Comvita Limited Analysis

Overview

Comvita's origins go back to the 1960s, when research was carried out on a honey and bee products-based therapeutic product range was developed. Exports to England and California commenced in 1989. In 1990 the company was restructured and began focusing on exports to Asia. Comvita shares began quotation on the Unlisted Security Market in September 2002 and the company moved to the NZSX market in 2006.

Performance

The following information was extracted from Comvita Limited's half year report, released on 25 February 2025:

Summary financials

• Revenue of $99.7M, down 5.3% on the same period last year (HY24 $105.3M, restated)

• China sales were $41.2M, $5.7M or 12.2% lower than pcp (HY24 $46.9M, restated)

• North America sales rose 12% to $14.6M, up $1.6M (HY24 $13M)

• Rest of Asia sales rose 14.9% to $22.1M, up $2.9M (HY24 $19.2M, restated)

• ANZ sales declined 19.4% to $15.5M (HY24 $19.3M), EMEA –8% at $2.0M (HY24 $2.2M)

• Gross margin declined by 930 BPS to 50.7% (HY24 60%, restated)

• OPEX was $56M, down 8.5% on last year (HY24 $61.2M, restated)

• NPAT was a loss of $6.5M (HY 24 -$2.5M, restated)

• Free Cash Flow improved to $2.0M for the period (HY24 -$25.9M, restated)

• Net Debt reduced to $81.6M (HY24 $85.8M, end June 24 $79.7M)

• Inventory was $120.8M, $23M or 16% lower than HY24 ($143.8M, restated)

Key points

• Gross margin in China remains stable and market share holding at c50% (remains #1 brand), and North America regaining lost ground with a major customer win confirmed in January 2025.

• We remain in discussions with the banks regarding a future covenant structure. An update will be provided to the market prior to end March 2025.

• Prior year adjustments have been made in FY23 and FY24 to address the accounting irregularities reported on 9 December 2024 and 10 February 2025, as well as a historical error in the calculation of the carrying value of inventory and the under-accrual of license fees (both in FY24 only).

• Improvements to internal controls and changes to structure and reporting lines have been implemented.

• A complete restructure has simplified the business in EMEA, North America and China, including a headcount reduction of four in the leadership team, 67 people overall, and a move from an eight-person to six-person Board of Directors.

• On track to achieve annualised cost savings of between $10M to $15M.

• Despite a glut of cheap honey in the market, Comvita continues to reduce inventory and protect its premium position and brand.

• The Mānuka Honey category is growing globally and new segments are evolving.

Financial Overview

Comvita achieved revenue of $99.7M for HY25, down 5.3% on the previous corresponding period, with continued weaker, though stabilising, revenue in China, and gains in North America, South East Asia, Korea and Japan. Gross margin declined to 50.7%, down 930 basis points (bps) on HY24, impacted by lower direct margin (-430 bps), reduced manufacturing recoveries, a weaker apiary season and higher inventory provisions. Total operating expenses for the half at $56.0M was $5.2M below the prior year, with marketing investment being the primary contributor to this reduction ($4.6M). The benefits of the restructuring and associated cost reduction initiatives will begin to flow through into second half performance and the FY26 performance will benefit from the full annualised impact of these initiatives. Net Profit after Tax (NPAT) was a loss of $6.5M, compared to a loss of $2.5M for the same period last year, restated. The NPAT loss of $6.5M included after tax $2.3M of net one-off costs.