Comvita, a company producing honey products, recorded an annual net loss of USD 27.7 million after writing off goodwill of USD 20.1 million.
The result for the 12 months ended in June is comparable to a profit of USD 8.2 million in the previous year.
The loss of USD 7.6 million before write-offs was in line with the announcement of Comvity earlier this month, but inventories increased by USD 132.2 million, compared with USD 116.5 million in the previous year. At the beginning of this month, the company estimated the value of inventory at USD 110 million, excluding China.
Comvita says raw material inventories, mainly manuka honey, fell to USD 30 million as at June 30 from USD 89 million a year earlier, while finished goods, including China – the company just bought its joint venture partner in China – totaled 48 million USD. With the exception of China, they were flat for USD 26 million.
The KPMG auditor presents to the financial statements a clean state of health, but also notes that Comvity's net assets of USD 173.4 million exceed the company's market capitalization.
Comvita shares increased by as much as 18 cents, or 6.9 percent, to USD 2.80, after which they fell to USD 2.75, giving USD 136.6 million to market capitalization. Shares have fallen by more than 50 percent in the last 12 months.
Net assets after deduction of net debt are USD 88.9 million.
KPMG argues that because net assets were higher than market capitalization, "impairment of fixed assets is considered a key audit issue" and that they involved Valuation Specialists "to challenge key judgments".
The Comvita chair, Neil Craig, said the result is "an extremely disappointing end to a year of significant change," including the third bad honey season in a row, the Chinese government's repression of daigou trade, and stricter specifications for Manuka honey brand exports.
Daigou, which literally means that someone is buying on behalf of others, is buying products in Australia for resale in China.
Despite many "bold strategic initiatives," including buying out Li Wang's Chinese joint-venture partner, who is currently Comvity's largest shareholder with 16.8 percent, the company's efforts were "far too late to remedy the shortfall and change throughout the year 2019 "Says Craig.
"Having control over the supply chain of our key ingredients and our distribution activities in most markets, while still showing solid signs of growth, management is confident that it will restore positive sales dynamics and profits in the next tax year," he said.
Craig told analysts that "we basically decided to pull the skeletons off balance sheet" with goodwill write-offs, of which more than $ 15 million was on Australian business interests. The company also recorded $ 2.3 million for its interest in the beekeeper company Putake Group from Blenheim.
Comvita was expected to report on Tuesday, but delayed the release when management and KPMG discussed the required copies.
USD 6.9 million from loss of write-downs came from supply of activities, and USD 700,000 from branded activities.
Comvita sales in China on a similar basis increased to USD 52.1 million from USD 45.7 million, while sales in Australia and New Zealand dropped to USD 65.6 million from USD 82.6 million, reflecting a decline in daigou trade.
Sales in Asia increased to USD 41.3 million from USD 36.8 million, but fell in North America to USD 13.4 million from USD 26.8 million, which is due to an excessive order by Costco.
Craig says Costco began re-ordering at the end of the fiscal year that has just passed, and expects better trade this year.
Although Costco is known as a discount store, Craig also said it has "many premium and super-premium brands on offer."
"It's a really good way to enter the market. Your brand is visible and recognizable. "
Comvity sales also fell in Europe from USD 8.7 million to USD 6.2 million, and the company says it is still struggling to adopt quality standards from the Ministry of Basic Industry in the UK.
He says he now distributes through Amazon in Germany, made management changes and reduced costs.