New Zealand King Salmon Investments : NZK FY22 Annual Report

ANNUAL REPORT 2022

Contents

Chair & CEO Report .......................... 3

Results at a Glance .......................... 6

Farming in Balance ......................... 10

Sustainability ................................ 15

Highlights ..................................... 21

Leadership .................................... 31

Financial Statements ...................... 34

Ōra King salmon by Shaun Clouston of Logan Brown, Wellington

Chair

JOHN RYDER

Chair & CEO Report

The 2022 financial year has been challenging for the company due to issues with the wider environment, including increased mortalities and the ongoing Covid-19 pandemic. This has caused us to reassess our strategies to create a more secure platform for future expansion. The company is undergoing a capital raise to strengthen its balance sheet and we are initiating structural changes to our farming model to combat rising fish mortalities. We are confident these initiatives will put us on a better footing and we remain positive about the future.

FINANCIAL UPDATE*

The main aspects of our financial results were as follows:

• • Net loss after tax of $73m, following a difficult year including an increase in sea farm mortalities, continued freight headwinds and impairments to plant, equipment and intangibles.

• • Sales volumes increased from 6,380mt FY21 (12 months) to 7,672mt FY22 (an increase of 20.3%).

• • Revenues increased from $152.3m FY21 (12 months) to $174.5m FY22 (an increase of 14.6%).

• • Mortality event in January 2022 increased mortality cost by $4.7m (29%) from $16.1m in FY21 (12 months) to $20.8m.

• • Pro-forma EBITDA for FY22 was $6.7m, a decrease of $8.8m (or 56.7%) on FY21 (12 months) of $15.5m. This result includes $13.5m of forex close-outs included in other income.

• • Following an annual impairment test, $59m of impairments have been recognised across Goodwill ($39m) and plant, equipment, and intangibles ($20m).

Ongoing supply chain disruptions, soaring freight charges and fish mortalities continue to impact our business. Freight costs on a per kg basis increased during FY22 due to ongoing disruptions to the global logistics environment. Our hospitality customers also continue to be affected by lockdowns and social disruptions.

*As the FY21 result is for a 7-month period following the Group's change in balance date from June to January, the FY21 numbers have been restated in this commentary to reflect a prior comparable period of 12-months.

MORTALITIES

GOVERNMENT SUPPORT

Unusually early elevated seawater temperatures were a major factor behind high mortality rates, with the marine heatwave during summer associated with a La Niña event, resulting in a $20.8m negative impact on profitability.

The company has traditionally farmed salmon all year round in the Pelorus and Queen Charlotte Sounds, as well as Tory Channel, in the Marlborough Sounds. The bulk of mortalities have occurred when farming through the summer in the Pelorus or Queen Charlotte Sounds. To combat the continuing effects of climate change, we plan to fallow three farms in the Pelorus Sound. This will result in reduced harvest volumes but lower mortality and associated costs, thereby giving us a more stable, predictable operation. These measures will result in a forecast decline in production in FY23 and FY24 to 5,700 and 6,500 tonnes respectively, with a 200-tonne predicted increase in 2025. This reduction in output will be partially offset by a rigorous review of overheads and a downsizing of the company.

It was heartening to see the Government acknowledge some of the reasons for our current difficulties in a media release (8 February 2022) when Minister David Parker said our situation was a 'sharp reminder that resource management system reforms are needed to deliver better management for aquaculture.'

The release went on to say: `The reforms we are putting in place will deliver a planning system that provides for growth in the sector, sets environmental standards that ensure sustainable practices, and delivers 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 farming. The changes will ensure that none of these benefits come at the expense of sustainability.

The hearing for our open ocean Blue Endeavour application, 7km north of Cape Lambert in the Cook Strait, is due to be completed at the end of April and we are hopeful for a decision mid-year. This project is expected to have multiple benefits including an increase in scale of operations, reduction in operating costs and improvements in fish health.

We have one of the world's largest Exclusive Economic Zones, with a marine area more than 15 times larger than New Zealand's land area. That means we can gain the benefits of a thriving, sustainable aquaculture sector while allocating a relatively small part of our marine environment to marine farming.'

Continued support from the New Zealand government is vital to achieving our future farming objectives and our national goals for aquaculture.

If Blue Endeavour is approved, the three fallowed farms in the Pelorus Sound will be used as nursery sites for nine months of the year, representing an efficient use of assets, capital and resources. The application is aligned with the Government's Aquaculture Strategy which was launched in late 2019 and now has an accelerated objective of the industry achieving $3 billion in revenue by 2030.

EQUITY RAISE

Due to the current trading uncertainties and to take the company through to its next expansion phase, the Board has decided to undertake an equity raise in the form of a pro rata renounceable rights offer. Post the rights offer, the company will have no net bank debt and liquidity of $13.2 million, providing significant flexibility as we transition our farming model and navigate the ongoing impacts of the Covid-19 pandemic.

SUMMARY

BUSINESS UPDATE

Our Tentburn freshwater facility near Christchurch is part way through a three-phase upgrade project. The newly built 'First Feeding Facility' is now operational, in addition to a new incubation room which will enable lower stocking densities. We continued to upgrade and invest in infrastructure across seawater; construction is underway on a new feed barge called Kai Hāmana for our Clay Point farm in the Tory Channel, while Blenheim-based engineering firm Cuddon has been building new pens for our Otanerau farm in the Queen 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, this is a premium sashimi or plate-size salmon enjoyed for its sweet flavour and delicate texture. We also launched our Ōra King documentary globally, in order to tell our unique story during the pandemic. This was well received by chefs and customers. A noted success was receiving two awards for Regal Double Manuka Wood Roasted King Salmon at the prestigious sofi™ Awards in North America. We also launched a new Regal dip into the New Zealand market and our smoked salmon is now listed in Coles, a major supermarket chain in Australia.

Underpinning our business is a commitment to sustainability and ocean health. We continue to implement sustainability actions across the business including packaging improvement, waste to landfill reduction and minimisation of water/energy usage. In addition to working with independent global organisations to achieve rigorous third-party certifications, we have also completed a double materiality study. This study assessed both financial and impact materiality, to highlight the highest priority issues for the business to address in the medium-long term. Key findings included 'innovating to lower environmental impacts', 'protecting against the physical impacts of climate change', 'growing the potential of NZ aquaculture', and 'safeguarding our oceans'. To standardise reporting on 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.

JOHN RYDER

Chair

GRANT ROSEWARNE

Managing Director & CEO

The Board and Management are deeply disappointed with the results for the year and the significant mortalities experienced. 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. Concurrently, we will focus on sustainable farming practices that utilise optimal available waterspace. Blue Endeavour provides further opportunity for a sustainable increase to our scale and value proposition. In the interim, we are taking steps to fortify our balance sheet and set a strong foundation for the future.

Our company remains the world's largest producer of the premier King salmon species with brands that continue to attract premium prices across the globe. The enduring strength of market demand is comforting, and we are confident in our ability to continue having a successful business and reward the support and loyalty of our stakeholders.

The Board would like to take this opportunity to acknowledge and thank the entire New Zealand King Salmon team for demonstrating resilience and unwavering commitment during a challenging warmer summer, in addition to the Covid-19 disruptions. Our team members have enabled us to navigate turbulent times and their contributions have been outstanding. We would also like to thank our stakeholders - including our shareholders and customers, who have continued to support us throughout the year.