Little Island

Little Island is a New Zealand plant-based food manufacturer that produces a range of dairy-free products, including milk, ice cream and yoghurt.

Minimum investment: $5,000.00 NZD

$2,195,000 Min. target (18.69% equity)

$3,195,000 Max. target (27.70% equity)

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Investment Highlights

Prominent foundation brands with a strong market share in the main plant-based dairy alternative categories, including 50% market share, in 2019, in the dairy-free ice cream category
Strong projected revenue growth from $5.7m in FY20 to $22.2m in FY24, a Compound Annual Growth Rate (CAGR) of 40.4%
A profitable business, with the inclusion of the yoghurt business smoothing out the current seasonal business model
Global plant-based product sales are forecast to grow from USD 17.3 billion in 2018 to USD 29.6 billion by 2023, a CAGR of 11.4%
NZ market opportunity estimated to be worth $117m annually over the next 7 years, based on historical growth rates from more mature markets
Strong board and management team with significant industry and management experience
Pre-money valuation of $6.525m for the combined group (including yoghurt business and after loan conversions), implying a multiple of 1.14x FY20 revenues of $5.7m

Introduction

Little Island is a leading New Zealand plant-based food manufacturer, producing a range of dairy-free products with combined revenues of $5.7m for FY20.

The business was inspired by its founders and is led by an experienced management team, with strong support and governance from its board. Our vision is to challenge the traditional dairy market and to become part of the daily family diet by creating delicious products from the best plant-based ingredients.

The plant-based food segment is one of the fastest-growing trends in the global food and beverage sector. This is primarily driven from consumer values being influenced by environmental, ethical and health concerns. Plant-based foods have quickly evolved over recent years from servicing a niche population to becoming mainstream.

The growth and size of the global market illustrates this growing trend. In 2018, global plant-based alternative product sales exceeded US$17.3bn and is expected to reach US$29.6bn by 2023. The Asia Pacific market accounts for the largest share of the global market, followed by the US and Europe.

The maturity and success of the global market provides validation of the opportunity emerging in New Zealand. We estimate that the New Zealand market opportunity will follow similar growth trends and will reach $117m over the next 7 years¹.

Little Island has created two recognised brands in New Zealand, Little Island and Nice Blocks, with both forming a strong connection to consumers. A mix of organic plant-based milk and ice cream products are sold under the Little Island brand and healthy ice block products are sold under the Nice Blocks brand. Little Island and Nice Blocks products are sold throughout retailers and supermarkets across New Zealand, with more than one million units sold in FY20.

Little Island has agreed terms for the acquisition of a complementary plant-based yoghurt business under a mostly share for share transaction². The addition of this yoghurt business will create a single-minded organisation that is a specialist in dairy alternatives across traditional dairy dominated segments.

Our intention is to dominate the plant-based movement in New Zealand. Our core business is already a prominent brand across the premium plant-based milk and ice cream segments and our position will be strengthened following the integration of the yoghurt business. We are the only New Zealand company specialising in plant-based dairy alternative products with product coverage across the main segments of the category, creating, we believe, a unique competitive advantage in a competitive FMCG market. The addition of the yoghurt business will mean Little Island will have the largest solely plant-based offering in New Zealand across categories.

This fast-growing market segment provides compelling growth opportunities for Little Island, and we believe the strength of our brand and our competitive advantage places us in an excellent position to capture a significant share of it. We believe with focussed strategies on developing these three core segments, Little Island can sustainably grow sales to $22.2m by FY24, including $4.55m of export revenues.

We are now raising between $1.5m and $2m of new growth capital, in addition to loan conversion of $695k, at an attractive pre-money equity valuation of $6.525m to drive our growth strategy. The company reserves the right to accept up to $500k of additional oversubscriptions.

We have a clear growth strategy that aims to capitalise on the market growth opportunities and will focus on five key areas:

Increasing category coverage through the integration of the yoghurt business.
Investing in product development and innovation.
Building an even stronger brand by increasing investment in branding and marketing.
Build out our capability by continuing to grow a strong team.
Create a more scalable and NZ centric business and export proposition by building our local supply chain, researching and testing new markets and investigating future merger opportunities.

FY20 was a strong year for the business, with the new management team outperforming EBITDA targets and returning the business to revenue growth.

The focus now is to continue profitable growth within the NZ market, including creating a more scalable NZ centric position, before developing an export proposition that we can successfully take into specific target regions that have demonstrable strong growth in this market segment.

We love what we do and we love sharing our world-class, plant-based products with New Zealanders. This is our opportunity to strengthen the Little Island team at an exciting point in our growth journey, and we invite you to join us.

¹NZ Grocery Express Report - Snapshot, iRi (Feb 19)

²The parties have signed a conditional agreement that is dependent, in part, on raising capital of at least $1.5m. Under the terms of the agreement, $387k cash is required to settle the transaction with the balance of the consideration in the form of the issuance of shares.

Team Overview

Our team and board have significant experience in the food and beverage market and are all personally committed to guiding the business. The leadership team is capable and motivated to build a quality, high growth and profitable food and beverage business.

Little Island board of Directors

Matt McKendry

Chairman, Non-executive director

Matt chairs Little Island and represents the largest shareholder group, associated through Marmont Capital. Since Marmont’s investment in 2014, Matt has worked closely alongside the founders and through the recent transition to Bharti’s leadership. He comes from a consultancy background, having been a Deloitte partner, and works with a number of NZ companies that are expanding internationally. Marmont Capital is a specialist food and beverage investor in New Zealand.

John Evans

Non-executive director

John is one of the original seed investors in Little Island and was the former Chief Operating Officer of Better Drinks Company, a subsidy of Japanese multinational, Asahi Beverages.

His experience heading up the operations for a multinational company provides knowledge in scaling the manufacturing capability of food and beverage companies. He is involved in the oversight and governance of our product development and how we engage with contract manufacturers to ensure quality standards are met and scalable.

James Crow

Co-Founder, Non-executive Director

James is a man on a mission. He comes from an entrepreneurial family in the snow and ski industry and is genuinely concerned about the world around both his family and the wider globe. He is equally passionate about both community and commercial solutions and the impact Little Island has on the planet. He understands people and effortlessly communicates with individuals from all walks of life.

Yoghurt Company

Co-Founder, Non-executive director

The yoghurt business co-founder will join the board immediately after the completion of the capital raise. She is a passionate and multiple industry award winning commercial marketer with over 15 years’ experience in the FMCG industry, including the Marketing and Sales teams of some of New Zealand and Britain’s biggest blue-chip food companies

– Fonterra (Tip Top Ice Cream), Goodman Fielder, Grins and Premier Foods (UK) to name a few. Since founding and managing her own award-winning food company, she has become accomplished in all facets of business including finance, sales, business development, people management, legal, operations, branding, marketing and new product innovation.

Independent Director

Non-executive director

To be appointed after the completion of the capital raise.

The Management Team

Bharti Kendrick Chief Executive Officer

Bharti joined Little Island in April 2019 to create a leading plant-based business. She is passionate about plant-based foods and creating a Global company from New Zealand. She recently returned from a 20-year period in Europe and the UK and her previous role was the Managing Director, Yoplait UK and Ireland. Prior to her Yoplait role, Bharti worked for a range of Food and Beverage companies, including Danone, HP Foods and Griffins NZ.

Alice Rawson National Sales Manager

Alice joined Little Island in September 2019 from a large FMCG company where she was the Key Account Business Manager for the Woolworths and Farro supermarket channels. Alice has proven solid experience in account management and new business development, with demonstrated ability to grow and establish strong customer relationships. Alice is responsible for the sales execution of the business.

Christian Holden Production Manager

Christian is responsible for our factory operations and the development of new products. He is founder Tommy Holden’s brother, has been with the company from its early days and is responsible for product taste and quality. From the film industry, Christian understands how to make things happen. His years at Little Island means that he knows the properties of coconut and other plant-based ingredients and how they respond in scalable factory environments.

Yoghurt Founder Research & Development

The co-founder of the yoghurt business will join the business immediately after the completion of the capital raise. She is a food scientist and product developer with 17 years’ experience in FMCG Research & Development, product development and innovation. She has developed and launched hundreds of new food products for the likes of Fonterra, Vitaco/Healtheries, Tesco, Asda, Marks and Spencer, Sainsbury’s and Waitrose. Having launched her own business, and developed a range of plant based dairy alternative products, she has gained significant knowledge in plant based food science and processing, plant based consumer drivers and sustainable/eco focused product and packaging development.

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The Opportunity

The world is changing and the plant-based food segment is one of the fastest growing trends in the global food and beverage sector today.

The next generation of consumers have a new set of values and are the driving force behind a food revolution. Plant-based foods have quickly evolved over the last three years from servicing a niche population to becoming mainstream. Overall dairy milk consumption in the US fell 22% from 2000–2016, while the intake of non-dairy alternatives increased by triple digits³. The US dairy market is expected to reach $28 billion by 2021, with alternative products by then predicted to make up 40% of that total.

Consumer drivers are primarily being influenced by environmental, ethical and health concerns.

In terms of environmental concerns, it is recognised that it is not sustainable to feed the world population using traditional methods. Each year, 7.2 billion people consume 1.5 times what the earth’s natural resources can continue to provide⁴. Avoiding meat and dairy products is widely considered to be the single biggest way to reduce your environmental impact on the planet. Research shows that without meat and dairy consumption, global farmland use could be reduced by more than 75% – an area equivalent to the US, China, European Union and Australia combined – and still feed the world. Meat and dairy use 83%) of farmland and produce 60% of agriculture’s greenhouse gas emissions⁵.

In terms of ethical concerns, animal welfare is a key factor that drives the decisions of many dairy-free and/or vegan consumers. Mass farming animals to satisfy solely enjoyment driven meat demand is considered by some to be morally wrong or unjustifiable. Avoiding or reducing the intake of animal products is one way consumers choose to take a stand against animal cruelty and exploitation.

In terms of health, plant-based products are generally considered to be healthier, with consumers often recognising a sense of wellbeing. Consumer motivations include increased personal energy, better digestive health, improved weight management and taste preferences⁶. Increased prevalence and awareness of allergies and intolerances has also led to dairy avoidance and consequential growth in dairy alternative products.

All these factors are driving strong demand for quality plant-based alternatives across all the traditional dairy categories.

Little Island was founded on the recognition that our food system is undergoing radical change, preferences are evolving and traditionally consumers have not had access to a wide range of high quality plant-based dairy products.

³ Dairy and Dairy Alternative Beverage Trends in the U.S. 4th Edition.” Packaged Facts.

⁴ “Rethinking Food”. World Wildlife Foundation.

⁵“Avoiding meat and dairy is ‘single biggest way’ to reduce your impact on Earth”. Damian Carrington, The Guardian (2018)

⁶ HealthFocus, International Plant-Based Eating: USA DuPont Segments, August (2017)

The Brand

Little Island creates delicious plant-based foods using fair-trade and organic ingredients.

We believe that New Zealand needs a new food and beverage producer that is focused on sustainable plant-based food and beverage dairy alternatives. Little Island has become an expert in connecting with consumers by providing an aligned set of food and beverage products that are tasty and better for the environment.

Our two foundation brands are Little Island and Nice Blocks.

The Products

Little Island’s product range is currently made up of 3 segments; Milk, Ice Cream and Nice Blocks. The addition of the yoghurt business will add a fourth segment, yoghurt.

Milk

Little Island pioneered the premium chilled plant-based milk category in NZ. It started out as a coconut only range, expanding later into calcium, almond and oat varieties. Revenues from milk products grew to over $1.5m in FY20, this growth is representative of a changing trend towards premium dairy-free milks.

Little Island 1L Milk Sales

Ice Cream

Little Island’s Ice Cream range is the original plant-based dessert that proudly stands alongside dairy products throughout NZ supermarkets. The Little Island brand held a 50% market share in NZ for plant-based ice cream in 2019, generating $2.3m of revenues in FY20.

Little Island Ice Cream Pint Sales

Nice Blocks

Nice Blocks set a new standard for health-conscious consumers looking to find that ‘better for you’ treat. Revenues from Nice Blocks were $475k in FY20, which was lower then previous years because Little Island withdrew a product range from the market.

Little Island Nice Block Sales

Yoghurt

The addition of the plant-based yoghurt business will complement the Little Island dairy-free product range and strengthen the brand within the core categories. The yoghurt business achieved revenues of $1.3m in FY20 and held a 9% market share of the total yoghurt category in 2019.

Yoghurt Business Sales

Operations

SUPPLY CHAIN

We take pride in where and how we source our ingredients. Little Island milk and ice cream products are BioGro certified organic and all products are genetically modified organism (GMO) free. Little Island follows the fair trade best practices where possible, meaning everybody gets a good deal all the way from the farm to the consumer’s fridge-freezer.

We currently source the majority of ingredients through a leading NZ distributor of fruit and vegetables. They have more than 20 years’ experience in the food industry across Europe, Australia and New Zealand.

PRODUCTION

Little Island’s head office and factory is based in Penrose, Auckland. Little Island ice cream and Nice Blocks are manufactured at the Penrose facility. Little Island milk products are manufactured through a third-party contract manufacturer.

The yoghurt business currently uses a third-party contract manufacturer.

The Penrose factory was expanded in FY20 to provide additional capability for ice cream production, including the production of premium tubs (with inclusions), and proceeds from the capital raise will further develop capability to enable the production of yoghurt and larger format ice creams. This will support additional sales and improve margin by leveraging the existing plant and fixed cost base.

STAFF

The following table outlines the forecast full-time employees (FTE) for the business through to the end of FY24. We currently have a team of 13 FTEs, focused on all facets of the business. We plan to have 27 FTE’s by FY24.

Over the period FY20 to FY24, we forecast that direct employee cost as a percentage of revenue will decrease from 17.5% to 9.5%.

We take great pride at Little Island in our ethical approach to business. With a natural sense of fairness, we are one of the first New Zealand companies to commit to paying all our staff an independently audited living wage.

We strive to ensure farmers and workers in the fields and on the farms are paid what they are worth by ensuring we only buy from fair trade affiliated suppliers and engage in direct-trade everywhere else.

DISTRIBUTION

Nice Blocks are predominantly sold via a network of more than 200 company owned freezers, located in cinemas, specialty groceries, independent stores and cafes.

The ice cream and milk product range are mostly sold through our supermarket channels, with the exception of the 5-litre ice cream and barista coconut milk which is sold into foodservice.

National distribution is managed through third party distributors and warehouse providers. Auckland distribution of Nice Blocks, small tubs of Little Island Ice Cream, and Barista milks are managed internally, with a delivery driver model.

SALES AND MERCHANDISING

National sales and merchandising for the supermarket trade are managed under agency by Dakota Sales Management Limited, a company introduced by existing Little Island shareholders.

Key account management is led by the national sales manager, with sales support in store by Dakota sales representatives and merchandisers.

NEW PRODUCT DEVELOPMENT

Product development is managed by the Operations Manager and is influenced by the board and management team, who have developed an expertise in making quality food and beverage products.

Following the acquisition of the yoghurt company, the product development capability will be substantially enhanced with the addition of its co-founder to the Little Island team.

ACCOUNTING AND FINANCE

Accounting and finance matters are managed internally by a Finance Manager based in Penrose*. The board plays a key role in reviewing accounting information, preparing budgets and financial modelling.

*Management is currently recruiting for a replacement finance manager after the previous person departed in April 2020.

The Market

The plant-based food segment is one of the fastest growing trends in the global food and beverage sector.

The global dairy alternatives market is projected to grow from USD 17.3 billion in 2018 to USD 29.6 billion by 2023, at a Compound Annual Growth Rate (CAGR) of 11.4% during the forecast period*. This market growth is supported by strong macro trends of consumers moving toward plant-based food and beverage products. There has also been an increase in retailers stocking a greater range of plant-based products. As these products become more widely available and continue to improve, consumers are expected to continue embracing them with growing prevalence**.

The Asia Pacific market accounts for the largest share of the global market. The large market share in this region is attributed to rapid urbanisation, diet diversification (including higher incidents of lactose/dairy intolerance), and liberalisation of foreign direct investment in the food sector.

Dairy alternative market, by region (USD billion)

THE US MARKET

The growth and size of the US plant-based food and beverage market also illustrates this growing trend, being the fastest developing market. In the USA, the total food market has grown just 2%, whilst plant based food is at +11%, ie 5x the growth of total food. Across the traditional dairy categories, plant-based milk and ice cream alternatives have led the charge, followed by yoghurt. In 2018, US plant-based milk sales exceeded US$1.8bn and is now found in over one third of all US households. Sales of other plant based dairy products, including ice cream, yoghurt, cheese and butter, has now reached US$697m***.

The maturity and success of the US market provides support for how the New Zealand market is expected to develop.

US Market Sales Growth

THE NEW ZEALAND MARKET

Plant-based foods have quickly evolved over the last three years from servicing a niche group of individuals to becoming a mainstream staple in New Zealand households. Total grocery is growing at +4%, compared to dairy alternative categories between +16-32%, so 4-10x growth. There is a significant opportunity to grow revenues by maintaining market share in a growing New Zealand plant-based market.

The majority of plant-based products are sold nationally through supermarkets. They are sold in large categories that are ‘well shopped’ in terms of purchase frequency, which are critical attributes for growing food and beverage companies.

Based on the global share of categories that plant-based products are securing, we estimate that the total market opportunity in NZ will grow to NZ$117m (at retail dollars) over the next 7 years. We are targeting at least 50% of that growth in domestic sales. The following table provides a breakdown of the projected domestic growth between key categories****.

NZ Forecast Market Opportunity For Plant-Based Dairy Alternative Products

*Dairy Alternatives market forecast to 2023 - Markets and Markets (2019)

**The Shifting Global Dairy Market - Ushering in a new era of dairy products, page 21. Cargill (2018)

***Plant based dairy alternatives report, page 5. Dupont (2018)

****Based on data extrapolated from a NZ Grocery Express Report, February 2019. The projections assume that the existing large dairy categories continue to grow at the current rate and that the plant-based segments achieve similar market share as those experienced internationally.

Consumers

Consumers are moving to more flexible diets and relying less on animal based products for their food. As noted above, they are doing this for a variety of environmental, ethical and health reasons, they are moving in this direction in large numbers and they are demanding quality dairy-free substitutes across all the traditional dairy categories.

Global research firms highlight that as the availability of plant-based products increase and as product quality improves in terms of taste, more mainstream consumers will buy a mix of plant and animal-based products. Comax Flavours reveals that taste (48%) is the most important factor in dairy alternatives, followed by price, health benefits, source of ingredients and all natural ingredients*. Taste is also the number one attribute driving purchase decisions among all age groups.

Working Millennials and Creative Professionals represent our main two core target consumer groups for Little Island:

WORKING MILLENNIALS

25-45 year olds; lead active lifestyles, trendy, time poor, seeking natural, convenient solutions for treating themselves, flexitarian, discerning consumers who prefer authentic brands/products.

CREATIVE PROFESSIONALS

Families with young children; open-minded; affluent; healthy & environmentally conscious; looking for natural, organic, ethical products for treating the family and/or for entertaining; enjoy outdoors lifestyle & sports; like good food, wine and craft beer; support local.

*Not Milking it - Non-Dairy Infographic. Comax (2017)

Competitive Landscape

The FMCG market is large and highly competitive. The dairy alternative market is a relatively new segment that is rapidly growing. Early entrants in this segmental market, such as Little Island, have managed to capture significant market share while also building a recognisable brand and reputation for quality dairy alternative products.

The past year has seen the emergence of a range of competitors in this segmental market, ranging from larger FMCG companies providing cheaper, lower-quality milk alternatives (predominantly in Tetra Pak packaging) through to smaller boutique businesses providing a specialised yoghurt alternative product. The international Ben & Jerry’s brand entered the market in late 2018 with a premium dairy-free alternative ice cream and more recently, Unilever launched a dairy-free Magnum and Tip Top a dairy-free Trumpet.

Point of Difference

Our competitive advantage lies in a combination of:

our category coverage, being the only New Zealand plant-based business producing and supplying products across all of the main and sizeable, traditional dairy dominant segments (milk, ice cream, ice blocks and, upon closing the acquisition, yoghurt);
our specialisation and focus on only producing plant-based dairy alternative products using all natural ingredients;
our focus on using environmentally friendly packaging. In this regard, we do not use Tetra Pak packaging in any of our products. Our plastic milk bottles are recyclable and we are working towards a compostable label. We will also be working towards using compostable packaging for Nice Blocks in FY21 to reduce our impact on the environment; and
our focus on creating a trusted brand that is recognised for its dependable high quality sustainable products and ethical business practice. We believe our future success is, in part, dependent on building a trusted brand across all the main plant-based segments and to leverage the brand to increase sales across all our product lines.

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Current Stage of Business

Little Island has created a strong and identifiable brand in the plant-based food and beverage segment. The business has benefited from its early entry in the NZ market, particularly in the ice cream market where it is the clear market leader with 50% market share. The business currently supplies milk, ice cream and ice block alternatives, and the addition of the yoghurt business will provide immediate scale opportunities and coverage across all the main non-dairy products.

COMPANY TIMELINE

Segment Analysis

As the business expands and moves away from its traditional reliance on coconut, Little Island’s strategy is to use the most popular core ingredient for each product group. This has led to the launch of an almond based milk and an oat based milk in April 2019. Currently Almond is the most popular base in the USA, however Oat is fast growing. Coconut remains the preferred base ingredient for ice cream and future yoghurt products will be influenced by the ingredients that best fit with the usage and consumption occasion.

All the current Little Island products are well positioned in their respective categories, underpinning our growth expectations. The focus of the next phase for the business is to build on this existing positioning with better resourced marketing, sales execution and product innovation.

The current product mix is seasonal, weighted towards the summer months when the Nice Block sales are stronger. Our milk and ice cream products are sold fairly consistently in supermarkets throughout the year. The addition of the yoghurt business will help to smooth out existing product seasonality.

Little Island is on track to grow sales and coverage in all key retail outlets and supermarkets. In FY20 we achieved over 780,000 unit sales for Little Island products, with coverage in more than 500 of supermarkets and retail outlets. Our Nice Blocks range saw over 230,000 unit sales from more than 200 company owned and branded freezers.

PLANT-BASED MILKS

Consumers buying plant-based or dairy-free milks have two options. Firstly, products that are available in the ambient format and which are most commonly in Tetra Pak packaging. Secondly, and more recently, products in the chilled section of the supermarket where most consumers purchase their traditional dairy milks.

Fresh white milk has an estimated market value of $430m in NZ supermarkets, and ambient UHT milks is estimated to be $100m. Plant-based milks are growing at 32% p.a. and are forecast to grow to $44m market in NZ over the next seven years*.

Little Island’s original coconut milk held a 19% market share in New Zealand grocery as at 2019**. Little Island has since launched calcium, almond and oat milks, along with its chocolate flavoured milks. Little Island’s focus is on the premium chilled category. We believe, based on international trends, that this segment presents the greatest opportunity for growth and value creation. In the US, the shift to refrigerated plant-based milks happened over a decade ago and was significant in moving to a wider shopper base and achieving greater household penetration. Little Island leads that move in New Zealand and we believe it will be an important movement in the future.

The ambient section is very price competitive and typically shopped by consumers who have been buying dairy-free milks for some time, rather than mainstream shoppers who choose to switch from dairy, which is why we have chosen not to enter that category.

Plant-based milks are more complex than traditional dairy because they come from a variety of ingredient bases. Almond has globally taken over from soy as the most popular source ingredient for milk and is continuing to grow. Soy is in decline, while coconut and other ingredients are expected to continue expanding. Oat milks and “manufactured” plant milks, that come from a variety of base ingredients, including pea protein, have more recently emerged as a new group, with Oat showing strong growth albeit from a lower base. We will use the proceeds of this capital raise to further develop and enter these new segments.

The launch of Little Island’s new milk products was important for two reasons. Firstly, it created a more prominent brand block on shelves to build sales and secondly, it disconnected the brand from a reliance on coconut, which is important for future product development.

We also know that one of the barriers for consumers to move completely away from dairy is nutritional deficiencies of plant-based milks. Accordingly, it is one of the goals of Little Island to continue to develop its milk products so that it can compare more favourably across taste and nutritional attributes.

PLANT-BASED ICE CREAM

Little Island was one of the first brands to offer dairy-free ice cream in New Zealand that delivered on taste and is realistically comparable to dairy ice cream.

Ice cream is a $118m category in NZ supermarkets and plant-based products hold a 5% share, growing at 16% p.a. The segment is forecast to be a $31m market category in NZ over the next 7 years*.

Little Island is the clear market leader, with a 50% market share of the dairy-free ice cream market in 2019**.

Little Island was instrumental in developing and driving growth in the dairy-free ice cream segment. In the past year, the brand has seen the emergence of a range of competitors, including the international Ben & Jerry’s brand which entered the market in late 2018.

In order for Little Island to maintain its lead in this segment, it is necessary to continue to build out its product range. In this regard, we recently launched a new premium range of ice cream to add to the everyday range. This expanded the brand into a premium segment that competes more directly with Ben & Jerrys. The range includes “chunky bits” which is a global trend in ice cream, as more consumers are prepared to pay more for a higher quality product. We have also renovated our base product to have a smoother and creamier texture.

Over the next 12 months, we will also launch a more family-ready format to allow more families to enjoy dairy-free ice creams.

Although all these products will initially continue to be coconut-based, because this is clearly a favourite with consumers. Little Island will investigate and test other ingredient formats, flavour/texture profiles and other packaging formats.

PLANT-BASED YOGHURT

New Zealand consumers have really taken to plant-based yoghurts that provide a taste and health deferential to traditional dairy products. To date, coconut yoghurt has been the ‘go-to” alternative with one key player and others following suit.

Yoghurt is a $238m category and is attractive because it has a high purchase frequency by consumers. Dairy-free yoghurts are currently a $16m category, with a 6.7% share of total yoghurt sales*. The yoghurt business has a 9% share of the category in 2019. It has a comprehensive range of new products that will be launched over the next 18 months to increase its share.

Although there are a number of brands in the segment, we believe there is significant opportunity for innovation in this category and room to challenge the category leader by providing a wider range of options to address consumer’s needs and eating occasions.

NICE BLOCKS

Sales of Nice Blocks have declined in recent years because of the withdrawal of the 'take-home' multipack in FY19. The impact of the current environment and potential loss of some cafe and food service customers is prompting management to refresh the Nice Blocks business and product strategy. There is an opportunity for the Nice Blocks range to re-engage consumers with innovation and extending the range into products more suitable for the supermarket’s ‘take-home’ market. Coupled with this, we are planning to launch more sustainable packaging formats.

*Refer Table: NZ Forecast Market Opportunity For Plant-Based Dairy Alternative Products

**NZ Grocery Express Report, February 2019

Growth Strategy

Little Island has achieved strong growth by developing an innovative, market leading brand in the New Zealand plant-based food and beverage segment.

This fast growing market segment provides compelling growth opportunities for Little Island. Our growth strategy aims to capitalise on these opportunities by focusing on the following five key areas:

Increasing category coverage by completing the acquisition of the yoghurt business.
Investing in product development and innovation.
Building an even stronger brand by increasing investment in branding and marketing.
Build out our capability by continuing to grow a strong team.
Create a more scalable and NZ centric business and export proposition by building our local supply chain, researching and testing new markets and investigating future merger opportunities.

Category Coverage

Our strategy is to focus on building out our product range and increasing our presence in all of the key dairy alternative categories. We plan to do this by:

Completing the acquisition and integration of the complementary plant-based yoghurt business. The addition of the yoghurt business provides immediate scale opportunities and coverage across all of the main non-dairy products. It has a differentiated market proposition, with new products planned for launch in FY21/FY22. It offers innovation to the yoghurt category and directly challenges current market category leaders. Little Island has developed a clear yoghurt product strategy focussed on expanding the range across different consumer segments and usage occassions.

The yoghurt business will be integrated into existing operations under the Little Island brand. The introduction of new capital will support the acquisition and the integration of operations, including moving yoghurt production in-house to strengthen margins.

Continuing to invest in product development. We will continue to invest in market research and product development to increase our product range and appeal to a wider audience. The growing interest in plant-based food is creating a willingness from retailers to “test” new product opportunities and territories for their shoppers. As a recognised leader in the sector, we will continue to provide retailers with new tester products to keep consumers engaged.

We have developed a framework for allocating resources to our product innovation strategy that is based on:

80% of resources on the core categories of Milk, Yoghurt and Ice Cream; and,
20% of resources on testing and evolving new products.

Branding and Marketing

Our strategy on branding and marketing is to continue to grow an even stronger brand that resonates with more consumers as a leading producer of plant-based dairy alternative products. We plan to achieve this by:

strengthening consumer engagement, particularly through our social media platforms;
developing and producing consistently high-quality products based on consumer demand; and
increasing investment in brand and product marketing, including a brand refresh that reflects the growth of products away from coconut as the main ingredient.

Build a Strong Team

We plan to build out our strong and experienced team in order to continue delivering on our strategic objectives. This includes offering incentives to engage and encourage retention of key staff.

Little Island invested in a highly experienced CEO in 2019 to lead the integration of the yoghurt business and execute our growth strategy for the enlarged group. The proceeds from a successful capital raise will enable:

further development in people, including strengthening sales support and supply chain management;
further investment in manufacturing capability and capacity to improve margins and support new product development; and
engage specialists to drive product research and development.

Scale and NZ Centricity

We plan to create a more scalable and New Zealand centric position that will enable us to successfully enter new export markets. We plan to do this by:

Building our local supply chain. New Zealand’s food and beverage industry and economy is built on our clean, green image, and the quality of our locally grown produce. We are committed to researching how local products can provide a unique platform and competitive edge for export sales to leverage the “Brand NZ” values. Little Island will seek to partner with growers to explore the use of NZ sourced ingredients to create a differentiated set of products. In paticular, we are in early discussions with a NZ company who is pioneering a NZ plant protein which can be used in future milk and yoghurt NPD. In parallel, we are exploring a NZ Oat story, although significant capital is required to get this in the right specification for milk and yoghurt product development.

Researching and testing new markets. New Zealand is already a leader in the dairy industry and we believe that we can also be leaders in the plant- based dairy industry. Once we have established the NZ centric position that is appealing to a global audience, we will cautiously test and launch into new target export markets. We believe our products will be especially attractive to Asia Pacific countries, being the fastest growing region in the global market, reportedly growing at a cumulative annual growth rate (CAGR) of around 15% for the forecast 6 year period from 2018*. Asia Pacific holds high growth potential for dairy alternatives market, accounting for more than 50.0% of the market in 2017. This is largely driven by more than 80% of the population in Southeast Asia suffering from lactose intolerance**.

Seek future merger opportunities. We will investigate both local and off-shore merger and acquisition opportunities that align with our vision and strategy. We will target opportunities that provide access to new technologies and markets, and ultimately create additional value to the business and for shareholders.

*Dairy Alternative Market Analysis, Grand View Research (2019) retrieved from: https://www. reportbuyer.com/product/5758037

**Dairy Alternative Market Analysis, Grand View Research (2019) retrieved from: https://www. grandviewresearch.com/press-release/global-dairy-alternatives-market

Intellectual Property

We have registered trademarks for our brands “Little Island”, “Nice Blocks” and the yoghurt business “brand” in New Zealand. We have registered trademarks for the Little Island brand in our target export markets, including Australia, Singapore, USA and the EU. The Nice Block trademark is also registered in Australia. We also own the domain names associated with our brands.

COVID-19 Strategy

The board and management of Little Island have considered the impact of the global pandemic on its growth strategy, forecasts and this offer. The board and management have accordingly implemented the following actions:

We put the capital raise temporarily on hold while we focused on a business continuity plan to operate as an essential service during the lockdown. This included all office workers working from home, ramping up production on key products and registering and implementing suggested procedures from the Ministry for Primary Industries.
We applied for, and received, the wage subsidy from the Ministry of Social Development. We also maintain a wide overlap in skill sets within the team in order to mitigate any employee absences.
We have provided all our major suppliers with 12-month forecasts and have bought forward orders for raw materials and packaging with longer lead times to avoid any disruptions later in the year.
At this stage there are no indications of any major disruptions with suppliers, other than potential shipping delays. Furthermore, we routinely take a fairly long view with our key contracts, providing us with ability to pre-empt any potential delay.
We reviewed our growth strategy and revised our forecasts to reflect:

the delay of export revenues to FY22 (particularly given the uncertainty on borders),
the delay in some new product development previously scheduled for FY21,
the reduction of sales in the foodservice channel coupled with stronger sales in the supermarkets,
additional revenues from renovation of Nice Blocks and growing distribution in supermarket channels.
new sales opportunities, particularly the online channel.

We applied a discount to the pre-money valuation in recognition of the added market uncertainty associated with the pandemic and its impact on the short-term growth opportunities.

Risks and Mitigations

Our key risks include, but are not limited to, the following.

FOOD CONTAMINATION MAY DAMAGE THE BRAND

The recall of products due to contamination is an ongoing risk in our industry. The use of plant-based ingredients in our products mitigates this risk, to an extent, relative to animal-based products. However, it does not remove the risk and accordingly we have a strict food safety program in place in order to meet all applicable standards.

NEW COMPETITORS MAY ENTER THE PLANT-BASED SEGMENT

New Zealand has a competitive food and beverage industry with existing and new entrants likely to challenge this segment. We will continue to mitigate this risk in several ways. We will continue to build consumer loyalty by maintaining our premium product position through strategic marketing and product growth. We will keep innovating to stay ahead of any competition that may arise, developing demand-driven products. We will foster and build strong customer relationships with key retail outlets, based on trust and reliability.

KEY STAFF MEMBERS MAY LEAVE

We are a small company, with a limited number of employees. If a key staff member was to leave suddenly then this may prevent the company from achieving some short term growth targets. We mitigate these risks in several ways. Key employee contracts include notice periods, as well as intellectual property ownership and restraints provisions. This helps to ensure that any employee departures are constructively managed, enabling a structured transition to take place. In addition, we ensure that there is a reasonable degree of duplication in key roles to ensure business continuity is not affected by departing employees. We will establish a key employee share option plan to encourage employee retention and to ensure commitment and motivation to drive Little Island to reach its long term goals. Finally, there is a large pool of talent in the NZ FMCG industries that we can draw from if required.

ADDITIONAL LEVELS OF COMPLEXITY FROM SCALING UP OPERATIONS MAY HINDER GROWTH

We are aware of the challenges associated with scaling an FMCG business, both locally and internationally. Our machinery and equipment at our factory allow us to customise and control forecasted volume growth over the next few years. We have outsourced our logistics, which although comes with additional distribution costs, provides a longer-term scalable solution. We have also recruited an experienced FMCG leader and management team.

A RAW INGREDIENT SHORTAGE MAY HINDER GROWTH

The ingredients used by Little Island are neither scarce nor hard to find and there are multiple suppliers globally. Little Island is not dependent on any one supplier and all ingredients are common in the food industry. For example, while our coconuts are currently sourced from Sri Lanka, if this source was to be adversely affected, we could, given our current volume requirements, source coconuts from Kara, which is a large global coconut supplier based in Indonesia.

A CHANGE IN CONSUMER SENTIMENT MAY LEAD TO LOWER DEMAND

There is a risk that plant-based foods fall out of favour in the market, despite the evidence clearly suggesting the opposite. We plan to mitigate these risks by keeping strong relationships with our core and periphery markets, enabling us to pivot if sales start to drop off. The board will review sales volumes with management so it can quickly implement changes in strategy if required.

POOR EXECUTION OF THE STRATEGY MAY LIMIT THE GROWTH POTENTIAL

We have a strong management team and board, with significant industry sector experience. We have recruited an experienced CEO and have put in place appropriate governance controls. We will look to appoint an additional independent non-executive director at the conclusion of the capital raise to strengthen the board governance and independence.

THE BUSINESS FAILS TO SUCCESSFULLY ENTER EXPORT MARKETS

As with any company planning to export its products, there is a risk that offshore distribution agreements will break down. We plan to build relationships with trusted export partners to assist with this process. As with any export market, regulatory and import rules can present a barrier to entry. We will conduct full due diligence on every target offshore market to ensure we have the best chance of success when we decide to export our products.

Exit Strategy

Little Island’s strategy of owning its home market while investigating entering selected export markets is designed to ensure the company is an attractive prospect for a range of multinational consumer packaged goods (CPG) companies that have the capacity to continue to grow the brand.

There are obvious multinational companies in Australia and New Zealand that we will target as potential acquirers, and depending on the success of the export strategy, this may open the business up to a number of potential funders and suitors for a full exit, or additional liquidity event to support the business. The possible positioning in the US and Asia Pacific markets would create a presence in key dairy-free growth markets and make the business a more attractive target.

We believe our strategy and approach will provide excellent returns for investors.

Dividend Policy

We have no current plans to return internally generated profits to shareholders, instead preferring to reinvest in the business to enable us to best execute on the strategic plan. As we grow in scale and potential profitability, the directors will consider all avenues for generating returns for shareholders.

In the absence of a trade sale and subject to profitability and cashflow, Little Island may pay dividends to its shareholders. This is not expected to occur before FY23.

Use of Funds

The following table summarises the projected sources and uses of cash, based on us successfully raising $2m of new capital, in addition to the $695k of loan conversions. Key uses of cash include:

Investment in additional sales, marketing and operations staff to support the growth strategy;
Increased inventory holdings to allow for sales growth;
Investment in product development;
Completion of the yoghurt business acquisition and associated integration costs (including branding and capital expenditure on equipment); and
Capital expenditure on additional ice cream manufacturing equipment and expansion of the leased premises.

USE OF FUNDS TABLE

To the extent we raise less than $2m of new capital, in addition to the $695k of loan conversions, we will delay elements of our export strategy, execute a less aggressive marketing strategy and reduce investment on new product development while building business profitability to support these activities.

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Financial Information

All financial projections contained in this document are based on our best assessment of future financial performance and assume that we successfully raise the target new capital of $2m, in addition to the loan conversions. If we only raise the minimum target new capital of $1.5m, in addition to the loan conversions, then we will execute a less aggressive marketing strategy, delay investment in product development and reduce certain other overheads in the remainder of FY21.

The assumptions on which the projections were prepared may prove incorrect and actual results may vary significantly.

Income Statement

Income Statement Assumptions & Commentary

With the exception of FY19, the Income Statement actuals and forecasts have been prepared on a combined basis and include the yoghurt business. The actual FY19 figures relate to Little Island only and do not include any results for the yoghurt business.

REVENUE ASSUMPTIONS

Revenue has grown through the growth of core products and launching into new categories. We expect to maintain solid revenue growth as the business continues to move across the traditional dairy categories, increase investment in the brand, launch new products and capture expected market share of the growing plant-based food and beverage sector.

The combined group’s sales (including the yoghurt business) are forecast to grow from $5.7m in FY20 to $22.2m in FY24, representing CAGR of 40.4%.

Little Island achieved $2.3m of ice cream sales in FY20 (a 1.2% increase from FY19), having led the way in terms of historic revenue generation. Little Island milk sales hit $1.5m in FY20 (a 55.9% increase from FY19) and Nice Blocks contributed $475k in FY20 (a 29.7% reduction from FY19), following the removal of multi packs from supermarkets. We are renovating this product line to be reintroduced in FY21.

Milk revenues are forecast to grow through to FY24 at a CAGR of 43.7%, ice cream revenues at 14%, Nice Blocks revenues at 14.2% and yoghurt business revenues at 48%. Product revenue growth is based on general category growth rates, expected return on brand investment and increased revenues from the introduction of new products.

Little Island’s original coconut milk faced new competition in the market in FY20 which, coupled with a temporary operational challenge, led to some decline in unit sales. This decline was reversed in Q2 FY20 as Little Island improved its sales execution and increased brand shelf presence. Our almond and oat milk are showing positive signs of growth since their launch and are incremental to the range.

Export revenues are forecast to commence in FY22 and reach $800k for the year, before growing at 300% and 89.6% respectively over FY23 and FY24. The board intends to pursue export opportunities, particularly within Asia, once the acquisition of the yoghurt business has been successfully merged operationally into the larger existing business, the business is on a clear sustainable growth trajectory in the NZ market and export markets have sufficiently reopened following the COVID-19 outbreak.

GROSS MARGIN ASSUMPTIONS

Projected gross margins are based on historical gross margins, with a slight decrease initially due to the yoghurt business acquisition before increasing above 40% as integration benefits are achieved by merging production onto the same site. All relevant product costs are known and it is assumed any pricing pressure will be offset by cost saving benefits arising from increased scale.

OVERHEAD ASSUMPTIONS

Projected overhead expenses are based on historical overheads, adjusted to reflect additional costs consistent with our business plan and inflation. The majority of forecast overheads will be managed in line with revenue growth as our expansion strategy is validated.

STAFF COSTS

Staff costs are projected to increase, as the business hires additional staff to execute on the growth strategy, particularly in relation to marketing, sales, administration and governance. Refer to the staff discussion in the Operations Section of this document for an outline on forecast staffing over the period to FY24.

BRAND AND MARKETING

Marketing expenditure as a percentage of total sales will increase from 0.6% in FY20 to 4.3% for FY24, as we initially undertake a brand refresh and then maintain a higher marketing budget to target revenue growth and generate greater awareness of the Little Island brand.

FACTORY OPERATING COSTS

Factory operating costs are forecast to initially decrease in FY21 by 7.6% as a result of less repairs and maintenance (which is driven by a change in spend towards new equipment CAPEX rather than repairs) and then grow at an average of 33.9%. The forecasts include a 50% increase in occupancy costs in FY22 relating to an anticipated need to move to bigger factory premises to meet production demand from planned growth.

GENERAL OVERHEADS

Growth in general overheads is based on requirements arising from the growth strategy and inflation.

IMPACT OF COVID-19

The forecasts and assumptions have been revised to reflect the impact of the COVID-19 global pandemic, including:

The impact on sales in FY21 from significantly lower Food Service channel revenue in Q1 and the potential loss of some distribution points for Nice Blocks and small single-serve tubs of Little Island ice cream over Summer 20/21. This is countered to some degree with renovating the Nice Blocks range in Q3/4 FY21
The deferral of the export strategy and associated revenues until FY22
The anticipated delay in launching some new products, specifically a nutritionally enhanced milk product, and associated deferral of revenues
The anticipated reduction in demand for some premium products
Refocusing of new product development on domestic products, specifically developing the Nice Blocks range and extending distribution into supermarket channels

Balance Sheet

Balance Sheet Assumptions & Commentary

The Balance Sheet forecasts have been prepared on a combined basis including the acquisition of the yoghurt business.

Working capital is based on historical ratios and reflects projected increasing receivables and inventories.

Increases in fixed assets reflects investment in additional capital equipment and fitting out expanded leased premises.

The long-term liabilities relate to the financing of manufacturing equipment and freezers and is forecast to be repaid over the next few years. The forecasts also assume additional debt of $500k is accessed to finance future CAPEX.

In early FY20 Little Island’s shareholders introduced new funding to support the turnaround in the operations, build inventory levels and support the new team. This funding totalled $695k and was provided in the form of a convertible note which will be converted into equity immediately prior to this capital raise. The convertible notes are included in total shareholder funds as at the end of FY20.

Cashflow Statement

Cashflow Statement Assumptions & Commentary

The Cashflow Statement forecasts have been prepared on a combined basis including the acquisition of the yoghurt business.

Working capital is based on historical ratios and reflects projected increasing receivables and inventories.

Capital raising costs include all preparation costs and associated costs incurred during FY20 and relate to capital raising activities during the period. The Capital Raising Costs disclosed in the Use of Funds Table reflect the costs relating to this capital raise.

CAPEX reflects investment in additional capital equipment and fitting out expanded leased premises.

Valuation Summary

The board and existing shareholders of Little Island, having regard for the proven historical growth and the significant market opportunity, have set the pre-money valuation of the combined Little Island and Yoghurt business at $6.525m after loan conversions of $695k. This represents a pre-money valuation of $5.830m before loan conversions. The $6.525m valuation equates to a multiple of 1.14x FY20 revenues of $5.7m and a multiple of 1.0x in respect of a pre-loan conversion valuation of $5.830m.

The valuation has been determined having regard for:

recent comparable transaction multiples;
revenue growth opportunities in the NZ market (excluding export opportunities);
an appropriate discount to recognise greater market uncertainty arising from the impact of COVID-19;
our market position and the strength of our brand in our market segment; and
the importance to the directors for investors to enjoy a positive and profitable experience as shareholders.

Little Island is offering up to 23.5% equity (after the merger of the yoghurt business and loan conversions) if the funding target of $2m is raised, with a share price of $1.

Comaparable Market Transactions

The directors have reviewed information relating to other comparable transactions in New Zealand, in particular, recent transactions involving similar stage health food companies. The below table presents information relating to those transactions*. These transactions indicate an industry average pre-money equity valuation for similar companies of 2.57x revenue.

COMPARABLE MARKET TRANSACTIONS

As noted above, the pre-money equity valuation multiple implied by this transaction is approximately 1.14x FY20 revenues of $5.7m for the combined group (including the consolidation of the yoghurt business revenue and after loan conversions).

*Data sourced from research based on publicly available information. Any inaccuracies in the publicly reported information may affect the average revenue multiple provided

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Supporting documents

Offer details

Company valuation

Valuation of the company before funds are invested

$6,525,000 NZD
Minimum target

Amount required for the offer to be deemed successful

$2,195,000 NZD
Maximum target

The maximum amount the company is looking to raise

$3,195,000 NZD
Minimum equity offered

Percentage of the company offered at the minimum target

18.69 %
Maximum equity offered

Percentage of the company offered at the maximum target

27.70 %
Share price

The cost of each share

$1.00 NZD
Minimum investment

The minimum investment amount for this offer

$5,000.00 NZD
Type of share offered

See the Subscription Agreement for details

Ordinary Shares
Offer end date

Little Island Limited may have rights to shorten or extend this end date

10:00 pm, 7 Jun 2020

A maximum of $2 million (within any 12 month period) can be raised from investors in reliance on Snowball Effect’s licence to provide equity crowdfunding services, with the balance available to only wholesale investors through Snowball Effect’s wholesale service.

We are seeking to raise up to $2m of new growth capital, in addition to $695k of loan conversions, to fund our market growth strategies and product development activities, which are centred on integrating the plant-based yoghurt business, building a stronger brand across the key dairy-free categories, launching new products and strengthening manufacturing to improve margins.

The pre-money valuation of $6.525m in the table above is presented on a post-loan conversion basis, while the minimum and maximum targets include the new equity to be issued in respect of the loan conversions of $695k. The minimum and maximum equity offered in the table above reflect the percentages available to new investors after the loan conversions.

Types of Shares on Offer

Little Island is offering ordinary voting shares (Ordinary Shares) ranking equally with all other shares on issue. The Ordinary Shares to be issued by Little Island 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 Little Island 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
Pre-emptive rights on share issues and transfers (subject to certain exceptions)

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

The Subscription Agreement, Shareholders' Agreement and Constitution set out other terms that will apply to a shareholding in Little Island. You should read these documents before subscribing for Ordinary Shares under the Offer.

New Shareholders' Agreement and Constitution

The shareholder rights which will attach to the Ordinary Shares are set out in the Shareholders’ Agreement and Constitution.

The Shareholders' Agreement includes some mechanisms for the appointment of directors which depend on the level of shareholding held in the company and origin of the investment. For example, the respective founder groups each have the right to nominate a director, as does the two original investor groups. An additional independent director will also be appointed to represent the new investor group. The independent director will be appointed for their relevant skill sets, rather than any shareholding interest they may hold in Little Island.

The Shareholders' Agreement sets out certain exceptions to the pre-emptive rights which apply for the issue of Ordinary Shares, including exceptions for:

the establishment of an employee share option programme for up to 10% of the issued shares, provided the issue price is on fair and reasonable terms; and
the issue of equity securities not exceeding 15% in any 12 month period, provided, among other things, it is in the best interests of the company.

The Shareholders' Agreement also includes certain exceptions to the pre-emptive rights which apply to the transfer of Ordinary Shares, including exceptions for:

a transfer of Shares between affiliates; and
a transfer of Shares by a Snowball Investor to a third party.

Copies of the Shareholders' Agreement and the new Constitution are available for review and you should read them carefully, along with the Subscription Agreement setting out the terms of your investment, before applying for Ordinary Shares in this Offer. Your subscription is conditional on Little Island adopting the new Shareholders Agreement and Constitution. If this does not occur before the end of the Offer Period, your subscription funds will be returned to you from the Snowball Trust Account.

Over Subscriptions

The Little Island board are seeking to raise up to $2m of new growth capital, in addition to $695k of loan conversions, with a minimum new capital funding of $1.5m (excluding loan conversions). However, the Little Island board reserve the right to accept oversubscriptions of up to $0.5m as part of this capital raising round.

Share Registry managment & Nominee Shareholding Structure

We intend to use Snowball Effect’s Share Registry service.

We are making use of a nominee shareholding structure to simplify the share register and prevent Little Island from becoming a “Code Company” for the purposes of the Takeovers Code in the future. In broad terms, a company becomes a Code Company when it has 50 or more (voting) shareholders and share parcels and it (including subsidiaries) had total assets of at least $30 million or total revenue of at least $15 million at the end of its last financial year. Shareholders of Code Companies can be restricted in how and when they are able to transfer their shares. Given its forecast growth, the Little Island directors do not believe it is in the best interests of the company, its existing shareholders, or investors for Little Island to become a Code Company and bear increased compliance costs.

The Ordinary Shares to be issued by Little Island 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)
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).

Disclosures

Remuneration

Executives and other employees are remunerated by Little Island through fair and reasonable salaries. All remuneration of key executives will be reviewed regularly by the board to ensure that remuneration is market-driven and reflects individual performance and achievement of role objectives.

All non-executive directors will be paid directors fees of $24,000 per annum and the chairperson will be paid director fees of $36,000 per annum. Director fees will be reviewed regularly to ensure that they are market-driven. Director fees are included in staff costs in the above forecasts and those forecasts include an annual 5% increase.

Employee Share Option Plan (ESOP)

Little Island intends to issue share options to its key staff following completion of this offer as a means of retaining and motivating those employees. The options will be on fair and reasonable terms at the time of issue as determined by the Board. Under the proposed Shareholders' Agreement, the directors have the right to issue such employees options up to 10% of the total shares on issue at the time that the ESOP plan is established.

Shareholding Structure

The following table sets out the current shareholding structure after the issue of ordinary shares to the vendors of the yoghurt business. The projected ownership structure on completion of the offer is presented both after the loan conversions, which will occur contemporaneously with this capital raise and after completion of the offer (for both the minimum and target additional capital of $1.5m and $2m).

The final shareholder structure may vary from this due to factors such as:

the final determination of the purchase price for the yoghurt business, which will impact the allocation of shares between the existing shareholders and the yoghurt business vendors but not the total pre-money valuation or total number of shares*; and
the actual amount raised and rounding of individual allotments.

*The agreement for the purchase of the yoghurt business includes a fixed pricing mechanism based on rolling 12 month relative sales, ensuring that the final purchase price does not impact on the combined group valuation.

SUMMARY SHAREHOLDING TABLE

Existing shareholders are only participating at this time to the extent of loan conversions. There are no other securities or options authorised or issued by Little Island at this time.

Governance

Little Island currently has four directors:

Matt McKendry: Investor and Non-Executive Director and Chairman
John Evans: Investor and Non-Executive Director
James Crow: Co-Founder, Investor and Non-Executive Director
Tom Holden: Co-Founder, Investor and Non-Executive Director

Biographies for the directors can be found in Team Overview Section of this document. On completion of this offer, Tom Holden will resign as a director and an independent director will be appointed to the board as a non-executive director. One of the founders of the yoghurt business will also be appointed to the board as a non-executive director upon completion of the acquisition of the yoghurt business.

Future Funding

While there is no existing plan, or identified requirement, to raise additional funds after this funding round, the Little Island directors may elect to raise additional capital in the future to accelerate growth plans or take advantage of other opportunities that will increase shareholder value, as they arise.

Litigation and Disputes

There are no past or current litigations or disputes known to the Little Island directors or management.

Shareholder Communication

We intend to keep our investors updated through:

A quarterly business summary update (more frequently if required);
An annual update on the outlook for Little Island, including financial statements and commentary approved by the board; and
Participation in an Annual General Meeting of Shareholders.

Third Party Advisors

Accounting: Cloud Accountants
Legal: Morrison Kent
Banking: Kiwibank

Snowball Effect Fees

Snowball Effect charges a fee if a company successfully reaches its minimum funding target of the greater of $25,000 or 7.5% of the funds raised (excluding the conversion of existing loans).

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.

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