Executive summary

introduction Economic condition

With the fluctuations in activities that an San Miguel Corporation (SMC) The Philippine economy has On the supply side, the service sector constitutes
economy experiences overtime, intends to identify which businesses grown at rates surpassing the over 56.7% of the total GDP in 2016, with the
businesses and industries will eventually are contributing the least value to majority of its ASEAN since 2012. information technology and business process
have to take their toll. Companies will their overall group operations. The economy can be analyzed outsourcing (IT-BPO) industry being a major
undergo bankruptcy, competition Industries under SMC, e.g., food, in two perspectives: the demand contributor. The sector employed a great number
becomes too hard to meet, market beverages, packaging, side and the supply side. of people, helping the employment rate grow. As
shares will decrease, legal pressure infrastructure, fuel and oil, power, a result, this industry has significantly contributed
increases, demand for funds increases, and properties, will have to be On the demand side, private to the increasing disposable income per capita,
units become non-essential and with assessed to identify a potential consumption continues to be the ultimately leading to greater buying power.
resources being limited, companies will divestible business segment. main driver for growth for 2016,
have no resort but to give up these units with expenditure on food and The countrys current growth is however at risk of
for a better purpose - to regain focus on non-alcoholic beverages being Government slow and cautious spending. The
its core business. This process of selling the largest of all expenditures. slow spending helps prevent the misuse of funds
off peripheral businesses is most Within private consumption, the as seen in the previous administration, but in turn,
commonly known as divestment or population size, consumer drags down economic growth. But despite these
divestiture. confidence, and OFW personal risks, both local and international confidence
remittances have been fueling have continued to be strong because of sound
dominance in the economy. macroeconomic fundamentals.
 Executive summary

recommendation Industry players

In line with San Miguel Corporations mission of Coffee is popular among Filipinos and has cut-across
enhancing the value of their established businesses appeal among virtually all socioeconomic classes.
there is a need for closer inspection of each business Composed of instant coffee, coffee mixes and ready-to-
segment to evaluate whether each are growing drink coffee segments, the local coffee industry is still
holistically and adding value to the company. dominated by Nestle, the market leader in almost all
However, the teams research and analysis found out coffee sub-categories. Another key player is Tridharma
that there are serious problems encountered by San Marketing Corp., maker of Kopiko and Universal Robina
Miguel Super Coffeemix Co., Inc. (SMSCCI) that has Corp., maker of Great Taste. SMPFCs coffee business
been going on for the past years, thus the team under SMSCCI is currently in fourth in terms of market
considered SMSCCI a candidate for divestiture. share in the coffee mix segment
 over view of the conglomerate

SMC Global Power Holdings Corp. and subsidiaries 100% energy

OWNERSHIP packaging
beverages

San Miguel Brewery Inc.

51.16 65% San Miguel Yamura Packaging
Corporation and subsidiaries, SMC
and subsidiaries OWNERSHIP Yamura Fuso Molds Corporation and
OWNERSHIP Can Asia, Inc.
%
Ginebra San Miguel Inc.
and subsidiaries
78.27 65% San Miguel Yamura Packaging
International Ltd and subsidiaries

%
OWNERSHIP OWNERSHIP

other assets and investments 60% San Miguel Yamura Asia

Corporation
OWNERSHIP

San Miguel Properties, Inc.

and subsidiaries
99.94 100% Mindanao Corrugated
Fibreboard, Inc.

SMC Shipping and Lighterage

%
OWNERSHIP

70%
OWNERSHIP

Corporation and subsidiaries

OWNERSHIP
food
infrastructure
85.37
San Miguel Holdings Corp.
and subsidiaries 100% 100% Fuel
%
OWNERSHIP
San Miguel Pure Foods Company
OWNERSHIP and oil
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 company Smc global power holdings corp.
inc.

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
Coffeemix 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 Mixes Repacking
From SCCPL of Coffee Warehousing, Marketing
in Singapore, Mixes as hauling, and General
and Sales,
SCML part of delivery inquiries
with the
(Thailand) Value- activities by and
use of
Company added third party Customer
SMIS to
Ltd. and businesses logistics Care
penetrate
Super of the providers Services
tertiary
Coffeemix company. channel.
Vietnam Ltd.
(SCVL)

Human Resource Management

General Administration

Research and Development

 Industry players

the exclusive national distributor of PT

Mayora Indah in the Philippines in Others
November 2005. Product lines are 9%
tridharma confectionaries, black coffee, brown
coffee, candy and cereal drinks.
Marketing coproration

a large-scale, well-known international Instant Coffee

food manufacturing corporation White Coffee Mix 19%
engaged in the manufacture of instant 40%
coffee, milk, and ready-to-cook
noodles. It is among the Philippines' Top
10 Corporations. Its products are No. 1
nestle or No. 2 brands in their respective Original Coffee Mix
philippines categories. 19%

a dominant player with leading market Brown Coffee

shares in Savory Snacks, Candies and 13%
Chocolates, and is a significant player
in Biscuits, with leading positions in
Cookies and Pretzels. URC is also the
largest player in the RTD Tea market Coffee market: segmentation and its
and Cup Noodles business and is a
universal robina respectable 2nd player in Coffee
leaders
corporation business.
 Industry segmentation

SMSCCI and others

4%
Davao Region Tridharma
Other Regions
21% 23%
23% URC
30%
AR
ARMM
18%
SOCCSKSARGEN
38%

Nestle
43%

Geographical segmentation Market share

The food safety

The foods, drugs and devices, The consumer act The price act Tax reform for acceleration and
act of 2013 inclusion (Train) bill
and cosmetics act In cases of calamities, emergencies,
Under this law, food business operators are The Consumer Act provides for minimum
Pursuant to the FDDC Act, food manufacturers labeling and packaging requirements for illegal price manipulation or when
charged with certain responsibilities to
are required to obtain a license to operate as food products to enable consumers to the prevailing prices have risen to Includes the proposed excise tax on
prevent, eliminate or reduce risks to
such. The law further requires food manufacturers obtain accurate information as to the unreasonable levels, it is the sugar-sweetened beverages (SSBs).
consumers. They are further encouraged
nature, quality, and quantity of the President of the Philippines who can Once the proposed additional tax is
to implement a Hazard Analysis at Critical to obtain a certificate of product registration for
contents of food products available to impose a price ceiling on basic applied, a 3-in-1 coffee sachet,
Control Points-based system for food each product it sells in the market.
the general public. necessities and prime commodities. currently priced at P5, will be P8.
safety assurance in their operations.
 Threat from new
BARGAINING Power 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 the there are requirements for
#2 most demanded compliance as it is part of the
beverage food industry
ii. SMPFC and its subsidiaries ii. Since there is an increasing
taken as a whole is not demand for coffee which cannot
dependent on a single be met by the current local
customer or a few supply, companies who would
customers. like to enter the industry will be
iii. There is low cost for buyer Competitive forced to turn to foreign suppliers.
to switch from one supplier rivalry The capital outlay to enter the
to another, especially industry is very high.
since San Miguel coffee iii. Profitability of the industry attracts
products are more many competitors
expensive than other
brands
BARGAINING Power
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, tea innovative product was released a year ago.
and other alternative caffeinated drinks. iii. There was a decline in sales volume and revenue due to phasing out of 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 the
advantage of using advanced and various processes. 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
 financial statement analysis

Activity Analysis Liquidity analysis

The speed with which a company Universal Robina Co. has a

can sell inventory is a critical 229.73% current ratio, followed
measure of business performance. by Tridharma Marketing Co. with
Wholesalers are expected to have 115.49%, Nestle Phil. with 70.67%,
a high inventory rate because the and SMSCCI with 54.67%.
very nature of their business requires Although URC is the most liquid
them to distribute inventories a lot among the key players, its
of times during the year. San Miguel quick ratio is significantly lower
Super Coffeemix Co. replenished its than its current ratio by 36.17%.
inventory only twice a year, having This is because URC puts a
the lowest inventory turnover rate higher dependence on its
among the key players in the inventories making up 33% of its
coffee industry. current assets.
 Financial statement analysis

solvency analysis profitability analysis Leverage

ratio

Nestle, having an operating profit margin of

Tridharma Marketing Co. has a 18.26%, tops the other key players in the market. It URC has the largest equity ratio of
is followed by URC with 15.93%, Tridharma with 137.36% followed by Nestle 17.03%, then
debt-to-equity ratio of 5:1 or a 2.26% and SMSCCI with the lowest ratio of -24.45%. by Tridharma with 15.92%. SMSCCI has
528.18% percentage of debt Despite its substantial gross profit margin, SMSCCI the smallest equity ratio of -42.56%
over equity. The lowest debt-to- has a negative return on assets which is equal to - because of its negative equity. As to
3.29%. This results from large amount of expenses. debt ratio, SMSCCI has the highest rate
equity ratio among the key Nestle, on the other hand, has the highest return
of 142.56%, implying that the entity has
players, URC, has a 0.69:1 ratio on assets with 3.83% followed by URC with 1.33%
larger amount of liabilities than its assets.
and Tridharma with 1%. The return on equity of
or a 69.44% percentage. Nestle, which is 222.90 %, indicates that the entity URC has the lowest debt ratio equal to
SMSCCI has -334.97% debt-to- had a great amount of income. While that of the 40.98%. While Tridharmas and Nestles
equity ratio because of its Tridharma, which is 6.67%, the lowest, shows that ration differ by small amount with 84.08%
the entity had low income. This is proven by its low and 82.97%, respectively. The interest
negative equity. URC, although gross profit margin. SMSCCI and URC are in the coverage ratio of Nestle, which is
lowest in debt-to-equity ratio, middle with 222.90% and 20.60%, respectively. In 81.799:1, shows that it can pay the
terms of Earnings per share, Tridharma shares earn
has the highest long-term debt- the most with P12.148 per share. URC follows
interest payables of its outstanding debt.
It is followed by URC with 13.116:1 and
to-equity ratio (37.75%). This high Tridharma with P5.732 per share. Next is Nestle with
Tridharma with 0. 869:1. SMSCCI,
ratio indicates more business risk P0.678 per share. SMSCCIs earning per share is P-
0.10. Since it did not declare and pay dividends, because of a negative EBIT, has a
for URC because it must meet SMSCCI has no payout ratio, i.e.,0% . Nestle has negative interest coverage ratio of -
principal and interest on its the largest payout ratio which is 105.69%, followed 12.052:1.
by Tridharma, 93.66% and by URC with 52.34%.
obligations.
 Analysis of Competitor

Being one of the largest branded food The Coffee business under SMSCCI
Nestle transformed from a manufacturer into Tridharma is a member of TAO Corporation, product companies in the Philippines, URC
a diversified global food company. It employs continues to be affected by the phase
one of the Top 100 Corporations in the has established a strong presence in ASEAN
corporate-level strategy that consists of and has further expanded its reach to the out of slow-moving variants as well as
Philippines. As Tao Corporation aims to increased pressure from major players
moderate to high levels of diversification. Oceania region through the acquisition of
expand and has a confidential project of
Nestl generated most of revenue through Griffins Food Limited, the number one snack who aggressively spend on advertising
related constrained diversification from major having their main business, which is
foods company in New Zealand. It placed and promotion to push their products.
business such that all of its segments share Distribution and Marketing, Tridharma 2nd in the coffee business, with an effective In spite of this, SMSCCI continue to
product, technological, and distribution become more efficient and more able to nationwide distribution chain and sales
linkages. In order to generate the financial gain competitive advantage among other improve and introduce quality coffee
network enabling it to sell its branded food
means required to invest in growth initiatives, distribution companies. With its established products primarily to supermarkets, as well as products and create product
Nestle launched a suite of process innovation supply chain, Tridharma employs related directly to top wholesalers, large differentiation with San Miguel
initiative in an effort to maximizing existing diversification strategies, further expanding convenience stores, large scale trading Integrated Sales (SMIS) providing
assets, maximizing capacity utilization, and companies and regional distributors, which in logistics and selling services in the
its product portfolio- Kopiko 3-in-1 Instant
maximizing distribution logistics. The Group turn sell its products to other small retailers
Coffee, Kopico Candy, Energen Instant identified modern trade and general
also identified new growth opportunities in the and down line markets. To further penetrate
organic growth of the mature market, which Cereal Drink, Fres Mint Candy, Beng Wafer trade customers.
the market, URC intends to enlarge its
could only be reached by strengthening its Chocolate- to facilitate Market Penetration. distribution network coverage in the
innovation capacity. 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.