Super Brew Of Profits From Super Group

Ser Jing - Super Group First Quarter Results, Strong Brew of Profit (pic)For the second quarter of 2013, Super Group (SGX: S10) posted a 23% year-on-year increase in quarterly sales to S$138m. Profits jumped 108% to S$36.5m.

Super Group breaks down its revenue segments into Branded Consumer Sales and Food Ingredient Sales.

The former is where the sale to consumers of instant beverages such as instant coffee is logged while the latter is involved with the sale of food ingredients that include soluble coffee powders and non-dairy creamers to other beverage manufacturers.

Branded Consumer sales for the quarter were up 10% to S$92.4m compared to a year ago.

Super Group had seen higher sales in this segment in its key Southeast Asian markets of Myanmar, Malaysia, Philippines and Thailand, driven partly by the launch of new products such as Charcoal Roasted White Coffee – Roasted Hazelnut and Super Coffee 3in1 Brown Sugar.

Food Ingredient sales jumped 65% year-on-year to S$46m.

The company had benefitted from increased production capacity (the company had increased production capacity for its spray-dried coffee product by 5,000 metric tons to 15,000 metric tons in November 2012) as well as an expanded distribution network in the segment.

Super Group’s profits for the quarter had almost doubled from a year ago due to three main reasons.

Firstly, the company’s sales had improved as mentioned earlier.

Secondly, Super Group had seen an increase in gross profit margins to 39% for the quarter, an improvement of three percentage points from the previous year.

Management cited “effective cost management and operational efficiencies arising from increased production capacity” as a reason for the improvement, though the drop in coffee prices over the past 12 months might also be a factor (see here and here).

The improvement in gross margins helped to offset increases in other expenses. Super Group had seen its selling & distribution expenses for the quarter increase by 42% to S$15.9m from a year ago as the company ramps up advertising and marketing spend in support of its new branding efforts, which was launched in Jan 2013.

General and administrative expenses for the quarter were S$13.7m, up by 41% compared to the previous year. The increase was mainly due to staff costs, itself a result of rising remuneration and a higher head count at Super Group’s expanded production facilities necessitated the hiring of more employees.

Lastly, the company had booked a one-time S$17.1m gain after selling its 35% stake in Sun Resources Holdings, a property development company in China, for S$26m in May this year. The disposal should help streamline the company’s focus on its core businesses.

The three reasons were the main causes of Super’s profit growth.

The company ended the quarter with a strong balance sheet, carrying S$95m in cash with no debt.

The company now believe that its rebranding initiatives, launched in January this year, will help it “to stay relevant to the consumers and enhance [its] position as a leading brand in the competitive Asia markets.”

In addition, the company warned of competitive market conditions and fluctuations in raw material costs that might negatively impact its operations. But, it also reiterated its confidence in handling any rough times due to its “familiar[ity]with these challenges”.

The company remains optimistic that its “on-going efforts to stay ahead of the competition will generate positive contributions to its operating performance.”

Super Group had declared an interim dividend of 2 cents per share for the half-year period, unchanged from last year’s pay-out in the corresponding period.

The market seems to be pleased with Super Group’s results. Its share are up 4% to S$5.00 at the time of writing. At that price, its shares are valued at 27 times trailing earnings and carry a dividend yield of 1.4% based on last year’s full-year payout.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing owns shares in Super Group.