For the 15 month period ending 30 June 2016, Comvita (NZX:CVT) today
announced a Net Profit after Tax (NPAT) of $18.5m on sales of $231m. This
compares to the unaudited result of a NPAT of $17.2m on sales of $202m
reported to the market in the 12 month period to March 2016.
Comvita Chairman Neil Craig says, "It is important to note that as advised on
10 May 2016, we expected the 15 month operating result to 30 June 2016 to be
similar to the result reported for the 12 months to 31 March 2016 of $17.2m.
After adjusting our reported and audited NPAT to 30 June 2016 of $18.5m for
favourable non-operating changes in fair value of assets, primarily Derma
Sciences and SeaDragon, it is pleasing to have delivered $17.1m against this
guidance."
"We continue to be focused on growing earnings per share from the solid
business base that has been established over the last ten years. Our EBITDA
margin for the 15 month period was 17.1% and our Return on Capital Employed
(ROCE) was 14.3% which represents good performance growth compared to the
prior year of 15% and 12% respectively."
Financial Results for the period 15 months to 30 June 2016 (12 months to 31
March 2015)
Sales 2016 $231m, 2015 $153m
EBITDA* 2016 $39.4m, 2015 $23.0m
EBITDA% 2016 17.1%, 2015 15.0%
NPAT 2016 $18.5m, 2015 $10.2m
Earnings per share (cents) 2016 46.91, 2015 29.88
Dividends per share (cents) 2016 18.00, 2015 13.00
ROCE 2016 14.3%, 2015 12.0%
* EBITDA: earnings before interest, tax, depreciation and amortisation
Dividend
Comvita paid a fully imputed second interim dividend of 10 cents per share on
24 June 2016, for those shares registered on 17 June 2016. This brought the
total interim dividend for the 12 month period to 16 cents per share
(compared with 13 cents per share in 2015). With the change in balance date
to 30 June, a final dividend of 2 cents per share will be paid on 23
September 2016, bringing the total payment to 18 cents per share for those
shares registered on 16 September 2016.
The payout ratio for the 15 month period is approximately 42% of operating
profit. This is lower than our previously adopted 50% of after tax operating
profits. With the growth opportunities being presented to Comvita on an
ongoing basis, the Board has decided to change the dividend payment policy to
40-45% of after tax operating profits.
Markets
Comvita CEO Scott Coulter says, "Sales of $130 million were recorded in
Australia and New Zealand over the last 15 months, driven by the re-export
market to China. Australia is now our largest market with sales of $74m over
the last 15 months and has contributed significantly to our result.
China sales grew strongly and in particular sales through the various
e-commerce platforms and the 400 branded retail outlets operated by our
dedicated Chinese distribution partner. Comvita supplies all of the major
E-commerce platforms in China. In Tao Bao, the Chinese consumer to consumer
site, the Comvita brand is now the number one honey brand in China, based on
data which also includes local brands. In T-Mall, which is the business to
consumer site, we are now the number two brand. China is the largest honey
producer in the world so this is a very positive position for our brand.
Comvita sales have grown 33% overall across the entire Chinese E-commerce
market to the end of June 2016. We estimate over 60% of our total sales
globally to end up in the hands of a Chinese consumer.
A program of re-invigorating the look and feel of Comvita retail stores in
Hong Kong is currently underway, in line with our goal of improving our
retailing performance in that market. We have appointed a new management team
in Hong Kong with substantial retailing expertise and have been making steady
progress in a market that has been ''flat'' for the last two years - sales in
Hong Kong totalled $26 million in the last 15 months.
Premium Comvita sales counters are also present in the key department stores
in Korea and Japan. The consumer''s appetite for TV home shopping has grown
significantly in Japan and Korea and we have been successful in tapping into
this opportunity in the last 15 months. Comvita closed its Taiwan sales
subsidiary during the year as it was not meeting growth objectives. This
market is now being serviced directly from the Hong Kong office.
In our Western markets, traditional pharmacy and health food retailing
remains the predominant sales channel for Comvita. The fresh Olive Leaf
Extract range and Medihoney ranges used for Eczema prone skin, have recorded
solid growth in the key Australian pharmacy channels. Despite difficult
trading conditions in Western Europe, the Comvita range continues to perform
well in the UK. Our USA business is expected to break even in FY17 after
making good sales growth from a small base in FY16.
Strategic Direction
Comvita CEO Scott Coulter said, "We are focused on the delivery of $400m of
sales in five years'' time and solid growth in earnings per share over this
period - the two key building blocks of our strategy being security of supply
and new product innovation:
o Security of Supply
Comvita has been researching Manuka plant varieties since 2004, and 10 years
ago, developed a formal breeding programme. We have planted over 1,000
hectares as commercial trials through this period and have identified
varieties that suit specific geographic and climatic conditions. This means
Comvita has a diversity of biological material with seedlings suitable for
all regions.
The benefits of Manuka planting include using marginal land and erosion
control, and providing multiple financial streams in addition to honey
harvesting, such as Propolis production, carbon sequestration and pasture
pollination. Comvita''s agronomic R&D seeks to mitigate risks land owners may
face such as low honey quality and plant loss, through implementation of best
practice planting and superior genetic materials.
Mr. Coulter says, "Over the last two years, we have used our balance sheet
strength to invest aggressively in Manuka UMF(R) honey supply, and our raw
honey inventory is the strongest it has been at this time of year. For the
first time in several years, we can now look to open new markets for high
value Manuka honey. Comvita''s new balance date of 30 June means we now
measure the business at a period of peak supply, as most of our externally
sourced raw honey is received between March and June. It is also worthy to
note that Manuka honey can appreciate in value over time as the UMF(R)
activity increases in storage."
We have made a number of strategic investments that will underpin our future
supply security.
Putake
The 50:50 Joint Venture (JV) with Putake is progressing as anticipated.
Comvita''s existing relationship with Putake, which is a long standing member
of the Comvita Supplier Partnership Group (SPG) Share Scheme, means the
transition has been seamless. Putake''s operations are in the Upper and West
Coasts of the South Island and in North Canterbury. It includes ownership of
1,200 hives with an additional 2,800 hives under management through JV
arrangements.
Makino Station and JV with Apiflora
Comvita has recently formed a JV apiary business with Apiflora, a long term
honey supplier to Comvita. The JV has purchased Makino Station in the
Ruapehu region, a 1,671 hectare hill country, sheep and beef farming property
also known for producing very high quality Manuka honey. This 50:50 JV
enables Comvita to increase its ability to secure the scarce resource of
high-grade UMF(R) Manuka honey as well as develop a large Manuka plantation
on the property.
Supply Partnership Group
Comvita announced in February 2015 that it was commencing a Share Scheme to
reward its largest and most loyal honey suppliers who committed to long term
supply agreements. Through this innovative Scheme, approximately 50 honey
suppliers are able to participate in the ''value add'' that Comvita can bring
to raw honey and the resulting profitability of Comvita through dividend flow
and capital appreciation of Comvita shares.
Beekeeping Cadetships
Comvita has identified skilled beekeepers as one of our constraints to
growth, and this year we have employed 15 cadets from around the country on a
scheme designed to build our local talent pool of beekeepers. We have
partnered with Bay of Plenty-based, Pacific Coast Technical Institute to
deliver the first year of the programme.
Capilano
The JV with Capilano Honey Pty Limited (ASX:CZZ) in Australia under the name
of Medibee Apiaries Pty Limited, as announced on 2 March 2016, is now
operational with the purchase of two separate apiary businesses. It is our
intention for Medibee to operate a number of Leptospermum honey producing
apiary businesses in Australia, to deliver premium honey for a range of
medical and natural health products. Our first season of supply will be the
summer of 2016-2017.
Fresh Olive Leaf Extract
Manufacturing and production upgrades have been implemented at our Olive Leaf
plantations over the past year, resulting in increased throughput and
improved production efficiency. This has been complemented with the
propagation and planting of a further 80,000 trees to build future supply
capacity to meet market demand trends. We have over a million olive trees
over two estates.
o Innovation
A key focus of our long term strategy is to diversify away from dependence on
Manuka honey based products and to leverage the strength of our brand.
Consumer feedback has shown strong support for Comvita to develop new
products that use new ingredients and deliver on new consumer health needs.
With a large number of retail stores and dedicated sales counters across our
markets, Comvita is ideally placed to quickly test prototypes and assess
consumer uptake to ensure we have successful consumer products that we can
then take into broader distribution. We have recently appointed Sharon
Hollenstein as Chief Innovation Officer to drive growth in this area of our
business.
Fresh Olive Leaf Extract
Comvita''s Fresh Olive Leaf Extract is uniquely positioned to offer consumers
a scientifically researched, natural source of health and wellbeing by
capitalising on the benefits of Comvita''s source to shelf business model.
The latest clinical research results, published in the European Journal of
Nutrition(1) demonstrated that taking Comvita OLE for six weeks lowered blood
pressure and improved cholesterol levels in study participants, relative to a
placebo. This study has helped to strengthen links between Comvita''s OLE and
its ability to support cardiovascular health. The clinical trial data was
well publicised in Australia and has driven our pharmacy sales growth of 31%
over the last 12 months to June 2016.
Omega-3 Fish Oil
Consumer products containing EPA and DHA Omega-3''s have a global market value
of $31.4 billion. The Asian market is the largest segment and is expected to
show double digit growth in the future. Omega-3''s are the most researched
compounds in health and nutrition, with over 3,000 human clinical trials and
more than 28,000 published papers. There has also been recent publicity
around the negative effects of taking low quality oxidised fish oil.
Against this background and increasing pressure on most of the world''s
fisheries, we decided to take a cornerstone shareholding in the New Zealand
listed company, SeaDragon (NZX:SEA) which has recently built a
state-of-the-art Omega-3 fish oil refinery in Nelson. With this control over
the source of supply, we will be able to build a ''ship to shelf'' business
model delivering high quality product offerings with a unique New Zealand
source story. This approach will ensure integrity of product quality all the
way through the supply chain to the consumer. We have been working with the
SeaDragon team to develop high quality product offerings with a unique New
Zealand source story and we expect to launch products early in 2017.
Outlook
Mr. Coulter said, "We have experienced our normal seasonal reduction in
global sales during the April to June period. We have also experienced
softer trading conditions as a result of the slowdown in demand in the
Chinese market. This has been caused by a reduction in growth in the Chinese
economy itself, as well as the introduction of a number of new regulations in
that market that have created uncertainty in the re-export market
distribution channels out of New Zealand and Australia. With our direct
access to the China market through our dedicated distributor, we expect to
reduce the impact of any downturn in sales through the re-export channels."
"Chinese regulators have recently increased their oversight and auditing of
the New Zealand honey and wine industries. We welcome this focus on quality
and the proposed changes that will support the price premiums we expect from
having world class quality standards."
"While it is too early to forecast this year''s level of profitability, we
remain confident of our overall strategic direction and growing sales through
an increasingly diversified product range with a strong focus on earnings
growth."
(1) Lockyer, S., Rowland, I., Spencer, J. P. E., Yaqoob, P., & Stonehouse, W.
(2016). Impact of phenolic-rich olive leaf extract on blood pressure, plasma
lipids and inflammatory markers: a randomised controlled trial. European
Journal of Nutrition. doi:10.1007/s00394-016-1188-y
Ends.
For further information:
Comvita CEO, Scott Coulter, 021 386 988
Comvita Chairman, Neil Craig, 021 731 509
Comvita Communications Manager, Julie Chadwick, 021 510 693
Background information
About Comvita (www.comvita.co.nz)
Comvita (NZX:CVT) is a global natural health company committed to the
development of innovative products, backed by ongoing investment in
scientific research.
End CA:00287711 For:CVT Type:FLLYR Time:2016-08-23 09:29:29