Super Group shortens receivables cycle through credit checks – interview

Singapore-based instant beverage manufacturer shortens its working capital cycle and minimises outstanding debt by meticulously screening the credit ratings of its clients, says CFO Chun Yuan Koh.

  • 11 Jan 2013
Email a colleague
Request a PDF

Super Group, the instant food and beverage (F&B) brand owner with market dominance in Southeast Asia, carefully sifts through the credit profiles of its customers in order to preserve profitability and ensure efficient working capital management.

Since its establishment in 1987, Super has prudently operated its business by extending credit to long-standing customers with consistent payment history and stable financing standing. This is why the group has managed to maintain its receivables cycle within a three-month timeframe, ensuring that its working capital cycle is optimised.

“We do all the relevant credit checks to ensure that we have a certain degree of confidence in recovering outstanding debt,” said Chun Yuan Koh, chief financial officer (CFO) at Super to Asiamoney PLUS in a telephone interview on January 8. “We are pretty conservative in terms of giving out credit to our customers.”

For new customers, Super typically requests for ‘cash-on-delivery’ (COD), which is a type of transaction in which the payment for the good is made at the time of delivery. If the purchaser does not make the payment when the product is delivered, then it will be returned to the seller.

At times, the cash-rich manufacturer would require its export customers to place deposits before it delivers the goods to them. The deposits required as a percentage of the total charged to the client usually varies from as low as 10% to up to 50% – the latter only if Super has low confidence in the customer, notes Koh.

However, Koh believes that relying entirely on a COD-operated business model is risky.

“It’s very difficult for us to grow if we completely rely on a COD business structure,” said Koh. “There will be certain trade financing that you have to give to your customers. Our present strategy – which is balanced – enables us to achieve our sales growth and ensures that our outstanding debt gets collected.”

When it comes to difficult customers – clients that delay payments or are facing financial difficulty – Super has to reassess their credit ratings.

Customers who delay payments are usually given incentives typically in the form of discounts. For clients that are burdened by financial problems, there are a few options for which Super could opt.

“We would try to come to an agreement to how the outstanding debt should be settled,” said Koh. “It can be via instalment method or if they really cannot pay in instalments, then our last resort is to take legal action.”

Nonetheless, in the past few years Super has not taken any legal action on its customers let alone offer any discounts as incentives given that a bulk of its business originates from Southeast Asia, which is currently considered the growth engine of the world.

Hedging commodity exposures

Super owns more than 200 instant beverages and convenient food products, which are available worldwide through a network of direct sales offices and distributors located in over 50 countries.

In addition to manufacturing and consumer retail, the company also produces raw ingredients used in the production of its finished goods. Apart from Nestle and Kraft Foods, Super has the capability to manufacture soluble coffee powder, cereal flakes and non-dairy creamer.

“By having this integrated business model, it gives us certain advantages,” said Koh. “By positioning ourselves in the production of food ingredients, it will give us better control of the supply and quality of the end products. At the same time, it gives us more leeway to manage the cost of our ingredients.”

However, the manufacturer needs to source other types of ingredients like coffee beans and sugar that goes into the production of its three-in-one instant coffee.

And given the general volatility in the commodities market, Super opted to forward hedge some of its exposures in order to maintain stability of its profit margins.

“When prices are high and volatile, we typically hedge for shorter durations but when it is more stable and is hovering around prices that we find reasonable, then we take forward positions of up to six months or more,” said Koh.

Koh adds that the company’s hedging policy depends on its key supplier, expectation of commodity prices and also production requirements.

When the prices of Super’s raw materials continue to surge, it opts to pass some of the price increase onto its consumers. But in order to succeed in the long run, the manufacturer needs to maintain a balance between market share and profitability.

Since 2001, Super has increased its retail price cumulatively by about 6% to 7% to defray some of the cost, says Koh.

Asiamoney made Super its best managed mid-cap company for Singapore in 2012.

  • 11 Jan 2013

Bookrunners of International Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 37,598.23 170 9.46%
2 HSBC 34,028.88 217 8.57%
3 JPMorgan 26,223.43 127 6.60%
4 Standard Chartered Bank 24,311.57 151 6.12%
5 Deutsche Bank 21,898.85 77 5.51%

Bookrunners of LatAm Emerging Market DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 11,343.89 36 17.74%
2 HSBC 7,749.23 19 12.12%
3 JPMorgan 6,116.80 30 9.57%
4 Deutsche Bank 5,950.19 7 9.31%
5 Bank of America Merrill Lynch 4,165.66 17 6.51%

Bookrunners of CEEMEA International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 14,691.58 46 11.05%
2 Standard Chartered Bank 13,765.00 47 10.35%
3 JPMorgan 11,619.88 47 8.74%
4 Deutsche Bank 11,156.18 26 8.39%
5 HSBC 9,244.84 41 6.95%

EMEA M&A Revenue

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 02 May 2016
1 JPMorgan 195.08 50 10.55%
2 Goldman Sachs 162.26 37 8.77%
3 Morgan Stanley 141.22 46 7.64%
4 Bank of America Merrill Lynch 114.20 33 6.18%
5 Citi 95.36 35 5.16%

Bookrunners of Central and Eastern Europe: Loans

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 UniCredit 4,103.45 23 14.66%
2 ING 2,532.09 20 9.04%
3 Credit Agricole CIB 2,151.31 8 7.68%
4 MUFG 1,818.52 8 6.50%
5 Credit Suisse 1,802.80 1 6.44%

Bookrunners of India DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 AXIS Bank 5,129.62 95 22.25%
2 HDFC Bank 2,824.94 59 12.25%
3 Trust Investment Advisors 2,595.43 82 11.26%
4 ICICI Bank 1,758.86 60 7.63%
5 AK Capital Services Ltd 1,501.06 69 6.51%