Comvita’s shares faced further decline today (9 December) following the company’s announcement of “accounting irregularities” tied to its operations in China. These irregularities are projected to increase last year’s losses by NZ$1 million ($586,685).
Based in Wellington, New Zealand, Comvita had reported its fiscal results for 2024 back in August, registering a loss of NZ$77.4 million after tax for the year ending June. A significant non-cash impairment charge of NZ$59.8 million contributed to an escalation in losses, surpassing the initial projection of a NZ$16.8 million loss.
In addition to projecting a loss for 2024, Comvita stated today that it would decrease its 2023 financial results by NZ$1 million, despite having reported a profit of NZ$11.1 million for that period.
As Comvita disclosed the details of its findings, its shares ended today’s trading down by 4.8%, closing at 80 New Zealand cents. The company identified “certain accounting irregularities in its China subsidiary,” which resulted in misreported sales and accounts receivable for the fiscal years FY-23 and FY-24.
So far in 2023, Comvita’s stock has plummeted by 65%. The annual report characterized the year as “extremely challenging,” emphasizing ongoing weakness in China, which remains Comvita’s largest market.
In response to the accounting irregularities, Comvita has engaged an independent chartered accounting firm to conduct a comprehensive review. Furthermore, the company is analyzing its business structure along with core operational processes.
Comvita stated that the accounting review is “ongoing” and that the company is collaborating with its auditors to ascertain the appropriate accounting treatment.
Sales for the year 2024 saw a decline of 12.7%, totaling NZ$204.3 million, primarily driven by challenges in the Chinese market.
According to Comvita, “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.” This underscores an evolving landscape within the food manufacturing sector.
China constitutes approximately 30% of Comvita’s overall sales, which were also adversely affected by the cancellations of two significant shopping festivals in the region—events 12.12 and 6.18.
The company recorded a 17.6% reduction in revenue from China, while sales in the U.S. plummeted by 26.6% “due to the loss of distribution in one major customer” opting for a “cheaper competitor,” as highlighted in the annual report.
Throughout that same report, Comvita disclosed that the short-term trading challenges in China caused a “credible party” to walk away from a takeover deal in May, although the identity of this party remains undisclosed.
Comvita chairman Brett Hewlett assumed the role of CEO at the end of August when David Banfield stepped down. Banfield continues to serve the company as a strategic advisor.
In his commentary included in the annual report, Hewlett elaborated on the competitive dynamics facing Comvita, particularly in China, where the company’s premium positioning has been challenged.
Hewlett explained, “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.” He cautioned that the influx of new entry-level Manuka honey brands in the market threatens Comvita’s premium price position.
As a concluding point, he remarked, “Competition has intensified over the last 12 months, and heavy price discounting is the weapon of choice.” This statement encapsulates the current challenges within the food manufacturing sector and the critical necessity for companies to adapt swiftly to remain competitive.
