New Zealand Professional Investment Services Firm

Forsyth Barr

We are proud to be a New Zealand owned firm, with 21 offices throughout the country and over 300 employees. We assist personal, institutional and corporate clients providing a full range of investment services.

Forsyth Barr is a foundation New Zealand Exchange firm (NZX) and accredited market participant. We have been confirmed by the Financial Markets Authority as a Qualifying Financial Entity (QFE).

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New Zealand Professional Investment Services Firm, Forsyth Barr

Equity Bottom-Up

New Zealand King Salmon / Equity Bottom-Up

<h2>New Zealand King Salmon (NZK) FY22 result – First Take</h2>
Belatedly, New Zealand King Salmon (NZK) has released its FY22 result: while the FY22 result was pre-announced within a guided EBITDA range of NZ$6.5m to NZ$7.5m, the operating result was reported at NZ$6.7m (Forsyth Barr NZ$7.0m, consensus NZ$7.8m)
Shockingly, next year’s guided EBITDA range is a loss of –NZ$15m to -NZ$19m vs Forsyth Barr +NZ$16.8m (consensus +NZ$16.8m)
The company is also raising NZ$60.1m of capital to deleverage the balance sheet and provide liquidity for medium term operating requirements
Key takeaways
<ul>
<li>Well signalled high fish mortality rates from both 1) warming water temperatures and 2) increased temperature volatility in addition to supply chain disruption and soaring freight charges has severely impacted the business</li>
<li>NZK has decided to fallow three farms in the Pelorus Sounds (to avoid the Pelorus summer temperatures) resulting in significant reduction of harvest volumes for future years, whilst downsizing the company and reducing overheads</li>
<li>There is little update for NZK’s Blue Endeavour application, which is hoped for the hearing to be completed end of April 2022 and a decision made by mid-year</li>
<li>Goodwill of NZ$40m and P&amp;E and intangilbes of NZ$20m have been written off/impaired as a result of group’s annual impairment test</li>
</ul>
Rights Issue
<ul>
<li>NZK is launching an underwritten capital raise of NZ$60.1m, 2.85 for 1 pro rate renounceable rights offer at an issue price of NZ$0.15 per share</li>
<li>This is a 82.6% discount to last close price on 12 April 2022 of NZ$0.86 and 55.1% discount to the TERP of NZ$0.33</li>
<li>The proceeds will be used to deleverage the balance sheet and provide liquidity for operations</li>
<li>Post the rights offer the company expects to have NZ$13m of cash (no debt) on balance sheet</li>
<li>The rights offer will close at 5pm NZT on 6 May 2022 (record date for rights offer 7pm NAT 26 April 2022)</li>
</ul>
Guidance
<ul>
<li>The company has stated that the impact of FY22 mortalities will carry through to FY23 and reduce harvest metrics, which commenced in January 2022 (unusually early and severe)</li>
<li>Sustained summer temperatures above 18 degrees has been the dominant stress factor, suppressing fish immunity and resulting in elevated mortality</li>
<li>Whilst FY23 EBITDA guidance is expected to be in a loss range of –NZ$8m to –NZ$12m, the company estimates sustainable earnings on a go forward basis of between NZ$15m to NZ$19m&nbsp;</li>
</ul>
Results table
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/268/504/original/image_35776766221649820873728.png?1649820874" class="editor-image img-responsive" data-smartkarma-image-id="268504"></figure>
Our view
Whilst we knew FY22 was heavily impacted from rising water temperatures, the decision to fallow farms in the Pelorus Sounds and downsize of businesses is surprising and reflected in next year’s significant expected loss. Additionally, an impairment charge of ~NZ$60m for FY22 is equally surprising. We suspect the proposed capital raise will be a result of covenant breaches, with the company stating that BNZ has provided covenant waivers until 30 April 2023 and restructured its banking facility. Post a successful completion of an equity raising BNZ is providing a new facility of up to NZ$6.5m. The outlook for the company looks extremely challenging with a lot of execution risk in the proposed Blue Endeavour project, which is yet to be approved.
Conference call 3pm NZT <a href="https://s1.c-conf.com/diamondpass/10020776-jdcaP2.html" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://s1.c-conf.com/diamondpass/10020776-jdcaP2.html&amp;source=gmail&amp;ust=1649903873470000&amp;usg=AOvVaw08R5zN6pPo0F47psyEur06" rel="noopener">Diamond Pass Invitation (c-conf.com)</a> 
New Zealand 0800 453 055 Auckland 09 929 1687 Christchurch 03 974 2632 Wellington 04 974 7738 Australia 1800 809 971 Sydney 02 9007 3187 Hong Kong 800 966 806 Singapore 800 101 2785

New Zealand King Salmon (NZK) FY22 result – First Take
Belatedly, New Zealand King Salmon (NZK) has released its FY22 result: while the FY22 result was pre-announced within a guided EBITDA range of NZ$6.5m to NZ$7.5m, the operating result was reported at NZ$6.7m (Forsyth Barr NZ$7.0m, consensus NZ$7.8m)
Shockingly, next year’s guided EBITDA range is a loss of –NZ$15m to -NZ$19m vs Forsyth Barr +NZ$16.8m (consensus +NZ$16.8m)
The company is also raising NZ$60.1m of capital to deleverage the balance sheet and provide liquidity for medium term operating requirements
Key takeaways

Well signalled high fish mortality rates from both 1) warming water temperatures and 2) increased temperature volatility in addition to supply chain disruption and soaring freight charges has severely impacted the business
NZK has decided to fallow three farms in the Pelorus Sounds (to avoid the Pelorus summer temperatures) resulting in significant reduction of harvest volumes for future years, whilst downsizing the company and reducing overheads
There is little update for NZK’s Blue Endeavour application, which is hoped for the hearing to be completed end of April 2022 and a decision made by mid-year
Goodwill of NZ$40m and P&amp;E and intangilbes of NZ$20m have been written off/impaired as a result of group’s annual impairment test

Rights Issue

NZK is launching an underwritten capital raise of NZ$60.1m, 2.85 for 1 pro rate renounceable rights offer at an issue price of NZ$0.15 per share
This is a 82.6% discount to last close price on 12 April 2022 of NZ$0.86 and 55.1% discount to the TERP of NZ$0.33
The proceeds will be used to deleverage the balance sheet and provide liquidity for operations
Post the rights offer the company expects to have NZ$13m of cash (no debt) on balance sheet
The rights offer will close at 5pm NZT on 6 May 2022 (record date for rights offer 7pm NAT 26 April 2022)

Guidance

The company has stated that the impact of FY22 mortalities will carry through to FY23 and reduce harvest metrics, which commenced in January 2022 (unusually early and severe)
Sustained summer temperatures above 18 degrees has been the dominant stress factor, suppressing fish immunity and resulting in elevated mortality
Whilst FY23 EBITDA guidance is expected to be in a loss range of –NZ$8m to –NZ$12m, the company estimates sustainable earnings on a go forward basis of between NZ$15m to NZ$19m&nbsp;

Results table

Our view
Whilst we knew FY22 was heavily impacted from rising water temperatures, the decision to fallow farms in the Pelorus Sounds and downsize of businesses is surprising and reflected in next year’s significant expected loss. Additionally, an impairment charge of ~NZ$60m for FY22 is equally surprising. We suspect the proposed capital raise will be a result of covenant breaches, with the company stating that BNZ has provided covenant waivers until 30 April 2023 and restructured its banking facility. Post a successful completion of an equity raising BNZ is providing a new facility of up to NZ$6.5m. The outlook for the company looks extremely challenging with a lot of execution risk in the proposed Blue Endeavour project, which is yet to be approved.
Conference call 3pm NZT Diamond Pass Invitation (c-conf.com) 
New Zealand 0800 453 055 Auckland 09 929 1687 Christchurch 03 974 2632 Wellington 04 974 7738 Australia 1800 809 971 Sydney 02 9007 3187 Hong Kong 800 966 806 Singapore 800 101 2785

New Zealand King Salmon (NZK): FY22 Result – First Take