Comvita's annual net profit surges to a record, vindicates takeover defence

Friday 25th May 2012

Honey products company Comvita's annual net profit surged to a record as its growth strategy finally started to pay off, vindicating its defence against last year's hostile takeover offer from multinational Cerebos Greggs.

Net profit for the year ended March 31 jumped to $8.2 million, at the top end of the company's November forecast of between $7.3 million and $8.2 million, compared with $0.5 million the previous year – normalised profit the previous year was $3.6 million.

The full-year result is also a leap from the $2.2 million first-half net profit. Sales for the year rose 17 percent to $95.9 million, just beating the $91 million to $95 million forecast, while earnings before interest, tax, depreciation and amortisation rose to $15.5 million from $6.3 million the previous year.

Chief executive Brett Hewlett said the stronger second half mainly reflects the seasonality of the company's sales when it benefits from the Northern Hemisphere's winter combined with the increase in tourism to Australasia.

Reflecting the strength of the result, as well as the directors' confidence in future earnings, the final dividend was increased to 10 cents per share from 3 cents the previous year, taking the full-year payout to 14 cents from 3 cents. The payout ratio rose to 50% from the 40% historical level.

The company said the results “demonstrate Comvita is reaping the rewards of a growth strategy build on product innovation, an enhanced supply chain, control of channels to market and investment in research and development.”

Chairman Neil Craig said the result was pleasing, given the company also had to fend off an unwelcome takeover offer from multi-national Cerebos Greggs – the $2.50 per share offer lapsed after Cerebos balked at the $3.40 to $4 per share independent valuation which was based on forecast earnings.

The 17 percent sales growth “is a clear demonstration of the productivity gains possible from our business model, based on control of our channels from raw supply through to the marketplace,” Craig said.

As well as increasing dividends, the company will continue to spend on capital projects to improve security of supply of raw materials and increase profitability further, Craig said.

The company's return on capital employed rose to 14.4 percent in the latest year from a poor 4.3 percent the previous year.

Hewlett said all markets performed well, most notably Australia and New Zealand, where sales rose 13 percent, and Asia, up 31 percent while markets such as Britain and Europe were impacted by continuing economic uncertainty.

Changes in Comvita's distribution model in Australia, where it now deals directly with its customers rather than being dependent on intermediaries, are delivering higher margins, he said. Sales in Hong Kong, where the company owns 54 retail outlets, were strong.

“Demand for medical honey-based products continues to growth. Globally, Medihoney sales are currently growing at an annual rate of approximately 40 percent,” Hewlett said.

As for the outlook, “Comvita is on a solid growth trajectory that shows no sign of slowing. Our local presence-in-market, our reputation for quality and success in expanding our product range is ensuring strong brand awareness and loyalty,” he said.

“We have demonstrated we can sustain this level of growth and that we can continue to achieve operating leverage gains provided by the scale and scope of our local and global operations. These all point to a continuing improvement in net earnings and growth in shareholder value.”

Comvita shares are up 10 cents to $3, equal to the November high after the company released its full-year forecast and otherwise their highest level since 2007. The shares troughed at 73 cents in May 2009.

BusinessDesk.co.nz

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