Karma Drinks

Karma Drinks (Karma Cola) produce a range of organic sodas, probiotic kombuchas and switchels. Every Drink Does Good

Minimum investment: $10,000.00 NZD

$1,120,000
Offer live Wholesale
$880,000 still available
Min target: $1,000,000 Max target: $2,000,000 Equity offered: Convertible Note
9 days Time left
$1,120,000 Offer live Wholesale
$1,000,000 Min. target (0.00% equity)
$2,000,000 Max. target
$880,000 Still available
9 days Time left
(unless fully subscribed prior)
Karma Drinks hero image

Further detailed information is contained in the Information Memorandum (IM)

Download IM

Investor Webinar

Karma Drinks hosted a webinar for investors on Thursday 12th November. Below is a link to a recording of this session. Please note that there is a typo in the webinar presentation - further info relating to this can be found in the comments section of the webinar.

WEBINAR RECORDING

From The Founders

We made Karma Drinks to taste good and be good. Good for the land, good for the people who grow ingredients, and as good for you as fizzy drinks can be — so you can feel good about drinking them.

We set up the Karma Foundation to ensure this happens.

8 years ago we made the first bottle of Karma Cola. Since then we’ve made another 15 great tasting, Fairtrade, organic and functional drinks and created sugar-free versions of all our original drinks. Our company has grown to over 30 people who have sold over 28,000,000 good Karma Drinks in 23 countries.

All this has enabled the Karma Foundation to support farming communities in 8 villages in Sierra Leone and producers around the world. We’ve helped build 3 bridges, provided bursaries for 133 girls to go to school.

We’ve paid 8 teachers to educate a total of 614 children each year and established a revolving fund that has invested in more than 50 local entrepreneurs trading their way to a brighter future.

As we’ve grown we’ve encountered new challenges and restructured Karma Drinks to realise the opportunities ahead. While upgrading our executive and strategic direction we’ve also needed to adapt to a radically changing world struck by COIVD-19. The changes we’ve made allow us to be agile, resilient and viable in a post-coronavirus future and our new CEO, Ben Dando, is navigating this storm whilst finding way to make us faster.

Thanks from everyone at Karma Drinks, on behalf of everyone who benefits from the sale of our drinks.

The more drinks we sell, the more good we can do.


The online offer provides a summary of the information provided in the Information Memorandum which is available to download via the 'Offer' tab. The 'Offer' tab also provides access to additional information on the company that may be useful to investors as part of their due diligence process.

Executive Summary

What Makes Karma Special?

1. The worlds most ethical soft drinks company supported by the Karma Foundation

  • Our Karma Drinks Foundation contributes 1% of revenue to support community projects
  • FairTrade certified and awarded, listed by Ethisphere as one of the ‘World’s most ethical companies’
  • Finalising B-Corp certification substantiating Karma Drinks’ focus on a range climate crisis issues SDGs. We have a focus on 100% plastic free supply chain & becoming a carbon neutral organisation
  • We are a multi award winning challenger brand receiving accolades for taste, design and sustainability

2. Growing ahead of the CSD category

  • With 34.0% CAGR for the past 6 years. Since launching into the UK / EU this now contributes to >45% of the global revenue
  • FairTrade certified and awarded, listed by Ethisphere as one of the ‘World’s most ethical companies’
  • We have expanded to >20 markets across Western Europe, Asia, Australia & New Zealand and have further significant opportunity for expansion in existing geographies + Middle East & USA
  • We have an impressive penetration of the on trade channel with listings in more than 3,000+ premium outlets and > 70 distribution partners and the demand for our products continue to expand on a daily basis

3. Impressive future growth opportunity of over $19M

  • Our 3 year base forecast anticipates us achieving >$19M gross sales in FY23 through continued growth in on trade, off trade expansion, new geographies and innovation
  • Path to profitability already proven in NZ & Australia with the group forecast to achieve profitability by FY22. We are forecasting >34% gross margin and >$2M EBITDA in FY23.
  • With a modest spend to date and a further modest spend of 3-4% in marketing and trade spend, we have exciting beyond plan opportunities which could further accelerate growth rates, expansion and innovating in new categories for incremental growth

4. Premium on-trend brand with agile NPD capabilities

  • We are natural, organic certified, non GMO, vegan friendly, and only use glass bottles and aluminium cans in our portfolio (no plastic!)
  • We are an affordable premium with an accessible price point through our 250ml can and 300ml bottle pricing strategy
  • Our exciting innovation pipeline is helping us expand into functional healthy drinks which will deliver incremental growth and broaden Karma Drinks consumption occasion
  • We have a track record of success with innovation and have the ability to bring products to market from concept in <6 months

5. Strong operating model and successful management team

  • Proven ability to manage and operate a complex international supply chain, with capability to scale
  • Highly experienced and committed management team, focused on driving the business through the next phase of growth
  • Recent executive hires including Ben Dando (CEO) and Simon McLennan (NZ Sales Director) demonstrate the lift in capability of Karma Drinks’ management to deliver growth in off trade channels
  • Proven successes in soft drinks industry, Co-Founder Chris Morrison, previously founded and sold Phoenix Organics

6. A track record of success

  • We have strong distributor partnerships that have allowed us to access experience led customers such as Honest Burgers, Tortilla, Everyman Cinemas and many more
  • Our distributors continue to bring more Karma Drinks to new consumers in new geographies, channels and markets
  • We are expanding into the off trade channel through Foodstuffs, Farro, Progressives, Waitrose, Sainsbury’s, Ocado, Amazon + more
  • Our successful trial in Sainsburys shows that we were bringing new customers to the category (40% of all new customers) & that our rate of sale will help us succeed in grocery, convenience and fuel customers

7. Well Positioned to Benefit from Long-Term Market Trends


The Karma Foundation

Working alongside the grower families in Sierra Leone who helped us produce our original Karma Cola has always been at the heart of Karma Drinks. This continues with profound benefits to the communities in the Tiwai District.

Work is underway to evolve the focus of the Foundation with a view to broaden its purpose, impact and appeal to consumers on both social and environmental initiatives.


The Karma Drink Master Brand

Since launching in 2010, Karma Drinks has expanded beyond its original Karma Cola product; now it has a name that recognises that.

Karma Drinks’ growing product range now extends to over 20 SKUs and 7 flavours, resulting in a clear driver of a umbrella master brand.

This was implemented in November 2019 across all Karma Drinks products globally, to develop:

  • Brand Equity - increased recognition and consumer trust with newer sub-brands (i.e. Summer) benefitting from this ‘halo’ effect
  • Customr Retention - now able to connect with all customers through one recognised brand; increasing brand awareness
  • Efficient Marketing - ability to promote the entire product range using a single strategy; no confusion with Cola products any more
  • Competitive Strength - Karma Drinks has ability to become an iconic soft drinks brand

The Karma Drinks master brand is an umbrella for Karma Drinks’ growing product range. Karma Drinks has a pipeline full of innovative products, with scheduled activity to react to successful products throughout the plan


Growth Plan to Achieve $19.7m Sales by FY23

Karma Drinks’ growth will be delivered through:

  • Increased off-trade channel growth, focused on UK and New Zealand grocers
  • Continued penetration of the successful on-trade channel
  • A clear pipeline of innovative EPD/NPD launches
  • Improved international market distribution including Europe, Asia, Australia and a USA launch

Channel Strategy

Karma Drinks have benefited from strong brand and product development capability. To compliment this we’ve added strength in leadership, execution and sales. We’re commercially more savvy and we’re much more resilient. We’ve evolved our sales strategy.

We’ve previously succeeded in cafés in NZ and the UK, but after a successful trial in Sainsbury’s, with our new product range and with new leadership, we are confident to take on more significant grocery, convenience and fuel channel customers. We are ready to succeed in high volume channels in NZ grocery with a full range of products, high rate-of-sale functional drinks and a cohesive overarching brand that delivers strong shelf-presence.


Navigating COVID-19

Karma Drink’s business was impacted by COVID-19, particularly in the UK and Europe, because a high portion of our sales are through hospitality channels.

The impact on revenue across the business was significant as hospitality businesses around the world were forced to close their doors.

The impact of COVID-19 on the business together with the appointment of our new CEO resulted in some significant changes to the business, which combined with recent innovations and developments will result in a more efficient, focused and profitable business.

Faced with the prospect of limited sales and cashflow constraints, management undertook a review of the business to develop a model that would reduce losses in the business and provide a rapid pathway to profitability. The new budget is based on a number of key initiatives to ensure the business can weather the economic impact of COVID-19 and emerge better placed to profitably grow in the future.


Organisational Chart

The Board

  • Chris Morrison (Co-Founder / Director) - Chris founded, grew and successfully exited one of Australasia’s most successful organic drinks brands, Phoenix Organics. He is also a Director of All Good Bananas Ltd and Kokako Coffee.
  • Simon Coley (Co-Founder / Director) - former Marketing Director for 42 Below Vodka, Simon was responsible for marketing efforts, in NZ and internationally, and new products under the 42 Below brand. He is also a Director of All Good Bananas Ltd.
  • Matt Morrison (Co-Founder / Director) - Matt’s career began as an officer in the NZ Army and took him to NZ Treasury where he was responsible for helping set-up the Cullen Fund, monitoring SOE’s & export financing. He is also a Director of All Good Bananas Ltd and the Wellington Chocolate Factory.
  • Ant Howard (Chair) - former Chief Executive of Wang New Zealand, which under his leadership listed on the NZ Stock Exchange and became one of the country’s most innovative and successful systems integration and services companies.
  • Jonathan McHardy (Director) - Jonathan was a senior banker with Credit Suisse in London and in New York who returned to New Zealand in 2015. He now works with a small number of family offices and private companies.
  • Emma Loisel (Independent Director) - Emma is a Board Director, business owner and investor in high growth ventures. She is passionate about innovating businesses, consumer offerings and industries, particularly those delivering positive outcomes alongside profit. Her expertise spans business leadership and strategy, risk management, marketing and sales, plus general business operations and efficiency management. Emma focusses her time on her business, Volcano Coffee Works and holds a variety of the Board positions, including NZ Growth Capital Partners.

Chair of the Karma Foundation

Albert Tucker (Chair of the Karma Cola Foundation) - a native of Sierra Leone, Albert has a track record in leading and building successful social enterprises, working with organisations including Cafédirect, Divine Chocolate and Twin Trading.


The Executive

We have 20 employees globally, with 15 across New Zealand and 5 in London. We take exceptional care in recruitment and have appointed the key executives to drive our ambitions for the next 3 years.

Photo of Ben Dando

Ben Dando CEO

Ben started in March this year and is currently leading the business from the UK but is looking to move to NZ. Ben has an impressive track-record of driving global growth including leading Califia Farms success in UK & EU, Ella’s Kitchen (as head of global sales), Danone (as Sales Manager of UK grocery) and Coca-Cola UK (leading field sales).
Photo of Patrick Coyle

Patrick Coyle General Manager NZ and Australia and CFO - Auckland

Patrick runs NZ and Australia, and is our CFO. Prior to Karma Cola Patrick was with Direct Capital and in that role was involved in many early stage innovative companies. Patrick has the balancing act of driving our vision in NZ while leading our financial strategy.
Photo of Simon McLennan

Simon McLennan Sales Director

Simon was appointed as Sales Director of NZ & Australia in January 2020. Simon led Fonterra’s lifestyle drinks division and prior to that was National Business Manager for Red Bull NZ. Simon’s expertise and experience is key to growing Karma in the NZ grocery channel and into new distributors in Australia and Asia.
Photo of Jessamy Beeson-Jones

Jessamy Beeson-Jones Marketing Manager

Jessamy was appointed Marketing Manager earlier in 2020. Jessamy is creative, results-driven and a strategic brand builder, who's spent 8 years helping successfully launch brands within the competitive FMCG space. Having spent 7 years steering the Popchips UK marketing strategy from launch through to acquisition, and most recently helping launch Everleaf (the world's finest non-alcoholic aperitif), Jessamy developed a passion for working with food and drink brands with integrity at their heart.
Photo of Chris Morrison

Chris Morrison Co-Founder

Chris manages operations at Karma Drinks. He founded, grew and successfully exited one of Australasia’s most successful organic drinks brands, Phoenix Organics, and is an investor in ethical business startups and the former Chairman of the Sustainable Business Network and organic certifier, BioGro
The online offer provides a summary of the information provided in the Information Memorandum which is available to download via the 'Offer' tab. The 'Offer' tab also provides access to additional information on the company that may be useful to investors as part of their due diligence process.

Products

Karma Drinks’ growing product range continues to address growing consumer demands.

Consumer demands continue to develop and the Karma team has been working on broadening the product range to make sure there’s something for everyone.

Karma Drinks applied the learnings from making Karma Cola to the wider product range. This means making a product range that looks good, tastes good and does good. All of the Karma Drinks range has the following on-trend qualities.

Original

Good drinks for bad adults. Karma Drinks’ Original ethical, organic and Fairtrade range focus on great tasting products that do good – to be enjoyed as a treat.

Karma Cola

Karma Cola’s original recipe is made with Fairtrade organic cane sugar and real cola nut grown by the Mende and Temne people of Sierra Leone. Part of the proceeds from each bottle go to cola growers’ families.

Karma Cola tastes great because the team has taken care to find authentic ingredients. You can recognise and pronounce everything that goes into the original and light organic cola recipe. There's no secrets, preservatives our anything artificial; nothing to hide.

Gingerella

Gingerella is the only certified Fairtrade and certified organic ginger ale on the market. All natural ingredients including Fairtrade certified real ginger and vanilla bean extract from the Fairtrade Organic Forest Garden Growers Association in Sri Lanka and cane sugar from Suminter Organic Farmers in India. No artificial flavours, additives or preservatives. Soil Association Organic UK certification.

Award winning, eye-catching label design, Gingerella is seen as an empowering character for redheads around the world.

Lemony

Lemmy is the only Fairtrade organic lemonade on the market. Made using organic lemons from Sicily and Fairtrade organic cane sugar from the Suminter Organic Farmers Cooperative in India. All natural ingredients including organic lemon juice from concentrate 31%, no artificial flavours, and no additives or preservatives. Soil Association Organic UK certification.

Another eye-catching label design, lucky Lemony is a chilled out, feel-good character that our customers tell 
us they love.

Summer Orangeade

Made with juicy, organic Valencia oranges from San Luis Potosi in Mexico, lifted by a dash of Fairtrade organic sugar. A taste of Summer that’s good for the growers too.

The Valencia oranges used for Summer grow wild in San Luis Potosi, the most biodiverse region of Mexico. The orange groves in this hilly area get plenty of sun and water from a hot humid climate and nutrients from the rich soil typical of a region that’s mostly rainforest.


Light (Launching Spring '21)

Want a fizzy drink that tastes fantastic and isn’t full of sugar or any of that ‘diet-zero’ artificial nonsense that tastes as weird as it sounds… Karma Drinks have the answer.


Functional

New functional soft drinks range (Switchels and Kombucha) that goes beyond Karma’s original Fairtrade and Organic offer – they don’t just look good on the outside, they do a world of good for your insides too.

  • 54% of consumers are motivated to seek out functional drinks
  • 62% of consumers say they would like healthy drinks to be conveniently available
  • 65% of shoppers feel that eating healthy is more expensive than not

Karma Drinks’ new Switchel Probiotic and Kombucha products provide access into the attractive functional drink market. Karmas functional drink range includes:

  • 7 SKU's
  • Sparkling, sugar free products
  • Organic - no GMOs
  • <15 kcal
  • Natural ingredients

Juice

Responding quickly to an opportunity to develop a range of fruit juices as a replacement for existing business the team developed and designed these Karma Juices in a matter of weeks. In under two months the juices have been distributed in over 300 outlets selling approximately 1000 cases a week. We’re off to a good start despite the recent Auckland lockdown.


Do Good (and Look Good) Packaging

Doing good is just as important as tasting good… Karma Drinks’ packaging is plastic free.

Karma Drinks is on a mission to eliminate any plastic in the supply chain, so that no more plastic ends up in the Ocean.

So far the team have been able to eliminate all plastic wrapping materials with new cardboard multi-packs and shippers complimenting the redesigned lighter bottles and cans.

Cans: 250ml aluminium can contains recycled materials and are fully recyclable. Typically 68% comes from recycled cans, the remaining 32% from other recycled metals and virgin metals.

Bottles: 300ml and 330ml glass bottles contain recycled materials and are fully recyclable. Typically 65% comes from recycled glass and the rest is raw materials such as sand.

Karma Drinks’ products are available in a range of size and formats:

  • 300ml & 330ml individual bottles
  • 250ml individual can
  • 4x250ml can fridge pack
  • 24x300ml bottles
  • 24x250ml cans
  • 6x4x250ml fridge packs

Collaborations

Innovative product collaborations build excitement and awareness with key customers.

The Karma team is finding more and more that national (and sometimes global) brands are wanting to collaborate with them. Bespoke small batch products are developed by Karma Drinks’ product team, alongside the other party.

Recent Colabs


Brand & Marketing

Karma Drinks perform the highest across ethical, organic and fairtrade categories when compared to mainstream and 'craft' competitors.

Ethical

Ethics as a characteristic of soft drinks have an influence on consumer perception. Karma Cola is a category leader, Karma Cola Sugar Free and Lemony over index with Gingerella and Summer lower.

This research encouraged us to rebrand the range as Karma Drinks to leverage the reputation earned by Karma Cola.

Organic

Both Karma Cola variants are recognised as organic with the brand and products indexing well above the UK market average.

Fairtrade

Fairtrade as a characteristic of soft drinks is another influence of positive perception.

All Karma products score above average in this respect except GIngerella another good reason for consolidating under our new Karma Drinks masterbrand.


Supply Chain

Operations Overview

Karma Drinks' complex operations run smoothly to maintain product integrity and the ethical stance of the company while delivering on its promises to customers.

Karma Drinks sources its ingredients globally in order to ensure products are both authentic and natural staying true to their label. The relationships are well developed with suppliers and the team take their time in ensuring the producers treated equitably.

Production and packaging is then split between New Zealand, for customers in Australasia, and Austria / UK for customers in Europe in order to produce as close to the market as possible.

A strong management team oversee the process with directors based both in New Zealand, the UK and most recently America to form the next phase of growth.

Operations are well developed and flexible to meet growing demand and support the next phase of growth.

Global Supply Chain and Key Suppliers

Karma Drinks have built a global supply chain, with ongoing initiatives to improve efficiencies and reduce costs.

The online offer provides a summary of the information provided in the Information Memorandum which is available to download via the 'Offer' tab. The 'Offer' tab also provides access to additional information on the company that may be useful to investors as part of their due diligence process.

Business Strategy

Vision To be the world's most popular ethical sodas. Karma Drinks will continue to grow while becoming profitable.
Why We will pioneer change in the food industry with our Karma Foundation so we can continue to do more good.
How We will re-capitalize UK through strategic partnerships and execute our Australasian growth strategy.
Pillars Our brand pillars are: We Look, Taste and Do the Extraordinary.

Goals & Initiatives

  • Margin Improvement - Create & execute path to profitability, Re-capatalise the UK, Deliver cost savings (>$2M so far), Target spend on growth and Accretive NPD. 
  • Drive Revenue - UK partnership with Windfall Brands, Execute our Australasian growth strategies, Launch successful NPD, Close distribution gaps. 
  • Growth via Innovation - Execute our 3Y EPD & NPD pipeline, Consistent launch of new products in Australsia (EG: Juice, Water etc) and Accretive and with customer & distribution need. 
  • Execute Brand Strategy - Digital, City & PR strategy, Build our army of ethical activists, Global digital strategy executed and Updated comms highlighting our foundation
  • Foundation Strategy - Execute our Foundation strategy in Sierra Leone, Broaden foundation purpose with KD and localise and B-corp certified.
  • Performance Culture - Right Exec + org structure + improved S&OP model process, Champion diversity, Performance based culture and Retain Talent. 
  • Pioneer Change - Re-capatalise UK, B-corp certification, Reduce plastic in our supply chain and Champion organic and Karma Foundation

Hygiene Factors

  • HR Hygiene Factors in place
  • Karma Drinks & Foundation Master Brand
  • Re-defined Values & Culture
  • Consumer Needs @ Heart + Foundation USP
  • CRM / Reporting & Systems Upgrade
  • Data & Insight led

Growth Strategy

Karma Drinks has a clear strategy focusing on building global availability through recent successes and new management expertise.

In 3 years, Karma Drinks will deliver $7.9m sales growth with beyond plan opportunity of $1.5m

1. UK Growth Initiatives

On-Trade

  • Continued on-trade engagement & support for our key customers throughout COVID-19
  • Partnership with Windfall Brands to accelerate on-trade growth with key city strategy
  • targeting key locations: London, Brighton, Birmingham, Manchester, Bristol & Edinburgh
  • Targeting existing and new experience led on-trade partners including restaurants, cinemas, cafes & events
  • Focus on new customer acquisition along with rebuilding existing customers
  • Targeted customer promo and sampling campaigns to bring in new customers
  • Clear revenue growth management principles to improve margin position (pack, price, format, promo strategy)
  • Execute aligned sales & marketing programmes for EPD & NPD pipeline
  • Digital brand comms focus to drive reach, engagement & rate of sale via a larger community of ethical activists
  • Brand collaborations with B-Corp to reach similar communities
  • Improved terms with distributors to incentivise growth and loyalty

Off-Trade

  • Use Sainsbury’s trial data to grow distribution in the grocery channel
  • Use insights to acquire Tesco, Morrisons & COOP & plan to deliver success via increased distribution
  • Make Waitrose work harder for us
  • Use store data for fuel group trial (BP, Shell, ESSO) and then gain further distribution
  • Grow sales in online via Amazon, Ocado and Karma Drinks’ DTC

What goes around comes around

Karma’s data driven approach to understanding the available white space to develop products and demand in off-trade by leveraging brand & experience from on-trade.

We will drive improved efficiencies through a re-capitalised UK organisation to unlock growth and profitability.


2. New Zealand Growth Initiatives

Opportunity for growth in NZ and product development to leverage internationally.

On-Trade

  • Leverage our Kiwi heritage and support local throughout COVID-19
  • CRM tool utilised to highlight gap analysis to drive targeted distribution
  • Partner with opinion leaders & the right distribution partners to unlock this growth
  • Accelerate EPD / NPD pipeline to deliver faster growth
  • Continue to rebuild on-trade sales after COVID-19 via a focused city strategy targeting Auckland, Wellington & Christchurch
  • Grow route via 12 new stores per quarter per rep targeting existing and new experience led on-trade partners including restaurants, cinemas, cafes & events
  • Targeted spring / summer sampling campaigns to bring in new customers with recent Kombucha & Juice ranges
  • Launch seasonal items including Pink Lemonade
  • Digital brand comms focus to drive reach, engagement & rate of sale via a larger community of ethical activists
  • Brand collaborations with local NZ brands to reach similar communities
  • Improved focus on own brand but with improved terms with our distribution brands to incentivise growth
  • Focus on converting competitor Kombucha & Juice customers

Off-Trade

  • NZ Sales Director (Simon McLennan) brings expertise to unlock grocery, convenience and fuel groups
  • Growth strategy based off stronger relationships, RGM principles applied, gap analysis completed
  • Execute EPD / NPD strategy to deliver off-trade specific pack formats and products
  • Partnership with field merchandising agency to drive availability and sales in grocery with improved presence
  • Drive dot.com sales via DTC + leading ecomm customer sites
  • Clear customer execution programme
  • Foodstuffs data drives trial in Countdown for growth in grocery
  • Trial in Oil & Convenience with clear execution programme to earn further distribution
  • Investing in resource to help drive trial in the off-trade and convert to permanent listings
  • Utilise data to warrant more distribution and availability

3. International Growth Initiatives

Clear plan for international growth to FY23F. USA market entry forecast very prudently; significant upside available.

Australia

  • Incentivised terms with existing distributors
  • Focus on growing on-trade presence in key cities using track record of success building a loyal base and solid foothold in market
  • Expansion planned into either Coles or Woolworths in FY22
  • EPD / NPD & brand building initiatives executed

Asia

  • Incentivised terms with existing distributors
  • Grow on-trade in key cities in Japan (Tokyo, Osaka) & China (Shanghai & Beijing)
  • Focus on online growth including Tmall, Alibaba & TaoBao
  • Execute EPD / NPD & brand building initiatives

Europe

  • Manage Brexit and incentivise distribution partners with improved terms
  • Grow on-trade presence in key cities in Western Europe
  • Expansion in key grocery in key cities with country retailers once increased presence
  • Execute EPD / NPD & brand building initiatives

USA

  • USA market launch FY22
  • Ongoing discussions with distributors with access to key health stores including WFM
  • Land trial in FY22, to then expand distribution FY23 once we know the product works in this market
  • Ben (CEO) previously worked for US plant-based Califia Farms to help unlock further opportunities

4. New Product Development (NPD)

Karma Drinks has a focused, proven approach to grow $2.3m from NPD by FY23

Health and well being drives Karma Drinks’ NPD strategy in sync with innovation in global soft drink trends.

The most significant change occurring in the soft drink market is the increasing need to satisfy consumers desire for new product attributes. Chris Morrison leads Karma’s NPD strategy, along with a leading flavour-house in New Zealand, with a relationship that has been developed over the last 10 years.

Karma Drinks has an agile approach to NPD, with the following key decision gates:

Product Development Pipeline


5. Beyond Plan Initiatives

Beyond the 3 year plan are further opportunities with additional resource or investment

Middle East

  • Expansion into UAE via partnership with agent
  • Utilise EU data to warrant further distribution in key cities in other ME / UAE markets
  • Focus on premium stores where there is less price sensitivity EG: Spinneys

Eastern Europe & Mediterranean

  • Expansion into other markets including Poland, Czech, Austria, Hungary, Slovakia, Finland, Denmark, Croatia, Greece, Turkey, Iceland
  • Utilise EU data to warrant further distribution in key cities in other secondary European expansion markets

Increased Rate of Sale

  • As Karma Drinks continues to expand and focus more on our global digital strategy, we will see an increased base rate of sale from increased awareness, trial, light use, moderate use and advocates leading to increased distribution opportunities.
  • Increased weight of purpose promotional strategy. As we move away from single unit price mechanics, we will be able to incentivise shoppers to buy more in bulk

North America

  • With a modest growth rate in NA, Karma Drinks will be able to access further distribution opportunities in customers such as Target, Kroger and incentivised distribution through KeHe and UNFI through utilising existing relationships and board expansion
  • Karma Drinks unlocking co-packing and supply chain efficiencies with allow for further rapid expansion

Market

The Global Market for Carbonated Soft Drinks is Growing

  • The global carbonated soft drinks market has been growing at 2.7% CAGR to 2020. Despite all the market headwinds i.e. increased focus on sugar taxes, the carbonated soft drinks market has continued to grow.
  • The market is set to return to stronger growth rate of 4.3% CAGR to 2024 and this increased rate of growth is driven by three key factors:
    1. Premiumisation / Craft Soda Drinks
    2. Health / Functional Drinks
    3. Evolution of Consumption Occasions
  • Karma Drinks is well positioned through its core and new product launches (light and functional ranges) to benefit from these trends and continue to outperform the market growth, with a 3 year forecast CAGR of 47.9%.

Ethical Consumerism: Focus on Doing Good

Karma Drinks are well placed to attract further attention from increasingly conscious consumers.

Sustainable Supply Chains

  • 92% of people say it’s important to use environmentally friendly ingredients
  • 81% feel strongly that companies should help improve the environment
  • 88% want companies to help them make them be more environmental through supply chain transparency

Corporate Responsibility

Consumer expectation is highest in the food & drink sector for better CSR accountability.

Plastic Pullution

  • 81% of consumers expect to buy more environmentally friendly products over the next five years
  • 50% willing to pay more to avoid plastic products

Emerging Health and Wellness Trends

  • The health and wellness soft drink market is just beginning to develop along with consumer demand.
  • Health & wellness drinks are forecast to outgrow the wider carbonated soft drink market to 2024F, with the UK market set to outperform the wider H&W carbonates market.
  • Karma Drinks has developed functional health-focused carbonated soft drinks through its agile NPD capabilities.

Customers & Channels

Multiple and Growing Routes to Market

On-Trade (61% FY20A Sales)

  • Karma Drinks’ most successful route to market to date, achieved primarily through growing share of premium casual dining customers
  • Active growth opportunities to continue targeting nationwide chains
  • Set to account for 54% FY23F sales

Off-Trade (6% FY20A Sales)

  • Limited focus to date, the on-boarding of Ben Dando (CEO), brings a wealth of experience to unlock greater penetration
  • Existing relationships with premium grocery outlets such as Waitrose, Harrods and Selfridges
  • Significant untapped growth opportunity in major multiples – evidenced with successful Sainsbury’s trial
  • Set to increase to 16% FY23F sales

International (14% FY20A Sales)

  • With strong relationships with distributors in both Australia, Europe and Asia, Karma Drinks sells a growing percentage of products internationally
  • Significant opportunity for growth exists with expansion into the US market
  • Set to grow to 15% FY23F sales

Distribution (19% FY20A Sales)

  • Within the New Zealand market, Karma Drinks provides distribution services to third party brands, through its extensive network across the on-trade premises
  • Forecast to be 3% of FY23F sales, with the core strategy focusing on developing Karma Drinks’ branded proposition

Key Information


Financials

Group Profit & Loss

Continued revenue growth of 42.9% CAGR to FY23F driven by existing and new business. Increasing levels of profitability expected, resulting in FY23F EBITDA of $2.6m

Summary Financials by Geography can be found in the Information Memorandum which you can download via the 'Offer' tab.

Revenue

  • International includes growth across existing markets of Asia, Australia, Europe and market entry into USA (FY23). By FY23F these geographies will represent $1.0m, $1.4m, $0.5m and $0.1m respectively.

Cost Of Sales

  • Improving the Gross Margin through focusing on reducing input costs is a key focus and a program of initiatives to reduce costs has been developed. Gross margin remains relatively constant during the forecast period at 34% following the impact on Gross Margin in FY21 due primarily to Covid-19.
  • Cost of sales includes product COGS, warehousing and transport, UK third party sales and logistics providers and Trade marketing spend.

Overheads / EBITDA

  • Consumer Marketing spend is forecast to be between 2-3% and Trade Marketing spend 3-4% (included in COGS) during the forecast period. Management is confident that this is appropriate level to achieve its forecast due to an increased focus on digital marketing going forward.
  • A large proportion of Karma’s forecast growth is in channels such as grocery, fuel and convenience where growth can be achieved by improving expertise with the appointments of Ben Dando and Simon McLennan.
  • The restructure of the UK business has resulted in a significant reduction in wages and salaries. Other overheads includes contributions to the Karma Foundation, rent and rates, and other general and administrative overheads.

Cashflow Forecast

*Repayment of ASB Trade Finance facility in Apr-June 2020.

Cash Flow and Use of Funds

  • The cash flow statement has been prepared on a consolidated basis.
  • Working capital is based on historical ratios and reflects projected increasing receivables and inventories (the graph below illustrates the increasing requirement).
  • Interest is payable on the Convertible Note.
  • The net reduction in overdraft in FY21 relates to the repayment of the ASB Trade Finance facility which was used to fund UK production costs (and financed for up to six months). This facility was converted to an additional overdraft during the COVID affected period and will be available to be redrawn once production resumes in the UK.
  • The table summarises the position based on the assumption that we are successful in securing $2m of new capital.
  • Based on the budget and forecast prepared by management the funding requirement is between $1.5m and $2m.
  • The company is forecast to be cashflow positive in FY22 (before payment of the Convertible Note interest).
  • The key uses of cash include implementing the growth strategy, the increased working capital requirement as the company grows and new product development.

Group Net Working Capital (NZD)


Group Balance Sheet

Assets

  • Included intangible assets are motor vehicles (NZ delivery vans), computers, office equipment. The capitalisation of the design costs for the Karma Drinks brand development resulted in an increase in intangible assets in FY20.
  • Karma outsources all production and as a result, does not own any production facilities or assets.
  • Accounts receivable represents outstanding amounts from customers. Debtor days are ~55 days in the UK and ~26 days in NZ, the difference reflects the majority of UK sales being through distributors versus sales directly to customers in NZ.
  • Inventories includes both raw materials and finished goods. Inventory holding is ~85 days in both NZ and the UK. The increased level of inventory as at March 2020 is as a result of bottle production in both NZ and the UK in March and high levels of raw materials on hand in the UK ahead a large can run undertaken in early April 2020. In addition there was increased inventory on hand due to the COVID impact on sales.
  • Trademarks and patents relate to the Karma Drinks IP, including a purchase during 2020 to strengthen the Karma Drinks IP in the UK and EU.
  • The majority of the other current assets balance is made up of products in transit (cans being shipped from the UK to NZ) and prepayments. In March 2019 there was a higher balance due to cans being produced in March and not being receipted until April.

Liabilities

  • The accounts payable balance is monies outstanding to creditors including contract manufacturers, bottle, ingredient and packaging suppliers, warehousing and freight partners, distribution product suppliers (NZ) and other general creditors.
  • Karma Drinks has its primary banking facilities with the ASB in NZ. This facility includes an overdraft facility and the ASB trade finance facility which is used to finance production costs in the UK. There are transactional bank accounts in the UK (Metrobank) and Australia (Westpac) but no indebtedness in the UK or Australia.
  • The accruals balance includes inventory adjustment, Karma Foundation and Fairtrade and depreciation accruals. Other liabilities include UK and NZ taxes due. The increased balance in March 2020 is due to the receipt of the NZ Government COVID Wage Subsidy at the end of March which is to paid out over 12 weeks.
  • The Intercompany loan balance at the end March 2020 relates to a $1m Convertible Loan received from existing shareholders in March 2020 and which is recorded in the books of Wayfairer Limited, the NZ based holding company.

Supporting documents

Offer details

  • Minimum target

    Amount required for the offer to be deemed successful

    $1,000,000 NZD
  • Maximum target

    The maximum amount the company is looking to raise

    $2,000,000 NZD
  • Minimum investment

    The minimum investment amount for this offer

    $10,000.00 NZD
  • Type of share offered

    See the Subscription Agreement for details

    Convertible Note
  • Offer end date

    Karma Cola (Wayfairer Limited) may have rights to shorten or extend this end date

    10:00 pm, 7 Dec 2020

We’ve come a long way in the eight years since we sold our first bottle of Karma Cola. Even though recent events have been challenging, we believe our good intentions and commercial ambitions will make us even more relevant and able to have a greater impact on a world looking for better, healthier and more sustainable alternatives.

We’re excited for the future of Karma Drinks. We hope you are too.

Key Offer Details

We are offering a Convertible Note, with the following terms:

  • Offer of subscription to convertible notes in Wayfairer Limited (“Wayfairer”) until 30 November 2020 (or such later date as Wayfairer may determine).
  • Funding target of $2m with minimum target of $1m. Once minimum target is reached, Wayfairer can accept subscriptions at any time and funds can be released to Wayfairer (note Wayfairer can adjust the $2m funding target upwards if there is demand from investors).
  • On conversion, shares to be issued to Snowball Nominees Limited (as nominee) unless an exception applies.
  • 10% interest per annum paid quarterly.
  • Conversion at 25% discount to the next priced $1m+ equity round if held on or before 30 November 2022.
  • If the convertible note does not convert on the basis of a further priced equity round, then conversion will take place at a 2x multiple of the company’s 12-month revenue leading up to 30 November 2022.
  • Full details of the Convertible Note are provided in the Subscription Agreement.

Types of Shares on Conversion

On conversion of the note, investors will be issued with ordinary voting shares (Ordinary Shares) ranking equally with all other shares on issue. Except for Ordinary Shares issued for investments of NZD $500,000 or more (and as approved by the board) pursuant to the Subscription Agreement and Shareholders’ Agreement, the Ordinary Shares to be issued by Karma Cola (Wayfairer Ltd) are to be issued to Snowball Nominees Limited (“Nominee”), who will hold legal title to those Ordinary Shares on trust for the relevant beneficial owner of those Ordinary Shares (i.e. the investor). Further detail on why Karma Cola (Wayfairer Ltd) is choosing to use a Nominee is described under the heading “Nominee shareholding structure” below.

Holders of Ordinary Shares have:

  • the right to receive notice of, and attend, every meeting of the shareholders;
  • the right to vote at a meeting of the shareholders on any resolution;
  • the right to an equal share in dividends authorised by the board;
  • certain shareholder information rights (as set out in the Subscription Agreement and Shareholders’ Agreement); and
  • pre-emptive rights, rights on certain share issues, as set out in the Shareholders’ Agreement and Constitution. There are exceptions to these rights (also set out in those documents) – for example, the issue of equity securities (including shares and options) to employees and/or management (ESOP).

Holders of Ordinary Shares are also subject to drag and tag along rights (as set out in the Constitution).

The Subscription Agreement, Shareholders’ Agreement and Constitution set out other terms that will apply to a shareholding in Karma Cola (Wayfairer Ltd). You should read these documents before subscribing for Ordinary Shares under the Offer.


Nominee Shareholding Structure

We are making use of a nominee shareholding structure to prevent the company from becoming a “Code Company” for the purposes of the Takeovers Code. In broad terms, a company becomes a Code Company when it has 50 or more (voting) shareholders and share parcels, and shareholders of Code Companies can be restricted in how and when they are able to transfer their shares. Due to its size, our advisers and Board do not believe it is in the best interests of Karma Cola (Wayfairer Ltd), its existing shareholders, or new investors for Karma Cola (Wayfairer Ltd) to become a Code Company and bear increased compliance costs.

Except for Ordinary Shares issued for investments of NZD $500,000 or more (or by exception subject to board approval) pursuant to the Offer, the Ordinary Shares to be issued by Karma Cola (Wayfairer Ltd) are to be issued to the Nominee, who will hold legal title to those Ordinary Shares on trust for the relevant beneficial owner of those Ordinary Shares (i.e. the investor).

The full terms on which the Nominee will hold the shares are set out in the Nominee Deed Poll (which forms part of the Offer Documents).

In broad terms, the Nominee must:

  • act in accordance with the relevant beneficial owner’s instructions (e.g. in exercising the voting rights attached to the relevant Ordinary Shares);
  • account to the relevant beneficial owner for all proceeds from the relevant Ordinary Shares (e.g. dividends received); and
  • deliver notices, letters, reports, demands, offers, agreements and other documents and communications received by the Nominee to the relevant beneficial owner.

Under the Nominee Deed Poll, each beneficial owner indemnifies the Nominee against any losses, damages, costs, actions, proceedings, claims and demands that may be made against or incurred by the Nominee as a result of it holding the Ordinary Shares under the Nominee Deed Poll (unless the Nominee has been fraudulent or grossly negligent).


Application of Funds

Karma Drinks is seeking up to $2.0m to provide capital to implement the strategy to achieve profitability and growth, including:

  • funding the ongoing growth in working capital
  • new product development
  • digital communication of the brand story
  • partnerships with key market expansion distributors, and
  • building the team to deliver the growth plan

Oversubscription, Further Funding & Exit

Any oversubscription will enable a longer runway for the company’s growth. Based on the current financial projections a total raise of $1.0m will fund the company until month-on-month profitability (Feb 2021 based on the current budget), and $2.0m would fund the company through to a cash flow positive position (currently late 2021 based on the current forecast).

In the event $1.0m is raised the existing cornerstone investors and Founders will contribute any shortfall between that number to reach the $1.5m, with other funding options also considered including UK invoice financing. We are aiming to be profitable for FY2022 and beyond. This will mean we will have more funding options available, including debt.

In February 2020 our cornerstone investors provided $1.0m in funding through a convertible loan. The terms for this loan are 10% interest (paid quarterly), and conversion will take place (at the option of the lender) at the price of the next equity round, or at a $31.2m pre money (whatever is lower). $31.2m is the post money valuation of our 2019 capital raise.

Over the next 2 years we will be talking to potential strategic trade entities in the UK and the US to find a strong, suitable and philosophically aligned strategic trade partner to accelerate growth. The founders recognise their commitment horizons may exceed those of other investors, they see a partnership with an international aligned food and beverage strategic investor as a possible liquidity event within 3-4 years. This may lead to an exit option.


Previous Funding Rounds

Karma Drinks have raised multiple rounds since inception at a multiple of approximately 2.5-3x historical 12 months revenue.


Inter-Party Relationships

The 3 Founders, Chris Morrison, Simon Coley and Matt Morrison are also the shareholders and directors of All Good Bananas Ltd which imports Fairtrade bananas and plant milks for sale in NZ, Australia & other export markets. All Good Bananas Ltd and Karma Drinks has a shared services agreement which is agreed by the CFO, Chair and an Independent Director of Karma Drinks.


Company Structure and Ownership


Capitalisation Table

This is the capitalisation table of our holding company, Wayfairer Limited. This table shows the pre-raise shareholding.


Employee Share Ownership Plan

Karma Drinks has a great team and we’re committed to ensuring they can have genuine ownership in the business. Along with being a Living Wage employer, we have a comprehensive Employee Share Ownership Plan (ESOP) covering full-time permanent Karma Drinks employees with tenure over 1 year in NZ and the UK.

  • A pool of 550,000 shares has been set-aside for the scheme, this is currently 9.5% of the total shareholding pre-money. This pool provides for anticipated growth in employee numbers over the next 2 years. For each employee the ESOP vests over 2 and 3 years of tenure.
  • Ben Dando, our CEO, has a bespoke ESOP equivalent to 6% of the current shareholding. This is in addition to the 9.5% of total shareholding detailed above.

Intellectual Property & NPD

We have secured our key brands (Karma Cola, Gingerella, Lemmy, Lemony and Drink-no-Evil) as trademarks in all the markets in which we intend to operate in the next 5 years. These include the UK, the EU, Canada, Japan, China and the US. A full list of trademarks is available on request.

We have developed Scandinavian labels and have started the development of a French, Dutch, German label to drive into those territories.


International investors

The distribution of this offer outside of New Zealand may be restricted by law. This is not intended to, and does not, constitute an offer of securities in any place which, or to any person to whom, the making of such offer would not be lawful under the laws of any jurisdiction outside New Zealand. This includes, but is not in any way limited to, Australia and the United States. It is the responsibility of any Snowball Investor to ensure compliance with all laws of any country outside New Zealand relevant to their subscription, and any such Snowball Investor should consult their professional advisers as to whether any governmental or other consents are required, or other formalities need to be observed to enable them to apply for securities pursuant to each offer. The failure to comply with any applicable restrictions may constitute a violation of securities law in those jurisdictions. The securities in each offer have not been and will not be registered under the US Securities Act or the securities laws of any state of the United States.

Log in to view Karma Cola (Wayfairer Limited) offer updates

Log in to view Karma Cola (Wayfairer Limited) offer questions and answers

Warning statement

It's crucial for you to understand the characteristics and risks of this investment opportunity. New Zealand law normally requires people who offer financial products to provide in-depth information to investors before they invest. The usual rules do not apply to offers by companies through Snowball Effect. As a result, you may not be given all the information you need to make an informed decision. Investing is risky. Some of the key risks include loss of capital, illiquidity, lack of returns, dilution, loss of key people and customers, and lack of control. You should only invest money that you can afford to lose.