Comvita sweetener for honey suppliers

Brett Hewlett, Comvita chief executive, said the reason for the buy-back was to ensure existing shareholders didn't suffer a dilution of earnings per share. Photo / File

Honey and health products company Comvita will introduce a share scheme to reward its largest and most loyal manuka honey suppliers.

The move follows the introduction last year of a supplier share scheme by fellow NZX-listed Bay of Plenty company Seeka Kiwifruit Industries, though the two approaches are fundamentally different, say the companies' chief executives.

Both schemes are designed to assure security of supply and allow suppliers to participate in any increased share value generated by the companies.

"The scheme will provide a way for suppliers of manuka honey to participate in the value-add that Comvita is able to achieve as a business," said Comvita chief executive Brett Hewlett. Comvita's approach is to buy back already issued shares on the NZX, while Seeka has opted to create new shares for its scheme.

The Comvita scheme involves the purchase of up to 600,000 of its ordinary shares from March 3, this year, until January 29, 2016. Manuka honey suppliers entering into long-term contracts with Comvita will be able to participate in the dividend flow and capital appreciation in its shares through the scheme.

Comvita will assign $1 per kilogram of the value of supplied honey to the share scheme, which will be put into escrow and vest to the supplier over three years.

The shares would also attract a dividend, which also went into the escrow.

Suppliers Comvita had talked to thought it was a good idea, Mr Hewlett said. The aim of the buy-back was to ensure there was no dilution of existing shareholders' earnings per share.

"About three years ago we did a bonus payment in shares to our suppliers, and we'd been discussing an ongoing scheme," he said. "We were really pleased to see Seeka come out with their scheme ... We'd been wondering whether our current shareholders would see it as a good thing or be worried it was dilutory, so when Seeka did that it gave us a bit of confidence to get on with it."

Seeka's scheme allocates on the basis of kiwifruit trays committed on a three-year basis to its post-harvest operations. In 2014, the first year of its scheme, Seeka allocated $1.85 million to costs involved in creating shares for its suppliers.

"The response has been fantastic," said chief executive Michael Franks. "We had more than 99 per cent sign up and commit to three years."

The difference from Comvita's approach was fundamental, because the honey products company was buying its shares on the market, he said.

"That's an interesting point of difference. We're issuing new shares so, potentially, we are diluting to some extent, but our argument is our earnings are going up faster than they would have been without the scheme."