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

Thank you for standing by, and welcome to the New Zealand King Salmon Investments Limited Half Year Results Announcement. [Operator Instructions] I would now like to hand the conference over to Mr. Carl Carrington, CEO. Please go ahead.

Thank you, operator. Good morning, everyone. Welcome to the New Zealand King Salmon Half Year Results. Joining me on this presentation this morning will be Graeme Tregidga, GM of Sales and Marketing; and Ben Rodgers, our CFO. Usually, we would have Grant Lovell, our GM of Aquaculture with us. However, Grant is on a well-deserved annual leave break. So the team is just the three of us this morning. I'll turn straightaway to the summary of the key outtakes from this morning's presentation. I would characterize the first half year results as having made solid progress with the first half GAAP NPAT result of $10.6 million. The changes made to the farming model in FY '23 have underpinned our supply this year, which has enabled the business to perform in line with expectations. The GAAP results were positively impacted by a fair value uplift in assets of $4.1 million. That compares to a loss in first half '23 of $8.3 million, and the continued unwind of an early closeout of FX contracts in FY '21 (sic) [ FY '22 ] of $3.6 million. The first half pro forma EBITDA profit of $10.7 million compared to a loss last year of $12.7 million, a rolling 12-month EBITDA is at $21 million. The mortality reduction is consistent with our expectations following changes to the farming model. First half of this year, mortality cost was at $7.8 million compared with $22.3 million for the same period a year ago. We still see opportunities for further reductions in mortalities over the medium term. We've continued to focus on price and product optimization in the first half and a strong focus on our cost base remains. We're also focused on improving our business resilience. We'll turn to the balance sheet. The balance sheet remains strong with net cash on hand at $25.2 million, up from $15.7 million from 31st of January with good positive free cash flow. However, our CapEx is skewed heavily to second half of this year. The full year CapEx is forecast to be $10.5 million. The first half CapEx was at $1.6 million. The projects are focused on our BAU asset replacements and increasing resilience. Going forward, our focus remains on optimizing and stabilizing the existing operations, including investments to reduce volatility of our core earnings. The second focus area is development of our production growth options, including Blue Endeavor. For guidance update, the pro forma EBITDA guidance range has been revised to $23.5 million to $27.5 million from the previous guidance range of $21 million to $25 million. And the FY '24 full year expected harvest is at 6,500 tonnes. Just turning to the operational highlights. For the first half, we have harvested just under 3,000 tonnes with a first half revenue of $92 million. In context for a 6-month period, that is a record result over the past 5 years. Our sales are primarily to New Zealand, Australia and North America, which are accounting for 87% of sales. We have just commenced sales to China during the first half of this year, so there will be an uptick in sales into the Asian region as we move forward through the year. You can see from the tables on the right-hand side, first half year GAAP NPAT of $11 million rounded and pro forma operating EBITDA also at $11 million.

[indiscernible]. It's Graeme here. And just before I get into the brands part of the presentation, I'd just like to offer thanks and recognition to the 450 New Zealand King Salmon team for their dedication and hard work to achieve this result. We'd also like to thank and recognize our customers for their ongoing support for our premium product and the sheer passion for buying seafood. We also appreciate our service providers and suppliers to ensure that our product gets to our customers in premium condition. And of course, especially thanks to our shareholders because we thank you for your ongoing support and belief in what we do. So in terms of our brands, look one of the things that we really like to focus on here at New Zealand King Salmon is getting closer to our customers and getting closer to our end users. And we do that by focusing on our engagement within our Ora King Ambassadors, our key ships in the foodservice space. It's been challenging to do that over the last few years, and we've created a documentary that we screen globally to tell our story. And I encourage you all here, if you have not seen it, to head to the Ora King website to view that documentary. We're focusing and aligning our A&P spend with our sales growth and our margin targets that we have in each market. We've moved our digital and social media programs in-house, and we're focusing on our retail and foodservice brands to maintain that presence and story to our relevant audience in the most cost-effective way possible. On our Omega Plus pet food range, we are focusing our story, the way we tell our story through digital and social media and due to now ambassador programs here to increase brand presence from both New Zealand and in China. We're focusing our -- and activating our specialty strategy for Omega Plus of engaging events and social media activity with key retailers such as Animates. Within Regal, our Regal smoked product, it remains the New Zealand's most preferred smoked salmon brand, proven our consumer trust that they have in our Regal brand and what they like is our exceptional quality and consistency of our range. And our Regal Epicurean range continues to drive profitability through our target approach towards the younger demographic and directly contributes to our overall positive market share across the Regal range. Turning to sustainability. We continue to progress on our sustainability journey. We recently undertook an industry-wide life cycle assessment. And you can see on the chart on the right that New Zealand King Salmon has a very low carbon -- sorry, a very low footprint and extremely low when it is compared to other protein. It's also, of course, a very high and nutritious protein. We're committed to reusable and recyclable and compossible packaging right across our business. And we've just -- we've completed our submission of our third Modern Slavery Report. In FY '23, we achieved a Best Aquaculture Practice 4 Star certification. And right now, we're working through the completion of that same audit for FY '24. And we're preparing for the incoming Aotearoa New Zealand Climate Reporting Standards, which is effective for our current financial year. Turning attention to our sales performance. We're continuing to target price and product optimization. We're focused on supplying our key markets that -- and quite across those, there have been cost increases that we continue that provide challenges across our business, and we have to pass those on through price increases. Despite that, global demand remains very strong. Our New Zealand sales volumes, however, contracted and this is mostly in our value-added smoked lines. However, our imported Atlantic volumes continue to increase as consumers seek a more value offer. Our North America premium demand continues to perform very strongly. And most of that increase in sales volume was within the foodservice wholefish category, which is up 25% compared to the same period last year. And our Regal branded products remain and continue to perform well. You can see on the chart here that our Japan market volumes decreased when we compare to the same period in our financial year of '23 and it's a continuation of the previous years, which is a result of our price optimization model. Within Asia, and that excludes our Japan market, as Carl mentioned, we recently had return to the China market as well as we had a large contract for smoked product, and that has made a significant uplift in the volume that we've done in the first half of this financial year. In Australia, there's a similar story in Australia. Those cost increases that had to be passed on in the form of price increases. However, we had a significant contract of supply to a key customer and then has had a significant increase in the volume for Australia in the first half. Continuing that same theme in Europe of that price increase having to be passed on, and that's proved to be quite challenging for some customers, but it's all part of our price and product optimization as we target to rebuild all these markets around the globe. And back to you, Carl.

Turning now to the fish performance. The first half of FY '24 saw the adapted aquaculture model completed its first summer. The model of having the majority of stock in the Tory Channel and out of the warmer water sites over summer has proved successful to date, would significantly reduce mortality in the first half of FY '24 compared to previous years. You can see the mortality biomass table on the right shows the improvement in the context of the past 5 years' performance. And on the table on the right-hand side at the bottom, you can see that we were not harvesting from Pelorus Sound over the summer period. Harvest volume will be up on FY '23, but we still have further optimization to undertake, and we expect that we'll see a slight increase again in FY '25 half's volumes. The feed price remains under significant pressure due to raw material ingredients, especially fish oil, which has seen significant increases in price and we anticipate that will continue for some time with a Peruvian anchovy season expected. Work continues on thermo-tolerance trials with our breeding stock. The aim is to be able to select and breed a more thermo-tolerance salmon, but this work is in its early phases. And although it is showing very promising initial results, the gains will become apparent in the medium term, not a near-term initiative.

Thanks, Carl, [indiscernible] , everybody. As noted in the earlier slides, it has been a relatively uneventful half in New Zealand consumers recent context. Post the change to our production model, the business, including our financial performance, has been consistent with our expectations. On a GAAP basis, we reported a net profit after tax of $10.6 million. And moving to our preferred measure of performance, pro forma EBITDA, New Zealand Consumer reported a profit of $10.7 million. At $10.7 million, the first half is our best result in the last 5 years on a like-for-like February to [indiscernible] comparable basis. These results reflect the changes to our production model by having the majority of our salmon in the Tory Channel over the summer, consistent with our expectations, we saw a significant reduction in our mortality expense. We continue to optimize margin from our available harvest through product and market choices. And we have continued our discipline around operating expenses and capital allocation, focusing on where we continue to reduce expenditure, increasing our focus on reducing risk and building resiliency across the business as well as to continue to investigate opportunities for growth, including Blue Endeavour. As Carl mentioned earlier, the GAAP NPAT result also benefited from the fair value gain on our biological assets as required by accounting standards and the continued impact of the early closeout of our FX contracts, which occurred in the first half of FY '22, and we'll continue to unwind in our GAAP results until FY [ '27 ]. Moving to the [ walk ] between our first half year results this year and the prior comparable period. As noted earlier, we have benefited from changes to our farming model, which has contributed some additional harvest. The good news here is we also believe there is some further harvest upside to be realized from FY '25. We are still working through the FY '25 production plan, and we'll provide a further update on this at a later date. We've continued to benefit from choices around product and market choices in addition to implementing price increases and market in response to cost pressures, which have existed right across the supply chain. From a cost perspective, as a business, we continue to focus on these, but we are facing some challenges, specifically with feed, labor and freight. Our feed is priced on a raw material basket basis. And although there has been released in some categories, as Carl mentioned earlier, fish oil continues to remain under pressure connected to the Peruvian anchovy season. Labor costs have been impacted by the strong inflationary environment. And freight, while it's pleasing, freight is flat compared to prior period. It's important to note, we have had --, we are achieving a reduced cost on a per kg basis. This reflects some relief in the cost of freight. However, there are some key destination ports, which are still sitting significantly above pre-COVID levels. Mortality, as noticed previously, is significantly down, consistent with our changes to the production model. From a balance sheet perspective, following the equity raise in FY '23, the balance sheet remains strong with net cash increasing to $25 million. This was driven by our underlying profitability, a focus on managing working capital, but has also benefited from the timing of CapEx. Associated with the new production model, we now have a seasonal uplift in production between October and December. Last year, the seasonal fish were frozen down and used for input into our smoking products. This has allowed New Zealand King Salmon to maximize wholefish sales during the period. Consistent with fine-tuning our new farming model in aquaculture, we're still looking at how we fine-tune the seasonal harvest balance between realizing it as a fresh product versus freezing and utilize as a smoking input. As referenced above, the cash balance also benefited from CapEx being skewed towards the second half of the year. We are forecasting CapEx to be around the $10.5 million mark for the FY '24 year. Looking ahead, as part of the half year results, we are updating our full year guidance to $23.5 million to $27.5 million. This is up from our original guidance of $21 million to $25 million. The revised guidance represents a strong first half of the year as based on our current balance dates, our mortality is generally skewed to the first half of the year, while sales are skewed to the second half of the year. So our second half performance is normally stronger than our first half. Both the Board and management team are focused on improving the underlying performance of the business and delivering the consistency of results. These are important as they enable us to develop and fund our future growth initiatives. The dividend remains on hold as we develop our future production options and strategies. I will now hand back over to Carl to give an update on Blue Endeavour.

Thanks, Ben. The Consent Order for Blue Endeavour was issued by the Environment Court on the 20th of September, just yesterday. This consent requires an 18-month monitoring period before farming can be undertaken at this site. However, we are now awaiting MPI to grant the aquaculture license. We anticipate that process could take 2 months, but we don't anticipate any issues during that stage. Once monitoring is complete, we intend to build a pilot farm on the site to further test the infrastructure and to prove up the business case. We would look to do at least one harvest from a pilot farm before committing to a progressive scaling up in order to best manage the risk and the risk profile of that investment. The 18-month monitoring period affords us further time to finalize the key infrastructure requirements that are needed to support Blue Endeavour. It is not just infrastructure on the farm that is needed, but it may also include fresh water infrastructure to ensure the capacity and stability of supply of smolt to sea and harvest and transport infrastructure to ensure we can move our salmon in the most economic fashion. It will also require processing infrastructure to efficiently handle the increased throughput. All of these investments will be considered as part of our long-term capital investment program. We will provide updates to shareholders on these plans as they are developed over the coming six to nine months. The performance of the existing business is obviously a critical element in enabling the growth aspirations of the company. And I would just like to acknowledge the tremendous work of all the staff and our customers and shareholders in supporting us to deliver, I think, a very solid first half result, and we look forward to continuing the momentum as we head towards the full year result. Thank you. I'll now move to take questions.

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

So yes, well done on a solid result. I just -- my first question relates to -- so starting with in June at your ASM, you had sort of provided unaudited EBITDA for the first quarter of $6 million. So this first half result implies $5 million in the second quarter on slightly worse margin. So just what was the reason behind that slight softness versus the first quarter?

Well, one thing I'd probably, Christian is we do -- during our half year and year-end results, we do a little bit more work over cutoff. So we did have some quite large cutoff adjustments in July. So we had about a -- might have been that $800,000 of EBITDA, which moved from July to the August month. So that would probably be the big reason, but a contented performance where we've been tracking to plan, if not slightly [ above in the ] reversion of the [ bottoms up ]. So there's no concerns or deterioration of performance between Q2 and Q1.

Cool. And with [indiscernible] provide what the mortality costs split between the first quarter and the second quarter just because, obviously, the first quarter, you would expect more of the mortality like a higher weighting of mortality in the first quarter. Do you have that in dollar terms?

I don't have that right in front of me at the moment. But what we probably are starting to see as a business is mortality is starting to drift further in the year. So I think historically for the business, it would have been in January and February, and we probably see it more being March, April and May as the peak months now. But it's all -- can depend on complicated things like weather patterns. But from a mortality perspective, we are [ trekking ] towards plan. I [ can bring it up here ].

So given that February, March, April is basically -- first quarter, do you expense that mortality as it happens in your reporting? Or do you kind of smooth it over the half?

No. Yes, mortality is expensed when incurred.

Sorry, how does that work like -- given that mortality expense in the first quarter should be much higher than it is in the second quarter, and like what's the kind of -- I know you're sort of [ talking about your cutoff time ] before, but as you've got so small mortality costs in the first quarter than it is in the second quarter, how do you kind of [ marry that up ]?

Yes. Well, I think -- and I'll try to start and scramble and get some numbers. But I think my perspective is probably what mortality traditionally might have been more weighted towards Q1, it's probably been reasonably flat across Q1 and Q2, but I was trying to pull those output for you now. Yes. So just in terms of that [ 7.8, ] Christian -- in Q1 and [ 3.6 ] in Q2. So there's probably [indiscernible] [ is as you want ]. But again, sort of the peak months for the year this year would have been April, May.

Right. Okay. That's helpful. And then just on El Nino for the summer, do you have any sort of idea of what kind of impact that could have? Graeme's probably is the best to answer that, but -- are you able to sort of provide some color on that?

Yes. So Christian, yes, the temperature forecasts that we get from [indiscernible] are indicating that the water temperatures are likely to be a little bit higher than the long-run averages, not necessarily extremely high, but a little bit higher. But the way we're operating is we assume the worst and try to execute accordingly. So we're planning that the water temperatures will be high, and we make sure that we have the fish -- as much as the fish out of the warmer waters prior to the summer really [indiscernible]. So we do everything we can. And if we get water temperature, then that's well and good, but we're not planning on that.

[indiscernible] was here, let's say, traditionally, El Ninos haven't been too bad, but it is always [indiscernible]

Is it fair to say, like given that Tory Channel and Tory Channel was kind of well within the sort of safe temperature zone that you've kind of provided in the past. Even if temperatures were to increase by on -- half to a whole degree hotter in the Tory Channel, you should still really speaking be within that soon?

Sorry?

Sorry, are you still there?

This is the conference operator. We have temporarily lost connection with the [ speaker ] line. Please continue to hold, the conference will recommence shortly. [Technical Difficulty] Thank you for holding. The speaker line is now reconnected and the conference will recommence. Please go ahead.

Apologies, Christian. I think we had some technical difficulties. But if you can repeat your question, we'll do our best to answer it.

Just -- it was just around the El Nino and the temperatures. Just in the past, you've sort of indicated that in the Tory that you've sort of -- the temperatures there are generally well within the safe zone, which I think is 14 to 18 degrees for happy salmon. So even if through like an Australian El Nino say it listed water temperatures from 0.5 to 1 degree higher than normal. In theory, you should still be within the same zone, is that kind of a fair assumption?

Yes. That's a fair assumption, Christian. So that's why we're focused on trying to keep the fish in the Tory channel over summer and get out of the floors and minimize -- which will be slightly [indiscernible] in Tory, but that's a fair assumption.

Great. Cool. And then just if I could just move on to the pricing -- pricing. And demand -- you sort of indicated demand has been strong across all your markets, which is not surprising. But just looking at the export yield, so it looked like your pricing was up where your average pricing was up, mainly driven by the New Zealand market, but it was slightly flatter than the export market. Is that an underlying kind of slowdown? Or is that something else like product mix or something like that in a [indiscernible]

Yes. Thanks, Christian. It's mostly product mix. There's quite a number of factors that really do come into it when you have customer destination product mix, and volume that will come into it in the different markets. But by and large, the price increase -- price increases that we've been doing is widespread and across all markets. So we try -- and this is trying to get them aligned as much as possible. So yes.

Or are you sort of -- are you still confident that you can continue to ratchet up the price going forward? Or have you kind of had a ceiling?

Yes. Look, it's been pretty significant what we've done over the last year. So like many businesses, we've been impacted by a lot of those cost increases and like everybody, there's a limit to what we can -- there's always a little bit of a fine tuning that we -- as we -- what we're referring to when we're optimizing the market. So there's probably some things here that we can do for further improvement. But by and large, we see that those significant changes that we have had to do over the past year will certainly be a lot more -- subdued in the future. I would not see price increases of the magnitude that we've been having to do over the past six months [indiscernible]

Yes. Sorry, just a couple more questions. Just on the CapEx, $10.5 million, it's a bit higher than your guidance of $6.5 million to $7.5 million. Just wondering, given that it's sort of BAU CapEx, is that a reflection of inflation and so should we expect similar levels of CapEx required going forward?

Yes, I think probably a couple of things, Christian, with the new CEO coming on board, I think there's been a bit more focus on risk and resilience. So looking at how we can protect the current earnings, which are important as we look at what we will do in the future. We also have a couple of growth CapEx projects in there. One is looking at essentially how we can remove waste from landfill. So should hopefully be a good news story we can talk to about that in the future, which will be a great sustainability outcome, a good cost savings outcome. But yes, I think in terms of that stay in business CapEx. I think you have sort of a little bit of inflation. But I think, yes, I said $6 million to $7.5 million, maybe it's more like $8 million to $9 million and then the delta between that will be some growth capital initiatives. So hopefully, expect to see an uplift in earnings from those.

Okay. And sorry, just you had sold the Waiau freshwater facility, I thought in the first half, but I didn't notice that in your cash flow statement. Is that -- so what's going to happening there? Is that coming into the second half?

Yes. We recognized that in our year-end accounts. So I think, hopefully, I think from memory if you look at our cash flat year end, you'll see proceeds and sales of about $1.5 million [indiscernible] last financial year.

Okay. And sorry, just one final question just on Blue Endeavour. So you've got the monitoring period for 12 to 18 months and then you would look to do the pilot program. So [indiscernible] how far away would the first [ halves from ] the pilot from here?

Potentially 4 years. Yes, potentially 4 years, Christian, because once we get through -- therefore, [ be to ] put some infrastructure out there, and we want to actually have the infrastructure sitting out there and make sure that it performs according to design specs that we don't get any surprises around gear breaking or any failures. So we want to test that first and then we will put a small number of fish out there. I'm just following a number, maybe 500 tonnes, but that's sort of quantum. So not a large amount of fish, and we want to see how they perform out there. So you're probably talking 4 years before we actually start minimum 4 years, it could be 5 years before we start to see any volume coming from there. And once we're satisfied with the risk profile and the performance of fish, then we will start to progressively ramp it up from there. So it's unlikely we're going to see Blue Endeavour operating at full scale until early 2030s. And it's just that Aquaculture is one of those businesses that rewards caution and patience. So we need to make sure that before we start really ramping up the investment profile out there, we have absolute confidence that it will perform as we expect.

Previously sort of indicated the sort of CapEx cost of the pilot program would be roughly about $10 million, so you could easily fund it off your balance sheet -- balance sheet without having to raise extra capital. Is that still the same thing?

Don't have a specific quote. I definitely think it's south of $10 million. Look, it is something which we see as important the future of aquaculture in New Zealand, so we could even look at partnerships with even government entities to get that pilot across the line. But you're right, it is definitely something we can afford from the existing voucher.

The next question comes from Margaret Bei with Forsyth Barr.

All right. A quick question from me, I guess, to start off with. You provide a really comprehensive resource consent update with all of your results. And I was wondering if you could maybe quickly talk us through the slide on Slide 18 and just any key points on whether there are any risks that you see coming through?

So this is in regards to the existing consents in Marlborough?

Yes.

Yes. So those consents will go through under the National Environmental Standards for marine aquaculture, which means that they are not out for public consultation. The consultations with Iwi and that's basically it. So we don't anticipate that there will be any difficulties renewing those consents, but it is a consenting process. So there's always the potential to be surprised. The consenting process for Crail Bay will be underway imminently, and then the consenting process for the rest of the sites that expire in 2024 will get away early in 2024. So there is always risk with the consenting process, but we're not anticipating that these will be unduly drawn out or controversial in the way that we experienced with Blue Endeavour.

And just to clarify, there won't be any impacts on sort of operations, BAU, in the meantime, while you wait for those to come through?

No. No impact while we're waiting for those.

Okay. Perfect. My next question is a little bit broader. Carl, given you've had not very long in the role, but hopefully enough to get your feet under the desk, what would you kind of think about as your main priorities? And are they sort of divergent from what the company has been trying to do over the past sort of year in terms of cost rationalization, optimization and price, that kind of thing. Is there anything else that you wanted to -- gone well or that you want to follow up on?

Yes. Yes, certainly. Well, fortunately, it's not my first [indiscernible] on seafood. So -- also haven't been long in the business, I've sort of come up to [indiscernible] reasonably quickly. I would say it's more a continuation of what they have been doing with more -- so I think firstly, I just want to acknowledge that the team has done an exceptionally good job in my opinion of managing the market over the last 12, 18 months with price realization and allocation of our product to the right markets. So that's been a big plus, and you've seen that turn up in the margins. And also acknowledge the work that has been done on adapting the farming strategies. And one good season is just a data point. We need to be able to consistently repeat that to have confidence that, that strategy is viable for the long term. But all the early indications are it's seemly tracking that way. For me, the big -- the main change or shift in focus, I think, there's a real concentration on building resilience of the business to try and mitigate the potential for shocks to hit our earnings. And so there's a lot of investments that we are looking at to try and -- just to try and strengthen resilience across all parts of the business. And the other area is looking for productivity gains because as Christian asked earlier on, about pricing going forward. At some point, we have to anticipate that our ability to continue to take price rate we have all slow down. That's just a reality of once you start hitting higher price points, there's more risk of substitution from alternative proteins and Atlantic salmon supply chains will start to normalize and so on. So whilst we will continue to work on price, we also have to continue to work on our cost structures. So we are actively looking for opportunities to improve productivity. And my view, there are plenty of things we can be doing to look at productivity. Of course, we have to be a little bit careful that we don't over invest in existing assets, but we're also looking to upgrade to greenfield sites. Once Blue Endeavour volumes start to come on, we will need to make some significant investments in our processing facilities. So we're just balancing out how much we invest in productivity today versus keeping our powder dry for a greenfield site. So I think it's more a continuation of the great work that has been done and balancing that out with some further investment and resilience and productivity.

I just wanted to dig a little bit into the comments made around volume growth expected from about FY '25. I think you may have touched on in previous updates where this uplift could come from. But could you just remind us and maybe, if possible, put sort of volumes against initiatives, if there are concrete ones in sort of mind?

Yes, just probably be a great question for Grant if he was here. My sort of color it off you, Margaret is, in aquaculture, sort of takes about 31 months to grow salmon. So there's a long lead time between changes we make and outcomes. So when we made the change around [indiscernible] the [ poor farms ], we had a, I guess, initial estimate of what we thought the potential harvest of those sites would be. And as we get the benefit of actually putting net through our production model, the aquaculture team are always looking at opportunities to optimize that. So the additional harvest is just going to come from potentially optimizing our existing farms, which can be -- things like the size of smolt you put at sea. If you put a bigger smolt at sea, you have a shorter grow period and Grant and team just do a very good job at optimizing that. So I think in terms of providing you -- I know that's really cryptic. But in terms of providing you an actual tonnage uplift, look, I think it's something which will be reasonable, but we need to work through those action plans, and we'll probably talk more on that at a further update.

[Operator Instructions] Your next question is a webcast question from [ Lawrence Life ] a private investor. It reads, when can we expect dividend to return?

Yes. Thanks for the question, Lawrence. If you probably caveat this answer with aquaculture is a capital-intensive business. And the one thing we're doing as a company is probably if I relate to FY '23 was, I guess, a major reset of the business. FY '24 is trying to get back to a steady-state performance and also consider what we want to do for the future. So at the moment, with the new CEO and new Chairman, we're just working through a revised strategy, and associated with that strategy, we will be looking at things like dividend policy. So I don't have an answer for you at the moment, but we will update you when we have some further news on that option. But we will obviously be considering that as part of our capital requirements for the future.

Your next webcast question is from [ Trevor James with Selenium Corporation ]. This reads, could you please explain the half year tax provision or tax losses?

Yes. Thanks for the question, Trevor. So we do have a [ sense there. ] But we -- so I expect as we will have tax losses to cover us for this financial year. So we won't have a cash tax expense to pay and we expect to be in a tax-paying position next financial year. So we do have tax losses that are on balance sheet, which we are utilizing at the moment.

Your next webcast question comes from [ Lawrence Life ], a private investor. This reads, do you think the nuclear polluted water being put into the sea by Japan will affect the world's fish farming business?

Yes. Thanks again for the question Lawrence. Look, just within the last couple of weeks, we've just returned from China, and this was indeed a very big news in China, where they have gone and banned the implementation of Japanese seafood. So yes, there is some impact that will be felt from this. And naturally, that increases demand for safe, sustainable seafood and we're in a really good place for that. Outside of that, we've seen very little impact certainly around in the sales and demand space. And -- [ these things have ] a sort of not gathering much pace and soon blow over. In terms of that water affecting other aquaculture in the Northern Hemisphere, there's not a lot in our space around salmon that will be coming out of that region. Doubt whether they'd be having too much impact across were the main producing areas of Norway, Scotland, Ireland, et cetera. So at this stage, it will be a watching brief from us, probably not a huge amount of an impact other than those key markets that are directly affected around China and Japan. So yes, a slight positive in a way for us, but naturally not a positive of having that in the [ order ].

[Operator Instructions] You have another question on the phone line. This is from David Oxley with ACC.

Apologies if I missed this. I had to duck away for a couple of minutes when you're asking -- answering Margaret's question. But I can't see a fee cost -- a fee conversion ratio in any of the pack, and I haven't heard you talk about it to date. Do you happen to know what that number was for the first half? And maybe more importantly, what you see for the full year?

I don't have it off the top of my head, David. But look, I can commit to getting back to you on that number. But I don't -- my understanding is it's probably materially consistent with what we saw at the first half of last year.

Okay. That's great. And similarly, in terms of the mortality rate, did you have -- where that's at, at the current point in time? Is it obviously below where we were in the PCP, but is it in line with sort of long-run budgeted expectations post the shift to the new model?

Yes -- the technology sort of in line with expectations. We do still believe we can do better from a mortality perspective. So I think Carl talked about a couple of things around obviously, investments in -- like thermo-tolerance, but there's other things we can do around things like sale management and [indiscernible]. [indiscernible] at year-end last year, so in terms of the finding model, gives the team a pass mark in terms of as an exam that might be a B minus and there's work to get the -- little incremental improvement we can do. So the team are definitely focused on executing those.

Okay. And on the feed cost front. Obviously, things are continuing to go upwards sort of half by half, but is there any sense that those fee costs per kg are starting to ease off in terms of the growth rate? For instance, was second quarter similar to first quarter or higher or lower?

On the whole, I think the first two quarters of our year were broadly flat. But we then -- you get a [ mix day ]. So within that mix, you see some components coming down and some components going up, so the one which we sort of flagged as a concern for us is fish oil. Fish oil tends to be linked to the Peruvian anchovy season. And they are flagging already there. I think the season got delayed due to worries around the amount of fish in the water. And I think the sort of issues around size, so they don't want to hold off to the grow a little bit more. But just to give you a little bit of [indiscernible] fish oil pre-COVID to what we're paying now, it is up 200%.

And is there a second half bias to our fish oil purchases at all?

Not really. I mean, sort of within your feed basket, there is always an element of fish oil [indiscernible] might be slightly higher than probably Q3 is our peak in terms of feed discharge, but I wouldn't see it being materially different to the first half.

That feed discharge is higher in Q3 because that's when we've got the most biomass growth as well that just matches that.

Right. Okay. That makes sense. And just finally, on the feed discharge front. Am I right in thinking that in the current FY '24 full year, your feed discharge will be at a sort of relatively elevated level because you are not only growing biomass to hit your harvest targets for this year, but rebuilding biomass that was at relatively low levels at the FY '23 year-end, thanks to the mortality events that went on last year. So all other things being equal, assuming your harvest projections are broadly similar in '25 relative to '24, you ought to be discharging less feed in '25 than you are going to in '24 to the benefit of your aggregate feed cost number ex any further movements in feed cost per kg.

Yes. That's a really good question, David, and I might actually run it past some on the aquaculture team. But I think my initial expectations would be FY '24 will be higher than FY '23 because we've got more fish in the water and generally, more biomass will consume more food and bigger fish will consume more food, it'll be larger. But I would expect and maybe FY '25 will also be slightly up again on the basis, we'll be looking to increase our harvest, which sort of briefly, perfectly touched on before, but doesn't give specific numbers around.

There are no further questions at this time. I'll now hand back to Mr. Carrington for closing remarks.

Excellent. Well, thank you very much, everyone, for joining the call. Hopefully, we've provided some insight to our reasonably strong or solid, I think, as I will describe it, first half performance, and we look forward to catching up again as once we get to our full year results. So thank you all.

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