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The Food Manufacturing Industry in the Philippines is the largest subsector of the
manufacturing sector. The volume of production index in the food-manufacturing
segment rose by 15.3% year-on-year in March 2016, according to data released in May
by the Philippine Statistics Authority (PSA).
There are several categories of processed products based on NSO's Family
Income and Expenditure Survey (FIES). They range from cereal preparations, meat
preparations, fish and marine products, dairy products and eggs, fruit and vegetable
preparations, non-alcoholic beverages, alcoholic beverages, and other food commodities
not elsewhere classified (e.g. sugar products, sauces, condiments, cooking oil, etc.).
Pure Foods was founded in 1956 by a group of leading businessmen who put up a
one-building, one-kitchen food facility in Mandaluyong to produce hams, bacon and
sausages. It went on to produce quality meats that became household names. Several
years later, Hormel Foods International acquired substantial interest in Pure Foods, giving
the company exclusive rights to market Hormel products in the country.
San Miguel Corporations acquisition of Pure Foods in May 2001 brought
together these two food industry leaders, ushering in a new era of growth and market
leadership of the integrated businesses. Having the strongest portfolio thats home to the
countrys most recognized brands Magnolia, Monterey, Purefoods-Hormel, Dari
Creme, Star, San Mig Coffee, San Miguel Mills, B-Meg, Great Food Solutions - has
allowed it to develop strong brand recall and consumer loyalty as they maintain the
highest quality and safety standard for their products and services, San Miguel Pure
Foods has products that changes alongside their evolving consumers.
The Philippines is a member of the World Trade Organisation (WTO), AsiaPacific Economic Cooperation (APEC). Under the ASEAN-Australia New Zealand Free
Trade Agreement (AANZFTA) New Zealand exporters have reduced tariffs on
agriculture products and beef, meat and livestock tariffs were eliminated in 2012.
Under a current two tariff policy, agricultural products such as sugar, potatoes, onions,
garlic and coffee are subject to tariff-rate quotas. All imports are subject to value added
tax of 12 percent and must be registered with the Philippines Bureau of Food and Drugs
(BFAD). Generally food regulations are based on guidelines from the Codex
Alimentarius Commission. All food imports must satisfy the Hazard Analysis and Critical
Control Point (HACCAP) standards. Added to that, the Republic Act 10661 of the
Philippines is an act to strengthen the food safety regulatory system in the country to
protect consumer health and facilitate market access of local foods and food products,
and for other purposes.
PLAYERS IN THE INDUSTRY
Food manufacturing, which includes food and beverage processing, remains the
Philippines most dominant primary industry. The industry is worth a gross added value
of more than $2 billion and grew by 3.2 percent in 2007. The Philippines Bureau of Food
and Drugs Statistical Report of Establishments for 2004 lists a total number of 11601
food-processing establishments nationwide.
A single proprietor that is common among micro, cottage and small industries
owns most of the companies. There are a few large multi product firms, some of which
operate in partnership or as a subsidiary of foreign or multinational companies. Unlike
some other countries in the regions where multinationals dominate food sales, local
companies such as San Miguel, RFM Corporation, Universal Robina Corporation and a
few others dominate some sectors of the market or compete equally with foreign players.
The industry contributes approximately 20 percent of Gross Domestic Product
(GDP) per annum. Domestic processors continue to face numerous challenges, including
one of the highest energy costs in Asia, the need for improvements and innovations in
technology and packaging in order to become more globally competitive, insufficient
post-harvest and storage facilities, and inadequate farm-to-market transportation
infrastructure. There has been considerable improvement, particularly for the bigger
companies whose financial capabilities are able to support expensive capital
outlays. Some companies have qualified and are ISO certified. However, there is still a
significant percentage of Small to Medium Enterprise (SME) processors, especially in
provincial areas.
There are companies whose services or work would complement in focus and
would add to the value of the industry. Such as;
1. CDO Food sphere, Inc.
- A firm philosophy of CDO Food sphere, Inc. is that, quality goes hand in hand
with technology. In order for them to constantly give the top shelf products to
their customers, they constantly invest in the latest technological
advancements. With the most creative minds at the controls of these state of
the art equipment, only then will superior standards be met and released to the
-
public.
Through CDO Food sphere, Inc.'s advanced continuous cookers; they are able
to produce tons of hotdogs per line per hour. A host of other highly
complicated machineries also produce heaps and loads of canned meat and
fish per month. They also utilize a unique emulsification system which
The company also coordinated with other firms in order to expand its grasp around the
country:
San Miguel Purefoods Corporation was looking to bidding in for British snack and
cookie maker United Biscuits Ltd., because they were planning to diversify their food
COMPANY
San Miguel Purefoods Inc.
Foodsphere, Inc.
Pacific Meat Co., Inc
Pampangas Best, Inc
Total/Summary
GROSS REVENUE
18,870,000
10,832,000
3,133,000
1,754,000
34,590,000
In a data shown by the Business World on top 1000 corporations, they valued the
Food Manufacturing Industry based on gross revenues of the companies that are under
the top 1000 corporations. Later on, you can see that the gross revenue presented in the
table for the San Miguel Purefoods Inc., is a way lower than that is presented in their
annual report. The reason behind it is that some of the subsidiary companies of San
Miguel Purefoods did not qualify to be part of the top 1000 corporations.
and regulatory and resource constraints may limit the number of companies that have the
internal resources to manage supply volatility, food safety and regulatory requirements.
Access to approved suppliers will become more difficult; dedicated supply systems will
be required to assure adequate supply and manage costs in a volatile environment. To win
the competition between supply systems, successful companies will need to ensure that
their sources of supply are robust; theyll need to develop strategic partnerships with
suppliers that have the tools, resources, and agility to manage industry, climate and
regulatory changes.
Food and beverage manufacturing is an important component of the Philippine
economy. In 2009, gross value added in food manufacture industry reached 903.7 billion
at current prices, contributing 58% of total manufacturing output and 12% of the
countrys gross domestic product. The industry has generally grown over the past 5 years,
with real growth of 4.8% per year. The factors of this growth include the increasing
demand for convenience, fast-paced and changing lifestyles, as well as the changing retail
and distribution landscape.
Human resources personnel are charged with legally, fairly and effectively managing
employees to enable the company to realize a solid return on its investment in its
workers. Quality control, well-documented food safety and cleanliness procedures and
comprehensive training programs are critical in the food industry.
A food processing plant has quality control compliance requirements that make it
necessary to hire employees with a specific educational background or professional
qualifications.
Long-term training plans focus on more than simply ensuring employees know how
to do their assigned jobs properly. Long-term, ongoing safety training and safety training
refreshers not only helps reduce workers compensation insurance costs but also displays
a commitment to protecting a valuable business asset.
Quality control training helps the business uphold food quality standards and federal,
state and local regulations.
The food industry has seen a huge shift in innovation over the past decade. New
trends in the marketplace, with enhanced consumer awareness of additives and health
concerns, have forced companies to adapt and develop new methods in food science and
technology to remain competitive. Food processing and manufacturing facilities have had
to improve existing equipment or lines in order to be more versatile and fluid in order to
retain their global footprint and product diversity.
Crucial to survival
Fast changing environment
Continuous technology change
Competition
Changing consumer preferences
Fundamental to marketing
supporting efficiencies
Drive new businesses and opportunities
Broaden and deepen technological capability for long-term benefits
San Miguel Purefoods is one of the leading consumer companies in the Philippines. It
is 85% owned by the San Miguel Corporation. Its portfolio of brands include several
leading brands like San Miguel Tender Juicy Hotdogs, Magnolia, Monterey Meat Shop,
Star Margarine, B-Meg Feeds, and many others. They have created many new products in
the last few years and new products (3 years or less) has accounted for 10% of branded
foods revenues. Some of these new products are Pure Foods chicken nuggets (which taste
like McDonalds Nuggets) and Pure Foods ready to cook chicken (which tastes like
Jollibees chickenjoy, the leading fast food chain in the Philippines).
Figure 2 shows how large is the company in terms of annual sales and total assets
Figure 2.
For the year
2015
2014
2013
Revenues
106,860,238
102,999,401
99,772,930
Total Assets
61,037,547
66,654,955
72,844,280
As of 2015, San Miguel Purefoods Company Inc. ranks number one with the
highest amount of total operating revenue of 106,860,238 and Return on Assets of 0.06
as of 2015 outnumbering all of its competitors including Swift Foods Inc. with the
revenue of 44.88 and ROA (Return on Assets) of -0.05.
To show the profitability of the company, figure 3 shows the trend in the annual
net income and sales over the past three years.
Sales
2013
99,772,930
5,596,038
4,083,835
2014
102,999,401
5,675,935
3, 843,475
2015
106,860,238
6,968,678
4,752,032
As you can see the given amounts in the table, as of 2013 there was an increased
on the sales because San Miguel Pure Foods has allowed it to develop strong brand recall
and consumer loyalty as they maintain the highest quality and safety standard for their
products and services.
The gross profit in year 2014 was decreased by 0.38% but for year 2015 it
increased by 1.4% from gross profit margin of 19.89% for 2014 to 21.29% in year 2015.
The total operating profit for year 2014 was 6,462,844, which results to a 6.27%
operating profit margin. The percentage of operating profit margin from year 2013 to year
2014 was increased by 0.75%. In year 2015 the total operating profit was 7,643,992,
which was divided to 106,860,238 to arrive at operating profit margin of 7.15%. This
shows an increase of operating profit margin for 2015.
In terms of pretax profit margin and net profit margin, the percentage decreased at
2014 but in year 2015 it will increase again. This shows that the profitability in year 2014
decreases but then the profitability will rise again at 2015.
In year 2013 the net income percentage of sales amounted to 4.09%, which shows
a decrease of percentage from the margin of 2012 by 0.36%. There is also a decrease in
year 2014, from 4.09% in 2013 to 3.73% in 2014. The net income percentage in year
2015 was increased by 0.72% from 3.73% in 2014. This shows that 2015 was the most
profitable year compared to 2013 and 2014 because there is always an increased in its
margin and the net income for year 2015 was the highest compared to year 2013 and
2014. The trend of sales and profits during year 2013 shows an increase in sales but a
decreased in profit. In year 2014 the sales increased by 3,226,471 but a decreased in
profit by 240,360. For 2015 there was an increase in sales and profit from the amounts in
2014. The trend of sales show that every year there was an increase of sales and for profit
a decreased in 2013 and 2014 but at year 2015 the profit increased again.
In mid-May San Miguel Pure Foods -- a subsidiary of food, beverage and packing
conglomerate San Miguel Corporation -- reported a 34% hike in year-on-year income,
posting earnings of P1.21 billion in the first three months of the year. Another unit of the
corporation, San Miguel Brewery, saw its earnings increase by 23% to P4 billion on the
back of rising demand
To further show the worth of the company comparisons and movements of the
stocks price from the Philippine Stocks Exchange Index and from San Miguel Pure Foods
Company Inc. for the past three months are shown in figure 4 and figure 5.
Pure Foods has always been paying Php1.2 per share every quarter. This is very
small compared to earnings (around 21% of earnings). With the stock trading at very
cheap valuations, management also wants to unlock value and a simple change to a
percentage of income might trigger a significant re-rating on the stock. A standard 40%
payout ratio will translate to a 5.6% yield and this puts San Miguel Pure Foods in the top
tier dividend companies in the Philippines should it play that card.
As of September 01, 2016 at 3:00 PM San Miguel Pure Foods Co. Inc. (PF) is
selling its stock at the range of Php 220.00.
Purefoods stock price opened at Php 222 and its previous close is Php 222 as of August
31, 2016
According to the stock exchange websites like Philippine Stock Exchange and the
Wall Street Journal the percentage change of PFs stock price is at -.90% or -2.000 points
At the most fundamental level, the demand for their stock came up starting
January 27, 2016 which had a stock price of Php 127 and constantly rose up to todays
price of Php 220. According to the Philippine Star, San Miguel Pure foods Co. Inc.
earnings rose up to 24% or Php 4.8 billion last year, with consolidated revenues rising up
to 4% or Php 104 billion with an increase of 18% or Php 7.6 billion from operating
revenues, they even mentioned that higher volumes, better selling prices, new products,
and improved distribution fueled their growth, also in a recent press release SMPFC
along with its subsidiaries sustained a strong performance during the first six months of
operation in 2016, which was mainly driven by its Branded Value-Added and Agroindustrial businesses; consolidated sales revenue amounted to Php 53.2 billion which is
5% higher than in 2015, which was driven mostly by election related spending. Their
operating income and net income rose 31% and 37% or Php 3.6 billion and Php 2.5
billion respectively. This explains why its stock prices increased in the past 6 or 7 months
because investors are willing to spend their money for a part of the share of the
companys earnings.
The fact that the price moved because of its earnings still, there is other factors
that influence its stocks.
A firm has an advantage to its competitors if it is able to satisfy the needs of their
consumers by delivering products or services at a lower cost without sacrificing its
quality. Also, it is an advantage to the firm if it is able to differentiate itself from others.
The prominent generic strategy that San Miguel Purefoods Inc. makes use of is a
broad differentiation strategy. A Broad Differentiation Strategy is a kind of differentiation
that ranges from products to services. Differentiation is a unique quality, perceived or
real, of a good or service that distinguishes it from competing goods or services. This
strategy is common among large firms that want to maintain and cover the whole market
in the business world. The companys integrated operations range from breeding contract
growing, processing and marketing of chicken, pork and beef to the manufacture of
refrigerated, canned and ready-to-cook meat products, butter, cheese, margarine, oils and
fats, as well as animal and aquatic feeds and food service. Such as Magnolia, Monterey,
Purefoods-Hormel, Dari Crme, Star, San Mig Coffee, San Miguel Mills, B-Meg, Great
Food Solutions - has allowed it to develop strong brand recall and consumer loyalty as
they maintain the highest quality and safety standard for their products and services.
There are three indicators for a successful differentiation strategy; 1) ability to
command a premium price for its product, 2) increase unit sales (because additional
buyers are won over by the differentiating features), and/or 3) gain buyer loyalty to its
brand (because some buyers are strongly attracted to the differentiating features and bond
with the company and its products) (Thompson, Strickland, & Gamble).
San Miguel Pure Foods Company Inc. is the largest and most diversified Food
Company in the Philippines with a vertically integrated farm-to-plate business model that
cuts across the entire food value chain. The Companys integrated operations range from
breeding, contract growing, processing and marketing of chicken, pork and beef to the
manufacture of refrigerated, canned and ready-to-cook meat products, butter, cheese,
margarine, oils and fats, as well as animal and aquatic feeds, and food service. It
integrates two outstanding food institutions, the San Miguel Food Group and Pure Foods
Corporation. Both have a rich history and a solid record of experience and expertise
spanning nearly six decades of market leadership in the food industry.
In Partial Fulfillment
Of the Requirements in
ACC08 Financial Management Part 1
INDUSTRY ANALYSIS OF THE SAN MIGUEL PUREFOODS COMPANY INC.
Submitted by:
Shainna De Guzman
Justine Mae Parale
Christian Andrew Perez
Dhanna Rivero
Amabelle Sison
Roshabelle Tuazon
Hana Carmela Valenzuela
Submitted to:
Dr. Jackqui R. Moreno, CPA, MBA
September 6, 2016