Morning, welcome everyone to Comvita's investor presentation for the half year ended December 2021. My name's Nigel Greenwood, I'm the CFO, and also presenting will be David Banfield, the CEO. I know this doesn't always get a lot of attention, but I do draw your attention to the important notice with a number of disclaimers for you to read at your leisure. Also, I want to point out that online attendees can submit questions at any time by clicking the Ask a Question button on the screen. Phone participants will be provided instructions at the appropriate time in the future. I now pass myself across to David to start the presentation.
Good morning, ladies and gentlemen, fellow shareholders. Welcome to today's interim results presentation. On page three, you can see today's agenda. Today, we will take you through, first off, our focus or arotahi on the journey to make sure that Comvita is recognized as a premium FMCG brand, and we deliver on the opportunity of our unique business model. We'll also share our 2025 strategic plan. We aim to be a leader in ESG, and we'll share progress that we're making on that journey, as well as our goal to be carbon neutral by 2025. We'll move on to more detail of our half-year results for FY 2022. I'll pass to Nigel, who'll talk about cash flow, inventory and net debt. We'll talk about market segments with a particular focus on our focus growth markets of China and North America.
We'll then talk about our reinvestment of long-term growth. I'll then move to guidance and summary before we open the call to questions. I'm delighted to share a record Comvita first-half earnings performance. As you know, we are number one global brand leader in Mānuka honey and Propolis. This is the fourth consecutive reporting period where I've been able to report earnings growth. We've delivered 6.1% revenue growth despite significant COVID headwinds. Our digital channel stands at 33% of our total revenue, but direct to consumer within that growing at 12%. We've continued to invest in brand building activity with a focus on positioning Comvita as that premium FMCG brand, and investment in this period was NZD 13.3 million, which is an increase of 20.9% or NZD 2.3 million versus PCP.
Our operating performance was NZD 7.2 million, an increase of 39.4% versus PCP. We also recorded a record EBITDA of NZD 12.1 million +14% versus PCP. Our directors were delighted to declare an interim dividend of NZD 0.025 per share, which is fully imputed. Finally, our net debt stood at NZD 26.3 million, an increase of NZD 21.7 million versus June, primarily as a result of us increasing inventory to offset global supply chain disruption and as a result of investing in our new joint venture in North America. Before I talk to results, I do wanna take a moment to talk about COVID and its impact on the team and our operations.
The health and safety of our global team of 500 is our priority, and we're pleased to report that all our people are safe and well. We've taken a risk-based approach to managing our response built around facts and science. The team response has been amazing in all markets, with 90% of our team vaccinated globally. We've continued to demonstrate our ability to lead and adapt quickly, including the early adoption of rapid antigen testing for staff in Australia and New Zealand, an additional measure for early confirmation and protection. Rapid antigen testing and vaccination was required on-site for all our team at Paengaroa. Many markets are still being impacted by ongoing disruption to this pandemic. Recent Ministry of Health advice suggested that in cases of COVID that actually honey or lozenges may help to manage symptoms.
The longer term trend of consumers turning to nature and natural products solutions to their health and wellness needs continued. We're proud to be part of the solution for consumers around the world. Our purpose is working in harmony with bees and nature in New Zealand to heal and protect the world. Our vision is to deliver world-leading standards for our team, our consumers, our shareholders, and our planet, contributing to a world where bees and people can thrive in harmony. We aim to reinvest cash to lead industry growth and consolidation, and in process, drive increase in standards for consumers around the world. Next page. Here you can see our 2025 focus strategic plan. As you can see, this plan shares our purpose, our values, our vision. On the top right-hand side, you can see our 60%/15%/20% business model.
The aim to deliver a gross margin of at least 60%, 15% marketing to sales, and 20% EBITDA margin by the time we get to 2025. Underneath that, you see our three-part plan to stabilize performance, transform the organization, and build long-term resilience and growth. The pillars that support organizational growth are Comvita being recognized as a consumer lifestyle brand, world-class digital engagement and experience, science and quality, organizational simplification and efficiency, and finally, becoming a sustainable world-class organization. Underneath that, on the right-hand side, you can see our 2025 strategic goals, with number 1 being building a China market and business capable of delivering 10 years at 10% compound annual growth rate. Secondly, breakthrough in North America to provide geographical balance to the business. Thirdly, digital channels to deliver 50% of total sales.
Finally, all market segments growing with mid-single digit CAGR and profitable. On the left-hand side of that same box, you can see our KPIs. Carbon neutral 2025 with science-based target for greenhouse gas reduction, a return on capital employed of 500 basis points over our weighted average cost of capital, our TSR, so total shareholder return at Comvita being above the NZX 50, and consumer and employee net promoter score above seven. Next page. I'll now take you through our unique business model and particularly the big change that's happened as we put consumer at the heart of everything that we do. Here you can see our business model in its simplest form.
With the focus of the consumer at the middle, with our aim to deliver the right products to the right markets through the right channels, where we can invest in brand, IP, and science to explain and evidence the benefits of our products. Our vertical integration, from hive right the way through to home means then that we can constantly work on improving quality and delivering a better outcome for our consumers. Our ultimate aim is to be recognized as a premium, fast-moving consumer goods brand and deliver that long-term profitable growth. Next page. We have a unique business model. Most people operating in the category are either supply or what you can see in front of us here, model four, where they have supply and they have some export partners in markets. We have around 350 people globally, in market.
Those people help us get closer to customer, closer to consumer, faster to act, better connected, and we're making significant progress to really accelerate the benefit of that model across the group. Next page. We significantly invest in both science and quality, and this is an additional key differentiator of Comvita. Our strategic goal of higher standards for all New Zealand honey is designed to protect consumers and the industry. We've achieved dual IANZ and MPI accreditation for our in-house honey testing laboratory, the only such certification held by a honey company in New Zealand. We have more patents and publications than any other honey company.
We recently shared the 1.3 million Mānuka Honey for Digestive Health clinical trial program as part of a collaboration with the University of Otago, supported by an NZD 875,000 grant from the High-Value Nutrition National Science Challenge. We also have a global scientific advisory body, and you can see the members of that body from around the world who help us make sure we're at the leading edge of science. Next page. Back to results and results headlines. I'm delighted to share our record performance. Record half one operating profit of NZD 7.2 million +39.4% versus the PCP. Record EBITDA at NZD 12.1 million, +14% or NZD 1.5 million versus the PCP.
We delivered double digit top and bottom line growth in our focus growth markets of China and North America. We delivered double digit top and bottom line growth in Mānuka honey product category. We also delivered double digit top and bottom line growth in our direct consumer business. Our revenue, reported revenue, increased by 6.1% despite remaining significant COVID headwinds. On a constant currency basis, revenue increased by 6.5%. Our gross profit improved by 760 basis points to 56.6%. We continued long-term brand investment of NZD 13.3 million, a NZD 2.3 million increase or 21% versus the PCP, as we told our story to discerning consumers around the world. Our business transformation plan is on track. We're seeing strong gross profit growth.
We're expecting to deliver NZD 14 million in GP improvements since inception by the end of FY 2022. We've delivered 35% SKU reduction on top of the 30% that we delivered in FY 2021. Net debt increased by NZD 21.7 million since 30 of June 2021 to NZD 26.3 million, with NZD 13.2 million of that increase due to increased holding inventory to offset impact of supply chain disruption and NZD 5 million into a new joint venture. We report a 79% reduction in total recordable injury frequency rate, and we're delighted to declare a fully imputed dividend of NZD 0.025 per share. We continue to deliver positive progress on our organizational development plan. A year ago, I shared our plan for crawl, stride, run.
The crawl period being from January 2021 for a year, the stride period being the two to three years from January 2021 to June 2024, and then our goals in June 2024 onwards. Here you can see the progress that we've made, building on our proud history and moving us towards delivering an exciting future. We aim to be recognized as a global leader in ESG. I'll now share with you a breakout of the aspects that fall under each ESG goal and our progress against each. Next page. On the left-hand side, you can see an image of our Harmony Plan that we shared after our full year results in August of this year. On the right-hand side, our ultimate goal to strengthen our global hive.
Under each of the streams of environmental, social, and governance, we've used a simple traffic light system to show the progress that we're making and our commitment to leadership in this area. Next page. I'm pleased with the progress we're making on diversity, inclusion, and equality. 67% of our global team is female. We have 553 equivalent roles in our global team. 50% of the executive team reporting to me are women. 60% of our global roles are customer-facing. 100% of our team are on living wage for New Zealand-based employees. 40% of our board are women. 63% of vocational development supported women, Māori, and Pasifika. Our average service length is five years, and we have 100% pay equality globally. Next page.
We also aim to be a leader in health and safety, particularly at this time. We report today a 79% reduction in total recordable injury frequency rate, a 33% reduction in reportable injuries, a 77% reduction in motor vehicle incidents, and a new measure that we've introduced for this year. We've reported 111 wellness checks, mental health wellness checks across the team. Next page. We've set our goal to be carbon neutral 2025 and net positive 2030. We're really pleased with the progress that we've achieved over this reporting period. We've invested NZD 145,000 in carbon reduction initiatives. We've invested NZD 151,000 in Harmony partnerships. We've removed 2 tons of shrink wrap from our products.
We've planted 1.5 million trees, and we're number one in the Trees That Count leaderboard in New Zealand. Next page. Our Harmony Plan launched in August is a progressive policy designed to position Comvita at, in leadership position when it comes to environment and action. The four areas that we focus on are climate action, bee welfare, community impact, and native forest and biodiversity focus. In climate action, we've completed a materiality review. We are in the process of setting targets for greenhouse gas, science-based target for greenhouse gas emission reduction, and we're in the process of completing life cycle assessment for Mānuka honey in a pot to give us an environmental product declaration. When we come to bee welfare, we've formed a partnership with For the Love of Bees. We're a primary partner of Wasp Wipeout program, a major cause of colony loss.
We're supporting the Center of Regenerative Learning with For the Love of Bees. We're reducing sugar and Varroa treatment. We have appointed the first national bee expert. We're doing more work to educate the community about the importance and how to support bees. When we look at biodiversity and native forests, as I've already said, we've planted 1.5 million trees. We donated 5,000 seedlings to schools and wildlife centers in the Wairarapa. As I say, we're the primary partner for Wasp Wipeout program. We're also undertaking biodiversity research at our Makino Station. We've also recently supporting Save the Kiwi as a key commitment to New Zealand. Next page. I'm pleased to give you more detail on our performance for FY 2022 to December.
On the screen, you can see our financial performance for the six months ending the 31st of December. Revenue increased by 6.1% or NZD 6 million. We saw strong performance in our focus growth markets and Mānuka honey. We've globally relaunched our D2C channel. We report a 760 basis point improvement in gross profit. Our marketing investment has increased to NZD 13.3 million, building long-term recognition of Comvita as the quality brand, up 20.9% and now to 12.7% of revenue. We invested NZD 700 ,000 in this period in transformation. Other expenses also includes some due diligence costs that I'll come back to. Operating profit increased to a record NZD 7.2 million, up 39.4%, and EBITDA to 14%.
There is a high effective tax rate of 40.5% in this period due to high non-deductible expenditure. Next page. A key part of our 2025 plan is to deliver a gross profit of at least 60%. We're delighted to report gross profit + 22% or 760 basis points versus the prior corresponding period. This has been delivered through a combination of delivering in focus growth markets, focus channels, and productivity gains. Next page. Our transformation plan is on track. We've made very good progress so far with gross profit improvements of NZD 14 million expected through to the end of FY 2022. We've delivered strong improvement in dollar and percentage gross profit with that 760 basis point improvement. We've delivered underlying cost reductions of NZD 3 million.
We've invested NZD 700,000 in digital transformation. Significant simplification by reducing our SKU count by 35% on top of the 30% we delivered in FY 2021. We've reduced legal entities, and we've exited underperforming or non-strategic joint ventures, mainly. Next page. The directors were delighted to declare a fully imputed dividend of NZD 0.025 per share. Record date for dividend is 24th of March, 2022, and the payment date being 31st of March, 2022. I'd like to thank you for your time. I'm now gonna hand over to Nigel, who'll talk us through cash flow, inventory and net debt, and then I'll come back to talk about our segments. Thanks very much.
Welcome back, everyone. In this section, I'm going to be talking to cash flow, inventory and net debt. Next page. As you can see from this slide, our net debt has increased since June year-end. You'll see that when you look at the slide that our net debt at the end of December is NZD 26.3 million, up NZD 21.7 million since 30 June 2021. That's for a combination of reasons, but predominantly, we generated cash from our financial performance. However, our working capital, mostly focused on inventory increases, has resulted in a negative operating cash flow. I'll talk more to inventory increase on a subsequent slide, but I do wanna reiterate, as a business, we are still focused on reducing inventory in our business to NZD 85 million over the next two to three years. Next slide.
We have reported negative operating cash flow for this half of NZD 4.9 million. For the total year, we still anticipate having positive operating cash flow. As I mentioned just before, the primary reason for our negative operating cash flow in H1 is because of our increased inventory investment. I'll come to why we've increased inventory investment on the next slide. In addition to that, we also invested $5 million in our joint venture with Caravan, and we've also continued our investment into the Mānuka Forest strategy as well as the digital transformation strategy, which we'll come to on the capital expenditure page. Next slide. Inventory.
You can see from this slide that our inventory balance, as I mentioned before, has increased by NZD 10.8 million since June 2021. The primary cause of that is our raw materials and investment in raw materials, which have increased from NZD 60 million to NZD 72 million in that time. We expect and we are planning to convert a substantial amount of that raw material inventory into finished goods over the next six months. This is to deal with the supply chain disruption that we're managing throughout the globe. By year end, we certainly anticipate our total inventory to be lower than where it is today, and we are still targeting to have our inventory at NZD 85 million over the next two to three years. Next slide. Capital expenditure.
You can see from the slide that our capital expenditure half on half is relatively line ball with the first six months of the prior year. We indicated earlier in our guidance that we anticipated capital expenditure for the full year to be circa around NZD 17 million or NZD 18 million. Right now, even though we've only spent 6 million roughly for the first half, we still anticipate that we will hit that NZD 17 million guidance for our capital expenditure spend in the full year. You can see from the chart that we've invested in our Mānuka forest development, and we continue to do that, our digital transformation, as well as other productive capital expenditure and maintenance capital expenditure in the business. At this point, I'll hand back to David, who will talk to market headlines.
Thanks, Nigel. I'll now talk through market segment performance. Just before I do, on the next page, you see that our business performance is unique. With our model, teams in-market around the world, that makes us closer to customer, closer to consumer, faster to act. We empower local teams to act and reflect local requirements. We've significantly enhanced global capability to deliver against that plan. We report strong growth in our focused growth market, with Mainland China showing revenue up 13%, net contribution up 40%, an increase to 26% of sales. In North America, we report revenue up 48% and net contribution up 75%, with 31% to sales. We're growing market share in both markets. Digital revenue stood at 33% of total in this period.
Our direct consumer proportion of digital was up 12% versus PCP, and we've just launched a new tech stack, which is a D2C platform to improve customer retention and data availability. Marketing investment increased by 21% to NZD 13.3 million, which is 12.7% of sales. Finally, all markets are now profitable. I now move to segment performance. As you can see, our Greater China segment in terms of revenue was flat versus the PCP. But Mainland China increased 13% versus PCP. North America increased 48% versus PCP. Rest of Asia by 1%. Australia and North America were flat, and EMEA was down by 15%. On an earnings basis, on net contribution, you can see that Greater China improved by 7%. Mainland China improved by 40%. North America by 75%.
Rest of Asia reduced by 13%, primarily as a result of COVID-related headwinds in Japan. Australia and New Zealand reduced by 4% as a result of increased investment in those markets and our intent to deliver on our win at home strategy. Finally, EMEA improved from a low base of 71%. I'll now talk about those focused growth markets. Here our plan is strong, structured long-term investment to grow both the total addressable market and to grow market share. We've delivered double-digit top and bottom line growth in both China and North America, and we're growing market share in both markets. Starting with China, our revenue at Greater China level was flat versus PCP, with significant COVID-related headwinds in both CBEC channels and Hong Kong. We saw strong performance in mainland China offset those conditions.
Our strong net contribution growth delivered in mainland China, +40%, offset the material headwinds in Hong Kong and CBEC. Even at a sector level, our net contribution improved by 7% and improved by 100 basis points to 25% of sales. Looking at mainland China, which is the focus of our activity, you can see our total revenue increased by 13% to just under NZD 40 million. Our net contribution increased by 40% to just on NZD 10.5 million at a 26% to sales. Marketing investment to investment in long-term brand equity in the biggest honey market in the world increased by 8% to 15.5% with our aim to build long-term brand loyalty and advocacy. Next page. We've reported, we've shown strong revenue growth despite massive COVID-related disruptions to retail.
We've delivered record results in key festivals of mid-autumn, 11.11, and 12.12. We've agreed new distribution and strategic partnerships in H1 that will be implemented in H2. Our continued focus is positioning Comvita as a premium lifestyle brand. To that end, we increased brand investment by 8%. We have multiple in-market brand partnerships that are driving both premiumization and affinity. We have a new cross-border daigou model to ensure that through those channels, we amplify our in-market brand strength and supply efficiency. Our Asian health model supports local ANZ daigou with targeted brand collateral and value chain benefits. We've enhanced management and visibility of inventories and made good progress to improve availability. In Mainland China, the efficiencies we're achieving support Hong Kong and its profit focus. Next page. The U.S. is the second-largest honey market in the world. Comvita's growing share, though, remains subscale.
Our revenue increased 48% versus the PCP, with strong growth across all channels. Our revenue is inflated by NZD 1.3 million due to early delivery of half two orders in half one. Revenue includes cross-border sales to the rest of the world as it did in the previous period. Marketing investment was flat versus the PCP due to phasing and an earn before we spend philosophy that we have within the business. As a result, our net contribution increased by 75% and 500 basis points to 31% of revenue. Next page. Comvita remains the fastest growing Mānuka honey brand in MULO, which is conventional grocery channel in the U.S., growing at over 250% year-over-year per sellout data. Sell-through in key national grocery retailers launched in 2020 is up 48% in the last 26 weeks.
We've gained new placement on key digital partners in late H1, generating momentum into H2. Black Friday featured a sales uplift of 77% over a strong prior period, with new email subscribers growing 92% year-over-year, growing our database of loyal brand followers in North America. Looking forward, we've just confirmed new account wins for three accounts with several hundred stores in each. We've partnered with key health and wellness media. We're continuing to work through increased lead times and shipping delays to mitigate supply disruption. As Nigel shared, this is crucial that we make sure that we've got inventory in market to support that market growth. We're transitioning to a new digital platform and tech stack for a frictionless consumer experience with refreshed look and feel. Next page.
I'm now gonna hand back to Nigel who'll talk through Rest of Asia, EMEA, and ANZ. Over to you, Nigel.
Thank you, David. Rest of Asia markets predominantly performed very well in the half. However, we had significant headwinds in Japan, which resulted in reducing the overall performance, albeit our sales for the half were line ball for the whole market. Our net contribution was down NZD 500 ,000 for the half or 13%. This is again predominantly related to the COVID headwinds we experienced in Japan. Notwithstanding that, we did increase our investment into marketing across this segment. Next page. ANZ performance. Again, revenue was relatively line ball with the first half of the prior period. Net contribution, however, was slightly down due to again our increased market investment because of our commitment to win at home. Notwithstanding that, sellout data is improving month-on-month since July, so we can see continued improvement within this market. Next page.
EMEA, U.K., Europe, Middle East, and Africa. Revenue has been down 15% year-on-year, and this has been predominantly caused by the COVID closures in the U.K. as well as Europe and online challenges with our partner, Amazon. Notwithstanding that, our net contribution is up NZD 99,000 or 71% year-on-year. We continue to invest in marketing investment, and we anticipate that this market will continue to improve over the foreseeable future. Next page, and I hand back to David.
Our base Comvita plan, 60% gross profit, 15% marketing to sales, and 20% EBITDA, will deliver surplus cash through to FY 2025 and beyond. With our transformation program showing positive results and confidence of our ability to deliver that base plan, we are looking at opportunities to drive our growth fit credentials through a combination of M&A, organic activity, and high-value partnerships targeting incremental categories with a focus remaining on bee products. We're extremely well-positioned. We have a simplified and focused organization. We have good management disciplines. Our physical and digital presence enables demand-side consolidation. We have good team capability, and we have a strong balance sheet. In this reporting period, Comvita entered into an extended period of due diligence on a potential scale acquisition. Value could not be agreed at this time.
However, demand-side M&A offers incremental value and would enable Comvita to generate operating leverage and drive higher standards for consumers worldwide. Next page. In September, we announced our joint venture with Caravan, an entertainment and sports agency with partnership with Creative Artists in the U.S. Caravan creates consumer brands and companies co-founded with people of influence to develop transformative direct consumer products, technology, and companies for highly engaged pop culture audiences in partnership with CAA. CAA is an American talent and sports agency based in L.A. They represent thousands of the world's leading actors, musical artists, comedians, athletes, chefs, and more. Through this unique business model, Caravan have launched a number of successful businesses such as Fit52 with Carrie Underwood, a community-powered fitness platform helping people on their personal wellness journey. Next page.
Central to our partnership with Carrie Underwood is the formation of celebrity-backed lifestyle brand using the healing properties of Mānuka honey and Propolis for topical use. In December, we invested NZD 5 million of initial capital into this venture. Details of the product remain commercially sensitive at this point, and we expect to announce further details in the coming months. Next page. Moving to guidance for FY 2022. We maintain our current FY 2022 EBITDA guidance of a range of NZD 27 million-NZD 30 million, given the current balance of risk that we see. We expect full-year positive operating cash flow. We aim to continue double-digit top and bottom line growth in the focus growth markets of China and North America, Mānuka honey and D2C sales. We expect to see recovery and mid-single digit revenue growth and associated earnings in ANZ.
We also expect to see revenue growth in EMEA. We're targeting 100 basis point improvement in GP to the full year. Finally, including our guidance, is our full year transformation investment of just on NZD 2.5 million. In summary, we are building momentum. We're delighted to share record H1 operating profit growth of 39.4%. We delivered double-digit top and bottom line growth in our focus growth markets of China and North America, in our digital channel, D2C, and in Mānuka honey. We've simplified the business. We have increased inventory to manage global supply disruption and ensure we have product in market to sell. The directors were delighted to declare a fully imputed interim dividend of NZD 0.025 per share.
We're positioning Comvita as a premium FMCG brand, and we've made good progress to deliver our 2025 60%/15%/20% business model. Thanks very much for your time. I look forward to your questions, and again, I appreciate your support. Thanks very much. Now time for the Q&A.
If you would like to ask a question. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. A voice prompt on your phone line will indicate when your line is open. Again, that is star one if you would like to ask a question today, and we'll pause for a moment.
We are now ready to take your questions. Online attendees, please click the Ask a Question box to send in your questions. For phone participants, the operator will provide instructions. We have one online question, which I'll read out to you. Could you provide some information on the NZD 2.45 million investment in intangibles? Was that digital systems? The answer is yes. It's predominantly the investment we've been making that we've been talking about into our digital transformation and our dotcom platforms that we're planning to roll out globally from now and over the next six months. Given that there is only one online question, we will now pass to any phone questions from this time.
Thank you. We'll take our first phone question from Christian Bell with Jarden.
Same. First question from me just relates to the M&A opportunity that you just recently looked at. Firstly, what was it?
Christian, hi. It's David here.
Are you able to g-
No, we're not able to give any details at the moment. As we disclosed in the document, we went through a period of due diligence for a potential scale acquisition, and it didn't complete at this time.
Okay, cool. Just follow on from there. How much, what was the M&A cost? What was the cost of the due diligence for that?
We've decided that the costs associated with that would be confidential, Christian.
Can we assume that those M&A costs were included in the admin expenses?
Yeah.
Quite a notable increase from NZD 12 million to NZD 16 million.
Yeah, that's correct, Christian.
Can we assume that admin kinda goes back to more lower levels more typical with the PCP?
Yeah. I'd say we have good control of ongoing admin costs within the business and the normalization would be expected.
Okay, cool. Just following on from there, still on the M&A stuff, are you able to just provide a little bit more color around what kind of things you're looking at? Is it vertical? Is it horizontal? Just keeping in mind, I mean
I-
Comvita hasn't had a happy history with M&A. Yeah. If you could just w-
Yeah, definitely.
Provide some color to sort of ease our minds a bit.
Yeah. Look, definitely. Probably a few things to say. First off, I think the global Mānuka honey market is extremely fragmented and on the demand side of the equation. Our focus is how we consolidate the demand side of the market with the aim to utilize our infrastructure to drive up standards for consumers. I think our previous focus has been more on supply side, but we see good control there, but we see a great opportunity to utilize our unique business model. Any M&A activity is focused around bee products. Again, staying true to that core focus that we've talked about for the last couple of years.
Okay. No, that's useful to know. Just, I mean, given the use of lifestyle brand as well, I mean, that kind of brings some of the, those other old products to mind, but I'm guessing.
Oh, yeah.
It's more the bee stuff.
No.
Yeah.
100%. You're
Yeah.
We haven't counted how many times we said focus in the presentation.
Yeah.
that focus still remains.
Yeah. Cool. Growth to FY 2025, just based on previous sort of presentations, it's basically all mix driven. It's not price or volume necessarily.
Yeah.
beyond that. Is that true? Is that true?
Well, there's certainly no price planned in our 2025 aspiration. You know, we
Yeah.
as we generate efficiencies
Yeah.
We aim to keep reinvesting to yeah deliver that growth.
Yeah. That's coming from product, market and channel mix, right?
Yeah. Yeah.
Cool. Beyond that point, the plantation model kicks in, which I guess starts giving you some more volume growth.
Yeah.
If we could just dive into that part of things a little bit more.
Yeah.
How many hives will that end up representing? 'Cause you've planted about 10 million trees. I guess
Yeah.
What is that? About 10,000 hives.
Fantastic.
to start?
Yeah. Yeah, about 10. Yeah. Yes.
All right.
You're right on both. Yeah, look, we continue to plant up to 2,000 hectares a year. As you say, the benefit of that kicks in post 2025, or the material benefit of that kicks in post 2025. I think at last results presentation, we shared what we expect from that, which was the 40/60/20. 40% improvement in yield, 60% improvement in quality yield, and 20% reduction in cost as that comes through.
Yeah. Okay. Sorry, will that final hive sort of count from that plantation model be around the 10,000-hive mark?
I wouldn't say final, Christian. Look, I think that what we see with the Mānuka forest is we see a great opportunity to, say, improve the quality of our of our supply going forward. We see a huge opportunity in that space to deliver high-based quality product. You know, we would intend to keep that going beyond 2025. We would actively plant more trees to deliver to that future.
I mean, given that you've been planting trees for a little while now, I can't remember, maybe two or three years, I'm not sure.
Mm-hmm.
Have any of the Mānuka forests actually started to provide you with honey? If so, what have the results been like?
Not at a material level. You know, our hypothesis that we've shared, the 40%/60%/20%, we do believe that we're seeing that. We looked at a maturity growth of, we get to 100% utilization at year six, and about 50% at year four. Obviously we're well into that journey now.
Cool. I'll jump off and let someone else ask some questions.
Thank you.
Thank you. Next, we'll move on to Joshua Dale with Craigs Investment Partners.
Good morning, David and Nigel. Just first question from me. On slide 52, regarding your guidance. You've maintained the NZD 27 million-NZD 30 million EBITDA range. Then sort of right, given the current balance of risks, just with the wording of that, it sort of feels like there might have been an upgrade there, but you're just being a bit cautious at this stage. Is that a correct interpretation?
Morning, Josh. Yeah, look, I think that, you know, we do see a lot of change around the world and, you know, we wanna get through Q3 and then really assess where we are at the end of Q3. That's the view that we've taken in line with what you've said.
Okay. That's fair. Just on the topic of M&A, just one thing I wanted to clarify. Your base FY 2025 targets, you do expect to reach those organically, right, without any tailwinds from M&A?
Yeah, totally. That's what I hope that by sharing the 2025 plan, as you say, organically, you know, you can see, or I hope you can see, why our confidence is there in delivering that at least 60% GP, increased investment in marketing and then the returns or the operating leverage and the returns that we get from that. I think as we've talked about historically, you know, that 2025 plan delivers cash back to the business, and we aim to reinvest that in incremental growth activity.
Great. Thank you. One comment I noticed in your section on EMEA. You mentioned you had some challenges with Amazon.
Yeah.
I was just sort of curious about that and whether you could give some detail around that. You know, whether that may also affect your U.S. operations, given you know, you sell a good chunk of product.
Yeah
through Amazon there as well.
Yeah, unfortunately, it's quite easy to explain. For a period of about four months, due to paperwork issues, bizarrely, we haven't been able to trade. Those are just about resolved now. It's purely geographically driven. We're putting that paperwork in place to enable us to continue trading. One territory only and no knock-on impact into the U.S.
Great. Thank you. Just last question. Your Hong Kong and CBEC sales did drop quite substantially?
Yeah
This half. Is there any more color you can give us there, and sort of, I guess, your view on how temporary or maybe permanent that might be?
Yes, certainly. Look, I mean, Hong Kong, I was there virtually two years ago. You'll be aware it's been locked down for you know a considerable period of time. Obviously our predominant business there was retail, which has been continually impacted by those COVID restrictions. We hope that Hong Kong opens up, but you know even the Mainland China border hasn't been open until recently. We're watching that obviously carefully and making sure that our Mainland China business is the focus of our growth activity.
CBEC, I think it's been well documented that the disruption in channels due to COVID and obviously Australia's reopened effective now, certainly to tourism, and that will start that process again. But probably we won't see the benefit of that in our numbers through FY 2022. The guidance that we give about ANZ growth is really coming from other areas that we're seeing that promising sellout trend that Nigel talked to that's been in place since July.
Okay. That's helpful. Thanks very much, David. Appreciate it.
Pleasure.
Thank you. Next, we'll take our question from Mark Robertson.
Morning, guys. Thanks for taking the question. Just one from me to start with. Just looking for some clarity on your margin guidance of 100 basis points improvement in gross profit margin for the full year.
Yeah.
Is that one an improvement on the first half? Oh, sorry.
Yeah.
Hi, guys. Thanks for taking the questions. Just looking for some clarity on your margin guidance of 100 basis points improvement in gross profit percentage to the full year.
Yeah.
Is that one an improvement on 1H 2022 and 2H 2022, or is that an improvement on the full year, on the prior full year?
We're expecting the full year margin to be improved by 100 basis points versus the half year. Full year to be around 57.5%.
Awesome. That's very helpful. Thank you, guys. Just one other from me. On the target EBITDA margin of 20% by FY 2025-
Yeah
There's still a long way to go. How confident are you of reaching the 20% target? When can we begin to see the step change towards it? Obviously, there was a extra cost with the due diligence this month.
Yeah.
Other half that distorted it.
Look, the big thing in terms of again, you see this in our full-year guidance, that there's NZD 2.5 million of transformation cost in our full-year FY 2022 guidance. We expect all that transformation cost to have finished by the time we get into FY 2025. That provides a significant proportion of the benefit that we'll get. You'll see transformation cost in 2023, 2024, and then we expect that to stop in 2025. That's a big part of it. Then it's ongoing operating leverage that we're getting by that focus on channels, on SKUs, on markets.
Awesome. Thanks very much. That's all for me.
Pleasure. Thank you.
Thank you. Next, we'll move on to Mark Topy with Select Equities.
Oh, good morning, gents. Questions, just firstly around the China market, whether you can provide us a bit more insight into your growing share there. Also, in terms of the mix there, how much, I think you've talked about the digital side of things.
Yeah.
How's that been rolling out in the last half and contributing to margin? Certainly it seems as though we've got a sense that you've picked up market share. There's some erratic behavior in some of the competitors there. Can you talk us through how you see your market share in China?
Look, we're really pleased with the overall performance that we've had in China. You know, despite some fairly significant disruption to our retail store presence. You know, we've continued to perform well through our online channels. As you say, look, we can see where we are growing share. It is an evolving marketplace, you know, in digitally, it's evolving, and new channels are creating new opportunity for us. Obviously, there's been some pretty widely reported changes within the KOL landscape in the market itself. Our focus is just on making sure that our, you know, our core leadership in our core categories continues to perform. That's what we're seeing.
You know, on top of the, you know, I talk a little bit about it there in the numbers, Mark, but, you know, a number of high profile sort of brand affinity activities taking place, which again, put Comvita alongside other leading brands in China.
Oh, great. Just to get a sense then of the mix between digital and physical sales in the half.
Yeah. It's around.
How much is digital?
It's around 60% digital, just over.
Right. Okay. Great. You alluded to the fact that Australia is opening up and I suppose students will start coming back here in Australia. How do you see the potential for the daigou market to rebound or how does that factor into your thinking going into 2023, as you talked about?
First off, FY 2022, we haven't really reflected in FY 2022. You know, you see in our guidance that we expect growth to resume in Australia. That's been something that we've seen sell-through performance improve since July. You know, we feel that we're in a good space there. We're really just trying to test, you know, what that return of international travel to Australia means. We'll come back to that at a later period once we get some more clarity.
Great. Can you talk about the U.S. growth with the sales growth being achieved with constrained marketing spend. Can you maybe tell us about the ramp-up and keep that momentum or will there be additional-
Yeah.
Investment? Or how are you thinking about additional investment as that sales ramps up?
Look, from the start, U.S. is the second biggest honey market in the world. We see really strong market fundamentals there. We see a good performance in terms of sell in, and most importantly, sell out, as we share. And we have an operator model that's working. I think it's more of the same, but we're looking at ways to accelerate that and deliver scale in North America so we generate that East-West or U.S.-China balance in our portfolio.
Great. Just in terms of what you're seeing on the COVID side, you mentioned Japan particularly.
Yeah.
Can you give us a sense of what the additional costs and how you're seeing things in the second half now in terms of perhaps Japan coming back on?
Well, obviously business travel opens up to Japan from the first of March without restrictions or with limited restrictions. Again, we're watching closely. In our guidance, we haven't considered a real return to the performance that we saw a year ago. We've taken a more cautious approach to the outlook there in H2. Look, it is one of the world's biggest honey markets. The discerning consumers. It's a place where Comvita should sit very comfortably and be performing very well. Our long-term view of Japan as a market for us is, it's attractive. You know, it is a self-funded profitable growth in that marketplace. We still believe in the potential that exists there.
Mark, it's Nigel here. We've gone a bit over time already. I think we're gonna have to call the questions to an end.
Yeah.
Thank you all very much. We do have some more online questions that we received, which obviously we haven't been able to get to. Assuming we have the contact details of those that provided those online questions, we'll answer those separately. Thank you all very much for attending our presentation. I hope you gained a lot from it. We look forward to talking to no doubt some of you over the next two or three days as well. From Nigel and David, thank you very much. Bye-bye.
Sure. Thank you.