Comvita is warning the New Zealand Stock exchange an originally forecast $17m profit this year is being drastically cut back to $5m-$7m, because of bad weather.

'The honey season has progressed to a point where we have enough evidence to suggest we are likely to see a 60 per cent shortfall in harvest expectations this season from our own apiary operations,” says Comvita CEO Scott Coulter.

'Although we do not have full visibility on our 2017 honey crop until April/May, the majority of the country has seen cold, wet and windy conditions over the optimal nectar flow period.

'There is still some time in certain areas of the country, subject to a sustained period of fine weather, to see some form of recovery. However, it appears the whole industry is experiencing one of the most difficult honey production seasons for many years.”

The wet cold and windy conditions have impacted Comvita's ability to deliver on its 2017 financial forecast, says chairman Neil Craig.

Comvita indicated in October 2016 that an after tax profit for the June 2017 year would be similar to the 2016 earnings of $17.1 million.

'Unfortunately these wet, cold, and particularly windy conditions have significantly impacted the production of this season's honey, which in turn has impacted our ability to deliver on our 2017 financial forecast.

'As a result of these two factors, we now anticipate that our 2017 after-tax operating earnings will be in the range of $5-7m with the majority of the shortfall compared with last year resulting from the profit impact of the 2016/17 honey season.”

Comvita also experienced tough trading conditions for the first four months of the year, with sales significantly lower than the prior year resulting from a slowdown in the New Zealand and Australian informal trade channels into China.

'Putting the operating result into context, the budget for our own apiary business based on an average harvest year was for 974 tonnes and we now expect just 380 tonnes,” says Neil.

'The weather pattern has been so severe that our diversification of apiary hubs covering all regions of the North Island has been of limited mitigation this year.”

Comvita will announce its half year result on February 21. It is expected to be an after tax loss in the region of $7m to $7.5m, says Neil.

'This includes an unfavourable, non-operating, fair value adjustment on SeaDragon Limited (NZX:SEA) options held of $2.8m for the six months ended 31 December 2016.

'As a result of the sale of the Medihoney brand to Derma Sciences, Inc. (Nasdaq: DSCI) and the related intellectual property and imminent sale of our shareholding in Derma, our full year net profit after tax earnings, including surplus from these transactions, is forecasted to be in the range of $20-22m compared to previous guidance of $17.1m.”

While it's very disappointing to be forecasting such a result, CEO Scott Coulter says Comvita has been conscious of the possibility of this type of weather event happening at some point in the company's business life and what they could do to mitigate its effect.

Over the last 18 months, the company has been actively acquiring Manuka honey inventory from third party suppliers so the business is well positioned to fully meet consumer demand from existing inventory for at least the next 12 months.

'We are seeing strong sales in all our markets, including the Australian domestic market, however the exception is still the Australasian informal trade channel into China,” says Scott.

'Although this has improved over the past two months, revenue from this channel is expected to remain lower than historical levels in the short to medium term. We have also been focused on adjusting our underlying operating cost base which enables us to maintain confidence to deliver on our longer term objectives.

'We believe it is important for our shareholders to consider, that assuming a return to normal weather patterns next year, the operating profit impact of this very poor honey harvest will be isolated to this current financial year.”

The very poor honey production this season reinforces the importance of Comvita being successful in diversification and value add strategies, i.e. value add to raw bulk Manuka honey, fresh Olive Leaf Extract and other ingredient platforms, and moving the brand to Omega-3 fish oils and other unique New Zealand ingredients, says Scott.

'This is an active, ongoing process, about which we expect to release more details over the next few months.”