Comvita Investor Presentation

INVESTOR PRESENTATION
CHIEF EXECUTIVE OFFICER, SCOTT COULTER, 021 386 988 | CHIEF COMMERCIAL OFFICER, MARK SADD, 027 707 9698
A U G U S T 2 0 1 8

This presentation is given on behalf of Comvita Limited. Information in this presentation:
•Shouldbe read in conjunction with, and is subject to, Comvita’s Annual Reports, Interim Reports and market
releases on NZX;
•Is from audited reports for theyear 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;
•Includesstatements 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 investmentadvice;
•Is current atthedate 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.
IMPORTANTNOTICE
2

•FY18 results
•Markets and Investments
•Agricultural risk and mitigation
•Strategy and FY19 Outlook
OVERVIEW
3

F Y 1 8 R ES U LT S
4

YEAR IN REVIEW –STRONG REBOUND
•Return to operating profit
•Net sales increased 19% from FY17
•China JV performing well
•$16.4m of share capital issued
•Breakthrough in North America sales $26.8m
•Second poor honey season
•Due Diligence activities
•Increased strategic focus on Manuka Honey
•New Manuka honey standard introduced
•Net debt increased in line with inventory
TOTAL SALES
$186m*
OPERATING PROFIT AFTER TAX
$9.3m
Figures are based on audited results to 30 June 2018.
$
$
$
* China JV sales elimination of $9.3m is deducted from this
OPERATING CASH OUTFLOW
$22m
NET DEBT
$92m
$
5

*Revenue includes other revenue from our apiaries and deferred revenue and
royalties from Derma Sciences during FY17
**EBITDA: earnings before interest, tax, depreciation andamortisation
KEYF I N A N C I A LRESULTS
•Sales increased 19% from FY17
•After tax operating earnings of $9.3m
(Market guidance of 16
th
April, $8-11m)
•China JV
•Equity earnings –China contributing
$3.3m for 51% share of JV
•Intercompany elimination of sales at
$9.3m
•Final dividend 2 cents per share, brings total
to 6 cents per share
Financial results for
theyearended
30 June
2018
Audited
30 June
2017
Audited
Gross sales $186m$149m
China JV elimination of sales$(9.3)m-
Net sales$177m$149m
Total revenue*$178m$156m
EBITDA**$20.5m$19.8m
Equity earnings$1.9m$(2.2)m
Net profit after tax -NPAT$8.2m$9.8m
NPAT attributed to non-operating items$(1.1)m$15.3m
After tax operating earnings$9.3m$(5.5)m
Earnings per share NPAT (NZ Cents)18.2523.74
Dividend per share (NZ Cents)6.002.00
6

MARKETS, OPERATIONS
AND INVESTMENTS
7

BUSINESS HAS RETURNED TO GROWTH
•Grey channel sales have
recovered strongly, year on year
by 58%
•Strategic goal –East/West
balance
•North American
breakthrough sales driven
by Costco and Amazon
•Same store sales growth in
Hong Kong 5% and Korea 10%
8
M O V I N G A N N U A L T O T A L S A L E S
( 1 2 M o n t h r o l l i n g )
$ MILLIONS
0
50
100
150
200
250

NORTH AMERICA
(Slide 10)
$26.8m
(2017 : $3.8m)
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.
SALES FOR THE YEAR ENDED 30 JUNE 2018
EUROPE
$8.7m
(2017 : $7.4m)
+17%
ASIA
$36.8m
(2017 : $32.4m)
+14%
CHINA
(Slide 11)
$21.4m
*
(2017 : $28.6m)
$46m
**
(Slide 11)
AUSTRALIA
$45.5m
(2017 : $31.8m)
+43%
NEW ZEALAND
$37.1m
(2017 : $33.1m)
+12%
9

N O R T H A M E R I C A
RESULTS
•Market sales growth to $26.8m on
comparative period
•Strong sell-through from newly established relationship with
Costco. Distribution in 200 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

C H I N AJO I N TV E N T U R E
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
-growth from 38% to >50% of sales
•Strategy to grow bee products and
leveraging our brand strength in Manuka
honey
•Consistent pricing between channel is
challenging. Retail, E-commerce, wholesale
and the ANZ ‘Grey Channel’
•Focus on core
Bee products
•Transition and
integration
•Team build-up
•Introduction of
new products
•Grow
e-commerce
coverage
FY18-19
•Launch new
products
•Open new
customers
•Geography
expansion
•Increase
brand
investment
FY20-21
•Transform
from honey
relevance
to holistic
health
products
BEYOND
11

$132m
$5m
$7m
(2 0 1 7 : $ 4 3 m )
(2 0 1 7 : $ 9 0 m )
P E R S O N A L C A R E
M E D I C A L
$42m
PRODU C T SEG ME NTS OF TOTA L R E VE NU E
(2 0 1 7 : $ 4 m)
H E A L T H C A R E
(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 )
F U N C T I O N A L
F O O D S
71
%
23
%
2
%
4
%
12

•Invested for growth
•Strong inventory position
-30 June 2018, $116m
-30 June 2017, $88m
•Finished goods (FG)
-Consistent at $26m whilst sales grew by 19%
-Service level delivery remains stable at 96%
•Raw Materials
-$89m of raw material stock
-Second poor honey season has led to more
aggressive purchasing to ensure we have honey to
deliver FY19
•MPI changes to Manuka definition provides new
market opportunities
INVENTORY
60,000
40,000
20,000
0
140,000
D E B T I N V E N T O R Y
INVENTORY
NET DEBT
2017
2018
120,000
100,000
80,000
13

•Net debt increased to fund inventory and
working capital
•Issue of $16.4m equity on 3 July 2017 as
consideration for 51% of China JV
•Trade receivables up $11m reflecting
timing and trading terms of major
markets, China, Australia and the US
influencing year end position.
•A strategic focus on working capital
management to reduce net debt will be a
focus of FY19
BALANCESHEET
Key Balance
Sheet Ratios
as at
30 June
2018
Audited
$’000
30 June
2017
Audited
$’000
Total assets318,567256,692
Total inventory116,49287,856
Total trade receivables55,81344,013
Working Capital167,942129,917
Net debt91,75361,928
Total Equity189,692163,875
Net debt to equity ratio48%38%
Weighted average shares on issue44,98141,373
14

•Operating cash outflow of $22.1m
(FY 2017: $10.7m)
•Inventory build to support earnings forecast
•Working capital funding to support China and
North America growth
•Capital spend of $12m to build state of the art
warehousing capacity at Paengaroacommenced
•Significant headroom still available to ensure
execution of strategy
CASHFLOW
Cash flow movements
30 June
2018
$’000
Audited
30 June
2017
$’000
Audited
Movement
$000
Operating cash
outflow(22,118)(10,722)(11,396)
Investing activities(6,991)11,675(18,666)
Financing activities29,37993928,440
Cash and cash
equivalents4,9474,572375
15

I NVEST M E NT -A PI T E R
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

I NVEST ME NT -S EA DR AG ON
Subsequent event –Refinancing of SeaDragon
7
17
•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

AGRICULTURAL RISK
AND MITIGATION
18

MANUKAHONEYDEFINITION
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

MA NU KA HONE Y
EXTERNAL FACTORS
•Red dots on the graph are where
the harvest is more than two
standard deviations from the mean
•2002 crop impacted by Varroa
•Most recent crop data from
2017/18 is not available, but the
season was only marginally better
than 2016/17
•Over the last 42 years the trend
line has been positive on crop yield
Source MPI
25.0
15.0
0.0
45.0
40.0
35.0
30.0
N Z H O N E Y P R O D U C T I O N K G / H I V E
20.0
10.0
5.0
4 2 Y E A R A V E R A G E : 2 9 . 3 k g / h i v e
S T A N D A R D D E V I A T I O N : ±6 . 1 K G (±2 0 . 6 % )
T R E N D L I N E ( D O T T E D ) : 2 0 1 6 = 3 1 . 9 K G / H I V E
20

BRAND CO vs SUPPLY CO
•Supply business caused a
$10.7m negative swing at an
NPAT level compared with 2018
guidance to market
•Apiary business now geared to
be profitable at 24kg/hive
•Underlying brand business
performed well in FY18. NPAT
improved from $1.1m to
$15.5m
2018 Guidance updated 30 January & 23 February 2018
S U P P L Y & B R A N D O P E R A T I N G N P A T S P L I T
5
-
(5)
(10)
OPERATING NPAT ($m)
20
15
10
2017 Actual2018 Guidance2018 Actual
Supply
(6.6)
Brand
1.1
Total
(5.5)
Supply
4.5
Brand
13.5
Brand
15.5
Total
18.0
Total
9.3
Supply
(6.2)
21

ST R AT EGY & O U T LO O K
22

COMVITA STRATEGY: #1 in Manuka Honey Globally
GROW SUPERIOR SUPPLY
•To secure more high
UMF honey
•Breeding and planting
of genetically superior
Manuka plants
•Secure best growing
locations
•Reduce agricultural
risk
WIN WHERE IT COUNTS
•To be available where
our customers prefer
to shop
•Increase China &
North America
distribution
•Optimise channel
profitability
•Global price
harmonisation
BUILD OUR COMMUNITY
•So more people know
and love our brand
•Increase marketing
investment
•Use our core
ingredients for
innovation
•Digital capability &
marketing
23

ST R AT EGY –G ROW OU R S U PPLY
•Plantations will provide us with the
ability to grow
•Focus on the breeding programme has
been;
•To improve DHA quality in Nectar
across different varieties while
extending and managing flowering
periods to mitigate weather risk
•Provide geographic and climatic
tolerances
•Improve plant vigour and pest &
disease tolerance
FREQUENCY
DHA (mg/L)
10
0
20
30
40
0
5000
10000
150000
20000
Wild nectar (n=107)
Selection nectar (n=101)
24

•Build distribution in natural and specialty
Markets in North America
•China
•Continue to build relationships with
key Chinese e-commerce platforms
•Build more retail locations in Shanghai
and Beijing
•Price harmonization across channels and
markets, particularly China
ST RAT EGY –W I N W H E RE I T CO U N TS
25

•During FY18 we invested in consumer insights including
new consumer segmentation across core and emerging
markets. Our dominant brand position in China and
Hong Kong remain steady, while we have made great
inroads in the USA.
•We are investing in digital advertising, social media and
PR in the USA to drive category awareness and cement
our premium position.
•Manuka honey added value to be the centrepiece for
innovation .
•Premium packaging roll out in Q2 and Q3 FY19. The new
packs include greater brand storytelling, improved
range navigation as well as incorporate anti-counterfeit
protective measures.
BUILDING OUR COMMUNITY
#1 in China and Hong Kong and investing for growth in the USA
26

STRATEGIC COST MANAGEMENT
27
•Operational excellence initiatives to continue to build
productivity across the organistion.
•Recent changes to our structure, with the integration of
our Innovation capability into the Marketing team.
•Remote administration support for the US business,
reducing our in-market investment.
•Team focused on reducing operating expenses so we can
increase our investment in marketing, build additional
marketing capability globally to grow our brand.

Ben Shaw
ChiefMarketing
Officer
SimonPothecary
Chief Sales
Officer
Colin Baskin
Chief SupplyChain
Officer
L E A D E R S H I PTEAM
JulianneKeast
ChiefFinancial
Officer -Acting
Kate Selway
Chief People & Culture
Officer -Acting
ScottCoulter
Chief ExecutiveOfficer
MarkSadd
Chief CommercialOfficer
28

SarahKennedy
Independent
Director
MurrayDenyer
Independent
Director
Paul Reid
Independent
Director
BrettHewlett
Independent
Director
NeilCraig
Non-ExecutiveChairman
Luke Bunt
Independent
Director
TBC
Independent
Director
BOARDOFDIRECTORS
29

OUTLOOK–August 2018
30
•History shows three poor seasons in a row is unlikely
•Apiary business model has been evolved further to
lower risk
•Further update at the Annual Shareholder Meeting in
October

T H ANKYOU