Philippines: San Miguel beats forecasts with profit rise

San Miguel Corp., the largest Philippine food and drinks company, reported a 3.3 % rise in 2005 net profit on Friday, March 3 beating expectations of a fall, thanks to contributions from overseas acquisitions, according to Reuters.

The Philippines' second-largest company said that after a difficult year of weak domestic beer sales, higher raw material costs and taxes, it was upbeat about prospects for 2006, largely due to its expanded foreign operations. "We will benefit from an expanded product mix and diversified business. Indeed today, San Miguel has a much more solid foundation for consistent, long-term growth," Finance Director Ferdinand Constantino said in a briefing to investors.

San Miguel generated unaudited net income of about 9.15 billion pesos ($179 million) last year against restated net profit of 8.86 billion pesos in 2004, confirming an earlier report by Reuters.

Analysts had forecast net profit of 7.67 billion pesos for 2005, according to Reuters Estimates.

Group revenues climbed 30 percent to 227 billion pesos in 2005, bolstered by San Miguel's $1.5 billion purchase last year of Australia's largest dairy firm, National Foods, its biggest deal yet.

President Ramon Ang told investors the group was still mulling an IPO of its Australian business, according to analysts who attended the meeting, which was closed to the media.

The company said it expected its international operations to contribute 40 percent of group revenues this year after more than doubling to 35 percent in 2005. "It's good in a sense that it diversifies revenue sources so they are not held captive by any one market," said Leo Venezuela, analyst at ATR Kim Eng Securities.

After saturating its home market for beer, soft drinks, liquor, processed food, poultry and diary, San Miguel is counting on overseas operations, including newly acquired companies in Malaysia and Singapore, to fuel growth. The group is 20 percent owned by Japan's Kirin Brewery Corp .

Constantino said higher prices for raw materials, increased taxes and one-off costs related to the National Foods deal had kept a lid on double-digit profit gains. Excluding the one-off acquisition costs, net profit would have risen 10 percent.

"Strong top-line growth has not been translated into the bottom line," said Spencer Yap of BPI Securities. "If they are able to tap more markets and new countries then maybe they will become a growth story."

San Miguel's B shares , which are open to foreign investors, closed unchanged at 83.50 pesos, and its A shares that are restricted to Filipinos, slipped 0.81 percent to 61.50 pesos. The main index fell 0.34 percent.

San Miguel's liquor subsidiary, which posted a 20 percent drop in revenue to 10.5 billion pesos, suffered from spikes in raw material and packaging costs as well as a 30 percent jump in excise taxes.

Domestic beer, accounting for about 17 percent of group revenues, saw a 2 percent drop in the number of units sold as drinkers, hit by higher energy and tax bills, cut back on booze. San Miguel's operations account for about 3.4 percent of Philippine gross domestic product and contribute about 5.6 percent of state tax revenues. ($1 = 51.2 pesos)

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