Wednesday 26 October 2016 05:35 PM
Comvita shares slump 11% as honey products maker tips 1H loss
By Fiona Rotherham
Oct. 26 (BusinessDesk) - Comvita shares dropped after the manuka honey and health products maker warned a first-half
loss was on the cards, which chief executive Scott Coulter described as a “blip”.
The company today told shareholders at its annual meeting in Te Puke that a loss was likely when its six-monthly results
are announced next February because of a fall-off in sales out of Australasia since Chinese authorities cracked down on
grey market traders.
Comvita shares slumped 11 percent to $9.44, leading the S/NZX 50 Index lower.
A return to profit is expected in the second half due to the seasonality of sales to the northern hemisphere, which rise
during their winter, and a positive impact during the southern hemisphere summer from Comvita’s Kiwi Bee apiary
business, which has around 30,000 hives nationally and several thousand more under management.
Ongoing operating efficiencies resulted in significantly lower costs compared to the prior year, though the company
didn’t state by how much, primarily through a reduction in headcount and overheads in New Zealand.
Coulter said it had laid off 23 staff from its New Zealand head office in order to “right-size” the business though
overall staff numbers of 450 worldwide have been maintained with more staff being hired for its apiary business.
The cost-savings will have a positive impact on second half profit and beyond, the company said.
Net profit for the 2017 year is now expected to be similar to the $17.1 million delivered in the 2016 financial year.
Coulter told BusinessDesk after the AGM that Comvita wasn’t the only company affected by the change in Chinese rules
with traders tending to sell a range of dietary supplements, infant formula and honey.
“No-one is immune to it,” he said.
Trading done that way had grown really fast before the Chinese authorities slapped an 11.9 percent imposition tax on
these products which has slowed demand because of the higher cost, he said.
“We’re expecting it will shake itself out and we can already see that,” Coulter said.
Sales in those channels have now started growing again on a monthly basis as traders adjust to the new rules, he said.
After questioning from the New Zealand Shareholders’ Association, shareholders re-elected director Luke Bunt, the chief
executive of children's clothing retailer Pumpkin Patch which was today tipped into receivership by its lenders and
appointed voluntary administrators after failing to reinvent itself in the face of shrinking sales and too much debt.
Murray Denyer, who was appointed during the year, was also elected to the board.
Coulter said he and the board remain confident of delivering strong long-term earnings growth on the back of a target of
$400 million in sales by the 2021 financial year.
That strategy includes supply chain ownership and partnerships that connect customers directly to the source, growing
direct-to-consumer channels through an increased marketing spend, and diversifying its ingredients platform through oil
leaf extract and marine bioactives and other innovation.
Some 65 percent of Comvita’s revenue is derived from functional foods, 25 percent from healthcare, 6 percent from
medical, and 4 percent from personal care.
This month the company launched a dietary supplement for eye health, one of the largest health concerns in Asia, that is
based on New Zealand-sourced blackcurrants which have high levels of anthocyanins.
Coulter said the strategy involves innovation which is likely to deliver new products in the next year from kiwifruit
which is known for its digestive benefits, probiotics, and milk containing fish oil that will be targeted at brain
development in young children.
Comvita has strengthened its balance sheet by issuing 2 million shares at $10.60 per share for a total $21.2 million
with China Resources Ng Fung, taking the Shenzen-based Chinese food giant’s stake from less than 5 percent to 9 percent.
Coulter said the China Resources had said it has no intention of seeking a full takeover because it saw value in the
company in being New Zealand-owned and operated.
“These guys have scale and have said they want to help, That’s a great position for a relatively small Kiwi company,” he
More than 60 percent of Comvita’s customers are Chinese and the move gives it access to the China firm’s huge
distribution network, with 4,000 Chinese supermarkets – many of them high end.
In September, Comvita also formed a 51:49 joint venture in China with its long-term distribution partner Shenzen Comvita
Natural Food Co. Comvita has a history of building up exclusive distribution positions globally and then acquiring them
back when it feels the time is right.
Under the deal Comvita will issue 2.8 million shares at $10.60 per share to acquire the 51 percent shareholding, which
values the joint venture business at $30 million.