Purefoods sees 10-15% profit growth as first quarter income surges 6-fold

MANILA, Philippines - San Miguel Purefoods Co. Inc., the food manufacturing unit of San Miguel Corp., expects its bottom line to grow 10 to 15 percent this year, banking on improved efficiencies and effective cost management.

Francisco S. Alejo III, president of Purefoods, said the company is poised for further growth this year as it continues to maximize synergies in selling and logistics and streamline operations.

“We’re off to a good start. We expect good results to be sustained in the coming year as we build the foundations on which Purefoods can grow and prosper,” he said.

In the first quarter this year, Purefoods posted a net income of P872 million or six times the P143 million reported in the same period last year. Revenues rose two percent to P18.2 billion on steady growth across most of its businesses while operating income grew more than two-fold to P1.4 billion.

In spite of slower economic growth and sluggish markets, Purefoods posted net earnings of P2.7 billion last year, an 18-fold increase from P149 million, a year earlier.

Alejo said Purefoods is now in talks with about six local and foreign entities for sale of a majority or at least 49 percent stake as part of San Miguel’s divestment program as Southeast Asia’s food and beverage conglomerate moves into heavy industries.

US food maker Hormel Foods Corp., which earlier signified interest to invest in Purefoods, is now out of the picture, Alejo said.

Hormel owns 40 percent of processed meats firm The Pure Foods-Hormel Co., a subsidiary of Pure Foods.

Purefoods is eyeing P5 billion from the issuance of shares through a private placement to boost its public float and settle payables to its parent firm. The firm is issuing to San Miguel Corp. and/or third parties up to 75 million new common shares at a price that has yet to be decided upon by management.

Alejo said the issuance will happen after Purefoods obtains the Securities and Exchange Commission’s approval of the firm’s increase in capital stock from P1.46 billion to P2.46 billion, divided into 246 million common shares with a par value of P10.

He said the issuance of new shares after the completion of the re-launch will result in a shareholding structure where approximately not less than 60 percent of the issued and outstanding capital of Purefoods will be owned by San Miguel.

Shareholders of the company approved the issuance of 18 percent stock dividends at par value of P10, to be taken out of the retained earnings of the company as of end-December 31, 2009.

Alejo said proceeds from the share issuance will be used to settle payables owed to San Miguel, including the payment for the acquisition by Purefoods of the food-related brands and intellectual property rights amounting to P3.2 billion.

Other proceeds will go to the acquisition of the Vietnam food business through the acquisition by San Miguel Purefoods International Ltd. of San Miguel’s 51 percent interest in San Miguel Purefoods Investment (BVI) Ltd. and for general corporate and working capital requirements.

San Miguel, Southeast Asia’s largest food and drinks group, said as early as 2008 it wants to sell parts of its major subsidiaries through strategic partnerships or a share offering and retain 51 percent as it ventures further into heavy industry.