $3.23 WFE exchange, plus $1 in processing. That's the goal, $4.23. In this quarter, second quarter 2020, for the last 12 months, we have $4.50. Obviously, we have fluctuation from 1 quarter to the other quarter for many reasons, pandemic among them. But if you take a look of the last 12 months, we are at $4.15 WFE cost per kilo. That is the lowest 12-month cost in the last 4 years. So I don't think that we are deviating from our goal. There is a lot of turbulence in the water, but the horizon remains the same. And the ship keeps its course and Salmones Camanchaca is delivering and will be delivering. And the ship proved its strength in turbulent water, not in the lakes.

Another question is how long do you think it will take for food service demand to recover? I think I responded to that. My view is 4 to 8 months, and it will happen as soon as vaccination start in the Northern Hemisphere.

In light of the COVID-19 pandemic and the social unrest, how is the current social and political environment in Chile that will have a significant impact on your operation? There is a question that Chile is going through 2 pandemias. One is the sanitary COVID-19 pandemia, and the other is the social unrest condition. And there are several process along the way. But Chile is more than 200 years old independent Republic. And we have gone through many situations during the last 200 years. And the country has proven mature to confront these challenges. And I believe that in the years to come, when we see back into 2019 and 2020, there will be shifts and changes. But I think that in the long term, will be absorbed by the country in a civilized way. That always has been the case for Chile.

Can you please elaborate in the effort of diversity Coho end markets away from Japan? Yes, we've -- the strategy for Coho is very simple. It's not that different from Atlantic, it's value-added diversification of the markets and the segments. And this initial part of the first cycle of the Coho was successful on that. And we opened up markets in nontraditional markets for the Coho with extra capacity of value added being fully implemented now will go further on that track.

Do you have any contracted volume in Q3 at prices above the spot market? All of our contracted prices are above current spot market. And if we have had to renegotiate some of our contracts with our key strategic food service customers, it has been in terms that are mutually beneficial. Beneficial for the food service because it provides flexibility to move it and turn around the inventory. And benefit for Salmones Camanchaca because it gives us an horizon for the next month at much better condition than the spot market. We have very little of our product today, truly on the spot market. And that is the benefit of having today more than 50% of our production in value added, in portions, in particular. We made a very substantial investments in our value-added plant in 2018, 2019, and it's being completed as we speak this month of August to have the majority, if not almost, the entire production of the company being able to be value-added and more than 50% in portions. That gives us an enormous strength when markets get turbulent. And all of that is reverted into the age on format, every commodity spot market, it gets better. We are not forced to do value added. We can keep HON if HON remains or become again more profitable.

Regarding China, how is the current situation of the demand there and after the rumor of COVID presence in salmon product, I think that -- Juan Carlos, you may want to comment on the Chinese situation?

[Juan Carlos Ferrer Echavarri, executive]

Well, Chinese demand has not picked up yet, but we have good news. I mean, today, you go to China, and you find only our products in these retailers in the restaurants, which was not the case a couple of months ago. So at least the current product is already the shelves. And we are launching together with Salmon Chile , a campaign to boost the consumption. That is going to take place within the next 3 weeks. And the idea of the campaign is basically to get the security to the consumers that our product is safe.

It will take a while to for the demand to pick up and recover normal levels. Today, we estimate that the consumption is around 20% of what it used to be. And we estimate that the consumption should be around 70%, 80% by the end of the year. It's difficult to say, but that's what we estimate.

Regarding finding COVID-19 in salmon, well, that's not been the case, even though they have been testing almost all the fresh salmon that's arriving, it's not too much, but they have been testing it. No samples have tested positive. Regarding the frozen, they checked more or less 35% of the shipments.

As far as we know, nothing has tested positive. So no, they have found some positive cases in other products and not in the product itself, but in the packaging. That obviously is creating some trouble some noise in the markets. But at least the salmon, it's flowing. It's back again in the shops, back again in the restaurants in the menus. And those are good news for us.

[Ricardo Garcia Holtz, executive]

And finally, one last question. Why Salmones Camanchaca have not follow industry decision to reduce stocking by 11%, since there is a clear imbalance between supply and demand? Good question and gives an opportunity to express and reaffirm Salmones Camanchaca view on the future.

Current imbalances between supply and demand has nothing to do with the reduction in the stocking because reduction in the stocking will be in the market at the end of 2021. In '21, we expect supply to be almost the same as in 2020. There is no growth or even negative growth for next year. And I think that demand will recover and salmon will remain a preferred protein globally. And Salmones Camanchaca will be there. We have a clear view of being at about 55,000 to 60,000 metric tons of Atlantic because we believe that the medium and long-term that's the winner protein in the world, and we want to be there.

We are financially healthy. We are operationally under control, we have kept the course of the group intact. And therefore, we will be with our volume at the end of '21 when we believe and we are convinced that we will have a much better market condition than today.

Reducing stocking today serves no purpose. We did so on the Coho because of the short-term cycle of the Coho. That is -- everything remains within 2020. But on Atlantic is 1.5 years away. So we believe that, that serves no purpose to balance the supply and demand today.

I think that we've completed 2 more questions. Can you please comment in how the retail market, both in the U.S. and in Mexico has evolved in terms of preference of fortunes and value-added and after the surge in demand from COVID restriction, how sustainable is this new level going forward?

I think there is a major, major change in customers, in the final consumer. Final consumers are cooking more at home, obviously, today. And therefore, they want more final solutions at the retail. So I think -- or we believe that the more value-added formats will remain a cornerstone of a retail strategy going forward. People will learn how to cook at home salmon. In fact, our Chilean salmon marketing council campaign was completely restructured in 2020 because of the COVID situation, and we've been running a fantastic campaign, digital campaign in the U.S., promoting cooking at home salmon, and we have had great success with more than 100 million impression in the U.S. market. Because people are eager to understand and learn how to cook at home. And we are providing simple solution, simple product, simple cooking at home. So we believe that, that will remain.

Last question is how is the logistics situation, air capacity and has logistics had an impact in the split between fresh and frozen?

I don't think logistics have been a problem. Now it is more expensive? Yes. Air freight are today, 30%, 40% more expensive. That is about, what, $0.30, $0.40? $0.40 per kilo more expensive than before because of the airline restrictions and limitations. But the logistics itself aside from the air freight cost is running, I would say, relatively normal.

No news, good news on logistics.

[Juan Carlos Ferrer Echavarri, executive]

In fact...

[Ricardo Garcia Holtz, executive]

Do you want to comment?

[Juan Carlos Ferrer Echavarri, executive]

Yes. In fact, for the main -- in the case of the air freight, well, of course, the U.S. is by far the main market for the fresh product. So there, if you take a look at the export from Chile into the U.S., they have peaked -- they reach a peak of almost 4,000 metric tons per week. And there has been no problem to get this air space. So from air freight, at least, there's no restriction. Maybe in China a little bit, but for the U.S., no restriction at all. I mean sea freight situation is normal.

[Manuel Arriagada Ossa, executive]

Very well. Thank you very much for your attendance. We have had more than 60 people attending today. Remain all of you confident that our ship, Salmones Camanchaca's ship is under course, and we have been confronting the turbulence in the water through, because of the COVID, in a very efficient way.

We do not hide the situation that we have with the price that cost us a negative EBIT in the quarter. We remain positive EBIT wise in the first half of the year. And I'm sure that in the remaining quarters, we'll recover as you all expect.

Thank you very much, and we'll get together again to report the third quarter in the month of November. Thank you.