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

Okay. We'll make a start. [Foreign Language] Kia ora, everybody, both present here at the Queen Charlotte Yacht Club and online through Vimeo. Welcome to the Sixth Annual Shareholders' Meeting of New Zealand King Salmon. My name is Paul Steere, and I'm an independent director of the company. Unfortunately, our Chair, John Ryder, is unable to be with us, though he is present online. We wish him a speedy recovery, and I will chair the meeting. Firstly, some housekeeping points for those here in the yacht club. Toilets are located at the double doors into the foyer and straight ahead. In case of an evacuation, and we did have a 4.3 earthquake earlier this morning, use the nearest exit, looks out of the room and through the way you would have come in, and congregate at the assembly point outside located where the driveway meets the parkway. Mask wearing is optional, although we encourage you to maintain social distancing where possible. We will open the floor up to questions at the end of the presentation. A microphone will be brought to you. [Operator Instructions] Once the formalities are concluded, we invite you to join us for a light refreshment. A part of the room down here will be set up for drinks and nibbles afterwards. I'll now introduce my Board colleagues. Joining us here in Picton is Professor Catriona MacLeod and Ms. Victoria Taylor. Where's Vicky? There. Mr. Chiong Yong Tiong, who represents the Oregon shareholding, is unfortunately getting on a plane yesterday, did a RATs test and found that he was COVID positive. So he is confined to his house today and won't be here in presence. But also joining us online is Mrs. Carol Chen in Hong Kong. And you will hear more about Yong, Vicky and Carol as they offer themselves for election later in the formal proceedings. Jack Porus, the other director, is traveling in Europe and is an apology today. I'm also pleased to introduce members of our senior management team present today, starting with our Chief Executive, Grant Rosewarne, who will be familiar to you all, who still needs to wave his hand. Our new Chief Financial Officer, Ben Rodgers; General Manager, Aquaculture, Grant Lovell; Graeme Tregidga, General Manager of Sales; and Jemma McCowan, General Manager of Brands & Sustainability. There are also other staff present with specific expertise in our company, and they all can assist in answering any questions later. Brendan Summerfield, the audit partner from Ernst & Young, is also with us today and able to respond to any questions on the financial statements you have received. You better put your hands up, too, in case you're trying to escape an answer. I will now give a short overview of the year under review plus the period ahead, then Grant will take you through a more detailed presentation of our operations and intentions, followed by the more procedural ASM requirements. So the year ended 31st of January was a bit of disappointment to your Board, management, and indeed, all staff and stakeholders. We very much regret the impacts had on you all. We have discussed before the warming -- the effect of warming waters on the husbandry of our grow out fish in the Marlborough Sounds and had implemented a range of mitigations for the historical peak temperatures, which have previously always occurred around late February through April. We were stunned, however, to find that warmer water temperatures arrived earlier this year. A marine heat wave was upon us. In January, temperatures began to rise substantially, and mortalities also correspondingly increased. Our vulnerable volumes were higher due to larger unharvested stocks. Our teams scrambled to reschedule our harvest and processing to remove any extra volumes immediately available and fine-tune our operations for reduced harvest to best use smaller fish sizes. Your Board and management have determined a range of strategies to minimize the warmwater impact and associated health challenges for the next few years. The key tenant of this includes avoiding warmwater sites over the summer months and focusing production over this period in the cooler water of the Tory Channel. This strategy will result in the fallowing of 3 Pelorus farms after they are harvested out in the course of this year before the summer. Events and investigations will be ongoing around these challenges with the goal to enable the restarting of these sites. These efforts include a focus on our immunization program and also our focus on the breeding program with a view to have a more thermally tolerant stock. Other strategies include the downsizing of company costs and resources to a level appropriate for the lower volumes, until Blue Endeavour comes online in some years, we hope. Regrettably, we lost nearly 1/4 of our expected harvest volumes for the current year which is resulting in staff reductions, mainly by attrition. And many of those that we needed to let go were able to be placed elsewhere, assisted by the current low level of unemployment. Your Board has also insisted that capital expenditure be limited to essential items only with a review of salable, unnecessary assets also underway. More positively, global prices for conventional salmon have set new records as a consequence of COVID economic impacts, production restraints for the major industry players and since February, the Russian invasion of Ukraine. We remain the premium sought-after salmon product worldwide, and the rise in competitors' prices has also assisted in achieving further gains in our returns from the global markets. The Board has also commissioned an external review of our operating costs and product returns, and this work is ongoing. In addition, a committee of the Board has been formed to review and assist our aquaculture team in looking at its production strategies with a view to optimizing health outcomes, in particular. This review is comprehensive, forward-looking and nonrestricted and will consider a range of potential effects and interactions, including temperature, other environmental considerations and also pathogens. We have commissioned an independent aquaculture production expert to join the committee and can seek other specialist expert advice as required. We are committed to resolving our fish health issues as a priority, not just for our commercial viability but as a critical fish welfare focus. The high cost of mortalities affects both last year and this fiscal year 2023 and has had a wider effect on our balance sheet from the impairment of goodwill and other assets relating to Blue Endeavour consent costs. We also then sought shareholder support for additional capital in order to appropriately capitalize our funding structure. It was a difficult call to offer a heavily discounted price, but this was at a level that our advisers and the Board believed was necessary to obtain the required capital. All shareholders were treated equally. Thank you for your support in that successful rights issue. Finally, may I confirm that the Board and management are unrelenting in their efforts to regain the unconditional confidence of all stakeholders. We intend to demonstrate a return to profitable earnings. And in spite of the outstanding potential of Blue Endeavour, our focus is on the here and now and the need to build value over the next 3 to 4 years. We create and farm a great salmon, which is highly sought after throughout the world. And our aim is to grow many more of these in a profitable manner. [Foreign Language] I'll now ask Grant to take the meeting through his presentation.

Thank you, Paul, and good afternoon, shareholders. I'm going to take you through our financial '22 overview, our efforts around sustainability, an update on the business, the future-looking outlook and also our efforts regarding future farming. Right. Before I go into this slide, firstly, I want to add my -- to what Paul said, the regret that we have about what happened at King Salmon, and my apologies about the financial outcome that we've had. I'm the Chief Executive. Ultimately, I'm responsible for that. And certainly, I understand the pain that some of you would have had and regret very much that this has occurred. We'll go through, okay, what are we going to do to try and get ourselves out of this situation and into a much better place, and Paul touched on that. But let's go first into a review of what happened. So first of all, if we look here, the COVID has definitely affected our business. It has pretty much affected you, everybody, every business in New Zealand. And we've suffered all along from these increased freight costs and supply chain problems. And that's ongoing to this day actually. That part hasn't changed. The things that have changed, we had a very difficult situation initially back in FY '20 and '21, where we couldn't sell all of the fish that we had, and some of them went into the freezer. That was largely resolved when we started clearing stock at the beginning of last year, FY '22. So our sales really had recovered by the beginning of that year. Unfortunately, we had a mortality event last year also. You can see, it's a smaller event than the one that we've just had in the past summer, but nonetheless, a mortality event. And part of that was due to us bringing in what would otherwise be a very good practice. We brought in something called single year class. It's something used by salmon farmers and aquaculture around the world. It usually leads to a better fish health outcome. But in our case, paradoxically, it didn't do that. Why not? Because you need space to be able to enact that effective strategy well, and we didn't have enough space to do it. And it had the opposite outcome to what we would have intended. It meant that we had our large fish on warmwater sites at exactly the wrong time of the year. So it would have been a good practice, except we didn't have enough water space to really mitigate the problem. And that's at the basis of a lot of King Salmon's issues is space, enough cool space to grow our salmon. No government of any persuasion, either national or local, has created space for the salmon industry, us included. And so what we've got is remnants from mussel farming, some other applications that we pulled together that we, as a private company, have had to persevere with. But in terms of the government allocating space like they might do for a residential development or a port, that's never happened. And because that hasn't happened, we don't have enough space to farm in the way that we would ideally like. As I said, our sales had recovered by about this period here. We then went into -- unfortunately, because of this problem with the single year class not working out, we got into this problem with smaller fish, and we had to restrict our harvest. So when your biomass is reduced, the way to try and bring -- make that larger is to restrict the harvest, grow the fish larger and restore the biomass. And that's what we started to do, and that helped recover our position. But unfortunately, then we had this very long-drawn-out summer mortality due to the marine heatwave that Paul mentioned this past summer. And you can see all that time, our debt was rising. And ultimately, we did the capital raise, and we've got no net debt in the -- we've got positive cash flow at the moment in the company. And we really needed to do that to shore up our balance sheet, as Paul mentioned. Right. Now we're going to go through the bridge from last year, from FY '21 to FY '22. You can see revenue is up by -- well, you probably can't see with the green line there. Sorry, the contrast isn't so good here. But we've got an increase in revenue of over $18 million because we had -- our sales volume was higher. That's offset by what's called a stock movement. So we pulled stock out of the freezer and started to sell it. Effectively, that hits our P&L. We have to pay for it as it comes back out of the freezer. So that's what the stock movement is. Then -- I'm not sure what happened there. Then we've got increased freight costs. That's something like up to 80% increase in our freight costs as we ship around the world, and that's just a consequence of the COVID situation and the lack of availability of both frozen containers but also aircraft. And we are particularly affected by having less airfreight available. We -- I talked about that we had the largest mortality event in the company's history. And that's the -- you can see the increase in the mortality, almost $5 million over the prior year. And then we have our increased processing costs. That's due to labor, increases in packaging. I think we've all experienced increases in inflation, and that's what's driving up that processing costs, including labor costs going up significantly as they are throughout New Zealand. We had a positive closeout of excess foreign exchange contracts, and then you get to the position of $6.7 million pro forma EBITDA. So that's the chain of events or the step through from FY '21 to FY '22. And [ Lauren ], do I need to fix this in some way?

No. I don't know [ how you've done it ].

Okay. That one then.

Okay.

Is that back to normal?

Potentially, no.

How do we stop that coming up?

I'm not too sure.

Okay. That's good. All right. Thank you, [ Lauren ]. Sorry about that. Don't know what happened then. Okay. Then some facts and figures. You can see that our revenue has been relatively flat, there's -- 5 years there. You can see that we're fairly geographically diverse but with a concentration of almost equal size in the U.S.A. and New Zealand. And then Japan is about 6%. Australia is 7%, the rest of Asia, about 5% and a little bit in Europe. Why do we have that makeup? It's because of the constraints that we've always had around supply. There's no reason why Europe couldn't be as big a market for us as the U.S.A. But with the tyranny of distance and with the lack of supply, we've never really developed that market. So there's a massive potential for King Salmon around the world, of which we've only partially realized because of the constraints that we have. I took you through the -- our pro forma EBITDA. So this is the pro forma result here. This is the net profit after tax, and it captures the impairments that we have in both our goodwill and our assets to the tune of about $59 million, which led to that outcome there of negative $55.7 million. Right. We always like to go through, in a nutshell, what the vision, purpose, mission of the company and its strategies. So first of all, what's our vision is to be one of the Top of the South's most valued organizations and the world's most inspirational salmon company. And we used to have the most premium company there in the past instead of the most inspirational. And we can measure that easily with the price that we achieve. And Paul mentioned that we achieved quite a premium to Atlantic salmon. Atlantic salmon is high at the moment. But even under those situations, we can be a 50% to 80% premium over Atlantic salmon. And when there -- at a low point, we can be a 200% premium or even a 300% premium, depending on where that commodity is in the cycle. So Atlantic salmon is a commodity product. King Salmon is a value-added branded proposition. So what's our purpose or our role? And we use this to focus our team. It's all about creating the ultimate salmon experience. So when someone at King Salmon is making a decision, do we do A or B, we like them to think, would this lead to the ultimate salmon experience or not and then choose for the ultimate salmon experience. Our mission. Why do we do what we do? We want to make everybody that comes in contact with the company better off as a result. And of course, we recognize with the year just gone, we haven't done that for you, our shareholders, and we are dedicated to getting that back on track. Then just going to our foundations, so here. So what's at the real foundation of the company is our sustainability. We want to have increasing levels of sustainability year after year. We've got some natural advantages with aquaculture. Our fish don't have to fight gravity. They don't have to warm their blood. They can have a very low -- a great conversion, low consumption of feed into an edible salmon, which is really good. They take up a relatively small amount of space because we've got 3 dimensions to work in and not 2. So we've got a pretty good outcome to start off with, but we do need to measure that and continue to improve it. Then we have to operate safely. Everyone goes home in as good a state or a better state than they arrived at work. And of course, producing smoked salmon, it's really important that food safety is uppermost in everyone's minds. Then what are the 5 strategies that we deploy to help us achieve these? It is really to focus on one species. Many of our competitors farm multiple specialties. So Sanford's farm mussels and salmon. Tassal, they've farmed trout at times. They're farming prawns now. They farmed salmon. Huon have farmed kingfish, salmon, trout. So it's quite common for an aquaculture producer to focus on multiple species. We've expressly not done that because we want our aquaculture team to be focused on the one species and to do it well. And if we think if we were to distract them onto another species, they wouldn't have the time and effort to really perfect the King Salmon species. We obviously need to control our costs now more so than ever. We've got a brand leadership position that we need to further entrench and take forward ultimately to get to 100% branded. We need highly engaged and committed people that are willing to go the extra mile, and we need a strong community engagement to -- for social license to be able to grow our business. Then just some words about sustainability. These are the 5 programs that we're engaged with. So we need to communicate effectively with our customers as to what level of sustainability are we with the Best Aquaculture Practice, this one here. We've got 4 stars, and we were the first ones in Australasia to achieve 4-star Best Aquaculture Practice. The A+ program is a local New Zealand certification. But this one here is really interesting. This is Monterey Bay Seafood Watch, and this is the one that's most highly sought after in the U.S.A. To be green on Seafood Watch opens a lot of restaurant doors especially, and we are predominantly a foodservice business in the U.S.A. So that's extremely helpful to us. Ocean Wise is the Canadian equivalent of that. And the Global Salmon Initiative, it's a pretty competitive group of salmon producers that share information to improve environmental and sustainability outcomes. And so we're highly engaged with them. Right. And so what are some of our sustainability developments? We launched our first Environmental Product Declaration. It was the first one for King Salmon and was the first food EDP in Australasia, which was quite an achievement. We've consulted really broadly with our various submitters regarding Blue Endeavour and have put a huge amount of effort into that. We're committed to being 100% reusable, recyclable and compostable with our packaging by 2025. And we're currently at about 55% along the way with that target. We obviously have a lot of issues around climate change and helping to mitigate that. So this is why this is such an important area to us. And we've got the Task Force on Climate-Related Financial Disclosures coming up. So this is a method being used around the world but also by the New Zealand government to -- for companies to be more accountable about their footprint, apply scenario planning to that, identify opportunities, set targets, engage and report back. And of course, we're committed to do that. So then fish welfare. Again, Paul mentioned this. So in the past, I might be standing here saying, okay, we got this result last summer. We used these methods. The summer coming up, we've got something new. We've got this new practice, this new technology or whatever it might be. But what we're saying now is we will still do those things. We'll still take the business forward, but we now need to avoid hot summers, and I've got a map here, and I'll show you that. So the strategy now is avoid. So don't do something instead of, okay, a new practice or a new technology that might have helped us get through the summer. An immunization program. We are running a trial on that, and we'll see what the outcome is. Because when we have a mortality event, it's always multifactorial. Temperature is the most correlated thing with mass mortality events, but there are other things at play. King salmon is different to Atlantic salmon in that it's not quite as docile and domesticated. It's a more flighty animal. So the secret to raising a great king salmon is to keep its stress level low. And anything you can do to do that will lead to a great payoff. Now temperature automatically increases their stress level, unfortunately. So the seals, I see a few seals out here at the moment, they increase their stress level. Algae can increase it. Jellyfish can. There's a whole range of things, microorganisms. And as soon as the stress level of the fish rises, the immunity response decreases. And then bacteria, microorganisms can take advantage of the fish, and then you get a mortality event. But it's always triggered by either a range of stresses, of which the most correlated is high temperature of 18 degrees for a week or 2. So we've certainly invested heavily in our fish health team, and we've got an optimized production plan, which I'll just take you through. So this is a picture of the Sounds. The colors are roughly to denote, okay, cool water being sort of at the blue spectrum, warmer waters being in the red spectrum there. And you can see the Pelorus, gosh, this map is not so great, is definitely too hot for our fish in summer now, we've decided. So these are the farms, some of which we're fallowing. The Queen Charlotte is also quite hot actually in summer, but we've got a different strategy there. So here's our Tory Channel farms, and they're the most valuable assets that we have within the company. They're cool water sites. They're stable. We haven't seen increases -- significant increases in temperatures on those sites. They've got a -- pretty much a perfect profile for growing king salmon. So we tend to get a good outcome on those sites. And what we do now is, and we've done it for a while, is we put the smolt in, so the small fish. If they need to go in the water in summer, we put them into the Tory Channel. Then after the summer has passed and the waters in the Queen Charlotte have now cooled, we will then tow them out to our Ruakaka farm or our Otanerau farm. And so in that way, we're able to extend the cool waters of the Tory Channel and grow fish in the adjacent farms, even though they're hot in summer. There's no fish on them in the summer. They move there after the summer. And ideally, we would like to do that in the Pelorus as well, but we don't have the facilities to be able to tow around there, unfortunately. So other than some trials and things that we're running at Waitata here, these farms here will be fallowed. And that's our Waihinau farm, Forsyth and Kopaua. Waitata has a trial going on that I mentioned but also some seasonal volume. So what we can do there is the summer passes, we put a large smolt in. We grow them as large as we can in freshwater, then we transfer them, and then we make sure we've got them out of the water before the next summer comes. And Crail Bay is being used for an Asparagopsis trial, which is a seaweed which helps reduce methane in ruminant animals like sheep and cows. When -- so if someone else is using the site, we're sort of renting it to them so that they can do that trial. So then a business update. I mentioned before, it's really important that we're a branded food delicacy. We need to get value for everything that we do, and our brands have been instrumental in us helping to achieve that. We're probably the most -- well, arguably, the most branded salmon company in the world. And that means, does it get into the mind of our final consumer? That's what we're looking for. Does the consumer who's in a restaurant know they're eating Ora King as opposed to another restaurant that might just have Atlantic salmon written there? We want Ora King salmon written on the menu because then we can achieve premium pricing. That customer will be attached to us, and we've got a more certain future. Our Regal brand is in -- certainly in supermarkets around New Zealand but also an increasing number of supermarkets around the world. And I think many of you would know of our pet food brand, Omega Plus, that has a very unique positioning around long-chain omega-3s, which are very healthy for dogs and cats. Then just an operational update. So at the top here, some tanks in a large facility. This is our first feeding facility. We put the fish in there when they're sort of like 4 grams up to sort of 10 or maybe even 15 grams. And so far, what we've seen is they're growing at about twice the rate that they might have if they weren't in this facility. So that's very encouraging to see that. We have a new incubation facility associated with the first feeding facility. So that's part of the good outcome that we're seeing. We have a large 320-tonne barge for Clay Point, which is just about to go into commission. And we've got our new net cleaner, the Ika Ma, which is being delivered imminently also. Also, we used Cuddon to produce some new pens for our Otanerau farm also. Okay. Then outlook, we're certainly going from here. It's really focused on how do we grow value for King Salmon. We don't have as many prospects for volume growth. If truth be told, we've always been more about value than volume. That's always been our first consideration. So how do we get more value out of what we're doing? And our brands, as I mentioned, are part of that. And we need to manage our fish welfare and health issues really closely. And it's been a big call to say, "Hey, we'll become a smaller company and not go through the summer, but we should get a much better fish health outcome as a result of that." We've seen very positive price increases in our base product. So we do that in 3 ways. We just take price increases. Also, we manage our product mix and get rid of the SKUs that aren't as profitable. And we also manage our customer mix and concentrate on the customers that are prepared to pay a bit more. We've got these issues with our freight and supply chain that we still need to work on. And I think gradually over time, those things will improve. Maybe freight -- airfreight will never get back to what it was, but it will certainly come down from where it is at the moment. We've got a forecast for FY '23 of 5,750 metric tons. Because we've already had the mortality event, it's now at the beginning of our financial year, so we know what sort of year we're going to have. Unfortunately, that means we have a loss, an EBITDA loss of $8 million to $12 million for the financial year that we're in. The forecast is obviously much better for '24. We've got 6,500 tonnes FY '24 and an improvement in our profitability associated with that. Paul mentioned that we're really trimming our CapEx back to being only what is essential, spending the minimum amount that we possibly can on CapEx. And we're still very excited, though, about our Blue Endeavour project, which I will go into now. So just returned from Europe from visiting some deep farms and some more exposed farms and very encouraged by the technology that I've seen on display around the world. It wasn't so long ago, it wasn't possible or it wasn't known to be able to feed salmon under the water. They were always surface fed. Well, now it's actually relatively achievable. It is achievable to feed them under the water. So that's good. The submersible technology that wasn't there before is certainly coming into play. There are now farms using it and using it successfully, which is great to see. That means that in terms of Blue Endeavour, we can access a thermocline that's present. And so that's cooler water as you go down through the water column. So access that thermocline and that submersible technology. So the ring stays on top, but the pens go down. That's a real game changer for us to be able to use that site to greatest effect. And we're still working through the production plan. We're hopeful to bring those Pelorus farms and use -- back into production, use them as nursery sites, grow the fish up to 1, 1.2, maybe 1.4 kilos, transfer them before the summer. They're already a larger fish. They're more able to withstand the open ocean conditions out of Blue Endeavour. And also, we're able to get them out of the water and use those assets very effectively if we can combine them with an inshore nursery site, combined with the advantages of Blue Endeavour. Unfortunately, FY '27 is the earliest possible harvest that we're going to have from Blue Endeavour. When do we get a result for that? It's still -- the commissioners are still making up their mind, but they've given us a deadline of letting us know one way or the other by the end of September. So finally, we've got a stake in the ground about knowing what our future is regarding Blue Endeavour. But it's certainly a very exciting prospect. It's New Zealand's first open ocean application. We think it is the way of the future. The government has its $3 billion aquaculture strategy. It's projects like Blue Endeavour that are going to bring that to fruition. And with that -- is this going to go? Lauren, if I click on it?

Yes. It should.

Okay.

Thank you very much, Grant. Just bear with me while I get the page, everyone. [Presentation]

Thank you even more, Grant. Ladies and gentlemen, we now move to the business of the meeting, the procedure for this part of the meeting. We have a number of ordinary resolutions to be considered at this meeting. The resolutions are required to be passed by a simple majority of votes. The resolutions that we'll 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 Carol Chen as a director; resolution 3, election of Victoria Taylor as a director; and resolution 4, reelection of Chiong Yong Tiong as a director. 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, and I appoint the company's share registrar, Computershare, to carry out that poll. 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 upon arrival at this meeting. If you completed a postal vote, you do not need to complete another voting/proxy form. If you have not received a voting/proxy form and you are here, please go to the Computershare desk at the front of the room here where the representatives will be able to assist you. After voting, you should place your voting/proxy form in one of the ballot boxes, which will be passed around the room. I'll invite you to vote after all the resolutions have been introduced to the meeting. As Chair, I and my fellow directors hold undirected proxies with respect to resolution 1, which is authorization for the directors to fix the auditor's remuneration, 191,499 shares; with respect to resolution 2, election of Carol Chen, 202,260 shares; with respect to resolution 3, election of Victoria Taylor, 202,260 shares; and finally, in respect to resolution 4, the reelection of Chiong Yong Tiong, 202,260 shares. Now your Board supports these resolutions, and we intend to vote all of these shares in favor of these resolutions. There will be an opportunity to ask questions on or speak to each resolution being put to shareholders. I ask that in the interest of fairness to all shareholders attending this meeting, anyone wishing to speak to a resolution be as concise as possible and be considerate to other shareholders who may also wish to ask questions. Okay. Resolution 1. 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 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. I now move as an ordinary resolution that the Board is authorized to fix the auditor's remuneration for the coming year, and I now invite discussion on the resolution or questions. Are there any questions or discussion? There appears to be no discussion. And so we will move to the next resolution. Resolution 2 and 3 relate to the election of directors as required by the company's constitution and NZX Listing Rules. Both directors have been appointed by the Board since the last Annual Shareholders' Meeting and are therefore required to stand for election at this meeting. Resolution 2 relates to the election of Carol Chen. The Board considers that Carol Chen will be a nonexecutive, nonindependent director. The Board recommends Carol Chen to you as a director and unanimously supports her election. You need to -- I now invite Carol to briefly address the meeting on her proposed election. You'd probably still do better than I can.

So is carol coming up?

Good afternoon, everyone.

Yes. We can hear you, Carol.

Yes. It's not up on the screen. Okay.

Yes. Nice to meet all of you through Zoom. Hello, can you hear me?

Yes. Yes, Carol, we can hear you. There's just a slight...

Okay. Good. Good afternoon, everyone.

Carol, please carry on. You are audible to everyone.

Yes. My name is Carol Chen. I was appointed as a -- okay. I was appointed as a nonindependent director of New Zealand King Salmon in November 2021. I have a bachelor's degree of business administration from the RMIT University of Australia. I have been working in China Resources Group for more than 20 years, and I have held a number of different positions, mainly in China Resources Microelectronics Limited and China Resources Enterprise, Limited. My current role is a Deputy General Manager of the Corporate Strategy and Development department at China Resources Enterprise, Limited with responsibility for M&A initiation and execution. I have extensive experience in consumer products, M&A execution and strategy formulation and bring a different perspective to the Board from the aspect of strategy, investments as well as know-how about the China market. I would welcome another term on the King Salmon Board. Thank you.

Go ahead, Carol. Thank you very much. Okay. I now move as an ordinary resolution that having been appointed during the year by the Board and holding office only until this annual meeting, Carol Chen be elected as a director. Is there any discussion or questions for Carol? There appears to be not, and we will now move to the next resolution. Resolution 3 relates to the election of Victoria Taylor. The Board considers that Victoria Taylor will be an independent director. The Board recommends Victoria Taylor to you as a director and unanimously supports her election. I now invite Victoria to briefly address the meeting on her proposed election.

Kia ora. Nice to have such a beautiful sunny day after a foggy start. I'm delighted to stand for election to the Board of New Zealand King Salmon. What I bring to the Board is more than 20 years' experience in the food industry in New Zealand, primarily focused on businesses that are focused on exporting, so building value in New Zealand not only for the success of the individual company, but also for the New Zealand economy. And my time in my executive career spanned from very large companies such as the Coca-Cola Company, down to the business that I founded that grew from a back-bedroom business to employing more than 60 people and exporting to 6 different countries around the world. I think that experience of understanding very big businesses but also smaller businesses and that tight cost control can be of real advantage to New Zealand King Salmon. I couple that experience with my governance of more than 20 years across a variety of industries, including publicly-listed companies such as restaurant brands, businesses focused on compliance such as AsureQuality and on the environment such as Toitu Enviro-Mark. I believe the breadth of that experience will stand me in good stead and contributing to the growth of New Zealand King Salmon. Thank you.

Thank you, Victoria. I would add that Victoria is also a Chair of our Nominations and Remuneration Committee. So I now move as an ordinary resolution that having been appointed during the year by the Board and holding office only until the annual meeting Victoria Taylor be elected as a director. Are there any discussion on that resolution? Okay. We'll now move to the next resolution. Two directors are required to retire at this meeting due to being in office for a 3-year term or 3 annual shareholders' meetings since last being elected. The directors required to retire the spaces are Grant Rosewarne and Chiong Yong Tiong. Grant Rosewarne will retire from his office as Managing Director and is not seeking reelection as a director but will continue in his role as CEO of New Zealand King Salmon. Resolution 4, therefore, relates to the reelection of Chiong Yong Tiong as a director. The Board considers that Chiong Yong Tiong will be a nonexecutive, nonindependent director. The Board recommends Chiong Yong Tiong to you as a director and unanimously support his reelection. And due to the COVID -- catching COVID yesterday morning, Yong is unable to be here in person and has asked me to read his statement on his proposed reelection. "I'm a nominated appointee for New Zealand King Salmon major shareholder, Oregon Group, and I'm seeking reelection for a second term. Oregon Group's affiliation of New Zealand King Salmon goes back to 1996. Over the last 2.5 decades, its commitment and support given to New Zealand King Salmon is resolute and beyond reproach, as demonstrated once again by taking up its full entitlement in the latest equity raise. Myself and fellow director Jack Porus, who serves as a second nominated appointee for Oregon Group, are determined to work closely with the management and the rest of the Board collectively and also reflect on the events of recent times which have been most challenging. I strongly believe in due time, through hard work and determination, New Zealand King Salmon will become financially sound and sustainable -- in sustainability again. Thank you very much." So that was Yong's statement. Thank you very much, Yong. I now move as an ordinary resolution that having retired in accordance with New Zealand X Listing Rule 2.7.1, Chiong Yong Tiong be reelected as a director. Is there any discussion on that resolution? There appears to be no discussion. We'll now move to voting. If you wish to vote on these motions, you should use either the voting/proxy form that was sent to you with the Notice of Meeting or an alternate voting form given to you by Computershare when you entered the meeting. When you cast your vote, please tick one box to select for, against or abstain alongside each resolution in the section named Step 1. If you hold a proxy on behalf of a shareholder, you will need to cast that shareholder's votes in order for them to be counted. The voting/proxy form given to proxy holders sets out the number of proxy votes held and records directed shares. If there are no undirected votes, the proxy holder needs only to sign the voting form. Where there are undirected votes, proxy holders may vote these as they see fit by ticking the appropriate box. Finally, in all cases, please ensure the voting form is signed. I remind you that you are voting on each separate resolution as detailed in the Notice of Meeting. After voting, you should place your voting/proxy form in one of the ballot boxes around the room. If anyone is unsure how to complete the voting form or hasn't got a form, please go to the registration desk where someone will be able to help you. Once all the votes have been cast, they'll be counted by the company's share register, Computershare, and scrutinized by the company's auditor. The results of today's meeting will be released to the NZX on the completion of verification of voting. So if you are still waiting to vote, please prepare your forms and cast your votes now while we take questions. So the Computershare people will move among you. [Voting]

Okay. Are you all done there? All right. Thank you very much, everybody. So we now come to the last section of the formal part of today, and that is asking questions, the ability to ask questions. Before I ask for questions, though, I want to take this opportunity to thank my chair, John Ryder, I'm sorry, he can't be with us today, and my fellow directors, the senior leadership team for their continued contribution to New Zealand King Salmon's leadership, governance and in the formulation of our strategic intent. So at this point, we will open the floor to any questions on the financial results, the business update or any other matters you would like to raise. If there's something you wish to put to the meeting, could you raise your hand and we'll get one of the microphones to you? A reminder, please state your name and whether you're a shareholder or proxy holder. So let's begin.

My name is [ Rod Fabes ]. I live in Wellington. And it's a delight to be here in body at an annual meeting of the company again. The last time I attended was 2019, and it seems a long, long time ago. But even then, it was an exciting time because we were talking about the development of the Cook Strait operation. Just my question is to -- I think Grant mentioned that there will be a decision taken in September. Is that a decision to say that government will start thinking about it? Or is it better than that?

Yes. Yes. Thanks, [ Rod ]. It's better than that, so that's good. Up until this point, we've always had to estimate when the 3 commissioners will give a result. But about a month ago, they actually put out a statement saying, "We will come to a conclusion at the end of September and issue a result." Now we're encouraged by the range of questions that they're asking. And also, they asked for a lot of additional information. So this hearing has nearly been going a year. And before that, the preparation was like 3, 3.5 years. So it's been a long time in the making. And there's been a lot of additional reports, a lot of additional modeling, a lot of additional science that's pulled it all together at the end. So the fact that the commissioners are asking for that work has been encouraging to us and the fact that they've put a stick in the ground and said the end of September. Now what could go wrong? They could say, "Right, we said at the end of September, but could we please have a little bit more time because we haven't quite finished that?" They might do that. Or they might go, "Someone's raised something right at the end here. We just need this little bit of additional information." But we've had a lot of that up to this point. So I'm thinking we're probably through it, and I'm thinking they probably will deliver a result at the end of September.

A question. [ Claire ]?

My name is [ Claire Pender ], and I am a shareholder. The Board has -- and the CEO have talked about different technologies to access the cooler waters and the deeper parts of the Blue Endeavour site. And upwelling -- artificial upwelling technique has been mentioned. So just to ask a question about that first, can the Board confirm that artificial upwelling technique has been successfully and economically used in high-energy, high-current sites such as Cook Strait at depth of 80 to 110 meters? And is the Board confident that, that technology would work and have the appropriate resource consents been sought? This afternoon, the Chief Executive has mentioned that submersible cages are a possibility and the fish can be fed underneath the water. And I know that there's been some experimentation with oxygen being available to the fish under the water. However, I -- the resource consents for the Blue Endeavour site have been sought for sea surface cages for feeding on the surface of the water. So my question is that if there is a solution for the fish to be able to access the cooler waters of Cook Strait either by some sort of upwelling technique or submersible cages, have the appropriate resource consents been sought?

Okay. I'll ask Grant to -- over to Grant to answer the question. But clearly, just to preface all that, we're still some time away from getting that decision. End of September, we will have a decision. We don't know whether it will be qualified or not. And as I mentioned in my address and Grant also mentioned, a lot more work has to be done yet. But what I can assure you, while we have strong beliefs about that, we are going to test the system. Whilst the sites have the ability to take a major -- many thousand tonnes, we are going to test those sites first to make sure we know what we're doing and proven that it is possible to do what we set out to do in those sites. So we're some way away from that. That requires a lot more testing, checking of the theories. Even though it may be happening in Norway or in Canada, we want to make sure it can happen here, and we have to apply ourselves with fairly rigorous discipline as to a test mechanism needs to make it happen. So there's a lot of -- I should -- I usually would say water to go under the bridge, but there's a lot at first to go under that water before we are satisfied that is the right technique. But you can answer the specifics.

Sure. Great to have you as a shareholder, [ Claire ]. Didn't really realize that. Okay. So first of all, upwelling, so you know that we've attempted to use upwelling on our low-flow sites and our high-flow sites within the Sounds. And the technology certainly works, but there wasn't a large enough thermocline in most locations for it to be advantageous. So we're not persevering with the upwelling. We've kept it because it's useful for, say, if there's an algal bloom or even a jellyfish strike. You can use upwelling to try and force those organisms away from the farm by bringing the water up from the bottom. I just -- as I mentioned earlier, I just returned from visiting Norway and Scotland. Didn't see examples of upwelling being used in our type of applications. I think it's fairly unlikely. The thing that's taken -- have acquired a step forward is what I mentioned, the submersible pens and also feeding under the water. And there's growing examples of that in Europe. And there's 2 competing suppliers, and it's always good to have 2. The reason I'm quite confident about this technology is the backing behind those 2 producers. They took us to model farms that they're operating. They've got a long history in doing things extremely well. So quite high confidence that, that is the more likely technology. Then you asked, "Okay. What about the resource consent?" So the resource consent says, okay, there's a structure at the surface, and pretty much that will look the same. The only thing that might be different about that, if we're feeding under water, we probably don't need the bird net anymore with the birds trying to get the feed. But that won't be happening if we're feeding under the water. So there will be less on the surface. And I don't -- there isn't anything in the consent condition that says what level our net has to be. So nets can be a cone going from the surface down to sort of even 60 meters, just a straight cone. They can be a straight wall side with a cone or they can just be hanging on ropes and be a cone or cylinder in a cone. So there's all sorts of combinations that you can have. And our resource consent is efficiently wide on that for us to be able to put that in place. In fact, it will look exactly -- that technology would look exactly as we presented it during the Blue Endeavour hearing.

It's certainly good to hear that you're looking at ways that the fish are not going to get stressed in the top 15 meters of the water. However, being and sitting through numerous resource consents, et cetera, over the years, right back to the board of inquiry, I think we all know that they are protracted and take a lot of time, et cetera. Can the Chairman and the Board give assurances to the shareholders that the technology is proven, that the technology is economical and that the appropriate resource consents have been given? Because in reading the act, the resource consents and the act is quite constrained. And there's a lot of technology about anchoring and all sorts of other things and different rules and regulations, et cetera. And I think it's great that you've seen some new technology, but it is new technology. It is not what's been applied for in the Blue Endeavour site. And the Board will need to provide assurances to shareholders that it's achievable, economical.

Yes. I can give you an absolute assurance on that. We are conscious that all of New Zealand is watching this first endeavor in open ocean. We're conscious that the governments of all stripes are supportive of what we're trying to do, but it is important that we do it right and that we do it legally and we do it with all the testing and challenges we can put in place to make sure it is right. That's why we got to start small for a start. But I can also assure you that we're going to tell the shareholders along the way of how that is progressing. You have stood beside us in this challenging journey at times, and it's only right that you'd be privy to what we are progressing and how those progressions are going. So I hope that gives you some heart in those assurances.

Well, certainly, the -- here we are. This one's turning off.

No. We can hear you.

Okay. Certainly, the shareholders haven't seen anything on this new technology to date. It hasn't been disclosed in any of the documentation in any way. The shareholders are being asked to be reassured that the Chief Executive has just been to Norway and seen this fab new thing and will be working on it and trialing it and hopefully getting it to work. So I would see it as a part of your job as the Board to make sure that shareholders are informed and informed early. It's going to cost a lot of money to put a Blue Endeavour site out there, and those technologies have to be proven.

Well, that was the assurance I just gave you, and I reiterate that assurance. We are going to take our time over this. We're doing it in a measured way so that we can check and recheck that what we're doing is going to suit and fit for purpose and fit for the company's sustainability as well, and shareholders will be aware of that progress. But nothing is going to happen for the next 6 months or so as we wait for the -- firstly, the announcement from government, from -- the right to occupy and the consent process. And then beyond that, we will be taking small steps to make sure we can make the big strides later on. And you'll be informed. I'm sure you'll support that. Okay. Any other questions? I think the floor is yours, [ Claire ].

Thank you. I'm actually wearing a T-shirt which has the water temperatures at the Blue Endeavour site over the -- this latest summer, 2021, 2022. And the red line -- it's on my back as well. And the red line is 17 degrees, after which, the fish gets stressed. And obviously, we've had some horrendous mortalities this year. Can -- based on the scientific evidence of the water temperatures in Cook Strait over the summer period 2021, '22, what assurances can the Board provide shareholders that the water temperature in Cook Strait is proven to be able to successfully grow salmon and that for the duration of the consent period, which is 35 years, that it won't materially impact the financial returns?

So as I've mentioned earlier, we are taking small steps in developing the Blue Endeavour project. We believe this to be the case, but I can't give you today those assurances because the work hasn't been done. And I certainly can't give you assurance over the next 35 years because I don't know what's going to happen over the next 35 years. But I do know what we can do in the next 5 to 10 years, and we're going to do the work to prove that we are sustainable and all shareholders are going to benefit from that. We know the temperature. Obviously, we know the temperature. We take our own temperatures out there. Those were surface temperatures that you have on your graph there. And we are looking, of course, at the thermoclines within the deeper reaches of the area we're going to be at Blue Endeavour.

Yes. And the sea surface cages that you are proposing at the moment are 15 meters deep. And the sea surface temperatures are...

That's our inshore farms, yes.

Yes. That's what you've also been proposing for the Blue Endeavour site up until the Chief Executive took a trip to Norway a couple of weeks ago and saw the new technology. So the Board needs to disclose how the company has factored in climate change into the modeling for the Blue Endeavour site. Because it sounds to me right now that you -- there are some exciting new technologies coming up. There are some exciting new developments. Definitely, Norway is at the forefront of developing new technologies, and it's coming. It's in the news, all in the fishing news, aquaculture news all the time. But it sounds to me that this technology is not proven yet for a high-energy, high-wave, high-current site in Tory Channel -- I mean, in Cook Strait.

Yes. So I'll answer some of that, [ Claire ]. So first of all, when you talk about 15 meters, that's the side seam of our pens. And then there's a cone underneath that going down to 30 meters. So it's double the depth that you're thinking there.

That's true, Grant. But the 75% of the water space is in the first 15 meters, and only 25% is in the cone, which is the next 15 meters.

Yes. But there's -- fish are only 2% of the whole space, and they naturally gravitate -- they'll go to the lower temperature. They go firstly to high oxygen, and then they'll go to the lowest temperature. And with the ability to feed under water, there won't be even any need for them to go to the surface. And I shouldn't -- when I say -- I'm not saying that those farms are experimental. And when I call that new technology, we were talking about you putting submersibles on Blue Endeavour years ago, when we did the science, we thought, probably don't need to. And so we moved away from that. And now we're coming back to, okay, probably in terms of using the site for the long term, it would be better if we can just move the pens up and down. So the surface stays as it is. There's a row of winches, electric winches, and they just move up and down so the fish stay within the thermocline. And it's well proven. I went to a farm that was in operation. And as Paul mentioned, we're not going to put a 2,000-tonne farm out there on day 1. Probably put one pen out there with nothing in it, test it, make sure it all works. Does it stand up to the current? Does it stand up to the wave heights? Then put the fish in there. How do they react to that? You mentioned that there needs to be an air bell down there. How is that performing? Is the feed pipe staying in place? All those things will be tested and checked out. But there are farms in operation now. And the fact that this technology is available for sale, when we first brought this up, you couldn't buy this technology. Now you can buy it. It comes with a manufacturer's guarantee. It comes with the -- to the Norwegian engineering standard. And so it is all -- it has all become available. And as Paul said, we've got some time before we put it in. And even then, we'll put one pen in, check it out, make sure it all works. And it is within the resource consent as we've currently requested it or currently applied for. Because we didn't say that the pen had to be at the surface. We've said that the buoyant structures will be on the surface. But the pen, it's left open as to what level we put that out.

It all sounds like a bit of a wing and a prayer to me. And I -- where are the costings for this new technology?

[ Claire ], you're getting ahead of yourself. You cannot expect us to give you any of those details when we've explained what the process is going to be, a stepped manner, cautious steps going through the whole process. But you will get those -- not you, the whole shareholders will get those details because it's likely we may have to go through a capital raise at that stage in 2 or 3 years' time. But let us get on with the job of making sure we are getting it right.

And we went to a capital raise when -- on this last capital raise, and all the mortalities hadn't been disclosed. So...

Well, we don't know they're going to die before they die. We gave you the best information. And look, our people in the aquaculture team, they are committed. They are passionate about what they do. It was terrible for them to have to haul out those mortalities and send them to disposal. I mean, they don't do these things just because they are ambivalent about it all.

Of course not, and it was a terrible outcome for the fish.

Well, we all feel that way. But let us move on and try and beat those challenges and best those challenges because underneath it all, we still have the best salmon in the world. So thank you very much, [ Claire ]. Thank you. Okay. Any other questions or observations? You got something there?

I'd just like to relay from [ Roger and Kathy Burn ], what is the company's fallback position if they don't get approval for Blue Endeavour?

If we don't get approval for Blue Endeavour, we will continue to maximize the quality and performance of our farms that we currently have. And we'll then have a look at we may have to go elsewhere. We'll come out pretty keen on this.

Yes. Well -- so [ Claire ], I did look at some really experimental technology out there. You've heard of the [ Harbour Farm ] and the [ SalMar ] one. They're really huge investments that are quite experimental. They will take some time to come to fruition and to prove their success or otherwise. There's another -- there's also a similar technology to [ SalMar ] one. That's the [ Big Yellow ]. It looks like a big oil platform. There's another one in China. We have applied for space further south down our east coast. If we didn't get Blue Endeavour, that would be our next option. But that is in this area that you're talking about. It is much more experimental. It is much further away.

That wasn't the question from [ Claire ].

No. [ Claire ] was -- what's the -- sorry, it wasn't from [ Claire ], sorry. Yes, sorry, it was read from them. I'm thinking all the questions come from you, [ Claire ].

[ Roger and Kathy Burn ].

[ Roger and Kathy ], yes. So yes, we would -- that would be our first choice would be to go down the coast, the east coast and to use this future technology. But other than that, then it would be, okay, return to value, how do we capture as much value as we possibly can? How do we build our brands? What can we do to do better with what we've got? I'm looking at the camera. Okay. Sorry. Yes.

Thanks, Grant and Paul. I have one other question here from [ Zed ], who states they are a proxy holder. And I did check on this, but the question from [ Zed ] was, are you closing any farms? Are any of the farms going to be closed? Now we have already mentioned some farms that will be fallowed. So I don't know if you want to clarify that, Grant or Paul. But...

Yes. So when we say fallowed, that's sort of a medium-term closure of a farm. So we're saying, yes, Waihinau Bay, Forsyth, Kopaua, we're medium fallowing for a couple of years depending on what happens. So if some new technology comes along, if the vaccination program works, they may be brought back into commission. If Blue Endeavour is granted, then they would be used as nursery sites. The previous person also said, "Okay, what other options do you have if it came to it?" And we didn't have other options. We could look at a more warmwater species for those sites as well. They are the options that we've got.

Thanks, Grant. That's all the questions I have over here, Paul, unless someone is typing very fast online.

Okay. Well, they'll have to be faster. Look, thank you very much for your attendance. Thank you very much for your support. Sorry, we have one. Yes.

I've just got one question. Do you have a way of mitigating your losses when you have the final [ accounting ]? Because as I understand it, [ those semi-truckload out to semi-truckload it ] to discard it. Can it be used for as pet food or whatever?

It can -- we are exploring those solutions. We have one that we have yet to finalize, and there is hydrolysate?

Hydrolysate.

Hydrolysate process. And we are forming a partnership with a reasonably well-known person in agritech -- a group in agritech industries that will give us a solution there. This is not -- unfortunately, this is happening worldwide. Huon in Tasmania had similar losses, perhaps bigger proportionately than we did. An article that was out last week in Europe saying the Atlantic wild salmon had definitely been reduced in the recent years of climate change and the like. So it is a global thing that globally, we're all looking to address. Yes?

I just want to answer for the pet food. So when a fish dies, you can't use it for human consumption or pet food consumption. That's illegal in New Zealand. So we don't do that. But yes, it can be used for a hydrolysate fertilizer-type product.

Yes. [ Jim Woods ], shareholder. My question is around Blue Endeavour. So let's say Blue Endeavour gets online. Is there any discussion at all in separating those 2 companies and having Blue Endeavour as its own company? Any thought around that or reason to do it, not to do it and get rid of some of the potential legacy issues of...

Well, it hasn't exercised our minds. So it's still New Zealand King Salmon. It's still our brand that we have utilized from our sites. And that was a thorough process, as Grant has mentioned, the nursery and small grow out and the sites in Tory Channel and perhaps the warmer ones [indiscernible] over the winter period and then out. So it is a continuum of that stream of fish going through. But you raised a good point, and there might be something we can consider at a later date.

Yes. It certainly makes the Blue Endeavour assets really stunningly efficient if you can put a 1-, 1.5-kilo fish out there and then maybe have only a 10- or 11-month growing cycle. That would be, in terms of financial returns, fantastic.

Okay. Anything else? I didn't mean to push forward with that. All right, but I will now. Look, thank you again for your returns. [ Claire ], thank you for your thoughts and the like, and we are mindful of those as we go forward. And I just wish you all the very best. We -- let's hope we have a much better year in the next 6 months. But beyond that, we are very hopeful of coming back into profitability and shoring up the bases as we look more and more at the Blue Endeavour prospects in the next 3 or 4 years. Thank you again. Let's have a cup of tea and let's have something to eat.