Record $8.2m Comvita profit buzz, dividend jumps

Bay of Plenty honey maker Comvita has met its forecasts with a net profit - and share price -- surge, apparently vindicating its defence against last year’s hostile takeover offer from food giant Cerebos Greggs.

Net profit of $8.2 million for the year to March 31 topped out Comvita's forecast range of between $7.3m and $8.2m. It compares with was $0.5m the previous year. 

Comvita chairman Neil Craig referred to the fact November earnings forecasts were widely considered “aspirational”. Meeting them required the company to more than double its half-year result of $2.6m.

“We believed them [the forecasts] and we have delivered,” he says.

The multinational coffee and food giant was offering $2.50, well below the Grant Thornton valuation of $3.40 - $4.

The offer lapsed before Christmas after Cerebos baulked at the independent valuation. It earlier threatened to start up in direct competition to Bay of Plenty-based Comvita if its bid to buy the manuka honey products company failed.

Today, Comvita shares have risen 25c or 6.8% to $3.15 – their highest level since 2007 – against a year high of $3 and low of $1.57

Comvita chief executive Brett Hewlett says the stronger second-half earnings mainly reflects the seasonality of the company's sales, when it benefits from the Northern Hemisphere's winter combined and the increase in tourism to Australasia.

Confidence in future earnings had seen the company increase the final dividend to 10 cents per share from 3 cents the previous year, taking the full-year payout to 14 cents from 3 cents.

The payout ratio rose to 50% from the 40% historical level.

As well as boosting dividends, Comvita will keep spending on capital projects to improve security of supply of raw materials and increase profitability further.

Return on capital employed rose to 14.4% in the latest year from a poor 4.3% the previous year.

Sales surged in Australia and New Zealand (up 13%) and Asia (up 31%), while Britain and Europe were “very tough” markets and difficult to make money in.

Sales in Hong Kong, where the company owns 54 retail outlets, were also strong, as was internet sales.

Changes in Comvita's distribution model in Australia, where it now deals directly with its customers rather than being dependent on intermediaries, are delivering higher margins.

And the company was now strong enough to weather the strength of the New Zealand dollar. “We’re no longer making excuses for the strong kiwi,” chairman Neil Craig says.

Mr Hewlett says the product chain is diversifying away from honey in a pot to other Manuka-based health and beauty products.

“Demand for medical honey-based products continues to grow. Globally, Medihoney sales are currently growing at an annual rate of approximately 40%.” 

As for the outlook, “Comvita is on a solid growth trajectory that shows no sign of slowing. Our local presence-in-market, our reputation for quality and success in expanding our product range is ensuring strong brand awareness and loyalty,” says Mr Hewlett. 

“We have demonstrated we can sustain this level of growth and that we can continue to achieve operating leverage gains provided by the scale and scope of our local and global operations.

"These all point to a continuing improvement in net earnings and growth in shareholder value.”

Chairman Neil Craig has maintained director share trades leading up to the September’s substantial profit forecast upgrades are above board.

Cerebos approached Comvita, notifiying the board of its interest in the company just three weeks earlier (August 26).

But Mr Craig said the decision to upgrade forecasts had already been made and a share purchase by Comvita director Rob Tait (25,000 shares at an average price of $1.77) had taken place before the board was in a position to know exactly how the company was tracking.