PSE Circular for Brokers No. 459-99

March 11, 1999 PSE CIRCULAR FOR BROKERS NO. 459-99 March 11, 1999 SMC FOOD GROUP PERFORMS FAVORABLY IN 1998 San Miguel Corporation's food and agribusiness group performed favorably in 1998 as improvements in both sales volumes and prices drove up revenues while improved productivity and better managed helped boost operating income. San Miguel Food Group's total revenues in 1998 were up 23% to P21.5 billion. Income from operations jumped 90% to P830 million from the previous year's P440 million. aisadc All businesses within the Food Group achieved increases in terms of volumes, revenues and operating profits, with the exception of lower volumes for feeds due to the effects of the devaluation and poor weather conditions throughout the year. Subsidiary San Miguel Foods, Inc. (SMFI), producers of Magnolia chicken and the B-Meg Feeds line of products, registered a growth of 12% in sales revenues, from P8.23 billion in 1997 to P9.18 billion last year, resulting from higher poultry volumes and higher poultry and foods prices. Income from operations grew threefold to P411 million from P123 million in 1997 due to better prices and continuing programs to improve-costs. The company focused on improving its services to its institutional customers where volume requirements for chicken were more stable and price margins were better. SMFI continued to be preferred supplier of major fast food chains led by Jollibee and McDonald's. Sales of chicken grew by 4% while average mailing prices for the year improved by 12%. cdlex The commercial feed market was constrained in 1998 as livestock and aquatic growers, wary of high input costs and the effects of El Nio and La Nia, either deferred expansion plans or reduced production capacity. the result was a 3% decline in volume for feeds. However, revenue from feeds was 5% higher due to better prices. The ability to supply market demand despite rising costs that tempered production enabled Monterey Food Corporation (MFC) to grow aggressively in 1998. MFC enjoyed higher volumes in all its product categories as well as better prices of pork and value-added meat lines for the year. This drove revenue to P2.5 billion, 16% over the previous year. Income from operations reached 172 million, up 24% from P139 million in 1997. LLjur MFC turned its focus on improving its Monterey Meatshop franchise operations and profitability. It will continue to focus its volumes to franchise outlets as these offer a more stable customer base and where meat quality and service are effectively differentiated. Monterey now has some 176 franchise outlets in convenient locations selling quality meat the way customers like it - fresh, slightly chilled and cut to their specifications. Driven mainly by price increases, combined revenues of Philippine Dairy Products Corporation, makers of the Magnolia and Anchor butter and cheese lines, and Star Dari, Inc., known for the Star and Dari Creme brands of margarine, rose 14% to P2.5 billion from P2.19 billion in 1997. Total volumes grew slightly by 1%, reflecting a sluggish consumer market. Despite the surge in imported production input costs, income from operations increased by 5% driven by product re-formulation and stringent cost reduction measures that resulted in a 16% decline in fixed costs. Star Margarine further strengthened its position in the market, having captured a 92% share. Anchor Butter and Dari Cream remain undisputed leaders in their respective categories. The economically-priced Cheezee sustained its share level in the cheese block and spread segments. San Miguel CampoCarne Corporation, markers of canned and processed meats, turned in revenue of P1 billion, 36% higher than the previous year, also driven primarily by continuous growth in sales volume. Operating income improved by 421% to P72.8 million from P14 million in 1997 because of volume growth, better product mix, better production mix, better production yields and lower fixed costs. Amidst slower market growth and very intense competition, volumes of CampoCarne Corned Beef and Moby Hotdog continued to post significant gains. The Company will continue to implement strong marketing programs to improve its position in the hotdog and canned meat markets. CampoCarne Chinese Luncheon Meat launched in the middle of the year and gained wide market acceptance due to its taste and competitive pricing. With growth largely driven by coconut oil exports, sales volumes of SMC's agribusiness unit were up by 23%. Revenue increased by 58% to P4.46 billion from P2.82 billion and income from operations increased to P233 million from P39.3 million in 1997, a jump of 492%. prLL With the expected improvement in the agricultural sector, consumer demand is also expected to improve giving the San Miguel Food Group a positive outlook for its business this year.