Comvita posts 1H loss on margin squeeze, competition in Australia, UK

Comvita [NZX: CVT], which makes health products from Manuka honey, reported a first-half small loss as its margins were squeezed by expensive honey and as trading conditions in Australia and the UK were stretched by stiff competition.

The Te Puke-based company made a loss of $790,000, or 2.7 cents per share, in the six months ended Sept. 30, from a profit of $2.39 million, or 7.95 cents, a year earlier, it said in a statement. Sales fell 4.6 percent to $43.4 million.

That was in line with guidance last month, and Comvita affirmed its annual forecast to beat last year's profit of $7.4 million and sales of $103.5 million, with about 60 percent of revenue expected to come in the second half.

"Trading conditions in most markets have been challenging throughout the six month period, but in particular in the wholesale markets of Australia and the United Kingdom, where we have limited sales direct to the consumer, price competition was strong," chief executive Brett Hewlett said. "Raw Manuka honey costs remain high and have impacted our gross margins over the last 12 to 18 months."

Last month Comvita warned the price competition in Australia and the UK was crimping sales, and that Hong Kong was struggling under the heightened scrutiny of New Zealand food products after the false alarm over some of Fonterra Cooperative Group's whey protein concentrate.

Comvita ran a marketing campaign in Hong Kong to allay its Asian customers' fears about its products, and Hewlett said he was confident sales will reach their budgeted targets in the second half.

The board declared an interim dividend of 4 cents per share payable on Dec. 20, with a Dec. 13 record. The shares were unchanged at $3.65 in trading yesterday, and have decreased 1.9 percent this year.

The company's New Zealand business reported flat sales of $6.9 million and a 15 percent slide in earnings to $2.9 million, while Australian revenue declined 5.1 percent to $11.2 million and earnings sank 28 percent to $2.6 million.

Comvita's Asian segment reported an 11 percent drop in sales to $18.4 million and a 58 percent slump in earnings to $1.4 million, while Europe posted a loss of $395,000 on a 21 percent drop in sales to $2.3 million. Its medical unit's earnings dropped 14 percent to $975,000, even as sales more than doubled to $3.5 million.

The company said it expects raw honey prices to ease in the coming year, and will produce a third of its own honey needs by the end of the financial year. It's still wants to produce half of its supply needs.

Those margins contributed to a faster cash-burn for Comvita in the period, with an operation cash outflow of $10.7 million in the half compared to an outflow of $1.2 million a year earlier.

(BusinessDesk)