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Comvita beats earnings guidance, upbeat about FY18

Tuesday 22nd August 2017

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Comvita said poor weather conditions and the slowdown in demand from small exporters who ship goods informally to China weighed on its annual result, although a second half improvement meant it was slightly better than forecast and the manuka honey company is optimistic about the current financial year. 

The Te Puke-based company reported a net profit of $9.8 million in the year to June 30 versus $18.5 million in the audited accounts for the 15 months to June 2016. Comvita changed its financial year to June from March in the previous financial year.  Earnings per share were 23.74  cents versus 46.91 cents in the 15 months to June 2016.  The after-tax operating loss was $5.5 million versus a profit of $17.1 million in the audited accounts for the 15 months. In April, Comvita forecast an after-tax operating loss of around $7 million and a reported net profit of about $9 million, including the sale of Medihoney IP and shares in Derma Sciences, Inc.

"It has been well communicated that we have had a difficult year with two significant external events having impacted our business. Firstly, the changes to the regulatory environment for the grey market channel sales from New Zealand and Australia to China and secondly, the extremely poor honey season," said chair Neil Craig. The so-called grey channel is made up of small-scale exporters who buy the product and post it to China. However, moves by the Chinese government to crack down on grey or "diagou" sales has crimped profits for companies like Comvita. 

The after-tax operating loss means that no final dividend will be paid and Comvita said it expects to recommence paying dividends after its first half result to Dec. 31. 

Sales, however, showed signs of life in the second half of the year. Australasian grey channel sales reached $25 million the second half, double what they were in the first half. 

Craig said that a stronger-than-expected end to the financial year had extended into the new year. That, coupled with significant permanent cost savings and other initiatives "provides us with a good deal of confidence as we head into 2018."  Comvita is forecasting after-tax operating earnings to be at least equal to the after-tax operating earning of $17.1 million achieved in the 2016 financial year - over the comparable 12-month period, said chief executive Scott Coulter 

He underscored, however, this is predicated on a return to a normal 2017-2018 summer honey production season. 

Comvita said it has a number of new business opportunities in North America and South East Asia and as a result, it has lifted its 2018 revenue and profit forecast based on actual orders received and anticipated follow-on orders. 

Its China joint venture became operational on July 1 and this will contribute immediately to underlying operating earnings, it said. "This JV also provides an advantage over our international competitors who have heavy dependency on the grey market channel to China which can be subject to regulatory change," it said. 

Comvita shares last traded at $6.07 and have dropped 24 percent this year.


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