Comvita’s shares took another knock today (9 December) as the Manuka honey business said “accounting irregularities” linked to China would add NZ$1m ($586,685) to last year’s losses.
Wellington, New Zealand-headquartered Comvita had already booked its 2024 fiscal results in August, posting a loss of NZ$77.4m after tax for the 12 months through June. A non-cash impairment charge of NZ$59.8m had blown out the losses from the preliminary print of a NZ$16.8m loss.
As well as a 2024 downgrade, Comvita said today it is also shaving NZ$1m off its bottom-line result for the 2023 financial year, when it delivered a profit of NZ$11.1m.
The shares ended today’s trading session down 4.8% at 80 New Zealand cents as Comvita revealed it had “identified certain accounting irregularities in its China subsidiary leading to misreporting of sales and accounts receivables in the financial years FY-23 and FY-24”.
The stock has now lost 65% of its value this year amid what Comvita noted in its annual report was an “extremely challenging year” in 2024, marked by “continued weakness” in China, the company’s largest market.
In light of the accounting irregularities, Comvita said it has appointed an independent chartered accounting firm to review the figures, adding the company has been undertaking a separate analysis of the group business, including “core processes, structure and organisation design”.
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Comvita said the accounting review is “ongoing and the company is also working with its auditors to determine the appropriate accounting treatment”.
Sales in 2024 dropped 12.7% to NZ$204.3m, mainly due to the weakness in China.
“The primary reasons for the abrupt change in demand relate to consumer confidence following macro-economic challenges in China and increased competition in entry-point categories,” Comvita said in its annual report.
China accounts for 30% of the company’s group sales, which were also impacted by the cancellation of two key annual shopping festivals in the Asian country, the 12.12 and 6.18 events.
Revenue from China dropped 17.6% for the year but Comvita also saw sales decline 26.6% in the US “due to the loss of distribution in one major customer” in favour of a “cheaper competitor”, according to the annual report.
In that report, Comvita revealed the trading environment in China, described as “short-term challenges”, was the reason a “credible party” walked away from a takeover deal in May. The interested party has never been named.
Comvita chairman Brett Hewlett took up the position of CEO at the end of August as David Banfield stepped down from the role. Banfield remains at the company as a strategic advisor.
Hewlett explained the business environment in the annual report and the downturn in China, where he said the company has a “premium positioning”.
He said: “The slowdown in consumer spending observed across all categories in China has been driven by a decline in consumer sentiment and a steady search for more value-oriented offerings.
“At the same time, a glut in supply has brought a return to the market of new entry-level Manuka honey brands that are attacking Comvita’s category leading premium price position.
“Competition has intensified over the last 12 months and heavy price discounting is the weapon of choice.”
