Capilano Honey Limited. 9 July 2012

Transcription

1 Capilano Honey Limited 9 July 2012

2 Contents Introduction The Honey Industry Key Financial Data Board & Management Shareholders Risks Strategies & Outlook 2

3 3 Introduction Capilano Honey Limited (Capilano) is the leading honey supplier in Australia, together with a significant presence in export markets. Total revenue forecast for 2012 is $67.3 million and EBITDA at $6.4 million. Until its listing on the BSX in 2004 Capilano was owned 100% by its beekeeper supplier shareholders and its objective was to provide a market for all honey produced by them. Corporate strategy included development of value added export markets to sell honey received from its beekeepers, historically in surplus to the domestic market requirements. This included development of a 3,300 tonne export market in Canada for retail honey products, equal to one third the size of the Australian retail honey market. Capilano s earnings in recent years prior to 2010 were substantially affected by the private label strategies of its major customers, unfavourable foreign exchange movements and drought. In September 2009 Capilano amended its Constitution dropping some of its cooperative protections and allowing greater investor participation through a capital raising. In December 2009, in response to continued adverse exchange rates and impact of drought on honey production, Capilano changed its corporate strategy of providing a market for all honey likely to be produced by its beekeeper supplier shareholders to one of only retaining profitable market sectors and matching honey supply to the market demand of those sectors..

4 4 Introduction (continued ) Restructuring included asset sales, the reconfiguration of factory operations, and the exit of marginal export markets including Canadian market segments. Write-downs to investments in NZ and Canada followed with the sale of an investment in Comvita (held following the sale of Capilano s Medihoney business) and sale of investment in Capilano Labonte Inc used to establish the Canadian business. In 2011 Capilano continued its restructuring with a capital investment and plant rationalisation program to further cut costs out of the business with the aim of becoming the lowest cost honey packer/manufacturer. These strategic changes provided significant inflows used for debt amortization purposes. Capilano s restructure, including a more efficient operations platform, and a focus on profitable domestic market, allowed for its transfer from the BSX to the ASX. Capilano is now better placed to improve its returns to shareholders.

5 5 The Honey Industry Honey is a global product with major producers such as China, Argentina, Turkey and the USA supplying key importers such as Germany, Japan the UK and USA. Annual production is affected by climatic conditions, pests, viruses and unexplained afflictions such as Colony Collapse Disorder. Established in 1953, Capilano is one of the world s largest honey companies with over 50 years experience in supply of retail pack honey and bulk/industrial honey. With revenues of $63.2 million in the 2011 financial year, local sales represented 75% of turnover and the balance of 25% export sales. Capilano s Head Office and main honey packaging, warehousing and distribution facility is in Brisbane, Queensland. A secondary plant is held as a backup in Maryborough, Victoria. Both locations are close to the main honey producing regions of eastern Australia. N.T. QLD Capilano supplies honey to the domestic and international markets under a range of brands, primarily Capilano brand but also Allowrie and Farmers Union. W.A. S.A. NSW Supply region Vic Tas

6 6 The Honey Industry (continued ) Capilano s honey is sourced primarily from producers who are also Capilano shareholders (Supplier Shareholders) holding supply agreements with CHL. Quotas established annually. Capilano will purchase the quota at the Quota Price determined by the commercial value of various honey grades sold into different markets, market conditions, bulk export volume and prices and foreign exchange rates. Supplier shareholders are required to own a set number of shares for each producing hive. The company may purchase honey above the quota. Approximately 90% of honey is supplied by Supplier Shareholders. The graph illustrates, on a quarterly basis, movements in prices (average honey purchase prices) over a twenty year period from 1991 to 2011 for two different grades of honey. These prices include bonuses and premiums that have been paid to Suppliers.

7 7 The Honey Industry (continued ) Capilano packs honey into retail packs for sale to supermarket retailers both in Australia and overseas. Capilano also sells bulk honey in drums or IBC s to industrial users in Australia and overseas. The company has a history of innovating in packaging eg Twist n Squeeze and Upside Down packs, in order to enhance marketing and sales opportunities. Capilano makes its own retail packs using PET equipment at Richlands. Capilano s market share in supermarkets in Australia is estimated at over 40% (AC Nielsen Scan Data) and it exports to 33 different countries.

8 The Honey Industry (continued ) 8

9 9 The Honey Industry (continued ) Retail Packing Robot Palletisation 20 tonne blending tanks Decanting Warehouse facility PET production facility

10 10 Key Financial Data Income Statement Summary of consolidated audited results FC2012 Total revenue 78,493 72,156 63,191 67,322 EBITDA (excluding impairments) 4,081 4,290 6,427 6,424 Depreciation & Amortisation (1,544) (1,654) (1,660) (1,762) Interest (1,744) (1,222) (1,063) (989) Impairments - (6,352) Income tax benefit (expense) (86) (1,041) 766 (1,102) Operating (loss) profit after tax 707 (5,979) 4,470 2,571 Dividend per share Earnings per share Consolidated financial position Total assets 59,200 46,011 44,404 49,440 Equity Contributed equity 5,366 7,395 Reserves 3,347 4,043 Issued share capital 8,520,199 shares Latest share price (130/06/12) - $2.05 Market capitalization at latest share price - $17.47mill Share price range last 12 months high $2.05, low $0.80 7,728 7,728 4,043 4,043 Retained profits 13,241 7,262 10,455 11,748 Total Equity 21,954 18,700 22,226 23,519

11 11 Key Financial Data - EBITDA Financial Performance FY09 FY10 FY11 FC12 Revenue 78,493 72,156 63,191 67,322 EBITDA (pre normalisations) 4,080 (2,062) 6,427 6,424 Add back: Abnormal / One-off Items Goodwill impairment 5,108 Comvita write-down 127 FX loss non-cash end of year asset translation 839 Redundancies 174 Cost associated with capital raising 736 Cost of exiting markets , Normalised EBITDA 4,919 4,290 6,427 6,424 % to revenue 6.3% 5.9% 10.2% 9.54% Goodwill impairment ($5108k)/ Redundancies ($ 174k)/ Cost of exiting markets ($207k) relate to Capilano s withdrawal from marginal Canadian market segments within their export business Comvita write-down ($127k) relates to the sale of the Comvita investment by Capilano for $1.4mn Costs associated with constitutional changes and capital raising ($736k).

12 Key Financial Data - Balance Sheet Balance Sheet 2011 FC12 CurrentAssets Cash and cash equivalents Trade and other receivables 11,808 13,578 Inventories 9,194 13,551 Other current assets TOTAL CURRENT ASSETS 21,803 27,480 Non-Current Assets Property, plant and equipment 18,985 19,482 Intangible assets Deferred tax assets 3,474 2,374 TOTAL NON-CURRENT ASSETS 22,601 21,960 TOTAL ASSETS 44,404 49,440 Liabilities Trade and other payables 9,538 9,776 Short term borrowings 1,566 1,739 Provision for dividend 1, Long term borrowings 9,526 13,725 Long term provisions TOTAL LIABILITIES 22,178 25,921 NET ASSETS 22,226 23,519 Equity Issued capital 7,728 7,728 Reserves 4,043 4,043 Retained earnings 10,455 11,748 TOTAL EQUITY 22,226 23,519 Very low raw material inventory levels in 2011 saw gearing drop to 49.9% Normal inventory levels in 2012 have gearing at approx. 52.4%. Capilano has a financing facility with HSBC which was implemented on 28 June The financing arrangements include a Multi Option facility, Fixed Bill facility, and Debtor finance available in the total amount of $18.2 million at 30 June The facility was used to the extent of $12.09 million at 30 June NTA/Share $2.76 Key Ratios FC12 Current Ratio * 2.30^ Debt (Total Liabilities / Total Assets) 62.9% 59.4% 49.9% 52.4% Interest Cover (EBIT DA/ Interest) Net Assets ($ 000 s) $21,954 $18,700 $22,226 $23,519 * A provision for dividend of $1,278,030 is included in current liabilities ^ A provision for dividend of $426,010 is included in current liabilities.. 12

13 13 Key Financial Data - Policies Dividends CHL s Constitution prescribes that directors may determine that a dividend is payable to Shareholders. Directors also have power to pay interim dividends. In determining the amount of dividend (if any), directors take into account: the importance of retaining a portion of profits to provide funds for operations and to provide for future growth; and the need to pay dividends to reward Shareholders for their investment in the Company. As at 30 June 2012 the Company had an accumulated franking account balance of $1,289,955 based on company income tax paid. This franking account balance can be used to frank future dividends. Quality Management The Company has a comprehensive, fully documented Quality Policy and Quality Assurance System. All company production sites have HACCP Food Safety Certification that is independently audited. In addition, specific customer quality system requirements are met as required, such as the British Retailers Consortium (BRC) and Woolworths Quality Assurance (WQA), which means that CHL conforms to the stringent quality standards of the major retailers.

14 14 Key Financial Data Policies (continued ) Corporate Governance The Company has adopted a corporate governance charter which includes: a board charter; a code of conduct for transactions in securities; a code of ethics; a diversity policy; and charters for the audit and compliance committee, human resources and remuneration committee, honey supply and industry, and nomination committees. OH&S Capilano Honey Limited has a total and absolute commitment to the concepts of workplace health and safety, including an inflexible intention to comply with all relevant Statutory legislation, applicable Australian and International Standards, approved Codes of Practice and industry standards. Accordingly, the workplace health and safety policy of Capilano Honey Limited has the objective of ensuring that those workplaces for which the organisation is responsible are, as far as is practical, free from risks or hazards to employees, contractors and the general public.

15 15 Board & Management Board Trevor R. Morgan, FAICD Chairman, Non Executive Director Commercial Apiarist Mr Morgan has been a director since 1998, was elected Deputy Chairman in 2004 and Chairman in He is a second-generation beekeeper with over 30 years experience in honey production. He is a Fellow of the Australian Institute of Company Directors. Phillip F. McHugh Deputy Chairman, Non Executive Director Commercial Apiarist Mr McHugh has been a director since He is well known in the NSW apiculture industry and his family have been CHL Shareholders since Simon L. Tregoning, B.Com Independent Non-Executive Director Mr Tregoning has been a director since He is also a director of Grain Corp, and St Lukes Care. He was formerly a director of Australian Co-operative Foods (Dairy Farmers) and was Vice-President of Kimberly-Clark Corporation Roger D. Masters, B.Com, MBA, CA, FAICD Non-Executive Director Mr Masters was formerly Managing Director since He has a Bachelor of Commerce Degree, a Masters Degree in Business Administration, an Associate of the Institute of Chartered Accountants and a Fellow of the Australian Institute of Company Directors. Management Ben McKee, B.Agr.Sci. (Hons), PhD, GAICD CEO 9 years service Dr McKee has a Bachelor of Agricultural Science Degree (Honours) and a PhD in a field of study related to the honey industry. He is a Graduate of the Australian Institute of Company Directors. Previously, Dr McKee worked with the University of Melbourne and within the Victorian Department of Primary Industries. Dirk Kemp CIMA, MBA, Bcompt (Hons), Financial Controller / Company Secretary Joined 2012 Mr Kemp has over 20 years experience in finance roles including management, financial accounting and reporting in similar sized SME s to Capilano.

16 16 Shareholders Top 5 shareholders Icon Brands Pty Ltd 7.51% Queens St Nominees Pty Ltd 6.32% Baker Family Trust 4.54% Masters Super Fund 3.92% Quinn Super Fund 3.86% Jenik M 2.36% Corporate Structure Capilano Beekeepers Ltd holding one Foundation share Public shareholders CAPILANO HONEY LIMITED Foundation Share A single Foundation Share in Capilano Honey Ltd is held by Capilano Beekeepers Ltd (CBL), and allows CBL to appoint two Beekeeper Directors to the Board of CHL. The Beekeeper Directors are subject to appointment by rotation for re-election consistent with ASX rules. Only beekeepers who hold honey supply agreements with Capilano may be members of CBL. The Foundation Share has no other powers and is not entitled to participate in any dividend or distribution. Honey Corporation of Australia (non trading)

17 17 Risks CHL's business is exposed to a variety of commercial and other risks, all of which have some potential to affect the future profitability of the Company and to influence both dividends on Shares and prices which the Company is able to pay Supplier Shareholders for honey supplied. The risks detailed below should not be taken as exhaustive of the risks faced by CHL or its investors. Supply The supply of honey to the Company can be adversely affected by reduced access to floral resources, exotic bee incursion, bee diseases, and beekeeper diversification into non-honey producing activities. Generally the total annual quantity of honey supplied to CHL exceeds the quantity required to satisfy demand for domestic market retail products and industrial honey and value added retail packed exports. Consequently, the Company has been a consistent exporter of Industrial Bulk Honey onto the world commodity honey market. The net value in Australian dollars of Industrial Bulk Honey exports is subject to wide variations resulting from movements in export market prices (usually quoted in US dollars) and the exchange rate value of the Australian dollar against the US dollar and other currencies. Variations in price, exchange rates and market conditions are outside the control of CHL and can have a significant effect on prices paid for honey purchased and received for honey sold, and profits. Any future changes in government regulation regarding floral resources can have a significant negative impact on honey supply. Climatic conditions The production and supply of honey can be adversely affected by unfavourable weather (drought) and environmental and climatic conditions. Continued drought may have, and has had, a negative impact on CHL s financial performance.

18 18 Risks (continued ) Consumer perceptions Australian consumers traditionally regard honey as a natural, healthy food product. However, it should be recognised that changes in lifestyles and eating habits could affect future demand. Market concentration The retail grocery market in Australia is lead by a small number of powerful groups who, between them, account for the majority of annual retail grocery sales. The consequent concentration of buying power can be a disadvantage to CHL. Price competition Price competition is common and often aggressive at both wholesale and retail levels of the domestic market. In the generic and house brand retail product market and the industrial honey market, competition is almost exclusively on a tendered price basis, and consequently, margins are often low Product concentration CHL derives substantial strength from the concentration of its management resources in the packing and marketing of honey supplied by its Supplier Shareholders, and relies on this activity for a significant proportion of its profitability. Any event or circumstance which reduces the supply or demand for honey in Australia or overseas, or restricts CHL s access to markets will have a material effect on the profitability of the Company.

19 19 Strategies & Outlook Maintain our strong Capilano brand position as the national market leader. Maintain our position as a low cost manufacturer and food processor. Look for growth opportunities in acquiring or developing other honey brands. Drive marketing support to expand the honey category, for example, the Honey in Sport supported by social media campaigning Consider opportunities to recover private label production lost in drought years provided it is profitable business. Maintain our key export markets to benefit from any improvement in economic conditions. Work on the continued support of major retailers for the Capilano brand. Consider opportunities for merger and acquisition with other businesses that would deliver profit, growth and synergistic benefits.