For Investors: A Quick Overview of the Cost Structure Of 800 Super Holdings Ltd

800 Super Holdings Ltd (SGX: 5TG) is an established environmental services provider for both the public and private sectors in Singapore. The company’s services include waste disposal, cleaning and conservancy, and landscaping. In other words, 800 Super helps keep Singapore clean and green.

The company recently captured my attention because of its great market-beating performance. Over the last five years, 800 Super’s stock price has gained 631%, way ahead of the Straits Times Index’s (SGX: ^STI) gain of just 6% in the same period.

800 Super’s strong market return prompted me to look deeper into it to better understand its business model. There are many aspects to learn about any business, but in this article, we will focus on just one – 800 Super’s cost structure.

Here’s a financial statement of 800 Super’s for its financial year ended 30 June 2016 (FY2016):

800 Super FY2016 income statement
Source: 800 Super FY2016 annual report

There are a few key takeaways.

Firstly, the largest expense category for the company is employee costs (named as employee benefits expenses). It accounted for 56% of 800 Super’s total expenses in FY2016.

In addition, there is another S$10.2 million under the “Other” expenses category that is related to foreign worker levies. If this is grouped together along with sub-contractor charges and employee benefits expenses, 800 Super’s overall labour-related expenses would be more than 65% of its total expenses in FY2016.

Secondly, the purchase of supplies and disposal charges represents 19% of 800 Super’s total expenses in FY2016; this makes it the second largest expense category.

Thirdly, 800 Super has significant fixed costs within its cost structure. The fixed costs include labour-related expenses and depreciation. This two collectively amount to over 70% of 800 Super’s total expenses in FY2016.

Having high fixed costs mean that 800 Super’s operating leverage is high. As such, it’s critical that the company achieves a high level of labour efficiency and machine utilisation to maximise its profitability.

By understanding 800 Super’s cost structure, investors can gain a clearer perspective on the company’s future profitability.

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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 Lawrence Nga doesn’t own shares in any companies mentioned.