New Zealand King Salmon Investments Limited (NZK) Earnings Call Transcript & Summary

Hi, and good afternoon. My name is John Ryder, and I'm Chairman of New Zealand King Salmon. And it's my pleasure to welcome you all to our 2020 Annual Shareholders' Meeting. Today's meeting is being held online via the Lumi platform. This allows shareholders, proxies and guests to attend the meeting virtually. All attendees can watch a live webcast of the meeting. And in addition, shareholders and proxies have the ability to ask questions and submit votes online during this meeting. We decided to have this year's meeting online in order to provide certainty around planning for the meeting. Also, at the time when we were organizing the meeting, Auckland was in Level 3 lockdown. We also wanted to enable as many shareholders as possible to participate. Many of us have become accustomed now to online discussions and meetings this year. We also hope to provide an opportunity for investors to visit one of our physical sites in the first half of 2021. Questions. [Operator Instructions] Please note that while you can submit questions from now on, I will address them later in the meeting while we're having -- while we are discussing the resolutions and allowing time for shareholders to vote. Please also note that your questions may be moderated or, if we receive multiple questions on one topic, amalgamated together, but we will endeavor to answer all questions. Finally, if we run out of time to answer all your questions, we will answer after the meeting via e-mail or posting responses on our website. Voting. Voting today will be conducted by way of poll on all items of business. In order to provide you with enough time to vote, I will shortly open voting for all resolutions. At that time, if you are eligible to vote at this meeting, a new polling icon will appear. Selecting this icon will bring up a list of resolutions and present you with voting options. To cast your vote, simply select one of the options. There is no need to hit a submit or enter button as the vote is automatically recorded. You do, however, have the ability to change your vote up until the time I declare voting closed. I now declare voting open on all items of business. The polling icon will soon appear. Please submit your votes at any time, and I will give you a warning before I move to close voting. I'm pleased to confirm that we have a quorum and therefore declare the 2020 Annual Shareholders' Meeting of New Zealand King Salmon Investments Limited open. The items of business for this meeting and the resolutions to be considered by shareholders are contained in the Notice of Meeting, which was sent to shareholders on the 2nd of October. The order of proceedings today is that I will briefly comment on the highlights of the last 12 months, followed by an address by Grant Rosewarne, our CEO and Managing Director. We will then attend to the resolutions. While voting is taking place, there will be an opportunity for you to ask questions. We will conclude with an opportunity for you to raise any matters also of a general nature. In terms of the formal business, we will cover each resolution in turn and invite questions specific to those items. It will then be time to vote on the resolutions. I would outline the process for the discussion and voting on the resolutions at that point in the agenda. I would like to introduce my fellow directors. They are Grant Rosewarne, CEO and Managing Director; Tomakin Lai, a Nonexecutive Director; Catriona MacLeod, an Independent Nonexecutive Director; Jack Porus, a Nonexecutive Director; Paul Steere, an Independent Nonexecutive Director; and Chiong Yong Tiong, a Nonexecutive Director. I would also like to note that members of New Zealand King Salmon's management and staff are in attendance as well as our external auditors, Ernst & Young. My review. During the FY '20 financial year recently completed, the company delivered a strong result considering the huge impact COVID-19 had on businesses in New Zealand and around the world. And New Zealand King Salmon has successfully maneuvered through the initial crisis, and we are optimistic that there is light at the end of the tunnel due to our diversified portfolio of products, brands and geographies. Farming in optimal water space and mitigating the risk of climate change, however, will remain our greatest challenges to achieving our vision of being the world's most premium salmon company. We have made very positive progress this year both in improving our existing production model and also in developing open ocean aquaculture with our Blue Endeavour application to farm north of Cape Lambert in the Cook Strait. As we draw closer to the hearing date, extensive work has gone into preparing the modeling and reports required to reassure the wide range of stakeholders involved. I would like to acknowledge the efforts of the whole team at New Zealand King Salmon in continuing to deliver strong results for the company. There have been unprecedented challenges this year, but the team has dealt with them capably and with enthusiasm. In accordance with the company's constitution, I have signed the minutes of the 2019 Annual Shareholders' Meeting. And these are available on request. I'll now invite Grant Rosewarne to address you. At the conclusion of Grant's presentation, we will move to the more formal business of the meeting. And while voting is taking place, you will have further opportunity to ask questions, and we will respond to questions raised during this online meeting. Grant?

Thank you, John, and good afternoon, ladies and gentlemen. I'm going to take you through our financial year '20 highlights, talk to you about our efforts around sustainability. I'll update you on our business then give you an insight into our outlook, and then we move on to the exciting piece, which is our future farming efforts. So first, the highlights. So as you are probably all aware, revenue was down significantly, more 10%, down to $155 million. If COVID had not have happened, we probably would have achieved somewhere to near $200 million worth of revenue, which would have been a record over any other period. So we were certainly tracking extremely strongly prior to COVID occurring. As with prior years, we've done well with strong pricing again in FY '20 and achieved a price of $24.54 a kilo, up 7% on the prior year. We had a solid pro forma operating EBITDA of $25.1 million. That was in line with the prior year, and it was also within our FY '20 guidance of $25 million to $28.5 million. We were a recipient of the COVID-19 wage subsidy, and this did indeed help us to protect all jobs. Our GAAP net profit after tax of $18 million was up 59% on FY '19 due to increased biomass and average size of fish, and also, we had a slowed harvest. So the GAAP accounting requirements, like any biological business, require us to book part of the existing biology as sales as if they've already occurred, which, of course, they actually have not. Next slide there. So this just gives you a bit of an overview of us as a company, and the next 2 slides do. So $155 million, as I said, 7,336 tonnes of harvest last year. You can see on the right-hand side there our pro forma result, $25.1 million, our GAAP result. And also, you see a map of the world there that shows how important the New Zealand market is to us at 44% but also the U.S. And over the 11 years I've been with the company, that's grown from actually quite a small number to rival New Zealand. And probably the day will come when the U.S. will be a more important market to us than New Zealand. You can see we're quite diverse, 6% Australia, 6% around Asia. We have a presence in Japan, presence in China and Europe. And probably Europe has as much potential as the U.S.A., and probably China has equal potential as well. But because of a lack of fish historically, we've never been able to engage with those markets the way we would have liked to have. Next slide. Right, most would be aware that we have 3 hatcheries on the South Island. We have 9 sea farms in the Marlborough Sounds. We've got a good number of local shareholders here on the top of the South, around 350. We've got about 550 team members. We've got 3 factories here in Nelson where I am today. We've talked about the exports. We take health and safety very seriously. So our lost time injury frequency rate was down at 13.7 from the prior year, which was great. We had 560 near misses, but don't be alarmed, that's -- we like that number to be large. We analyze them and try and prevent actual accidents. We try and be a good corporate citizen cleaning up beaches. So I think that says 36 beach cleanups we had there. And we cleaned up 239 kgs of material, none of it of our making. We're committed to improving our packaging and being more sustainable with reusable, recyclable material and also compostable packaging by 2025. And like the rest of the industry in New Zealand, we are Monterey Bay Green. And that certainly has assisted us and the entire New Zealand salmon industry and engage well with the U.S.A. Right, so then our vision, purpose, mission and values. So our vision is to be the top of the South's most valued organization and the world's most inspirational salmon company. Our purpose is all about creating the ultimate salmon experience for our many customers. Our mission in short is that we want everybody who comes in contact with King Salmon to be better off as a result. And our values are about maximizing the value for each of our stakeholders. We want to be continuously improving, so better every day. We want to act with high integrity. Everything we do is based on teamwork and a team culture, and we want a high innovative, high-quality company. Then our supporting strategies. First and foremost, we always talk about health and safety, including food safety. Unlike other aquaculture producers, we only focus on one species, and that's because ours, we believe, the king salmon species, is the most difficult to farm. So if you take Sanford, our local competitor, they farm king salmon, but they also farm mussels and oysters. We don't do that because we believe in focusing that end of the company very tightly on one species. And by doing that, we'll get the best result. By having done that, then we say, all right, we've done this difficult thing of growing the species, then we want to dominate every premium salmon niche that we come across in the world. These will often be quite small niches. So we're narrow at the beginning, laser-focused at the beginning and broad out in the markets. When we're out there, we want to be 100% branded. That's how we guarantee our future. That's how we get premium prices. We need engaged people to do that, and we measure our level of engagement every year. Likewise, we want to engage well with our local communities. That's important for our social license, and social license enables us to get more water space. We want to do everything we can in a very sustainable way. And we're sort of blessed in our industry with a lot of great things about our fish that make us very sustainable. And of course, particularly in a COVID era, we need to be cost competitive. Right, then a bit about sustainability. So we run a whole number of supporting things with our local communities. So we donate about $200,000 towards the top of the South, which is where we focus our efforts. That can be everything from providing laptops to disadvantaged students at the Girls College to supporting rugby at the Boys College; 2, enabling conservation around the king shag, enabling people to visit a place called -- a retreat called Mistletoe Bay, helping to rebuild the Queen Charlotte Yacht Club, being involved in the Kaipupu Wildlife Sanctuary, being involved in supporting the Picton Maritime Festival. So there's a whole range of activities that we engage in. We want to be a good corporate citizen. We want to be well regarded. We want to be selling back into the community. And as a result of that, that gives us social license to be able to grow. These are our various accreditations and endorsements. So the first one is our Best Aquaculture Practice certification. So we were the first farmers, fish farmers in Australasia to achieve all 4 stars. We're part of the Ocean Wise program in Canada, A+ in New Zealand. Seafood Watch, the next one, is the one that I mentioned from Monterey Bay. It's associated with the aquarium in Monterey Bay, and that has the most commercial attractiveness associated with it. And then we are part of the Aquaculture Stewardship Council. Next slide. All right. Because we are particularly affected by climate change, we tend to be an industry -- or a leader amongst our industry in many things. One of these is life cycle analysis. So we're trying to work out what our effects are over the full life cycle of our product. We've certainly found that most of our emissions post our farm gate and certainly airfreight and our composition of feed are our major contributors. Our fish do not have to warm their blood. They do not have to find gravity. They can have a fantastic feed conversion ratio. So that helps us to have lower emissions than most other land-based animals. Next slide. There are 2 very important programs that ensure the welfare of our fish. So that's our biosecurity management plan and our fish health plan. So we work relentlessly improving our aquaculture model to get a better outcome from a biosecurity point of view but also a fish health point of view. So we try and emulate the life cycle of our salmon as closely as possible. We have recently recruited a veterinarian from Canada, who will be joining us. We have a fish health team that helps maintain the welfare and the health of our livestock. Next slide. So I want to show you under one of our farms. So this is actually under our Te Pangu farm. And you can see what's called brittle stars down there. And right at the center, you can actually see a seahorse. Was particularly delighted to see a seahorse down there, and there's quite a few down there, because they're quite a sentinel species, very sensitive. They do not inhabit environments unless they're in good conditions. So it's great to see seahorses and other native creatures under our farms. It's possible with aquaculture to have an increase in native biodiversity if the farm is run to a high environmental standard, which this one is. So the next slide, please. Then our business update. So first of all, our senior leadership team. We took the opportunity with the departure of our former COO to split aquaculture and processing. And we're delighted to have announced that we've appointed Grant Lovell as General Manager of Aquaculture. Grant is steeped in the tradition of growing our fish. He's been with us for over 20 years. He's developed through the company, probably has more years farming king salmon than nearly everybody else on the planet. There's few people that have greater experience than Grant. And soon, we'll be appointing a General Manager of Processing. Next slide. So then our aquaculture model. As I mentioned earlier, we continue to evolve and update it, keeping it at best practice as we possibly can. So one of the elements that we are particularly taking forward, certainly utilizing the upwelling systems that we put in place last year. We're using them more on our low flow sites and our hotter sites, so -- where we don't have what's called a thermocline. So if we don't have cooler water at the bottom, we won't be using them. So we won't be using them in the Tory Channel, but we will be using them elsewhere. We've got a very good complement of net cleaning equipment and net cleaning teams that do a great job maintaining the environment on our farms in the best condition for our fish. If we keep our farms clean, more water flows through, then that means more oxygen for our fish. We're reducing the handling of our stock, doing less towing, less grading to try and leave our fish alone. And this frees up times for our teams to focus on other husbandry. We're managing our feed during the summer, looking at when the tides are running, planning our feeding to be considerate of our fish. And we're mitigating the exposure of particularly large fish to high summer temperatures as much as we possibly can. So our thinking is to have the right fish in the right location at the right time. So it's fine for fish to be, say, in the Tory Channel over summer. We want to minimize the number of fish outside the Tory Channel. That's always not entirely possible. So we've seen improvements in our husbandry practices and even our feed over the years. And we're certainly going to continue with this to continue to evolve this model and hope to see further improvements over the next few years. All right. We were very pleased with our response to COVID-19. We've got very strong brands, diversified markets. We're very experienced in food safety. We've got a strong financial base. All these things put us in a good position to withstand COVID-19. We certainly had a range of challenges, like in most businesses. There were some times when it was pretty scary right back in April. But the fact that our team were used to wearing PPE meant we could quickly transition them to a higher grade of PPE, and we could move that PPE out to our other team members more broadly. So as a result of having diversified markets, having the PPE, being able to continue to operate, we've achieved a pretty good outcome, all things considered, We were able to donate salmon to essential health workers, and that boosted our standing in the community. We'd certainly have opportunities in retail to develop further. So part of our strategy is to switch out of some of the foodservice business more into retail. One of the things, however, that we've encountered is that not all retailers are open to listen about new lines. Whereas that was the case pre-COVID, it's not always the case now. But some retailers are coming back online. So we have a meeting this week with Coles actually to talk about some new lines. And as each country gets on top of its COVID situation, retailers will become more available for the listing of new lines. And that will assist with the deployment of our retail strategy. Right. You can see the impact here. So dark blue is our actual sales. Light blue was our forecasted sales. And we certainly -- if it wasn't for COVID, we certainly would have achieved our forecast and maybe even done better than forecast. So you can see there was a dramatic effect in April. That's why we qualified for the wage subsidy. We're certainly working our way back out of that. Our core business is in a very good state. Paradoxically, North America is really strong, as strong as it has ever been. So we've pretty much restored our position there. Australia is also doing well. Some of our Asian markets are taking longer to recover. Even the New Zealand foodservice market with the second lockdown is somewhat behind. But the fact that we've got America and Australia in a strong position, we've recovered our position to be similar to where we were pre-COVID now, but we had additional fish in the water for growth. And that's what we're having trouble selling. So some of those fees are going into the freezer as we speak and as we prepare markets for improved sales going forward. Next slide. So just to give you an insight into some of the things that we did. So there's a chef, Massimo Bottura. He's an Italian chef, one of the top-rated chefs in the world. If you go online, you might have seen him have quite a discussion with Jacinda Ardern, our Prime Minister, about New Zealand primary produce and the high quality of it. And Ora King was in the mix on that, which was good. A lot of our importers, distributors, especially in the U.S.A., have really pivoted the business more towards fishmongers, so fresh fish available in stores. So that's what you see there with Wulf's Fish. And also our chefs and restaurateurs, many of them have increased their takeaway or home delivery. And they've been able to keep their business going as a result of that. In fact, I have to say, the Americans have been the most dynamic in pivoting their economy, as evidenced by our strong sales there to this day. Next slide. So Ora King brand, it really continues to go from strength to strength. Many of our shareholders would have seen it in premium restaurants in New Zealand but around the world. We've taken the opportunity, certainly with the lockdown and whatnot, to improve our position on Instagram with an impressive 30% improvement to 13,000 followers. We have supported local chefs and food and beverage personnel who have lost their jobs with salmon. In the wake of extensive closures in the U.S.A., we've been selling more online. So that's been quite positive for us. And as I mentioned, the North American Ora King sales have held up particularly well. Next slide. One of our strategies is certainly to further diversify our business. So we're already diversified in terms of geographies and foodservice and retail. But what else can we get value from? And we've launched our pet food range about 4 years ago. Omega Plus is in strong demand certainly in China. You can see there's some treat products there. They're going particularly well. So very pleased with the development of Omega Plus especially in China. We've also launched it into South Korea and soon be launching it into the U.S.A. In the good old days, when we were short of fish, we required Atlantic salmon. And that's still part of our strategy because it gives us a price point that we can't and maybe don't want to achieve on our king salmon. But also, it enables us to manage our stock better. It enables us to replace king salmon at times with Atlantic salmon, and it enables us to be competitive in both Foodstuffs and Countdown in New Zealand up against other Atlantic sellers. So we've got about a 5% turnover on the -- of revenue outside of king salmon at the moment and looking forward to that sort of increasing further over time. Capital expenditure is forecasted to be around about $10 million this year. That normally would have been about $20 million, so as a result of COVID, we have definitely trimmed our cloth. The building you can see up to the left there, that's our first feeding facility at our hatchery at Tentburn, and that's nearing completion. Now that takes the fish at the very first stage of their life, and it's a secure facility with excellent biosecurity and great growing conditions. And down the bottom, you can see our newest and largest barge called the Thomas Song after one of our directors from the past who made a major contribution to our company and sadly departed now. So the Thomas Song is at our Waitata Farm, and it's, as I said, our newest and largest feeding barge. Then our outlook. So the harvest for this year and FY '22 is forecasted at about 8,500 tonnes as per our previous guidance. We are going to carry over stock from FY '20 into '21 and also from -- probably from '21 to 22. That will help smooth our sales out and enable us to create more value by doing that. Some of the fish that we've frozen now, for example, we'll take out of the freeze and turned into smoked product and sell both domestically and internationally. As I mentioned, we have curtailed our capital expenditure down to $10 million. The payment of dividends will be reviewed next year. COVID-19 continues to cause ongoing uncertainty in foodservice and, to a lesser extent, in retail. The point that is a problem for us is, are they open to range and list new lines? And as I mentioned earlier, they are not all open at this stage for that purpose. Our core brands and our premium prices are in a really good state. So that sales of around 7,000 tonnes, our excess sales, if I call them that, our frozen inventory is proving somewhat harder to move than we originally anticipated. But we can be patient because we've got good funding facilities to support that. And our profitability is reasonably strong because of our base sales. We're very pleased with the start to FY '21. Given all things, as I mentioned, base sales are good. Pricing is good. So whilst we're in a good situation regarding profitability, cash flow is an issue for us. We're building up inventory, and we're feeding a growing biomass of fish. So we're just being very circumspect with our cash. And as I mentioned, we've got a good facility supported by the BNZ. The water space initiatives remain key, and we're hopeful for a decision on both Blue Endeavour and perhaps even the Farm Relocation in FY '21, not -- the timing around the latter is not as well known. The Blue Endeavour -- our Blue Endeavour application is due to be heard in April. And if it's heard in April, we should get a result in May. Right, so something a bit different here. So we had a Board meeting yesterday. And the Board resolved to change our balance date to improve certainty of earnings. The 2 charts down the bottom show our mortality and monthly mortality. The one on the left is with a June 30 balance date. The one on the right is with a January 31 balance date. In an effort to create more certainty around earnings and for the King Salmon team, the Board's view was that if we get summer out of the way, then we forecast our position, we give our guidance to the market. We've got 9 months of certainty in which we can innovate and build our business. And under the June 30 model, we've only got 2 months of certainty after the summer. I think you're all aware, often, we'll have a very good first half, and things can be going extremely well. Then summer comes, and we just don't know whether it's going to be a hot or a cool summer. And so we're a bit circumspect about investing in the first half, not knowing what's going to happen with the summer, and then we've only got 2 months remaining of that year. So we've taken this decision to improve our certainty of earnings, and we believe that will create more value for all of our stakeholders. Future farming. So first, the relocation. In 2017, there was a panel which heard the relocation case. Unfortunately, the outcome of that didn't have a lot to offer in terms of increased volume, maybe some improved quality, maybe some lower mortality, which is of benefit, but it isn't as positive as we would have hoped. We've gone back and negotiated with iwi and got a joint proposal together. So that's now before the minister. And Minister Parker is the new Minister for Oceans and Fishery. So it will go from Stuart Nash who was considering it to Minister Parker. We're hopeful of a decision in the financial year, as I mentioned, but it's likely to be behind Blue Endeavour. And the next slide. Right, so first of all, the picture on the left is an existing farm that is very similar to what Blue Endeavour will look like. Our government has an aquaculture strategy that's over a year old now, and it's designed to take our industry from around $600 million to $3 billion by 2035. So the government developed this strategy. It's about green jobs. It's about boosting the regional economy. It's getting us out into cooler waters, it's getting us further away from people, and it increases our biosecurity. So it's an excellent strategy. The time has come, though, for the rubber to hit the road. Labour developed this strategy. They now have control of the Parliament after the election. They have the majority there. So we're hopeful of seeing more progress in the future than we've seen in the past. Next slide. So this slide shows all of our existing farms. But the 2 orange ones there, that's the Blue Endeavour site. Now just remember, each one of these dots is about 100x bigger than the actual surface hectarage of the farm. So if we made them the actual size in proportion to the map, you wouldn't see them on there. So they're literally 1, 2 or 3 hectares often for the surface structures on a farm. You can see how much Blue Endeavour is out into the Cook Strait. So it's got a very long fetch to the North Island. It is protected from the South and the East and the West, though. So some interesting facts. So the world's surface is about 70% ocean. It only produces about 17% of the world's animal protein, about 2% of the world's food supply when you're taking most of the food supply is plants grown on land. So New Zealand's marine environment is 21x larger than its land environment. We can create $34 million worth of revenue per surface hectare. And at the moment, we're $600 million, and we could certainly go to $3 billion by 2025. In fact, that's an easy target if we get government support. Next slide. So then future farming. So by far, the most interesting, exciting initiative at King Salmon is Blue Endeavour, our open ocean application. We're continuing to gather more data, more modeling and assembling the case. There are only 14 submitters that are against it, so that's actually a very low number. There were many more people in favor of it. It will be heard under the RMA by the Marlborough District Council who's appointed 3 commissioners to hear the case. As I mentioned, we're continuing to gather more information. The earliest possible harvest from the region would be the fourth quarter of 2023. The reason for that is that first, we have to get resource consent, then we need to order the equipment. Then we need 1.5 years to stock the farm and grow it out and have the harvest. Hence, fourth quarter of 2023. The capital expenditure for Phase 1 is about $35 million, with an equal amount of operating expense in terms of fee that would have to go into the site before the harvest, so about $70 million in total. And Phase 1 would produce 5,000 tonnes of harvest and Phase 2, another 5,000. So when Blue Endeavour both phases are up and running, we -- that doubles the capacity or the output of our company.

Well, thank you for that, Grant. We will now move to the business of the meeting and the procedure for this part of the meeting. We have a number of ordinary resolutions to be considered. The resolutions are required to be passed by a simple majority of votes. The resolutions that we will be voting on today are as follows: resolution 1, authorization for the directors to fix the auditor's remuneration for the coming year; resolution 2, election of Catriona Macleod as a director; resolution 3, reelection of Jack Porus as a director; Resolution 4, reelection of Paul Steere as a director. The current best practice for shareholder voting is by way of poll. Accordingly, in my capacity as Chair, I require that a poll be held for each of the resolutions. Shareholders who are entitled to vote and proxies who have discretion as to how they vote have received a voting/proxy form when they registered. If you completed a postal or online vote prior to the meeting, you do not need to complete another voting/proxy form. Voting will take place electronically. So I will invite you to vote at any time now. I and my co-directors hold undirected proxies. With respect to resolution 1, authorization for the directors to fix the auditor's remuneration for the coming year, we hold 170,877 shares as proxies. With respect to resolution 2, the election of Catriona Macleod as director, we hold 160,627. With respect to resolution 3, the election of Jack Porus as a director, we hold 160,627. With respect to resolution 4, the reelection of Paul Steere as a director, we hold 160,627. Your Board supports these resolutions, and we intend to vote all of these shares in favor of these resolutions. As I mentioned, you may ask questions at any time, and we will address specific question specific to each resolution at the time. Moving on to the resolutions therefore. Resolution 1 relates to the remuneration of auditors. The proposed ordinary resolution is to authorize the directors to fix the auditor's remuneration for the coming year. In accordance with the Companies Act, Ernst & Young have been automatically reappointed as the company's auditors. As is usual with audit fees, due to the complexity and changing nature of the company's affairs, it is not possible to fix the remuneration at the beginning of the year. So I now move as an ordinary resolution that the Board is authorized to fix the auditor's remuneration for the coming year. I now invite questions on the resolution. So there appears to be no further discussion. And we will now move to the next resolution. Resolution 2 relates to the election of directors as required by the company's constitution and the NZX Listing Rules. Directors appointed by the Board since the last Annual Shareholders' Meeting and are therefore required to stand for election at this meeting. And resolution 2 relates to the election of Catriona Macleod who has been appointed prior to the meeting. The Board recommends that Catriona Macleod -- recommends to you Catriona as a director, and the Board unanimously supports her election. I would now like to invite Catriona to briefly address the meeting on her proposed election.

Thank you, John, and good afternoon, everybody. I'm really pleased to be part of the New Zealand King Salmon for the last 10 months. I've been watching the company's development with interest ever since I was invited to provide advice on environmental management in the Marlborough Sounds about 10 years ago now. I was very impressed then with the proactive stance the company had taken to sustainability and the level of consultation employed. And I'm very pleased that those values are still in place. But you are probably more interested in who I am and what skills I bring to the Board rather than my view of the company. My professional career started in commercial aquaculture when I worked for Marine Harvest in Scotland as an Assistant Manager on their selective breeding program. The skills I developed there saw me transfer to Tasmania as the hatchery manager for SALTAS in the early 1990s. SALTAS at that time produced all of the smolts for the Tasmanian industry. So I have a fairly good -- very good understanding of aquaculture production principles and practices from [ copious ] experience. However, I'd always been interested in the environmental interactions of fish farming and knew that if the industry was to develop, as I suspected it could, then this was an area that needed more information and understanding. This prompted a move into science and research. And I have since spent many years working on a range of sustainability issues in marine and coastal systems. 25 years on, I'm now, or so they tell me, an acknowledged expert in my field with more than 150 peer-reviewed research outputs. I'm regularly asked to review national and international projects and provide advice to government, industry as well as a broad range of other stakeholders on sustainability issues and how best to manage and optimize interactions particularly in relation to aquaculture development. And I look forward to bringing that background knowledge to the New Zealand King Salmon Board. I think perhaps the reason I've been so successful in this aspect of my career is that I have been very focused on ensuring the translation of research outcomes into tangible improvements in both work practice and government policy. This has seen me labeled a boundary spanner in some circles, which is really just about making the science cleaner for everyone involved so that best outcomes can be achieved. In doing this, I have a lot of experience in community engagement and social acceptability negotiations. I have a firm understanding of natural resource management issues and sustainable development goals both in the local as well as the global context and particularly as they pertain to aquaculture. And I am comfortable and excited to bring those insights to any and all strategic discussions within New Zealand King Salmon. From all of those aspects of my career, I've actually developed extensive scientific government and industry networks, both in Tasmania, Australia and internationally, including in New Zealand where I've worked on and off for a number of years. And I have successfully built strategic relationships with partners, stakeholders and interest groups at all levels, once again, particularly in the aquaculture space. I have considerable experience in working with government and industry to strategically map, align and plan R&D needs, including the development of risk and opportunity profiles. And I really look forward to bringing those skills to the role of Chair of the Health, Safety and Risk Committee. So in conclusion, I am confident and comfortable that my skills complement those on the Board currently. And I look forward to working with the other directors and the senior management team to support the company's strategic development and long-term sustainability agenda. The future is exciting, especially with the opportunity presented by Blue Endeavour but not without challenges, both foreseeable and unforeseen, as the last 8 months in COVID have made patently obvious. I'm confident I can make a valuable contribution to the Board and the company and will do my best to provide independent advice and direction needed to see New Zealand King Salmon achieve its goals. Thank you.

Thank you, Catriona. I appreciate your comments. I'd now move as an ordinary resolution that having been appointed during the year by the Board and holding office only until the annual meeting, Catriona Macleod be elected as a director. Are there any questions on this resolution? There appears to be no discussion. I'll now move to the next resolution. Two directors are required to retire at this meeting. The directors to retire, those who have been longest in office since the last election being Jack Porus and Paul Steere. Resolution 3 relates to the reelection of Jack Porus, who's shown on your screen there, as a director of the company. And the Board recommends Jack to you as a director and unanimously supports his reelection. And I'd now invite Jack to briefly address the meeting on his proposed reelection. Jack?

Thank you, John, and good afternoon, everybody. I am a commercial and property lawyer, and I am the Managing Partner in the Auckland-based legal firm of Glaister Ennor. I have acted for the Tiong family who own a 40% stake in our company, that is New Zealand King Salmon. And I've acted for them since they first invested in New Zealand in 1990. Soon after they made their first investment in New Zealand, which was in forestry, I assisted the Tiong family to rationalize the New Zealand salmon farming industry. And as a result of this, New Zealand King Salmon Limited was formed. I've now served on the Board of this company for the last 12 years, and I hope to continue my role as a director if reelected at this meeting today. Thank you.

Thank you, Jack. So I would now move as an ordinary resolution that having retired in accordance with NZX Listing Rule 2.7.1, Jack Porus be reelected as a director. Are there any questions on this resolution? Okay, there appears to be no discussion. And I would move to the final resolution. Resolution 4 relates to the reelection of Paul Steere as a director, and the Board recommends Paul Steere to you as a director and unanimously supports his reelection. I'd now invite Paul to briefly address the meeting on his proposed reelection. Paul? Are you there, Paul?

Tena koutou katoa. Good afternoon, shareholders. My background is well known and described elsewhere, so I'll keep this brief. I consider it a continuing privilege to serve shareholders as an independent director. We're all proud we have the most highly regarded salmon in the world, obtaining the highest premium. Though the road to growth in farming has always been challenged in salmon space, has always been challenging and today is longer and windier than ever, I have nevertheless no doubt we will get there next year with Blue Endeavour. At the same time, we must always remember that we are only custodians of that [ order ] space in the [ commerce ]. Our task is to protect and ensure its natural state. The better the water, the better our king salmon. I'd also like to add my commendations to John of the team's magnificent effort these last 10 months. Within the industry and all Australasia, their performance has been second to none. And I'd like to thank shareholders and my Board colleagues for their continued support of my appointment. Tena koutou.

Thank you, Paul. I'd now move as an ordinary resolution that having retired in accordance with NZX Listing Rule 2.7.1, Paul Steere be reelected as a director. Are there any questions on this resolution? So there are no specific questions relating to Paul's election, and therefore, there's no need for further discussion. We'll now move to general questions and to complete the voting. If you have not already voted, please do so now. While I allow time for you to complete voting, we will respond to questions that have been raised by shareholders.

So Andrew, I understand you are going to read the questions.

Yes. Thanks, John. The first question we have is, you project some $70 million of capital required for open ocean farming. How do you plan to raise this? And what proportions will be new debt placements or further investment by existing shareholders?

Well, I can answer that, Andrew. Thank you. At present, our focus and up to date our focus has been on obtaining the resource consents for the Blue Endeavour open ocean farming, although we have been in discussion with financial advisers. However, no decisions have yet been made on how to fund the required investment. And the Board will look at the appropriate capital structure when we have finalized the consents and the extent of the project. However, in saying that, I would add that any investments of this size is likely to require some equity, and we will keep shareholders updated as we move forward with this project, which we find very exciting. I would also note, though, that we do have some ability to stage the investment. And the $70 million that you have mentioned, about $35 million of this is related to the salmon as they grow through the harvest.

The next question was, given the lengthy growth cycle for new fish, what is your approach to refreshing your inventory for a post-COVID world, aggressive or cautious? And I think perhaps I will ask Grant Rosewarne to answer this one.

Yes. Thanks, Andrew. Yes, certainly, aggressive, no doubt about that. The demand for king salmon has always been much greater than the supply. We are in an unusual period for the company where that's not so right now. We've certainly, as I said, restored our position, but the additional growth that we've got ahead of us, some of that is going in the freezer now. But we will work our way through that, and we've got the facilities to support us. Certainly expect that we will get back into a situation of greater demand fairly quickly. These short-term problems will be behind us. And then we have some fantastic plans to further differentiate our product to further increase demand. And also, that should enable us to maximize our price. So in short, yes, very, very bullish about the future demand for our product. Also, expecting a lot to be delivered through a different -- through additional differentiation and additional power in pricing.

Thanks, Grant. There's one more question at this time. How can you get increased value from your harvesting by-product?

Yes. So not exactly -- when it says a harvesting, so our focus is on getting value for every kilo of salmon that we produce, so from the head to the tail. And that is indeed why we launched our pet food brand, Omega Plus. Previously, a lot of -- some of the offcuts and trimmings would have been sold at as awful for very little value. And now for example, some of our treats are amongst our highest-revenue selling products. I think our little small treat, the price achieved for that is higher than our most premium fine-dining product, which would be Ora King TYEE. So that's interesting about what can be done there. When it talks about harvesting a by-product, maybe the question is, is there a complementary product like seaweed or something that could be grown? That's not something that we're actively looking at. I suppose it's a possibility we will evaluate. But we're more focused on developing complementary products from our existing by-products, so more snacks, canapés, health products, beauty products, that sort of thing. Yes, probably not going to go down the avenue of harvesting coproducts along with our salmon, though.

So there doesn't appear to be any more questions. So ladies and gentlemen, that concludes our...

Hold on, hold on. There's just one come through, which I'll pass on in a second.

Yes, do you want me to take this one? Or are you going to take it, John?

Well, let's just read. Do you want to read the question, Andrew? And probably, Grant, it's best that you answer that one, but I'm happy to assist.

Yes. Okay.

Andrew, are you reading the...

Yes. I think we need to read the question out, Andrew, first.

Yes. Just -- so there's a question through. Given the profits during COVID-19, does NZKS think it is timely to return those funds to the government in the near future?