Thank you very much everyone for joining us today for Salmones Camanchaca results presentation. Today, we have Ricardo García, CEO, I remind you that at the end of the presentation we'll have a Q&A session, which you can write in the question and answer session, and will be answered at the end of the presentation. Now I hand over to Ricardo García to start with the presentation.
Thank you, Marco, for the introduction and the help of Credicorp organizing this event where we are planning to report the earnings of Salmones Camanchaca of 2022, the fourth quarter in particular, huh? I am reporting from the Patagonia of Chile, very south in the middle of the fjords, connected through a Starlink connection, the Elon Musk new internet devices. I'm sorry if there is some misconnection during the presentation because the technology in the far south of Chile has sometimes a bit of seconds of interruption, huh? With that, we are reporting after our fifth anniversary, after the IPO, and I would say that this is a satisfactory report after couple of rough years that we've went through, huh?
We initiated 2022 with a lot of expectation and a lot of challenges ahead, and we are finishing 2022 with many results and good results as we will be reviewing today. On the highlights, I would like to highlight five messages for you. The first one is an EBIT of $60 million for the year versus a negative EBIT in 2021, led by an EBIT kilo of 147 in the fourth quarter and 123 in the whole year for the Atlantic, and an outstanding results for our Coho production with an EBIT kilo of 142 for the whole year, higher than the EBIT per kilo on the Atlantic. Very outstanding. That's number one message.
Second message is the harvest grew 11% and reached 40, almost 45,000 metric tons of Atlantic, very similar to what we said we were going to have. In the Coho, also, an important growth of more than 120%, although it was lower in the fourth quarter because we initiated a little later the harvest of these 2022, 2023 sorry, correct, 2021, 2022, season, which ended in January 2022, and this season started the fourth quarter and it's ending in the first weeks of 2023. There was little harvest at the end of 2022, but it was an excellent 120-something percent growth on the Coho. Huh? Many opportunities lie ahead for the Coho in 2023. Huh? Great, the third message is great price achievements in the last three quarters, huh?
Outperforming our peers, in addition to the price increase. This is two elements, very favorable price condition in the marketplace, but also within that context. 2022 below, in the fourth quarter of 2022 was below the fourth quarter of 2021. Slightly below, but below, despite the many pressures on cost that we have faced, both on the feed cost, on the devices and technology that we have implemented to mitigate the environmental risk associated with algae and oxygen, as well as inflation in other parts of the value chain. Fifth, the harvest grew 70% overall year-over-year, and reached 49,000 metric tons in total of both species. That is what I would say the five most important highlights of the fourth quarter of 2022 and 2022 as a whole. Next slide.
On the financial highlights, revenue was down in the fourth quarter of 2022 because we wanted that. We sold fewer tons than what we initially anticipated, but the reason for that was because we exploited market opportunities that we envisioned for the third quarter and also for the first quarter of 2023. The lower volume sold in the fourth quarter of 2022 was planned and was profitable because we exploited opportunities, as I said, either advancing harvesting for the third quarter of 2022 or postponing harvest for the first quarter of 2023. The price evolution during the third quarter, fourth quarter, and first quarter of 2023 is showing that we were right in that.
Other large amount of inventory at the end of 2022, it was on Atlantic more than three times larger inventories at the end of 2022 than what it was at the end of 2021. That is one of the explanation of the lower revenue in the fourth quarter. The third message of this slide is that the stability of our revenue in the second, third, and fourth quarter of 2022 was very outstanding for our history, you know. Very stable revenue in the third quarter, as well as the situation with the better achievement, price achievements and lower cost led us to have this high EBIT kilo on Atlantic. We are showing here the Atlantic.
Despite, again, despite the situation on the cost side, and the pressure that we faced on the cost side, huh? Next slide. On growth, in harvest and stocking, we finished 2022 with 48.5 thousand metric tons of Atlantic and Coho harvest. We are, as a consequence of that, I would say half a way from full recovery of 2020 harvest volumes, which were around 55,000 metric tons overall, and what we hope to be the situation for 2024. We are half a way now, with almost 50,000 metric tons, huh?
For full recovery, we have increased substantially, as you can see, the Coho stocking in 2022, the same thing for 2023, from less than 1 million fish in 2020 to close to 3 million in 2023. That is our plan for this current year, huh? The full recovery of our volume will happen in 2024, huh? Total stocking growth in 2023 will be about 30% higher than 2021, with more stocking of Atlantic in the 11th region and more Coho stocking in the 10th region, huh? That's important to understand the adjustments that we've made in our Atlantic and Coho harvesting based on the risk profile of our concessions, huh? The last message of this slide is we see very little growth on the Chilean supply side, huh?
Very little, stocking growth and harvest growth, both for this year and the next year, huh? Well, Manuel?
Okay.
I'll hand it out to you now.
Thank you, Ricardo. Welcome to everyone. Let's go to the review of the operations and also markets. Okay. First, in relation to the Atlantic farming. During past year, we had excellent biological performance. As you can see in the graph, the total mortality rate was below the industry average in 10 months during past year. The only big exception was February, where we had a high mortality due to a particular oxygen deficit in only one particular site. We ended the year 2022 with an average mortality rate for closed cycles of 11.2%. That is below the industry average, as you can see in the right table. That was 14.3%. Also, compared with the industry, we had a better conversion.
We have a better growth, a better cycle length, and also a marginally better antibiotic consumption. The only exception in the, in the indicators was the harvest weight, because we had one site lagging behind in the first quarter. However, from the second quarter of past year, we had weights exceeding 5 kg WFE as an average. It's important to say that all of these productive outcomes are the result of the implementation of a farming improvement program initiated over one year ago, which comprises a range of initiatives, including the strengthening of human resources, improvements of the site's infrastructure, new feeding strategies supported by software, and health and sanitary new strategies. We are currently witnessing the positive outcomes of this program. Next one.
In relation to the farming cost, the Q4 came with an ex-cage cost in line with the same period of the last year, $3.91 lightweight compared with $3.95 Q4 2021. In this quarter, we have been pressed by higher feed cost, mitigation costs of our risk reduction strategy, and also some inflationary pressures. Of course, we are experiencing cost pressures due to the global inflation, especially in feed ingredients and logistics. In the past quarter, only feed price increase have an incident in the ex-cage cost of $0.30 higher compared with the same quarter of 2021, as an example. Next one. The total cost, that is, farming plus processing, was $5.47 kilos WFE. That is up 6% compared with the same quarter of last of 2021. The processing cost was $1.26.
That was $0.37 above the same quarter of 2021, mainly due to lower than normal process volume, as Ricardo mentioned. That was part of the strategy in order to capture the good market opportunities in the market. It's important, the Chilean inflation during 2022 was 12.8%, especially for the wages cost. The packaging, we have an important increase of more or less 40% in the prices of packaging. That also pressed the processing cost. Next one. In relation of the use of the funds of the capital increase that we received back in 2021. At the end of 2021, the company receives funds from the capital increase to finance its growth plan, second, the investment plan, and third, the risk diversification program.
In relation to the diversification program, this plan consists of producing Atlantic in sites located in the 11th region and leaving the fjords of the 10th region for Coho farming. Fjords in the 10th region are more suitable for Coho, since the farming period does not include the summer, where the risk is higher. Second, the use of alternative species. We are starting the production of Coho salmon. This season, as Ricardo mentioned, we doubled the volume of the previous season, and we will double again in the next season. Third, we use the funds to the use of new technologies and devices to reduce the risk. CapEx and OpEx. A new wellboat that is already in place since May of last year.
We have also backup sites for any contingency, oxygen support system, upwelling and surgency systems, and also a mass mortality logistic plan just in case. In the picture, you can see a fan mitigation upwelling system in one site located in a fjord in the 10th region. This picture was taken two weeks ago. Already we have six sites in the 10th region implemented with this kind of systems. Also, during last year, we implemented two new Atlantic sites in the 11th region to diversify risk, and also we have started the Coho production, as you know, with two Coho sites, one more than the previous season, plus all of the processing equipment to produce value added from Coho.
For sustainability indicators, we have a good evolution of sustainability indicators in farming, with improvements, as you can see in the table, in all key indicators. In fact, during this quarter, we had the best value in the last four years for the second quarters in all of the indicators. Fish-In-Fish-Out, well below one, a reduction in the length of the cycle, and a reduction in the number and antibiotic and antiparasitic usage. The decrease of antibiotic usage this quarter is driven by good sanitary conditions in general. Let's go to a review of the markets. Okay, this is the evolution of the market price and Urner Barry Miami between the fresh. As you can see, the prices remain at high levels and are expected to remain high.
Somehow they were in a lower level during the second half of the past year as Chilean supply recovered in the second quarter and third quarter of last year. It has a growth of 13% and 26% respectively in those quarters compared with 2021. In light of the negative growth for the first three quarters of 2023, we anticipate prices that will not ease too much going forward. We will have a decrease of -6% in the first quarter, -1% in the second, and -5% in the third quarter. Of course, there are some economic ingredients that might generate a decline in the economic growth, the general economy. In our opinion, since the consumer's behavior is changing towards healthier food choices, the demand for salmon has remained consistently high, supporting a good price level.
For the full year, Kontali expects a decline in the Chilean supply of 1%, and overall, globally, an increase of 2% in harvest volume for 2023. Next one. Okay. This is the price achievement of Salmones Camanchaca compared with the market benchmark. The return on raw material, that is the metrics for Salmones Camanchaca Atlantic salmon, was behind the market benchmark during the first half of last year, but increases and was above it since June, and has remained above it throughout the second half of the year. Finally, during eight out of 12 months, we were above the benchmark in 2022. In the Q4 in particular, Salmones Camanchaca return was $0.70 above Urner Barry benchmarking.
It's important to say here that the key to achieve this is the flexibility in our production mix and in the markets in order to capture the higher prices. For the example, during the second quarter, we switched to fresh. During the third and fourth quarter, we increased the frozen. Next, please. In relation to the sales and value-added strategy mix, the American market is still the largest market at 40%, followed by Mexico, our second most important market with 20%. The value added represent 80% of the total sales in the last quarter. Our marketing strategy aims to, first, to focus on our core markets, mainly American market and Mexican market, to leverage our long-dated relationships and strong positioning to allocate our value-added portfolio.
Second, our strategy is to be a leading provider of fillets and portions, a format that explained 80% of our sales in Q4. This is our Atlantic strategy for Atlantic. In the next slide, same strategy for Coho. As you can see here, the evolution between in two years, 2020 compared with 2022, as you can see in terms of the sales by market, we diversify the sales, including new markets, mainly Mexico, American markets, Chinese markets, Southeast Asia also. A diversification of the markets. Second, an increase in the value added. This is part of our strategy. 70% value added of fillets, 50%, and portions, 20%.
Our strategy is to develop new markets, and second, to have the same production mix flexibility as Atlantic, increasing the percentage of value added as part of our strategic initiatives, so we can adapt our product mix to capture demand and higher prices. Ricardo.
Thank you, Manuel. Quick on the other financial takeaways of the quarter. This is a waterfall analysis. The EBIT on the fourth quarter at $80 million compare very favorable with the $13 million that we made in the fourth quarter of 2021, 35% higher or $4.6 million higher. How can we explain that? First, there is a higher price and end price achievements which explain about, sorry, $19 million higher result with the volumes of 2021. The exercise here is to isolate the effect. When we say Atlantic price is the Atlantic price of 2022, or the fourth quarter of 2022, using the volume of 2021 in the fourth quarter so that we can isolate that, and that impact is about $19 million.
Same with the cost of goods sold, which is the second column, uses the volume of the fourth quarter of 2021 and the cost of 2022 to make the difference of $6 million. The volume is the 2021 margin applied to the new volumes of 2020 or the fourth quarter of 2022, which again is a -1 . The residual effect is the other part of the equation where you add up all the deltas of the analysis. That's mainly the reason. In summary, I would say that the reason of the increase is a substantial improvement on prices and price achieved by Salmones Camanchaca that was more than able to compensate higher cost of goods sold and the lower volume of the fourth quarter of 2022.
Next, Alvaro. Well, we on the P&L, we go over a little bit more on the details. We've already explained the EBIT of the quarter, so that's done. The lower fair value, as we can see here on the fourth quarter, we have a lower fair value than 2021. That is a consequence of a lower price level at the end of the year. That is, during the fourth quarter, the prices were lower than in the third quarter. Therefore, there was a negative impact on the fair value, as well as the reversal of the margin that we accounted in the fair value for the units that were sold in the fourth quarter.
Fair value is precisely accounting for the future margins that you will make when the units were going to be sold. Once you sold them, then you reverse that margin. That's the reason of the -1 . On the negative non-operational items of the P&L, this is a mix of, first and very important, we made a profit of about $2.7 million in the fourth quarter of 2021 when we renegotiate and refinance the credit lines of Salmones Camanchaca, and the extension of the duration according to IFRS 9 made us a profit, a non-operational profit in the fourth quarter of 2021 when we made that renegotiation of the loans of Salmones Camanchaca. Therefore, this year, that is not in the books anymore. The second reason is a higher interest rate on our loans.
Net financial debt at the end of 2022 was about $75 million, therefore, the higher interest rate that everyone is paying now, cost us more cost. Also, better trout results in our JV, yet it's still a low number, and we are not happy with that. We still believe it's a good business going forward, but the results of the last year has not been particularly exciting, but it was better than the previous year, and that helped. Therefore, as a consequence of this, the distributable profit will be closer to $40 million in 2022, something that will be considered by the shareholders meeting in the next few weeks, compared to nothing in 2021. Very good news for the shareholders. Next, Alvaro.
On the cash flow, very strong operational cash flow in the $76 million level, which is added to a high cash level at the beginning of 2022 as a consequence of the capital raise that Manuel was mentioning, permitted us during the year 2022 to fund about a $29 million investment plan, as well as a reduction in the use of our credit lines of about $58 million. The investment, as Manuel mentioned, was mainly driven by our strategy of reducing the risks at Salmones Camanchaca. Next, Alvaro. On our future estimates, I think that the messages here are in 2022, there was no global supply, but a small growth for Chile. In 2023, there will be re-reverse.
We are expecting very little, no growth from Chile, particularly negative growth in the first two or three quarters of 2023, with some growth in the fourth quarter. We'll see also a very small 2%, maybe 3% growth on the global supply, huh, for 2023. Overall, I would say the picture for 2023, 2022 is a very limited global growth. That is a situation where in light of the robust demand that we are experiencing for our product, lead us to think that the price will be on the high end of the expectation for the coming year.
Our estimate, our own estimate for 2023 with current stocking and under a normal biological performance of the fish that are in the water, is that we will have a stable level of Atlantic harvest in 2023 in the area of about 45,000 metric ton of Atlantic. As Manuel mentioned, the stocking plan of Coho will lead us to double again the production of Coho this 2023 to get to around 55,000 metric tons overall harvest production in 2023. As you can see here, we are stocking Atlantic in 2022 and in 2023, so that by 2024, we will be leveling the Atlantic harvest that we had in 2019 and 2020.
In the year 1920, level will be recovered on the Atlantic side by 2024. We will be adding in 2024 more than 10,000 metric tons of Coho production, huh? Our estimate for 2024 is exceeding 60,000 metric tons of total harvest with the existing asset base, capabilities base, both on concessions, ocean sites, harvesting capabilities, primary processing capabilities, value-added capabilities, and also marketing capabilities with the existing one, huh? That's important to mention this. In summary, therefore, what are the takeaways of today's earnings report? I would say maybe four or five takeaways. The first one is a remarkable turnaround of two poor and rough years with this year higher margins than our peers.
The second is that it's not only better prices in the marketplace, but also the ability of Salmones Camanchaca to achieve an even better condition for our products, right? Leveraging performance with low biomass mortality in the second, third, and fourth quarter. The fourth is Coho expansion is working well under the strategic definition we have set with high value added and new markets, and is getting higher EBIT per kilo than Atlantic, at least for 2022. Our goal is that it will not be lower than that, huh? Also, our close to 10% expansion in volume harvested is based on Coho, and the growth in the future will most likely be based also on Coho. It was rather small the last year. It was more sizeable this year, and it's gonna be even more sizeable in the coming years, huh?
We are aiming to be more than 55,000 metric tons in 2023. Sorry. Yes. Another important summary is the important deleveraging of Salmones Camanchaca, but with a net in-interest-bearing debt ratio with EBITDA of lower than 1 x, an equity ratio higher than 50%. Important. The main takeaways of the earnings report, we were pleased with the outcome of the company, particularly relative to our peers. Both on price achievements and margins. With that, we leave it for the questions, Q&A.
Yeah. Thank you, Ricardo and Manuel for the presentation. Now we will start with the Q&A session. I remind you that you can write the questions, your question in the Q&A window. Now we will wait a few minutes while the question come in. I think Daniel will read the question, I can over to you, Daniel.
Okay. I will read them.
Mm-hmm.
The first question is, can you comment on price realization and cost going forward?
Yeah, the answer for that is quite simple. What are the capabilities of Salmones Camanchaca to get price realization above our peers? I'm back on Manuel's point. We have a size of the company in the 50,000 metric ton, let's say 50,000-60,000 metric tons, huh? Which is going to happen in this year and the next. That level of production. That level of production makes us a mid-size player globally, with the agility of moving more or less into the markets with a lot of speed. That is also supplemented or complemented by the fact that we have great agility to change our formats and product types in our processing plants, both from frozen to fresh, both from fillets to portions, both from fillets to, whole fish.
The ability to move around, both on production and on marketing, give us an opportunity, given the size that we have, to extract these opportunities in the various market that we see all the time. In terms of the relative price realization, I am optimistic going forward. On the price level in the market, which is a different question, I, again, emphasize the fact that the stocking numbers that we are receiving from public information and the estimates that we are getting from analysts from various sources point to a very, very limited global supply growth going forward. At the other side of the coin, we see a very robust... It's of the consumers. We see a very good scenario for the prices in summary. Daniel?
Next question is, what is the current status of the biomass now that you have entered into a period of higher temperatures? Any signs of lower growth, low oxygen, or harmful algae?
I can proceed with that answer?
Yes, yes.
Okay. You were frozen, Ricardo. Yes, the current summer status until this week, February, was in general good oceanographic conditions, both in algae levels, we have no presence of a harmful algae in any sites, so good for that. Also, the oxygen levels, I would say, in normal levels. In general, the oceanographic conditions in this quarter are quite well. At the same time, as I mentioned, we are better prepared than other years with the mitigation upwelling system in six sites located in the 10th region. Just in case if we have any situation in the future, we are better prepared than previous years.
Manuel, may you comment on the fact that whether you've used already the devices that have been put in place in the sites, and how are they working, huh?
Exactly. Even though we are not having a harmful algae in any site, we are currently using the devices, mainly because it's a better oceanographic condition for the fish to have better renovation of the water with the upwelling systems. We were able to improve the growth, we were able to have a more standard water column at cages with these kind of systems. In general, we have a very good evaluation of the implementation. We ended the implementation during January, it's very recent, with very good news until now.
Next question. Do you see a similar movement in tax increases in Chile as we are seeing in Norway and now in Canada?
I am not aware of any tax change in Canada. I'm aware of some restriction to farm in the British Columbia area. Maybe there is some. On the Norwegian side, it's still early to conclude because as in... and demonstrating the harmful of these, high taxes that were presented, so the story is not ended there, and we are not aware of anything in Chile.
Ricardo, you were disconnected when you were speaking about cost looking forward. Can you repeat the answer please for the audience?
Okay, I did not mention any cost going forward. I mentioned the agility and the flexibility of our processing and marketing condition that allow us to be optimistic on price realization going forward. On the cost side, I will leave it to Manuel, but I would say that at the moment, we believe we have seen already the peak of the feed ingredients prices, and therefore we don't envision substantial pressure from the feed side. Manuel?
Yes, exactly. The same answer regarding in relation to the ex-cage cost. Last year we ended with an ex-cage of $4.43 per kilo WFE, and we expect a marginal increase as an average for the full 2023. I would say marginal less than 5%, mainly because the biomass that currently is in the water receives during 2022 the increase of the feed price. The inventory for that reason is a little higher. Since Q1, we are seeing a little, I would say, normalization and reduction of the feed prices. Overall, a minor impact in the ex-cage cost.
Can you please give us more color on the Coho market, how new markets development has been?
Is the good price achievement in Coho something particular or more permanent?
Excellent question. It is. The Coho is harvested at the end of the year. Let's say fourth quarter to be simple. Therefore, any volume that you have of Coho is concentrated on three months. If you have, if you have one Coho, the capabilities that you need to have are equivalent to because the Atlantic is harvest throughout the year. Therefore, all the harvesting capabilities, primary processing capabilities, and value-added processing capability need to be quadruple for Coho compared to Atlantic. That limits substantially the ability of anyone to process large volumes of Coho with value added. That's one thing.
Therefore, when you harvest and sell whole fish, which is what everyone has been doing, or almost anyone has been doing in the past, the only market that really can absorb that amount of fish is Japan. The situation was very restrictive in the past because of the value added capacity and demand capacity. With leveraging outstanding capability of Salmones Camanchaca in value-added processing and by leveraging the good Salmones Camanchaca capability of marketing new markets for the Coho, which are traditional market for us in the value added of Atlantic, how unique is that? I would say that to a good part, it's unique and will continue to be unique for a good, for a good time.
There is nothing on the Coho that prevent us from getting the same margins of Atlantic in the future. In fact, it's a more beautiful fish if I may say, you know. It's readier than the other one, and has the advantage, as Manuel explained, that you are out of the site before the summertime, which is the riskier area or riskier time of the year. Therefore, you can utilize the excellent sites that we have in the fjords, excellence in many ways, except that they are a bit more riskier in the summer, which is what Coho prevents. The combination of sites of Camanchaca, plus the marketing and production, processing capability make us very competitive. Extremely competitive in this, in this business, in the Coho business.
That's why we believe, 20%, maybe 25% of the production will be coming from that species in the future, huh?
Next question. In the press release, there is a comment on certain performance levels to be achieved in the JV. If they are not met, can trigger at end of the JV Trout. Can you please give us more information on this?
In simple terms, if the, if the JV, does not perform with a minimum margin in this cycle, then we can skip, from entering into the JV in the last cycle of the contract, in simple terms. It's a way out from the JV if the margins are not good enough for us in the coming cycles. We have until 2028, Manuel, correct?
Correct.
It's a cycle 2027, 2028, 2025, 2026, and 2023, 2024. I understand, Manuel, if the performance in the next cycle is not good enough, then we can get out earlier from the JV and get the concessions and the ocean sites back to us earlier.
Exactly. One comment there, Ricardo, in relation to the JV. Of course, we are taking all of the necessary measures in order to improve the profitability of the JV. One of the main ones is to, let's say, analyze and re-accommodate the harvest plan in order to increase the harvest weight, huh? That was one of the elements that affects the last two years because we have a lower price achievement because of the lower sizes, huh? The idea is to modify that in order to increase the profits of the JV. It is not written in the presentation, we achieved that in the last quarter of 2022, where we increased the EBIT per kilo of the JV, huh, up to $0.8.
We are now seeing a better performance in the last quarter of last year. We expected to do so next year. The main idea is to improve the profitability of the JV, of course.
Yeah, there is no more questions, sir.
Well, with that, we thank everyone for joining the call. There was almost 60 people connected, so very good attendance. I would appreciate very much if you can respond the questionnaire that will give us the feedback to make it better in the coming earnings report meetings, huh? Take 1 minute to respond, please, the questions and we'll do better next time. With that, thank you very much. Daniel, Manuel, is there anything left?
No.
No.
We thank you, Ricardo and Manuel. That concludes our presentation. On behalf of Credicorp Capital, we thank the company and all the investors that joined the presentation. I don't know if there are... I know, Ricardo, you would like to give some final remarks, but...
No, I think that I'm okay. I think that the messages were clear.
See you in the in the next, two months or three.