INVESTOR PRESENTATION AUGUST 2018 CHIEF EXECUTIVE OFFICER, SCOTT COULTER, 021 386 988 | CHIEF COMMERCIAL OFFICER, MARK SADD, 027 707 9698
IMPORTANT NOTICE This presentation is given on behalf of Comvita Limited. Information in this presentation: • Should be read in conjunction with, and is subject to, Comvita’s Annual Reports, Interim Reports and market releases on NZX; • Is from audited reports for the year ended 30 June 2018; • May contain projections or forward-looking statements about Comvita. Such forward-looking statements are based on current expectations and involve risks and uncertainties. Comvita’s actual results or performance may differ materially from these statements; • Includes statements relating to past performance, which should not be regarded as a reliable indicator of future performance; • Is for general information purposes only, and does not constitute investment advice; • Is current at the date of this presentation, unless otherwise stated. While all reasonable care has been taken in compiling this presentation, Comvita accepts no responsibility for any errors or omissions. All currency amounts are in NZ dollars unless otherwise stated. 2
OVERVIEW • FY18 results • Markets and Investments • Agricultural risk and mitigation • Strategy and FY19 Outlook 3
FY 18 RESULTS 4
YEAR IN REVIEW – STRONG REBOUND • Return to operating profit TOTAL SALES $ • $186m * Net sales increased 19% from FY17 • China JV performing well * China JV sales elimination of $9.3m is deducted from this • $16.4m of share capital issued OPERATING PROFIT AFTER TAX $ • Breakthrough in North America sales $26.8m $9.3m • Second poor honey season NET DEBT • Due Diligence activities $ $92m • Increased strategic focus on Manuka Honey • New Manuka honey standard introduced OPERATING CASH OUTFLOW $ • Net debt increased in line with inventory $22m Figures are based on audited results to 30 June 2018. 5
KEY FINANCIAL RESULTS 30 June 30 June Financial results for 2018 2017 the year ended Audited Audited Gross sales $186m $149m • Sales increased 19% from FY17 China JV elimination of sales $(9.3)m - • After tax operating earnings of $9.3m Net sales $177m $149m (Market guidance of 16 th April, $8-11m) Total revenue* $178m $156m • China JV EBITDA** $20.5m $19.8m • Equity earnings – China contributing Equity earnings $1.9m $(2.2)m $3.3m for 51% share of JV Net profit after tax - NPAT $8.2m $9.8m • Intercompany elimination of sales at NPAT attributed to non-operating items $(1.1)m $15.3m $9.3m After tax operating earnings $9.3m $(5.5)m • Final dividend 2 cents per share, brings total to 6 cents per share Earnings per share NPAT (NZ Cents) 18.25 23.74 Dividend per share (NZ Cents) 6.00 2.00 *Revenue includes other revenue from our apiaries and deferred revenue and royalties from Derma Sciences during FY17 **EBITDA: earnings before interest, tax, depreciation andamortisation 6
MARKETS, OPERATIONS AND INVESTMENTS 7
BUSINESS HAS RETURNED TO GROWTH • M O V I N G A N N U A L T O TA L S A L E S Grey channel sales have ( 1 2 M o n t h r o l l i n g ) recovered strongly, year on year by 58% 250 • Strategic goal – East/West 200 balance $ MILLIONS • North American 150 breakthrough sales driven 100 by Costco and Amazon • Same store sales growth in 50 Hong Kong 5% and Korea 10% 0 8
SALES FOR THE YEAR ENDED 30 JUNE 2018 CHINA (Slid ide e 11) EUROPE NORTH AMERIC ICA $2 $21.4m .4m * $8 $8.7m (Slid ide e 10) ASIA $26.8m $2 .8m $3 $36.8m 8m (2017 : $28.6m) (2017 : $7.4m) $46m ** +17% ** (2017 : $3.8m) (2017 : $32.4m) +14% (Slide 11) AUSTRA RALIA IA NEW ZEALAND ND $4 $45.5 .5m $3 $37.1m (2017 : $31.8m) (2017 : $33.1m) +43% +12% Figures are based on the year end audited results to 30 June 2018. Other sales of $11.5m (2017: $18.7m). * $21.4m represents the sales from Comvita to the China JV before elimination of $9.3m. ** $46m represents in market sales of the China JV which are not included in Comvita group revenue, as equity accounted. 9
NORTH AMERICA RESULTS • Market sales growth to $26.8m on comparative period • Strong sell-through from newly established relationship with Costco. Distribution in 100 stores in Canada and 200 of 500 Costco stores in US • Costco US in a high stock position of another brand with impact in first half FY19 • Will be extending distribution into natural health channels in both North America and Canada • Hired new Sales Manager to drive growth in this sector • E-Commerce sales in Amazon increased 53% further strengthening our position in the US market 10
CHINA JOINT VENTURE RESULTS • Sales inside China meeting expectations and profit ahead of internal targets - Sales $46m - Share of earnings $3.3m • Good expansion in e-commerce business • • Launch new • Focus on core Transform products Bee products from honey - growth from 38% to >50% of sales • • Open new Transition and relevance customers integration to holistic • Strategy to grow bee products and • • Team build-up Geography health • leveraging our brand strength in Manuka expansion Introduction of products • Increase new products honey • brand Grow investment e-commerce • Consistent pricing between channel is coverage challenging. Retail, E-commerce, wholesale FY18-19 FY20-21 BEYOND and the ANZ ‘Grey Channel’ 11
PRODUCT SEGMENTS OF TOTAL REVENUE P E R S O N A L C A R E M E D I C A L $ 7 m $ 5 m 4 % 2 % ( 2 0 1 7 : $ 4 m ) ( 2 0 1 7 : $ 1 1 m i n c l u d i n g r o y a l t i e s ) 71 % 23 % F U N C T I O N A L H E A L T H C A R E F O O D S $ 42 m $ 132 m ( 2 0 1 7 : $ 4 3 m ) ( 2 0 1 7 : $ 9 0 m ) 12
INVENTORY • Invested for growth D E B T I N V E N T O R Y • Strong inventory position 140,000 - 30 June 2018, $116m 120,000 - 30 June 2017, $88m 100,000 • Finished goods (FG) 80,000 - Consistent at $26m whilst sales grew by 19% 60,000 40,000 - Service level delivery remains stable at 96% 20,000 • Raw Materials 0 INVENTORY NET DEBT - $89m of raw material stock - Second poor honey season has led to more 2018 2017 aggressive purchasing to ensure we have honey to deliver FY19 • MPI changes to Manuka definition provides new market opportunities 13
BAL ANCE SHEET Key Balance Sheet Ratios 30 June 30 June • Net debt increased to fund inventory and as at 2018 2017 working capital Audited Audited $’000 $’000 • Issue of $16.4m equity on 3 July 2017 as consideration for 51% of China JV Total assets 318,567 256,692 • Trade receivables up $11m reflecting Total inventory 116,492 87,856 timing and trading terms of major markets, China, Australia and the US Total trade receivables 55,813 44,013 influencing year end position. Working Capital 167,942 129,917 • A strategic focus on working capital management to reduce net debt will be a Net debt 91,753 61,928 focus of FY19 Total Equity 189,692 163,875 Net debt to equity ratio 48% 38% Weighted average shares on issue 44,981 41,373 14
CASHFLOW • Operating cash outflow of $22.1m (FY 2017: $10.7m) 30 June 30 June 2018 2017 • Inventory build to support earnings forecast $’000 $’000 Movement Cash flow movements Audited Audited $000 • Working capital funding to support China and Operating cash North America growth outflow (22,118) (10,722) (11,396) • Capital spend of $12m to build state of the art warehousing capacity at Paengaroa commenced Investing activities (6,991) 11,675 (18,666) • Significant headroom still available to ensure Financing activities 29,379 939 28,440 execution of strategy Cash and cash equivalents 4,947 4,572 375 15
INVESTMENT - APITER Subsequent event – 20% Investment in Apiter • Propolis is the key supporting ingredient to Manuka • Propolis products account for circa $18m of revenue On 2 nd July 2018, Comvita completed the investment of • 20% in Apiter (Uruguay Propolis supplier) • Purchase price USD$6.25m • Cash USD $5.65m • USD $600k CVT shares • Apiter produces high quality propolis, very similar to New Zealand propolis 16
INVESTMENT - SEADRAGON Subsequent event – Refinancing of SeaDragon • A refinancing package of $6m has been introduced to SeaDragon by cornerstone shareholders Masthead and BioScience Managers • Amendment to the terms of Comvita’s existing option and convertible loan note facility also form part of the refinancing package. This impacts non operating after tax earnings as follows: • FY18 non operating after tax loss of $1.1m • FY19 non operating after tax profit of $3.4m (based on current market valuation) • Refinancing package approved at the AGM by SeaDragon shareholders on 8 th August 2018 17 7
AGRICULTURAL RISK AND MITIGATION 18
MANUKA HONEY DEFINITION There is now a legal definition for New Zealand Manuka honey exports • Clear, legally enforceable standards for Monofloral Manuka honey • Independent testing required for export certification • Additional complexity in both manufacturing and procurement has increased costs • Comvita well poised to adjust quickly to new standard • Gives additional confidence to invest and grow • Needs to be implemented domestically in New Zealand 19
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