BC-based Sun-Rype Products saw sales up 13% to C$27.1m for its Q2 ended, amounting to the highest Q2 sales in Sun-Rype’s history.
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President and CEO Lawrence Bates explained that branded beverage sales were up 11% while branded food sales increased 8%, largely a result of incremental sales for the newly launched Fruit & Veggie bar. Non-branded sales were also higher year on year as new manufacturing contracts came on-stream. H1 2002 sales were up 8% to C$54.2m.
Both the food and beverage lines experienced continued sales improvement. Q2 2002 sales were 27% food and 73% beverage, the same as the Q2 2001. H1 2002 sales were 26% food and 74% beverage, compared to 25% food and 75% beverage for the H1 last year.
“An upgrade of our fruit snack production and packaging equipment is underway, with completion expected in the Q1 2003,” says Bates. “This new equipment is expected to more than double food production capacity and meet the growing demand for our food products: Fruit to Go, Energy to Go and Fruit & Veggie all-natural fruit bars.”
Gross profit for the Q2 2002 was C$10.3m or 38% of sales, compared to C$10.6m or 44% for the same period last year. While sales volumes and production volumes increased during the quarter, there were other pricing and production factors that impacted gross margin percentages, mainly higher raw material costs. Gross profit for the H1 was C$20.9m or 39% of sales, compared to C$22.1m or 44% of sales for the same period last year.
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By GlobalDataSelling, general and administrative expenses were C$8m in the Q2, up 8% over the same period last year, with the increase attributable to higher selling and delivery expenses (proportionate to increased sales volumes). These same expenses increased 6% in the H1 2002 compared to the same period last year.
“Marketing spending in the six-month period included campaigns to introduce our new Fruit & Veggie bar nationally and our new beverage packaging in western Canada,” Bates says. Marketing spending was down nominally from the same period last year. Amortisation expenses were at similar levels to last year, while interest expense declined as the company enjoyed a continued cash surplus position for most of the Q2 2002.
Earnings before taxes were C$1.6m for the Q2 2002, compared to C$2.5m last year. The effective income tax rate was essentially unchanged from 2001, leaving net earnings after tax of C$1m for the Q2 2002 compared to C$1.6m in 2001. This translates to earnings per share (EPS) of C$0.10 (C$0.09 fully diluted) for the Q2, compared to C$0.15 (C$0.15 fully diluted) in 2001. H1 2002 earnings after tax were C$2.1m or C$0.20 per share (C$0.2 fully diluted) compared to C$3.5m or C$0.33 per share (C$0.32 fully diluted) last year.
Cash flow and capital position
Steady cash flows over the past few quarters have resulted in a cash surplus position of C$1.6m at 30 June. Cash flows are closely monitored and managed. The current cash surplus is invested in Banker’s Acceptances and high-grade commercial paper. Sun-Rype expects its cash position to decline over the next two quarters as capital expenditures, primarily for the C$9m fruit snack equipment upgrade, are incurred. Management expects to be able to finance about two-thirds of its 2002 capital expenditures through cash flows provided by operations and the balance with short-term operating loans. The company has a C$15m bank operating line of credit available.
Working capital increased from C$12.8m in December 2001 to C$13m as at 30 June. The firm’s cash flow remains strong, with cash provided by operating activities of C$2.9m for this quarter (2001 – C$1.7m) and C$4.1m for the H1 (2001 – C$4.8m). This year’s Q2 cash provided by operating activities was a result of strong Q2 profits, supplemented by cash inflows derived from the reduction of finished goods inventories and increased accounts payable.
Sun-Rype’s cash flow statement reflects proceeds from the issue of shares in the amount of C$33,000 for the Q2 2002, compared to C$258,000 for the same period of 2001.
Capital expenditures, product launches and other investments
Sun-Rype typically has a moderate level of capital expenditures in the Q2 of a calendar year, with the heaviest expenditures in the Q3 to support plant facilities and equipment maintenance and upgrades. The Q2 2002 reflected high capital expenditures of C$3m in total (including C$2m related to the planned C$9m food production equipment upgrade) as compared to C$0.7m in primarily routine capital expenditures during the Q2 2001.
Management estimates the annual capital expenditure level necessary to maintain existing capacity and operations is in the range of C$1.5m to C$2m. Projects approved for 2002 include the completion of the core phase of an integrated information system.
New products and product line extensions are continually reviewed by management. The Company plans to launch at least one new product per year and to revitalise existing product lines and packaging every few years when products reach their appropriate product life cycle maturity in the marketplace.
