Comvita has unveiled a NZD15m (US$9.4m) transformation plan under newly-installed chief executive David Banfield as the New Zealand-based Manuka honey maker seeks to boost margins and cut costs.

At the same time, the company said it will undertake a capital-raising exercise to “build resilience” for the business, and also noted how sales in China are being impacted by the coronavirus outbreak.

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The Wellington-listed firm made the announcements in conjunction with its first-half results today (27 February) to the end of December, which showed a NZD13m loss, including a “NZD2.3m impairment of Australian assets due to bush fires”. In the year-earlier period, it reported an after-tax loss of NZD2.7m.

Chairman Brett Hewlett said: “We are hugely disappointed by another negative result which has seen a loss for the third reporting period in a row. We are working tirelessly to turnaround performance and deliver the result we know the business is capable of.”  

He reiterated that the objective this year is to “stabilise, reset and refocus the business”.  

Comvita is seeking to improve the gross margin by five percentage points and cut fixed costs by NZD5m per annum over the next three years under the transformation plan. It expects to see benefits in costs start to come through in fiscal 2021 and see the full impact in 2022/2023, when margin improvements are also expected to be realised.

Banfield said: “It’s evident from our performance that our current cost base is too high and incapable of supporting delivery of our long-term earnings growth targets. Our transformation plan is designed to bring the focus back to the business, simplify operations and ensure we have sustainable profitable returns from all of our investments”. 

The CEO also expanded on the findings of a recently completed strategic review, which was launched last June. He concluded how the “overall business has become overly complex, cumbersome and slow to react to external factors, both positive and negative”. 

He added: “The key to delivering longer-term opportunities will be to simplify the Comvita operating structure.” 

In China, Comvita said the market is showing “early promise” having reached an agreement last year to take full control of a joint venture with Comvita Food (China) Ltd. and Comvita China Limited, in which it initially held a 51% stake.

“Winning in China is crucial to enable long-term profitable growth and as such, we were delighted to see revenue on a like-for-like basis increased by 15%,” according to the earnings statement. 

However, with respect to coronavirus, Comvita said it is “seeing sales impacted in the short-term by dramatically reduced shopper traffic as a result of travel bans and people remaining at home following Chinese New Year”. 

To accompany the business reset, Comvita plans to raise additional capital, including a rights issue to existing shareholders “to deleverage the business and build resilience for the company during this phase”. Further details are expected to be announced in March.

The latest results show Comvita had net debt of NZD93m at the end of December, down from NZD104m in the corresponding period. Revenues were up at NZD94m versus NZD78m, and underlying EBITDA edged up to NZD1.3m from NZD1.01m.