Jamie Gray is a business reporter for the NZ Herald

Shock downgrade highlights damaging weather

Comvita looks set to be hit by a poor honey harvest in the current financial year.
Comvita looks set to be hit by a poor honey harvest in the current financial year.

A shock earnings downgrade from New Zealand's biggest manuka honey maker, Comvita, has highlighted the damaging impact the current unsettled weather is having on the sector.

Comvita said a poor season would bring a 60 per cent shortfall in its manuka honey harvest which, together with slower sales through China's informal trading channels, would drag its June year operating earnings down to about $5 million to $7m from a previous forecast of $17.1m.

The company expects a honey crop of 380 tonnes in the 2017 year, compared to an average harvest of 974 tonnes.

While Comvita's operating earnings will take a hit, the company's sale of its Medihoney brand and shareholding in Derma Sciences will bolster the bottom line, with net profit expected to be between $20m and $22m.

The company's share price closed down 17 per cent at $6.50 on the news, wiping $56.5m off its market capitalisation.

The company's share price has almost halved since hitting a record high of $12.87 mid-way through last year.

Comvita is by far the biggest player in the manuka honey sector, but the other smaller operators across the country were also suffering because of the bad weather, UMF Honey Association's John Rawcliffe said.

"Indications are that it is a very poor year, which means the industry needs to get together to support each other and look at ways to get through it," Rawcliffe told the Herald.

"The season did not start well - there have been storms and bees do not like the rain or the wind - and we just have not had the temperature," he said.

Bees tend to stay inside their hives during bad weather and manuka trees do not produce as much nectar when the cold sets in.

Fresh snow on the Cardrona ski field 19 January 2017 as unseasonally cold weather swept up the country. Photo / Supplied
Fresh snow on the Cardrona ski field 19 January 2017 as unseasonally cold weather swept up the country. Photo / Supplied

"It's part of the seasonal nature of the business ," Rawcliffe said. "We have not had the greatest of summers."

Comvita chief executive Scott Coulter said most of the country has seen cold, wet and windy conditions over the optimal nectar flow period.

"Although we do not have full visibility on our 2017 honey crop until April/May, the honey season has progressed to a point where we have enough evidence to suggest we are likely to see a 60 per cent shortfall in harvest expectations this season from our own apiary operations," he said in a statement to the NZX.

Coulter said there was still some time in certain areas of the country, subject to a sustained period of fine weather, to see some form of recovery.

"However it appears the whole industry is experiencing one of the most difficult honey production seasons for many years," he said.

Comvita had been preparing for this type of scenario, buying manuka honey inventory from third party suppliers over the past 18 months, which gives it enough supply to meet demand for the next year, he said.

Mark Lister, head of private wealth research at Craigs Investment Partners, said it was a reminder that Comvita could be affected by the weather, just like any other agricultural company.

"It's disappointing but I guess it's a reminder that it is a company with agricultural exposure in many ways and that it is at the mercy of the weather and other things that can influence how much supply they have got," Lister said.

Comvita warned last year that the first four months of the year ending June 30 had seen tough trading conditions, with sales significantly lower than the prior year resulting from a slowdown in the New Zealand and Australian informal trade channels into China.

The company has said it was likely to report a first-half loss due to the crackdown by Chinese authorities on grey market traders, which has also hit other industries that use those distribution channels such infant formula makers.

In May last year, Comvita co-founder Alan Bougen sold down his stake in Comvita for just over $12m. Bougen's trust - Flaxmill - said it had sold down its stake in the company to just over 5 per cent from 7.6 per cent at $12.06 a share.

Comvita was founded by Claude Stratford in 1974. Bougen became Stratford's business partner two years later. The company makes several honey and olive leaf extract products. It also manufactures medical grade manuka honey for the treatment or severe wounds and burns.

- NZ Herald

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