INVESTOR PRESENTATION AUGUST 2018 CHIEF EXECUTIVE OFFICER, SCOTT - - PowerPoint PPT Presentation

INVESTOR PRESENTATION

CHIEF EXECUTIVE OFFICER, SCOTT COULTER, 021 386 988 | CHIEF COMMERCIAL OFFICER, MARK SADD, 027 707 9698

AUGUST 2018

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
• f 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.

IMPORTANT NOTICE

2

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

OVERVIEW

3

FY 18 RESULTS

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

KEY FINANCIAL RESULTS

• Sales increased 19% from FY17
• After tax operating earnings of $9.3m

(Market guidance of 16th 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 the year ended 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) 18.25 23.74 Dividend per share (NZ Cents) 6.00 2.00

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 TA L S A L E S ( 1 2 M o n t h r o l l i n g )

$ MILLIONS 50 100 150 200 250

NORTH AMERIC ICA (Slid ide e 10)

$2 $26.8m .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 $8.7m

(2017 : $7.4m)

+17%

ASIA

$3 $36.8m 8m

(2017 : $32.4m) +14% CHINA (Slid ide e 11)

$2 $21.4m .4m*

(2017 : $28.6m)

$46m**

**

(Slide 11) AUSTRA RALIA IA

$4 $45.5 .5m

(2017 : $31.8m) +43% NEW ZEALAND ND

$3 $37.1m

(2017 : $33.1m) +12%

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
• 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

PRODUCT SEGMENTS OF TOTAL REVENUE

( 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 20,000 140,000

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

BAL ANCE SHEET

Key Balance Sheet Ratios as at 30 June 2018 Audited $’000 30 June 2017 Audited $’000 Total assets 318,567 256,692 Total inventory 116,492 87,856 Total trade receivables 55,813 44,013 Working Capital 167,942 129,917 Net debt 91,753 61,928 Total Equity 189,692 163,875 Net debt to equity ratio 48% 38% Weighted average shares on issue 44,981 41,373 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 Paengaroa commenced

• 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

• utflow

(22,118) (10,722) (11,396) Investing activities (6,991) 11,675 (18,666) Financing activities 29,379 939 28,440 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 2nd 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

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
• ption 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 8th August 2018

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

MANUKA HONEY

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

42 YEAR AVERAGE: 29.3kg/hive STANDARD DEVIATION: ±6.1KG(± 20.6%) TREND LINE (DOTTED): 2016=31.9KG /HI VE

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 LY & B R A N D O P E R AT I N G N PAT S P L I T

5

• (5)

(10) OPERATING NPAT ($m) 20 15 10 2017 Actual 2018 Guidance 2018 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

STRATEGY & OUTLOOK

22

COMVITA STRATEGY: #1 in Manuka Honey Globally

GROW SUPERIOR SUPPLY

• To secure more high

UMF honey

• Breeding and planting
• f genetically superior

Manuka plants

• Secure best growing

locations

• Reduce agricultural

risk WIN WHERE IT COUNTS

• To be available where
• ur 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

STRATEGY – GROW OUR SUPPLY

• 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 20 30 40 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

STRATEGY – WIN WHERE IT COUNTS

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

• ur 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
• ur 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 Simon Pothecary Chief Sales Officer Colin Baskin Chief Supply Chain Officer

LEADERSHIP TEAM

Julianne Keast Chief Financial Officer - Acting Kate Selway Chief People & Culture Officer - Acting Scott Coulter Chief Executive Officer MarkSadd Chief CommercialOfficer 28

Sarah Kennedy Independent Director MurrayDenyer Independent Director Paul Reid Independent Director Brett Hewlett Independent Director Neil Craig Non-Executive Chairman Luke Bunt Independent Director TBC Independent Director

BOARD OF DIRECTORS

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

THANK YOU