Thank you for standing by, and welcome to the New Zealand King Salmon Half-year Results announcement. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question via the phones, you will need to press the star key followed by the number one on your telephone keypad. If you wish to ask a question via webcast, please enter it into the Ask a Question box and click Submit. I would now like to hand the conference over to Mr. Carl Carrington, Chief Executive Officer. Please go ahead.
Good morning, everyone. Welcome to the half-year results for New Zealand King Salmon. We'll get into the presentation now. First of all, just the standard disclaimer, if everybody could read that in their own time to be familiar with the disclaimer we have there. Thank you. Presenting today, myself, Ben Rogers, our CFO, and Grant Lovell, our GM of Aquaculture, will be the team on the call today. Let's get into the summary of the results. The first half net profit after tax result is a loss of NZD 20.8 million.
This GAAP result was predominantly impacted by non-cash adjustments relating to a fair value write-down in the biological assets of NZD 22.5 million after tax. The driver of the write-down relates to the summer biomass challenges, where we experienced slightly elevated mortality, but more impactful was the reduced biomass growth. This had two impacts.
The first is the reduction in the fair value of biological assets, and the second flows from the decision to reduce harvest volumes from April through to October in order to rebuild the biomass. The pro forma EBITDA, which is the metric which management prefers to put more emphasis upon, reflects the underlying earnings and was a profit of NZD 5.7 million compared with NZD 13.5 million in the prior year period.
This number was predominantly impacted by the reduced harvest decision that I mentioned before, and the level of earnings impact reflects the high operational leverage of the business to volume. Now, despite the poor half result, we are increasingly confident in the growth pathway for the business at both Blue Endeavour and our inshore farms. We've previously framed our outlook as cautiously optimistic, and this is a deliberate tonal shift.
In the agriculture sections, we'll talk more about why our confidence is increasing despite the challenges that we have experienced this year. If I can talk specifically about Blue Endeavour, two pens have been constructed and are now at the Waihinau staging farm. The pilot farm fish are also at Waihinau and growing well. We expect them to be transferred to the Blue Endeavour site in November or December. The service vessel, the Tikonui, has been constructed with delivery expected in early October.
The design contract for the pilot RAS system has been awarded, and the contract for the build will go to our board in November or December. Finally, the SFFF partnership with New Zealand government is working very well. We have received approximately NZD 2 million of grant funding within this period. The balance sheet remains strong, with cash continuing to build to NZD 58.4 million.
CapEx at 31 July was NZD 8.5 million, with a September year-end forecast of around NZD 14 million. The Blue Endeavour pilot has been NZD 5.8 million, with the remaining NZD 2.7 million focused on stay-in-business CapEx such as net replacements, moorings, various machinery, and site works. The pro forma guidance for the full year remains unchanged at NZD 1 to 7 million of EBITDA, with the board guiding to the upper half of the range on the back of an expected harvest for the eight-month period between 3,250 to 3,350 tonnes .
Let's go to the next slide. Revenue for the half year at NZD 94 million reflects the reduced harvest of 2,691 tonnes . In respect of our sales geography, not much has changed, although China has lifted to 4% of sales as a result of increasing rate of sale as the salmon category grows.
We're very confident of our ability to grow sales in our core growth markets of North America, China, and Australia as the volumes start to rebuild. Move through the next slide. Talking about our brands, they are central to our ability to continue lifting category pricing and ensuring we are not merely a premium commodity. Ōra King continues to build strength and recognition as a leading seafood brand in North America, evidenced by repeatedly being heroed in the most prestigious culinary events, whether it be Met Gala, Beyond Fresh, or the World's 50 Best Restaurants for North America.
Our Regal brand is gaining more traction in China, where we are adopting a retail-branded strategy to establish recognition of both the king salmon species and our Regal brand. Atlantic salmon is growing at 40% MAT in China and reached 157,000 tonnes last month.
This is very encouraging for King salmon as the salmon category is becoming more established in China. It is frustrating that we don't have more product to accelerate our market development, not anxiety that we don't have opportunities to grow. Finally, for our Omega Plus brand, it continues to build brand awareness and rate of sale across New Zealand specialty stores. Next slide. Sales performance. The sales by market all tell the same story of constrained supply. China increased with product being reallocated from non-strategic markets, but the growth has been modest, not due to lack of demand, but just the reality of not having fish. Next slide.
Yeah, thanks, Carl. So from a fish performance perspective, obviously, there are no surprises to this particular slide. As we announced earlier in the year, we did experience a significant reduction in our seed volume from slightly elevated mortality over that summer period, as displayed in the graph below. This has resulted in reduced growth and reduced biomass, and it resulted in increased FCR over the period and obviously had a major impact on the harvest volumes that were available for sale.
One positive that did occur was that the price of feed has fallen significantly over the last 12 months. And also the promising summer diet trial, which we were trialing at our Ruakaka Trial Facility last summer, that will be implemented in the coming months. This diet did display significant performance improvements, but naturally, all good things do come with an increased cost.
Thanks, Grant. Kia ora . Good morning, everyone. Ben Rogers here. Starting off with my slides on sustainability. Sustainability is important to us. We are heavily reliant upon a high-quality natural environment to enable what we do, and it's well documented how changes in the environment can impact the biological performance of our salmon. As a company, we continue to make progress along our sustainability journey. Our in-house silage farm diverted organic waste from landfill and turned this into a feedstock to produce both biogas and a high-quality fertilizer. Grant will cover later some more steps we are taking to improve our fish performance. If these initiatives are successful, we will continue to achieve a reduction in our carbon intensity per kg of salmon harvested, noting king salmon, given its physiology, is already a low-carbon protein.
Looking ahead further, the acquisition of a new site for our future primary and filtering processing needs will provide another platform to adopt advancements in technology to continue to reduce this carbon intensity. And as a final note, we did submit our second CRD report in May, which again includes our Scope 3 emissions, which make up over 90% of our GHG emissions. Next slide, please, Grant. Starting off with a quick clarification point. With the change in balance date to 30 September, we will end up having two FY 2025 periods. The first one from 1 February 2024 to 31 January 2025 are being 12 months. We are calling this FY 2025 January. The second one from 1 February 2025 to September 2025, which is an eight-month period, which we are calling FY2025 September.
Now that that's all cleared up for the current half, we reported a net loss after tax on a GAAP basis of NZD 20.8 million, and as Carl covered earlier, this includes a NZD 31 million pre-tax non-cash fair value loss on our biological assets. This compares to our preferred profit measure, pro forma operating EBITDA, which removes these fair value adjustments of a profit of NZD 5.7 million.
The results reflect the well-signaled fish performance challenges which occurred over summer, where lower feed outs resulted in a reduction of biomass on hand, or simply put, our salmon was smaller than expected. Although feed outs have recovered, the situation creates an environment where, to meet normal harvest volumes, we have to harvest more salmon. As we harvest more salmon, the salmon have less time to grow, resulting in smaller and smaller salmon.
In order to break the cycle, the board announced in May a decision to reduce harvest volumes to enable a rebuild in our biomass. The result of the reduced harvest being less biomass to sell, contributing to lower revenue. As Carl mentioned earlier, the high operational leverage in the business results in any revenue reductions having a disproportionate impact on profitability, and in addition to this, on a GAAP basis, the reduction in biomass at sea impacts the fair value movement on our biological assets as we have less biomass to sell in the future. A key point to note would be a majority of the value of the biological assets on hand are salmon to be harvested in the next 12 months, which reflects longish salmon growth cycles of 30-36 months.
For the first year to grow a 100-gram smolt is reasonably cheap, but the last 12 months is where we incur a majority of our costs given as salmon get larger, they eat more, and our largest cost is feed. So if we execute according to our plan, we can expect this time next year we will have a large fair value non-cash gain will be recognized in that period. Moving to the next slide, Grant. Looking at the bridge from the prior comparable period, revenue was impacted by a 20% reduction in harvest volumes, with the supply reductions being harder hit than our food service channels. This was partially offset by a reduction of finished goods on hand, which reduced from NZD 17.9 million- NZD 11 million over the six months to 31 July 2025.
Revenue on a kilogram basis was up on the prior comparable period attributable to both the change in product mix. That is, a greater proportion of our value-added products were sold, and this, we were able to do this through utilizing the aforementioned finished goods on hand, and we were able to execute price increases during the period. As you may expect, when you grow these fish, the total cost to grow these fish decrease, albeit with the operational leverage, the cost of these fish on a per kilo basis has increased. This segues to the well-canvassed operational leverage in the business. We do have high fixed and semi-fixed costs. So as a rule of thumb, the last ton of production is our most profitable. So any uplift in production is very accretive, and unfortunately, the converse is true.
Any reduction in production is very painful, and that is reflected in these results for the six months today. As signalled previously, corporate costs have increased. This is consistent with the need to build additional capability and capacity to progress critical business initiatives, including the BE Pilot and the new processing facility initiatives. Next slide, please, Grant. Now, last slide for me. Despite the reduction in financial performance for the period, the balance sheet remains strong with net cash on hand of NZD 58 million, which is up from NZD 50 million at the end of January. The main impact on the balance sheet for the period has been a large reduction in the value of salmon at sea. So closing inventory has dropped from 4,500 - 3,500mt with 19% when compared to 31 January 2025.
This reduction of salmon on hand reduces salmon available for harvest, which will impact future EBITDA, and that is the cause of the non-cash fair value loss on our biological assets for the period. We do expect biomass to continue to recover through FY 2026 and FY 2027, which is consistent with the life cycles of salmon. The decrease in our harvest volume has enabled us to focus on our finished goods on hand. Pleasingly, these have continued to reduce over the last couple of reporting periods.
They have continued this decrease to be down from NZD 18 million- NZD 11 million, which has provided a release of capital. Other current liabilities have predominantly decreased due to movements in our foreign exchange instruments, in addition to the timing of insurance installments. So at the moment, we pay our insurance in monthly installments with our insurance year running from 1 November to 31 October.
The other current liability balance also includes the deferred revenue recognized as part of the SFFF partnership of NZD 2.6 million. That revenue will be released according to our ability to recognize that in accordance with accounting standards. Payables are temporarily elevated due to the timing of inventory purchases. Outside of that, probably only want to cover a couple of other things, the first being CapEx. From a CapEx perspective, a majority of investment has focused on growth CapEx associated with the BE Pilot project, as Carl mentioned earlier. Pens have been constructed and are in the water, awaiting towing to the BE site. Mooring good work is underway, and the service vessel has been completed and arrives in New Zealand next month.
Another piece of the growth jigsaw announced to the market in September was the acquisition of a commercial site in Cloudy Bay and the Cloudy Bay Business Park in Blenheim for future processing requirements for NZD 8.1 million. The settlement of the site is expected to be on the 7th of October. So that transaction will fall into the FY26 reporting period. Finally, a quick note on tax. We noted with our year-end results, we had utilized all available tax losses, and the company was now in a tax-paying position.
This position has changed as losses generated for the current period will be offset against the taxable profit for the period to 31 January 2025, reducing the current tax-payable position due to the change in balance state. So we will have a 20-month income tax period from 1 February 2024 to 30 September 2025.
That's it from me, and I'll hand the mic back to Carl and Grant.
Thank you. Okay, that's a nice segue into where we're heading from surviving to thriving. Grant, next slide, please. So as mentioned previously, the guidance remains NZD 1-NZD 7 million EBITDA, with the Board guiding now to the upper half of that range. The harvest outlook for FY26, so that's for the period ending September 2026 with our new financial year, is in the range of 5,200-5,800 as we continue to rebuild the biomass. We are now providing a harvest outlook for FY 2027 of 6,800-7,400. And this reflects the increase in confidence management has that the range of initiatives that the business has been working hard on for the past few years are coming into the implementation phase, where they will lift our aquaculture resilience and unlock the growth pathway.
We continue to invest in the BE Pilot and forecast FY2025 CapEx is at NZD 14 million, of which NZD 11 million is attributable to Blue Endeavour and NZD 3 million for stay in business. Dividends will remain on hold as we continue to reinvest cash into the business. I'd like to just make one concluding remark before I hand over to Grant, and that is that there are no quick fixes in aquaculture. It takes time to understand the core issues and to work out how to address them.
It then takes investment, and then it takes time for those investments to play through, bearing in mind that it takes three years to spawn a fish if the investment is on the hatchery side, and a further two and a half to three years to grow a fish if investments are on the farming side.
We have been working hard on those fixes to reduce volatility for several years, and they will start to play through from this summer. So management's total shift from optimistic to confident is considered and deliberate. And I'll now hand over to Grant to just work through a bit more of the aquaculture update.
Yeah, thanks, Carl. So I think there's a certain area of something down on the core. And one of the key things we have been trying very hard over the last few years is to stabilize the core and some of the initiatives that is done there. And the picture there on the top right of the Ruakaka Trial Pens, which were installed at the end of last year, is a great example of that. And that leads to some of the improvements here that we're looking at.
So once they were installed, we undertook a summer diet trial last year, which actually showed a significant improvement on one particular diet, reduction in HCR, significant reduction in mortality and improving fish welfare, fish health, and growth. And that diet will be rolled out this summer. And I think it's a good example of what Carl was just saying.
It's like, that is a process that has taken well over two to three years to get through from the design, the implementation of the CapEx, the build, to run the trial, to evaluate the results, then lock that in to push that through into the business. And we'll see that coming through this year. Our ongoing breeding work is really important to us. And actually, this will be the first year that we will be spawning fish that have been selected for some level of pheromone from the pheromone work that has been done. So that's still a year and a half away from coming to sea.
But that work is ongoing and in place. And we are obviously expanding our partnership with NIWA and the Climate Adapted Fish Program here to include selective breeding for disease resistance, as well as our ongoing genomics work.
Vaccine development is another key one for us. We've been working very hard on our vaccine development in collaboration with key partners. Our in-house veterinarian, Dr. Zac Watterson, he's very confident that we will see some nice improvements in that in the next 12 months. This next point is actually very important to us. The aquatic safe conditions, which is all of our Tory Channel farms, plus two of our Pelorus farms in Kopaua and Waitata, have had their conditions reviewed and with some modifications. This was primarily around the environmental monitoring to get us into some leading best practice, simplifying some of the compliance processes. What additionally occurred is we had our feed dispatch staging requirements removed.
What that has allowed us to do is give us earlier access to 3,500 tons of potentially usable feed discharge down the Tory Channel and another additional couple of thousand tons of potentially usable feed discharge in the Pelorus. That's really important when we come to the next few slides, because it does underpin a story of ability to grow more in our finisher operations and reducing our reliance on Blue Endeavour. The last point here is therapeutants. With the change in some of these conditions, therapeutants, which are medicines, will now be able to be administered at six of our eight active marine sites. This will obviously only be able to be undertaken with the direction and supervision of our in-house veterinarian. That does give us an additional tool to manage biomass going forward.
Just touching briefly on the processing and sale side, we're obviously continuing to invest in our processing capabilities so that we can extract more value from our harvested biomass. A key one there is obviously the investment into our Regal brand into the China market, with very promising early results and a very encouraging market for future growth for us.
When we talk about executing growth, which is really around our Blue Endeavour side as well, I want to do definitely a bit of a shout-out there for our Primary Sector Growth Fund, or what was the SFFF Fund. This project is progressing well. We have got our Blue Endeavour Pilot Fund that continues to proceed as planned. There's a slide coming on that one. The key one there is our RAS, Pilot RAS that we're looking to do down at Tentburn.
We have had the design company on site this week. We are expecting to have the basic design finalized and a build to be in place by the end of this year, start of next year, and that will be approximately a 12-month build process. A wellboat for us is required for Blue Endeavour. That is, it is essential for growth, and we are just looking at whether or not we can bring that forward to unlock some of these operational opportunities on our inshore farms. From processing and sales, as previously disclosed, we have purchased a site in Cloudy Bay, and the design work is now underway for a new processing facility, which will be our whole fish and fillet facility, with obviously RTE and VA remaining in Nelson. Then ongoing market development with geographies and customers.
And then from a corporate side, we're continuing to invest in capability. We have got a growth story ahead of us, and therefore we do need to invest in that in advance of that growth. So that's really important. A little bit of a talk about wellboats. This is probably one of my favorite topics that I ever get to talk about. A wellboat is a large transportation vessel. And so it really is what you describe as a floating aquarium. It's not involved in harvesting. And it is required to operate on a scale. But we've been doing a lot of work about whether or not there's an opportunity to bring the forward timing of this vessel.
Some of the key potential that it could do for NZKS is that it would support the in situ volume increases by providing access to the unutilized feed discharge and therefore increasing our in situ farming capacity. An easy example of this would be transferring smolts to the Tory Channel and relocating this fish over to the port in the cooler months. That is something we are unable to do at the moment.
Another key aspect here is it enables significant farming improvements. A wellboat enables us to move ourselves very close to best practice farming, single-year-class sites, seeding of all sites during that. The wellboat also has grading equipment, so all fish are able to be graded and counted, resulting in a lot less volatility. It eliminates all manual towing in that place, which obviously is always a risk. As we work through this, this is not finalized.
It's just not yet finalized that we are working through these options and plans, but are becoming increasingly confident that this is a very good thing to do, and are hoping to execute this next year, and last slide here for me, just a quick update on Blue Endeavour and exactly where we are. I would probably describe this as a little bit of an eye candy site. We've got a few nice pictures. So obviously our two pilot pens sitting out at our Waihinau site in the bottom left.
The mooring grid work, which is currently underway. That is very much until the pens are out there, these yellow boys are all that you will see on the site as we go through, and then the vessel on the right there is our service vessel, the Tīkonui. That is currently en route from Vietnam.
It is due in New Zealand in a couple of weeks' time, and that will be undertaking the daily servicing of the Blue Endeavour farm, so we do expect Blue Endeavour fish to be towed out in November or December. One of those circular pens has just had the fish from one of the square pens. They have been counted and graded into the circular pens, so we're now being farmed in the circle at Waihinau, so that brings us to the end of our presentation. The next slide is now moving through the appendices, so we will go back to the beginning and go to questions.
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Probably a question for you, Mr. Lovell. What do we think about feed costs going forward as we balance the, I guess, the decrease in volume at the moment against the higher cost of the diet?
So, feed costs is two aspects to feed costs for us. The first aspect is obviously the pure cost of the diet, but that needs to therefore be linked to the performance of the fish. So, I'm very happy to pay more for the diet if it produces an increased performance. And therefore we end up with an overall lower cost per kilogram and a higher quality fish. But I think in the terms of the basis, I'm not anticipating base feed costs to come down over the next year. All indicators are that from the commodity markets that things should be flat to a slight increase. Hopefully, we're not seeing the large yo-yoing and shocks that we've seen in the past.
Excellent. There's no further questions. Okay. One more coming in.
What is the total CapEx expected for the Blue Endeavour project?
Yeah, really good question. I mean, at this point in time, the exposure to the project is just limited to the pilot. So from that perspective, we have a couple of pens which we've constructed and paid for, which get towed out to the Blue Endeavour site and the mooring grids installed. We've also got a service vessel which arrives in October.
So for the sea farm side of things, outside of that investment at the moment, it just becomes an operational cost in terms of the cost to feed those fish on a go-forward basis. We do have a couple of other associated projects, as Carl mentioned earlier, so looking to build a pilot RAS down at Tentburn. But at this point in time, with our partnership with SFFF, all of that will be funded from existing funds and the balance sheet on hand.
If the pilot works as we expect it to work, it is a significant investment, but we normally talk about, we have a lot of wider investments to do. So there's obviously some more pens. There'll be some more boats and groups referenced wellboat, but we'd also need a feed barge out on site. And we've signaled before that other supporting infrastructure, such as a new processing site, would be required. So the project itself is very, very expensive. We haven't guided anything in terms of specific numbers to it at this stage. The first part for us is to do a successful pilot. And once we get through that, we'll be able to speak to you lovely people around more detail around the opportunity for Blue Endeavour.
All right. Hello. Questions are firing through now, Mr. Lovell. So another question for you. What is the long-run harvest range for inshore at the top end enabled by the increase in feed discharge?
It's a tough question to answer that one directly because it's going to depend a lot on how Blue Endeavour goes. As we grow a farm like Blue Endeavour, we will be utilizing inshore sites as nursery sites to take fish out, so that will obviously impact us, but if you looked at if there was no Blue Endeavour farm at all and we were only farming as an inshore farmer, we would have feed discharge to be farming between 10,000 and 11,000 tonnes during the year, and that's usual feed discharge.
Thanks, Grant. Another one should probably hand this to Carl. How does average pricing compare on like-for-like products in China?
That's a good question. On a like-for-like, it's historically comparable to the U.S. market. So we're not trading down margin by trying to grow in China. It's like-for-like comparable to the U.S.
And just got a nice note from Hamish. So thank you, Hamish. So another question's come through. Hand this to Mr. Lovell. What would be considered a successful pilot for Blue Endeavour?
That's a very good question, actually. So the reason we're only doing two pens and a pilot farm is that there will be unknowns that we will encounter. The main success for us is really going to be based on how the fish perform out there. We're playing a very conservative game on our performance, but we want to see the performance, particularly over the summer period, align a lot closer to what we see in the Tory Channel than what we have seen previously in the Pelorus. So the temperature profile on that site is a lot cooler than the Pelorus. It's slightly warmer than the Tory Channel, but with excellent flow and excellent flushing. So it's all around fish performance for us, and that is having fish performance that's comparable to what we're seeing in the Tory Channel.
Excellent. Okay. So there's no further questions have come in. So that will conclude the half-year results. Thank you, everyone, for attending.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.