Sound first six months for Comvita
November 25, 2008
Sound first six months for Comvita
Comvita's sales of $31.6 million for the first six months of the year (April - September) are up 38% and net earnings of $203,000 compare with a loss of $1.4 million for the same period last year. Earnings before interest, depreciation and amortisation (EBITDA) of $1.9 million is also up on the same period last year. These results are in line with the Company's plans released to market on June 11, 2008.
6 Months ending
30 Sep 2008*
6 Months ending
30 Sep 2007*
* Unaudited management accounts
"As announced at our Annual Meeting, this is expected to be a year of two halves for Comvita. The majority of sales will occur in the second half of the financial year with the emergence of the northern hemisphere winter and the main tourism season in New Zealand," says Chairman Neil Craig.
"Our growth in key markets has been helped by a recently weakened New Zealand dollar, however we operate a hedging policy out over 12 months which has the effect of smoothing any sudden favourable or unfavourable changes in foreign exchange rates. While Comvita has already received benefits from the lower dollar, the positive impact of the sharply lower dollar on our net export receipts after deducting imported costs will be progressive and ongoing as opposed to immediate.
"While we are experiencing continued growth ahead of budget compared to last year in key markets such as Hong Kong, Australia, Taiwan and Japan, we are starting to see a softening of sales in some markets, particularly the UK, as the severity of the general economic downturn grows" says Mr Craig.
"Our business is diversified over a range of products, sales channels and spread of geographic markets. Comvita's trusted brand image and niche premium positioning as well as the wider global trend towards natural health solutions also helps shelter the Company from more general pressures in the global economy. Never-the-less, the Company can see the market environment getting tougher and we will have to spend more on targeted marketing 'to keep ahead of the game and competitors'."
Comvita CEO Brett Hewlett says that although year-to-date sales and overall profitability are as anticipated, the external environment may yet impact the Company's full year results. "There is simply a lack of certainty around future orders. To counter this, we have stepped up our efforts towards promotional activities and seeking new sales opportunities in all markets. We also continue to focus on reducing costs and improving operating efficiencies wherever possible."
"Following the closure of the Cambridge facility in September and subsequent consolidation into the main production site in Paengaroa, considerable costs have already been removed. Further, we have initiated a series of programmes looking at lean manufacturing practices and cost and waste reductions. This will result in some one-off restructuring costs, but will ensure the Company remains competitive should the market environment continue to toughen," he says.
Due to the series of one-off restructuring expenses and the added costs of selling and marketing products in a very uncertain market environment, the Company cannot be confident about meeting its net earnings projection of $2 million to $2.5 million as forecast on June 11, 2008. However, barring the market environment deteriorating severely from here, Comvita expects to be profitable for the balance of this financial year.
"Integration of the acquisitions made last year has been successfully completed with all companies operating well and showing profitable growth. Our business is now more sustainable with sales derived from our four strong-performing and unique business units: Healthcare, Functional Foods, Medical and Skincare," says Mr Hewlett.
Under Healthcare, sales of olive leaf based products now account for 18% of the Company's turnover. Comvita continues to roll out new extensions to the fresh Olive Leaf ComplexTM range of products as well as pushing into new territories. Comvita-branded Olive Leaf ComplexTM is now selling in Australia, New Zealand, Hong Kong, Taiwan, Japan and the United Kingdom. It will soon be launched in China and the United States.
Comvita's core business of bee products remains strong and underlying growth in the Functional Foods division remains solid at 19% per annum. Supply channels for bee products have been strengthened and the Company's acquisition in June 2008 of New Zealand's largest producer of medical grade Manuka honey, Kiwibee Distributors Ltd, provides additional security for future expansion.
Within the Medical division, woundcare products under the Medihoney brand are gathering momentum internationally, promoted more recently by Comvita's United States partner, Derma Sciences. The number of US Food and Drug Administration (FDA) and European CE approved Medihoney(r) branded products for the professional market is increasing and will be followed by a range of consumer focussed OTC (over-the-counter) products due for release by the end of this financial year. Discussions for an expansion of the relationship between Comvita and Derma Sciences continue. Both parties are reviewing the impact of recent economic events and considering all options before proceeding further.
Comvita's developing Skincare business has received a boost with a multitude of international design and branding awards for huni(r) as well as listings in premium retail outlets such as Selfridges in the United Kingdom and David Jones in Australia. Consistent with Comvita's philosophy of supporting key products with scientific evidence, clinical trials of huni(r) were conducted in Germany earlier in the year and have shown outstanding results in reducing fine lines and wrinkles - important attributes for any beauty skincare product.
"Our performance year to date is in line with expectations. Our business is structured to mitigate risk through our four strategic business units and our geographic spread across seven core markets - New Zealand, Australia, Japan, Taiwan, Hong Kong, United States and the United Kingdom," adds Mr. Hewlett.