02 - Our Year

Tēnā koutou katoa

Though it seems like a distant memory, thankfully the New Zealand economy emerged from the Covid-19 pandemic earlier this year, but the outlook remains unsteady. Internationally, inflation, geopolitical tensions and market volatility remain persistent. At home, we continue to experience increasing costs of living, high interest rates, wild weather events and staff shortages due to a tight labour market.

As indicated throughout the year and outlined in greater detail in our August He Pūrongo Kōrero, owing to extremely tough operating conditions, Moana New Zealand’s year end Group result is significantly lower than expected as against the outset of the year.

The Board acknowledges our Moana kaimahi, who have steadfastly persisted through the past several years with their dedication and hard work despite all of the challenges we have collectively faced. Specifically, we want to acknowledge Steve and the project team who meticulously planned, negotiated, and executed the successful acquisition of the long-term agreement for Sanford North Island inshore ACE. This arrangement positions Māori at the forefront of the inshore industry in Aotearoa.

Once Sealord’s acquisition of Independent Fisheries is complete, Māori will also lead the deepwater sector.

We believe it is the manifestation of our Māori Fisheries Settlement.

I would like to acknowledge Greg Summerton, who retired from the Moana Board of Directors this year and thank him for his contributions — his in-depth industry experience has been invaluable. Further Board activity includes Mavis Mullins and Glenn Hawkins reappointed for a second term, and we are most grateful for their experience and input.

Finally, I want to acknowledge our owners—all 58 Iwi across the motu—who inspire us to continue to work for future generations. It is a privilege to be of service to you.

Tēnei te mihi matakuikui ki a koutou katoa, tēnā koutou.

Moana New Zealand continued to experience significant headwinds in 2023.

Operating earnings before tax and interest of $10.9 million (financial year 2022: $11.8 million) were down on Plan by 17%, and down 8% on the prior year. While Covid-19 disruptions have abated, the emergence of global inflation and the subsequent response of central bankers have created challenging trading conditions whereby our costs are increasing yet demand for our premium products at our targeted price points has softened. Additionally, some severe weather events in the first half of the year had a significant impact on our business.

From a Budget perspective, Pāua Kahurangi and Kōura exceeded Plan, Pāua Tūwā me te Kai Ora only slightly down (3%), while both Ika and Tio were well down on Plan expectations.

Ika was adversely impacted by the various weather events which disrupted both our harvest operations and transport network as well as increasingly soft demand in Australia, our biggest export market. This was particularly prevalent for our export snapper demand and while we were able to switch export quality fish into domestic channels the margins are not as favourable. Overall, Ika was down 37% on Plan and 28% on 2022 earnings. As previously stated, the agreement with Sanford for long-term lease of their North Island inshore ACE is a real game changer and presents Moana with the opportunity for not only earnings growth but to increase our influence and leadership in the North Island inshore fishery sector.

For Tio, cyclones Hale and then Gabrielle in particular had a significant impact on our farm stock. The high volumes of fresh water entering our main farm at Whangaroa caused sustained low salinity levels which led to higher mortalities, and for a period of time, any stock harvested was also not in ideal condition. With just under 50% of inventory lost due to these events, it will take two years to rebuild our stock on farm. We have identified a number of mitigations in order to reduce the impact of future adverse weather events, and putting these in place is a key focus of the business. While demand for Tio remains strong, we have simply not had available supply with our sales volumes down 42% on Plan and 27% on 2022. Overall, our Tio business recorded a loss of $3.1 million compared to the Plan expectation of a profit of $1.6 million.

Kōura earnings through the Port Nicholson Fisheries partnership exceeded our Plan by nearly 20% and were 8% up on 2022 earnings. While there continued to be some disruption in China in the first quarter of 2023 due to Covid-19 restrictions imposed by local government, demand and pricing remain robust with Port Nicholson Fisheries also benefiting from a favourable USD exchange rate. Moana also participated with other Māori entities to acquire kōura quota shares from Wakatū Resources Limited, with all the ex-Wakatū ACE committed to PNF with effect from 1 April 2023.

Our net profit after tax (excluding our 50% share of Sealord earnings) for the year was down on Plan by 25% and down 36% on last year’s outcome. The year-on-year adverse movement included an increase in finance expenses by nearly $1.9 million or 71% which reflects both a $17.6 million increase in the level of borrowings across the year as well as an increase in the effective interest rate.

As discussed more fully below our 50% share of Sealord’s earnings (a loss of $2.0 million) was well down on Plan and also considerably lower than 2022.

As mentioned previously, Moana New Zealand is now the largest inshore fishing company in the country, thanks to the long-term agreement with Sanford for their inshore ACE. The executive team and I are grateful to all of those who carried this deal across the line and who continue to work through a seamless transition.

Pending Sealord’s purchase of Independent Fisheries being cleared, it will position Māori at the forefront of the seafood sector as the largest operators in both inshore and deepwater sectors.

Year after year, I’m deeply grateful for the people who continue to work tirelessly on behalf of our shareholders—together, we’re building a solid foundation to lead New Zealand’s seafood industry.

The Tackle Box

It’s been just over five years since we launched our online health and safety management system – the Tackle Box. During that period, we have received on average over 1,300 reports per annum. Of those reports 80% are proactive reporting—hazards, great catches and observations. Combining our reporting focus with our risk management focus has resulted in over 400 reports in F23 relating to our risk focus areas or our critical risks. That’s one third of our yearly reports centred around our risk focus areas.

Social responsibility

Proving our social responsibility as a business and the environment we operate in continues to require us to be active participants and advocates for healthy oceans and be innovative in finding solutions that support our values and sustainability goals.

Partnerships

Partnerships are a key part of our business model and we have continued to explore opportunities to collaborate with strategic partnerships including our contract fishers whom we rely heavily on to deliver the volumes and quality expected of us and our iwi partners who continue to support us through annual catch entitlement (ACE) arrangements that deliver positive outcomes for both parties.

A year of change

It was also a year of change as we prepared for a different future with a proposal to takeover Sanford’s North Island Inshore business which finally went unconditional on 31 October 2023. This is a watershed moment for the business which required numerous planning meetings and business analysis while keeping our feet firmly on the ground.

An important part of this execution has been reviewing our Leadership Team and operating structure to ensure we have a diverse range of people with the experience and strengths to equip the business for the next phase in our company’s history.

Our partnership with PNF, the largest Māori-owned live lobster processing and export business in New Zealand, continues to deliver positive returns with our share of earnings (after quota levy costs) up $2 million or nearly 20% on Plan, and up 8% on last year’s outcome.

This result is pleasing given the challenging environment the business has operated in during the year with three major storm and flooding events across the eastern coastline of the North Island affecting CRA1, CRA2, CRA3, and CRA4. Market demand uncertainty also occurred with China lifting its Covid restrictions with little warning creating reduced demand in the first quarter of our financial year.

Due to the overall improving market conditions the rates struck by the PNF Board for leasing ACE from iwi partners increased for the new season commencing 1 April 2024 – including the benefit of the additional quota purchased from Wakatū, and after the impact of the TACC cut to CRA1, the fixed annual quota return received by Moana has increased by 19% on the previous season’s rates.

As noted above the partnership between Moana and PNF has taken an important next step in its future working collaboratively on the new Kaimoana Hub based in Porirua, Wellington, which will focus on delivering to live kōura, live pāua and chilled ika export and domestic market channels on one site creating further operational opportunities.

These initiatives are also important in delivering increased returns to PNF’s shareholders.

Pāua Kahurangi was slightly ahead of Plan. This is a pleasing result given challenges in higher than planned export freight costs and sales to China continuing to be affected by the Covid lockdowns during the first quarter. Increased sales pricing and a small increase in total availability combined to give Pāua Kahurangi a stronger than Plan revenue position for the year.

Water temperatures on the farm did not get excessively high during the 2022-2023 summer season, peaking at 23°C. With the cooling system we were able to maintain normal temperatures and had less mortalities on farm than in previous years.

Our wild harvest and supply operations were challenged this year with difficult diving conditions due to weather at both the start of the year and in the last quarter of year in particular. Despite this, we ended the year slightly up on planned supply with significantly higher than plan supply through April, May, and June.

ACE supply was positive for the year with additional ACE picked up in the final quarter to assist Sales channel demand.

The live pāua processing team, based at the PNF site in Wellington, continued their good progress with 52 tonnes sold live (up 7% on FY22) to pāua customers in China.

As with other Moana business units we continue to work with Iwi and industry groups to foster stronger partnerships and participation as well as improve management initiatives for our pāua fisheries with a sustainable view always at the forefront.

Moana New Zealand was a silver sponsor in the 11th International Abalone Symposium this year, which was held over 27 February through to 2 March in Auckland. It was the first time New Zealand hosted the symposium and was well received by symposium attendees from around the world.

As mentioned earlier in this report, Pāua Tūwā operations will relocate to the new Kaimoana Hub based in Porirua, Wellington, which will provide opportunities for the unit to deliver operational efficiencies with Ika and Kōura (through its partnership with Port Nicholson Fisheries).

Our first full year of sales of the chilled, ready-to-eat meals in domestic supermarkets saw 78,400 meals sold into Foodstuffs (this includes their New World, Pak’nSave, Raeward Fresh and Four Square brands), Farro Fresh and Fresh Choice stores. The momentum we have built over the year with Foodstuffs stores has seen three of our top sellers’ core ranged, which means these products are ‘must have’ stock items. The number of Fresh Choice stores we sell to in both North and South Island has increased to 15 stores. We have a range of four chilled products available in all Farro Fresh stores.

Amazon and MRE

For the ambient meal range, our military ration packs saw a 25% increase on FY22 volumes alongside the signing of a new contract for the key buyer. Unfortunately, Amazon sales have not met required milestones and we will be withdrawing from this platform by the end of calendar 2023 year. While demand is evident, with $200,000 in sales in its first year, the heavy advertising required to achieve sales in the off-peak winter/autumn period makes profitability difficult to achieve. We are pursuing other avenues toward outdoor retail.

We also supplied three variants of our MREs for a summer expedition led by Antarctica New Zealand, the government agency responsible for carrying out New Zealand’s activities in the region, supporting world-leading science and environmental protection.

Sales were characterised by lower than Plan export half-shell frozen volumes due to a refocus of available stock on higher margin domestic tray-pack and chilled foodservice sales.

Earlier in 2023, labour shortages meant we did not have the requisite crew to undertake the animal husbandry requirements that allow us to maintain the ideal stocking densities on farm. Three major, consecutive storm events—which is an unprecedented occurrence—led to sustained low salinity levels, causing higher mortalities on farm, and also meant that any stock harvested during this period was not in an ideal condition. With just under 50% of inventory on farm lost due to these events, it will take two years to rebuild our stock on farm. We anticipate stabilisation of on-farm volumes at one million dozen before embarking on further growth.

Kirikiritātangi

Kirikiritātangi, the new hatchery in Nelson, is now in commercial production and has been successful in producing triploid spat. The team is also investigating the potential to leverage our breeding programme to select for resilience to a low salinity event. Moana New Zealand is the first fully integrated oyster company in Aotearoa, which is truly exciting as it demonstrates how Māori are leading the way in the oyster industry.

The team have also been successful in developing all-season tio from tetraploid males. This method, a first in New Zealand, is claimed to be “the gold standard” in Europe and the United States, and supports our aim for reliable, year-round tio production for our farms. We’ve completed an initial commercial run using this method, and we intend to contract with a US-based expert to support a full breeding programme using this method in 2025.

Tio Transformation Programme

The Tio Transformation Programme continues to progress. We have removed old timber structures, achieving 95% of the target with 87.8 hectares of 91.8 hectares cleared. All ancillary equipment needed to operate the farms are now in service with 100% of the work completed and have achieved 84% of line deployment against the current farm development plan.

Financial year 2023 proved to be another extremely challenging year for both our deep-sea fishing and barramundi farming businesses. On the flip side, our Petuna salmon and ocean trout farming business enjoyed its best year ever with a record profit. This shows the benefit of having both Fishing and Aquaculture in our portfolio to diversify our earnings and spread our risk when times are tough.

At Sealord Group level, the Net Profit After Tax (NPAT) result is a loss of $4.1 million. This includes $7.0 million after tax cost for our Mahi Tahi Enterprise Resource Planning (ERP) project which is required to be expensed under IFRS accounting rules. Without this, we would have made NPAT of $2.9 million. Breaking this down, Aquaculture made NPAT of $9.2 million and Fishing lost $6.3 million.

We acknowledge it has been a disappointing year overall, and also a challenging one for the industry as a whole. We have faith in our strategy and our people, and are planning to return Fishing to profitability next year, as well as planning another record year for Aquaculture on the back of successful expansion projects completed in 2023 at Petuna’s Rowella farm and Cressy hatchery in Tasmania.

For this financial year, our Fishing result was hampered by the poorest squid season in a decade for both Sealord and the wider industry. In addition, unfortunately one of our largest vessels was laid up over hoki season due to engineering issues caused by contractors during the vessel’s dry dock survey. These events reduced cost recoveries for our fleet, and also sales volume and margin.

For Aquaculture, overall results were dominated by market conditions in Australia, with nearly all our volume sold fresh into that market. Market demand for salmon and ocean trout was robust, driving the record profit for Petuna. For barramundi, demand could not keep up with rebounding domestic supply, with margins suffering in the second half of the year. On a positive note, the focus on hatchery and farm improvements across our aquaculture operations have provided us with record levels of high quality fish in the water for harvest in FY24.

On the immediate horizon, our technology platforms will be modernised when our new ERP system goes live in November 2023, and, subject to regulatory approval, we are looking forward to welcoming our new whānau from Independent Fisheries early in the new year. This exciting opportunity grows Iwi quota ownership and will result in Sealord becoming New Zealand’s largest seafood company.

The speed at which inflation can be brought under control, and the squeeze on household finances loosen, is uncertain and will have an influence on our ability to meet the 2024 Plan. Weather has also been a big disruptor in the last 12 months. The predicted change from La Niña to El Niño weather pattern is expected to be more favourable for our Tio farming and wild harvest operations.

Given the life cycle of Tio the significant stock loss caused by the weather events in 2023 will have an unavoidable impact on 2024 earnings, with volumes available to be sold lower than 2023 and the cost of operating the farms increasing. Our 2024 Plan is for a loss of $3.8m which is a further erosion on the 2023 outcome, with positive earnings delayed until the following year. Tio will return to positive earnings in FY25 and be back on track to achieve the growth projections of 1.6 million dozen in FY2028.

One of the opportunities that we will focus on is developing more of a presence in the US in order to lessen our dependence on Australia.

For Pāua Tūwā we are expecting a small improvement in pricing for our canned formats, where a significant proportion of demand and sales is for the peak Chinese New Year season. We are also planning to increase pricing for live into China. Pricing for both formats is already under pressure due to consumer confidence, leading to softening demand, and competitor behaviour (for live). Although a small overall contributor to earnings it is pleasing to note that we are continuing to build demand in Aotearoa for our Kai Ora (ready to eat) meals sold through both supermarket chains.

It is likely that direct exports of Australian lobster to China will recommence by the new year after being banned in October 2020. PNF management are not concerned by this change. Due to both timing of the recognition of income from PNF and a cautious assumption as to price and margin realisation we have Planned for Moana share of earnings to be down by 7% in FY24.

Pāua Kahurangi has been in a stable operating position for the last two years although growth prospects (other than price realisation) are minimal. We do not expect this to change over the next 12 months.