Soaring sales to Asia have helped Australia's biggest honey packer, Capilano, defy raw ingredient supply rises of more than $1 a kilogram to deliver a 53 per cent surge in net profit.
The company's managing director Ben McKee said the average cost of supplier honey rose to $5.64 a kilogram in the six months to December 31, compared with $4.61 for the same period the previous year.
He said this reflected "heightened competition in the market and sustained lower primary production". Despite the increases, Capilano's half-year net profit surged to $5.5 million, an increase of 52.9 per cent compared with the 2015 result.
Investors – which include Kerry Stokes through his private investment vehicle Wroxby – welcomed the result, with Capilano's shares jumping as high as 12 per cent to $21.55 on Monday.
Dr McKee said the company largely recovered raw supply costs through changes to its sales mix as well as wholesale price increases. He said Capilano should continue to prosper in coming years as it capitalises on strong demand for "natural wholesome products".
Revenue soared more than 15 per cent to $67.1 million, thanks to export sales leaping 32 per cent. Sales to Asia accounted for the bulk of the increase, rocketing 53 per cent.
"Greater levels of inventory and continued interest in our natural wholesome products, in conjunction with new product ranging, should see Capilano continue to prosper over the remainder of the financial year and into the future," Dr McKee said, adding its honey stocks had soared 91 per cent.
"Increased inventory is assisting our ability to meet new sales demands and achieve the best quality product."
He said the recommissioning of the company's factory at Maryborough in central Victoria would expand its capability, particularly in the supply of premium glass jars and non-honey products, such as apple cider vinegar.
"We will be relocating our retail honey pail production to this site to further improve capacity at our Brisbane based head office facility," Dr McKee said.
The strong result prompted Morgans analyst Belinda Moore to lift her net profit forecasts for FY16 and FY17 by 19 per cent and 22.9 per cent respectively.
"We now forecast FY16 underlying NPAT to rise 53 per cent to $12 million (compared with FY15)," she said in a note to investors.
Ms Moore highlighted the company was "corporatising" Manuka honey, which is known for its antibacterial qualities, as potentially fuelling further growth. Capilano bought one of Australia's biggest Manuka honey producers, KirksBees Honey, for $5.25 million last July. It also purchased its property and land for $750,000.
"We … see a significant opportunity for Capilano to sell more of its product through Asian websites direct to consumers," Ms Moore said, adding that market delivered higher prices and greater profit margin.
She said weak cashflow was the "only miss" in the result. Capilano reported operating cashflow of $5.1 million in the six months to December 31, compared with $6.7 million the previous corresponding period, as the company rebuilt stock.
"This largely reflects Capilano returning to a more normal season following low volumes in recent years," Ms Moore said.
"At the end of the first half of 2016, Capilano had 4288 tonnes of honey in stock compared to the historical low of 2223 tonnes in the previous corresponding period."
Capilano directors continued their practice of "considering only an annual dividend". The company provided no formal full year earnings guidance.
