SMC Posts P24.4 Billion Net Profit

February 12, 1999 PSE CIRCULAR FOR BROKERS NO. 258-99 SMC POSTS P24 . 4 BILLION NET PROFIT San Miguel Corporation (SMC) posted a consolidated net income of P24.4 billion in 1998 which includes the gain on the sale of the company's holdings in Coca-Cola Beverages (CCB) and Nestle Philippines Inc. (NPI). Consolidated sales last year rose by 16.5% to P78.2 billion from P67.1 billion in 1997. Total sales volume grow by 2% against the backdrop of continuing economic difficulties Albert M. de Larruzabal, Senior Vice President and Chief Finance Officer. said, adding that volumes were uniformly up for hard liquor, juice, water and all of SMC's container food products. Operating profits improved by 12.6% to P4.1 billion from P8.64 billion last year depicted higher costs, currency volatility and weak consumption growth. SMC fared well in 1998, driven by the strong performance of its domestic operations. For example, the gains in operating income were higher for San Miguel Brewing Philippines with an 83% growth: LTDI with 67%: and San Miguel Food Group with 90%. This performance was tempered by some setbacks from its packaging and international operations which are most vulnerable to the regional, economic crisis. Equity in earnings of unconsolidated affiliates for 1998, amounted to P2.29 billion 4% higher than the P2.21 billion the previous year primarily as a result of losses (Illegible portion in Philippine Stock Exchange file) from our Indonesian (Illegible portion in Philippine Stock Exchange file) operations. Earnings from Nestle and from Coca Cola Amatil's European operations after CCB's demerger with CCA are no longer fully reflected in the second half of 1998 with SMC's divestment of its interest in these companies. The cash proceeds from these sales enabled the company to generate interest income in offsets its interest expense, with the full-year effect of lower financing charges expected to be realized in 1999. Total financing charges in 1998 remained at the same level as in 1997 at P4.48 billion as a result of higher domestic interest rates, the higher peso conversion of the company's dollar interest expense and foreign exchange losses in the first semester. Aggressive sales and marketing enabled SMC's Philippine bear operations to output in the market and increase its market share by two percentage points from about 82% to 84%. Inspite of price increases in December 1997 and February 1998, beer sales volume declined only by 4% compared with an industry-wide 7% drop. San Miguel Brewing Philippines' (SMBP) sales revenue rose 8% to P27.2 billion from P25.2 billion in 1997. Operating income increased by 83% to P4.15 billion from P2.27 billion in 1997. (Illegible portion in Philippine Stock Exchange file) focused sales and marketing programs enabled San Miguel Brewing International (SMBIL) to grow volume by 2% amid the regional economic downturn. Driven largely by the improved performance in China, total volumes of San Miguel Brewing International (SMBIL) grew by 12% in the second semester, reversing the 8% decline during the first semester. Volume grew by 15% in China and by 32% in Vietnam but full 1% in Hong Kong and by 25% in Indonesia because of the economic downturn. Total dollar sales revenue dropped by 10% to $228 million from $ 253 million in 1997, despite higher volumes. This resulted from the devaluation of the Indonesian rupiah, competitive pricing and a shift in product mix to lower price brands. However, as a result of streamlining of operations in various markets, operating losses dropped by 1% to $38.4 million from $38.7 million in 1997. In peso terms, total revenue amounted to P9.18 billion, 24% higher than the P7.43 billion registered in 1997. Operating losses rose 36% to P1.56 billion, mainly as a result of the depreciation of currencies in the region. Consolidated revenues of La Tondena Distillers Inc.'s (LTDI) hard liquor, water and juice businesses rose 11% to P9.74 billion from P8.78 billion in 1997. Operating expenses were maintained at only 2% above 1997 on account of rationalized advertising and promotion spending and contained fixed selling and distribution costs. Consequently, operating income increased by 67% to P2.07 billion from P1.24 billion in 1997, while net income more than doubled at P515 million from P241 million in 1997 despite higher net interest expense. San Miguel's food and agribusiness operations, except feeds performed better than 1997 in terms of volume, revenues and operating incomes. Combined food and agribusiness revenues reached P21.5 billion, 23% better than a year ago. The restructuring and operational improvements implemented in the last couple of years have paid off with income from operations increasing by 90% to P0.83 billion from P0.44 billion in 1997. The regional packaging industry was beset by higher costs of imports, aggravated by overcapacity and weakened demand that led to heightened competition and slimmer margins. San Miguel Packaging Products (SMPP) posted aggregate revenues of P12.4 billion, 12% higher than the P11.1 billion of the previous year while the group's operating income dropped 49% to P849 million from P1.67 billion. These pressures were mitigated as SMPP pushed sales to diversified markets and secured long-term's contracts with major customers to ensure higher utilization of capacities. It also pursued cost containment and productivity improvement programs and further tightened its funds management. Amidst a bearish market, San Miguel Properties Inc. (SMPI) embarked on comprehensive cost reduction and cash control programs. These include manpower reductions, rephrasing of ongoing development work, deferral of new project start-ups, and a freeze on new capital projects and land acquisitions. SMPI registered a net income of P202 million arising from the sale of a major asset. As a result of the group-wide effort to conserve financial resources and improve capital and asset productivity, SMC ended the year with a much stronger financial position Debt-to-equity ratio improved to 0.86 from 1.11 in 1997. Current ratio improved to 2.97 from 1.31 in 1997, and return on equity was 42.2% compared to only 6.6% in 1997. LLjur