Pure Foods Sets Revenue hopes on Poultry Business

May 6, 1998 PSE CIRCULAR FOR BROKERS NO. 937-98 Pure Foods Sets Revenue hopes on Poultry Business Listed firm Pure Foods Corporation said it will cut its flour production by 25% this year following a steep drop in sales volumes for the entire flour industry. At the same time, the firm said it will sell its tuna cannery in Indonesia which, although profitable, does not fit into Pure Foods' established business lines. cdt Pure Foods expects the drop in its flour sales in the first quarter this year to be offset by an anticipated recovery in the poultry industry within the year. Still, the cash register will ring less frequently this year as the company expects to post a lower net income from the P157.5 million it recorded in 1997. "The flour industry will sort itself out. One doesn't go into business to lose money and, so, I expect the industry to quickly adjust to the lower demand. And the industry in the coming weeks will adjust its production downwards . . . It makes a lot of sense, why continue producing when demand is down 25%?" Renato Montemayor, Pure Foods president, said in a briefing after the firm's annual stockholders meeting last Monday afternoon. The flour business contributes about 25% to 28% of Pure Foods' total revenues. Mr. Montemayor could not offer definite reasons for the 25% drop in flour sales in the first quarter a first in the whole six years that Pure Foods has been in the flour business. He said it could partly be due to stable rice prices and a 10% reduction in tariff on flour imports. "If you were poor and you had to choose between pan americano (loaf bread) selling this much and it fills you up only this much versus rice, saan ka pupunta (what will you go for)?", he asked. Also, the government lowered the 20% tariff on flour imports to 10% just about the same as the existing tariff on wheat. "The whole industry protested it . . . Flour has many applications. But I don't think it's such a big quantity to affect price and demand for flour," Mr. Montemayor said. Pure Foods has a market share of about 16% in the flour industry, just about the same size as six other big players in a relatively small industry comprised of a total of 12 flour millers. cdlex Meanwhile, Mr. Montemayor said the poultry industry should recover this year from at least two years of unprofitability. "Starting this month, the poultry industry will make money," said Mr. Montemayor. He added that the company's revenues from flour and poultry are expected to "switch" this year. Last year, the flour business cushioned the firm from the impact of a glut in poultry, supply and lower chicken prices. Flour sales improved 7% last year from 1996 levels, with profits posting a record growth of 140%. On the firm's other businesses, Mr. Montemayor said Pure Foods plans to sell its tuna cannery in Indonesia. "It is surprisingly doing well in terms of operating income . . . but we still want to get out of it . . . (There is no) focus on it, our businesses are very different today from that. So we really want to sell it anyway," he said. Pure Foods also reduced its capital expenditure this year to P500 million from about P1 billion last year. The amount will be used to fund existing projects such as a piggery in Angat, Bulacan. The firm has also decided to postpone the construction of a new plant for its meats division. With regard to its restaurants division, Pure Foods said its Burger King network will reach about nine to ten branches this year. Aside from its two existing branches in Robinson's Galleria in Ortigas and United Nations Avenue in Manila, Burger King added a new branch in SM City. Other outlets will open in SM Fairview, Glorietta, SM Southmall and SM Bacoor in the next few months. Mr. Montemayor said "it doesn't make sense to operate just two stores" of Burger King in the country after the firm got the franchise from the US fast-food chain last year. He said the company needs to open at least six to seven stores to make a profit from its investment in bringing Burger King to the country. cdt