San Miguel's strategic directions
By Tony Lopez
AFTER gobbling up companies in the past five years, San Miguel Corp. needs time to digest what it has eaten. SMC Chairman and CEO Eduardo Cojuangco Jr. defines that as sustainability.
“If 2005 was a year of acceleration, 2006 will be one of staying the course,” he told stockholders last Tuesday during a jampacked annual meeting. “What you are going to see from us going forward is San Miguel sustaining its current growth and giving you dependability and reliability in our results,” he explained.
“Sustainability is a hard thing to deliver, “ he pointed out. “Achieving it will make all the difference to whether San Miguel will be around for the next few decades and will be as strong in the future as we are at present.”
Early on in 1998, San Miguel, under the new management team of Chairman Cojuangco and President Ramon S. Ang determined that San Miguel is a food company, not just a brewery or a packaging company. And not just a food company but one that is one among the ten largest in Asia in sales. To achieve that, Ang set what he himself called a brave and insane target—$10 billion in revenues by 2008.
You cannot quintuple revenues from $2 billion to $10 billion in less than five years by just relying on beer, volume sales of which was down last year. Instead, you buy other companies, using SMC’s tremendous goodwill.
Thus, in 1998, SMC divested itself from its interests in Nestle Philippines and Coca-Cola Beverage PLC of Europe. It then bought Metro Bottled Water for P1.4 billion in 1999, Sugarland Beverage for P2.9 billion and J. Boag and Son of Australia for $54 million in 2000; reacquired Coca-Coca Bottlers Philippines, Inc. for $1.2 billion, acquired Purefoods for P8 billion and Cosmos for P14.1 billion in 2001.
In 2002, SMC entered into a strategic partnership with Kirin which initially bought 15 percent of SMC for P39 billion. The Japanese brewer later increased its equity to 20 percent, becoming the single largest corporate stockholder. In 2003, SMC acquired hogs and feeds company TTC Vietnam for $35 million; in 2004, bought Thai Amarit beer for $102 million and Australian juice leader Berri Ltd for $120 million, and entered into joint ventures with Thai Lie for liquor and Super CoffeeMix.
In 2005, SMC snatched 100 percent of Australia’s No. 1 dairy company National Foods Ltd for $1.8 billion and merged it with Berri. It also bought Guolene Packaging of Malaysia. This year, the food and brewery giant bought 42 percent of Del Monte Pacific, thru Nutri-Asia Pacific and Australia’s Lactos, a company which has the technology to preserve cheese for as long as one year.
The result of all those acquisitions is a dramatic 30 percent jump in 2005 revenues to P226.7 billion, making SMC the Philippines’ largest company. However, because of borrowings to finance its acquisitions, net income amounted to only P9.03 billion, up two percent.
Meanwhile, explains Danding Cojuangco: “We [have] raised the underlying sales growth of our leading brands, reshaped our business portfolio and successfully integrated the largest acquisitions we have ever made. In part because of the National Foods and Del Monte Pacific acquisitions, we made great headway on key strategic priorities: diversifying and accelerating the shift in our portfolio toward branded product categories and geographies in which we can leverage both sustainable competitive advantage and scale.”
Majority of the businesses made great progress in 2005, he said, and “we see that each of them will further improve as we head into the second half of 2006.” “We are just getting started,” Cojuangco said.