- Comvita announced its intent to raise ~NZ$50 million to bolster its balance sheet and concentrate on profitable growth.
- Comvita’s Manuka honey harvest was beyond anticipations.
- For Manuka category, the Company is expecting revenue growth at a CAGR of 9.4% CAGR to 2025.
- Comvita’s three-point plan is underway to stabilise performance, transform the organisation and build long term strength and growth well.
Every business requires cash for carrying out its operations in a standard yet progressive fashion. Capital or equity raising during uncertainty is obstructed by future financial restraints of the business, macroeconomic circumstances that alter the capital source and amount of capital, and the existing equity holders of the Company.
The Company generates cash through commercialisation of its products or services, thereby generating revenue and earning profits. Equity raising is a prominent method for businesses to build capital to counteract the liquidity catastrophe.
In this article, we will acquaint you with Comvita Limited, which intends to raise capital for enhancing its balance sheet and focusing on future growth.
About the Company
Natural health products company Comvita Limited (NZX:CVT) is engaged in serving up health supplements and offers manuka honey, cider vinegar, bee pollen, lozenges, elixirs, skincare, digestive health solutions and supplements. The Company provides its products to customers across the world. Comvita is a global market leader with the number one global brand of Manuka honey.
Manuka honey and Propolis products of the Company account for more than 85% of sales. Moreover, Comvita intends to be carbon neutral by 2030 and has the top ten biggest photovoltaic installations across New Zealand.
Comvita Disclosed NZ$50 Million Equity Raising For Improving Balance Sheet Flexibility
Comvita Limited has disclosed its intention to raise nearly NZ$50 million via a NZ$20 million placement to its institutional investors, together with almost NZ$30 million 1 for 4.15 pro-rata accelerated non-renounceable entitlement offer.
The new shares are being offered at NZ$2.50, a 65% discount from NZ$3.81 at market close on 27 May. This equity raise will improve the balance sheet flexibility of the Company and build resilience.
Post the equity raising, Comvita anticipates underlying EBITDA multiple for the fiscal year 2020 to decline from 3.6x to 0.9x as of 30 June 2020.
The Company also stated it has achieved robust honey harvest season with volume up by 84% and UMFTM2 10+ quantity increased by 185%.
With this equity raising the Board of the Company is confident that it is prudent to currently pursue a raise in the capital as predicted earlier in the year, build flexibility, and position the business to take advantage of upcoming growth opportunities.
Three-point plan of Comvita
As part of its strategy, the Company disclosed a three-point plan for stabilising performance, transform the organisation and build long-term resilience and growth underway.
- Stabilise Performance
- The Company is winning across New Zealand and Australia by building distribution and brand loyalty.
- Focus on Manuka and Propolis products Comvita is getting fundamentals right.
- Persistent simplification and focus on core: 30% reduction in SKU targeted over the next year. CVT is rationalising its operating business and reviewing underperforming assets.
- Transform the Organisation
The Company is planning to launch a new harvest model in the financial year 2021. This new model is designed to breakeven in a poor Manuka honey harvest but retains upside from good harvests which will considerably reduce risk of future poor harvest seasons. This will continue to leverage the plantation and Intellectual Property for Manuka.
Comvita disclosed that its transformation plan for ‘three-year NZ$15 million’ is on track. Underlying fixed cost reduction of NZ$3.0 million targeted in the fiscal year 2021. The transformation plan would generate long-term operating leverage and allowing investment into China and North America growth markets.
- To build long term resilience and growth
For its long term resilience and growth, the Company stated that it is focused towards its growth in North America and China with a total addressable market of US$1.78 billion.
Notably, Comvita is extending the Toronto model to one major city in China and one in the United States. The Company disclosed that optimise distribution, marketing activation, and digital communication to drive household penetration with its new users and consumption from existing users.
For Manuka category, the Company is expecting a 9.4% CAGR revenue growth to 2025, targeting 20% EBITDA margin by 2025 and continue to invest for long term benefit.
Guidance for the Fiscal Year 2020
Based on the business performance in the year to date and the current trading environment, Comvita expects the full-year reported results to be as follows:
- Record revenue for the fiscal year 2020 anticipated to be approximately NZ$195-NZ$199 million, up 14% as compared to FY19.
- Underlying EBITDA FY20 expected to be about NZ$17-19 million.
- Inventory anticipated to decrease from NZ$132 million in FY19 to almost NZ$105 million in the financial year 2020.
In the fiscal year 2021, business focus will be on mid-single digit revenue growth together with persistent simplification and transformation. The incremental revenue is expected to deliver ~20% EBITDA margin. The Company aims to deliver underlying earnings growth, partially offset by re-investment in marketing.
The net debt guidance of a reduction from NZ$93 million in December 2019 to ~NZ$65 million pre capital raise and approximately NZ$17million post capital raise as at 30 June 2020. Cash generation anticipated to continue to back debt paydown in the fiscal year 2021.
Strong demand continues during March, and honey harvest comes in beyond expectations
In mid-April 2020, Comvita revealed that the strong demand shared with the market in mid-March has continued throughout March and resulted in a robust quarter providing double-digit growth on year on year basis, with across its all key markets reporting decent sales output.
Comvita disclosed the Company received profit in every month and have generated decent cashflows and working capital enhancements that have enabled it to continue to cut debt.
The Company also stated that the harvest of honey climbed by over 60% year on year (YoY) with over 95% of the extraction complete. Also, the quality of the crop has improved by more than 150%.
On 28 May 2020, CVT stock settled the day’s trade at NZ$3.810. The Company has a market cap of NZ$189.662 million.