Salmones Camanchaca S A : Earnings Report 2023 - Q2

SALMONES CAMANCHACA S.A. AND SUBSIDIARIES

Earnings Report on the Consolidated Financial Statements

For the period ended June 30, 2023

Salmones Camanchaca

Salmones Camanchaca S.A. is a vertically integrated salmon producer engaged in breeding, egg production, recirculating hatcheries for Atlantic salmon and pass-through or lake hatcheries for Coho salmon, fish farming sites in estuary, fjord and oceanic waters used mainly for Atlantic salmon, primary and secondary processing, and marketing and sales of Atlantic and Coho salmon through five sales offices in its main markets.

The Company's Atlantic and Coho salmon production target for 2023 is between 56,000 and 60,000 MT WFE and for 2024 between 60,000 and 65,000 MT WFE. Salmones Camanchaca participates in trout farming through a one third share of a joint venture, which uses Salmones Camanchaca farming sites in coastal-estuarine waters, and currently plans to harvest an average of 9,000 MT WFE per year until 2028.

Salmones Camanchaca has 1,800 employees on average, 60% of whom work in its value-added plant. The main Atlantic salmon sales markets are currently the USA and Mexico.

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Highlights for the second quarter 2023 (Q2 2023)

• Operating revenue for Q2 2023 was USD 63.4 million, a decrease of 35% compared to Q2 2022 due to a reduction in sales volumes for the quarter (-34%).However, operating revenue for the first half year was USD 177.2 million, which was in line with the previous year. Thus, sales of Atlantic and Coho in H1 2023 vs H1 2022 fell by 5.7%, which was offset by better prices for both species of 7% and 3%, respectively.
• Atlantic salmon harvest volumes for Q2 2023 were 6,423 MT WFE, a decrease of 48% compared to Q2 2022 at 12,446 MT WFE, due to a scheduled reduction in the Company's harvesting plan following its risk mitigation strategy previously communicated. Atlantic salmon harvest volumes for the first half year were 17,512 MT WFE, a decrease of 15% compared to the previous year, but in line with expectations for this period.
• Coho smolt stocking to date is expected to double harvest volumes for 2023-2024 season vs 5,856 MT from 2022-2023season.
• The quarterly cost of harvested Atlantic salmon (ex-cage, live weight) was USD 4.98/kg (USD 5.36/kg WFE), mainly due to two farming sites harvested this quarter which were affected by SRS outbreaks, sea lice and sea lion attacks. High price levels for salmon feed ingredients in late 2022 and early 2023, also affected costs. Thus ex-cage costs for the first half year were USD 4.53/kg live weight (USD 4.87/kg WFE), which were higher than these costs for H1 2022 of USD 4.17/kg live weight.
• The total process cost including harvesting was USD 1.49/kg WFE, which was higher than the USD 0.99/kg WFE of Q2 2022, mainly due to the lower processing scale as a result of lower harvest volumes. This planned reduction allowed the Tomé secondary processing plant to be shut down for 5 weeks for scheduled major maintenance and several improvements. The processing cost for the first half year was USD 1.33/kg WFE, which was higher than the long-termtarget of USD 1/kg and higher than in 2022 (USD 1.12/kg WFE). The increase was explained by lower volumes and cost inflation. An extraordinary compensation was paid, as a result of collective negotiations, which also affected costs.
• Consequently, gross margin was USD 5.0 million, which was USD 20.6 million lower than in Q2 2022, when it was USD 25.6 million. However, this margin for the first half year was USD 32.0 million, an improvement of USD 2.1 million with respect to 2022.
• EBITDA came in at USD 4.3 million in Q2 2023, due to the reasons commented above for sales and margins. EBITDA for the first half year was USD 29.7 million, in line with H1 2022, with an EBITDA margin of 16.7%.
• Atlantic salmon EBIT/kg WFE was negative USD 0.05 during Q2 2023, which compares to positive USD 1.75/kg WFE in Q2 2022, due to the reduced sales and margins as previously commented. Coho salmon EBIT/kg WFE was positive USD 0.04, down from USD 1.56 in Q2 2022, due to increases in feed costs, diseases, maladaptation of some fish in seawater, inflationary pressures and a drop in prices.
• Atlantic salmon's EBIT/kg WFE for the first half year was USD 1.05 (USD 1.21 in 2022) and Coho salmon's was USD 0.26, which was lower than in 2022 (USD 1.58/kg WFE).
• The net loss for Q2 2023 was USD 1.9 million, compared to net income of USD 16.9 million for Q2 2022. Net income for the first half year was USD 6.0 million, lower than the USD 18.5 million for 2022, due to a fair value reduction of USD 14.3 million, attributable to the drop in prices during June.
• The cash balance as of June 30, 2023 was USD 7.5 million and Net Financial Debt was USD 99 million. Thus, the Net Debt over EBITDA ratio for the last 12 months was 1.27, well below the limit required by lending contracts with banks of 4, and the ratio last year of 1.78.
• Smolt stocking has been completed and normal production parameters are expected. Therefore, Atlantic salmon harvest volumes for 2023 are expected to be between 45,000 and 47,000 MT WFE, while Coho salmon harvest volumes are expected to be between 11,000 and 13,000 MT WFE.

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Key Figures

	ThUSD			Q2 2023		Q2 2022		Δ%				6m 2023		6m 2022	Δ%
	Operating revenue			63,420		97,446		(34.9%)				177,214		178,392	(0.7%)
	EBITDA* before fair value adjustments			4,263		25,692		(83.4%)				29,677		29,419	0.9%
	EBIT** before fair value adjustments			(311)		21,237		-				20,590		20,812	(1.1%)
	EBIT margin %			(0.5%)		21.8%		(2,228 pb)			11.6%		11.7%	(5 pb)
	Net fair value adjustments to biological			1,279		5,369		(76.2%)				(6,177)		8,128	-
	assets
	Net income (loss) for the period			(1,907)		16,861		-				6,027		18,482	(67.4%)
	Earnings per share (USD)			(0.0257)		0.2273		-				0.0812		0.2491	(67.4%)
	Atlantic salmon
	Harvest volumes (MT WFE)			6,423		12,446		(48.4%)				17,512		20,555	(14.8%)
	Sales volumes (MT WFE)			6,793		11,677		(41.8%)				18,665		22,243	(16.1%)
	Ex-cage harvesting costs (USD/kg live
			4.98		4.05		22.9%				4.53		4.17	8.5%
	weight)
	Ex-cage harvesting costs (USD/kg WFE)			5.36		4.36		22.9%				4.87		4.49	8.5%
	Processing costs (USD/kg WFE)			1.49		0.99		50.8%				1.33		1.12	19.2%
	Price (USD/kg WFE)			7.83		7.81		0.3%				7.81		7.32	6.8%
	EBIT/kg WFE (USD)			(0.05)		1.75		-				1.05		1.21	(13.2%)
	Inventories (MT WFE)											3,110		4,430	(29.8%)
	Coho salmon
	Harvest volumes (MT WFE)			0		0		-				2,491		663	275.5%
	Sales volumes (MT WFE)			1,254		506		147.7%				3,938		1,713	129.8%
	Ex-cage harvesting costs (USD/kg WFE)			0		0		-				4.28		3.69	16.0%
	Processing costs (USD/kg WFE)			0		0		-				0.71		0.64	2.0%
	Price (USD/kg WFE)			6.33		6.42		(1.3%)				6.48		6.26	3.4%
	EBIT/kg WFE (USD)			0.04		1.56		(97.5%)				0.26		1.58	(83.7%)
	Inventories (MT WFE)											1,615		4,486	(64.0%)
	Financial debt											106,577		123,503	(13.7%)
	Net Financial Debt											99,083		90,324	9.7%
	Equity Ratio											47.0%		47.8%	(73 pb)
	Net Financial Debt / LTM EBITDA											1.27		1.78	(28.7%)

• EBITDA: Gross margin before fair value adjustments + depreciation - administrative expenses - distribution costs
• EBIT: Gross margin before fair value adjustment - administrative expenses - distribution costs

Operating revenue (USD
		million)	113.8
97.4	95.9	98.6
				63.4
Q2 22	Q3 22	Q4 22	Q1 23	Q2 23

Harvest volumes (MT WFE)

					25.0
12.4	14.3	13.0	13.6		20.0
					15.0
				6.4	10.0
					5.0
					0.0
Q2 22	Q3 22	Q4 22	Q1 23	Q2 23
					-5.0

EBIT (USD million)

EBIT margin (%)

21.2	21.0		20.9
		18.1
22%	22%	18%	18%
				-1%
				-0.3
Q2 22	Q3 22	Q4 22	Q1 23	Q2 23

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Financial Performance

Results for the second quarter 2023

Salmones Camanchaca harvested 6,423 MT WFE of Atlantic salmon in Q2 2023, which was 48% less than the harvest volume in Q2 2022 at 12,446 MT WFE but consistent with the Company's harvest plans, as previously announced, given its risk mitigation strategy, going from 3 Atlantic sites in the Reñihué fjord in the X region to one, replacing the other two with Coho. This risk mitigation strategy was successful as there were no material events of extraordinary mortality this 2023. Sales volumes were 6,793 MT WFE, which were 42% lower than the same period in 2022. Sales volumes of Coho salmon during the second quarter of 2023 were 1,254 MT WFE, which were 148% higher than Q2 2022 at 506 MT WFE. The Coho salmon 2022-2023 season harvest volumes were 5,856 MT WFE, which were higher than the previous season's at 2,504 MT WFE. These harvest volumes are expected to double in the 2023-2024 season.

Despite salmon prices falling towards the end of the second quarter, the average selling price of Atlantic salmon was USD 7.83/kg WFE, in line with Q2 2022. Salmones Camanchaca excels in its ability to switch formats and markets in response to changing market conditions, to successfully capture market opportunities. Lower Atlantic salmon sales volumes at similar prices generated revenue of USD 63.4 million, which was 35% lower than in Q2 2022.

Atlantic salmon ex-cage live weight costs were USD 4.98/kg in the quarter, which were 23% higher than in Q2 2022, mainly due to two sites that represented 73% of the volume harvested in Q2, which were extraordinarily affected by sea lion attacks and a high presence of sea lice and SRS, increasing treatment costs. The high prices of salmon feed also affected costs.

With lower harvest volumes expected for the quarter, the primary and secondary processing costs were USD 1.49/kg WFE, which were higher than the USD 0.99/kg WFE of Q2 2022, and this increase was also explained by inflation.

Extraordinary mortalities for the quarter were USD 0.8 million, compared to USD 0.6 million in Q2 2022, and were caused mainly due to freshwater alevin elimination related to one less site to be stocked in the plan.

Quarterly expenses on fallow assets, such as non-biomass farming sites, were USD 5.5 million, compared to USD

2.1 million in Q2 2022. This increase was partially explained by the scheduled 5-week shutdown of the value- added processing plant in Tomé for major maintenance and planned improvements, which accounted for about half of that cost.

Consequently, gross margin was USD 5.0 million, which was lower than in Q2 2022, when it was USD 25.6 million.

The Company's selling and administrative (S&A) expenses increased by 21% compared to Q2 2022. This was attributable to higher warehousing, loading and freight costs, and local currency appreciation. S&A expenses as a proportion of operating revenue increased from 4.5% to 8.3%.

EBIT before fair value adjustments for Q2 2023 was negative USD 0.3 million, compared to positive USD 21.2 million in Q2 2022, which was due to lower sales volumes for Atlantic salmon and higher costs. Thus, EBIT/kg WFE for Atlantic salmon was negative USD 0.05/kg WFE for Q2 2023, compared to positive USD 1.75/kg WFE for Q2 2022. Coho salmon sales volumes in Q2 2023 were 1,254 MT WFE, more than double sales volumes in Q2 2022, with an EBIT/kg WFE of USD 0.04, lower than the USD 1.56 in Q2 2022, due to increases in feed costs, diseases, maladaptation of some fish in seawater, inflationary pressures and a drop in prices.

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The net fair value adjustment for Q2 2023 was USD 1.3 million, compared to USD 5.4 million for Q2 2022, a difference of USD 4.1 million explained by lower market prices at the end of June and higher costs attributable to higher feed prices and environmental risk mitigation measures.

Although financial debt fell by USD 17 million during Q2 2023 to USD 107 million as of June 2023, financial expenses increased from USD 1.8 million in Q2 2022 to USD 2.5 million in Q2 2023, which was explained by an increase in the reference interest rate for bank loans.

Other gains and losses were negative USD 0.9 million, which was similar to Q2 2022. This was explained by the trout joint venture business, which generated a net loss for the Company of USD 1.0 million in the quarter, compared to a net loss of USD 0.7 million in Q2 2022. This business was affected by higher costs and falling sales in the Japanese market that experienced high inventories and depreciation of local currency.

Consequently, the Company had a net loss after taxes for Q2 2023 of USD 1.9 million, compared to net income for Q2 2022 of USD 16.9 million.

Cash flow for Q2 2023

Net cash flow in Q2 2023 was negative USD 3.6 million, compared to positive USD 3.8 million in Q2 2022, which was explained by:

• Positive operating cash flow of USD 15.4 million, compared to positive USD 34.2 million in Q2 2022. This decrease was due to lower sales and higher payments to suppliers associated with the additional working capital required for the Company's growth plan for Coho salmon this year and for Atlantic salmon in 2024.
• Negative investing cash flow of USD 4.6 million in Q2 2023, compared to negative USD 9.0 million in Q2 2022, which focused on asset maintenance.
• Negative financing cash flow of USD 14.3 million in Q2 2023, due to paying dividends of USD 24.3 million, equivalent to 60% of net distributable income for 2022, offset by increased short-term loans of USD 10 million. This compares to negative USD 20.0 million in Q2 2022, due to loan repayments in that period.

Salmones Camanchaca had net cash of USD 7.5 million as of June 30, 2023 and unused lines of credit of USD

46.6 million as of that date, which provided it with USD 54.1 million of available liquidity compared to USD 63.2 million as of June 30, 2022.

H1 2023 Results

Salmones Camanchaca harvested 17,512 MT WFE of Atlantic salmon during the first half of 2023, which was 15% lower than harvest volumes for the same period in 2022 of 20,555 MT WFE, aligned with the Company's harvesting plan. Coho salmon harvest volumes were 2,491 MT WFE, arising from the final part of the 2022-2023 season.

Thus, total harvest volumes were 20,003 MT WFE, which were less than harvest volumes in 2022 of 21,218 MT WFE.

Operating revenue for H1 2023 was USD 177 million, which was very similar to the previous year at USD 178 million. Atlantic salmon sales volumes fell to 18,665 MT WFE from 22,243 MT WFE in H1 2022. This was offset by higher Coho salmon sales volumes that rose to 3,938 MT WFE from 1,713 MT WFE in H1 2022, and by price increases for Atlantic salmon of 7% and Coho salmon of 3%.

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