Comvita & the Bonfire of Shareholder Equity

Shareholder equity represents the net asset value of a company. Between June 2024 and June 2025, Comvita erased NZD183.6m of that value. Bruce Roscoe explains Comvita’s application of the accounting standard that caused most of the destruction. He also questions the method used to revalue assets.

By Bruce Roscoe

Comvita Ltd twice blew up its balance sheet — the first detonation occurred on 29 August 2024, when earnings reported to NZX revealed asset write-downs of NZD64.2m. It repeated the bombing run on 29 August this year, marking down assets a further NZD53.9m. These write-downs contributed most to the erasure of NZD183.6m of shareholder value over the balance sheet dates of 30 June 2024 and 30 June 2025.

Note: On 14 October 2011, Cerebos New Zealand Ltd offered Comvita shareholders NZD2.50 per share in what was viewed as a hostile takeover bid. Comvita rebuffed the bid. In November 2011, Advisor Grant Samuel valued Comvita shares at between NZD3.40 and NZD4.00. Image: created by ChatGPT.

(Shareholder equity is recorded on a balance sheet as “Equity” or “Net assets” — the amounts are the same. It is commonly called “book value”. The value represents the difference between total assets and total liabilities — between what a company owns and what it owes.)

Shareholders, who had believed until mid-2024 that each share they held was backed by equity of NZD3.41, first stomached a fall to NZD2.23. Within 12 months, that value reduced 65.1% to NZc78. Ten days before this second gut punch, shareholders were presented with an offer of NZc80 and advised by Comvita to accept it. (The offer was made by Florenz Ltd and is subject to a shareholder vote in November.) The timing of pretty much everything provokes questions.

More questions are raised by the way in which Comvita applied accounting standard NZ IAS 36, which requires a recalculation of asset values in two ways depending on asset type. The first is to compare “recovery value” with “carrying value”, or the sale value of an asset in today’s market with the value recorded on Comvita’s balance sheet. The cost of making the sale is added to the sale value.

The second comparison is between balance-sheet value and the present value of the future cash flow that the asset is forecast to generate. It is a time-value calculation that recognizes that a dollar tomorrow is worth less than a dollar today. Called “net present value”, it is less complicated than it may sound. It tests whether the return on an investment over time will exceed the investment cost.  

Key Audit Matter

Why apply NZ IAS 36 at all? The standard cites four “indicators of impairment” that companies must monitor. If one indicator is judged present, assets must be “tested for impairment”. If their value is found to be less than recorded on the balance sheet, the difference is called “impairment”, the balance sheet amount is reduced by that value, and the same amount is charged to the profit and loss account, which reduces net profits. (An “impairment” is the same as a “write-down”.)

One of the indicators is a lower value for market capitalisation than for shareholder equity. Here the plot thickens, for two reasons. A share price decline, especially in the case of a relatively illiquid market such as NZX, can occur for reasons unrelated to a company’s earnings performance. (Market capitalisation is calculated by multiplying the share price by the number of outstanding shares).

Secondly, in Comvita’s June 2024 annual report, auditor KPMG stated as “the key audit matter”: “...the carrying amount of the Group's assets as at 30 June 2024 … significantly exceeded its market capitalisation of $76.4 million, and is considered an indicator of impairment". NZ IAS 36 uses the words “may be impaired” (New Zealand Equivalent to International Accounting Standard 36 Impairment of Assets amended 31 Jan. 2022; 12d).

The difference is wider than pinhead. Comvita appears to have made a discretionary use of NZ IAS 36, which said “may be”, not “is”. What followed, in contrast to NZD33.0m in impairments recorded in the 14 years to June 2023, was the calculation of impairments 3.6 times higher at NZD118.1m in the two years to June 2025.

(To which can be added, for the year to June 2025 alone, a NZD46.8 million write-down in inventory value — “aged propolis and finished goods” were “surplus to demand forecasts” and “aged Mānuka honey materials” had shown “non-compliant quality markers”. NZ IAS 36 does not apply to inventories, because they are in any case recorded biannually at the lower of cost or market value.)

Efficient Market Theory

Declining market capitalisation as an indicator of possible asset impairment is grounded in the theory, now some 60 years old and largely debunked, that stock markets are efficient, which is to say, share prices reflect available information about a company and that investors behave rationally. For a large, liquid market in a perfect world, where information flows are constant and accurate, one can argue the case for efficient market theory.   

If one argues that, over the long term, the share price will track a company’s earnings and fairly value the assets used to generate those earnings, then sustained price increases should cause upward asset revaluation. But NZ IAS 36 does not respect that logic. 

In Comvita’s case, market capitalisation could have declined for reasons unconnected to earnings performance and prospects. Here is an example.

On 24 December 2018, S&P Dow Jones Indices removed Comvita from its S&P/NZX50 Index, which is viewed as the NZX benchmark. Comvita’s share price had fallen 41.6% to NZD4.85 in the preceding 12 months and the reduction in market capitalisation had made the company ineligible for index inclusion. It had become clear to the market that MPI’s scientific definition for monofloral mānuka honey would depress profits, as would China’s clampdown on daigou sellers, who shipped small lots to avoid import duties.

Because index funds replicate an index by buying the shares of component companies, they must also sell the shares of companies that are removed. The December timing was unfortunate as many market participants vacation from around that time and NZX trading volumes are thin through February, but those were just short-term impacts.

Comvita’s removal set in motion a wave of cross-border selling, causing the share price to plummet 30.9% in six months. Within 14 months it had lost 53.6% to bottom at NZD2.25. Comvita chair Neil Craig at the time estimated that about 1.5 million shares had become available for sale as a result of the NZX50 change.

When calculated from the NZD9.14 recorded in January 2018, the share price had sunk 75.4% by February 2020. Comvita did not then apply NZ IAS 36, which suggests that recent applications of the standard may not have been only discretionary but also arbitrary.

Many shareholders react to impairments on the stratospheric scale of those Comvita has made by selling their shares. Such divestment further reduces market capitalisation, which again may trigger application of NZ IAS 36, which again may result in impairments. In this way, application of the standard can resemble a self-fulfilling prophecy and become circular.

Where Comvita Lost Most Value

Mānuka forests and related assets accounted for the largest share of lost shareholder value in the year to June 2025 — NZD24.4m or 47.2% of total impairments. The year before, China-related asset losses were largest —NZD30.6m (47.7%). (See the accompanying table “Where Comvita Lost Most Value”, which breaks down the impairments across six categories for both financial years.)

Mike Sang, a Comvita independent director, when asked on the Comvita 29 August earnings call whether the impairments were objective or subjective, replied: “We’ve done our very best to make what is ultimately a subjective analysis”.  The method relied on views of cash flows in future periods. Small changes in input data, for example the wholesale honey price, could have a large impact on the analysis result.

Valuations based on net present value that is calculated from future cash flows, though mandated by NZ IAS 36 to quantify asset impairment, appear inherently unsuited for a company that produces honey mainly for export and depends on a market such as China — “when China performs, Comvita performs”, Karl Gradon, chief executive officer for Comvita, told the August earnings call.

The method would suit a real estate company which can make reasonable assumptions about project cost and rental income. Or a widget maker whose input costs and markets do not buckle in the wind like those of a producer of farm products.

The sake brewery in the town where I live would not use the net present value formula to assess the viability of the development of a new product line of sparkling sake. The family-owned brewery traces its beginnings to 1750 and the current president represents the thirteenth generation of the family. The investment in sparkling sake, he has told me, was begun by the twelfth generation to benefit the current and future generations. Investment in mānuka forests could be viewed as an equally long-term endeavour whose value cannot sensibly be calculated by the application of cash-flow analysis over a short number of years. 

The Bidder Becomes the Market

More questions can be asked of the staggering shareholder equity loss, but at this late stage they become a footnote, while ramifications for the financing of honey-related assets focused on mānuka and derivative products can be expected to reverberate for months if not years. Banks, which were already in a bad mood about mānuka, likely will recalculate threshold collateral values across the board.

For the present, the scheduled acquisition of Comvita by Florenz represents a transaction between seller and buyer on terms agreed by them. The valuation, as unpalatable as it may appear, reflects market value for an unwieldy debt-shackled behemoth.

Florenz, as sole prospective owner of Comvita for uncertain future reward, has become the market.  

Bruce Roscoe is a Japan-resident researcher and former foreign correspondent and securities analyst.

Suggested reading:

(1) New Zealand Equivalent to International Accounting Standard 36

Impairment of Assets (NZ IAS 36) https://www.xrb.govt.nz/dmsdocument/4340/

(2) Debunking the Myth of Market Efficiency https://blogs.cfainstitute.org/investor/2023/03/24/debunking-the-myth-of-market-efficiency/

(3) Comvita Annual Report 2025, Note 19, Impairment Testing, p79-84. The report is downloadable under “Announcements” under the CVT symbol on NZX. https://www.nzx.com/companies/CVT/announcements