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Philippines: Southeast Asia's largest food and beverage conglomerate San Miguel Corp. announced on February 10 it registered a record net profit of PHP8.08 billion ($147.4 million) in 2004, up 9.6% from PHP7.37 billion in 2003, mainly on strong beer sales. However the results still fell short of analysts' forecasts. "Philippine beer business posted record results for the third straight year, driving 2004 revenues to P36.9 billion, 21% higher than 2003 as it capitalized on an expanded beer drinker base and a more far-reaching distribution system," San Miguel said.

Analysts expect 2005 to be a tougher year for the Philippine firm as it faces higher local taxes on alcohol products and huge financing costs for a regional expansion that includes a $1.4 billion bid for Australia's National Foods Ltd. Thomson One Analytics projected San Miguel's net profit in 2005 at an average PHP9.18 billion. Reuters Estimates had a consensus profit forecast for 2005 of 9.3 billion pesos.

The company's consolidated sales in 2004 rose 18% on year to PHP174.7 billion as local beer volume rose to a record 174 million cases, while international beer operations rebounded last year from the effects in 2003 of SARS on tourism and consumer spending in Asia. San Miguel's domestic beer sales climbed 21% on year to PHP36.9 billion. Sales of beer in its overseas markets, which include China, Australia, Indonesia and Vietnam, rose 12% on year to $263 million.

Astro del Castillo, managing director at First Grade Holdings, said although San Miguel barely met the lower end of market expectations for net profit last year, investors will likely focus on its plan to offer shares at a discount for a week starting March 10.

San Miguel will give shareholders on record as of Feb. 28 the right to buy one new share for every 10 shares they hold at a discount of 5% to the stock's average trading price between Jan. 31 to Feb. 25. Proceeds from the sale of 284.6 million shares will be used by the company to finance acquisitions and expansion projects, both in the Philippines and abroad.

BDO Capital & Investment Corp. is the offer's financial adviser. "The stock rights offer will likely be the main focus of trading activity on San Miguel," del Castillo said. "San Miguel remains fundamentally sound." Chelsea Dipasupil, research head at RCBC Securities, said that San Miguel's earnings may get a boost this year from its past acquisitions, particularly from abroad. "They might start reaping this year the benefits from their acquisitions in the past two or three years," she said.

San Miguel, partly owned by Japan's Kirin Brewery Co. Ltd. (Japan's Kirin Brewery Co. Ltd. recently increased its stake in San Miguel to 19 % from 15 %), has bought a number of companies abroad in recent years, including a 50% stake in Australian juice maker Berri Ltd. In the last year, San Miguel bought a Thai brewery, drinks and hog farm assets in Vietnam, and expanded into Singapore coffee and ice cream businesses. It also acquired a Malaysian packaging business and began building a plant in Indonesia.

It is now in the process of making a tender offer for Australia's National Foods Ltd. But there is concern that San Miguel has paid a high price for its acquisitions and this will likely raise financing requirements in coming years, Dipasupil said.

Another concern is the impact on consumer spending of new taxes being imposed by the Philippine government to slash its yawning budget deficit. The first taxes to be implemented this year will be on liquor, beer and tobacco. San Miguel raised beer prices earlier this month to recoup higher production costs and to prepare for the new taxes which will be imposed retroactive to January.

Company officials told analysts San Miguel had raised beer prices in January by an average of 13 % and liquor prices by 15 % to compensate for rising costs of inputs and higher "sin taxes" in the Philippines that started this year. Beer and liquor account for a third of group revenues and almost half of its operating income. "The problem areas are still the carbonated drinks and the food business," said Jose Vistan, analyst at AB Capital Securities Inc. "Liquor suffered too because consumers in the provincial areas shifted to beer."


12 February, 2005