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Comvita turns to a first-half loss as Chinese crackdown hurts sales

Tuesday 21st February 2017

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Comvita, the manuka honey company, turned to a loss in the first half of its financial year after Chinese authorities cracked down on people selling its products through informal trading channels.

The Te Puke-based company had a loss of $7.1 million, or 17.18 cents per share, in the six months ended Dec. 31, from a profit of $3 million, or 7.69 cents, in the year earlier period, it said in a statement. That's within its Jan. 23 forecast for a loss of between $7 million and $7.5 million. The earnings included a $2.8 million writedown in the value of its options in SeaDragon. 

Comvita's shares have lost almost a third of their value in the past six months after it warned earnings would be impacted by a weaker honey harvest and slower sales due to a clamp down on China's informal trading channels. The company said today that first-half revenue fell 37 percent to $57.7 million, but it expects sales to rebound in the second half of the year compared with the first half due to growth in markets outside of China, and new initiatives and innovations.

“The business operating conditions in our two biggest markets (Australia and New Zealand) have been extremely tough over the first six months and account for most of the shortfall in revenue for the period," said chief executive Scott Coulter.

"We are working through a painful period of channel rebalancing from informal to more formal paths to China. This adjustment period may continue for a few more months and the informal channel business in Australasia remains the largest risk to our short term projections."

Still, he said Comvita was well positioned over the longer term through strategic partnerships which secure supply of its raw products and the sale of its products within China through its joint venture with China Resources which is due to start in July.

Comvita said it was investing in diversifying its product range, and had developed 14 new products since June 2016 with a further 10 products in the pipeline, scheduled for launch between March and June this year.

Coulter reiterated that the honey season this year was likely to be hurt by poor weather conditions.

"We will not have full visibility on our 2017 honey harvest until April/May 2017," he said. "Assuming a return to normal weather patterns next year, the operating profit impact of this poor honey harvest will be isolated to this current financial year."

To help improve its finances, Comvita has reduced its operating cost base by $6.5 million in the first half of its financial year, and expects full year savings will be $10 million lower than the previous year.

The company said the sale of its Medihoney brand to Derma Sciences will help it reduce debt to $53 million as at March 31, 2017, from $82 million at Dec. 31, 2016. It retains the rights to use the brand in over-the-counter channels, and said it has inked new manufacturing agreements which will help lower costs.

Comvita will pay a first-half dividend of 2 cents per share on March 21, down from the 6 cent payment a year earlier.

Its shares slipped 0.7 percent to $6.85.

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