Supreme has appealed the agency’s recouping efforts with the U.S. Armed Services Board of Contract Appeals, and the case is scheduled to be heard in April 2014.
Profit Margins
For all the danger, Supreme’s business is a profitable one when the world’s at war. According to its annual reports, Supreme had net income margins that ranged from 15 percent to 23 percent between 2008 and 2011.
“That’s a fairly large profit margin when it comes to federal government contracts,” said Amey. “Most contractors claim that their profit margins are zero to 5 percent.”
Orenstein confirmed that Supreme’s food distribution fee to the U.S. military in 2010 was “in the range of 18 to 21 percent” and could go as high as 50 percent, according to a transcript of testimony he gave in a 2010 lawsuit.
He also testified that it was “very common that the percentage of total revenue, the service fee percentage, exceeded 75 percent,” when the distribution of food and other supplies flown into Afghanistan by airplanes and helicopters accelerated in 2006.
According to its latest annual report, the company had earnings before interest, taxes, depreciation and amortization of $953 million in 2011 on revenue of $5.5 billion. With the loss of the Afghanistan food contract and the withdrawal of military personnel, Supreme CFO Thorne projects revenue of $1.2 billion to $1.5 billion in 2014, with an Ebitda margin of 8 percent to 12 percent.
Supreme is valued at about $650 million, according to data compiled by Bloomberg, based on the company’s lowest 2014 revenue and Ebitda projections and the average enterprise value- to-Ebitda multiple of three publicly traded peers: Issy-les- Moulineaux, France-based Sodexo and Chertsey, U.K.-based Compass Group Plc, and New York-based Sysco Corp.
A liquidity discount of 25 percent is applied to account for the company’s operations in high-risk areas and uncertain business prospects. Enterprise value is defined as market capitalization plus total debt minus cash.
Orenstein confirmed that he and his family control 75 percent of the company. His partner, Michael Gans, holds the rest with his wife. They control the business through holding companies based in Luxembourg, Cyprus, Germany and the U.K.