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

Thank you for standing by, and welcome to the New Zealand King Salmon FY '23 Annual Results Conference Call. [Operator Instructions] I'd now like to hand the conference over to Mr. Grant Lovell, General Manager, Aquaculture. Please go ahead.

Thank you, Mario, and welcome to everybody for our FY '23 financial results. I'm Grant Lovell, General Manager of Aquaculture, and I will be presenting along with Ben Rodgers, our Chief Financial Officer; and Graeme Tregidga, GM of Sales and Marketing, and Acting Chief Executive Officer. I would just like to start by welcoming everybody to the call. We're very pleased to be presenting this on what has been a very interesting year for New Zealand King Salmon and a year of 2 halves as our presentation will detail. We'd just like to actually do -- a big shout out to all of our team members who have helped to deliver a much more encouraging result and all the hard work that has occurred over the last 12 months and also our crucial supply partners and customers as well. I'll pass now over to Ben Rodgers, and we will go through the details.

Thank you, Grant. [Foreign Language]. I just want to start off by echoing Grant's thanks to the New Zealand King Salmon staff, our customers, suppliers and shareholders for their continued support. FY '23 was about resetting our business as we changed our farming production model and rightsize the business to around 6,500 metric ton harvest on an ongoing basis. The good news was, we managed to successfully execute on the required changes ahead of schedule, which resulted in our financial performance being stronger than our original guidance. So in summary, we relate to the year as a good result in the context of the previous summer's mortality. On a GAAP basis, we reported a net profit after tax of $1.9 million, noting this does include a fair value uplift on our biological assets on hand and the partial recognition of gains on early FX contracts closed out in FY '22. On a pro forma EBITDA basis, the loss was $4.4 million and sits ahead of our original market guidance of a loss of $8 million to $12 million. This was attributable to good execution around pricing initiatives, our cost-saving initiatives managing to offset inflationary pressure and an unexpected performance of our seasonal harvest, which came in 250 metric tons ahead of plan. Post the rights issue, New Zealand King Salmon has a strong balance sheet with a net cash position of circa $16 million at the end of January. And just to close off, we are pleased to provide guidance for FY '24 on a pro forma EBITDA basis of $21 million to $25 million. Noting this guidance is now inclusive of the impact of NZ IFRS 16 leases, which we have previously excluded. We estimate this change increases the EBITDA range by $1.4 million. So excluding this, the range would have been $19.5 million to $23.5 million on how we would have explained this historically. This represents an uplift from the guidance we provided during our equity raise of long-term sustainable EBITDA of $15 million to $19 million. With that being said, as to our executive summary, I will hand over to our acting Chief Executive Officer, Graeme Tregidga, to take you through the FY '23 performance in detail.

Thank you, Ben. So in a little bit more detail how did this unfold. We had a harvest volume of just over 6,000 metric tonnes during our financial year '23. And we sold that for a revenue of $167 million. Ben talked us through the GAAP and EBITDA detail in terms of where our volume of business was sold around the globe. 41% of our volume is sold here in the New Zealand domestic market. And on the chart that you can see, 37% is sold into North America over last financial year. Our other major markets that we do operate in is Europe, Japan and Asia. And the significant market of Australia is 1 of our other main trading partners. Over the past year, look, sustainability is very important to New Zealand King Salmon. And over the past year, we've been putting increasing amount of focus into this important aspect. In particular, we are doing preparation for the incoming Aotearoa New Zealand Climate Reporting Standards, and that is effective at the beginning of FY '24 -- sorry, FY '25. For us, the monitoring and measuring needs to start in this year. We also achieved our Best Aquaculture Practice 4-star certification, and it's the highest rating that can be achieved under the BAP system, and we achieved that again in FY '23. We also are committed to reusable, recyclable and compostable packaging across our business. And we're currently at 52%. So that is a further improvement. But clearly, we still have another 48% of our packaging that we need to work on to also become reusable and recyclable. So we're having a continued focus on that in the coming years. When we turn our attention to our brands. Our key brands of Ora King and Regal are our main state for our fresh and further value-added products. So Ora King is our premium brand into foodservice. And with a reduced volume over the past year, this did have an impact on to the available product and volumes of Ora King that we could move into the premium restaurants and hotels and establishments around the globe. So -- and we also had to tighten the A&P spend that we put into the Ora King brand. So we have to become very efficient in what we were doing and we were spending that. We bought a bit more of our in-house digital and social media programs for both our retail and foodservice brands. And similarly for Omega Plus. The Omega Plus is our pet food brand. And again, we moved more of our A&P into in-house using digital and social media to tell our story and to tell our product values and attributes to customers around the world. And in North America, we've begun with Omega Plus moving into premium pet food outlets. Within Regal, Regal is our -- mostly our retail brand, and it remains New Zealand's most preferred smoked salmon brand. And it's recognized for exceptionally high quality and consistency. Over 16,000 people every month visit the Regal website and that's 80% growth from previous year. And look, the information that we gain from our visitors helps us learn more about what's important to our Regal shoppers, what they're interested in, and they continue to always be interested in our recipes and taking home inspiration for what they can serve up at home. In terms of our sales performance, it has been a year of a bit of the change. And certainly, in volume, you can see there, if we start with just a quick look at the North American chart top left, it looks like there's quite a significant reduction, and there has been. That, that has been mostly due to the elimination or stopping of frozen whole fish programs that were taken through the post-COVID era. We did not need to sell any frozen whole fish in the financial year of 2023. So although the volume looks like it's significantly reduced, it is focusing more in the higher-value products. It's a similar story for Japan, and you can see the reduction in there. But again, that was around frozen whole fish. Now we did have an overall reduction in volume. So to make sure that we were moving that into the premium segments around the world, there was going to be some reduction in other markets. And in New Zealand, we can see that, a slight reduction in overall volume as we were focusing on moving the products into the high-value areas. And that included in smoked both in New Zealand but also in our international markets of Asia and Europe, in particular. And we're also furthering smoked product and value-added products into North America. All right. I'll pass over back to Grant to talk us through our fish performance.

Thanks, Graeme. And so fish performance is actually quite encouraging at the moment. So the altered aquaculture model was fully implemented through the course of the last 12 months and the summer of 2022/2023 has been the first year without stocks held in the majority of our warm water sites. As we went through the last few months, we have only 5% or less of our stocks and warm water sites, and this is a significant change from previous. As noted, the end of FY '23, our fish stocks started to perform well with significantly reduced mortality compared to previous summers. And the positive news that this has continued on through the start of FY '24. Harvest volume was obviously reduced due to the high levels of mortality as previously disclosed. However, the seasonal harvest at Ruakaka outperformed expectations, providing additional 250 metric tonnes of volume, sort of pushed out overall harvest volume up to just over 6,000 tonnes from the previously deferred guidance of 5,750 tonnes. We still do have fish in the Pelorus, these are currently at our Waitata Farm, and these are showing encouraging results in our commercial vaccine trial. However, we will not know the full result of this until the end of April 2023. One of the big challenges we have had over the last year is the inflationary pressures of feed. You can see from the table there, that has moved from $2.39 per kilo to $3.06 per kilo, an increase of 28%. This is mainly -- this is almost entirely due to raw material pricing and a little bit of freight, and the impacts of COVID, the Ukraine war has continued to put upward pressure on the cost of feed. We do not expect to see this reduce through FY '24, and would expect the pressure on feed price to remain. The other 2 points on the table on the left that I'd like to call out are both harvest size and feed conversion ratio. The harvest size and feed conversion ratio are both down. This is in relation to the seasonal fish at Ruakaka. This was our strategy to have with [ this fish ] smaller. And this has pulled down the overall average weight. Also, a smaller fish has a lower fee conversion rate. So these 2 factors here are the reason why those 2 numbers are lower than what we have seen in FY '22. And lastly, Ngamahau, 1 of our key farms down the Tory Channel, received a 500 metric tonnes feed discharge increase, and this will allow us to add approximately 200 metric tonnes of G&G volume going forward. So that's positive. I'll now pass back to Ben Rodgers.

Thank you, Grant. As noted earlier, the last couple of financial years have been very challenging for New Zealand King Salmon. FY '22, we were still feeling the effects of the interruption to our supply chain from COVID and the associated exit of our frozen whole fish that was built up during disruption to the foodservices market. FY '22 was also back-ended by a significant mortality event, which flowed into the first quarter of FY '23, resulting in a reduction in our available harvest weight FY '23, an increase in our mortality expense, a change in our farming model and ultimately a recapitalization of the business. When looking at FY '23 from a financial perspective, the consequences of the mortality event was skewed towards the first half of the year. And as a sort of run through our GAAP and pro forma results, just as a reminder, the main differences between our GAAP results and our pro forma results are the removal of the fair value movements to our biological assets, and the associated removal of these gains when the inventory is expensed through our cost of sales. In addition to this, in FY '22, New Zealand King Salmon recognized a significant gain through the early closeout of FX contracts. From a pro forma perspective, this scheme is recognized immediately within our FY '22 results. From a GAAP perspective, the gain was recognized within the cash flow hedge reserve, and it's been released to the income statement over the original timing of those contracts being FY '23, FY '24, FY '25 and FY '26. As noted previously, the FY '22 mortality event did have an immediate impact on the first quarter of FY '23, but the event also had a prolonged impact across the entire year as we have to optimize our remaining biomass to ensure we could harvest King Salmon 5 days a week, 52 weeks a year, ultimately resulting in a suboptimized business for FY '23. To mitigate these impacts, we did set out a number of self-help initiatives, including implementing price increases, optimizing what we made and who we sold it to. And looking at ways we could sensibly reduce our costs in addition to pausing all noncritical CapEx. The good news is, we were able to execute a number of these initiatives ahead of schedule, and although the result at South is disappointing, we were able to land ahead of our original market guidance of a pro forma EBITDA loss of $8 million to $12 million and set ourselves up for a strong FY '24. Looking at this from a walk of FY '22 to FY '23, what you can observe is the impact of the reduced harvest being partially offset by what we could implement across our sales in terms of price increases and optimizing what and who we sell it to. We did see some reduction in our cost of goods sold associated with a smaller harvest, so you can relate to that as smaller harvest, less feed. But as Grant Lovell mentioned, we had seen some inflationary pressure across our entire cost base, specifically feed being up significantly on FY '22. Mortality, as previously noted, was up on last year. However, a majority of that was in the first quarter of FY '23, and as we all come to soon, our financial year currently spans 2 summers. So the most recent summer has seen a dramatic improvement in our mortality as Grant referenced before. Just closing out the slide a couple of comments. First, on freight. So you'll see an improvement in our freight costs. A majority of this relates to a decrease in sales, although we are seeing some easement and freight pressures or freight costs, some of our main ports of destinations still remain challenging in terms of the freight costs associated with those. And we haven't seen too much movement since the peak of COVID, but we are hoping that, that sorts to normalize moving forward. And just finally noting that FY '22 did benefit from the early closeout of those FX positions. Looking at the balance sheet, following on from the rights issue, the balance sheet is very strong. New Zealand King Salmon has a net cash position of $15.7 million as at 31 January, and this compares to a net debt position of $46 million at this time last year. You'll note that inventory on hand has decreased, and this is predominantly due to moving our feed supply arrangements to consignment stock arrangements. In addition to this, we did manage to sell down a number of our high value-added products, so you could write to those as our smoked products, which were built out over the COVID period. So we managed to get those down to what we relate to as normal stock holdings now. And offsetting this was the seasonal harvest, which Grant mentioned. The seasonal harvest relate to as a good thing. It does enable us to optimize our fresh salmon sales on a weekly basis and then use our frozen salmon to feed our value-added production lines. Only other callout I have on this page was in regards to CapEx. There was a big focus from both the Board and management on limiting CapEx to essentially nothing other than nonessential during the year. So we did have a net CapEx of $5.2 million for the year ended 31 January. And this does exclude the proceeds from the sale of the Waiau hatchery, which we received early in FY '24. I would sort of caution that we do expect CapEx to return back to depreciation rates on a long-term basis in addition to any growth CapEx opportunities we might see as well. All right. I'll hand back over to Graeme Tregidga.

Thank you, Ben. So as you heard there from Ben and from Grant over this past year, 1 of the significant changes that we made was following of the Pelorus Sea Farms. So at the end of January, we've had 3 of the Pelorus farms have been fallow. The remaining Waitata site is continued to be used as a operational farm for our seasonal harvest. So we've referred that earlier around Ruakaka, but we have a couple of sites that we can also use under seasonal harvest, and we would not take any of those harvest fish through a summer. Now that has an impact, obviously, on the volume that we are producing for FY '23. And we had to undertake a number of other initiatives to rightsize our business to that new volume. So we moved -- we had around -- about 570 people within our business, and we had to move that to around 452 team members to meet the needs. As at the 31st of January, we actually sit at 436. Like many organizations in New Zealand, we are experiencing a very tight labor market, and we do have vacancies to fill. Another initiative that we undertook was a mothballing of the Waiau freshwater facility. That was multiplied in the second half of FY '23, but is subsequently being sold at the end of January. We also challenged the team around what areas of expenditure we could minimize or potentially eliminate. And that was a team challenge across all 452 team members, what could we come up with. And we'll be continuing that focus for sensible cost savings throughout FY '24. But it was very pleasing to see the value and contribution that they were able to come up with various initiatives. And part of that was also a reduction in capital expenditure and so there was $1 million saving on capital expenditure through FY '23. So I'll pass on to -- back to Ben to talk us through.

Thank you, Graeme. As noted historically -- sorry, as noted earlier, historically, we had removed the impacts of IFRS 16 leases from our pro forma EBITDA results. Moving forward from FY '24, we will not be removing [ this update ]. So we estimate this will increase our guidance range by $1.4 million. So on that basis, we're providing pro forma EBITDA guidance of a range of $21 million to $25 million. This is an uplift to the guidance we provided as part of the rights issue, which we provided a range of $15 million to $19 million. Adjusting this historical range for the change above, we would have had a range of $16.5 million to $20.5 million. So the new guidance represents a $4 million or 20% uplift on a like-for-like basis. I just wanted to also call out the graph on the right-hand side, which shows we are on track. The graph shows our summer mortality. The key line being the orange line, which represents the most recent summer, and that shows we are on track to have our best summer result in the past 6 years, and that is despite it being 1 of the hottest summers on record. Although this gives us some feedback in relation to the changes we head to our production model, fish health does remain a continued focus for the entire New Zealand consumer team, and we are focused on getting better in the space. So I think it's a nice segue to hand back over to Grant Lovell.

Yes. Thanks, Ben. So yes, obviously, the pathway to future growth and an update on our Blue Endeavour project. I think the key part here is, we absolutely do have an ambition to grow our fish volumes and Blue Endeavour remains part of this ambition. We do want to ensure that this project is progressed in a structured manner that's going to minimize risk and this is likely to form parts of like a pilot farm. For example, we just need to ensure that all of our expectations and modeling actually does provide that before we have to undertake a significant cost of capital. The technology continues to improve over the years, and we continue to keep abreast of this, and we will continue to do so as before we get into the final implementation stages. In terms of where the current project sits from a regulatory perspective, the consent was granted in November. We received 2 appeals from this, 1 from the Department of Conservation and 1 from the McGuinness Institute and the mediation process for those 2 appeals began in March this year of the parties involved. I would say that the mediation is positive, but it is ongoing, and we are hoping to see a result -- we'll hopefully provide an update on this in the next month or so once mediation has completed. As previously noted, Blue Endeavour has the potential to add 10,000 tonnes of harvest volume and also allows us to reopen some of the Pelorus farms to active nursery sites. And in conjunction with our existing farming model that could take us to 17,000 metric tonnes. I'll now pass back over to Graeme.

Thank you, Grant. So look, just in conclusion in here, we've been extremely pleased with the results and the changing of the farming model. And I'd like to just call out special thanks and appreciation to the King Salmon team that was -- it was quite a challenge in doing that and a reduction in volume. And then what was required for us to rightsize our business to turn out a much improved result. And we're very excited about what FY '24 can bring. And Ben has given us the update on the guidance of where that can lead us to. I'd also just like to thank our customers as well and particularly challenging for our customers over the past year with a reduction in volume. It meant that we couldn't satisfy all the needs of our valued customers. But really appreciative of them, sticking bias and working through this. And also thanks to our shareholders as well. Really appreciate your support. None of this is possible as well without our supply partners, and that's quite wide ranging to making sure that our fish are maintained and kept in great health all the way through to delivering product through to our customers. So just a big vote of appreciation and thanks. And also, I'd like to thank the attendees here today. And that brings us to an opportunity for questions, which I'll pass back to the team here to manage.

[Operator Instructions] Your first phone question comes from Christian Bell from Jarden.

Congratulations on kind of getting through the year and getting through the hard time. And it has provided some pretty strong guidance going forward, which is kind of where I'll start with my questions. So the '24 guidance, Ben, you mentioned it was a 20% uplift '15 to '19 to the '21 to '25. Obviously, there's some adjustments in there. But the sort of the $4 million uplift, what would you attribute that to when compared to that $15 million to $19 million range? Is that kind of mostly mortality driven? Or is there some -- are you expecting further price increases? Just if you could attribute what the uplift is actually driven by.

Yes. So probably related to, Christian, it's a number of things. So we sort of -- Grant covered off it, slight uplift in the harvest for FY '24. So I think we're at $6.5 million. We're at $6.6 million. So slight increase there. Pricing and the optimization around customers who we sell to has probably just outpaced slightly the cost of the fish. So even though prices have increased, Grant mentioned that the cost of feed being close to up 30% year-on-year. So it has just been the game of pricing slightly outperforming the increases in costs. The other probably one we would call out is we -- with those [ Sanford ] initiatives, something like Waiau was probably costing us about $1 million a year to run and have been mothballed there and sold that, just optimizing what we can do on the cost base. And we still think there's a little bit more to go on that space in FY '24.

Okay. So I mean -- so sorry, was it Waiau was $1 million of cost there with potentially some more to come.

No, sorry, Waiau was probably costing $800,000 to $900,000 a year to run. So you're close to $1 million, but all those essentially costs gone now. But we do believe there are some other cost-saving initiatives we could implement across the business as well.

If I were to just kind of put that into numbers, the harvest cost is not a massive increase, 100 tonnes, $1 million of Waiau cost base no longer exist to pricing optimization. Could you say like the way sort of thing was $1 million, harvest size probably less than 1 million, pricing optimization, maybe another 1 million and in the remaining due to mortality.

I think sort of mortality is pretty much exactly where we planned it. The bit where you sort of can get a little bit confusing around mortality is the aquaculture team will always relate to it as a metric tonnes perspective. So that is right on plan. And the CFO will probably look at it at a dollars perspective. And what gets -- what can sort of be the difference between the 2 is the cost of feed. So when feed goes up, your investment in biological assets go up. So even though mortality might be there or thereabouts on a planned metric tonne basis, the [indiscernible] value can be slightly higher. So mortality is exactly where we thought it was going to be.

Just to figure into it a little bit more. Are you able to sort of say what the dollar cost mortality assumption is within that $21 million to $25 million range?

I believe it's -- I'll come back to you to that confirm question, but I believe it's sort of the $12 million to $13 million range. And you compare that to this year, we were at -- FY '23 would have been at $25 million.

Yes. Okay. If you do come back to the usual in percentage terms as well, that will be quite good just so we've kind of got that historical kind of comparison on the percentage basis. And initially, just this potentially might be something you give comment on as well, just given that mortality is probably the key overhang for the business and it might take a while to get full confidence back in there to extrapolate the sort of good results going forward. So you mentioned the chart that's on Slide 16, some of mortality over the last 6 years. Obviously, the orange line is significantly better than the other ones, but the prior periods are not exactly comparable given they include Queen Charlotte and Pelorus. So I mean, would you be able to provide that same chart on a pure sort of Tory Channel basis?

I'll have a chat to Grant Lovell and see what's possible. And I guess -- I agree with you in terms of the previous year's probably running a slightly different harvest in terms of capacity size that it would be more fish in the water. But I think what I would point to is, it's not a great outcome when we have mortalities, both from an animal welfare point of view and financially it's extremely expensive because those fishing up in landfill, which is another cost as well.

Well, 100% real kind of grade there, it sound significantly -- the decision has been the right one. But I guess just getting confidence on what the Tory Channel might look like going forward as well, I mean it would be useful just to see that same chart to see how the tour channel has held up over this recent summer compared to previous ones. Would like I mean, just off the top of your head, I mean, would you say that the Tory Channel on a sort of percentage mortality basis as within the like -- compares well to the historical average?

Yes. I'd probably say each year has its own variables. But I'd say on a long run average, where the Tory Channel was, is consistent with what we have experienced. Historically, obviously, significantly better than last year. And also it was one of the hottest summers on record. So we don't want to give the impression that we have solved it, but the changes we are making are showing positive signs and will be a continued focus from us in terms of how we can get that line even longer.

Does it mean -- last year, I think the mortality was up around 20%, but you sort of pointed to a feed issue prior to the average was kind of around 13%. So I mean, so far the summer, how we're tracking, is it up -- is it 15%? Or is it seem to seen -- can you give a ballpark kind of audit?

I can't off the top of my head. I'm looking at Mr. Lovell and he'll get back to you. But our view of, as you noted, prior year, we did have a feed related issue as well. And we believe that excluding that feed issue from last year, the Tory Channel's performance is consistent with previous periods.

Okay. So it is. And then just final 1 for me. Just on the Blue Endeavour, Grant, I think you mentioned that there would be sort of a property type of smaller-scale version before you jump on to the [ breakdown ]. So I mean if you got a field process was over tomorrow and you got all the approvals in the recent, what would their prototype version look like in terms of size and cost.

Capital, obviously, a little bit of a question, as we've been working through the regulatory process, we do need to go back and get your reference requoted. A pilot farm would be commercial space spend, so there wouldn't be a smaller spend. But instead of it being a farm of 10 pens, you would be looking like a farm of 1 to 2 pens initially, and that would ensure that we wouldn't have to invest in the large-scale capital items such as the well-boat and feed barges that will allow us to take those fish out over a summer period and ensure that all of our assumptions lined up with actual performance. So you would in terms of capital requirements, it's in net more and grid items we would currently own.

Sorry, so what was that again? I don't actually got it. So is that basically within -- you'd literally only need to pay forward 2 additional pens and you're addressing both and everything could service.

In terms of a small-scale pilot farm, we would require a couple of new pens that obviously were in line with what's allowed to be farmed out at Blue Endeavour and the net infrastructure for those pens. We would require a mooring system to moor those pens. And the other items, we would -- and a few small ancillary items, i.e., feeding equipment, but most of the other items that we already own and that we'll just utilize them internal. That would be something that we would be able to self-fund.

Okay, and it would be in the same location as the current...

Oh, yeah -- absolutely, it would have to be. So we would have to -- we would be required to meet all of our resource consent requirements. Look, additionally, before we can do that, we will have baseline monitoring and some other consent requirements to meet as well. So that will take at least a year to work through those processes.

Okay. So if you got everything approved tomorrow, it's not like you'd start in a week's time. That's probably still at a 12-month kind of thing before that process is...

Absolutely. Look, we need to order those pens and equipment as well, and that was not really quick. But there is -- there's a requirement for us to do baseline monitoring for 12 months, so we would be undertaking that.

Okay. And then once you're sort of assuming that you get that, you sort of start that process and you've got the pens out there in the right location, how long will it actually take before you would be comfortable? Would you have to wait essentially 2 years so you can actually see the fully grown fish before you sort of jump into the larger-type projects?

So probably getting a little bit ahead of ourselves in terms of actually understanding how that might look. We would take a very close look at what the environmental conditions over the year were. We would try to replicate that as closely to full production as possible, i.e., utilize fish initially from the Pelorus and relocate out so that the grow-out cycle was less than 12 months on the Blue Endeavour. And then would take into account what was that summer in terms of the environmental conditions we faced, are we confident that this is a predictor of what the long-term future is going to be, or was it an abnormal year and so forth, I will make some decisions on there. Can't really provide an absolute degree of certainty on that particular question.

Your next question comes from Margaret Bei from Forsyth Barr.

Good work on a pretty solid result and for the updated guidance, which looks pretty positive as well. I'll just start with kind of that area, same as Christian. Does your guidance range include the increase in head count back to your target level? And also, does it include the current run rate of mortalities, which I think you said is slightly above your forecast?

Actually in headcount, yes, that is correct. In terms of mortality, it does include our current mortality. But -- so your last comment there was above mortality, above forecast.

Yes. I think I read in your slide pack somewhere that it was a little bit above your expectations, but still very positive compared to prior years. Is that right?

Okay. In the end of FY '23, but not the end of FY '24.

Okay. Great. And then I think in terms of the CapEx that you spoke to and how that might mirror sort of depreciation rates, in recent years, depreciation is about $6 million to $8 million per year. Is that kind of what you meant when you were signaling go-forward CapEx?

It's Ben here. Yes, that would be right. So sort of I didn't want to leave the impression that $5 million is probably the average run rate for CapEx moving forward, probably where it's quite a CapEx-intensive business. So I'd expect to stay in business CapEx to revert back to that long-term depreciation rate of $8 million. And then in addition to that would be any growth CapEx.

Okay. Great. And then the seasonal harvest was kind of a key positive surprise this year. Are you -- is that the program that you're planning to continue running?

Sorry, Grant here now. So look, we definitely do have seasonal harvest again. And that is we're utilizing that in the Pelorus farm at Waitata. So we have fish out there now, which is -- and then we're actually adding fish to the sea starting next week. And we'll be harvesting them out prior to Christmas. So I guess that is something that absolutely an ongoing program for us. We're not banking on the same level of performance that we saw last year. We are banking that returning to what we would describe as normal performance for those fish and then we'll review at the end of the year. But those seasonal -- it's a really good utilization of our assets. I was at Ruakaka last year as we transitioned into our new strategy. Now the strategy actually has fish being coded from the Tory Channel to the Ruakaka. So actually, on the slide deck, there was a really nice picture of our Clay Point farm, which if you look there, it's actually been -- is only taken this month and the 2 larger pens at the end are actually 2 top ins, and fish health, and those pens are going to be relocated to Ruakaka. So that allows Ruakaka and Otanerau sort of be added to the Tory Channel and become full production normal sites but without fish going through summer. And then the seasonal the offerings are relocated into the Pelorus farms.

Okay. Great. So if you're not expecting 250 metric tonnes to repeat, what kind of go for level are you assuming from the seasonal...

Right. That 250 metric tonnes was the additional biomass over our budgeted level. So we're not expecting 250 metric tonnes of biomass to appear every year, we're sort of planning that to be generally around the 500 to 700 fund mark depending upon number of fish that we put in the sea.

Understood. Fantastic. I think there was also a slide in your appendices around sort of your consents that are coming due for 2024. Would it be fair to talk through that very quickly?

So yes, so we've got -- so we've got 5 licenses that are due for expiry at the end of 2024. These are all what we describe as our older -- the older sites and they're all ex-muscle farms from today. In Marlborough, there is a very, very large number of marine resource consents are due for expiry on December 31, 2024. There's a lot of planning work going in at the council at the moment. They've been doing a new environment plan, and there's actually specific provisions in there for both marine farms and aquaculture in general and both -- however, they're taking a little bit longer to go through. We're not 100% sure what the outcome of that is be, but we are making sure we're involved in the discussions. We will be planning -- we are planning on obviously applying to renew all of those licenses, and we are preparing that, and that will be launched before 2024. It's important to note that we are able to operate all of our farms in the current consensus or applications and appeals have been resolved. It's hard to provide a significant update until the Marlborough District Council finally finishes its regulations and planning documents. But we're relatively positive that we'll -- that we should be able to get at least an interim outcome in the next sort of 18 months for that of a pathway for what's required in the longer term.

Your next question comes from David Oxley from ACC.

Could I just quickly ask on the -- your guidance for harvest volume for FY '24 is 6,600 tonnes. Is that the sort of steady state we've reached now? Should I assume that's where we are going forward from here under the current model?

Yes, back with me again. Look, I think that there's actually a little bit more upside on that. And we're anticipating a range of around that 6,600 to 6,700, 6,800 tonnes this year. But looking at realistically settling at around that 7,000 tonne mark going forward.

Okay. Thank you, that's helpful. Secondly, on the sales mix that you reported for this year, it's obviously the first time for a while that the proportion of sales domestically has increased. That's been sort of sliding for a while. What should we expect in '24? Would we see an increased proportion of sales again into export markets particularly North America? Or is this the sort of new normal going forward?

Graeme here. It is challenging for us that -- with the demand remains extremely high globally, and we do not have enough supply to go around. The New Zealand domestic market is very important to us. And we do -- we will continue focusing on supplying the New Zealand domestic market. We're not going to exit that and just focus on export. There are some very strong values from export at the moment. Demand is extraordinarily high. It seems to be inflation is affecting all of our key markets that we trade in, and even more so in places like for us in our sector, North America, Europe and to some degree, Australia. So they are offering and -- some very, very strong returns. That does make it quite challenging for us in trying to manage an even spread of our supply. To assist with that, we are importing Atlantic salmon. There clearly isn't enough supply to go around for everybody. And we do want to ensure that New Zealanders do have a range of supply. And so we actually bring in Atlantic salmon to supplement that. So we've searched out what we believe is the best supply to meet the needs of our brand because it does go under the Regal Epicurean brand. So it is something that we're very proud to put our name on to. So that is a supplementary to our King Salmon volume. But in short answer to the question, are we going to see a reduction in that 41%? It's possible. We've always tried to set a target of roughly about 50%, and we do get a plus or minus 10% swing on that. Yes, it's possible we made it below that 40% this year. We are hopeful of not going too far below that. It's sort of very important market to us. We've got a lot of very long-term loyal customers, and we'll be wanting to maintain that.

Right. Understood. And when I look at the average price per kg between domestic and export markets, historically, there's always been quite a big gap in the export market's result in a lower price. That gap has very much narrowed in the year just reported from my calculations. Obviously, you just discussed high levels of inflation, which obviously is driving prices up in North America and elsewhere. Am I also right in thinking that you suggested you had lower sales of Ora King salmon, which albeit as I understand is a very high margin product. It's a lower sales price. Has that had some impacts there? So that sort of mix effect has driven up the average price in export markets?

The main driver of the mix in the average price between the domestic and the export market is usually around our -- the product in itself, whether it is a smoked product or a whole fish. So typically, we sell more whole fish into our international markets. And domestically, we sell more smoked and value-added product. So it tends to inflate the average price of -- or return for the New Zealand domestic market. So yes, as we move closer together there, that is a sign of the values that are being paid for Ora King whole fish internationally. Ben saying that as well, we are also exporting more smoked product now into retail, particularly into North America and into Europe. So again, those are high-value products, which do start to move up the export values.

Right. Okay. I understand. And finally, this might be a dumb question, but could you just clarify Grant's comments on the lower feed conversion ratio? My understanding is that, that's the amount of feed required to grow an equivalent amount of fish. So the fact that number is going down is good news. But as I understand it, or if I've interpreted what you're saying properly, that isn't being seen necessarily as good news because it reflects the fact you've been growing deliberately smaller fish this year. So shall we take that it's efficient to grow small fish, but you keep growing them large because you get a much bigger price on the other side to make it all worthwhile? Is that how that works?

Yes, I think it's probably a good summary of it. Yes, it's probably the easiest way of explaining that.

There are no further phone questions at this time. I'll now hand over for webcast questions.

Marano for McIntyre here. We've got a few questions here. We'll kick off with Blue Endeavour. Grant, how many tons of fish would the 2 prototype pens produce with Blue Endeavour? That's from Kevin Ascott.

Look, each pen of fish can produce approximately 350 tonnes of fish when stocked, if it was stocked at a full commercial level.

Also, Blue Endeavour, you talked about -- we've done the regulatory update on that. This is a question from James Noble, and obviously, in mediation and the current kind of time frame to talk through. But what will this project require -- will this project, sorry, require further recapitalization?

Yes, I think it's a really good question, James, and we'll probably sort of feel like we're jumping the gun a little bit. So we need to go and prove out the trial, prove it's working. The good news at the moment is the balance sheet is strong. We are predicting positive free cash flow for FY '24. So that will provide us the ability to leverage up, but I imagine we will come up with a plan when we're ready to go on there, which will involve discussions with our Board and various stakeholders. So I think this is from me, we'll just watch this space, and we will communicate when we have some news in this space.

Thanks, Ben. Next question from Karl Carrington. I know you have -- can you remind us the proceeds from Waiau -- the sale of Waiau freshwater facility, who purchased it and for what ongoing purpose. You are able to find out?

Yes, good morning, Karl. So it was sold for $1.2 million, which is pretty much what we had in the books for. It was purchased by an industry participant and they are going to use it as a salmon hatchery. I guess we relate to -- it is hard to get things like freshwater licenses and seawater licenses. So when we have an asset of that nature to sell, we do look to keep it within the industry because we believe a strong salmon industry locally is the right thing to do. So yes, happy that it's -- the asset has found a good home.

Thanks, Ben. A different question from Stephen Walker here saying, what is King Salmon's strategy in terms of waste reduction, zero carbon goals going forward?

Okay. Good question. So we're working through that right now. It's certainly -- we do have -- part of our requirement under XRB reporting is to have our sustainability goals and strategy measured and monitored. So it's actually a process that we're still working through at the moment. So I don't have an update to give here as to a zero carbon ultimate goal. But as we're working through it this year, we'll be, say, fine-tuning and finishing the exact goals and strategy for the business. And I know that doesn't give the exact answer that Ben can also give some further update.

Yes. Thanks, GT. I think the other point is, we are consistently looking at ways we can remove or reduce our carbon footprint. So things we think about, removing or minimizing the number of transportation trucks. And even we have been looking at sort of, I think it's a hydrolysate solution for our mortalities, which would turn them into a bionutrient for composting and that would remove our mortalities from landfills. So it's something which we are focused on and we'll sort of acknowledge we're on a journey, and we need to do better, and we are focused on doing better.

Thank you. And another question from Kevin also, what percentage of the fish are sold in whole compared to the percentage that are processed branded and sold?

Okay. I will have to get the -- I haven't got the exact number and percentage in front of me. So I will -- I think [indiscernible] go and give a rough number if that's going to be satisfactory here. We would have approximately -- about 50% of our product would be sold as a whole fish. Much of that, as mentioned earlier, is into the export markets. And then actually, then the other half is sold as a value-added product. And that would be in -- and we refer that as mainly 3 different streams of our hot smoke product, a cold smoke or a portion fillet. So out of those other ones, the remaining 50%, we would have about 15% of that would be cold smoke, about 8% of that would be hot smoke, and then the remainder would be fillets portions. So every time we can -- every one of those other products is an opportunity for us to put our brand on to those into the value-added cold smoke, hot smoke and fillets portions. In the whole fish, most of that is branded as Ora King. And yes, so we're still on that journey of ultimately targeting 100% of our product being branded.

Right, thank you, Graeme. And I'll hand back to you because that's all the questions on the webcast. Thank you.

Okay, all right. Perfect. Thank you, Paul, and thank you all for those questions. I think that brings us through to the conclusion of today's presentation. So again, we'd like to thank all the attendees. Thank you for your time taken to go through this today. And thank you for your questions. And just in closing, I said we're pleased with how the year has progressed and finished for us, and we're very excited and pleased about what's in front of us for FY '24 and the opportunities that, that presents. And again, it's really -- also want to call out the colleagues here in the room with me, particularly Ben and Grant and our leadership team who have helped bring us through to this result for this year. And the expertise of the wider team to deliver for our results for FY '24, which is out in front of us. So again, thank you all today, and I'll pass back to the conference team.

That does conclude our conference for today. Thank you for participating. You may now disconnect.