Comvita heading into loss, shares drop nine per cent

Comvita's share price dropped by 16 per cent per cent cent after the manuka honey maker said a poor harvest and trouble in the unofficial trade channels with China would take the company into an operating loss in the June financial year.

The company said the two major downside risks communicated to the in January and February 2017 had both come to bear.

"W now expect that the direct impact of these two situations will result in an after tax operating loss for the financial year ended 30 June 2017, in the order of $7 million," it said in a statement.

By early afternoon the stock was trading at $7.20, down $1.40 or 16.2 per cent.
The company expects its net profit to be about $9m after including the sale of Medihoney IP and shares in Derma Sciences, Inc.

"Trading conditions over the last two months in its two largest markets - Australia and New Zealand - have not recovered in line with our earlier expectations," Comvita said in a statement.

Comvita has fallen from grace after being one of the market's most sought after stocks last year, when it hit $12.87 a share.

"It was a glamour stock through 2015 through to the middle of 2016 where it rallied extremely strongly," said Grant Williamson, director at Hamilton Hindin Greene.

"Expectations obviously haven't been met. This is another earnings downgrade from the company and therefore investors have been rather heavy handed in selling the stock down," he said.

"The market got a little bit too excited with Comvita - honey and honey products were all the rage and that created huge demand for the shares. I believe that they are coming back to fairer value now," Williamson said. "It's very disappointing for investors."

In its statement, Comvita said it had assumed that the informal channels out of Australia and New Zealand into China will not recover to our earlier forecast levels before 30 June 2017, the company said.

To make matters worse, continued poor weather has further reduced the production of honey for the 2016-2017 season, it said.

"Although the informal trade channels will show growth over the previous half year this is still well under our previous expectations, and much of these sales to China have been satisfied by inventory held within the various channels to market," Comvita chief executive Scott Coulter, said.

Chairman Neil Craig said the simultaneous impact of two very significant events in one financial year were "tough to stomach", the Comvita business model remained sound.
He said the company had focused on productivity and cost saving initiatives across the business and we have already implemented significant permanent overhead cost reductions.

"At the same time, as part of our diversification strategy we will deliver significant new market, channel and product innovation initiatives this year which will underpin our sales increase in the second half year and sets us up well for full year 2018," he said.

"Given an average honey harvest in 2017-2018, we remain on track to deliver our medium and longer term strategic objectives beyond what has been a very challenging period of time for the company," he said.

- Additional reporting from Businessdesk