Comvita is blaming weak demand in China for a disappointing half-year result. Photo / NZME
Comvita is blaming weak demand in China for a disappointing half-year result, posting a loss for the six months to December 31.
The mānuka honey wholesaler reported an unaudited net loss after tax of $3.2 million for the period, compared with a net profit of $4.2m for the December 31, 2022 half year.
Total revenue was $103.4m, a decrease of 7.8 per cent from the same period last year.
Comvita’s earnings before interest, tax, depreciation, and amortisation (Ebitda) was $6.1m, compared with $13.4m for the December 31, 2022 half year.
The company said it had lost some of its North American distribution with one customer but would partly make that up in the second half of the 2024 year with newly signed distribution agreements in the region.
North American revenue was $13m, a decrease of $7.7m on the same period last year.
Revenue from greater China for the period was $45m, a decrease of $6.9m.
Revenue in the rest of Asia increased $6.3m to $19.2m. In July last year, Comvita’s Singapore subsidiary acquired retail business HoneyWorld, which accounted for a $7.3m expense in the half-year cash flow. The purchase price allocation is still in progress.
While consumer sentiment had weakened, particularly in China, but also in North America, Comvita said its market share had grown during the reporting period. Its gross margins had held up at around 60 per cent and pricing had remained consistent.
“This gives the board and management confidence that the current performance is revenue-related, short-term in nature and will return to trend once consumer sentiment, particularly in China, starts to normalise.”
Comvita announced a fully imputed interim dividend of 1 cent per share, reflecting softer half-year trading, recorded on April 4 this year and payable on April 24.
The company is carrying out an internal digitisation programme to update its enterprise resource planning (ERP) system, which is on track regarding time and costs to be in place by June this year. Ebidta was $9.5m, excluding ERP costs for the half.
It confirmed its February 1 guidance of an Ebitda between $30m and $35m, excluding ERP costs, for the June 30, 2024 year and revenue between $225m and $235m.
It was sticking to its $50m Ebitda target for 2025, although that depended on a return to normal trading conditions, and the timing of that was uncertain.
Grumpy Jarden
Analysts at Jarden wrote in a note that the company’s 2025 financial year Ebitda expectations seemed hopeful.
“This clearly requires a significant uplift in performance, which is ‘subject to consumer demand normalising’, as opposed to specific actions Comvita is able to make/control and present to the market.”
It was hard for Jarden to have confidence in the large sales step-up needed, particularly given recent expectations management, which it described as poor.
Jarden wrote that debt reduction should also now be a priority for Comvita and its inability to sell-through inventory remained a source of frustration. It noted net debt was $86m, up from $53m in June last year, which also included the acquisition of HoneyWorld and Apiter.
‘Surprise and frustration’
On February 1, Comvita’s shares dropped 14.09 per cent after it flagged the drop in half-year revenue.
Comvita chairman Brett Hewlett said he could empathise with the feelings of surprise and frustration in the current share price expressed by many shareholders.
“I do want to reiterate that our market share and underlying performance remain positive, our prices and margin are stable, and I believe that we are still on track to deliver our FY25 strategic plan once consumer confidence in China returns.”
During the first half of the 2024 year, Comvita spent $14m, representing 13.5 per cent of sales into building its brand. It had launched new stores at Auckland Airport, and in Singapore and Japan.
Last year the company began clinical trials into gut health using a unique mānuka honey molecule it discovered and trademarked as Lepteridine. The results of the trials will be released at the Foodomics conference in Wellington next month.
Ebos spent $10.1m on mergers and acquisitions, including its failed $4 billion bid to buy Australian pet care company Greencross.
The NZX-listed company reported underlying net profit after tax of $152.4m for the six months to December 31, an increase of 7.6 per cent.
The health and animal care company said underlying Ebitda rose 8.3 per cent to $313.2m, with underlying revenue increasing 7.1 per cent to $6.6b.
It stripped out one-off merger and acquisition costs of $10.1m for its Lifehealthcare acquisition and its attempt to buy Greencross, which was called off after it reportedly couldn’t raise the capital.
Goodbye Chemist Warehouse
From June 30, Ebos loses Chemist Warehouse as a customer after the company dropped Ebos as a supplier.
It said revenue growth was 6.9 per cent excluding the expiring Chemist Warehouse contract, with underlying group Ebitda growth of 10 per cent after excluding the Chemist Warehouse Australia contract.
The company said it was pleased with its strong earnings growth in the first half of 2024 and was successfully managing its Ebitda margin “in the current environment”.
Its Ebitda margin for the six months was 4.38 per cent, an increase on 4.35 per cent in the six months to December 31, 2022.
Macquarie analysts expected the company would report revenue of $6.4b and underlying Ebitda of $320m, with Ebos outperforming revenue expectations but falling short on Ebitda.
More purchases, managing costs
It said it would continue to pursue “further bolt-on acquisitions” in healthcare and animal care.
“Ebos’ balance sheet is strong and well-positioned to pursue growth opportunities.”
Ebos said it would also focus on the group’s $1b annual cost base.
The healthcare segment of the business reported revenue of $6.3b with underlying Ebitda of $275.5m, an increase of 7.5 per cent and 8.0 per cent respectively on the prior corresponding period.
Animal care reported revenue of $286.2m and underlying Ebidta of $55.4m, a decrease of 1.7 per cent and an increase of 8.6 per cent on the prior corresponding period.
It said it expected to spend slightly more on capital expenditure in 2024 than in 2023 to continue to invest for growth and modernise facilities, particularly the New Zealand healthcare operations.
Ebos chief executive John Cullity said it was pleased to report another strong performance for the group driven by continued organic growth as well as several strategic investments.
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