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Comvita shares fall 13% as 1H loss disappoints

Tuesday 26th February 2019

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Comvita shares fell 13 percent after the honey products maker swung to a first-half loss and its planned shift to more formal sales channels into China is taking longer than expected.

Comvita said its net loss was $2.7 million in the six months to Dec. 31  versus a net profit of $3.7 million in the same period a year ago. Revenue was $77.7 million versus $83.6 million a year earlier.

While recent trading had improved, chair Neil Craig said issues in the first-half mean the company is unlikely to match last year's $8.2 million net profit. 

The stock fell to $4.51 and has shed about 40 percent during the past 12 months. 

“It has been a challenging first half to the FY19 year, which has resulted in a shortfall in revenue and profit to that achieved in the comparable period," Craig said. "It has also been a period where we have implemented some important fundamental changes to the business that will result in long term, sustainable competitive advantage for Comvita." 

Last October the company announced a new strategy that - among other things - sought to harmonise prices across various sales channels targeting China and to reduce its dependence on the Daigou market into China - essentially an army of informal travelling shopping agents who buy products in Australasia for sale in China.

"Implementing some of these changes has taken longer to complete than we originally anticipated. Consequently, improved financial performance from implemented changes has been slower to materialise than forecast," said Craig. 

In particular, it has taken longer than earlier anticipated to conclude sales agreements with all major cross-border e-commerce sellers into China, Comvita said. 

Looking ahead, "we believe that between our China joint venture, the formal CBEC channels and the Daigou sellers from New Zealand and Australia into China, we now have ‘all bases covered’ in order to optimise profit on sales to Chinese consumers in the long term," it said. 

Comvita said it is seeing "good progress" with its joint venture company in China.

"Sales expectations are on target and we are seeing an improved gross profit margin, because of our strategic pricing model approach to our entire business. We have increased our marketing investment inside China, in line with our strategy and we expect to see continued growth in this market," it said. 

Comvita said a lack of orders from one major existing customer in the US, after it overstocked another brand, and another poor pre-Christmas honey harvest had also contributed to the poor result.

Post-Christmas, however, the results have been better, it said. Early estimates are that it will obtain about 20 kilograms per hive, better than the 16 kg it obtained last year, but still below its target of 24 kg. 

"Our Manuka honey harvest for this season will be below expectations but better than the last two years," it said. 

Comvita also said that it sees new revenue opportunities in North America and Europe that will "materialise either late in FY19 or early FY20." 


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