SMC sets aside P15B for 2005 expansion plan

San Miguel Corp. (SMC), Southeast Asia’s largest food and beverage conglomerate, has set aside P15 billion this year for the continued expansion of its businesses in both the local and international markets, the company’s top official said.

In addition, SMC’s net income grew by only two percent in the first quarter of the year to P1.78 billion as rising costs of raw materials and fuel and excise taxes ate into its revenues.

SMC chairman and chief executive officer Eduardo "Dan-ding" Cojuangco Jr. said while the company registered a 21- percent increase in revenues for the quarter, its bottom line has been weighed down by higher financing charges.

Revenues amounted to P47.2 billion while operating income rose 16 percent to P3.84 billion.

Cojuangco said the recent expansion initiatives adopted by the company may slow down its growth. Thus, the conglomerate is currently working to consolidate more closely its operations to further reduce costs.

"We’ve cleaned up and updated our portfolio. And while we are never finished reshaping and refining our business today, San Miguel is very close to the cohesive company we have been aiming for. It is built around closely-related businesses, many of which are number one and two in their industries," Cojuangco said.

"With the high market share we already enjoy in many of our core product categories and in our domestic market, the growth you require and demand from us can only come increasingly from acquisitions and our regional expansion program," Cojuangco told the company’s stockholders during their annual meeting yesterday.

SMC is hoping its increased presence in South China, Indonesia, Vietnam, Thailand, Malaysia and Australia will allow it to keep posting double-digit sales growth even as economic activity in the Philippines remains unstable.

The company’s products, principally beer, are exported to over 20 countries in various regions throughout the world.

"If we manage to develop even a small portion of this potential market, the rewards for us as a company will be great. By taking an active role in developing operating capability in the region, we are facing an unprecedented opportunity to tap new markets in a way that can only be good for our business," Cojuangco said

He said SMC hopes to complete the acquisition of Australian dairy group National Foods Ltd. soon. Once integrated into the business, National Foods is expected to emerge as a vital part of SMC and an even more competitive efficient, and effective business given the conglomerate’s reach into the region.

Cojuangco said the acquisition of National Foods’ dairy line will comprise 21 percent of SMC’s total revenues, with the food group as the biggest contributor.

SMC earlier acquired a majority stake in King’s Creameries, a Singapore-registered ice cream producer from Star Fortune and H&Q Asia Ventures II for 8.15 million Singapore dollars. This acquisition, however, will add to the Conglomerate’s debt-pile, which already had an adverse effect on its profitability and earnings in 2004.

In order to finance the National Foods acquisition, SMC plans to borrow $1.85 billion, of which US$1.4 billion would go towards the acquisition of National Foods, while the remaining $450 million will be used to offset and refinance existing debt.

The deal ties in with SMC’s regional expansion strategy to consolidate its business and product portfolio across the Asia-Pacific region as well as giving it immediate entry into the Malaysian and Singaporean ice cream market.

Recently, the company made a string of successful acquisitions in the Asia-Pacific region, which includes Australian beer company Boggs and juice manufacturer Berri, as well as tabling bids for Del Monte Pacific.

Cojuangco said Berri will be the flagship of the SMC Group’s regional juice brands.

"Many of our soon-to-be-launched non-alcoholic beverage products are new-to-the-world soft beverages. We have innovative quality products in the categories of "carbonaturals, isotonic and vitaminized drinks...So while we are not blind to the challenges we face, we are confident of our entry prospects into our new markets. Given our track record of producing quality food and beverage products that fulfill a broad range of consumer needs, we have every reason to be optimistic that regional consumers will come to embrace our products with the same kind of exuberance that generations of Filipinos have," Cojuangco said.