San Miguel Nets P1.24 Billion in First Quarter

May 6, 1999 PSE CIRCULAR FOR BROKERS NO. 990-99 May 5, 1999 SAN MIGUEL NETS P1.24 BILLION IN FIRST QUARTER San Miguel Corporation reported a net income of P1.24 billion in the first quarter of 1999 12 times that of P103 million posted in the same period last year in spite of generally weak markets. As management's initiatives to improve distribution, streamline various staff organizations, drive down costs and raise productivity and efficiencies across the San Miguel Group bore fruit, consolidated income from operations jumped 74% to P1.48 billion from P854 million a year ago despite a 2% decline in consolidated net sales. Most of San Miguel's various operations posted favorable first quarter results in terms of sales volumes. Domestic beer volumes grew as well as the majority of packaging and food products. The Company experienced declines, however, in volume of hard liquor and mineral water commercial feeds, coconut oil and glass. The revenue decline from these products did not significantly affect the Company's profitability as this was offset by the sustained improvement in margins of other product lines, particularly beer and hard liquor, from lower costs. Financing charges declined by 59% to P587 million from P1.42 billion due to interest income from the proceeds of last years sale of San Miguel's equity in Coca-Cola Beverages (CCB) and Nestle Philippines. This more than offset the decline in equity income from unconsolidated affiliates from P437 million to P120 million. Other income of P591 million is comprised mainly of the amortization of non-compete shares and gain on the sale of aircraft. LibLex Domestic beer sales volumes improved in the first quarter of 1999, despite the weak demand from the agricultural sector, because of extensive marketing and sales initiatives aimed at the trade. Revenue went up by 5% to P7.0 billion from P6.64 billion and operating income went up 6% to P1.1 billion from P1.04 billion. San Miguel Pale Pilsen and Red Horse remain the top contributing brands while other brands such as San Miguel Superdry continue to make gains in the market. First quarter operating and financial results of San Miguel Brewing International Ltd. (SMBIL) reflect the various brand-building and market revitalization activities the Company has undertaken. Total volumes were up 20% from the same period in 1998. China posted a 17% volume growth while volumes in Indonesia increased by 67%. In Hong Kong, Blue Ice Beer and Lowenbrau helped curtail shortfalls, however, volumes still fell by 7% from year ago. SMBIL operating loss declined by 21% to US$7.6 million from US$9.5 million. SMC will be paying down short term loans of US$60 million and, as a result, expects a significant improvement in the profitability of its overseas operations. La Tondea Distillers, Inc.'s (LTDI) net income for the first three months of 1999 almost tripled to P164 million. 181% higher than the P59 million earned in the first quarter of 1998, as a result of higher operating income and a 34% drop in interest expense. Sales revenue grow by 4% to P2.4 billion from P2.3 billion. Better margins resulting from lower molasses costs and higher revenues; brought up LTDI's operating income by 8% to P472 million from P437 million. This despite lower volumes in hard liquor, water and juice due to weak consumer spending and depressed farm incomes. Hard liquor volumes declined by 3%; bottled water declined by 22% due to competition from water filling stations, while juice declined by 4%. The San Miguel Food Groups 's meats business continued to perform well as revenue increased by 12%. Lower sales volumes of the coconut oil milling business, however, pulled Group revenues of the Food Group amounted to P4.3 billion from P4.7 billion the previous year, while operating income declined by 9%, from P223 million in the first quarter of 1998 to P202 million in 1999, mainly on account of lower coconut oil volumes. The group posted net income of P113 million, a turnaround from a loss of P46 million in 1998, due to a significant decline in financing charges brought about by lower borrowings and interest rates. Total revenue of San Miguel Packaging Products (SMPP) was basically at the same level as last year, at P3.1 billion. Volumes were strongest in the composites and paper businesses, with growth ranging from 17% to 23%. Weak demand in the food and healthcare industries resulted in a 9% volume decline for glass. SMPP secured long-term contracts with major customers and developed new businesses and markers to address the overall weakness in the industry. SMPP's consolidated income from operations was 28% higher at P276 million from P215 million last year. Apart from glass which experienced a decline, operating income across the packaging group improved from 8% to 104%. Over the last few months, the management of San Miguel has put in place various programs designed to make the company more efficient, more competitive and more responsive to the needs of the market. With the expected improvement in the overall economy, management is confident these programs will provide further gains and future growth for SMC.