Honey maker Capliano Honey Ltd (ASX: CZZ) this afternoon released its financial results for the half year ending 31 December 2016 and below is a summary.
- Revenue of $66.5 million, versus $67.1 million in prior corresponding period (pcp)
- Statutory net profit of $7.47 million, versus $7.7 million in the pcp
- Earnings per share of 64 cents
- Average honey price / Kg $5.64, versus $5.68 in the pcp
- Debt ratio (Total Liabilities / Total Assets) 52% versus 32% in pcp
- Gearing (debt to equity) ratio 52%
The statutory revenue and profit results are rather flat in what has been a transitional year for a business that is looking to diversify its product lines, while investing for growth in overseas markets and by joint venture acquisitions.
However, when you adjust for honey revaluations, one off disposal gains, marketing investments and the closure of unprofitable overseas business it seems Capilano's underlying operating performance has been pretty decent.
In my opinion the operational highlight of the result was the nearly doubling in growth in sales to the vast Chinese consumer market, where Capilano's probiotic honey is popular in part due to its perceived health benefits. Another positive is the fall in debt from $20.2 million to $12.3 million over the period thanks in part to a capital raising.
The lowlight would have to be the flat revenues given this is supposed to be a growing business supported by strong underlying demand. When you consider the group delivered a profit of $7.5 million on revenues of $66.5 million you can see also see that the profit margins are quite thin which is another issue for investors to watch, although on the upside they potentially offer room for improvement. While the operating cash outflow of around $2.7 million is another warning sign to investors that this is far from a strong result.
This afternoon the stock has climbed 2% to $16.30 as investors forensically assess the underlying business including cash flows and inventory adjustments. In my opinion it looks one to watch from the side lines given it still has potentially large growth potential overseas and strong underlying consumer demand.
