Comvita, New Zealand's biggest mānuka honey maker and exporter, earned itself a savage selldown on the sharemarket after reporting a first-half loss.
The company rode the crest of a wave in 2014 and 2015, buoyed up by enthusiasm for mānuka honey and strong demand for it in China, through the unofficial grey market, or "daigou" trade.
The share price peaked at more than $12 in 2016, when Comvita was valued at more than $580 million, but quickly began to fall when it hit regulatory problems in the daigou markets the following year.
Then bad weather delivered two poor seasons. The season just past was also less than ideal.
The company's share price has struggled to perform since reaching those giddy heights earlier in the decade.
So how did the former high flyer fall so heavily from grace?
News last week of a $2.7m first-half loss, coupled with a decline in revenue, did not go down well with the market, and the share price fell by more than $1.
Comvita shares have recovered some ground since then, trading yesterday at $4.38 — up from its post-result low of $4.09.
But the market remains less than impressed with the company's forecast that this year's profit will fall short of the previous year's.
Then there was cancellation of the interim dividend. Nor were revelations about the company's inventory and debt levels well received.
On top of all that, there are questions about Comvita's much vaunted relationship with giant US-based retailer Costco.
All in all, a string of disappointing results and missed forecasts have deflated investor sentiment.
"With revenue falling, the company declaring a half-year loss, debt levels rising and no dividend paid, I think it would be fair to say the market view of the company is jaded, at best," says Josh Wilson, portfolio manager at NZ Funds.
Management predictions and strategy seem to have been wide of the mark and debt is "uncomfortably high relative to earnings and cashflows", he says.
"The company previously justified rising inventory levels as necessary to facilitate sales growth, but this argument is starting to lose weight.
"For a small, ostensibly simple company that makes and sells, the financials are complicated by a number of factors — the joint venture [in China], biological asset revaluation, honey seasonality, various minority investments," he says.
"It makes analysis of underlying performance more difficult."
Analysts have also queried Comvita's move away from the unofficial grey trading channel into China — the channel that propelled it into the limelight in the first place.
Wilson says Comvita's experience is in stark contrast to fellow premium Chinese consumer play a2 Milk, for which daigou remains an important platform.
Then there is Comvita's $104m in debt by the end of last year, described by one analyst as "Ritzy".
Comvita says changes in the way it does business with China, a lack of orders from a major existing US customer and another poor pre-Christmas honey harvest drove it into the red.
Chief executive Scott Coulter is prepared to admit Comvita probably spread itself too thin — offering too many products at the expense of its core business, mānuka honey and propolis.
But he's prepared to deflect the other arrows that have been fired in the company's direction.
"Obviously we have had a pretty tough half-year result but I think that we are doing lots of things in the business that are putting us in a position to grow further," he says.
Coulter says that of the $119m in inventory, $26m worth was in finished goods — packed honey. The bulk of the remaining inventory is made up of raw material and again, most of that is high grade mānuka honey.
Coulter says the high inventory policy comes from Comvita's earlier days.
"We like to have around 12 months' of inventory to be able to deliver out the next year and make it through if there is a shortage," he says.
"We were very much hand-to-mouth with inventory for a very long time, so we have probably taken a relatively safe approach to acquiring inventory, but we are comfortable.
"We always remind the investor market that mānuka gets better over time," he says.
However, inventory is higher than normal for this time of year.
"There is not a lot of stock around so we are quite happy to buy and hold it," says Coulter. "If you don't have the inventory you can't grow."
As for debt, Coulter points to the sharp fall to $96m from $104m at the end of last year.
He expects the debt to run down through the rest of this financial year and the next.
Much of Comvita's high profile has come from its early success in the daigou channels.
Coulter says there was a fear that Chinese authorities would start to tax and regulate the sector, so the company saw a need to spread risk.
Comvita achieved some vertical integration by buying 51 per cent of its distribution business in China and it has started to build direct links through cross-border e-commerce channels.
"Daigou is still a very important market — we still see it as an opportunity for future growth — but what really matters now is how successful you are inside China," he says.
"We believe that's what will really drive growth."
As to the comparison with a2 Milk's success in the channel, Coulter says: "All credit to them. They have done a brilliant job. In infant formula, they were in the right place at the right time and were enormously successful, but we have to be realistic.
"Infant formula and mānuka honey have different drivers and different consumer niches. What has worked brilliantly for a2 Milk does not necessarily work for Comvita."
Coulter says spreading the risk in China has come at a cost.
"There is definitely some short term pain — we are making choices that are difficult to make.
"That affects us in the short term but we believe it will drive long term growth ... we are convinced that we are doing the right thing for the long term."
Last week's result also reflected an unexpected loss of an order from Costco. Coulter says Costco took on supply from a competitor and found itself carrying too much product.
He sees the loss of the order as a blip, and expects Costco to be back before the end this financial year.
On the debt front, chairman Neil Craig, who is also executive chairman and director of Craigs Investment Partners, says there is "significant bank headroom available".
Craig also defends the use of debt to buy inventory. "This use of bank borrowings to purchase high UMF mānuka honey inventory is a targeted use of debt.
"Today our total inventory is $120m. This provides us with secure honey supply of the highest quality which will grow in value while in storage," he said in last week's results announcement.
This year's full-year result was likely to fall short of last year's net profit of $8.2m, he said.
"However, we have set up the business from a revenue and margin point of view to deliver strongly in the balance of the 2019 calendar year and beyond."
Comvita, which was founded by the late Claude Stratford and Alan Bougen in 1974, said last year that it had turned itself around despite two unusually poor harvests in a row.
The company reported a net profit after tax of $8.2m for the June 2018 year — towards the bottom of its own $8m-$10m guidance — compared with a net profit of $9.8m in 2017.
After adjusting for non-operating items, the result is an after-tax operating profit of $9.3m, against an after-tax operating loss of $5.5m in 2017. The second poor honey harvest had a negative impact of $6.2m on the full year's net profit.
The Te Puke-based company, which makes natural health and beauty products derived largely from mānuka honey, fought off a 2011 takeover attempt by Singapore's Cerebos Pacific, which offered $2.50 a share. It was a good call: five years later, the stock hit a record $12.85.
Then there was the mysterious business of the takeover bid that was not a takeover bid.
Early last year, Comvita allowed a third party to undertake due diligence on its books, after which it received a non-binding proposal on the price they would pay for 100 per cent of Comvita.
However, in negotiations that followed a profit downgrade in April, the board could not agree with the potential bidder.
The whole exercise prompted Comvita to reappraise its strategic direction, which involved narrowing the range of products to build on its market position in mānuka honey and propolis. This would involve a leaner, more focused business model with a lower overheads.
At the same time, Comvita lifted its marketing spend.
The company's change of tack is largely the result of last year's unsuccessful bid.
Coulter is first to concede that last week's result was not a good look.
"Typically your ratios get out of kilter and the investment market gets concerned, but also we are trying to match our raw material levels, and we have been pretty consistent over the last few reporting periods where debt has been matched to raw material levels," he says.
So where does Comvita go from here?
"Our focus is on trying to grow our China business and our US business," he says.
"We see China as our growth engine; we do want some diversification in Europe and North America, and that's our strategy from a markets perspective.
"We are chasing a pretty big prize, so going through a bit of turbulence is all part of growing."
The Comvita story:
• Established in 1974 by Claude Stratford, soon joined by business partner Alan Bougen. Initially sold bee products from Stratford's home in Paengaroa, in the Bay of Plenty.
• Today sells mānuka honey, skincare, wound dressings and other products, with almost 80 per cent of revenue coming from overseas markets.
• Listed on the NZX in November 2003, when shares traded at $2.14.
• In 2011, fought off takeover offer from Singapore-based Cerebos Pacific, which wanted to buy Comvita for about $72 million, or $2.50 a share. Comvita's board called the bid opportunistic, and said it undervalued the company.
• In April 2018, revealed that an unnamed party was assessing the company, with an eye to a possible takeover or other deal. In May, Comvita said that process was over because: "We could not bridge the considerable distance between us on price."
• At its peak, the company was valued at more than $580m, but today its market capitalisation is about $200m.
• Biggest after-tax profit was $17.2m, for the 12 months to March 2016.
• Latest half-year result, for the six months to December 31, 2018, was an after-tax loss of $2.7m on revenue of $77.7m.
• Has invested in improved varieties of mānuka, to provide food for bees.