Comvita acting chief executive officer Brett Hewlett has acknowledged an "erosion of trust" , the need for a "cultural reset" and "willingness to confront the truth". He made the remarks in a virtual meeting to discuss the company's interim results which bled red ink. A restructuring of the beleaguered business is expected to produce positive results in the next 18 months, but offer reduced returns to their honey suppliers.
Comvita Limited's interim results for the half year to December 2024 show a total sales decline, operating and net losses, increase in net debt, and double-digit sales declines in the key markets of China and Australia/New Zealand.
The mānuka honey flagbearer was rocked in December and February by revelations of false accounting in China and Singapore, where Comvita staff under pressure to show profit growth had cooked the books in consecutive years. Profits had been overstated by NZD1m in the year to June 2023 and NZD3m in the year to June 2024.
As a result of the irregularities, Comvita has recalculated income statement and balance sheet data in five categories in its interim financial statement. Owing to a separate accounting error, the value of inventory as stated at June 2024 was restated at a value higher by NZD1.4m.
The irregularities – uncovered not by management or auditors but by a staff whistleblower – and error recall the confusion engendered by Comvita's issue in September 2024 of full-year accounts carrying substantial corrections to those issued a month earlier.
First-half sales fell 5.3% to NZD99.7m, the operating loss reached NZD5.2m, net debt grew 2.3% to NZD81.6m, and China and Australia/New Zealand sales declines were 12.2% and 19.2%. Cash flow as defined by earnings before interest, tax, depreciation and amortization (EBITDA), plummeted 89.5% to NZD958,000. The net loss ballooned to NZD6.5m from NZD2.5m.
Comvita indicated it will be in breach of banking covenants for the remainder of the year to June without "further covenant relief".
(Income statement value comparisons are with the first half to December 2023; balance sheet value comparisons are with the previous balance sheet date of 30 June 2024.)
Harbinger of Asset Sales
In a likely harbinger of further asset sales, in December Comvita sold one of two olive tree plantations in Queensland. The NZD2.8m sale was made at a loss of NZD399,000, according to the interim financial statements filed with the New Zealand Exchange on 25 February.
On the same day, acting chief executive officer Brett Hewlett presented his "Back to Basics" report to a virtual meeting about the results. He went off script to admit to an "erosion of trust" in Comvita, which he said needed a "willingness to confront the truth" and a "cultural reset".
A "complete restructure" had "simplified" the business in China, the United States, and Europe/Middle East/Africa. Subsidiaries in the United Kingdom and Europe had been closed in favour of a distributor model. Payroll had been cut by 67 staff. Total cost-cutting was expected to save NZD10m-15m over 12 months.
Hewlett's report said a "steadily improving cost-of-goods situation" would underpin expected stability in profit margins. "Improving cost of goods" means lower prices paid to beekeepers. And less honey would be purchased as Comvita continued to reduce inventory, which at December 2024 stood at NZD120.8m, down NZD15.0m from the value recorded six months earlier.
Hewlett presents with the air of knowledge of products and markets and numbers. Shareholders will want him to continue to act as acting chief executive. Comvita faces an up-mountain task. It is saddled with debt and heavily dependent on China at a time of soft Chinese demand. Hewlett conceded that high debt was more concerning than high inventory.
A turnaround will hinge on whether the company can achieve its goal of generating sufficient free cash flow, and whether a demoralised staff can rally to the cause. The "tearing down" of "silos" (teams working in isolation) and fostering of a "culture based on trust, transparency, and collaboration", as expressed in Hewlett's report, must succeed.
Comvita believes that the mānuka honey category is "growing globally" and that "new segments are evolving". Hewlett reminded that Comvita's "long-term trend is positive" and that "growth is never a straight line".
A Question for the Auditor
Encouragingly, sales in the United States, which has overtaken China to become New Zealand's largest market for monofloral mānuka honey, grew 12.0% to NZD14.6m. A large customer had been won. Highlights included a "refresh of the brand value proposition", Hewlett said.
Results for the year ended June 2024 were presented as "audited". Just announced interim results were "unaudited". In Comvita's case, investors may feel entitled to ask, "What's the difference?"
Comvita's auditor, who was engaged in 1998, charged the company NZD497,000 (an average NZD2,000 each business day of the year) for services rendered in the year to June 2024. It may be time for a "value proposition refresh", in Comvita-speak. Investors and securities analysts －or anyone else－ cannot be expected to view future earning statements with confidence.
Comvita shares closed at 70 cents on 28 February, down 70.2% on the year-ago price. The shares are trading at a 67.5% discount to the company's net asset, or book value, of NZD2.15 per share.
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Losses Continue to Mount at Me Today
Me Today Limited reported an interim net loss of NZD2.4m on 28 February. The company, whose accumulated losses stood at NZD54.1m at 31 December, has not recorded a net profit in any year.
The company is in talks to sell the remains of King Honey Limited, which it acquired for NZD32m in 2021, but admits to "uncertainty as to whether a transaction will conclude". King Honey's several beekeeping operations have already been dismantled.
Me Today net debt stood at NZD14.0m and inventory at NZD13.5m. Sales amounted to less than a third of either amount at NZD3.7m in the half year to December.
Between the balance sheet dates of June 2024 and December 2024, Me Today's net assets (equivalent to shareholders' equity) sank 64.7% to NZD1.3m, perilously close to the red-flag zone of negative equity.
In its interim results announcement, Me Today focused on marketing efforts in China, where it has signed a "full suite of commercials (sic) agreements" with a "large sports nutrition company".
Me Today shares closed at $0.071 on 28 February, which represents a premium of 203.2% to net asset value of $0.023 per share.
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