Salmones Camanchaca SA

SGO:SALMOCAM

Good morning, everybody. I'm Hugo Rubio. And on behalf of BTG Pactual, we want to welcome you to Salmones Camanchaca Fourth Quarter Results Video Conference.

Today, we're happy to host you guys along with Ricardo Garcia, who is Chairman (sic) [ Vice Chairman ] of the Board of Salmones Camanchaca; Manuel Arriagada, who is the CEO; and Daniel Bortnik, CFO.

I leave you in the hands of Ricardo and Manuel.

Thank you, Hugo and [ Camila ]. And also thank you, BTG for this meeting. And thank you very much for the promotion since I'm not the Chairman of the Board, but rather Vice Chairman of the Board, but good intention, Hugo.

Well, thank you for coming to this 2024 earnings report of Salmones Camanchaca. And we -- Manuel and I will try to give you a flavor of what was the quarter and also the full year of 2024 now that we have completed.

Next, what are the Q4 highlights? In 2024, operating revenues 27% up, higher than the previous year fourth quarter, mainly due to higher sales volume of Atlantic salmon, up 35% and Coho up 28%, with similar prices for Atlantic and a substantial improvement in the price of Coho in the last quarter of the year. The harvest in the fourth quarter of '24 was $17,000, very high. You may remind that we postponed some of the harvest in the third quarter of '24 and therefore, the fourth quarter was stronger on harvest. That's good news because prices were higher, and that was divided between 13,700 in Atlantic and 3,400 in Coho.

Atlantic, 56% higher due to postponement, as I mentioned, of the third quarter harvest. Coho was substantially lower than the previous fourth quarter of '23, because we decided and planned to reduce from 3 sites to 1 sea farm, the stocking in 2024. So, that was planned. Prices remained low and I would say, rather depressed during 2024, but with a reasonably good recovery in the fourth quarter and particularly the last 2 months of 2024. And our raw material return was almost $0.30 higher than the benchmark that we utilize, which is the Urner Barry in the U.S.

For the quarter, Atlantic was in line with the previous fourth quarter in 2023. Coho was higher. All in, during the year, the price of Atlantic declined 6% and the Coho declined 16%. So, prices were not a good news during the year. Inventory provision played a negative role in the fourth quarter of 2023. But during 2024, it was positive $2.4 million for Atlantic and $5.4 million of Coho, and that is a consequence of the ascending curve in the price of both species during 2024.

Very important Atlantic ex-cage cost decreased 11% during the fourth quarter of '24 vis-a-vis '23, explained by better harvest weights, good sanitary condition and lower feed cost compared to the previous year. Very little impact of extraordinary mortality during the quarter. That's a good news. And also a highlight for the quarter is the, I would say, rather substantial reduction in the net debt-to-EBITDA ratio, both as a consequence of an absolute reduction in debt and an improvement in the EBITDA. So, I think that's the most important and most relevant highlights of the fourth quarter of '24.

As I mentioned, revenue were 27% higher due to mostly higher volume sold in the year, both in Atlantic and in Coho. Full-year revenue were 14% higher in 2024 than 2023, with more than $400 million. Volumes sold in Atlantic, very similar to revenue, 15% up. And sales were doubled in Coho in 2024 as a consequence of the big improvement in harvest -- growth in harvest in the Coho in the previous season '23-'24, that was obviously sold in the following month.

Considering both Atlantic and Coho, EBIT kilo was almost $0.80 positive. Atlantic fourth quarter was $0.90 compared to $0.30 in the fourth quarter of 2023. And for the full year, it was very similar at around $0.62, $0.63. On the Coho, it was negative for the full year, but it was a substantial improvement at the end of the year. As of December '24, that is a few months ago, inventory in the company remained at a rather low level, 3,600 metric tons WFE in Atlantic 2,300 and Coho the remaining. So, a substantial reduction from the inventories of the previous year.

Quarterly Atlantic harvest, as I mentioned, was 13,000, almost 14,000, 56% higher than the same quarter in 2023. I again remind that third quarter harvest last year was postponed to the fourth quarter to mainly gain weight -- harvest weights, and that was both successful in terms of gaining effectively the weight and also because the price improvement in the fourth quarter and the last part of the year was substantial. Harvest weights were 5.5 kilo in the fourth quarter compared to 4.5 kilo in the fourth quarter of 2023, a substantial improvement.

Stocking in 2025 is expected to be 15% higher, more or less than 2024, with higher Atlantic and similar Coho. We do not have any plan for Coho expansion at the moment. And we have, as I mentioned, one more sea farm planned for stocking in 2025. Total expected harvest, as a consequence of the stocking in '23, '24 and expected harvest for '25 is in the area -- total in the area of 56,000 to 59,000 metric tons, with [ 3,500 ] in Coho and about 95% of Atlantic. So, '25 year is an Atlantic year. Coho will play very little role in this year. Industry stocking in 2024 is 7% higher, and we also expect in the fourth -- in the second half of 2025, the growth in terms of harvest for the Chilean industry.

Manuel, your turn now.

Okay. Thank you, Ricardo. Good morning to everyone.

Now, I'm going to talk about the operational review of the company. First one, the Atlantic biology, as you can see in the slide, during Q4 and into 2024, we achieved a very positive biological and sanitary results in our sea farms. The left graph illustrates the evolution of monthly mortality of Atlantic salmon, showing values significantly below the industry average. So, this is a very important achievement, especially if we consider the very high harvest weight that we had in Q4 2024. In the right table, highlights, that almost all key indicators such as mortality, feed conversion and growth outperformed the industry average for closed groups in Q4 2024. Antibiotic consumption and harvest weight remain in line with industry standards, but also in good levels.

Looking ahead, for this first quarter of 2025, we anticipate maintaining the average harvest weight at 5 kilos in the quarter. The primary drivers behind this positive biological and sanitary outcomes includes, first, an effective biological control across all farming variables. Second, sanitary -- the support of sanitary surveillance strategies. Third, optimal sea lice management to keep it under control. And finally, also having the support of external system of upwelling and oxygenation system in order to create optimal conditions at sea farms. That is more or less the strategy in farming in order to have these results.

Next, please. In relation to the Atlantic farming costs in Q4, ex-cage, live fish costs were lower than Q4 2023, and it was $4.05 in the quarter. That is almost $0.50 below the same quarter of last year. At the same time, we have a positive trend in reduction of the cost during the year. This positive cost trend was driven, of course, by the strong biological and sanitary conditions. Additionally, the lower feed prices contributed to the cost reduction.

In Q4 2024, the feed cost was 10% lower than the same quarter last year. It's also important to mention that during 2024 we implemented several productivity savings that amounted for the year to a total of $7 million. We did it with our team and also with the support of an external consultant. These productivity and cost-saving initiatives are part of a set of other initiatives along the value chain of the company, and we started that project 2 years ago in processing, now in farming and also in secondary logistics, also in primary logistics and sales and marketing and administration and distribution. So, we have a project of several initiatives of productivity and savings initiatives. And in farming in particular, for this year 2024, we saved, as I mentioned $7 million in costs.

Next slide, please. Atlantic total cost, which is the ex-cage plus processing, the total cost for Q4, including ex-cage and processing was $5.31 per kilo WFE and it was 11% lower compared with the same quarter of last year. So, good evolution of the total cost also. The processing cost in particular was $0.96, which is below the same quarter of the previous year where it was $1.1 per kilo, explained by the higher process volumes, but at the same time, explain because the product improvements and cost-saving initiatives also contributes to this cost reduction. In particular in processing, we estimate the savings because of these initiatives being $4.5 million during 2024.

Next slide, please. In relation to the sustainability metrics, the table shows the sustainability metrics for Q4 2024. As you can see, the fish-in fish-out ratio was maintained well below 0.5, which is consistent with our Sustainability-Linked Loan target. The farming length of the cycle, another KPI was also in an average good level. In relation to the ASC certified harvested biomass, it was at 83%, a very high level in the quarter. It was an important increase compared with the same quarter of 2023. As a not so positive element, if we want, we can point out that there was an increase in antibiotic and sea lice treatments compared to the previous years. However, it's important to say that these treatments were necessary to maintain optimal fish health and welfare condition in our sites.

Let's go to the markets. Atlantic salmon price, the table shows the evolution of the Urner Barry price index in the U.S. market during the year. As you can see, as Ricardo said, the price decreased during the year, even though the total Chilean supply also decreased. This was in a context of a weaker U.S. demand. At the end of the year, the price increased in the last 2 months, as you can see in the graph. Last year, the Chilean supply dropped by 9%, with the most significant decline occurring in the first half of the year.

Global supply for last year of Atlantic salmon remained fairly stable, showing moderate growth of 1.4%. For this year, Kontali expects 8% increase in Chilean supply, with a bigger increase during the second half of the year. For global supply, Kontali expects a 5% increase for this year. In relation to the Salmones Camanchaca price achievement, which is the comparison between Urner Barry return and our own return, we can say that our raw material return was $0.28, above Urner Barry during the quarter and $0.21 above Urner Barry during the year.

Just to remind you, the company's strategy is the combination of 2 main elements. The first one is flexibility to react to market conditions by changing formats and markets to allow us to achieve premium prices over the long term. That is the third one. And the second one also is the company's strategy to involve in a high percentage of value-added production, with sales in the medium to long-term commercial agreements that mitigate volatility in the market. So, this strategy allows us to have premiums during the year compared with the market prices.

Next slide, please. In relation to the Atlantic value-added mix, you can see here the Atlantic sales distribution. The American market continues to be the largest one and the most important market with 35% of market share in Q4, followed by LatAm sales with 20%, which was mostly Brazil. Value-added in the quarter was 62%, including fillets and portions. Then during the year, I can say that we have a good market development through flexibility in production of different formats and destinations. In particular in Q4, we increased a lot the share of each owned fresh through the Latin American market because of the conditions.

In relation to the Coho -- next slide, please. Strategy mix, LatAm was the largest market by far, with 44% market share, with Brazil as the main market, followed by Eurasia with 31% and then Japan and Korea with 11%. Important for the quarter was the share of value-added that was 93% considered fillets and some portions with very low level of inventories as Ricardo said at the end of 2024, well below the level of inventories during 2023. Our marketing strategy in Coho aims to develop new markets and also have a production mix flexibility.

Thank you, Manuel.

Just finish up with the rest of the elements of the outcome of 2024. As mentioned, EBITDA was $20 million, a little bit more than $20 million in the quarter, mainly by lower Atlantic cost of goods sold, as Manuel mentioned, that added $8.5 million compared to the previous 2023 fourth quarter. The reversal of inventory provision made in 2023 in the fourth quarter of 2023 added $4.8 million, mostly Atlantic. Better performance from the Coho added $3.4 million, higher Atlantic volume $2.4 million and lower mortalities than in the previous 2023 fourth quarter added another $1.7 million.

For the full year of 2024 compared to the full year of 2023, EBITDA was almost $50 million -- $49 million, up $16 million from the previous year EBITDA, whereas Atlantic price deduct EBITDA in an amount of $20 million. Atlantic cost of goods sold added plus $10 million. Volume in Atlantic added plus $8 million. Extraordinary mortality or the absence of extraordinary mortalities added another $3 million. Coho subtracted $6 million provision reversal, added $16 million and other added $5 million. That was the bridge in the EBITDA in 2024.

Jumping into the P&L of 2024, next slide. I think that on the operational side, we covered everything. And on the non-operational side, I think it's worth mentioning the results impacted by the very low outcome and performance of the JV in Trout farming. As mentioned previously, we have terminated that joint venture, yet there are some remaining financial effects expected in 2025 as a consequence of the sell-out of the inventory. And secondly, on the non-operational side is the higher cost of financing with respect to the previous quarter in 2023 for the full year, although it was a bit similar in the fourth quarter.

Cash flow was positive cash flow. Operating cash flow $28 million compared to only $16 million in the fourth quarter of 2023. Investment was a little higher in this quarter, $7.2 million compared to $5 million in the fourth quarter of '23. And financing was $4.5 million as we increased leverage in the last month of the year and to fund the growth plan. Net financial debt ended at $91 million in December '24, that is $31 million lower than in December '23. The equity/asset ratio was 46%, well above the threshold of 40% that we have.

Net financial debt in relation to the last 12-month EBITDA was 1.86 below 2, returning to levels that are more normal for the company, yet still a little higher than what we would like to have. Financial debt during the last quarter was at $147 million in December '23, $150 million in March '24, $133 million June '24 and $128 million in September and $91 million in December. That is a descending trend in the amount of financial debt used by the company.

Next, very important slide, one of the most important one refers to the plan for the future, where we described here and showed the guidance for the next couple of years, '25 and '26, with all the caveats that you can imagine because obviously, this is not ensure, but the stocking plan for '25 and the stocking already made in '24 allow us to make this guidance for the next almost 2 years.

'25 harvest is consistent with the growth in the stocking and going into the southern part of the Patagonia. The southern part of the Patagonia has lower oxygen and algae risks, and that has proven to be the case. We will continue the pause in the Coho stocking and harvest. We will continue exploring in the market at the level of harvest that we had in '24, at least for 2025. In 2025, stocking plan in Atlantic allow us to guide for '26, another 10% growth approximately in terms of harvest for '26. And beyond 2026, we are planning for the 65,000 metric tons around in Atlantic, which is something that is very much achievable. for the company.

With that view, what are the '24 takeaways, and that's the slide -- the last slide. I think that there are 8 messages that you should keep in mind. One is a solid recovery during the year. The EBITDA in the fourth -- in the first quarter of '24 was $4 million, and it was $21 million in the fourth quarter. And the total for the year was up almost 50%. So, solid recovery during the year in terms of the outcome and profits.

Second, good biological and sanitary condition, better than the industry, and funded and drive the cost. In 2023, stocking plan was fulfilled -- I'm sorry, 2024, stocking plan was fulfilled with low harvest weight in the initial part of the year, recovered and turned around at the end of 2024. First half harvest weight was 4.7 kg, second half 5.3 kg. Fourth message is prices were rather depressed, did not help at all on revenue on the contrary. But there was a good recovery in the last 2 months of the year, and we believe that we remain stable throughout 2025.

Five -- fifth message is that there was a consistent decline in leverage level of the company with a descending level of debt -- financial debt throughout the year, improving ratios and covenants. Sixth, the 2024 stocking plan and initial 2025 stocking plan allow us to guide a 10% growth in harvest in 2024 -- '25, sorry, and another 10% for 2026. The seventh message is that we remain present in the Coho business. We are exploring market, developing products, refining operation, but we will, in 2025, remain stable on that. And last but not least, some of the weak results or the weakest results in 2024 was related to the Trout JV, yet the Trout JV was terminated. There is some financial impact that we envision in the initial, mainly 2 quarters of 2025 because there are sell-out of inventories in the vicinity of 2,500 metric tons in December that need to be sold.

So, that are the eight messages I want to leave you. And now let's see if there is any question that we can enlighten at the moment. I would emphasize everyone, please, to respond the encuesta or the questions that we have put together for you so that we can improve in the following presentations.

Well, I believe that maybe the earnings report was sufficiently clear and the presentation also because I don't see any questions. In which case, I thank you for all those that attended.

There is one. [ Ignacio ], what effect do you expect for Chilean salmon export to U.S. on tariff?

Well, we enjoy in the salmon industry, an activity that does not have competition in the U.S. In fact, the U.S. gets a lot of salmon from Canada, as you may know, particularly on the west side of the country. The tariff imposed to the Canadians that you have seen and the one that have been threatened to the European salmon gives us an opportunity in the U.S. market. All in, I don't think that this is good for markets at all, but I don't see any damage for Salmones Camanchaca or the Chilean industry in the U.S. due to this consequence. We don't have competition in the U.S. No one will be benefited by tariff on salmon.

How do you see U.S. demand?

U.S. demand have surprised us, being a little weaker than expected, to be honest, in 2024. We think that, that's going to be rather stable. I don't think that it will decline in 2025, but I don't see either a big boost on demand in the U.S. in this year. And therefore, very important, the game of this business is cost. We need to continue with, Manuel, the cost improvement that was the driver of the better results outcome of 2024 for us.

What is your outlook for farming cost in 2025, stable or further declined?

That's a very good question and a very difficult answer with all the caveats. Manuel, would you like to give us a...?

Yes. Of course, it's difficult to forecast because there are many variables, but I can say that we are aiming to maintain the good level of Q4 during almost 2025. That means to keep the mortality low, to keep a good harvest weight over 5 kilos and to maintain the productivity and cost-saving initiatives during the year.

Some of the cost initiatives that were implemented in 2024 will be fully implemented in 2025, and that will be an annual benefit in the year. Some of the feed cost reduction that we see in 2024 will be expressed in terms of products sold in 2025. There will be also a source of lower cost. But obviously, a very important factor for this will be how the fish behaves in the water, particularly in the first 3 months or 4 months of the year, mortalities, harvest weights, growth rates and so on. So far, in the summer in Chile between December and as of March 5, we have not had any incident that we should report. But still, we have, I would say, maybe 30 days to 45 days of riskier conditions.

Do you see room for further cost improvement? Do you expect cost to continue declining?

That's about costs also, [ Marco Zuniga ], I think that we already covered that. But just as a takeaway of the cost questions, we are fully focused on the cost side of business because we see stable markets. And therefore, we don't see improvements in prices, material improvement in prices in 2025. So the game is to win on the cost side.

Very well. I think that that's all. I don't see any other questions. And thank you again, remind of fulfilling the questions and the [ encuesta ] that we gave you. Thank you very much all, and thank you, BTG, for organizing this meeting.

Ricardo, Daniel, Manuel, thanks for everything. Everybody, have a great day.

Thank you.

Thank you.

Bye-bye.