Good morning, ladies and gentlemen, fellow shareholders, and welcome to our half year results presentation for 2023. Before I talk about our results, I wanted to cover two recent major events, Cyclone Gabrielle and the reopening of China. Our thoughts are with everyone across New Zealand impacted by Cyclone Gabrielle, and especially our team in the Hawke's Bay region. Earlier this week, I visited our team in Hawke's Bay to assess the impact of Cyclone Gabrielle firsthand. We're really pleased to report that all our team are safe and well, and we've been able to put them in accommodation and support for them and their families. Naturally, our priority is ensuring the ongoing safety of the team and making sure that they have everything that they need after suffering from that significant flooding.
The level of devastation and destruction that I experienced firsthand can only be described as catastrophic. We recognize it's gonna take some time to fully understand the extent of the impact for the area. We're currently working on plans to support the wider Hawke's Bay community and will update as those plans are finalized. Our own facility has suffered extensive damage. Our working hypothesis is that the site will be written off in its entirety. Naturally, we have full insurance cover in place and we're working closely with our insurers to get an assessment completed so we can start the process of clearing up our site. From an operational perspective, as previously advised, we've moved extraction to one of our other facilities. Apart from the significant disruption in Hawke's Bay, we did not experience any material impact to our daily operations.
As you'll be aware, Mainland China market reopened around the 5th of December 2022 following COVID restrictions. A number of our team members contracted COVID, though experienced mild symptoms and are all well and back at work post-Chinese New Year. We've seen strong demand in all channels following reopening. NZD 1 million- NZD 2 million of orders were unfulfilled due to courier company's drivers getting COVID. Retail sales were strong in December, growing by 46% year-on-year. A strong sales performance was also experienced in Australia and New Zealand and Hong Kong. In January, we've seen that performance continue despite an earlier Chinese New Year this year versus 1st of February in the PCP. Speaking after LVMH reported their results, Bernard Arnault, Chairman of LVMH, says, "The signals from China were positive so far.
I'm quietly confident that the Chinese leaders, being very shrewd, they will surely take advantage of this period that is starting to revitalize Chinese growth. If this is the case, we've seen signs of it in January, then we have every reason to be confident, even optimistic, about the Chinese market. This sentiment is exactly shared by Comvita. I'm delighted to share today's results with you and report strong and resilient performance across our business despite material foreign exchange headwinds and the COVID impacts that we talked about earlier. We are number one global brand leader in Mānuka honey and bee products. We're gaining market share in key markets and extending our global leadership. Including today, we've now delivered six consecutive reporting periods where we delivered double-digit earnings growth in line or ahead of guidance.
Today, we report record revenue of NZD 112 million, which is +7% versus PCP, with Greater China +9% and North America +20%. We also deliver record gross profit of 61.9% +530 basis points versus the prior period. We invested NZD 15.5 million in our brand, an increase of NZD 2.2 million year-on-year, equating to 13.8% of sales. We delivered record operating profit, record EBITDA and record NPAT, with our net profit after tax improved by +19.4% versus PCP. Our net debt finished the year at NZD 63.3 million, which is primarily due to investment in inventory. Negative operating cash flow issues that we've reported have now been resolved.
The directors were delighted to declare a fully imputed interim dividend of NZD 0.025 per share. Moving to our financial statements, you can see the record revenue of NZD 112 million, as I've already mentioned. In addition, digital share of revenue increased to just under 39% at accretive gross margins. We saw a record gross profit of NZD 69.4 million, which was up 17% versus PCP. Record brand investment as we continue to tell the amazing Comvita story to discerning consumers around the world. We continued our investment in transformation activity with NZD 2.2 million invested in this period.
As shared already, delivered a record operating profit of NZD 11.6 million, which is up 61% from the prior comparative period. We also delivered a record EBITDA of NZD 13.4 million, +11% versus the prior period. Our Normalized EBITDA after ERP costs, +16% versus the prior comparative period. I'll come back to that normalization later on. We delivered record NPAT of NZD 4.2 million, +19% versus the PCP. This despite the negative FX impact of NZD 3.5 million included in this result, and the impact of COVID disruption in China. Next page. We're delighted that momentum continues to build across the business. On this page, you can see our gross profit, operating profit, EBITDA, and marketing investment for the last four reporting periods.
Gross profit has increased by 94% to NZD 69.4 million from NZD 35.8 million in December 2019, a compound annual growth rate of 25%. Operating profit has increased by 210% from December 2019. EBITDA has increased by 252% from December 2019. All the time we've continued to invest in our brand, and that marketing investment has increased by 70%, a CAGR of 21% over that period. We're on track to deliver our 2025 plan of NZD 50 million EBITDA by 2025. Our absolute and continued focus underpins our performance on and progress. On the page that you've seen before, you can see our purpose and our values. Our three-point plan to stabilize, transform, and build long-term resilience and growth at Comvita.
How we talk about our unique business model connected from the trees that we create, and that we plant right the way through to consumers in market. Our Kotahi or our focus on winning with consumers and having an absolute consumer focus in market. The next slide, stages of organizational development. Here we map out our journey in terms of three stages, crawl, stride, and run. You can see in the middle period there, which is the stride phase, where we're making progress on our goals in that space before we get to June 2024, which is the run period for us. The last box details our business plan, which is 60% gross margin, 15% marketing to sales, and 20% EBITDA target for 2025. I'll come onto this on the next page in more detail.
As I say, we're aiming to deliver by 2025, 60, 15, 20. A minimum 60% growth profit, 15% marketing investment to sales, and 20% EBITDA with a leverage ratio target of 1 to 1.5. In that gross profit, as you see, we're already at 62% in this period. We are expecting the full year to be around 59% due to the impact of harvest on this year's result, and also some growth initiatives that we've got coming into place in the second half. In terms of marketing investment, we've invested 13.8% in this period, and we've delivered a Normalized EBITDA after ERP up 16% versus PCP.
On the next page, you can see our 2025 plan on the page, which shares our aim to deliver 50% of our total sales through digital by 2025 and a NZD 50 million EBITDA by that, in that same period. Underneath that, you can see our goals, and the key focus in terms of strategic pillars through the business. Looking at ratios in this period, you can see our gross margin, 61.9%, marketing to sales was 13.8%, and we delivered 12% EBITDA, an Adjusted EBITDA of 14%. The directors declared a NZD 0.025 per share dividend. Net debt finished at NZD 63.3 million, up NZD 37 million versus PCP.
Our inventory finished the year, finished the half at NZD 146 million, up NZD 34 million versus PCP, but is still forecast to come back to NZD 135 million by the end of the year, which is in line with our original guidance. We're delighted to report a 10% reduction in total recordable injury frequency rate. We aim to be an organization that delivers both performance in terms of our revenue and profits, but also have a significant environmental and social impact. Our Harmony Plan guides us and aligns us with our determination to leave the world in a better place. Our Harmony Plan focuses on four areas of impact: climate action, bee welfare and advocacy, community impact, and native forests and biodiversity. We've made really strong progress against all of these areas.
As you can see, in community impact, 91% of our team are now shareholders. We've invested over NZD 95,000 year- to- date to support our partners and community events. We feel privileged to be able to help communities outside Aotearoa, New Zealand. We're using bees and beekeeping to support people and wildlife in Kenya, training the local Maasai tribe how to keep bees for sustenance and funding education for Maasai women. We believe that all of our team must be safe and return home safe and well at the end of every day. Their safety and well-being is of paramount importance to us. We're pleased with the progress we're making. Our total recordable injury frequency rate, or TRIFR, reduced by 10% versus FY 2022. Our lost time in injury frequency rate reduced to 1.5, which is flat on FY 2022.
We increased near-miss reporting, which is a sign that we're actively looking for things in the workplace that could harm people, and we're reporting and improving on those. Reportable injuries reduced. We saw a slight increase in motor vehicle injury frequency rate, and that's something we're working on. We carried out 35% individual well-being checks on our team in New Zealand. We have 552 people in our Comvita global whānau. The average length of service is just over five years. 62% of our global team is female. 37% of the leadership team are female. 40% of roles are filled by internal talent, and we're really pleased that the apprentice scheme that we've that we launched a couple of years ago is now seeing 73% of apprentices promoted from our first cohort.
We aim to become carbon neutral 2025 and net positive 2030. For the first time, we've looked at Greenhouse Gas emissions, Scope 1 and 2 in this interim period. As you can see in the first box, our emissions actually increased by 19%, Scope 1 and 2, in the six months to the end of December. This is primarily due to the world opening up again and us traveling more to get to both our apiary teams and to our markets around the world. At the same time, carbon sequestration from our forests increased by 54% to just over 4,700 tons of CO2. Carbon stocks, since our Mānuka forest establishment now total nearly 56,000 tons of CO2.
We generated over 12,000 KWh from solar panels that we have on our site in Paengaroa. Our packaging recyclable, reusable or compost rate is up to 91%, and we diverted 80 tons of waste from landfill. I'll now hand over to Nigel, who will walk through some numbers, and also P&L, balance sheet and cash flow. Over to you, Nigel.
Thank you, David. We've had strong performance in our first half. Many of these numbers have been covered off by David in earlier in the presentation. Just to call out the leading numbers, we had operating profit NZD +4.4 million or 61% up on last year to NZD 11.6 million. NZD 30.4 million of reported EBITDA. NZD 1.3 million up on first half last year. NZD 4.2 million of reported NPAT, 19% up on last year. NZD 112 million of recorded revenue. Gross profit at NZD 69.4 million. Our marketing investment of NZD 15.5 million. Gross profit was increased by NZD 10 million on the last year. This was primarily from our focused growth markets, Mānuka honey and our digital channel combined with continued productivity gains.
We had strong performance again in our North American and Greater China, maintaining growth despite the COVID lockdown headwinds. We've had strong growth in our monofloral Mānuka honey. Our digital share growth grew to 39% of total sales from 33% last year at accretive margins. We continue to get productivity gains in our manufacturing processes, leading to lower cost of sales. This year we're calling out foreign exchange because you will have seen from our profit and loss that we incurred NZD 3.5 million of foreign exchange losses in our first half. These were caused by the lower New Zealand dollar that we experienced. That resulted in a loss of NZD 2.2 million related to hedging instruments that were delivered during the first half. There was a further NZD 1.2 million of unrealized translation losses incurred in the first half.
If we adjusted our EBITDA for those losses, we would have delivered a NZD 16.3 million or 35% increase over PCP. This year we've also provided an insight into our future hedging cover that we already have in place through to FY 2026. We've called out the US dollar and the Chinese yuan that are our major currency exposures. From a balance sheet perspective, we already noted that our net debt increased by NZD 38 million since June 30, 2022. That was as a result of operating negative cash outflows of NZD 20.7 million and investing activities, principally capital expenditure of NZD 11.9 million. We also paid out dividends of NZD 2.2 million. The operating cash outflows of NZD 20.7 million were primarily due to inventory being up NZD 13.7 million, which I'll come back to on the next slide.
Debt has also been up NZD 7.5 million, and that was particularly due to high revenues in November and December. As noted, our investing activities include a capital expenditure of NZD 11.9 million, and I'll come back to that on a future slide as well. We are still forecasting our full year inventory to be in line with last year as we provided guidance earlier on. More importantly, as David mentioned earlier, we have resolved our operating cash position, and we will have a positive operating cash flows with new supply model enabling ongoing positive operating cash flows in future reporting periods. Inventory increased by NZD 13.7 million as mentioned earlier. This was across primarily raw materials, which increased NZD 12.4 million, and that was related to prior commitments associated with expired and no longer renewed supplier contracts.
David will talk more to that shortly in the presentation. Our finished goods also increased by NZD 2.8 million as we continue to ensure we have sufficient inventory to mitigate supply chain disruptions and meet market demand. I'll hand over to David.
We've been optimizing our inventory and supply strategy since 2020. Stage 1 was our harvest break-even contribution model that we launched in 2020 and was proven in both 2021 and 2022. To explain our total supply model, it was basically that 30% of our total supply came from our own forests or our own apiary operations and joint ventures. 60% came from our supply partner group and then 10% we would buy from the market as we needed. For the supply partner group, we recognized an inability to price purchases according to consumer demand and volumes were as produced. That created an imbalance in inventory and it was outside our direct control. With Stage 2, in 2021, we started exiting some long-term supply contracts.
Stage 3, by the end of December 2022, all supplier contracts were ended, though an intention to continue working together based on true market demand. Stage 4, the period that we're in now, our new supply model is now in place. That supply model links supply and price directly to demand. Our new model means our only commitment on volume is through our own supply and joint ventures, which is about 30% of our total needs. With Stage 4 now complete, this means that we're still able to forecast year-end inventory materially in line with PCP around NZD 135 million. FY 2024, we'll see a material reduction in inventory and associated benefit to cash flow.
For FY 2025, we'll see a further material reduction in inventory in line with our 2025 plan of inventory at NZD 85 million and again, associated benefits to cash flow. This enables us to have an expectation of positive operating cash flow in half two FY 2023, FY 2024 and FY 2025. For our partners, we will continue to partner with our long-term suppliers, but this will be based on demand. We will continue to purchase needed inventory based on that market demand and pricing. We will share more information to give them demand signals ahead of the season to enable us to target crop again in line with that demand. As you'll all have experienced firsthand, this year we've experienced some extreme weather events.
It's too early to give a fulsome update on our harvest performance. It is safe to say that harvest has been severely impacted by the weather events that I talked to earlier through December, January and February. We saw initial flowering delayed by around four weeks. Ultimately, we won't know the quality of the harvest until around April. Our initial expectation is the harvest being between 300-350 tons, subject to any impact of Cyclone Gabrielle on Hawke's Bay. In our break-even model, we've based that on 400 tons. We've actually delivered a break even at 370 tons in the past. We're working hard to deliver that performance again with zero contribution to group profits from the apiary division in this period. Back to Nigel.
Capital expenditure. Our capital expenditure for the first half is considerably up on the first half last year. That's predominantly due to our investment in the Mānuka forest, both from the acquisition of some land for NZD 4 million as well as forest development during the period. The substantive benefits of these investments in forest are expected to be delivered from FY 2027 onwards. In addition, we continue to invest in our manufacturing process improvements, which as I've mentioned earlier, do lead to improved productivity and increased capacity, leading to lower cost of sales. In addition, we are continuing to invest in our digital channel, D2C, to drive revenue growth. As referred to earlier, we are upgrading our internal digital transformation program, which is now focused on updating our ERP system, redefining internal inefficient processes, and refreshing our master data.
This project will run until June 2024 and is designed to give up to date scalable internal systems and processes and significantly increase reporting capability. Due to changes in accounting guidance, software as a service means that assets aren't owned. These costs will be expensed until June 2024. In line with market practice, these will be normalized in our result and guidance. As David mentioned earlier again, our board is very delighted to declare a fully imputed interim dividend of NZD 0.025 per share. The record date will be April 7, 2023, and the payment date 28th of April . This dividend is in line with prior reporting period. Next page. I'll hand back to David.
We're absolutely committed to understand the science of nature, and we invest more than the rest of the industry combined. Next page. We're delighted to have clinical trials ongoing at the moment to look at Mānuka health for digestive health benefits, and we expect to share the results of that research towards the end of 2023. In 2023, we've had one patent granted, one patent accepted, and we filed an additional 10 patents that will all help new product development in the future. We have world-leading quality. We have 14 independent audits and certifications that have been completed. Our industry-leading lab testing standards with 190,000 lab results in H1 FY 2023 increased by 9% versus PCP. In total, we have 45 patents that are granted with many more on the way.
In total, other investment into science and research totaled an additional NZD 1.7 million. Turning to market performance, we're pleased to report yet again that we're growing share in our focus markets. Next page. In this interim period, as we've already reported, we delivered record revenue of NZD 112 million +7% versus PCP. Gross profit of 61.9%, +530 basis points versus PCP. In Greater China, our revenue increased 9% and our net contribution increased by 15% to NZD 13.1 million. We've achieved very strong performance in Hong Kong, both top and bottom line, though it's estimated NZD 1 million-NZD 2 million of this came from China consumers shopping in the area. Mainland China sales grew by 3% and net contribution by 2% due to that retail disruption.
We saw strong digital sales. Retail sales were highly disrupted and despite the strength of the performance in December, were unable to regain the lost ground before that. We increased our market share in mainland China by 500 basis points, which are greater than numbers two to 10 combined. We increased investment in our brand to 15.8% of sales. In North America, revenue grew 20% and net contribution grew 40%. In Australia and New Zealand, the total revenue was flat, with a major headwind from Asian Health daigou channel, but our net contribution was improved by 24%. We saw top and bottom line growth in rest of Asia. The U.K. delivered a performance below expectations. Remains subscale, but we have good progress outside the U.K..
In Greater China, our revenues increased 9% despite those material COVID headwinds across the region. Mainland China was up 3% despite those COVID measures. Domestic e-commerce was up by 13% to offset cross-border e-commerce and retail disruption. We saw very strong performance in Hong Kong and the run rate is now above pre-pandemic performance. We increased our market share by 500 basis points to 13%. We increased our brand investment, and we see momentum building for a post-COVID takeoff. Net contribution increased to NZD 13 million plus 15% versus PCP and to 25% of sale, plus 100 basis points versus PCP. In Mainland China, as I've already said, our revenue increased by 3% under the challenging market conditions. Offline direct retail was down by 5% despite that strong recovery in December.
Though we did see really strong performance by new key account that we signed at the CIIE show in this first half. We continued investing in our marketing and our brand activity. We delivered higher e-commerce performance marketing to drive additional growth. The brand investment is further reinforcing Comvita brand power to continually gain share as the absolute leader in the market. Net contribution of NZD 10.2 million was improved by 2% versus PCP. In North America, revenue was up 20% in the world's largest monofloral Mānuka honey market by volume. Net contribution was up 40%, some of that due to timing. We delivered double-digit growth on comvita.com. We continued growth and market share growth in natural retail channels, nearly doubling year-on-year revenue.
We invested in building foundations for future growth through our brand, through our team, expanding our product range, and driving e-commerce and wholesale growth. Net contribution grew by 500 basis points to 34%. In the rest of Asia segment, which comprises of Japan, South Korea, Singapore, Malaysia and Indonesia, we saw total sales up 2%. We saw Japan performance stabilizing both top and bottom line, which is encouraging for us going forward, and we're now starting to build. We saw high single-digit growth in Korea, and net contribution increased by 8% versus the PCP and 200 basis points. We're really pleased to share that we signed a new contract with a regional customer with a year two revenue target of between NZD 5 million and NZD 7 million in 2024. In the ANZ segment, revenue was flat versus the PCP.
Below that, we saw very strong growth from domestic domestic sales in both Australia and New Zealand, which offset those Asian health headwinds due to China daigou COVID disruption. That strong domestic growth came from all channels and categories. We grew our market share with the biggest segment customer, again as clear number one in the Mānuka honey category. Net contribution increased by 24% versus PCP and +700 basis points to 35% of sales. EMEA or Europe, Middle East and Africa, revenue was down by 13.5% versus PCP. The major issue in the UK particularly remains that we are subscale. We're still forecasting double-digit top and bottom line growth for the full year, but primarily we're still a break-even business in this region.
We have new distribution agreed for half two, which will be positive for the segment, though recognize a lot of work needs to be done to deliver the true potential that we see. Net contribution was down 96% to NZD 7,000. As you can see, that 96% was NZD 195,000. We're on track for e-commerce to be 50% of our total sales by 2025. In this period, we reported record revenue of NZD 42.8 million in e-commerce, up 15%. That was delivered with accretive gross margin up 230 basis points. Digital share of our total revenue increased to 38.8% plus 580 basis points versus PCP.
We invested more to tell our story through this channel with nearly NZD 7 million of digital marketing investment. Really pleased that existing consumers continue to purchase more from us, and we saw a 10% growth in direct-to-consumer average order value versus the previous period. Finally, our Net Promoter Score, so how consumers, our consumers judge us, increased to 9.2 over this period. To summarize, I'll now move to guidance and the final summary of the whole presentation. To FY 2023, we're forecasting double-digit growth of Normalized EBITDA. That normalization will be after ERP investment that will be normalized of circa NZD 3 million. We're assuming strong growth in China in H2. Profitable top and bottom line growth in our focus growth markets, channels and categories.
E-commerce share to be greater than 40%. Slight softening of GP in H2 support growth activities. Our transformation investment will be NZD 3.5 million, excluding the ERP investment that I mentioned above. Inventory will be flat versus PCP with an estimate of the full year of around NZD 135 million and we're forecasting half to positive operating cash flows. We're still on track to deliver NZD 50 million EBITDA by 2025. In summary, for our interim result ending December 2022, we delivered record revenue, record margin, record investment in our brand for future growth. Record operating profit of NZD 11.6 million, improved by 61%. Record EBITDA. Record net profit after tax up 19%. Earnings per share increased by 20% versus PCP, and we declared a fully imputed dividend of NZD 0.025 per share.
We're incredibly excited about the future in front of us. We've maintained guidance for FY 2023 after normalizing for those ERP upgrade costs that are no longer able to be capitalized. We're on track to deliver our 2025 plan of NZD 50 million EBITDA. We have clinical trials underway to test the medical efficacy of Mānuka on gut health. Our new talent backed skincare range called Caravan will be launched in half one FY 2024 towards November, December. In addition, the total addressable market for honey is forecast to grow by over $6 billion or 67% by 2031. I'd like to thank you for your continued support. We're delighted with the result that we share today, and we really believe that our business model and our absolute focus on winning with consumers in market is making the difference. Look forward to taking your questions.
Thanks very much.
Now ready for any questions. Online attendees, please click the Ask a Question box to send in your questions. We do in fact, already have some questions in the inbox. I'll read those out and either David or I will respond to those questions as we work through them. The first one's from Margaret Bei. Hi, David and Nigel. Could you please talk us through what you expect in the Apiary division if break-even harvest level is 400 tons is above your initial harvest expectations of 300 tonnes-350 tonnes?
Excellent question, Margaret. As you say, our assumption is that harvest will be between 300 and 350 tonnes. We expect, and we are forecasting that to be a break-even position, which will mean zero contribution to group profits in this period. We've already delivered a break-even with 370 tonnes in the past, we remain confident that we can do that. Obviously, the only part that we've got to work through is impact on Hawke's Bay or Cyclone Gabrielle.
That impact, will be an insured insurance, covered. Apart from that, we're forecasting a break-even position.
Next question, also from Margaret Bei. Can you please talk us through your decision to hold dividends stable instead of increasing it in line with your reported NPAT?
Look, we took the decision when we, when we looked at our performance to the end of December, that given the high debt that we had. We felt that it was sensible and pertinent to hold the dividend in line with PCP.
A follow-up question from Margaret is, can you please talk us through the change in your supply model, which should support inventory normalization?
Yeah. historically, our supply model-
Yes, Nigel here, it seems that we just got a wee technical glitch with David. We're talking about the new supply model, and David was referring to that historically we had commitments in place with a special supplier group that meant that irrespective of volumes that were produced, we were committed to take the inventory. In the presentation, you will see that we indicated that we have terminated those agreements and therefore effectively from this season onwards, we are no longer committed to taking that product from those suppliers. As a result, we will have the product coming in from our own Apiary business and in addition, just buy on the spot market that product that we require from time to time.
That will enable us to ensure that we manage our required inventory in line with market demand. The next question that's been asked by Christian Bell is the following: You are spending NZD 3 million on ERP in FY 2023. How much was spent in FY 2022? Your Normalized EBITDA treatment only makes sense if the ERP cost was zero in FY 2022, or you would need to readjust the FY 2022 reported EBITDA down by the ERP expense. The answer to that question is that we in fact did spend nothing on ERP in FY 2022, As a consequence, this is the first year that we've initiated that process of implementing a new ERP system or when in fact it's updating our existing system. That answers that question.
Next question, also from Margaret Bei. Are the raw materials that have increased in the first half 2023 from expired non-renew contracts still relevant for your existing SKUs? In other words, do you think there would be any wastage? The answer is, they are from the increase in raw honey inventories that we saw in H1 FY 2023 was related to those contracts that I referred to earlier that have been expired and not renewed. There is no expectation that there will be any wastage from any of that honey brought in during that period. Next question from Christian Bell. The second half result needs to be strong from a revenue and/or margin perspective. Firstly, what do you expect to drive the uplift, revenue or margin? If revenue, where will that come from?
How much visibility of sales do you have over the next six months? If it's China, what happens if there is another wave of COVID? Can you divert to other markets? Another angle is that you cut back on indirect OpEx. How much flexibility do you have around that, and would you be willing to do that to ensure guidance?
Sorry about the slight disconnection from my point of view. Hopefully you can hear me now. Nigel, can I just ask that you repeat those questions, please, so I can answer them for Christian?
Indeed. Indeed, David. The question, again, is this: the second half result needs to be a strong from a revenue and/or margin perspective. Firstly, what do you expect to drive the uplift, revenue or margin? If revenue, where will that come from? How much visibility of sales do you have over the next six months? If it's China, what happens if there's another wave of COVID? Can you divert to other markets? Another angle is that you cut back on indirect OpEx. How much flexibility do you have around that, and would you be willing to do that to ensure guidance?
Thank you for that. Sorry for the slight technical problem there. Look, we are forecasting strong revenue in the second half of FY 2023. In terms of markets, we, you know, we're expecting strong performance in China. Actually, we're expecting strong performance across all our segments. We've made a number of account gains through the year, which give us confidence that we'll be able to deliver performance to enable us to deliver to guidance. In terms of COVID impact on China, look, probably the two things I'd say, in last year's second half performance, obviously, retail, offline retail was disrupted from end of February, March, right the way until the end of the year. We have a constrained prior period.
On the second part, what we've seen is, particularly consumers who've historically used honey as a medicinal or quasi-medicinal product, for thousands of years, during those COVID periods, they actually turned to us in greater numbers. We are, we're proud that actually consumers trust us as part of their own healthcare routines during those times. Naturally, we do have operating costs that will flex at that time, but primarily we believe that we have a good line of sight of the revenue and associated margins over this, over this period. The final question you raised was about earnings momentum, and the earnings momentum that we're expecting in the second half, you know, we see it as a continuation of the performance that we delivered in FY 2022.
Next question, also from Christian Bell. How has January trading been like across your markets, particularly China and the U.S.? Is China back to pre-COVID? Are you able to tell if the first half demand is due to the spike in COVID? Have things freed up there?
January performance was good. It was ahead of forecast. Particularly performance in China was good. I wouldn't say it's at pre-COVID levels yet, but all the signs were positive. We have to remember, in this January, we had a full week of Chinese New Year, whereas in prior period, we Chinese New Year was 1st of February. We have good line of sight as to that performance, and we're already planning to make sure we have inventory in place to make sure that we're able to meet elevated demand as and when a second wave starts.
Another question from Christian. If you do hit guidance, it means your second half EBITDA run- rate is approximately NZD 20 million. Is there any reason why we couldn't double that for FY 2024, given, if anything, your market should be better by then?
Look, it's clearly very early to talk about FY 2024. What we would say is that we see momentum in our business. We see positive earnings growth, and you go back to the information we've shared in this presentation and the last presentation, in terms of momentum at that EBITDA level, we really do see that. I think it is fair to say that for 2024, we expect to see market conditions markedly better than 2023. I think from a revenue and margin perspective, we're expecting a strong performance, but we'll come back to earnings at a later time.
Another question from Christian. Why keep inventory so high for growth given that sales are only expected to be mid-single digit? I'll take that question. We signaled at the end of FY 2022 that we anticipated our inventory levels for FY 2023 to be in line with where we landed at the end of FY 2022. We maintain that guidance. This is predominantly due to wanting to ensure that we have enough inventory, both in market and in terms of raw materials, to continue to meet the unexpected outcomes of supply chain challenges that we're experiencing.
The inventory levels at the end of December have peaked. We will see those reduce through the second half to meet our guidance range of around NZD 135 million of inventory by the end of FY 2023. Next question. This is from Joshua Dale. Well done on executing towards your 2025 goals. First question is on guidance. Why was the ERP adjustment not signaled when you issued guidance originally and reiterated back in November that this software-as-a-service accounting change has been a new standard for quite some time now, including when you issued guidance originally?
Thanks, Josh. Look, the expectation was that we would still be able to capitalize that ERP investment at the time, and it's only become clear very recently for us, probably in the last few months, that actually we're not able to capitalize that investment, which is why we've normalized it in the way that you anticipate.
Next question from Josh. When you set guidance, did you assume a normal apiary EBITDA contribution? How do you consider the potential apiary swing factor when setting guidance early in the new year?
Look, we did anticipate a normal apiary contribution when we set that guidance. I think it's part of the reason we're so pleased with the performance and the outlook is that we're now effectively maintaining that guidance, but without the benefit of an apiary contribution, which last year was around NZD 3 million.
Another question from Joshua. For the facility that was damaged in Hawke's Bay, is it worth your while to reinstate another facility there, or will you just integrate operations into another site?
Joshua, to be perfectly honest, it's probably too soon for us to make that assessment. Obviously, you know, the team down there are in a state of shock as to what they experienced. You know, to give you that context, you know, the water in the region went over the roof of both the house on site and our facility. You know, there was significant damage down there. You can imagine how people who, three of the people were actually living in the house on site. They were evacuated, fortunately. You can imagine the impact of seeing that devastation and the power of water that actually moved containers, trees, lorries around the site and inside it. It clearly looks like, you know, it looks horrendous.
We will absolutely come back to that. Right now, we are focused on making sure that we get operations up and running again, and we look after those people who have been affected.
Another question from Josh. Could you please provide an update on the status of the Caravan JV?
Very happy to. Our estimation is that we'll launch late in 2023, probably November, December or very early in 2024, in January. We're making great progress. We finalized formulations. We're hoping to announce talent who will co-found the business with us before the end of this financial year. We believe we've got an incredibly exciting proposition that we're developing. As soon as we've got talent agreed, then we'll obviously share that. We'll also share more detail about the lead up to that launch as we get closer to it.
A question asked by Ho Man Lo. How much Mānuka forest land does Comvita own at the end of December 22? What is the split between self-owned Mānuka forest land and leased land? Was any Mānuka forest land damaged by the cyclone?
I'll take the last question first, 'cause that's easiest. We haven't seen any substantial damage to any of our forests due to the cyclone. Obviously, we have got land that has slipped in areas that we extract Mānuka that's not owned by us. Currently, we don't actually share the split between managed and owned. That's something that we'll come back to as we go forward. What we have said is we aim to plant between 1.5 million trees a year. We see the long-term opportunity for our Mānuka forests to deliver the highest quality Mānuka honey and us to gain productivity benefits-
Mm-hmm
as we deliver from those bigger hive sites.
A question from Joshua again. Your reason provided for elevated inventory in FY 2022 was to mitigate supply chain issues, not because you were contracted to take supply from your supply partners. Why was this not communicated previously?
Josh, thanks for that. Look, the primary reason was we did increase inventory to offset the impact of supply. As you can see from the detail that we shared here, back in 2021, we recognized that there was a disconnect between what we received from our supply partner group and what the market demand was. Right back then, we started the process of exiting those long-term supply contracts and where we've got to today with none of them in place. That means that we can really concentrate on making sure supply and demand are balanced and that ultimately we've only got 30% of our total annual volumes contracted.
Next question. This is from David Oxley by the way. What level of transformation spend is expected to be expensed in FY 2024 and in 2025, if any?
David, I'll cover 2025. I won't cover 2024 this time. At 2025, there'll be no transformation spend. At that time, all transformation activity will have finished.
Next question: Is there a plan to increase the scale of apiary business after the termination of the long-term supply contracts despite positive expectations on operating cash flows? Do you expect the GP to be negatively impacted with more market exposure?
No. Look, our long-term apiary supply forest model is therefore to deliver sustainable supply for the future, highest quality, lowest cost, and that will continue.
Next question. Transformation spend of NZD 3.5 million for FY 2023 is versus NZD 5.5 million in previous guidance. Why is this lower now?
Christian, look, the reality that we went through was when we looked at our performance, we saw that we had those significant FX headwinds of NZD 3.5 million, and we recognized that we were gonna have a poor harvest performance, so we scaled back the other transformation activity at the time.
Next question from Christian: If there are geopolitical issues that impact access to China, do you have any strategies to get around this, or will you have to exit?
Look, our long-term commitment to China is really what sets us apart. You know, we're considered to be part of the Chinese business community. We were delighted to be on the front page of the China People's Daily talking about our commitment to both our team on the ground and the market as a whole. We have people in market. We've got about 200 people in China, and we have that long-term commitment that's there. We expect that we would still perform well during that period.
Next question from Mark Toby. Can you expand on the growth momentum in North America and the ability to continue this growth trend?
Yeah. Thanks, Mark. So look, we've set out that, you know, North America is the world's biggest monofloral Mānuka market. We see significant opportunity to grow both our distribution and our revenue online and offline. Our performance has been strong over the last three years particularly. We see no reason structurally why the U.S. can't be the same size market for us as China. We've got multiple routes to actually deliver top and bottom line growth in that market.
Next question from Margaret Bae: Did your harvest model help to mitigate the impacts of Cyclone Gabrielle? How much volume traditionally has come through the most impacted region? How has your bee population held up overall?
Hawke's Bay is about probably about 5% of our total apiary supply. On, you know, on a macro level, it's not a huge contributor to overall group supply. Naturally, you know, we have lost hives, so, you know, that has a direct impact on the bee population in the area. We have been able to move hives into different areas to make sure that we can still generate honey.
The final question from Ho Man Lo: Was there any cost to exit those long-term supply contracts? I can answer that and say that no, there was no cost. They were just they reached their expiry date, we simply did not renew them. With that being the last question, I think we're at time. We'll wrap up at this point and thank everyone for joining the call. We look forward to meeting some of our investors face-to-face over the next two or three days, we'll conclude at that point. Thank you very much.
Thanks very much, everyone.