Misjudging the depth of the global financial crisis cost Comvita about $3 million in lost sales for the year ending March, 2011.

'In our chairman's report last year, we felt we had successfully navigated our way through the worst of the global financial crisis,” says company chairman Neil Craig in his address to the company's annual general meeting on Thursday.

'In hindsight, we were overly optimistic with respect to our revenue projections for the year and the costs of litigation in the UK.”

Sales for the year were $82 million compared with $85 million for the year ending March, 2010.

'This time last year we thought we had weathered the global financial crisis well, and were poised for continued growth in sales and profitability,” says Neil.

'We continued to invest in several new projects with an overhead cost structure that was too high for the operating environment that evolved.

'In particular, we weren't able to make up in the second half for the very poor first six months.

'We made the call not to downsize the business, but to run with our existing infrastructure and complete these projects for the long term good of the company rather than curtail them.”

These projects included:

• Ongoing rebranding of Comvita products.
• Re-launch of the skincare range.
• Launch of the new Omega-3 fish oil range.
• New global website with fulfilment of orders in each market.
• A number of significant developments in sourcing Manuka honey.
• Korea market expansion project.
• The opening of a number of new stores mainly in Hong Kong.
• Restructuring its Australian distribution model to direct selling by Comvita.

'On top of the projects, Comvita was involved in a time consuming and expensive legal case defending a key medical wound-care patent the company holds in the UK – Comvita lost, but was granted leave to appeal.

'We are now in the process of negotiation of an out-of-court settlement, which will avoid going into a contested appeal,” says Neil.

'This will result in a recovery of some costs already expensed in 2011 as well as a restoration of our patent position in the UK. We expect to conclude this shortly.”

For the first three months of 2011/12 Comvita experienced sales and earnings better than the last two years despite the currency headwinds, says Neil.

'It is early days, but we are comfortable we are going to have a significantly better financial result in 2011/12.

'Further, our investment in Derma Sciences has grown sharply in value and the contribution from our Medihoney range sold by Derma Sciences is now material.”

'While sales were down in New Zealand dollars, they were up eight per cent in local currency and our gross margins continued to trend upwards, despite currency issues.

'Normalised net profit after tax was adjusted for a non-cash Derma Sciences warrant revaluation and the actual costs of ‘one-off' legal and settlement costs on litigation with WaikatoLink and the UK medical patent. Our NPAT includes all the costs mentioned above.

'Because the board views these costs as one-off in nature, we were able to pay more out in dividend than we earned during the year.

'Our net asset value per share has increased over the last five years as we acquired and earned profits.

'Our shares on issue reflect the 500,000 shares each we issued at $2 per share to our strategic alliance partners in China and Korea – Mr Zhu and Mr Kim respectively.

'Comvita is now a company with 80 per cent of sales offshore: gross margins are significantly higher than five years ago, and the business has diversified away from complete dependence on Manuka honey. Net asset backing is around $2.60 per share.”

Neil says Comvita also has a very low net debt position, particularly when considering it owns effectively $13m of Derma Sciences (DSCI).

At the annual general meeting, both Neil John Craig and Thomas (David) Cartwright Cullwick were re-elected to Comvita's board.

Jeffrey Kinross Williams retired from the board after nine years of service.

Comvita Summary Report

Year ending March 2011

Sales $82m

Gross Margin 56 per cent

EBITDAF(i) $6.7m

Normalised Net Profit After Tax $3.6m

Reported NPAT $0.50m

Earnings per Share 1.8 cents

Dividends per Share 3 cents

Shareholder Funds $72.2m

Total Assets per Share $3.98

Net Asset Value per Share $2.56

Net Debt $18.9m

Shares on Issue 28.17

Year ending March 2010

Sales $85m

Gross Margin 51 per cent

EBITDAF(i) $11.0m

Normalised Net Profit After Tax $5.6m

Reported NPAT $5.01m

Earnings per Share 18 cents

Dividends per Share 8 cents

Shareholder Funds $65.9m

Total Assets per Share $3.95

Net Asset Value per Share $2.45

Net Debt $11.5m

Shares on Issue 27.16

Year ending December 2006

Sales $39m

Gross Margin 43 per cent

EBITDAF(i) $4.8m

Normalised Net Profit After Tax N/A

Reported NPAT $2.11m

Earnings per Share 15.5 cents

Dividends per Share 5 cents

Shareholder Funds $30.6m

Total Assets per Share $3.10

Net Asset Value per Share $1.78

Net Debt 12.9m

Shares on Issue 17.20