050907: SMC to spin off beer, packaging units, sets IPO

By Zinnia B. Dela Peña
The Philippine Star 05/09/2007

Food and beverage giant San Miguel Corp. (SMC) is spinning off its flagship domestic beer and regional packaging businesses in preparation for an initial public offering (IPO) to raise funds for new ventures and boost growth, the company said in a statement yesterday.

SMC said its board of directors approved yesterday the listing of San Miguel Beer Domestic, which will become a wholly-owned subsidiary of the group in partnership with Japan’s Kirin Brewery Ltd. with a 20 percent stake. Kirin has been a strategic investor of SMC since 2002.

"We are excited about our plans for driving San Miguel’s long-term growth in our core and new businesses through our strategy of portfolio transformation. We are confident these steps will create more value for our shareholders," said Eduardo Cojuangco Jr., chairman and chief executive officer of SMC. Earlier, SMC confirmed it is looking at entering the mining, power, infrastructure and utility sectors to reignite growth after saturating its core home market.

This will be presented to stockholders for their approval at the company’s annual meeting on July 24.

SMC president and chief operating officer Ramon S. Ang, for his part, said: "We believe that stand-alone domestic brewing and packaging operations will enhance our companies’ ability to compete more effectively in their industries. An IPO would raise for each business much needed equity and allow it to grow faster and partner more effectively with other world class players like Kirin and Nihon Yamamura Glass."

The company also sought board approval for its beer business to enter into a strategic partnership with Kirin.

Ang added that the move will provide both the beer and packaging businesses the financial flexibility and operating muscle that will boost operations moving forward.

"We are looking to unlock the potential and underlying value of the entire San Miguel Group. This is something we have been looking at for some time now and with this spin-off, we reach another milestone in our long-range plan to transform San Miguel into a more disciplined, high-performing company," Ang pointed out.

Last April 27, SMC signed an agreement with long-time joint venture partner Nihon Yamamura Glass to sell its 35 percent stake in its domestic and international packaging business.

Also approved by the board is an increase in its capital to 7.5 billion shares, equivalent to P37.5 billion pesos, from the existing P4.5 billion to raise funds for investments as well as pay debt and finance a possible share buyback.

This will allow SMC to issue 1.5 billion preferred shares as part of the capital raising exercise. In 2005, the company sought a waiver for the shareholders’ pre-emptive rights on the "issuance of any class of preferred shares related to equity-linked or other securities, for property needed for corporate purposes."

Meanwhile, SMC announced that its first quarter net profit more than doubled to P4.33 billion, boosted by gains from the sale of its stake in softdrinks and bottler unit Coca-Cola Bottlers Philippines Inc. Excluding the revenue contribution from CCBPI, SMC’s sales revenue rose seven percent to P55.4 billion while consolidated operating income fell 24 percent to P3.8 billion as external factors continued to affect the performance of its hard liquor unit Ginebra San Miguel Inc. In addition, SMC said its packaging company suffered from the cyclical downtrend for glass bottle requirements while Australian dairy giant National Foods Ltd. absorbed cost increases as a result of the continent’s prolonged drought. SMC’s domestic beer division reported a 13 percent rise in operating income to P2.7 billion as raw material and fuel prices declined.

Revenues amounted to P10.5 billion. International beer operations, on the other hand, recorded a two percent growth in volumes with corresponding sales revenues of $68.3 million.

North and South China operations together with Vietnam, Australia, Thailand, and export volumes outpaced last year’s performance as a result of more focused selling programs at the outlet level. The San Miguel Food Group posted consolidated sales revenue of P14.7 billion and an operating income of P540 million.

National Foods, meanwhile, generated revenues of AU$496 million, 12 percent higher than last year with volume improvement achieved in all categories.

 

http://www.philstar.com/philstar/news200705090701.htm