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In the first quarter of 2008, both San Miguel
Brewery, Inc. and its mother company, San Miguel Corp. registered
spectacular gains.
Profits of SMB climbed 37 percent
to P2,457 million although net sales rose only 13 percent to P12,257
million. An 18 percent increase in beer cases sold did the trick,
plus lower operating cost.
Parent SMC did extremely well
during the first quarter, posting its best quarterly performance
ever. Profits rose a dizzying 362 percent to P11,035 million from
P2,389 million in January to March of 2007. As a result, earnings
per share expanded 361 percent to P3.50 from P0.76 in 2007 first
quarter. Asset sale boosted profits.
Even without the asset sales,
recurring SMC net profit more than doubled to P4.1 billion.
San Miguel’s volume sales grew
11 percent in the first quarter from year ago’s 2 percent and
operating margin improved to 9.84 percent from 7.82 percent.
Accordingly, SMC’s return on
equity or stockholders’ money jumped 33 percent to10.57 percent in
the first quarter compared with 7.96 percent in the same quarter in
2007.
The first quarter results
contrasted with the 16 percent drop in SMC net income to P8.63
billion in the whole year of 2007, despite a 10 percent rise in net
revenues to P154.9 billion from P140.6 billion in 2006. Per share
profit declined to P2.74 from P3.28.
The record-breaking first quarter
performance of both SMB and SMC provided an impressive backdrop to
the listing on May 12 of SMB shares.
SMC spinned off its beer division
into SMB and conducted an IPO, pricing the beer shares at the
low-end of its offering range to P8.50 per share.
The spinoff is SMC’s first
major re-branding attempt since it discarded in the 1970s its Escudo
logo in favor of a flower design that it later junked. In a sense, a
separate company handling beer operations demonstrates the viability
and profitability of beer as a business.
The stock brokerage firm Asiasec
Equities, Inc. recommends a “strong buy” for SMB. “The San
Miguel beer business is a highly profitable franchise often mistaken
to be a mature industry,” says an Asiasec Equities analysis.
“Despite this skepticism, the beer business in the Philippines has
not reached its potential.”
Asiasec notes that San Miguel’s
management has streamlined its organization, kept cost structure
very low, and has become highly competitive. Volumes have
rebounded but not yet a their historical highs. With SMC’s product
positioning and sales and marketing initiatives, Asiasec estimates
EBITDA or the cash SMC generates from the beer business has
quadrupled from P4 billion over the past ten years to P16 billion
today.
Asiasec says that “with at
least one million beer drinkers added per annum and a relatively low
per capita consumption vis-á-vis historical consumption and
comparable regional markets, the beer business is poised to report
EBITDA and net profit growth in the mid-teens.”
“SMB is a debt-free company
with annual free cash flows in excess of $250 million. At 13 x PER
[price earnings ratio], and an expected dividend yield of 6.5
percent, the company is a Strong Buy!” concludes Asiasec.
Another brokerage firm,
Philippine Equity Partners says SMB is a “direct exposure to the
engine that drives San Miguel Corp.” Beer, it says, “is
SMC’s largest and most profitable business.” SMB accounts for 15
percent of SMC revenue base but contributes 94 percent to operating
profits.
SMC is encouraged by the first
quarter performance. “We see another year of positive growth,”
says Ramon Ang, president and chief operating officer of SMC and the
chairman-president and CEO of SMB. “Spinning off SMB gives us a
more focused industry-specific growth strategy,” he says.
SMC has proved it get into
business and get out of it as quickly, without incurring losses or
damage to its overall corporate strategy. In fact, getting in and
out of businesses nimbly has proved immensely profitable for the
country’s largest diversified food conglomerate. This explains the
362 percent increase in SMC profits in the first quarter.
In 2007, SMC divested itself from
Coca-Cola Bottlers, Inc., NutriAsia, National Foods Ltd., and J.
Boag and Son. The discontinued operations had accounted for 33.81
percent of foreign sales in 2007, 30.45 percent in 2006, and 23.89
percent in 2005. SMC’s foreign operations contributed 40.79
percent of consolidated sales and 39.41 percent of net income in
2007.
San Miguel Beer is the best-known
brand in the Philippines and is considered one the best brews in the
world.
The tandem of Chairman and CEO
Eduardo Cojuangco Jr. and President and COO Ramon Ang has brought
SMC to levels of sales and profitability and global presence unheard
of in the company’s 118 years of history.
The new beer company, SMB
believes that its principal strengths include having a strong and
popular brand portfolio that until now no rival has managed to
compete with nor beaten. They include the San Miguel Pale Pilsen,
Red Horse, San Mig Light, Super Dry, Cerveza Negra, San Mig Strong
Ice, Gold Eagle and Cali, the country’s only malt-based
non-alcoholic drink.
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