Hi guys,

I'm overseas at the moment and taking time out of my holiday to blog for you. So here's my notes on Capilano's FY 2014 Annual Report in shorthand. Some of these bullet points are quotes from the annual report, others are my thoughts. In no particular order...

• They own $5.99 million worth of freehold land though this may be inflated.


• Quite high salaries, only short term incentive, goalposts not set out in annual report. Overall, employee expenses significantly more than profit at $8.3 million.


• 79% of sales by $ are to domestic market (steady last 2 years)


• There is of course major customer risk (top 10 suppliers = 66%)


• Why do we owe beekeepers $2 million (note 26 annual report)? Prompt payment would keep them happy and builds trust.


• Capilano’s Brand market share was 49.4% (MAT to 29 June 2014), up from 47.7% the prior year. This does not include the market share of our other Brands on the market such as Wescobee, Allowrie, Barnes, BeeVital and Smiths.


• Biggest foreign customer by far is USA


• Consumption of honey by consumers has remained steady at 10,009 tonnes, despite increases in price.


• Domestic sales increased by over 19%, export sales by over 22%, strong growth in "Health and Wellness" honey, namely super expensive honey. Sales to Asia more than doubled.


• There is equity in the Brand ‘Australia’ as a consequence of the nation’s competency in producing quality agricultural products in unpolluted and native environments, with accompanying high standards of food manufacture.


• Food safety quality systems and factory operations in both our packing plants in Queensland and WA have been upgraded and were recently independently audited and awarded the prestigious ‘A rating’ under the BRC quality assurance system.


• Honey supply was adversely affected by a continued lack of rain, untimely weather events during key production times and extreme heat-wave conditions that affected honey bee colony health and vitality. The adequate supply of honey remains an on-going issue; however we have increased our supplier base as we endeavour to improve supply and to be the beekeepers’ number one choice when selling.


• In June 2014 we launched Barnes Naturals, a dedicated health brand targeting the health food and pharmacy sector.


• This year we have made considerable changes to better our sales mix by reducing lower margin large retail pack sales and increasing sales of core ‘family focused’ retail lines. New premium products have also been launched including pot set honey, seasonal selection glass jars and higher grade honeys. The culmination of the sales mix change has seen a 30% increase in $ per kg for product sold on shelf through supermarkets (QTR to 29 June 2014).


• A key pillar of our growth strategy is to be unrelenting in our pursuit of Australian honey supply, new beekeepers and better access to resources for our contracted loyal beekeeper suppliers. Our relationship with the beekeepers who supply us remains a significant priority.


• Our product is aligned with compelling consumer trends to eat natural unprocessed foods and we see a great future as we educate consumers further on the benefits of honey and its organic provenance. We will preserve our focus on quality and service and will look to deliver new innovations to our range.


• 2 beekeepers on a 5 member board


• Operating Cashflow ridiculously strong at $11.8 million, but this isn't representative of normalised free cashflow for a number of reasons, including the insurance payout.


• Insurance proceeds were $1.2 million more than expenses resulting from fire.


• Tax benefit of almost $1.1 million used up


• New $900,000 tax liability


• Honey inventories down by $4.7 million


• Payables down by $1.8 million and receivables down by about $0.3 million: difference = $1.5 million


• So overall a more representative cashflow figure would be $6.5 million


• PPE cost over $2 million (about $1.2 million of that was not fire related)


• Yearly regular capex at least $1.2 million, so FCF is closer to $5 million (rough estimate)


• Raw material costs up, sales revenue up, employee costs up, factory costs up


• Loans repaid by about $7.5 million, almost halving the debt


• Company outdid my expectations by a whopping 25%.


• Will continue to hold despite the fact its no longer such awesome value (Share price up 27% since buy price).


• My personal buy price moved to about $6.50 (ballpark - subject to revision).


• I still hold concerns about the effect El Nino will have on honey production in Australia, or the buy price would be noticeably higher.

The author owns shares in Capilano Honey Limited. Nothing on this blog is advice, ever, and may even be plain wrong. The purpose of this blog is to document my thoughts on different companies in an easily accessible way and to make connections with likeminded investors. Subscribers to the Free Newsletter get sent research first, and have access to the Hidden Research.
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