San Miguel Purefoods income drops 56% to P341M in 2004

San Miguel Purefoods Co. Inc. reported a 56.5 percent drop in its net income last year to P341.26 million, from P785.3 million in 2003, due to higher operating expenses and financing charges.

In a financial report filed with securities regulators, the food processing arm of the San Miguel group said revenues grew 24 percent to P45.3 million from P36.49 million. The significant growth in revenues, however, did not translate into higher profits for Purefoods as income from operations declined 28 percent.

Cost of sales increased 28.05 percent to P39.58 million from P30.91 million as almost all major raw material prices rose. Operating expenses, likewise went up 18 percent to P4.32 billion from P3.65 billion, driven by higher overhead costs.

Purefoods said financing costs surged 40.63 percent to as a result of the company’s availment of additional shor-term borrowings for its working capital and various expansion-related requirements.

The use of its internally-generated funds to partly finance the construction of a new plant led to the drop in its investment in marketable securities, which in turn, caused the decrease in interest income earned.

While substantial increases in raw material costs have put pressure on its profitability and balance sheet, Purefoods said its financial position remained strong as total stockholders’ equity increased from P5.4 billion to P5.8 billion and total asset base rose from P17.9 billion to P25.3 billion.

Purefoods ended the year with a a higher cash balance of P2.4 billion as against P1.9 billion mainly on account of higher level of cash in transit towards the end of the year while receivable level increased to P5.8 billion from P4.2 billion due to substantial increase in revenues.

Purefoods’ business decision to engage in protective bookings and advanced buying of its‚ major raw materials such as corn and wheat starting in the second quarter of 2004, coupled with the poultry industry’s increase in supply of frozen inventory among large integrators as a result of a weak demand and influx of imports, largely explained the 49 percent growth in inventory over the 2003 level.