Earnings Call: H1 2022

Sep 29, 2021

Thank you for standing by, and welcome to the New Zealand King Salmon Investments Half Year Results. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Grant Rosehorn, Chief Executive Officer. Please go ahead. Good morning, everybody. First thing is to introduce our new CFO, Ben Rogers, formerly of Z Energy and Kiwi Bank, and Ben will be part of the presentation today. He's only been with us a week. So if you could take it easy on the financial questions, that would be much appreciated. Now Ben's first action was to move our disclaimer from the back of our pack to the front of the pack. And with a few things I need to point out, we have, of course, put everything together with due care and attention. We don't accept any liability for any loss. There are forward statements regarding a variety of items. We can give no assurance about future results. Actual results may differ from those in the projections. We have non GAAP financial measures, mainly pro form a EBITDA and pro form a NPAT, and we use those because we think they give insight into the business. The presentations are the general nature, and we're not giving financial advice. And the full statement is there for you to read. All right. So with that, we'll move on to Slide number 4, the summary. So the first thing to say is we certainly have had a difficult half. The 1st 4 months were impacted by our prior aquaculture model, the so called single year class model. And the reason we attempted to do that was because it's recognized as best practice around the world. However, we do not have enough space, enough water space in the sea to effectively implement it. And as we've tried to do that, we've had some unintended consequences that were not foreseeable. And that mainly is smaller fish that became apparent in February. But when that has happened and the fish are too small, the only way to get them to be larger is to pull back on the harvest, retain more fish in the system, feed them and get them up to size. And if we continue to harvest at a high rate, first of all, we're harvesting a small fish, the trust is paying what you want. And also, there's not enough time for the remaining biomass to grow. So you get a double whammy effect of smaller fish and less biomass. And in this case, also more expensive fish. So the unfortunate thing about changing that production model was the fish in the forest still ate the feed, but they didn't put on the weight. And we've never attempted to do that before because we hadn't attempted to achieve single year class across the entire company. And that was a very unintended consequence. And so we've had to abandon that practice. And we've brought in what we call now the Precion Aquaculture Model. That model is based on everything that we've done in the past. It's using our own local people. So we're using our internally promoted team who know our genetics, they know our environment, our husbandry practices, and they're better able to predict outcomes based on that extensive local knowledge, hence why we call the new model the Precedent Agriculture Model. The 1st 4 months were a loss situation. Then and we managed to sort of overcome that or counteract that with our foreign exchange closeouts. Then we got to June and we breakeven. July was $1,300,000 pro form a EBITDA and August $1,600,000 pro form a EBITDA. Now regarding COVID-nineteen, we really haven't been affected from a sales sense with COVID-nineteen for this half. So by the time we got to February, we had fully recovered our sales position, but that coincided with a lack of fish to be able to supply to the market. So the effect of lower sales wasn't brought on by COVID. It was brought on by that production model. The remaining major impact of COVID is escalated freight costs. And you can see there on Page 4, they've gone from about $2.50 a kilo to $3.41 a kilo. A further remaining effect is we've had to dispose of frozen stocks that built up during COVID, about 4 70 tonnes. And we've done this to discrete customers in the USA and Japan without affecting the pricing of the remainder of the business. We were able to implement a price increase around August. That's across New Zealand and the North American market. And that has partially offset and mitigated increased costs. I suppose the other minor effect from COVID-nineteen is that there's no inflation pressure on things not only on freight but on packaging, labor costs and those other things as well. But they're much to a lesser degree, we can cover those with our price increases. It's going to be some time before we're able to overcome those freight issues and or they come back in line. And we're hopeful that at some point they will come back in line. All right. Let me turn to Page 5. Just the results. So the prepared sales result of 3,629 tons in the first half of twenty twenty two versus 2,745 first half prior period. And that shows the recovery from the COVID impact. Sales were $80,100,000 20 percent up on the prior period at $67,000,000 statutory net cost after tax loss of $5,600,000 compared to the same loss in the prior period. The pro form a operating EBITDA positive $3,300,000 compared to $7,100,000 in the prior period. And pro form a net profit after tax, dollars 3,100,000 compared to $6,100,000 in the prior period. In the outlook, our fish size, I'm sure you'll chart on this shortly, has normalized now. So the restraint on the harvest saw an increase in the biomass and the size, and we have largely recovered our position there. The operating profit improved from July, as I mentioned, through and from July. It actually started breakeven in June, dollars 1,300,000 in July, dollars 1,600,000 in August. We are, of course, affected by lockdowns such as those that have occurred in Auckland, but the U. S. Market is performing very strongly for us and it's a bit of a counter to that occurring. And as I said, we're not seeing any relief in the freight area at this stage. Now then if we go to Slide 6. So this is our vision, purpose, mission and values. And our vision is to be one of the top of the South most valued organization and the world's most inspirational salmon company. Our purpose is about creating the ultimate salmon experience. Our mission, we want every stakeholder who comes in contact with us to be better as a result. Our values are all about maximizing the outcome for all stakeholders. So that's not only shareholders, that's team members, that's the environment, community, other stakeholders as well. We want it well about continuous improvement, operating with integrity. We have a real teamwork and team culture, and we aspire to high quality based on innovative products. Then our supporting strategies, these are the same 8 that we tend to present at these meetings. I'll just point out a few things. Obviously, health and safety and food safety are sacrosanct, so that's always number 1. We only farm 1 species, and we're fairly unusual in that regard. If you have a look at Tassel in Tasmania, they farm prawns, trout and Atlantic salmon. Cuban have farmed kingfish, trout and salmon. Closer to home, Sandoz have farmed oysters, mussels and salmon. We just do the one species because the king salmon is an extremely difficult species to grow. We want to just focus on that. We don't want our aquaculture resources defrayed over a large number of species. We need to be cost competitive while we're doing that and focusing on fish cost and bringing that down is really important. We want to dominate every premium salmon niche around the world. So whether that be in food service or pockets of retail or in the pet food area, we're looking for where is there a premium niche where our competitive and comparative advantages with the Kingstania species will give a premium return. You know that we're into branding. So we're moving all of our products to branded. The products that we've quit in the market as a result of COVID were unbranded and that was by intent. We need to engage people and we measure our engagement if we're to achieve superior results. We're strongly engaged with our community and together with sustainability, that's very important for our social license to operate. Turning on to Slide 7. You can see how our revenue has developed versus the past there with that top chart. 3,435 metric tons of harvest during first half twenty twenty two. You can see our distribution around the world and the real importance of both the New Zealand and the U. S. Market. So when we have a fish size problem, it's that U. S. Market and it's so large for us, that's why it causes a real difficulty. And you can see we're diverse across a range of markets there. You can see our first half pro form a operating EBITDA and the trend there and obviously, with some difficulties we've had. We've restated that. So to be a like for like comparison, you're all aware that we changed our financial year. Then the pro form a operating EBITDA are below that. And this is some period ending in December, some periods ending in July and our first half statutory net profit after tax. All right. Then on to Slide 8, our sustainable developments. First of all, that's regained, I should say, retained our best aquaculture practice 4 staff certification. Top of the South community engagement to support our Blue Endeavour Open Ocean project. So we've been engaged in a really high quality consultation process with all submitted. So there are 14 submitters against Blue Endeavor. That's a historically low number. A more normal number would be maybe 140 submitters against and normally we've got double in favor. So at this time, a much lower number of submitters. So we've been able to have a very high quality engagement with them and that's underway now. We're continuing our progress towards 100 percent reusable, recyclable and compostable packaging, which is currently at 47%. We published our 1st anti modern flavor statement, and we launched an internal fund to enable our people to initiate and bring to fruition sustainability practices and goals within the area of influence. Achievements, we've centralized where we're using our centralized procurement to support preferred suppliers who have like minded sustainability and social responsibility and objectives. And collaborating with the global product rules around environmental product declarations for Fin Fish. Then looking at our brands. So firstly, just look at Regal. We've won quite a few accolades this year. So if I just focus perhaps on the first one, which is the Specialty Food Association award where we won, I think, there were 1500 products that were entered and we won the top award for protein and then we went on to win the top award overall. And so that's quite a prestigious award to win. And often after you win that award, there's a lot of retailers will want to list and range your product. Also, we tend to do very well with the European based Superior Taste Awards, And we've won some awards around food safety as well, which was great. One of our team members won that. We normally bring premium chefs and restaurateurs to New Zealand to show them what we do and to engage with them. We haven't been able to do that. So instead, we've produced an Oregon documentary film, and that's been well received, and a number of you have attended and seen that. I think we've had 20,000 views now online, which is great. Then on to Slide 10. Further on our brands. We now have our Regal Fresh available in the U. S. Through a multi store premium retailer. We've done a trial on our Orokin Keiji product. That's a Japanese concept based on our fashimi and in our case, small fish that has a very unique flavor and texture and will yield a premium price in the market. We're launching our Omega Plus product range in Animates New Zealand, and we have an imminent launch in the U. S. Of our pet food treats. And there's a picture there of our Regal King Dipkin product. There's 3 of those products coming and obviously it's got a really high percentage of salmon in it and tastes fantastic and we think it will do extremely well. And that product is also available for export. Okay. At this point, I'm handing over to Ben. Thank you, Grant. I'm not sure Grant mentioned or not that I'm recently new, so this is day 7 for me. So rest assured that I'll make sure I can provide additional color and context on it for your results compared to what I provide today. In terms of the financial results, Grant's touched upon a number of these things already. But focusing on our GAAP numbers, half on half shows a reasonably consistent result of a $5,600,000 net profit after tax loss. But moving on to our preferred way of measuring results, the pro form a results, which I'm sure you're all familiar with, but essentially the main change here is taking the fair value gain or loss on our unsold fish and backing it out to look at our results just based on what we've been sold and what we've achieved during the first half. As Grant mentioned, the change in filing models had a big impact on the first half. And within that first half, we would have slowed it down to the Q1. So the key things which is sort of how that's shown up is we've had small fish. Smaller fish sort of mean we have a deterioration in our feed to conversion rates, which means it's costing us more to produce the fish we have, which results in increased gross margin. And also Graham touched upon the mortalities from a change in the farming model as well. And when you combine that with the increased freight costs, a number of businesses not only ourselves are staying in the market that has a significant impact on our gross margin. To offset that, we sold a number of and closed out a number of in the money FX contracts and it sort of split off our EBITDA back to breakeven. We're looking at those 1st 4 months. And more recently, June results were back to breakeven and we printed a profit in July and that trend has continued in August. So we are looking forward to it will be a significant listing results in H2. So the full year story should be a story of 2 halves. Moving on to Slide 13, the harvest by farm. As you can see, harvest numbers are slightly down on the prior year. We've talked about this as well and that's partly to mitigate the small fish size. So if we give the delay the harvest, reduce the harvest, we give the fish more time to grow and it enables us to produce product which is which our customers are after as Grant mentioned key markets for us being that the U. S. And New Zealand. Moving on to Slide 14. There's not too much I'd want to call out on this slide at the moment other than big focus for the team, the sales force will be to clear the remaining excess frozen inventory in H2. So we got through close to 60% of that in the first half of the year, 40% to go. It's pretty critical just in terms of generating the positive cash flow, which flows on from a poor first half results. So big focus on H2 for me will be on looking at optimizing our working capital, but also where we're spending our money from a CapEx perspective. So probably a little bit quite broken over for me, but looking forward to engaging with you all in the future. I'll hand back over to you, Graeme. Yes. Thanks, Ben. Okay. Now we're on Slide 16, sales performance. And you can see our monthly sales trend there in sales G and G volume. We've marked on the chart, you can see in April 2020, the effect of COVID, then August 2020, the Auckland lockdown, then December 2020, the NZ Retail Promotions. So we put a lot of heavy promotions onto Regal, both hot and cold smoke, to bolster our position. We had excess fish. It was better to do that than put more of the volume into the U. S. And Japan against those discrete customers. So it made sense to do that. So as you can see, we had a very nice sales trend up until December, January 2021. And then I've marked on the chart the small fish size and then the harvest restrictions that were due most of that half. And as we come out of that in June, July, August, our profitability has returned, which has been fantastic. Some further points about the U. S. Market. So during COVID, so that's from April 2020 onwards, we developed and pivoted towards fresh fishmongers over there. And we have now retained that business, and we see the return of the U. S. Food service base. And that's why the U. S. Is performing so well for us. All right. Then we go on to sales by market, which is Slide 17. And this is the all important North American market. And on this occasion, we've also put the forecast there in a lighter blue so you can see what's going on. So this market has always performed extremely well for us. We could actually sell a lot more into this market than what we show here. We're always limited by the volume of fish that we can grow. And our Orocene is our top grade and there's a limit on that as well. And that's why this market, the demand is always much higher than the supply, except for that brief period like the beginning of the first COVID lockdown. So we have run some trials there on a number of our concepts. We've mentioned KG before, so that went extremely well. We have the inlet launch of Omega plus pet food over there with a treat in any case. So yes, this market is key to us. It's stable. They appreciate our branding. They know about our species. They've got a great reputation there. So yes, we are very positive about the North American market. Then on to Slide 18. Okay. There we go. Slide 18 slipped out of the bit, but here it is here. I'd say this is the Australian situation, a little different to the U. S. You can see the chart there. And why is that so? So the Australian market wasn't aligned with the rest of the world regarding profitability. And so we basically increased our prices in the U. S. A. To make it equivalent to the other markets in terms of return. And that's why you see the volume coming back from 2018, 2019 down to 2020. Then we're into a stable situation. The volume that that generated went off to the U. S. A. And obtained those higher prices. But now we're indifferent, if you put it that way, as to whether we sell in the U. S. Or Australia because they are producing an equal return now. Some other highlights regarding Australia that we've now got listing for the first time in a major retailer there. That's with our Regal smoked products, hot and cold in 800 coal supermarkets. So really looking forward to seeing how that goes. And you see one of our chefs there, Ollie, then Musa, probably just buying an oroquin fillet. Then sales by market, Slide 19. This is the other significant markets for us and we've put these all on the same scale so that we can make a comparison. The first thing that always surprises everybody is that China, despite our is not a significant market for us. We've had problems. And if things go well, then we strike some sort of market access problem. And so these are big on again, off again with China. But it is a small part of our portfolio. We're also engaged with China with pet food. Then if we move to the left, Asia is a strong performing market in general that excludes Japan and China. Thailand is, for example, a very good market for us. So yes, we've performed well in that market over time. It's a really premium market for us and you'll see us holding our position there versus the prior year. And we see the forecast there again is to do the same thing. Then Japan, we have put some product into this market to discrete customers again. The Japan, if you go back long enough, was our most important market and now is one of the relatively mid markets. And you see our development in Europe, which we will focus more on. There's no reason why Europe can't be as big and profitable as the USA. But because of the tyranny of distance and the shortage of fish, we've never really had the opportunity to develop it. But we're doing more of that now than we did in the past. Then we're on to Slide 20. Again, sales by market. You know that the foodservice market was highly disrupted and is now coming back around the world, but especially in the USA. We did refocus on the domestic market during that period and you know that we ran our price promotions. We also launched some new products and we see Al Brown there. He's one of our supporters and who advertising some of our products. You see a display to the right hand side on the Omega Plus range. That's what's going into Animates there. And you see our volume development in New Zealand. So as export, and particularly the U. S, has become more important to us, you see the volume going down in New Zealand and increasing in export. And you can see that we've got quite a strong forecast coming out for the second half of this year. Then we're on to the next slide, which is it this one. So 21, here we go. Average sales prices. So the important thing to take out here, you see the trend there with our pricing, but we've never taken a price decrease on any of our brands. As I mentioned, we have quit frozen product in particular, but also some fresh to discrete customers in the USA and Japan. And that brings our average down. And Flow2 does it when we run price promotions in the domestic market. But because we never took our headline prices down, either in regal or a team, We didn't have to adjust that as we came out of COVID. The pricing base was already established. And then as I mentioned, we actually took a price increase on top of that. And that has been very effectively implemented. So quite pleased with the way that's gone. Okay. Then we're on to fish performance. So I've put a chart there that shows the average size by month at harvest. And you can see the problem right in the middle. That's when we really encountered a dramatic drop off in our fish size. We really it's fair to say we just did not see that coming. We got to February and we began harvesting those fish also a little bit in January there. And we were surprised at how small they were. And the reason being, normally you can tell how big a fish is going to be by how much it has eaten. But the learning is when you have fish in the forest over 2 summers rather than 1 summer and when they're harvestized during that second summer, they eat the tree, but they don't put any weight on. And that was the learning out of that practice, and that's why we're never repeating it again. So we're rolling back to we're taking the best out of that prior model, like upwelling and things like that, but we're not going to try and achieve single year class when we don't have the space to be able to do so. It was the lack of space that forced these fish to go through 2 summers and be at harvest size during that second summer. Now during the until September 21, October and going forward, you can see what we're projecting in terms of fish size. The key number for us is 3.6 kilos. If we can achieve 3.6 kilos, all other things being equal, that's a large enough size for us to meet our market requirements in the USA. And so glad that it's up there, but you can see why we had such a good June, July, August. The fish size was excellent during that period. And other things to mention here, I can see the chart next chart down. You can see our 'nineteen brewed and our 2020 brewed. So the reason I wanted to show you this was the 2019 brewed was under the old model. The 2020 brewed is under the precedent model. The new one that takes the best of everything doesn't try to achieve single year class. And we really focus on having the right fish of the right size where they're most likely to survive. And then we get a good cost outcome. And you can see that the 2020 brewed output is vastly outperforming the 2019 brewed on the old model. And we expect this new brewed to be back to normal performance and also back to a normal size, which is great. And as I've stressed earlier, we have a local team managing aquaculture. We've got 20 years worth of experience. It's only recently that we've had enough experience to appoint internally. Prior to that, we used to have managers coming from overseas. But our industry has got to a state of maturity and with people with enough experience to run the agriculture operations now, and that's what's happening. We know that we do have these problems in the Pelorus Sound. The East Australian currents is coming down from Indonesia. It's getting into the Pelorus more than it did in the past. It tends to be a bit warmer. So those 3 months for us, which are February, March April, are problematic. But for this year around, we're going through it once and they're smaller finished. So we're expecting a much better outcome from that situation. That's in future farming. Yes. So this is a map that shows our existing farms with a white circle around them and then you see their blue endeavors. And you can see there's about 1,000 hectares site with the dotted rectangle and you see the 2 farms, the southern phase and the northern phase. Each one of those can produce 5,000 tonnes of gilded and gutted salmon. And you can see it's about 7 ks off the coast. Due to the curvature of the earth, you can only observe something which is if you're standing down at sea level, which is about 5 days away. So if you're standing on the beach, you will not be able to see either of those two farms, which is one of the reasons we think it will be more easily consented. And on to Slide 25, which is a bit more detailed about Bill Endeavour. The hearing date is from the week of 18th to 22 October. It's very much in line with the government's aquaculture strategy, which is aimed at growing the industry from €650,000,000 to €3,000,000,000 by 2,030, which is not a long way away. And that original target was €3,000,000,000 by 2,035, and the government's recently sharpened that up. So they're more bullish, a lot more less, which is great. This is obviously an extremely important initiative for the company. It's not only is important for scale, it's really important, we think, also for improved fish health and higher grade fish. Also, we think we can take our unit value up ultimately as a result of this. It has a fantastic environmental outcome. Agriculture has a very light footprint on the environment and even lighter in the open ocean. As I mentioned earlier, with the 2 phases in full production, 10,000 tonnes of fish can be produced. It is offset by a reduction, which I'll show you on the next chart in the inshore area. So we're on to Slide 26 now. So there's 2 charts there. The upper one is a situation regarding harvest per annum without Blue Endeavor. And then you see if Blue Endeavor is brought in and we've taken it out to FY 20 28, so you get the full picture there. So our plan would be to use our many of our inshore sites and certainly those in the florists to be sort of nursery farms where we grow the fish to say 1.4 kilos, something like that. And then prior to the summer, we transfer them to Blue Endeavour. So that's why you see the volume not getting up to 9,600, only getting it to 1,000 to 8,000 because our plan would be to take fewer farms through the summer and transfer the fish to Blue Endeavour for the final grow out. In that way, we get an improved mortality result, we think, obviously, in the floors, but a great result out in Blue Endeavour itself. And also, we get a very good return on the infrastructure reducing the cycle time actually on Blue Endeavour. So we have growth under all scenarios, obviously, a lot more growth with Blue Endeavour as part of our farm portfolio. The first harvest that we've come off, as you can see there, is in FY 2025, so end of calendar year 2024. All right. And with that, that's the end of the presentation with the appendices that follow. But with that, I think we're going to take questions. Thank you. Your first question comes from Nick Ma from Macquarie. Just in terms of the longer term outlook for the in store farms just under the steady flow scenario. Has that kind of changed from the view that you can do 10 to 11,000 tons given some of the consent challenges you've had in the last 12 months? No. We don't think that's changed. You're probably there was some adverse publicity. And I've got to say, things never reflected well in the media. We actually the council and New Zealand King Salmon were wanted the same outcome, were on the same side regarding that application, which would have led to an increase in our Waitara farm. We are appealing that decision, and we think that the fact that the council is supportive is extremely helpful. At this stage, we don't depending on when the hearing is heard, what the peer was heard, we don't think that's going to have an impact on the volumes that you see on this chart here. So they're broadly in line with what we said before. We've got further increases coming for our Waitata and Namahau Farms. And we don't think any of the recent consenting issues are going to impact on that at this stage. It just so happens that we weren't planning to utilize that increased feed capacity for some time. In any case, just because of the way we're operating the precedent model and where we want AFFISH to be. So for that reason, we don't think it impacts the volume outcome going forward. It will be if the appeal is unsuccessful. And just relative to that long term kind of number you had of Q4, how much would that impact it? Yes. So you just can't make out the numbers. Did you say what was the number you said there? 10000 to 11,000 tons is what I think you previously disclosed as the theoretical maximum capacity for our sites. Yes. There are some further increases behind lasers in FY 'twenty eight. I think it goes right out to, believe it or not, 32. So there are some further increases after that, which we've not shown on this chart. But there's actually no yes, everything is as it was before. I will go back and check then, if that's if that makes you remember 11, I mean more 10. I'll go back and check. But the last increase is on Namahoe, and I think it's available in FY 'thirty two or around about there. That is all good. In terms of the inventory clearance during the first half, could you just break down how much was in Japan versus U. S? It looks like most of Japan and upcoming stuff to the U. S. Is that right? Yes. So we do have those numbers. I'm hoping one of my colleagues here has it. So first of all, much more has been sold into the U. S. Than Japan. What was sold into the U. S. Is frozen to one customer. What was sold into Japan has been a little bit of frozen. I think that was to a discrete what that was to a discrete customer and some fresh again to a discrete customer. So there's probably 3 actually involved overall, with the majority being into just hang on, the majority being into beautiful. Yes, so Yes. Okay. I'm just getting the numbers for you there, Nick. Hang on. So Japan was 200 tonnes and the USA was 2 59 tonnes. And I would say the majority of the remainder, which I think is about 3 50 tonnes ago, but the majority of the remainder is about is just going to the USA. And just on pricing, you mentioned there's no kind of price decreases, which is good. But in terms of the first half, obviously, they're down. Could you just talk through the mix impact, which would have been down even excluding frozen whole fish for the next few markets and for the domestic as well? Yes. So let's have a take of how the mix impact could influence that. So obviously, it was more smote products sold. That has a positive influence on mix. In terms of margin, we've because of the again, the shortage of fish, we have equivalized all the markets. So The geographic mix doesn't tend to have so much of an effect these days. And the same with New Zealand, by the way. So we make about with the freight savings in New Zealand versus export, the same profitability out of New Zealand and again, the same profitability out of retail and foodservice. So yes, there's not a massive mix impact There can be in terms of, let's say, if we go to North America and we've got a CAS price, so it's more expensive to get it and sold at a higher price, say, in New York versus Los Angeles. And we definitely had the Eastern seaboard drop off more than the Western seaboard in the States, and that was adverse regarding price. I don't think it made any difference regarding margin. Now does that answer your question in enough detail, Nick, or not? Not really. It's more kind of why the first half of the 'twenty two is down, the first half 'twenty one by kind of 5% on average. Yes. So the thing the reasons why it's down year on year are just simply we've sold significant volumes, the volumes that we mentioned earlier at very low prices. And they are in a loss situation when we freeze or if we have to sell the fresh product under distress in Japan. So that's the major impact on our margin. Then when we run the price promotions in retail, New Zealand, again, the headline price is the same, but we're providing a greater case deal to bring it down. That has really brought it down. Yes. And that fresh product that we sold to Japan was a promotional price point at a large sushi chain, which has reduced the margin. So it's those they're the things that have brought the price down, the average price down across the total portfolio based on what we did clearing distressed or frozen stock into the USA and Japan. Okay. Thanks a lot. Thank you. Your next question comes from Christian Bell from Jarden. Please go ahead. Hi, good morning, Grant. The first question from me, the August EBITDA number of BRL 1,600,000, is it? And then that's included the elevated freight costs that you guys are looking? The normal yes, yes. So yes. So that's the elevated freight cost is included in that. So yes, we've gone from June breakeven, 1.3, July, 1.6, And we're putting that out there because we believe that that's showing the emerging trend that we're on. We have all the freight costs into that. You can expect a further uplift. We did a traditional uplift in Christmas as well on top of that. So we're trying to sort of indicate to you where our running rate is at the moment. Yes. So I mean acknowledging you just said that freight typically increases around Christmas anyway, If the freight costs were to remain at what they are now, if you took the August run rate and times that by that, you get close to $10,000,000 of EBITDA, plus $3,000,000 in the 3rd class, which would be higher than your current guidance. I really you guys have held back from actually providing more details on guidance. But I mean, like, all those things considered, would there potentially upside risk to your current guidance that you're holding back just in case freight gets any worse? Or if I just can't understand why you kind of held that there? Yes. First of all, we've got a lockdown situation in New Zealand. We don't know how long that's going to play out for. We have had compensation in the U. S, but it's not it's still an issue in Auckland. Is probably our larger volumes that we have out of all of them. So because of that, the uncertainty associated with that, we're not putting our updating our guidance. And you saw that we are we're on that threshold. 3.6 is the magic number. And you saw from that chart, we're on that threshold. So for those reasons, we're not updating guidance just yet. But your calculation, with the exception of those things, isn't far off. Okay. Yes. Yes, it's So you're just waiting for a bit more compliment on the land, maybe? Yes. Yes. Yes. Yes. And I'm not expecting freight to I'm not expecting freight to blow out further. We think it's at a high level, and it may stay there. But the visibility we have around the government subsidies and whatnot is we're okay for the end of the financial year. Okay. Cool. And then so you closed out $15,000,000 worth of FX contracts in the 3rd half. Do you have any lift? Is it basically gone now, the outlook from any further FX closure? So the excess is all gone. So when the dollar was at $0.55 versus the U. S, we took out substantially a substantial amount of cover. And the amount, which is in excess of our sales, has been closed out. And that coincides beautifully with those distressed 4 months that we had. And now we're in a situation where we're back to profitability and don't require that. And we are rebuilding our book as if anything gets below 70% U. S. Okay. Cool. So I mean, I guess, it implies that the second half trading result should be like it should be the profitability should be relatively clean, right, like it's not, if you get what I'm saying. Yes. Yes. We don't have a summer. That's the reason we changed the financial year, but given we don't have a summer right at the end of the that's good. But how long is Auckland going to be in lockdown? The 3.6 kilo fish, that's great. That 3.4 would be a problem. Not anticipating that, but don't know. That's a fairly small change in the biological system. It is possible that, that could happen. We're putting much more work into assessing our fish, and we've got an improved camera for assessing the fish. We actually had some technical problems right at the time when we were moving into that into the floors and started harvesting. So that was a further reason why we didn't have that visibility. So we corrected that now, but we're not going to redo our guidance until we've got that greater clarity about those two things. Those forecast sales volumes that you've got, are they based on contracted volumes? Yes. So Christian, it's very rare for us to have contracts because they don't work out well for us. We often want more flexibility than those contracts would allow. Remember, we're fully sold now, right? It's not a sales problem. And so in that case, we don't want contracts because then if we want to move between markets or even move between product categories for some reason, if we want to move from fresh into smoke or whatever, a contract would prevent us from doing that. So we do have some. They're from very stable products like frozen portions to the USA and things like that, but that's by far the minority. And I know that's unusual for a selling company. It's all about having certain contracts, but we find that, that reduces our profitability. So we do not seek contracts. I guess you don't need them because you're the bond business, since you're supplying the loss there. Yes. The diagram on Slide 22, which compares to our weight costs between the 2020 road and the 2019 road, does it while it sort of demonstrates that the 2020 road is performing much better than 2019, How does it compare to historical average? Like what does it look like compared to 2018 or Yes. So I just had a look at that, just so that's good. So if you take the last 7 years, it's our 2nd best performance in the last 7 years. And the 2019 brewed is on track to be the worst performance ever. We still got 5 of the 19 brewed pilots out, by the way. So it's a second worst right now. And the thing is, with that particular brew, it did benefit from 2 relatively cool summers. So it should have been a good result that because of those factors that we mentioned with fish in the forest going through 2 summers instead of 1 and because there were harvest size during that second summer, we just had these perverse outcomes we've never anticipated. And we're obviously never going to repeat that. We'll take the learnings. And the 20 brewed is right back where we would anticipate. In fact, as I said, it's the 2nd best performance in the last 7 years. Okay. Got that. Yes, cool. And then sorry, I've got so many questions. But the next one would be, it seems in the inventory given you expect to clear, I guess, the remainder of your excess disposal stock. Would that does that sort of imply that I mean, given you told well, in your commentary, it states $4,000,000 in the first half of the disposal. So with a similar kind of volume in the second half, does that mean that end of year inventory should settle around somewhere like $39,000,000 $40,000,000 So okay. Inventory on hand. That's one that number I'm sort of right on top of. All right. So first, I'm going to go over why we haven't cleared it. So as I mentioned, we're clearing to 1 discrete customer in the USA. And we would have cleared all of it except there were freight problems getting contained up to the USA. And because of those freight problems delaying everything, then the clearance coincided with the wild market coming on stream. And then when the wild market comes on, so that's sort of Alaska, British Columbia, more than the U. S. A, then that just comes on at a massive peak. And so there's not the opportunity to clear the product. And so the customer is now resuming the sales. We are carrying higher so that's the reason for the delay, but not a problem just resuming that post the wild season, which is now. So then what's our inventory position other than that? We have built up quite a bit of smoked product, especially cold smoked product. And the reason we did that was that that's a format that we get high value for. So if we are having to clear some product and we can use as a frozen input to produce cold smoke, and so we run that right up to maximum. And that's why our inventory is higher than historically is. Now certainly, the inventory levels will reduce post Christmas. So it's normal for us to run up both our smoked inventories prior to Christmas. And so we've done more of that than in the past. Our inventory is higher and then that will come down post Christmas. In terms of the numbers, I think we're talking to you later. So I'll have the actual numbers on all of that for our subsequent discussion. Okay. That would be super helpful just because it seems that we're the final inventory number equipment. Move. And then just are you able to say how big the cost increase is that you get put through? Yes. So in the end, if you just take the U. S. Margin, that turned out to be about $0.80 a kilo gilding gutter fish. So So I think you said you've got a lot of Yes. We took a larger increase in that, but with a mix effect, it works out effectively to $0.80 Yes. Okay. And then just sorry, the final one for me. What would be the I know you guys have sort of stated some capital costs for Blue Endeavour more recently. But what just a simple change, what would be the all on cost for below and below across both farm sites? Okay. Well, they're the same. They're about $50,000,000 and we need a bit of contingency on that. There's about let me ask about to remember the numbers. Okay. So it's about £20 per farm, right, with the moins. So about £110,000,000 actually. So £55,000,000 per farm. And there's working capital, of course, on top of that. So it's about $50,000,000 per farm. It's roughly about $10,000,000 per barge opportunity too. It's about $10,000,000 or $11,000,000 for the pens and the moorings. In the first phase, we need a $20,000,000 well boat for both delivery of smalt and harvest. And in the second phase, we need $20,000,000 not for another wellboat, but for additional freshwater capacity. And then there's some production vessels and net cleaning vessels and those sort of things that make up the difference between that. So you're looking at $110,000,000 all up for both phases with the initial phase $20,000,000 on the well boat and the second phase $20,000,000 on RAS facility, aquaculture recirculation facility to increase our smollet we're going to see. Thank you. Your next question comes from Joshua Dale from Craig's Investment Partners. Please go ahead. Good morning, Art, and welcome to you. Just a few questions from me. On your comments for premium pricing, you've caused that with actually the favorable rates, But is there any comment you can make on to what extent this would impact New Zealand dollar denominated pricing going forward? Is clearly going to be less favorable? Yes. There's no impact. So we've not taken down any of our pricing that we put a price increase in. The 2 markets of particular focus on that will be U. S. And New Zealand. We're not adjusting our pricing based on foreign exchange rates. We're still fully hedged. So our position well, we're hedged to come into our policy, which is pretty much as we come up to the last 3 months, it's fully hedged. So we're not exposed to movements in the exchange rate really for very little between now and the end of the financial year. So we won't be making any adjustments based on foreign exchange rates. Right. So what you're saying is the business closed out with surplus to requirements. You didn't expect to use any of that. You didn't see to sort of your payable rate from that that you're selling in excess of that. Is that correct? That's right. That's right. So when COVID came along and that opportunity arose to lock in some fantastic rates, we thought the world's going to hell in a handbasket and didn't, thank goodness. But we took out a lot of cover in case something went wrong, if something did go wrong. And we had it, but we it was way in excess of our sales requirements. And we fully covered also recovered the policy, which is basically fully covered, for the remainder of our sales. Okay. No, that makes sense. And just on the blue and blue and blue and blue hearing, you've seen a lot of progress towards making a various parties and existing products in the blue and blue and green. I just interested to hear a little bit of there is anything else in your view that might affect the life of a little bit of that consent being received and also with a little bit of view on any potential conditions effects to that keeping? Yes. Okay. So we're still highly optimistic about the endeavor. The reason is because the New Zealand government has an agriculture strategy that we talked about earlier. And because they have a strategy, they will extend the hearing and they will give evidence on their own behalf. And they're still forcing the signatures against, which is also the government, by the way. So you have the situation there. DOC, as a default position, always opposes these sorts of applications. That's not because they think they're a bad thing. That's because they want to have a seat at the table when setting conditions. And have MPI that whose role it is, is to enact the government's strategies and together with the Indian Trade and Enterprise and whatnot. So you always have this sort of situation. This time around, I think we're going to get a whole of I don't know this for a fact, but I think we're going to get a whole of government response. I'm hopeful of that where the different departments have got together and considered their position. They're running that independent of us. So I don't know that in absolute detail or for absolute certainty. But I know they've got expert witnesses, and they will be at the hearing, and they will be giving evidence in support of their agriculture strategy. So that is a key factor that gives us more confidence. But I'll just give you a fairly perverse thing that can happen. And this actually has arisen. So there's other organizations that give evidence of some submitters. And for example, could be on landscape. And we anticipated there wouldn't be any issues on landscape because of the 7 ks distance from the shore. But apparently, one of the values of landscape is wilderness. And 7 ks is out, wilderness exists. That's a wild place. There's nothing out there. And having a salmon farm would impact on the value of wilderness, for example, to which we point out, well, that would completely defeat the government's agriculture strategy because, by definition, all open ocean agriculture is in a wilderness area. And by putting a salmon farm, there is a small area of wilderness that's not wilderness anymore. So things like that arise, which we just didn't anticipate that happening, we're going back and having a look at that. And our experts are considering the merits of that particular argument. But they're the sort of things that can come up in a hearing like this. The aquaculture, because of the nature of it, because we're a new industry, because we're constantly updating and changing our practices and trying to improve them, because we're going from inshore protected sites to open ocean, We need the latitude to be able to move, use the best technology, use the best practices that come up. And the RMA is the exact opposite of that. It tries to lock everything down, specify what you're going to do, then here's the resource consent to make sure you stay within that parameter. And there's always these issues that seem to arise on the RMAs. So it's just not a very good tool for us. And that's why these arguments about in this case, the one I'm giving you is on landscape can arise and take an unexpected turn. So what I do know is that we have a really, really comprehensive and well put together scientific case based on lots of modeling, lots of reports. And as we've engaged with those 14 submitters, we've done further work to try and understand the position and then to relay their concerns. But Josh, yes, we can't guarantee nothing is guaranteed. We're highly optimistic. We've got more things on our side than ever before. And that's why we've got a high level of confidence. Is there anything else you want to ask about that specifically? Can you hear me, Jack? Sorry. You just came back on then. So go ahead. Okay. No, that was a big question for me, just conscious of time on changing your farming model. That's the old version. If salmon were undersized and you need to reseat it and collect the weight again, they're clearly getting older at the same time. Is the quality of the salmon fairly resilient to that extra agent? Yes. So it sounds like 100% there, but the nature of your question is, as salmon get older, are they less valuable? Is that the question there, Josh? I think they were, yes. Yes. Yes. So the answer is the opposite of that. So I know there are some species and SNAP is the one that's often quoted. But as it gets older, not quite as sweet, not quite as good. The opposite with salmon becomes more valuable. In fact, our most valuable salmon is a 30 pound plus fish called a tai. So what happens with the salmon is it gets more fat marbling and better taste and richer color as it gets older. It's not like us. I've seen unfortunately all day. So yes, there's no deterioration, in fact, the opposite of that. The thing that you might have heard about is we're trying to avoid maturation. So if the fish is bright and silver and as it continues to grow, it stays bright and silver, I. E. Not maturing, then the value goes up. As soon as they start to mature, they start to really harvest their flesh and the oils out of their body, put them into their eggs and gametes. And then as a result of that, you get a diminishing of value. And that's what makes the species very more difficult to grow than some other businesses. You need to avoid this maturation process. So what you're saying can happen and that's the thing that we've learned over the last 30 years and that's why we can grow larger and larger fish without maturation. And we've got just a number of techniques that do that, the most dominant one being the use of light and when the fish are lipped and when they're not lit. But the general rule is our fish get more valuable as they get larger, bigger and older. Thank you. Your next question comes from Jamie Fox from Fawcett Bar. Please go ahead. Good morning all. Congratulations on what appears to be a pretty decent result. I'll keep my questions brief. Firstly, how should we think about feed cost inflation going forward, please? Yes. Always an interesting question. And Jamie, I've been here 12 years now. And I remember at the beginning, it was always, it's out of control. It's going to run ahead of inflation. We won't get to recover the price. And in 12 years, I got to say that's never happened. In fact, I don't see it ever happening anymore. And the reason for that is that the technology around feed production has improved so much that a huge variety of additional inputs is now available that weren't there in the past. Now for example, we don't use a lot of soybeans in our feed, but we use a lot of it in Europe. And so there are anti nutritional factors in soybean for salmon and other animals that made it a terrible input for salmon feed. But with the advent of technology able to overcome that, it's now a massive potential input into salmon feed that didn't exist in the past. In fact, when the industry started, we were really subjected to the ups and downs of the commodity fish meal and fish oil markets. And it's now possible to produce salmon using none of that. So where can we get the oil from? We can now get the oil. It's a bit more expensive, but it's coming down. We can get the oil from algae now directly. So that's where it comes from normally. So we can grow algae, extract the oil, put them into the feed. We can anywhere that you can get a protein, so that's animal based, that's plant based, as a result of that, you can get proteins from anywhere to put into salmon feed effectively. So this is what I say to some of the environmentalists who say, well, you're using more fish to produce the salmon than the salmon generate. That's definitely no longer true. And if you want, we can use none. Tell me what would you like us to use. But because of that, the price of feed seemed like in New Zealand dollars $2,400 $2,500 per tonne for ages. And so we're just not worried about feed as they're escalating price or cost input into our model like we used to be. So that's largely being mitigated by technology. Okay. And then secondly, on the other side of the coin, how confident are you on sustained price rises beyond kind of if we take a step back and we look at restaurants kind of look after their own cost base? Have you seen any pricing pressure over the last few months or so as things reopen? You certainly see pricing pressure. So but generally, we're able to overcome it. So, Jamie, I think you're a bit newer on this than something else. So maybe you haven't had a conversation around plate costs. So typically, if we just take a $40 plate cost, dollars 10 of that will be the food cost and about $6.50 of that would be the center of protein cost. And if we get above those sort of levels, then people have to charge $45 for the plate or $50 for the plate. And I think the old record used to be around $55 but I think we've had some plate cost pushing up against $70 or even $80 now, which is incredible. That's in the USA. So that's the limiting factor. And then what happens if we push those price increases too high is we become a starter where you've got a different you can afford a more expensive protein than a starter because there's so little of it versus a main meal. And so we can tell whether we're pushing that price too far by the proportion of main meals versus starters in any particular country. And you probably noticed, because you go out to fantastic restaurants, I'm sure, that we're often a starter in New Zealand because quite frankly, we're a poor country and we're often the main in the USA. So we know we can push the price more in the USA because we're just we're often the main meal there and we usually start here. So that we've got that mechanism built in. So it's rare for us to come off the menu completely. We just change from a main to a starter. And then it comes down to, okay, how can we tell the story in such an engaging way, provenance from New Zealand, this unique fish, king salmon having all these amazing eating properties to get the plate cost up? So can we go from 40 to 45 to 50 to 55? And the answer to that is, yes, we can. So we talked about the KG concept. The KG concept delivers the target for that concept is to deliver an extra $2 margin per kilo. And in the test, we achieved that. Tyee achieved a massive higher margin. So that proves that if you've got a more differentiated product and our plan with Blue Endeavor that we don't really talk about long term is to grow a more differentiated product. About half of what we ultimately produce on Blue Endeavor will be these further value added products. So for all of those reasons, because we have this built in mechanism between being a main and a starter, because we know when we tell the story better and provide further differentiation, we can go into the strategy with our price. So the Tai Yi, we saw those average prices there around $23, dollars 24 with the Tai Yi sales of $60 per kilo. If it would deliver, we think it will have the same cost of goods as our regular fixed, for example. So our ability to take further price increases is really strong. We see ourselves taking an inflation increase every year depending on what inflation is. And then we see ourselves taking an increase probably based more on mix as we tell those stories more around KG, around Thai, around June Hob, which are the new concepts we're bringing to market. Thank you. That does conclude our time for questions. I'll now hand back to Mr. Rose Wahgn for closing remarks. Okay. So as ever, and we've had this conversation a few times, we're incredibly enthusiastic about Blue and Yellow. And we see that being the first open ocean finishes in New Zealand. We see it's being right in line with the government strategy. We think it will ground truth what we do. We're saying we can go out there with a very benign effect. What is that benign effect? That we have an overall increase in biodiversity and abundance of native species. That's what we think we can achieve in the open ocean, okay? We've never done something. It's hard to definitively prove that. So we've got people submitted who are genuinely concerned about when something new is being done. Well, what if this is this effect? What is that effect? But quite a few of these farms around the world now, they're all relatively new. There's not enough data to definitively say what the effects are. But we know as you get into deeper water, as you get into cooler water, you tend to get a better environmental outcome. And so we think that ultimately they will prove that to be true, and we think the Endeavour will quickly prove that to be true. Because of that, we still think we can become New Zealand's most valuable industry and at the same time, its greatest primary sector. So with that, I'll say goodbye and we'll talk again in 6 months. Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.