Capilano Honey reports sales, revenues and profits all falling ahead of now certain privatization

Capilano Honey’s takeover over by Wattle Hill and ROC Capital appears almost certain after the bidders increased their offer from $20.06 to $21 per share last Friday.

The higher price prompted Bega Cheese to announce it will accept the offer for the 15.6% stake Bega has built up in Capilano in recent months.

So with the board’s endorsement, and the only other major shareholder (i.e. Kerry Stokes) already having agreed to accept the offer, Capilano Honey is now almost certain to disappear from public ownership at next weeks (Nov 15th) shareholders meeting.

However ROC Capital and Wattle Hill will not find Australia’s biggest honey company travelling as well as when they first plotted the takeover.

Capilano Honey says profits, sales, revenues all falling
Capilano Honey says its profits, sales, and revenues are all down and falling

It seems that Capilano has suffered something of a dip in its commercial fortunes recently.

Capilano’s woes were revealed in a Supplementary Disclosure issued to the Australian Stock Exchange (ASX) on November 2nd.

Based on what it said were its most recent trading figures, the company is forecasting a drop in profit for at least the first half of this 2018/2019 financial year.

Recent bad publicity flowing from samples of Capilano’s imported Chinese honey failing international quality tests was one factor cited.

And Coles decision to stop selling that honey (sold under the Allowrie brand) was also said to be part of the reverses.

But the company’s sales and revenues have been going backwards across quite a few areas of its business, and not just at Coles.

Capilano said it is also experiencing lower retail export sales to China, and lower bulk industrial sales both here and overseas.

Moreover a decision not to repeat last years “deep dive price reduction campaign” has, for reasons which aren’t explained, hit revenue this year. (Although, in truth, your correspondent has had no experience whatsoever with a Capilano “deep dive price reduction campaign” and has absolutely no idea what it looks like.)  

Capilano said it had gone ahead with spending more on marketing anyway, and has “implemented immediate measures to protect market share”.

Short-term cost-saving initiatives have been adopted, the company said, but even so, first half profit “is expected to be materially lower than last year’s result”.

Profits in the second half are expected to be better, but of course, by that time the company will be in private hands and won’t have to report or reveal how it is going.

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Australian honey trade deficit grows ever wider in 2017

Australia’s honey trade deficit widened again in 2017, as honey imports increased once again and honey exports again declined.

For 2017 the deficit was more than AUD$15million, with exports down to below even 2013 levels.

Whilst a detailed breakdown of the 2017 import data isn’t yet available, the 2016 data shows that just three countries dominate Australia’s honey imports.

China was by far the largest source of imported honey into Australia, accounting for nearly 70% or 6.7 tonnes of the total.

But New Zealand, where Australian honey is banned, was the main beneficiary of Australia’s free trade policy for honey.

Imports of honey from New Zealand were worth $27million in 2016 and the main contributor to Australia’s honey trade deficit.

(No doubt much of this was Manuka NZ honey as its average value was around $18 per kilo.)

China was the main source of imported honey, with 6.7 tonnes imported, at an average price of around $1.80 per kilo.

Argentina was Australia’s third biggest supplier of imported honey with just under 1 million tonnes in 2016. The average price for that honey was $2.65.

These three countries combined accounted for just over 90% all the honey imported into Australia during 2016.

On the export side, Australian honey exports totalled just under 3.8 tonnes during 2017, with an average value of just over $8 per kilo.

However Australian honey exports were down in both value and volume terms compared to the previous year.

Indeed Australian honey exports by volume were the lowest for 5 years.

Compared to exports of more than 5.3 tonnes in 2013, Australia exported just 3.8 tonnes in 2017.

That means Australian honey exports have fallen by around 30% in the last 5 years.

Source: United Nations Comtrade

Note: Data for Natural honey (Classification HS2007 and Commodity Code no. 040900)



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Hong Leong Group reported as the new owners of Manuka Health

Singaporean and Malaysian billionaires – Kwek Leng Beng and Quek Leng Chan, are expected to soon be confirmed as the new owners of New Zealand’s second largest Manuka honey producer, Manuka Health.

The Singaporean and Malaysian Chinese cousins are the ultimate owners of the Singaporean and Malaysian divisions of the Hong Leong Group – the new owners of Manuka Health.

Former owners – Australian investment fund – Pacific Equity Partners (PEP)  had previously been reported as having decided to sell out of the Manuka Health business after having paid around $AUD100million to buy in some three years ago.

A report in the Australian Financial Review late in September suggested the sale had netted PEP up to twice its original investment.

Of course, as a private company PEP is under no obligation to reveal the sale price. So it is impossible to know how much PEP actually paid for or profited from its manuka honey investment.

Even so, Manuka Health Chief Executive – John Kippenberger told the NZ Herald that the company had doubled its revenue over the last three years, and expanded its apiculture operations five-fold since 2016.

“The new owners understand the tremendous natural health properties of Manuka honey” he said.

The sale is understood to be subject to NZ’s Overseas Investment Office (OIO) approval, and that had yet to be announced at the time of writing.

However as the sale is effectively transferring ownership from one foreign owned company to another, it is difficult to see why the OIO would have any objection

Hong Leong Group is not known to have previously been involved in either food or honey businesses, but has substantial operations in a wide range of banking, finance property development, and other areas.

According to a Singapore Infopedia article published in 2011, Kwek Leng Beng’s Hong Leong Group encompasses around 300 different companies across Asia, Europe and North America. The group held gross assets of around S$33 billion as of 2011.

Beng is one of Singapore’s richest men, and first gained international attention back in 1995 when he, and a Saudi associate, bought the Plaza Hotel in New York from Donald Trump.

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Australia's finest and rarest honey. From the Tasmanian Honey Company 750gms of pure Tasmanian leatherwood honey. $19.95 plus freight

Takeover deal will cost Capilano Honey at least $7million

Capilano Honey will pay as much as $7million to facilitate its takeover by a consortium of merchant banks led by Ken Rudd’s son-in-law, Albert Tse.

That’s partly because one of the conditions of the takeover offer is that Capilano honey – will pay all of the $5million adviser costs of Tse and his partners.Albert Tse

And the $2million Capilano is spending itself on facilitating the takeover makes the total cost to the company at least $7million.

Details of the ‘adviser re-imbursement costs’ condition, and numerous other conditions associated with the deal are included in the 400 odd pages of takeover documents sent to Capilano shareholders earlier this month.

As has previously been widely reported the Capilano board has endorsed Tse’s takeover offer, with independent experts reporting the consortium’s $20.06 per share cash takeover offer is fair and reasonable.

But the documents reveal that same independent exports also said the exact opposite about the alternative 1-for- 1 scrip offer; they said it is neither fair nor reasonable.

The documents also show that corporate regulator, ASIC, has significant public policy concerns about the deal.

Indeed ASIC put those concerns on record at the initial Federal Court hearing held to OK the deal being put to shareholders.

ASIC also told the Court it will raise the concerns again if shareholders approve the deal and it comes back to the Court for final approval.

Currently shareholders are slated to vote on the deal half an hour before the upcoming Capilano annual general meeting on the 15th of November.

But questions are mounting as to whether the deal in its current form will actually get shareholders approval, and not just because of ASIC’s concerns, or because the alternative scrip offer is unfair.

The deal is in trouble because Bega Cheese has built up a 15.7% stake in Capilano over the last month or two.

And although Bega has thus far given little public indication of what it intends to do, voting for the consortiums $20.06 per share cash offer seems highly improbable. (Accepting the cash offer would cost Bega millions because it has been paying as much as $21 per share in its on-market buying.)

Likewise there seems little likelihood Bega will be interested in the alternative 1 for 1 scrip offer.

That’s because, after the takeover, there will be severe restrictions on selling shares in the new company.

As detailed in the scheme of arrangement share holders in the new company will be effectively locked in and precluded from selling for some time. And after that they’ll still face conditions on who they can sell their shares to.

So Bega’s options may be limited to essentially just two – either make a superior takeover offer, or green-mail (i.e. sell-out to either the consortium, or Kerry Stokes, for more than the cost of the shares acquired).

Whatever happens, so long as the deal goes through, Capilano chief executive, Dr Ben McKee, looks set to prosper.

Capilano’s board has granted him at least 60,000 share options in recent years, with a total imputed value of some $400,000.

He got more options voted his way this year, but if the privatization deal goes ahead he will be spared the trouble of having to actually pay for the shares.

Instead he will get a $160,000 payout for agreeing to void the options.

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Australia's finest and rarest honey. From the Tasmanian Honey Company 750gms of pure Tasmanian leatherwood honey. $19.95 plus freight

Bad science and fake news –18% of Australian honey allegedly adulterated

Fresh claims of fake honey have emerged in a scientific study allegedly showing severe adulteration problems in the Australian honey industry.

But unlike the recent report showing problems with Chinese honey marketed by Capilano under its Allowrie brand, the latest study puts Australian honey generally in the firing line.

Largely based on work by Chinese born Macquarie University Ph.D environmental science student, Miss Xiaoteng Zhou, the new study looked at 100 different honeys from around the world, 95 of which were said to be “commercial honey” samples.

(Five of the other samples were said to be raw or unprocessed honeys acquired from hobby beekeepers in Sydney and Calliope near Gladstone in Queensland)

Using various criteria, some 26 of the 95 commercial honey samples were found to show evidence of adulteration, most likely addition of sugar syrup.

But most alarmingly, from an Australian perspective, some 38 of the 100 samples were locally produced, and 7 of these, or 18% were said to have tested positive for adulteration.

Indeed the ABC headlined its news report “Almost 20 per cent of Australian honey samples found to not be pure”.

Other news outlets given advance copies of the study, including Fairfax newspapers, the Sydney Morning Herald, ran similar disturbing headlines, and made sensational claims.

The SMH for example, opened with the claim the study had found one in five of the Australian honey samples were fake honey.

Of course the study found no such thing.   Mostly it found evidence to suggest that sugar syrups could have been either fed to the bees or added to the honey.

However many media outlets have ignored the facts, and reported more sensational claims based on the study.

Australian honey industry representatives are, unsurprisingly, appalled both by the reports, and the strong suggestion in many quarters of malpractice amongst Australian commercial honey packers.

However evidence is mounting that not only is the study has some significant errors and inaccuracies.

Worst of all, it is becoming increasingly clear at least some of the research scientists involved were pre-disposed to the surprising view that the Australian honey industry is riddled with fraud.

The study, titled Authenticity and geographic origin of global honeys determined using carbon isotope ratios and trace elements, was published at Nature.Com in its Scientific Reports section on the 2nd of October.

Regrettably, the published study fails to acknowledge that feeding bees sugar in winter, to prevent them starving, may affect the results of C4 adulteration tests.

(Although best practice bee-keeping avoids feeding sugar at any other time, and tries to avoid harvesting any honey likely to have incorporated the sugar).

Equally regrettable, is that the method by which the samples of honey were chosen for testing is not disclosed.

It appears at least some of them may have been donated, and some purchased at suburban or regional outdoor markets.  (Moreover 2 of the raw honey samples tested were produced by native bees rather than the Apis Mellifare or Italian bees used in almost all commercial honey production.)

Similarly, no details are provided about either the brands involved, or the honey varieties.

Nevertheless all the honeys apart from the raw or unprocessed honeys are described as commercial.

And almost all of the so-called Australian honeys (at least 2 had labels stating the honey was a blend of local and imported honey) were classified as being produced in a specific Australian state.

So according to, the ABC report, some 23% of the Tasmanian honey samples tested were found to be adulterated and 29% of the Victorian honeys tested were found to be fake”.

In actual numerical terms, the study found that 2 of the 9 Tasmanian honey samples failed some of the tests, as did 2 of the 7 Victorian samples tested.

No explanation is given for why Victorian and Tasmanian honeys were so dramatically over-represented in the testing, given that Queensland  and NSW are the two largest honey producing states in Australia.

It appears, nevertheless, that the authors have little familiarity with the Australian honey industry.

The study happily asserts that Australia is the fourth largest-honey ex[orted in the world. But the data on which that is based was produced in 2001. As anyone with even the slightest familiarity with the Australian honey industry would be aware, the industry has been a major importer, not exporter, for some years, (and particularly importer of Chinese honey)

Certainly, there are disturbing indications, both in the televised reports, and in the newspapers, not just that the authors are relatively ignorant of the Australian honey industry, but that the lead author, in particular, was pre-disposed to find that many locally-produced Australian honeys are adulterated.

Indeed comments reported by Miss Zhou to the ABC included both comments that were factually incorrect and comments showing that she is surprisingly credulous of unscientific allegations published on Facebook.

The ABC’s online report says Mz Zhou reveals that she decided to test Australian honey after, what she described as  the 2016 fining of a honey company for selling fake honey.

Perhaps she meant 2014, when a retailer and importer of fake honey from Turkey was fined $30,000 by the ACCC. The fine was imposed after the Australian Honey Bee Industry Council sent samples for testing in a German laboratory.

But her further quoted comments seem to show that she has conflated that incident with claims made by local bee activist, Simon Mulvany, on Facebook

“Two years ago, in 2016, a commercial honey secret was revealed on Facebook and the honey sold in the supermarket might be toxic,” she said.

“It was claimed to be an Australia product but it was actually imported from overseas.

“These samples were analysed in Germany labs, so we were thinking, ‘Can we do the analysis in Sydney’, then we designed this project and we collected samples and developed this method.”

Mulvany’s Facebook claims about Capilano’s honey resulted in him being sued for defamation, an action which is still continuing in the Australian courts.

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Australia's finest and rarest honey. From the Tasmanian Honey Company 750gms of pure Tasmanian leatherwood honey. $19.95 plus freight

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