Thank you for standing by, and welcome to the New Zealand King Salmon FY 2023 annual results conference call. All participants are in a listen only mode. There'll be a presentation followed by a question and answer section. If you wish to ask the question via the phone, you need to press the star key followed by the number 1 on your telephone keypad. If you wish to ask the question via the webcast, please type it into the Ask a Question box and click Submit. I'd now like to hand the conference over to Mr. Grant Lovell, General Manager Aquaculture. Please go ahead.
Thank you, Maria, and welcome to everybody, for our FY 2023 financial results. I'm Grant Lovell, General Manager of Aquaculture, and I'll be presenting along with Ben Rogers, our Chief Financial Officer, and Graeme Tregidga, GM of Sales and Marketing, and our acting Chief Executive Officer. I'd just like to start by welcoming everybody to the call. We're very pleased to be presenting this on what has been a very interesting year for New Zealand King Salmon, and a year of two halves, as our presentation will detail. We'd just like to actually do a big shout out to all of our team members who have helped to deliver a much more encouraging result and all the hard work that has occurred over the last 12 months, and also our crucial supply partners and customers as well.
I'll pass now over to Ben Rogers and we will go through the details.
Thank you, Grant. Kia ora koutou. Just want to start off by echoing Grant's thanks to New Zealand King Salmon staff, our customers, suppliers and shareholders for their continued support. FY 2023 was about reseeding our business as we changed our farming production model and right-sized the business to around a 6,500 metric ton harvest on an ongoing basis. The good news was we managed to successfully execute on the required changes ahead of schedule, which resulted in our financial performance being stronger than our original guidance. In summary, we relate to the year as a good result in the context of the previous summer's mortality.
On a GAAP basis, we reported a net profit after tax of NZD 1.9 million, noting this does include a fair value uplift on our biological assets on hand and the partial recognition of gains on early FX contracts closed out in FY 2022. On a pro forma EBITDA basis, the loss was NZD 4.4 million, and sits ahead of our original market guidance of a loss of NZD 8 million-NZD 12 million. This was attributable to good execution around pricing initiatives, our cost saving initiatives managing to offset inflationary pressure, and an unexpected performance of our seasonal harvest, which came in 250 metric tons ahead of plan. Post the rights issue, New Zealand King Salmon has a strong balance sheet with a net cash position of circa NZD 16 million at the end of January.
Just to close off, we are pleased to provide guidance for FY 2024 on a pro forma EBITDA basis of NZD 21 million-NZD 25 million. Noting this guidance is now inclusive of the impact of NZ IFRS 16 leases, which we have previously excluded. We estimate this change increases the EBITDA range by NZD 1.4 million. Excluding this, the range would have been NZD 19.5 million-NZD 23.5 million on how we would have explained this historically. This represents an uplift from the guidance we provided during our equity raise of a long-term sustainable EBITDA of NZD 15 million-NZD 19 million. With that being said is our executive summary. I will hand over to our Acting Chief Executive Officer, Graeme Tregidga, to take you through the FY 2023 performance in detail.
Thank you, Ben. In a, in a little bit more detail, how did this unfold? We had a harvest volume of just over 6,000 metric tons during our financial year 2023, and we sold that for a revenue of NZD 167 million. Ben talked us through the GAAP and EBITDA detail. In terms of where our volume of business was sold around the globe, 41% of our volume is sold here in the New Zealand domestic market. On the chart that you can see, 37% is sold into North America over the last financial year. Our other major markets that we do operate in is Europe, Japan, and Asia. The significant market of Australia is one of our other main trading partners.
Over the past year, look, sustainability is very important to New Zealand King Salmon, and over the past year we've put increasing amount of focus into this important aspect. In particular, we're doing preparation for the incoming Aotearoa New Zealand Climate Standards, and that is effective at the beginning of FY 2024. Sorry, FY 2025 for us. The monitoring and measuring needs to start in this year. We also achieved our Best Aquaculture Practices, 4-star certification, and that's the highest rating that can be achieved under the BAP system. We achieved that again in FY 2023. We also are committed to reusable, recyclable and compostable packaging across our business, and we're currently at 52%.
That is a further improvement, but clearly we still have another 48% of our packaging that we need to work on to also become reusable and recyclable. We're having a continued focus on that in the coming years. When we turn our attention to our brands, our key brands of Ōra King and Regal are our mainstay for our fresh and further value-added products. Ōra King is our premium brand into food service. With a reduced volume over the past year, this did have a impact onto the available product and volumes of Ōra King that we could move into the premium restaurants and hotels and establishments around the globe.
And we also had to tighten the A&P spend that we put into the Ōra King brand. We had to become very efficient in what we were doing and where we were spending that. We bought a bit more of our in-house digital and social media programs for both our retail and food service brands. And similarly for Omega Plus. Now, Omega Plus is our pet food brand. And again, we moved more of our A&P into in-house using digital and social media to tell our story and to tell our product values and attributes to customers around the world. And in North America, we've begun with Omega Plus moving into premium pet food outlets.
Within Regal is our mostly our retail brand. It remains New Zealand's most preferred smoked salmon brand. It's recognized for exceptionally high quality and consistency. Over 16,000 people every month visit the Regal website, that's a 80% growth from previous year. Look, the information that we gain from our visitors helps us learn more about what's important to our Regal shoppers, what they're interested in, they continue to always be interested in our recipes and taking home inspiration for what they can serve up at home.
In terms of our sales performance, it has been a year of a bit of a change. Certainly in volume, you can see there if we start with just a quick look at the North American chart, top left. It looks like there's quite a significant reduction. There has been, that has been mostly due to the elimination or stopping of frozen whole fish programs that were taken through the post-COVID era. We did not need to sell any frozen whole fish in the financial year of 2023. Although the volume looks like it's significantly reduced, it is focusing more in the higher value products. It's a similar story for Japan. You can see the reduction in there, again, that was around frozen whole fish.
We did have a overall reduction in volume to make sure that we were moving that into the premium segments around the world, there was going to be some reduction in other markets. In New Zealand, we can see that a slight reduction in overall volume as we were focusing on moving the products into the higher value areas. That included in smoked, both in New Zealand, but also in our international markets of Asia and Europe in particular. We're also furthering smoked product and value-added products into North America. All right, I'll pass back to Grant to talk us through fish performance.
Thanks, Graeme. Fish performance is actually quite encouraging at the moment. The altered aquaculture model was fully implemented through the course of the last 12 months. The summer of 2022, 2023 has been the first year without stocks held in the majority of our warm water sites. We went through the last few months with only 5% or less of our stocks in warm water sites, and this is a significant change from previous. As noted the end of FY 2023, our fish stocks started to perform well with significantly reduced mortality compared to previous summers. You know, the positive news is this has continued on through the start of FY 2024. Our harvest volume was obviously reduced due to the high levels of mortality as previously disclosed.
However, the seasonal harvest at Ruakaka outperformed expectations, providing an additional 250 metric tons of volume. This pushed our overall harvest volume up to just over 6,000 tons from the previously disclosed guidance of 5,750. We still do have fish in the Pelorus. These are currently at our Waitata farm, and these are showing encouraging results in our commercial vaccine trial. However, we will not know the full result of this until the end of April 2023. One of the big challenges we have had over the last year is the inflationary pressures of feed. You can see from the table there, that has moved from NZD 2.39 per kilo to NZD 3.06 per kilo, an increase of 28%.
This is almost entirely due to raw material pricing and a little bit of freight, and the impacts of COVID. The Ukraine war has continued to put upward pressure on the cost of feed. We do not expect to see this reduce through FY 2024 and would expect the pressure on feed price to remain. The other two points on the table on the left that I'd like to call out are both harvest size and feed conversion ratio. The harvest size and feed conversion ratio are both down. This is in relation to the seasonal fish at Ruakaka. This was our strategy to harvest these fish smaller. This has pulled down the overall average weight. A smaller fish has a lower feed conversion rate.
These two factors here are the reason why those two numbers are lower than what we have seen in FY2022. Lastly, Ngamahau, one of our key farms down the Tory Channel, received a 500 metric ton feed discharge increase, and this will allow us to add approximately 200 metric tons of G&G volume going forward. That's positive. I'll now pass back to Ben Rogers.
Thank you, Grant. As noted earlier, the last couple of financial years have been very challenging for New Zealand King Salmon. FY 2022, we were still feeling the effects of the interruption to our supply chain from COVID and the associated exit of our frozen whole fish that was built up during the disruption to the food services market. FY 2022 was also back-ended by a significant mortality event which flowed into the first quarter of FY 2023, resulting in a reduction in our available harvest for FY 2023, an increase in our mortality expense, a change in our farming model, and ultimately a recapitalization of the business. When looking at FY 2023 from a financial perspective, the consequences of the mortality event were skewed towards the first half of the year.
As I sort of run through our GAAP and pro forma results, just as a reminder, the main differences between our GAAP results and our pro forma results are the removal of the fair value movements to our biological assets and the associated removal of these gains when the inventory is expensed through our cost of sales. In addition to this, in FY 2022, New Zealand King Salmon recognized a significant gain through the early closeout of FX contracts. From a pro forma perspective, this gain was recognized immediately within our FY 2022 results. From a GAAP perspective, the gain was recognized within the cash flow hedge reserve and has been released to the income statement over the original timing of those contracts being FY 2023, FY 2024, FY 2025 and FY 2026.
As noted previously, the FY 2022 mortality event did have an immediate impact on the first quarter of FY 2023. The event also had a prolonged impact across the entire year as we had to optimize our remaining biomass to ensure we could harvest king salmon five days a week, 52 weeks a year, ultimately resulting in a sub-optimized business for FY 2023. To mitigate these impacts, we did set out a number of self-help initiatives, including implementing price increases, optimizing what we made and who we sold it to, and looking at ways we could sensibly reduce our costs in addition to pausing all non-critical CapEx.
The good news is we were able to execute a number of these initiatives ahead of schedule, and although the result itself is disappointing, we were able to land ahead of our original market guidance of a pro forma EBITDA loss of NZD 8 million-NZD 12 million and set ourselves up for a strong FY 2024. Looking at this from a walk of FY 2022 to FY 2023, what you can observe is the impact of the reduced harvest, being partially offset by what we could implement across our sales in terms of price increases and optimizing what and who we sell it to. We did see some reduction in our cost of goods sold associated with the smaller harvest. You can relate to that as smaller harvest, less feed.
As Grant Lovell mentioned, we had seen some inflationary pressure across our entire cost base, specifically, feed, being up significantly on FY 2022. Mortality, as previously noted, was up on last year. However, a majority of that was in the first quarter of FY 2023, and as we'll come to soon, our financial year currently spans two summers. The most recent summer has seen a dramatic improvement in our mortality as Grant referenced before. Just closing out the slide, a couple of comments, first on freight. You'll see an improvement in our freight costs. A majority of this relates to a decrease in sales.
We're seeing some easement in freight pressures or freight costs, some of our main ports of destination still remain challenging in terms of the freight costs associated with those, and we haven't seen too much movement since the peak of COVID, we are hoping that that starts to normalize moving forward. Just finally, noting that FY 22 did benefit from the early closeout of those FX positions. Looking at the balance sheet, following on from the rights issue, the balance sheet is very strong. New Zealand King Salmon has a net cash position of NZD 15.7 million as at 31 January, and this compares to a net debt position of NZD 46 million at this time last year.
You'll note that inventory on hand has decreased, and this is predominantly due to moving our feed supply arrangements to a consignment stock arrangement. In addition to this, we did manage to sell down a number of our high-value, value-added products, so you could relate to those as our smoked products, which were built up over the COVID period. So we've managed to get those down to what we relate to as normal stock holdings now. Offsetting this was the seasonal harvest, which Grant mentioned. The seasonal harvest we relate to as a good thing. It does enable us to optimize our fresh salmon sales on a weekly basis and then use our frozen salmon to feed our value-added production lines. Only other call-out I have on this page was in regards to CapEx.
There was a big focus from both the board and management on limiting CapEx to essentially nothing other than non-essential during the year. We did have a net CapEx of NZD 5.2 million for the year ended 31 January . And this does exclude the proceeds from the sale of the Waiau Hatchery, which we received early in FY 2024. I would sort of caution that we do expect CapEx to return back to sort of depreciation rates on a long-term basis. In addition to any growth CapEx opportunities we may see as well. Right. I'll hand back over to Graeme Tregidga.
Thank you, Ben. As you heard there from Ben and from Grant, over this past year, one of the significant changes that we made was fallowing of the Pelorus sea farms. At the end of January, we've had three of the Pelorus farms have been fallowed. The remaining Maitai site is continued to be used as a operational farm for our seasonal harvest. We've referred that earlier around Ruakaka, but we have a couple of sites that we can also use under seasonal harvest. We would not take any of those harvest fish through a summer. That has an impact, obviously on the volume that we're producing for FY 2023.
We had to undertake a number of other initiatives to right-size our business to that new volume. We had around about 570 people within our business, and we had to move that to around 452 team members to meet the needs. As at the 31st of January, we actually sit at 436. Like many organizations in New Zealand, we are experiencing a very tight labor market, and we do have vacancies to fill. Another initiative that we undertook was mothballing of the Waiau freshwater facility. That was mothballed in the second half of FY 2023 but is subsequently being sold at the end of January.
We also challenged the team around what areas of expenditure we could minimize or potentially eliminate. That was a team challenge across all 452 team members. What could we come up with? We'll be continuing that focus for sensible cost savings throughout FY 2024. It was very pleasing to see the value and contribution that they were able to come up with various initiatives. Part of that was also reduction in capital expenditure. There was NZD 1 million saving on capital expenditure through FY 2023. I'll pass on back to Ben to talk us through.
Thank you, Graeme. As noted earlier, historically, we had removed the impacts of IFRS 16 leases from our pro forma EBITDA results. Moving forward from FY 2024, we will not be removing this impact. We estimate this will increase our guidance range by NZD 1.4 million. On that basis, we're providing pro forma EBITDA guidance of a range of NZD 21 million-NZD 25 million. This is an uplift to the guidance we provided as part of the rights issue, which we provided a range of NZD 15 million-NZD 19 million. Adjusting this historical range for the change above, we would've had a range of NZD 16.5 million-NZD 20.5 million. The new guidance represents a NZD 4 million or 20% uplift on a like-for-like basis.
I just wanted to also call out the graph on the right-hand side, which shows we are on track. Well, the graph shows our summer mortality. The key line being the orange line, which represents the most recent summer, and that shows we're on track to have our best summer result in the past six years, and that is despite it being one of the hottest summers on record. This gives us some feedback in relation to the changes we had to our production model, fish health does remain a continued focus for the entire New Zealand King Salmon team, and we are focused on getting better in this space. I think that's a nice segue to hand back over to Grant Lovell.
Thanks, Ben. Obviously the pathway to future growth and an update on our Blue Endeavour project. I think the key part here is we absolutely do have an ambition to grow our fish volumes, and Blue Endeavour remains part of this ambition. We do want to ensure that this project is progressed in a structured manner that's going to minimize risk, and this is likely to form parts of, like, a pilot farm, for example, just to ensure that all of our expectations and modeling actually does provide that before we have to undertake a significant cost of capital. The technology continues to improve over the years, and we continue to keep abreast of this.
We will continue to do so over the as before we get into the final the final implementation stages. In terms of where the current project sits from a regulatory perspective, the consent was granted in November. We received two appeals from this, one from the Department of Conservation and one from the McGuinness Institute, the mediation process for those two appeals began in March this year with the parties involved. I would say that the mediation is positive, but it is ongoing, we are hoping to see a result. We'll hopefully provide an update on this in the next month or so once mediation has been completed.
As previously noted, Blue Endeavour has the potential to add 10,000 tons of harvest volume and also allows us to reopen some of the Pelorus farms to act as nursery sites. In conjunction with our existing farming model, that could take us to 17,000 metric tons. I'll now pass back over to to Graeme.
Thank you, Grant. Just in conclusion, in here, we've been extremely pleased with the result in the changing of the farming model. I'd like to just call out special thanks and appreciation to the King Salmon team. That was, it was quite a challenge in doing that and reduction in volume and then what was required for us to right-size our business to turn out a much improved result. We're very excited about what FY 2024 can bring, Ben has given us the update and the guidance of where that can lead us to.
I'd also just like to thank our customers as well. Particularly challenging for our customers over the past year with a reduction in volume. It meant that we couldn't satisfy all the needs of our valued customers, but really appreciative of them sticking by us and working through this. Also thanks to our shareholders as well. Really appreciate your support. None of this is possible as well without our supply partners, and that's quite wide-ranging to making sure that our fish are maintained and kept in great health all the way through to delivering product through to our customers. Just a big vote of appreciation and thanks.
Also I'd like to thank the attendees here today, and that brings us to opportunity for questions, which I'll pass back to the team here to manage.
Thank you. If you wish to ask a question via the phone, please press dial 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press dial 2. If you're on a speakerphone, please pick up the handset to ask your question. If you wish to ask a question via the webcast, please type it into the Ask a Question box and click Submit. Your first phone question comes from Christian Bell from Jarden. Please go ahead.
Oh, hi, team. Firstly, can you hear me, okay?
Yep. Yes, loud and clear, Christian.
All right. Nice one. Well, congratulations on, you know, kind of getting through the year and getting through the hard time and providing some pretty strong guidance going forward, which is kind of where I'll start with my questions. The 2024 guidance, Ben, you mentioned it was a 20% uplift, NZD 15 million-NZD 19 million to the NZD 21 million-NZD 25 million. Obviously there's some fortress adjustments in there, the sort of the NZD 4 million uplift, what would you attribute that to when compared to that NZD 15 million-NZD 19 million range? Is it kind of mostly mortality driven or are you expecting further price increases? Just if you could attribute what that uplift is actually driven by.
Yeah. Probably relate to it, Christian, it's a number of things. We sort of, I guess Grant, covered off that slight uplift in the harvest, for FY 2024. I think we're at 6.5%. We're at, 6.6%, so slight increase there. Pricing, and the optimization around our customers and who we sell to has probably just outpaced slightly the cost of the fish. Even though prices have increased, Grant mentioned the cost of feed, being close to up 30% year-on-year. It has, just been the game of pricing, slightly outperforming, the increases in costs. The other probably one we would call out is we...
When with those south house initiatives, something like Waiau was probably costing us about NZD 1 million a year to run, and having mothballed that and sold that, it's just optimizing what we can do on the cost base, and we still think there's a little bit more to go on that space in FY 2024.
I mean, sorry, was that Waiau was NZD 1 million of cost out, with potentially some more to come?
No, sorry. Waiau was probably costing us NZD 800,000-NZD 900,000 a year to run.
Oh, yes.
Close to NZD 1 million, all those essentially costs are gone now. We do believe there are some other cost-saving initiatives we could implement across the business as well.
If I was to kind of, put that into numbers, the harvest size, I mean, it's not a massive increase, 100 tons. NZD 1 million of Waiau cost that no longer exists. Surprising optimization. Like, could you say the Waiau sort of thing was NZD 1 million, harvest size, probably less than NZD 1 million, pricing optimization may be another NZD 1 million, and then the remaining, due to mortality?
I think sort of mortality is pretty much exactly where we planned it.
Okay.
The bit where you sort of can feel a little bit confusing around mortality is. The agriculture team will always relate to it as a metric tons perspective. That is right on plan. The CFO will probably look at it at a dollars perspective and what can sort of be the difference between the two is the cost of feed. When feed goes up, your investment and biological assets go up. Even though mortality might be there or thereabouts on a planned metric ton basis, the dollar v-value can be slightly higher. No, mortality is exactly where we thought it was going to be.
Just to dig into that a little bit more, are you able to sort of say what the, what the dollar cost mortality assumption is within that, NZD 21 million-NZD 25 million range?
I believe it's, I'll come back to you to confirm question, but I believe it's-
Yeah.
sort of the NZD 12 million-NZD 13 million range.
Okay.
Yeah. Then compare that to this year we were at, FY 2023 would've been at NZD 25 million.
Yeah. Okay. Yeah, if you do come back to me, it'd be useful in percentage terms as well. That would be quite good just to sort, you know, so we've kind of got that historical kind of comparison on the percentage basis.
Yeah.
Actually just, this potentially might be something you get back to me on as well. Just given that mortality is probably the key overhand for the business and it might, you know, might take a wee while to get full confidence back in that to extrapolate the sort of good result going forward. You mentioned the chart that's on slide 16, summer mortality over the last six years. Obviously the orange line is significantly better than the other ones, but the prior periods are not exactly comparable given they include Queen Charlotte and Pelorus. I mean, would you be able to provide that same chart on a purely, on a pure sort of Tory Channel basis?
I'll have a chat to Grant Lovell and see what's possible. I guess, I agree with you in terms of the previous years, probably running a slightly different harvest in terms of capacity size. It would be more fish in the water. I think.
Yeah.
What I would point to is it's not a great outcome when we have mortality. Both from a animal welfare point of view and financially, it's extremely expensive because, you know, those fish end up in landfill, which is another cost as well.
100%. I don't like, I don't, you know, we'll kind of agree that it's significantly, you know, the decision has been the right one. I guess just getting confidence on what the Tory Channel might look like going forward as well. It'd be useful just to see that same chart to see how the Tory Channel has held up over this recent summer compared to previous ones. Would like, just off the top of your head, would you say that the Tory Channel on a sort of percentage mortality basis is within the, like, compares well to the historical average?
Yeah. I'd probably say each year has its own variables. I'd say on a long run average, where the Tory Channel is consistent with what we have experienced.
Significantly better than last year.
Historically, obviously significantly better than last year.
Yeah.
Also it was one of the hottest summers on record. We don't want to give the impression that we've solved it. The changes we are making are showing positive signs and it will be a continued focus from us in terms of how we can get that line even lower.
I mean, last year, I think the mortality was up around 20%, but you sort of pointed to a feed issue. Prior to that, the average was kind of around 13%. I mean, so far this summer, how are we tracking? Is it up around, is it 15% or is it 10%? Or like, can you give a ballpark kind of idea?
I can't off the top of my head. I'm looking at Mr. Lovell and he's he'll get back to you. our view would be-.
Okay.
Yeah. As you noted, the prior year we did have a feed related issue as well.
Yeah.
We believe, that's excluding that, feed issue from last year, the Tory Channel's performance is consistent with previous periods.
Okay. Sweet as. Just final one from me, just on the Blue Endeavour , Grant, I think, you mentioned that you, that there would be sort of a prototype type of smaller scale version before you jump into the, to the big thing. I mean, if you got, if the appeal process was over tomorrow and you got all the approvals and everything, what would that prototype version look like in terms of size and cost?
The cost is obviously a little bit of a question. As we've been working through the regulatory process, we do need to go back and get everything requoted. A pilot farm would be commercial sized pen, so there wouldn't be a smaller pen. Instead of it being a farm of 10 pens, it would be looking like a farm of 1-2 pens, initially. That would ensure that we wouldn't have to invest in the large scale capital items such as a well boat and feed barges. It'll allow us to take those fish out over the over a summer period and ensure that, you know, all of our assumptions, you know, lined up with actual performance.
In terms of capital requirements, it's pens, nets, mooring grid, other items we would currently own.
Sorry, say that last bit again. I didn't actually quite hear you. Is it basically, within you would, you'd literally only need to pay for two additional pens in your existing boats and everything could service it?
In terms of a small scale pilot farm, we would require a couple of new pens, that obviously were in line with what's allowed to be farmed out at Blue Endeavour and the net infrastructure for those pens. We would require a mooring system to moor those pens, and the other items. A few small ancillary items, i.e. feeding equipment, but most of the other items we already own, and we would just utilize them internal. That would be something that we would be able to self-fund.
Okay. That would be in the same location, as the.
Oh, yeah. No, it would have, it would absolutely.
Yeah.
It would have to be. We would have to-
Yeah.
We would be required to meet all of our resource consent requirements. Look, additionally, before we can do that, you know, we will have baseline monitoring and some other consent requirements to meet as well. That will take, at least a year to work through those processes.
Okay. If you got everything approved tomorrow, it's not like you'd start in a week's time. It's probably still at a 12-month kind of thing before that, before that prototype version even.
Absolutely. Look, we'd need to order those pens and equipment as well, and that's not, that is not gonna be quick. You know, there is.
Yeah.
There's a requirement for us to do, baseline monitoring, for 12 months. We would be undertaking that.
Okay. Then how, once you sort of assuming that you get that, you sort of start that process and you've got the pens out there in the right location, how long will it actually take before you would be comfortable, like would you have to wait essentially two years so you can actually see the fully grown fish before you sort of jump into the larger type projects?
Look, I think, you know, you're probably getting us, getting a little bit ahead of ourselves in terms of actually understanding how that might look.
Yeah.
We would take a very close look at what the environmental conditions of the year were. We would try to replicate that as closely to full production as possible, i.e., utilize fish initially from the Pelorus and relocate out so that the grow out cycle is less than 12 months on Blue Endeavour .
Right.
Then, you know, and then we'll take into account, you know, what was that summer in terms of, the environmental conditions we faced. You know, are we confident that, you know, that this is a, predictor of what the long-term future is going to be? Was it a, an abnormal year and so forth, and we'll make some decisions on there. Can't really provide, an absolute degree of certainty, on that particular question.
Okay, cool. That's all from me. Thanks, guys.
All right. Thank you.
Thank you. Your next question comes from Margaret Bei from Forsyth Barr. Please go ahead.
Good morning, everyone. Just checking you can hear me.
Yeah. Yes, we can, Margaret.
Perfect. hey, good work on a pretty solid result and for the updated guidance, which looks pretty positive as well. I'll just start with kind of that area, same as Christian. Does your guidance range include the increase in headcount back to your target level? Also, does it include the current run rate of mortalities, which I think you said is slightly above your forecast?
Yeah. Certainly in headcount, yes. That is correct. In terms of mortality, it does include our current mortality. Your last comment there was above mortality, above forecast?
Yeah.
No.
I think I read in your slide pack somewhere that it was a little bit above your expectations, but still very positive compared to prior years. Is that right?
Right. Okay. The end of FY 2023, but not the end of FY 2024.
Okay, great.
Yeah.
I think, in terms of the CapEx that you spoke to and how that might mirror sort of depreciation rates. In recent years, depreciation's about NZD 6 million-NZD 8 million per year. Is that kind of what you meant when you were signaling go forward CapEx?
Yeah. That's. Morning, Margaret. [It's good to here you] . Yes, that would be right. Sort of didn't want to leave the impression that NZD 5 million is probably the average run rate for CapEx moving forward.
Mm.
You're probably aware it's quite a CapEx intensive business. I'd expect the stay in business CapEx to revert back to that long-term depreciation rate of NZD 8 million. Then in addition to that would be any growth CapEx.
Okay, great. Thank you. The seasonal harvest was kind of a key positive surprise this year. Is that a program that you're planning to continue running?
Sorry, Grant here now. Look, we definitely do have seasonal harvest again, and that is, we're utilizing that in the Pelorus farm at Waitata. We have fish out there now, which is... We're actually adding fish to the sea, starting next week. We'll be harvesting them out prior to Christmas. Yes, that is something that is absolutely an ongoing program for us. We're not banking on the same level of performance that we saw last year. You know, we are banking that returning to what would be described as normal performance for those fish. We'll review at the end of the year.
The seasonal, it's a really good utilization of our assets. It was at Ruakaka last year as we transitioned into our new strategy. Now, the strategy actually has fish being towed from the Tory Channel to Ruakaka. On the slides. Actually, on the slide deck, there was a really nice picture of our Clay Point farm, which, if you look there, that's actually been, it was only taken this month. The two larger pens at the end are actually two tow pens. Those pens are gonna be relocated to Ruakaka.
That allows Ruakaka and Otanerau, so to sort of be added to the Tory Channel and become full production normal sites, but without fish going through summer. The seasonal offerings are relocated into the Pelorus Farms.
Okay, great. If you're not expecting 250 metric tons to repeat, what kind of go-forward level are you assuming from the seasonal-
All right. That 250 metric tons was the additional biomass over our budgeted level. We're not, we're not expecting 250 tons of bonus fish to appear every year. We're sort of planning that to be generally around the 500-700 ton mark, depending upon, number of fish that we put to sea.
Understood. Fantastic. I think there was also a slide in your appendices, around sort of your consents, that are coming due for 2024.
Yeah.
to talk through that very quickly?
No worries. We've got 5 licenses that are due for expiry at the end of 2024. These are all what we describe as our older sites. They're all ex-mussel farms from the day. In Marlborough, there is a very, very large number of marine resource consents that are due for expiry on December 31st, 2024. There's a lot of planning work going in at the council at the moment. They've been doing a new environment plan, and there's actually specific provisions in there for both marine farms and agriculture in general. However, they're taking a little bit longer to go through.
We're not 100% sure what the outcome of that is be, but we are making sure we're involved in the discussions. We are planning on obviously applying to renew all of those licenses, and we are preparing that, and they will be lodged in 2000 and... You know, before 2024. It's, it's important to note that, you know, we're able to operate all of our farms on their current consents until all applications and appeals have been resolved. It's hard to provide a significant update until the Marlborough District Council finally finishes its regulations and planning documents.
You know, we're relatively positive that we'll, you know, that, you know, we should be able to get at least an interim outcome in the next, sort of 18 months for that, with a pathway for what's required in the longer term.
Brilliant. Thank you. That's all from me for now.
Thank you.
Thank you. Your next question comes from David Iverson from ACC. Please go ahead.
Thank you. Good morning. Could I just quickly ask, on your guidance for harvest volume for FY 2024, 6,600 ton. Is that the sort of steady state we've reached now? Should I assume that's where we are going forward from here under the current model?
Yep. Back with me again. Look, though, I think that there's actually a little bit more upside on that. You know, we're anticipating, you know, a range of around that 6,600 ton to 6,700 ton-6,800 ton this year. Are looking at realistically settling in at around that 7,000 ton mark, going forward.
Okay. Thank you. That's helpful. Secondly, on the sales mix that you reported for this year. It's obviously the first time for a while that the proportion of sales domestically has increased. That's been sort of sliding for a while. What should we expect in 2024? Would we see an increased proportion of sales again into export markets, and particularly North America? Or is this the sort of new normal going forward?
Yeah. Thanks. Back with Graeme here. It is challenging for us that, you know, Demand remains extremely high globally. We do not have enough supply to go around. The New Zealand domestic market is very important to us. We will continue focusing on supply in the New Zealand domestic market. We're not going to exit that and just focus on export. There are some very strong values from export at the moment. Demand is extraordinarily high.
It seems to be inflation is affecting all of our key markets that we trade in, and even more so in places like for us in our sector, North America, Europe and to some degree, Australia. They are you know offering some very, very strong returns. That does make it quite challenging for us in trying to manage a even spread of our supply. To assist with that, we are importing Atlantic salmon, as there clearly isn't enough supply to go around for everybody, and we do wanna ensure that New Zealanders do have a range of of supply. We actually bring in Atlantic salmon to supplement that.
We've searched out what we believe is the best supplier to meet the needs of our brand, 'cause it does go under the Regal Epicurean brand. It had to be something that we're very proud to put our name onto. That is supplementary to our king salmon volume. In short answer to the question, are we going to see a reduction in that 41%? It's possible. We've always tried to set a target of roughly about 50%, and we do get a ±10% swing on that. It's possible we may dip below that 40% this year. We're hopeful of not going too far below that.
As I said, it's a very important market to us, and we've got a lot of very long, long-term loyal customers, and we'll be wanting to maintain that.
Right. Understood. Thank you. When I look at the average price per kg between domestic and export markets, historically, there's always been quite a big gap in the export markets, result in a lower price. That gap has very much narrowed in the year just reported from my calculations.
Mm-hmm.
Obviously, you've just discussed high levels of inflation, which obviously driving prices up in North America and elsewhere. Am I also right in thinking that you suggested you'd had lower sales of Ōra King salmon, which, albeit as I understand, is a very high margin product, it's a lower sales price? Has that had some impact there? That sort of mix effect has driven up the average price in export markets?
The main, the main driver of the mix in average price between the domestic and the export market is usually around our the product in itself, whether it is a smoked product or a whole fish. Typically, we sell more whole fish into our international markets. Domestically, we sell more smoked and value-added product. It tends to inflate the average price of, or return for the New Zealand domestic market. Yeah, as we move closer together there, that is a sign of the values that are being paid for Ōra King whole fish internationally. In saying that as well, we are also exporting more smoked product now into retail, particularly into North America and into Europe.
again, those are high-value products which do start to move up the export values.
Right. Okay, I understand. Thank you. Finally, this might be a dumb question, but could you just clarify Grant's comments on the lower feed conversion ratio? My understanding is that that's the amount of feed required to grow an equivalent amount of fish. The fact that number's going down is good news. I, as I understand it, or if I've interpreted what you're saying properly, that isn't being seen necessarily as good news because it reflects the fact you've been growing deliberately smaller fish this year. So is it that it's efficient to grow small fish, but you keep growing them large because you get a much bigger price on the other side to make it all worthwhile? Is that how that works?
Yeah. I think that's probably a good summary of it. Yeah, it's probably the easiest way of explaining that.
Yep. Okay. Phew. Thank you. That was all for me. Thanks very much.
Okay. Thank you.
Thank you. There are no further phone questions at this time. I'll now hand over for webcast questions.
Thanks.
Moreno, it's Paul McIntyre here. We've got a few questions here. We'll kick off with Blue Endeavour . "Grant, how many tons of fish would the two prototype pens produce with Blue Endeavour ?" That's from Kevin Ascot.
Look, each pen of fish can produce approximately 350 tons of fish when stocked if it was stocked at a full commercial level.
Thank you. Blue Endeavour , you talked about, we've done the regulatory updates on that. This is a question from James Noble, obviously in mediation. The current kinda timeframe you talked through, but what Will this project, sorry, require further recapitalization?
Yeah, I think it's a really good question, James. We'll probably sort of feel like we're jumping the gun a little bit. We need to go and prove out the trial, prove that's working. The good news is, at the moment is, the balance sheet's strong. We are predicting positive free cash flow for FY 2024. That will provide us the ability to leverage up. I imagine we will come up with a plan when we're ready to go on that which will involve discussions with our board and various stakeholders. Yeah, what I think this is for me, would just be watch this space and we will communicate when we have some news in that space.
Thanks, Ben. Next question from Carl Carrington. "I know you have, can you remind us the proceeds from Waiau, the sale of Waiau Freshwater facility, who purchased it, and for what ongoing purpose? You able to sign up?"
Good morning, Carl. It was sold for NZD 1.2 million, which is pretty much what we had it in the books for. It was purchased by an industry participant, and they are going to use it as a salmon hatchery. I guess we relate to it. It is hard to get things like freshwater licenses and seawater licenses. When we have an asset of that nature to sell.
We do look to keep it within the industry because we believe a strong salmon industry locally is the right thing to do. Yeah, happy that it's that asset has found a good home.
Thanks, Ben. different question from Steven Walker here saying, "What is King Salmon's strategy in terms of waste reduction, zero carbon goals going forward?"
Okay. Good, good question. We're working through that right now. It's, as you said in there, the part of our requirement under XRB reporting is to have our sustainability goals and strategy measured and monitored. It's actually a process that we're still working through at the moment. I don't have an update to give here as to a zero carbon ultimate goal. As we're working through it this year, we'll be, let's say, fine-tuning and finessing the exact goals and strategy for the business. I know that doesn't give the exact answer. Ben can also give some further update.
Yeah, thanks, GT. I think the other point I'd add is, we are consistently looking at ways we can remove or reduce our carbon footprint. Things we think about are removing or minimizing the number of transportation trips. Even we have been looking at a sort of, I think, it's a hydrolysate solution for our mortalities, which would turn them into bio-nutrient for composting, and that would remove our mortalities from landfill. It's something which we are focused on and we'll and sort of acknowledge we're on a journey and we need to do better, and we are focused on doing better.
Thank you. Another question from Kevin Ascot. "What percentage of the fish are sold in whole compared to the percentage that are processed, branded, and sold?"
I haven't got the exact number and percentage in front of me. I will attempt here to give a rough number if that's going to be satisfactory here. We would have approximately 50% of our product would be sold as a whole fish. Much of that, as mentioned earlier, is into the export markets. Then naturally the other half is sold as a value-added product, and that would be in. We refer that as mainly three different streams of a hot smoke product, a cold smoke, or a portion fillet. Out of those other ones, the remaining 50% we would have about 15% of that would be cold smoke
8% of that would be hot smoke, and then the remainder would be fillets and portions. Every time we can, every one of those other products is an opportunity for us to put our brand onto those into the value-added, cold smoke, hot smoke and, fillets portions. In the whole fish, most of that is branded as Ōra King. We're still on that journey of ultimately targeting 100% of our product being branded.
Great.
Thank you.
Thank you, Graeme, and I'll hand back to you because that's all the questions on the webcast. Thank you.
Okay. Well, thank you, Paul, and thank you all for those, for those questions. I think that brings us through to the conclusion of today's presentation. Again, we'd like to thank all the attendees. Thank you for your time taken to go through this today. Thank you for your, for your questions. Just in closing, like I said, we're pleased with how the year has progressed and finished for us, and we're very excited and pleased about what's in front of us for FY 2024 and the opportunities that that presents. Again, just to...
Yeah, it's really also wanna call out, the colleagues here in the room with me, particularly Ben and Grant, and our leadership team who have helped bring us through to this result for this year and the expertise of the wider team to deliver for our result for FY 2024, which is out in front of us. Again, thank you all today, and I'll pass back to the conference team.
That does conclude our conference for today. Thank you for participating. You may now disconnect.