Manuka honey trader posts sour results
Manuka honey trader Comvita slumped to a $104 million net loss last financial year, reflecting prolonged market disruption, oversupply and pricing volatility.
The listed company says its balance sheet has been hit by several factors: low consumer demand in China, loss of a major customer in North America, cancellation of major shopping festivals in China and aggressive competition. For the year ending June 30, 2024, Comvita revenues declined $30m to $204m.
Weaker sales were reported in China, North America, Australia and New Zealand (ANZ) and Europe, Middle East and Africa (EMEA), offset somewhat by revenue growth in Southeast Asia in its HoneyWorld retail outlets.
While percentage gross profit remained robust at 55%, one off and non-recurring costs of $7.6m after tax meant that the company recorded a net profit after tax of $16.9m before impairment, and an underlying NPAT loss of $9.3m after impairment.
This weaker performance led to a material gap between the company’s net total assets (tangible and intangible) and its market capitalisation, indicating potential impairment, Comvita says. An independent impairment review was initiated by the board, resulting in a non-cash impairment of $64.2m (before tax). Including this impairment Comvita’s reported NPAT loss is $77.4m.
Sales in Greater China were $89.8m, down $19.2m or 17.6%. Sales were impacted by the cancellation of the 12:12 shopping festival in December 2023 and 6:18 shopping festival in June 2024, as well as generally lower honey sales due to macro-economic challenges. The sales miss shaved off $15.3m from the gross profit.
North American sales also took a hit – down 26% to $26m for the full year. The company blamed this on the loss of some distribution with one major customer.
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Excluding that customer loss, offline revenue was up 19%. Online revenue was 49% of total sales for the year, up 7% on the previous year.
Sales in the Rest of Asia segment were up 17% to $37m, however, sales in NZ and Australia were down 10% primarily due to weak cross border sales to China market.
Comvita chief executive David Banfield says he was extremely disappointed with the results, particularly after three consecutive years of record performance.
“Throughout FY24 we faced difficult trading conditions in our key markets along with aggressive price activity from competitors caused by industry overstocks.
“Our revenue and gross profit declined along with significant non-recurring costs and a non-cash impairment.
We already have action underway to target value consumers whilst continuing our brand premiumisation in key Asian markets. Our $10-15M cost out programme is on target and is designed to streamline and simplify the business and ensure agility through different economic cycles. In addition, we have a clear focus on inventory reduction, enabling us to reduce net debt to targeted levels.”
Comvita says it faced aggressive and potentially unsustainable price competition in all markets, primarily aimed at its entry point product range.
“This activity caused by a glut in supply meant that market share was directly impacted in its Greater China and Rest of Asia segments,” the company says.
Supply and Demand
The supply and demand dynamics also impacted the company’s balance sheet.
It says the mānuka honey industry experienced significant growth between 2008 and 2020, with hive numbers trebling, to peak at around one million hives in 2019.
This created significant oversupply to the market, which coupled with declining exports and Comvita’s growing market share meant that many beekeepers exited the category, with production down 56% between 2020 and 2023.
Comvita notes that the current economics of an apiary operation are unsustainable in the long run.
It’s currently estimated that there are around 500,000 hives in New Zealand - half the 2019 number.
“This contraction in supply will see a return to supply and demand equilibrium with associated economics in the near term. Comvita is well placed for long-term supply through its forest programme that is already productive,” it says.
