Record First Half Earnings At Comvita

 Comvita (NZX:CVT) today announced record earnings (operating profit, EBITDA, NPAT) and record revenue for the six-month period ending 31 December 2022. Operating profit increased by 60.9% to $11.6M, EBITDA improved to $13.4M +11.1% vs PCP, normalised EBITDA after ERP +16% vs PCP and NPAT increased to $4.2M +19.4% vs PCP as its 2025 FOCUS strategy continued to deliver earnings improvement. Revenue increased by 6.8% to $112.1M, despite material negative Covid impacts in Mainland China, Hong Kong SAR and Asian Health channel in Australia and New Zealand (offline direct sales were down 5% for the half in Mainland China despite December being +46%). Net debt increased by $37M on the PCP, primarily due to increasing inventory to offset global supply chain disruption and also due to the timing of debtor payments.

Cyclone Gabrielle

Comvita Chairman, Brett Hewlett, said “Our thoughts are with everyone across New Zealand impacted by Cyclone Gabrielle and especially our team in the Hawkes Bay region. Earlier this week our CEO and Chief Operations Officer (COO) visited our team and facility in Hawkes Bay to assess the impact of Cyclone Gabrielle firsthand. We are pleased to report that all of the team are safe and well and that we have been able to put in place accommodation and support for our team and their families. Our priority is ensuring the ongoing safety of our team and putting in place immediate and specific support for the Hawkes Bay team, as a number have been evacuated from their homes after suffering from significant flooding. Our own facility has suffered extensive damage and our working hypothesis is that the site will be written off in its entirety. Naturally, we have insurance cover in place and are working closely with our insurers to get an assessment completed so that we can start the process of cleaning up our site. From an operational perspective as previously advised, we have moved extraction to one of our other facilities and apart from the significant disruption in Hawkes Bay, we do not expect any material impact to our daily operations.”

Commenting on the performance, Brett continued “We are delighted to announce record revenue, gross profit and earnings at Comvita against a very strong PCP and despite continuing material Covid related headwinds. Once again, our FOCUS business model, control of costs, investment in brand and excellent execution from the team has enabled us to deliver ahead of forecasts. We remain confident about delivery of our 2025 plan and believe that the resilience we are showing in results despite matters outside our direct control is testament to the ongoing transformation of the business. The result shared today gives more evidence that we can deliver revenue, margin and earnings growth while investing in long term brand and business building activity. Net debt increased during this period primarily due to the increase in inventory (timing related) and the timings of debtor payments in this half. The Directors and I are pleased to declare a fully imputed dividend of 2.5 cps in this interim period, highlighting our confidence in the momentum we see within the business.“

Group CEO, David Banfield, says “This is now the sixth consecutive reporting period where we have delivered double-digit earnings growth in line or ahead of guidance, we see good momentum in the business, and this has been delivered despite the Covid related disruption in retail for most of the half in Mainland China. I would like to recognise the resilience and performance of the whole team around the world during such tough times, we are proving our ability to pivot to meet changing demand and also deliver great service to our partners.

I would particularly like to recognise the teams in Mainland China and Hong Kong SAR for their commitment and performance in very trying circumstances. I will be visiting them in April for the first time in over three years with our Regional CEO, Andy Chen, and can’t wait to thank them in person.

We do recognise that inventory and net debt are above our desired long-term level, we also recognise that we must prove our ability to deliver positive operating cashflow all year round and as such have finalised stage four of our supply optimisation program. This program is designed to help us align supply to consumer demand in market and, in the process, remove seasonality from our cashflows.

At this time, we retain guidance of double-digit earnings growth in FY23 but note that this will be after normalising the costs related to upgrading our ERP system – estimated at $3M (unable to capitalise due to changed accounting guidance). We are still forecasting inventory to be in line with PCP by the end of FY23 and remain confident that with our optimised supply model we are on track to deliver inventory of c$85M by 2025. This new supply model will also enable us to consistently deliver positive operating cashflows going forward. Finally, I want to talk briefly about our science program, we invest more in science than the rest of the industry combined and are delighted with the progress that we are making and look forward to sharing details before long. We are also in the middle of our latest clinical trial and expect to share results by the end of the calendar year. Our investment has enabled us to register nearly 50 patents which is the lifeblood for future innovation and further differentiation of Comvita vs competitors. Our focus now returns to delivery of our FY23 plan and to start the planning for FY24” concluded Banfield.

Looking forward – exciting future ahead

Comvita’s 2025 plan is designed to deliver a business model that achieves a GP of at least 60%, delivers long term investment in its brand by investing 15% in brand building activity and deliver a 20% EBITDA margin, Comvita again re-iterated that it was on track to deliver $50M earnings in 2025. This model, underpinned by its aim to be carbon neutral by 2025 and a global leader in ESG is designed to set Comvita up for long term profitable growth.

Banfield, concludes “I am so proud of the team and the continued progress that we are making together. We have had to work really hard to get to this point and are absolutely committed to creating our own legacy at Comvita to build on the great work done before our time. Our progressive agenda captured in our Harmony Plan and our constitution recognises our intention to operate in the best interest of all stakeholders. We remain committed to pay back the support shown by the Board, the extended Comvita whānau and all our stakeholders.”

David Banfield

CEO

Brett Hewlett

Chair

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