SMC profit rises 7% to P2.17B

San Miguel Corp. (SMC), the largest Philippine food and drinks company, said its first quarter profit grew seven percent after financing charges trimmed earnings gains.

The conglomerate said its net income rose to P2.17 billion on net sales of P60.8 billion, an increase of 29 percent from the previous level. The improvement was mainly due to the consolidation of Australia’s National Foods Ltd. and a 13 percent volume gain in San Miguel’s food and agribusiness divisions.

San Miguel likewise said it is putting off acquisitions this year as it hopes to focus on further building existing businesses to build long-term value for shareholders.

"If 2005 was a year of acceleration, 2006 will be one of staying the course. With all the moving parts in place, we now shift our focus from an outward-looking, expansionist phase to one characterized by strengthening organic growth and enhancing operating efficiency," said San Miguel chairman and chief executive officer Eduardo Cojuangco Jr. during the company’s annual stockholders meeting yesterday.

"After all the big themes of the last few years, it’s come down to the theme of sustainability. What you are going to see from us going forward is San Miguel sustaining its current growth and giving you dependability and reliability in our results," Cojuangco said, adding that "achieving it will make all the difference to whether San Miguel will be around for the next few decades and will be as strong in the future as we are at present."

He said the company needs to grow not just through acquisitions and innovations but also through "brilliant execution."

"We need to continue to improve execution on a day-to-day basis. Flawless execution is the difference between excellent and average companies. And it’s obvious which kind of company we would like to be. We need to drive our cash flow and strive for continual improvement on our core working capital. We need good discipline on our capital expenditures and will do what is necessary to manage our resources while at the same time driving growth. We need to continually focus on cost efficiency and step up on gains across our business," Cojuangco said.

He said the company is strengthening its non-alcoholic business in the Asian region with two plants on stream in Indonesia and Thailand and another two in South China and Vietnam soon to follow.

"We’ve already developed several brands and products which will compete in the iced tea, carbonatural and carbonated soft drinks segments. While entering the regional non-alcoholic beverage market is something new to us, we’re confident these products will take hold among consumers," Cojuangco said.

Cojuangco said he is confident San Miguel can sustain its gains this year, particularly in the foods business. "It’s very solid, a relatively large business and very profitable and National Foods has opened a new set of opportunities for us, providing scale and huge possibilities for innovation and category extension."

San Miguel president Ramon Ang said is expected to post a 30 percent growth in revenues this year. In 2005, the conglomerate’s consolidated revenues amounted to P227 billion.

San Miguel has postponed the proposed offering of preferred shares by its Cayman Islands-based subsidiary, San Miguel Capital Funding Ltd., pending the resolution of a report that one of its subsidiaries has overstated its sales report. In a letter to the Philippine Stock Exchange, San Miguel said it received an anonymous and undated letter alleging overstated sales in one of its subsidiaries, Philippine Beverage Partners Inc. (Philbev).

In the same letter, San Miguel said its audit committee has initiated an investigation into the matter and other related matters to be conducted by external accounting and law firms.

The total sales of Philbev is about 2.1 percent of San Miguel’s group-wide sales of P227 billion. It plans to sell $300 million-$400 million in hybrid securities, which will be callable in five years and at the end of each quarter thereafter.

Market sources said the securities have so far attracted more than $750 million of orders. The issue size has yet to be fixed. The proposed offering will be the first hybrid issue from an Asian company other than financial institutions.

The proceeds of the offering will be loaned to mother company San Miguel via a 30-year subordinated security.

San Miguel, owned 20 percent by Japan’s Kirin Brewery Corp., has previously relied on loans from banks to fund its operations and investment.

It is expanding its presence in the Asia Pacific region after dominating its home market for beer, soft drinks, dairy, poultry and processed food.

Apart from its acquisition of National Foods, San Miguel bought an additional 49 percent of Berri Ltd. to take full ownership of the Australian juice maker and more than 50 percent of Singapore-listed food processing firm Del Monte Pacific Ltd. through NutriAsia Pacific.