San Miguel to focus on growth

By Dominique Patton

- Last updated on GMT

Related tags San miguel Investment Coffee

San Miguel's chief executive reassured investors on Tuesday by
outlining its plans to concentrate on growing sales and sustaining
profits over the coming years.

One of Asia's largest food and beverage makers, the Philippines-based company has been rapidly expanding across south-east Asia, significantly increasing its debt.

Its liquidity is weak, given that its cash and cash equivalent of PHP20.9 billion (US$407 million) were insufficient to cover debt payable in the next 12 months of almost PHP41 billion (as at 31 December 2005).

And although last year's bottom line was the largest in nearly a decade, net-profit growth was the slowest in five years, hit by an increase in financing charges and charges related to acquisitions.

However analysts have recently upgraded its investor rating on indications that it would slow the acquisition spree.

Eduardo Cojuangco, chairman and CEO, confirmed this strategy earlier in the week, saying the company's priorities are now to build on the gains it has achieved over the last eight years.

He announced a further 29 per cent sales growth during the first quarter of 2006 to P60.8 billion (€924m), thanks to the National Foods dairy business - its largest acquisition so far - and a 13 per cent volume growth in the food and agribusiness.

Consolidated operating profit reached P5.49 billion, 49 per cent higher than last year, while first quarter net profits were up 7 per cent on the prior year's same period to P2.17 billion.

"Our current results provide us with a solid base for future growth,"​ Cojuangco told shareholders at the annual meeting, adding that San Miguel is now "a more focused, more agile business, more responsive to consumer needs, with a clear strategy to create value and sustainable growth".

The food business will drive the company's growth opportunities, he said.

"It's very solid, a relatively large business and very profitable and National Foods has opened a whole new set of opportunities for us, providing scale and huge possibilities for innovation and category extension."

Cojuangco told reporters that the group will continue to invest in sectors that provide opportunities for growth, such as the beverage business, and particularly juice, tea and functional drinks.

He said that San Miguel has built up its beverages capability overseas, and now has "two plants on stream in Indonesia and Thailand, with two other plants in South China and Vietnam soon to follow".

"We've already developed several brands and products to roll-out which will compete in the iced tea, carbo-natural and carbonated soft drinks segments and while entering the regional non-alcoholic beverage market is something new to us, we're confident these products will take hold among consumers,"​ he told the meeting.

Cojuangco also discussed an ongoing focus on cost efficiency.

"We did our best to manage costs pressures with solid programs to offset rising costs through productivity and raw material substitution strategies,"​ he said.

Among these efforts is a domestic raw material sourcing program expected to save significant amount of foreign exchange when fully implemented.

Likewise, Cojuangco said SMC programs are underway to encourage more efficient supply chain manufacturing, and trade and media spending.

"The potential savings from programs such as these would allow us to invest behind innovation and brand building,"​ he added.

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