Comvita shares slump as weak trading, poor honey harvest weigh on earnings

Wednesday 5th April 2017

Comvita shares slumped after the manuka honey company warned it will post an operational loss this year due to weaker than expected trading and as a poor season dents the honey harvest in New Zealand.

The Te Puke-based company expects to report an after-tax operating loss in the order of $7 million in the year ending June 30, 2017, it said in a statement. That's a downgrade from its January forecast when it expected after-tax operating earnings of between $5 million and $7 million, and its earlier guidance for earnings in line with 2016's $17.1 million.

The company expects funds from the sale of its Medihoney brand and shareholding in Derma Sciences will bolster the bottom line, forecasting net profit of $9 million, down from its January expectation of between $20 million and $22 million.

The shares dropped 8.7 percent to $7.85, making them the biggest decliner on the S&P/NZX50 benchmark index in morning trading today.

Comvita's shares have lost a quarter of their value over the past year after the company 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 trading in its two largest markets of Australia and New Zealand hadn't rebounded as expected over the last two months and weren't likely to do so by the end of this financial year. Poor weather had continued to weigh on honey production for the 2016/17 season, further denting sales, it said.

"Although the informal trade channels will show growth over the previous half year this is still well under our previous expectations, and much of these sales to China have been satisfied by inventory held within the various channels to market," said chief executive Scott Coulter. The company expects its financial performance to improve once this inventory has run down, he said.

Comvita said it tried to mitigate against regional weather events by having hives strategically located around the country but can't mitigate against poor weather across the whole country.

Chair Neil Craig stressed the poor harvest was seen as a "one-off" event, described by some experts as a "one-in-20-year event."

"Given the nature of the 2016/2017 honey harvest and the fact that Comvita has significant levels of inventory, the extremely poor season is unlikely to impact future profitability," Craig said. "While the simultaneous impact of two very significant events in one financial year is ‘tough to stomach’, the Comvita business model remains sound."

To counter the hit to its earnings, Comvita is focused on productivity and reducing costs, he said.

"As part of our diversification strategy we will deliver significant new market, channel and product innovation initiatives this year which will underpin our sales increase in the second half year and sets us up well for FY18," Craig said. "Given an average honey harvest in 2017/2018, we remain on track to deliver our medium and longer term strategic objectives beyond what has been a very challenging period of time for the company.”

(BusinessDesk)

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