San Miguel profit dips as costs rise

MANILA - San Miguel Corp, southeast Asia's largest food and beverage group, said its quarterly profit fell more than 8 per cent as it felt the impact of higher raw material costs and interest payments.

Analysts said the second half would be more difficult for the Philippine-based company as the weak peso would raise costs of imported inputs and interest payments on a bigger debt pile.

Aggressive acquisitions -- particularly a US$1.5 billion ($2.15-billion) deal in April to take over Australia's National Foods (beating off New Zealand's Fonterra) -- are unlikely to deliver substantial contributions to the group's profits this year, they said.

"International operations which they expect to be a hedge against weak conditions domestically are not yet kicking in," said Jose Vistan, analyst at AB Capital Securities.

"At the moment, the expansion abroad is hurting the company in terms of financing charges," he said.

San Miguel -- owned 20 per cent by Japan's Kirin Brewery Co. Ltd. -- added a US$1.2 billion bridge financing facility to its debt load totalling 57.7 billion pesos ($1.5 billion) at the end of March to fund its purchase of National Foods, Australia's largest producer of fresh dairy products.

San Miguel, the country's most valuable firm with a market value of US$5.1 billion, earned a net profit of 2.07 billion pesos in the April-June quarter, according to Reuters' calculations, against 2.26 billion pesos a year ago.

It reported a net income of 3.85 billion pesos in the first half, down 3.7 per cent from a year earlier.

Full-year profit is expected to rise 7 per cent to 8.65 billion pesos from 8.08 billion in 2004, based on the mean forecast from six analysts surveyed by Reuters Estimates.

The estimate was revised down from 8.91 billion in May, before the company reported sluggish first-quarter profit growth, and from 9.3 billion pesos in February.

Group revenues grew 24 per cent to 101 billion pesos in the first half, San Miguel said in a statement, adding that international beer, packaging and the food group recorded substantial gains in the period.

International beer sales volume rose 12 per cent in the first half from a year earlier, with strong gains in Indonesia, China and Australia, San Miguel said.

The company did not disclose domestic sales volume, although beer revenues locally climbed 11 per cent to 20.44 billion pesos in the first half, driven by supply-loading by retailers in the first quarter prior to a price hike in February.

In the first quarter, beer sales revenue was 10.9 billion pesos with a 2 per cent rise in sales volume from a year ago.

The group's liquor unit Ginebra San Miguel and non-alcoholic arm Coca Cola Beverage Group posted huge falls in operating income -- 47 per cent and 66 per cent respectively -- as the two firms failed to match strong results in the first half of 2004, when election-related spending boost sales.

Australian juice maker Berri Ltd, 51 per cent owned by San Miguel, posted a 2 per cent rise in revenues in the first half to A$247.3 million, while operating income was flat.

San Miguel said on Tuesday it was keen on making Berri a wholly-owned unit by buying a further 49 per cent stake.

San Miguel -- whose operations make up 3.4 per cent of Philippine gross domestic product and contribute 5.6 per cent of state tax revenues -- is expanding overseas through acquisitions after dominating its home market for beer, soft drinks, liquor, poultry, dairy, and processed food.

Chairman Eduardo Cojuangco previously said San Miguel's profits would only grow 2 per cent a year if it limits its operations to the Philippines.

Before the earnings announcement, San Miguel B shares fell 0.5 per cent to close at 99.50 pesos on Thursday and its A shares exclusive to local investors were flat at 69.50 pesos.

San Miguel's A shares rose 7.1 per cent and its B shares climbed 15.3 per cent in the second quarter, outpacing the main index, which lost 1.6 per cent in the period.

- REUTERS