CVT
11/10/2013 09:46
FORECAST
REL: 0946 HRS Comvita Limited
FORECAST: CVT: Comvita Result will be Year of Two Halves
Comvita's net profit after tax (NPAT) for the first six months to 30
September 2013 is expected to be a loss of approximately $1.0m on sales of
approximately $43.3m. This compares to NPAT and sales in the prior half year
period of $2.4m and $45.4m respectively. The actual result will be announced
to the market on the 28th November.
Second half earnings stronger than first half
Comvita CEO Brett Hewlett said, "Comvita has historically had a year of two
profit halves with the second half year sales and earnings stronger than the
first half due to many of our product lines primarily being consumed in the
northern hemisphere winter months. This effect is compounded by Asian
tourists purchasing our products in New Zealand and Australia during the peak
tourism season in our own summer. As we grow our retail infrastructure in
Asia and with the Australian market continuing to be quite soft, this year of
two halves effect is becoming more pronounced."
"While sales are down for the first six months on the prior comparable period
by a little over $2m, shareholders should not read too much into this, says
Mr. Hewlett. For this financial year ended 31 March 2014, we expect in
excess of 60% of our total sales (56% in 2013) to be in the second half of
the year. Further, we necessarily carry an overhead and marketing cost
structure in place for the full year, which negatively impacts our first half
earnings."
"We remain confident of delivering full year revenue and earnings in excess
of 2013. NPAT for the full year ending March 2013 was $7.4m on sales of
$103.5m."
Trading conditions in key markets
Mr. Hewlett said, "Trading conditions in most markets have been challenging
throughout the six month period, particularly in wholesale markets such as
Australia and the UK (where we have limited sales direct to the consumer),
where price competition remains strong. The recent publicity about
misleading labeling by some competing brands of Manuka honey is providing
some stimulus to Comvita sales in the UK in the last few weeks. Our
attention to maintaining quality standards has allowed us to obtain new
listings in retailers such as Tesco's, Costco and Boots."
"Sales in Hong Kong, our second largest market by sales value, have been
impacted over August and September as the recent food security issues have
heightened consumers' scrutiny of all imported food products from New
Zealand. However, we have embarked on an information marketing campaign aimed
at reassuring our customers of the quality and integrity of the Comvita brand
as we enter the Asian 'high season'. We remain confident that sales in this
key Asian market will be up to our budgeted numbers over the next six month
period."
"Our recent further investment of $1m in world leading laboratory equipment
announced on 25 September 2013 will enable us to expand our testing and
research capability for Manuka honey. It will also provide us with a
competitive edge when it comes to consumer confidence and trust in our
products."
Raw material supply
Mr. Hewlett said, "We feel it is important to continue to communicate the
lasting impact of the previous two poor honey seasons on our earnings
performance. The La Nina wet, colder and windy weather pattern of 2010/11 and
2011/12 meant the North Island Manuka crop was at record lows (35% and 30%
lower than average respectively). This supply issue combined with demand
increases resulted in an increase of approximately 50% in the wholesale cost
for Manuka honey in the last 18 months."
"The recent 2012/13 summer was much warmer and less windy than the previous
two summers and it is anecdotally reported to have been one of the best honey
crops for many years. However it has taken time to build an acceptable
inventory position of new season honey as beekeepers extract and sell their
supply of honey to Comvita. Our stock of raw Manuka honey has been full from
July and we expect this to now underpin a solid full year with sales in the
second half being higher than the same period last year. Honey cost remains
high, and while this continues to impact margins in the short term, we expect
this pressure to ease throughout 2013/2014 as supply and demand are better
matched and we continue to work price rises into the market."
Continued investment in supply chain infrastructure
Comvita Chairman Neil Craig said, "Comvita's focus is on building our core
supply chain infrastructure that will support our growth targets. The recent
$8.9m investment in Comvita by Derma Sciences, the global licensee for
Medihoney? specialist wound care products, will primarily be used to build
supply capacity to support the company's apiary acquisition and harvest
modernisation strategy. This was announced to the market on 5 September 2013.
The acquisition of strategically located apiary businesses means Comvita is
now in a position to accelerate our apiary growth programme and meet our
strategic objective of owning up to 50% of our honey supply needs. The
balance of supply will come from long term contractual supply and partnership
relationships."
"As part of this strategy, we are pleased to announce an acquisition of
another Manuka honey apiary business in Poverty Bay.* Comvita's apiary
business will in total be operating 20,000 hives this season, making Comvita
one of the largest apiary businesses in the country. Approximately one third
of our honey needs are this year coming from our own apiaries enabling us to
better manage costs of this key ingredient."
Outlook
"Our focus for the remainder of the year remains growing our revenue to
greater than 2013 while maintaining a tight focus on operating costs. We are
targeting a better financial result than 2013 while continuing with our
strategic initiatives of increased control over raw material supply and
introducing new systems to support our growth in Asia."
*The apiary acquisition was completed in September and the purchase price is
confidential.
# Ends #
For further information:
Scott Coulter, Comvita Chief Operating Officer, 021 386 988
Neil Craig, Comvita Chairman, 021 731 509
Julie Chadwick, Comvita Communications Manager, 021 510 693
Background information
About Comvita (www.comvita.com)
Comvita is an international natural health and beauty company committed to
the development of innovative products, backed by credible scientific
research. We are the global leader in Manuka (leptospermum) honey and
fresh-picked Olive Leaf Extract, which are at the core of the Comvita product
range. We have approximately one third of honey supply under our ownership
with the balance of supply from long term contractual and partnership
arrangements. Comvita's fresh Olive Leaf Extract is grown, harvested,
extracted and bottled at the world's largest specialised olive leaf grove,
with over 580,000 olive trees. Comvita sells into more than 18 countries
through a network of wholesale and third-party outlets and online. We have
offices in New Zealand, Australia, Hong Kong, Japan, Taiwan, South Korea and
the United Kingdom.
End CA:00242255 For:CVT Type:FORECAST Time:2013-10-11 09:46:31
