Over nearly four decades of export, markets in more than 30 countries have come to recognise the Australian drop as a premium taste, with the unique Australian floral notes giving it a flavour profile on the palate unlike anything else in the world.
Although production is at the mercy of drought and bushfires – reflecting the land from which it comes – the Australian drop is expanding its horizons, pushing into the newly aspirational markets of China and India, where growing wealth means increasing demand for the best in western taste.
It’s wine, right?
No – we’re talking honey.
Australia’s only listed honey producer Capilano Honey Limited (CZZ) is an outstanding food company, with a brand that claims 96% brand recognition in Australia, and is increasingly familiar in the 33 countries into which Capilano exports. This makes Capilano one of the most widely distributed Australian food brands internationally: it won its first Export Award in 1971.
Capilano Honey started as a family business in southern Queensland in 1953. It is now one of the largest honey packers in the world, with a capacity to process and pack over 45,000 tonnes of honey a year. Capilano’s honey is collected from the beehives of more than 500 Australian beekeepers that run commercial beekeeping operations in New South Wales, Queensland, Victoria, South Australia and Tasmania. The beekeepers own about 40% of Capilano, which listed on the Australian Securities Exchange (ASX) in July 2012, after eight years on the second-tier Bendigo Stock Exchange and 34 years before that as an unlisted public company.
At present just over one-fifth of revenue comes from overseas, but Capilano is working to increase this steadily, building on the reputation of Australia’s honey, which has quite a different taste profile compared to honeys from other parts of the world. This is mainly due to the fact that the vast bulk of Australian honey comes from eucalyptus trees – red gum, blue gum, yellow box and ironbark.
This gives Australia a very good reputation around the world for honey – effectively, as France is to wine. This is helped by the fact that Australia generally has a good reputation as a clean and green food producer, and specifically, because bee disease in Australia is not yet as pervasive a problem as in other parts of the world, there is far less antibiotic use in Australian hives.
For the 2012-13 financial year, Capilano lifted revenue by 6.5% to $72.16 million, increased earnings before interest, tax, depreciation and amortisation (EBITDA) by 20.1% to $7.76 million and reported a net profit of $3.45 million, up 35%. Export revenue improved by 8% to $15.24 million, accounting for just over 21.1% of revenue. The total fully franked dividend of 15 cents a share for the year was the same as that in FY12. At the share price if $3.00, that represents a healthy 5% yield – which is even higher for self-managed super funds (SMSFs), which have franking credits refunded.
The FY13 performance was very good considering that Capilano suffered a major fire at its major production facility at Richlands in Queensland, in September 2012, which destroyed most of the decanting facility. While the damage was repaired, the company re-commissioned its other plant, at Maryborough in Victoria, enabling it to meet orders. A favourable difference between the book value of assets destroyed and their insured value saw a net gain of $772,000 included in pre-tax profit for FY13.
At Richlands Capilano has invested heavily in strict quality assurance standards. Since 2001 the company has had Hazard Analysis and Critical Control Points (HACCP) accreditation: this is a quality assurance program that meets the most stringent International Food Industry requirements, and which is applied at Capilano along its entire supply chain, from individual bee-keeper level.
Capilano has also implemented a state-of-the-art laboratory, SciTest, to ensure best-practice analytical expertise in testing honey for microbial and chemical residues. The company even makes its own PET (polyethylene terephthalate) packaging in-house, to ensure it is perfectly suited to carrying honey. Capilano developed its upside-down pack itself: the bottle has since been adopted by honey manufacturers and other food packaging companies internationally.
On the corporate activity front, in FY13 Capilano bought the largest honey business in Western Australia, Wescobee – which gave it a packing and supply base in WA – and established a joint venture with New Zealand honey producer New Zealand Manuka, a small specialist manuka honey company with strong links in the Asian retail market. New marketing initiatives included the launch of the new “Honey Fusions” range, to extend the uses of honey in cooking, and the “Honey Shotz” snap-and-squeeze packs to branch into the sports nutrition market, taking advantage of honey’s high level of carbohydrates.
In short, Capilano is an excellent company, well-managed, financially strong and with a globally recognised brand, and it is well-positioned to benefit from Australia’s ability to be the “food bowl” for the growing consumer economies in Asia. The major problem for investors is that it is small: capitalised at just $25.6 million, and with a tiny average daily trading value of just under $17,000. It would take some time to build up a decent-sized investment in Capilano Honey – but that’s not to say that’s not worth doing.
