Wednesday 22nd August 2018
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Comvita, New Zealand’s largest producer and marketer of honey and bee-related products, is reducing its risk and positioning itself for future growth by honing in on where it can get the most bang for its buck.
The company’s shares are the worst performer on the benchmark index this year after earnings were hurt by two consecutive years of poor honey harvests. Its honey supply business lost $6.2 million in operating profit in its 2018 financial year and $6.6 million in the 2017 year.
While Comvita believes a third bad season is unlikely and beekeepers have been consistently extracting more from their hives over recent decades, it recognises honey production is inherently variable.
To mitigate that risk, it’s being more conservative about future budgets, requiring its apiary business to be profitable with a honey harvest of 24kg a hive, lower than the 29.3kg a hive average over the past 42 years. Over the past two seasons hives have averaged just 20kg.
Chief executive Scott Coulter says that’s prompted changes to the business, including being more vigilant about selecting sites in areas with settled weather to reduce the harvest risk. It is also targeting higher value mānuka honey.
“We have now changed the way that we budget for our apiary business so that we are targeting less kilograms per hive and we are changing the operations of the apiary business to cope with obtaining less honey but still being profitable,” he told BusinessDesk. “Choosing the right sites and making sure that you are choosing the right honey are all things that help with your profitability.”
The company has been investing in breeding programmes for the mānuka plant over the past decade and has a number of mānuka crosses that can flower for longer and later and produce higher levels of DHA, the precursor in mānuka nectar that gives the mānuka honey its unique properties.
It has established 12 seed nurseries in different geographic and climatic areas and is now confident it can secure future supply through plantations. Over the past two winters it planted its first commercial-scale mānuka plantations of its improved ‘crosses’ on 2,000 hectares of land jointly owned by Comvita or land over which it has long-term leases. It set up apiaries at the plantations to minimise transport costs.
Coulter declined to specify the geographic area, saying he didn’t want to alert his competitors. Some 95 percent of the company’s mānuka honey comes from the North Island.
As part of its effort to boost profits, the company is narrowing its focus to its mānuka honey and propolis businesses, where it sees the most opportunity, setting aside its plans for growing its fish oil and olive leaf businesses for the time being.
“Our strategy is about making choices so we are choosing to focus on mānuka honey at the moment,” Coulter said. “That is the best bang for your buck.”
Meanwhile, Comvita is eyeing markets in China and the US, where it sees the biggest near-term opportunities to benefit from demand for health products. Plans to expand in Europe will be pursued at a later date.
In its 2018 year, group sales grew 19 percent to $176.7 million. North American sales jumped 53 percent to $26.8 million helped by sales to Costco and through Amazon’s e-commerce platform.
In China, its joint venture recorded sales of $46 million. The company also sells into China through so-called grey channels, where individuals buy products in Australia and New Zealand and send them to China.
“We are working hard on growing our business in China and also in the US, where there are really big opportunities,” Coulter said.
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