Earnings Call: H2 2021

Aug 25, 2021

Ladies and gentlemen, good day and welcome to the Comvita FY 'twenty one Full Year Results Conference Call. This call is being recorded. At this time, I would like to turn the conference over to Nigel Greenwood. Please go ahead, sir. Good morning, everyone, and welcome to Convita's investor presentation for the full year results FY 2021. I'm Nigel Green with the CFO of Convita and with me is David Banfield, the CEO of Convita. I will now hand over to David to start the presentation. I'll turn it over to Katoore. Good morning, everyone. And as Nigel says, welcome to the FY 2021 full year Convita results. I'll start on Page 3 of the investor presentation. Over the next 35 minutes or so, Nigel will take Nigel and I will take you over the key highlights of FY 2021 with the agenda that's highlighted in the presentation on Page 3. Next page. The results that we share today show we're making good progress to build a more resilient Convita. I want to start by giving you a brief overview before we go into more detail. As you're aware, we are number 1 global brand leader in Manuka, Honey and Propolis. We have 552 members of the Convita Fundo. We have a unique model with 7 subsidiaries around the world, meaning that we're closer to consumers. In FY 2021, digital revenue accounted for 34% of our total revenue. We invested CAD24,200,000 an increase of 56% in the Convita brand to tell our story. Our results in FY 2021, we delivered EBITDA of €25,500,000 an increase of 5 11%. We had we showed strong management of cash and working capital. Net debt finished the year at €4,600,000 And in the financial year ending 30th June, our total shareholder return was 35.3%. Next page. Our cause guides our action and our beliefs. Our cause is working in harmony with these and nature in New Zealand to heal and protect the world. And I'm particularly excited later on today to share with you some aspects of our environmental beliefs that are reflected in our performance. Next page. I now move to our focus, our model and how that shapes everything at Kombucha on Page 7. Our model or Arotahi is designed to deliver long term profitable growth. We put the consumer at the heart of our thinking. We start with the right products at the top of the graph through the right markets, through the right route to market. We invest in brand, We invest in IP and we invest in science. That enables us to further improve quality of the products we provide that in turn feeds back to the right products that consumers want. We believe this model is intrinsic to our long term success. Next page. We have a unique business model with a truly connected end to end model from our land ownership with our Manuka Forests right the way through to our team in market. We believe that this model gives us an even greater chance of long term success as we're better connected, we're more agile to changing consumer demands and we become a better partner for customers in market as well. Next stage. Before I share the actual results or more detail of the actual results, I just wanted to pause on COVID-nineteen. Our primary focus remains on the health and wellness of our team around the globe. The team is all safe and well, though some family members have been affected, especially in India and South America. The team response has been amazing in all markets. Many markets, obviously at the moment, including CFO and New Zealand are still being impacted by ongoing disruption. We are proud to be part of the solution for consumers around the world. And we do believe that the longer term trend of consumers turning to nature and natural products for solutions to their health and wellness has continued and actually has become more evident. We're obviously looking carefully at policy to protect the team going forward. Initial part of that is ensuring that anyone traveling when we can internationally for business work has to be fully vaccinated. Next page. We support and lead calls for higher standards for all New Zealand honey, both domestically and internationally. We have one of the most advanced in house honey laboratories in the world that was established in 2012. We are regularly independently audited. We've achieved the highest standard AA rating from the BRC, British Retail Consortium. We are New Zealand's only dual irons and NPI accredited in house honey testing laboratory. In 2011, we invested $6,200,000 an increase of 11% in R and D. We filed and had granted new patents for proprietary products relating to inflammation of the gastrointestinal tract and skin. And in addition, we're a core partner supporting the pursuit of certification trademarks in key markets. Next page. Moving on to our headline results. In FY 2021, we delivered a reported net profit after tax of $9,500,000 versus a loss of $9,700,000 in the PPP. Our reported EBITDA of $25,500,000 is an increase of $21,300,000 versus June 2020 or 5 11%. We delivered double digit top and bottom line growth in focused growth markets of China and USA, in our Monuca product category and in our digital channels. Our gross profit improved by 7.30 basis points to 53.9%. As already shared, our investment in our brand and telling our unique and beta story increased by $8,700,000 or 56%. The transformation program that I've shared over recent investor calls is on track. We have a new leadership team in place. As reported, we had strong GP growth. And in 18 months since initiating the transformation program, we delivered about just over $12,000,000 of value. In FY 2021, we reduced our SKU count by 30% as we looked to simplify the business further. Net debt was reduced by $10,900,000 to $4,600,000 with inventory reduction of $11,700,000 Operating cash inflow was 24,800,000 dollars The health and safety of our team is of paramount importance and we're delighted to show a 9% reduction in our total recordable injury frequency rate. And finally, the directors were pleased to record a fully imputed dividend of $0.04 per share. I'll now hand over to Nigel. Thank you. Good morning, everyone, again. I'm going to present the full year results financial information in a little more detail. And no doubt, we'll take questions later in the session. So our key financial results on Page 13. Whilst our New Zealand dollar revenue showed a slight decline year on year, it's important to note that on a constant currency basis, our revenue was $2,900,000 or 1.5% improved year on year. We've also established a measure of our underlying revenue growth, which is 5.4%, and we have explained that lower down on the page. We've had a significant improvement in our gross profit percentage, rising to 730 rising up by 730 basis points in the year. Gross profit improvement has enabled a 56% increase in our marketing investment and now represents 12.6% of revenue, which is working towards our target of 15% of revenue by 2025. And as David said earlier, our EBITDA at 5 11% up on last year now represents 13.3% of sales. Next page. From a balance sheet perspective, our net debt has reduced by $10,900,000 to be $4,600,000 at year end. Our operating cash flow of $24,800,000 reflects EBITDA performance with net working capital movements being relatively flat year on year. We have seen further reductions in inventory by $11,700,000 as we continue to optimize inventory holdings, and we still remain on target to achieve our $85,000,000 inventory target over the next 2 to 3 years. And we have had strong EPS performance at $0.14 per share. Gross profit. This is Page 15. Gross profit improved by $12,100,000 and that is on the back of our growth in focus markets, rest of Asia and the digital channel as well as productivity gains. We've had strong performance in China and North America as well as the rest of Asia segment. The digital channel increased 17% year on year and now represents 34% of our total sales at accretive margins. Effectively, every 10% increase in our digital share improves our gross profit by 100 basis points. And this growth in revenue and gross profit in our growth markets has more than offset the gross profit headwinds we've had in the Australian and New Zealand market. We've also achieved productivity gains in our manufacturing processes, leading to a lower cost of sales pace. And our acreage business this year broke even, which was a reflection of our new harvest model and reflects that even in a low performance and poor harvest year, we can still breakeven in our Apri business. Next page. Our transformation program is on track. We've had very good progress so far with $12,000,000 in value gain growth through improved GP as well as reduced fixed costs over the last 18 months. We've had strong improvement in both gross profit dollars and gross profit percentage, and that's demonstrated by the 7 30 basis point improvement over the last year. We have identified underlying cost reductions of $5,700,000 to date, and that is reflected in both cost of sales as well as other operating expenditure. To achieve this, we have invested $1,200,000 over the last 12 months in transformational expenditure. Our SKU reduction delivered another 30% in SKUs year on year. We've continued to look to consolidate our legal entities around the world, removing those that are no longer required. And we've exited underperforming or nonstrategic joint ventures, and that's primarily been completed. So we are on track to complete our first phase of our transformational program by FY 'twenty three latest. And now we return our focus to deliver further incremental $10,000,000 of value with a second transformational program that is underway. Within our earnings guidance for FY 'twenty two, we do include an additional $2,500,000 or total $2,500,000 of transformational spend. Next page. Moving on to cash flow, inventory and net debt. Next page. Cash flow. I mentioned earlier that our operating cash flow for the year was $24,800,000 And this is relatively in line with EBITDA as our working capital movements have remained relatively neutral year on year. We've achieved significant reduction in inventory during the year, and that's largely offset by increases in receivables and reductions in payables. And with continued investments in the nuclear forests, manufacturing process and improvements in the wilderness land. Next page. Inventory and net debt. As noted earlier, inventory down $11,700,000 and that's predominantly been a reduction in our non manuka honey inventory holding through bulk sales. The increase in trade receivables year on year reflects the very strong sales month we had in China, resulting in slightly higher debtors at the end of the year. And the net debt increase was $10,900,000 as previously mentioned. Next page, inventory. I previously commented on the reduction of inventory and that it has been predominantly resulted as a reduced by reduced raw materials inventory of $16,600,000 whilst we have increased our finished goods inventory in market. And that's been to mitigate against risks of port and shipping delays that can be outside our control. Next page, capital expenditure and leased assets. We've continued our strategy to invest in Manuka Forest, and that's demonstrated by the Manuka Forest development costs of 3,800,000 dollars All potential will be delivered in the years to come. We've increased our investment in manufacturing process improvements, and they have delivered significant positive impact and productivity gains, reducing our standard cost and improving our gross profit. We invested in our 1st wellness lab in Auckland, and this has been a significant development and will be something that we continue to do as we referred to as our building Torontos in the China market over FY 'twenty two. And we've also entered into 2 long term lease agreements. And of course, as many of you will know, under the leasing standard, these have to be capitalized and as part of our overall capital expenditure for the year. Next page. Lastly, for me for the moment, our investments. As noted earlier, we've been focused on removing noncore, nonstrategic joint venture investments. In that regard, we have wound up our joint venture relationship with PUTACI and substantially also with GAM Supplies during the course of this financial year. We retain our investment in EBITDA, which is facing some short term COVID impacts, but they remain on strategy for the long term. And our investment in EBITDA remains sound. Lastly, Matino investment is performing well and is on track to receive our 1st harvest in FY 2022. I will now hand back to David. Thanks, Nigel. I'll jump straight to Page 24. So our new harvest model worked in FY 2021, which is a really important asset outcome for us. Despite the year's harvest being below average caused by unsettled weather, The quality of the harvest and great cost controls has meant the harvest delivered a small contribution to group profits in the financial year. The total harvest was 3.70 tonnes versus the previous year harvest of over 700 tonnes. We still have good availability to meet future demands, but this is an important step to derisk Kambita going forward. When we look at the harvest, so again, as I've shared before, there are 3 criteria that we look at. That's yield, quality of yield and cost of extract. A while ago, I shared when we talk about Hanukkah Forests that we had a hypothesis that we're looking to prove. And that hypothesis has been directionally proved in FY 2021 that would show that we could deliver 40% improvement in yields in our forests, 60% improvement in quality of yields and a 20% reduction in cost. This is an important part for our future supply. Next page. I'll now move on to market segments and performance. So on Page 26. As I shared earlier, our business model is unique with our global in market subsidiary teams close to customer, close to consumer, which makes us faster to act. We've enhanced team capability in the markets around the world. We delivered strong growth in our focused growth markets with Mainland China revenue growth of 31% and net contribution growth of 25%. North America, we showed 23% revenue growth and 18% net contribution growth. Our balanced distribution model markets show the operating leverage potential that exists with revenue up 11% and contribution to 26.5%. Marketing investment, as I say, is increased by 56% to 12.6% of sales, enabling us to refine and tell our unique beta story. Next page. When we look at performance of our markets in reported currency, you can see that China, the 93,000,000 Greater China, 93,000,000 up 7% North America, 24.7%, up 12%, rest of Asia, up 23%, significant headwinds in Australia and New Zealand, down 27% and Brexit and COVID headwinds in EMEA, again, down 26%. We think we believe it's more important or appropriate to look at our performance in constant currency. On Page 28, you can see that constant currency performance. As we're going into the segments, we'll break that out so it will be more relevant. So we now turn to Page 29. You can see our net contribution segment performance with Greater China up 9%, North America up 7%, rest of Asia up 52%, EMEA up 100% to a breakeven position, which is really important strategically for us. And Australia and New Zealand showing the impact of COVID headwinds and particularly the Asia Health Daigo impact. Next page. As we've previously shared, China and U. S. Are our number 1 are the number 1 and number 2 markets for Honey in the world. Our focus there is on long term investment to grow total addressable market and market share. On Page 31, you see our performance in Greater China on a reported currency basis with revenue up 7% and net contribution improved by 9% to 21% of total sales. Next page. In local currency, when looking at Mainland China, we see the strength of our performance where we delivered record result and really strong results throughout. Our total revenue has improved by 31%. Our net contribution was improved by 25%. As I've shared, China is the world's biggest honey market. Our marketing investment is needed to make sure that we target increase in total addressable market and our share and the net contribution and the leverage we think is an important aspect for us. On Page 33, you can see Mainland China on a reported currency basis, again with the same stats. As I've shared, we've delivered strong results on Page 34. As I've shared, we've delivered strong results in Mainland China. We have a new leadership team in place who were performing strongly. We've had record results in key festivals at 11/11 and 6/18. We were number 6 and only international brand in healthy food category in Alibaba. Our digital channel grew 41% to 57% of total. The retail sector has now recovered and is up 28% versus PCP. Strong performance in Manuka Honey, up 38%. We've also implemented a new CBEC Daigo model to make sure that the emphasis is actually an amplification of a complete reason why to enable that channel to be truly incremental. We have enhanced management and visibility of inventories. Our success in Mainland China is generating efficiencies that also supports our Hong Kong profit focus. We're also delighted to see multiple brand partnerships that help us drive affinity and brand recognition in market. Next page. An example of partnerships driving affinity is represented on this page. So as you can see, this is an afternoon tea celebration at the Park Hyatt in Shanghai. So it's an iconic event and we became the partner of that event over 5,000,000 views of this highly influenced the alignment of ourselves with such iconic institutions further supports premiumization of Comdata. Next page. Moving on to North America on a local currency basis. Revenue has increased 23% versus PCP, the strong growth across all channels. Revenue does include some cross border sales that go to Middle East of $2,100,000 versus $800,000 in PCP. Net contribution increased 18%. Marketing investment increased 80% and our digital sales have grown by 37% to 36% of total. Next page. You see the same numbers, but on a reported currency basis. Next page. Our highlights in North America include that we are the fastest growing Manuka Honey brand in the U. S. We have increasing rates of sale, put point of distribution with key retail customers, strong growth in key product categories including UMF Honey and propolis. Retail distribution has increased by approximately 2,000 stores, doubling our presence. In kudita.com, we've seen a 30% increase in users, a 33% increase in transactions, and email marketing up 29% and social up 117%. We've earned media impressions of 1,250,000,000 up from 722,000,000 in TCP. We committed to save $5,000,000 bees working with beekeepers across the U. S, which led to a feature in Forbes. We're also partnering with major health publications, health media publications to expand our thought leadership within the category. I'll now hand back to Nigel who will talk the other segments. Thank you, David. First, focusing on risk of Asia. So turning to Page 40. See for the rest of Asia that sales had a significant growth of 23% and net contribution was up 52% year on year. And it's evidencing the benefit of leveraging the low cost base whilst growing revenue. We had key strategic focus on Manuka and Propolis, and we refer to rest of Asia as part of our balanced distribution model between offline and online, and this is key to our sustainable success in that market. Next page. Moving to our performance in Australia and New Zealand. Moving to Page 42. As we've talked about earlier in the presentation, we have experienced some challenging headwinds in the ANZ market. And this has been a reflection of a combination of COVID, in particular, impacting on the Daizhu channel in that market. As a consequence, our sales year on year were 26% down, and our net contribution was 27% down. We remain marketing investment increased a little to 200 by 200 ks to 6.5 percent of sales. The new Zener Marketing contribution, however, was flat versus last year despite an increase in marketing of 6.5%. The digital channel that we own was down 13% year on year but at an immaterial level. We did focus on reducing our trade stocks in this market by 2,000,000 dollars and that's in line with the lower sales. On a positive note, the quarter 4 in that market was up 17% on the same time last year and 33% on quarter 3, reflecting our view that the underlying revenue challenges have flattened out and now we believe will grow for the future. Next page, U. K, Europe, Middle East and African markets. Next page. Again, these markets have been affected by a combination of COVID and more recently the Brexit impact. As a consequence, our sales year on year were down 25%. And on a very positive note, our net contribution was at breakeven, reflecting a focus on cost control to ensure that even with the slower sales, we actually had a breakeven contribution. European sales to and H2 were significantly affected because of Brexit. Effectively, no sales into that market. We have addressed that going forward, and we now have established a new European entity that will enable us to now export products into Europe, and we should expect to see sales returning in FY 'twenty two. Online is up 85% from a very low base, however, as the market moves towards a more balanced distribution model. And online has a 47% share of our total sales in FY 2021 versus 14% last year. I will now hand back to David to continue the presentation. Thanks again, Nigel. So I now share progress on our 3 point plan. So moving to Page 46. As you may be aware, our plan is to our 3 point plan is to stabilize the organization, transform the business and build long term resilience and growth. We've endeavored to show red, amber, green assessment of where we are across each of those elements in this page. We believe we're making good progress and are in line with where we believe we would be at this stage. When I come to the level 3, building long term resilience and growth, the top point there, this is an important year for us of getting to that terminal model of gross margin of over 60%, marketing to sales of 15% and an EBITDA ratio of 20%. I'll come back to that a bit later. Next page. I've previously shared this page, which looks at the stages of organizational completed development over this 5 year period. The first column there, you see what I call the cruel period where we were looking to achieve up until June 2020. The next period really took us from Jan 21 to June 24. And again, you can see that same red, amber, green assessment of where we actually are. And then from June 24 onwards, where we really hit our straps and our organizational goals that you can see, including that 60, 15, 20 models. Our performance and our stage of development really are built on an incredible history and an incredible founding story, but really do point to the exciting future that we believe that exists for combinator. Next page. Part of that exciting future is our long term sustainable model. As I already shared on the left hand side of the page, you can see that 60%, 15%, 20%. So where we believe that we'll get to in terms of gross profit of at least 60%, marketing sales of 15% and an EBITDA ratio of 20%. But we believe we will underpin that by being recognized as a premium FMCG CPG brand. We aim to be carbon neutral by 2025. We aim to be B Corp certified and we will retain our focus on strong working capital control and cash management through the business. Next page. We aim to be carbon neutral by 2025 and carbon positive by 2,030. Delighted to share our first assessment of our carbon impacts. So on the top part of the graph, you can see our carbon impacts of our Scope 1 and Scope 2 emissions. And on the bottom left hand side of the page, you can see Scope 1, Scope 2 and limited, not yet fully audited Scope 3 emissions. What this shows you is in Scope 1, Scope 2, our carbon emissions are 1,000 tonnes of CO2. At the same time, our forests removed 4,000 tonnes of CO2, which means that our net position is a positive 3,000 tonnes of CO2 on Scope 1, Scope 2 and the opposite side, a net positive of 1.9 tonnes 1900 tonnes of CO2. This is really important for us to get fully validated audited data that will point to improve our long term commitment to carbon positivity. Next page. Looking forward to FY 2022, we are forecasting FY 2022 EBITDA guidance range of $27,000,000 to $30,000,000 We're forecasting continued double digit top and bottom line growth in focused growth markets. Digital share to be at least 38% of revenue. Mid single digit revenue growth in ANZ, pointing to the fact that Nigel just raised about us believing that we've reached the bottom in that market or in that segment. A focus on further increasing in our GP percentage of skewed to H2. Our transformation program continues with a total of $2,500,000 investment that's included within our guidance. We're targeting further inventory reduction from $100,000,000 to $90,000,000 and we'll invest about $18,000,000 in CapEx over the year. Final page. So in summary, our focused strategy is starting to deliver results. We see the strong transformation in performance in that FY 2021 result that we share today. Double digit top and bottom line growth in our focused growth markets through our digital channels and in Manuka. We significantly simplified the business in terms of the range, in terms of the operating business and roles of responsibilities throughout the business. We've reduced inventory. We're generating cash. We're paying down debt. And our broad transformation agenda is on track. We believe we're putting in place foundations for long term profitable growth at Kondita and making good progress to deliver our 60, 15, 20 business model by 2025. I'd like to finish there. Thank you for your time and now hand back to for any questions. Thanks very much. Thank you, We'll take our first question from Joshua Dale at Craig's Investment Partners. Your line is open. Please go ahead. Good morning, Dave and Nigel. Well done on the progress you've made this year. Just a few questions from me. First of all, looking at your accounts a little deeper, am I right in looking at your $25,500,000 of EBITDA, I'm thinking that the underlying figure would be closer to $21,000,000 and that you've got a $2,200,000 FX gain in there, other incomes boosted by $2,700,000 of government grants and subsidies and your equity accounted investments have gone from a loss last year to now $1,000,000 profit. I suppose what I'm trying to do is separate the one offs from the operating performance. And I'm keen to understand whether we can expect the same level of government grants and subsidies going forward. And also what has turned equity accounted investees from a loss into $1,000,000 profit this year? And is that sustainable? Thank you. David, do you want me to address those questions? Yes. Please, Nigel. Right. Okay, Josh. Good morning. Righto, I'll start with the foreign exchange gain. That it's not you should not think of that as a one off sort of underlying EBITDA adjustment because the other side of that gain is setting if you like, the downside associated with that is setting our revenue and gross profit percentage for the most part. In other words, within the revenue, we've had to translate our overseas cash flows at spot rate, and that's what reflected in the revenue number, whereas our hedging instruments have enabled us to offset some of that loss by way of a foreign exchange gain. It's just part of our overall hedging policy. It is ongoing and in place. And at any one year, it could either be a positive or a negative, but the other side of it will always be reflected in our actual performance on the top line and in gross profit. So in my opinion, that is not what I would consider to be an EBITDA adjustment item. With respect to the government grants, the majority of that number actually is related to the Callahan R and D grant that we received. You will note that David earlier mentioned that we spent about $6,700,000 on R and D in the year, and we get a grant income associated with that. So again, that is something that we would expect to get every year. So it's again not an underlying adjustment because it's a sustainable performing return. The other part of that particular number was associated with some COVID grants that we received in our Hong Kong market. Now arguably, they were there deliberately to offset the impact in that market of COVID. So from our point of view, yes, we did experience significant underperformance in that market as being reported, but that was somewhat offset by those COVID grants. Of course, as COVID unwinds and that market returns to performance, you might see and expect to see that effectively, they are netted out. So again, I could put a very good argument that they should also not be treated as a one off underlying adjustment. The last one we referred to was the returns from our investment for parties. They have improved, and that's a consequence of us doing a couple of things. One is divesting ourselves from underperforming joint venture investments historically. So that's the performance in FY 2020 versus FY 2021 is the main reason for our year on year improvement, including appetite where there was a small return from that as well. So is it sustainable? We think so. So you should expect that you'll continue to see performance from our joint venture partners that we remain invested in to give us a return going forward. So I know that's a very long answer, but it was also a very long question. But I did think it was important to give our perspective as to why we haven't shown those as underlying adjustments. It's really important that you understand that we don't think that they should be underlying adjusted and that our EBITDA performance is sustainable and will grow. Okay. Thank you, Philippe. No, that does. It's very helpful. Thanks, Nigel. And I'm guessing that then means your $27,000,000 to $30,000,000 EBITDA guidance does sort of account for those adjustments as well? Correct. Yes, that's right, Josh. Okay. And the second to last question, do you bake in a recovery in Australia and New Zealand into that forward guidance? Yes. So in our FY 'twenty two numbers, we are predicting single digit revenue growth and associated earnings in ANZ, which we believe, as we've shared earlier, is reflected in our Q4 performance of plus 17% and that Q4 being up 33% on Q3 as well. Okay, great. And last question from me. More as a reminder for myself, when you discuss your geographic segments in your slide deck, are your marketing costs for each segment included as part of the cost to get to your net contribution? Or do your marketing costs sit outside of that below the net contribution line, so to speak? No. They're in our net contribution costs. Okay. That's great. Thank you very much. Did you get that, Josh? I saw I didn't hear. I did, yes. Thanks, Doug. Okay. Thank you. We'll take our next question from Guy Hooper from Forsyth Bar. I guess just quickly, can you help me bridge the GAAP gross profit margin between what you achieved this year and the target of another 600 basis points expansion to 2025? Is there the cost improvement to come? Or is most of that being driven by just improved market mix? I guess secondly, could you maybe touch on what you're seeing, what prices and your expectations around that? Yes. I'll talk to that. Look, in terms of we do see further COGS improvement opportunity, and some of our capital programs are designed to specifically achieve better overhead recovery. And some of that is that comes from that absolute focus on SKU level performance. So yes, that will be in the improvement in GP we're expecting into FY 2022. In terms of core expectations for FY 2022, no COGS increase, no input cost increase and no price passed on to market in our guidance. Okay. Thank you. I guess the other estimate of the guidance the inventory reductions, is that just 30 point sales with Nominuco? And how much of inventory is currently Nominuco? No, it's not just that, John. It's more about guidance, more about getting to a level that we believe, let's say, protects us from the vagaries of supply of harvest movements year on year, but just a good input and throughput of total inventory. And as Nigel shared, look, we believe that we should be at an inventory level longer term of between €80,000,000 85,000,000 and we believe that's a sustainable level for us. I'll come back to your question later, Josh, on the mix, but primarily we'll keep good levels of Manuka inventory. Thanks. That's all the questions from me. We'll take our next question from Mark Torpey from Salafi Securities. Your line is open. Please go ahead, Mark. Good morning, David, Nigel. Just to get some further expansion on that gross profit increase in terms of that product mix that you mentioned. Is that because you're driving higher value products, can you talk us through the sort of sales lineup and the consolidation and rationalization away from lower margin brands? Yes. So you're right. Morning, I should say that. Look, it's a combination of things. So it's obviously about channel where we see improvements through the growth in digital channel is that accretive margins and margins shared every 10% increase in that channel. It's about 100 basis point impact on positive impact on the group. It's about segment where our performance is good in higher margin areas and that includes Asia clearly as a whole. It's about exiting from underperforming SKUs, which means we get better recoveries on everything else. And it's those production efficiencies that then flow as a result, which is why we believe that we have a pretty good line of sight towards our 60, 15, 20 model. Great. And if you might just talk us through any observations on how you see the China market overall. And I guess you've obviously moved to the online events, the major online events. Do you feel that you're picking up market share? Or can you talk us through just how the market is positioned at this point in time and also the growth opportunities in that China market from an organic point of view in terms of the market growing there? Yes. Look, our performance in China, as you can see, Mainland China is really strong, at €337,000,000 in local currency, up 30%. One of the big changes that we've made through FY 2021 is really to make sure that we've got a huge capable end market team and we've been able to fund that through efficiencies. We've seen growth across the board, but we've also seen premiumization as well, which plays to our sort of core brand strength. So I think the underlying dynamics are good. Obviously, there's some short term disruption with COVID around, but what you see in these numbers, retail up 28% and total up 31%. And as I say, that gives us reason to believe we've got good momentum. In terms of share, I think we are doing well. And we are improving share and we think there's room to grow the market and our share within the market. Great. And strategically, just looking at China presence and the Diogo market here in Australia, which sitting on the ground here in Australia, we don't see rapidly rebounding. But it seems to have really lessened your reliance, perhaps, on the Daigou channel going forward. How do you think about the business strategically in terms of distribution? And that China strength that you've now developed, does it really lessen your reliance on the Australian channel to that extent? Look, we kicked off a fairly big project earlier in FY 2021, and that was to really make sure that where you have got Daigo Asian Health cross border working, that it was additive in terms of its impact. And there's been a significant amount of work to make sure that we're able where we are effective is we're providing collateral that amplifies our message rather than where the channel was heading, which was more about a sort of a pricing arbitrage. And we believe that when we get that right, actually everyone wins. And that's why we're pleased that we've dealt with it. And we think strategically in the longer term, that really will set us up for long term success. Great. And just lastly then on the supply side, I know it's still in winter, but any thoughts around my sense is you've had a fair amount of rain over here. Is that positive? Can you talk about perhaps the agri sort of background going forward? And also, from the point of view of the Minooka Honey pricing, my sense is that premium pricing has held up pretty well. So I'm just wondering in terms of your input costs, how that figured in the current year and perhaps the outlook as well? Yes. So Mark, no change in input costs. And like everything, it's too early to say on anything relating to our supply. The most important part for us was making sure that our new harvest model allows us to extract at a capacity, say, last year of 700 tons and this year, we've just gone 370 and still able to achieve high supply percentages into marketing to customer. So yes, that's where we end up. And in terms of the growth projections, you're comfortable for next, say, 2 or 3 years? Your supplies is tracking well in terms of that, obviously, the farm expansion and some of the other initiatives as well. Yes. And you see within the yes. And you see within the deck here, Mark, that if we look at our Manuka Forests, obviously, they have a multitude of benefits, one being the sequestration part of it. But what we our core hypothesis that those forests will deliver 40% increase in yield, 60% higher quality and 20% decrease in cost actually is a key part of our forward belief in the potential there. Thank you. We'll take our next question from Christian Bale from Jagan. Please go ahead. Hi, David, it's Nigel. Just first one. Sorry if I missed it on the call, but you see that the gross profit margin upward was not all translation related. What does that mean? Does it one off? And if it's not one off, does it mean that the GP target is now high? 60% is now high. Christian, we've always said that the 2025 was at least 60% GP target. So we believe the improvements that we're seeing are sustainable. And as you say, in our as you can see, we're targeting further GP improvements through FY 2022, but 60 has always been a 2025, 60 GP has always been a minimum GP that we've been targeting there. So wasn't transformation, are you able to provide more color on what it was? No, some of it is transformation. Some of it's cost out. And just as a maybe we can do it separately on our call, but it's that combination of markets, channels, getting rid of underperforming SKUs, increasing overhead recovery and investment in productivity as well. So there'll be ongoing investment to improve overhead recovery and improve productivity through Payangarua. Okay. Cool. And then if you want, the 15% marketing target, you look you must have the idea about 12.5% this year. Do you think you'll get there next in FY 'twenty two? And therefore, from FY 'twenty three, you will start to see some more operating leverage come through and hence you sort of start to see more earnings growth or earnings growth ramping up a bit to get you closer to the EUR50 1,000,000 EUR50 1,000,000 EBITDA savings? It won't get there will be a further movement towards it, Christian, but we won't get to 15% in 2025 sorry, in 2022, Floridians. Yes. Okay. Cool. And then next question, will you reduce your SKUs by any more? Yes. So FY 'twenty two target is a further 20% reduction in SKUs. Okay. Okay, cool. And then the old terminology, is the focus you functional food going to move away from health care and personal care and stuff like that? No longer term. I mean, functional foods are definitely part of it. But we've talked about both functional food and drink and also topical use as well. So that remains a part of our plan going forward. Okay, cool. And then just the final one. I think I can't remember what the website it was, I think it might have been the E41. Part of the business simplification was the EBITDA or some EBITDA. I will give an update on sort of where you've gotten to from that figure and whether you see more scope or how much more there is for further FTE reduction? Christian, sorry, I missed the question. Could you say it again? One of your previous slide decks, is there part of your strategy or business simplification involved reducing your number of FTEs? So just wondering, are you able to give an update where you got to on that front? And how many how much more scope there is for the FTE reduction? Look, we haven't obviously, as we've disclosed here, the total FTEs is £550,000,000 or just over. I think it's more about the contribution of those. So we've so it's not a specific FTE target. It's about how do we make sure any FTEs we have are actually helping us deliver the results that we aim for in 2025. Okay. I will comment on that. And what you will and I should say what I should what you will see is a continuing focus on underlying fixed costs and making sure that we have a real focus on that efficiency through the organization as a whole. Okay. Cool. That was it for me. Thank you. Brilliant. Thank you. We have one last question, speakers. Would you like to take them? Yes. We'll take one last. We've got a yes, that'd be good. Yes. Our last question is from Lance Reynolds from AEML. Please go ahead. Hi, guys. Congratulations on the results. I've just got a question around CapEx. Given you're obviously beyond 'twenty two, where do you see the CapEx envelope for the company? I know with a dollar amount is the right number to be given us or just a percentage of sales? Thank you. Nigel, do you want to take that? Yes. I'll take that one, David. In terms of the CapEx beyond FY 'twenty two, it's a really good question. We will obviously continue our strategy to invest in our harvest over the next 3 years. But that's only a portion of the cadence, of course. Look, I think that you should be assuming investment in capital expenditure in that sort of $15,000,000 to $20,000,000 range outside of any significant transaction that may or may not happen. But that's the sort of range I think that would be reasonable for you to Thanks very much. You're welcome. Thank you. There are no further questions. Please go ahead for any additional closing remarks. Thank you. We'll leave it there, but thanks very much for everyone's time. And we look forward to updating further at our Annual Shareholder Meeting in October. And obviously, now our focus turns to delivering performance in FY 2022. Thanks very much. That concludes today's conference. Thank you everyone for your participation.