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What Investors Should Know About Super Group’s Latest Earnings

Super Group Ltd. (SGX:S10) reported in its third quarter-earnings yesterday. The reporting period was for 1 July 2014 to 30 September 2014. Super Group is a leading instant food and beverage (F&B) brand with operations primarily in Asia. You can read more about Super Group here. Meanwhile, my fellow Fool Sudhan covered Super Group’s second quarter earnings here.

Financial highlights

Here’s a rundown on the financial figures:

  1. Overall revenue for Super Group dipped by 3% to $129.5 million on a year on year comparison. This was driven by 6% lower sales for its branded consumer (BC) segment which was offset by a 3% rise in sales for its food ingredients (FI) segment.
  2. Net profit fell 46% to $10.5 million due to a combination of cost pressure from raw materials, a higher composition of lower margin FI sales, additional cost for marketing, higher depreciation expense and the expiry of a tax incentive.
  3. Earnings per share (EPS) followed suit and plunged 47% from 1.68 cents in the third quarter last year to 0.89 cents in the past quarter.
  4. Cashflow from operations came in at $11.5 million for the third quarter of 2014 with capital expenditure clocking in at $9.1 million. This gave Super Group about $2.4 million in free cash flow.
  5. As of 30 September 2014, the group had $77.7 in cash and equivalents and $30 million in debt.

In short, Super Group’s revenue and profit has continued to struggle to gain any traction in the past quarter. It’s worth noting that the 3% drop in sales this quarter is a slower decline than the 5% drop in sales in the preceding quarter this year – so, this may be a trend worth observing. On a positive note, the group remains cash flow positive and has a net cash position.

Operational highlights

On a geographical basis, Thailand, Myanmar, Malaysia and Singapore were Super Group’s key contributing markets for the BC segment. The F&B outfit saw signs of strengthening BC segment sales in Thailand, Myanmar and Malaysia but was hampered by lower sales in Singapore and Philippines. Elsewhere, a factory relocation affected sales for its export markets – accounting for half of the lower sales in the BC segment.

On the FI side, sales were up for both Southeast Asia and East Asia. This was driven by a 18% increase in non-dairy creamer sales which was partially offset by a 28% drop in soluble coffee powder.

Chairman and Managing Director of Super Group, Mr David Teo provided the statement below on the current quarter’s results:

“The current slowdown has been an opportune time for the Group to sharpen our strategies so that we can position ourselves to move ahead when the upturn comes. In 3Q14, we saw signs of a pick-up in certain core markets like Thailand, Myanmar and Malaysia for the Branded Consumer segment.

Super’s long-term prospects remain positive underpinned by demand from emerging markets. Our strategy of branding, product innovations and regional expansion is key to our objective of delivering sustainable growth of the Group.”

Forward looking, Philippines and Vietnam has been earmarked as potential markets for future growth. The group is also looking to beef up its FI segment with new premium offerings such as Botanical Herbal Extracts for the Asia region, as well as upgrading its China Wuxi plant for Nutritional Oil Powder production.

In all, there is flicker of hope that its marketing campaigns in Malaysia and Thailand has brought about signs of a pick up in its BC segment. Thailand and Myanmar represent significant markets for the group and would be key for its recovery in sales. It is worth to note that Super Group launched its rebranding efforts in January 2013, therefore patience is required for its branding efforts to pay off in the long term. On the FI side, we can also look towards new products broadening its offerings, and laying the groundwork to understanding consumer taste profiles for the future. On the flipside, we should continue to keep an eye on the health of its free cash flow and its cash position.

Foolish summary

At its closing price yesterday of $1.06, Super Group traded at around 18.1 times trailing earnings with a dividend yield of 4.2%. Super Group has a policy of paying out 50% of its earnings, therefore individual investors should not assume that the trailing dividend will hold for the future.

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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 Chin Hui Leong owns shares in Super Group.