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Comvita swings to first-half profit, reiterates full-year guidance

Friday 23rd February 2018

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Comvita, the mānuka honey company, swung to a first-half profit on strong sales growth and a recovery in the "grey" or informal sales channel into China and reiterated its full-year earnings guidance despite bad weather hitting the 2018 honey season. 

The Te Puke-based company reported a net profit of $3.7 million, or 8.31 cents per share, in the six months to Dec. 31 versus a loss of $7.1 million, or 17.18 cents, in the prior period. In January the company said net profit would be more than $3 million. Sales reached $83.6 million versus $57.7 million in the prior year.  Earnings before interest, tax, depreciation and amortisation were $9.9 million versus an ebitda loss of $2.8 million in the same period a year earlier. 

“Comvita’s total sales were up 44 percent on the prior period, driven by sales to North America, which reached $19.6 million for the half-year period compared to $1.6 million on the prior period and meets our strategic objective of market diversification,” said chief executive Scott Coulter.

"Grey channel sales into China from New Zealand and Australia are up 45 percent compared to the first half of FY17. We are pleased to see this improvement, albeit more slowly than anticipated at this stage of the year," he said. The grey channel is made up of small-scale exporters who buy the product and post it to China. Moves by the Chinese government to crack down on grey or 'daigou' sales had crimped profits for companies such as Comvita.

Comvita said it would pay an interim dividend of 4 cents per share on March 23 for shares registered March 16. 

Looking ahead, Comvita reiterated its confidence that full-year net profit would be greater than $17.1 million, subject to confirmation of apiary profitability in May 2018 and continued recovery of the grey channel from New Zealand and Australia into China.

While the 2018 honey season started off well, leading it to be fairly upbeat in January, "since that announcement, the weather has not been supportive to honey production and we are now expecting honey crop volumes to be slightly below that of an average year," said Coulter. However, quality is forecast to be above average and that should partly offset the volume deficit, Comvita said. 

"It still too early to be definitive on both honey volumes and quality of the crop at this stage of the harvest as only 20 percent of the 2017-18 crop has been harvested to date. We will update the market on the harvest once extraction of the honey from the hive and testing is completed in May," he said. 

Comvita chair Neil Craig said the company's new China joint venture - which became operational in July last year - is performing ahead of expectations from a profitability perspective. 

Comvita said the Ministry for Primary Industries' new legal definition for mānuka honey is a "great leap forward for the industry." The mānuka honey industry is currently worth around $180 million to New Zealand every year, but there have been concerns about the authenticity of products sold as mānuka honey with more sold than was being produced in New Zealand. The honey will now be tested for four chemical markers and one DNA marker before being sold overseas as mānuka.

Comvita noted the regulations are causing some "short-term uncertainty" but will be very positive for Comvita's growth opportunities globally. 

The stock was unchanged at $8.38 and is up 0.8 percent so far this year. 

(BusinessDesk)

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