Salmones Camanchaca SA

SGO:SALMOCAM

Earnings Call Transcript 2019-Q4

[Ricardo Garcia Holtz, executive]

Okay. Thank you for coming to this eighth earnings report conducted by Salmones Camanchaca after the IPO two years ago. We appreciate those bank and analyst that are following the company and produce their earnings recommendations and projections of the company. Thank you for following Salmones Camanchaca. And throughout these 2 years, we believe we've fulfilled our promise of being present in the Nordic markets with enough frequency and transparent in providing all the information and details of how the business is developing.

With me today is Manuel Arriagada, the CEO of Salmones Camanchaca; and also with us is Marta Rojo, who is now the Deputy CFO of Salmones Camanchaca and also the Head of Investor Relations. We expect to cover today a number of operational and financial aspect of the fourth quarter results of Salmones Camanchaca and with that, clear how -- make more clear how the company has been moving throughout these times.

What are the highlights of the fourth quarter? I think that, unquestionably, this is a record quarter for Salmones Camanchaca. We produced and harvest something around 24,000, 25,000 metric tons of fish, 20-plus in Atlantic and around 40 in Pacific salmon. Together, that's around 24,000, 25,000, and Manuel will get into the details of that.

But what I want to highlight here is that the company for one quarter was able and capable of harvesting, moving around, processing, marketing and sell at a rate of a company of 100,000 metric tons because the capacity that was used in a quarter is equivalent to a company that runs 100,000 metric tons. The first half of the year was much lower on scale. And we did it successfully. And I think that, that is very important and proves the capabilities of the assets and the people of Salmones Camanchaca.

Second, the lightweight cost of the fish was on target at USD 3.02. It was as we expected to be. The cost had some embedded cost of the first half of the year because those fish that were harvested and sold in the fourth quarter went through the oceanic condition episodes of the first half of the year. So there was some additional cost in those fish that was sold, and yet it was on target.

Good farming condition in general throughout the second half of the year allow those fish that were harvested and sold in the fourth quarter to gain and recover weight and enhance and improve their conversion factor throughout the year. So these mild and benign condition in the second half recover the biomass and the fish that was sold in the fourth quarter. That was very good.

Live weight cost was 6 kilos, live, that is 5.6 WFE. That's a very good weight for us. Sea lice was, as you know, something that was around in the middle of the year. It still is, I think, but we've taken measures to control. And as you see in the report, we did not lower our weight because of the sea lice condition. We put a lot of effort, a lot of energy both on the traditional treatments and implementing and testing the new ones that Manuel will refer later. But at the end, the end result of the quarter was that sea lice in terms of the average weight and the harvest plan did not generate a negative impact.

It's very important also that in the fourth quarter, we were able to complete the farming, do the harvest, do the processing and sell our first-generation of Pacific salmon or Coho production. That is very important, and we'll get into details of that. But it was this first generation was very successful cost-wise and production-wise and processing-wise and marketing-wise. We sold a larger fraction than expected in new markets. And we'll get into details throughout the presentation.

In summary, a very good quarter, where we had 50% of the earnings and 40% of the revenue.

Now when we take a look of the full year 2019, the harvest volume of 58,000 metric tons of all fish was very much on target. There was 1,000 metric tons of fish that we pushed tactically into January because of market condition. We thought the biological condition of the fish was good. The market condition in December was not as good as we thought. So we -- and we had a lot of volume in December. So we pushed tactically that into January, and that volume will be in the first quarter. But the message there is that we were on target in terms of our volume and heading straight to exceed 60,000 between Atlantic and Coho this year.

This year is going to be a little bit more Atlantic because we moved a little bit of fish from December to January. So we think it's in the range of 55,000, 56,000 metric tons of Atlantic and a similar number as this year for the Coho in 2020. The farming cost conditions in the first half of the year were adverse, but were reverted in the second half of the year because of the good general condition of the biomass, both biologically and in terms of productivity.

The low -- the live weight cost for the year was $3.22. That is above our long-term target mainly for 2 reasons. One is around $0.09 of that extra cost was coming from fish that were stocked in 2018 at a lower density, and therefore, has an embedded cost of $0.09 more that impacted the whole year. And also, there were certain oceanographic condition in the late part of 2018 and early part of 2019 that generated more cost than we think. And because of that, the company implemented a lot of mitigation risk devices such as oxygen plant, upwelling systems for the farming sites, which had some cost. So the difference between $3.22 and what the long-term cost should be is divided equally more or less into these 2 elements, one of which is a nonrecurrent because the low-density farming site harvested in the first half are not going to be present in 2020.

In the first half of the year and throughout the year, we are transitioning from an environment where we only treat fish for sea lice with one tool, the azamethiphos pharmaceutical treatment to a multiple options. In the second half of the year, we not only had to enhance, deepen, strengthen the use of traditional treatment with azamethiphos, but we also brought new tools such as peroxide and other mechanical tools, and Manuel will talk about. But at the end, as I said, in the year, we did not change our harvest plan because of sea lice and the average weight, as I said, recovered.

New markets for us in 2019, new emerging market, such as in the Middle East or Southeast Asia, which, with our new offices that were launched 1 or 2 years ago in China and in Europe, we're able to open new markets that explain about 8% of our allocation to new market. So there was a lot of marketing activity in moving fish from market to market, and we'll cover that later.

And also, I think it's important to mention that we increased our value-added from 50-plus to 60-plus percent of the total production, and we'll get into that detail. That explain in part why we had better price than we anticipated and much better than our benchmark.

And finally, I want to emphasize that we conducted in 2018 a very thorough process of revising our supporting area for -- with the purpose of streamlining our supporting area and that generated in 2019 $2.6 million in savings that are structural. That is why the administration and sales expenses of the company, in relation with the revenue, went down from 6.2% of revenue to 5.3% of revenue in the year. That is a structural change that will continue in the future.

Financial highlights of the quarter, the -- around 15% Coho in the total harvest of the quarter is important. And that is more or less what we think it will be the Coho for the full year in '23, '24 when we unleash all the Coho initiative in 4 years from now. The EBIT recovered very substantially during the second half of the year after a weak Q4 -- Q2, we gave all the explanation in the second quarter because of that low margin.

But essentially, the largest scale of the second half and particularly the fourth quarter and the oceanic condition recovery explain why we increased substantially the EBIT margin of the Atlantic from $0.24 in the second quarter to $0.016 in the fourth quarter. It's a scale and better oceanographic condition. Important to mention that the trout participation, noncontrolling participation that we have, was now moved outside of the EBIT for recommendation and a change by the auditors. It's now outside. It's both outside to 2018 and both outside 2019. So this is net of the noncontrolling noninvolvement of Salmones Camanchaca in the trout business.

Now in that, it did affect, obviously, earnings and distributable earnings. And the reason why it was a bad year for the trout business was because 2 reason. One, the odd year 2019 is the year where the neighborhood where all these concessions from Salmones Camanchaca operates need to have a follow-up -- follow period of 3 months, from January to March. So we only can stock new fish in April. And very few fish are able to be harvested and sold and collect the money before the year-end. So a fraction of that gets into the even year, that is 2020.

That is why in the odd year, it's low production; in the even year, is much higher production. So that will be reverted obviously this year. And the second reason is because the operator of the trout business made an experiment at the -- in 2018 of trying to harvest in different parts of the year, trying to have a year-round harvest of trout, and it didn't work. The trout matured, the quality of the product was lower, therefore, the price was lower, therefore, the margin was lower. That was an experiment they thought they control. They did not. And it was reverted and now it's all being harvested at the right time, not year round. So we think that in 2020, that negative situation of the trout business, which generated $2.5 million -- $2.5 million or $3.5 million? $3.5 million or $2.5 million in the year?

[Manuel Arriagada Ossa, executive]

$2.5 million.

[Ricardo Garcia Holtz, executive]

$2.5 million in the year for Salmones Camanchaca will be reverted in 2020.

Very quick -- quickly on the strategy of Salmones Camanchaca. This is composed of basically 4 elements. One is that we all know that society is much more sensible today, much more sensible to how corporates in companies in generally behave. And therefore, be a sustainable producer is a key element and a strategic cornerstone for us today. And there is a lot of activities and a lot of initiative on that ground. Also, we still are in the business of something that is close to a commodity in the sense that branding hasn't proven yet to be a critical strategic competitiveness.

And therefore, because we operate in a more commodity type of business, we need to be very low-cost producer, very efficient use of resources. That's the second component.

The third component is that we fully utilize our potential and provide growth opportunities. And I think that the plan for Salmones Camanchaca to go from a company that was selling 35,000 metric tons in 2017 to a company that is going to be 75,000 metric tons by '23, '24 offers that growth potential embedded in the strategy of what we do.

And the fourth element is that we are very, very focused on having marketing flexibility to move around market and leverage our midsized level so that we can be relevant in every market, but yet not big enough to be stuck and trapped in one particular market, moving around and looking for the best return for our fish.

Now how do we go into these elements of the strategy? This is the value creation plan. Salmones Camanchaca continue to fully utilize its existing farming seawater and will continue to do that. We are -- this -- in 2019, we added another farm that was used by someone else in the past. That's why we go -- we went from 48,000 to 53,000 54,000. And by 2022, we will add another Atlantic that's why we will jump into 60,000 by 2022.

And then we have the expansion of the Coho project which should keeps us between 12,000 and 15,000 metric tons of Coho by '23, '24. We added -- we increased the value-added capacity. The increase from 53%, 51% of value-added in '18 to more than 60%, 63% of value-added by 2019 is an expression of the capacity of the company. The expansion of the capacity to create value, value-added product not only offered more stability on our pricing, but also the possibility of entering into longer-term contract with our buyers, and therefore, provide better condition for pricing for our fish.

We launched our new sustainability model that provide the framework for all the activities surrounding the sustainability. And we are working with all the value chain of the company to have the majority of our farming sites ASC certified by '21.

We are also very committed to the reduction of antibiotic, and Manuel will cover that. Good news on that front. And we are also now fully committed to be carbon neutral by '25, an important milestone of the salmon industry in Chile in that direction.

With that, let me leave you with Manuel to get into more details on the operational side. Thank you.

[Manuel Arriagada Ossa, executive]

Okay. In the operations. Okay. So this is the live weight ex-cage cost evolution in the last 3 years. And as Ricardo mentioned, in 2019, we had 2 important situations in the first half, the algaes and oxygens and the low-density sites. So that is the most important reason why we had a higher cost in the first half. The algae blooms and the oxygen situation prevent us from feeding. So the average weight in the first half was only 4.6 kilos WFE.

But in the second half, in Q3 and Q4, we had normal oceanographic conditions, good levels of oxygen without any algae bloom situation, and all of the sites were normal density. So the average weight of the Q3 and Q4 was 5.6 kilos WFE. That is 6 kilo live weight. So this is in terms of the evolution of the cost in 2019.

In Q4, in particular, the cost was $3.02 per kilo live weight. That is $0.08 more than the cost of Q4 2017, that is the comparable year, same sites. And the reason for that is that we implemented in 2019 some tools in order to mitigate the risk at sea, mainly oxygen platforms and upwelling system to reduce algae situation. In total, in the full year, the total ex-cage cost was $3.22 per kilo. And as Ricardo mentioned, $0.09, we had an addition of $0.09 because of the stocking, low-density stocking, and $0.09 because of the algae and oxygen situation.

Because of sea lice in 2019 was an expense per kilo WFE, and we were able to control the sea lice count, but we need to increase the treatment frequency because we are losing efficiency of the azamethiphos chemical treatment, okay?

In relation to the processing cost. This is the processing cost that is the wellboat, primary processing and the value-added processing costs, included packaging. In general, we are well below our long-term target of $1 per kilo WFE. In particular, in Q4, we have $0.70 of the total processing cost. That is $0.10 below the Q4 of 2018, that is 12%.

And this is mainly driven by scale, the volume, and because of the efficiencies. Since 2017, we were implemented several investments both in the primary processing plant and also in the secondary processing plant in order to have automations and productivity investment. So this allow us to have a very good cost in 2019, especially in Q3 and Q4. The value-added processing cost in Q4 was $0.43 WFE, including packaging. That is 20% below the previous 2 years in Q4. So it's a very important cost.

And in Q4, we also produced a high proportion in value-added, both fillets and portions. 69% of the total harvesting was value-added compared to 51% in Q4 2018. In 2020, we anticipate a larger fraction of value-added between portions and fillets. So it's a sales and marketing trend in 2020.

[Ricardo Garcia Holtz, executive]

I just want to complete on the total -- sorry, on the total cost of the product, which is in the presentation, with a very short explanation. Our goals, long-term targets, are $3 lightweight for the fish, $1 WFE for the processing. If we add up these two, it comes to $4.23 all cost for the fish or for the product, $4.23.

In 2019, we had for $4.35, $0.12 above the target. Of that, there are a bit more than $0.09, $0.095 that are explained by the low density of some of our farming sites in the first half of 2019. These are nonrecurrent and will not be present in 2020 or onward for the Atlantic. Therefore, we are around $0.04 above the target in 2019. And we do not expect to change our long-term target of $3 on the water and $1 WFE on the processing, and therefore, $4.23 for the total product. We are very committed with that cost.

We know, and you also know, that there are some pressures on the cost side because we are having the loss of efficacy of azamethiphos, and we will need to do more on sea lice, which is going to be more expensive than in the past. But we believe that we have the tools in the medium term to balance that with other savings. And the elements that Manuel mentioned, oxygen plants, upwelling system and elements that now we put in the smolt to be stronger in the ocean are things that have their benefit in itself. It's not only expense.

So we are very committed with this long-term cost target. Yet, it might be in between bumps in the way. The long-term goal has not changed. I wanted to be very explicit on that.

Now this is the harvest volume. As I mentioned, if you take a look of the growth in 2 years, it's from 34%, as I said, to 53%, 57% growth in 2 years. If you include the Coho production in 2019, it's 70% scale growth in these 2 years. And it's important to measure 2 years not only because it coincides with the IPO but it's in the same areas. We have a 24-month cycle in every farming site. And therefore, we always compare to the same zone, same areas, same farming site of 2 years ago.

And the other message of this slide is 2020. If you take a look of the changes in the scale in '19, changes in the scale in '17, you don't see that in 2020. There will be, in 2020, the estimate is that we will have a much more stable production throughout the year and particularly in the first half, and this is very important because we tend to look at prices that are a bit more attractive in the first half than in the second half, year after year.

There is a cyclical or a seasonal pattern that the first half is more attractive in terms of price. So we will be able to be benefited by that. And also operationally, from a plant's point of view, from a logistics point of view, it's more efficient to have a more stable year.

With that, Manuel, get back to the biology of the fish.

[Manuel Arriagada Ossa, executive]

Yes. Okay. So in relation to the Atlantic salmon biology. In Q4 closed sites, we had a mortality of 11.4%. That was quite high for the quarter. But the main reason of that is a single site that is located in a fjord that had an very important mortality because of an oxygen event back in April 2018, a total mortality of 25% in that site. So that explains the 11.4% average mortality for closed sites. But if you look at the mortality of the all biomass, in Q4 was 1.4%, very in line with Q4 2017 same sites and in general, very controlled situations in Q4. The same in January and February 2020. So good oxygen levels without any algae bloom. So in general, a very good environment, okay? This is for mortalities.

In relation to the biology indicator. As I explained in Q4, the average weight was 5.6, the same of the second half of the year. The yield kilos per smolt was 5.1. It's a very important improvement. And we have, in Q4 2019, the feed conversion ratio increased a little compared to the 2017, the comparable year, mainly because of the situation of the first half. In this year, the sites need to cross, of course, the first half, and had the oxygen and algae situation. So that the mills all resulted in a higher feed conversion ratio for the Q4, okay?

Sea lice situation. Okay. This is the evolution since 2016 until now of the biomass of Atlantic and trout, the green area, and also the sea lice count, the blue line, okay? As you see, the biomass is close to 10% higher than early 2016, okay? It's a moderate growth of about 2.5% annual. So it's -- I would say moderate growth of the total biomass, Atlantic and trout.

And the situation is that the sea lice level, in general, have been increased and mainly because of the loss of efficiency of azamethiphos. In 2016, the efficiency of azamethiphos was around 95% and now is on an average, industry average, of 70%, okay? So what we are doing in order to control the sea lice? First, of course, to increase the number of treatments, okay? More treatment with azamethiphos because of the loss of efficiency. And also, we are introducing new measures and new tools.

Now we treat all of the fish with Lufenuron in freshwater that gives a protection at sea of 4 months. Then we are treating with a new chemical tool that is Alfaflux that gives an additional protection of 4 months at sea. So we covered the first 8 months at sea up to more or less 3 kilos. And then we are implementing new tools, such as Ricardo mentioned, peroxide, hydrogen peroxide, and also some mechanical solutions like the Optilicer, Hydrolicer and some initiatives in the first quarter treatments in wellboat, okay?

The good new is that the initial test in the mechanical solutions were very positive with very low mortalities after the treatments and without any major impact on stress or SRS outbreak after the treatment. That was one of the things that we need to know other than that. So [ good news ] in 2020 and we foresee an additional cost in sea lice in 2020 of about between $0.12 to $0.15 compared to $0.08 in 2019, a little increase in cost because of the sea lice cost.

The Coho initiative. As Ricardo mentioned, we have the Coho plan and the Coho plan, in general, the medium-term plan is to maximize the use of our aquaculture concessions, especially the concessions in the [ ethylene ] waters of the 10th region, brackish waters, where the Coho specie is very well adopted. And our idea is to scale up our Coho process in 2023 to 15,000 tons per year in terms of harvest.

So this 2019 was the first step of that initiative in order to be prepared, in order to develop the capabilities in farming, processing and sales and marketing. And we are on track of that. In terms of farming, we harvested 4,300 tons. We had a high cost because in 2019 and '20, we are stocking in low density because of the regulation. So we have an extra cost of about $1 per kilo here, ex-cage.

We have better low mortality, less than 7%, and without any antibiotic or antiparasite treatment. So the farming, in general, was very good. Then in processing, we obtained very good quality results, both in value-added, fillets and portions and also in the HG or Hon formats, 85% of premium quality. So we decided to add new Coho processing capacity for 2020. The idea is to produce in value-added more than 60% of the total production in 2020.

And finally, in sales and marketing, we were able to sold outside of Japan 40% of the total production, and 15% was sold as fillets. That is to increase that in 2020, okay? So this is the Coho initiative.

What about the markets? Okay. So this graph shows the evolution of the harvest during 2019, that's the light blue columns, and the evolution of the prices. The orange line is our Salmones Camanchaca price expressed in return on raw material compared to the benchmark. That is the Urner Barry, all -- expressed also in return on raw material. And as you see, we have here a non optimal timing between the price evolution or the price conditions and our harvest distribution, as Ricardo mentioned, okay?

The price was highest in the first half, as usual, and our harvest was lowest and vice versa. Of course, this had an impact on the EBIT in the first half of the year, okay? But the good new is that will not happen in the second -- in 2020 because we are going to have more stable harvests.

And the second important thing about this graph is that our price, that is the orange line, is more stable compared to the market, the spot market, Urner Barry price. And the main reason of that is because, first, we have some flexibility in order to allocate and to move between markets and between product.

And second, we have a lot of value-added products, as Ricardo mentioned, 69% of value-added in the Q4 as an example. So we have more longer-term contracts, so more stable prices, okay? If you see in the Q4, we obtained a premium, a very important premium compared with the market. There is this difference. And the amount of that premium was $0.85, okay?

And the reason of that is mainly was equally distributed between the American market, the value-added frozen market and the Russian market. In the American market, as you know, we have a strategy of a large pool of accounts with a high proportion in value-added, especially in portions, with long-term contracts. And in general, in Q4 and in medium term, the portions and the value-added in the American market has more importance in terms of the price of that market.

Second, we have other markets value-added here in frozen formats, especially the Japanese market and the Mexican market, with a premium price, also a large pool of accounts. And finally, we have the Russian market situation. In Q4, we enjoyed, let's say, a extraordinary condition because we were one of the few companies with access to the Russian market. So we were able to sell to that market with a little premium, okay? As you know, since the end of February, we are now blocked in the Russian market, and we are moving or allocating the products to American market, Mexican market, Japanese market and other markets. We don't see any major impact because of that because we are not processing a high volume right now, okay?

Finally, the sales distribution of Atlantic salmon. In the last quarters, we have improved our expertise from moving from one market to another market and from one product to another product. So this market flexibility allow us to obtain this premium compared to the market. In 2019, in Q4, this is Q4, the American market was 36% of the total sales compared to 31% in Q4 2018, an increase in the American market, also an increase in the Russian market, the reason I explained, and also an increase in the Japanese market. In general, in the American market, the allocation of value-added products, especially portions, become more attractive, okay?

And the second important of this slide is the product type. If you add fillets and portions in Q4 2019, it totals 69% of the total sales compared to only 51% in Q4 2018. So it's an important change to value-added.

Okay. So finally, award in sustainability. This is the evolution of the sustainability indicators in Q4 2018 compared with the previous year. As you see, in general, we have a very good evolution of the indicators. First, the fish in-fish out ratio was 0.57, so below the other quarters. Also the length of the cycle. Now we are in an average of 16 months, so we were able to increase the fallow period of time. That is very good because of the seabed condition, okay? Zero escape incidents, and we will also -- we're able to reduce the number of antibiotic treatments. The number and the antibiotic usage in terms of grams per ton compared, always compared with the comparable year 2017, okay?

In terms of antibiotics, we are member of an initiative, a local initiative called the Pincoy Project in Chile. Just to interchange some best practices in order to reduce the antibiotic use. As you know, we vaccine 100% of our fish with LiveVac vaccine in order to reduce the antibiotic treatment also. And also, we are a member of the Chilean Salmon Antibiotic Reduction Program that was agreed with Monterey Bay Aquarium, and the idea is to cut by 50% in 2025 the use of antibiotics, okay? The only bad indicator that we have here, of course, is the antiparasite usage was 7.8 in Q4 2018 compared to 4 in 2017, and this is mainly because of the more frequency in the mechanical treatments using azamethiphos. The idea is to reduce that in the long term using the nonchemical solutions, mechanical ones, thermal ones or a first water treatment in wellboat, okay?

[Ricardo Garcia Holtz, executive]

Just to finish on the financial, a few observations. The first one is that scale was a major factor in explaining the 38% increase in EBIT, balancing or compensating the lower price that we had in the fourth quarter compared to the fourth quarter of 2018.

The other comment is depreciation. Depreciation increased almost by $2 million as we are depreciating the investments made in late 2017, 2018 and 2019. Remember that when we made the IPO, we said that we were going to have an extraordinary investment plan of about $50 million to $60 million, extraordinary beyond what is the maintenance and normal investment. That investment plan was completed in 2019, and therefore, we are now depreciating that. The investments in 2019 was around $40 million, that was the end of the plan. We expect the investments to get lower in 2020 and 2021 because we already completed this extraordinary plan.

The third observation of the P&L is that we have changed the criteria of the fair value methodology. We've been following and taking the advice of the auditors and the Norwegian regulator that request us to do the fair value calculation as has been done in Norway, that is, with all the biomass in the sea water. Before, we were doing the fair value calculation after 4 kilos of the Atlantic and cost basis before that. And now we are doing the fair value calculation for all the biomass in the sea water, using exactly the same model and methodology that has been used in Norway. And that is also present. Obviously, as you know, that does not affect the EBIT nor it affect the distributable earnings of the company.

Four is that, as I mentioned, also following advisers from the auditors, the trout operation that we do not control, that we do not operate, where we do own the farming site was moved out to other revenues, outside, therefore, of the EBIT. And for comparison reason, that is done also in 2018 for comparison -- to compare apples with apples.

And finally, the net distributable earnings of the company declined from $0.72 per share to $0.638 per share, and the difference between the 2 is entirely explained by the difference in the outcome of the trout business. If you compare $2.5 million negative this year with $2.9 million positive in 2018 is $5.4 million less that we got out of the trout business this year compared to the previous year. If you divide that by the 66 million shares of Salmones Camanchaca, that is $0.08, $0.08 per share, less distributable earnings. That is exactly the difference there. Not surprising because the EBITDA of the company is the same. $80.5 million this year, $80.4 million the previous year. So the EBITDA is the same. And therefore, the distributable earnings is reduced by these extraordinary nonoperational item of the trout business.

On the financial position of the company, very short. We increased assets by 20%, that is about $80 million to $408 million. This increase in assets is the outcome of the growth plan of the company in the first hand. And second, also the fact that 40% of the harvest volume was harvested in the fourth quarter and therefore, sold at the end of the year. So there was a lot of working capital needed for that, and there was a lot of receivables, therefore, and inventories build up at the end of the year. That is an expression of that growth.

That obviously will be liquidated in the first month of 2020 as we collect the receivables and sell inventories, and that will reduce the working capital needs in the second -- in the first part of this year. Equity ratio kept at 50%. So from a strength point of view, no change.

And the cash bridge, you can think that the EBIT of the -- EBITDA of the company in 2018 was mainly used to invest in the last part of the extraordinary investment plan of the company.

We went from 35,000 to 60,000 metric tons in 2 years and that requested investments, and the EBITDA of the company was used in part for that. And also, it was used to pay dividends and taxes throughout the year. We paid a dividend last early May, and we paid taxes late April of last year. So the EBITDA was also used to that. And then we had debt financing which is here, $44 million, which was basically used to fund this additional working capital that was needed at the end of the year. That was very important. That's why we had $90 million -- $85 million, $90 million financial debt at the end of the year.

Now obviously, as we liquidate the inventory and we sell the inventories and as we collect receivables, that debt level will be reduced. All in, the cash at the end of the year was very similar to the cash at the beginning of the year.

I would like to mention that in addition to the $100 million syndicate facility that we have with 3 banks that provide the longer-term debt funding, the company also have open lines for an additional $40 million that we have available. Not used but available, to give you an idea of the options that we have.

So finally, what are the key messages of this quarter and year? First, that we are on track on our growth plan and on our investment plan that we outlined 2 years ago. Now that plan has been enhanced by the Coho initiative, which will not be a contributor to EBIT in 2019 or 2020 but we do expect to be a contributor in '21 onward.

Second, that in guiding 2020, there is more stable harvest proceed in 2020 than in 2019, more stable production. That's good from a price seasonality and also for planning, processing.

Third, that the ocean condition that explained good part of the higher cost of the first half has not been present in the second half nor it will be present in 2020, the extraordinary nonrecurrent low-density cost factor that we had in 2019.

And therefore, the operational cost of the company, target of $4.23 per kilo all in, is still very much valid for us going forward. And if there is any pressure on cost that is coming from biological conditions such as sea lice, there will be initiatives in the medium, long term to balance that.

Fifth, sustainability, which is a cornerstone for us, a major element of the strategy is proving positive and favorable KPI evolution in the year. Very solid earnings despite the price and the oceanic condition in the first half.

And last, the advocacy for value-added and the advocacy to be very much present in all markets to move around with our mid-sized operation is still very much in place. And we plan to advance on value-added going forward.

With that, we are open for questions.

[Kolbjørn Giskeødegård, analyst]

Kolbjørn Giskeødegård, Nordea Markets. A few questions. First of all, on the current situation in the world, so to say. There is, as you pointed out, restrictions on the Russian market for you now in Q1. On top of this comes the pending situation in China regarding the corona situation. And you also guide that you will have a higher share of harvesting now in first half this year compared with last year.

So just a comment on sort of balancing out your new harvesting profile with a more challenging short-term market conditions. That's one thing. And the other thing is you mentioned the increase in chemical treatments due to sort of resistancy in the sea lice. Are there any sort of debate on imposing restriction on chemical treatment in Chile for the time being?

[Ricardo Garcia Holtz, executive]

Okay. On the first one, China has been obviously everywhere on the news. Today, it's not only China but the rest of the world in terms of the virus. I don't want to give my position on the virus because it's not my area of expertise. We are very much accustomed to navigate through waves. This is another wave.

China, for us, represented only 3.5% of our sales in 2019. So it's not a very substantial market. We don't see problems in moving around product from China. But I can tell you that a couple of weeks ago, we started to reinitiate orders from China, particularly on the more value-added frozen products, not so much on the fresh because there are certain restrictions today for the fresh because of the airlines not going to China. And therefore, you don't -- you cannot take fresh products to China today. But on the frozen side, there is a pickup now in the last days or, I would say, a couple of weeks on new orders.

So we think that China will be -- get back into normal within the next maybe 60 days or so. That coincide with what the government of China has said that by summertime, they will get back to normal. And it's not that relevant for us in terms of the allocation.

On the Russian market, we've gone from 0% to 40% of our sales per month on Russia. There are certain months in the past where we have sent to Russia 40% of the production; certain months, 0% of our production. On average last year, we sent 18%, I think, to Russia throughout the year.

We consider Russia an attractive market. We think that we have a place in Russia. But we have an approach of a more opportunistic in the Russian market; meaning, that we may be 15%, 20%, 25% in Russia today but we know that in the future, we might have to go to 0 for several reasons because other markets opens, because there is some restrictions for currency situation in Russia. Because of that, our long-term commitments, our planning ahead is #1 is the U.S.

Japan is also a core market for us. Latin America, and in particular, Mexico, is also very important for us. And we have commit -- smaller commitments in different areas. So, so far and up to this day, we've been able to reallocate volumes that were in Russia in the first 45 days of the year to other market without an impact for -- in the company. Now that's valid for the next maybe 2, 3 months. I think that we will catch up quickly.

And I don't see it today, the Russian blocking element as a major material event for us in 2020. Now generally speaking, obviously, the situation with logistics and the viruses in other markets, we need to see what's happening. I think it's very early to say.

Now on restrictions on chemical. What I can -- no, there isn't a restriction but nor there is a debate. But there is a change in the regulation, took place in 2019, that stimulate or incentive and provide additional flexibility to farmers to utilize new treatments, both chemicals such as peroxide and nonchemical such as the Optilicer and Thermalicer that Manuel is saying. That is, the regulation has allowed farmers that are using these new technologies to have a little bit more room for treatments.

The goal there of the regulation is that there are elements in the regulation that motivates farmers to try and test new tools. And they are doing that. We are doing that today. The outcome of the test of Optilicer, for example, that we conducted 3 weeks ago, more or less, was extraordinary in terms of the wellness of the fish. I think we had 4 fish...

[Manuel Arriagada Ossa, executive]

Out of 1,000.

[Ricardo Garcia Holtz, executive]

Out of 1,000, very, very low mortality, more than 90% of efficiency. Remember that the sea lice in Chile is a different animal. It's a smaller [ crustacean ] and therefore, the behavior of that might be even better in front of our mechanical. We need to stress less the fish to take the sea lice out.

Any other? Carl-Emil?

[Carl-Emil Johannessen, analyst]

Carl-Emil Kjølås from Pareto. Can you say something about how the biological situation in Chile is at the moment regarding the algaes and how is feeding and mortality has been now in January and February compared to last year [ and that cycle ]?

[Ricardo Garcia Holtz, executive]

Manuel, do you want to take that?

[Manuel Arriagada Ossa, executive]

Yes. In general, the situation is quite normal. The oxygen levels are good in general. Also, the sea lice pressure as normal in December is quite high, but we were still able to have a very controlled situation in term of the sea lice count. So oxygen levels, okay. The feed behavior is okay also. No algae blooms. And the sea lice under control with an increased number of treatments.

[Ricardo Garcia Holtz, executive]

Very good, very good summer in terms of lots of rain in the south of Chile.

[Manuel Arriagada Ossa, executive]

Yes.

[Ricardo Garcia Holtz, executive]

That was a rainy summer in the Patagonia.

[Marta Rojo, executive]

Any other question?

[Martin Kaland, analyst]

Martin Kaland, ABG. It looks like you guide for largely stable smolt release in 2020 compared to 2018 when roughly the same sites were stocked. Could you add some color on the drivers behind that? Is the smolt stocking for the same sites lower because of the PRS system, for example, but you are able to offset that by the density system you chose in 2018 or the leased out licenses coming back? Yes, if you could add some details.

[Manuel Arriagada Ossa, executive]

Your comments for the industry or for Camanchaca?

[Martin Kaland, analyst]

For both [indiscernible].

[Manuel Arriagada Ossa, executive]

Okay. In our case, we are 100% in the PRS system, okay? The only exception was the 3 sites in 2019 that represents more or less 20% of the total harvest of the year, okay? But we as Camanchaca are in 100% PRS system. The industry, as an average, more or less 80% the stocking in PRS system and 20% in density system. And there is a trend in reducing the density and increase the PRS because of the tighter new regulations in terms of the density.

Remember, the current density for Atlantic is 4 kilos per cubic meter and for Coho is 3 kilos per cubic meter compared with the normal density of 17 and 9. So it's a very important difference. So the trend in the industry is to increase the PRS, stocking and reduce the density. And in our case, 100% PRS.

[Ricardo Garcia Holtz, executive]

And as I mentioned earlier, the regulation that was so much questioned and there was a lot of concerns on the regulation 2 years ago or even a year ago, it was hard to understand, but it's playing its role. If you take a look of the last 5, 6 years of harvesting in Atlantic, growth harvested volume has grown 2.9% a year, with positive margins in all these years for companies. So we would have expected harvest to be much more aggressive if companies would have been able to do it. But yet the regulation explain the role of moderating growth, and an expression of that is the harvest and the stockings.

[Manuel Arriagada Ossa, executive]

Yes. As you know, the regulation is, as Ricardo mentioned, correlated with sanitary behavior. The density system depends on mortalities and stocking growth. The PRS system depends on mortality, sea lice treatment, infra situation and...

[Ricardo Garcia Holtz, executive]

Seabed, seabed.

[Manuel Arriagada Ossa, executive]

Seabed? Yes, seabed [ and infra ] and now antibiotic use. So very related to the sanitary performance.

[Martin Kaland, analyst]

Then in total high level that we could see either largest stable smolt [indiscernible] or slightly higher as some is still using the density system now for 2020?

[Manuel Arriagada Ossa, executive]

I would say the trend is to reduce the density system and more stable stocking because of the PRS system.

[Christian Nordby, analyst]

Christian Nordby, Kepler Cheuvreux. Are there any specific projects that coming into 2021 in terms of investments that we should know about? I know you don't guide on 2021 CapEx, but it's more about typical projects at least.

[Ricardo Garcia Holtz, executive]

Not at the moment. Okay. Thank you very much for coming, and I wish you a good week. Thank you.