UPDATE: Comvita annual profit jumps 68% as Aussie overtakes NZ

Tuesday 10th May 2016

Comvita boosted annual profit 68 percent as Australian sales soared, overtaking New Zealand as the manuka honey company's largest market.

Profit jumped to $17.2 million, or 43.36 cents per share, in the 12 months ended March 31, from $10.2 million, or 29.88 cents, the year earlier, the Te Puke-based company said in a statement. That's better than its November forecast for a profit of $15 million-to-$17 million. Its profit margin rose to 18 percent from 15 percent. The stock rose 2.1 percent to $12.25.

Comvita shares have tripled in the past year, hitting a record high $12.40 last month, on demand for its naturally based products. Revenue increased 32 percent to $202 million as Australian sales jumped 62 percent to $65 million, helped by third parties buying the company's products to take to China, a phenomenon also affecting companies such as A2 Milk, Blackmores and Swisse. Sales to Asia rose 38 percent.

"We have grown really well in Australia and we've managed to do it without significantly increasing our cost base," chief executive Scott Coulter told BusinessDesk. "What's happening in Australia is a lot of Asian consumers are buying products and taking them home to friends and family and we have been right at the forefront of that trend. Australia has just stepped up."

In New Zealand, sales slipped by $200,000 to $48 million although profitability rose as Comvita moved its manuka honey products away from lower-margin supermarket outlets and into higher margin tourism outlets.

"We were getting quite a lot of people going in and buying honey on deals and wholesaling it to Asia and so for us grocery was a lower margin business, so we simply diverted that honey as part of a global network into more profitable channels," Coulter said, adding the company's store at Auckland International Airport was benefiting from a record influx of Chinese tourists.

The company has focused on securing a supply of its raw products, having tapped investors for additional funds to buy honey producers. The value of its raw material inventory jumped 94 percent to $53.6 million and Coulter said its inventories of honey were "in good shape" as it headed into the next year when it expects to be able to increase volumes and prices.

"We haven't seen a lot of price resistance at a consumer level yet and I think we are pretty comfortable that we can do volume and price growth," Coulter said.

Comvita derives about half of its sales from manuka honey and is diversifying its ingredients to include olive leaf extract and fish oil, as well as widening its product offerings with the help of chief innovation officer Sharon Hollenstein, who joined the company last month from milk processor Fonterra Cooperative Group. It's tapping into a US$3 billion global market for Omega-3 fish oil and demand for health benefits from its olive leaf products for diabetes and cardiovascular disease, which Coulter noted was the biggest killer in the western world.

"We have got a couple of other things in the pipeline that we are working on at the moment and we definitely see part of our future as building some other legs we can stand on," Coulter said.

Comvita has a five-year target to reach annual sales of $400 million by 2020.

The company is changing its balance date to June 30, although it expects the 15-month operating result will likely be similar to the latest 12-month period given the June quarter is typically the quietest period due to the seasonality of sales.

It will pay a second interim dividend of 10 cents per share on June 24, taking the total for the 12-month period to 16 cents, ahead of 13 cents a year earlier. A final dividend is expected to be paid in September based on the audited accounts for the period through June, it said.

The latest annual earnings include a write-down of the company's shareholding in Nasdaq-listed Derma Sciences, although that's offset by the value of its options in fish oil refiner SeaDragon, it said.

BusinessDesk.co.nz

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