The 118-year old group, San Miguel Corporation, Southeast Asia's largest food and drinks group and the maker of SE Asia's oldest beer brand, arrived its net profit tripled in the first half, boosted mainly by gains from asset sales. Faced with challenging economic conditions affecting consumer spending behavior and scalating input costs, SMC booked net income of P19.7 billion ($444mn) in January to June, topping the P6.6 billion of a year earlier and its full-year 2007 net profit of P8.63 billion.

Financial Business Description :

The company has five breweries strategically located across the Philippines and a developed distribution system serving approximately 471,000 retail outlets. SMC employs over 26,000 people through-out the Asia Pacific.  The company's beer brands include San Miguel Pale Pilsen, Red Horse, San Mig Lite and Gold Eagle. Other beers are marketed under the brand names Cerveza Negra. The company also sells Cali, the malt-based, non-alcoholic drink. Cali is available in three variants: Cali, Cali Ice and Cali Light. The company's product can be categorized into three classes based on the target market: Upper Popular, Broad Popular and Economy. Upper Popular products cater to upscale markets especially in urbanized areas, while the Broad Popular segments serves the majority of the population or the mass market.

The Group's principal activities are operating poultry, processing and marketing refrigerated and canned meat products, manufacturing and wholeseling flour and feeds products and manufacturing and marketing of butter, margarine, cheese, dairy and other related products. The Group is organized into three primary segments. Foods includes the breeding, hatching, processing and marketing of chicken. This segment also produces and markets feeds and flour, dairy products and processed meats. Beverage produces and markets alcoholic and non-alcoholic beverages. Packaging produces and markets metal closures, two-piece aluminum cans, plastic crates, pallets, corrugated cartoons, omposites, glass containers, glass molds and polyethylene terephthalate plastic bottles. Brands include Bake Best, B-meg, Pureblend, PBxcellent, Jumbo, Emperor  Hard Flour, Queen Soft Flour, Baron all-Purpose Flour and Prince Noodle Flour. SMC also has real estate and agricultural subsuduaries. The conglomerate is in the process of shedding various operations as part of an effort to diversify into heavy industry, looking to invest in mining, infrastructure and energy.

Revenue as of September 2007

Operating Income

  Annual Revenue (in billion pesos)

San Miguel has a long term strategy for growth, based on two key parts:

    *    Strengthening its core businesses of beverages, food and packaging and

    *    Pursuing new avenues of growth

The Group's first half revenues rose 9.0% to P79.8 billion, with San Miguel Brewery revenues also rising by 9.0 percent to P23.8 billion. In January, San Miguel sold a 35% stake in its packaging unit for $130 million to Japan's Nihon Yamamura glass. It also sold its 29.4% stake in unlisted property firm KSA Realty for P1.8 billion to Shang Properties Inc.

IPO Line-up 

The Philippines' San Miguel surprised investors with plans for a new drastic reorganization by selling part of its core food unit and more of its finest chain beer operations but to retain controling interest of at least 51%. SMC was preparing for a secondary offering of its food businesses and its newly listed beer unit, San Miguel Brewery and an IPO for its packaging unit . It hopes to sell at least 20% of its packaging businesses. The intention is to list all of San Miguel's operating companies to make their operations more efficient and transparent.

The IPO values the beer business, considered the company crown jewel, at $2.9 billion and is the only big listing scheduled for this year. The parent group has a market value of around $3.45 billion. SMC would also consolidate all its food assets under listed unit San Miguel Purefoods, which  may do a follow-on stock offering. The company's liquor business, Ginebra San Miguel Inc., and property development San Miguel Properties Inc. are already listed.

Tough Market Conditions 

San Miguel faces a difficult operating environment in the second half due to high raw material costs and a rising fuel and food costs restrain consumer spending. The move into heavy industry has been criticized by some analysts who say San Miguel, which dominates its home market for beer, poultry and processed meats, does not have the expertise to run such business. However, SMC rest assuring its interest into making businesses that could give it at least 15% return on equity.

The company has so far been unsuccesful in bids to buy power assets at government aunctions. A San Miguel-led consortium lost in December to a Filipino-Chinese group in bidding for the 25-year concession to operate the Philippines' national power grid. SMC also lost in last year's bidding for a 60% stake in geothermal power producer PNOC Energy Development Corporation.

Feeding The Future Venture 

SMC will spend up to $1.0 billion in a joint venture with Hong Kong's Kuok group to develop farm land. The project, in collaboration with the philippine government, would develop one million hectares of land. SMC with KH Kuok will offer financial assistance, technical expertise and a guarantee to buy all agricultural produce. The land may include logged-over aeas, idle portions of military camps and reservations, idle portions of lands granted to state universities or colleges and idle portions of ancestral lands. The goal is to help the government in any way possible, whether it is providing seed money to help farmers pay for shallow wells, basic agricultural inputs such as hybrid seeds and fertilizers and extending technical expertise.

Just recently both companies donated $500,000 each to the victims of typhoon Frank. This kind of partnership is what this country longs for. It offers a signal of sustainable, adequate supply of grains and other basic staples.

But the question was? Will its IPO/offerings turn to be productive as SMC makes an almost 180 degrees turn for a change? Will investors keep on its line up? The writing on its wall is plain to see: Despite economic pressures, SMC has sales momentum coming from both internal and external customers. They tapped customers in overseas markets. The company was not affected by the huge challenge and weakening economy.