San Miguel Earns P4.36 Billion In Third Quarter

October 29, 1998 PSE CIRCULAR FOR BROKERS NO. 2470-98 October 29, 1997 SAN MIGUEL EARNS P4.36 BILLION IN THIRD QUARTER San Miguel Corporation made a profit of P4.36 billion in the third quarter of 1998 compared to P87 million during the same period last year, the company announced today. Consolidated net sales amounted to P19.8 billion, up 27% from P15.6 billion a year ago. Despite a 25% increase in cost of sales and operating expenses to P18.6 billion from P14.9 billion, income from operations improved by 69% to P1.18 billion from P694 million in the third quarter of 1997 as a result of price increases and operational improvements across most of the company's business. Aggregate sales volume increased by 4%. LexLib The company achieved these results against the backdrop of a shrinking economy, highlighted by the worst performance of the agricultural sector in more than 30 years. Agriculture declined 7.5% in the second quarter with its adverse effects on purchasing power being increasingly felt in the third quarter. San Miguel's consolidated net sales for the year to date totaled P57.9 billion, 22% up from P47.6 billion during the first nine months of 1997, and operating income increased by 15% to P3.34 billion from P2.92 billion. The comparable 1997 operating income included P560 million in profits on inventories of packaging products sold to Coca-Cola Bottlers Philippines prior to its merger with Coca-Cola Amatil Limited. Without this gain, consolidated operating income for the first nine months of 1998 would have shown and increase of 42%. Net income for the first nine months of the year totaled P5.09 billion, an increase of 71% from P2.98 billion a year ago. Profits from Sale of CCB Shares The third-quarter net income includes P3.75 billion in non-recurring items reflecting the proceeds from the sale of SMC'S shares in Coca-Cola Beverages amounting to P23.3 billion net of the following costs: P7.35 billion representing the carrying value of the CCB Investment and related expenses; P4.20 billion representing the effect of dilution on SMC's holdings in Coca-Cola Amatil; P4.0 billion provision for deferred income tax; and P3.92 billion provision for write-down of assets. As a result of the acquisition by CCA of Coca-Cola's Korean operations through the issuance of shares, SMC's holding in CCA decreased from 24.9% to 21.5. Its share in the net assets of CCA, after adjusting for differences in Philippine and Australian accounting standards, was reduced by P4.20 billion. The company decided to take a conservative stance in the face of the uncertainties resulting from the Asian economic crisis by writing down the value of certain assets in its overseas operations. These assets include the goodwill paid for operations acquired in Indonesia, Vietnam and China and deferred project and pre-operating expenses in China. The company also deemed it prudent to provide for Philippine income tax on the profit from the sale of the CCB shares when it is eventually repatriated to the Philippines. Other Income and Charges Other than expenses related to the sale of the CCB shares, these one-time items are non-cash expenses. The proceeds from the sale of CCB shares are still substantially intact. cdlex Equity in the earnings of unconsolidated subsidiaries, mainly Coca-Cola Amatil and Nestle Philippines, Inc., amounted to P445 million for the quarter, down 20% from P554 million, and P1.74 billion for the year to date, down 5% from P1.83 billion a year ago. The decline is due mainly to the loss of SMC's share in the earnings of CCB following the sale of its stake in CCB, and a decline in the earnings of Nestle Philippines. Net financing charges for the third quarter declined by 4% to P870 million from P908 million due to interest income on the proceeds of the sale of the CCB shares. Although financing charges for the year to date showed an increase of 75% to P4.06 billion from P2.32 billion, this was much lower than the increase of 126% registered in the first half. With the help of various marketing and distribution initiatives, the company was able to maintain healthy volume increases for many of its products although at slower growth rates than in the first two quarters due to the economic slowdown. Beverage Business Domestic beer sales volume declined by 10% in the third quarter, but much of this was expected in light of the unusually high volume growth rates that followed the beer price rollback in July last year, and the effects of El Nino and the economic slowdown on consumer incomes. Total beer sales volume for the year to date is ahead by 1% compared to a year ago. LexLib Despite the decline in volume, revenue from the company's domestic beer operations increased by 11% to P6.11 billion for the quarter and by 13% to P19.7 billion for the year to date as a result of price increases implemented last December and February. Consequently, operating income for the quarter increased to P768 million from P65 million and more than doubled to P3.07 billion from P1.44 billion for the year to date. International beer sales volumes grew by 16% in the third quarter as a result of improvements in distributions and new marketing initiatives, especially for lower-priced beer brands in China and Vietnam. As a result of this performance, the first half deficit of 8% in International beer sales volume has been reversed to a growth of 1% for the first nine months of the year. Revenue from international beer operations declined in dollar terms by 4% to $67.7 million and by 16% to $166 million for the year to date due to competitive pricing and a shift in product mix to lower priced brands. In pesos, revenue increased by 42% to P2.88 billion for the quarter and by 28% to P6.94 billion for the year to date as a result of the higher peso-dollar exchange rate. International operating losses increased by 82% to P319 million for the quarter and by 70% to P1.11 billion for the year to date. In dollar terms, however, international operating losses increased by only 12% to $6.41 million for the quarter and by 10% to $26.3 million for the year to date. aisadc La Tondena Distillers, Inc. performed strongly in the third quarter, with revenue increasing by 24% to P2.67 billion from P2.15 billion and operating income doubling to P554 million from P270 million as a result of focused marketing and selling initiatives, price increases and more effective cost control. All of LTDI's businesses posted significant increases in sales volume, with hard liquor growing by 22%, juices by 26% and bottled water by 5%. As a result of these improvements, LTDI's revenue for the year to date increased by 14% to P7.80 billion from P6.83 billion while operating income grew by 46% to P1.47 billion from P1.01 billion. Food and Agribusiness San Miguel's food businesses continued to improve, with most products registering third-quarter growth rates ranging from 2% for animal feed, to 3% for chicken, 21% for pork and beef, 28% for processed meats and 46% for coconut oil. However, butter, cheese and margarine showed a combined decline of 4%. Revenue from this segment, not counting San Miguel's share in Nestle Philippines, Inc. increased by 38% to P5.95 billion for the quarter and by 30% to P16.3 billion for the year to date. Operating income for the totaled P162 million versus an operating loss of P5 million a year ago showed a four-fold increase for the year to date to P561 million from P139 million. Packaging Two-piece aluminum cans, metal closures and refillable PET bottles posted strong growth but sales volumes of other packaging products declined as result of the slowdown in some consumer industries. Revenue went up by 10% to P2.88 billion for the quarter and by 17% to P9.28 billion for the first three quarters. Operating income improved by 14% to P225 million for the quarter but declined by 27% to P703 million for the year to date due to price pressures in the industry throughout the region and higher cost of imported raw materials. In contrast with a net income of P58 million a year ago, San Miguel Properties, Inc. reported a net loss P55 million in the third quarter as result of the slump in the real estate business. This brought SMPI's losses for the year to date to P137 million. cdll