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Saturday February 16, 2013

Spritzer’s competitive edge

Spritzer’s
mineral
water
bottling
plant in
Taiping. Spritzer’s mineral water bottling plant in Taiping.

WHAT is Spritzer Bhd's competitive edge?

That is the question on the mind of most investors when deciding whether they would consider this company as part of their portfolio.

Executive director Dr Chuah Chaw Teo is not surprised when that question is posed to him as the company is operating in an industry that is perceived to be very competitive due to the available alternatives out there.

Chuah tells StarBizWeek that the availability of other alternatives does not necessarily mean its products are in danger of losing its edge so easily.

“We have been around since 1989 when our founder Datuk Lim Kok Boon started to bottle mineral water at another plant in Taiping. From our many years of experience, the company has been in existence from that time where there were hundreds of mineral water bottlers in the industry. Today, there are only about 20 companies left,” Chuah says.

“Many of these companies have been eliminated by their own doing because they found they can't compete well either through costs or the market, and many of these companies have faded out. It doesn't mean if you can make drinks, you will automatically be able to bottle mineral or drinking water well,” he adds.

The bottled water industry is divided into two segments: the mineral and drinking water segment.

Spritzer, which is involved in bottling both mineral and drinking water, says there is a huge difference between both types of water that are widely available today.

Mineral water is sourced underground and is a product of natural rain water after years of being filtered through layers of the earth and absorbing the various minerals on the way. Drinking water is simply tap water without minerals, boiled and/or filtered and then packaged out.

Chuah says Spritzer sources its mineral water from five Health Ministry approved points 400 ft underground at its plant in Taiping with current capacity usage of 180 million litres of water per year.

“The water from our sources are located on 300 acres in Taiping. Because of the vast lush idle green ecosystem where we source Spritzer mineral water from, you can be sure the water is pollution-free and of pristine quality. Idling the land away from development ensures the quality of our product,” Chuah says.

Chuah was speaking during a one-day exclusive media tour of Spritzer's plant to showcase its processing capability, the five sources where the mineral water is tapped from and the lush idle forest that surrounds the plant.

The company also bottles 240 million litres of drinking water at its plant in Shah Alam and another 36 million litres of mineral water per year at its Johor plant in Yong Peng,

“Yes, as a company we also bottle drinking water under the brand name Summer. This Summer brand is more our defensive business strategy. Mineral water gives us higher margins but as a wholesome bottled water company, we also have to ensure our presence in the drinking water segment,” Chuah says. He adds that the company also bottles another mineral water brand called Cactus.

He acknowledges that there is some room for improvement in terms of consumer education on the difference between mineral and drinking water.

“Many consumers today are not aware of the difference. But the Health Ministry has a simple guideline for us bottlers which consumers can take note of. Mineral water needs to be bottled with any coloured cap while drinking water is bottled only with a white cap. Bottlers who do not adhere to this are actually breaking the ministry's regulations,” he says.

Sole listed water bottler

The company, which is the sole listed water bottler and the biggest in terms of capacity locally, says it realises building brand equity is important to achieve sustainable growth moving forward.

Chuah says Spritzer plans to increase awareness of its presence and the industry in general by allowing tour groups including school visits to its plant.

“I think consumer education is important since there are so many cases of water shortages, and the questionable water quality that reaches our homes these days. People must realise that at the end of the day, we are what we drink and eat. Drinking good quality water is also key to good health,” he says.

Chuah who is a qualified chemist also highlights that the company's competitive advantage in part also lies in a naturally recurring substance called orthosilicic acid (OSA - Si(OH)4) that is present in Spritzer's mineral water.

He notes there is growing research that indicates trace mineral OSA which constitutes around 32-35 mg per litre in Spritzer's mineral water are found to have various health benefits associated when consumed.

“Not all water is the same and the growing findings by researchers including those from the University of London and Keele University of United Kingdom indicates the various health benefits of OSA which may improve and maintain brain health (Alzheimer's Disease), bone health (osteoporosis) and heart health (artherosclerosis),” Chuah says.

The latest research, headed by Professor Christopher Exley at Keele University had shown OSA's health benefits may play a role in keeping Alzheimer's disease at bay by reducing aluminium content in the body.

“This research had been published in a peer reviewed journal: the Journal of Alzheimer's Disease and yes we must say we funded part of this research by contributing an amount of money and our mineral water to the university for study. But since this is a peer reviewed journal, it is open to criticism and critique from other scholars in the field even after publication to ensure acuity of content,” he notes.

On its financials, the company had reported consistent growth in net profit and dividend payout ratio on the back of double digit percentage growth in revenue from financial year 2008 to 2012.

Net assets per share have grown from 93 sen back in 2008 to RM1.21 as at Nov 30, 2012 while its basic earnings per share for the nine months to end-November last year stood at 6.34 sen which is almost double the previous year's equivalent period.

Spritzer's dividend payout ratio has also risen from 25% in 2008 to 37% in 2012 as noted in its annual report.

“We are quite comfortable with our financial structure and look to increase the capacity in our Yong Peng bottling plant this year. Our bankers both local and foreign are supportive of the company. The economy is doing well and we see future growth in exports,” says its group financial controller Sow Yeng Chong.

Spritzer also plans to ensure adequate resources are channelled to research and development to ensure continued market and new products pipeline growth.

Moving forward, the company hopes these corporate strategies will keep it ahead of the competition and eventually translate into more returns for its shareholders.

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