Tanduay spending P2 billion for expansion

MANILA, Philippines - Tanduay Holdings Inc., the hard liquor unit of the Lucio Tan Group of Companies, is spending P2 billion to boost production capacity, put up new bottling lines and refurbish existing facilities to maintain its dominant foothold in the local rum industry.

In a briefing yesterday, Tanduay president Wilson Young said Tanduay Rum remains the undisputed No. 1 rum brand in the country with a market share of 99.3 percent and intends to keep its leading position by entering overseas markets and developing new products.

Young said the company is looking at the US and China as potential sites for expansion to further spur growth. “We want to introduce in countries where there is clear opportunity to compete or create a market,” he said.

Nestor Mendones, the company’s chief finance officer, said about a fourth of programmed capital expenditure budget, or P550 million, will go to the expansion of the daily distillation, capacity by 100,000 liters of fine alcohol at subsidiary Absolut Distillers located in Batangas.

The new distillation columns will generate savings for the company of around P320 million annually based on current prices of molasses in the market. These additional columns will make available a steady supply of high grade alcohol that is needed for the company’s new product development strategy.

Mendones said the company is also upgrading its distillery in Pulupandan, Negros Occiental at a cost of P175 million. The plant, run by unit Asian Alcohol, stopped operations in 2009 when the main waterline was damaged. Once it is operational in 2013, the plant will produce normal daily capacity of 130,000 liters and generate savings of P315 million a year as the cost of internal produced alcohol is cheaper than alcohol purchased from external suppliers.

Other major projects will involve the addition of 750-ml bottling lines in Laguna and Negros plants for better cost efficiency.

 Additional cost storage tanks are also being constructed to ensure enough capacity for inventory management purposes. The damaged facilities in Laguna plant is also currently being rebuilt and will be operational by the end of this year.

The company will be undertaking a follow-on offering next month, estimated to raise as much as P2 billion, to fund its ongoing expansion.

Mendones said Tanduay, which produces leading brands Tanduay Five Years, Tanduay ESQ, Rhum G5, Gin Kapitan and Cossack Blue, is eyeing a net income of P1.1 billion this year, up 76 percent from 2010. Revenues are forecast to grow to P12.3 billion as sales volume is expected to exceed last year’s performance by two percent, relatively slower than 2010 figure of 7.5 percent and average growth rate for the last five years of six percent.

In the nine months ending September this year, Tanduay jacked up its net profit 60 percent to P855 million, already exceeding its full year profit of P645 million in 2010.

Based on the results of a recent AC Nielsen Retail Study, the Tanduay brand corners the biggest market share in the spirits industry at 34 percent, outselling competitors three to one.