Comvita’s result far from sweet
China’s clamp down on ‘grey’ market blamed for honey firm’s loss
Manuka honey company Comvita went into the red in the first half of its financial year, almost entirely due to a decline in sales through the informal or “grey” market trading channels into China.
The Te Puke-based company, which has gone from a March 31 to June 30 balance date, warned in January that sales to China through Asian resellers in Australia and New Zealand were down on expectations.
“The poor interim result is almost entirely a result of the drop in sales in these two markets,” said Comvita chairman Neil Craig.
Comvita’s loss came to $7.1 million in the six months to December — at the low end of its $7m to $7.5m guidance — compared with a profit of $3m in the previous interim period for the six months to September 30, 2015. Sales dropped to $57.7m from $91.1m.
The daigou — or grey market — involves trade outside the normal import/export channels.
China clamped down on the trade last April by imposing an 11.9 per cent tax on inbound parcels of product, which created a bottleneck for a range of China-bound goods from manuka honey to infant formula.
Unfavourable weather means Comvita now expects its net profit to be just $5m to $7m for the year, compared with $18.5m in the 18 months to June 2016.
Chief executive Scott Coulter said the company was moving quickly from the informal to the regular sales channels.
“We are working through a painful period of channel rebalancing from informal to more formal paths to China,” he said, adding the change may take a few more months to take effect.
“This informal channel remains the biggest risk to our short-term projections,” Coulter said.
“Longer term, we expect to be wellserved by the strategic partnerships that we have on the supply side and inside China itself.”
Comvita’s joint venture with China Resources, which has a 9 per cent stake in the company, kicks off on July 1.
The initial market reaction to the result saw Comvita’s shares sold down by 26c to $6.64. The stock regained ground to close at $6.75, down 15c from Monday’s close.
Forsyth Barr analyst James Bascand said the result was in line with Comvita’s earnings guidance.
“The makeup of the result was disappointing, with the sales line significantly lower than I was going for,” Bascand said, adding the poor honey harvest was less “integral” to the result than expected.
“The reality is that the lower sales from the grey channel were significantly more material than they had guided us to,” Bascand said.
The loss included an unfavourable, non-operating, fair value adjustment on SeaDragon options held of $2.8m for the six months. Comvita said it expected its sales to be up significantly in the second half compared with the first, due to continued growth in the non-Chinese markets, improvement in Australasian sales and the effect of new sales initiatives.
In January, the company said the honey season was likely to be significantly impacted by prolonged and unfavourable weather conditions.
In yesterday’s announcement it said it would not have “full visibility” on the state of the harvest until April or May of this year.
Assuming a return to normal weather patterns next year, the operating profit impact of this poor honey harvest will be isolated to this current financial year.
Comvita said it would pay a 2c per share interim dividend, compared to 6c in the previous interim period.