San Miguel feels pressure of raw material costs

By Dominique Patton

- Last updated on GMT

Related tags San miguel Cent Revenue Alcoholic beverage

San Miguel, the biggest food and drink company in the Philippines,
reported a 4 per cent drop in first half profits yesterday, after
higher raw material and packaging costs eroded the benefits of
strong sales growth.

First half sales at the group were up 24 per cent on the prior year's same period to P100.6bn pesos driven by strong demand for its beer, on both domestic and international markets, as well as alcoholic and soft drinks.

But operating profits were flat at P7.84bn pesos.

The company also faced higher financing charges as it took on additional funding for acquisitions, including the Australian dairy firm National Foods, driving profits for the period down to P3.85bn (€0.055bn) compared with P4bn during last year's first six months.

The Philippine group has stated that it is aiming to triple sales to $10 billion by 2007 from only $2.7 billion in 2003, to make it one of the largest food and drink makers in Asia.

The brewing business is seeing good growth both on the home and foreign markets. Domestic beer sales climbed 11 per cent during the first half due to stable malt prices and higher average selling prices, said San Miguel, while beer sold to international markets saw a 12 per cent increase thanks to a strong performance in Indonesia and Australia.

On the international markets, operating profits from beer surged five-fold as a result of more efficient distribution and operations achieved, said the company.

Volumes in China grew 10 per cent versus last year due to the strong performance of Dragon, Blue Star and other economy brands.

However in the liquor business, already seeing softening demand, cost pressure, particularly on major raw materials, and higher excise taxes led to a 44 per cent decline in operating profit for the Ginebra San Miguel unit.

The Coca-Cola Beverage Group is also suffering this year, although San Miguel said it registered a significant improvement from the first quarter after a strong upturn in sales in May and June particularly for water and juices.

First half sales revenue is down 6 per cent to P20.0 billion, while consolidated operating income fell 65 per cent to P695 million.

San Miguel's food products performed better, generating P29.1 billion in the first half of 2005, 5 per cent higher than last year. Better selling prices in the second quarter boosted first-half operating income by 9 per cent to P1.05 billion.

Revenue of Berri Limited, SMC's Australian juice manufacturing unit, reached AU$247.3M, 2 per cent better than last year. Operating income was on a par with last year at AU$13.7 million

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