Executive summary

introduction Economic condition

With the fluctuations in activities that an San

economy
Miguel
experiences
Corporation
overtime,
(SMC) The Philippine economy has On the supply side, the service sector
businesses and industries will eventually have
intends
to take
to identify
their toll.
which
Companies
businesses grown at rates surpassing the constitutes over 56.7% of the total GDP in
will undergo bankruptcy, competition becomes
are contributing
too hard tothe
meet,
least market
value to majority of its ASEAN since 2016, with the information technology and
shares will decrease, legal pressure increases,
theirdemand
overall for
group
funds operations.
increases, 2012. The economy can be business process outsourcing (IT-BPO) industry
units become non-essential and with resources
Industries
being limited,
under SMC,
companies
e.g., will
food, analyzed in two perspectives: being a major contributor. The sector employed
have no resort but to give up these units beverages,
for a better purpose - to
packaging,
regain the demand side and the supply a great number of people, helping the
focus on its core business. This process of selling
infrastructure,
off peripheral
fuel and
businesses
oil, power,
is side. employment rate grow. As a result, this industry
most commonly known as divestment or divestiture.
and properties, will have to be has significantly contributed to the increasing
assessed to identify a potential On the demand side, private disposable income per capita, ultimately
divestible business segment. consumption continues to be leading to greater buying power.
the main driver for growth for
2016, with expenditure on food The countrys current growth is however at risk
and non-alcoholic beverages of Government slow and cautious spending.
being the largest of all The slow spending helps prevent the misuse of
expenditures. Within private funds as seen in the previous administration,
consumption, the population but in turn, drags down economic growth. But
size, consumer confidence, and despite these risks, both local and international
OFW personal remittances have confidence have continued to be strong
been fueling dominance in the because of sound macroeconomic
economy. fundamentals.
 Executive summary
recommendation
In line with San Miguel Corporations mission of
enhancing the value of their established businesses
there is a need for closer inspection of each business
segment to evaluate whether each are growing
holistically and adding value to the company.
However, the teams research and analysis found out
that there are serious problems encountered by San
Miguel Super Coffeemix Co., Inc. (SMSCCI) that has
been going on for the past years, thus the team
considered SMSCCI a candidate for divestiture.
Industry players
Coffee is popular among Filipinos and has cut-across
appeal among virtually all socioeconomic classes.
Composed of instant coffee, coffee mixes and ready-
to-drink coffee segments, the local coffee industry is
still dominated by Nestle, the market leader in almost
all coffee sub-categories. Another key player is
Tridharma Marketing Corp., maker of Kopiko and
Universal Robina Corp., maker of Great Taste. SMPFCs
coffee business under SMSCCI is currently in fourth in
terms of market share in the coffee mix segment
 overview of the conglomerate

SMC Global Power Holdings Corp. and subsidiaries 100% energy

OWNERSHIP packaging
beverages
*
6% 4%
San Miguel Brewery Inc.
51.1
2 65% San Miguel Yamura Packaging
Corporation and subsidiaries, SMC
and subsidiaries O W N E R S H I PYamura Fuso Molds Corporation and

6%
OWNERSHIP Can Asia, Inc.

78.2 65%

%
Ginebra San Miguel Inc. San Miguel Yamura Packaging
and subsidiaries International Ltd and subsidiaries

25
7%
OWNERSHIP OWNERSHIP

other assets and investments 60% San Miguel Yamura Asia

Corporation
OWNERSHIP

9%
San Miguel Properties, Inc.
and subsidiaries
99.94 100% Mindanao Corrugated
Fibreboard, Inc.
%
OWNERSHIP

70%
OWNERSHIP
SMC Shipping and Lighterage
Corporation and subsidiaries
OWNERSHIP
% food
infrastructure 11 2 5
%
85.37
San Miguel Holdings Corp.
100% 100% Fu e l
%
OWNERSHIP
and subsidiaries
OWNERSHIP and oil San Miguel Pure Foods Company
OWNERSHIP
Sea Refinery Corporation Inc. and subsidiaries

*Contribution by
EBITDA
San Miguel brewery inc.

Brewery properties, inc.

Iconic beverages, inc.

San Miguel brewing international ltd

Ginebra san Miguel inc.

and subsidiaries

Ginebra san Miguel inc.

Distileria bago, inc.

East pacific star bottlers phils. Inc.

Healthy condiments, inc.

Agricrops industries, inc.

Crown royal distillers, inc.

Ginebra san Miguel holdings international,

ltd.

Siam holdings, ltd.

Ginebra san Miguel international, ltd.

Global beverage holdings ltd.

San Miguel pure foods Smc global power holdings
company inc. corp.

San Miguel foods, inc. San Miguel energy corporation

San Miguel mills, inc. South premiere power corp.

magnolia., inc. Strategic power devt. Corp.

The purefoods-Hormel company, inc. Powerone ventures energy corp.

San Miguel super coffeemix co., inc. Smc powergen inc.

Smc consolidated power corporation

Realsnacks mfg. corp.

San Miguel pure foods San Miguel consolidated power corporation

international, limited

Limay premiere power corp.

Pt san Miguel pure foods, indonesia

San Miguel electric corp.

Smc power generation corp.

Albay power and energy corp.

Mantech power dynamics services inc.

Safetech power services corp.

Central Luzon premiere power corp.

49
Mariveles power generation corporation
%
Grand planters international, inc.

ondarre holding corporation

packaging

San Miguel foods, inc.

 San miguel super
C o ff e e m i x Co., inc.

a 70%-30% joint venture between the Company and

Super Coffeemix Manufacturing Ltd (SCML) of
Singapore, introducing a good number of
products, which include a sugar-free line
of coffee mixes, instant coffee,
and coffee mix
with cereals.

value chain
Importation
of
Coffee Repackin
Mixes g of Warehousing, Marketin
From SCCPL Coffee hauling, and General
g and
in Mixes as delivery inquiries
Sales,
Singapore, part of activities by and
with the
SCML Value- third party Custome
use of
(Thailand) added logistics r Care
SMIS to
Company business providers Services
penetrat
Ltd. and es of the e
Super company. tertiary
Coffeemix channel.
Vietnam
Ltd. (SCVL)

Human Resource Management

General Administration

Research and Development

 Industry players

Others
the exclusive national distributor of PT 9.00%
Mayora Indah in the Philippines in
November 2005. Product lines are
tridharma confectionaries, black coffee, brown
coffee, candy and cereal drinks.
Marketing coproration

Instant Coffee
White Coffee Mix 19.00%
40.00%
a large-scale, well-known
international food manufacturing
corporation engaged in the
manufacture of instant coffee, milk,
and ready-to-cook noodles. It is
among the Philippines' Top 10
nestle Corporations. Its products are No. 1 or
philippines No. 2 brands in their respective Original Coffee Mix
categories. 19.00%

a dominant player with leading

market shares in Savory Snacks,
Candies and Chocolates, and is a Brown Coffee
13.00%
significant player in Biscuits, with
leading positions in Cookies and
Pretzels. URC is also the largest Coffee market: segmentation
player in the RTD Tea market and Cup
universal robina Noodles business and is a respectable and its leaders
corporation 2nd player in Coffee business.
 Industry segmentation

Davao Region Tridharma

20.70% Other Regions
SMSCCI and others 23.00%
22.70%
4.00%
URC
30.00%

AR

ARMM
18.50%

SOCCSKSARGEN
38.10%
Nestle
43.00%

Geographical segmentation Market share

The food safety

The foods, drugs and devices, The consumer act The price act Tax reform for acceleration
act of 2013 and
and cosmetics act In cases of calamities,
Under this law, food business operators The Consumer Act provides for
emergencies, illegal price
inclusion (Train) bill
are charged with certain responsibilities Pursuant to the FDDC Act, food manufacturers minimum labeling and packaging
are required to obtain a license to operate as requirements for food products to manipulation or when the Includes the proposed excise tax
to prevent, eliminate or reduce risks to
such. The law further requires food enable consumers to obtain accurate prevailing prices have risen to on sugar-sweetened beverages
consumers. They are further
information as to the nature, quality, unreasonable levels, it is the (SSBs). Once the proposed
encouraged to implement a Hazard manufacturers to obtain a certificate of product
and quantity of the contents of food President of the Philippines who additional tax is applied, a 3-in-1
Analysis at Critical Control Points-based registration for each product it sells in the
products available to the general can impose a price ceiling on basic coffee sachet, currently priced at
system for food safety assurance in their market. public. necessities and prime P5, will be P8.
operations.
 Threat from new
B ARGAIN IN G Po w e r entrants
of buyers
a. Moderate threat of new entry:
a. Low Buyer power i. Regulations for entry of coffee
i. There are many buyers in products are not strict although
the market as coffee is there are requirements for
the #2 most demanded compliance as it is part of the
beverage food industry
ii. SMPFC and its ii. Since there is an increasing
subsidiaries taken as a demand for coffee which cannot
whole is not dependent be met by the current local
on a single customer or a supply, companies who would
few customers. like to enter the industry will be
iii. There is low cost for Competitive forced to turn to foreign
buyer to switch from one rivalry suppliers. The capital outlay to
supplier to another, enter the industry is very high.
especially since San iii. Profitability of the industry
Miguel coffee products attracts many competitors
are more expensive than
other brands
B AR GAIN IN G Pow er
Threat of substitution of suppliers
a. High supplier power
i. Essential processes and raw materials are dependent on limited suppliers
namely SCCPL, SCML and SCVL. Inability of these suppliers to deliver their
services will render the company unable to sell their products.
a. High threat of substitution ii. There were no plans mentioned on new products to be developed. Last
i. Close substitute goods exist in the market such as energy drinks, innovative product was released a year ago.
iii. There was a decline in sales volume and revenue due to phasing out of
tea and other alternative caffeinated drinks.
slow variants.
ii. Since the company has limited suppliers, its competitors have the iv. The cost of switching from one supplier to another is high since SMSCCI is
advantage of using advanced and various processes. the importer for repacking and distribution of coffee mixes from its
suppliers.
 Tridharma Nestle SMSCCI URC Tridharma Nestle SMSCCI URC
Activity Ratio Profitability Ratio
Inventory Turnover 10.404 4.872 1.771 4.736 Gross Profit Margin 8.37% 43.74% 23.53% 32.32%
Fixed Assets Turnover 0.761 8.123 28438.080 2.808 Operating Profit Margin 2.26% 18.26% -24.45% 15.93%
Total Assets Turnover 2.673 2.986 1.110 1.156 EBT Margin 0.62% 18.05% -26.46% 15.37%
Accounts Receivable Turnover 11.183 20.451 14.435 14.577 Net Profit Margin 0.38% 12.82% -29.59% 11.47%
Ave. Collection Period 32.191 17.603 24.940 24.697 Return on Total Assets 0.010 0.383 -0.329 0.133
Return on Equity 6.67% 222.90% 168.40% 20.60%
Book Value per Share 182.850 0.293 -0.010 29.961
Liquidiy Ratio Earnings per Share 12.148 0.678 -0.010 5.732
Current Ratio 115.49% 70.67% 54.67% 229.73% Payout Ratio 93.66% 105.69% 0.00% 52.34%
Quick Ratio 100.12% 29.80% 34.77% 146.63% Price-Earnings Ratio
Cash Ratio 7.69% 1.20% 2.61% 88.35%
Leverage Ratio
Solvency Ratio Equity Ratio 15.92% 17.03% -42.56% 137.36%
Debt-to-Equity Ratio 528.18% 487.28% -334.97% 69.44% Debt Ratio 84.08% 82.97% 142.56% 40.98%
Long-term Debt to Equity 4.24% 14.33% -0.44% 37.75% Interest Coverage 0.869 81.799 -12.052 13.116
Financial Leverage 6.551 5.822 -5.125 1.554
 fi n a n c i a l s t a t e m e n t a n a l y s i s
Activity Analysis
The speed with which a company
can sell inventory is a critical
measure of business performance.
Wholesalers are expected to have
a high inventory rate because the
very nature of their business
requires them to distribute
inventories a lot of times during
the year. San Miguel Super
Coffeemix Co. replenished its
inventory only twice a year,
having the lowest inventory
turnover rate among the key
players in the coffee industry.
Liquidity analysis
Universal Robina Co. has a
229.73% current ratio,
followed by Tridharma
Marketing Co. with 115.49%,
Nestle Phil. with 70.67%, and
SMSCCI with 54.67%. Although
URC is the most liquid among
the key players, its quick ratio
is significantly lower than its
current ratio by 36.17%. This is
because URC puts a higher
dependence on its inventories
making up 33% of its current
assets.
 Fi n a n c i a l s t a t e m e n t a n a l y s i s
solvency analysis
Tridharma Marketing Co. has a
debt-to-equity ratio of 5:1 or a
528.18% percentage of debt
over equity. The lowest debt-
to-equity ratio among the key
players, URC, has a 0.69:1
ratio or a 69.44% percentage.
SMSCCI has -334.97% debt-to-
equity ratio because of its
negative equity. URC, although
lowest in debt-to-equity ratio,
has the highest long-term
debt-to-equity ratio (37.75%).
This high ratio indicates more
business risk for URC because
it must meet principal and
interest on its obligations.
p r o fi t a b i l i t y
analysis
Nestle, having an operating profit margin of
18.26%, tops the other key players in the
market. It is followed by URC with 15.93%,
Tridharma with 2.26% and SMSCCI with the
lowest ratio of -24.45%. Despite its substantial
gross profit margin, SMSCCI has a negative
return on assets which is equal to -3.29%. This
results from large amount of expenses. Nestle,
on the other hand, has the highest return on
assets with 3.83% followed by URC with 1.33%
and Tridharma with 1%. The return on equity of
Nestle, which is 222.90 %, indicates that the
entity had a great amount of income. While that
of the Tridharma, which is 6.67%, the lowest,
shows that the entity had low income. This is
proven by its low gross profit margin. SMSCCI
and URC are in the middle with 222.90% and
20.60%, respectively. In terms of Earnings per
share, Tridharma shares earn the most with
P12.148 per share. URC follows Tridharma with
P5.732 per share. Next is Nestle with P0.678 per
share. SMSCCIs earning per share is P-0.10.
Since it did not declare and pay dividends,
SMSCCI has no payout ratio, i.e.,0% . Nestle has
the largest payout ratio which is 105.69%,
followed by Tridharma, 93.66% and by URC with
Leverage
ratio
URC has the largest equity ratio of
137.36% followed by Nestle 17.03%,
then by Tridharma with 15.92%.
SMSCCI has the smallest equity ratio of
-42.56% because of its negative equity.
As to debt ratio, SMSCCI has the
highest rate of 142.56%, implying that
the entity has larger amount of
liabilities than its assets. URC has the
lowest debt ratio equal to 40.98%.
While Tridharmas and Nestles ration
differ by small amount with 84.08%
and 82.97%, respectively. The interest
coverage ratio of Nestle, which is
81.799:1, shows that it can pay the
interest payables of its outstanding
debt. It is followed by URC with
13.116:1 and Tridharma with 0. 869:1.
SMSCCI, because of a negative EBIT,
has a negative interest coverage ratio
of -12.052:1.
 Analysis of Competitor
Nestle transformed from a manufacturer
into a diversified global food company. It
employs corporate-level strategy that
consists of moderate to high levels of
diversification. Nestl generated most of
revenue through related constrained
diversification from major business such
that all of its segments share product,
technological, and distribution linkages. In
order to generate the financial means
required to invest in growth initiatives,
Nestle launched a suite of process
innovation initiative in an effort to
maximizing existing assets, maximizing
capacity utilization, and maximizing
distribution logistics. The Group also
identified new growth opportunities in the
organic growth of the mature market, which
could only be reached by strengthening its
innovation capacity.
Tridharma is a member of TAO
Corporation, one of the Top 100
Corporations in the Philippines. As Tao
Corporation aims to expand and has a
confidential project of having their main
business, which is Distribution and
Marketing, Tridharma become more
efficient and more able to gain
competitive advantage among other
distribution companies. With its
established supply chain, Tridharma
employs related diversification strategies,
further expanding its product portfolio-
Kopiko 3-in-1 Instant Coffee, Kopico
Candy, Energen Instant Cereal Drink, Fres
Mint Candy, Beng Wafer Chocolate- to
facilitate Market Penetration.
Being one of the largest branded food The Coffee business under SMSCCI
product companies in the Philippines, URC
continues to be affected by the phase
has established a strong presence in ASEAN
and has further expanded its reach to the out of slow-moving variants as well as
increased pressure from major players
Oceania region through the acquisition of
Griffins Food Limited, the number one who aggressively spend on
snack foods company in New Zealand. It advertising and promotion to push
placed 2nd in the coffee business, with an their products. In spite of this, SMSCCI
effective nationwide distribution chain and
continue to improve and introduce
sales network enabling it to sell its branded
food products primarily to supermarkets, as
quality coffee products and create
well as directly to top wholesalers, large product differentiation with San
convenience stores, large scale trading Miguel Integrated Sales (SMIS)
companies and regional distributors, which providing logistics and selling services
in turn sell its products to other small
in the identified modern trade and
retailers and down line markets. To further
general trade customers.
penetrate the market, URC intends to
enlarge its distribution network coverage in
the Philippines by increasing the number of
retail outlets that its sales force and
distributors directly service
 recommendation
recommendation

In line with San Miguel Corporations core strategy of enhancing the value of their established businesses there is a need for closer inspection of each
business segment to evaluate whether each are growing holistically and adding value to the company. Research and analysis shows that there are serious
ongoing problems encountered by one of its entities namely, San Miguel Super Coffeemix Co. Inc. These are:
For the fiscal year of 2015, San Miguel Purefoods Corporation reported lower sales volume and revenue of SMSCCI due to phasing out of slow-
moving variants and increased pressure from major players;
Compared to 2013, there is a 17% decline in sales volume of 2014 due to soft demand for its two categories;
Analysis of the financial statements of SMSCCI as compared to its major competitors showed the following:
* Inventory turnover rate is only 2, compared to 10 of Nestle, 5 of Tridharma and URC. This implies that SMSCCI has the least number of
inventory replenishment annually and is the slowest in terms of selling its inventory.
* SMSCCIs shareholders equity has a negative value since 2014. From -P45,408,000 in 2014 to -P204,474,000 the next year, the equity
decreased approximately 4 times. Such huge decrease was caused by losses doubling in 2015 compared to the prior year. The loss
completely offset the combined amount of any payments made to the company for its shares by investors, and any accumulated earnings
from prior periods.
* SMSCCI had a positive gross profit margin of 23.53% in 2015 suggesting a more competitive pricing for its products compared to
Tridharma with an 8.37% gross profit margin. However profits from operations resulted with a negative margin of -24.45% for SMSCCI but a
positive margin of 2.26% for Tridharma, making SMSCCI the least profitable player in 2015. The negative margin was due to a large selling
and administrative expense which is 48% of SMSCCIs revenues.
* SMSCCI has not declared nor paid any dividends since 2013.
* SMSCCI has the highest debt ratio of 142.56%, implying that the entity has a larger amount of liabilities than assets.
* Because of a negative EBIT, SMSCCI has a negative interest coverage ratio of -12.052:1. This implies that SMSCCI cannot pay its interest
expense using cash flows from its operations.
San Miguel Corporation aims to invest in and develop businesses with market leading positions. In light of these findings, San Miguel Super Coffeemix
Co. Inc. is not making any progress in doing so since there are already recognized players in the industry. At the rate that SMSCCI is going, it will only
continue to incur losses for the company unless they introduce major product innovations to contend with their competitors products. In conclusion, it
is for the best interest of San Miguel Corporation to divest San Miguel Super Coffeemix Co. Inc.