Comvita discloses possible takeover as earnings forecast downgraded

Chief executive Scott Coulter says weather for February and early March was not conducive to honey production.

Comvita CEO Scott Coulter gives reasons for the profit downgrade.

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Comvita chief executive Scott Coulter has hinted at a possible overseas takeover, after the natural health products company announced today it is party to a confidentiality agreement with a third party. 

Mr Coulter told NBR the overseas sale of New Zealand companies “is the natural order of things” and a “compliment to New Zealand.”

“As New Zealand brands develop, get a critical mass and grow overseas they get noticed by bigger companies. It’s a positive thing for Comvita because it’s been noticed, and the fact that someone is interested in us means they like what we are doing.”

In the same NZX statement today, Comvita says its after-tax operating earnings for the financial year ending June 30 are likely to be downgraded from $17.1 million to the range of $8-11m.

Due to the share-price sensitivity of the forecast downgrade, the board felt it was obliged to also announce the potential takeover discussions.  

“This process, which has been ongoing for several months, is to enable the third party to assess the potential acquisition of all or substantially all the shares in Comvita, whether by way of takeover, scheme of arrangement, amalgamation or other business combination,” it says.

In 2011 Cerebos, a global coffee and food conglomerate, offered a $2.50-a-share takeover, valuing Comvita at $71.6 million. However, the company labelled the offer as “unwelcome, opportunistic” and considerably under value. Comvita shares climbed 50c or 23.8% to $2.60 on the NZX in response to that takeover offer.

By contrast, shares dropped 3.16% to $6.75 after today’s announcement.

Due diligence process with potential acquirer
Comvita chairman Neil Craig says Comvita is party to a confidentiality agreement with the unknown third party, which is doing due diligence on Comvita.

“While the board believes this due diligence process is moving toward a conclusion, the possible acquisition remains, for now, an incomplete transaction and there is no certainty that any offer will be forthcoming."

Mr Craig says the board cannot provide any further comment or guidance at this stage but will update the market by mid-May.

The chairman stressed the third-party approach was, and remains, an “incomplete proposal.”

Bad weather impact
Comvita's flagship manuka honey business has been unstable as weather conditions affected honey production.

Despite a disastrous honey season last year, the Bay of Plenty-based company announced a turnaround in profit in the six months to December 31, 2017, with profit touching $3.7m, from an after-tax loss of $7.1m for the same period in 2016.

The company had downgraded its forecast twice early last year, first in January when shares slid 18% to $6.40, which is half of the $12.80 high it reached in May 2016.

In April it announced it expected an after-tax operating loss in the order of $7m in the year ending June 30, 2017. Shares dropped 14% to $7.40 as a result.

Profit guidance
In February, chief executive Scott Coulter signalled the weather conditions during the second half of the season had not been favourable to honey production. Mr Coulter said the company expected honey crop volumes to be below average.

“The weather for the rest of February and early March continued to not be conducive to honey production and the anticipated late harvest did not eventuate.

“We had strong winds and rain, and three cyclones came through this summer.”

The company completed 80% of the extraction for the season and tested 50% of its honey, with about half the yields it had originally budgeted.

“This poor harvest has a direct impact on our apiary business profitability for the current financial year ending June 30, 2018. The direct financial impact on our forecast position for the year is in the order of $8m after tax,” Mr Coulter says.

He says the company diversifies hives regionally in hopes of at least one good harvest a year.

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6 Comments & Questions

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Its seems awfully convenient on the same day to announce that due diligence is being conducted by an interested party after yet another fiasco surrounding previous guidance.

Comvita is a recidivist offender when it comes to shocking downgrades.

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Comvita is in big trouble. They are not selling stocks through. Especially in China where their distributors are reneging on deals

I doubt there is a potential takeover. However if there is and they are doing due dillegence, it won’t happen anywhere near the current share price

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Haha.. So Derek, you genuinely believe they have made the whole thing up? That's a pretty big call ;o)

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What is this new fangled "we're in takeover talks" when the company can't run the business properly and is issuing downgrades? First OHE and now CVT.

If a possible takeover is required to be revealed by market disclosure rules then is the time to do so. Until then, management should be focussed on running the actual company. This sort of blatant manipulation should be heavily fined by market authorities (but we all know that won't happen...).

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to be fair, with OHE it was the NBR comments section that tipped that disclosure

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Comvita has a fundamentally superb value chain that is NZ Inc embedded and which needs to be carefully managed. It would be a shame to see the ownership of such a value chain lost to overseas ownership. The rationale for such ownership is strong for many new Zealand technologies but not for Comvita. Their earlier decision to ditch the Cerebos takeover turned out well for shareholders. Let's hope they remember. And if the company needs an injection of fresh capital and new management, so be it.

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