ANNUAL REPORT 2022
Report of the President and Chief Executive Officer 3
The results at a glance ………………………. 6
Farming in balance ………………………….. 10
Durability ………………………….. 15
Highlights ……………………………….. 21
Steering ………………………….. 31
Financial Statements ………………………. 34
Salmon Ōra King by Shaun Clouston of Logan Brown, Wellington
President and CEO’s report
2022 was a difficult year for the company due to issues related to the wider environment, including rising mortality and the ongoing Covid-19 pandemic. This caused us to reassess our strategies to create a more secure platform for future expansion. The company is carrying out a capital increase to strengthen its balance sheet and we are undertaking structural changes in our farming model to combat the increase in fish mortality. We are convinced that these initiatives will put us on a better footing and we remain optimistic about the future.
The main aspects of our ﬁnancial results are as follows:
• Net after-tax loss of $73 million, following a challenging year including increased marine farm mortality, continued freight headwinds and writedowns of plant, equipment and intangible assets.
• Sales volumes increased from 6,380 mt FY21 (12 months) to 7,672 mt FY22 (an increase of 20.3%).
• Revenue increased from $152.3 million for FY21 (12 months) to $174.5 million for FY22 (a 14.6% increase).
• The January 2022 mortality event increased the mortality cost by $4.7 million (29%) from $16.1 million in FY21 (12 months) to 20.8 millions of dollars.
• Pro forma EBITDA for FY22 was $6.7 million, down $8.8 million (or 56.7%) from FY21 (12 months) of $15.5 million of dollars. This result includes $13.5 million of currency settlements included in other income.
• Following an annual impairment test, $59 million of impairments were recorded on goodwill ($39 million) and property, plant and equipment and intangible assets ($20 million).
Ongoing supply chain disruptions, skyrocketing freight costs and fish kills continue to affect our business. Transportation costs per kg increased in FY22 due to continued disruptions in the global logistics environment. Our hospitality customers also continue to be impacted by lockdowns and social disruption.
*As the FY21 result relates to a period of 7 months following the change in the Group closing date from June to January, FY21 figures have been restated in this commentary to reflect an earlier period comparable 12 months.
Unusually high early seawater temperatures were a major factor behind the high mortality rates, with the sea heat wave during the summer being associated with a La Niña event, leading to a negative impact of 20.8 million dollars on profitability.
The company traditionally farms salmon year-round in the Pelorus and Queen Charlotte Sounds, as well as the Tory Channel in the Marlborough Sounds. The bulk of deaths have occurred while farming during the summer in the Pelorus or Queen Charlotte Sounds. To combat the continuing eﬀects of climate change, we plan to fallow three farms in Pelorus Strait. This will result in reduced harvest volumes but lower mortality and associated costs, giving us a more stable and predictable operation. These measures will result in a forecast production decline in FY23 and FY24 to 5,700 and 6,500 tonnes respectively, with a forecast increase of 200 tonnes in 2025. This production reduction will be partially offset by a review stringent overhead costs and downsizing of the company.
It was heartening to see the government acknowledging some of the reasons for our current diﬃculties in a press release (February 8, 2022) when Minister David Parker said our situation was a “stark reminder that reforms to the resource management system are necessary to ensure better management of aquaculture”. .’
The statement went on to say: `The reforms we are putting in place will provide a planning system that forecasts sector growth, sets environmental standards that ensure sustainable practices and provides processes that enable adaptation to a changing environment.
We will also ensure a fair return to New Zealanders through the use of marine space for marine agriculture. The changes will ensure that none of these benefits come at the expense of sustainability.
The hearing for our Blue Endeavor application on the high seas, 7 km north of Cape Lambert in the Cook Strait, is expected to be completed by the end of April and we expect a decision by mid-year. This project is expected to have multiple benefits, including increased scale of operations, reduced operating costs and improvements in fish health.
We have one of the largest Exclusive Economic Zones in the world, with a marine area more than 15 times larger than the land area of New Zealand. This means that we can reap the benefits of a thriving and sustainable aquaculture sector while allocating a relatively small portion of our marine environment to marine agriculture.
The continued support of the New Zealand government is essential to achieving our future agricultural goals and our national aquaculture goals.
If Blue Endeavor is approved, the three fallow farms in Pelorus Sound will be used as nurseries for nine months of the year, representing an eﬃcient use of assets, capital and resources. The app is aligned with the government’s aquaculture strategy which was launched at the end of 2019 and now has an accelerated target for the industry to reach $3 billion in revenue by 2030.
Due to the current business uncertainties and in order to lead the company into its next phase of expansion, the Board of Directors has decided to undertake a capital increase in the form of a pro rata waiver of rights oﬀer. After the rights offering, the company will have no net bank debt and cash of $13.2 million, providing significant flexibility as we transition our agricultural model and navigate the continued impacts of the coronavirus pandemic. Covid-19.
Our freshwater facility at Tentburn, near Christchurch, is currently undergoing a three-phase upgrade project. The newly built “First Feeding Facility” is now operational, in addition to a new incubation room which will allow for reduced stocking densities. We continued to modernize and invest in seawater infrastructure; construction is underway on a new feeder barge called Kai Hāmana for our Clay Point farm in the Tory Canal, while Blenheim-based engineering firm Cuddon has constructed new enclosures for our Otanerau farm in Queens Charlotte Sound.
Our strong brands continue to add value. As part of our brand diversification, we celebrated the launch of Ōra King Keiji. Based on the prized Japanese Keiji, it is a premium sashimi or plated salmon prized for its sweet flavor and delicate texture. We also launched our documentary Ōra King globally, to tell our unique story during the pandemic. This was well received by chefs and customers. A notable success was receiving two awards for Regal Double Manuka Wood Roasted King Salmon at the prestigious soﬁ™ Awards in North America. We have also launched a new Regal dip in the New Zealand market and our smoked salmon is now listed at Coles, a major supermarket chain in Australia.
Our business is built on a commitment to sustainability and ocean health. We continue to implement sustainability actions across the company, including improving packaging, reducing waste to landfill, and minimizing water and energy consumption. In addition to working with independent global organizations to obtain rigorous third-party certifications, we also performed a dual materiality study. This study assessed both ﬁnancial materiality and impact, to highlight the highest priority issues that the company must address in the medium and long term. Key outcomes included ‘innovating to reduce environmental impacts’, ‘protecting against the physical impacts of climate change’, ‘increasing the potential of New Zealand aquaculture’ and ‘preserving our oceans’. To standardize reporting of carbon and other key environmental criteria for salmon farming, we published a third-party approved and verified Environmental Product Declaration (EPD), which was the first food EPD published in Australasia.
Managing Director and CEO
The Board of Directors and management are deeply disappointed with the results for the year and the significant mortalities recorded. However, we remain optimistic about the future. Our eﬀorts to identify and counter the factors that aggravate the climate eﬀect on our king salmon have been increased. At the same time, we will focus on sustainable agricultural practices that make optimal use of the available aquatic space. Blue Endeavor offers a new opportunity to sustainably increase our scale and value proposition. In the meantime, we are taking steps to strengthen our balance sheet and lay a solid foundation for the future.
Our company remains the world’s largest producer of the first species of King salmon with brands that continue to attract high prices around the world. The continued strength of market demand is heartening, and we are confident in our ability to continue to have a successful business and to reward the support and loyalty of our stakeholders.
The Board would like to take this opportunity to recognize and thank the entire King Salmon New Zealand team for showing resilience and unwavering commitment through a hotter and more challenging summer, in addition to the Covid-19 disruptions . Our team members have seen us through turbulent times and their contributions have been exceptional. We would also like to thank our stakeholders – including our shareholders and customers, who have continued to support us throughout the year.
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