Comvita has lowered its sales and profit forecasts amid what the Manuka honey maker said was “prolonged weakness” in China.

The New Zealand-based business also stated that its longer-term strategic target to reach NZ$50m ($30.6m) in EBITDA in the 2025 financial year is unlikely to be met.
Consequently, Comvita has launched a programme to realise savings of NZ$10m in 2025 through operating expenses and the cost of goods sold.

Comvita’s shares closed down 1.2% at NZ$1.70 on the New Zealand stock exchange today (20 May) as the company cut its outlook for the year to 30 June. Revenue and profit expectations had also been lowered in February due to “subdued consumption in China and North America”.

Meanwhile, Comvita has moved forward in talks with a potential overseas buyer after receiving a takeover approach in February, opening the business up to a due diligence process.

Annual revenue for 2024 is now envisaged at NZ$211-218m, down from the February guidance of NZ$225-235m.

Adjusted EBITDA is forecast at NZ$23-28m, compared to NZ$30-35m previously.

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“The key driver for this change to guidance is the prolonged weakness of consumer demand in the China market, exacerbated by the partial cancellation of the 6:18 Festival, China’s second-largest retail festival. Given the prolonged weakness, the company has also reviewed its FY25 plan,” Comvita said in a stock-exchange filing.

Despite an improvement in the revenue performance from declines of 8.8% and 6.9% in the first two quarters, respectively, and a 1.5% increase in the third quarter, the 2025 EBITDA target “is now considered to be unachievable”.

Second-half revenue in fiscal 2024 is likely to be down around 9.7% from a year earlier at NZ$110m.

Reflecting on the downgrade, David Banfield, who became CEO in January 2020, said: “It’s really disappointing to provide a further update to guidance, given the progress we have made on our strategic plan to grow value and lift performance since 2020. We have created a platform for growth over the last four years that will enable us to thrive once conditions improve.”

He added: “The realities of what now is a more sustained slowdown in our key markets, including a significant drop off in China in Q4, make it necessary to further reduce costs to reflect these tougher conditions.”

Elsewhere in Comvita’s geographical operations, the company gave an update on trading conditions, noting new listings in the Middle East have been delayed to 2025, while “stalled” growth in South Korea weighs on its Asia business.

The Australia and New Zealand segment has been “impacted” by disruption through the Daigo cross-border exporting channel into China, while North America is trading “broadly” in line with expectations.

Comvita said it had seen pre-orders ahead of the 6:18 Festival cancelled, an impact that will spill over into the fourth quarter.

“Market demand in Mainland China is responsible for circa 60% of the change to guidance, while the flow on impact of the decline in China into Australia and New Zealand, the Rest of Asia and EMEA accounts for the additional circa 40%,” the company explained.

With respect to North America, Comvita added: “While consumer sentiment remains weakened, Comvita’s market positioning has remained strong and Comvita continues its premium product strategy, maintaining margins at c60%. The company remains on track with its FY24 cost-out programme of around NZ$8m.”

In the wake of Comvita’s “unsolicited” takeover approach in February from an unnamed party, chairman Brett Hewlett said today: “The underlying value of Comvita's assets, its high-quality products and services, its scaled sustainable supply capability, premium brand positioning, international business operations and networks offer significant growth opportunities over the medium to long term.

“However, notwithstanding the team's hard work to grow margin and market share, the decline in broader market demand is something we must adjust for in the short term, whilst ensuring we remain well-positioned and apply flexibility in our responses to market conditions as they evolve.”

Hewlett said today in a separate statement that the takeover offer via a non-binding indicative offer (NBIO) came from a “credible offshore party” at a premium to the market share price.

The company has formed a board sub-committee to oversee the process and has engaged Goldman Sachs as a financial advisor.

“Comvita has provided the interested party with confidential access to the company and its information in order to undertake due diligence,” Hewlett said.

“Throughout this process, the Comvita board of directors have maintained a tight focus on maximising value for shareholders to enable the potential acquirer to appraise both the near-term and longer-term outlook for the company in its global markets.”

Comvita is subject to confidentiality in the talks as it advised shareholders “there is no certainty that any transaction will eventuate”.