Tanduay profits up 11.5% to P735.5M in ’05

Tanduay Holdings Inc., the liquor unit of tobacco and beer magnate Lucio Tan, posted a net income of P735.51 million last year, up 11.5 percent from P659.83 million in 2004.

In a financial report filed with securities regulators, Tanduay said the increase in net income was due to the negative goodwill of P279 million that resulted from the acquisition of Asian Alcohol Corp. (AAC).

From the date of its acquisition, AAC contributed P30 million to the Tanduay group’s earnings.

Tanduay registered revenues of P6.85 billion, up by only 1.4 percent as sales volume declined by 7.5 percent or 1.2 million cases. Its flagship Five-Year Rum brand continued to lead all brands, capturing 74 percent of total sales.

The steep inflation caused by the increase in fuel prices and the low output of the agricultural sector contributed significantly to the slackening of demand in areas where rum leads the liquor category, according to Tanduay.

However, higher average selling price by 8.6 percent helped the company post higher revenues last year.

Cost of sales went up three percent on account of the 11-percent increase in costs, particularly that of alcohol and packaging materials.

Alcohol suppliers sought for upward adjustments in their prices due to the increase in excise tax rates by 30 percent and the material increase in cost of molasses.

Cost of brand new bottles likewise increased by an average of 10 percent.

Operating expenses rose five percent due to higher advertising expenses relating to the "under-the-cap" promotions for the Five-Year, Cossack, Vodka and Guerrero Brandy brands.

The Tanduay group currently operates three liquor bottling plants – one in Negros, another in Cabuyao, Laguna and another in Quiapo.

It had set aside P2 billion over the next three years for planned acquisitions and the establishment of a new plant.

The company is scouting for a property in the Visayas for its new liquor facility.

Tanduay is set to start the construction of a new liquor plant in Cagayan de Oro which is estimated to cost between P500 million to P1 billion. It is expected to be operational in the first quarter of 2007.

The firm is looking at new markets that will expand its customer base. It is aggressively shopping around for acquisitions that will grow its business and improve shareholder value.

The Philippine market for alcoholic drinks is currently estimated at P72 billion with an average production output of 47 million cases annually.

The spirits market is projected to achieve a steady growth of five to seven percent annually through 2008.

The Tanduay group has a market share of approximately 40 percent in the distilled spirits market and 90 percent in the local rum market, thus making Tanduay rum the number one rum in the Philippines and second in the world market.