Hi, my name is John Ryder. I'm the Chair of New Zealand King Salmon, and I have with me Grant Rosewarne, the CEO of the company, Ben Rodgers, the CFO, and Grant Lovell, the General Manager of Aquaculture. I would like to welcome you to this investor's presentation for the FY 2022 year. As you are aware, it has been a difficult year for us, the company, which we expect to rectify with a NZD 60 million capital raise and a strategic and significant change to our farming model. However, to discuss the year further, I'd now like to hand over to our CEO to give the presentation.
Okay. Thank you, John. This is our executive summary slide, and I'll just touch on the key points because we've got a lot of additional information in the slide pack further backwards, and Ben and Grant will take you through that. First of all, our FY 2022 result. We achieved a pro forma EBITDA of NZD 6.7 million, assisted by some foreign exchange closeouts. The year was impacted by our single-year-class model, that's our former production model, and a severe mortality event right at the end of the year. This has led to an impairment of goodwill and assets to the tune of NZD 59 million dollars. FY 2021-2022. COVID was a serious problem in terms of both sales, and supply chain and freight costs, but we had resolved the sales problems by February 2021.
We still, unfortunately, have those ongoing supply issues and freight cost issues that most exporters are confronted with. Our single-year-class model led to size and mortality problems right at the beginning of our financial year. We went into a better place, but then right at the end of the year, we had this serious mortality event from a marine heat wave, and it has led to the worst and earliest mortality event in the company's history, started in mid-January. I think you're all aware in terms of our summer outcomes, if we have temperatures above 18 degrees 4 weeks on end, that leads to mortality issues. In fact, half of our mortality is in 3 months of the year from our warm water sites.
Given that that's the case, we have decided, as John mentioned, to change our production model. We've always had good reason to believe that we've either got new technology or practices or a good reason to believe that we will get a good outcome for our fish going through warm water sites in summer. We've used things like upwelling, rigorous net cleaning, but the fact that we've had this serious mortality event this summer has led us to change our strategy. Instead of trying to go through the summer using these various improved techniques, we're now changing to avoiding warm water summers. For this reason, we're confident that we will become a more stable, reliable producer of King Salmon. FY 2023 is very much a transition year for us.
The mortality event that began at the end of last year has gone through to this year, so we're not gonna have a good result this year. We're gonna have a pro forma loss of NZD 8 million-NZD 12 million. We believe our go-forward position after that, so from FY 2024, is a NZD 15 million-NZD 19 million pro forma EBITDA profit. We are undertaking a rights offer that John mentioned of NZD 60 million, and this is to pay down all of our debt. The BNZ has been very supportive and has given us necessary waivers, and we will have a new, smaller facility coming out the other side of this. Our revenue for last year was NZD 175 million. Our harvest was 7,382.
You can see the decline in our pro forma EBITDA there from around NZD 25 million-NZD 6.7 million. You can see our pro forma net profit after tax with the goodwill write-off included led to a loss of NZD 55.7 million. Our distribution is around the world with our quite famous Ōra King brand, but also our Regal brand. The New Zealand and U.S. markets are of about the same size. That of course makes North America our most important export market. We have a range of other markets which helps make the company more resilient. Performance. You can see this is the performance of our key markets, and the first thing to point out is North America and Japan. We had some clearances of distressed frozen stock there and some chilled also into Japan.
This was brought about by the first year of COVID. For the first time, in the company's history, demand did not exceed supply just for that one year. We recovered out of that in the second year of COVID, as I mentioned. The stock that went into the freezer during the first year of COVID was sold out last year. We're able to do that to discrete customers without affecting our headline pricing on our branded products. We're able to isolate that and not affect our branded prices on Regal or Ōra King. You can see the Australian market has made a good recovery out of COVID there, and it remains a strong market for us. The domestic market has seen a decline, but we have a limited volume. We have to place it, you know, very carefully, and more has gone overseas.
You see that's primarily to North America over that time. During the COVID last two years, we've certainly seen a big decrease in our food service volume, but a commensurate recovery or growth in our retail volume. That's been evident in both New Zealand, but also in North America. Japan, you see a big step down there. I'm sorry, the Asia, excluding Japan, you see a big step down there as the food service market suffered due to COVID and a recovery. We see a good result in Europe as a result of that market accepting premium frozen fillets. We took the opportunity to supply those products while we had them and the growth of our Regal brand in retail. We do have good, very good price development in the market.
We were about NZD 23.66 in FY 2021, NZD 22.11 in FY 2022, and NZD 27.35 is anticipated in FY 2023. We entered one of our products, our Double Manuka Wood Roasted King Salmon, in the sofi Awards in North America. Out of 1,500 entrants, we won the top prize, so the team's very proud of that. Okay, Grant Lovell, GM Aquaculture.
Thank you, Grant. Just to run through the aquaculture summary for FY 2022. The summary is it was bookended by two fish health events. Initially, as we moved out of our single-year-class in the Pelorus, we had very large fish in the warmer waters. This impacted their performance, and we had a period of very low growth, which increased their FCR and also an uptick in mortality. The middle part of the year would be described as business as usual with good growth and low mortality. However, at the end of the year, we suffered a very early and significant mortality event to end FY 2022, which obviously is impacting FY 2023.
We can see the temperature profiles of our farms up there on the graph, which is showing our Waihinau farm reaching 18 degrees in early January and remaining there right through. Just for comparison, the colder water farm in the Tory Channel to show the difference here. Also, just at the very end of the year, we suffered a feed-related issue at our Kopaua farm, which saw an uptick in mortality there. That is not expected to continue and was exacerbated by COVID supply issues and very challenging to get feed into the country and on site over the last period of FY 2022. Just to run through those FY 2022 results on the table there.
The harvest volume, as mentioned, 7,382 tons. Our average weight was 3.5 kg. This was impacted by the Pelorus in the first quarter of FY 2022, where we had an average weight of only 2.95 kg. The feed conversion ratio, again, impacted by those fish in the Pelorus, slightly elevated at 1.87. The closing livestock biomass down at just over 6,000 tons obviously is an impact of the mortality event at the end of FY 2022. On a more positive note, we did manage to maintain a lower cost of feed per kilogram. This was achieved via two pathways.
A renewed contract with our main supplier and also a second international player opening a mill in Tasmania, allowing us to consolidate feed supply out of Tasmania.
Okay, Ben Rodgers, CFO.
Thank you, Grant. Kia ora koutou, everyone. Just before we kick off, just want to recognize members of the New Zealand King Salmon team who have put in a lot of hard mahi to leave us in the position to present today. Just wanna recognize them, especially my colleagues in finance. In terms of the financial year, as Grant Lovell has mentioned, it was bookended by two fish health-related impacts. One stemming from our single-year-class and one stemming from a mortality event at the end of FY 2022. That has contributed to us recognizing a net profit before tax loss of NZD 73 million.
In addition to that, as a result of the mortality event and the proposed changes to the funding model, which we'll come onto soon, we've also had a large asset impairment. We've impaired NZD 59 million split between NZD 39 million of goodwill and NZD 20 million across our plant, equipment and intangibles. Like many other exports, we've also been impacted by freight, and it remains a significant headwind on a per kilogram cost. We're paying NZD 1.20 more per kg when compared to pre-COVID levels, and that represents about a NZD 7 million-NZD 8 million headwind at our current sales levels.
In terms of the FY 2021 to FY 2022 pro forma EBITDA walk, just a reminder that a reconciliation between our pro forma and GAAP results is provided in the appendix. The intention behind this is to demonstrate what EBITDA looks like on a cash basis. We back out a number of our fair value movements associated with inventory and biological assets, in addition to treating our leases pre IFRS 16. Those lease expenses go through as a cash cost, in addition to some FX closeouts we did. The key call out on the slide would be during FY 2021, we were impacted by disruption to the food services market, which resulted in a large build-up of frozen whole fish on our balance sheet.
The pleasing news was we were able to exit a significant amount of that whole frozen fish during FY 2022. So we went from 1,000 tons on hand at the end of FY 2021 to 840 tons at the end of FY 2022. Now the whole frozen fish that remains will be strategically used given the impact to our harvest in FY 2023 from the mortality event. Noted before that, freight remains a significant headwind for us, and the team has talked about mortalities. The other thing worth calling out on the slides was just in the first half of the year, we did early exit a number of FX contracts that were in the money, to the tune of NZD 13.5 million.
From a balance sheet perspective, I would call out that even pre the mortality event, New Zealand King Salmon did have high gearing. Following the mortality event and the need to transition to a new farming model, we do need to repair the balance sheet. Hence the proposal to undertake an equity raise to the quantum of NZD 60 million to repay our medium-term debt facilities and provide some liquidity for the business moving forward. Another couple of things I'd call out on the balance sheet would be the impairment, which I've talked about before. In addition to that, we did have elevated levels of CapEx in FY 2022.
Those are broken down between NZD 3.2 million spent on our Blue Endeavour resource consent, and we'll come onto the Blue Endeavour slide soon. We've also had a significant upgrade to our farming equipment. In addition to that, we did purchase a new premises adjacent to our processing facilities in Nelson. I'll hand back over to Grant Lovell.
Thanks, Ben. I thought that it's quite important for us just to touch on fish health and go through a little bit of detail in this area, so apologies for what is in essence quite a wordy slide. However, look, the management of fish health remains an ongoing challenge, and we are continuing to build our understanding in this area. Adverse or negative fish health outcomes are really straightforward events, and they almost always will involve a number of factors such as stress, disease, environmental conditions, and husbandry and management decisions. We've undertaken a significant amount of research both in a clinical sense and in an operational sense to address these issues. You know, we have been able to exclude several risk factors.
However, it is quite clear that significant issues do remain to be resolved. Just sort of run through some of the learnings we've undertaken. Our water temperature, without doubt, is the strongest correlation we have with mortality and significant adverse effects do occur when the temperature consistently exceeds 18 degrees. This is obviously a key focus for us in regards to altering the farming model. Looking at the single-year-class production, which we obviously have transitioned out of for all sites, it is a very good biosecurity measure for viral diseases. However, in relation to New Zealand King Salmon, it is very difficult to implement. When we applied it in the Pelorus, we resulted in large fish become more susceptible to thermal stress being exposed to the warmer water.
The physical remediation systems in place which were upwelling were not as effective as they are overseas, so consequently, we did not see the reduction in mortality. Stinging organisms associated with net fouling have been shown to induce lesions and create fish stress and susceptibility. This was a key theory of ours for quite a while. However, we've undertaken more clinical and operational trials and have eliminated this as a primary cause of mortality. We are aware that these organisms can still increase stress and potentially create some issues and therefore net hygiene and net cleaning is of clear importance to New Zealand King Salmon.
However, in the trial we undertook this year, that it was perversely found that if we cleaned the nets too frequently, it could increase the overall stress and overall mortality. Pathogenic microorganisms are very important, and these do play a part in our multifactorial mortality events. We have improved our sampling and diagnostic techniques over the last year and undertaken, again, more clinical trials. This has dramatically increased our knowledge of both the potential threats and our potential treatment options. We have our ongoing immunization program as a key area and the key focus in this area to assist and has actually started to show some very positive results, which we'll come to shortly. Then lastly, nutrition and the physical properties of feed. Feed does play a major role in fish health.
It supports optimal performance, but it can have the potential for adverse impacts. We need to work closely with our feed suppliers and ensure we maintain a clear understanding of the feed quality and how the feed is performing in our environment. This brings us to our mortality risk mitigation. If I go straight to the graph on the right-hand side there, what we've undertaken there is we've got our warm water sites and our cool water sites. We've taken all of the warm water sites and averaged their temperature, and then in the red and then the blue, done the same. Then we've undertaken the percentage mortality on those particular sites. You do not need to be a statistician to see the absolute clear correlation between the warm water sites and the mortality.
The key part for us and the key focus is to eliminate those spikes and focus heavily on the colder water sites. As such, we are changing the aquaculture model, and we are going to avoid farming at our warmer water sites and focus our production in the colder waters of the Tory Channel. We are going to continue our vaccine deployment for known diseases and are continuing our ongoing vaccine development. Optimizing our feed quality, including pre-approval with a positive release testing system and collaboration with our feed companies. We are doing more work with our breeding program with our genetics partner, Xelect, with a key focus on survival and thermal tolerance. Lastly, we're gonna ensure that we have the appropriate resources and facilities within our fish health team.
We have employed a new vet who's been with us for one year and who has been able to significantly improve our knowledge, one of only two fish vets within New Zealand. The key change to the aquaculture model. As stated, we are going to avoid the summer in the warmer water sites, which are the Pelorus farms and the Queen Charlotte Sound. This involves increasing our production focus on the colder Tory Channel, utilizing the geographically close regions of the Queen Charlotte, so Ruakaka and Otanerau, to stock fish in March, April, post-summer, for grow out and harvest pre-summer.
As a result of these changes, we will be fallowing some sites in the Pelorus until we are able to activate Blue Endeavour, where they're able to be utilized as a nursery or a harvest site. We estimate that these changes will reduce our mortality by approximately 50% by volume, and believe that the reduction of harvest will be restricted to approximately 15%, maintaining our volume of around 6,500 tons. Our revised production volume does include 500 tons of seasonal harvest, and this is gonna be achieved in two ways. Transferring very large smolt post-summer at approximately 500 g-600 g to Waihinau farm and growing those out and harvesting pre-Christmas at 2 kg-2.5 kg. We are going to run an immunization trial.
Our new vaccine has so far been relatively effective, and mortality at the Waitara farm has been well under half what we have seen on the other sites. 60% of that farm was the first farm to receive our new vaccine. We do want to understand how this will perform on an ongoing basis. We'll put some fish to sea in September, October, at 100 g to harvest out at 3 kg-3.5 kg before the following Christmas.
If we were to look at that in an infographic sense, down there in the sort of bottom middle, we have our three Tory Channel farms, and that is where we'll be focusing our main production, and that is where all fish will be over the summer months with the exception of our trial fish. You can see the tug boats and the arrows there. Those are our towing locations. We will tow fish to post-summer out to our Ruakaka and Otanerau farms. Towing is something we already do and have been doing on an ongoing basis. In fact, we completed a tow at the start of this week from Clay Point to Otanerau. The new model will increase the towing from one tow to a minimum of two tows per year.
Towing is a very controlled operation. It's a little bit more like controlled floating, utilizing large pins and a tug. It takes around 24 hours to go from the Tory Channel up to our Otanerau farm at 1 knots-1.5 knots. The fish do not actually realize that they're being moved. If we move to the farms up in the sort of middle top there in the Pelorus Sound, we have our four farms there, Waihinau, Waitara, Kopauawa, and Forsyth. All farms other than Waitara will be fallowed. That will mean they will not be farmed in the near future.
Waitara, which we have seen very good results at this year in regards to fish performance compared to the other Pelorus farms, will be utilized for seasonal production and to run our trial through summer so that we can understand the effectiveness of the vaccine. If that is effective, that does provide us some nice upside in the medium term. Lastly, we've got our Blue Endeavour site up there at the top. That is, we have a slide coming up on that. Once that is underway and in use, we're able to convert the other Pelorus farms to nursery sites and a harvest site. Again, not farming them through summer. It's one of the advantages of the Blue Endeavour model.
We're able to utilize those sites in the good farming months and then relocate those fish out to the Blue Endeavour site.
Thanks, Grant. What that all means for FY 2023 on a pro forma EBITDA basis, as noted by Grant Rosewarne earlier, FY 2023 represents a transitional year for us as we transition to a new farming model. One thing to call out is the expectation of the mortality benefit we expect won't occur in FY 2023. That's because it is already happening or already happened to us in terms of we have had a significant mortality event which has impacted our February and March results.
Outside of that, the benefits of reducing our harvest size from a 8,000-ton business to a 6,500-ton business don't all flow through in FY 2023. FY 2023 only represents a partial year of those savings. The other thing to call out with the mortality event is the harvest we're looking at for FY 2023 is around the 5,750 tons, as opposed to what we see as a sustainable business moving forward of 6,500 tons. Next slide. What would the business look like on a sustainable basis?
The key benefits you can see here are obviously a reduction in mortalities. We believe by not farming those warmer sites over the summer months, we can reduce mortality in half. Also moving to a smaller harvest gives us the ability to optimize our customers and our SKUs. Make sure we are putting our salmon into our highest returning income streams. In addition to that, we see feed and freight benefits associated with lower sales levels or lower feed discharge from a harvest perspective. In addition to that, we see some savings across processing and corporate from reduction in the site footprint from right-sizing the business. The other thing I'd just sort of call out on the slide is freight still remains a significant headwind when compared to pre-COVID levels.
I'm noting there is a significant amount of volatility for all exporters who have exposure to freight. Whether it's COVID or crude oil volatility, yeah, there's lots of uncertainty in where freight prices will go in the future.
Okay. Thank you, Ben. An update on Blue Endeavour. This certainly remains one of the most exciting projects within the company. There's a further 2 days of hearing right at the end of April, and then we can expect a result in June this year. There could be an appeal, and that would take us another 6 months, right to the end of the calendar year. Obviously, you know, Blue Endeavour adds a lot of value to the company. It enables us to utilize those Pelorus fallowed sites as nursery sites, as Grant Lovell mentioned. That allows good asset utilization inshore and good use of our feed discharge consents that we've got. Also it enables us to move a 1.5 kg fish out into Blue Endeavour and get good utilization of those assets as well.
The team are working through the final production plan and the technology. This time we'll use existing technology that's used around the world. Importantly, this site has a very large thermocline, something we don't really have, you know, a strong thermocline inside the Sound. What does that mean? It's much cooler at the bottom than the top. We've got a very deep water column here, up to, you know, between 80 m and 110 m, which is 2 x-3x what we have inside the Sounds. Because it's got that cooler water the further you go down, the trick for us is to use technology that enables our fish to access that cooler water, and the team are really turning their attention to that.
Blue Endeavour has two phases of 5,000 tonnes each, so it adds 10,000 metric tonnes to the company. The earliest possible harvest is in FY 2027, taking our total capacity at that time when fully built out to 6,500 metric tonnes.
Thanks, Grant. Might just jump to the next page, please. Yeah, in terms of the equity raise, we're looking to do a rights offer to raise NZD 60.1 million. Those proceeds will be used to repay our main term debt facilities and provide us with liquidity to support the business through FY 2023 as we transition to our new farming model. In addition to that, BNZ is providing us a new facility for NZD 6.5 million, and we will be keeping our Business Finance Guarantee facility as well for NZD 4.3 million. A key point to note with those BNZ facilities is that we will have covenants waived on those until April 2023.
In terms of details on the rights offer, the plan is to do 2.85 for one for every share owned rights offer, and that will approximate at around 401 million new shares. The offer price is NZD 0.15 per share, and that represents a 55% discount to the theoretical price and 82% discount to the closing trading price as at last night. Eligible retail shareholders who take up their rights in full will have the opportunity to apply for additional new shares, which are attributable to any unexercised rights, allowing them to subscribe for additional new shares up to a maximum of 100% of their rights.
A couple other things to call out would be our major shareholder, Oregon, has pre-committed to take up 100% of their rights, in addition to the directors also making a commitment as well, with the balance fully underwritten by Jarden. Some key dates in the timetable, which I'd encourage you all to have a read through. Next slide, please, Grant. Just wanted to highlight, as with any investments, there are a number of risks I would encourage you to read through the risk sections. The intention now is to open it up for questions.
Thank you. If you wish to ask a question via the phones, you'll need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. Your first question comes from Jamie Foulkes from Forsyth Barr. Please go ahead.
Afternoon, guys. A couple of questions from me, please. Firstly, on Blue Endeavour, the obvious question is if the application is successful, would you be looking to raise further capital, please?
Yeah. Jamie, at first we need to prove the new model. We are very confident in it, but we think we need to do that. Blue Endeavour is therefore, you know, somewhat down the track. We're keeping every option open. Equity is one of those, but we will presumably have some cash by that time as well, and we probably will have an improved or larger banking facility also. Every option is on the table for funding Blue Endeavour.
Great. Thanks. Secondly, on Blue Endeavour, I've read reports of, you know, temperatures reaching 18 degrees in the Cook Strait. How should we think about this in regards to the future model of mitigating warming waters?
Yeah, I think Grant Lovell should answer that question. You there, Grant?
Yeah, thanks. Thanks, Grant. Yeah, I think Grant Rosewarne actually touched on this a little bit with regards to the commentary around the Blue Endeavour site, and actually the difference between that site and an inshore site. The surface temperatures can reach 18 degrees at heights of summer, but the surface temperature is not overly relevant to farming a particular site. It really is the water temperature through the water column that is key. Blue Endeavour being, you know, 80 m-110 m in depth, does have a significant thermocline right through.
An example with that would be in January when we measured the temperature, we saw a thermocline of 1.5 degrees down to 20 m. It was down at 16 degrees versus an inshore farm would not have that at all. The key part for us is to make sure that we are monitoring that and going forward. Even with climate change forecasts of 1 degrees-4 degrees over the next 100 years, you know, the site should remain in a good temperature profile for many years.
Great. Okay. Thank you. Just on downsizing the business, are there any scale benefits that you could miss out on from being a smaller business? Secondly, can you give us a steer on what your FTE reduction profile looks like, please?
Yeah, sure. You know, we were obviously looking at considerable growth through to 9,000 tons with our existing assets, and that's now not the case. We're going back to 6,500 tons. That does mean we have to right-size the business. I don't see any reason why we can't, you know, scale down appropriately. In fact, I know that we can. We're looking at about 100 positions being lost in the company. I will point out that you know, certainly in our production facilities we have quite a high turnover, so it shouldn't be assumed that there'll be redundancies necessarily. You know, we're looking at all options, but natural attrition is certainly a factor there.
I was looking at that this morning, and I think we've lost about 35 people already just by natural attrition. It might even be 40, actually, when I look right across the company. Yeah, we think we can scale down appropriately and we think, you know, we can get there largely by natural attrition, but we'll certainly monitor that and make sure, you know, we get a good outcome there.
Grant, could I add to that by downsizing to, say, 6,500 tons, it puts upside pressure on prices because of the shortage of supply to our existing customers, and that could be a positive benefit.
Good. Okay.
I'd like to just supplement those two answers. Jamie would be, I think one way to think about it would be definitely pressure from a corporate overhead perspective. On the flip side, if we have lower mortality levels, the efficiency of our feed goes up and it should be cheaper to grow our salmon in terms of a cost impact there as well.
Yeah. Lastly on the efficiency side, actually, we're consolidating a lot more into one area of the sound, so we do actually gain some logistics efficiencies as well.
Great. Thanks. Final question from me. On the impairment charges side of things, NZD 59 million. Could you walk me through the mechanics of this please, particularly the goodwill?
Yeah. Even being very good. Like, you know, many corporates, you do have to do an annual impairment test. Within that annual impairment test, it is done on a value in use perspective. We're looking at discounting the future cash flows of the business. One of the impacts of having a smaller harvest profile means we would have lower free cash flows into the future. As Grant talked about, was looking at going from being an 8,000-ton harvest business to a 9,000-ton business to going from an 8,000-ton business to a 6,500-ton business.
Associated with that, you know, a change in the risk profile of the company, given its current financial position, did impact the discount rates applied to those impairment calculations as well. I'm happy to provide any additional color you want on that one, Owen.
No, understood. Thank you all for the transparency. That's all from me. Thanks.
Thank you. Once again, if you wish to ask a question via the phone, please press star one. If you wish to ask a question via the webcast, please type your question into the Ask a Question box. We will pause momentarily to allow further questions to register. There are no further questions at this time. I'll now hand back to Mr. Ryder for closing remarks.
Okay. I'd like to thank you for your participation in this presentation. We, as directors of the company, remain positive on the future of the company and hope that you are interested in the capital raise, and I'll now close the meeting. Thank you.