The Business Herald’s markets and banking reporter.

Comvita confident it will weather new Chinese rules

Scott Coulter says the Te Puke-based company is also pushing to diversify its export revenue. Photo / Greg Bowker.
Scott Coulter says the Te Puke-based company is also pushing to diversify its export revenue. Photo / Greg Bowker.

Natural products maker Comvita is confident its business will not be disrupted by impending Chinese regulatory changes facing honey processors, its chief executive says.

But Scott Coulter says the Te Puke-based company is also pushing to diversify its export revenue through expanding sales outside Asia in markets including the United States and Europe.

The Ministry for Primary Industries said last week that China's Certification and Accreditation Administration (CNCA) would require registration of wineries and honey producers next year.

New Zealand infant formula manufacturers were thrown into a state of flux in May 2014 when the same registration requirement was introduced for that industry.

Products could not enter China without approval, and a number of Kiwi baby milk exporters went under following the rule change.

Coulter said he was confident Comvita would get through the CNCA registration process - which is likely to involve Chinese officials auditing New Zealand manufacturing facilities - without disruption.

"The [new regulations] will raise the bar in terms of manufacturing standards - and that's healthy for the industry."

Coulter said around 60 per cent of the firm's sales, which reached $231 million in the 15 months to June 30, end up with Chinese consumers through various channels including e-commerce and Comvita's roughly 400 retail stores and kiosks in China.

Announcing the firm's annual result on Tuesday, Coulter said Comvita had been experiencing a lower Chinese demand as a result of that country's economic slowdown and new regulations.

He said the firm's "re-export" channels - third parties who purchase Comvita product in New Zealand and ship it to China for re-sale, often via online platforms - had been affected by an 11.9 per cent e-commerce tax introduced by the Chinese authorities in April.

A "re-balancing" was taking place as a result of the new tax, he said, with more Comvita product now likely to enter China through the firm's direct channels rather than via re-exporters.

Coulter said Comvita had a five-year plan to grow its sales outside Asia.

"It's about getting a bit of balance," he said.

Coulter said around 75 per cent of Comvita's products ended up with Asian consumers and the firm would like to reduce that to 60 per cent.

NZX-listed Comvita reported a $18.5 million profit for the 15 month period to June 30.

The company also announced it would change its dividend payout policy to 40 to 45 per cent of operating profits, down from 50 per cent previously, in order to chase growth opportunities.

"We've got a lot of opportunities in front of us," Coulter said. "It's still a pretty good dividend so we're just saying we'll keep a bit more money and invest it wisely."

Meanwhile, Walker Zhong, chief executive of NXT-listed Oceania Natural, said his firm - which also exports manuka honey products to China - was similarly well-placed to cope with the CNCA registration requirements.

The company was setting up a Chinese operational headquarters in Wuxi, near Shanghai, which would help it negotiate that country's ever-changing regulatory landscape.

"We are fully supportive of this new regulation," Zhong said.

- NZ Herald

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