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Comvita says auditor KPMG verified inventory value

Tuesday 6th August 2019

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Comvita chair Neil Craig says a key message the company had wanted to convey in its latest earnings downgrade last week was that the valuation of its inventory is worth the $110 million it is valued at.

“There’s been criticism or assertions that there’s a lot of ‘caught bycatch’ or bush honey in the inventory. That’s the fundamental point that’s worrying the big investors,” Craig says.

“Not only have we done our own internal valuation and stock assessment, but we’ve also had our outside auditors doing it too,” Craig says. Comvita’s auditor is KPMG.

“We’ve completed that exercise and we’re very comfortable with what we’ve got. All the honey is saleable and has all been assessed from a honey point of view as being accurate.”

All but about $10 million of the inventory is Manuka honey and meets China’s regulatory standards, allowing it to be sold in that country as such, Craig says.

Comvita shares rose 0.3 percent to $3.02, trimming their loss the past year to about 47 percent.

China is Comvita’s largest market, accounting for 33.3 percent of sales in the half-year ended December.

The other $10 million is mostly other products such as the company’s olive leaf products and propolis.

Eyebrows in the industry were raised by Friday’s statement that there were “no material issues” with the inventory valuation.

Earlier this year, Comvita had talked about its poor harvest, its lower-than-anticipated grade of honey achieved from its apiaries and the large drop in value of the multi-flora Manuka – also known as bush honey or bycatch – as a direct result of new Manuka honey standards.

Craig says the new standards mean that honey that used to sell for $10-12 a kilo became worth only $3-5 a kilo. “It effectively made it very unprofitable to harvest.”

This latest poor harvest was the company’s third in as many years. Despite that, the company’s inventory has been largely increasing from $87.9 million in June 2017 to $119 million in December and has now eased to $110 million, according to the company’s latest advice.

Craig says roughly a third of that inventory has come from Comvita’s own apiaries, another third from long-term contracted supplies and the final third bought opportunistically on market.

Manuka honey can be stored long-term and holds or increases in value, Craig says.

Friday’s statement also showed Comvita had paid down its debt to $89 million at June 30 from $103 million in December, a net debt-to-equity ratio on the high side at 55 percent.

One of the reasons investors were concerned about the quality of inventory was that they feared Comvita might have to raise fresh capital.

As for the downgrade, the company is now expecting a net operating loss after tax of about $7.8 million, up from the $6 million loss Comvita had flagged in early May.

The company is blaming that on the Hong Kong riots and new requirements placed on daigou – buyers who acquire Comvita’s products in Australia and New Zealand for sale in China.


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