According to a recent report, Philippine food and beer conglomerate San Miguel Corp. said it was on track to record strong growth in net income this year despite possible lower earnings from Coca-Cola…
According to a recent report, Philippine food and beer conglomerate San Miguel Corp. said it was on track to record strong growth in net income this year despite possible lower earnings from Coca-Cola Amatil, in which it has a stake. But analysts said C-C Amatil“s impact cannot be totally ignored. Also, problems faced by C-C Amatil with its Philippine operations, and the resulting weak market sentiment in its shares, will make it doubly hard for San Miguel to divest from the Australia-based soft drink bottler, they said. San Miguel expects to record a year-on-year increase of over 80% in its recurring net income in 1999 at Pso 6 billion (A$ 147.42 million) even with a weaker contribution from C-C Amatil, Ramon Ang, San Miguel vice chairman, said. The company“s estimated net income is in line with most forecasts, analysts said, adding the estimates had already factored in lower equity earnings from C-C Amatil. “We“ve mostly downgraded the contribution from Amatil this year to Pso 1.150 billion from Pso 1.2 billion in 1998. It does mean a slight downgrade to San Miguel“s…overall earnings,” said Xen Gladstone, research head of ING Baring Securities Phils Inc. C-C Amatil said it expects a net abnormal charge of about A$ 70 million this year from a restructuring of its Philippine operations, although it said 1999 net profit will still be higher than 1998“s A$ 179.3 million pre-abnormal net. But San Miguel is unfazed by C-C Amatil“s woes, the report said. It expects operating income in terms of earnings before interest, tax, depreciation and amortization to come in this year at Pso 13.8 billion, Ang said. San Miguel recorded operating income of Pso 4.097 billion in 1998. “We have already foreseen this loss,” Ang said. “That“s why we“ve been wanting to get out.” San Miguel is C-C Amatil“s second largest shareholder with a 21.5% stake. The Coca-Cola Co. owns 37%. But getting out of C-C Amatil at the right price will be difficult for San Miguel after C-C Amatil“s share price fell almost 9% to A$ 4.60. “It will be very difficult for them to sell, they will be stuck with this investment at this point,” said Jeanette Yu-Tan, an analyst at Securities 2000 Inc. Divesting C-C Amatil is still an option San Miguel wants to keep but it can afford a further delay since it still has a cash hoard of Pso 45 billion at the end of September lying idle. “The company (San Miguel) is under no urgent cash demand. It has plenty of cash and the bigger problem they face is they can“t find an asset to buy,” Gladstone said. San Miguel tried to sell its stake in C-C Amatil in September but backtracked when institutional advisers could only garner A$ 5 a share for the parcel. “It should make little change. If before they weren“t prepared to accept this sort of valuation when they didn“t need the cash, there is no reason in my mind why they will accept it now,” Gladstone said. In hindsight, San Miguel“s decision to sell its stake in Coca-Cola Bottlers Philippines Inc to C-C Amatil in 1997 was a wise decision, analysts said. San Miguel took the stake in Amatil in exchange for its 70% stake in Coca-Cola Philippines. “The losses to Amatil are coming from the Philippine level and San Miguel got out of the Philippine operations to get into Amatil. It doesn“t look to be that bad a decision,” Gladstone said. C-C Amatil said it expected sales volumes from the Philippines would be down 10% in 1999, while full-year margins would be significantly below the 10.2% figure in the first half. The Philippines was C-C Amatil“s biggest market in 1998, contributing A$ 169.6 million profit at the pre-tax operating level, but this fell to A$ 57.9 million in the first half of 1999.