SAN MIGUEL PURE FOODS COMPANY, INC.

Primary Offer in the Philippines of up to 15,000,000 Preferred Shares

at an Offer Price of P 1,000 per Share
to be listed and traded on the First Board of The Philippine Stock Exchange, Inc.

Joint Issue Managers and Joint Lead Underwriters

BDO Capital & Investment Corporation
The Hongkong and Shanghai Banking Corporation Limited
RCBC Capital Corporation
SB Capital Investment Corporation
Standard Chartered Bank

Co-Lead Underwriter
First Metro Investment Corporation

Participating Underwriters
China Banking Corporation
Insular Investment and Trust Corporation
Multinational Investment Bancorporation
Philippine Commercial Capital, Inc.

Underwriters
Unicapital, Inc.
Vicsal Investment, Inc.

Financial Advisor to the Issuer

ATR KimEng Capital Partners, Inc.

Selling Agents
The Trading Participants of The Philippine Stock Exchange, Inc.

This Prospectus is dated February 8, 2011

SAN MIGUEL PURE FOODS COMPANY, INC.
JMT Building, ADB Avenue
Ortigas Center, Pasig City
1605 Philippines
Telephone number (632) 702-5000
FAX number (632) 914-0314
http://sanmiguelpurefoods.com

This Prospectus relates to the offer and sale by way of a primary offer in the Philippines (the “Offer”)
of up to 15,000,000 cumulative, non-voting, non-participating, non-convertible preferred shares with a
par value of P10.00 each (the “Preferred Shares” or “Shares”) of San Miguel Pure Foods Company,
Inc. (“SMPFC”, the “Company” or the “Issuer”), a corporation duly organized and existing under
Philippine law. The Preferred Shares will be issued by the Company from its 40,000,000 authorized
and unissued preferred share capital.

The Preferred Shares are being offered for subscription solely in the Philippines through the Joint
Issue Managers and Joint Lead Underwriters, BDO Capital & Investment Corporation, The Hongkong
and Shanghai Banking Corporation Limited, RCBC Capital Corporation, SB Capital Investment
Corporation and Standard Chartered Bank (the “Joint Lead Underwriters”), Sub-Underwriters and
Selling Agents named herein at a subscription price of P1,000 per share (the “Offer Price” or the
“Issue Price”).

Following the Offer, the Company will have (i) 166,667,096 common shares and (ii) 15,000,000
preferred shares issued and outstanding. The holders of the Preferred Shares do not have identical
rights and privileges with holders of the existing common shares of the Company.

The declaration and payment of dividends on the Preferred Shares will be subject to the sole and
absolute discretion of the Issuer’s Board of Directors (the “Board”) to the extent permitted by law. The
declaration and payment of dividends (except stock dividends) do not require any further approval
from the shareholders.

As and if declared by the Board, dividends on the Shares shall be at a fixed rate of 8.0% per annum
calculated in respect of each Share by reference to the Issue Price thereof in respect of each
Dividend Period (the “Dividend Rate”). Subject to the limitations described in this Prospectus,
dividends on the Shares will be payable quarterly in arrears on March 3, June 3, September 3 and
December 3 of each year (each a “Dividend Payment Date”). Unless the Shares are redeemed by the
Issuer on the fifth anniversary from Listing Date (the “Optional Redemption Date”), the dividends on
the Shares will be adjusted on the Optional Redemption Date to the higher of: (a) the Dividend Rate,
or (b) the 10-year PDST-F rate for the date corresponding to the Optional Redemption Date plus
3.33% per annum (see “Terms of the Offer” on page 16).

Dividends on the Shares will be cumulative. If for any reason the Issuer’s Board does not declare a
dividend on the Shares for a dividend period, the Issuer will not pay a dividend on the Dividend
Payment Date for the dividend period. However, on any future Dividend Payment Date on which
dividends are declared, holders of the Shares must receive the dividends due them on such Dividend
Payment Date as well as all dividends accrued and unpaid to the holders of the Shares prior to such
Dividend Payment Date (see “Description of the Preferred Shares” on page 24).

As and if declared by the Board, the Issuer may redeem the Preferred Shares on the Optional
Redemption Date or on any Dividend Payment Date thereafter in whole or in part, at a redemption
price equal to the Issue Price of the Shares plus accrued and unpaid dividends for all dividend periods
up to the date of actual redemption by the Issuer.

The Issuer may purchase the Shares at any time in the open market or by public tender or by private
contract at any price through The Philippine Stock Exchange, Inc. (“PSE”). The Shares so purchased
may either be redeemed and cancelled after the Redemption Date or kept as treasury shares.

The gross proceeds of the Offer are expected to reach approximately P15,000,000,000. The net
proceeds from the Offer, estimated to be at P14.83 billion and determined by deducting from the

2
gross proceeds the total issue management, underwriting and selling fees, listing fees, taxes and
other related fees and out-of-pocket expenses, will be used by the Company: (i) to repay a payable to
San Miguel Corporation (“SMC”) in the amount of P3.615 billion, relating to its acquisition from SMC
of food related brands and intellectual property rights and the Vietnam food business (ii) for
investment in such investment opportunities or areas for investment as the Board of Directors may
hereafter identify; and (iii) for general corporate purposes (see “Use of Proceeds” on page 43).

The Joint Lead Underwriters shall receive an estimated underwriting fee of 0.75% of the gross
proceeds of the Offer, inclusive of amounts to be paid to any other underwriters and selling agents.

Prior to the Offer, there has been no public market for the Preferred Shares. Accordingly, there has
been no market price for the Preferred Shares derived from day-to-day trading.

No dealer, salesman or any other person has been authorized to give any information or to make any
representation not contained in this Prospectus. If given or made, any such information or
representation must not be relied upon as having been authorized by the Company or any of the Joint
Lead Underwriters and Sub-Underwriters. The distribution of this Prospectus and the offer and sale of
the Preferred Shares may, in certain jurisdictions, be restricted by law. The Company, Joint Lead
Underwriters and Sub-Underwriters require persons into whose possession this Prospectus comes, to
inform themselves of and observe all such restrictions. This Prospectus does not constitute an offer
of any securities, or any offer to sell, or a solicitation of any offer to buy any securities of the Company
in any jurisdiction, to or from any person to whom it is unlawful to make such offer in such jurisdiction.

Unless otherwise stated, the information contained in this Prospectus has been supplied by the
Company. To the best of its knowledge and belief, the Company (which has taken all reasonable
care to ensure that such is the case) confirms that the information contained in this Prospectus is
correct, and that there is no material misstatement or omission of fact which would make any
statement in this Prospectus misleading in any material respect.

Unless otherwise indicated, all information in the Prospectus is as of September 30, 2010. Neither
the delivery of this Prospectus nor any sale made pursuant to this Prospectus shall, under any
circumstances, create any implication that the information contained herein is correct as of any date
subsequent to the date hereof or that there has been no change in the affairs of the Company and its
subsidiaries since such date. Market data and certain industry forecasts used throughout this
Prospectus were obtained from internal surveys, market research, publicly available information and
industry publications. Industry publications generally state that the information contained therein has
been obtained from sources believed to be reliable, but that the accuracy and completeness of such
information is not guaranteed. Similarly, internal surveys, industry forecasts and market research,
while believed to be reliable, have not been independently verified, and none of the Company, Joint
Lead Underwriters and the Sub-Underwriters makes any representation, undertaking or other
assurance as to the accuracy or completeness of such information or that any projections will be
achieved, or in relation to any other matter, information, opinion or statements in relation to the Offer.
Any reliance placed on any projections or forecasts is a matter of commercial judgment. Certain
agreements are referred to in this Prospectus in summary form. Any such summary does not purport
to be a complete or accurate description of the agreement and prospective investors are expected to
independently review such agreements in full.

Each person contemplating an investment in the Preferred Shares should make his own investigation
and analysis of the creditworthiness of SMPFC and his own determination of the suitability of any
such investment. The risk disclosure herein does not purport to disclose all the risks and other
significant aspects of investing in the Shares. A person contemplating an investment in the Preferred
Shares should seek professional advice if he or she is uncertain of, or has not understood any aspect
of the securities to invest in or the nature of risks involved in trading of securities, especially those
high-risk securities. Investing in the Preferred Shares involves a higher degree of risk compared to
debt instruments. For a discussion of certain factors to be considered in respect of an investment in
the Preferred Shares, see the section on “Risks Factors” starting on page 29.

3
Table of Contents
Forward-Looking Statements…………………………………………………………………………………..6

Definition of Terms………………………………………………………………………………………………7

Executive Summary…………………………………………………………………………………………......9

Summary of Financial Information……………………………………………………………………………13

Capitalization……………………………………………………………………………………………………15

Terms of the Offer……………………………………………………………………………………………...16

Description of the Preferred Shares………………………………………………………………………….24

Risk Factors…………………………………………………………………………………………………….29

Use of Proceeds………………………………………………………………………………………...……..43

Determination of Offer Price…………………………………………………………………………………. 45

Dilution…………………………………………………………………………………………………………. 46

Plan of Distribution……………………………………………………………………………………………..47

The Company…………………………………………………………………………………………………..51

Description of Property………………………………………………………………………………………...75

Legal Proceedings……………………………………………………………………………………………..82

Ownership and Capitalization………………………………………………………………………………...83

Market Price of and Dividends on SMPFC’s Common Equity and Related Stockholder Matters……..85

Directors and Executive Officers……………………………………………………………………………..87

Certain Relationships and Related Transactions…………………………………………………………..95

Selected Financial Information and Other Data…………………………………………………………….97

Management’s Discussion and Analysis of Results of Operations and Financial Condition…………100

External Audit Fees and Services…………………………………………………………………………..122

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure………..123

Interest of Named Experts and Counsel…………………………………………………………………...124

Taxation………………………………………………………………………………………………………..125

Industry Overview…………………………………………………………………………………………….130

Regulatory Framework……………………………………………………………………………………….138

The Philippine Stock Market…………………………………………………………………………………143

Appendix……………………………………………………………………………………………………….148

5
Forward-Looking Statements
This Prospectus contains forward-looking statements that are, by their nature, subject to significant
risks and uncertainties. These forward-looking statements include, without limitation, statements
relating to:

• known and unknown risks;

• uncertainties and other factors which may cause SMPFC’s actual results, performance or
achievements to be materially different from any future results; and
• performance or achievements expressed or implied by forward-looking statements.
Such forward-looking statements are based on numerous assumptions regarding SMPFC’s present
and future business strategies and the environment in which SMPFC will operate in the future.
Important factors that could cause some or all of the assumptions not to occur or cause actual results,
performance or achievements to differ materially from those in the forward-looking statements include,
among other things:

• SMPFC’s ability to successfully implement its strategies;

• SMPFC’s ability to anticipate and respond to consumer trends;
• changes in availability of raw materials used in SMPFC’s production processes;
• SMPFC’s ability to successfully manage its growth;
• the condition and changes in the Philippines, Asian or global economies;
• any future political instability in the Philippines;
• changes in interest rates, inflation rates and the value of the Peso against the U.S. dollar and
other currencies;
• changes in government regulations, including tax laws, or licensing requirements in the
Philippines; and
• competition in the food industry in the Philippines and globally.

Additional factors that could cause SMPFC’s actual results, performance or achievements to differ
materially include, but are not limited to, those disclosed under “Risk Factors” and elsewhere in this
Prospectus. These forward-looking statements speak only as of the date of this Prospectus. SMPFC
and the Joint Lead Underwriters and Sub-Underwriters expressly disclaim any obligation or
undertaking to release, publicly or otherwise, any updates or revisions to any forward-looking
statement contained herein to reflect any change in SMPFC’s expectations with regard thereto or any
change in events, conditions, assumptions or circumstances on which any statement is based.

This Prospectus includes forward-looking statements, including statements regarding the Issuer’s
expectations and projections for future operating performance and business prospects. The words
“believe”, “expect”, “anticipate”, “estimate”, “project” and similar words identify forward-looking
statements. In addition, all statements other than statements of historical facts included in this
Prospectus are forward-looking statements. Statements in the Prospectus as to the opinions, beliefs
and intentions of the Issuer accurately reflect in all material respects the opinions, beliefs and
intentions of SMPFC’s management as to such matters at the date of this Prospectus, although the
Issuer can give no assurance that such opinions or beliefs will prove to be correct or that such
intentions will not change. This Prospectus discloses, under the section “Risk Factors” and
elsewhere, important factors that could cause actual results to differ materially from the Issuer’s
expectations. All subsequent written and oral forward-looking statements attributable to the Issuer or
persons acting on behalf of either the Issuer are expressly qualified in their entirety by cautionary
statements.

6
Definition of Terms
In this Prospectus, unless the context otherwise requires, the following terms shall have the meanings
set forth below.
Agro-Industrial Cluster………………….. SMPFC’s poultry, feeds and fresh meats businesses.
ASEAN .................................................. The Association of Southeast Asian Nations, including
Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar,
the Philippines, Singapore, Thailand and Vietnam.
Banking Day .......................................... A day other than Saturday or Sunday on which banks are
open for business in Metro Manila, Philippines.
BIR ........................................................ The Philippine Bureau of Internal Revenue.
Board of Directors ................................. The Board of Directors of SMPFC.
Brands Acquisition ............................... The acquisition by SMPFC of the SMPFC Brands from
SMC on July 30, 2010.
Breeder.................................................. A type of chicken raised to produce hatching eggs that will
eventually become broilers.
Broiler .................................................... A type of chicken raised specifically for production of
chicken meat for human consumption.
BSP ....................................................... Bangko Sentral ng Pilipinas, the Central Bank of the
Philippines.
CAGR .................................................... Compound annual growth rate.
Co-Lead Underwriter…………………… First Metro Investment Corporation
Corporation Code .................................. Batas Pambansa Blg. 68, otherwise known as “The
Corporation Code of the Philippines”.
DENR .................................................... The Philippine Department of Environment and Natural
Resources.
Depository Agent………………………... Philippine Depository & Trust Corporation.
Dividend Rate Setting Date February 8, 2011
DOH………………………………………. The Philippine Department of Health.
ECC ....................................................... Environmental Compliance Certificate.
EISS Law............................................... The Philippine Environmental Impact Statement System.
Food Development Center .................... An agency of the National Food Authority of the
Philippines.
Foreign Investments Act ....................... Foreign Investments Act of 1991.
Government .......................................... The Government of the Republic of the Philippines.
Hormel ................................................... Hormel Foods Corporation.
IFRIC ..................................................... International Financial Reporting Interpretations
Committee.
IFRS ...................................................... International Financial Reporting Standards.
MCIT...................................................... The minimum corporate income tax under the National
Internal Revenue Code of 1997 of the Philippines, as
amended, which is currently fixed at 2.0% of gross income.
Nielsen…………………………………... The Nielsen Company (Philippines) Inc.
Joint Lead Underwriters ........................ BDO Capital & Investment Corporation, The Hongkong
and Shanghai Banking Corporation Limited, RCBC Capital
Corporation, SB Capital Investment Corporation and
Standard Chartered Bank.

7
Listing Date………………………………. March 3, 2011
PAB ....................................................... The Philippine Pollution Adjudication Board.
Participating Underwriters……………... China Banking Corporation, Insular Investment and Trust
Corporation, Multinational Investment Bancorporation and
Philippine Commercial Capital, Inc.
PAS ....................................................... Philippine Accounting Standards.
PDTC……………………………………... Philippine Depository & Trust Corporation
Peso or P............................................... Philippine Peso, the lawful currency of the Republic of the
Philippines.
PFC ....................................................... Pure Foods Corporation.
PFRS ..................................................... Philippine Financial Reporting Standards.
PSE ....................................................... The Philippine Stock Exchange, Inc.
Receiving Agent…………………………. SMC Stock Transfer Service Corporation
Recent Acquisitions............................... The Vietnam Acquisition, together with the Brands
Acquisition.
SEC ....................................................... The Securities and Exchange Commission of the
Philippines.
Selling Agents…………………………… The Trading Participants of the PSE.
Shares or Preferred Shares .................. The Preferred Shares being offered hereby by the Issuer.
SFAS ..................................................... Statements of Financial Accounting Standards.
SMC ...................................................... San Miguel Corporation.
SMC Group ........................................... SMC and its subsidiaries, including SMPFC.
SMPFC or the Company or the Issuer .. San Miguel Pure Foods Company, Inc. Unless the context
otherwise requires, references herein to SMPFC or the
Company or the Issuer include the businesses and
operations of SMPFC’s consolidated subsidiaries and the
other entities described herein in which SMPFC has
significant direct or indirect equity interests.
SMPFC Brands ..................................... Certain brands, related trademarks and other intellectual
properties that SMPFC acquired from SMC and that it uses
to prepare, package, advertise, distribute and sell its
products in the Philippines.
SRC ....................................................... Republic Act No. 8799, otherwise known as “The
Securities Regulation Code of the Philippines”, as
amended from time to time, and including the rules and
regulations issued thereunder.
Step-up Rate…………………………….. The rate which is the higher of: the Dividend Rate, or the
10-year PDST-F rate for the date corresponding to the
Optional Redemption Date plus 3.33% per annum.
Sub-Underwriters……………………….. Co-Lead Underwriter, Participating Underwriters and
Underwriters
Underwriters…………………………….. Unicapital, Inc. and Vicsal Investment, Inc.
U.S. dollars or US$ ............................... The lawful currency of the United States of America.
VAT ....................................................... Value-added tax.
Vietnam Acquisition .............................. The acquisition by SMPFC of SMC’s 51% stake in the
Vietnam food business on July 30, 2010.

8
Executive Summary
The following summary is qualified in its entirety by, and should be read in conjunction with the more detailed
information and audited financial statements, including notes thereto, found elsewhere in this Prospectus.

Prospective investors should read this entire Prospectus fully and carefully, including the section on “Risk
Factors”. In case of any inconsistency between this summary and the more detailed information in this
Prospectus, then the more detailed portions, as the case may be, shall at all times prevail.

Brief Background on the Company

OVERVIEW

San Miguel Pure Foods Company, Inc. (“SMPFC”) provides a broad line of food products and
services for both household and institutional customers in the Philippines.

SMPFC’s main businesses are its poultry, feeds, fresh meats, value-added meats, flour, and dairy,
spreads and oils businesses. SMPFC’s other businesses include coffee, food service and
development of retail outlets, as well as two regional operations located in Indonesia and Vietnam.
SMPFC further organizes its businesses into the following clusters: Agro-Industrial, comprised of its
poultry, feeds and fresh meats businesses; Value-Added Meats, comprised of its value-added meats
business; Milling, comprised of its flour business; and Others, comprised of its dairy, spreads and oils,
food service, retail, regional and other businesses. On July 30, 2010, SMPFC acquired SMC’s
majority interest in the Vietnam business. For more information, see “Recent Acquisitions”.

Set forth below are the contributions of each of SMPFC’s businesses to its total revenues during the
year ended December 31, 2009 and the nine months ended September 30, 2010.

Breakdown of 2009 Revenues by Business(1)

Dairy, Spreads
and Oils, 7.1% Others, 1.0%

Flour, 10.6%
Poultry , 34.3%

Value-Added
Meats, 15.0%

Fresh Meats,
9.7%
Feeds, 22.3%

9
 Breakdown of Revenues for the Nine Months Ended September 30, 2010(2)

Dairy, Spreads
Others, 1.7%
and Oils, 6.6%

Flour, 9.9%

Poultry , 35.6%

Value-Added
Meats, 13.8%

Fresh Meats,
8.1%

Feeds, 24.3%

________________

(1) Revenues from the flour business also include revenues from SMPFC’s discontinued snacks and noodles
business.
(2) Percentages reflect revenue breakdown prior to eliminations from intersegment transactions.

SMPFC’s products include some of the best known and well-regarded brands in the Philippine food
industry, among them Magnolia, Purefoods, Monterey, B-Meg, Star, Dari Crème and JellyAce.
SMPFC enjoys leading market shares in several of its major businesses and product lines, including
poultry, feeds, pork, hotdogs, flour and butter spreads. SMPFC was formed through the integration in
2001 of SMC’s food businesses and PFC. SMC currently owns 99.92% of SMPFC’s outstanding
common shares. SMC first entered the food industry with the introduction of its Magnolia ice cream
in 1925. In 1953, SMC began producing animal feeds with protein-rich by-products from its beer
brewing operations. Over the next few decades, SMC’s food business expanded into other areas,
such as poultry, livestock, dairy products and fresh and processed meats.

PFC was incorporated in 1956 and was primarily engaged in the business of manufacturing and
marketing processed meat products. PFC later diversified into feeds, poultry, flour and food service.
In 1981, PFC was acquired by the Ayala Corporation. In 2001, SMC acquired PFC from the Ayala
Group and combined it with its food business to form the San Miguel Pure Foods Company, Inc.

SMPFC is a corporation duly organized and existing under the laws of the Republic of the Philippines
with its principal office located at The JMT Corporate Condominium, ADB Avenue, Ortigas Center,
Pasig City, 1605, the Philippines. SMPFC’s website is www.sanmiguelpurefoods.com. Information on
the SMPFC’s website does not constitute a part of this Prospectus. The common shares of SMPFC
were listed on April 2, 1973, and are currently traded under the symbol “PF”, on the PSE.

About San Miguel Corporation

San Miguel Corporation is a publicly listed food, beverage and packaging holding company
headquartered in the Philippines. Established in 1890 as a single-product brewery, SMC’s corporate
history and business have evolved over the years to offer an extensive product portfolio, which
includes beer, hard liquor, non-carbonated non-alcoholic beverages, processed and packaged food
products, meat, poultry, dairy products, flour, coffee, vegetable oils, animal and aquatic feeds and a
number of packaging products. Since 2007, SMC has diversified from its traditional core businesses
and has made several investments in industries such as power, energy, telecommunications, mining
and infrastructure. In 2009, the SMC Group generated approximately 3% of the Philippine gross
national product. SMC is listed on the PSE under the symbol “SMC”.

10
Industry Overview
The Company primarily operates in the Philippine food industry. The performance of the food industry
in the Philippines is closely correlated to the Philippines’ economic growth, as well as to trends and
developments in each of the segments within the industry.

Competitive Strengths
SMPFC believes that its competitive strengths will enable it to protect and build on its leadership
position in the food industry. At the same time, leveraging on its existing assets and expertise,
SMPFC will pursue opportunities that will complement its core business and capture higher-value
products and markets. SMPFC believes that its principal strengths include the following:

• many leading brands known for quality;

• broad and diverse food product portfolio;

• extensive and multi-pronged distribution network across the Philippines;

• vertically integrated business model;

• presence in the Philippines and Southeast Asian markets with the largest potential consumer
markets;

• strong track record of innovation in products and distribution;

• experienced management and technical teams; and

• the “San Miguel” brand, reputation and ownership.

Strategies
SMPFC’s key strategies include the following:

Accelerate the growth of SMPFC’s branded consumer business to achieve market leadership by:

• continuing to build brand equity;

• launching new products;

• expanding distribution reach;

• aggressively growing SMPFC’s food service business; and

• continuing to pursue growth opportunities in priority countries.

Achieve cost leadership by:

• expanding SMPFC’s raw material supply base and identifying alternative raw materials;

• adopting technologies designed to attain best in class efficiencies;

• maximizing synergies through shared services and organizational integration; and

• continuing and expanding the outsourcing of labor intensive and process-oriented operations.

11
Explore new growth opportunities, including:

• new product categories;

• further vertical integration;

• geographical diversification; and

• co-investments with SMC.

Risks of Investing
Prospective investors should consider the following risks of investing in the Preferred Shares:

1. Macroeconomic risks, including the current and immediate political and economic factors in the
Philippines as a principal risk for investing in general;
2. Risks relating to SMPFC, its subsidiaries and their business and operations; and
3. The absence of a liquid secondary market for the Preferred Shares and other risks relating to the
Preferred Shares.
(for a more detailed discussion, see “Risk Factors” on page 29)

Use of Proceeds
The offer price shall be at P 1,000. The net proceeds from the Offer are estimated to be P14.83
billion, after deducting expenses relating to the issuance of the Preferred Shares. Proceeds of the
Offer will be used by the Company: (i) to repay a payable to San Miguel Corporation (“SMC”) in the
amount of P3.615 billion, relating to its acquisition from SMC of food related brands and intellectual
property rights and the Vietnam food business; (ii) for investment in such investment opportunities or
areas for investment as the Board of Directors may hereafter identify; and (iii) for general corporate
purposes. (see “Use of Proceeds” on page 43)

Plan of Distribution
SMPFC plans to issue the Preferred Shares to institutional and retail investors through a public
offering to be conducted through the Joint Lead Underwriters and Sub-Underwriters. (see “Plan of
Distribution” on page 47)

Expected Timetable
The timetable of the Offer is expected to be as follows:

Dividend Rate Setting Date February 8, 2011

Start of Offer Period February 14, 2011
Last Day of Offer Period February 25, 2011
Listing Date and Commencement of Trading on March 3, 2011
the PSE

The dates indicated above are subject to market and other conditions and may be changed subject to
the approval by the PSE.

12
 Summary of Financial Information
Prospective purchasers of the Preferred Shares should read the summary financial data below
together with the financial statements, including the notes thereto, included in this Prospectus and
“Management's Discussion and Analysis of Results of Operations and Financial Condition”. The
summary financial data for the three years ended December 31, 2009, 2008 and 2007 are derived
from SMPFC's audited financial statements, including the notes thereto, which are found elsewhere in
this Prospectus. The detailed financial information for the three years ended December 31, 2009,
2008 and 2007 and the nine months ended September 30, 2010 and 2009 may be found on page 97
of this Prospectus.

SMPFC’s summary financial and operating information presented below as of and for the years ended
December 31, 2007, 2008 and 2009 were derived from SMPFC’s consolidated financial statements,
audited by Manabat Sanagustin & Co. and prepared in compliance with PFRS. SMPFC’s financial
and operating information presented below as of and for the nine months ended September 30, 2009
and 2010 were derived from the unaudited consolidated financial statements of SMPFC prepared in
compliance with PAS 34, “Interim Financial Reporting” and reviewed by Manabat Sanagustin & Co. in
accordance with PSRE 2410, “Review of Interim Financial Information performed by the Independent
Auditors of the Entity.” The information below should be read in conjunction with SMPFC’s
consolidated financial statements and the related notes thereto, which are included elsewhere in this
Prospectus. SMPFC’s historical financial condition, results of operations and cash flows are no
guarantee of its future operating and financial performance.

As of and for the years ended As of and for the nine

December 31, months ended
September 30,
2007 2008 2009 2009 2010
P P P P P
(Audited) (Unaudited)
(in thousands except per share figures or where otherwise indicated)
Consolidated Statements of Income
Data
Revenues ..................................................... 62,052,029 71,075,925 75,042,967 54,302,835 56,567,267
Cost of sales................................................. 51,845,187 60,609,663 61,684,667 45,298,696 45,194,294

Gross Profit ................................................... 10,206,842 10,466,262 13,358,300 9,004,139 11,372,973

Selling and administrative expenses ............. (7,810,920) (8,623,651) (8,720,676) (6,747,884) (7,182,624)
Interest expense and other financing (667,972) (830,914) (751,042) (622,118) (259,112)
charges ......................................................
Interest income .............................................. 84,407 54,323 69,141 42,517 77,058
Gain (loss) on sale of property and (18,010) 2,815 (24,663) 1,555 5,826
equipment ..................................................
Other income (charges) - net .......................... (696,049) (451,279) (88,968) (30,861) 73,713
Income Before Income Tax ........................... 1,098,298 617,556 3,842,092 1,647,348 4,087,834
Income Tax Expense ..................................... 916,205 468,870 1,183,625 546,450 1,184,232
Net Income .................................................... 182,093 148,686 2,658,467 1,100,898 2,903,602

Attributable to
Equity holders of the Parent Company .......... 30,591 77,194 2,596,963 1,059,868 2,772,886
Non-controlling interests ................................ 151,502 71,492 61,504 41,030 130,716
182,093 148,686 2,658,467 1,100,898 2,903,602
Basic and diluted earnings per share
attributable to Equity Holders of the
Parent Company....................................... 0.22 0.55 18.39 7.50 16.64

Consolidated Statements of Financial

Position Data
Assets
Total Current Assets ...................................... 22,622,750 26,132,071 28,595,652 28,014,827
10,721,752 10,869,960 11,580,221 15,584,731
Total Noncurrent Assets ................................
Total Assets................................................... 33,344,502 37,002,031 40,175,873 43,599,558

Liabilities and Equity

Current Liabilities
Total Current Liabilities .................................. 18,088,670 21,725,705 21,950,096 18,321,505

13
Total Noncurrent Liabilities ............................ 445,690 315,718 580,527 4,028,842

Equity
Equity Attributable to Equity Holders of the
Parent Company ....................................... 12,554,855 12,625,822 15,244,923 17,980,111

Non-controlling Interests................................ 2,255,287 2,334,786 2,400,327 3,269,100

Total Equity ................................................... 14,810,142 14,960,608 17,645,250 21,249,211

Total Liabilities and Equity ............................. 33,344,502 37,002,031 40,175,873 43,599,558

Cash Flow Data

Net cash provided by (used in):
Operating activities ........................................ 1,149,241 (77,361) 5,536,207 2,967,539 3,480,362
Investing activities ......................................... (1,325,058) (1,509,785) (1,517,777) (1,143,911) (1,144,477)
Financing activities ........................................ (613,821) 3,026,709 (2,850,290) (3,020,380) (2,618,205)
Effect of exchange rates changes in cash – – – – (2,648)
and cash equivalents .................................
Net increase/(decrease) in cash and cash (789,638) 1,439,563 1,168,140 (1,196,752) (284,968)
equivalents.................................................
Cash and cash equivalents at beginning of 2,132,281 1,342,643 2,782,206 2,782,206 3,950,346
year ............................................................
Cash and cash equivalents at end of 1,342,643 2,782,206 3,950,346 1,585,454 3,665,378
period .........................................................

14
Capitalization
The following table sets forth the Company’s unaudited consolidated short-term and long-term debt
and capitalization as of September 30, 2010. This table should be read in conjunction with the more
detailed information and audited and unaudited financial statements, including notes thereto, located
elsewhere in this Prospectus.

As of As adjusted
(in P Millions) Sept 30, 2010 for maximum
(Unaudited) Issue Size of
P 15 Billion

Short Term Debt

Bank loans 6,738 6,738
Current portion of long-term debt - -
Total Short-Term Debt 6,738 6,738

Long Term Debt(1)

Long term debt – net of current portion - -
Total Debt 6,738 6,738

Equity
Common stock – P 10 par value 1,709 1,709
Authorized – 246,000,000 shares (2)
Issued – 170,874,854 shares (3)
Preferred stock – P 10 par value 150(4)
Authorized – 40,000,000 shares
Additional paid-in capital 5,821 20,496 (5)
Revaluation Surplus 18 18
Cumulative Translation Adjustments (86) (86)
Retained earnings 10,700 10,700
Treasury Stock (182) (182)
Equity attributable to equity holders of the parent 17,980 32,805
Non-controlling interests 3,269 3,269
Total Equity 21,249 36,074
Total Capitalization 27,987 42,812
Notes:

(1) On December 7, 2010, San Miguel Foods, Inc. issued corporate notes with aggregate principal amount
of P4.5 billion and with maturity period of 5 years
(2) Reduced to 206 million shares after the Company’s Board and Stockholders approved on September 15
and November 3, 2010, respectively, the reclassification of 40 million shares from common to preferred
shares.
(3) Inclusive of 4,207,758 treasury shares
(4) The Company intends to offer 15 million shares at P1,000 per share.
(5) Net of estimated upfront fees, listing and professional fees, taxes and other expenses related to the
Offer

15
Terms of the Offer
The following does not purport to be a complete listing of all the rights, obligations and privileges
attaching to or arising from the Preferred Shares. Some rights, obligations or privileges may be
further limited or restricted by other documents and subject to final documentation. Prospective
Shareholders are enjoined to perform their own independent investigation and analysis of the Issuer
and the Preferred Shares. Each prospective Shareholder must rely on its own appraisal of the Issuer
and the Preferred Shares and its own independent verification of the information contained herein and
any other investigation it may deem appropriate for the purpose of determining whether to invest in
the Preferred Shares and must not rely solely on any statement or the significance, adequacy or
accuracy of any information contained herein. The information and data contained herein are not a
substitute for the prospective Shareholder’s independent evaluation and analysis.

The Offer The Company, through the Joint Lead Underwriters and Sub-
Underwriters, is offering up to 15,000,000 cumulative, non-voting, non-
participating, non-convertible Preferred Shares by way of primary offer
in the Philippines.

Par Value The Preferred Shares have a par value of P10.00 per Share.

Offer Price or Issue The Preferred Shares shall be offered at a price of P1,000 per Share.
Price

Dividend Rate As and if dividends are declared by the Board, dividends on the Shares
shall be at a fixed rate of 8.0% per annum calculated in respect of each
Share by reference to the Offer Price thereof in respect of each
Dividend Period.

Dividend Rate Step-Up Unless the Preferred Shares are redeemed by the Company on the
Optional Redemption Date, the Dividend Rate shall be adjusted
thereafter to the higher of:
(a) the Dividend Rate, or
(b) the 10-year PDST-F rate for the date corresponding to the Optional
Redemption Date plus 3.33% per annum.

Conditions on Payment The declaration and payment of dividends on each Dividend Payment
of Dividends Date will be subject to the sole and absolute discretion of the Board of
Directors to the extent permitted by law.

The Board of Directors will not declare and pay dividends on any
Dividend Payment Date where (a) payment of the Dividend would
cause the Company to breach any of its financial covenants or (b) the
profits available to the Company to distribute as dividends are not
sufficient to enable the Company to pay in full both the dividends on the
Preferred Shares and the dividends on all other classes of the
Company’s shares that are scheduled to be paid on or before the same
date as the dividends on the Preferred Shares and that have an equal
right to dividends as the Preferred Shares.

If the profits available to distribute as dividends are, in the Board’s

opinion, not sufficient to enable the Company to pay in full on the same
date both dividends on the Preferred Shares and the dividends on other
shares that have an equal right to dividends as the Preferred Shares,
the Company is required first, to pay in full, or to set aside an amount
equal to, all dividends scheduled to be paid on or before that dividend
payment date on any shares with a right to dividends ranking in priority

16
to that of the Preferred Shares; and second, to pay dividends on the
Preferred Shares and any other shares ranking equally with the
Preferred Shares as to participation in profits pro rata to the amount of
the cash dividends scheduled to be paid to them. The amount
scheduled to be paid will include the amount of any dividend payable
on that date and any arrears on past cumulative dividends on any
shares ranking equal in the right to dividends with the Preferred Shares.

The profits available for distribution are, in general and with some
adjustments, equal to the Company’s accumulated, realized profits less
accumulated, realized loss.

Dividends on the Shares will be cumulative. If for any reason the

Company’s Board does not declare a dividend on the Shares for a
dividend period, the Company will not pay a dividend on the Dividend
Payment Date for that dividend period. However, on any future
Dividend Payment Date on which dividends are declared, holders of the
Shares must receive the dividends due them on such Dividend
Payment Date as well as all dividends accrued and unpaid to the
holders of the Shares prior to such Dividend Payment Date.

Holders of Shares shall not be entitled to participate in any other or

further dividends beyond the dividends specifically payable on the
Shares.

The Issuer will covenant that, in the event (a) any dividends due with
respect to any Preferred Shares then outstanding for any period are
not declared and paid in full when due; or (b) any other amounts
payable under the Preferred Share terms and conditions described in
the Prospectus are not paid in full when due for any reason:

1. It will not declare or pay any dividends or other distributions

in respect of, or repurchase or redeem, securities ranking
junior to Preferred Shares (or contribute any moneys to a
sinking fund for the redemption of any securities ranking
junior to Preferred Shares);

2. Subject to legal requirements, the Issuer will procure that no

subsidiary over which the Issuer has a Controlling
Participation will pay any discretionary dividends or other
discretionary distributions on, or at the Issuer's discretion
repurchase or redeem, any security ranking senior to the
respective subsidiary's common shares other than those
senior securities held by the Issuer or a wholly-owned
subsidiary thereof (or contribute any moneys to a sinking
fund for the purposes of any such redemption).

“Controlling Participation” shall refer to the possession, directly or

indirectly, of the power to direct or cause the direction of the affairs or
management of the corporation, whether through the ownership of
voting securities, as trustee or executor, by contract or otherwise,
including, without limitation, the ownership, directly or indirectly, of
securities having the power to elect a majority of the board of directors
or similar body governing the affairs of the corporation.

17
Dividend Payment Subject to limitations described in this Prospectus, dividends on the
Dates Shares will be payable on March 3, June 3, September 3 and
December 3 of each year (each a Dividend Payment Date).

The dividends on the Shares will be calculated on a 30/360-day basis

and will be paid quarterly in arrears on each Dividend Payment Date,
as and if declared by the Board.

If the Dividend Payment Date is not a Banking Day, dividends will be

paid on the next succeeding Banking Day, without adjustment as to the
amount of dividends to be paid.

Optional Redemption As and if declared by the Board, the Company may redeem the
and Purchase Preferred Shares on the fifth anniversary from the Issue Date (the
Optional Redemption Date) or on any Dividend Payment Date
thereafter in whole or in part, at a redemption price equal to the Issue
Price of the Shares plus accrued and unpaid dividends for all dividend
periods up to the date of actual redemption by the Company (the
“Redemption Price”).

Subject to the amendment of the Articles of Incorporation of the Issuer

and as and if declared by the Board, the Company may also redeem
the Preferred Shares on the third anniversary from the Issue Date or
on any Dividend Payment Date thereafter in whole but not in part, at the
Redemption Price.

Subject to the amendment of the Articles of Incorporation of the Issuer,

the Issuer may also redeem the Preferred Shares, in whole but not in
part, at any time prior to the Optional Redemption Date if an Accounting
Event, Tax Event or a Change of Control (“CoC Event”) has occurred
and is continuing, in each case at the Redemption Price.

The Company may purchase the Shares at any time in the open market
or by public tender or by private contract at any price through the PSE.
The Shares so purchased may either be redeemed and cancelled (after
the Optional Redemption Date) or kept as treasury shares.

No Sinking Fund The Company has not established, and currently has no plans to
establish a sinking fund for the redemption of the Preferred Shares.

Accounting Event An Accounting Event shall occur if an opinion of a recognised person

authorised to provide auditing services in the Republic of the
Philippines has stated that there is more than an insubstantial risk that
the funds raised through the issuance of the Preferred Shares may no
longer be recorded as “equity” pursuant to the PFRS, or such other
accounting standards which succeed PFRS, as adopted by the
Republic of the Philippines, applied by the Issuer for drawing up its
consolidated financial statements for the relevant financial year.

Tax Event A Tax Event shall occur if dividend payments become subject to any
new tax as a result of certain changes in law, rule or regulation, or in
the interpretation thereof, and such tax cannot be avoided by use of
reasonable measures available to the Issuer.

Change of Control Change of Control shall be deemed to have occurred if any person or
(“CoC Event”) persons acting in concert or any third person or persons acting on
behalf of such person(s) at any time acquire(s) directly or indirectly a
Controlling Participation in SMPFC pursuant to the Philippine laws.

18
 The Dividend Rate will be increased by 4% from the day (inclusive)
falling 180 days after the day, on which a CoC Event has occurred. If a
Change of Control has occurred, the Issuer may call and redeem the
Preferred Shares (in whole but not in part) at their Issue Price, plus any
unpaid dividend until the redemption date (exclusive).

Taxation Subject to the proviso set forth below, all payments in respect of the
Preferred Shares are to be made free and clear of any deductions or
withholding for or on account of any future taxes or duties imposed by
or on behalf of Republic of the Philippines, including but not limited to,
stamp, issue, registration, documentary, value added or any similar tax
or other taxes and duties, including interest and penalties. If such taxes
or duties are imposed, the Issuer will pay additional amounts so that
holders of the Preferred Shares will receive the full amount of the
relevant payment which otherwise would have been due and payable.
Provided, however, that the Issuer shall not be liable for, and the
foregoing payment undertaking of the Issuer shall not apply to: (a) the
applicable final withholding tax applicable on dividends earned on the
Preferred Shares prescribed under the National Internal Revenue
Code, (b) any expanded value added tax which may be payable by any
holder of the Preferred Shares on any amount to be received from the
Company under the Offer and (c) any withholding tax on any amount
payable to any holder of Preferred Shares or any entity which is a non-
resident foreign corporation.

Documentary stamp tax for the primary issue of the Shares and the
documentation, if any, shall be for the account of the Company.

The standard taxes applicable to any subsequent sale of the Preferred

Shares by any holder of the Preferred Shares shall be for the account
of the said holder.

See also the discussion under “Taxation” on page 125.

Liquidation Rights In the event of a return of capital in respect of the Company’s winding
up or otherwise (whether voluntarily or involuntarily) but not on a
redemption or purchase by the Company of any of its share capital, the
holders of the Preferred Shares at the time outstanding will be entitled
to receive, in Pesos out of the Company’s assets available for
distribution to shareholders, together with the holders of any other of
the Company’s shares ranking, as regards repayment of capital, pari
passu with the Preferred Shares and before any distribution of assets is
made to holders of any class of the Company’s shares ranking after the
Preferred Shares as regards repayment of capital, liquidating
distributions in an amount equal to the Issue Price of the Preferred
Share plus an amount equal to any dividends declared but unpaid in
respect of the previous dividend period and any accrued and unpaid
dividends for the then-current dividend period to (and including) the
date of commencement of the Company’s winding up or the date of any
such other return of capital, as the case may be. If, upon any return of
capital in the Company’s winding up, the amount payable with respect
to the Preferred Shares and any other of the Company’s shares ranking
as to any such distribution pari passu with the Preferred Shares are not
paid in full, the holders of the Preferred Shares and of such other
shares will share ratably in any such distribution of the Company’s
assets in proportion to the full respective preferential amounts to which
they are entitled. After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of the Preferred
Shares will have no right or claim to any of the Company’s remaining

19
 assets and will not be entitled to any further participation or return of
capital in a winding up.

Form, Title and The Preferred Shares will be issued in scripless form through the
Registration of the electronic book-entry system of SMC Stock Transfer Service
Preferred Shares Corporation as Registrar for the Offer, and lodged with PDTC as
Depository Agent on Listing Date through PSE Trading Participants
nominated by the Applicants. Applicants shall indicate in the proper
space provided for in the Application Form the name of the PSE
Trading Participant under whose name their Shares will be registered.

After Listing Date, Shareholders may request the Registrar, through

their nominated PSE Trading Participant, to (a) open a scripless
registry account and have their holdings of the Preferred Shares
registered under their name (“name-on-registry account”), or (b) issue
stock certificates evidencing their investment in the Preferred Shares.
Any expense that will be incurred in relation to such registration or
issuance shall be for the account of the requesting Shareholder.

Legal title to the Shares will be shown in an electronic register of

shareholders (the “Registry of Shareholders”) which shall be
maintained by the Registrar. The Registrar shall send a transaction
confirmation advice confirming every receipt or transfer of the Preferred
Shares that is effected in the Registry of Shareholders (at the cost of
the requesting Shareholder). The Registrar shall send (at the cost of
the Company) at least once every year a Statement of Account to all
Shareholders named in the Registry of Shareholders, except
certificated Shareholders and Depository Participants, confirming the
number of Shares held by each Shareholder on record in the Registry
of Shareholders. Such Statement of Account shall serve as evidence
of ownership of the relevant Shareholder as of the given date thereof.
Any request by Shareholders for certifications, reports or other
documents from the Registrar, except as provided herein, shall be for
the account of the requesting Shareholder.

(For the full description of the Form, Title and Registration of the
Preferred Shares, please see “The Philippine Stock Market” on page
143).

Selling and Transfer Initial placement of the Preferred Shares and subsequent transfers of
Restrictions interests in the Preferred Shares shall be subject to normal selling
restrictions for listed securities as may prevail in the Philippines from
time to time.

Enabling Resolutions The Board of Directors of the Company shall, pursuant to Article
SEVENTH of the Articles of Incorporation as amended, issue an
Enabling Resolution/s incorporating the Preferred Share terms agreed
upon, and stating that the terms shall not be amended, repealed, or
revised without the affirmative vote of at least 2/3 of the holders of the
Preferred Shares then outstanding; provided, however, that an
amendment to authorize a redemption of the Preferred Shares (i) on
the third anniversary from the Issue Date or any Dividend Payment
Date thereafter or (ii) at any time prior to the Optional Redemption Date
if an Accounting Event, Tax Event or a CoC Event has occurred and is
continuing shall only require the affirmative vote of at least 2/3 of the
outstanding capital stock of the Issuer.

Listing The Preferred Shares are expected to be listed on the PSE on March 3,
2011.

20
Governing Law The Preferred Shares will be issued pursuant to the laws of the
Republic of the Philippines.

Other Terms of the Offer

Offer Period The Offer Period shall commence at 9:00 a.m. on February 14, 2011
and end at 12:00 noon on February 25, 2011. The Company and the
Joint Lead Underwriters reserve the right to extend or terminate the
Offer Period with the approval of the SEC and the PSE.

Applications to subscribe to the Preferred Shares (each an

“Application”) must be received by the Receiving Agent, not later than
11:00 a.m., Manila time on February 24, 2011 if filed through a Selling
Agent or a Sub-Underwriter, or not later than 12:00 noon Manila time
on February 25, 2011 if filed directly with the Joint Lead Underwriters.
Applications received thereafter or without the required documents
and/or full payments will be rejected. Application shall be considered
irrevocable upon submission to any Selling Agent, and shall be subject
to the terms and conditions of the Offer as stated in this Prospectus and
in the application to subscribe and purchase form (the “Application
Form”).

Minimum Subscription Each Application shall be for a minimum of 50 Shares, and thereafter,
to the Preferred Shares in multiples of 10 Shares. No Application for multiples of any other
number of Shares will be considered.

Eligible Investors The Preferred Shares may be owned or subscribed to by any person,
partnership, association or corporation regardless of nationality. In
addition, under certain circumstances the Company may reject an
Application or reduce the number of Preferred Shares applied for
subscription or purchase.

Subscription to the Preferred Shares may be restricted in certain

jurisdictions. Foreign investors interested in subscribing or purchasing
the Preferred Shares should inform themselves of the applicable legal
requirements under the laws and regulations of the countries of their
nationality, residence or domicile, and as to any relevant tax or foreign
exchange control laws and regulations affecting them personally.
Foreign investors, both corporate and individual, warrant that their
purchase of the Preferred Shares will not violate the laws of their
jurisdiction and that they are allowed to acquire, purchase and hold the
Preferred Shares.

Procedure for Application Forms may be obtained from any of the Joint Lead
Application Underwriters and Sub-Underwriters. All Applications shall be
evidenced by the Application Form, duly executed in each case by an
authorized signatory of the applicant and accompanied by two (2)
completed signature cards, the corresponding payment for the Shares
covered by the Application and all other required documents including
documents required for registry with the Registrar and Depository
Agent. The duly executed Application Form and required documents
should be submitted to the Joint Lead Underwriters, Sub-Underwriters
or Selling Agents on or prior to the set deadline for submission of
Applications for Underwriters and Selling Agents, respectively. If the
Applicant is a corporation, partnership, or trust account, the Application
must be accompanied by the following documents:

a. a certified true copy of the Applicant’s latest articles of incorporation

and by-laws and other constitutive documents, each as amended to

21
 date, duly certified by the corporate secretary;

b. a certified true copy of the Applicant’s SEC certificate of

registration, duly certified by the corporate secretary; and

c. a duly notarized corporate secretary’s certificate setting forth the

resolution of the Applicant’s board of directors or equivalent body
authorizing the purchase of the Preferred Shares indicated in the
application, the designated signatories authorized for the purpose,
including their respective specimen signatures.

Payment for the The Issue Price of the Preferred Shares must be paid in full upon
Preferred Shares submission of the Application.

Payment shall be in the form of a Metro Manila clearing

Cashier’s/Manager’s or corporate check or personal check drawn
against a bank account with a Bangko Sentral ng Pilipinas-authorized
agent bank located in Metro Manila and dated as of the date of
submission of the Application Form covering the entire number of Offer
Shares covered by the same Application. Checks should be made
payable to “SMPFC Preferred Shares Offer”. Cash payments will not
be accepted.

Applicants submitting their application to any of the Joint Lead

Underwriters or Sub-Underwriters may remit payment for their
Preferred Shares through the Real Time Gross Settlement facility of the
BSP to the Joint Lead Underwriter to whom such application was
submitted or via direct debit to their deposit account maintained with the
Joint Lead Underwriter or Sub-Underwriter.

Acceptance/Rejection The actual number of Preferred Shares that an Applicant will be

of Applications allowed to subscribe to is subject to the confirmation of the Joint Lead
Underwriters. The Company reserves the right to accept or reject, in
whole or in part, or to reduce any Application due to any grounds
specified in the Underwriting Agreement entered into by the Company.
Applications which were unpaid or where payments were insufficient
and those that do not comply with the terms of the Offer shall be
rejected. Moreover, any payment received pursuant to the Application
does not mean approval or acceptance by the Company of the
Application.

An Application, when accepted, shall constitute an agreement between

the Applicant and the Company for the subscription to the Preferred
Shares at the time, in the manner and subject to terms and conditions
set forth in the Application Form and those described in this
Prospectus. Notwithstanding the acceptance of an Application by the
Company, the actual subscription by the Applicant for the Preferred
Shares will become effective only upon listing of the Preferred Shares
on the PSE and upon the obligations of the Underwriters under the
Underwriting Agreement becoming unconditional and not being
suspended, terminated or cancelled, on or before the Listing Date, in
accordance with the provision of the said agreement. If such conditions
have not been fulfilled on or before the periods provided above, all
Application payments will be returned to the Applicants without interest.

Refunds of Application In the event that the number of Preferred Shares to be allotted to an
Payments Applicant, as confirmed by an Underwriter, is less than the number
covered by its Application, or if an Application is wholly or partially
rejected by the Company, then the Company shall refund, without
interest, within five (5) Banking Days from the end of the Offer Period,

22
 all, or a portion of the payment corresponding to the number of
Preferred Shares wholly or partially rejected. All refunds shall be made
through the Joint Lead Underwriters or Selling Agent with whom the
Applicant has filed the Application.

Tentative Listing and The Preferred Shares are expected to be listed on the PSE on March 3,
Trading Date 2011. Trading of the Preferred Shares shall commence on the same
date. Shareholders may trade their Preferred Shares by giving
appropriate written instructions to any PSE Trading Participant.

Receiving Agent SMC Stock Transfer Service Corporation

Registrar and Paying SMC Stock Transfer Service Corporation

Agent

23
Description of the Preferred Shares
Set forth below is information relating to the Preferred Shares. This description is only a summary
and is qualified by reference to Philippine law and SMPFC’s Articles of Incorporation and By-laws,
copies of which are available at the SEC.

SMPFC’s Share Capital

A Philippine corporation may issue common or preferred shares, or such other classes of shares with
such rights privileges or restrictions as may be provided for in the articles of incorporation and the by-
laws of the corporation.

As of September 30, 2010, the Company had an authorized capital stock of Two Billion Four Hundred
Sixty Million Pesos (P2,460,000,000), divided into Two Hundred Forty Six Million (246,000,000)
common shares, with par value of Ten Pesos (P10.00) each, of which One Hundred Sixty Six Million
Six Hundred Sixty Seven Thousand and Ninety Six (166,667,096) shares were issued and
outstanding.

On September 15, 2010, the Board of Directors approved the amendment to the Company’s Articles
of Incorporation to reclassify up to a total of Seventy Five Million (75,000,000) unissued common
shares with par value of Ten Pesos (P10.00) per share to up to Seventy Five Million (75,000,000)
preferred shares with par value of Ten Pesos (P10.00) per share. On November 3, 2010, stockholders
holding at least two-thirds of the outstanding capital stock of the Company approved the amendment
to the Company’s Articles of Incorporation to reclassify a total of Forty Million (40,000,000) unissued
common shares with par value of Ten Pesos (P10.00) per share to Forty Million (40,000,000)
preferred shares with par value of Ten Pesos (P10.00) per share.

On December 23, 2010, the SEC approved the foregoing amendment to the Articles of Incorporation
of the Company.

As of February 8, 2011, and following the approval by the SEC of the Amended Articles of
Incorporation providing for the preferred shares, the Company has an authorized capital stock
consisting of:
(a) 206,000,000 common shares with a par value of P10.00 per share; and
(b) 40,000,000 preferred shares with a par value of P10.00 per share.

Following the Offer, the Company will have the following issued and outstanding shares:
(a) 166,667,096 common shares; and
(b) 15,000,000 preferred shares.

The Preferred Shares

General Features

The Preferred Shares have the following features, rights and privileges:

No Voting Rights

The Preferred Shares have no voting rights except as specifically provided by the Corporation Code.
Thus, holders of the Preferred Shares are not eligible, for example, to vote for or elect the Company’s
Directors or to vote for or against the issuance of a stock dividend. Holders of Preferred Shares,
however, may vote on matters which the Corporation Code considers significant corporate acts that
may be implemented only with the approval of shareholders, including those holding shares
denominated as non-voting in the articles of incorporation. These acts, which require the approval of
shareholders representing at least two-thirds of the issued and outstanding capital stock of the
Company in a meeting duly called for the purpose, are as follows:
ƒ Amendment of the Articles (including any increase or decrease of capital stock);

24
ƒ Amendment of the Company’s By-laws;
ƒ Sale, lease, exchange, mortgage, pledge or other disposition of all or a substantial part of the
Company’s assets;
ƒ Incurring, creating or increasing bonded indebtedness;
ƒ Increase or decrease of capital stock;
ƒ Merger or consolidation of the Company with another corporation or corporations; and
ƒ Investment of corporate funds in any other corporation or business or for any purpose other than
the primary purpose for which the Company was organized; and
ƒ Dissolution of the Company.

Entitled to cumulative preferential dividends at such rate as shall be determined by the Board
of Directors

The declaration and payment of dividends on each Dividend Payment Date will be subject to the sole
and absolute discretion of the Board to the extent permitted by law. As and if dividends are declared
by the Board, dividends on the Shares shall be at a fixed rate of 8.0% per annum calculated in respect
of each Share by reference to the Offer Price thereof in respect of each Dividend Period.

Unless the Preferred Shares are redeemed by the Company on Optional Redemption Date, the
Dividend Rate shall be adjusted on the Optional Redemption Date to the Step-up Rate.

Dividends on the Shares will be payable on March 3, June 3, September 3 and December 3 of each
year (each a Dividend Payment Date). The dividends on the Shares will be calculated on a 30/360-
day basis and will be paid quarterly in arrears on each Dividend Payment Date, as and if declared by
the Board. If the Dividend Payment Date is not a Banking Day, dividends will be paid on the next
succeeding Banking Day, without adjustment as to the amount of dividends to be paid.

The Board of Directors will not declare and pay dividends on any Dividend Payment Date where (a)
payment of the Dividend would cause the Company to breach any of its financial covenants or (b) the
profits available to the Company to distribute as dividends are not sufficient to enable the Company to
pay in full both the dividends on the Preferred Shares and the dividends on all other classes of the
Company’s shares that are scheduled to be paid on or before the same date as the dividends on the
Preferred Shares and that have an equal right to dividends as the Preferred Shares.

If the profits available to distribute as dividends are, in the Board’s opinion, not sufficient to enable the
Company to pay in full on the same date both dividends on the Preferred Shares and the dividends on
other shares that have an equal right to dividends as the Preferred Shares, the Company is required
first, to pay in full, or to set aside an amount equal to, all dividends scheduled to be paid on or before
that dividend payment date on any shares with a right to dividends ranking in priority to that of the
Preferred Shares; and second, to pay dividends on the Preferred Shares and any other shares
ranking equally with the Preferred Shares as to participation in profits pro rata to the amount of the
cash dividends scheduled to be paid to them. The amount scheduled to be paid will include the
amount of any dividend payable on that date and any arrears on past cumulative dividends on any
shares ranking equal in the right to dividends with the Preferred Shares.

The profits available for distribution are, in general and with some adjustments, equal to the
Company’s unrestricted retained earnings.

Dividends on the Shares will be cumulative. If for any reason the Company’s Board does not declare
a dividend on the Shares for a dividend period, the Company will not pay a dividend on the Dividend
Payment Date for that dividend period. However, on any future Dividend Payment Date on which
dividends are declared, holders of the Shares must receive the dividends due them on such Dividend
Payment Date as well as all dividends accrued and unpaid to the holders of the Shares prior to such
Dividend Payment Date.

Holders of Shares shall not be entitled to participate in any other or further dividends beyond the
dividends specifically payable on the Shares.

25
Redeemable at the option of the Company under such terms as the Board of Directors may
approve

As and if declared by the Board, the Issuer may redeem the Preferred Shares on the fifth anniversary
from the Listing Date (the Optional Redemption Date) or any Dividend Payment Date thereafter in
whole or in part, at a redemption price equal to the Issue Price of the Shares plus accrued and unpaid
dividends for all dividend periods up to the date of actual redemption by the Company.

The Company has not established, and currently has no plans to establish, a sinking fund for the
redemption of the Preferred Shares.

The Company may purchase the Shares at any time in the open market or by public tender or by
private contract at any price through the PSE. The Shares so purchased may either be redeemed and
cancelled (after the Optional Redemption Date) or kept as treasury shares.

With preference over holders of common stock in the distribution of corporate assets in the
event of dissolution and liquidation of the Company

In the event of a return of capital in respect of the Company’s winding up or otherwise (whether
voluntarily or involuntarily) but not on a redemption or purchase by the Company of any of its share
capital, the holders of the Preferred Shares at the time outstanding will be entitled to receive, in Pesos
out of the Company’s assets available for distribution to shareholders, together with the holders of any
other of the Company’s shares ranking, as regards repayment of capital, pari passu with the Preferred
Shares and before any distribution of assets is made to holders of any class of the Company’s shares
ranking after the Preferred Shares as regards repayment of capital, liquidating distributions in an
amount equal to the Issue Price of the Preferred Share plus an amount equal to any dividends
declared but unpaid in respect of the previous dividend period and any accrued and unpaid dividends
for the then-current dividend period to (and including) the date of commencement of the Company’s
winding up or the date of any such other return of capital, as the case may be. If, upon any return of
capital in the Company’s winding up, the amount payable with respect to the Preferred Shares and
any other of the Company’s shares ranking as to any such distribution pari passu with the Preferred
Shares are not paid in full, the holders of the Preferred Shares and of such other shares will share
ratably in any such distribution of the Company’s assets in proportion to the full respective preferential
amounts to which they are entitled. After payment of the full amount of the liquidating distribution to
which they are entitled, the holders of the Preferred Shares will have no right or claim to any of the
Company’s remaining assets and will not be entitled to any further participation or return of capital in a
winding up.

No Pre-emptive Rights

There are no pre-emptive rights extended to holders of Preferred Shares in respect of any and all
share issuances of the Company.

Not convertible into Common Shares

The Preferred Shares shall not be convertible into SMPFC’s common shares.

Other Rights and Incidents Relating to the Preferred Shares

Following are other rights and incidents relating to the Preferred Shares, which may also apply to
other classes of SMPFC’s stock.

Appraisal Rights

Philippine law recognizes the right of a shareholder to institute, under certain circumstances,
proceedings on behalf of the corporation in a derivative action in circumstances where the corporation
itself is unable or unwilling to institute the necessary proceedings to redress wrongs committed

26
against the corporation or to vindicate corporate rights, as for example, where the directors
themselves are the malefactors.

In addition, the Corporation Code grants a shareholder a right of appraisal in certain circumstances
where he has dissented and voted against a proposed corporate action, including:
ƒ An amendment of the Articles of Incorporation which has the effect of adversely affecting the
rights attached to his shares or of authorizing preferences in any respect superior to those of
outstanding shares of any class or shortening the term of corporate existence;
ƒ The sale, lease, exchange, transfer, mortgage, pledge or other disposal of all or substantially all
of the assets of the corporation;
ƒ The investment of corporate funds in another corporation or business for any purpose other than
the primary purpose for which the corporation was organized; and
ƒ A merger or consolidation.

In these circumstances, the dissenting shareholder may require the corporation to purchase his
shares at a fair value which, in default of agreement, is determined by three disinterested persons,
one of whom shall be named by the shareholder, one by the corporation, and the third by the two thus
chosen. The SEC will, in the event of a dispute, determine any question about whether a dissenting
shareholder is entitled to this right of appraisal. The dissenting shareholder will be paid if the
corporate action in question is implemented and the corporation has unrestricted retained earnings
sufficient to support the purchase of the shares of the dissenting shareholders.

Shareholders’ Meetings

At the annual meeting or at any special meeting of the Company’s shareholders, the latter may be
asked to approve actions requiring shareholder approval under Philippine law.

Quorum

The Corporation Code provides that, except in instances where the assent of shareholders
representing two-thirds of the outstanding capital stock is required to approve a corporate act (usually
involving the significant corporate acts where even non-voting shares may vote, as identified above)
or where the by-laws provide otherwise, a quorum for a meeting of shareholders will exist if
shareholders representing a majority of the capital stock are present in person or by proxy.

Voting

At each shareholders’ meeting, each shareholder shall be entitled to vote in person, or by proxy, all
shares held by him which have voting power, upon any matter duly raised in such meeting.

The Company’s By-laws provide that proxies shall be in writing and signed and in accordance with the
existing laws, rules and regulations of the SEC. Duly accomplished proxies must be submitted to the
office of the Corporate Secretary not later than 10 trading days prior to the date of the stockholders’
meeting.

Fixing Record Dates

The Board has the authority to fix in advance the record date for shareholders entitled: (a) to notice of,
to vote at, or to have their votes voted at, any shareholders’ meeting; (b) to receive payment of
dividends or other distributions or allotment of any rights; or (c) for any lawful action or for making any
other proper determination of shareholders’ rights. The Board may, by resolution, direct the stock
transfer books of the Corporation be closed for a period not exceeding 20 days preceding the date of
any meeting of stockholders. The record date shall in no case be more than 60 days or less than 35
days preceding such meeting of shareholders.

27
Accounting and Auditing Requirements/Rights of Inspection

Philippine stock corporations are required to file copies of their annual financial statements with the
SEC. Corporations whose shares are listed on the PSE are also required to file quarterly and annual
reports with the SEC and the PSE. Shareholders are entitled to request copies of the most recent
financial statements of the corporation which include a statement of financial position as of the end of
the most recent tax year and a profit and loss statement for that year. Shareholders are also entitled
to inspect and examine the books and records that the corporation is required by law to maintain.

The Board is required to present to shareholders at every annual meeting a financial report of the
operations of the corporation for the preceding year. This report is required to include audited
financial statements.

28
Risk Factors

General Risk Warning

An investment in the Preferred Shares involves a number of risks. The price of securities can and
does fluctuate, and any individual security may experience upward or downward movements, and
may even become valueless. There is an inherent risk that losses may be incurred rather than profit
made as a result of buying and selling securities. Past performance is not a guide to future
performance and there may be a large difference between the buying price and the selling price of the
Preferred Shares. The occurrence of any of the following events, or other events not currently
anticipated, could have a material adverse effect on the Company’s business, financial condition,
results of operations and cause the market price of the Preferred Shares to decline. All or part of an
investment in the Preferred Shares could be lost.

There is an extra risk of losing money when securities are issued by smaller companies.

Investors deal in a range of investments each of which may carry a different level of risk.

Prudence Required

The risk disclosure does not purport to disclose all the risks and other significant aspects of investing
in these securities. Investors should undertake independent research and study on the trading of
these securities before commencing any trading activity. Investors may request publicly-available
information on the Preferred Shares and the Company from the SEC and PSE.

Professional Advice

An investor should seek professional advice if he or she is uncertain of, or has not understood, any
aspect of the securities to invest in or the nature of risks involved in trading of securities, especially
high risk securities.

Risk Factors

This Prospectus contains forward-looking statements that involve risks and uncertainties. SMPFC
adopts what it considers conservative financial and operational controls and policies to manage its
business risks. The Company’s actual results may differ significantly from the results discussed in the
forward-looking statements. See section “Forward-Looking Statements” of this Prospectus. Factors
that might cause such differences, thereby making the offering speculative or risky, may be
summarized into those that pertain to the business and operations of SMPFC, in particular, and those
that pertain to the over-all political, economic, and business environment, in general. These risk
factors and the manner by which these risks shall be managed are presented below. The risk factors
discussed in this section are of equal importance and are only separated into categories for easy
reference.

Investors should carefully consider all the information contained in this Prospectus including the risk
factors described below, before deciding to invest in the Preferred Shares. The Company’s business,
financial condition and results of operations could be materially adversely affected by any of these risk
factors.

Risks Related to the Company

SMPFC’s business, financial condition and results of operations may be materially and
adversely affected by any disruptions in the supply of, and price fluctuations in, major raw
materials.

Production of many of SMPFC’s products requires raw materials that SMPFC procures from third
parties, including purchases of some critical raw materials from outside the Philippines. These raw

29
materials are subject to price volatility caused by a number of factors, including changes in global
supply and demand, foreign exchange rate fluctuations, weather conditions and governmental laws
and policies.

For example, in 2007 and 2008, prices of certain raw materials used in SMPFC’s dairy, spreads and
oils business, including milk, dairy curds and others, increased significantly as a result of reduced
global supply caused by unfavorable weather conditions, reduced number of cattle herds, strong
currencies in certain export-oriented countries and the elimination of export subsidies in the European
Union. Similarly, in 2008, net income from SMPFC’s flour business was negatively affected by record-
high prices for wheat purchased for its flour products, which substantially increased the costs of
production in SMPFC’s flour business.

SMPFC actively monitors the availability and prices of raw materials and employs partial hedging
strategies to protect itself against price increases and exchange rate movements. However, there can
be no assurance that there will be an adequate supply of the raw materials required by SMPFC, that
raw materials will not be subject to significant price fluctuations or that SMPFC’s hedging strategies
will be successful. Furthermore, SMPFC cannot assure prospective investors that it will be able to
pass increases in production costs to consumers. As a result, any significant shortages or material
increase in the market price of such raw materials may have a material adverse effect on SMPFC’s
financial condition and results of operations.

For more information on SMPFC’s strategy to reduce risks relating to the availability and prices of raw
materials, see “Business – Strategies – Achieve Cost Leadership” on page 56.

SMPFC may also face increased costs due to the imposition of new regulations. For example, in
Mindanao, in the southern part of the Philippines, a significant portion of the population is Muslim, and
thus, all of SMPFC’s poultry processing plants in that region are halal-certified. Legislation has been
proposed that would require additional halal certification for the feedmills that serve the poultry farms
from which halal products are sourced. If this proposed legislation is implemented, certain raw
materials may have to be eliminated from SMPFC’s poultry feeds used in this region, thereby driving
up the cost of poultry feeds and, consequently, the cost of poultry production in the region, which may
have a material adverse effect on SMPFC’S financial condition and results of operations.

Outbreaks of disease at any of SMPFC’s owned or contracted hog, cattle or poultry farms
could materially and adversely affect SMPFC’s business, financial condition and results of
operations.

SMPFC’s fresh meats and poultry businesses are subject to risk of losses caused by outbreaks of
disease at any of the hog, cattle or poultry farms owned or contracted by SMPFC. The livestock
industry in the Philippines has experienced outbreaks of disease in the past. In particular, an industry-
wide porcine epidemic diarrhea outbreak that affected several of SMPFC’s facilities in the second
quarter of 2008 and the third quarter of 2010 and a porcine reproductive and respiratory syndrome
outbreak at contract growing facilities in the second and third quarters of 2008 negatively affected
revenue growth in SMPFC’s fresh meats business during those periods.

In addition, actual or suspected outbreaks of avian flu or other emerging diseases in SMPFC’s poultry
facilities could negatively affect its poultry business. While there have been no known cases of avian
flu in the Philippines to date, a false positive case of avian flu in 2005 contributed to decreased growth
in the Philippine poultry industry during that year.

To mitigate this risk, SMPFC has adopted policies and controls in its facilities to prevent the outbreak
or recurrence of diseases, including the separation of its hog breeding, nursery and growing
operations, bird proofing to prevent the entry of outside birds into its poultry farms and implementation
of strict visitor screening and sanitation procedures for entrance to any of its poultry facilities.
However, SMPFC cannot assure prospective investors that its policies and controls will be successful
in preventing disease outbreaks or recurrences. Any such outbreak or recurrence could have a
material adverse effect on SMPFC’s business, financial condition and results of operations.

30
Product liability claims or other circumstances could harm the reputation of, and customer
support for, SMPFC’s products and materially reduce SMPFC’s sales and profitability.

The success of SMPFC depends largely upon consumers’ perception of the reliability and quality of its
products. Any event or development that detracts from the perceived reliability or quality of SMPFC’s
products could materially reduce demand for its products. For example, a contamination of products
by bacteria or other external agents, whether arising accidentally or through deliberate third-party
action, could potentially result in product liability claims. While no material product liability claim has
been filed against SMPFC, any such product liability claim, whether or not successful, could damage
the reputation of SMPFC and its products. These problems may have a material adverse effect on the
financial condition, prospects and customer demand for SMPFC’s products, which may result in
reduced sales and profitability of the affected products.

For more information on SMPFC’s strategy to reduce risks relating to product liability claims, see
discussion on “Health, Safety and Environmental Matters” on page 70.

SMPFC’s business and prospects may be materially and adversely affected by changes in
consumers’ preferences or purchasing power.

The ability of SMPFC to successfully launch new products and maintain or increase demand for its
existing products depends on the acceptance of those products by consumers, as well as the
purchasing power of consumers. Consumer preferences may shift for a variety of reasons, including
changes in demographic and social trends or consumer lifestyle choices. SMPFC has pursued in the
past, and intends to continue to pursue, marketing campaigns focused on creating awareness of and
influencing consumer preferences towards its brands. For example, recent advertising campaigns by
SMPFC’s poultry business have featured celebrity endorsers to encourage consumers to purchase
marinated cut-ups and choice cuts from its Magnolia Chicken Stations. However, SMPFC cannot
guarantee that such marketing strategies will be successful. If SMPFC’s marketing strategies are not
successful or SMPFC does not respond effectively to changes in consumer preferences, SMPFC’s
business and prospects may suffer.

In addition, demand for many of SMPFC’s food products is tied closely to consumers’ purchasing
power and disposable income levels, which may be adversely affected by unfavorable economic
developments in the Philippines. Any decrease in consumers’ purchasing power and disposable
income levels could have a material adverse effect on SMPFC’s financial condition and results of
operations. For example, in 2008, the macroeconomic slowdown in the Philippines negatively affected
sales volumes in SMPFC’s flour and dairy, spreads and oils businesses, as consumers prioritized
staple commodities such as rice over bread and bread spreads. A significant decrease in disposable
income levels or consumers’ purchasing power in the Philippines could materially decrease SMPFC’s
sales and profitability.

SMPFC operates in a competitive environment, and if it is unable to maintain its competitive

position, SMPFC’s market share and operating margins may be reduced, and its business,
financial condition, results of operations and prospects may be materially and adversely
affected.

The Philippine food industry is, in general, highly competitive. While SMPFC currently enjoys market
leadership across several of its product categories, SMPFC cannot assure prospective investors that
it will be able to maintain or grow its current market share. In the food industry, competitive factors
generally include price, product quality, brand awareness, distribution coverage, customer service and
the ability to respond effectively to shifts in consumer tastes and preferences. Consolidation of
SMPFC’s competitors, the entry of new, larger competitors into the Philippine food market or other
actions or irrational behavior by SMPFC’s competitors could exert downward pressure on prices or
cause SMPFC’s market share to decline. Any failure by SMPFC to successfully compete with its
competitors would have a material adverse effect on its business, financial condition, results of
operations and prospects.

31
In order to maintain its customer base and market share, SMPFC has continuously developed new
and innovative products to meet its customers’ demands. If its competitors are able to develop more
innovative or better quality products or less expensive products of similar quality, SMPFC may not be
able to maintain its competitive edge or market share, and SMPFC’s financial condition, business,
results of operations and prospects would be materially and adversely affected. Please see
“Description of the Business – Competition” and “Description of the Business – Strengths” for further
details.

Some of SMPFC’s products are regarded as commoditized products, including certain products from
its feeds, flour, fresh meat and poultry businesses, which represented 76.9% and 77.8% of sales in
2009 and the nine months ended September 30, 2010, respectively.

SMPFC outsources most of its manufacturing, production and distribution operations to third
parties. If any of these third parties fails to perform its obligations to produce and deliver
SMPFC’s products, or if SMPFC is unable to find new contractors to meet increased demand
for its products, SMPFC’s business, financial condition, results of operations and prospects
may be materially and adversely affected.

SMPFC continuously monitors the efficiency and manufacturing capabilities of its several contractors’
production facilities. (Please see “The Company – Agro-Industrial” on pages 57 to 62.) However, any
of those contractors may, from time to time, experience production difficulties that may cause
shortages and delays in deliveries, as is common in the manufacturing industry. If one or more
of SMPFC’s contract manufacturers or other contractors fails to or is unable to manufacture,
package or distribute products for SMPFC in sufficient quantities or at satisfactory quality levels, or to
perform its obligations in a timely manner, SMPFC’s ability to bring products to the market and its
reputation could suffer, which may have a material adverse effect on SMPFC’s business, financial
condition, results of operations and prospects.

In addition, SMPFC cannot assure prospective investors that it will be able to find new contract
manufacturers or other contractors in line with increased customer demand in the future, which may
materially and adversely affect SMPFC’s business and prospects.

SMPFC’s business and prospects may be materially and adversely affected by increased
imports of lower-priced products as import duties are decreased or eliminated.

SMPFC may face increased competition from less expensive imports to the Philippines as import
duties on those products are decreased or eliminated. The Philippines is a signatory to several free
trade agreements, including the ASEAN Free Trade Agreement, the ASEAN-China Free Trade
Agreement, the ASEAN-Korea Free Trade Area Agreement, the Japan-Philippines Economic
Partnership Agreement, the ASEAN-Japan Comprehensive Economic Partnership and the ASEAN-
Australia-New Zealand Free Trade Area Agreement and the ASEAN-India Free Trade Area
Agreement. SMPFC is subject to increasing competition from lower-priced imported products,
resulting from decreases in trade barriers under the terms of such trade agreements. For example, as
of January 1, 2010, import duties on certain value-added products, such as instant coffee, was
reduced from 5.0% to zero on imports from other ASEAN countries (although the 40.0% tariff on
luncheon meats from China remains in place). SMPFC has already experienced the effects of
increased competition as a result of the elimination of these import duties and expects that
competition from imported products will continue to increase. If SMPFC is unable to compete
effectively with lower-priced imports, its market share and sales will decrease, and SMPFC’s
business, financial condition, results of operations and prospects may be materially and adversely
affected.

For more information on SMPFC’s efforts to mitigate this risk, see discussions on “The Company -
Strategies – Achieve Cost Leadership” on page 56 and “Pricing and Selling Strategy” on page 101.

32
SMPFC’s operations depend on certain trademarks and proprietary rights owned by SMPFC,
and infringement of these rights could have a material adverse effect on SMPFC’s competitive
position.

SMPFC owns various brand names, related trademarks and other intellectual property rights to
prepare, package, advertise, distribute and sell its products in the Philippines. Protection of these
brands and related intellectual property rights is important to maintaining SMPFC’s distinctive
corporate and market identities. If other parties sell products that use counterfeit versions of SMPFC’s
brands or otherwise look like SMPFC’s brands, consumers may confuse inferior products with
SMPFC’s products. This could cause consumers to refrain from purchasing SMPFC’s products in the
future and materially and adversely affect SMPFC’s brand image and sales. SMPFC is responsible for
defending against any infringements on its brands or other proprietary rights. In this connection,
SMPFC vigilantly monitors products released in the market that may mislead consumers as to the
origin of such products and attempt to ride on the goodwill of SMPFC’s brands and other proprietary
rights. SMPFC has also retained independent external counsels to alert the Company of any such
attempts and to enjoin third parties from the use of colorable imitations of SMPFC’s brands and/or
marked similarities in general appearance or packaging of products, which may constitute trademark
infringement and unfair competition. However, SMPFC cannot assure prospective investors that it will
be successful in this regard. Any failure by SMPFC to protect its proprietary rights could have a
material adverse effect on SMPFC’s competitive position, results of operations and prospects.

SMC is able to exercise substantial influence over SMPFC’s corporate policies and direct the
outcome of corporate actions and there can be no assurance SMC and its officers or directors
will act in the best interests of SMPFC.

SMC, SMPFC’s controlling shareholder, holds approximately 99.92% of SMPFC’s Common Shares.
SMC has effective control over SMPFC, including SMPFC’s management, policies and business,
through its ability to control actions that require majority shareholder approval and through its
representatives on SMPFC’s Board of Directors. The interests of SMC may not always be consistent
with SMPFC’s interests or those of its other shareholders, including holders of the Preferred Shares.
To the extent that there are conflicts of interest between SMC and SMPFC or its other shareholders,
there can be no assurance that SMC will not choose to pursue strategic objectives that conflict with
the interests of SMPFC or its other shareholders, including holders of the Preferred Shares, or that
those shareholders will not be disadvantaged as a result.

In addition, SMC has ownership interests in a number of companies in the Philippines, including
companies that are involved in businesses related to SMPFC’s businesses or that have entered into,
or may enter into, business transactions with SMPFC, such as, for example, transactions with San
Miguel Yamamura Packaging Corporation for packaging materials. There can be no assurance that
SMC or its officers or directors will make corporate opportunities available to SMPFC.

Furthermore, certain other members of the SMC Group have significant commercial transactions with
SMPFC. These transactions have generally been entered into on arm’s length commercial terms. For
further information, see “Related Party Transactions”.

SMPFC strives to mitigate the foregoing risks through adherence to good corporate governance
principles and practices. Please see “Directors and Executive Officers – Corporate Governance” on
page 91.

The growth of supermarkets as well as a general consolidation of wholesale buyers in the

Philippine market may have a material adverse effect on SMPFC’s financial condition and
results of operations.

The Philippine retail market has historically been highly fragmented among numerous small
neighborhood stores, groceries and more traditional wet markets. These small neighborhood stores
serve limited geographical areas and purchase relatively small quantities of SMPFC’s products from

33
distributors and larger supermarkets. In recent years, larger supermarkets have begun to gain market
share in the Philippines. There is a risk that SMPFC’s business may become concentrated in fewer,
larger customers, which could increase the relative bargaining power of these customers. SMPFC
cannot assure prospective investors that supermarkets or one of these larger customers will not exert
downward pressure on wholesale prices of SMPFC’s products, which may have a material adverse
effect on SMPFC’s financial condition and results of operations.

In addition, traditional wet markets remain a major source of food products for many Philippine
consumers. Because the Government may periodically move to protect consumers from rising prices,
SMPFC may be constrained from passing on price increases to wet market retailers who sell its
poultry, fresh meats and value-added meats products.

Please see discussion on “Pricing and Selling Strategy” and “New Products and Branding Initiatives”
on page 101 and 102.

SMPFC is exposed to the credit risks of its customers, and defaults in payment by its
customers could have a material adverse effect on SMPFC’s financial condition, results of
operations and liquidity.

SMPFC is exposed to the credit risk of its customers, and defaults on material payments owed to
SMPFC by customers could significantly reduce SMPFC’s operating cash flows and liquidity, as well
as have a material adverse effect on SMPFC’s financial condition and results of operations. Some of
SMPFC’s customers could also experience cash flow difficulties or become subject to liquidation,
which could in turn lead to SMPFC experiencing long delays in collection of payments, if at all.
SMPFC’s average trade receivables turnover in 2007, 2008 and 2009 and the nine months ended
September 30, 2010 was approximately 43, 41 and 52 and 42 days, respectively. For further
information, see “Management’s Discussion and Analysis of Financial Condition and Results of
Operations – Quantitative and Qualitative Disclosures About Market Risk – Credit Risk” on page 120.

SMPFC cannot provide any assurance that its exposure to the risk of delayed payments from its
customers or defaults in payment by its customers will not increase, or that it will not experience
losses or cash flow constraints as a result. If any of these events were to occur, SMPFC’s financial
condition and results of operations could be materially and adversely affected.

SMPFC generally does not have long-term contracts with its customers, and it is subject to
uncertainties and variability in demand and product mix, which could materially decrease net
sales and negatively affect its profitability.

As is common in the industries in which SMPFC operates, SMPFC does not have long-term contracts
with its customers, and, consequently, its revenues are subject to short-term variability resulting from
the seasonality of, and other fluctuations in demand for, its products. SMPFC’s customers have no
obligation to place new orders with SMPFC following the expiration of their current obligations, and
may cancel, reduce or delay orders for a variety of reasons. The level and timing of orders placed by
SMPFC’s customers may vary due to a number of factors including:

• seasonality and other fluctuations in demand for SMPFC’s products;

• the competitiveness of SMPFC’s selling prices in the industry;
• customer satisfaction with the level of service SMPFC provides; and
• customers’ inventory management.

SMPFC has experienced terminations of, and reductions and delays in, its customers’ orders in the
past. Furthermore, terminations of, or reductions or delays in, orders placed by SMPFC’s customers
or inability by SMPFC to substitute new orders for cancelled orders, could lower its facility utilization
rates, which would materially decrease SMPFC’s revenues and profitability. In addition, seasonality in
demand for SMPFC’s products could materially and adversely affect SMPFC’s results of operations
and financial results from quarter to quarter.

34
For further information regarding seasonality in certain of SMPFC’s businesses, see “Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and
Qualitative Disclosures about Market Risk – Seasonality”.

Please see also the discussion under the heading “The Company – Strategies” on page 55.

SMPFC intends to use part of the proceeds from the Offer to co-invest alongside SMC,
potentially in areas outside its core business areas, and the loss of any or all of the principal
of these investments could materially and adversely affect its financial condition and results of
operations.

SMPFC intends to use a portion of the proceeds from the Offer to co-invest alongside SMC,
potentially in areas outside of its traditional food businesses. Because these investments may extend
outside SMPFC’s core competencies, SMPFC may lack the expertise to assess and manage the risks
associated with these investments to the same extent as it could on investments in the food
industries. In addition, SMPFC expects that these investments would be passive in nature, meaning
SMPFC would not have meaningful control of the management or policies of its investees. The loss of
any or all of these investments could materially and adversely affect SMPFC’s financial condition and
results of operations.

SMPFC’s Board has not yet identified any definite investee targets and is continually assessing
investment opportunities as they arise, taking into consideration, among others, the attractiveness of
the expected returns from said investments

SMPFC may be subject to labor unrest, slowdowns and increased wage costs.

As of September 30, 2010, SMPFC had 3,701 regular employees, including 620 employees who are
members of various labor unions (including employees of the Vietnam business). SMPFC has in the
past, and may in the future, be required to defend against labor claims. For example, in 2010,
SMPFC’s decision to convert one of its poultry plants located in San Fernando, Pampanga into a
toller-operated plant was resisted by many of that plant’s employees. As a result, SMPFC had to
temporarily close that plant and institute legal proceedings. While SMPFC ultimately won those legal
proceedings, and plans to re-open the poultry plant by early 2011, there can be no assurance that
similar labor disputes in the future will not require the closure of other SMPFC facilities.

SMPFC considers its labor relations to be good; however, there can be no assurance that it will not
experience future disruptions to its operations due to disputes or other issues with its employees,
which may materially and adversely affect its business, financial condition and results of operations.

SMPFC may be subject to potential liability for any failure to comply with prescribed
environmental standards and limits.

Various environmental laws and regulations govern the operations of SMPFC, including, but not
limited to, the management of solid waste, water and air quality, toxic substances and hazardous
waste at SMPFC’s facilities. Non-compliance with the legal requirements or violations of prescribed
standards and limits under these laws could expose SMPFC to potential liabilities, including
administrative penalties. Violations of environmental laws could also result in the suspension and/or
revocation of permits or licenses held by SMPFC or suspension or closure of operations. In addition,
environmental laws and regulations have, in general, tended to become more restrictive over time, as
amendments to existing laws and regulations and new legislation are introduced. SMPFC may be
required to expend substantial resources in the future, as it continuously adjusts its operations to
comply with new environmental laws and regulations. Such developments could adversely affect
SMPFC’s business and results of operations.

See discussion on “Health, Safety and Environmental Matters” on page 70.

35
SMPFC may be materially and adversely affected by any change in labor, employee health and
safety, and other laws and regulations. Such developments could adversely affect SMPFC’s
business and results of operations.

SMPFC’s operations are subject to a number of national and local laws and regulations, including
industry laws and regulations relating to labor, employee health and safety and tax. SMPFC cannot
assure prospective investors that changes in such laws or regulations will not result in SMPFC having
to incur substantial additional expenditures to upgrade or supplement its existing facilities or comply
with increased minimum wage laws or becoming subject to increased tax rates or fines and penalties.
Any such changes in laws and regulations could have a material adverse effect on SMPFC’s
business, financial condition and results of operations.

SMPFC depends on certain key personnel, and its business and growth prospects may be
disrupted if their services are lost.

SMPFC’s future success is dependent on the continued service of its key executives and employees.
Thus, the Company strives to strengthen the competencies of its employees, specifically those in the
succession pipeline of key personnel, through such initiatives as the San Miguel Pure Foods
University, and pursues strategic hiring for identified critical positions. However, SMPFC cannot
assure potential investors that it will be able to retain these executives and employees. Some
members of SMPFC’s management are leaders or members of certain key industry associations in
the Philippines, and SMPFC believes it benefits from those relationships. If many of SMPFC’s key
personnel were unable or unwilling to continue in their present positions, or if they joined a competitor
or formed a competing business, SMPFC may not be able to replace them easily, and the business of
SMPFC may be disrupted.

There can be no assurance that SMPFC is fully insured against unexpected losses and
accidents.

SMPFC may not be fully insured against unexpected losses caused by natural disasters, breakdowns
or other events that could affect the facilities or processes used by SMPFC in its businesses. For
example, SMPFC does not carry business interruption insurance for any of its businesses. If SMPFC
incurs significant unexpected losses for which it is not insured, its business, financial condition and
results of operations may be materially and adversely affected.

Please see section on “Insurance” on page 70.

Any loss or shutdown of operations at SMPFC’s manufacturing facilities or those of its

suppliers could have a material adverse effect on its business, financial condition and results
of operations.

SMPFC’s facilities and those of its suppliers are subject to operating risks, such as the breakdown or
failure of equipment or processes, performance below expected levels of output or efficiency,
obsolescence, natural disasters, industrial accidents and the need to comply with the directives of
relevant government authorities. For example, SMPFC decided to cease operations at its Marikina
plant after it was severely damaged when Typhoon Ondoy hit Metro Manila in September 2009. As a
result of that closure, SMPFC was not able to meet volume demand during the period while it was
transferring production capacity to its Cavite plant and third-party contracted plants, and SMPFC’s
revenues were adversely affected during the fourth quarter of 2009. The occurrence of any of such
events could significantly affect its operating results.

SMPFC’s business, financial condition and results of operations may be materially and adversely
affected by any disruption of operations at its or its suppliers’ facilities, including due to any of the
events mentioned above. SMPFC takes precautions to minimize the risk of any significant operational
problems at its facilities and continuously monitors the efficiency and manufacturing capabilities of its
contractors’ production facilities.

36
Any accident at SMPFC’s facilities could lead to property damage, production loss and
accident claims.

Any accident at SMPFC’s manufacturing facilities could result in losses for SMPFC. SMPFC could
suffer a decline in production, receive adverse publicity and be forced to invest significant resources in
addressing such damages, both in terms of time and money. Although there have been few accidents
at SMPFC’s facilities in the past, there can be no assurance that there will not be work-related or
other accidents in the future. Furthermore, there can be no guarantee that amicable settlements will
be secured in the future or that accidents may not result in future litigation or regulatory action against
SMPFC. Such events could materially and adversely affect SMPFC’s financial condition and results
from operations.

Please see section on “Insurance” on page 70.

SMPFC relies significantly on the “San Miguel” brand name, and any dilution of its brand
equity could materially and adversely affect SMPFC’s reputation and business.

SMPFC believes the San Miguel brand is positively perceived by consumers in the Philippines as a
result of its long presence in the Philippine market. SMPFC also believes the San Miguel brand name
lends its own products an image of trust and quality. Although SMPFC relies significantly on the San
Miguel brand name, SMPFC has little or no control over its use by other SMC Group companies or
any other third parties. Any decrease in the brand equity of the San Miguel brand name could
materially and adversely affect SMPFC’s reputation, financial condition, results of operations and
prospects. The Company, alongside SMC, seeks to protect the San Miguel brand name equity by
cultivating a common culture of good corporate governance and food safety prioritization and
proactive management of regulatory concerns. Moreover, the Company manages its brands (i.e.,
Magnolia, Purefoods, Monterey, B-Meg, Dari Crème, Star) at the individual business level, to lessen
the impact of any possible dilution in the San Miguel brand equity.

SMPFC is not in compliance with the minimum public ownership requirement imposed by the
PSE for listed companies and while SMPFC is currently implementing initiatives to comply
with said minimum public ownership requirement, there can be no assurance that such
initiatives will be considered fully compliant.

The Company is currently not in compliance with the minimum public float of 10% being required by
the PSE for listed companies. In a letter dated December 28, 2010 addressed to the SEC, the BIR
has sought to impose potentially higher public ownership levels than prescribed by the PSE and
indicated that this would be enforced by “strictly imposing the 5%/10% capital gains tax” for trades in
listed companies “who will not maintain their public ownership requirement.” In the event that this
initiative is carried out, trades in the Company’s outstanding capital stock, including the Preferred
Shares, may be subjected to such capital gains tax instead of the stock transaction tax of ½ of 1% of
the gross selling price or gross value in money (see “Taxation” at page 126). While the Company is
currently implementing initiatives to comply with the minimum public ownership requirement through
transactions such as this Offer and other initiatives (see “Compliance with Minimum Public Ownership
Requirement” at page 84) there can be no assurance that such initiatives will be considered fully
compliant with the relevant requirements of the PSE and/or the BIR in order for the Company to avoid
penalties (which include delisting) imposable by the PSE for such breach or the imposition of capital
gains tax by the BIR for sales of the Company’s shares, including the Preferred Shares, listed on the
PSE.

37
Risks Related to the Philippines
SMPFC’s operations are concentrated in the Philippines, and any downturn in general
economic conditions in the Philippines could have a material adverse effect on SMPFC’s
business, financial condition, results of operations and prospects.

Historically, SMPFC’s results of operations have been influenced, and will continue to be influenced,
to a significant degree by the general state and performance of the Philippine economy. In the past,
the Philippines has experienced periods of slow or negative growth, high inflation, significant
devaluation of the Peso and the imposition of exchange controls.

In addition, global financial, credit and currency markets have, since the second half of 2007,
experienced, and may continue to experience, significant dislocations and liquidity disruptions. There
is significant uncertainty as to the potential for a continued downturn in the U.S. and the global
economy, which would be likely to cause economic conditions in the Philippines to deteriorate. Any
deterioration in the Philippine economy may adversely affect consumer sentiment and lead to a
reduction in demand for SMPFC’s products, which may materially reduce SMPFC’s revenues,
profitability, cash flows and results of operations generally. There can be no assurance that current or
future Governments will adopt economic policies conducive to sustaining economic growth.

Political instability or acts of terrorism in the Philippines could destabilize the country and
may have a negative effect on SMPFC.

The Philippines has from time to time experienced political and military instability. In the last few
years, there has been political instability in the Philippines, including impeachment proceedings
against former presidents Joseph Estrada and Gloria Macapagal-Arroyo, and public and military
protests arising from alleged misconduct by previous administrations. In addition, there is no
guarantee that acts of election-related violence will not occur in the future and such events have the
potential to negatively impact the Philippine economy. An unstable political environment, whether due
to the imposition of emergency executive rule, martial law or widespread popular demonstrations or
rioting, could negatively affect the general economic conditions and operation environment in the
Philippines, which could have a material adverse effect on SMPFC’s business, financial condition and
results of operations.

The Philippines has been subject to a number of terrorist attacks since 2000. The Philippine army has
been in conflict with the Abu Sayyaf organization, which has been identified as being responsible for
kidnapping and terrorist activities in the Philippines. In the past, bombings have taken place in the
Philippines, mainly in cities in the southern part of the country. Although no one has claimed
responsibility for these attacks, it is believed that the attacks are the work of various separatist groups,
possibly including the Abu Sayyaf organization, which has ties to the al-Qaeda terrorist network. On
August 23, 2010, eight hostages were killed in a hostage situation aboard a tour bus in Manila. This
resulted in the Hong Kong Special Administrative Region government issuing a “black” travel alert for
the Philippines. An increase in the frequency, severity or geographic reach of terrorist, hostage taking
or similar acts could destabilize the Philippines, increase internal divisions within the Government as it
evaluates responses to that instability and unrest and adversely affect the country’s economy. There
can be no assurance that the Philippines and the assets and operations of SMPFC will not be subject
to further acts of terrorism in the future, which could have a material adverse effect on SMPFC’s
business, financial condition and results of operations.

The credit rating of the Philippines may materially and adversely affect SMPFC’s ability to
obtain financing on commercial terms, or at all.

International credit rating agencies issue credit ratings for companies with reference to the country in
which they are resident. As a result, the sovereign credit ratings of the Philippines directly affect
companies that are resident in the Philippines, such as SMPFC. No assurance can be given that
Moody’s, S&P or other international credit rating agencies will not downgrade the credit rating of the
Philippines in the future. Any such downgrade could have a material adverse effect on liquidity in the
Philippine financial markets, the ability of the Government and Philippine companies, including

38
SMPFC, to raise additional financing and the interest rates and other commercial terms on which such
additional financing is available, and increase SMPFC’s borrowing and other costs. These factors
could have a material adverse effect on SMPFC’s financial condition.

Developments in other markets and countries may adversely affect the Philippine economy
and, therefore, the market price of the Preferred Shares.

In the past, the Philippine economy and the securities of Philippine companies have been, to varying
degrees, influenced by economic and market conditions in other countries, particularly other countries
in Southeast Asia, as well as investors’ responses to those conditions.

Although economic conditions are different in each country, investors’ reactions to adverse
developments in one country may affect the market price of securities of companies in other
countries, including the Philippines. For example, the recent economic crisis in the United States and
Europe triggered market volatility in other countries’ securities markets, including the Philippines.
Accordingly, adverse developments in the global economy could lead to a reduction in demand for,
and the market price of, the Preferred Shares.

The occurrence of natural catastrophes and electricity blackouts may materially disrupt
SMPFC’s operations.

The Philippines has experienced a number of major natural catastrophes in recent years, including
typhoons, volcanic eruptions, earthquakes, mudslides, droughts and floods related to El Niño and La
Niña weather events. Natural catastrophes may disrupt SMPFC’s ability to produce or distribute its
products and impair the economic conditions in affected areas, as well as the overall Philippine
economy. For example, volume growth in SMPFC’s poultry business decreased in 2006 after two
major typhoons destroyed some of SMPFC’s poultry facilities, killing over a million birds. The
Philippines has also experienced electricity blackouts, both from insufficient power generation and
from disruptions such as typhoons. These types of events may materially disrupt SMPFC’s business
and operations, as well as have a material adverse effect on SMPFC’s business, financial condition
and results of operations. Furthermore, SMPFC cannot assure prospective investors that the
insurance coverage it maintains for these risks will provide adequate compensation for damages and
economic losses resulting from natural catastrophes or blackouts, including possible business
interruptions.

Outbreaks of contagious diseases in the Philippines could have a material adverse effect on
SMPFC’s financial condition and results of operations.

Any outbreak of any contagious disease in the Philippines, including avian influenza (bird flu) and
H1N1 (swine flu), could have a material adverse effect on SMPFC’s financial condition and results of
operations. In particular, any outbreak of a contagious disease could materially reduce consumer
demand for SMPFC’s products, SMPFC’s ability to adequately staff its operations and the distribution
networks for SMPFC’s products, as well as the general level of economic activity in the Philippines.
SMPFC cannot assure prospective investors that any future outbreak of a contagious disease will not
have a material adverse effect on SMPFC’s result of operations, sales and profitability.

If foreign exchange controls were to be imposed in the Philippines, SMPFC’s ability to

purchase raw materials or to meet its foreign currency payment obligations could be
disrupted.

Currently, the Philippines does not have any foreign exchange controls in effect. However, the BSP
has statutory authority, with the approval of the President of the Philippines, during a foreign
exchange crisis or in times of national emergency, to:

• suspend temporarily or restrict sales of foreign exchange;

• require licensing of foreign exchange transactions; or

39
 • require the delivery of foreign exchange to the BSP or its designee banks.

SMPFC purchases certain critical raw materials, such as milk, wheat and soybean meal, from abroad
and requires foreign currency to make these purchases. SMPFC cannot assure prospective investors
that foreign exchange controls will not be imposed by the Government in the future. If imposed, these
restrictions could curtail SMPFC’s ability to obtain raw materials from abroad or to meet its foreign
currency payment obligations, which could materially and adversely affect its financial condition and
results of operations.

Management of Risks related to the Philippines

The Company has been able to survive major economic and political crises brought about by
domestic and international developments through the implementation of its core strategies, including
least cost formulations, efficiencies improvement, market leadership, innovation and regional
diversification. Constant monitoring of market allows the Company to detect risk exposures and react
to the external environment appropriately. Although there is no assurance that the Company will be
able to fully overcome the adverse effects of any or all crisis, it has in place a system of financial
prudence and corporate governance that provides the foundation for its risk management initiatives.

Risks Related to the Preferred Shares

The market price of the Shares may be volatile, which could cause the value of investors’
investments in the Preferred Shares to decline.

The market price of the Preferred Shares could be affected by various factors, including:

• general market, political and economic conditions;

• changes in earnings estimates and recommendations by financial analysts;
• changes in market valuations of listed stocks, in general, and other food producer stocks, in
particular;
• changes to Government policy, legislation or regulations, and
• general operational and business risks.

In addition, many of the risks described elsewhere in this Prospectus could materially and adversely
affect the market price of the Shares.

Payment of Dividends on Preferred Shares

Dividends on the Preferred Shares may not be paid in full, or at all. Under the terms and conditions
governing the Preferred Shares, the Company may pay no dividends or less than full dividends on a
Dividend Payment Date. Holders of the Preferred Shares will not receive dividends on a Dividend
Payment Date or for any period during which the Company does not have retained earnings out of
which to pay dividends.

Subordination to the Company’s Other Indebtedness

SMPFC’s obligations in respect of the Preferred Shares are subordinated to all of the Company’s
indebtedness, and it will not make any payments under the Preferred Shares unless it can satisfy in
full all of its other obligations that rank senior to the Preferred Shares.

SMPFC’s obligations under the Preferred Shares are unsecured and will, in the event of the winding-
up of the Company, rank junior in right of payment to all indebtedness of the Company and junior in
right of payment to securities of, or claims against, the Company which rank or are expressed to rank
senior to the Preferred Shares. Accordingly, SMPFC’s obligations under the Preferred Shares will not

40
be satisfied unless SMPFC can satisfy in full all of its other obligations ranking senior to the Preferred
Shares.

There is no agreement or instrument that limits SMPFC’s ability to incur additional indebtedness that
ranks senior to or pari passu with the Preferred Shares.

Insufficient Distributions upon Liquidation

Upon any voluntary or involuntary dissolution, liquidation or winding up of SMPFC, holders of

Preferred Shares will be entitled only to the available assets of the Company remaining after the
Company’s indebtedness is satisfied. If any such assets are insufficient to pay the full amount due to
the holders of the Preferred Shares, then holders of Preferred Shares shall share ratably in any such
distribution of assets in proportion to the full distributions to which they would otherwise be
respectively entitled.

Ability to Make Payments Under the Shares is Limited by Terms of SMPFC’s Other
Indebtedness

SMPFC has and will continue to have a certain amount of outstanding indebtedness. The current
terms of SMPFC’s financing agreements contain provisions that could limit the ability of the Company
to make payments on the Preferred Shares. Also, SMPFC may in the future, directly or indirectly
through its subsidiaries, enter into other financing agreements which may restrict or prohibit the ability
of the Company to make payments on the Preferred Shares. There can be no assurance that existing
or future financing arrangements will not adversely affect SMPFC’s ability to make payments on the
Preferred Shares.

Company has the Sole Right to Redemption

Holders of the Preferred Shares have no right to require the Issuer to redeem the Preferred Shares.
The Preferred Shares are only redeemable at the option of the Issuer on the Optional Redemption
Date or any Dividend Payment Date thereafter. Accordingly, if a Preferred Shareholder wishes to
obtain the cash value of the investment, the holder will have to sell the Preferred Shares in the
secondary market.

Lack of Public Market for the Shares

The Philippine securities markets are substantially less liquid and more volatile than major securities
markets in other jurisdictions, and are not as highly regulated or supervised as some of these other
markets. The Company cannot guarantee that the market for the Preferred Shares will always be
active or liquid upon their listing on the PSE.

Limited Liquidity

The Joint Lead Underwriters are not obligated to create a trading market for the Preferred Shares and
any such market making will be subject to the limits imposed by applicable law, and may be
interrupted or discontinued at any time without notice. Accordingly, the Company cannot predict
whether an active or liquid trading market for the Preferred Shares will develop or if such a market
develops, if it can be sustained. Consequently, a shareholder may be required to hold his Preferred
Shares for an indefinite period of time or sell them for an amount less than the Offer Price.

Non-Payment of Dividends may affect the Trading Price of the Preferred Shares

If dividends on the Preferred Shares are not paid in full, or at all, the Preferred Shares may trade at a
lower price than they might otherwise have traded if dividends had been paid. The sale of Preferred

41
Shares during such a period by a holder of Preferred Shares may result in such holder receiving lower
returns on the investment than a holder who continues to hold the Preferred Shares until dividend
payments resume. In addition, because of the dividend limitations, the market price for the Preferred
Shares may be more volatile than that of other securities that do not have these limitations.

Inability to Reinvest at a Similar Return on Investment

On the Optional Redemption Date or at any time redemption occurs, SMPFC may redeem the
Preferred Shares for cash at the redemption price, as described in ‘‘Description of the Shares’’. At the
time of redemption, interest rates may be lower than at the time of the issuance of the Preferred
Shares and, consequently, the holders of the Preferred Shares may not be able to reinvest the
proceeds at a comparable interest rate or purchase securities otherwise comparable to the Preferred
Shares.

No Voting Rights

Holders of Preferred Shares will not be entitled to elect the Directors of the Company. Except as
specifically set forth in the Articles of Incorporation and as provided by Philippine law, holders of
Preferred Shares will have no voting rights (see ‘‘Description of the Preferred Shares’’ on page 24).

42
Use of Proceeds
The gross proceeds of the Offer will amount to P15 billion. The Company estimates that the net
proceeds of the Offer shall amount to approximately P14.83 billion, after underwriting fees,
commissions and expenses. Estimated fees, commissions and expenses relating to the Issue are as
follows:

Fees, Commissions and Expenses In P Millions

Gross Underwriting Fees for the Preferred Shares being
120.97
sold by the Company
Taxes to be paid by the Company 1.65
Philippine SEC filing and legal research fee 4.36
Estimated PSE listing and processing fee 15.05
Estimated legal and other professional fees 29.89
Estimated other expenses 2.63
TOTAL 174.55

SMPFC intends to use the net proceeds of the Offer as follows:

Payables relating to the Brands Acquisition and the Vietnam Acquisition. SMPFC intends to use
approximately P 3.615 billion of the net proceeds of the Issue to repay a payable to SMC relating to
the Brands Acquisition and the Vietnam Acquisition.

The breakdown of the outstanding payable to SMC as of September 30, 2010 is provided below (in
million Pesos):

Contract Price Downpayment 90% Balance 90% Balance After

Before Restatement Month-End
Restatement
Brands 3,200 320 2,880 2,880
Vietnam business* 853 85 767 735**
Total 4,053 405 3,647 3,615

*Contract price: US$18.6 million

**As the contract price for the Vietnam acquisition is denominated in US dollars, its outstanding balance is restated every end of
the month to take into account any changes in exchange rates.

The balance of the total contract price is due and payable (i) upon change in the controlling interest of
SMPFC to any third person other than an affiliate or (ii) two years from closing date, whichever comes
first, as provided in the respective agreements for the Brands Acquisition and the Vietnam Acquisition.
For more information, see “Recent Acquisitions”.

Investment opportunities. SMPFC intends to invest a portion of the net proceeds of the Issue in one
or more potential investment opportunities. SMPFC has no definite investment plans and continually
assesses investment opportunities as they arise. Potential areas for investment include, but are not
limited to:

• SMPFC’s existing products and businesses;

• geographical expansion; and
• participation in SMC’s diversification into power, water and other utilities, and infrastructure.
SMPFC intends to effect the foregoing investments in 2011 up to 2012.

General corporate purposes. SMPFC intends to use the remaining net proceeds of the Preferred
Shares, if any, for general corporate purposes.

The following table provides a breakdown of the amount of the use of proceeds:

43
 Amount from Net Proceeds
P3.615 billion
up to P11.210 billion
Any remaining balance of the
net proceeds, but not to
exceed P1.483 billion
Planned Use Estimated Disbursement
Products and businesses First half of 2011
Investment opportunities 2011 to 2012
General corporate purposes 2011 to 2012

Pending its finalization of a definite investment plan, the Company intends to invest the proceeds of
the Offer in financial assets. The Company may invest the proceeds temporarily in liquid money
market instruments, which provide flexibility for deployment for capital expenditures.

If the expected gross proceeds are not realized, the Company will utilize its internally generated
funds, existing credit lines, and other potential borrowings to finance the listed Uses of Proceeds. The
internally generated funds originate from the Company’s operations.

No amount of the proceeds is to be used to reimburse any officer, director, employee, or shareholder,
for services rendered, assets previously transferred, money loaned or advanced, or otherwise.

Except for the underwriting fees, issue management fees and expenses related to the Offer, no
amount of the proceeds will be utilized to pay any outstanding financial obligations to the Joint Lead
Underwriters.

In the event of any deviation or adjustment in the planned use of proceeds, SMPFC shall inform the
SEC and the Preferred Shareholders at least thirty (30) days prior to the implementation of such
deviation or adjustment. Any material or substantial adjustments to the use of proceeds, as indicated
above, should be approved by the Company’s Board of Directors and disclosed to the PSE.

The Company shall disclose to the PSE through the Online Disclosure System (OdiSy) any
disbursements from the proceeds generated from the Offer.

44
Determination of Offer Price
The Offer Price of P1,000 is at a premium to the Preferred Share’s par value per share of P10.00.
The Offer Price was arrived at by dividing the desired gross proceeds of P15 billion by the amount of
Preferred Shares allocated for this offering.

Prior to this offering, there has been no public market for the Preferred Shares.

45
Dilution
The Preferred Shares will not have any dilutive effect on the rights of the holders of the common
shares of the Company as these are non-voting, non-convertible and non-participating.

46
Plan of Distribution
SMPFC plans to issue the Preferred Shares to institutional and retail investors in the Philippines
through a public offering to be conducted through the Joint Lead Underwriters and Sub-Underwriters.
The Offer does not include an international offering.

Joint Lead Underwriters

BDO Capital & Investment Corporation (“BDO Capital”), The Hongkong and Shanghai Banking
Corporation Limited (“HSBC”), RCBC Capital Corporation (“RCBC Capital”), SB Capital Investment
Corporation (“SB Capital”), and Standard Chartered Bank (“SCB”) (collectively, the “Joint Lead
Underwriters”) have agreed to distribute and sell the Preferred Shares at the Issue Price, pursuant to
an Underwriting Agreement to be entered into with SMPFC (the “Underwriting Agreement”). Subject
to the fulfillment of the conditions provided in the Underwriting Agreement, the Joint Lead
Underwriters have committed to underwrite the following amounts on a firm basis:

BDO Capital & Investment Corporation P3 billion

The Hongkong and Shanghai Banking P3 billion
Corporation Limited
RCBC Capital Corporation P3 billion
SB Capital Investment Corporation P3 billion
Standard Chartered Bank P3 billion
TOTAL P15 billion

The Underwriting Agreement may be terminated in certain circumstances prior to payment being
made to SMPFC of the net proceeds of the Preferred Shares.

The underwriting and selling fees to be paid by the Company in relation to the Offer shall be
equivalent to 0.75% of the gross proceeds of the Offer. This shall be inclusive of fees to be paid to
the Joint Lead Underwriters and sub-underwriters, if any, and commissions to be paid to the Trading
Participants of the PSE.

The Joint Lead Underwriters are duly licensed by the SEC to engage in the underwriting or distribution
of the Preferred Shares. The Joint Lead Underwriters may, from time to time, engage in transactions
with and perform services in the ordinary course of its business for SMPFC or any of its subsidiaries.

The Joint Lead Underwriters have no direct relations with SMPFC in terms of ownership by either of
their respective major stockholder/s, and have no right to designate or nominate any member of the
Board of Directors of SMPFC.

The Joint Lead Underwriters have no contract or other arrangement with SMPFC by which it may
return to SMPFC any unsold Preferred Shares.

BDO Capital is the wholly owned investment-banking subsidiary of Banco de Oro Unibank, Inc. BDO
Capital is a full-service investment house primarily involved in securities underwriting and trading, loan
syndication, financial advisory, private placement of debt and equity, project finance, and direct equity
investment. Incorporated in December 1998, BDO Capital commenced operations in March 1999.

HSBC Philippines is a branch of The Hongkong and Shanghai Banking Corporation Limited, a global
corporation headquartered in London, United Kingdom, providing a comprehensive range of financial
services to customers through Personal Financial Services (including consumer finance), Commercial
Banking, Global Banking and Markets, and Private Banking. HSBC has been doing business in the
Philippines for 135 years, and currently employs over 8,000 people in the country. HSBC has a

47
universal banking license and carries out its investment banking activities through its Global Capital
Markets department,

RCBC Capital is a licensed investment house providing a complete range of capital raising and
financial advisory services. Established in 1974, RCBC Capital has over 35 years of experience in the
underwriting of equity, quasi-equity and debt securities, as well as in managing and arranging the
syndication of loans, and in financial advisory. RCBC Capital is a wholly-owned subsidiary of the Rizal
Commercial Banking Corporation and a part of the Yuchengco Group of Companies, one of the
country‘s largest fully integrated financial services conglomerates.

SB Capital is a Philippine corporation organized in October 1995 as a wholly-owned subsidiary of

Security Bank Corporation. It obtained its license to operate as an investment house in 1996 and is
licensed by the SEC to engage in underwriting and distribution of securities to the public. SB Capital
provides a wide range of investment banking services including financial advisory, underwriting of
equity and debt securities, project finance, privatizations, mergers and acquisitions, loan syndications
and corporate advisory services. SB Capital is also involved in equity trading through its wholly-owned
stock brokerage subsidiary, SB Equities, Inc.

Standard Chartered Bank is a banking corporation duly organized and incorporated in England with
limited liability by Royal Charter 1853, and licensed to act as a banking institution under and by virtue
of the laws of the Republic of the Philippines through its Branch Office, with principal offices at the 8th
Floor Standard Chartered Bank Building, 6788 Ayala Avenue, Makati City, Philippines. In the
Philippines since 1872, Standard Chartered is a universal bank and is the longest established foreign
bank in the country with services ranging from transaction banking, financial markets and corporate
finance.

Sale and Distribution

The distribution and sale of the Preferred Shares shall be undertaken by the Joint Lead Underwriters
who shall sell and distribute the Preferred Shares to third party buyers/investors. The Joint Lead
Underwriters are authorized to organize a syndicate of sub-underwriters, soliciting dealers and/or
selling agents for the purpose of the Offer. Of the 15,000,000 Preferred Shares to be offered, 80% or
12,000,000 Preferred Shares are being offered through the Joint Lead Underwriters for subscription
and sale to Qualified Institutional Buyers and the general public. The Company plans to make
available 20% or 3,000,000 Preferred Shares for distribution to the respective clients of the 133
Trading Participants of the PSE, acting as Selling Agents. Each Trading Participant shall be allocated
22,550 Preferred Shares (computed by dividing the Preferred Shares allocated to the Trading
Participants by 133), subject to reallocation as may be determined by the PSE. Trading Participants
may undertake to purchase more than their allocation of 22,550 shares. Any requests for shares in
excess of 22,550 may be satisfied via the reallocation of any Preferred Shares not taken up by other
Trading Participants.

The Company will not allocate any Preferred Shares for the Local Small Investors. As defined in the
PSE Revised Listing Rules, a Local Small Investor is a share subscriber whose subscription does not
exceed P25,000. The Offer will have a minimum subscription amount of P = 50,000.00, which is beyond
the prescribed maximum subscription amount for Local Small Investors.

Prior to the close of the Offer Period, any Preferred Shares not taken up by the Trading Participants
shall be distributed by the Joint Lead Underwriters directly to their clients and the general public. All
Preferred Shares not taken up by the Trading Participants, general public and the Joint Lead
Underwriters’ clients shall be purchased by the Joint Lead Underwriters pursuant to the terms and
conditions of the Underwriting Agreement.

Term of Appointment

The engagement of the Joint Lead Underwriters shall subsist so long as the SEC Permit to Sell
remains valid, unless otherwise terminated pursuant to the Underwriting Agreement.

48
Manner of Distribution

The Joint Lead Underwriters shall, at their discretion, determine the manner by which proposals for
subscriptions to, and issuances of, the Preferred Shares shall be solicited, with the primary sale of the
Preferred Shares to be effected only through the Joint Lead Underwriters. The Joint Lead
Underwriters may appoint other entities, including trading participants, to sell on their behalf.

No shares are designated to be sold to specific persons.

Offer Period

The Offer Period shall commence at 9:00 a.m. on February 14, 2011 and end at 12:00 noon on
February 25, 2011, or such other date as may be mutually agreed between the Company and the
Joint Lead Underwriters.

Application to Purchase

All applications to purchase the Preferred Shares shall be evidenced by a duly completed and signed
application to purchase, together with 2 fully executed signature cards authenticated by the Corporate
Secretary with respect to corporate and institutional investors, and shall be accompanied by the
payment in full of the corresponding purchase price of the Preferred Shares applied for, by check or
by the appropriate payment instruction, and the required documents which must be submitted to the
Joint Lead Underwriters or Sub-Underwriters.

Corporate and institutional purchasers must also submit a copy of SEC-certified or corporate
secretary-certified true copy of the SEC Certificate of Registration, Articles of Incorporation and By-
laws, or such other relevant organizational or charter documents, and the original or Corporate
Secretary-certified true copy of the duly notarized certificate confirming the resolution of the board of
directors and/or committees or bodies authorizing the purchase of the Preferred Shares and
designating the authorized signatory/ies therefor. Individual Applicants must also submit a photocopy
of any one of the following identification cards (“ID”): passport/driver's license, company ID,
SSS/GSIS ID and/or Senior Citizen's ID or such other ID and documents as may be required by or
acceptable to the Registrar and Paying Agent.

An Applicant who is exempt from or is not subject to withholding tax or who claims reduced tax treaty
rates shall, in addition, be required to submit the following requirements to the relevant Joint Lead
Underwriter or Sub-Underwriter (together with their applications) who shall then forward the same to
the Registrar and Paying Agent, subject to acceptance by the Company as being sufficient in form
and substance: (i) certified true copy of the original tax exemption certificate, ruling or opinion issued
by the BIR on file with the Applicant as certified by its duly authorized officer; (ii) with respect to tax
treaty relief, proofs to support applicability of reduced treaty rates, consularized proof of tax domicile
issued by the relevant tax authority of the Preferred Shareholder, and original or SEC-certified true
copy of the SEC confirmation that the relevant entity is not doing business in the Philippines; (iii) an
original of the duly notarized undertaking, in the prescribed form, declaring and warranting its tax
exempt status, undertaking to immediately notify the Company and the Registrar and Paying Agent of
any suspension or revocation of its tax exempt status and agreeing to indemnify and hold the
Company, the Registrar and Paying Agent free and harmless against any claims, actions, suits, and
liabilities resulting from the non-withholding or reduced withholding of the required tax; and (iv) such
other documentary requirements as may be required under the applicable regulations of the relevant
taxing or other authorities.

The Joint Lead Underwriters shall be responsible for accepting or rejecting any application or scaling
down the amount of Preferred Shares applied for. The application, once accepted, shall constitute the
duly executed purchase agreement covering the amount of Preferred Shares so accepted and shall
be valid and binding on the Company and the Applicant.

49
Minimum Purchase

A minimum purchase of 50 shares shall be considered for acceptance. Purchases in excess of the
minimum shall be in multiples of 10 shares.

Refunds

In the event an application is rejected or the amount of Preferred Shares applied for is scaled down,
the Joint Lead Underwriters, upon receipt of such rejected and/or scaled down applications, shall
notify the Applicant concerned that his application has been rejected or the amount of Preferred
Shares applied for is scaled down, and refund the amount paid by the Applicant with no interest
thereon. With respect to an Applicant whose application was rejected, refund shall be made by the
Joint Lead Underwriters by making the check payment of the Applicant concerned available for his
retrieval. With respect to an Applicant whose application has been scaled down, refund shall be made
by the issuance by the concerned Joint Lead Underwriter of its own check payable to the order of the
Applicant and crossed “Payees' Account Only” corresponding to the amount in excess of the accepted
application. All checks shall be made available for pick up by the Applicants concerned at the office of
the Joint Lead Underwriter to whom the rejected or scaled down application was submitted within 5
Banking Days after the last day of the Offer Period. The Company shall not be liable in any manner to
the Applicant for any check payment corresponding to any rejected or scaled-down application which
is not returned by the relevant Joint Lead Underwriter; in which case, the relevant Joint Lead
Underwriter shall be responsible directly to the Applicant for the return of the check or otherwise the
refund of the payment.

Secondary Market

SMPFC may purchase the Preferred Shares at any time without any obligation to make pro rata
purchases of Preferred Shares from all Shareholders.

Registry of Shareholders

The Preferred Shares will be issued in scripless form through the electronic book-entry system of
SMC Stock Transfer Service Corporation as Registrar for the Offer, and lodged with PDTC as
Depository Agent on Listing Date through PSE Trading Participants nominated by the Applicants.
Applicants shall indicate in the proper space provided for in the Application Form the name of the PSE
Trading Participant under whose name their Shares will be registered.

Legal title to the Shares will be shown in an electronic register of shareholders (the “Registry of
Shareholders”) which shall be maintained by the Registrar. The Registrar shall send a Registry
confirmation advice confirming every receipt or transfer of the Preferred Shares that is effected in the
Registry of Shareholders (at the cost of the requesting Shareholder). The Registrar shall send (at the
cost of the Company) at least once every quarter a Statement of Account to all Shareholders named
in the Registry of Shareholders, except certificated Shareholders and Depository Participants,
confirming the number of Shares held by each Shareholder on record in the Registry of Shareholders.
Such Statement of Account shall serve as evidence of ownership of the relevant Shareholder as of a
given date thereof. Any request by Shareholders for certifications, reports or other documents from
the Registrar, except as provided herein, shall be for the account of the requesting Shareholder
(please see “Amended Rule on Lodgment of Securities” on page 146).

Expenses

All out-of-pocket expenses, including but not limited to, registration with the SEC, printing, publication,
communication and signing expenses incurred by the Joint Lead Underwriters in the negotiation and
execution of the transaction will be for SMPFC's account irrespective of whether the Offer is
completed. Such expenses are to be reimbursed upon presentation of a composite statement of
account. See “Use of Proceeds” on page 43 for details of expenses.

50
The Company

Description of the Business

SMPFC is a leading player in the Philippine food industry, offering a broad range of high-quality food
products and services to both household and food service customers.

SMPFC’s main businesses are poultry, feeds, fresh meats, value-added meats, flour, and dairy,
spreads and oils. SMPFC’s other businesses include coffee, food service and retail, as well as two
regional operations located in Indonesia and Vietnam. SMPFC further organizes its businesses into
the following clusters: Agro-Industrial, comprised of its poultry, feeds and fresh meats businesses;
Value-Added Meats, comprised of its value-added meats business; Milling, comprised of its flour
business; and Others, comprised of its dairy, spreads and oils, food service, retail, regional and other
businesses. On July 30, 2010, SMPFC acquired a majority interest in the Vietnam business from
SMC. Prior to this acquisition, SMPFC provided management services to the Vietnam business, but
the majority interest was legally owned by SMC. For more information, see “Recent Acquisitions”.

SMPFC owns some of the best known and well-regarded brands in the Philippine food industry, such
as Magnolia, Purefoods, Monterey, B-Meg, Star, Dari Crème and JellyAce.

SMPFC, which has been listed on the PSE since 1973, was formed through the integration in 2001 of
two leading Philippine food groups, the SMC food businesses and PFC. SMC owns 99.92% of
SMPFC’s Common Shares.

Set forth below is a brief history of SMPFC.

1925 SMC first entered the food industry with the introduction of its Magnolia ice cream
1953 SMC began producing animal feeds with protein-rich by-products from beer brewing
1956 PFC is founded and goes on to become a market leader in the value-added meats
industry, diversifying into many new product lines
1972 SMC launched its poultry operations through the acquisition of a breeding farm from
Arbor Acres
1980s SMC formalized its long-standing partnership with New Zealand Dairy Board, now known
as Fonterra, in the bread spreads category
1981 PFC was acquired by the Ayala Group
1983 PFC diversified into poultry operations
1990s SMC acquires the Star and Dari Crème brands from Procter and Gamble, as well as
Monterey Farms
1991 PFC diversified into the flour business
1995 PFC entered into a joint venture in Indonesia to produce and sell meat products
1996 PFC diversified into the food service business
1996 SMC entered into the food service business and divested its ice cream operations to
Nestle Philippines and licensed its Magnolia brand
1999 PFC spun off its meats division into a joint venture with Hormel
2001 SMC and PFC were integrated, and their food businesses were consolidated under
SMPFC (PFC was renamed SMPFC)
2003 SMC acquired a hog farming and feeds business in Vietnam
2004 SMPFC re-launched its milk and ice cream businesses
2005 SMPFC established a joint venture for its coffee business with Super Coffee Corporation

51
 Pte, Ltd., its Singaporean partner
2006 SMC and Hormel established their joint venture for the Vietnam business, which
subsequently purchased a meat processing plant to enter into the processed meats
market in Vietnam
2007 SMC consolidated its ownership of food subsidiaries under SMPFC
2009 SMPFC created San Miguel Integrated Sales and Division Logistics Group
2010 SMPFC acquired the SMPFC Brands and 51% equity stake in the Vietnam food business
from SMC

Today, SMPFC produces a wide range of food products, including the following:

BUSINESS MAJOR PRODUCTS

Agro – Industrial
Poultry Branded fresh-chilled and frozen whole and cut-up chickens, easy-to-
prepare chicken products, customized products for food service
customers, supermarket house brands and live chickens
Feeds Hog, poultry (layer/broiler), gamefowl, aquatic, duck and other
customized feeds
Fresh Meats Pork and beef carcasses, various pork cuts, beef cuts, marinated
meats, lamb products, live hogs and cattle
Value-Added Meats Refrigerated processed meats, including hotdogs, cold cuts, hams,
bacon, nuggets and other ready-to-eat meat products, as well as
canned meats, including corned beef and luncheon meats
Milling
Flour A full range of basic, specialty and customized flour products
Others
Dairy, spreads and oils Bread spreads, cheese, milk, ice cream, jelly-based snacks and
cooking oils
Other Coffee, food distribution service and retail franchise management

SMPFC conducts the above-described businesses through the following operating

subsidiaries:

San Miguel Foods, Inc., a 99.97%-owned subsidiary of SMPFC, operates the integrated poultry and
feeds businesses, the San Miguel Food Shop franchising operations, and the San Miguel Integrated
Sales selling and distribution activities.

San Miguel Mills, Inc., a 100%-owned subsidiary of SMPFC, engages in the manufacture and
distribution of flour and premixes.

The Purefoods-Hormel Company, Inc., a 60%-40% joint venture between SMPFC and Hormel
Netherlands B.V., produces and markets refrigerated processed meats (hotdogs, cold cuts, hams,
bacons, nuggets and other ready-to-eat meat products) and canned meat products (corned beef,
luncheon meat, sausages, meat spreads and canned viands).

Magnolia, Inc., a 100%-owned subsidiary of SMPFC, manufactures and markets butter, margarine
and cheese, milk and ice cream. The company also handles the sale and marketing of jellies and
desserts. The production of jellies and desserts is currently outsourced to third party tollers after its
subsidiary-toller, Sugarland Corporation, ceased its tolling operations in February 2008.

52
PT San Miguel Pure Foods Indonesia (formerly, PT Pure Foods Suba Indah) started as a 49%-
51% joint venture between the Company and the Hero Group of Companies and organized in 1995
for the manufacture and distribution of processed meats in Indonesia. In 2004, SMPFC increased its
ownership to 75%. The remaining 25% is now owned by Penderyn Pte. Ltd., a Singaporean company.

San Miguel Super Coffeemix Company, Inc., a 70%30% joint venture between SMPFC and Super
Coffee Corp. Pte. Ltd. of Singapore, started commercial operations in April 2005 by marketing 3-in-1
coffee mixes. Since then, the company has introduced a good number of products that include a
sugar-free line of coffee mixes, a premium line of flavored coffee mixes, 100% Premium Instant
Coffee, and 2-in-1 coffee mixes. The latest addition to the company’s list of products is its pro-health
line of coffee mixes which was launched in the first half of 2009. The company imports, packages,
markets and distributes coffee and coffee-related products in the Philippines.

Great Foods Solutions (GFS) is the food service unit of SMPFC that caters to hotels, restaurants
and institutional accounts for their meat, poultry, dairy and flour-based requirements, as well as
provides food solutions/recipes and menus. GFS also handles Smokey’s franchising operations and
operates San Mig Café restaurant and Outbox food-to-go stall/cart.

San Miguel Pure Foods International, Limited is a company incorporated in the British Virgin
Islands. It is a wholly-owned subsidiary of SMPFC and the latter’s holding company for its recently-
acquired 51% equity interest in San Miguel Pure Foods (Vn) Co. Ltd., the company that operates the
Vietnam food business.

STRENGTHS

SMPFC believes that its principal strengths include the following:

Many leading brands known for quality

Over the years, SMPFC has actively developed a strong portfolio of well-known brands, which
includes some of the most recognizable food brands in the Philippines. (A list of these brands is
included in the Registration Statement for this Offer, which is available for inspection by interested
parties during business hours at the Corporation Finance Department of the SEC.) SMPFC believes
it has been able to enhance its brand equity by maintaining consistently high product quality, as well
as through active and targeted marketing and promotions. SMPFC has also pioneered brand-building
efforts not only for traditional branded food products, such as value-added meats and dairy products,
but also for feeds, flour, fresh meats and poultry, which are commonly viewed as commodities.
SMPFC believes the strong brand names that it has developed provide SMPFC with greater pricing
power relative to its competition.

SMPFC enjoys leading market shares in some of the largest and most profitable segments of the food
industry, such as poultry, feeds, value-added meats and bread spreads, while maintaining strong
second or third place market shares in almost all of its other businesses.

Broad and diverse food product portfolio

SMPFC offers one of the widest arrays of food products in the Philippines, with products ranging from
feeds and flour to meats, milk, coffee and hotdogs. SMPFC believes this diversity allows for a more
resilient business model and provides significant growth potential both within and across various
product categories. Currently, SMPFC is present in only 50% (weighted by value) of the product
categories in the packaged food industry, presenting significant opportunities for SMPFC to expand
into other packaged food categories.

Moreover, SMPFC’s wide range of food products can be consumed at every meal and by all members
of the family. As a result, SMPFC believes that it provides its customers with a one-stop food solution
and thereby generates greater brand loyalty.

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Extensive and multi-pronged distribution network across the Philippines

The Philippine population is widely distributed over 7,100 islands, creating a challenge for food and
beverage companies to distribute their products effectively. SMPFC’s success in building one of the
most extensive distribution networks across the Philippines allows its products to reach every major
city. In turn, this creates a strong barrier to entry to the Philippine food market and a significant
competitive advantage for SMPFC.

In addition to an extensive presence in the traditional modern and general trade distribution platforms,
SMPFC has direct distribution capabilities to major food service companies. SMPFC also engages in
food service itself through its franchising operations, such as Smokey’s hotdog carts, Outbox food
kiosks and others.

Vertically integrated business model

SMPFC believes its vertically integrated “farm-to-plate” business model provides SMPFC with
significant operational flexibility and stable margins. This model allows SMPFC control over the value
chain from plantations, feed production, animal growing, to meat processing, and enables SMPFC to
deliver fresh, high quality food products to its customers. SMPFC is also able to leverage synergies
across its businesses, as well as through its relationship with SMC. For example, SMPFC’s feeds
business is capable of effectively utilizing beer by-products, such as spent grain and brewer’s yeast,
and offal and feathers from poultry, as feed ingredients. Although much of the production and
distribution of SMPFC’s products is outsourced to third parties, SMPFC is actively engaged in setting
and maintaining quality standards throughout the production and distribution chain.

SMPFC’s business model provides better economies of scale through consolidated raw material
sourcing, integrated production, sales and distribution networks and shared brands and support
functions across SMPFC’s and its contracted facilities.

Presence in the Philippines and Southeast Asian markets with the largest potential consumer
markets

SMPFC is currently present in the three most densely populated Southeast Asian markets, the
Philippines, Indonesia and Vietnam. In addition, per capita meat consumption has been increasing
rapidly in Vietnam and Indonesia over the past several years, and remain well below current levels in
the Philippines.

Strong track record of innovation in products and distribution

SMPFC has a strong track record of launching innovative products and services to address changing
consumer needs and preferences. For example, SMPFC has launched the following new products,
which are reflective of health and wellness, convenience, flavor and packaging trends.

Health and Wellness: Magnolia Gold Lite Butter, Magnolia No Sugar Added Ice Cream and the San
Mig Coffee Pro-Health line.
Flavor: An Asian line of marinated meats, fruit flavored chocolate milk drinks and flavored
refrigerated margarine.
Convenience: Ulam King products and chicken nuggets.
Packaging: Cooking oil in tubes and in-mould labeled packaging for bulk ice cream.

In addition, SMPFC continuously develops innovative food retailing formats, with the objective of
establishing closer contact with its customers and increasing SMPFC’s share in its customers’ food
budgets. For example, SMPFC introduced Monterey Meat Shops in 1993 as a way to differentiate
SMPFC’s fresh meats products from its competitors’ unbranded products. SMPFC also introduced
Magnolia Chicken Stations in 2004, which have been a significant success and have now grown to
nearly 400 outlets in just over five years. As of September 30, 2010, there were more than 682
Purefoods hotdog carts, 220 Smokey’s deli hotdog bars, 109 Outbox carts and kiosks, 5 San Miguel
Food Shops and 1 San Mig Café restaurant.

54
SMPFC has also successfully developed the concept of “paid sampling”, where customers can, for
example, sample hotdog products at strategically located hotdog carts, by launching several retail
models to serve as a closer point of contact with consumers and as a trial venue for new product
ideas.

Total amount spent by the Company and its significant subsidiaries on research and development for
the years 2009, 2008 and 2007 were P55.7 million, P52.1 million and P49.1 million, respectively. As a
percentage of net sales to revenues, spending on research and development for the last three years
translates to barely 0.1%.

Experienced management and technical teams

SMPFC has a management team with a proven track record and an average of more than 20 years of
industry and management experience. The management team is well accustomed to the Philippine
operating environment and has been able to effectively manage SMPFC through periods of economic
crisis and political instability.

The strength and depth of SMPFC’s management and technical teams’ experience have been
demonstrated by their successful implementation of a range of efficiency programs and product
innovations throughout the years.

The management team holds a number of leadership positions in food industry organizations, which
not only demonstrates the high regard in which they are held in the industry, but also creates a
valuable local network and better government relations for SMPFC.

The “San Miguel” brand, reputation and ownership

As a member of the SMC Group, SMPFC believes that it also benefits from SMC’s strong market
position and extensive range of product offerings in its other businesses, particularly with respect to
consumers’ and retailers’ positive perception of the “San Miguel” name. SMPFC also believes that
SMC is well regarded in the Philippine business community and believes that it benefits from SMC’s
strong business reputation.

STRATEGIES

SMPFC has a three-pronged strategy to achieve profitable growth.

Accelerate growth of SMPFC’s branded consumer business to achieve market leadership

• SMPFC intends to continue building brand equity through advertising and promotional
activities.

• SMPFC intends to launch new products that will complement its existing brands. As part of
this strategy, SMPFC has launched a formal company-wide innovation program to drive the
introduction of breakthrough products and services.

• SMPFC intends to continue to strengthen and expand its distribution capabilities in both the
traditional and modern trade channels. To reduce volatility in its commodities businesses,
SMPFC will continue to grow its meat shops and chicken stations and provide value-adding
activities.

• SMPFC intends to aggressively grow the food service business by marketing customized
products and services through food solution packages, including menu analysis and planning,
food safety training and recipe and product development.

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Achieve Cost Leadership

Expand raw material supply base and identify alternative raw materials.

• SMPFC has a program to encourage farmers to plant cassava and other crops that can be
used as feeds ingredients. SMPFC, through assemblers, provides farmers a stable market,
technical assistance and access to financing. SMPFC, in turn, benefits from an expanded
raw material supply base, lower costs and less price volatility.

• SMPFC’s strong research and development team is responsible for identifying cost
improvements, while still maintaining product quality. This is achieved by exploring the use of
alternative raw materials, from grains and by-products used in SMPFC’s feeds products to
alternative protein sources and flavors in processed meats.

Adopt technologies designed to attain best in class efficiencies.

• In its poultry and livestock operations, SMPFC has adopted climate-controlled housing to
minimize temperature variability, thereby improving animal productivity. By the end of 2009,
more than half of the poultry business’ growing capacity had already been moved into
climate-controlled housing. SMPFC also maintains state-of-the-art facilities for its flour
business.

Maximize synergies through shared services and organizational integration

• To achieve synergies, SMPFC has organized its businesses into clusters. SMPFC has
integrated its poultry and livestock businesses to maximize synergies across functions, as
well as to realize certain tax benefits.

• SMPFC will continue to simplify its organizational structure and standardize its business
processes in preparation for future growth. SMPFC expects to establish by 2011 a finance
shared service delivery center. This center is intended to serve all of SMPFC’s businesses
and perform transaction processing activities to improve efficiencies and reduce
administrative expenses.

Continue and expand the outsourcing of labor intensive and process-oriented operations

• SMPFC intends to continue to reduce its direct labor costs by outsourcing its more labor
intensive and process-oriented operations to take advantage of the more competitive wage
levels available to contractors.

• SMPFC intends to outsource these lower value-added activities of its value chain, while
maintaining control over its more specialized, higher value-added operations.

• SMPFC believes outsourcing its labor intensive and process-oriented operations will allow its
personnel to focus more on SMPFC’s core competencies, such as marketing and product
development, which are key to the future growth of SMPFC’s businesses.

• SMPFC intends to use outsourcing arrangements as its primary tool to achieve future
capacity expansion or replacement. SMPFC expects that only projects of high strategic
importance, or that cannot otherwise be outsourced, will be considered for inclusion in
SMPFC’s own capital expenditure budget.

• SMPFC has been, and intends to remain, actively involved in certain key aspects of the
outsourced activities. SMPFC provides ongoing training and technical support to all of its
third-party contractors. In addition, SMPFC representatives are assigned to oversee the
results of outsourced operations and work closely with third-party management to improve
operational efficiencies, while ensuring SMPFC’s food safety requirements and quality
standards.

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Explore New Growth Opportunities

Growth opportunities in new product categories

• SMPFC intends to explore new growth opportunities that would enable it to enter into new
product categories in which it is not currently present, allowing SMPFC to offer new products
that will complement its current portfolio.

Opportunities for further vertical integration

• SMPFC intends to explore opportunities that will help SMPFC grow its capabilities and
competencies and maximize synergies in its current markets.

Opportunities for geographical diversification

• SMPFC will continue to pursue strategic opportunities in priority countries, such as Vietnam,
Indonesia and other Asian countries to diversify geographic risk and tap into fast-growing
emerging markets in Asia. SMPFC has already begun to implement this strategy with its
operations in Indonesia and Vietnam. Over the medium-term, SMPFC intends to tap
opportunities presented by the liberalization of trade policies in Asia by importing new
products that will complement SMPFC’s current portfolio. In the longer-term, SMPFC plans to
establish regional production bases in lower cost producing countries.

New growth opportunities for co-investments with SMC

• SMPFC intends to explore opportunities to co- invest alongside SMC. These investments
may include areas outside SMPFC’s traditional businesses in the food and beverage
industries, for example in the power, energy and infrastructure industries.

AGRO-INDUSTRIAL

SMPFC’s Agro-Industrial cluster consists of its poultry, feeds and fresh meats businesses. SMPFC’s
Agro-Industrial revenues (inclusive of sales to other segments outside the agro-industrial cluster) were
P49,779.48 million and P38,423.78 million in the year ended December 31, 2009 and the nine months
ended September 30, 2010, respectively.

POULTRY BUSINESS

Overview

SMPFC believes it was the largest poultry producer and marketer in the Philippines in 2009 by volume
and revenues. In addition, it enjoys high brand recognition in the Philippines with approximately 40%
of the broiler market in 2009 by volume. SMPFC’s poultry business includes the breeding, producing
and marketing of broilers, mostly for the retail market. Sales volumes in SMPFC’s poultry business
increased by 7.6% in 2009 compared with 2008.

SMPFC offers a wide range of poultry products. SMPFC’s branded products are sold under the
Magnolia Fresh Chicken label and include fresh-chilled and frozen whole chickens and a variety of
chicken cut-ups. In addition, Magnolia Chicken Stations offer conveniently cut products and easy-to-
cook and ready-to-eat products. SMPFC serves customized marinated cut-ups and de-boned
products to food service clients and whole chicken and cut-ups for supermarket house brands, and
also sells live chickens to dealers.

SMPFC’s revenues from its poultry business increased by 16.2% to P25,709.18 million in 2009 from
P22,119.32 million in 2008. Revenues in SMPFC’s poultry business were P20,145.39 million in the
nine months ended September 30, 2010.

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Production

SMPFC sources its chicks for breeding from two major suppliers, namely Cobb Vantress Inc. and The
Aviagen Group. The Company does not consider its reliance on these suppliers a material risk as
these two suppliers account for about 90-95% of broiler day old chicks (DOC) supply in the world. All
of the feeds for SMPFC’s poultry operations is supplied by SMPFC’s feeds business, allowing its
poultry business to realize cost and quality benefits.

SMPFC utilizes both self-owned and third-party owned (tolled) facilities for its poultry production.
Approximately 99% of SMPFC’s poultry growing output and 85% of its processing output come from
tolled facilities, as this allows SMPFC not only to outsource production at a lower cost but also to
direct more resources toward improving core competencies. SMPFC’s poultry business oversees
approximately 1,400 tolled growing farms nationwide, with an estimated annual capacity of nearly 300
million birds. As of September 30, 2010, SMPFC also contracts with approximately 100 breeder
farms for grandparent and parent stocks, approximately 20 hatcheries and approximately 40
Company-owned and tolled processing plants. SMPFC’s vertically controlled poultry operations also
include an extensive network of cold storage warehouses and distribution facilities, both owned and
tolled.

Marketing, Sales and Distribution

SMPFC actively markets its poultry products through the use of celebrity endorsers and other
advertising campaigns that highlight the freshness, quality and safety of its Magnolia products, as
compared with other domestic competitors and cheaper imported products, such as chicken leg
quarters from the United States. SMPFC has also sought to use these campaigns to build consumer
awareness of its Magnolia Chicken Stations.

SMPFC’s poultry business distributes its products through a number of different channels in order to
maximize market penetration throughout the Philippines. Distribution channels utilized by Company
include:

SEGMENT DISTRIBUTION
Commodity Segments
Live Directly sold to live chicken dealers
Wet Markets Distributor-served market stalls, where dressed chicken is sold by
SMPFC’s exclusive, third-party distributors to wet market dealers
and retailers
Supermarkets Other direct and distributor-served supermarkets
Stable-priced Segments
Chicken Stations Directly-served outlets in supermarkets and meat shops
Major Food Service Directly served by SMPFC’s food service business with the supply
Chains chain managed by SMPFC’s poultry business
Lechon Manok Directly-served major chains selling roasted chicken and mostly
distributor-served small outlets in the provinces
Value-Added Meats Raw materials supplied to SMPFC’s value-added meats business
Export Served through trading companies to barbecue chains,
supermarkets and processors

In general, live sales, wet markets and supermarkets tend to be commodity markets, where prices are
less stable. By comparison, chicken stations, major food service chains, lechon manok, sales to the
value-added meats business and exports tend to have more stable prices. In 2009, the commodity-
like distribution channels accounted for 65% of the poultry business’ total sales volumes, while the
channels with more stable prices accounted for the remaining 35%.

In 2004, as part of its strategy to grow its poultry business, SMPFC introduced Magnolia Chicken
Station outlets in supermarkets nationwide, an innovation that offers consumers more choices of
chicken formats and better customer service in a clean and safe environment. By using its chicken
station model in supermarkets, SMPFC also hopes to “bring the wet market to the supermarket”,

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converting consumers from buying poultry in more traditional wet markets to buying at SMPFC’s
chicken stations. Generally, SMPFC contracts with supermarkets to set-up the chicken sections of
their stores. The Magnolia Chicken Stations are manned by a third-party contractor. The
supermarkets purchase chicken meat from SMPFC, which then prepares and sells the chicken
through Magnolia Chicken Stations. As of September 30, 2010, there were 433 Magnolia Chicken
Stations in operation, which have generated substantial volume growth for SMPFC’s poultry business.
While wet markets remain the most popular source of chicken for consumers in the Philippines,
Magnolia Chicken Station outlets will be SMPFC’s major focus over the next few years, as its poultry
business looks to further build on its strong brand reputation and protect market share.

Competition

SMPFC’s poultry business faces local competition from numerous smaller, independent broiler
producers and a small number of larger integrators. SMPFC competes with integrators such as
Bounty Agri Fresh Foods, Inc., Universal Robina Corporation (URC), Swift Foods, Inc. and other
independent commercial growers. SMPFC believes that one of those larger competitors held less
than one-half of SMPFC’s market share in 2009, while another held approximately 7.0% of the
Philippine broiler market in 2009. From time to time, SMPFC also faces competition from low-priced
imports, primarily from the United States and Canada. Furthermore, the poultry industry is generally
attracting more new entrants, as a result of frequent occurrences of supply shortages and high prices
over the last few years.

FEEDS BUSINESS

Overview

SMPFC’s feeds business is the largest producer of feeds in the Philippines, with an estimated market
share of 39% of the commercial feeds market in 2009 by volume. The feeds business produces feeds
for (i) SMPFC’s poultry business, (ii) SMPFC’s fresh meats business and (iii) the commercial feeds
market, which accounted for 50%, 10% and 40%, respectively of its volumes in 2009.

SMPFC’s competitive advantages include: (1) synergies with SMC’s and SMPFC’s other businesses,
(2) economies of scale and (3) extensive localized research and development. SMPFC’s feeds
business plays an important role in creating synergy between its businesses, supplying hog feeds to
SMPFC’s fresh meats business and breeder and broiler feeds to its poultry business, while utilizing
by-products from other businesses for its own production. For example, the feeds business is capable
of effectively using beer by-products, such as brewer’s spent grain and yeast, and poultry products,
such as offals and feathers, as feed ingredients. Having established significant economies of scale,
the feeds business is the biggest Philippine importer of soybean meals and buyer of corn, which has
allowed it to develop strong relationships with the Government and acquire favorable tariff rates.

To expand the market for its feed products, SMPFC is implementing programs designed to convert
homemix feed producers into commercial feed users. As a result of SMPFC’s competitive pricing and
customization options, SMPFC is already serving a number of these small to medium-scale farms.

Furthermore, SMPFC’s feeds business is able to conduct extensive research on feed formulations in
a controlled environment through its many small and medium-scale farm facilities. The locally-
developed products that are proven successful are then replicated on a larger scale. Only a small
number of SMPFC’s competitors have comparable research and development and replication
capabilities.

SMPFC produces several different types of feeds products. Its commercial products include hog
feeds, layer feeds, broiler feeds, gamefowl feeds, aquatic feeds, branded concentrates and
customized feeds. These are sold under a number of different brand labels such as B-Meg,
Pureblend, Bonanza and Jumbo. The feeds business also produces breeder and broiler fees and hog
feeds for its own poultry and fresh meats businesses.

SMPFC’s revenues from its feeds business were relatively flat from 2008 to 2009, decreasing slightly
by 0.6% to P16,766.83 million in 2009 from P16,873.97 million in 2008 (excluding internal sales to
SMPFC’s fresh meats business). SMPFC’s market share in the Philippine feeds industry was

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estimated to be 39% in 2009 (including the hog, poultry gamefowl and aquatic feeds segment) and
sales volumes decreased 6.3% in 2009 compared with 2008. SMPFC’s feeds business has been
able to maintain a relatively stable market share from 2006 to 2009 despite contraction in the
backyard hog segment, disease outbreaks and natural disasters. SMPFC has accomplished this by
refocusing its efforts on the small and medium-sized farms and specialty and customized feeds
segments and increasing its participation in the aquatic feeds industry. Revenues in SMPFC’s feeds
business were P13,721.38 million in the nine months ended September 30, 2010.

Production

A majority of the raw materials used in SMPFC’s feeds business is provided through SMPFC’s
business procurement group, while some local ingredients are sourced directly by the business from
various suppliers and traders accredited by SMPFC. In certain instances, SMPFC’s feeds business
will purchase ingredients such as corn in the open market. SMPFC’s feeds business also maintains
relationships with plantations to supply locally available raw materials, such as cassava. Cassava is
relatively stable, low-priced crop that can be used as a safe and effective alternative ingredient in
animal feeds. The proportion of cassava used in feeds products can be adjusted upward or downward
depending on the relative price of corn and certain other feeds ingredients.

SMPFC developed cassava as a strategic raw material to replace corn as an energy source in animal
feeds. In 2009, total cassava production was approximately 148 thousand metric tons with more than
47 thousand hectares of land nationwide. This undertaking provided the business a net savings/cost
avoidance of approximately P200 million the same year. In 2010, the business intends to increase,
production as well as expand area planted in Luzon. The business will also invest in the use of high
yielding varieties of cassava and will aggressively develop other and locally available strategic
materials to substitute for its protein and energy components in animal diets.

For certain imported raw materials, such as soybean meal, SMPFC’s feeds business participates in
hedging transactions to minimize the risk of unexpected price increases. SMPFC also maintains
strategic buying programs for corn to ensure that a substantial portion of its supply requirements
through the next harvest season are secured.

By-products of SMC’s beer business, such as brewer’s spent grain and yeast, and from SMPFC’s
poultry dressing plants, such as offal and feathers, are also collected, processed and used as raw
materials for feeds production. SMPFC currently has contracts with two tolled rendering facilities and
expects to put up additional rendering plants in the future.

Compound feeds are manufactured at six SMPFC-owned but third party-operated facilities and 35
third-party owned and operated feeds plants, strategically located throughout the Philippines. Most of
these plants are capable of producing pelleted and crumble format feeds, and three plants have
extrusion capabilities to produce aquatic floating feeds.

SMPFC’s feeds business’ research and development group conducts extensive research on feed
formulations at several SMPFC-owned research facilities. These facilities are designed to detect
small, statistical differences in average daily weight gain, feed conversion efficiency and other
performance parameters and to allow a variety of tests to be conducted at the same time. The results
of these tests are immediately applied to SMPFC’s commercial feed formulations, with the aim of
reducing feed costs and enhancing efficiency in animal growth. These research facilities include one
bio assay-focused research facility, one metabolizable energy-focused research facility, one research
facility for tilapia, three farms for hog research and three farms for broiler research.

In addition, SMPFC owns one fry production facility and operates various hatching facilities for tilapia
breeding.

Marketing, Sales and Distribution

The marketing strategy of SMPFC’s feeds business is to create greater awareness of its existing
products and to develop new products that will allow the business to participate in all price segments

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for all species. SMPFC is also focused on providing technical support and services to its feeds
customers, including:
• technical seminars at the grassroots level;
• technical training on animal health, husbandry and breeding, and
• veterinary missions at the grassroots level to provide health care to the animal population in
specific areas.

SMPFC’s commercial feeds business sells its products through several different distribution channels.
In 2009, 79% of SMPFC’s commercial feeds were sold to distributors authorized to sell SMPFC’s
products within a defined territory, while 21% were directly sold to end users, who own hog, poultry or
aquatic farms.

SMPFC’s commercial feeds business has a sales network comprised of more than 19 sales offices
across the Philippines. Distribution and sale of its commercial feeds products are supported by an
expert sales team, focused on developing new markets for, and expanding the reach of, SMPFC’s
feeds products.

Competition

While SMPFC’s commercial feeds business currently holds the largest market share in the
Philippines, SMPFC has faced increasing competition from foreign feeds manufacturers entering the
Philippine market. The commercial feeds market in the Philippines includes approximately 300
registered small players, as well as a small number of large regional players. SMPFC competes with
five national and numerous regional feed mill companies including Univet Nutrition and Animal Health
Care Co., URC, Purina/Cargill, General Milling Corporation (GMC), Cheil Jedang, Selecta, and other
local feed millers. SMPFC caters to all segments of the feeds market; however, the majority of its
sales comes from the higher value segments of the feeds market.

FRESH MEATS BUSINESS

Overview

SMPFC’s fresh meats business breeds, grows and slaughters hogs and cattle and produces and
trades beef and pork products. The business sells a large variety of products in the Philippines under
the well-recognized Monterey brand name. In 1993, SMPFC’s fresh meats business first introduced
Monterey neighborhood meat shops, which sell a wide variety of its branded meat products, as part of
SMPFC’s strategy to differentiate its products from those of its competitors. SMPFC’s fresh meats
business produces its hogs using a three-site system, in which breeding, nursery and growing
operations are separated into isolated facilities to minimize losses from disease outbreaks or
recurrences. SMPFC also pioneered the use of the vertically controlled pork and beef production
system in the Philippines, controlling the entire value chain from selection of genetic stocks to
SMPFC’s meat shop operations.

SMPFC’s fresh meats product portfolio includes pork and beef in carcass and primals formats sold to
franchisees, poultry distributors, the value-added meats business and SMPFC’s food service
customers, pork and beef retail cuts sold in S&R outlets and live hogs and cattle sold to traders. Pork,
beef and lamb retail cuts and marinated products are sold in Monterey Meatshops through its
franchisees.

SMPFC’s revenues from its fresh meats business increased by 14.7% to P7,303.47 million in 2009
from P6,367.29 million in 2008. Based on the sow levels in 2009, SMPFC’s industry share in the
Philippine pork industry was estimated to be 2.4%. Sales volumes in the fresh meats business grew
by 16.1% in 2009 compared with 2008. Revenues in SMPFC’s fresh meats business were P4,557.00
million in the nine months ended September 30, 2010.

Production

SMPFC’s fresh meats business produces and distributes its products through a vertically controlled
value chain, comprised of numerous production and processing centers located throughout the

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Philippines. The majority of SMPFC’s fresh meats business’ production facilities are third-party owned
and operated. As of September 30, 2010, SMPFC owned two hog farms located in Bulacan and
Bukidnon, both of which are third-party operated, and contracted with over 350 third-party owned and
operated farms for breeding, nursery and growing operations, three Company owned and third-party
operated cattle farms and 11 slaughter plants, of which one is Company-owned and ten are third-
party owned and operated.

Most of SMPFC’s parent breeding hogs are produced from its own nucleus and multiplier farms,
where grandparents and great grandparents are bred, and the balance are directly purchased from
pig breeding companies such as PIC and Topigs. Meanwhile, more than 30.0% of its required feeder
cattle are sourced from Australia. Most of SMPFC’s boxed beef is imported from Australia, New
Zealand and Brazil.

All of the feeds required by SMPFC’s fresh meats business are supplied by SMPFC’s feeds business.

Marketing, Sales and Distribution

SMPFC’s fresh meats business has an ongoing customer loyalty program for its neighborhood meat
shops. SMPFC also conducts below-the-line promotions for its fresh meats business, such as
product sampling and product bundling with other SMC products. In addition, SMPFC’s fresh meats
business has redesigned the merchandising materials in all of its meat shops.

In order to tap the different markets for fresh meats, SMPFC’s fresh meats business distributes its
products through a variety of channels, including those set forth below.

CHANNEL DESCRIPTION
Supermarket and Neighborhood Fastest growing modern trade channel operated by franchisees
Meat Shops under the Monterey name and located in supermarkets and
standalone meat shops operated by franchisees
Distributors Supply unbranded hog carcasses to wet market retailers
Live Sales Sell live hogs and cattle to traders
Internal Supply fresh meat to SMPFC’s value-added meats and food service
businesses

SMPFC’s fresh meats business has adopted a strategy focusing on the modern trade market to
accelerate its pork sales. It first introduced a Monty’s supermarket meat shop in 1990, followed by
stand-alone Monterey meat shops in neighborhoods and supermarkets in 1993. As of September 30,
2010, SMPFC’s fresh meats business had approximately 367 meat shops in operation across the
Philippines. As of the same date, SMPFC had two third-party owned and operated live selling
stations.

SMPFC’s fresh meats business has recently converted almost all of its meat shops to franchised
operations in order to reduce the selling cost of products. Under this model, certain operational
functions, such as inventory monitoring and manpower-related requirements for franchised meat
shops outlets, are undertaken by qualified operators and franchisees. SMPFC’s fresh meats business
provides marketing support to franchisees. As part of its strategy to boost sales volumes, improve
profitability and ensure focused customer service in the meat shop segment, SMPFC is actively
seeking entrepreneurs to become franchisees.

Competition

SMPFC’s fresh meats business competes with Robina Farms, Foremost Farms and several other
commercial-scale and numerous small-scale hog farms that supply live hogs to traders, who in turn
supply hog carcasses to wet markets and supermarkets. While the majority of fresh meat purchases
in the Philippines continue to be made in the more traditional, outdoor wet markets, we view our
competition as being with the larger producers selling in the smaller, but more profitable, modern
trade channels.

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VALUE-ADDED MEATS BUSINESS

Overview

SMPFC’s value-added meats business produces both refrigerated meats and canned meats. Its
refrigerated meat products include hotdogs, bacon, hams, chicken nuggets and a line of local
Philippine products, which are offered under brand names such as Purefoods, Tender Juicy, Star,
Vida, Beefies and Monterey. Canned products, such as corned beef, luncheon meats, sausages, and
ready-to-eat viands, are sold under the Purefoods, Ulam King and Mom’s Kitchen brands.

PFC was established in 1956 and was later acquired by Ayala Corporation in 1981. PFC entered into
a joint venture agreement with Hormel Netherlands B.V. in 1999, and the meat processing division
was spun-off and named as The Purefoods-Hormel Co., Inc. In 2001, San Miguel Corporation
purchased PFC which included The Purefoods-Hormel Co., Inc. SMPFC owns 60% of the joint
venture, and Hormel owns the remaining 40%. The strategic alliance with Hormel has provided
SMPFC’s value-added meats business with a number of benefits, including technology transfer,
technical assistance, industry know-how and raw material sourcing. SMPFC’s value-added meats
business has also benefited from strong brand recognition, its ability to introduce innovative new
product lines, a large cold-chain distribution network and award-winning manufacturing facilities.

SMPFC’s revenues from its value-added meats business decreased by 2.5% to P11,280.97 million in
2009 from P11,566.93 million in 2008. SMPFC achieved this revenue level despite weak consumer
demand in the first nine months of 2009 and the forced shut-down of its Marikina plant because of
typhoon damage in October 2009. Volumes declined by approximately 9.3% during 2009 compared
to 2008. Revenues in SMPFC’s value-added meats business were P7,811.49 million in the nine
months ended September 30, 2010.

Production

SMPFC’s value-added meats business sources most of its raw materials through SMPFC’s business
procurement group, which strives to provide the value-added meats business with raw materials at
prices lower than the prevailing market or published rates. The business procurement group maintains
a pool of suppliers that have been accredited by SMPFC for both local and imported raw materials. A
quality assurance team from SMPFC regularly audits the quality of the raw materials supplied to the
value-added meats business.

SMPFC’s value-added meats business owns two meat processing plants in Luzon, one in Marikina
City and one in Cavite. The Cavite plant manufactures hotdogs, hams, bacon, dry sausages, meat
toppings, cold cuts and nuggets.

The Marikina plant, which was insured, was severely damaged when Typhoon Ondoy hit Metro
Manila in September 2009. It has not been operational since October 2009 and ceased all operations
as of December 31, 2009. SMPFC does not currently intend to re-open its Marikina plant and has
contracted with additional toll packers to replace its capacity to pre-storm levels. SMPFC has
received a substantial portion of the insurance claims for the typhoon damages at the Marikina plant.

To augment its production capacity and meet volume demands, SMPFC’s value-added meats
business maintains toll-manufacturing agreements with various suppliers. One of SMPFC’s toller
partners operates a halal-accredited manufacturing facility, which allows exports of SMPFC’s halal
corned beef products to the Middle East and predominantly Muslim countries. In addition, SMPFC
plans to expand its Cavite plant by 2012 in order to increase production capacity for its hotdog,
chicken nuggets and Philippine local product lines.

To capture a significant untapped market for chicken nuggets, SMPFC’s value-added meats business
purchased a new production line to support growth for this category.

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Marketing, Sales and Distribution

SMPFC’s marketing strategy is focused on reinforcing its core brands, such as Tender Juicy hotdogs,
primarily through television and billboard advertising. SMPFC also conducts advertising campaigns
for certain of its seasonal products, such as Christmas hams.

Distribution for SMPFC’s value-added meats products is handled by SMPFC’s integrated sales
operations and food service business. The sales operations group generally handles sales of value-
added meat products in modern and general trade markets, as well as exports to Asia, North America
and Europe. SMPFC’s food service business markets and sells SMPFC’s value-added meats
products to food service operators, such as hotels, restaurants, fast food chains and food kiosks and
carts. These sales groups are assisted by SMPFC’s logistics group, which manages the demand
planning, technical logistics services, warehousing and transportation activities for the value-added
meats business. Personnel from SMPFC’s value-added meats business monitor storage and
warehouse inventory levels.

With the help of these logistics and distribution networks, SMPFC’s value-added meats business is
able to tap into a variety of distribution channels, including wet markets, supermarkets, groceries,
convenience stores and sari-sari stores. These sales groups also enable SMPFC’s value-added
meats business to reach out to institutional food service clients and deliver its products to Filipino
communities abroad.

Approximately 53% of SMPFC’s refrigerated meats and 30% of the grocery and canned meat
products are sold in general trade channels, which includes the wet markets, market stands and “sari-
sari” stores. The balance of 47% of SMPFC’s refrigerated meats and 70% of the grocery and canned
meat products are sold in modern trade channels, which includes supermarkets, groceries and
convenience stores.

Competition

SMPFC’s value-added meats business is a key player in three segments of the Philippine processed
meats industry. According to Nielsen, hotdogs, the largest segment, had an estimated value of P10.6
billion in the twelve-month period ended June 2010. The combined shares of its various hotdog
brands have positioned SMPFC’s value-added meats business as the market leader, with a market
share of 57% by sales in the same period. The other two segments, corned meats and luncheon
meats, have an estimated value of P7.8 billion and P4.8 billion, respectively, by sales in the twelve-
month period ended July 2010, also according to Nielsen. For these segments, Nielsen estimated
SMPFC’s shares in the same period to be 23% for corned meats and 15% for luncheon meats.

In recent years, SMPFC’s value-added meats business has faced increased competition from both
established local players, which are employing aggressive pricing and promotion schemes, and from
new entrants to the market. Other players in the processed meats business include Foodsphere, Inc.
(CDO), Virginia Foods, Inc. (Winner and Champion), RFM (Swift), Mekeni, Pacific Meat Company,
Inc. (Argentina and 555) and the distributors of “Maling”. SMPFC has responded to this competition
by increasing its below-the-line spending on promotions for its value-added meats businesses, as well
as introducing new product lines. The value-added meats business has employed a strategy of
launching fighter brands and engaging in extensive advertising and promotion for its key brands to
maintain its leadership position. It continues to innovate and launch new brands to sustain its market
position.

MILLING

SMPFC’s flour business currently comprises its milling segment. The milling segment previously
included the snacks and noodles product lines, which commenced operations in 2006 but were
discontinued in 2009.

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FLOUR BUSINESS

Overview

SMPFC believes its flour business is the largest producer, seller and distributor of flour in the
Philippines by volume. SMPFC sells its flour to large institutional clients and other intermediaries,
such as bakeries. The business offers a variety of flour products, including bread flour, noodle flour,
biscuit and cracker flour, all-purpose flour, cake flour, whole wheat flour, premixed flour and
customized flour. SMPFC has been setting the trend toward the use of customized flours for making
products such as noodles and pandesal, a soft bread commonly eaten in the Philippines during
breakfast. SMPFC’s flour products are sold under 17 brand names, and SMPFC enjoys strong brand
loyalty among its institutional clients. SMPFC believes that its market share in the Philippine flour
industry was 18% by volume in 2009.

While sales volumes of the flour business (excluding the snacks and noodles business) increased by
5.9% in 2009 compared with 2008, SMPFC’s revenues from its flour business decreased by 8.7% to
P7,929.30 million in 2009 from P8,684.01 million in 2008, as flour prices decreased significantly in
2009 in tandem with downward corrections to global wheat prices following record high levels in 2008.
Revenues in SMPFC’s flour business were P5,613.14 million in the nine months ended September
30, 2010.

Production

The principal raw material used by SMPFC’s flour business is wheat, the majority of which SMPFC
sources from the United States and Canada. SMPFC monitors worldwide wheat prices daily to
determine its long-term and short-term buying strategies in order to control costs in its flour business.

SMPFC’s flour business operates the largest flour milling facilities in the Philippines. The business
owns two flour mills, located in Mabini and Tabangao in Batangas, Luzon. Its flour mills have a
combined rated milling capacity of 1,660 tons per day. SMPFC’s milling system includes two flour
blending facilities in Mabini capable of blending flours at a rated capacity of 45 tons per hour, which
allows SMPFC to produce its customized flours. The flour business also operates a 46 ton-per-day
premix plant, which produces different premix products for both the retail and the institutional markets.
SMPFC’s production capabilities are further augmented by its flour technology center, the first of its
kind in the Philippines, which develops customized flour blends and new flour-based products. The
center is supported by trained research and development personnel and houses both basic and
advanced bakery equipment. SMPFC owns and operates all of the flour production facilities used in
its flour business.

SMPFC is in the process of adding two additional wheat storage silos and expanding its premix
facilities, which will allow SMPFC’s flour business to incorporate more types of wheat into its flour
products.

Port Operations

SMPFC owns and operates two deep water ports, which are located in Mabini and Tabangao in
Luzon next to SMPFC’s two flour milling facilities. These ports allow SMPFC to realize substantial
savings on shipping, unloading and other costs, as raw materials and finished flour products can be
directly unloaded from and loaded into its production facilities. Both ports have piers equipped with
pneumatic unloaders, with a combined capacity of over 7,500 metric tons per day. SMPFC
coordinates with the local customs office and port authority in Batangas with respect to required
licenses and payment of tariffs.

Marketing, Sales and Distribution

The marketing activities of SMPFC’s flour business are focused on supporting its strategy to make
available the widest array of differentiated flour products in the Philippine market. The flour business’
sales team of approximately 30 people across the Philippines contact SMPFC’s flour customers to
determine their specific flour product needs. Customization of flour products for customers is

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supported by the business’ research and development team, which works alongside the sales team
and SMPFC’s customers to develop individual formulations, and by SMPFC’s bakery technicians, who
conduct field baking tests and demonstrations.

SMPFC manages a nationwide network of more than 100 distributors, who handle distribution of flour
and other bakery ingredients to major flour users as well as to small, backyard and major users
across the Philippines. SMPFC is the largest supplier of flour to big institutional customers like biscuits
makers, noodle factories and big bakery chains.

Competition

In 2009, SMPFC’s flour business held 18% of the Philippine flour market.

SMPFC’s flour business competes on the basis of price, quality and distribution, primarily with a small
number of large competitors. Other players with vast resources and who compete for market share
are GMC, URC, Philippine Foremost Milling, Wellington Flour Mills, PILMICO Foods Corporation,
RFM Corporation (RFM), Morning Star, Liberty Flour Mills, Philippine Flour Mill, Delta and Monde
Nissin. Currently, most of SMPFC’s competitors participate in the basic, or commoditized, market
segments. In the future, SMPFC may face increased competition in the value-added segment. In
addition, other international and regional flour producers have entered the Philippine flour market
through imports in recent years, although volumes have generally been sporadic. SMPFC’s flour
business differentiates itself by focusing on higher priced and/or customized flours, making it more
difficult for its competitors to enter those markets and compete.

OTHERS

SMPFC’s other businesses include its dairy, spreads and oils, coffee, food service and regional
businesses.

DAIRY, SPREADS AND OIL BUSINESS

Overview

SMPFC’s dairy, spreads and oils business manufactures and markets a variety of bread spreads,
milk, ice cream, jelly-based snacks and cooking oils. Bread spreads make up the largest portion of
this business, and contributed approximately 72.9% of the business’ revenues in 2009. The bread
spreads category includes butter, refrigerated and non-refrigerated margarines and cheeses, which
are sold primarily under SMPFC’s Magnolia Gold, Dari Creme, Star and Cheezee labels. In addition,
SMPFC’s dairy and spreads business offers flavored and unflavored milks under the Magnolia and
Chocolait brands, ice cream under the Magnolia name and jelly snacks and fruit jams under the
JellyAce and Magnolia brands. SMPFC’s cooking oil products are also Magnolia-branded.

In the future, SMPFC expects increased demand for products offering health benefits and for lower
priced products. In addition, SMPFC expects the importance of retail chains to continue to grow, with
increased competition for shelf space.

SMPFC expects the ready-to-drink milk market to continue to expand in response to marketing
campaigns that aim to increase milk consumption and the introduction of more flavored milk products
in the Philippines.

SMPFC re-entered the Philippine ice cream industry in 2004 under its familiar Magnolia brand name
after a temporary, eight-year exit in 1996, when SMPFC sold its ice cream and milk business to
Nestle Philippines.

JellyAce brand is a major player of the market, and SMPFC expects that existing players will continue
to have an advantage over new entrants to the market as a result of established economies of scale
and brand loyalty.

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SMPFC expects the recent trend toward healthier oil alternatives, such as coconut, palm and olive oil,
to continue.

SMPFC’s revenues from its dairy, spreads and oils business increased by 9.8% to P5,283.29 million
in 2009 from P4,813.01 million in 2008. Revenues in SMPFC’s dairy, spreads and oils business were
P3,721.89 million in the nine months ended September 30, 2010. According to Nielsen, SMPFC’s
market shares in 2009 in the Philippine butter, refrigerated margarine, non-refrigerated margarine and
cheese market segments were approximately 42%, 85%, 97% and 22%, by volume, respectively.
SMPFC’s share in the Philippine ice cream industry was approximately 11% in 2009, and its share in
the Philippine jelly-based snacks industry was approximately 33% in 2009. SMPFC’s share in the
cooking oil industry was approximately 1.3% in 2009. SMPFC’s market shares in white and flavored
milk were 16.6% and 8.8% respectively in 2009, while in cooking oil it was approximately 1.3% in
2009.

Production

All of the raw materials required by SMPFC’s dairy, spreads and oils business are sourced from third
parties. Approximately 70.0% of dairy materials such as cheese curds, rennet casein, and milk
powders are imported, mostly from New Zealand, while vegetable oils are locally sourced.

For its bread spreads products, SMPFC conducts all manufacturing activities at its own facilities,
including pasteurization, blending, chilling and packing for yellow spreads and cooking, filling, pre-
packing and end-packing for cheeses. All manufacturing activities for SMPFC’s milk, jelly-based
snacks and cooking oil lines are outsourced to third parties (two tollers for milk; two tollers for jelly-
based snacks; and three tollers for cooking oil), who are required to meet SMPFC’s quality standards.
SMPFC also directly manages a variety of support activities for its dairy, spreads and oils business,
including logistics, research and development, marketing, quality assurance, planning and information
management and finance.

SMPFC’s ice cream business currently outsources its manufacturing to a third party, while SMPFC
concentrates on sales, marketing, quality assurance, and logistics.

Marketing, Sales and Distribution

SMPFC’s dairy, spreads and oils business advertises on television, radio and billboards, as well as in
print. Star Margarine has implemented the school-based “Nutriskwela” caravan and “Search for
Batang Star” campaign since 2006. These initiatives promote the importance of healthy balanced
meals in developing tall, stand out kids with the help of Star Margarine. Dari Creme, on the other
hand, launched a tri-media campaign “Lessons” to communicate how Dari Creme helps mothers
make everyday meal extra special for the family. The campaign is also supported by below the line
initiatives, particularly Mothers Day events. SMPFC’s dairy, spreads and oils business also makes
use of effective product endorsers, such as Manny Pacquiao and family for its Magnolia Milk
advertising campaign in 2009, to assert Magnolia’s strong brand heritage across generations of
Filipino families.

SMPFC’s dairy, spreads and oils business has observed an increasing health and wellness trend in
Philippine consumers’ preferences and offers a variety of corresponding products. These include its
recently launched Low Fat UHT milk, Dari Creme Lite, and Magnolia Lite, a low fat, low salt
spreadable margarine.

A majority of the distribution channels for SMPFC’s dairy, spreads and oil products are situated in the
greater Manila and Luzon areas, where there has been substantial growth in consumption. At the
same time, SMPFC’s dairy, spreads and oils business has also begun to focus more attention on
developing regional distribution channels through exports.

The largest distribution channel for SMPFC’s dairy, spreads and oils business is supermarkets,
although a variety of other channels are also used to distribute its products. In addition to
supermarkets, retail channels through which SMPFC distributes its dairy, spreads and oil products

67
include groceries, sari-sari stores, market stalls, bakeries, wholesale outlets and convenience stores.
SMIS serves as the distribution arm of Magnolia for both modern and general trade channels. Food
chain and other institutional distribution channels for SMPFC’s dairy, spreads and oils business
include bakeshops, food manufacturing companies, restaurants, hotels, pizza chains, burger joints
and hospitals.

Competition

SMPFC’s dairy, spreads and oils business faces intense competition in many of its product segments,
particularly milk and cheese. Competitors in the dairy, spreads and oils business include many
multinational companies, such as Kraft, Nestle, Unilever and New Zealand Milk, as well as some
domestic players such as San Pablo. In recent years, many of SMPFC’s competitors have increased
advertising and promotional spending to protect their market shares.

OTHER BUSINESSES

Coffee

SMPFC’s coffee business is a joint venture with a Singaporean partner, Super Coffee Corporation
Pte, Ltd., and is 70% owned by SMPFC. The joint venture commenced operations in 2005 and sells
coffee products under the San Mig Coffee brand. In 2009, SMPFC’s coffee business had revenues of
P473.91 million and an estimated market share of 7.0% by volume in the Philippine coffee mix
market, according to Nielsen. All of the coffee business’ raw materials procurement, manufacturing
and pre-packing are handled by SMPFC’s Singaporean partner, with certain subsidiaries of the SMC
Group managing re-packing and distribution in the Philippines. Revenues in SMPFC’s coffee
business were P396.91 million in the nine months ended September 30, 2010.

The coffee industry, composed of instant coffee, coffee mixes and ready-to-drink coffee, is dominated
by Nestle but other market players like Tridharma Marketing Corp. (Kopiko), URC (Great Taste), Kraft
Foods Inc. (Maxwell House), Commonwealth Foods, Inc. (Café Puro) and Goldshine
Pharmaceuticals, Inc. (Jimm’s) are also becoming more aggressive.

Food Service

SMPFC’s food service business was established in 2002 and is the largest food service provider in
the Philippines. The food service business distributes and markets SMPFC’s generic and customized
food service products, including value-added meats, fresh meats, poultry, dairy, oil, flour and coffee.
The food service business receives a percentage of the selling price of the products as a development
fee. The business’ key strategies include selling customized solutions, direct marketing to its
customers and focused relationship management, and was responsible for generating P6.3 billion of
revenues of the SMPFC Group in 2009. SMPFC’s food service business reported revenues of
P2,059.31 million in 2009 and P1,471.64 million in the nine months ended September 30, 2010.

REGIONAL BUSINESSES

Indonesia

SMPFC’s business in Indonesia is a joint venture with Penderyn that produces a variety of halal-
certified and non-halal processed meats for the Indonesian market. The joint venture is 75% owned
by SMPFC. SMPFC’s Indonesian business had revenues in 2009 of P689.87 million, and its share of
the Indonesian chilled processed meats market was approximately 27.7% by revenue in 2009,
according to Euromonitor International, September 2010 release. Revenues in SMPFC’s Indonesian
business were P590.78 million in the nine months ended September 30, 2010.

Penderyn Pte. Ltd. is a limited private company incorporated in Singapore on December 28, 2006. It
is an investment holding company that holds 25% equity in PT San Miguel Pure Foods Indonesia (PT

68
SMPFI) and 80% equity in PT Lasallefood Indonesia. The latter used to be the partner of SMPFC in
PT SMPFI. Penderyn has no commercial operations.

Vietnam

The Vietnam food business is a joint venture between SMPFC, which holds 51.0%, and Hormel,
which holds 49%. SMPFC acquired its 51% interest in the Vietnam business from SMC on July 30,
2010. Prior to that acquisition, SMC owned 51% of the Vietnam food business, and SMPFC provided
management services to the Vietnam food business under a shared services agreement. For more
information, see “Recent Acquisitions” on page 71. The Vietnam food business primarily engages in
live hog farming and the production of feeds and fresh and processed meats. The Vietnam food
business had revenues of P1,923.77 million in 2009. Revenues in SMPFC’s Vietnam business were
P1,458.32 million in the nine months ended September 30, 2010. Of the total amount P354.72 million
was consolidated into SMPFC’s results, representing revenues for the months of August and
September 2010. SMPFC began consolidating the results of the Vietnam business on August 1,
2010.

RECENT ORGANIZATIONAL INITIATIVES – SHARED SERVICES

The functions which can be optimally shared and utilized within and across each business cluster
have been organized so as to generate synergies for SMPFC:

• Business procurement group is a shared service unit in SMPFC established to lead and
manage the procurement function of the various business units as well as the contracting of
all inbound logistics services such as shipping, import/integrated services and local transport.

• San Miguel Integrated Sales (SMIS) is the sales team that has been developed for all
branded businesses considering that they use the same channels of modern and general
trade.

• Division Logistics group was developed to support SMIS for its outbound logistics and
warehousing requirements.

• Poultry and Meats sales is handled by one sales force serving the following channels: live
sales, wet markets, supermarkets and franchised outlets (meatshops, chicken stations)

REGULATION

The Company and its subsidiaries have obtained all material permits, licenses and government
approvals required to manufacture and sell its products. The Company and its subsidiaries have no
knowledge of recent or probable governmental regulations, the implementation of which can result in
a material adverse effect on the Company and its significant subsidiaries’ business or financial
position. See “Regulatory Framework” starting on page 138.

EMPLOYEES

The following table sets forth a breakdown of SMPFC’s employees by business segment as of
September 30, 2010.

BUSINESS NUMBER OF EMPLOYEES

Poultry & Fresh Meats 711
Feeds 396
Value-Added Meats 480
Flour 154
Dairy, Spreads and Oils 289
Coffee 13
Retail 18
Subtotal 2,061

69
SHARED SERVICES SHARING ENTITIES
Division Office All businesses 133
Shared Services – Agro- Poultry, Feeds and Fresh Meats 158
Industrial
San Miguel Integrated Sales Branded and Value-added 331
businesses
Food Service All business 76
Subtotal 698
Total – Domestic 2,759
Indonesia 206
Vietnam 736
Grand Total – Company 3,701

There are 8 organized labor unions in SMPFC, 7 of which are domestic unions and have collective
bargaining agreements (“CBA”) with the Company. SMPFC’s CBA negotiations with SMFI
Employees Union and Magnolia Poultry Employees Union are now on going. The Company’s CBA
with the other 5 domestic unions will expire in 2011.

As of September 30, 2010, the Company’s employees totaled 3,701 broken down as follows: 42
Executives, 211 Managerial, 1,945 Professional and Technical employees, and 1,503 Rank and File
employees. The geographical expansion may require additional hiring to support the same, the
number of which cannot be determined until project implementation proceeds.

EMPLOYEE BENEFITS

The Company provides medical benefits, insurance, transportation and communication allowances to
its employees. The Company also has a retirement plan and extends loan facilities and other cash
assistance to its employees. Regular employees with at least one-year tenure are entitled to
participate in SMC’s stock purchase plan.

INSURANCE

SMPFC has an all-risk policy that covers its facilities and inventories, other than livestock, against a
variety of risks, including fire, lightning, catastrophic perils, such as typhoons, floods, earthquakes and
volcanic eruptions, machinery breakdowns, explosions, civil commotion, riots or strikes, malicious
damage and others. SMPFC’s facilities and inventories are insured with Prudential Guarantee and
Assurance, Inc. SMPFC does not maintain business interruption insurance for its production facilities.
The maximum coverage available under this policy is approximately US$315 million, with a maximum
recovery for any single loss of US$250 million for each and every occurrence applied collectively to
the SMC Group.

SMPFC also maintains various general liability and product liability insurance policies covering its
operations. These policies do not cover liabilities resulting from pollution or other environmental
damage caused by SMPFC.

SMPFC has a marine cargo insurance policy to cover domestic and international shipments of goods
and equipment. A product liability insurance policy insures all of SMPFC’s exported products.
SMPFC’s insurance policies are provided by leading Philippine insurance companies that are
generally reinsured by major international insurance companies.

HEALTH, SAFETY AND ENVIRONMENTAL MATTERS

SMPFC applies its quality standards uniformly across all of its production facilities, whether SMPFC-
owned or contracted. SMPFC also provides training to its third-party operators before their operations
commence. SMPFC representatives are assigned to oversee toll plant operations on a daily basis,
providing technical support and working closely with the third-party operators’ management. Periodic
audits are also conducted by SMPFC’s internal quality assurance personnel and customer quality
representatives, as well as by Government inspectors.

70
SMPFC intends to continue to strengthen its commitment to food safety standards, including HACCP,
GMP, ISO 22000 and ISO 9001. HACCP is a systematic preventive approach to food safety
management that addresses physical, chemical and biological hazards. GMP is a system to manage
manufacturing and quality testing systems. ISO 22000 is the global standard for food safety
management systems. Effective GMP and HACCP implementation are prerequisites to successful
implementation of ISO 22000. ISO 9001 institutionalizes the principles of quality management to
ensure quality standards are consistently met.

Set forth below is the status of implementation of the different quality and food safety systems at
SMPFC’s facilities as of December 31, 2009.

Current Food Safety Status of Manufacturing Facilities

Facilities GMP HACCP ISO 22000 ISO 9001

Certified 68 46 5 10
Certifiable 7 7 2 10
Total 75 53 7 20

In 2009, the Company and its subsidiaries incurred about P34.5 million in expenses for environmental
compliance. On an annual basis, operating expenses incurred by SMPFC and its subsidiaries to
comply with environment laws are not significant or material relative to the Company and its
subsidiaries’ total cost and revenues.

RECENT ACQUISITIONS

On July 30, 2010, SMPFC completed the Brands Acquisition and the Vietnam Acquisition. In
connection with the Recent Acquisitions, SMPFC is obligated to pay aggregate consideration of P4.05
billion to SMC, of which P3.615 billion is still outstanding. SMPFC intends to use a portion of the net
proceeds of the issuance of the Preferred Shares to settle this outstanding payable to SMC. For more
information, see “Use of Proceeds”.

THE SMPFC BRANDS

On July 30, 2010, SMPFC acquired from SMC certain major brands, related trademarks and other
intellectual properties that SMPFC uses to prepare, package, advertise, distribute and sell its products
in the Philippines (the “SMPFC Brands”). Prior to the completion of the Brands Acquisition, SMPFC
licensed the SMPFC Brands from SMC. Following the completion of the Brands Acquisition, SMPFC
is no longer required to pay royalties to SMC for the right to use the SMPFC Brands.

Pursuant to the Intellectual Property Rights Transfer Agreement governing the Brands Acquisition, the
contract price for the Brands Acquisition is P3.2 billion, of which the Company has paid a 10%
downpayment of P320 million. The balance of the contract price is payable (i) upon change in the
controlling interest of SMPFC to any third person other than an affiliate; or (ii) two years from closing
date, whichever comes first. A portion of the net proceeds of the Offer will be used to fully pay said
remaining balance.

The table set forth below provides a summary of the brands transferred to SMPFC. Details of these
brands are included in the list of brands submitted with the Registration Statement for this Offer, which
is available for inspection by interested parties during business hours at the Corporation Finance
Department of the SEC.

BRAND COUNTRIES NUMBER OF MARKS

Feeds Business
B-MEG and its sub-brands Australia 2
Bangladesh 1

71
 China 3
Egypt 1
Hong Kong 1
Indonesia 1
South Korea 1
Laos 1
Malaysia 1
Myanmar 1
Philippines 11
Saudi Arabia 1
Singapore 1
Thailand 1
Vietnam 1

BONANZA and its sub-brands Laos 1

Myanmar 1
Philippines 1
Vietnam 1

PUREBLEND and its sub-brands Philippines 2

Vietnam 1

DYNAMIX Vietnam 1

Other Feed Brands Philippines 4

Other Feed Brands Bangladesh, China, Malaysia 5

BIBOY BABOY Philippines 2

PETKO Philippines 4

Poultry and Dairy, Spreads and Oils Business

MAGNOLIA and its sub-brands Australia 9
Bahrain 3
Bangladesh 1
Brunei 1
China 4
Dominican Republic 7
Fiji 1
France 1
India 1
Indonesia 2
Japan 13
South Korea 7
Kuwait 1
Laos 3
Macau 2
Micronesia 5
New Zealand 4
Nicaragua 2
Pakistan 1
Philippines 63
Saudi Arabia 1
Taiwan 1
Thailand 7
United Arab Emirates 1
United Kingdom 2
Vietnam 2

GOLD LABEL and its sub-brands Bahrain 1

Brunei 1
China 1
Hong Kong 2

72
 Indonesia 3
Japan 4
New Zealand 1
Oman 1
Qatar 1
Singapore 1
United Arab Emirates 1

STAR and its sub-brands Cambodia 2

Hong Kong 4
Malaysia 1
Micronesia 1
Myanmar 1
Philippines 5
Singapore 1
Thailand 3

DARI CRÈME and its sub-brands China 1

Indonesia 1
Micronesia 2
Philippines 1
Vietnam 2

Other Brands China, Hong Kong, Taiwan, 8

Thailand, Indonesia
Philippines 6

Other Patents Philippines 4

Meats Business
PUREFOODS and its sub-brands Philippines 29
United States 2

MONTEREY and its sub-brands Philippines 1

Vietnam 2

Flour Business
KING Philippines 2
PRINCE Philippines 3
COUNT Philippines 2
EMPEROR Philippines 2
EMPRESS Philippines 1
DUCHESS Philippines 1
ROYAL Philippines 1
ZUPRIM Philippines 2
BAKE BEST Philippines 1
PACIFIC Philippines 1
SILVER DRAGON Philippines 1

E-AJI and other Snacks brands Philippines 7

Other Businesses
JELLYACE and its sub-brands Micronesia 1
Philippines 16
Taiwan 1

SAN MIG COFFEE and its sub- Philippines 29

brands

GREAT FOOD SOLUTIONS and Philippines 6

sub-brands

73
SMC and SMPFC engaged Fortman Cline Capital Markets Limited (FCCM) as financial adviser to
perform a third party valuation of the SMPFC Brands. SMC and SMPFC arrived at the purchase price
of P3.2 billion after taking into account the valuation study. A copy of the Valuation Opinion Report of
FCCM is available for inspection by interested parties during business hours at the Corporation
Finance Department of the SEC.

THE VIETNAM BUSINESS

On July 30, 2010, SMPFC, through its wholly-owned subsidiary San Miguel Pure Foods International
Limited, acquired SMC’s 51% interest (through San Miguel Foods and Beverage International Limited)
in San Miguel Pure Foods Investment (BVI) Limited. Hormel continues to own the remaining 49% in
San Miguel Pure Foods Investments (BVI) Limited. The latter owns 100% of San Miguel Purefoods
(Vn) Co, Ltd, the company that operates the Vietnam food business. Prior to the completion of the
Vietnam Acquisition, SMPFC provided management services to the Vietnam food business, but the
majority interest in the Vietnam food business was legally owned by SMC.

Pursuant to the Agreement governing the Vietnam Acquisition, the contract price is P853 million, of
which the Company has paid a 10% downpayment of P85 million. The balance of the contract price is
payable (i) upon change in the controlling interest of SMPFC to any third person other than an
affiliate; or (ii) two years from closing date, whichever comes first. A portion of the net proceeds of the
Offer will be used to fully pay said remaining balance.

74
Description of Property
The general asset description and locations of the various plants and farms owned and leased by the
Company are set out below.

The Company owns most of its major facilities outside of the Agro-Industrial Cluster (Feeds and
Poultry and Meats), i.e., flour mills, meats processing and butter, margarine and cheese plant.

Most of the facilities of the Agro-Industrial Cluster are contracted from third parties. Only six
feedmills, three poultry processing plants, three poultry hatcheries, one broiler farm, two hog farms,
three cattle farms and one hog/cattle slaughterhouse are company-owned, although all are operated
by third parties.

The properties owned by the Company are not subject to any mortgage.

OWNED PROPERTIES
Address

MAIN OFFICE
JMT Corporate Condominium Building ADB Avenue, Ortigas Center, Pasig City

ADMINISTRATION OFFICES
Feeds and Poultry & Meats Iloilo Office Melliza St., Zamora, Iloilo City

MANUFACTURING PLANTS/ FACILITIES

Processed Meats Marikina Plant
Processed Meats Cavite Plant
Mabini Flourmill
Tabangao Flourmill
San Fernando Poultry Dressing Plant
Cebu Poultry Dressing Plant
Davao Poultry Dressing Plant
Feeds Spent Grain Drying and Rendering Plant
JP Rizal St., Bo. San Roque, Marikina City
Bo. De Fuego, Brgy. San Francisco, Gen. Trias, Cavite
Brgy. Bulacan, Mabini, Batangas
Brgy. Tabangao, Batangas City
SMC Complex, Bo. Quebiawan, San Fernando,
Pampanga
Brgy. Canduman, Mandaue City
Toril, Sirawan, Davao City
SMC Complex, San Fernando, Pampanga

Tarlac Feedmill Luisita Industrial Park, San Miguel, Tarlac City

B-Meg Pangasinan Plant Km. 189, Brgy. Bued, Binalonan, Pangasinan
Isabela Feedmill Bo. Soyung, Echague, Isabela
Bataan Feedmill Mindanao Avenue, cor 10th Avenue, BEZ, Mariveles,
Bataan
Feeds Spent Grain Drying Plant SMC Complex, Highway, Mandaue City
General Santos Feedmill Bo. Calumpang, Gen. Santos City
Cagayan de Oro Feedmill Brgy. Baloy, Tablon, Cagayan de Oro City
Bukidnon Feedmill Milmar Cpmd., Impalutao, Impasug-ong, Bukidnon
Magnolia Plant Bo. De Fuego, Governor’s Drive, Gen. Trias, Cavite
Monterey Meat Plant Governor’s Drive, Langkaan, Dasmariñas, Cavite
Processed Meats Indonesia Plant Jl. Raya Bogor Km. 37 Sukamaju, Sukmajaya, Indonesia

FARMS/ HATCHERIES/ COLD STORAGE

Calamba Hatchery Brgy. Licheria, Calamba City
Bulacan Hatchery Km. 37, Pulong Buhangin, Sta, Maria, Bulacan
Orion Experimental and Training Broiler Farm Brgy. Lim, Orion, Bataan
Bukidnon Hatchery Kapitan Bayong, Impasug-ong, Bukidnon
Calauan Experimental Farms – leased from SMC Cmpd., Brgy. Mabacan, Calauan, Laguna
SMC
Isabela Cattle Farm Bo. San Luis, Cauayan, Isabela
Polomolok 1 Cattle Farm National Highway, Bo. Matin-ao, Brgy. vSilway 8,
Polomolok, South Cotabato
San Miguel Hog Farm Pulong Bayabas, San Miguel, Bulacan

75
Sumilao Hog Farm San Vicente, Sumilao, Bukidnon
Processed Meats Fairview Cold Storage 34 Consul St., cor Carmel St., District 2, North Fairview,
Quezon City
Polomok 2 Cattle Farm Brgy. Glamang, Polomok, South Cotabato

At the moment, the Company has no plans to acquire real estate properties in the next twelve months.

LEASED PROPERTIES
Address

MANUFACTURING PLANTS
B-Meg Pangasinan Plant (lot only)
B-Meg Bataan Plant (lot only)
Magnolia Poultry Processing Plant (lot only)
Orion Experimental and Training Broiler Farm
(lot only)
Great Food Solutions Commissary
Km. 189, Brgy. Bued, Binalonan, Pangasinan
Mindanao Avenue, cor 10th Avenue, BEZ, Mariveles,
Bataan
SMC Complex, Bo. Quebiawan, San Fernando,
Pampanga
Barangay Lim, Orion, Bataan
Lapu-Lapu Ave. cor. North Bay Blvd., Navotas, Metro
Manila

FORESHORE (Flour)
Mabini Brgy. Bulacan, Mabini, Batangas
Tabangao Brgy. Tabangao, Batangas City

WAREHOUSE/ SALES & ADMINISTRATION OFFICES

Office Space for BPG 4th Floor, Unit D, JMT Corporate Condominium, ADB
Avenue, Ortigas Center, Pasig City
SMPFC Food Complex Legaspi cor Eagle St., Ugong, Pasig City
Food Group Consolidated Warehouse 403 F. Legaspi Street, Maybunga, Pasig

Flour
Bulacan Warehouse Sta. Rita, Guiguinto, Bulacan

Poultry & Meats

Pampanga RRK Bldg. Olongapo-Gapan Road, Dolores, San
Fernando Pampanga
Pangasinan Brgy. San Vicente, San Jacinto, Pangasinan
Isabela Brgy. Rizal, Santiago City, Isabela
Zambales Brgy. Mangan-vaca, Subic, Zambales
Batangas 437 V&F Cold Storage, San Roque, Sto. Tomas,
Batangas
MIPC Office and LTF - Warehouse 114 East Science Drive, Laguna Techno Park, Biñan,
Laguna
Live Operations and Southern Tagalog DENCRIS Bldg. 3rd and 4th Flrs, Brg. Halang, Calamba
Region Offices City, Laguna
Quezon Brgy. Bocohan, Lucena City
Albay Brgy. Anislag, Daraga, Albay
Bohol Albur Dressing Plant, Eastern Poblacion, Alburquerque,
Bohol
Bacolod VCY Center, Hilado Extn., Shopping Center, Bacolod
City
Dumaguete North Road, Hi-way, Dumaguete City, Negros Oriental
Sibulan, Negros Oriental
Tacloban Robledo Compound, Real St., Brgy. Campitik, Palo,
Leyte
Cebu 6th Flr Clotilde Bldg., Casuntingan, Mandaue City, Cebu
Ormoc Door 4, 2nd Flr, Tan Bldg., Lilia Ave., Cogon, Ormoc

76
 Davao Coaco Road, Sasa, Davao City
Zamboanga Door #2, Nuño Bldg, MCLL Highway, Guiwan,
Zamboanga City
Cagayan de Oro 3rd Flr, HBL Bldg., Gusa, Cagayan de Oro City
Ozamis Mialen, Clarin, Misamis Occidental
Butuan Km 9, Tag-ibo, Butuan City
Pampanga Livestock Selling Station Sta. Barbara, Bacolor, Pampanga
Batangas Livestock Selling Station Brgy. San Felix., Sto. Tomas, Batangas
Tacloban Office 17 Justice Romualdez, Tacloban City
Mandaue Office SFI Bldg., S. E. Jayme St., Pakna-an, Mandaue City
Bukidnon Live Operations Office Malaybalay, Bukidnon
Passi Office Passi City, Iloilo

Feeds
Cebu Office Ground Flr., GSMI Bldg., Subangdaku, Mandaue City,
Cebu
Bacolod Sales Office JA Building, San Patricio, Banago, Bacolod City
Cagayan de Oro Sales Office HBL Bldg., Gusa, Cagayan de Oro City
Bukidnon Office Malaybalay, Bukidnon
Butuan Sales Office Brgy. 23, Langihan Road, Butuan City
Tacoma Tacoma & 2nd St., Port Area, Manila
PNOC Bauan, Batangas
Airmoving G1 Logistics Corporation 3270 Merville, NIA Road Dist., Brgy 201, Pasay
NFA Isabela Northern Philippine Grains Complex,Echague, Isabela

Plaridel BMEG Warehouse Cabiawan St., Banga 1st, Plaridel, Bulacan

Alejo Sim Nancayasan, Urdaneta City, Pangasinan and Villasis,
Pangasinan
Morning Star Warehouse Brgy. Rizal, Moncada, Tarlac
YKK Warehouse Mabini, Moncada, Tarlac
Malitlit Warehouse Brgy. Malitlit, Sta. Rosa, Laguna
William Sim Urdaneta, Pangasinan
PKS Shipping Sitio Tawagan, Tayud Consolacion, Cebu
San Miguel Shipping and Lighterage Looc, Mandaue City, Cebu
Marasbaras, Tacloban City
General Milling Corporation 32/F, Export Bank Plaza cor. Chino Roces Ave. Makati
City Metro Manila
MELACO Enterprise 1358A Road 10, Pier 12, North Harbour, Tondo, Manila
Marichu Sack Dealer Alicia, Isabela

Rocksun Warehouse Marasbaras, Tacloban City

Bacolod Warehouse B JA Building, San Patricio, Banago, Bacolod City
SIAIN Warehouse Brgy. Loboc, Lapaz, Iloilo City
Bassett Land, Inc. Sitio Tawagan, Consolacion, Cebu
MARBEMCO Marvick Compound, Sitio Tawagan, Consolacion, Cebu
LMDC Enterprises Co. Tayud, Consolacion, Cebu
CATIMCO Warehouse Puntod, Cagayan de Oro City
Western Feedmill Corp. Coaco Road, Sasa, Davao City
MIMIJOE Ladislawa Village, Buhangin, Davao City
Greenhills Milling Corporation MCLL Highway, Culianan, Zamboanga City
PKS Shipping Sitio Tawagan, Tayud Consolacion, Cebu
DCCB Enterprise North Reclamation Area, Mabolo, Cebu City, Cebu
Southern Mindanao Commodities San Patricio Rd., Banago, Bacolod City
Agway Apopong, National Highway, Gensan City
Nixon Lim Warehouse Km 10, Sasa, Davao City
Mach-one Lube Km 12, Sasa, Davao City
LYL Development Malagamot Rd., Panacan, Davao City
Baloy, Cdo

Great Food Solutions

77
 Cebu Office SMDCI Bldg., SMC Complex, Highway, Mandaue City
Davao Office Coaco Road, Bo. Pampanga, Lanang, Davao City

San Miguel Integrated Sales

Pasig Office El Magnifico Bldg. No. 19 General Atienza St., San
Antonio Village, Pasig City
Pampanga Office 2F Rickshaw Arcade, Greenfield Square, Km. 76, Mc
Arthur Highway, Sindalan, San Fernando City,
Pampanga
Bacolod Office William Lines Warehouse, Magsaysay, Araneta St.,
Singcang, Bacolod City
Iloilo Office YK Marine Bldg., Iloilo Fishing Port Complex, Brgy.
Tanza, Baybay, Iloilo City
San Miguel Integrated Sales
Mandaue Office Mandaue Brewery, SMC Complex, Mandaue City
Tacloban Office Barangay No. 91, Abucay, Tacloban City
Cagayan de Oro Office San Miguel Brewery Cmpd., Luyong Bon Bon Opol,
Misamis Oriental
Davao Office Door #6 Plug Holding Cmpd., R. Castillo St., Agdao,
Davao
PT SMPF Indonesia
Bandung Office Jl. Soekarno Hatta No 606 Bandung
Surabaya Office Perumahan Citra Harmoni Block C1 No. 25 Trosobo
Jawa Timur
Yogyakarta Office Jl. Anggajaya II Gg. Merak No. 219A Condong Catur
Sleman Yogyakarta
SMPFVN

Ho Chi Minh 6F Mekong Tower, 235-241 Ward 13, Tan Binh, Ho Chi
Minh City
Long An High Way 1A, 1 Hamlet, My Yen, Ben Luc, Long An,
Vietnam
Cu Chi Tan Thanh Tay, Cu Chi District, Ho Chi Minh City,
Vietnam
Tay Ninh Long Binh, Long Thanh Nam, Hoa Thanh, Tay Ninh,
Vietnam
Tien Giang 1 Phuoc Hoa, Phuoc Thanh, Chau Thanh, Tien Giang,
Vietnam
Tien Giang 2 Tan Thanh, Thanh Nhut, Go Cong Tay, Tien Giang,
Vietnam
Dong Nai 1 39/2 An Hoa, Tay Hoa, Trang Bom, Dong Nai, Vietnam
Dong Nai 2 Bao Hoa Village, Xuan Loc District, Dong Nai, Vietnam
Dong Nai 3 160 Tho Lam 2, Phu Xuan, Tan Phu, Dong Nai, Vietnam
Vinh Long 194/2 Pham Hung St, Ward 9, Vinh Long, Vinh Long,
Vietnam
Soc Trang Dong Hai, Dai Hai, Ke Sach, Soc Trang, Vietnam
Tra Vinh Xom Trang, Nguyet Hoa, Chau Thanh, Tra Vinh, Vietnam
Bac Ninh Dinh Bang Village, Tu Son District, Bac Ninh, Vietnam
Lam Dong 1 1023, Tran Phu Road, Loc Tien, Bao Loc,Lam Dong,
Vietnam
Lam Dong 2 5 Thon An Hiep I, Lien Hiep, Duc Trong, Lam Dong,
Vietnam
Dak Lak Tan Hoa Ward, Buon Ma Thuoc City, Dak Lak
Ha Noi 116 Thanh Liet, Thanh Tri, Ha Noi, Vietnam
Binh Dinh 150 Tran Phu St., Tuy Phuoc Town, Tuy Phuoc District,
Binh Dinh, Vietnam

COLD STORAGE/ REEFER VANS

Poultry and Meats

78
 Vifel Cold Storage
Estrella Cold Storage
Integrated Meats Processing Plant
SG Farms
Polytrade Sales and Services
Diaz Dressing Plant
Kenwood Construction
Lolim’s Dressing Plant
Cheers Tradestar, Inc.
New Vreed Dressing Plant
Johanna’s Chicken Processing Center
Gallintina Industrial Corp.
Palmas Agribusiness Inc.
Johanna’s Chicken Proc. Center
Silangan Poultry Farms
Cariño & Sons Agri-Dev’t Inc.
MKC Poultry Dressing Plant
Technofreeze, Inc.
Albur Dressing Plant
Malogo Agri Ventures
First Farmers Food Corp.
Corden Agro
FBIC Reefer Corporation
DCTV Network
Big Blue Logistics
Coldlink Asia Logistics Corp.
Cebu Sherilin Agro-Industrial Corp.
Mindanao Coolers Corporation
Elim Dressing Plant
Green Pine Dressing Plant
St. Jude Dressing Plant
MK Business Ventures
ECA Cold Storage
Davao Fresh Foods Corporation
Sirawan Ice Plant
Polar Bear Corporation
V & F Cold Storage
ACES AMC IPPC Dressing Plant
Koldstor Centre Philippines, Inc.
Mets Logistics Corporation
Container Bridge Specialist, Inc.
Reefer Van Specialist, Inc.
Icon Reefer Corp.
Supreme Aqua Resources Corporation
Sunpride Foods, Inc.
Matutum Meat Packaging Co.
Purefoods-Hormel
PMC Logistics
Vifel
Estrella Ice Plant
Royal Cargo Combined Logistic
North Bay Blvd., Navotas, Metro Manila
Valenzuela, Metro Manila
Hermosa, Bataan
San Simon, Pampanga
Lagundi, Mexico, Pampanga
Km. 104, Brgy. Tabuating, San Leonardo, Nueva Ecija
Brgy. San Vicente, San Jacinto, Pangasinan
Brgy. Rabon, Rosario, La Union
Brgy. Rizal. Santiago City, Isabela
Brgy. Mangan-vaca, Subic, Zambales
Brgy. Lagalag, Tiaong, Quezon
GIC Compound, Brgy. Tagbong, Pili, Camarines Sur
Brgy. Anislag, Daraga, Albay
Brgy. Bocohan, Lucena City
San Jose, Lipa City
Brgy. Aya, San Jose, Batangas
Brgy. Tagburos, Puerto Princesa City, Palawan
114 East Science Drive, Laguna Techno Park, Biñan,
Laguna
Eastern Poblacion, Alburquerque, Bohol
Singko de Nyubembre St., Silay City, Negros Occidental
Brgy. Dos Hermanos, Talisay City, Neg. Occidental
Brgy. Tungay, Sta, Barbara, Iloilo
Dumaguete City, Negros Oriental
Riverside, Canduman, Mandaue City, Cebu
Brgy. Paknaan, Mandaue City, Cebu
PC Suico St., Tabok, Mandaue City
Brgy. Pangdan, Naga, Cebu
Dacudao Cmpd., Corrales Ext., Cagayan de Oro City
Mialen, Clarin, Misamis Occidental
Km 9, Tag-ibo, Butuan City
Mohon, Tagoloan, Misamis Oriental
Boalan, Zamboanga City
Tambler, General Santos City
Km. 20 Los Amigos, Tugbok, Davao City
Brgy. Toril, Sirawan, Davao City
Phividec, Tagoloan, Misamis Oriental & Davao Fishing
Port Complex, Toril, Davao City
Brgy, San Roque, Sto. Tomas, Batangas
Brgy, Garit, Echague, Isabela
Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Bo, Bangkal, Governor’s Drive, Carmona, Cavite
10th Floor, Unit TN6-TN7 Times Plaze Bldg., UN Ave.,
Corner Taft Ave., Ermita, Manila
Unit 2103, Antel Global Corporate Center Doña Julia
Vargas Avenue, Ortigas
Unit 526 5F Valero Plaza Building, Salcedo Village,
Makati City
17 Justice Romualdez St., Tacloban City
SFI Bldg., S.E. Jayme St., Pakna-an, Mandaue City,
Cebu
Brgy, Glamang, Polomolok, South Cotabato
Marcos Highway, Barrio Mayamot, Antipolo City
North Bay Blvd., Navotas, Metro Manila
Valenzuela, Bulacan
Sta. Aqueda Ave., Pascor Drive, Parañaque City
79
Magnolia
Koldstor Centre Philippines, Inc. Anabu Hills Industrial Estate, Anabu I-C, Imus, Cavite
Royal Cargo Combined Logistics Inc. Emilio Aguinaldo Hi-way, Salitran 1, Dasmariñas, Cavite

PT SMPF Indonesia
PT Haga Jaya Kemasindo Sarana Graha Cempaka Block C28, Jl. Letjend Suprapto,
Jakarta Pusat
Tiga Raksa Satria Jl. Soekarno Hatta No 606 Bandung
PT. Sewu Segar Nusantara Jl. Beringin Bendo Kawasan Industri Ragam II Kav. 8
RT 06/08 Taman Sepayang Surabaya
Joko P Jl. Ring Road Utara Pandega Patma DP 16D Yogyakarta

DEPOTS
Great Food Solutions
Cebu SMC-SL Compound, M. Ceniza St., Brgy. Looc, Ouano
Wharf, Mandaue City
Bacolod Zone 2 Calong Calong, Airport Subd., Bacolod City
Iloilo Fishing Port, Tanza, Iloilo City
Cagayan de Oro Door 4 Alwana Business Park, Cugman, Cagayan de Oro
City
Davao Door#6 Plug Holdings Cmpnd, R. Castillo St. Davao City
San Miguel Integrated Sales
Pasig 8 Elisco Road, Kalawaan Sur, Pasig City
Dagupan Barangay Bolosan, Dagupan City
Naga Olivan Compound, Concepcion Pequeña, Naga City
Pampanga San Fernando Brewery, San Fernando, Pampanga
Cebu SMC-SL Compound, M. Ceniza St., Brgy. Looc, Ouano
Wharf, Mandaue City
Bacolod Calong-calong, Airport Subd., Brgy. Singcang, Bacolod
City
Iloilo Iloilo Fishing Port, Tanza, Iloilo City
Cagayan de Oro Door #4 Misco Compound, Alwana Business Park,
Cugman, Cagayan de Oro City
Davao Amon Bldg., Km. 6, Lanang, Davao City and Km. 8, Ulas
Talomo, Davao City

CONVENIENCE STORES/ FOOD STALLS

Food Shop Outlets
Retiro 474-486 N. S. Amoranto Ave., Sta. Mesa Heights, Q. C.
Novaliches 248 Gen. Luis St., Novaliches Proper, Novaliches,
Quezon City
Redemptorist 83 Redemptorist Rd., Baclaran, Parañaque City
Ruby Road Ground Floor, Agustin I Bldg., Ruby St. near cor. Julia
Vargas St., Ortigas Center, Pasig City
Mabalacat Mc Arthur Highway, Mabalacat, Brgy. Tabun, Pampanga

These leases will expire in various years. The annual rentals of the Company and its subsidiaries for
properties leased amounted to P638.9 million on an aggregate basis for 2009. The breakdown per
business in terms of lease payment is as shown below:

Lease Payments
(in Million Pesos)
Poultry 89.0
Feeds 187.4
Fresh Meats 47.9
Value Added Meats 150.0
Flour 13.0
Dairy, Spreads and Oils 33.9
Others* 117.7
Total 638.9

80
*Includes the leases of the integrated sales group of the Company (SMIS) of P68.045 for various sales offices
and warehouses

CONDITION OF PROPERTIES

The properties owned and leased by the Company are in good condition, ordinary wear and tear
excepted, and are free from liens and encumbrances. The Company has no present plans to acquire
any material fixed assets except for those in connection with capital expenditure projects. All of the
Company’s existing lease contracts contain a provision that the contract is renewable upon
agreement by the parties.

81
Legal Proceedings
Neither SMPFC nor any of its subsidiaries is a party to, nor are its properties the subject of, any
material pending legal proceeding that could be expected to have a material adverse effect on
SMPFC or its business, financial condition and results of operations.

SMC is a party to certain lawsuits or claims (mostly labor related cases) filed by third parties which are
either pending decision by the courts or are subject to settlement agreements. According to SMC, the
outcome of these lawsuits or claims cannot be presently determined. In the opinion of SMC
management and its legal counsel, the eventual liability from these lawsuits or claims, if any, will not
have a material effect on the financial condition and results of operations of SMC nor its
shareholdings in SMPFC. In the opinion of SMPFC, the outcome of these lawsuits or claims will not
have a material effect on the shareholdings of SMC in SMPFC.

82
Ownership and Capitalization

Share Capital
As of December 31, 2010, the Company had a total of 166,667,096 common shares issued and
outstanding. Following the Offer, the Company will have (i) 166,667,096 common shares and (ii)
15,000,000 preferred shares issued and outstanding.

Ownership Structure
As of December 31, 2010, 166,526,487 common shares comprising 99.92% of the outstanding
common shares of the Company are held by SMC. The remaining 140,609 shares are held by other
shareholders numbering 125.

Top 20 Stockholders
Listed below are the top 20 stockholders of SMPFC as of December 31, 2010.

No. of
Rank Name Nationality %
shares
1 San Miguel Corporation Filipino 166,526,487 99.915635%

2 PCD Nominee Corporation (Filipino) Filipino 50,351 0.030240%

3 PFC ESOP / ESOWN Account 22,975 0.013785%

4 Ortigas, Cecille Y. 19,374 0.011624%

5 Chua, Ramon L. 6,538 0.003923%

6 Ramos, Jorge 5,868 0.003521%

7 Ortigas, Ana Maria de Olondriz 4,688 0.002813%

8 De Ocampo, Pacifico 3,665 0.002199%

9 Garcia, Antonio G. 2,910 0.001746%

10 Pendarvis, William 2,489 0.001493%

11 PCD Nominee Corporation (Non-Filipino) 1,650 0.000990%

12 Buendia, Honesto 1,198 0.000719%

13 Quijano, Teodoro 1,198 0.000719%

14 Reyes, Principe P. 1,198 0.000719%

15 Senga, Maxima A. 1,106 0.000664%

16 Fernan, Francis 1,038 0.000623%

17 Buendia, Honesto B. 997 0.000598%

18 Sugcang, Josefa 899 0.000539%

19 Avellana, Jose 831 0.000499%

83
 20 Metcalf, Peter F. 628 0.000377%

Compliance with Minimum Public Ownership Requirement

On October 28, 2010, the PSE adopted amendments to its rules on minimum public ownership of
listed companies and announced guidelines in determining public ownership or free float levels in
relation to such rules (the “Minimum Public Ownership Requirement”). Shares held by non-controlling
individuals, PSE brokers, mutual funds, investment funds or pension funds are generally considered
publicly held. The aforementioned rules, among others, also prescribe a minimum public ownership of
10% of issued and outstanding shares of any PSE listed company. The PSE may impose penalties on
any listed company that fails to meet such minimum free float requirement, ranging from a fine in an
amount between two to three times the annual listing maintenance fees due from such listed company
or a trading suspension. The PSE also has the prerogative to institute delisting procedures for
prolonged and continued violation of its minimum public ownership rule.

The BIR, in a letter dated December 28, 2010 addressed to the SEC, stated that it would “strictly
impose the 5%/10% capital gains tax” for trades in listed companies “who will not maintain their public
ownership requirement”, said public ownership requirement being the 10% to 33% public ownership
levels (based on the listed company’s market capitalization) required for an initial public offering or
IPO. The BIR letter would effectively require listed companies to maintain potentially higher public
ownership levels than prescribed by the PSE. This BIR letter was referred to the PSE by the SEC on
January 3, 2011. The PSE subsequently issued a memorandum dated January 20, 2011 in response
to the SEC on the BIR’s statements. The PSE noted that the Tax Code imposes a stock transaction
tax of ½ of 1% of the gross selling price or gross value in money of shares of stock listed and traded
on the PSE, without qualification and that the powers of the Secretary of Finance to promulgate rules
and regulations implementing the Tax Code should be confined to the details for implementing the law
as it has been enacted and such powers cannot be extended to amend or expand the statutory
requirement of the Tax Code.

The Company’s public ownership percentage is currently below the 10% level required by the PSE.
However, the Company has initiated steps to comply with the Minimum Public Ownership
Requirement of the PSE at the earliest possible time and has communicated its plans to do so with
the PSE.

In order to prepare the Company for a broader investor base and greater public participation, the
Company secured Board of Directors approval on February 2, 2010 for a re-launch of the Company’s
common shares by way of a trade sale or a marketed placement to investors, and the issuance of
existing and/or new shares of the Company.

To implement these initiatives, the required stockholder approval was secured on March 12, 2010 for
the de-classification of the Company’s common shares to allow holders thereof to freely transfer their
shares to persons of any nationality (subject to applicable laws), and the increase in the Company’s
authorized capital stock after such de-classification. The Amended Articles of Incorporation of the
Company reflecting both the de-classification of common shares and increase in capital stock have
been approved by the SEC.

84
Market Price of and Dividends on SMPFC’s Common
Equity and Related Stockholder Matters
Market Information

The registrant’s common equity is principally traded at the Philippine Stock Exchange. The high and
low sales prices for each period are indicated in the table below:

Class Class A Class B

Period High Low High Low
2010
1st Quarter - - - -
2nd Quarter 300.00 91.00 - -
3rd Quarter 350.00 250.00 - -
2009
1st Quarter 55.00 50.00 - -
2nd Quarter - - - -
3rd Quarter - - - -
4th Quarter - - - -
2008
1st Quarter - - - -
2nd Quarter 55.00 55.00 - -
3rd Quarter - - - -
4th Quarter 82.00 49.50 - -

The total number of stockholders as of December 31, 2009 was 126. The last closing price prior to
the last trading day of the year, December 31, 2009, was P55.00 for Class “A” shares (on January 7,
2009) and P74.50 for Class “B” shares (on May 6, 2009).

As of September 30, 2010, the total number of stockholders was 126 and the stock price was P320
per share.

Dividends and Dividend Policy

On February 2, 2010, the Board of Directors declared an 18% stock dividend payable out of the
increase in the authorized capital stock of the Company that was approved by the Board Directors on
the same date. Said stock dividend declaration and the related increase in authorized capital stock
were approved by the stockholders of the Company on March 12, 2010 and by the SEC on May 21,
2010. Said 18% stock dividend consisted of 25,423,746 common shares.

Except as aforementioned, the Company has not distributed any dividends within the last three years.

The cash dividend policy of SMPFC provides for the distribution of annual cash dividends to the
holders of the common shares of the Company in an amount equivalent to approximately 70% of the
prior year’s recurring net income (which is net income calculated without respect to extraordinary
events that are not expected to recur), subject to applicable laws and regulations and the approval of
the Board of Directors, taking into consideration factors such as implementation of business plans,
debt service requirements, debt covenant restrictions, funding for new investments, major capital
expenditure requirements, appropriate reserves and working capital, among others.

Sale of Unregistered or Exempt Including Securities Constituting an Exempt Transaction

Pursuant to the stock dividend declaration described above, the Company issued a total of
25,423,746 common shares to its stockholders of record as of June 30, 2010.

85
Except as aforementioned, the Company has not issued any equity securities within the last three
years.

86
Directors and Executive Officers

Board of Directors
The table below sets forth each member of the Board of Directors of SMPFC as of the date of this
Prospectus. A vacancy in the Board exists with the resignation of Mr. Jose T. Pardo from the Board
effective as of January 20, 2011.

Name Age Citizenship Position

Eduardo M. Cojuangco, Jr. 74 Filipino Chairman
Ramon S. Ang 56 Filipino Director
Francisco S. Alejo III 62 Filipino Director
Menardo R. Jimenez 77 Filipino Director

Cancio C. Garcia 72 Filipino Independent Director

Mario C. Garcia 58 Filipino Director
Carmelo L. Santiago 67 Filipino Independent Director
Plaridel M. Abaya 76 Filipino Independent Director

Eduardo M. Cojuangco, Jr. is the Chairman of SMPFC, a position he has held since May 22, 2001.
He is also Chairman and Chief Executive Officer of SMC and Ginebra San Miguel, Inc. In addition, he
is the Chairman of ECJ and Sons Agricultural Enterprises, Inc. and the Eduardo Cojuangco, Jr.
Foundation, Inc. and is a Director of Cainaman Farms, Inc., Petron Corporation and Manila Electric
Company.

Ramon S. Ang has been a Director of SMPFC since May 22, 2001. He also holds, among others, the
following positions: Vice Chairman, President and Chief Operating Officer of SMC; Chairman of San
Miguel Brewery Inc., San Miguel Properties, Inc., San Miguel Yamamura Packaging Corporation, The
Purefoods-Hormel Company, Inc., Anchor Insurance Brokerage Corporation and San Miguel Brewery
Hong Kong Limited (Hong Kong); and Director of Ginebra San Miguel, Inc. and San Miguel Energy
Corporation. In addition, he is: the Chairman and Chief Executive Officer of Petron Corporation; Vice-
Chairman of Manila Electric Company; Chairman of Liberty Telecoms Holdings Inc., Philippine
Diamond Hotel & Resort, Inc., Philippine Oriental Realty Development, Inc., Atea Tierra Corporation
and Cyber Bay Corporation; and an independent director of Philweb Corporation. Mr. Ang has held
directorships in various subsidiaries of SMC during the last five years.

Francisco S. Alejo III is the President of SMPFC, and has held this position since May 20, 2005. He
has been a Director of SMPFC since May 22, 2001. In addition, he holds the following positions:
Chairman and Chief Executive Officer of Monterey Foods Corporation; Vice Chairman of San Miguel
Foods, Inc. and San Miguel Mills, Inc.; President of Magnolia Inc., The Purefoods-Hormel Company,
Inc. and San Miguel Super Coffeemix Co., Inc.; and Chairman and President of Sugarland
Corporation and Star Dari, Inc.; Chairman of San Miguel Pure Foods (Vn) Co., Ltd.; Director of San
Miguel Foods & Beverage International Limited, San Miguel Pure Foods Investment (BVI) Ltd. and
San Miguel Pure Foods International, Limited; and President Commissioner of PT San Miguel Pure
Foods Indonesia.

Menardo R. Jimenez has been a Director of SMPFC since April 25, 2002. He is also a Director of
SMC and Magnolia Inc. In addition, he holds the following positions: President and Chief Executive
Officer of Albay-Agro Industrial Development Corporation; Chairman and President of Majent
Management and Development Corporation, Majent Agro Industrial Corporation, M. A. Jimenez
Enterprises, Inc., Pac Rim Realty Development Corporation, Television International Corporation, Alta
Tierra Resources, Inc. and Fibers Trading, Inc.; Chairman of Cable Entertainment Corporation, Majent
Foundation, Inc., and Meedson Properties Corporation; and Adviser of First Metro Investment
Corporation, Cunickel Mining Corporation, Mabuhay Philippines Satellite Corporation, CBTL Holdings,
Inc. and CCC Insurance Corporation.

Cancio C. Garcia has been an Independent Director of SMPFC since June 27, 2008. He is also a
Director of San Miguel Properties, Inc. Justice Garcia is a former Associate Justice of the Supreme
Court of the Philippines. He was also Presiding Justice of the Court of Appeals (2003-2004).

87
Mario C. Garcia has been a Director of SMPFC since November 4, 2009. He is also a Director of
San Miguel Properties, Inc. and represents the National Government in the Board of Directors of the
Subic Bay Metropolitan Authority. He is a TV Host of Kapihan ng Bayan, NBN-4 and Comentaryo,
NBN-4, a Radio Host/Anchorman of Uno Por Dos, PBS Radio ng Bayan, Interim National President of
KBP Society of Broadcast Journalists, and Consultant of Radio Affairs, Pulis Ng Bayan, PNP. He was
previously a Board member of Clark Development Corporation (November 2009-March 2010),
member of the Board of Advisers of Freeport Service Corporation (2007-2008),Consultant for Special
Projects at the Philippine Daily Inquirer (February-November 2008), Director and Vice Chairman of
the Quezon City Red Cross (2006-2007), and Vice President for Programming and Operations and
Station Manager of Radio Veritas.

Carmelo L. Santiago has been an Independent Director of San Miguel Corporation (SMC) since July
24, 2008, Chairman of SMC’s Audit Committee and Member of SMC’s Executive Committee,
Executive Compensation Committee and Nomination and Hearing Committee. He is an Independent
Director of San Miguel Brewery Inc., Ginebra San Miguel, Inc., Anchor Insurance Brokerage
Corporation, Liberty Telecom Holdings, Inc., San Miguel Properties, Inc., and San Miguel Brewery
Hong Kong Limited; and Director of Terbo Concept. Mr. Santiago is the founder and owner of several
branches of Melo’s Restaurant and founder of Wagyu Restaurant.

Plaridel M. Abaya has been an Independent Director of SMPFC since November 11, 2010 and is
also a Director of Grayline Services, Inc. (a management company) and La Saga Commercial
Corporation (a financing company). He established Progressive Homes, Inc. and Baypoint Estates
Development Corporation, both housing development companies with projects in Laguna and Cavite.
He was previously Congressman representing the First District of Cavite in the Philippine House of
Representatives (1995 – 2004), and served in the Philippine military for over 30 years (until 1987).

Senior Management

The table below sets forth SMPFC’s executive officers as of the date of this Prospectus.

Name Age Citizenship Position

Francisco S. Alejo III 62 Filipino President
Zenaida M. Postrado 55 Filipino Division Chief Finance Officer
Ma. Soledad E. Olives 51 Filipino Vice President and Compliance Officer
Eliezer O. Capacio 55 Filipino Vice President
Rita Imelda B. Palabyab 51 Filipino President, San Miguel Foods, Inc.
Florentino C. Policarpio 60 Filipino President, San Miguel Mills, Inc.
Alexandra Bengson Trillana 37 Filipino General Counsel and Corporate Secretary

Francisco S. Alejo III is the President of SMPFC. As SMPFC’s President, Mr. Francisco “Butch”
Alejo III has successfully developed the SMC’s Food Group into a leading food company that delivers
food products and services from farm to plate. Mr. Alejo brings to SMPFC the strategic focus and
established business judgment gained from almost three decades of diverse leadership in SMC
Group. An accomplished corporate strategist, Mr. Alejo acquired solid training ground when he first
joined renowned multinational companies S.C. Johnson and Son, Inc., Warner Chilcot and Pepsi Cola
Bottling Company, as sales and product manager handling SMPFC’s top brands. He joined PFC in
1979 as group product manager, and eventually rose from the ranks to become its Vice-President for
the Sales and Processed Meats Division, and President of The Purefoods-Hormel Company, Inc.
Today, he leads a management committee of twenty officers, steering the organization to maintain its
position as a top food company in the Philippines and a strong regional player in Asia.

Mr. Alejo is a graduate of the Advanced Management Program of the Harvard Business School, and
holds a BS Business Administration degree from De La Salle University.

Zenaida M. Postrado is the Vice President and Chief Finance Officer of SMPFC. Ms. Zenaida “Aida”
Postrado is a Certified Public Accountant, with over 25 years’ experience in finance and accounting.
Before joining, Ms. Postrado was an auditor at SGV & Co. She was invited to join the San Miguel
Pure Foods family in 1981 and eventually rose to become Assistant Manager for the Internal Audit

88
Team. Determined to fully develop her skills toward a career in Finance, she embraced the role as
Manager of the firm’s Corporate Accounting/Controllership group and subsequently became Finance
Manager for various business units, initially for the Tuna and Aqua/Exports Division, then for the
Poultry and Livestock Division, and finally for The Purefoods-Hormel Company, Inc., where she also
became General Manager.

Ms. Postrado holds a BS in Business Administration and an accountancy degree from the University
of the East.

Ma. Soledad E. Olives is the Vice President and Manager, Corporate Planning and Management
Services Group. With a proven track record in business planning and development, Ms. Maria
Soledad “Toy” Olives has centered her work on achieving significant competitive advantage by
developing clear business strategies and improving productivity. Twenty-five years with the SMC
Group has sharply honed Toy’s planning abilities, thus allowing her to successfully take up
challenging roles as Industrial Engineer and Systems Analyst for the Feeds Business, where she also
rose to become the Information Systems Manager. She eventually worked her way up and became
Planning Manager for the Feeds and Poultry Businesses in Luzon. After proving her strength and
expertise in business planning and development, she was appointed Business Planning and
Information Systems Manager for Monterey Foods Corporation. Her role as Planning Manager for the
Integrated Agro Industrial Zone Project allowed her to complete the development plans for the IAIZ
Zones.

Ms. Olives is a graduate of BS Industrial Management Engineering and minored in Chemical

Engineering from the De La Salle University. She also underwent the Management Development
Program at the Asian Institute of Management.

Eliezer O. Capacio is the Vice President and Manager of SMPFC’s Division of Human Resources.
With over 28 years of solid managerial experience in strategic human resources, administration
management, and business operations, Mr. Eliezer “Eli” Capacio, fits the description of a dynamic
human resources leader. He is not only an expert in human resource policies, labor relations, people
development and employee relations, but in general business management as well, having led
several leadership positions within and outside the SMC Group. Mr. Capacio’s extensive strategic
and operational knowledge in various aspects of human resources and business operations began
when he worked for the Elizalde Group initially as Personnel Officer, and subsequently as General
Services Manager. He later joined Purefoods Corporation as Group Manager for Poultry’s HR
department, and moved up to become AVP for Purefoods HR. In October 2000, he became president
and general manager of MPM Noodles Corporation, thus, allowing him to directly influence and
control the operations of the business.

Mr. Capacio earned his Master’s in Management degree from the Asian Institute of Management, and
graduated with distinction. He is an alumnus of De La Salle University (AB Behavioral Science) and
Sacred Heart Seminary (AB Philosophy).

Rita Imelda B. Palabyab is the President of San Miguel Foods, Inc. Ms. Rita Imelda “Tatish”
Palabyab has distinctly made her mark as one of the top leading experts in the poultry industry. Her
29-year journey in San Miguel began as Operations Research Analyst for San Miguel Corporation’s
Corporate Planning Group. She then moved to the Feeds and Livestock Division as Staff Planner, and
later, as Senior Staff Planner for the spun-off San Miguel Foods, Inc. The first high point in her career
came when she was assigned Planning Manager for SMFI-Poultry Business. Later on, she handled
the planning for SMFI-Feeds Business as well, when both Feeds and Poultry were merged into a
single business. Within six years, she rigorously proved her sharp business acumen and moved on to
become Poultry’s Marketing and Business Planning Manager. In less than four years, she became the
General Manager for the SMFI-Poultry business, where she led its transformation into a major profit
contributor at SMPFC. In 2010, she was appointed as President of San Miguel Foods, Inc., heading
SMPFC’s Agro-Industrial Sector cluster, which is comprised of its poultry, feeds and fresh meats
businesses.

Ms. Palabyab is a BS Mathematics graduate, Cum Laude, from the University of the Philippines.

89
Florentino C. Policarpio is the President of San Miguel Mills, Inc. An expert strategist is the best way
to describe San Miguel Mills, Inc. President Mr. Florentino “Poyen” C. Policarpio who has over two
decades of leadership experience in planning, finance, production, sales, purchasing and marketing.
After a few months in his first job at San Miguel’s Corporate Planning team, Poyen set-off to pursue a
career in government as Project Planner for the National Electrification Administration. Proving that
his strength lies in planning, Mr. Policarpio rose to become the government agency’s Chief of the
Financial Management Division. Four years later, he further proved his versatility in various critical
areas of business management when he joined Ayala Corporation’s Purefoods company, where he
managed the Tuna Business in General Santos, then the Feedmill in Sta. Rosa, Laguna, and finally
the Poultry Dressing Plant in Marikina. He was also tapped by the Purchasing Department to handle
sensitive materials as Group Manager. Then, he was asked to handle sales and marketing for the
newly-born Flour Business. Within a year, he became Assistant Vice-President for Sales and
Marketing of the Flour Division and eventually rose to become Vice-President of the Flour Division.

Mr. Policarpio earned two degrees from De La Salle University and graduated Cum Laude for both
courses. He holds a Bachelor of Arts degree, major in Economics, and a Bachelor of Science in
Commerce, major in Accounting.

Alexandra Bengson Trillana is the General Counsel of the San Miguel Food Group and Corporate
Secretary of the Company. Before her appointment as Corporate Secretary, Atty. Alexandra “Alex”
Bengson Trillana was the Assistant Corporate Secretary of the Company, a position she has held
since April 26, 2004. She is also currently Corporate Secretary of San Miguel Foods, Inc., San Miguel
Mills, Inc., Magnolia, Inc., Sugarland Corporation, The Purefoods-Hormel Company, Inc. and San
Miguel Super Coffeemix Co,, Inc. Atty. Trillana has been in the practice of law for over ten years.
She began her career with the SMC Group in 2003 when she joined SMC’s Office of the General
Counsel (OGC) where she was promoted quickly to become Senior Manager for Commercial
Transactions. When SMC devolved its corporate services functions to its major subsidiaries, she was
tasked to head the Food Group OGC, managing the legal affairs of the San Miguel Food Group. She
was previously an associate for four years with the law firm of SyCip Salazar Hernandez & Gatmaitan,
trained in the practice areas of Special Projects, Banking, Finance & Securities, and Corporate
Services.

Atty. Trillana earned her Juris Doctor from Ateneo De Manila University School of Law, and holds a
BS Commerce degree, major in Legal Management from De La Salle University.

Board Committees

Executive Committee

The Executive Committee of SMPFC is composed of four Directors, which include the Chairman of
the Board of Directors and the President. Mr. Eduardo M. Cojuangco, Jr. is the Chairman of the
Executive Committee and the members are Mr. Ramon S. Ang, Mr. Francisco S. Alejo III and Justice
Cancio C. Garcia.

The Executive Committee is tasked to help and assist the officers of SMPFC in the management and
direction of the affairs of SMPFC. The Board of Directors may delegate to the Executive Committee its
powers, authority and duties, except as specifically limited by law.

Audit Committee

The Audit Committee of SMPFC is composed of five Directors, including the two Independent
Directors. Justice Cancio C. Garcia is the Chairman of the Audit Committee. The members are Mr.
Menardo R. Jimenez, Mr. Carmelo L. Santiago and Mr. Ferdinand K. Constantino as non-director
member. There is one vacancy in the Audit Committee as of the date hereof.

The Audit Committee is responsible for assisting the Board of Directors in the performance of its
oversight responsibility for financial reports and financial reporting process, internal control system,
audit process and in monitoring and facilitating compliance with both the internal and financial
management handbook and pertinent accounting standards, legal and regulatory requirements. It

90
performs financial oversight management functions, specifically in the areas of managing credit,
markets liquidity, operational, legal and other risks of SMPFC, and crisis management.

Nomination and Hearing Committee

The Nomination and Hearing Committee of SMPFC is composed of three voting directors and one
non-voting member in the person of Mr. David S. Santos, SMC’s Human Resources Head. Two
voting directors, namely, Justice Cancio C. Garcia and Mr. Francisco S. Alejo III are presently
members of this Committee. The position of Committee Chairman is presently vacant, with the
resignation of Mr. Jose T. Pardo from the Board effective as of January 20, 2011.

The Nomination and Hearing Committee is responsible for making recommendations to the Board of
Directors on matters relating to the Directors’ appointment, election and succession, with the view of
appointing individuals to the Board of Directors with the relevant experience and capabilities to
maintain and improve the competitiveness of SMPFC and increase its value. It pre-screens and
shortlists all nominees in accordance with the qualifications and disqualifications for Directors set out
in the Manual.

Executive Compensation Committee

The Executive Compensation Committee of SMPFC is composed of four members, including Mr.
Menardo R. Jimenez, Carmelo L. Santiago, Justice Cancio C. Garcia and Ferdinand K. Constantino
as non-director member. Mr. Menardo R. Jimenez is the Chairman of the Committee.

The Executive Compensation Committee is responsible for advising and assisting the Board of
Directors in the establishment of a formal and transparent procedure for developing a policy on
executive remuneration and for fixing the remuneration packages of SMPFC’s officers and Directors,
and provides oversight over remuneration of senior management and other key personnel, ensuring
that compensation is consistent with SMPFC’s culture, strategy and control environment. It
designates the amount of remuneration, which shall be in a sufficient level to attract and retain
Directors and officers who are needed to run SMPFC successfully.

Corporate Governance
Manual on Corporate Governance

The Manual on Corporate Governance (the “Manual”) of SMPFC was approved by the Board of
Directors on August 16, 2002 and amended on March 30, 2010. The monitoring of the
implementation of the evaluation system of SMPFC to measure and determine the level of compliance
of the Board of Directors and top level management with the Manual is vested by the Board of
Directors in the Compliance Officer.

Compliance and Monitoring System

The Compliance Officer of SMPFC is Ma. Soledad Olives.

The Compliance Officer is appointed by the Board of Directors. He or she is responsible for
monitoring compliance by SMPFC with the provisions and requirements of the Manual and the rules
and regulations of the relevant regulatory agencies, and ensures adherence to corporate principles
and best practices. The Compliance Officer holds the position of a Vice President or its equivalent and
has direct reporting responsibilities to the Chairman of the Board of Directors.

The Compliance Officer has certified that, for 2010, the Company has substantially adopted all the
provisions of the Manual as prescribed by SEC Memorandum Circular No. 2, Series of 2002.

In this connection, in 2010, SMPFC participated in the annual Corporate Governance Scorecard
process for publicly listed companies of the Institute of Corporate Directors, and together with SMC
and its other listed subsidiaries, organized a seminar on Corporate Governance attended by its Board
of Directors and senior management.

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Pursuant to its commitment to good governance and business practice, SMPFC continues to review
and strengthen its policies and procedures, giving due consideration to developments in the area of
corporate governance which it determines to be in the best interests of SMPFC and its stockholders.

Investor Relations

In addition to being the Chief Finance Officer of the Company, Ms. Zenaida M. Postrado is also the
Company’s Corporate Information Officer. Her contact details are as follows:

Telephone Number: (632) 702-5000

Email Address: zpostrado@smg.sanmiguel.com.ph

Address: JMT Building, ADB Avenue Ortigas Center, Pasig City

1605 Philippines

See “Senior Management” on page 88 for Ms. Postrado’s brief profile.

The Company does not have an Investor Relations Unit. Investor relations management functions are
being performed for the Company by SMC under a retainer service agreement (please see “Related
Party Transactions” on page 95).

Family Relationships
There are no family relationships up to the fourth civil degree either by consanguinity or affinity among
directors, executive officers, or persons nominated or chosen by the Company to become directors or
executive officers.

Involvement in Certain Legal Proceedings

For the past five years and up to the date of this Prospectus, the Company is not aware that anyone
of the incumbent directors and executive officers have been the subject of bankruptcy petitions or
pending criminal proceedings in court or have been by judgment or decree found to have violated
securities or commodities law and enjoined from engaging in any business, securities, commodities or
banking activities.

Compensation of Directors and Executive Officers

Standard Arrangements

SMPFC’s Executive Officers are also regular employees of the Company and are similarly
remunerated with a compensation package comprising of twelve (12) months base pay. They also
receive whatever bonus the Board extends to the managerial, supervisory and technical employees of
the Company.

The members of the Board of Directors who are not Executive Officers are elected for a term of one
year. They receive per diems in the amount of P10,000 on a per meeting participation.

The aggregate compensation paid or incurred during the last two fiscal years and the estimate for the
ensuing year are as follows:

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 Compensation of Executive Officers and Directors (In Pesos)
Year Salary Bonus Others Total
President and 2010 (estimated) P 43.5 million P12.3 million P 9.9 million P 65.7 million
Senior Officers* 2009 P 40.6 million P8.7 million P 10.3 million P 59.6 million
2008 P 43.3 million P 17.5 million P 12.2 million P 73.0 million
All other officers 2010 (estimated) P 126.0 million P 41.0 million P 44.3 million P 211.3 million
and directors as 2009 P 127.3 million P 32.2 million P 47.1 million P 206.6 million
a group 2008 P 114.9 million P 38.8 million P 43.2 million P 196.9 million
TOTAL 2010 (estimated) P 169.5 million P 53.3 million P 54.2 million P 277.0 million
2009 P 167.9 million P 40.9 million P 57.4 million P 266.2 million
2008 P 158.2 million P 56.3 million P 55.4 million P 269.9 million

*The President and Senior Officers of the Company are as follows: (for 2010 and 2009) Francisco S. Alejo III,
Zenaida M. Postrado, Rolando A. Cabredo, Florentino C. Policarpio and Rita Imelda B. Palabyab; and (for 2008)
Francisco S. Alejo III, Arthur O. Juan, Rolando A Cabredo, Zenaida M. Postrado and Rita Imelda B. Palabyab.
Rolando A. Cabredo, Senior Vice President, retired effective as of December 31, 2010.

There are no compensatory plans or arrangements for Executive Officers resulting from resignation
and other termination of employment with the Company or from a change in control of the Company
or a change in an Executive Officer’s responsibilities following a change in control of the Company.

Other Arrangements

There are no other arrangements for which the Directors are compensated by the Company for
services other than those provided as a Director.

Employment Contract

In lieu of an employment contract, the Directors are elected at the annual meeting of stockholders for
a one (1) year term. Any Director elected in the interim will serve for the remaining term until the next
annual meeting.

Warrants or Options

There are no warrants or options held by Directors or Officers.

Security Ownership of Management and Certain Record and Beneficial Owners

Security ownership of certain record and beneficial owners of more than 5% of common shares as of
December 31, 2010:

Title of Name & address of record Name of beneficial owner & No. of shares
Citizenship Percent
Class owner & relationship with issuer relationship with record owner held

Common San Miguel Corporation N/A Filipino

Stock
SMC Head Office
166,526,487 99.92%
40 San Miguel Avenue,
Mandaluuong City

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Security ownership of directors and executive officers as of December 31, 2010:

Amount and Nature of Percent of

Title of Class Name of Beneficial Owner Citizenship
Beneficial Ownership Class

Directors
Common Stock Eduardo M. Cojuangco, Jr. Filipino 1 (Direct) 0.00%
Common Stock Ramon S. Ang Filipino 1 (Direct) 0.00%
Common Stock Francisco S. Alejo III Filipino 1 (Direct) 0.00%
Common Stock Menardo R. Jimenez Filipino 1 (Direct) 0.00%
Common Stock Jose T. Pardo Filipino 1 (Direct) 0.00%
Common Stock Cancio C. Garcia Filipino 1 (Direct) 0.00%
Common Stock Mario C. Garcia Filipino 1 (Direct) 0.00%
Common Stock Carmelo L. Santiago Filipino 1 (Direct) 0.00%
Common Stock Plaridel M. Abaya Filipino 1 (Direct) 0.00%
Executive Officers
Zenaida M.
Common Stock Postrado Filipino N/A N/A
Ma. Soledad E. N/A N/A
Common Stock Olives Filipino
Common Stock Eliezer O. Capacio Filipino N/A N/A
Common Stock Rita Imelda B. Palabyab Filipino N/A N/A
Common Stock Florentino C. Policarpio Filipino N/A N/A
Rolando A. N/A N/A
Common Stock Cabredo Filipino
Alexandra N/A N/A
Common Stock Bengson Trillana Filipino
Directors and Executive Officers as a group 9 (Direct) 0.00%

Voting Trust Holders of 5% or more

None of the directors and officers owns 5% or more of the outstanding capital stock of the Company.
No person holds 5% or more of the Company’s outstanding shares under voting trust agreement.

Changes in Control
There is no provision in the Company’s Articles of Incorporation and By-laws which would delay, deter
or prevent a change in control of the Company. There are no existing arrangements to which the
Company is a party or which are otherwise known to the Company that may result in a change in
control of the Company.

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Certain Relationships and Related Transactions
Principal Shareholder
San Miguel Corporation (“SMC”) is a corporation organized and existing under the laws of the
Republic of the Philippines, with registered principal office address at No. 40 San Miguel Avenue,
Mandaluyong City. SMC is a public company under Section 17.2 of the Securities Regulation Code
and its shares are listed on the PSE. SMC, together with its subsidiaries (the “SMC Group”), is the
largest publicly listed food, beverage and packaging company in Southeast Asia. The SMC Group is
also engaged in the management and development of real estate properties.

Established in 1890, La Fabrica de Cerveza de San Miguel, Southeast Asia’s first brewery, produced
and bottled what would eventually become one of the bestselling beers in the region. Within the span
of a generation, San Miguel Beer had become an icon among beer drinkers.

Today, San Miguel Beer, SMC’s flagship product, is one of the largest selling beers and among the
top ten beer brands in the world. While brewing beer is SMC’s heritage, the SMC Group has
subsequently branched out into the food and packaging businesses.

Over recent decades, the SMC Group has diversified to produce a wide range of popular beverage,
food and packaging products, which continue to cater to consumers’ ever changing tastes.

The SMC Group’s manufacturing and trading operations extend beyond the Philippines to Hong Kong,
China, Indonesia, Vietnam, Thailand, Malaysia and Australia, and its products are exported to major
markets around the world.

In the Philippines, the SMC Group’s corporate strategy is at aimed capitalizing on new growth markets
through acquisitions and further enhancing its competitive position by improving synergies across
existing operational lines, shifting its focus from commodity goods to value-added and branded
products to strengthen its domestic food business and improving its sales and distribution operations.
Following approval by its shareholders in 2007, SMC has diversified from its traditional core
businesses and has since made investments in industries such as power, energy,
telecommunications, mining and infrastructure.

The SMC Group has become the Philippines’ largest and one of its most diversified conglomerates. In
2009, the SMC Group generated approximately 3% of the Philippine gross national product.

Related Party Transactions

SMPFC engages from time to time in a variety of transactions with related parties. Certain of
these related party transactions are described below:

• SMPFC has been a party to trademark licensing agreements with SMC for the licensing of the
SMPFC Brands and the know-how on the formulation and production of certain products of
SMPFC. Pursuant to the terms of these agreements, for the year 2009, SMPFC paid royalty
fees to SMC equivalent to 0.5% to 1% of the net sales revenue of the products carrying the
SMPFC Brands. In 2009, SMPFC paid a total of P132.87 million in royalty fees to SMC.
Following the Brands Acquisition, all licensing agreements have been terminated. In 2010,
prior to the completion of the Brands Acquisition on July 30, 2010, SMPFC paid P79.47
million in royalty fees to SMC.

• SMPFC is a party to a shared services agreement with SMC, under the terms of which SMC
has agreed to share with SMPFC certain corporate, financial, information technology, human
resource, procurement, administrative and legal services, and facilities related thereto. Under
this agreement, SMPFC shall pay SMC an annual fee equivalent to approximately 0.35% of
SMPFC’s consolidated revenues. Unless terminated by either party, this agreement shall
continue to be valid and binding on SMPFC and SMC.

95
 • SMPFC is a party to lease agreements with certain members of the SMC Group for the lease
of properties used by SMPFC in connection with its business operations. The use by SMPFC
of the premises occupied by the Calauan R&D and Luzon Commercial Fry is currently
rentfree, but SMPFC is required to pay for security services and real property tax for the
premises. The monthly rentals for certain properties are subject to an annual rate escalation
of 10% to 15%. The lease agreements are automatically renewed on a monthly basis, except
for the lease agreement covering the warehouse at Binalonan, Pangasinan, which shall be
renewable on January 2013 on mutually acceptable terms. SMPFC leases its warehouse
located at Pandacan, Manila to another member of the SMC Group.

• SMPFC is a party to trucking, barging and small vessel charter services agreements with
certain members of the SMC Group for the hauling and transportation of certain raw materials
and commodities of SMPFC. The hauling and transportation fees, which are based on
prevailing market rates, vary depending on the destination of the raw materials and
commodities. Unless terminated by any of the parties thereto, the trucking, barging and small
vessel charter services agreements are automatically renewed on a monthly basis.

• SMPFC and its subsidiaries regularly purchase certain products, by-products and raw
materials from each other based on an agreed selling price. SMPFC also purchases vinegar,
spent grain, malt dust and dried yeast from certain members of the SMC Group.

• SMPFC is a party to packaging products supply agreements with certain members of the
SMC Group for the supply of packaging materials for certain products of SMPFC on a per
order basis. The consideration for the packaging materials is based on an agreed price which
is reflective of the prevailing market price for each type of packaging material.

• SMPFC is a party to business process outsourcing contracts with members of the SMC
Group for the provision of customer care services to SMPFC’s customers, and coding,
catalog and contract loading and end-user or supplier enablement services for SMPFC’s E-
Procurement System. Unless terminated by any of the parties thereto, the business process
outsourcing contracts are automatically renewed either on an annual or monthly basis.

• SMPFC is a party to service and retainer agreements with members of the SMC Group for the
provision of power and energy management, stock transfer, business application support,
system administration and facilities management, information technology, payroll, data
administration, and maintenance services to SMPFC based on an agreed monthly fee for
each service. Unless terminated by any of the parties thereto, these are automatically
renewed on either a yearly or monthly basis.

• On May 1, 2009, SMPFC purchased the receivables, inventories and fixed assets of SMC’s
Centralized Key Accounts Group (CKAG) for total consideration of P2,352.50 million. CKAG
was a unit of SMC engaged in the business of selling and distributing various products of
certain companies within the SMC Group, including SMPFC, to modern trade customers.

SMPFC does not have transactions with its directors, executive officers, security holders or members
of their respective immediate families. Some of the directors of SMPFC serve as directors and/or
executive officers of the SMC Group. None of the directors and officers of SMPFC has any interest in
SMPFC’s business transactions that are unusual in nature or their conditions, or significant to
SMPFC’s business.

For further information on SMPFC’s related-party transactions, see Note 25 of SMPFC’s audited
consolidated financial statements as of and for the years ended December 31, 2007, 2008 and 2009
and Note 15 of its consolidated interim financial statements as of and for the nine months ended
September 30, 2010, contained elsewhere in this Prospectus.

96
Selected Financial Information and Other Data
Prospective investors should read the selected financial information presented below in conjunction
with SMPFC’s consolidated financial statements and the notes to those consolidated financial
statements included elsewhere in this Prospectus. Prospective investors should also read
“Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

SMPFC’s selected financial and operating information presented below as of and for the years ended
December 31, 2007, 2008 and 2009 were derived from SMPFC’s consolidated financial statements,
audited by Manabat Sanagustin & Co. and prepared in compliance with PFRS. SMPFC’s financial and
operating information presented below as of and for the nine months ended September 30, 2009 and
2010 were derived from the unaudited condensed consolidated interim financial statements of
SMPFC prepared in compliance with PAS 34, “Interim financial Reporting” and reviewed by Manabat
Sanagustin & Co. in accordance with PSRE 2410, “Review of Interim Financial Information Performed
by the Independent Auditor of the Entity”.

SMPFC’s consolidated financial statements are reported in Pesos and are presented in accordance
with PFRS.

The information below is not indicative of the results of future operations.

As of and for the years ended As of and for the nine

December 31, months ended
September 30,
2007 2008 2009 2009 2010
P P P P P
(Audited) (Unaudited)
(in thousands except per share figures or where otherwise
indicated)
Consolidated Statements of Income Data
Revenues ................................................................... 62,052,029 71,075,925 75,042,967 54,302,835 56,567,267
Cost of sales .............................................................. 51,845,187 60,609,663 61,684,667 45,298,696 45,194,294

Gross Profit ................................................................ 10,206,842 10,466,262 13,358,300 9,004,139 11,372,973

Selling and administrative expenses.......................... (7,810,920) (8,623,651) (8,720,676) (6,747,884) (7,182,624)
Interest expense and other financing charges ........... (667,972) (830,914) (751,042) (622,118) (259,112)
Interest income .......................................................... 84,407 54,323 69,141 42,517 77,058
Gain (loss) on disposal of property and (18,010) 2,815 (24,663) 1,555 5,826
equipment and idle assets ....................................
Other Income (charges) - net ..................................... (696,049) (451,279) (88,968) (30,861) 73,713

Income Before Income Tax ........................................ 1,098,298 617,556 3,842,092 1,647,348 4,087,834
916,205 468,870 1,183,625 546,450 1,184,232
Income Tax Expense .................................................
Net Income ................................................................. 182,093 148,686 2,658,467 1,100,898 2,903,602

Attributable to
Equity holders of the Parent Company ..................... 30,591 77,194 2,596,963 1,059,868 2,772,886
Non-controlling interests ........................................... 151,502 71,492 61,504 41,030 130,716
182,093 148,686 2,658,467 1,100,898 2,903,602
Basic and diluted earnings per share
attributable to Equity Holders of the Parent
Company .............................................................. 0.22 0.55 18.39 7.50 16.64

Consolidated Statements of Financial

Position Data
Assets
Current Assets
Cash and cash equivalents ................................... 1,342,643 2,782,206 3,950,346 3,665,378
Trade and other receivables – net ......................... 7,530,107 7,762,091 9,023,953 6,385,695
Inventories – net .................................................... 10,053,498 11,804,788 11,804,099 12,681,008
Biological assets .................................................... 2,324,265 2,932,421 2,524,510 3,130,351
Derivative assets ................................................... 437,960 35,757 47,070 72,755
Prepaid expenses and other current assets .......... 934,277 814,808 1,245,674 2,079,640

Total Current Assets .................................................. 22,622,750 26,132,071 28,595,652 28,014,827

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Noncurrent Assets
Investment properties – net ................................... 56,366 71,727 108,065 114,544
Property, plant and equipment – net ..................... 8,251,252 8,058,423 8,294,593 9,307,749
Biological assets – net ........................................... 880,271 1,115,963 1,285,125 1,416,747
Intangible assets – net .......................................... 137,362 155,808 167,562 3,428,853
Goodwill – net ........................................................ 187,575 170,792 170,792 416,534
Deferred tax assets ............................................... 940,991 1,096,259 1,219,676 571,465
Retirement and other noncurrent assets ............... 267,935 200,988 334,408 328,839
10,721,752 10,869,960 11,580,221 15,584,731
Total Noncurrent Assets ............................................
Total Assets ............................................................... 33,344,502 37,002,031 40,175,873 43,599,558

Liabilities and Equity

Current Liabilities
Notes payable........................................................ 8,639,671 11,666,380 8,816,090 6,738,204
Trade payables and other current liabilities ........... 9,099,111 9,850,465 12,667,086 11,306,242
Income tax payable ............................................... 349,888 208,860 466,920 277,059

Total Current Liabilities .............................................. 18,088,670 21,725,705 21,950,096 18,321,505

Noncurrent Liabilities
Deferred tax liabilities ............................................ 353,082 238,260 399,040 262,157
Other noncurrent liabilities ..................................... 92,608 77,458 181,487 3,766,685
Total Noncurrent Liabilities ........................................ 445,690 315,718 580,527 4,028,842

Equity
Equity Attributable to Equity Holders of the
Parent Company
Capital stock .......................................................... 1,454,510 1,454,510 1,454,510 1,708,748
Additional paid-in capital........................................ 5,821,288 5,821,288 5,821,288 5,821,288
Revaluation surplus ............................................... 18,219 18,219 18,219 18,219
Cumulative translation adjustments ...................... (64,189) (70,416) (48,278) (85,976)
Retained earnings ................................................. 5,507,121 5,584,315 8,181,278 10,699,926
Treasury stock ....................................................... (182,094) (182,094) (182,094) (182,094)

12,554,855 12,625,822 15,244,923 17,980,111

Non-controlling Interests ............................................ 2,255,287 2,334,786 2,400,327 3,269,100

Total Equity ................................................................ 14,810,142 14,960,608 17,645,250 21,249,211

33,344,502 37,002,031 40,175,873 43,599,558

Cash Flow Data

Net cash provided by (used in):
Operating activities.................................................... 1,149,241 (77,361) 5,536,207 2,967,539 3,480,362
Investing activities ..................................................... (1,325,058) (1,509,785) (1,517,777) (1,143,911) (1,144,477)
Financing activities .................................................... (613,821) 3,026,709 (2,850,290) (3,020,380) (2,618,205)
Effect of exchange rate changes in cash and – – – – (2,648)
cash equivalents ...................................................
Net decrease in cash and cash equivalents.............. (789,638) 1,439,563 1,168,140 (1,196,752) (284,968)
Cash and cash equivalents at beginning of 2,132,281 1,342,643 2,782,206 2,782,206 3,950,346
year .......................................................................
Cash and cash equivalents at end of period ............. 1,342,643 2,782,206 3,950,346 1,585,454 3,665,378
Other Financial and Operating Data
(1)
EBITDA ................................................................... 4,175,650 3,380,745 6,248,179 3,497,348 5,585,813
(1)
EBIT ........................................................................ 2,717,358 1,827,234 4,543,671 2,234,178 4,176,760
Capital expenditure .................................................... 931,601 593,908 651,422 448,682 485,843
(2)
Gross profit margin .................................................. 16.45% 14.73% 17.80% 16.58% 20.10%
(3)
EBITDA margin ....................................................... 6.73% 4.76% 8.33% 6.44% 9.87%
(4)
EBIT margin ............................................................ 4.38% 2.57% 6.05% 4.11% 7.38%
_____________
Note:

(1) EBITDA is calculated as consolidated net income shown in consolidated income statement of SMPFC
prepared in accordance with PFRS before the following: a) provision for income taxes, b) interest expense and
other financing charges, c) interest income, d) depreciation and amortization, e) realized gain or loss on sale of
assets, f) impairment losses, g) net foreign exchange gain or loss, h) unrealized mark-to-market gains or losses
on hedging obligations, and i) extraordinary or non-recurring gain or loss. EBIT is calculated as net income

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shown in consolidated income statement of SMPFC prepared in accordance with PFRS before the following: a)
provision for income taxes, b) interest expense and other financing charges, c) interest income, d) realized gain
or loss on sale of assets, e) impairment losses, f) net foreign exchange gain or loss, g) unrealized mark-to-market
gains or losses on hedging obligations, and h) extraordinary or non-recurring gain or loss. Neither EBITDA nor
EBIT is a measure determined in accordance with PFRS or IFRS, and should not be considered as an alternative
to net income as a measure of operating performance or to cash flow as a measure of liquidity. The items of net
income excluded from EBITDA are significant components in understanding and assessing SMPFC’s financial
performance. Neither EBITDA nor EBIT is intended to be a measure of free cash flow for management’s
discretionary use, as it does not reflect certain cash requirements such as interest payments, tax payments and
capital expenditures. SMPFC’s calculation of EBITDA and EBIT may be different from the calculation used by
other companies and, as a result, SMPFC’s EBITDA and EBIT may not be comparable to other similarly titled
measures of other companies.
(2) Calculated as Gross Profit divided by Revenues.
(3) Calculated as EBITDA divided by Revenues.
(4) Calculated as EBIT divided by Revenues.

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Management’s Discussion and Analysis of Results of
Operations and Financial Condition
Prospective investors should read the following discussion and analysis of SMPFC’s consolidated financial position and
performance together with (i) the independent auditor’s reports, (ii) the audited consolidated financial statements for the
years ended December 31, 2009, 2008 and 2007 and the notes thereto and (iii) the consolidated interim financial statements
for the nine months ended September 30, 2010 and the related notes thereto.

Overview

SMPFC is a leading company in the Philippine food industry with a wide portfolio of well-regarded
products and brands, serving both household and institutional customers, primarily in the Philippines.
SMPFC’s main businesses are its poultry, fresh meats, value-added meats, flour, feeds and dairy,
spreads and oils businesses. SMPFC’s other businesses include coffee, food service and retail, as
well as regional businesses located in Indonesia and Vietnam.

SMPFC’s products use some of the best known and well-regarded brands in the Philippine food
industry, including Magnolia, Purefoods, Monterey, Star, B-Meg, Dari Crème and JellyAce. SMPFC
enjoys leading market shares in several of its main businesses and product lines, including poultry,
feeds, pork, hotdogs, flour and bread spreads.

For the year ended December 31, 2009, SMPFC recorded consolidated revenues of P75,042.97
million. SMPFC’s major businesses – poultry, feeds, fresh meats, flour, value-added meats and dairy,
spreads and oils contributed approximately 99.0% of SMPFC’s consolidated revenues for year ended
December 31, 2009. Set forth below are SMPFC’s revenues by business for the years ended
December 31, 2007, 2008 and 2009.

in P millions
2007 2008 2009 Sept. 30, 2010
Poultry 18,712.75 22,119.32 25,709.18 20,145.39
Feeds 14,696.32 16,873.97 16,766.83 13,721.38
Fresh Meats 6,161.04 6,367.29 7,303.47 4,557.00
Value-Added Meats 10,448.51 11,566.93 11,280.97 7,811.49
(1)(2)
Flour 6,721.49 8,684.01 7,929.30 5,613.14
Dairy, Spreads and Oils 5,177.25 4,813.01 5,283.29 3,721.89
Other 1,752.67 1,886.88 2,207.77 2,062.04
Eliminations (1,618.00) (1,235.48) (1,437.84) (1,065.06)
Total 62,052.03 71,075.93 75,042.97 56,567.27
_____________
Note:
(1) Includes all of SMPFC’s milling and related operations.
(2) Sales by SMPFC’s flour business for the year ended December 31, 2007 are grossed up to include P565.04
million of intersegment sales.

Recent Developments

Following the completion of the Brands Acquisition on July 30, 2010, SMPFC’s royalty payments to
SMC have been eliminated. For more information on the Brands Acquisition, see “Recent
Acquisitions” beginning on page 71 of this Prospectus.

Following the completion of the Vietnam Acquisition on July 30, 2010, SMPFC owns a majority
interest in the Vietnam business and will consolidate its results of operations. For more information on
the Vietnam Acquisition, see “Recent Acquisitions” beginning on page 71 of this Prospectus.

Factors Affecting Results of Operations

During the years ended December 31, 2007, 2008 and 2009, the financial condition and results of
operations of SMPFC were affected by a number of factors including the following principal factors:

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Consumer Demand

Consumer demand for food products is influenced by a number of factors, including macroeconomic
conditions, consumer purchasing power, consumer sentiment and consumer preferences. Demand for
SMPFC’s food products is influenced by the relative price relationships between its products and
other food products sold in the market. Consumers are prone to adjust their buying choices according
to shifts in the perceived value-for-money propositions among various food products. For example, in
2008, sharp rises in energy and commodity prices, coupled with weak economic growth due to the
global financial crisis, had an adverse impact on consumer purchasing power and disposable income
levels in the Philippines. As a result, sales volumes in SMPFC’s flour, dairy, spreads and oils and
fresh meats businesses experienced a decline, as consumers prioritized basic commodities while
consuming less milk and meat in favor of less expensive protein sources. However, due to the
diversity of SMPFC’s product offerings, declines in these businesses were partially offset by a shift
towards lower priced meat substitutes, such as chicken and processed meats.

SMPFC’s sales and operating results have also varied, and are expected to continue to vary, from
quarter to quarter as a result of seasonal demand patterns. Several of SMPFC’s businesses, including
its fresh meats and value-added meats businesses, are subject to variations in seasonal demand,
with higher sales in the fourth quarter of the fiscal year, when customers place their orders for the
Christmas season. As a result, SMPFC’s results of operations may not be comparable from quarter
to quarter.

Commodity Prices

SMPFC’s businesses require significant purchases of commodities. The prices at which these
commodities are purchased or sold are primarily determined by reference to market prices, which are
subject to significant variation due to such factors as regional and global supply and demand, foreign
exchange rate fluctuations, weather conditions and governmental controls. SMPFC’s agro-industrial
and milling segments, which together accounted for 76.9% of SMPFC’s revenues in the year ended
December 31, 2009, are primarily engaged in the sale of commodities, such as pork, beef, chicken,
feeds and flour. Moreover, a significant portion of SMPFC’s businesses is dependent on
commodities, such as soybean meal, corn, cassava, wheat, dairy ingredients, hogs and cattle, for the
production of its products. Raw material costs accounted for 78.3% of SMPFC’s operating costs in the
year ended December 31, 2009.

Supply Dynamics

SMPFC’s results of operations are affected by the supply dynamics that affect the industries in which
SMPFC operates. Changes in the market supply of a particular product that SMPFC sells will likely
have a direct impact on the price at which SMPFC can sell its products. Given SMPFC’s significant
market share in certain industry segments, such as poultry and feeds, SMPFC believes it has been
able to influence supply dynamics. In certain cases, however, these supply dynamics may be outside
of SMPFC’s control, particularly when supply disruptions arise from an industry-wide phenomenon,
such as availability of raw materials, natural disasters or governmental actions.

SMPFC believes its diversified product portfolio helps mitigate the overall impact on its financial
performance of supply volatility in any one of its business segment. In addition, SMPFC believes its
multiple channel distribution network limits the impact of supply volatility, as some channels are less
price elastic than others. For example, SMPFC benefited from a slight reduction in the supply of
domestically produced poultry in 2009 due to production problems experienced by some of SMPFC’s
competitors. SMPFC was able to benefit from higher prices in the live sales and wet market channels
for its products, while prices for its branded goods segment tended to be more stable.

Pricing and Selling Strategy

SMPFC has historically been able to charge a premium price for many of its branded products as a
result of its focused brand building efforts. SMPFC’s products compete in a competitive marketplace,
where consumers can easily shift between competing products. SMPFC’s management actively

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monitors its pricing and selling strategy, depending on specific circumstances and market dynamics,
and may decide to increase prices of its products at the expense of sales volume and market share.

SMPFC’s management may shift its sales focus among various products and market channels within
a particular business in order to maximize profits.

New Products and Branding Initiatives

SMPFC believes that consumer food products are impulse and discretionary purchases, which are
particularly sensitive to competitive pressure. A key element in maintaining its market share in the
highly competitive Philippine food market has been for SMPFC to continuously introduce new
consumer food products and product extensions. SMPFC has launched several new product lines,
such as milk and ice cream (Magnolia), and cooking oil (Magnolia Nutri-Oil) in 2004, coffee (San Mig
Coffee) and chicken nuggets (Purefoods) in 2005, flour mixes (Magnolia Pancake) in 2006 and
ready-to-eat products (Ulam King and Mom’s Kitchen) in 2007. Sales of these new products have
grown by 11.1% from P2,161.45 million in 2007 to P2,400.48 million in 2009, and in 2009 accounted
for 3.2% of SMPFC’s total sales.

In addition to introducing new products, SMPFC has embarked on branding initiatives that involve
organized advertising campaigns to differentiate its products and further expand market share.
Examples of major marketing campaigns are the value-added meats business, Purefoods TJ
Hotdog’s “Team Pa-cute” and “Iron Chef” campaign, Purefoods Chicken Fun Nuggets “Hi, Pogi”
campaign, Ulam King’s “Ikaw ang King” and the dairy, spreads and oil business’ Star Margarine
“Nutriskwela” and “Search for Batang Star” campaigns. SMPFC devotes significant expenditures to
support advertising and branding, including funding for advertising campaigns, such as television
commercials and radio and print advertisements, including promotions for new product launches. In
the years ended December 31, 2007, 2008 and 2009, SMPFC had advertising and promotion costs of
P1.3 billion, P1.5 billion and P1.4 billion, respectively. Advertising and promotion comprised a
significant proportion of SMPFC’s selling and administrative expenses (including depreciation) being
equal to 16.13%, 17.19% and 16.07% of its operating expenses in the years ended December 31,
2007, 2008 and 2009, respectively.

Description of Revenue Cost Items

Revenues

The revenues account consists of sales of goods in the course of ordinary activities measured at the
fair value of the consideration received or receivable, net of returns, trade discounts, volume rebates
and value-added tax. Fair valuation adjustments on agricultural produce also form part of revenues.

Cost of Sales

Cost of sales consists of:

• inventories used, which are accounted for under the moving average cost method, include the
cost of raw materials, such as wheat, corn, soybean meal and anhydrous milk fat, among
others;

• freight, trucking and handling costs relating to the transfers of raw materials from storage to
farms and manufacturing or production facilities;
• depreciation and amortization, pertaining to depreciation of plant equipment, facilities and
buildings and amortization of breeder stocks;

• communication, light and water expenses incurred in relation to SMPFC’s manufacturing

processes and facilities;

• personnel expenses, which consist of salaries, wages and related employee benefits of
employees involved in SMPFC’s manufacturing processes;

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 • repair and maintenance costs for the upkeep of SMPFC’s manufacturing plant equipment,
facilities and buildings;

• rental costs of manufacturing facilities, warehouses and storage facilities, and

• other cost of sales, which include tolling fees, contract growing fees, manufacturing supplies
and fuel, among others.

In 2007, 2008, and 2009, SMPFC’s consolidated cost of sales were P51,845.19 million, P60,609.66
million and P61,684.67 million, respectively.

Selling and Administrative Expenses

SMPFC’s consolidated selling and administrative expenses mainly consist of:

• personnel expenses, including salaries, wages and employee benefits of administrative, sales
and corporate support unit personnel;

• freight, trucking and handling expenses related to the shipment and distribution of SMPFC’s
finished products;

• advertising and promotions expenses, which include the cost of tri-media advertisements,
event sponsorships, billboards, merchandising activities and other promotional activities;

• contracted services, which represent cost of jobs performed by outside contractors related to
selling and administrative activities; and

• other selling and administrative expenses, which include rentals, taxes and licenses,
professional fees and depreciation and amortization, among others.

In 2007, 2008, and 2009, SMPFC’s consolidated selling and administrative expenses were P7,810.92
million, P8,623.65 million and P8,720.68 million, respectively.

Critical Accounting Policies

The preparation of SMPFC’s consolidated financial statements in accordance with PFRS requires
management to make judgments, estimates and assumptions that affect amounts reported in the
consolidated financial statements and related notes, at the reporting date. SMPFC has identified
certain accounting policies as critical to an understanding of its financial position and performance, as
the application of these policies requires significant management assumptions and estimates that
could result in the reporting of materially different amounts if different assumptions or estimates are
used. SMPFC’s significant accounting policies and significant accounting judgments, estimates and
assumptions are set out in Notes 3 and 4 to SMPFC’s audited consolidated financial statements for
the years ended December 31, 2007, 2008 and 2009 included elsewhere in this Prospectus.

Financial Performance
Nine Months Ended September 30, 2010 Compared to Nine Months Ended September 30, 2009

The following comparison of SMPFC’s financial performance is based on SMPFC’s consolidated

interim financial statements as of and for the nine months ended September 30, 2009 and 2010.

Revenues

Revenues increased by 4.2% from P54,302.84 million in the nine months ended September 30, 2009
to P56,567.27 million in the nine months ended September 30, 2010. This increase resulted primarily
from increases in revenues of 8.9% and 7.6% from SMPFC’s poultry and feeds businesses,
respectively, which cushioned the impact of decreased revenues from its flour and fresh meats
businesses during the period.

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AGRO-INDUSTRIAL

SMPFC’s Agro-Industrial Cluster includes its poultry, feeds and fresh meats businesses. Revenues
for the Agro-Industrial Cluster were P36,305.57 million and P38,423.78 million in the nine months
ended September 30, 2009 and 2010, respectively. Revenues presented in this “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” are prior to intersegment
sales eliminations reflected in SMPFC’s consolidated interim financial statements for the nine months
ended September 30, 2009 and September 30, 2010, which are included elsewhere in this
Prospectus.

Poultry

Revenues in SMPFC’s poultry business increased by 8.9% in the nine months ended September 30,
2010 compared with the same period in 2009 due to improved supply availability arising from
expansion and higher productivity of breeding operations that resulted in volume growth of 10.5% in
the nine months ended September 30, 2010 compared with the same period in 2009. In the nine
months ended September 30, 2010, sales from Magnolia Chicken Stations, food service and wet
markets posted double digit growth at 18.6%, 16.7% and 10.8%, respectively, over the same period in
2009. Selling prices declined by 1.7% in the nine months ended September 30, 2010 compared with
the same period in 2009, as prices in the third quarter of 2010 decreased by 6.9% due to increased
supply levels.

Feeds

Revenues in SMPFC’s commercial feeds business increased by 7.6% in the nine months ended
September 30, 2010 compared with the same period in 2009, due to the 10.2% increase in volume for
the same period. The volume increase was driven by double digit growth in broiler, fighting cock and
aquatic feeds.

Fresh Meats

Revenues in SMPFC’s fresh meats business decreased by 10.0% in the nine months ended
September 30, 2010 compared with the same period in 2009. Volume decreased by 8.3% over the
same period due to limited internal supply of marketable hogs, brought about by the closure of several
inefficient contract farms and the ongoing effects of the porcine reproductive and respiratory
syndrome (PRRS) in 2009, which affected the 2010 supply.

VALUE-ADDED MEATS

Revenues in SMPFC’s value-added meats business in the nine months ended September 30, 2010
were at the same level with revenues for the business in the same period in 2009, despite a capacity
shortage experienced during the first quarter of 2010. The shortage in capacity, which resulted from
the permanent closure of SMPFC’s cannery facility in October 2009, has been fully addressed
through its expanded tolling operations. Sales volumes began to normalize in the third quarter of
2010, but not in amounts sufficient to cover the volume shortfall in the first half of 2010.

MILLING

Flour

Revenues in SMPFC’s flour business decreased by 6.1% in the nine months ended September 30,
2010 compared with the same period in 2009, and volume increased by 1.9% over the same period.
Average selling prices also declined, reflecting the reduction in wheat costs over this period. The
discontinuance of SMPFC’s snacks and noodles businesses in the third quarter of 2009 also
contributed to the decline in revenues over this period.

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OTHERS

Dairy, Spreads and Oils

Revenues in SMPFC’s dairy, spreads and oils business increased by 3.6% in the nine months ended
September 30, 2010 compared with the same period in 2009. The increase in revenues was driven
primarily driven by increased sales volume for cheese, milk and ice cream, as SMPFC introduced new
product variants and expanded its distribution network.

Cost of Sales

Despite volume increases in most of the business units, cost of sales decreased slightly by 0.2% from
P45,298.70 million in the nine months ended September 30, 2009 compared with the same period in
2010 to P45,194.29 million in 2010, as a result of decreases in raw material prices and improved
efficiencies.

AGRO-INDUSTRIAL

Cost of sales for SMPFC’s Agro-Industrial cluster was P31,372.45 and P32,643.58 in the nine months
ended September 30, 2009 and 2010, respectively.

Poultry

Cost of sales in SMPFC’s poultry business increased by 6.2% in the nine months ended September
30, 2010 compared with the same period in 2009, primarily due to growth in volume, while margins
improved due to lower broiler costs and better growing efficiencies.

Feeds

Cost of sales in SMPFC’s feeds business increased by 8.7% in the nine months ended September 30,
2010 compared with the same period in 2009, which was slightly higher than the 7.6% increase in
revenues for this business for the same period. The increase in cost of sales in this period was
primarily a result of growth in volume, which was partially offset by savings in direct material costs
from substitution and reformulation and decreased raw material costs, particularly for corn and
soybean meal.

Fresh Meats

Cost of sales in SMPFC’s fresh meats business decreased by 14.9% in the nine months ended
September 30, 2010 compared with the same period in 2009, which was higher than the 10.0%
decrease in revenues in this business for the same period. The decrease in cost of sales was due to
the combined effects of decreased volume and lower raw materials and production costs in this
period.

VALUE-ADDED MEATS

Cost of sales in SMPFC’s value-added meats business decreased by 4.4% in the nine months ended
September 30, 2010 compared with the same period in 2009, which was higher than the 1.3%
decrease in revenues in this business for the same period. The decrease in cost of sales was
primarily a result of the use of alternative raw materials, as well as the insurance recovery of certain
tolling fees, which mitigated the impact of increased prices of major raw materials.

MILLING

Flour
Cost of sales in SMPFC’s flour business decreased by 22.8% in the nine months ended September
30, 2010 compared with the same period in 2009, which was greater than the 6.1% decrease in
revenues in this business for the same period. The decrease in cost of sales was a result of lower
wheat and freight costs, as well as the discontinuation of SMPFC’s snacks and noodles business.

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OTHERS

Dairy, Spreads and Oils

Cost of sales in SMPFC’s dairy, spreads and oils business decreased by 9.4% in the nine months
ended September 30, 2010 compared with the same period in 2009, while revenues for this business
increased by 3.6% in the nine months ended September 30, 2010 compared with the same period in
2009. The decline in cost of sales was primarily a reflection of decreased input prices in this period.

Gross Profit and Gross Margin

Gross margin increased by 3.5 percentage points from 16.6% in the nine months ended September
30, 2009 to 20.1% in the same period in 2010, resulting in gross profits of P11,372.97 million in the
nine months ended September 30, 2010, an increase of 26.3% from P9,004.14 million in the same
period in 2009.

Selling and Administrative Expenses

Selling and administrative expenses increased by 6.4%, from P6,747.88 million in the nine months
ended September 30, 2009 to P7,182.62 million in the same period in 2010, as a result of increased
manpower costs, increased advertising and promotions spending for brand building activities, the
impact of the increased fuel prices on distribution and transportation costs, and the transfer of
Centralized Key Accounts Group (CKAG) from SMC to SMPFC in May 2009. CKAG, now known as
San Miguel Integrated Sales (SMIS), handles selling functions for SMPFC’s modern and general
trade customers for its branded products.

Interest Expense and Other Financing Charges

Interest expense and other financing charges decreased by 58.4% from P622.12 million in the nine
months ended September 30, 2009 to P259.11 million in the same period in 2010 due to lower
borrowing rates and lower average loan levels.

Interest Income

Interest income rose by 81.2% from P42.52 million in the nine months ended September 30, 2009 to
P77.06 million in the same period in 2010, primarily due to the increase in the average level of money
market placements.

Gain on Disposal of Property and Equipment and Idle Assets

Gains on disposal of property and equipment and idle assets increased from P1.56 million in the nine
months ended September 30, 2009 to P5.83 million in the same period in 2010 due to increased
disposals of idle assets during this period in 2010 compared with the same period in 2009.

Other Income (Charges) – Net

Other income (charges) – net of (P30.86 million) in the nine months ended September 30, 2009
improved to P73.71 million in the same period in 2010 due to the appreciation of the Peso that
resulted in mark-to-market gains being recognized from SMPFC’s embedded third currency
transactions and the flour business’ full settlement of most of its wheat options for 2010.

Income Before Income Tax

As a result of the foregoing, income before income tax increased by 148.1% from P1,647.35 million in
the nine months ended September 30, 2009 to P4,087.83 million in the same period in 2010.

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Income Tax Expense

Income tax expense increased by 116.7% from P546.45 million in the nine months ended September
30, 2009 to P1,184.23 million in the same period in 2010 primarily due to the increased taxable profits
in this period.

Net Income

As a result of the foregoing, net income increased by 163.7% from P1,100.90 million in the nine
months ended September 30, 2009 to P2,903.60 million in the same period in 2010.

Year Ended December 31, 2009 Compared to Year Ended December 31, 2008

The following comparison of SMPFC’s financial performance is based on SMPFC’s consolidated

audited financial statements as of and for the years ended December 31, 2009 and December 31,
2008.

Revenues

Revenues increased by 5.6% from P71,075.93 million in 2008 to P75,042.97 million in 2009. This
increase resulted primarily from a 16.2% increase in revenues from SMPFC’s poultry business and a
14.7% increase in revenues from SMPFC’s fresh meats business. However, revenues from SMPFC’s
flour business declined by 8.7% over the same period as a result of downward adjustments in selling
prices following reductions in the cost of wheat.

AGRO-INDUSTRIAL

SMPFC’s Agro-Industrial Cluster includes its poultry, feeds and fresh meats businesses. Revenues
for the Agro-Industrial Cluster were P39,570.11 million, P45,360.57 million, and P49,779.48 million in
2007, 2008 and 2009, respectively. Revenues presented in this “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” are prior to certain intersegment sales
eliminations reflected in SMPFC’s audited consolidated financial statements for the years ended
December 31, 2007, 2008 and 2009.

Poultry

Revenues in SMPFC’s poultry business increased by 16.2% in 2009 compared with 2008, and
volume grew by 7.6% over the same period. Volume growth was driven by increased supply of
SMPFC and increased demand in chicken stations. Selling prices also generally increased in 2009
compared with 2008 due to limited supply in the market.

Feeds

Revenue decreased by 0.6% in 2009 compared with 2008 as a result of volume shortfall of 6.3%.
Volume declined due to industry wide contraction brought about by disease outbreaks, limited piglet
supply and higher input costs. Average selling prices increased as SMPFC maintained a premium
pricing strategy.

Fresh Meats

Revenues in SMPFC’s fresh meats business increased by 14.7% in 2009 compared with 2008.
Volume increased by 16.1% over the same period, as SMPFC was able to channel more supply to
live sales and wet markets because of synergies with poultry distributors and the expansion of live
sales in Central Luzon. The volume increase was partially offset by a decrease in selling prices, as a
greater proportion of SMPFC’s volume were sold at wholesale, rather than retail prices.

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VALUE-ADDED MEATS

Revenues in SMPFC’s value-added meats business decreased by 2.5% in 2009 compared with 2008,
and volume decreased by 9.3% over the same period. The decline in volume was due to SMPFC’s
loss of inventory and the closure of its Marikina plant in October 2009 because of typhoon damage.
The volume decline was partially offset by selling prices that increased generally in line with inflation.

MILLING

Flour

Revenue in SMPFC’s flour business decreased by 8.7% in 2009 compared with 2008, and volume of
flour excluding snacks and noodles increased by 5.9% over the same period. The volume increase
was due to recovery of demand for basic flour following the contraction in 2008 caused by a
significant increase in wheat prices. With the correction in wheat prices, selling prices declined,
however, the impact of the decreases was tempered by increased growth in sales of customized
products.

OTHERS

Dairy, Spreads and Oils

Total revenues in SMPFC’s dairy, spreads and oils business increased by 9.8% in 2009 compared
with 2008. The increase in revenues was driven primarily by 9.4%, 21.0% and 9.8% increases in
volume for cheese, milk and ice cream, respectively, due to SMPFC’s introduction of new product
variants and expanded distribution reach. Selling prices for ice cream increased, while prices for milk
declined significantly following a reduction in raw material costs. Oil volume increased by 29.4%, and
volume of bread spreads (including jelly snacks) increased by 4.5%.

Cost of Sales

Cost of sales increased by 1.8% from P60,609.66 million in 2008 to P61,684.67 million in 2009.

AGRO-INDUSTRIAL

Cost of sales for SMPFC’s Agro-Industrial cluster was P34,523.64 million, P39,836.86 million, and
P42,635.65 million in 2007, 2008 and 2009, respectively.

Poultry

Cost of sales in SMPFC’s poultry business increased by 13.2% in 2009 compared with 2008, which
was lower than the 16.2% increase in revenues for this business in 2009 compared with 2008. The
increase in cost of sales was primarily a result of growth in volume, while margins improved due to
higher selling prices.

Feeds

Cost of sales per bag increased by 1.1% while total cost of sales decreased by 3.6% in 2009 against
2008 due to lower volume. The gross contribution margin improved significantly due to the premium
pricing strategy.

Fresh Meats

Cost of sales in SMPFC’s fresh meats business increased by 14.8% in 2009 compared with 2008,
which was greater than the 14.7% increase in revenues for this business in 2009 compared with
2008. The increase in cost of sales was in line with the growth in volume.

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VALUE-ADDED MEATS

Cost of sales in SMPFC’s value-added meats business decreased by 1.8% in 2009 compared with
2008, which was less than the 2.5% decrease in revenues for this business in 2009 compared with
2008. The decrease in cost of sales was primarily a result of a decline in volume, and also reflected
an increase in cost of inputs.

MILLING

Flour

Cost of sales in SMPFC’s flour business decreased by 20.3% in 2009 compared with 2008, which
was greater than the 8.7% decrease in revenues for this business in 2009 compared with 2008. The
decrease in cost of sales was driven by decreased wheat prices.

OTHERS

Dairy, Spreads and Oils

Cost of sales in SMPFC’s dairy, spreads and oils business decreased by 3.3% in 2009 compared with
2008, while revenues for this business increased by 9.8% in 2009 compared with 2008. The decrease
in cost of sales was driven by decreased input prices.

Gross Profit and Gross Margin

Gross margin increased by 3.10 percentage points from 14.7% in 2008 to 17.8% in 2009, resulting in
gross profits of P13,358.30 million in 2009, an increase of 27.6% from P10,466.26 million in 2008.

Selling and Administrative Expenses

Selling and administrative expenses increased by 1.1% from P8,623.65 million in 2008 to P8,720.68
million in 2009. This increase resulted from increased personnel expenses due to additional
devolvement of corporate services to SMPFC and the full-year effect of SMC’s devolvement actions in
2008, which were partially offset by headcount reductions. Freight, trucking and handling expenses
decreased in 2009 compared with 2008 due to a combination of improved utilization of internal
distribution functions and the negotiation of unified rates with shippers. Advertising and promotions
expenses decreased in 2009 compared with 2008 due to the discontinuation of SMPFC’s noodles and
snacks businesses and related advertising and a reduction in year-end advertising campaigns by
SMPFC. Contracted services expenses increased in 2009 compared with 2008 as a result of an
increase in the number of chicken stations, which was partially offset by reductions in SMPFC’s fresh
meats business, as its Monterey meat shops were converted to a franchise model.

Interest Expense and Other Financing Charges

Interest expense and other financing charges decreased by 9.6% from P830.91 million in 2008 to
P751.04 million in 2009 due to decreased borrowing rates and lower average loan levels.

Interest Income

Interest income rose by 27.3% from P54.32 million in 2008 to P69.14 million in 2009, primarily due to
the increase in the average level of money market placements.

Gain (Loss) on Sale of Property and Equipment

The loss on sale of property and equipment in 2009 includes losses on the retirement of assets and
from the rationalization of existing food shop outlets of San Miguel Foods, Inc. and a write down of
leasehold improvements by SMPFC’s flour business following a change in management plans for
SMPFC’s snacks and noodles lines, resulting in a P24.66 million loss in 2009 following a P2.82 million
gain in 2008.

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Other Charges – Net

Other charges in 2009, which include impairment losses on certain assets, decreased by 80.3% from
P451.28 million in 2008 to P88.97 million in 2009, primarily due to unrealized mark-to-market gains in
2009 resulting from favorable hedging positions and foreign exchange rates.

Income Before Income Tax

As a result of the foregoing, income before income tax increased six-fold from P617.56 million in 2008
to P3,842.09 million in 2009.

Income Tax Expense

Income tax expense increased by 152.4% from P468.87 million in 2008 to P1,183.63 million in 2009.
SMPFC’s effective tax rate decreased from 75.9% in 2008 to 30.8% in 2009 due to:

• a reduction in the tax rate from 35.0% in 2008 to 30.0% in 2009,

• a write-off in 2008 of expired tax benefits from a net operating loss carryover (NOLCO) and
creditable minimum corporate income tax (MCIT), and

• additional income tax expense in 2008 for reduction in deferred tax assets due to a change in
tax rate from 35% to 30%, effective January 1, 2009.

Net Income

As a result of the foregoing, net income increased eighteen-fold from P148.69 million in 2008 to
P2,658.47 million in 2009.

FINANCIAL POSITION

The following discussion of SMPFC’s financial position is based on SMPFC’s consolidated audited
financial statements as of and for the years ended December 31, 2009 and December 31, 2008.

SMPFC’s remarkable operating performance in 2009 resulted in improved overall financial position,
as current ratio and debt to equity ratio registered at 1.30:1 and 1.28:1, respectively, from 1.20 and
1.47, respectively, in 2008. Total equity increased from P15.0 billion to P17.6 billion while total asset
base rose from P37.0 billion to P40.2 billion or a growth of 9%.

Below were the major developments in 2009:

Investments in Subsidiaries

In April 2009, Monterey, a majority-owned subsidiary of SMPFC, acquired the subscription rights of
certain individuals in Highbreed Livestock Corporation (HLC), a Philippine company engaged in
livestock farming, processing, selling meat products (mainly pork and beef) and leasing of properties.
As such, HLC became a subsidiary of Monterey and was consolidated into SMPFC through Monterey.
On June 22, 2009, the respective Board of Directors and stockholders of Monterey and HLC approved
the merger of HLC into Monterey, with Monterey as the surviving corporation. The consideration of the
assignment of the subscription, net of the effect of the merger, amounted to P6.25 million. The SEC
approved the merger on October 22, 2009. The Bureau of Internal Revenue (BIR) confirmed the tax-
free merger of HLC into Monterey in its Certification No. S40-052-2009 dated December 18, 2009.

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The fair value of the identifiable assets and liabilities of HLC at acquisition date are as follows:

Cash and cash equivalents P458

Trade and other receivables - net 14,983
Prepaid expenses and other current assets 13,139
Property, plant and equipment - net 925,854
Deferred tax assets 18,647
Trade payables and other current liabilities (966,831)
Net assets transferred P6,250

Related Party

On May 1, 2009, the transfer of the receivables, inventories and fixed assets of SMC’s Centralized
Key Accounts Group (CKAG) to SMFI was completed, for a total consideration of P2,352.5 million.
CKAG was a unit of SMC engaged in the business of selling and distributing various products of some
companies within the SMC Group, including SMPFC’s subsidiaries, to modern trade customers.

Analysis of Financial Position Accounts

Cash and cash equivalents grew by 42% compared to 2008 level mainly due to higher cash sales
during December and the integration of SMC’s CKAG unit into the Group.

The 16% increase in trade and other receivables - net was mainly due to integration of SMC’s CKAG
unit and the insurance claims booked by a subsidiary to cover damages caused by a typhoon.

Current biological assets declined by 14% due to lower volume of growing hogs and poultry livestock.
The 32% increase in derivative assets is primarily attributed to the higher value of outstanding
purchase orders that are to be settled using third currencies and the favorable foreign exchange rate
at valuation date.

Prepaid expenses and other current assets rose by 53% due to the increase in the level of creditable
input and withholding taxes for application against future tax liabilities. The integration of CKAG into
the Group also contributed to the increase.

Investment properties - net went up by 51% due to additional foreclosed properties during the year.

The 15% surge in noncurrent biological assets - net was due to the increase in the volume of
Monterey and Poultry’s breeding stocks coupled with higher growing costs.

The increase in deferred tax assets by 11% was largely due to the recognition of tax asset on future
benefit from the tax loss position for the year of a subsidiary.

Retirement and other noncurrent assets increased by 66% due to a subsidiary’s reclassification of
certain machinery and equipment considered as idle assets from property, plant and equipment to
other noncurrent assets following the change in management’s intention on its branded business.

Better operating cash flows of most subsidiaries enabled the Group to partially settle their short- term
borrowings, thus, the decrease in notes payable by 24%.

Trade payables and other current liabilities registered a 29% increase primarily due to the integration
of SMC’s CKAG unit into the Group and the acquisition by Monterey of HLC.

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Accrued expenses and other payables as of December 31, 2009 amounting to P6,443.63 million and
presented in Note 14 of the Company’s 2009 Audited Financial Statements consisted of liabilities for
the following:

Materials & Supplies P911.43 million

VAT and other taxes payable 686.75 million
Advertising and promotion/discounts/market development 502.03 million
Freight/tolling/shipping payable 425.16 million
Growers, breeders and distributors fees 351.09 million
Payroll-related accounts 326.96 million
Other payables 40.01 million
Miscellaneous accruals 3,200.20 million

Income tax payable was significantly higher versus 2008 level mainly on account of the Group’s
positive performance resulting in additional income tax.

Deferred tax liabilities increased by 67% due to the effect of the recognition of tax liability on
unrealized gains on certain derivative financial instruments.

Retirement liability went up by 134% due to the recognition of higher provision for pension costs for
the year.

The 31% drop in cumulative translation adjustments is primarily due to the appreciation of Indonesia’s
rupiah against the Philippine peso.

The change in retained earnings is primarily on account of the income earned for the year.

Year Ended December 31, 2008 Compared to Year Ended December 31, 2007

The following comparison of SMPFC’s financial performance is based on SMPFC’s consolidated

audited financial statements as of and for the years ended December 31, 2008 and December 31,
2007.

Revenues

Revenues increased by 14.5% from P62,052.03 million in 2007 to P71,075.93 million in 2008. This
increase resulted primarily from a 29.2% increase in revenues from SMPFC’s flour business and an
18.2% increase in revenues from SMPFC’s poultry business. However, revenues from SMPFC’s
dairy, spreads and oils business declined over the same period.

AGRO-INDUSTRIAL

Poultry

Revenues in SMPFC’s poultry business increased by 18.2% in 2008 compared with 2007, and
volume increased by 8.8% over the same period. The increase in volume was driven by increased
demand, particularly from SMPFC’s chicken stations. Increases in selling prices were driven by
general market conditions, increased feed prices and sales of higher-margin live chickens.

Feeds

Revenue grew 14.8% in 2008 compared with 2007 as selling prices per bag increased significantly by
16.8%. Selling price increased due to significant increases in raw material prices. Volume was nearly
flat despite a nationwide market contraction in the hog segment which comprised majority of the feeds
business.

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Fresh Meats

Revenues in SMPFC’s fresh meats business increased by 3.3% in 2008 compared with 2007, and
volume decreased by 8.2% over the same period. The decrease in volume was due to supply
constraints, as well as a market demand shift to lower cost meat substitutes, such as chicken,
following significant increases in the selling prices of pork and beef. On the other hand, selling prices
increased in 2008 compared with 2007, reflecting the increased cost of feed raw materials.

VALUE-ADDED MEATS

Revenues in SMPFC’s value-added meats business increased by 10.7% in 2008 compared with
2007, and volume increased by 4.1% over the same period. The volume increase reflected increased
market demand for more affordable products, such as hotdogs and other processed meat products in
substitution for fresh meats in light of the generally difficult economic conditions. Selling prices
increased in 2008 compared with 2007, reflecting increased cost of inputs and increased consumer
demand for higher-margin products, such as chicken nuggets.

MILLING

Flour

Revenues in SMPFC’s flour business increased by 29.2% in 2008 compared with 2007. Volume of
flour products (excluding snacks and noodles) decreased by 5.8% over the same period due to
increased selling prices reflecting a significant increase in global wheat prices.

OTHERS

Dairy, Spreads and Oils

Revenues in SMPFC’s dairy, spreads and oils business decreased by 7.0% in 2008 compared with
2007, as volumes generally declined over the same period due to reduced consumer demand in light
of price increases, reflecting increased cost of inputs. Ice cream volume increased due to increased
distribution points.

Cost of Sales

Cost of sales increased by 16.9% from P51,845.19 million in 2007 to P60,609.66 million in 2008. This
increase was primarily due to a 45.1% increase in the cost of sales of SMPFC’s flour business,
reflecting increased wheat prices, as well as 19.6% and 14.7% increases in the cost of sales of the
poultry and feeds businesses, respectively.

AGRO-INDUSTRIAL

Poultry

Cost of sales in SMPFC’s poultry business increased by 19.6% in 2008 compared with 2007, while
revenues for this business increased by 18.2% over the same period. The increase in cost of sales
was driven by increased volume, as well as increased cost of inputs.

Feeds

Cost of sales increased by 14.7% in 2008 compared with 2007 as an outcome of increasing price of
major feed ingredients worldwide.

Fresh Meats

Cost of sales in SMPFC’s fresh meats business increased by 5.0% in 2008 compared with 2007,
while revenues for this business increased by 3.3% over the same period. The increase in cost of
sales primarily reflects an increase in cost of feed raw materials.

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VALUE-ADDED MEATS

Cost of sales in SMPFC’s value-added meats business increased by 8.6% in 2008 compared with
2007, which was lower than the 10.7% increase in revenues for this business over the same period.
The increase in cost of sales was driven by increased volume.

MILLING

Flour

Cost of sales in SMPFC’s flour business increased by 45.1% in 2008 compared with 2007, while
revenues for this business increased by 29.2% over the same period. The increase in cost of sales
was driven by a significant increase in wheat prices, which could not be fully passed on through
increases in prices to customers.

OTHERS

Dairy, Spreads and Oils

Cost of sales in SMPFC’s dairy, spreads and oils business decreased by 6.2% in 2008 compared with
2007, while revenues for this business decreased by 7.0% over the same period. The cost of inputs
over this period generally increased; however, the overall reduction in costs reflects the decline in
volume and revenues.

Gross Profit and Gross Margin

Gross margin declined by 1.7 percentage points from 16.4% in 2007 to 14.7% in 2008, translating into
gross profits of P10,466.26 million in 2008, or an increase of 2.5% from P10,206.84 million in 2007.

Selling and Administrative Expenses

Selling and administrative expenses increased by 10.4% from P7,810.92 million in 2007 to P8,623.65
million in 2008. This increase resulted primarily from increased personnel expenses due to the
devolvement of certain corporate services functions and personnel that were formerly shared among
the SMC Group. Freight, trucking and handling expenses increased in 2008 compared with 2007 as a
result of increased fuel prices and expansion of SMPFC’s distribution reach. Advertising and
promotions expenses increased in 2008 compared with 2007 due to new product launches and
related advertising, including for coffee and chicken nuggets. Contracted services expenses increased
in 2008 compared with 2007 due to the new product launches and an increase in the number of
chicken stations.

Interest Expense and Other Financing Charges

Interest expense increased by 24.4% from P667.97 million in 2007 to P830.91 million in 2008 due to
higher interest rates and use of additional short-term loans to finance working capital requirements
and capital expenditures.

Interest Income

Interest income decreased by 35.6% from P84.41 million in 2007 to P54.32 million in 2008, primarily
due to the decline in the average level of money market placements.

Gain (Loss) on Disposal of Property and Equipment and Idle Assets

There was a P2.82 million gain on sale of property and equipment in 2008, following a P18.01 million
loss in 2007 mainly due to retirement of property and equipment from closure of foodshop outlets. The
2008 gain mainly represents gain on the disposal of SMPFC vehicles.

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Other Charges – Net

Other charges in 2008 of P451.28 million, which consist mainly of mark-to-market losses, represent a
35.2% decrease from P696.05 million in 2007. In 2007, subsequent to SMPFC’s majority acquisition
of Monterey, this subsidiary aligned its business systems with those of SMPFC’s other subsidiaries. In
the course of such alignment, certain asset accounts were adjusted to reflect their net realizable
values. Other related liability accounts were likewise adjusted. The impact of the reduction in
Monterey’s net assets was presented as part of “Other Charges-net” in SMPFC’s consolidated
statements of income. See Note 22 of SMPFC’s audited consolidated financial statements, which are
included elsewhere in this Prospectus.

Income Before Income Tax

As a result of the foregoing, income before income tax decreased by 43.8% from P1,098.30 million in
2007 to P617.56 million in 2008.

Income Tax Expense

Income tax expense decreased by 48.8% from P916.21 million in 2007 to P468.87 million in 2008.
SMPFC’s effective tax rate declined from 83.4% in 2007 to 75.9% in 2008. Both years included write-
offs of tax benefits as a result of NOLCO and MCIT for certain of SMPFC’s subsidiaries. The year
ended December 31, 2008 also included additional income tax expense, to adjust reduction in
deferred tax benefits due to a change in tax rate.

Net Income

As a result of the foregoing, net income decreased by 18.3% from P182.09 million in 2007 to P148.69
million in 2008.

FINANCIAL POSITION

The following discussion of SMPFC’s financial position is based on SMPFC’s consolidated audited
financial statements as of and for the years ended December 31, 2008 and December 31, 2007.

SMPFC’s financial position remained within threshold as its consolidated current and debt to equity
ratios stood at 1.20 and 1.47, respectively. Total equity increased from P14.8 billion to P 15.0 billion
while total asset base rose from P33.3 billion to P37.0 billion or a growth of 11%.

Below were the major developments in 2008:

Investments in Subsidiaries

a) In July and September 2008, respectively, the Company paid as deposits for future stock
subscription, the amounts of P400 million for 283,687,943 Magnolia shares of stock and P450
million for 22,500,000 Monterey shares of stock. In February 2009, Magnolia’s application for
increase in authorized capital stock was approved by SEC. Following SEC’s approval, Magnolia
issued the said 283,687,943 shares to SMPFC out of its unissued shares and increase in
authorized capital stock. As of February 12, 2010, Monterey’s application for the increase in its
authorized capital stock is pending filing with SEC.

The Company’s total payment in 2008 of P850 million was presented as investments and
advances in the Parent Company’s statements of financial position as of December 31, 2008.

b) In March 2007, SMMI’s application for increase in authorized capital stock from P0.25 million
(2,500 shares) to P2,000 million (20,000,000 shares) was approved by the SEC. SMMI
subsequently issued 16,457,310 shares to SMFI, then 100% owner of SMMI, in consideration for
the transfer of the net assets of SMFI’s Flour division valued at P1,645.5 million. The exchange is
by virtue of a Deed of Assignment between SMMI and SMFI executed in December 2005.

In January 2008, SMFI executed a Deed of Assignment assigning its 16,457,310 shares in SMMI

115
 to the Company effective December 28, 2007. The assignment is in accordance with SMFI’s
property dividend declaration of its SMMI shares in favor of the Company, subject to the
necessary approvals, and as approved by SMFI’s Board of Directors in June 2007.

As of March 19, 2009, the declaration of the SMFI’s shares in SMMI as property dividend in favor
of the Company is still pending issuance of a certificate of filing of property dividend declaration
by SEC.

Analysis of Financial Position Accounts

Cash and cash equivalents grew twice as much the 2007 level mainly due to collection of
intercompany receivables that took place on the last working day of December 2008, improved
collection of past due accounts and higher cash sales.

The 17% and 8% increase in inventories - net and trade payables and other current liabilities,
respectively, is largely attributed to the increasing costs of almost all major raw materials and on
account of the Group’s strategy of buying in advance some of its major raw materials such as corn
and imported meats in anticipation of short supply and high market prices.

The need for additional funds to finance capital expenditures and working capital requirements and
settle those maturing short-term loans resulted in more borrowings, thus the 35% increase in notes
payable.

Current biological assets grew by 26% due to the increase in volume of growing poultry livestock and
goods in process coupled with higher feed costs of broiler and hogs.

The substantial decline in derivative assets is primarily attributed to the matured wheat options
exercised in 2008, the unfavorable market valuation of soybean meal options and the higher valuation
of commitments under purchase orders that are to be settled using third currencies as a result of the
depreciation of the peso.

Prepaid expenses and other current assets dropped by 13% due to the decrease in the level of
creditable input taxes for application against future tax liabilities.

Investment properties - net went up by 27% due to additional foreclosed properties in 2008.

The 27% surge in noncurrent biological assets - net was due to the increase in volume of Monterey
and Poultry’s breeding stocks coupled with higher growing costs.

The increase in deferred tax assets by 17% was due to the drop in the market prices of wheat options
and the depreciation of the peso which resulted in the recognition of tax asset on unrealized losses on
derivatives. The recognition of tax asset on future benefit from the tax loss position in 2008 of some
subsidiaries likewise contributed to the increase in deferred tax assets.

The foreign subsidiary’s write-off of its 2007 tax refund and the absence of pension asset recognized
in 2008 caused the 25% decline in retirement and other noncurrent assets.

Income tax payable was 40% lower versus 2007 level mainly because of the drop in the subsidiaries’
income.

Retirement liability decreased by 16% due to contributions made, net of expense recognized, in 2008.

The 33% decrease in deferred tax liabilities was due to lower unrealized gains recognized on certain
derivative financial instruments.

The higher mark-to-market valuation of hedged fuel oil requirements of a subsidiary, as a result of the
depreciation of the peso against the US dollar, resulted in the 10% drop in cumulative translation
adjustments.

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IMPACT OF BRANDS ACQUISITION

In 2007, 2008 and 2009, SMPFC paid P107.41 million, P102.24 million and P132.87 million,
respectively, to SMC for the use of the SMPFC Brands. SMPFC paid SMC P79.47 million in
connection with its use of the SMPFC Brands in 2010 prior to SMPFC’s acquisition of the brand on
July 30, 2010. If the Brands Acquisition had been completed as of January 1, 2007, SMPFC would not
have paid those amounts to SMC.

LIQUIDITY AND CAPITAL RESOURCES

SMPFC’s primary sources of funds are cash from operations and cash from borrowings. Its primary
uses of funds are for operating expenses, working capital for operations, capital expenditures and
financing costs.

In 2009 and 2010, SMPFC’s consolidated cash flows from operations were sufficient to fund SMPFC’s
consolidated operating and financing activities.

The following table sets out SMPFC’s cash flows for the nine months ended September 30, 2009 and
2010:
For the nine months ended
September 30,
2009 2010
(in millions of P)
Net cash flows provided by operating activities ................................ 2,967.54 3,480.36
Net cash flows used in investing activities ....................................... (1,143.91) (1,144.48)
Net cash flows used in financing activities ....................................... (3,020.38) (2,618.20)
Effect of exchange rate changes in cash and cash equivalents ....... - (2.65)
Net increase (decrease) in cash and cash equivalents .................... (1,196.75) (284.97)

Net Cash Flows Provided by Operating Activities

Net cash flows provided by operating activities were P3,480.36 million for the nine months ended
September 30, 2010. SMPFC’s consolidated income before income tax for this period was P4,087.83
million, and this amount was adjusted for, among others, depreciation and amortization of SMPFC’s
consolidated property, plant and equipment, noncurrent biological assets, containers, computer
software and licenses, small tools and equipment and investment properties of P1,409.05 million,
interest expense on short-term loans of P259.11 million and other income net of gain on derivative
transactions of P192.54 million, resulting in operating cash flows before working capital changes of
P5,480.58 million. Aggregate changes in working capital reduced this amount by P947.40 million,
resulting in cash generated from operating activities of P4,533.18 million. This amount was reduced
by interest and income taxes paid of P1,052.82 million.

Net cash flows provided by operating activities were P2,967.54 million for the nine months ended
September 30, 2009. SMPFC’s consolidated income before income tax for this period was P1,647.35
million, and this amount was adjusted for, among others, depreciation and amortization of SMPFC’s
consolidated property, plant and equipment, noncurrent biological assets, containers, computer
software and licenses, small tools and equipment and investment properties of P1,263.17 million and
interest expense on short-term loans of P622.12 million, resulting in operating cash flows before
working capital changes of P3,514.56 million. Aggregate changes in working capital increased this
amount by P391.58 million, resulting in cash generated from operating activities of P3,906.14 million.
This amount was reduced by interest and income taxes paid of P938.6 million.

Net Cash Flows Used in Investing Activities

Net cash flows used in investing activities were P1,144.48 million for the nine months ended
September 30, 2010. This primarily reflects an increase in inventory of noncurrent biological assets
and acquisition of property, plant and equipment and intangible assets. Net cash flows used in
investing activities were P1,143.91 million for the nine months ended September 30, 2009. This

117
increase for the period in 2009 primarily reflects an increase in inventory of noncurrent biological
assets and acquisition of property, plant and equipment.

Net Cash Flows Used in Financing Activities

Net cash flows used in financing activities were P2,618.20 million and P3,020.38 million for the nine
months ended September 30, 2010 and 2009, respectively, and are primarily attributable to
payments of short-term loans.

Financial Position

As of September 30, 2010, SMPFC had total assets of P43,599.56 million, including P28,014.83
million of current assets and P15,584.73 million of noncurrent assets.

Current assets as of September 30, 2010 included cash and cash equivalents of P3,665.38 million,
trade and other receivables of P6,385.70 million, inventories of P12,681.01 million, biological assets
of P3,130.35 million, derivative assets of P72.76 million and prepayments and other current assets of
P2,079.64 million.

Noncurrent assets as of September 30, 2010 included investment properties of P114.54 million,
property, plant and equipment of P9,307.75 million, biological assets of P1,416.75 million, intangible
assets of P3,428.85 million, goodwill of P416.53 million, deferred tax assets of P571.46 million and
other noncurrent assets of P328.84 million.

As of September 30, 2010, SMPFC had total liabilities of P22,350.34 million, including P18,321.50
million of current liabilities and P4,028.84 million of noncurrent liabilities.

Current liabilities as of September 30, 2010 included notes payable of P6,738.20 million, trade
payables and other current liabilities of P11,306.24 million and income tax payable of P277.06 million.

Noncurrent liabilities as of September 30, 2010 included deferred tax liabilities of P262.16 million and
other noncurrent liabilities of P3,766.68 million.

As of the same date, SMPFC’s working capital (current assets minus current liabilities) was P9,693.32
million. SMPFC believes that its working capital is sufficient for its present requirements.

Capital Expenditures

SMPFC has made certain capital expenditures primarily to expand existing capacities and improve
operational efficiencies.

The table below sets forth SMPFC’s capital expenditures for the nine months ended September 30,
2009 and 2010. SMPFC has historically sourced funding for its capital expenditures from a
combination of internally generated funds and short-term bank borrowings.

Nine months ended September 30, Expenditure (in P millions)

2009 .......................................................................................................................... 449

2010 .......................................................................................................................... 486

Capital expenditures for 2009 and 2010 include capacity expansion, major repairs of existing facilities
and equipment and operations improvements.

Off-Balance Sheet Arrangements

SMPFC does not have any material off-balance sheet arrangements. SMPFC has, however, entered
into derivative transactions to manage its exposures to currency exchange rates and fuel oil prices.

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Derivative Financial Instruments

SMPFC, through SMC, enters into various commodity derivative contracts to manage its exposure to
commodity price risk. The portfolio is a mixture of instruments including futures and options covering
SMPFC’s requirements for wheat and fuel oil. SMPFC’s freestanding and embedded derivative
financial instruments are accounted for as hedges or transactions not designated as hedges. A more
detailed description of SMPFC’s derivative financial instruments is set out in Notes 17 to SMPFC’s
consolidated interim financial statements, which are included elsewhere in this Prospectus.

KEY PERFORMANCE INDICATORS

Set forth below are the major performance measures that SMPFC uses. SMPFC employs analyses
using comparisons and measurements based on the financial data for current periods against the
same period of the previous year.

KPI December 31, 2009 September 30, 2010

Liquidity:
Current Ratio 1.30 1.53
Solvency:
Debt to Equity Ratio 1.28 1.05
Profitability:
Return on Average Equity
Attributable to Equity Holders of
the Parent Company 18.64% 22.26%

For the nine months ended September 30,

KPI 2009 2010
Operating Efficiency:
Volume Growth 4.68% 3.07%
Revenue Growth 5.72% 4.17%
Operating Margin 4.15% 7.41%

The manner in which SMPFC calculates its key performance indicators is set out in the table below:

Key Performance Indicator Formula

Current Ratio Current Assets
Current Liabilities

Debt to Equity Ratio Total Liabilities (Current and Non-current)

Non-controlling Interests + Stockholders’ Equity

Return on Average Equity

Attributable to Equity Holders Net Income Attributable to Equity Holders of the Parent Company*
of the Parent Company Average Equity Attributable to Equity Holders of the Parent Company

Volume Growth Sum of all Businesses’ Revenue at Prior Period Prices

Prior Period Net Sales
–1

Revenue Growth Current Period Net Sales

–1
Prior Period Net Sales

Operating Margin Income from Operating Activities

Net Sales
_____________
Note:
*Annualized

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RECENT ACCOUNTING PRONOUNCEMENTS

New accounting rules and disclosure requirements could have an impact on SMPFC’s financial
results, as well as on the comparability of its financial statements. For a description of recent
accounting pronouncements, including the anticipated adoption dates, see Note 3 to SMPFC’s
audited consolidated financial statements included elsewhere in this Prospectus.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

SMPFC is exposed to various types of market risks in the ordinary course of business, including
interest rate risk, foreign currency risk, commodity price risk, liquidity risk and credit risk.

Interest Rate Risk

Interest rate risk is the risk that future cash flows from a financial instrument (cash flow interest rate
risk) or its fair value (fair value interest rate risk) will fluctuate because of changes in market interest
rates. SMPFC’s exposure to changes in interest rates relates primarily to SMPFC’s notes payable.

SMPFC follows a prudent policy to ensure that its exposure to fluctuations in interest rates is kept
within acceptable limits. SMPFC does not have short-term loans or long-term installment payables
with variable interest rates.

Foreign Currency Risk

SMPFC’s exposure to foreign currency risk results from significant movements in foreign exchange
rates that adversely affect the foreign-currency denominated transactions of SMPFC. SMPFC’s risk
management objective with respect to foreign currency risk is to reduce or eliminate earnings volatility
and any adverse impact on equity. SMPFC enters into foreign currency hedges using non-derivative
instruments, such as foreign currency forwards, to manage its foreign currency risk exposure. For
more information regarding SMPFC’s foreign currency risk exposure, see Note 28 to SMPFC’s
audited consolidated financial statements included elsewhere in this Prospectus.

Commodity Price Risk

Commodity price risk is the risk that future cash flows from a financial instrument will fluctuate
because of changes in market prices. SMPFC, through SMC, enters into various commodity
derivatives to manage its price risks on strategic commodities. Commodity hedging allows stability in
prices, thus offsetting the risk of volatile market fluctuations. Through hedging, prices of commodities
are fixed at levels acceptable to SMPFC, thus protecting against significant increases in raw material
costs and preserving margins. For hedging transactions, if prices go down, hedge positions may
show mark-to-market losses; however, any loss in the mark-to-market positions is offset by the
resulting lower physical raw material cost.

SMPFC uses commodity futures and options to manage SMPFC’s exposures to volatility of prices of
certain commodities, such as wheat and fuel oil.

Liquidity Risk

Liquidity risk pertains to the risk that SMPFC will encounter difficulty in meeting obligations associated
with financial liabilities that are settled by delivering cash or another financial asset.

SMPFC’s objectives to manage its liquidity risk are as follows: (i) to ensure that adequate funding is
available at all times; (ii) to meet commitments as they arise without incurring unnecessary costs; (iii)
to be able to access funding when needed at the least possible cost; and (iv) to maintain an adequate
time spread of refinancing maturities. For more information regarding SMPFC’s liquidity risk exposure,
see Note 28 to SMPFC’s audited consolidated financial statements included elsewhere in this
Prospectus.

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Credit Risk

Credit risk is the risk of financial loss to SMPFC if a customer or counterparty to a financial instrument
fails to meet its contractual obligations, and arises principally from SMPFC’s trade receivables.
SMPFC’s exposure to credit risk is influenced mainly by the individual characteristics of each
customer or counterparty. Thus, SMPFC has established detailed credit policies under which each
new customer is reviewed individually for creditworthiness before standard payment and delivery
terms and conditions are implemented. SMPFC ensures that sales on account are made to customers
with appropriate credit history. SMPFC applies detailed credit criteria and several layers of credit
approval requirements before engaging a particular customer or counterparty. SMPFC also manages
its credit risk mainly through the application of transaction limits and close risk monitoring. SMPFC’s
policy is to enter into transactions with a wide diversity of creditworthy counterparties to mitigate any
significant concentration of credit risk. For more information regarding SMPFC’s credit risk exposure,
see Note 28 to SMPFC’s audited consolidated financial statements included elsewhere in this
Prospectus.

Financial and Other Risks Relating to Livestock

SMPFC is exposed to financial risks arising from the change in cost and supply of feed ingredients
and the selling price of chicken, hogs and cattle and related products, all of which are determined by
constantly changing market forces of supply and demand, and other factors. The other factors include
environmental regulations, weather conditions and livestock diseases over which SMPFC has little
control.

Seasonality

Certain of SMPFC’s businesses are affected to some degree by seasonal variations. For example,
sales of SMPFC’s beef and pork products by its fresh meats and value-added meats businesses are
generally stronger in May and December compared with other months. Consumption of beef and pork
products increases in May due to the numerous town fiestas and festivities that occur in this month.
For fiestas, pork is the preferred meat in the provinces. In December, demand is affected by
increased available disposable income for many workers due to the thirteenth month pay, bonuses
and higher remittances from overseas. Demand is driven by parties in schools, offices and reunion in
homes, especially as relatives returning from abroad. Demand for pork and beef in December
increases by approximately 30% to 40% compared with October and is especially marked in the last
week of December for the New Year’s celebration, where pork is traditionally preferred over chicken in
the Philippines.

In addition, sales of SMPFC’s refrigerated meat products, which are part of its value-added business,
are generally stronger in the fourth quarter compared with other quarters due to high demand for
whole hams which form part of most Filipino families’ Christmas and New Year’s eve celebrations.
Historically, December sales volume improve by approximately 50% over earlier months.

Furthermore, demand for flour generally increases beginning in September as factories start to build
up their inventory to meet the Christmas holiday demand, when consumption of breads, pastries,
cakes and other flour-based products generally increases.

121
External Audit Fees and Services
For the annual review of the financial statements, the Company paid its external auditors the amount
of P1.0 million in 2008 and P1.3 million in 2009 (exclusive of VAT and out of pocket expenses). For
the review of the financial statements as of and for the period ended September 30, 2010, the
Company will pay its external auditors approximately P1.2 million. The Company’s external auditors
did not perform any other services for the Company.

The Audit Committee of the Company, pursuant to its mandate to assist the Board of Directors in the
performance of its oversight responsibility for financial reports and financial reporting process, internal
control system, audit process and in monitoring and facilitating compliance with both the internal
financial management handbook and pertinent accounting standards, legal and regulatory
requirements, performs the following duties and responsibilities relating to the services of the
Company’s external auditors:

• Prior to the commencement of the audit, discuss and review all audit plans, scope and audit
resources/expenses of the external auditors;

• Perform oversight functions with respect to the internal and external auditors of the Company,
ensuring the independence of one from the other, freedom from interference from outside
parties, and their unrestricted access to such records, properties and personnel of the
Company necessary to enable them to perform their respective audit functions; and review
the reports submitted by them;

• Evaluate and determine any non-audit work performed by the external auditors, including the
fees therefor, and ensure that such work will not conflict with the external auditors’ duties as
such or threaten its independence;

• Review all interim and annual financial statements before submission to the Board of
Directors for approval, with particular focus on the following:

• changes in accounting policies and practices;

• major judgmental areas;

• significant adjustments resulting from audit;

• going concern assumptions;

• compliance with accounting standards; and

• compliance with tax, legal and regulatory requirements.

122
Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
There are no changes in and disagreements with accountants on Accounting and Financial
Disclosure.

123
Interest of Named Experts and Counsel
Legal Matters

All legal opinion / matters in connection with the issuance of the Preferred Shares which are subject of
this offer will be passed upon by Picazo Buyco Tan Fider & Santos for the Company and Romulo
Mabanta Buenaventura Sayoc & De Los Angeles for the Joint Lead Underwriters.

Picazo Buyco Tan Fider & Santos had issued an opinion dated December 28, 2010 stating that the
Company has the permits and licenses which are necessary for the Company to be able to conduct,
and without which the Company could not validly and legally conduct, its principal business in the
manner described in this Prospectus, and that the same permits and licenses are valid and subsisting.

Independent Auditors

Manabat Sanagustin & Co. audited SMPFC Corporation’s financial statements for the years ended 31
December 2009, 2008 and 2007, included in this Prospectus.

There is no arrangement that experts and independent counsels will receive a direct or indirect
interest in the Issuer or was a promoter, underwriter, voting trustee, director, officer, or employee of
the Issuer.

124
Taxation
The following is a discussion of the material Philippine tax consequences of the acquisition, ownership
and disposition of the Preferred Shares. This general description does not purport to be a
comprehensive description of the Philippine tax aspects of the Preferred Shares and no information is
provided regarding the tax aspects of acquiring, owning, holding or disposing of the Preferred Shares
under applicable tax laws of other applicable jurisdictions and the specific Philippine tax consequence
in light of particular situations of acquiring, owning, holding and disposing of the Preferred Shares in
such other jurisdictions. This discussion is based upon laws, regulations, rulings, and income tax
conventions (treaties) in effect at the date of this Prospectus. The tax treatment of a holder of
Preferred Shares may vary depending upon such holder’s particular situation, and certain holders
may be subject to special rules not discussed below. This summary does not purport to address all
tax aspects that may be important to a Preferred Shareholder.

PROSPECTIVE PURCHASERS OF THE PREFERRED SHARES ARE URGED TO CONSULT

THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES OF THE
OWNERSHIP AND DISPOSITION OF THE PREFERRED SHARES, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY LOCAL OR FOREIGN TAX LAWS.

As used in this section, the term “resident alien” refers to an individual whose residence is within the
Philippines and who is not a citizen thereof; a “non-resident alien” is an individual whose residence is
not within the Philippines and who is not a citizen of the Philippines. A non-resident alien who is
actually within the Philippines for an aggregate period of more than 180 days during any calendar
year is considered a “non-resident alien doing business in the Philippines,” otherwise, such non-
resident alien who is actually within the Philippines for an aggregate period of 180 days or less during
any calendar year is considered a “non-resident alien not doing business in the Philippines.” A
“resident foreign corporation” is a non-Philippine corporation engaged in trade or business within the
Philippines; and a “non-resident foreign corporation” is a non-Philippine corporation not engaged in
trade or business within the Philippines.

Taxes on Dividends on the Preferred Shares

Individual Philippine citizens and individual aliens who are residents of the Philippines are subject to a
final tax on dividends derived from the Preferred Shares at the rate of 10%, which tax shall be
withheld by the Company.

The dividends derived by domestic corporations (i.e. corporations created or organized in the
Philippines or under its laws) and resident foreign corporations (i.e. foreign corporations engaged in
trade or business within the Philippines) from the Preferred Shares shall not be subject to tax.

Non-resident alien individuals engaged in a trade or business in the Philippines are subject to a final
withholding tax on dividends derived from the Preferred Shares at the rate of 20% subject to
applicable preferential tax rates under tax treaties in force between the Philippines and the country of
domicile of such non-resident alien individual. A non-resident alien individual who comes to the
Philippines and stays for an aggregate period of more than 180 days during any calendar year is
considered engaged in a trade or business in the Philippines. Non-resident alien individuals not
engaged in trade or business in the Philippines are subject to a final withholding tax on dividends
derived from the Preferred Shares at the rate of 25% subject to applicable preferential tax rates under
tax treaties in force between the Philippines and the country of domicile of such non-resident alien
individual.

The term “non-resident holder” means a holder of the Preferred Shares:

(a) who is an individual who is neither a citizen nor a resident of the Philippines or an entity which
is a foreign corporation not engaged in trade or business in the Philippines; and

(b) should a tax treaty be applicable, whose ownership of the Shares is not effectively connected
with a fixed base or a permanent establishment in the Philippines.

125
Dividends received from a domestic corporation by a non-resident foreign corporation are generally
subject to final withholding tax at the rate of 30%, subject to applicable preferential tax rates under tax
treaties in force between the Philippines and the country of domicile of such non-resident foreign
corporation. The 30% rate for dividends paid to non-resident foreign corporations may be reduced to a
special 15% rate if:

(a) the country in which the non-resident foreign corporation is domiciled imposes no taxes on
foreign sourced dividends; or

(b) the country in which the non-resident foreign corporation is domiciled allows a credit against
the tax due from the non-resident corporation taxes deemed to have been paid in the
Philippines equivalent to 15%.

Philippine tax authorities have prescribed, through an administrative issuance, procedures for
availment of tax treaty relief. Subject to the approval by Philippine tax authorities of a corporation’s
application for tax treaty relief, the corporation will withhold at a reduced rate on dividends paid to a
non-resident holder of Preferred Shares if such non-resident holder provides the corporation with
proof of residence and, if applicable, individual or corporate status. Proof of residence for an individual
consists of a certification from his embassy, consulate or other proper authority as to his citizenship
and residence. Proof of residence and corporate status for a corporation consists of authenticated
copies of its articles of association, or other equivalent certifications issued by the proper government
authority, or any other official document proving residence. If the regular rate of tax is withheld by the
corporation instead of the reduced rates applicable under a treaty, the non-resident holder of
Preferred Shares may file a claim for a refund from the Philippine taxing authorities. However,
because the refund process in the Philippines requires the filing of an administrative claim and the
submission of supporting information, and may also involve the filing of a judicial appeal, it may be
impractical to pursue such a refund.

Taxes on Sale or Other Disposition of the Shares

Sales, exchanges or other dispositions of Preferred Shares which are effected through the PSE by
persons other than a dealer in securities are subject to a stock transaction tax at the rate of 0.5%
based on the gross selling price of the shares. This tax is required to be collected by and paid to the
Government by the selling stockbroker on behalf of his client. The stock transaction tax is classified as
a percentage tax in lieu of a capital gains tax. Notwithstanding its classification as a percentage tax,
exemptions from capital gains tax may also apply to the stock transaction tax under the terms of some
tax treaties.

The BIR, in a letter dated December 28, 2010 addressed to the SEC, stated that it would “strictly
impose the 5%/10% capital gains tax” for trades in listed companies “who will not maintain their public
ownership requirement”, said public ownership requirement being the 10% to 33% public ownership
levels (based on the listed company’s market capitalization) required for an initial public offering or
IPO. This BIR letter was referred to the PSE by the SEC on January 3, 2011. The PSE subsequently
issued a memorandum dated January 20, 2011 in response to the SEC on the BIR’s statements. The
PSE noted that the Tax Code imposes a stock transaction tax of ½ of 1% of the gross selling price or
gross value in money of shares of stock listed and traded on the PSE, without qualification and that
the powers of the Secretary of Finance to promulgate rules and regulations implementing the Tax
Code should be confined to the details for implementing the law as it has been enacted and such
powers cannot be extended to amend or expand the statutory requirement of the Tax Code.

Subject to applicable tax treaty rates, a capital gains tax of 5% on the net capital gains realized during
the taxable year, not in excess of P100,000.00, and 10% on the net capital gains realized during the
taxable year, in excess of P100,000.00, is imposed on sales, exchanges or other dispositions of
shares of stock not traded through a local stock exchange. If implemented, the BIR would impose this
tax on such transactions in shares of stock of companies not in compliance with the public ownership
requirement as stated in the aforementioned BIR letter. As a practical matter, in order for an
exemption under a tax treaty to be recognized, an application for tax treaty relief must be filed and
approved by Philippine tax authorities. A non-resident holder must submit proof of residence as
described above.

126
A certificate from the tax authority of the recipient’s country is a generally accepted proof of residence,
for both individuals and corporations. Aside from proof of residence, the BIR also requires the
following documents:

(a) special power of attorney duly executed by the recipient in favor of its Philippine
agent/withholding agent to file a claim for tax treaty relief;

(b) certification from the SEC that the recipient company is not registered to engage in business in
the Philippines;

(c) letter providing information on the transaction covered by treaty provisions and requested tax
treatment for such transaction and legal justification;

(d) duly notarized certificate of the Corporate Secretary of the Philippine corporation in respect of
the resolution of its board of directors declaring the dividends; and

(e) duly notarized certification by the Corporate Secretary of the Philippine corporation showing
the number and value of the shares of the applicant and the percentage of the latter’s
ownership in the Philippine corporation as of the date of the transaction.

Tax Treaties
The following table lists some of the countries with which the Philippines has tax treaties and the tax
rates currently applicable to non-resident holders who are residents of those countries:

Stock transaction tax on Capital Gains Tax due

In percentage
Dividends sale or disposition on disposition of of
(%)
effected through the PSE Shares outside the PSE
Canada 25(1) Exempt(8) Exempt(8)
France 15(2) Exempt(8) Exempt(8)
Germany 15(3) 0.5 5/10(9)
Japan 25(4) Exempt(8) Exempt(8)
Singapore 25(5) Exempt(8) Exempt(8)
United Kingdom 25(6) Exempt(10) Exempt(10)
United States 25(7) Exempt Exempt(8)

Notes:

(1) 15% if recipient company controls at least 10% of the voting power of the company paying
the dividends.

(2) 10% if the recipient company holds directly at least 15% of the voting shares of the
company paying the dividends.

(3) 10% if the recipient company owns directly at least 25% of the capital of the company
paying the dividends.

(4) 10% if the recipient company holds directly at least 25% of either the voting shares of the
company paying the dividends or of the total shares issued by that company during the period
of 6 months immediately preceding the date of payment of the dividends.

(5) 15% if during the part of the paying company’s taxable year which precedes the date of
payment of dividends and during the whole of its prior taxable year at least 15% of the
outstanding shares of the voting stock of the paying company was owned by the recipient
company.

127
 (6) 15% if the recipient company is a company which controls directly or indirectly at least
10% of the voting power of the company paying the dividends.

(7) 20% if during the part of the paying corporation’s taxable year which precedes the date of
payment of dividends and during the whole of its prior taxable year, at least 10% of the
outstanding shares of the voting stock of the paying corporation were owned by the recipient
corporation. Notwithstanding the rates provided under the RP-US Treaty, residents of the US
may avail of the 15% withholding tax rate under the tax-sparing clause of the Philippine Tax
Code provided certain conditions are met.

(8) Capital gains are taxable only in the country where the seller is a resident, provided the
shares are not those of a corporation, the assets of which consist principally of real property
situated in the Philippines, in which case the sale is subject to Philippine taxes.

(9) Under the RP-Germany Tax Treaty, capital gains from the alienation of shares of a
Philippine corporation may be taxed in the Philippines irrespective of the nature of the assets
of the Philippine corporation. Tax rates are 5% on the net capital gains realized during the
taxable year not in excess of P100,000 and 10% on the net capital gains realized during the
taxable year in excess of P100,000.

(10) Under the RP-UK Tax Treaty, capital gains on the sale of the stock of Philippine
corporations are subject to tax only in the country where the seller is a resident, irrespective
of the nature of the assets of the Philippine corporation.

* The Philippine tax authorities, in a recent ruling, have taken the position that the stock
transaction tax is not identical or substantially similar to the income tax/capital gains tax on a
sale of shares in a domestic corporation, and, hence, not covered by the treaty exemption.

Documentary Stamp Taxes on Preferred Shares

The Philippines imposes a documentary stamp tax on the issuance of the Preferred Shares at the rate
of P1.00 on each P200.00, or fraction thereof, of the par value of the shares.

The Philippines also imposes a documentary stamp tax upon transfers of the Preferred Shares at a
rate of P0.75 on each P200.00, or fractional part thereof, of the par value of the shares. The
documentary stamp tax is imposed on the person making, signing, issuing, accepting or transferring
the document and is thus payable either by the vendor and the purchaser of the Preferred Shares.

However, the sale, barter or exchange of Preferred Shares should they be listed and traded through
the PSE are exempt from documentary stamp tax.

Estate and Gift Taxes

The transfer of the Preferred Shares upon the death of a registered holder to his heirs by way of
succession, whether such an individual was a citizen of the Philippines or an alien, regardless of
residence, will be subject to Philippine estate tax at progressive rates ranging from 5% to 20% if the
net estate is over P 200,000.00.

Individual registered holders, whether or not citizens or residents of the Philippines, who transfer
shares by way of gift or donation will be liable for Philippine donor’s tax on such transfers at
progressive rates ranging from 2% to 15% if the total net gifts made during the calendar year exceed
P 100,000.00 provided that the rate of tax with respect to net gifts made to a stranger (one who is not
a brother, sister, spouse, ancestor, lineal descendant or relative by consanguinity within the fourth
degree of relationship) is a flat rate of 30%. Corporate registered holders are also liable for Philippine
donor’s tax on such transfers, but the rate of tax with respect to net gifts made by corporate registered
holders is always at a flat rate of 30%.

128
Estate and gift taxes will not be collected in respect of intangible personal property (a) if the deceased
at the time of death, or the donor at the time of donation, was a citizen and resident of a foreign
country which at the time of his death or donation did not impose a transfer tax of any character in
respect of intangible personal property of citizens of the Philippines not residing in that foreign
country, or (b) if the laws of the foreign country of which the deceased or the donor was a citizen and
resident at the time of his death or donation allow a similar exemption from transfer or death taxes of
every character or description in respect of intangible personal property owned by citizens of the
Philippines not residing in that foreign country.

Corporate Income Tax

In general, a tax of 35% is imposed upon the taxable net income of a domestic corporation from all
sources (within and outside the Philippines). However, effective January 1, 2009, the corporate
income tax rate was reduced to 30% pursuant to Republic Act 9337. Gross interest income from
Philippine currency bank deposits and yield from deposit substitutes, trust fund and similar
arrangements as well as royalties from sources within the Philippines are however subject to a final
withholding tax of twenty per cent of the gross amount of such income.

129
Industry Overview
Industry Overview
SMPFC primarily operates in the Philippine food industry. The performance of the food industry in
Philippines is closely correlated to Philippines’ economic growth, as well as to trends and
developments in each of the segments within the industry.

Overview of the Philippine Economy

GDP growth

The Philippine economy has performed strongly over the past five years. Based on data from
Business Monitor International (BMI), Philippine nominal GDP has increased from P5,444 billion in
2005 to P7,679 billion in 2009, representing a compound annual growth rate(“CAGR”) of
approximately 9%, driven primarily by growth in domestic consumption and investment. Real GDP
grew from P1,211 billion in 2005 to P1,432 billion in 2009 at a CAGR of approximately 4%. The chart
below shows the annual nominal and real GDP for the Philippines from 2005 to 2009.

Philippines Nominal and Real GDP (2005 – 2009)

10,000

8,000 7,679
7,423
6,647
6,031
6,000 5,444

4,000

2,000 1,366 1,419 1,432

1,211 1,276

0
2005 2006 2007 2008 2009

Nominal GDP (P. billions) Real GDP (P. billions)

Source: Global Insight

The Philippine population has seen a steady growth rate since 2005. According to BMI, the nation’s
population grew at a 2005-2009 CAGR of 1.8% from approximately 86 million to approximately 92
million. The chart below shows Philippine population and population growth rates for the period from
2005 to 2009.

130
 Population (2005 – 2009)

98.0 2.0%
1.9% 1.9% 1.9%
96.0 1.9%
1.8% 1.8%
1.8%
94.0

92.0 1.7%
92.0
90.3 1.6%
90.0
88.7 1.5%
88.0 87.1 1.4%

86.0 85.5
1.3%

84.0 1.2%
2005 2006 2007 2008 2009

Population (m) Population growth rate (%)

Source: Business Monitor International

According to BMI, the Philippines is the second most populous nation in Southeast Asia. The chart
below shows Philippine population relative to other Southeast Asian countries.

Population in Southeast Asian Countries (2009)

250
230

200
Population (in millions)

150

100 92 87
68

50
28 28

0
Indonesia Philippines Vietnam Thailand Others Malaysia

Note: Others include Timor-Leste, Cambodia, Laos, Brunei and Singapore

Source: Business Monitor International and International Monetary Fund

As a result of lower population growth in the Philippines relative to GDP growth, nominal GDP per
capita has increased from P.63,676 in 2005 to P.83,482 in 2009 according to Global Insight. The chart
below sets out the nominal and real GDP per capita for the period from 2005 to 2009.

131
 Philippines Nominal and Real GDP Per Capita (2005 – 2009)

20,000

15,403 15,705 15,569

14,652
15,000 14,170
Real GDP per capita

10,000

5,000

0
2005 2006 2007 2008 2009

Source: Global Insight

Inflation

The Philippine consumer price index has increased at a CAGR of 5.8% from 2004 to 2009. Allowing
full fuel price pass-through has led inflation, as measured by the change in consumer price index, to
soar in 2008. However, inflation has decreased since 2008 and remained at a relatively low level of
3.2% in 2009 for the same reason. The chart below shows the change in consumer price index in the
Philippines from 2005 to 2009.

Consumer Price Index Change (2005 – 2009)

  10.0%
9.3%
9.0%

8.0% 7.6%

7.0%
6.2%
6.0%

5.0%

4.0%
3.2%
2.8%
3.0%

2.0%

1.0%

0.0%
2005 2006 2007 2008 2009

Source: International Monetary Fund

Disposable income

132
According to the Economist Intelligent Unit (EIU), disposable income has increased over the past five
years increased from P4,058 in 2005 to P6,116 in 2009, representing a CAGR of approximately
10.8%, as shown in the chart below.

Disposable income (2005-2009)

7,000
6,116
6,000 5,650
Disposable income (P. billions)

4,901
5,000
4,450
4,058
4,000

3,000

2,000

1,000

0
2005 2006 2007 2008 2009

Source: Economist Intelligence Unit

Private consumption expenditure

The recovery of the local economy from the recession in 2008 and 2009 has boosted consumer
spending in 2010. Stronger remittances from migrant workers as developed nations rehired foreign
workers, and better job security for local employees due to an increase in foreign investments,
brought about an improvement in consumer confidence and higher purchasing power. Higher
disposable income of Filipinos has been reflected in increasing private consumption expenditures in
recent years, which have risen at a CAGR of 10.7% from P.3,772,250 million in 2005 to P5,674,963
million in 2009 according to National Statistical Coordination Board. In addition, the global economic
recovery proved to be beneficial for the country as demand for locally-made products continued to
increase despite the strengthening of the Peso. The following chart shows private consumption
expenditures in the Philippines from 2005 to 2009.

133
 Private consumption expenditure (2005 – 2009)

10,000,000 16.0%
14.5%

12.7% 14.0%
8,000,000 12.1%
12.0%

9.0% 5,674,965 10.0%

6,000,000
5,281,072
4,611,884 8.0%
4,229,501
3,772,248 7.5%
4,000,000
6.0%

4.0%
2,000,000
2.0%

0 0.0%
2005 2006 2007 2008 2009

Private consumption expenditure (m) Private consumption growth rate (%)

Source: National Statistical Coordination Board

Food expenditure continues to account for the largest percentage of private consumption in the
Philippines according to the National Statistical Coordination Board. Over the past five years, food as
a percentage of private consumption has increased from 44.8% in 2005 to 48.1% in 2009 as
illustrated in the charts below.

Breakdown of Private Consumption

2005 2007 2009
Miscellaneous Miscellaneous
Miscellaneous Food
22.7% 22.8%
21.8% 48.1%
Food Transportation & Food Transportation &
Transportation & communications 45.1%
44.8% communications
communications 11.2% 10.5%
9.9%
Household Household
Household operations
operations operations
Beverages 9.6% 9.0%
10.5% 1.7% Beverages Household
Household Beverages
Household 1.7% furnishing
furnishing Tobacco 1.4%
Tobacco furnishing 1.5% Tobacco
1.6% 1.3% 1.5%
1.6% Fuel light & water 1.5%
Fuel light & water Fuel light & water
4.9% Clothing & footwear 4.2%
4.9% Clothing & footwear Clothing & footwear
2.1%
2.3% 2.0%

Source: National Statistical Coordination Board

Per capital pork and chicken consumption in the Philippines continues to lag behind that of most
regional peers. According to Food and Agricultural Policy Research Institute, the Philippine
population consumes approximately 13.2 kilograms and 7.4 kilograms per capita annually of pork and
chicken, respectively.

134
 Per Capita Pork and Chicken consumption

Pork Chicken 69.7

34.6 36.7
21.4 19.2
13.2 15.2
7.4 10.712.5 9.8
3.7

Philippines Thailand Vietnam Japan China HK

Source: Food and Agricultural Policy Research Institute

Change in Philippine Consumer Preferences

More Filipinos adopted healthier lifestyles in 2010 as the Philippine Department of Health together
with other health advocates continue to invest in health and wellness information campaigns. These
campaigns are targeted to increase awareness of real life issues that are currently affecting a
significant number of Filipinos such as malnutrition, obesity, high blood pressure, high cholesterol,
diabetes, cancer and other health scares that may result in death. Consumers deciding to improve
their overall health have created higher demand for healthier food products with the belief that there is
a direct connection between food intake and physical health. This transition in consumer preferences
has resulted in the development of fortified food products and healthier alternatives to existing
packaged food in the market.

AGRO-INDUSTRIAL

Poultry

The broiler industry in the Philippines was estimated to be a P82 billion market in 2009. The Philippine
poultry industry had traditionally been a highly fragmented, primarily backyard industry. However,
several major players, including SMPFC, have been successful in introducing modern technologies
and processes to the industry, allowing them to consolidate market share to achieve economies of
scale.

Feeds

The Philippine feeds industry is comprised of three segments, namely the “homemix” segment, the
“intra” segment and the commercial segment. The homemix segment is comprised of small to
medium-scale farms that are producing their own feeds. The intra segment includes the large,
integrated livestock and poultry farms, which are also producing their own feeds. The commercial
segment produces branded feeds for use by third parties.

The total feeds industry in the Philippines is estimated to be a P154 billion market, where commercial
feeds segment to be a P47 billion market in 2009. Much like the poultry industry, the Philippine feeds
industry has been transformed from a fragmented, backyard market into a more concentrated and
efficient industry by a small number of feedmillers, who now dominate the Philippine feeds market.

Fresh Meats

The fresh meats industry in the Philippines remains highly fragmented. While a number of players in
the industry have made attempts to modernize the fresh meats market, they have yet to achieve
sufficient scale or consolidation for those efforts to succeed. Consolidation of the fresh meats industry
is expected to increase in the future as larger players continue to invest in new technologies.

135
The Philippine hog industry, which is the primary source of fresh meats in the Philippines, was valued
at approximately P161 billion in 2009 and ranks among the top ten producers in the world with 1.7
million sows, of which approximately 70% are classified as “backyard” in scale. Almost all Philippine
hog producers sell only live hogs to traders.

VALUE-ADDED MEATS

SMPFC’s value-added meats business is a key player in three segments of the Philippine processed
meats industry. According to Nielsen, hotdogs, the largest segment, had an estimated value of P11
billion in the twelve-month period ended June 2010. The combined shares of its various hotdog
brands have positioned SMPFC’s value-added meats business as the market leader, with a market
share of 57% by sales in the same period. The other two segments, corned meats and luncheon
meats, had an estimated value of P8 billion and P5 billion, respectively, by sales in the twelve-month
period ended July 2010, also according to Nielsen. For these segments, Nielsen estimated SMPFC’s
shares in the same period to be 23% for corned meats and 15% for luncheon meats.

In recent years, SMPFC’s value-added meats business has faced increased competition from both
established local players, which are employing aggressive pricing and promotion schemes, and from
new entrants to the market. SMPFC has responded to this competition by increasing its below-the-line
spending on promotions for its value-added meats businesses, as well as introducing new product
lines. The value-added meats business has employed a strategy of launching fighter brands and
engaging in extensive advertising and promotion for its key brands to maintain its leadership position.
It continues to innovate and launch new brands to sustain its market position.

MILLING

Flour

While rice has traditionally been the primary source of carbohydrates in the Philippines, bread and
noodles have become increasingly popular alternatives in recent years, which has helped drive
growth in the Philippine flour industry. In addition, large bakery chains are expanding rapidly in the
Philippines at the expense of smaller, more traditional neighborhood bakeries. These larger chains
often place greater emphasis on the quality of the flour they use, providing an opportunity for flour
producers to sell customized, higher margin flour products.

OTHER

Dairy, Spreads and Oils

The retail bread spreads market in the Philippines has witnessed declines in recent years as a result
of the economic downturn and its effects on consumer spending patterns.

Consumers in the Philippines have historically consumed powdered milk. Recently, consumers have
become increasingly aware of other forms of milk, such as the ready-to-drink milk products that
SMPFC offers. According to Nielsen, the Philippine ready-to-drink milk market was approximately P71
million liters in 2009.

According to Euromonitor, the Philippine ice cream market volume was approximately 60 million liters
in 2009, and the industry has been growing steadily for the past five years. The Philippine ice cream
industry is dominated by Selecta and Nestlé, who hold a combined market share of approximately
86%. Magnolia is currently the third largest brand in the Philippine ice cream industry with 11% market
share.

Growth in the Philippine jelly-based snacks market has slowed in recent years, as more varieties of
alternative snack products have become available.

SMPFC believes the value of the Philippine oil industry was approximately P12 billion in 2009, and
growth has been relatively stable at approximately 5% in recent years.

136
Coffee

According to Nielsen, coffee is one of the most consumed beverages in the Philippines. The total
retail coffee market in the Philippines had revenues of approximately P18 billion in 2009. The
popularization of coffee shop chains, such as Starbucks and Gloria Jean’s, has greatly influenced
coffee consumption among Philippine consumers, particularly among the younger generation.

Food Service

According to Euromonitor, the food service industry in the Philippines was estimated to be worth P349
billion in 2009. While the food service industry registered a CAGR of 5.1% from 2006 to 2009,
according to Euromonitor, SMPFC’s food service business outpaced industry growth with a CAGR of
10.0% over the same period.

REGIONAL

Vietnam

Vietnam’s food processing industry is highly fragmented and dominated by relatively small domestic
operators. Although the consumption of processed meats remains fairly low in Vietnam, it has been
increasing, particularly in the main population centers of Ho Chi Minh City and Hanoi, as economic
development has led to increased demand for processed meats.

Indonesia

As the fourth most populous nation in Asia with over 230 million people, Indonesia’s annual per capita
meat consumption still remains one of the lowest in the region but one that has shown a strong
market potential in the recent years. Other than beef, chicken, fish and soybean-based foods,
processed meat products has established its position as an increasing alternative protein source for
over 50 percent of the Indonesian population, particularly among middle and lower income
consumers.

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Regulatory Framework
Various laws and government agencies in the Philippines regulate the manufacturing, processing,
sale and distribution aspects of the SMPFC’s businesses.

The FDDC Act

The Foods, Drugs and Devices, and Cosmetics Act, as amended by the FDA Act of 2009 (the “FDDC
Act”), establishes standards and quality measures in relation to the manufacturing and branding of
food products to ensure the safe supply thereof to and within the Philippines. The Food and Drug
Administration (previously referred to as the Bureau of Food and Drugs) (the “FDA”) is the
governmental agency under the Department of Health (“DOH”) tasked to implement and enforce the
FDDC Act.

The FDDC Act prohibits, among others, (i) the manufacture, importation, exportation, sale, offering for
sale, distribution or transfer, non-consumer use, promotion, advertisement or sponsorship food
products which are adulterated or misbranded or which, although requiring registration pursuant to the
FDDC Act, are not registered with the FDA; and (ii) the manufacture, importation, exportation, transfer
or distribution of any food product by any person or entity without a license to operate from the FDA.
Any person found in violation of any of the provisions of the FDDC Act shall be subject to
administrative penalties or imprisonment or both. Furthermore, the FDA has the authority to seize
such food products found in violation of the FDDC Act as well as ban, recall and withdraw any food
product found to be grossly deceptive, unsafe, or injurious to the consuming public.

SMPFC and its subsidiaries have “Licenses To Operate” from the FDA, which are renewable every
year.

The Consumer Act

The Consumer Act of the Philippines (the “Consumer Act”) establishes quality and safety standards
with respect to the composition, contents, packaging, labeling and advertisement of food products.
The DOH (which includes the FDA) is the government agency tasked to implement the Consumer Act
with respect to food products.

The Consumer Act prohibits the manufacture for sale, offer for sale, distribution, or importation of food
products which are not in conformity with applicable consumer product quality or safety standards
promulgated thereunder. Like the FDDC Act, the Consumer Act also prohibits the manufacture,
importation, exportation, sale, offering for sale, distribution or transfer of food products which are
adulterated or mislabeled. In connection therewith, the Consumer Act provides for minimum labeling
and packaging requirements for food products to enable consumers to obtain accurate information as
to the nature, quality, and quantity of the contents of food products available to the general public. In
addition, the Consumer Act prohibits the false, deceptive or misleading advertisements and sales
promotions and deceptive sales acts and practices in connection with food products. Any person
found in violation of the provisions of the Consumer Act shall be subject to administrative penalties or
imprisonment or both. Under the Consumer Act, The DOH also has the authority to order the recall,
ban, or seizure from public sale or distribution of food products found to be injurious, unsafe or
dangerous to the general public.

The Livestock and Poultry Feeds Act

The Livestock and Poultry Feeds Act and its implementing rules and regulations (the “Livestock and
Poultry Feeds Act”), regulates and controls the manufacture, importation, labeling, advertising and
sale of livestock and poultry feeds. The Bureau of Animal Industry (the “BAI”) is the governmental
office under the Department of Agriculture (“DA”) tasked to implement and enforce the Livestock and
Poultry Feeds Act.

Under the Livestock and Poultry Feeds Act, any entity desiring to engage in the manufacture,
importation, exportation, sale, trading or distribution of feeds or other feed products must first register
with the BAI. There must be a separate registration for each type and location of feed establishment.

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Furthermore, the Livestock and Poultry Feeds Act provides that no feeds or feed products may be
manufactured, imported, exported, traded, advertised, distributed, sold, or offered for sale, or held in
possession for sale in the Philippines unless the same has been registered with the BAI. There must
also be a separate registration for each type, kind, and form of feed or feed product. Feeds and feed
products produced through toll manufacturing shall be registered with the company that owns the
same. All commercial feeds must comply with the nutrient standards prescribed by the DA.
Registration of feed and feed products and feed establishments is required to be renewed on a yearly
basis.

The Livestock and Poultry Feeds Act also provides branding, labeling and advertising requirements
for feeds and feed products and the establishment of in-house quality control laboratories by
manufacturers and traders of feed and feed products. Any person found in violation of the provisions
of the Livestock and Poultry Feeds Act shall be subject to administrative penalties or imprisonment or
both.

SMPFC’s feedmills, whether self-owned and tolled, are all registered with the BAI and SMPFC pays
monthly inspection fees based on the number of metric tons of feeds produced. SMPFC also seeks
approval from the BAI for brand names and registers every new product prior to market launch. To
obtain the brand name approval and product registration, SMPFC submits a notarized Application for
Feed Product Registration, Certificate of Analysis and three copies of feed tags to be inserted in the
packaging of the new product. Based on this information, the BAI makes a determination as to
whether the new product is within its specifications.

The Meat Inspection Code

The Meat Inspection Code of the Philippines (the “Meat Inspection Code”) establishes quality and
safety standards for the slaughter of food animals and the processing, inspection, labeling, packaging,
branding and importation of meat (including, but not limited to, pork, beef and chicken meat) and meat
products. The National Meat Inspection Service (“NMIS”), a specialized regulatory service attached to
the DA, serves as the national controlling authority on all matters pertaining to meat and meat product
inspection and meat hygiene to ensure meat safety and quality from farm to table. It has the power to
accredit meat establishments and exporters, importers, brokers, traders and handlers of meat and
meat products. On the other hand, the different local government units, in accordance with existing
laws, policies, rules and regulations and quality and safety standards of the DA, have the authority to
regulate the construction, management and operation of slaughterhouses, meat inspection, and meat
transport and post-abattoir control within their respective jurisdictions, and to collect fees and charges
in connection therewith.

The Meat Inspection Code covers all meat establishments (including, but not limited to,
slaughterhouses, poultry dressing plants, meat processing plants and meat shops) where food
animals are slaughtered, prepared, processed, handled, packed, stored, or sold. It requires the
inspection of food animals before it shall be allowed for slaughter in licensed private slaughterhouses
in which meat or meat products thereof are to be sold. A post-mortem examination is also required for
carcasses and parts thereof of all food animals prepared as articles of commerce which are capable
of use as human food. Only meat or meat products from meat establishments that have passed
inspection and have been so marked may be sold or offered for sale to the public.

The Meat Inspection Code provides for labeling, branding and packaging requirements for meat and
meat products to enable consumers to obtain accurate information and ensure product traceability.
Said Code also requires all meat establishments to (i) comply with the Animal Welfare Act of 1998 for
the adequate protection of food animals awaiting slaughter and all pollution control and environmental
laws and regulations relating to the disposal of carcasses and parts thereof; and (ii) adopt Good
Manufacturing Practices and Sanitation Standard Operating Procedures programs for the production,
storage and distribution of its meat products. Any person found in violation of the provisions of the
Meat Inspection Code shall be subject to administrative penalties or imprisonment or both.
Furthermore, any carcasses, parts of carcasses or products of carcasses found to have been
prepared, handled, packed, stored, transported or offered for sale as human food not in accordance
with the provisions thereof shall be confiscated and disposed of at the expense of the person found to
be in violation thereof.

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SMPFC’s poultry processing plants and livestock slaughter plants, both SMPFC-owned and tolled, are
all accredited by NMIS. SMPFC’s plants have all been categorized by NMIS as either “AA” or “AAA”
grade, which qualifies products from those plants for distribution to any location throughout the
Philippines or for export. Plant accreditations are renewed annually following inspection by NMIS for
compliance with the Good Manufacturing Practices, Sanitation Standard Operating Procedures and
Hazard Analysis and Critical Control Points. NMIS inspectors are also stationed at each of SMPFC’s
poultry processing plants and livestock slaughter plants on a daily basis and issue certifications for
each batch of products that is shipped from any of those plants.

The Price Act

The Price Act (the “Price Act”) covers basic necessities such as fresh pork, beef and poultry meat,
milk, coffee and cooking oil, and prime commodities such as flour, dried, processed and canned pork,
beef and poultry meat, other dairy products and swine and poultry feeds. It is primarily enforced and
implemented by the DA and Department of Trade and Industry.

Under the Price Act, the prices of basic commodities may be automatically frozen in areas declared
as disaster areas, under emergency or martial law or in a state or rebellion or war. Unless sooner
lifted by the President of the Philippines, prices shall remain frozen for a maximum of sixty days. The
President of the Philippines may likewise impose a price ceiling on basic necessities and prime
commodities in cases of calamities, emergencies, illegal price manipulation or when the prevailing
prices have risen to unreasonable levels. The implementing government agencies of the Price Act are
given the authority thereunder to issue suggested retail prices, whenever necessary, for certain basic
necessities and/or prime commodities for the information and guidance of concerned trade, industry
and consumer sectors. The Price Act prohibits and penalizes illegal price manipulation through
cartels, hoarding or profiteering. Any person found in violation of the provisions of the Price Act shall
be subject to administrative penalties or imprisonment or both.

The Philippine Food Fortification Act

The Philippine Food Fortification Act of 2000 (the “PFF Act”) provides for the mandatory fortification of
wheat flour, cooking oil and other staple foods and the voluntary fortification of processed food
products. The fortification of food products is required to be undertaken by the manufacturers,
importers and processors thereof. The FDA is the government agency responsible for the
implementation the PFF Act with the assistance of the different local government units which are
tasked under the said law to monitor foods mandated to be fortified which are available in public
markets, retail stores and food service establishments and to check if the labels of fortified products
contain nutrition facts stating the nutrient added and its quantity. Any person in violation of the PFF
Act shall be subject to administrative penalties. Furthermore, the FDA may refuse or cancel the
registration or order the recall of food products in violation of said law.

All Magnolia-branded products are compliant with the PFF Act. For example, SMPFC uses iodized
salt in its Magnolia products to comply with Republic Act No. 8172 (An Act for Salt Iodization
Nationwide).

For wheat flour, the addition of Vitamin A and Iron are mandated under standards set by the DOH.
SMPFC’s flour business has been compliant with the requirements of the PFF Act since 2004.

Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas (“BSP”) is the central bank of the Republic of the Philippines. It was
rechartered on July 3, 1993, pursuant to the provisions of the 1987 Philippine Constitution and the
New Central Bank Act of 1993. The BSP was established on January 3, 1949, as the country’s central
monetary authority. Among its functions is the management of foreign currency reserves, by
maintaining sufficient international reserves to meet any foreseeable net demands for foreign
currencies in order to preserve the international stability and convertibility of the Philippine peso.

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Department of Trade and Industry

The Department of Trade and Industry (“DTI”) is the primary government agency with the dual mission
of facilitating the creation of a business environment wherein participants could compete, flourish, and
succeed and, at the same time, ensuring consumer welfare. It is the enforcement of laws to protect
and educate consumers that becomes the driving factor in the relationship of DTI and manufacturers,
such as SMPFC.

Department of Labor and Employment

Department of Labor and Employment stands as the national government agency mandated to
formulate policies, implement programs and services, and serve as the policy-coordinating arm of the
Executive Branch in the field of labor and employment. The Department has exclusive authority in the
administration and enforcement of labor and employment laws and such other laws as specifically
assigned to it or to the Secretary of Labor and Employment.

Social Security System and PhilHealth

An employer is required under the Social Security Act of 1997 (RA 8282), as amended, ensure
coverage of its employees following procedures set out by the law and the Social Security System
(“SSS”). SMPFTC, as employer, must deduct from its employees their monthly contributions based on
a given schedule, pay its share of contribution and remit these to the SSS within a period set by law
and SSS regulations.

Philippine Health Insurance Corporation (or “PhilHealth”) is a government corporation attached to the
DOH, that ensures sustainable, affordable and progressive social health insurance pursuant to the
provisions of RA 7875 or the National Health Insurance Act of 1995, as amended. Employers are
required to ensure enrollment of its employees in the National Health Program being administered by
the PhilHealth.

ENVIRONMENTAL MATTERS

The operations of SMPFC’s businesses are subject to various laws, rules and regulations that have
been promulgated for the protection of the environment.

EISS Law

The Philippine Environmental Impact Statement System (the “EISS Law”), which is implemented by
the DENR, is the general regulatory framework for any project or undertaking that is either (a)
classified as environmentally critical or (b) is situated in an environmentally critical area. It requires an
entity that will undertake any such declared environmentally critical project or operate in any such
declared environmentally critical area to submit an Environmental Impact Statement (“EIS”) which is a
comprehensive study of the significant impacts of a project on the environment. The EIS serves as an
application for the issuance of an Environmental Compliance Certificate (“ECC”). An ECC is a
government certification that the proposed project or undertaking will not cause significant negative
environmental impact; that the proponent has complied with all the requirements of the EISS in
connection with said project; and that the proponent is committed to implement its approved
Environmental Management Plan in the EIS. In general, only projects that pose potential significant
impact on the environment shall be required to secure an ECC. The proponent of a project for which
an ECC is issued and determined by the DENR to pose a significant public risk or necessitate
rehabilitation or restoration shall be required to establish an Environmental Guarantee Fund. Said
Fund is intended to meet any damage caused by, as well as any rehabilitation and restoration
measures in connection with, the said project.

Clean Water Act

The Philippine Clean Water Act of 2004 (the “Clean Water Act”) and its implementing rules and
regulations provide for water quality standards and regulations for the prevention, control, and
abatement of pollution of the country’s water resources. Said Act require owners or operators of
facilities that discharge regulated effluents (such as wastewater from manufacturing plants or other

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commercial facilities) to secure a discharge permit from the DENR which authorizes said owners and
operators to discharge waste and/or pollutants of specified concentration and volumes from their
facilities into a body of water or land resource for a specified period of time. The DENR, together with
other government agencies and the different local government units, are tasked to implement the
Clean Water Act.

Clean Air Act

The Philippine Clean Air Act of 1999 (the “Clean Air Act”) provides for air quality standards and
regulations against air pollution. It provides that the DENR shall have authority to issue permits as it
may determine necessary for the prevention and abatement of air pollution. Said permits shall cover
emission limitations for regulated air pollutants to help attain and maintain the ambient air quality
standards. Under the implementing rules and regulations of the Clean Air Act, all sources of air
pollution are required to obtain a valid Permit to Operate while new or modified sources must first
obtain an Authority to Construct. The DENR, together with other government agencies and the
different local government units, are tasked to implement the Clean Water Act.

Other Laws

Other regulatory environmental laws and regulations applicable the SMPFC’s businesses include the
following:

The Toxic Substances and Hazardous and Nuclear Waste Control Act of 1990 regulates, restricts or
prohibits the (i) importation, manufacture, processing, handling, storage, transportation, sale,
distribution, use and disposal of chemical substance and mixtures that present unreasonable risk or
injury to health or the environment, and (ii) entry into the Philippines or the keeping in storage of
hazardous wastes which include by-products, process residue, contaminated plant or equipment or
other substances from manufacturing operations. Said Act is implemented by the DENR.

The Ecological Solid Waste Management Act of 2000 provides for the proper management of solid
waste which includes discarded commercial waste and non-hazardous institutional and industrial
waste. Said Act prohibits, among others, the transporting and dumping of collected solid wastes in
areas other than such centers and facilities prescribed thereunder. The National Solid Waste
Management Commission, together with other government agencies and the different local
government units, are responsible for the implementation and enforcement of the said law.

The Sanitation Code provides for sanitary and structural requirements in connection with the
operation of certain establishments such as food establishments which include such places where
food or drinks are manufactured, processed, stored, sold or served. Under the Sanitation Code, food
establishments are required to secure sanitary permits prior to operation which shall be renewable on
a yearly basis. Said Code is implemented by the DOH.

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The Philippine Stock Market

The information presented in this section has been extracted from publicly available documents which
have not been prepared or independently verified by the Issuer, the Joint Lead Underwriters or any of
their respective subsidiaries, affiliates or advisors in connection with sale of the Preferred Shares.

Brief History
The Philippines initially had two stock exchanges, the Manila Stock Exchange, which was organized
in 1927, and the Makati Stock Exchange, which began operations in 1963. Each exchange was self-
regulating, governed by its respective Board of Governors elected annually by its members.

Several steps initiated by the Government have resulted in the unification of the two bourses into the
Philippine Stock Exchange (“PSE”). The PSE was incorporated in 1992 by officers of both the Makati
and the Manila Stock Exchanges. In March 1994, the licenses of the two exchanges were revoked.
While the PSE maintains two trading floors, one in Makati City and the other in Pasig City, these floors
are linked by an automated trading system which integrates all bid and ask quotations from the
bourses.

In June 1998, the Philippine SEC granted the Self-Regulatory Organization (“SRO”) status to the
PSE, allowing it to impose rules as well as implement penalties on erring trading participants and
listed companies. On August 8, 2001, PSE completed its demutualization, converting from a non-
stock member-governed institution into a stock corporation in compliance with the requirements of the
SRC. The PSE has an authorized capital stock of P36.8 million, of which P30.6 million is subscribed
and fully paid-up. Each of the 184 member-brokers was granted 50,000 common shares of the new
PSE at a par value of P1.00 per share. In addition, a trading right evidenced by a “Trading Participant
Certificate” was immediately conferred on each member broker allowing the use of the PSE’s trading
facilities. As a result of the demutualization, the composition of the PSE Board of Governors was
changed, requiring the inclusion of seven brokers and eight non-brokers, one of whom is the
President.

On December 15, 2003, the PSE listed its shares by way of introduction at its own bourse as part of a
series of reforms aimed at strengthening the Philippine securities industry.

Classified into financial, industrial, holding firms, property, services, and mining and oil sectors,
companies are listed either on the PSE’s First Board, Second Board or the Small and Medium
Enterprises Board. Each index represents the numerical average of the prices of component stocks.
The PSE has an index, referred to as the PHISIX, which as at the date thereof reflects the price
movements of selected stocks listed on the PSE, based on traded prices of stocks from the various
sectors. The PSE shifted from full market capitalization to free float market capitalization effective
April 3, 2006 simultaneous with the migration to the free float index and the renaming of the PHISIX to
PSEi. The PSEi includes 30 selected stocks listed on the PSE.

With the increasing calls for good corporate governance, PSE has adopted an online daily disclosure
system to improve the transparency of listed companies and to protect the investing public.

The table below sets out movements in the composite index from 1995 up to December 1, 2010 and
shows the number of listed companies, market capitalization, and value of shares traded for the same
period:

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 Year Composite Index Number of Listed Aggregate Market Combined Value
at Closing Companies Capitalization of Turnover
(in P ‘billions) (in P ‘billions)
1995 2,594.2 205 1,545.7 379.0
1996 3,170.6 216 2,121.1 668.9
1997 1,869.2 221 1,261.3 588.0
1998 1,968.8 221 1,373.7 408.7
1999 2,142.9 226 1,938.6 713.9
2000 1,494.5 230 2,577.6 357.6
2001 1,168.1 232 2,142.6 159.5
Year Composite Index Number of Listed Aggregate Market Combined Value
at Closing Companies Capitalization of Turnover
(in P ‘billions) (in P ‘billions)
2002 1,018.4 234 2,083.2 159.7
2003 1,442.2 236 2,973.8 145.4
2004 1,822.8 236 4,766.2 206.6
2005 2,096.0 237 5,948.4 383.5
2006 2,982.5 240 7,172.8 572.6
2007 3,621.6 244 7,980.0 1,340.0
2008 1,872.9 248 4,070.0 763.9
2009 3,052.7 248 6,029.1 994.2
2010* 4.002.9 252 8,235.1 658.9
*as of December 1, 2010
Source: Philippine Stock Exchange, Inc.

Trading
The PSE is a double auction market. Buyers and sellers are each represented by stockbrokers. To
trade, bids or ask prices are posted on the PSE’s electronic trading system. A buy (or sell) order that
matches the lowest asked (or highest bid) price is automatically executed. Buy and sell orders
received by one broker at the same price are crossed at the PSE at the indicated price. Payment of
purchases of listed securities must be made by the buyer on or before the third trading day (the
settlement date) after the trade.

Trading on the PSE starts at 9:30 a.m. and ends at 12:00 p.m. with a 10-minute extension during
which transactions may be conducted, provided that they are executed at the last traded price and are
only for the purpose of completing unfinished orders. Trading days are Monday to Friday, except legal
holidays and days when the BSP clearing house is closed.

Minimum trading lots range from 10 to 5,000,000 shares depending on the price range and nature of
the security traded. Odd-sized lots are traded by brokers on a board specifically designed for odd-lot
trading.

To maintain stability in the stock market, daily price swings are monitored and regulated. Under
current PSE regulations, when the price of a listed security moves up by 50% or down by 40% in one
day (based on the previous closing price or last posted bid price, whichever is higher), the price of that
security is automatically frozen by the PSE, unless there is an official statement from the company or
a government agency justifying such price fluctuation, in which case the affected security can still be
traded but only at the frozen price. If a company fails to submit such explanation, a trading halt is
imposed by the PSE on the listed security the following day. Resumption of trading shall be allowed
only when the disclosure of the company is disseminated, subject again to the trading ban.

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Settlement
The Securities Clearing Corporation of the Philippines ("SCCP") is a private institution organized
primarily as a clearance and settlement agency for depository eligible trades executed in the PSE.
The PSE holds 100% ownership of SCCP. SCCP received its permanent license to operate on
January 17, 2002. It is responsible for:

(a) synchronizing the settlement of funds and the transfer of securities through Delivery versus
Payment (DVP) clearing and settlement of transactions of Clearing Members, who are also
Trading Participants of the Exchange;

(b) guaranteeing the settlement of trades in the event of a Trading Participant’s default through
the implementation of its Fails Management System and administration of the Clearing and
Trade Guaranty Fund (“CTGF”), and;

(c) performance of Risk Management and Monitoring to ensure final and irrevocable settlement.

SCCP settles PSE trades on a three-day rolling settlement environment, which means that settlement
of trades takes place three (3) trading days after transaction date (“T+3”). The deadline for settlement
of trades is 12:00 noon on T+3. Securities sold should be in scripless form and lodged under the
book-entry system of the Philippine Depository & Trust Corporation’s (“PDTC”, formerly the Philippine
Central Depository, Inc). Each Trading Participant maintains a Cash Settlement Account with one of
the two existing Settlement Banks of SCCP which are Banco de Oro Unibank, Inc. and Rizal
Commercial Banking Corporation. Payment for securities bought should be in good, cleared funds
and should be final and irrevocable. Settlement is presently on a broker level.

SCCP implemented its new clearing and settlement system called Central Clearing and Central
Settlement (“CCCS”) on May 29, 2006. CCCS employs multilateral netting whereby the system
automatically offsets “buy” and “sell” transactions on a per issue and a per flag basis to arrive at a net
receipt or a net delivery security position for each Clearing Member. All cash debits and credits are
also netted into a single net cash position for each Clearing Member. Novation of the original PSE
trade contracts occurs, and SCCP stands between the original trading parties and becomes the
Central Counterparty to each PSE-Eligible trade cleared through it.

Scripless Trading
In 1995, the Philippine Depository & Trust Corporation (formerly the Philippine Central Depository,
Inc.), was organized to establish a central depository in the Philippines and introduce scripless or
book-entry trading in the Philippines. On December 16, 1996, the PDTC was granted a provisional
license by the Philippine SEC to act as a central securities depository.

All listed securities at the PSE have been converted into book-entry settlement in the PDTC. The
depository service of the PDTC provides the infrastructure for lodgment (deposit) and upliftment
(withdrawal) of securities, pledge of securities, securities lending and borrowing and corporate actions
including shareholders’ meetings, dividend declarations and rights offerings. The PDTC also provides
depository and settlement services for non-PSE trades of listed equity securities. For transactions on
the PSE, the security element of the trade will be settled through the book-entry system, while the
cash element will be settled through the current settlement banks, Rizal Commercial Banking
Corporation and Banco de Oro – Unibank, Inc.

In order to benefit from the book-entry system, securities must be immobilized into the PDTC system
through a process called lodgment. Lodgment is the process by which shareholders transfer legal title
(but not beneficial title) over their shares of stock in favor of PCD Nominee Corporation (‘‘PCD
Nominee’’), a corporation wholly owned by the PDTC whose sole purpose is to act as nominee and
legal title holder of all shares of stock lodged into the PDTC. ‘‘Immobilization’’ is the process by which
the warrant or share certificates of lodging holders are canceled by the transfer agent and the
corresponding transfer of beneficial ownership of the immobilized shares in the account of PCNC
through the PDTC participant will be recorded in the Issuer’s registry. This trust arrangement between

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the participants and PDTC through PCD Nominee is established by and explained in the PDTC Rules
and Operating Procedures approved by the Philippine SEC. No consideration is paid for the transfer
of legal title to PCD Nominee. Once lodged, transfers of beneficial title of the securities are
accomplished via book-entry settlement.

Under the current PDTC system, only participants (e.g. brokers and custodians) will be recognized by
the PDTC as the beneficial owners of the lodged equity securities. Thus, each beneficial owner of
shares through his participant, will be the beneficial owner to the extent of the number of shares held
by such participant in the records of the PCD Nominee. All lodgments, trades and uplifts on these
shares will have to be coursed through a participant. Ownership and transfers of beneficial interests in
the shares will be reflected, with respect to the participant’s aggregate holdings, in the PDTC system,
and with respect to each beneficial owner’s holdings, in the records of the participants. Beneficial
owners are thus advised that in order to exercise their rights as beneficial owners of the lodged
shares, they must rely on their participant-brokers and/or participant-custodians.

Any beneficial owner of shares who wishes to trade his interests in the shares must course the trade
through a participant. The participant can execute PSE trades and non-PSE trades of lodged equity
securities through the PDTC system. All matched transactions in the PSE trading system will be fed
through the Securities Clearing Corporation of the Philippines (SCCP), and into the PDTC system.
Once it is determined on the settlement date (trading date plus three trading days) that there are
adequate securities in the securities settlement account of the participant-seller and adequate cleared
funds in the settlement bank account of the participant-buyer, the PSE trades are automatically settled
in the SCCP Central Clearing and Central Settlement (‘‘CCCS’’) system, in accordance with the
SCCP and PDTC Rules and Operating Procedures. Once settled, the beneficial ownership of the
securities is transferred from the participant-seller to the participant-buyer without the physical transfer
of stock certificates covering the traded securities.

If a stockholder wishes to withdraw his stockholdings from the PDTC System, the PDTC has a
procedure of upliftment under which PCD Nominee will transfer back to the stockholder the legal title
to the shares lodged. The uplifting shareholder shall follow the Rules and Operating Procedures of
the PDTC for the upliftment of the shares lodged under the name of the PCD Nominee. The transfer
agent shall prepare and send a Registry Confirmation Advice to the PDTC covering the new number
of shares lodged under the PDC nominee. The expenses for upliftment are for the account of the
uplifting shareholder.

The difference between the depository and the registry would be on the recording of ownership of the
shares in the issuing corporations’ books. In the depository set-up, shares are simply immobilized,
wherein customers’ certificates are canceled and a new certificate is issued in the name of PCD
Nominee Corp. to confirm new balances of the shares lodged with the PDTC. Transfers
among/between broker and/or custodian accounts, as the case may be, will only be made within the
book-entry system of PDTC. However, as far as the issuing corporation is concerned, the underlying
certificates are in the nominee’s name. In the registry set-up, settlement and recording of ownership of
traded securities will already be directly made in the corresponding issuing company’s transfer agents’
books or system. Likewise, recording will already be at the beneficiary level (whether it be a client or a
registered custodian holding securities for its clients), thereby removing from the broker its current ‘‘de
facto’’ custodianship role.

Amended Rule on Lodgment of Securities

On June 24, 2009, the PSE apprised all listed companies and market participants through
Memorandum No. 2009-0320 that commencing on July 1, 2009, as a condition for the listing and
trading of the securities of an applicant company, the applicant company shall electronically lodge its
registered securities with the PDTC or any other entity duly authorized by the SEC, without any jumbo
or mother certificate in compliance with the requirements of Section 43 of the Securities Regulation
Code. In compliance with the foregoing requirement, actual listing and trading of securities on the
scheduled listing date shall take effect only after submission by the applicant company of the
documentary requirements stated in Article III Part A of the Revised Listing Rules.

146
Further, the PSE apprised all listed companies and market participants on May 21, 2010 through
Memorandum No. 2010-0246 that the Amended Rule on Lodgment of Securities under Section 16 of
Article III, Part A of the Revised Listing Rules of the Exchange shall apply to all securities that are
lodged with the PDTC or any other entity duly authorized by the Philippine SEC.

For listing applications, the amended rule on lodgment of securities is applicable to:

a. The offer shares/securities of the applicant company in the case of an initial public offering;

b. The shares/securities that are lodged with the PDTC, or any other entity duly authorized by the
Philippine SEC in the case of a listing by way of introduction;

c. New securities to be offered and applied for listing by an existing listed company; and

d. Additional listing of securities of an existing listed company.

Pursuant to the said amendment, the PDTC issued an implementing procedure in support thereof to
wit:

For new companies to be listed at the PSE as of July 1, 2009, the usual procedure will be observed
but the Transfer Agent on the companies shall no longer issue a certificate to PCD Nominee Corp but
shall issue a Registry Confirmation Advice, which shall be the basis for the PDTC to credit the
holdings of the Depository Participants on listing date.

On the other hand, for existing listed companies, the PDTC shall wait for the advice of the Transfer
Agents that it is ready to accept surrender of PCNC jumbo certificates and upon such advice the
PDTC shall surrender all PCNC jumbo certificates to the Transfer Agents for cancellation. The
Transfer Agents shall issue a Registry Confirmation Advice to PCNC evidencing the total number of
shares registered in the name of PCNC in the Issuer’s registry as of confirmation date.

Issuance of Certificated Shares

On or after the listing of the shares on the PSE, any beneficial owner of the shares may apply to
PDTC through his broker or custodian-participant for a withdrawal from the book-entry system and
return to the conventional paper-based settlement. If a stockholder wishes to withdraw his
stockholdings from the PDTC System, the PDTC has a procedure of upliftment under which PCD
Nominee will transfer back to the stockholder the legal title to the shares lodged. The uplifting
shareholder shall follow the Rules and Operating Procedures of the PDTC for the uplifting of the
shares lodged under the name of the PCD Nominee. The transfer agent shall prepare and send a
Registry Confirmation Advice to the PDTC covering the new number of shares lodged under PCD
Nominee. The expenses for upliftment are on the account of the uplifting shareholder.

Upon the issuance of certificated shares in the name of the person applying for upliftment, such
shares shall be deemed to be withdrawn from the PDTC book-entry settlement system, and trading on
such shares will follow the normal process for settlement of certificated securities. The expenses for
upliftment of beneficial ownership in the shares to certificated securities will be charged to the person
applying for upliftment. Pending completion of the upliftment process, the beneficial interest in the
shares covered by the application for upliftment is frozen and no trading and book-entry settlement
will be permitted until certificated shares shall have been issued by the relevant company's transfer
agent.

147
Appendix
A. Reviewed Unaudited Consolidated Financial Statements as of and for the nine months ended
September 30, 2010

B. Audited Consolidated Financial Statements as of and for the years ended December 31, 2009,
2008 and 2007

148
A. Reviewed Unaudited Consolidated Financial Statements
as of and for the nine months ended September 30, 2010

149
B. Audited Consolidated Financial Statements
as of and for the years ended December 31, 2009, 2008 and 2007

150
SA MIGUEL PURE FOODS COMPAY, IC. AD
SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009, 2008 and 2007


ABCD
Manabat Sanagustin & Co., CPAs
























Telephone


+63
(2)
885
7000



The
KPMG
Center,
9/F
Fax
+63
(2)
894
1985

6787
Ayala
Avenue
Internet
www.kpmg.com.ph

Makati
City
1226,
Metro
Manila,
Philippines
E-Mail










manila@kpmg.com.ph





Branches
·
Subic
·
Cebu
·
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·
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PRC-BOA
Registration
No.
0003


SEC
Accreditation
No.
0004-FR-2


BSP
Accredited

REPORT OF IDEPEDET AUDITORS

The Stockholders and Board of Directors

San Miguel Pure Foods Company, Inc.

We have audited the accompanying consolidated financial statements of San Miguel Pure Foods
Company, Inc. and Subsidiaries, which comprise the consolidated statements of financial position
as at December 31, 2009 and 2008, and the consolidated statements of income, consolidated
statements of comprehensive income, consolidated statements of changes in equity and
consolidated statements of cash flows for each of the three years in the period ended
December 31, 2009, and notes, comprising a summary of significant accounting policies and
other explanatory information.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated
financial statements in accordance with Philippine Financial Reporting Standards. This
responsibility includes: designing, implementing and maintaining internal control relevant to the
preparation and fair presentation of financial statements that are free from material misstatement,
whether due to fraud or error; selecting and applying appropriate accounting policies; and making
accounting estimates that are reasonable in the circumstances.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on

our audits. We conducted our audits in accordance with Philippine Standards on Auditing.
Those standards require that we comply with ethical requirements and plan and perform the audit
to obtain reasonable assurance whether the financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and
disclosures in the financial statements. The procedures selected depend on the auditors’
judgment, including the assessment of the risks of material misstatement of the financial
statements, whether due to fraud or error. In making those risk assessments, the auditors consider
internal control relevant to the entity’s preparation and fair presentation of the financial
statements in order to design audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An
audit also includes evaluating the appropriateness of accounting policies used and the
reasonableness of accounting estimates made by management, as well as evaluating the overall
presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.

































Manabat
Sanagustin
&
Co.,
CPAs,
a
Philippine
partnership
and
a
member
firm
of




the
KPMG
network
of
independent
member
firms
affiliated
with
KPMG




International,
a
Swiss
cooperative.


ABCD
Manabat Sanagustin & Co., CPAs Telephone +63 (2) 885 7000

Manabat Sanagustin & Co., CPAs, a Philippine

Partnership and a member firm of the KPMG network of
Independent member firms affiliated with KPMG International,
A Swiss cooperative.
 SA MIGUEL PURE FOODS COMPAY, IC. AD SUBSIDIARIES
COSOLIDATED STATEMETS OF FIACIAL POSITIO
(Amounts in Thousands)

December 31

ote 2009 2008
ASSETS
Current Assets
Cash and cash equivalents 6, 28, 29 P3,950,346 P2,782,206
Trade and other receivables - net 4, 7, 25, 28, 29 9,023,953 7,762,091
Inventories - net 4, 8, 25 11,804,099 11,804,788
Biological assets 9 2,524,510 2,932,421
Derivative assets 28, 29 47,070 35,757
Prepaid expenses and other current assets 1,245,674 814,808
Total Current Assets 28,595,652 26,132,071
oncurrent Assets
Investment properties - net 4, 11 108,065 71,727
Property, plant and equipment - net 4, 12, 25 8,294,593 8,058,423
Biological assets - net 4, 9 1,285,125 1,115,963
Goodwill and other intangible assets - net 4, 13 338,354 326,600
Deferred tax assets 4, 23 1,219,676 1,096,259
Retirement and other noncurrent assets 4, 12, 24, 28, 29 334,408 200,988
Total oncurrent Assets 11,580,221 10,869,960
P40,175,873 P37,002,031

LIABILITIES AD EQUITY

Current Liabilities
Notes payable 14, 28, 29 P8,816,090 P11,666,380
Trade payables and other current liabilities 15, 28, 29 12,667,086 9,850,465
Income tax payable 466,920 208,860
Total Current Liabilities 21,950,096 21,725,705
oncurrent Liabilities
Deferred tax liabilities 23 399,040 238,260
Retirement liability 24 181,487 77,458
Total oncurrent Liabilities 580,527 315,718
Equity 16
Equity Attributable to Equity Holders of
the Parent Company
Capital stock 1,454,510 1,454,510
Additional paid-in capital 5,821,288 5,821,288
Revaluation surplus 18,219 18,219
Cumulative translation adjustments (48,278) (70,416)
Retained earnings 8,181,278 5,584,315
Treasury stock (182,094) (182,094)
15,244,923 12,625,822
on-controlling Interests 2,400,327 2,334,786
Total Equity 17,645,250 14,960,608
P40,175,873 P37,002,031

See &otes to the Consolidated Financial Statements.

 SA MIGUEL PURE FOODS COMPAY, IC. AD SUBSIDIARIES
COSOLIDATED STATEMETS OF ICOME
FOR THE YEARS EDED DECEMBER 31, 2009, 2008 AD 2007
(Amounts in Thousands, Except Per Share Data)

ote 2009 2008 2007

REVEUES 17, 25 P75,042,967 P71,075,925 P62,052,029
COST OF SALES 18, 25, 31 61,684,667 60,609,663 51,845,187
GROSS PROFIT 13,358,300 10,466,262 10,206,842
SELLIG AD
ADMIISTRATIVE
EXPESES 19, 25 (8,720,676) (8,623,651) (7,810,920)
ITEREST EXPESE AD
OTHER FIACIG
CHARGES 14, 22 (751,042) (830,914) (667,972)
ITEREST ICOME 6, 22 69,141 54,323 84,407
GAI (LOSS) O SALE OF
PROPERTY AD
EQUIPMET (24,663) 2,815 (18,010)
OTHER CHARGES - Net 22 (88,968) (451,279) (696,049)
ICOME BEFORE ICOME
TAX 3,842,092 617,556 1,098,298
ICOME TAX EXPESE 23 1,183,625 468,870 916,205
ET ICOME P2,658,467 P148,686 P182,093

Attributable to:
Equity holders of the Parent Company P2,596,963 P77,194 P30,591
Non-controlling interests 61,504 71,492 151,502
P2,658,467 P148,686 P182,093
Basic and Diluted Earnings Per
Share Attributable to Equity
Holders of the Parent Company 26 P18.39 P0.55 P0.22

See &otes to the Consolidated Financial Statements.

 SA MIGUEL PURE FOODS COMPAY, IC. AD SUBSIDIARIES
COSOLIDATED STATEMETS OF COMPREHESIVE ICOME
FOR THE YEARS EDED DECEMBER 31, 2009, 2008 AD 2007
(Amounts in Thousands)

ote 2009 2008 2007

ET ICOME P2,658,467 P148,686 P182,093
EXCHAGE DIFFERECES
O TRASLATIO OF
FOREIG OPERATIOS 16,147 1,544 (44,260)
ET GAI (LOSS) O CASH
FLOW HEDGES 29 11,196 (11,196) 75
ICOME TAX BEEFIT
(EXPESE) 29 (3,359) 3,359 (26)
ET GAI O AVAILABLE-
FOR-SALE FIACIAL
ASSETS 2,434 502 3,216
ICOME TAX EXPESE (243) (50) (322)
OTHER COMPREHESIVE
ICOME (LOSS) - ET OF
TAX 26,175 (5,841) (41,317)
TOTAL COMPREHESIVE
ICOME - ET OF TAX P2,684,642 P142,845 P140,776

Comprehensive Income
Attributable to:
Equity holders of the Parent Company P2,619,101 P70,967 P339
Non-controlling interests 65,541 71,878 140,437
P2,684,642 P142,845 P140,776

See &otes to the Consolidated Financial Statements.

 SA MIGUEL PURE FOODS COMPAY, IC. AD SUBSIDIARIES
COSOLIDATED STATEMETS OF CHAGES I EQUITY
FOR THE YEARS EDED DECEMBER 31, 2009, 2008 AD 2007
(Amounts in Thousands)

on-
controlling Total
Equity Attributable to Equity Holders of the Parent Company Interests Equity
Cumulative Translation
Additional Adjustments
Capital Paid-in Fair Retained Treasury
Stock Capital Revaluation Translation Hedging Value Earnings Stock
(Note 16) (Note 16) Surplus Reserve Reserve Reserve (Note 16) (Note 16) Total
At January 1, 2009 P1,454,510 P5,821,288 P18,219 (P66,657) (P7,837) P4,078 P5,584,315 (P182,094) P12,625,822 P2,334,786 P14,960,608
Foreign currency translation
differences - - - 12,110 - - - - 12,110 4,037 16,147
Changes in the fair value of cash flow
hedges, net of tax - - - - 7,837 - - - 7,837 - 7,837
Changes in fair value of available-for-
sale financial assets, net of tax - - - - - 2,191 - - 2,191 - 2,191
Total other comprehensive income - - - 12,110 7,837 2,191 - - 22,138 4,037 26,175
Net income for the year - - - - - - 2,596,963 - 2,596,963 61,504 2,658,467
Total comprehensive income for the
year - - - 12,110 7,837 2,191 2,596,963 - 2,619,101 65,541 2,684,642
At December 31, 2009 P1,454,510 P5,821,288 P18,219 (P54,547) P - P6,269 P8,181,278 (P182,094) P15,244,923 P2,400,327 P17,645,250
At January 1, 2008 P1,454,510 P5,821,288 P18,219 (P67,815) P - P3,626 P5,507,121 (P182,094) P12,554,855 P2,255,287 P14,810,142
Foreign currency translation
differences - - - 1,158 - - - - 1,158 386 1,544
Changes in the fair value of cash
flow hedges, net of tax - - - - (7,837) - - - (7,837) - (7,837)
Changes in fair value of available-for-
sale financial assets, net of tax - - - - - 452 - - 452 - 452
Total other comprehensive income - - - 1,158 (7,837) 452 - - (6,227) 386 (5,841)
Net income for the year - - - - - - 77,194 - 77,194 71,492 148,686
Total comprehensive income for the
year - - - 1,158 (7,837) 452 77,194 - 70,967 71,878 142,845
Addition in non-controlling interests - - - - - - - - - 7,621 7,621
At December 31, 2008 P1,454,510 P5,821,288 P18,219 (P66,657) (P7,837) P4,078 P5,584,315 (P182,094) P12,625,822 P2,334,786 P14,960,608
Forward
 on-
controlling Total
Equity Attributable to Equity Holders of the Parent Company Interests Equity
Cumulative Translation
Additional Adjustments
Capital Paid-in Fair Retained Treasury
Stock Capital Revaluation Translation Hedging Value Earnings Stock
(Note 16) (Note 16) Surplus Reserve Reserve Reserve (Note 16) (Note 16) Total
At January 1, 2007 P745,859 P1,938,944 P18,219 (P34,620) (P49) P732 P5,476,530 (P182,094) P7,963,521 P5,613,182 P13,576,703
Foreign currency translation
differences - - - (33,195) - - - - (33,195) (11,065) (44,260)
Changes in the fair value of cash
flow hedges, net of tax - - - - 49 - - - 49 - 49
Changes in fair value of available-for-
sale financial assets, net of tax - - - - - 2,894 - - 2,894 - 2,894
Total other comprehensive income - - - (33,195) 49 2,894 - - (30,252) (11,065) (41,317)
Net income for the year - - - - - - 30,591 - 30,591 151,502 182,093
Total comprehensive income for the
year - - - (33,195) 49 2,894 30,591 - 339 140,437 140,776
Issuance of capital stock 708,651 3,882,344 - - - - - - 4,590,995 - 4,590,995
Reduction in non-controlling
interests - - - - - - - - - (3,498,332) (3,498,332)
At December 31, 2007 P1,454,510 P5,821,288 P18,219 (P67,815) P - P3,626 P5,507,121 (P182,094) P12,554,855 P2,255,287 P14,810,142

See &otes to the Consolidated Financial Statements.

 SA MIGUEL PURE FOODS COMPAY, IC. AD SUBSIDIARIES
COSOLIDATED STATEMETS OF CASH FLOWS
FOR THE YEARS EDED DECEMBER 31, 2009, 2008 AD 2007
(Amounts in Thousands)

ote 2009 2008 2007

CASH FLOWS FROM
OPERATIG ACTIVITIES
Income before income tax P3,842,092 P617,556 P1,098,298
Adjustments for:
Depreciation and amortization 20 1,704,508 1,553,510 1,458,292
Interest expense 14, 22 751,042 830,914 667,972
Other charges net of loss (gain)
on derivative transactions 22 114,935 733,126 1,074,263
One-time recognition of
negative goodwill - - (115,697)
Interest income 6, 22 (69,141) (54,323) (84,407)
Decline in value of investments 13 - 16,783 928
Impairment loss on investment
properties 11 3,114 5,359 -
Impairment loss on land and
other noncurrent assets 22 53,873 - -
Loss (gain) on sale of property
and equipment 24,663 (2,815) 18,010
Operating income before
working capital changes 6,425,086 3,700,110 4,117,659
Allowance for impairment losses
on receivables and inventory
losses 193,192 115,039 156,815
Decrease (increase) in:
Trade and other receivables (1,349,470) (114,304) (1,343,433)
Inventories (26,575) (1,996,485) (974,401)
Biological assets 407,911 (608,156) (411,060)
Prepaid expenses and other
current assets (430,237) 108,713 (235,729)
Increase in trade payables and
other current liabilities 1,706,284 179,884 1,008,474
Cash generated from operations 6,926,191 1,384,801 2,318,325
Interest paid (569,452) (629,043) (623,825)
Income taxes paid (including
final tax) (872,252) (878,758) (616,340)
Interest received 51,720 45,639 71,081
Net cash flows provided by
(used in) operating activities 5,536,207 (77,361) 1,149,241
Forward

ote 2009 2008 2007
CASH FLOWS FROM
IVESTIG ACTIVITIES
Acquisitions of property, plant
and equipment 12 (P651,422) (P593,908) (P931,601)
Decrease (increase) in:
Biological assets - net (1,023,292) (972,614) (648,327)
Other noncurrent assets 117,352 45,407 (85,072)
Proceeds from sale of property
and equipment 39,127 11,330 3,221
Transfer of cash from a new
subsidiary - - 336,721
Cash received from merger
transaction 10 458 - -
Net cash flows used in investing
activities (1,517,777) (1,509,785) (1,325,058)
CASH FLOW FROM A
FIACIG ACTIVITY
Net availments (payments) of
notes payable (2,850,290) 3,026,709 (613,821)
ET ICREASE (DECREASE)
I CASH AD CASH
EQUIVALETS 1,168,140 1,439,563 (789,638)
CASH AD CASH
EQUIVALETS AT
BEGIIG OF YEAR 2,782,206 1,342,643 2,132,281
CASH AD CASH
EQUIVALETS AT ED OF
YEAR P3,950,346 P2,782,206 P1,342,643

See &otes to the Consolidated Financial Statements.

 SA MIGUEL PURE FOODS COMPAY, IC. AD SUBSIDIARIES
OTES TO THE COSOLIDATED FIACIAL STATEMETS
(Amounts in Thousands, Unless Otherwise Indicated)

1. Reporting Entity

San Miguel Pure Foods Company, Inc. (“SMPFC” or the “Company”) was incorporated
in the Philippines. The consolidated financial statements of the Company as at and for
the year ended December 31, 2009 comprise the financial statements of the Company and
its Subsidiaries (collectively referred to as the “Group”). The Company is a public
company under Section 17.2 of the Securities Regulation Code and its shares are listed in
the Philippine Stock Exchange (PSE). The Group is involved in poultry operations,
livestock farming and processing and selling of meat products, processing and marketing
of refrigerated and canned meat products, manufacturing and marketing of feeds and
flour products, cooking oils, breadfill, desserts and dairy-based products, and importation
and marketing of coffee and coffee-related products. The registered office address of the
Company is JMT Corporate Condominium, ADB Ave., Ortigas Center, Pasig City.

San Miguel Corporation (SMC) is the ultimate parent company of the Group.

The consolidated financial statements as at and for the year ended December 31, 2009
were authorized for issue by the Board of Directors (BOD) on February 12, 2010.

2. Basis of Preparation

Basis of Measurement
The consolidated financial statements of the Group have been prepared on a historical
cost basis, except for the following:

derivative financial instruments are measured at fair value;

available-for-sale (AFS) financial assets are measured at fair value;

defined benefit asset is measured as the net total of the plan assets, less
unrecognized actuarial gains and the present value of the defined benefit
obligation; and

agricultural produce are measured at fair value less estimated costs to sell at the
point of harvest.

Functional and Presentation Currency

The consolidated financial statements are presented in Philippine peso, which is the
Company’s functional currency. All values are rounded to the nearest thousand (P000),
except when otherwise indicated.

Statement of Compliance
The consolidated financial statements have been prepared in compliance with Philippine
Financial Reporting Standards (PFRS). PFRS includes statements named PFRS and
Philippine Accounting Standards (PAS), and Philippine Interpretations from International
Financial Reporting Interpretation Committee (IFRIC), issued by the Financial Reporting
Standards Council (FRSC).
 Basis of Consolidation
The consolidated financial statements include the accounts of the Company and the
following subsidiaries as of December 31, 2009 and 2008:

Country of Percentage of
Incorporation Ownership
San Miguel Foods, Inc. (SMFI) Philippines 100.00
San Miguel Mills, Inc. (SMMI) Philippines 100.00
Magnolia, Inc. and subsidiary (Magnolia) Philippines 100.00
Monterey Foods Corporation (Monterey) Philippines 97.68
PT San Miguel Pure Foods Indonesia Ltd. (PTSMPFI) Indonesia 75.00
San Miguel Super Coffeemix Co., Inc. (SMSCCI) Philippines 70.00
The Purefoods-Hormel Company, Inc. (PF-Hormel) Philippines 60.00
RealSnacks Mfg. Corp. (RealSnacks)* Philippines 100.00
San Miguel Pure Foods International, Limited British Virgin
(SMPFIL) ** Islands 100.00
* Incorporated in April 2004 and has not yet started commercial operations.
** Incorporated in February 2007 and has not yet started commercial operations.

A subsidiary is an entity controlled by the Group. Control exists when the Group has the
power, directly or indirectly, to govern the financial and operating policies of an entity so
as to obtain benefit from its activities. In assessing control, potential voting rights that
are presently exercisable or convertible are taken into account. The financial statements
of the subsidiaries are included in the consolidated financial statements from the date
when the Group obtains control and continue to be consolidated until the date when such
control ceases.

The consolidated financial statements are prepared for the same reporting period as the
Company, using uniform accounting policies for like transactions and other events in
similar circumstances. Intergroup balances and transactions, including intergroup
unrealized profits and losses, are eliminated in preparing the consolidated financial
statements.

Non-controlling interests represent the portion of profit or loss and net assets not held by
the Group and are presented in the consolidated financial statements separately from the
equity holders of the Parent Company.

Non-controlling interests represent the interests not held by the Group in PF-Hormel,
Monterey, PTSMPFI and SMSCCI in 2009 and 2008.

3. Significant Accounting Policies

The accounting policies set out below have been applied consistently by the Group to all
periods presented in the consolidated financial statements.

Adoption of New Standards, Amendments to Standards and Interpretations

The FRSC approved the adoption of new or revised standards, amendments to standards,
and interpretations as part of PFRS. Accordingly, the Group changed its accounting
policies in the following areas:

Adopted effective 2009

PFRS 8, Operating Segments, introduces the “management approach” to segment

reporting.

-2-
 Starting January 1, 2009, the Group determined and presented operating segments
based on the information internally provided to the BOD. Previously, operating
segments were determined and presented in accordance with PAS 14, Segment
Reporting. The new accounting policy in respect of segment operating disclosures is
presented as follows:

• Comparative segment information have been re-presented in conformity with the

transitional requirements of such standard. Since the change in accounting policy
only impacts presentation and disclosure aspects, there is no impact on basic and
diluted earnings per share (EPS).

• An operating segment is a component of the Group that engages in business

activities from which it may earn revenues and incur expenses, including
revenues and expenses that relate to transactions with any of the Group’s other
components. An operating segment’s operating results are reviewed regularly by
the BOD to make decisions about resources to be allocated to the segment and
assess its performance, and for which discrete financial information is available.

• Segment results that are reported to the BOD include items directly attributable
to a segment as well as those that can be allocated on a reasonable basis.
Unallocated items comprise mainly of corporate assets (primarily the Company’s
headquarters), certain head office expenses, and deferred tax assets and
liabilities.

• Segment capital expenditure is the total cost incurred during the period to acquire
property, plant and equipment, and intangible assets other than goodwill.

Revised PAS 1, Presentation of Financial Statements (2007), introduces the term

total comprehensive income, which represents changes in equity during a period
other than those changes resulting from transactions with owners in their capacity as
owners. Total comprehensive income may be presented in either a single statement of
comprehensive income (effectively combining both the statement of income and all
non-owner changes in equity in a single statement), or in a statement of income and a
separate statement of comprehensive income.

The Group applied Revised PAS 1, which became effective as of January 1, 2009.
The Group presented in the consolidated statements of changes in equity all owner
changes in equity, whereas all non-owner changes in equity are presented in the
consolidated statements of comprehensive income.

Comparative information have been re-presented so that it is also in conformity with

the revised standard. Since the change in accounting policy only impacts presentation
aspects, there is no impact on basic and diluted EPS.

Revised PAS 23, Borrowing Costs, removes the option to expense borrowing costs
and requires an entity to capitalize borrowing costs directly attributable to the
acquisition, construction or production of a qualifying asset as part of the cost of that
asset.

Prior to this revised standard, the Group already capitalizes borrowing costs directly
attributable to the acquisition, construction or production of a qualifying asset as part
of the cost of that asset.

-3-

Amendments to PFRS 7, Financial Instruments: Disclosures - Improving
Disclosures about Financial Instruments, require disclosures relating to fair value
measurements using a three-level fair value hierarchy that reflects the significance of
the inputs used in measuring fair values and provide more direction on the form of
quantitative disclosures about fair value measurements and require information to be
disclosed in a tabular format unless another format is more appropriate. In addition,
the amendments clarify and enhance the existing requirements for the disclosure of
liquidity risk.

Effective January 1, 2009, the said new required disclosures have been included in
Note 29 to the consolidated financial statements. Also, as allowed by the
amendments, in the first year of application, comparative information is not required
to be disclosed.

Embedded Derivatives - Amendments to Philippine Interpretation IFRIC 9,

Reassessment of Embedded Derivatives and PAS 39, Financial Instruments:
Recognition and Measurement, clarify that on reclassification of a financial asset out
of the “at fair value through profit or loss” category, all embedded derivatives have to
be assessed and, if necessary, separately accounted for in the consolidated financial
statements. The amendments are effective for annual periods ending on or after
June 30, 2008.

Philippine Interpretation IFRIC 13, Customer Loyalty Programmes addresses the

accounting by entities that operate, or otherwise participate in, customer loyalty
programmes under which the customer can redeem credits for awards such as free or
discounted goods or services. The interpretation takes effect for annual periods
beginning on or after July 1, 2008.

Philippine Interpretation IFRIC 16, Hedges of a &et investment in a Foreign

Operation, applies to all entities using net investment hedging for investments in
foreign operations and clarifies that net investment hedging can be applied only when
the net assets of the foreign operation are included in the financial statements of the
entity. The requirements in the interpretation do not apply to other forms of hedge
accounting under PAS 39 and cannot be applied by analogy. IFRIC 16 provides
guidance on the following issues: (a) nature of the hedged risk and the amount of the
hedged item for which a hedging relationship may be designated; (b) where the
hedging instrument can be held and assessing hedge effectiveness; and (c) disposal of
a foreign operation. The interpretation is effective for annual periods beginning on
or after October 1, 2008.

Amendments to PAS 32, Financial Instruments: Presentation and PAS 1,

Presentation of Financial Statements - Puttable Financial Instruments and
Obligations Arising on Liquidation, became effective for financial years beginning
on or after January 1, 2009. The standards have been amended to require puttable
instruments, and instruments that impose on the entity an obligation to deliver to
another party a pro rata share of the net assets of the entity only on liquidation, to be
classified as equity if certain conditions are met.

Amendment to PFRS 2, Share-based Payment - Vesting Conditions and

Cancellations, became effective for financial years beginning on or after
January 1, 2009. The standard has been amended to clarify the definition of vesting
conditions (which are service conditions and performance conditions only), introduce
the concept of non-vesting conditions, require non-vesting conditions to be reflected
in grant-date fair value and provide the accounting treatment for non-vesting
conditions and cancellations.

-4-

Amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting
Standards and PAS 27, Consolidated and Separate Financial Statements - Cost of an
Investment in a Subsidiary, Jointly Controlled Entity or Associate, became effective
for financial years beginning on or after January 1, 2009. The amendments to PFRS 1
allow a first-time adopter, at its date of transition to PFRS in its separate financial
statements, to use deemed cost to account for an investment in a subsidiary, jointly
controlled entity or associate. The amendments to PAS 27 remove the definition of
“cost method” currently set out in PAS 27, and instead require all dividend from a
subsidiary, jointly controlled entity or associate to be recognized as income in the
separate financial statements of the investor when the right to receive the dividend is
established.

Improvements to PFRS 2008 - various standards (except as related to PFRS 5,

&oncurrent Assets Held for Sale and Discontinued Operations), discusses 35
amendments and is divided into two parts: (a) Part I includes 24 amendments that
result in accounting changes for presentation, recognition or measurement purposes;
and (b) Part II includes 11 terminology or editorial amendments that the International
Accounting Standards Board expects to have either no or only minimal effects on
accounting. These improvements are effective for annual periods beginning on or
after January 1, 2009.

Improvements to PFRS 2009 - Amendment to PAS 18, Revenue, Determining

whether an entity is acting as a principal or as an agent. The appendix
accompanying PAS 18 is amended to specify that an entity acts as a principal when it
is exposed to the significant risks and rewards associated with the sale of goods or
rendering of services. The amendments also include in the appendix to PAS 18 a
number of indicators for consideration in assessing whether an entity is acting as a
principal or as an agent. As this is an amendment to an appendix, there is no related
effective date and therefore is applicable immediately.

The adoption of these foregoing new or revised standards, amendments to standards and
Philippine Interpretations of IFRIC did not have a material effect on the consolidated
financial statements.

&ew or Revised Standards and Amendments to Standards and Interpretations &ot Yet
Adopted

The Group will adopt the following new or revised standards, amendments to standards
and interpretations on the respective effective dates:

Revised PFRS 3, Business Combinations (2008), effective for annual periods

beginning on or after July 1, 2009, incorporates the following changes that are likely
to be relevant to the Group’s operations:

• The definition of a business has been broadened, which is likely to result in more
acquisitions being treated as business combinations.

• Contingent consideration will be measured at fair value, with subsequent changes

therein recognized in profit or loss.

• Transaction costs, other than share and debt issue costs, will be expensed as
incurred.

-5-
 • Any pre-existing interest in the acquiree will be measured at fair value with the
gain or loss recognized in profit or loss.

• Any non-controlling interest will be measured at either fair value, or at its

proportionate interest in the identifiable assets and liabilities of the acquiree, on a
transaction-by-transaction basis.

Revised PFRS 3, which becomes mandatory for the Group’s 2010 consolidated
financial statements, will be applied prospectively.

Revised PAS 27, Consolidated and Separate Financial Statements (2008), effective
for annual periods beginning on or after July 1, 2009, requires accounting for
changes in ownership interests by the Group in a subsidiary, while maintaining
control, to be recognized as an equity transaction. When the Company loses control
of a subsidiary, any interest retained in the former subsidiary will be measured at fair
value with the gain or loss recognized in profit or loss. Revised PAS 27 will become
mandatory for the Group’s 2010 consolidated financial statements.

Amendments to PAS 39, Financial Instruments: Recognition and Measurement -

Eligible Hedged Items, provide for the following: a) new application guidance to
clarify the existing principles that determine whether specific risks or portions of
cash flows are eligible for designation in a hedge relationship; and b) additional
application guidance on qualifying items; assessing hedge effectiveness; and
designation of financial items as hedged items. The amendments are effective for
annual periods beginning on or after July 1, 2009. Amendments to PAS 39 will
become mandatory for the Group’s 2010 consolidated financial statements.

Philippine Interpretation IFRIC - 17, Distributions of &on-cash Assets to Owners,

provides guidance on the accounting for non-reciprocal distributions of non-cash
assets to owners acting in their capacity as owners. It also applies to distributions in
which the owners may elect to receive either the non-cash asset or a cash alternative.
The liability for the dividend payable is measured at the fair value of the assets to be
distributed. The interpretation is effective for annual periods beginning on or after
July 1, 2009.

Revised PFRS 1, First-time Adoption of Philippine Financial Reporting Standards,

restructures the format of PFRS 1 without changing the standard’s technical content.
The revised version moves the exemptions and exceptions contained in the main
body of PFRS to different appendices, and also removes PFRS 1 transitional
provisions that are no longer considered relevant. The revised standard is effective
for annual periods beginning on or after July 1, 2009.

Improvements to PFRS 2008 - Amendments to PFRS 5, &oncurrent Assets Held for

Sale and Discontinued Operations, specify that if an entity is committed to a plan to
sell a subsidiary, then it would classify all of that subsidiary’s assets and liabilities as
held for sale when the held for sale criteria in paragraphs 6 to 8 of PFRS 5 are met;
this applies regardless of the entity retaining an interest (other than control) in the
subsidiary; and disclosures for discontinued operations are required by the parent
company when a subsidiary meets the definition of a discontinued operation. The
amendments are effective for annual periods beginning on or after July 1, 2009.

-6-

Amendments to PFRS 1, First-time Adoption of Philippine Financial Reporting
Standards - Additional Exemptions for First-time Adopters, provide additional
optional exemptions for first-time adopters of PFRS that will permit entities not to
reassess the determination of whether an arrangement contains a lease if the same
assessment as that required by Philippine Interpretation IFRIC 4 was made under
previous GAAP; and allow entities in the oil and gas industry to use their previous
GAAP carrying amounts as deemed cost at the date of transition for oil and gas
assets. The amendments are effective for annual periods beginning on or after
January 1, 2010.

Amendments to PFRS 2, Share-based Payment: Group Cash-settled Share-based

Payment Transactions, clarify the scope of PFRS 2, that an entity that receives goods
or services in a share-based payment arrangement must account for those goods or
services no matter which entity in the group settles the transaction, and regardless of
whether the transaction is equity-settled or cash-settled; and the interaction of
PFRS 2 and other standards, that in PFRS 2, a “group” has the same meaning as in
PAS 27, Consolidated and Separate Financial Statements, that is, it includes only a
parent and its subsidiaries. The amendments are effective for annual periods
beginning on or after January 1, 2010.

Improvements to PFRS 2009, include 15 amendments to 12 standards. Some of these

amendments may have significant implications for current practice, in particular the
amendments to PAS 17, Leases may affect the classification of leases of land and
buildings, particularly in jurisdictions in which such leases often are for a long period
of time. The improvements are generally effective for annual periods beginning on or
after January 1, 2010.

Amendment to PAS 32, Financial Instruments: Presentation - Classification of

Rights Issues, permits rights, options or warrants to acquire a fixed number of the
entity’s own equity instruments for a fixed amount of any currency to be classified as
equity instruments provided the entity offers the rights, options or warrants pro rata
to all of its existing owners of the same class of its own non-derivative equity
instruments. The amendment is applicable for annual periods beginning on or after
February 1, 2010.

Philippine Interpretation IFRIC 19, Extinguishing Financial Liabilities with Equity

Instruments, addresses issues in respect of the accounting by the debtor in a debt for
equity swap transaction. It clarifies that equity instruments issued to a creditor to
extinguish all or part of a financial liability in a debt for equity swap are
consideration paid in accordance with PAS 39 paragraph 41. The interpretation is
applicable for annual periods beginning on or after July 1, 2010.

Revised PAS 24, Related Party Disclosures (2009), amends the definition of a
related party and modifies certain related party disclosure requirements for
government-related entities. The revised standard is effective for annual periods
beginning on or after January 1, 2011.

Prepayments of a Minimum Funding Requirement (Amendments to Philippine

Interpretation IFRIC 14: PAS 19 - The Limit on a Defined Benefit Asset, Minimum
Funding Requirements and their Interaction). These amendments remove unintended
consequences arising from the treatment of prepayments where there is a minimum
funding requirement and result in prepayments of contributions in certain
circumstances being recognized as an asset rather than an expense. The amendments
are effective for annual periods beginning on or after January 1, 2011.

-7-

PFRS 9, Financial Instruments, is the first standard issued as part of a wider project
to replace PAS 39. PFRS 9 retains but simplifies the mixed measurement model and
establishes two primary measurement categories for financial assets: amortized cost
and fair value. The basis of classification depends on the entity’s business model and
contractual cash flow characteristics of the financial asset. The guidance in PAS 39
on impairment of financial assets and hedge accounting continues to apply. The new
standard is effective for annual periods beginning on or after January 1, 2013.

The Group will assess the impact of the new or revised standards, amendments to
standards and interpretations on the consolidated financial statements upon adoption.

Financial Assets and Liabilities

Date of Recognition. The Group recognizes a financial asset or a financial liability in the
consolidated statements of financial position when it becomes a party to the contractual
provisions of the instrument. In the case of a regular way purchase or sale of financial
assets, recognition is done using settlement date accounting.

Initial Recognition of Financial Instruments. Financial instruments are recognized

initially at fair value of the consideration given (in case of an asset) or received (in case
of a liability). The initial measurement of financial instruments, except for those
designated at fair value through profit and loss (FVPL), includes transaction costs.

Subsequent to initial recognition, the Group classifies its financial assets in the following
categories: held-to-maturity (HTM) investments, AFS financial assets, FVPL financial
assets, and loans and receivables. The Group classifies its financial liabilities as either
FVPL financial liabilities or other liabilities. The classification depends on the purpose
for which the investments are acquired and whether they are quoted in an active market.
Management determines the classification of its financial assets and financial liabilities at
initial recognition and, where allowed and appropriate, re-evaluates such designation at
every reporting date.

Determination of Fair Value. The fair value for financial instruments traded in active
markets at the reporting date is based on their quoted market price or dealer price
quotations (bid price for long positions and ask price for short positions), without any
deduction for transaction costs. When current bid and asking prices are not available, the
price of the most recent transaction provides evidence of the current fair value as long as
there has not been a significant change in economic circumstances since the time of the
transaction.

For all other financial instruments not listed in an active market, the fair value is
determined by using appropriate valuation techniques. Valuation techniques include the
discounted cash flows method, comparison to similar instruments for which market
observable prices exist, options pricing models, and other relevant valuation models.

Day 1 Profit. Where the transaction price in a non-active market is different from the fair
value of the other observable current market transactions in the same instrument or based
on a valuation technique whose variables include only data from observable market, the
Group recognizes the difference between the transaction price and fair value (a Day 1
Profit) in the consolidated statements of income unless it qualifies for recognition as
some other type of asset. In cases where use is made of data which are not observable,
the difference between the transaction price and model value is only recognized in the
consolidated statements of income when the inputs become observable or when the
instrument is derecognized. For each transaction, the Group determines the appropriate
method of recognizing the ‘day 1’ profit amount.

-8-
Financial Assets
Financial Assets at FVPL. Financial assets at FVPL include financial assets held for
trading, financial assets designated upon initial recognition as at FVPL and those
classified under this category through the fair value option. Derivative instruments
(including embedded derivatives), except those covered by hedge accounting
relationships, are classified under this category.

Financial assets are classified as held for trading if they are acquired for the purpose of
selling in the near term.

Financial assets may be designated by management at initial recognition as at FVPL or

reclassified under this category through fair value option, when any of the following
criteria is met:

the designation eliminates or significantly reduces the inconsistent treatment that

would otherwise arise from measuring the assets or recognizing gains or losses on a
different basis; or

the assets and liabilities are part of a group of financial assets, financial liabilities or
both which are managed and their performances are evaluated on a fair value basis,
in accordance with a documented risk management or investment strategy; or

the financial instrument contains an embedded derivative, unless the embedded

derivative does not significantly modify the cash flows or it is clear, with little or no
analysis, that it would not be separately recognized.

The Group carries financial assets at FVPL using their fair values. Fair value changes and
realized gains and losses are recognized as part of consolidated statements of income.
Fair value changes from derivatives accounted for as part of an effective accounting
hedge are recognized in the consolidated statements of comprehensive income. Any
interest earned shall be recognized as part of “Interest income” in the consolidated
statements of income. Any dividend income from equity securities classified as FVPL
shall be recognized in the consolidated statements of income when the right of payment
has been established.

The Group’s derivative assets are classified under this category.

The carrying values of financial assets under this category amounted to P47.1 million and
P35.8 million as of December 31, 2009 and 2008, respectively (Note 29).

Loans and Receivables. Loans and receivables are non-derivative financial assets with
fixed or determinable payments and maturities that are not quoted in an active market.
They are not entered into with the intention of immediate or short-term resale and are not
designated as AFS or financial asset at FVPL.

Subsequent to initial measurement, loans and receivables are carried at amortized cost
using the effective interest rate method, less any impairment in value. Any interest earned
on loans and receivables shall be recognized as part of “Interest income” in the
consolidated statements of income on an accrual basis. Amortized cost is calculated by
taking into account any discount or premium on acquisition and fees that are integral part
of the effective interest rate. The periodic amortization is also included as part of
“Interest income” in the consolidated statements of income. Gains or losses are
recognized in the consolidated statements of income when loans and receivables are
derecognized or impaired, as well as through the amortization process.

-9-
Cash includes cash on hand and in banks which are stated at face value. Cash equivalents
are short-term, highly liquid investments that are readily convertible to known amounts
of cash with original maturities of three months or less and are subject to an insignificant
risk of change in value.

The Group’s cash and cash equivalents and trade and other receivables are included in
this category (Notes 6 and 7).

The carrying values of financial assets under this category amounted to P12,974.3 million
and P10,544.3 million as of December 31, 2009 and 2008, respectively (Note 29).

HTM Investments. HTM investments are quoted non-derivative financial assets with
fixed or determinable payments and fixed maturities for which the Group’s management
has the positive intention and ability to hold to maturity. Where the Group sells other
than an insignificant amount of HTM investments, the entire category would be tainted
and classified as AFS financial assets. After initial measurement, these investments are
measured at amortized cost using the effective interest rate method, less impairment in
value. Any interest earned on the HTM investments shall be recognized as part of
“Interest income” in the consolidated statements of income on an accrual basis.
Amortized cost is calculated by taking into account any discount or premium on
acquisition and fees that are an integral part of the effective interest rate. Gains and losses
are recognized in the consolidated statements of income when the HTM investments are
derecognized or impaired, as well as through the amortization process.

As of December 31, 2009 and 2008, the Group has no investments accounted for under
this category.

AFS Financial Assets. AFS financial assets are non-derivative financial assets that are
either designated in this category or are not classified under any of the other financial
asset categories. Subsequent to initial recognition, AFS financial assets are carried at fair
value in the consolidated statements of financial position. The effective yield component
of AFS debt securities is reported as part of “Interest income” in the consolidated
statements of income. Any interest earned on AFS debt securities shall be recognized as
part of “Interest income” in the consolidated statements of income on an accrual basis.
Dividends earned on holding AFS equity securities are recognized as “Dividend income”
when the right of payment has been established. Any unrealized gains or losses for the
period arising from the fair valuation of AFS financial assets are reported as part of other
comprehensive income, while the accumulated unrealized gains or losses are reported as
a separate component of the Group’s equity. When individual AFS financial assets are
either derecognized or impaired, the related accumulated unrealized gains or losses
previously reported in equity are transferred to and recognized in the consolidated
statements of income.

The Group’s investments in shares of stock included under “Retirement and other
noncurrent assets” are classified under this category.

The carrying values of financial assets under this category amounted to P13.8 million
and P11.4 million as of December 31, 2009 and 2008, respectively (Note 29).

Financial Liabilities
Financial Liabilities at FVPL. Financial liabilities are classified under this category
through the fair value option. Derivative instruments (including embedded derivatives)
with negative fair values, except those covered by hedge accounting relationships, are
also classified under this category.

- 10 -
The Group carries financial liabilities at FVPL using their fair values and reports fair
value changes as part of consolidated statements of income. Fair value changes from
derivatives accounted for as part of an effective accounting hedge are recognized in the
consolidated statements of comprehensive income. Any interest expense incurred shall be
recognized as part of “Interest expense” in the consolidated statements of income.

The carrying values of financial liabilities under this category amounted to P13.4 million
and P144.2 million as of December 31, 2009 and 2008, respectively (Notes 15 and 29).

Other Financial Liabilities. This category pertains to financial liabilities that are not
designated or classified as at FVPL. After initial measurement, other financial liabilities
are carried at amortized cost using the effective interest rate method. Amortized cost is
calculated by taking into account any premium or discount and any directly attributable
transaction costs that are considered an integral part of the effective interest rate of the
liability.

Included in this category are the Group’s notes payable and trade payables and other
current liabilities (Notes 14, 15 and 29).

The carrying values of financial liabilities under this category amounted to

P21,469.8 million and P21,372.6 million as of December 31, 2009 and 2008, respectively
(Note 29).

Debt Issue Costs

Debt issue costs are considered as an adjustment to the effective yield of the related debt
and are deferred and amortized using the effective interest rate method. When a loan is
paid, the related unamortized debt issue costs at the date of repayment are charged
against current operations.

Derivative Financial Instruments and Hedging

Freestanding Derivatives
For the purpose of hedge accounting, hedges are classified as either: a) fair value hedges
when hedging the exposure to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment (except for foreign currency risk); b) cash flow
hedges when hedging exposure to variability in cash flows that is either attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecast
transaction or the foreign currency risk in an unrecognized firm commitment; or
c) hedges of a net investment in foreign operations.

At the inception of a hedge relationship, the Group formally designates and documents
the hedge relationship to which the Group wishes to apply hedge accounting and the risk
management objective and strategy for undertaking the hedge. The documentation
includes identification of the hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the entity will assess the hedging instrument’s
effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash
flows attributable to the hedged risk. Such hedges are expected to be highly effective in
achieving offsetting changes in fair value or cash flows and are assessed on an on-going
basis to determine that they actually have been highly effective throughout the financial
reporting periods for which they were designated.

- 11 -
Fair Value Hedge. Derivatives classified as fair value hedges are carried at fair value
with corresponding change in fair value recognized in the consolidated statements of
income. The carrying amount of the hedged asset or liability is also adjusted for changes
in fair value attributable to the hedged item and the gain or loss associated with that
remeasurement is also recognized in the consolidated statements of income.

When the hedge ceases to be highly effective, hedge accounting is discontinued and the
adjustment to the carrying amount of a hedged financial instrument is amortized
immediately.

For fair value hedges relating to items carried at amortized cost, the adjustment to
carrying value is amortized through the consolidated statements of income over the
remaining term of maturity. Amortization may begin as soon as an adjustment exists and
shall begin no later than when the hedged items cease to be adjusted for changes in its
fair value attributable to the risk being hedged.

The Group discontinues fair value hedge accounting if the hedging instrument expires, is
sold, terminated or exercised, the hedge no longer meets the criteria for hedge accounting
or the Group revokes the designation.

As of December 31, 2009 and 2008, the Group has no outstanding derivatives accounted
for as fair value hedges.

Cash Flow Hedge. Changes in the fair value of a hedging instrument that qualifies as a
highly effective cash flow hedge are recognized in the consolidated statements of
comprehensive income. The ineffective portion is immediately recognized in the
consolidated statements of income.

If the hedged cash flow results in the recognition of an asset or a liability, all gains and
losses previously recognized as part of other comprehensive income are transferred from
equity and included in the initial measurement of the cost or carrying value of the asset or
liability. Otherwise, for all other cash flow hedges, gains and losses initially recognized
in equity are transferred from equity to net income in the same period or periods during
which the hedged forecasted transaction or recognized asset or liability affect the
consolidated statements of income.

When the hedge ceases to be highly effective, hedge accounting is discontinued

prospectively. The cumulative gain or loss on the hedging instrument that has been
reported as part of other comprehensive income is retained in equity until the forecasted
transaction occurs. When the forecasted transaction is no longer expected to occur, any
net cumulative gain or loss previously reported in equity is recognized in the
consolidated statements of income.

As of December 31, 2009, the Group has no outstanding commodity options accounted
for as cash flow hedge.

As of December 31, 2008, the Group has outstanding commodity options accounted for
as cash flow hedge.

&et Investment Hedge. As of December 31, 2009 and 2008, the Group has no hedge of a
net investment in a foreign operation.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from
changes in fair value of derivatives are taken directly to profit or loss during the year
incurred.

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Embedded Derivatives
The Group assesses whether embedded derivatives are required to be separated from host
contracts when the Group becomes a party to the contract.

An embedded derivative is separated from the host contract and accounted for as a
derivative if all of the following conditions are met: a) the economic characteristics and
risks of the embedded derivative are not closely related to the economic characteristics
and risks of the host contract; b) a separate instrument with the same terms as the
embedded derivative would meet the definition of a derivative; and c) the hybrid or
combined instrument is not recognized at fair value through profit or loss. Reassessment
only occurs if there is a change in the terms of the contract that significantly modifies the
cash flows that would otherwise be required.

Derecognition of Financial Assets and Liabilities

Financial Assets. A financial asset (or, where applicable, a part of a financial asset or part
of a group of similar financial assets) is derecognized when:

the rights to receive cash flows from the asset have expired;

the Group retains the right to receive cash flows from the asset, but has assumed an
obligation to pay them in full without material delay to a third party under a ‘pass-
through’ arrangement; or

the Group has transferred its rights to receive cash flows from the asset and either
(a) has transferred substantially all the risks and rewards of the asset, or (b) has
neither transferred nor retained substantially all the risks and rewards of the asset, but
has transferred control of the asset.

When the Group has transferred its rights to receive cash flows from an asset and has
neither transferred nor retained substantially all the risks and rewards of the asset, nor
transferred control of the asset, the asset is recognized to the extent of the Group’s
continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the original carrying
amount of the asset and the maximum amount of consideration that the Group could be
required to pay.

Financial Liabilities. A financial liability is derecognized when the obligation under the
liability is discharged or cancelled or expired. When an existing financial liability is
replaced by another from the same lender on substantially different terms, or the terms of
an existing liability are substantially modified, such an exchange or modification is
treated as a derecognition of the original liability and the recognition of a new liability,
and the difference in the respective carrying amounts is recognized in the consolidated
statements of income.

Impairment of Financial Assets

The Group assesses at reporting date whether a financial asset or group of financial assets
is impaired.

A financial asset or a group of financial assets is deemed to be impaired if, and only if,
there is objective evidence of impairment as a result of one or more events that have
occurred after the initial recognition of the asset (an incurred loss event) and that loss
event has an impact on the estimated future cash flows of the financial asset or the group
of financial assets that can be reliably estimated.

- 13 -
Assets Carried at Amortized Cost. For assets carried at amortized cost such as loans and
receivables, the Group first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, or individually or
collectively for financial assets that are not individually significant. If no objective
evidence of impairment has been identified for a particular financial asset that was
individually assessed, the Group includes the asset as part of a group of financial assets
pooled according to their credit risk characteristics and collectively assesses the group for
impairment. Assets that are individually assessed for impairment and for which an
impairment loss is, or continues to be, recognized are not included in the collective
impairment assessment.

Evidence of impairment for specific impairment purposes may include indications that
the borrower or a group of borrowers is experiencing financial difficulty, default or
delinquency in principal or interest payments, or may enter into bankruptcy or other form
of financial reorganization intended to alleviate the financial condition of the borrower.
For collective impairment purposes, evidence of impairment may include observable data
on existing economic conditions or industry-wide developments indicating that there is a
measurable decrease in the estimated future cash flows of the related assets.

If there is objective evidence of impairment, the amount of loss is measured as the

difference between the asset’s carrying amount and the present value of estimated future
cash flows (excluding future credit losses) discounted at the financial asset’s original
effective interest rate (i.e., the effective interest rate computed at initial recognition).
Time value is generally not considered when the effect of discounting the cash flows is
not material. If a loan or receivable has a variable rate, the discount rate for measuring
any impairment loss is the current effective interest rate, adjusted for the original credit
risk premium. For collective impairment purposes, impairment loss is computed for the
risk groups based on their respective default and historical loss experience.

The carrying amount of the asset shall be reduced either directly or through use of an
allowance account. The impairment loss for the period shall be recognized in the
consolidated statements of income. If, in a subsequent period, the amount of the
impairment loss decreases and the decrease can be related objectively to an event
occurring after the impairment was recognized, the previously recognized impairment
loss is reversed. Any subsequent reversal of an impairment loss is recognized in the
consolidated statements of income, to the extent that the carrying value of the asset does
not exceed its amortized cost at the reversal date.

AFS Financial Assets. If an AFS financial asset is impaired, an amount comprising the
difference between the cost (net of any principal payment and amortization) and its
current fair value, less any impairment loss on that financial asset previously recognized
in the consolidated statements of income, is transferred from equity to the consolidated
statements of income. Reversals in respect of equity instruments classified as AFS are not
recognized in profit or loss. Reversals of impairment losses on debt instruments are
reversed through profit or loss, if the increase in fair value of the instrument can be
objectively related to an event occurring after the impairment loss was recognized in the
consolidated statements of income.

In the case of an unquoted equity instrument or of a derivative asset linked to and must
be settled by delivery of an unquoted equity instrument, for which its fair value cannot be
reliably measured, the amount of the loss is measured as the difference between the
asset’s carrying amount and the present value of estimated future cash flows from the
asset discounted using its historical effective rate of return on the asset.

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Classification of Financial Instruments Between Debt and Equity
From the perspective of the issuer, a financial instrument is classified as a debt
instrument if it provides for a contractual obligation to:

deliver cash or another financial asset to another entity; or

exchange financial assets or financial liabilities with another entity under

conditions that are potentially unfavorable to the Group; or

satisfy the obligation other than by the exchange of a fixed amount of cash or
another financial asset for a fixed number of own equity shares.

If the Group does not have an unconditional right to avoid delivering cash or another
financial asset to settle its contractual obligation, the obligation meets the definition of a
financial liability.

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the
consolidated statements of financial position if, and only if, there is a currently
enforceable legal right to offset the recognized amounts and there is an intention to settle
on a net basis, or to realize the asset and settle the liability simultaneously. This is not
generally the case with master netting agreements, and the related assets and liabilities
are presented at gross in the consolidated statements of financial position.

Inventories
Inventories are valued at the lower of cost and net realizable value.

Costs incurred in bringing each inventory to its present location and condition are
accounted for as follows:

Finished goods and goods in
process
Raw materials, feeds, feed
ingredients, factory supplies
and others
- cost includes direct materials and labor
and a proportion of manufacturing
overhead costs based on normal
operating capacity but excluding
borrowing costs; costs are determined
using the moving average method;
- at cost using the moving average
method

Net realizable value of finished goods and goods in process is the estimated selling price
in the ordinary course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.

Net realizable value of raw materials, feeds, feed ingredients, factory supplies and others
is the current replacement cost.

Biological Assets and Agricultural Produce

The Group’s biological assets include breeding, growing poultry livestock, hogs and
cattle and goods in process which are grouped according to their physical state,
transformation capacity (breeding, growing or laying), as well as their particular stage in
the production process.

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Growing hogs, cattle and poultry livestock and goods in process are carried at
accumulated costs while breeding stocks are carried at accumulated costs, net of
amortization and any impairment in value. The costs and expenses incurred up to the
start of the productive stage are accumulated and amortized over the estimated productive
lives of the breeding stocks. The Group uses this method of valuation since fair value
cannot be measured reliably. The Group’s biological assets have no active market and no
active market for similar assets prior to point of harvest are available in the Philippine
poultry and hog industries. Further, the existing sector benchmarks are determined to be
irrelevant and the estimates (i.e., revenues due to highly volatile prices, input costs,
efficiency values, production) necessary to compute for the present value of expected net
cash flows comprise a wide range of data which will not result to a reliable basis for
determining the fair value.

The carrying values of the biological assets are reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable.

The Group’s agricultural produce, which consists of grown broilers and marketable hogs
and cattle harvested from the Group’s biological assets, are measured at their fair value
less estimated costs to sell at the point of harvest. The fair value of grown broilers is
based on the quoted prices for harvested mature grown broilers in the market at the time
of harvest. For marketable hogs and cattle, the fair value is based on the quoted prices in
the market at any given time.

The Group in general, does not carry any inventory of agricultural produce at any given
time as these are either sold as live broilers, hogs and cattle or transferred to the different
poultry or meat processing plants and immediately transformed into processed or dressed
chicken and carcass.

Amortization is computed using straight-line method over the following estimated

productive lives of breeding stocks:

Number of Years
Hogs - sow 3 years or 6 births,
whichever is shorter
Hogs - boar 2.5 - 3 years
Cattle 2.5 - 3 years
Poultry breeding stock 40 - 44 weeks

Interest in Joint Venture

The Group recognizes its interest in the joint venture using proportionate consolidation.
The Group combines its share in each of the assets, liabilities, income and expenses of
the joint venture with similar items, line by line, in its consolidated financial statements.
The financial statements of the joint venture are prepared for the same reporting period as
the Parent Company, using uniform accounting policies for like transactions and other
events in similar circumstances. Adjustments are made to bring into line any dissimilar
accounting policies that may exist.

The joint venture is proportionately consolidated until the date when the Group ceases to
have joint control over the joint venture.

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Investment Properties
Investment properties consist of land and buildings held to earn rentals and/or for capital
appreciation. Buildings are measured at cost less accumulated depreciation and any
impairment in value. The carrying amount of buildings includes the cost of replacing
part of an existing investment property at the time the cost is incurred, if the recognition
criteria are met, and excludes the costs of day-to-day servicing of an investment property.
Land is stated at cost less any impairment in value.

Depreciation on buildings is computed using the straight-line method over 20 to 40 years.

Investment property is derecognized either when it has been disposed of or when it is

permanently withdrawn from use and no future economic benefit is expected from its
disposal. Any gains and losses on the retirement and disposal of investment property are
recognized in the consolidated statements of income in the period of retirement or
disposal.

Transfers are made to investment property when, and only when, there is a change in use,
evidenced by ending of the owner’s occupation or commencement of an operating lease
to another party. Transfers are made from investment property when, and only when,
there is a change in use, evidenced by commencement of the Group’s occupation or
commencement of development with a view to sale.

For a transfer from investment property to owner-occupied property or inventories, the

cost of property for subsequent accounting is its carrying value at the date of change in
use. If the property occupied by the Group as an owner-occupied property becomes an
investment property, the Group accounts for such property in accordance with the policy
stated under property, plant and equipment up to the date of change in use.

Property, Plant and Equipment

Property, plant and equipment, except land, are stated at cost less accumulated
depreciation and any impairment in value. Such cost includes the cost of replacing part of
the property, plant and equipment at the time that cost is incurred, if the recognition
criteria are met, and excludes the costs of day-to-day servicing. Land is stated at cost less
any impairment in value.

The initial cost of property, plant and equipment comprises of its construction cost or
purchase price, including import duties, taxes and any directly attributable costs in
bringing the asset to its working condition and location for its intended use. Cost also
includes any related asset retirement obligation and interest incurred during the
construction period on funds borrowed to finance the construction of the projects.
Expenditures incurred after the asset has been put into operation, such as repairs,
maintenance and overhaul costs, are normally recognized as expense in the period the
costs are incurred. Major repairs are capitalized as part of property, plant and equipment
only when it is probable that future economic benefits associated with the items will flow
to the Group and the cost of the items can be measured reliably.

Construction in progress represents structures under construction and is stated at cost.

This includes the costs of construction and other direct costs. Borrowing costs that are
directly attributable to the construction of property, plant and equipment are capitalized
during the construction period. Construction in progress is not depreciated until such
time that the relevant assets are ready for use.

- 17 -
Depreciation is computed using the straight-line method over the following estimated
useful lives of the assets:

Number of Years
Land improvements 5 - 10
Buildings and improvements 5 - 50
Machinery and equipment 5 - 20
Office furniture and equipment 3-5
Transportation equipment 5
Factory furniture, equipment and others 3-5

The remaining useful lives, residual values and depreciation method are reviewed and
adjusted, if appropriate, periodically to ensure that such periods and method of
depreciation are consistent with the expected pattern of economic benefits from the items
of property, plant and equipment.

The carrying values of property, plant and equipment are reviewed for impairment when
events or changes in circumstances indicate that the carrying value may not be
recoverable.

Fully depreciated assets are retained in the accounts until they are no longer in use and no
further depreciation is credited or charged to current operations.

An item of property, plant and equipment is derecognized when either it has been
disposed of or when it is permanently withdrawn from use and no future economic
benefits are expected from its use or disposal. Any gain or loss arising on the retirement
and disposal of an item of property, plant and equipment (calculated as the difference
between the net disposal proceeds and the carrying amount of the asset) is included in the
consolidated statements of income in the period of retirement or disposal.

Business Combinations
Business combinations are accounted for using the purchase method of accounting. The
cost of acquisition is the aggregate of the fair values, at the date of exchange of assets
given, liabilities incurred or assumed and equity instruments issued by the acquirer, in
exchange for control over the net assets of the acquired company, plus any directly
attributable costs. The identifiable assets, liabilities and contingent liabilities that satisfy
certain recognition criteria have to be measured initially at their fair values at acquisition
date, irrespective of the extent of any non-controlling interests.

Transfers of assets between commonly controlled entities are accounted for under
historical cost accounting.

When a business combination involves more than one exchange transaction (occurs in
stages), each exchange transaction is treated separately by the Group, using the cost of
the transaction and fair value information at the date of each exchange transaction, to
determine the amount of goodwill associated with that transaction. Any adjustment to
fair values relating to the previously held interest is a revaluation and is accounted for as
such.

When subsidiaries are sold, the difference between the selling price and the net assets
plus goodwill is recognized in the consolidated statements of income.

- 18 -
Goodwill
Goodwill acquired in a business combination is initially measured at cost being the
excess of the cost of the business combination over the Group’s interest in the net fair
value of the acquiree’s identifiable assets, liabilities and contingent liabilities.
Subsequently, goodwill is measured at cost less any accumulated impairment in value.
Goodwill is reviewed for impairment, annually or more frequently, if events or changes
in circumstances indicate that the carrying value may be impaired.

For the purpose of impairment testing, goodwill acquired in a business combination is,
from the acquisition date, allocated to each of the Group’s cash-generating units, or
groups of cash-generating units that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities of the Group are assigned
to those units or groups of units. Each unit or group of units to which the goodwill is so
allocated:

represents the lowest level within the Group at which the goodwill is monitored
for internal management purposes; and

is not larger than an operating segment determined in accordance with PFRS 8,

Operating Segments.

Impairment is determined by assessing the recoverable amount of the cash-generating

unit or group of cash-generating units, to which the goodwill relates. Where the
recoverable amount of the cash-generating unit or group of cash-generating units is less
than the carrying amount, an impairment loss is recognized. Where goodwill forms part
of a cash-generating unit or group of cash-generating units and part of the operation
within that unit is disposed of, the goodwill associated with the operation disposed of is
included in the carrying amount of the operation when determining the gain or loss on
disposal of the operation. Goodwill disposed of in this circumstance is measured based
on the relative values of the operation disposed of and the portion of the cash-generating
unit retained. An impairment loss with respect to goodwill is not reversed.

When the Group acquires a business, embedded derivatives separated from the host
contract by the acquiree are not reassessed on acquisition unless the business
combination results in a change in the terms of the contract that significantly modifies the
cash flows that would otherwise be required under the contract.

Negative goodwill which is not in excess of the fair values of acquired identifiable
nonmonetary assets of subsidiaries and associates is charged directly to income.

Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost
of intangible assets acquired in a business combination is its fair value as at the date of
acquisition. Subsequently, intangible assets are carried at cost less any accumulated
amortization and accumulated impairment losses, if any. Internally generated intangible
assets, excluding capitalized development costs, are not capitalized and expenditure is
charged against profits in the year in which the expenditure is incurred. The useful lives
of intangible assets are assessed to be either finite or indefinite.

- 19 -
Intangible assets with finite lives are amortized over the useful economic life and
assessed for impairment whenever there is an indication that the intangible asset may be
impaired. The amortization period and amortization method used for an intangible asset
with a finite useful life are reviewed at least at each reporting date. Changes in the
expected useful life or the expected pattern of consumption of future economic benefits
embodied in the asset is accounted for by changing the amortization period or method, as
appropriate, and treated as changes in accounting estimates. The amortization expense
on intangible assets with finite lives is recognized in the consolidated statements of
income in the expense category consistent with the function of the intangible asset.

Amortization of computer software and licenses is computed using the straight-line

method over the estimated useful life of 2 to 8 years.

Trademarks and formulas and recipes with indefinite useful lives are tested for
impairment annually either individually or at the cash-generating unit level. Such
intangibles are not amortized. The useful life of an intangible asset with an indefinite life
is reviewed annually to determine whether indefinite life assessment continues to be
supportable. If not, the change in the useful life assessment from indefinite to finite is
made on a prospective basis.

Gains or losses arising from disposal of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are
recognized in the consolidated statements of income when the asset is derecognized.

Impairment of Other Non-financial Assets

The carrying values of investments and advances, property, plant and equipment,
investment properties, biological assets, other intangible assets with definite useful lives,
and idle assets, included under retirement and other noncurrent assets, are reviewed for
impairment when events or changes in circumstances indicate that the carrying value may
not be recoverable. If any such indication exists, and if the carrying value exceeds the
estimated recoverable amount, the assets or cash-generating units are written down to
their recoverable amounts. The recoverable amount of the asset is the greater of fair
value less costs to sell or value in use. The fair value less costs to sell is the amount
obtainable from the sale of an asset in an arm’s-length transaction between
knowledgeable, willing parties, less costs of disposal. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessment of the time value of money and the risks
specific to the asset. For an asset that does not generate largely independent cash
inflows, the recoverable amount is determined for the cash-generating unit to which the
asset belongs. Impairment losses of continuing operations are recognized in the
consolidated statements of income in those expense categories consistent with the
function of the impaired asset.

An assessment is made at each reporting date as to whether there is any indication that
previously recognized impairment losses may no longer exist or may have decreased. If
such indication exists, the recoverable amount is estimated. A previously recognized
impairment loss is reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment loss was recognized.
If that is the case, the carrying amount of the asset is increased to its recoverable amount.
That increased amount cannot exceed the carrying amount that would have been
determined, net of depreciation and amortization, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in profit or loss.
After such a reversal, the depreciation and amortization charge is adjusted in future
periods to allocate the asset’s revised carrying amount, less any residual value, on a
systematic basis over its remaining useful life.

- 20 -
Provisions
Provisions are recognized when the Group has (a) a present obligation (legal or
constructive) as a result of a past event; (b) it is probable ( i.e., more likely than not) that
an outflow of resources embodying economic benefits will be required to settle the
obligation; and (c) a reliable estimate can be made of the amount of the obligation. If the
effect of the time value of money is material, provisions are determined by discounting
the expected future cash flows at a pre-tax rate that reflects current market assessment of
the time value of money and, where appropriate, the risks specific to the liability. Where
discounting is used, the increase in the provision due to the passage of time is recognized
as interest expense. Where the Group expects a provision to be reimbursed, the
reimbursement is recognized as a separate asset but only when the receipt of the
reimbursement is virtually certain. Provisions are reviewed at each reporting date and
adjusted to reflect the current best estimate.

Share Capital
Common Shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the
issue of ordinary shares and share options are recognized as a deduction from equity, net
of any tax effects.

Treasury Shares
Own equity instruments which are reacquired are carried at cost and are deducted from
equity. No gain or loss is recognized on the purchase, sale, issue or cancellation of the
Group’s own equity instruments. When the shares are retired, the capital stock account is
reduced by its par value and the excess of cost over par value upon retirement is debited
to additional paid-in capital to the extent of the specific or average additional paid-in
capital when the shares were issued and to retained earnings for the remaining balance.

Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will
flow to the Group and the revenue can be reliably measured. The following specific
recognition criteria must also be met before revenue is recognized:

Sales. Revenue from the sale of goods in the course of ordinary activities is measured at
the fair value of the consideration received or receivable, net of returns, trade discounts
and volume rebates. Revenue is recognized when the significant risks and rewards of
ownership of the goods have passed to the buyer and the amount of revenue can be
measured reliably, which is normally upon delivery.

Agricultural Produce. Revenue from initial recognition of agricultural produce is

measured at fair value less estimated costs to sell at the point of harvest. Fair value is
based on the relevant market price at point of harvest.

Interest. Revenue is recognized as the interest accrues, taking into account the effective
yield on the asset.

Dividend. Revenue is recognized when the Group’s right as a shareholder to receive the
payment is established.

Gain or Loss on Sale of Investments in Shares of Stock. Gain or loss is recognized if the
Group disposes of its investment in a subsidiary or joint venture. Gain or loss is
computed as the difference between the proceeds of the disposed investments and its
carrying amount, including the carrying amount of goodwill, if any.

- 21 -
Rent. Revenue from investment properties is recognized on a straight-line basis over the
lease term or based on the terms of the lease, as applicable. Rent income is included as
part of other income.

Cost and Expense Recognition

Cost and expenses are recognized in the consolidated statements of income upon receipt
of goods, utilization of services or at the date they are incurred.

Share-based Transactions
Under SMC’s Employee Stock Purchase Plan (ESPP), employees of the Group receive
remuneration in the form of share-based payments transactions, whereby the employees
render services as consideration for equity instruments of SMC. Such transactions are
handled centrally by SMC.

Share-based transactions in which SMC grants option rights to its equity instruments
direct to the Group’s employees are accounted for as equity-settled transactions. SMC
charges the Group for the costs related to such transactions with its employees. The
amount is charged to operations by the Group.

The cost of ESPP is measured by reference to the market price at the time of the grant
less subscription price. The cumulative expense recognized for share-based transactions
at each reporting date until the vesting date reflects the extent to which the vesting period
has expired and SMC’s best estimate of the number of equity instruments that will
ultimately vest. Where the terms of a share-based award are modified, as a minimum, an
expense is recognized as if the terms had not been modified. In addition, an expense is
recognized for any modification, which increases the total fair value of the share-based
payment arrangement, or is otherwise beneficial to the employee as measured at the date
of modification. Where an equity-settled award is cancelled, it is treated as if it had
vested on the date of cancellation, and any expense not yet recognized for the award is
recognized immediately. However, if a new award is substituted for the cancelled award,
and designated as a replacement award on the date that it is granted, the cancelled and
new awards are treated as if they were a modification of the original award.

Operating Leases
Leases where the lessor retains substantially all the risks and benefits of ownership of the
asset are classified as operating leases. Operating lease payments are recognized as an
expense in the consolidated statements of income on a straight-line basis over the lease
term. Associated costs such as maintenance and insurance are expensed as incurred.

Borrowing Costs
Borrowing costs are capitalized if they are directly attributable to the acquisition or
construction of a qualifying asset. Capitalization of borrowing costs commences when
the activities to prepare the asset are in progress and expenditures and borrowing costs
are being incurred. Borrowing costs are capitalized until the assets are substantially
ready for their intended use. If the carrying amount of the asset exceeds its recoverable
amount, an impairment loss is recognized.

Research and Development Costs

Research costs are expensed as incurred. Development costs incurred on an individual
project are carried forward when their future recoverability can reasonably be regarded as
assured. Any expenditure carried forward is amortized in line with the expected future
sales from the related project.

- 22 -
The carrying value of development costs is reviewed for impairment annually when the
related asset is not yet in use. Otherwise, this is reviewed for impairment when events or
changes in circumstances indicate that the carrying value may not be recoverable.

Retirement Costs
The Company and majority of its subsidiaries have separate funded, noncontributory
retirement plans, administered by the respective trustees, covering their respective
permanent employees. Retirement costs are actuarially determined using the projected
unit credit method. This method reflects service rendered by employees up to the date of
valuation and incorporates assumptions concerning employees’ projected salaries.
Retirement cost includes current service cost, interest cost, expected return on plan
assets, amortization of unrecognized past service costs, recognition of actuarial gains and
losses, and effect of any curtailments or settlements. Past service cost is recognized as an
expense on a straight-line basis over the average period until the benefits become vested.
If the benefits are already vested immediately following the introduction of, or changes to
the plan, past service cost is recognized immediately as an expense. Actuarial gains and
losses are recognized as income or expense when the net cumulative unrecognized
actuarial gains and losses at the end of the previous reporting year exceed the greater of
10% of present value of the defined benefit obligation or the fair value of plan assets at
that date. These gains or losses are recognized over the expected average remaining
working lives of the employees participating in the plan.

The transitional liability as of January 1, 2005, the date of adoption of PAS 19, Employee
Benefits, is recognized as an expense over five years from date of adoption.

The defined benefit liability is the aggregate of the present value of the defined benefit
obligation and actuarial gains and losses not recognized, reduced by past service cost not
yet recognized and the fair value of plan assets out of which the obligations are to be
settled directly. If such aggregate is negative, the resulting asset is measured at the lower
of such aggregate or the aggregate of cumulative unrecognized net actuarial losses and
past service cost and the present value of any economic benefits available in the form of
refunds from the plan or reductions in the future contributions to the plan.

If the asset is measured at the aggregate of cumulative unrecognized net actuarial losses
and past service cost and the present value of any economic benefits available in the form
of refunds from the plan or reductions in the future contributions to the plan, net actuarial
losses of the current period and past service cost of the current period are recognized
immediately to the extent that they exceed any reduction in the present value of those
economic benefits. If there is no change or an increase in the present value of the
economic benefits, the entire net actuarial losses of the current period and past service
cost of the current period are recognized immediately. Similarly, net actuarial gains of
the current period after the deduction of past service cost of the current period exceeding
any increase in the present value of the economic benefits stated above are recognized
immediately if the asset is measured at the aggregate of cumulative unrecognized net
actuarial losses and past service cost and the present value of any economic benefits
available in the form of refunds from the plan or reductions in the future contributions to
the plan. If there is no change or a decrease in the present value of the economic
benefits, the entire net actuarial gains of the current period after the deduction of past
service cost of the current period are recognized immediately.

- 23 -
Foreign Currency Transactions and Translations
The consolidated financial statements are presented in Philippine peso, which is the
Company’s functional currency. Each entity in the Group determines its own functional
currency and items included in the financial statements of each entity are measured using
that functional currency. Transactions in foreign currencies are initially recorded in the
functional currency rate at the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are restated at the functional currency rate of exchange
at reporting date. All differences are taken to the consolidated statements of income.
Nonmonetary items that are measured in terms of historical cost in foreign currency are
translated using the exchange rates as at the dates of the initial transactions.
Nonmonetary items measured at fair value in foreign currency are translated using the
exchange rates at the date when the fair value was determined.

Foreign currency gains and losses are reported on a net basis.

The functional currency of PTSMPFI is the Indonesian rupiah. As at the reporting date,
the assets and liabilities of this subsidiary are translated into the presentation currency of
the Company at the rate of exchange ruling at the reporting date and its income and
expense accounts are translated at the monthly weighted average exchange rates for the
year. The resulting translation differences are included in the consolidated statements of
comprehensive income.

On disposal of a foreign subsidiary, the accumulated exchange differences are recognized

in the consolidated statements of income as a component of the gain or loss on disposal.

Taxes
Current Tax. Current tax assets and liabilities are measured at the amount expected to be
recovered from or paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted at reporting date.

Deferred Tax. Deferred income tax is provided using the balance sheet liability method
on all temporary differences at the reporting date between the tax bases of assets and
liabilities and their carrying amounts for financial reporting purposes. Deferred tax
liabilities are recognized for all taxable temporary differences, except:

where the deferred tax liability arises from the initial recognition of goodwill or of an
asset or liability in a transaction that is not a business combination and, at the time of
the transaction, affects neither the accounting profit nor taxable profit or loss; and

with respect to taxable temporary differences associated with investments in

subsidiaries, associates and interests in joint ventures, where the timing of the
reversal of the temporary differences can be controlled and it is probable that the
temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward
benefits of unused tax credits - Minimum Corporate Income Tax (MCIT) and unused tax
losses - Net Operating Loss Carry Over (NOLCO), to the extent that it is probable that
taxable profit will be available against which the deductible temporary differences, and
the carryforward benefits of MCIT and NOLCO can be utilized, except:

where the deferred tax asset relating to the deductible temporary difference arises
from the initial recognition of an asset or liability in a transaction that is not a
business combination and, at the time of the transaction, affects neither the
accounting profit nor taxable profit or loss; and

- 24 -

with respect to deductible temporary differences associated with investments in
subsidiaries, associates and interests in joint ventures, deferred tax assets are
recognized only to the extent that it is probable that the temporary differences will
reverse in the foreseeable future and taxable profit will be available against which the
temporary differences can be utilized.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced
to the extent that it is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets
are reassessed at each reporting date and are recognized to the extent that it has become
probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply
in the year when the asset is realized or the liability is settled, based on tax rates (and tax
laws) that have been enacted or substantively enacted at reporting date.

Income tax relating to items recognized directly in equity is recognized in the

consolidated statements of comprehensive income and not in the consolidated statements
of income.

Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right
exists to set off current tax assets against current tax liabilities and the deferred taxes
relate to the same taxable entity and the same taxation authority.

Value-added Tax (VAT). Revenues, expenses and assets are recognized net of the amount
of VAT, except:

where the tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the tax is recognized as part of the cost of
acquisition of the asset or as part of the expense item as applicable; and

receivables and payables that are stated with the amount of tax included.

The net amount of tax recoverable from, or payable to, the taxation authority is included
as part of receivables or payables in the consolidated statements of financial position.

Related Parties
Parties are considered to be related if one party has the ability, directly or indirectly, to
control the other party or exercise significant influence over the other party in making
financial and operating decisions. Parties are also considered to be related if they are
subject to common control. Related parties may be individuals or corporate entities.
Transactions between related parties are on an arm’s length basis in a manner similar to
transactions with non-related parties.

Basic and Diluted Earnings Per Share (EPS)

Basic and diluted EPS is computed by dividing the net income for the period attributable
to equity holders of the Company by the weighted average number of issued and
outstanding common shares during the period, with retroactive adjustments for any stock
dividends declared.

- 25 -
 Operating Segments
The Group’s operating segments are organized and managed separately according to the
nature of the products and services provided, with each segment representing a strategic
business unit that offers different products and serves different markets. Financial
information on operating segments is presented in Note 5 to the consolidated financial
statements.

Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They
are disclosed unless the possibility of an outflow of resources embodying economic
benefits is remote. Contingent assets are not recognized in the consolidated financial
statements but are disclosed when an inflow of economic benefits is probable.

Subsequent Events
Post-year end events that provide additional information about the Group’s position at
reporting date (adjusting events) are reflected in the consolidated financial statements.
Post-year end events that are not adjusting events are disclosed in the notes to the
consolidated financial statements when material.

4. Significant Accounting Judgments, Estimates and Assumptions

The Group’s consolidated financial statements prepared in accordance with PFRS

requires management to make judgments, estimates and assumptions that affect amounts
reported in the consolidated financial statements and related notes, at the reporting date.
However, uncertainty about these estimates and assumptions could result in outcome that
could require a material adjustment to the carrying amount of the affected asset or
liability in the future.

Judgments
In the process of applying the Group’s accounting policies, management has made the
following judgments, apart from those involving estimation, which have the most
significant effect on the amounts recognized in the consolidated financial statements.

Operating Leases. The Group has entered into various lease agreements as a lessee. The
Group has determined that the lessor retains all significant risks and rewards of
ownership of these properties which are leased out under operating lease arrangements.

Rent expense charged to operations amounted to P659.3 million, P662.5 million and
P597.0 million in 2009, 2008 and 2007, respectively (Notes 18, 19 and 27).

Contingencies. The Group currently has several tax assessments and legal claims. The
Group’s estimate of the probable costs for resolution of these assessments and claims has
been developed in consultation with in-house as well as outside counsel handling the
prosecution and defense of these cases and is based on an analysis of potential results.
The Group currently does not believe that these tax assessments and legal claims will
have a material adverse effect on the consolidated financial position and financial
performance. It is possible, however, that future financial performance could be
materially affected by changes in the estimates or in the effectiveness of strategies
relating to these proceedings (Note 31).

- 26 -
Estimates
The key estimates and assumptions used in the consolidated financial statements are
based upon management’s evaluation of relevant facts and circumstances as of the date
of the consolidated financial statements. Actual results could differ from those estimates.

Allowance for Impairment Losses on Trade and Other Receivables. Provisions are made
for specific and groups of accounts where objective evidence of impairment exists. The
Group evaluates these accounts on the basis of factors that affect the collectability of the
accounts. These factors include, but are not limited to, the length of the Group’s
relationship with the customers and counterparties, the customers’ current credit status
based on third party credit reports and known market forces, average age of accounts,
collection experience, and historical loss experience. The amount and timing of recorded
expenses for any period would differ if the Group made different judgments or utilized
different methodologies. An increase in allowance for impairment losses would increase
the recorded selling and administrative expenses and decrease current assets.

The allowance for impairment losses on trade and other receivables amounted to
P633.9 million and P610.9 million as of December 31, 2009 and 2008, respectively. The
carrying value of trade and other receivables amounted to P9,024.0 million and
P7,762.1 million as of December 31, 2009 and 2008, respectively (Note 7).

Allowance for Inventory Losses. The Group provides an allowance for inventory losses
whenever net realizable value of inventories becomes lower than cost due to damage,
physical deterioration, obsolescence, changes in price levels or other causes.

Estimates of net realizable value are based on the most reliable evidence available at the
time the estimates are made of the amount the inventories are expected to be realized.
These estimates take into consideration fluctuations of price or cost directly relating to
events occurring after the reporting date to the extent that such events confirm conditions
existing at the reporting date. The allowance account is reviewed periodically to reflect
the accurate valuation in the financial records.

The allowance for inventory losses amounted to P150.0 million and P143.7 million as of
December 31, 2009 and 2008, respectively. The carrying value of inventories as of
December 31, 2009 and 2008 amounted to P11,804.1 million and P11,804.8 million,
respectively (Note 8).

Estimated Useful Lives of Investment Properties and Property, Plant and Equipment.
The Group estimates the useful lives of investment properties and property, plant and
equipment based on the period over which the assets are expected to be available for use.
The estimated useful lives of the assets are reviewed periodically and are updated if
expectations differ from previous estimates due to physical wear and tear, technical or
commercial obsolescence and legal or other limits on the use of the assets.

In addition, estimation of the useful lives of investment properties and property, plant and
equipment is based on collective assessment of industry practice, internal technical
evaluation and experience with similar assets. It is possible, however, that future
financial performance could be materially affected by changes in estimates brought about
by changes in factors mentioned above. The amounts and timing of recorded expenses
for any period would be affected by changes in these factors and circumstances. A
reduction in the estimated useful lives of investment properties and property, plant and
equipment would increase recorded cost of sales and operating expenses and decrease
noncurrent assets.

- 27 -
Accumulated depreciation and impairment losses of investment properties and property,
plant and equipment amounted to P7,683.4 million and P7,233.3 million as of
December 31, 2009 and 2008, respectively. Investment properties and property, plant and
equipment, net of accumulated depreciation and impairment losses, amounted to
P8,402.7 million and P8,130.2 million as of December 31, 2009 and 2008, respectively
(Notes 11 and 12).

Estimated Useful Lives of Intangible Assets with Finite Lives. The useful lives of
intangible assets are assessed at the individual asset level as having either a finite or
indefinite life. Intangible assets are regarded to have an indefinite useful life when, based
on analysis of all of the relevant factors, there is no foreseeable limit to the period over
which the asset is expected to generate net cash inflows for the Group.

Intangible assets with finite useful life amounted to P77.4 million and P65.7 million as of
December 31, 2009 and 2008, respectively (Note 13).

Realizability of Deferred Tax Assets. The Group reviews its deferred tax assets at each
reporting date and reduces the carrying amount to the extent that it is no longer probable
that sufficient taxable profit will be available to allow all or part of the deferred tax asset
to be utilized. The Group’s assessment on the recognition of deferred tax assets on
deductible temporary difference and carry forward benefits of MCIT and NOLCO is
based on the projected taxable income in the subsequent periods.

Deferred tax assets amounted to P1,219.7 million and P1,096.3 million as of

December 31, 2009 and 2008, respectively (Note 23).

Impairment of Other &on-financial Assets. Except for intangible assets with indefinite
useful lives, PFRS requires that an impairment review be performed on investments and
advances, property, plant and equipment, investment properties, biological assets, other
intangible assets with definite useful lives and idle assets when events or changes in
circumstances indicate that the carrying value may not be recoverable. For intangible
assets with indefinite useful lives, impairment testing is performed on an annual basis.
Determining the net recoverable value of assets requires the estimation of cash flows
expected to be generated from the continued use and ultimate disposition of such assets.
While it is believed that the assumptions used in the estimation of fair values reflected in
the consolidated financial statements are appropriate and reasonable, significant changes
in these assumptions may materially affect the assessment of recoverable values and any
resulting impairment loss could have a material adverse impact on the financial
performance.

The aggregate amount of noncurrent biological assets, investment properties, property,

plant and equipment, goodwill and other intangible assets, and idle assets amounted to
P10,207.2 million and P9,572.7 million as of December 31, 2009 and 2008, respectively
(Notes 9, 11, 12 and 13).

Present Value of Defined Benefit Obligation. The present value of the retirement
obligations depends on a number of factors that are determined on an actuarial basis
using a number of assumptions. These assumptions are described in Note 24 to the
consolidated financial statements and include discount rate, expected return on plan
assets and salary increase rate. Actual results that differ from the assumptions are
accumulated and amortized over future periods and therefore, generally affect the
recognized expense and recorded obligation in such future periods.

- 28 -
The assumption of the expected return on plan assets is determined on a uniform basis,
taking into consideration the long-term historical returns, asset allocation and future
estimates of long-term investment returns.

The Group determines the appropriate discount rate at the end of each year. It is the
interest rate that should be used to determine the present value of estimated future cash
outflows expected to be required to settle the retirement obligations. In determining the
appropriate discount rate, the Group considers the interest rates on government bonds
that are denominated in the currency in which the benefits will be paid. The terms to
maturity of these bonds should approximate the terms of the related retirement liability.

Other key assumptions for retirement obligations are based in part on current market
conditions.

While it is believed that the Group’s assumptions are reasonable and appropriate,
significant differences in actual experience or significant changes in assumptions may
materially affect the Group’s retirement obligations.

The Group has a net cumulative unrecognized actuarial gain (loss) amounting to
P119.5 million and (P219.7 million) as of December 31, 2009 and 2008, respectively
(Note 24).

Fair Value of Agricultural Produce. The Group determines the fair value of its
agricultural produce based on most recent market transaction price provided that there
has been no significant change in economic circumstances between the date of
transactions and reporting date. Costs to sell are estimated based on most recent
transaction and are deducted from the fair value in order to measure agricultural produce
at point of harvest.

Unrealized gain (loss) on fair value adjustments included in the cost of inventories as of
December 31, 2009 and 2008 amounted to P62.7 million and (P2.0 million), respectively
(Note 8).

Financial Assets and Liabilities. The Group carries certain financial assets and liabilities
at fair value, which requires extensive use of accounting estimates and judgment. The
significant components of fair value measurement were determined using verifiable
objective evidence (i.e., foreign exchange rates, interest rates, volatility rates). However,
the amount of changes in fair value would differ if the Group utilized different valuation
methodologies and assumptions. Any changes in fair value of these financial assets and
liabilities would affect net income and equity.

The fair values of financial assets and liabilities are presented in Note 29.

Asset Retirement Obligation. Determining asset retirement obligation requires estimation

of the cost of dismantling property and equipment and other costs of restoring the leased
properties to their original condition. The Group determined that there are no significant
asset retirement obligations as of December 31, 2009 and 2008.

- 29 -
5. Segment Information

Operating Segments
The operating segment is determined as the reporting format as the Group’s risks and
rates of return are affected predominantly by differences in the products and services
produced. The operating businesses are organized and managed separately according to
the nature of the products produced and services provided, with each segment
representing a strategic business unit that offers different products and serves different
markets.

The Group has three reportable segments, namely, Agro-Industrial, Value-Added Meats
and Milling. Management identified and grouped the operating units in its operating
segments with the objective of transforming the Group into a more rationalized and
focused organization. The structure aims to boost efficiencies across the Group and raise
effectiveness in defining and meeting the needs of consumers in innovative ways.

The Agro-Industrial segment includes the integrated Feeds, Poultry and Basic Meats
operations. These businesses are involved in poultry and feeds production and selling,
and in livestock farming, processing and selling of basic meat products.

The Value-Added Meats segment is engaged in the processing and marketing of

refrigerated and canned meat products.

The Milling segment is into manufacturing and marketing of flour products, premixes,
and flour-based products.

The non-reportable operating segments of the Group include dairy-based products,

breadfill, desserts, cooking oil, importation and marketing of coffee and coffee-related
products and processed meats operation of a foreign subsidiary.

The Group does not have a single external customer, sales revenue generated from which
amounted to 10% or more of the total revenue of the Group.

Segment Assets and Liabilities

Segment assets include all operating assets used by a segment and consist principally of
operating cash, receivables, inventories, biological assets and property, plant and
equipment, net of allowances and accumulated depreciation and amortization. Segment
liabilities include all operating liabilities and consist principally of wages, taxes currently
payable and accrued liabilities. Segment assets and liabilities do not include deferred
income taxes.

Inter-segment Transactions
Segment revenues, expenses and performance include sales and purchases between
operating segments. Transfer prices between operating segments are set on an arm’s
length basis in a manner similar to transactions with third parties. Such transfers are
eliminated in consolidation.

- 30 -
Operating Segments

Financial information about reportable segments follow:

Agro-Industrial Value-Added Meats Milling Total Reportable Segments Others Eliminations Consolidated
2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007
(In Millions)
Revenue
External P49,069 P44,981 P39,099 P11,234 P11,566 P10,440 P7,482 P8,199 P6,133 P67,785 P64,746 P55,672 P7,258 P6,330 P6,380 P - P - P - P75,043 P71,076 P62,052
Inter-segment 711 379 471 47 1 8 447 485 24 1,205 865 503 233 370 550 (1,438) (1,235) (1,053) - - -
Total revenue P49,780 P45,360 P39,570 P11,281 P11,567 P10,448 P7,929 P8,684 P6,157 P68,990 P65,611 P56,175 P7,491 P6,700 P6,930 (P1,438) (P1,235) (P1,053) P75,043 P71,076 P62,052

Result
Segment operating result* P3,085 P1,601 P1,491 P489 P626 P554 P752 (P36) P558 P4,326 P2,191 P2,603 P333 (P266) P94 (P118) (P1) P10 P4,541 P1,924 P2,707
Interest expense and
financing charges (428) (492) (322) (188) (142) (130) (88) (113) (64) (704) (747) (516) (47) (84) (152) - - - (751) (831) (668)
Interest income 37 26 49 5 5 6 6 4 15 48 35 70 21 19 14 - - - 69 54 84
Gain (loss) on sale of
property and equipment 4 6 1 7 2 - (19) - 1 (8) 8 2 (10) 3 (20) (7) (8) - (25) 3 (18)
Other income (charges) -
net 2 (86) (67) (93) (183) 159 83 (166) 148 (8) (435) 240 16 762 2,413 - (859) (3,660) 8 (532) (1,007)
Income tax benefit
(expense) (720) (525) (418) (74) (85) (169) (220) 111 (230) (1,014) (499) (817) (166) 20 (111) (4) 10 12 (1,184) (469) (916)
et income P1,980 P530 P734 P146 P223 P420 P514 (P200) P428 P2,640 P553 P1,582 P147 P454 P2,238 (P129) (P858) (P3,638) P2,658 P149 P182

Other Information
Segment assets P21,588 P18,493 P16,857 P9,376 P9,277 P7,935 P3,505 P4,658 P4,091 P34,469 P32,428 P28,883 P10,053 P4,760 P5,409 (P5,904) (P1,609) (P2,213) P38,618 P35,579 P32,079
Goodwill and other
intangible assets 4 3 11 285 153 123 - - 1 289 156 135 1,367 1,367 1,384 (1,318) (1,196) (1,194) 338 327 325
Deferred tax assets - - - - - - - - - - - - - - - - - - 1,220 1,096 941
Consolidated total assets P40,176 P37,002 P33,345

Segment liabilities P9,075 P6,746 P6,560 P1,339 P1,535 P1,264 P785 P845 P735 P11,199 P9,126 P8,559 P7,470 P2,331 P2,895 (P5,820) (P1,529) (P2,263) P12,849 P9,928 P9,191
Notes payable - - - - - - - - - - - - - - - - - - 8,816 11,666 8,640
Income tax payable - - - - - - - - - - - - - - - - - - 467 209 350
Deferred tax liabilities - - - - - - - - - - - - - - - - - - 399 238 353
Consolidated total
liabilities P22,531 P22,041 P18,534

Capital expenditures P266 P259 P384 P210 P170 P232 P57 P87 P192 P533 P516 P808 P118 P78 P124 P - P - P - P651 P594 P932
Depreciation and
amortization 1,124 1,034 947 286 241 227 143 133 129 1,553 1,408 1,303 152 146 155 - - - 1,705 1,554 1,458
Impairment losses - - - 46 - - 8 - - 54 - - 3 5 - - - - 57 5 -
* Including realized mark-to-market gains (losses) on commodity derivatives presented as part of “Other Charges - &et” in the consolidated statements of income.

- 31 -
6. Cash and Cash Equivalents

This account consists of:

2009 2008
Cash on hand and in banks P3,240,212 P2,479,006
Short-term placements 710,134 303,200
P3,950,346 P2,782,206

Cash in banks earn interest at the respective bank deposit rates. Short-term placements
are made for varying periods of up to three months depending on the immediate cash
requirements of the Group, and earn interest at the respective short-term placement rates.

7. Trade and Other Receivables

This account consists of:

ote 2009 2008

Trade receivables 25 P7,323,462 P5,619,084
Amounts owed by related parties 25 254,376 2,042,497
Other receivables 2,080,017 711,397
9,657,855 8,372,978
Less allowance for impairment losses 633,902 610,887
P9,023,953 P7,762,091

Trade receivables are non-interest bearing and are generally on 30 days term.

Other receivables include P1,038 million claims from insurers mainly representing the
value of certain inventories and property, plant and equipment damaged by a typhoon.

The movements in the allowance for impairment losses follow:

2009 2008
Balance at beginning of year P610,887 P649,621
Charge for the year 113,762 39,640
Write off of amounts (84,771) (56,392)
Reversal of unused amounts (5,976) (21,982)
Balance at end of year P633,902 P610,887

As at December 31, the aging of receivables are as follows:

Gross Amount
2009 2008
Current P6,211,094 P5,378,262
Past due 1-30 days 1,058,538 1,262,791
Past due 31-60 days 100,653 170,991
Past due 61-90 days 545,023 127,116
Past due over 90 days 1,742,547 1,433,818
P9,657,855 P8,372,978

- 32 -
8. Inventories

This account consists of:

2009 2008
Finished goods and goods in process - at net
realizable value P3,081,429 P3,053,769
Raw materials, feeds and feed ingredients - at net
realizable value 8,572,674 8,399,003
Factory supplies and others - at cost 72,450 61,670
Materials in transit - at cost 77,546 290,346
Total inventories at lower of cost and net
realizable value P11,804,099 P11,804,788

The cost of finished goods and goods in process amounted to P3,168.3 million and
P3,125.6 million as of December 31, 2009 and 2008, respectively. The cost of raw
materials, feeds and feed ingredients amounted to P8,635.8 million and P8,470.8 million
as of December 31, 2009 and 2008, respectively.

Finished goods and goods in process include net unrealized gain of P62.7 million and net
unrealized loss of P2.0 million on fair valuation of agricultural produce as of
December 31, 2009 and 2008, respectively. The fair value of agricultural produce less
costs to sell, which formed part of finished goods inventory, amounted to P287.0 million
and P556.8 million as of December 31, 2009 and 2008, respectively, with corresponding
costs at point of harvest amounting to P224.3 million and P558.8 million, respectively.

9. Biological Assets

This account consists of:

2009 2008
Current:
Growing stocks P2,309,139 P2,707,025
Goods in process 215,371 225,396
Total Current 2,524,510 2,932,421
Noncurrent:
Breeding stocks - net 1,285,125 1,115,963
P3,809,635 P4,048,384

The amortization of breeding stocks charged to operations amounted to P854.1 million

and P736.9 million in 2009 and 2008, respectively (Note 20).

Growing stocks pertain to growing broilers, hogs and cattle and goods in process pertain
to hatching eggs and carcass.

- 33 -
 The movements in biological assets, including the effects of foreign exchange
adjustments are as follows:

2009 2008
Balance at beginning of year P4,048,384 P3,204,536
Increase (decrease) due to:
Purchases 13,390,005 11,732,401
Production 9,061,227 33,539,845
Mortality (533,373) (31,314)
Sales (5,345,293) (67,296)
Harvest (15,957,185) (43,592,866)
Amortization during the year (854,130) (736,922)
Balance at end of the year P3,809,635 P4,048,384

The Group harvested approximately 348.1 million and 322.9 million kilograms of grown
broilers in 2009 and 2008, respectively, and 0.68 million and 0.53 million heads of
marketable hogs and cattle in 2009 and 2008, respectively.

10. Investments and Advances

Investments in Subsidiaries

The following are the developments relating to the Company’s investments in

subsidiaries in 2009 and 2008:

a) In April 2009, Monterey, a majority-owned subsidiary of SMPFC, acquired the

subscription rights of certain individuals in Highbreed Livestock Corporation (HLC),
a Philippine company engaged in livestock farming, processing, selling meat
products (mainly pork and beef) and leasing of properties. As such, HLC became a
subsidiary of Monterey and was consolidated into SMPFC through Monterey. On
June 22, 2009, the respective BOD and stockholders of Monterey and HLC approved
the merger of HLC into Monterey, with Monterey as the surviving corporation. The
consideration of the assignment of the subscription, net of the effect of the merger,
amounted to P6.25 million. The SEC approved the merger on October 22, 2009. The
Bureau of Internal Revenue (BIR) confirmed the tax-free merger of HLC into
Monterey in its Certification No. S40-052-2009 dated December 18, 2009.

The fair value of the identifiable assets and liabilities of HLC at acquisition date are
as follows:

ote
Cash and cash equivalents P458
Trade and other receivables - net 14,983
Prepaid expenses and other current assets 13,139
Property, plant and equipment - net 12 925,854
Deferred tax assets 18,647
Trade payables and other current liabilities (966,831)
Net assets transferred P6,250

- 34 -
b) In July and September 2008, respectively, the Company paid as deposits for future
stock subscription, the amounts of P400 million for 283,687,943 Magnolia shares of
stock and P450 million for 22,500,000 Monterey shares of stock. In February 2009,
Magnolia’s application for increase in authorized capital stock was approved by
SEC. Following SEC’s approval, Magnolia issued the said 283,687,943 shares to
SMPFC out of its unissued shares and increase in authorized capital stock. As of
February 12, 2010, Monterey’s application for the increase in its authorized capital
stock is pending filing with SEC.

The Company’s total payment in 2008 of P850 million was presented as investments
and advances in the Parent Company’s statements of financial position as of
December 31, 2008.

c) In March 2007, SMMI’s application for increase in authorized capital stock from
P0.25 million (2,500 shares) to P2,000 million (20,000,000 shares) was approved by
the SEC. SMMI subsequently issued 16,457,310 shares to SMFI, then 100% owner
of SMMI, in consideration for the transfer of the net assets of SMFI’s Flour division
valued at P1,645.5 million. The exchange is by virtue of a Deed of Assignment
between SMMI and SMFI executed in December 2005.

In January 2008, SMFI executed a Deed of Assignment assigning its 16,457,310

shares in SMMI to the Company effective December 28, 2007. The assignment is in
accordance with SMFI’s property dividend declaration of its SMMI shares in favor
of the Company, subject to the necessary approvals, and as approved by SMFI’s
BOD in June 2007.

As of February 12, 2010, the declaration of the SMFI’s shares in SMMI as property
dividend in favor of the Company is still pending issuance of a certificate of filing of
property dividend declaration by SEC.

Investments in Joint Venture

In 2007, the Company provided full allowance for the impairment in value of its
investment in Philippine Nutrition Technologies, Inc. (PNTI), a joint venture between the
Company and the Great Wall Group of Taiwan. Application with the SEC for the
dissolution of PNTI, through the shortening of its corporate term, which was approved by
the BOD and stockholders of PNTI in August 2005, will be filed by the Company
following the receipt on February 4, 2010 of the tax clearance from the BIR and the
completion of other SEC requirements necessary for such filing.

- 35 -
11. Investment Properties

The movements in investment properties follow:

Land and Land Buildings and

Improvements Improvements Total
Cost:
Balance at January 1, 2008 P54,827 P2,865 P57,692
Additions 20,861 - 20,861
Balance at December 31, 2008 75,688 2,865 78,553
Additions 39,593 - 39,593
Balance at December 31, 2009 115,281 2,865 118,146
Accumulated depreciation:
Balance at January 1, 2008 - 1,326 1,326
Additions - 141 141
Balance at December 31, 2008 - 1,467 1,467
Additions - 141 141
Balance at December 31, 2009 - 1,608 1,608
Accumulated impairment losses:
Balance at January 1, 2008 - - -
Additions 5,359 - 5,359
Balance at December 31, 2008 5,359 - 5,359
Additions 3,114 - 3,114
Balance at December 31, 2009 8,473 - 8,473
et book value:
Balance at December 31, 2009 P106,808 P1,257 P108,065
Balance at December 31, 2008 P70,329 P1,398 P71,727

The fair value of investment properties as of December 31, 2009 and 2008 amounted to
P280.9 million and P279.1 million, respectively, determined based on valuations
performed either by independent appraisers or by the credit management group of the
Company.

- 36 -
12. Property, Plant and Equipment

This account consists of:

Machinery
Land and Buildings Equipment,
Land and Furniture Transportation Construction

ote Improvements Improvements and Others Equipment in Progress Total
Cost:
Balance at January 1, 2008 P1,474,063 P3,872,021 P7,801,106 P514,201 P1,360,207 P15,021,598
Additions 16,402 24,830 41,690 1,649 509,337 593,908
Disposals - (9,826) (23,003) (23,837) (550) (57,216)
Transfers, reclassifications
and others 5,879 163,326 528,336 14,190 (985,167) (273,436)
Balance at December 31, 2008 1,496,344 4,050,351 8,348,129 506,203 883,827 15,284,854
HLC balance 10a 751,188 102,210 35 - 97,914 951,347
Additions 715 2,108 209,984 13,015 425,600 651,422
Disposals - (126,944) (225,864) (58,997) - (411,805)
Transfers, reclassifications
and others 89,517 361,311 (228,462) 10,914 (763,601) (530,321)
Exchange differential 3,159 2,691 13,183 2,462 925 22,420
Balance at December 31, 2009 2,340,923 4,391,727 8,117,005 473,597 644,665 15,967,917

Accumulated depreciation and

impairment losses:
Balance at January 1, 2008 233,907 1,485,568 4,607,183 443,688 - 6,770,346
Additions 17,431 170,975 481,389 33,858 - 703,653
Disposals - (3,687) (21,906) (23,108) - (48,701)
Transfers, reclassification
and others - (1,005) (197,222) - - (198,227)
Exchange differential - (58) (513) (69) - (640)
Balance at December 31, 2008 251,338 1,651,793 4,868,931 454,369 - 7,226,431
HLC balance 10a 10,612 14,873 8 - - 25,493
Additions 23,914 183,601 543,099 23,911 - 774,525
Impairment loss 22 45,863 - - - 45,863
Disposals - (90,065) (206,860) (51,090) - (348,015)
Transfers, reclassification
and others (2,960) 131 (59,740) 52 - (62,517)
Exchange differential - 1,230 7,984 2,330 - 11,544
Balance at December 31, 2009 328,767 1,761,563 5,153,422 429,572 - 7,673,324

et Book Value:

Balance at December 31, 2009 P2,012,156 P2,630,164 P2,963,583 P44,025 P644,665 P8,294,593

Balance at December 31, 2008 P1,245,006 P2,398,558 P3,479,198 P51,834 P883,827 P8,058,423

Depreciation charged to operations amounted to P774.5 million in 2009, P703.7 million

in 2008 and P687.8 million in 2007 (Note 20). These amounts include annual
amortizations of capitalized interest amounting to P2.6 million, P3.8 million and
P5.4 million in 2009, 2008 and 2007, respectively. Unamortized balance of capitalized
interest as of December 31, 2009, 2008 and 2007 amounted to P26.9 million,
P29.5 million and P33.3 million, respectively. No interest was capitalized in 2009 and
2008.

Transfers, reclassification and others in 2009 include certain property, plant and
equipment that were damaged by typhoon amounting to P215.8 million (Note 7). In
addition, certain machinery and equipment with a book value of P189.1 million and
considered as idle assets, were reclassified to other noncurrent assets following the
change in management’s intention on its branded business (Note 22).

Land and land improvements include a 144-hectare property in Sumilao, Bukidnon,

acquired by SMFI in 2002, which later became the subject of a petition for revocation of
conversion order filed by MAPALAD, a group of Sumilao farmers, with the Department
of Agrarian Reform (DAR), and appealed to the Office of the President (OP). Total
acquisition and development costs included in the account as of December 31, 2008
amounted to P37.4 million.

- 37 -
 To settle the land dispute, a Memorandum of Agreement (MOA) was executed among
SMFI, MAPALAD, OP and DAR on March 29, 2008. The MOA provided for the
release of a 50-hectare portion of the property to qualified farmer-beneficiaries, and the
transfer of additional 94 hectares outside of the property to be negotiated with other
Sumilao landowners. Under the MOA, SMFI shall retain ownership and title to the
remaining portion of the property for the completion and pursuit of the hog farm
expansion. Implementation of the MOA provisions is ongoing.

The cost of farm improvements, buildings, machinery and equipment and construction in
progress incurred for Monterey’s hog farm expansion project situated in Sumilao
amounted to P676.4 million and P481.4 million in 2009 and 2008, respectively.

13. Goodwill and Other Intangible Assets

This account consists of:

2009 2008
Goodwill P170,792 P170,792
Trademarks 32,558 32,558
Formulas and recipes 57,591 57,591
Computer software and licenses - net 77,413 65,659
P338,354 P326,600

The movement in goodwill is shown below:

2009 2008
Balance at beginning of year
Goodwill from acquisitions of PTSMPFI and
Magnolia P170,792 P187,575
Impairment loss - (16,783)
Balance at end of year P170,792 P170,792

Magnolia reduced the carrying value of its investment in Sugarland Corporation, a 100%
subsidiary, in the amount of P16.8 million following the latter’s shutdown of its tolling
operations in February 2008.

The movements in computer software and licenses are shown below:

2009 2008
Cost:
Balance at beginning of year P134,806 P100,589
Additions/reclassifications during the year 26,370 34,217
Balance at end of year 161,176 134,806
Accumulated amortization:
Balance at beginning of year 69,147 53,376
Additions/reclassifications during the year 14,616 15,771
Balance at end of year 83,763 69,147
Net book value P77,413 P65,659

- 38 -
14. otes Payable

Notes payable mainly represents unsecured peso and foreign currency-denominated

amounts payable to local and foreign banks. Interest rates for peso-denominated loans
range from 3.10% to 6.79% and 7.25% to 8.75% in 2009 and 2008, respectively. Interest
rate for foreign currency-denominated loan is 12.08% and 15.77% in 2009 and 2008,
respectively.

15. Trade Payables and Other Current Liabilities

This account consists of:

ote 2009 2008

Trade payables P3,472,303 P4,114,563
Amounts owed to related parties 25 2,732,207 1,607,446
Acceptances payable 18,950 43,968
Accrued expenses and other payables 6,443,626 4,084,488
P12,667,086 P9,850,465

The accrued expenses and other payables account consists of freight payable, contract
growers/breeders’ fees, guarantee deposits, derivative liabilities, accrued interest payable,
expenses payable, tax-related and payroll-related accruals.

Derivative liabilities included under “Accrued expenses and other payables” amounted to
P13.4 million and P144.2 million as of December 31, 2009 and 2008, respectively
(Note 29).

16. Equity

The Parent Company’s capital stock, at P10 par value, consists of the following number
of shares as of December 31, 2009 and 2008:

Class “A” Class “B” Total

Authorized shares 95,128,000 50,872,000 146,000,000
Issued shares 95,049,129 50,401,979 145,451,108

Class “A” and Class “B” shares are identical in all respects, except that Class “A” shares
are transferable only to Philippine nationals and shall at all times be not less than 60% of
the voting capital stock.

Treasury shares, totaling 385,456 Class “A” shares and 3,822,302 Class “B” shares in
2009 and in 2008, are carried at cost.

Issued and outstanding shares include 86,708,547 shares, listing application for which
will be re-filed with the PSE upon completion of certain PSE requirements.

The Parent Company’s retained earnings as of December 31, 2009 and 2008 is restricted
in the amount of P182.1 million representing the cost of shares held in treasury.

The Group’s unappropriated retained earnings include the Company’s accumulated

equity in net earnings of subsidiaries amounting to P3,355.4 million, P847.6 million and
P1,700.9 million in 2009, 2008 and 2007, respectively. Such amounts are not available
for declaration as dividends until declared by the respective investees.

- 39 -
17. Revenues

Revenue account consists of sales of goods and fair valuation adjustments on agricultural
produce. Total sales of goods amounted to P74,979.9 million, P71,077.9 million and
P62,000.3 million for the years ended December 31, 2009, 2008 and 2007, respectively.
The aggregate fair value less estimated costs to sell of agricultural produce harvested
during the year, determined at point of harvest, amounted to P25,826.8 million,
P23,527.0 million and P22,534.4 million for the years ended December 31, 2009, 2008
and 2007, respectively.

18. Cost of Sales

This account consists of:

ote 2009 2008 2007

Inventories used P55,100,325 P54,050,525 P45,300,631
Freight, trucking and handling 1,911,469 1,626,949 1,398,375
Depreciation and amortization 20 1,482,653 1,315,729 1,230,983
Communication, light and
water 866,722 922,063 1,086,623
Personnel expenses 21 862,438 1,002,888 1,259,764
Repairs and maintenance 336,721 326,397 396,135
Rentals 27 171,108 190,396 209,475
Others 953,231 1,174,716 963,201
P61,684,667 P60,609,663 P51,845,187

19. Selling and Administrative Expenses

This account consists of:

ote 2009 2008 2007

Personnel expenses 21 P1,853,815 P1,830,162 P1,462,353
Freight, trucking and 1,781,191 1,831,557 1,640,260
handling
Advertising and promotions 1,401,340 1,482,056 1,260,131
Contracted services 1,251,772 1,134,313 863,951
Rentals 27 488,197 472,116 387,476
Taxes and licenses 242,131 194,513 183,193
Professional fees 235,588 159,847 290,822
Depreciation and
amortization 20 221,855 237,781 227,309
Supplies 205,391 185,968 181,313
Communication, light and
water 185,459 151,164 168,364
Travel and transportation 143,087 193,335 175,686
Repairs and maintenance 111,475 109,773 115,357
Others 599,375 641,066 854,705
P8,720,676 P8,623,651 P7,810,920

- 40 -
20. Depreciation and Amortization

Depreciation and amortization are distributed as follows:

ote 2009 2008 2007

Cost of sales:
Property, plant and equipment 12 P607,857 P551,438 P528,359
Biological assets 9 854,130 736,922 660,919
Others 20,666 27,369 41,705
1,482,653 1,315,729 1,230,983
Selling and administrative expenses:
Property, plant and equipment 12 166,668 152,215 159,482
Others 55,187 85,566 67,827
221,855 237,781 227,309
P1,704,508 P1,553,510 P1,458,292

Others include amortization of containers, computer software and licenses, small tools
and equipment and investment properties amounting to P75.9 million, P112.9 million and
P109.5 million in 2009, 2008 and 2007, respectively.

21. Personnel Expenses

This account consists of:

ote 2009 2008 2007

Salaries and allowances P1,396,610 P1,661,083 P1,869,934
Retirement costs 24 238,627 145,506 126,717
Other employee benefits 1,081,016 1,026,461 725,466
P2,716,253 P2,833,050 P2,722,117

The above amounts are distributed as follows:

ote 2009 2008 2007

Cost of sales 18 P862,438 P1,002,888 P1,259,764
Selling and administrative
expenses 19 1,853,815 1,830,162 1,462,353
P2,716,253 P2,833,050 P2,722,117

- 41 -
22. Interest Expense and Other Financing Charges, Interest Income and Other Income
(Charges)

These accounts consist of:

ote 2009 2008 2007

Interest expense and other
financing charges:
Short-term loans 14 P701,726 P774,597 P604,877
Other financing charges 49,316 56,317 63,095
P751,042 P830,914 P667,972
Interest income:
Money market placements P35,017 P27,479 P35,860
Cash in banks 34,124 26,844 48,547
P69,141 P54,323 P84,407
Other income (charges):
Gain (loss) on derivatives P54,477 (P388,327) P616,956
Dividend income 118 55 168
Foreign exchange gains
(losses) - net 28 (978) 5,943 (54,298)
Impairment loss (53,873) - -
Research and development
costs - (170) (16,199)
Others - net (88,712) (68,780) (1,242,676)
(P88,968) (P451,279) (P696,049)

In 2009, the Group recognized provisions for impairment loss on land and idle assets
(included under “Retirement and other noncurrent assets”) amounting to P45.9 million
and P8.0 million, respectively, computed as the difference between the carrying amount
of the assets and their fair value based on reports by qualified property appraisers, less
costs to sell.

In 2007, subsequent to the Company’s majority acquisition of Monterey, this subsidiary

aligned its business systems with the Company’s other subsidiaries. In the course of such
alignment, certain asset accounts consisting of trade receivables, inventories and
biological assets were adjusted to reflect their net realizable values. Other related
accounts such as trade payables, deferred tax assets and liabilities were likewise adjusted.
The impact of the reduction in Monterey’s net assets amounting to P1,330 million in
2007 was presented as part of “Other charges - net” in the consolidated statements of
income.

- 42 -
23. Income Taxes

a. The components of the Group’s deferred tax assets and liabilities as at December 31
are as follows:

2009 2008
Deferred tax assets:
NOLCO P452,793 P276,907
Allowance for impairment losses on
receivables and inventory losses 230,837 223,127
Unrealized mark-to-market loss 168,433 165,565
Unamortized past service cost 116,537 85,698
MCIT 76,266 85,360
Others 174,810 259,602
P1,219,676 P1,096,259
Deferred tax liabilities:
Unrealized mark-to-market gain P184,585 P128,233
Accelerated depreciation 51,426 56,344
Others 163,029 53,683
P399,040 P238,260

b. As of December 31, 2009, the NOLCO and MCIT that can be claimed as deduction
from future taxable income and deduction from corporate income tax due,
respectively, are as follows:

Year Incurred/Paid Carryforward Benefit Up To NOLCO MCIT

2007 December 31, 2010 P22,608 P20,189
2008 December 31, 2011 527,971 22,297
2009 December 31, 2012 958,730 33,780
P1,509,309 P76,266

c. The components of the income tax expense (benefit) consist of:

2009 2008 2007

Current:
Corporate income tax P1,112,770 P729,248 P831,418
Final tax withheld on interest
income 17,542 8,482 13,455
1,130,312 737,730 844,873
Deferred 53,313 (268,860) 71,332
P1,183,625 P468,870 P916,205

- 43 -
 d. The reconciliations between the statutory income tax rate on income before income
tax and non-controlling interests and the Group’s effective income tax rates follow:

2009 2008 2007

Statutory income tax rate 30.00% 35.00% 35.00%
Additions to (reductions in)
income tax resulting from the
tax effects of:
Interest income subjected to
final tax (0.13) (8.80) (2.68)
Unused NOLCO and MCIT 1.10 25.98 3.10
Others - net (0.16) 0.58 48.00
Effect of change in tax rate - 23.16 -
Effective income tax rates 30.81% 75.92% 83.42%

24. Retirement Plans

The Company and majority of its subsidiaries have funded, noncontributory retirement
plans covering all of their permanent employees. Contributions and costs are determined
in accordance with the actuarial studies made for the plans. Annual cost is determined
using the projected unit credit method. The Group’s latest actuarial valuation date is
December 31, 2009. Valuations are obtained on a periodic basis.

Retirement costs charged by the Parent Company to operations amounted to P4.2 million,
P7.3 million and P1.0 million in 2009, 2008 and 2007, respectively, while those charged
by the subsidiaries amounted to P234.4 million, P138.2 million and P125.7 million in
2009, 2008 and 2007, respectively. The Group’s annual contribution to the retirement
plans consists of payments covering the current service cost and amortization of past
service liability.

The components of retirement costs recognized in the consolidated statements of income

in 2009, 2008 and 2007 and the amounts recognized in the consolidated statements of
financial position as of December 31, 2009 and 2008 are as follows:

a. Retirement costs

2009 2008 2007

Current service cost P131,158 P96,730 P91,054
Interest cost 262,237 137,847 130,585
Expected return on plan assets (197,554) (161,894) (164,120)
Net actuarial gain (loss) (2,695) 7,535 4,356
Past service cost 192 193 210
Effect of curtailment (19,806) - -
Effect of asset limit - - (690)
Amortization of transitional
liability 65,095 65,095 65,322
Net retirement costs P238,627 P145,506 P126,717
Actual return (loss) on plan assets P329,582 (P103,770) P205,329

- 44 -
 The retirement costs are recognized in the following line items in the consolidated
statements of income:

ote 2009 2008 2007

Cost of sales P16,724 P32,010 P31,207
Selling and administrative
expenses 221,903 113,496 95,510
21 P238,627 P145,506 P126,717

b. Retirement asset

2009 2008
Fair value of net plan assets P94,058 P -
Present value of defined benefit obligation (44,432) -
Unrecognized actuarial gains (43,364) -
P6,262 P -

c. Retirement liability

2009 2008
Present value of defined benefit obligation P2,335,856 P2,759,339
Fair value of net plan assets (2,229,645) (2,396,143)
Unrecognized:
Past service costs (856) (951)
Net actuarial gains (losses) 76,132 (219,692)
Net transitional liability - (65,095)
P181,487 P77,458

The movements in the present value of the defined benefit obligation are as follows:

2009 2008
Balance at beginning of year P2,759,339 P1,810,951
Interest cost 262,237 137,730
Current service cost 131,158 96,598
Transfer from other plans 51,036 898,516
Benefits paid (562,069) (155,401)
Actuarial (gains) losses (230,864) 9,888
Transfer to other plans (36,134) (38,943)
Effect of curtailment 5,585 -
Balance at end of year P2,380,288 P2,759,339

- 45 -
 The movements in the fair value of net plan assets are as follows:

2009 2008
Balance at beginning of year P2,396,143 P1,649,977
Expected return 197,554 161,894
Contributions by employer 145,145 145,764
Transfer from other plans 51,036 898,516
Benefits paid (562,069) (155,401)
Transfer to other plans (36,134) (38,943)
Actuarial gains (losses) 132,028 (265,664)
Balance at end of year P2,323,703 P2,396,143

The major categories of plan assets as a percentage of the fair value of total plan assets
are as follows:

2009 2008
Stock trading portfolio 22% 13%
Fixed income portfolio 78% 87%

The overall expected rate of return is determined based on historical performance of

investments.

The principal actuarial assumptions used to determine retirement benefits are as follows:

2009 2008
Discount rate 8.28% to 10% 8.85% to 12%
Expected return on plan assets 10% 9%
Salary increase rate 8% 6% to 8%

The historical information for the current and previous three annual periods are as
follows:

2009 2008 2007 2006

Present value of defined benefit
obligation P2,380,288 P2,759,339 P1,810,951 P1,596,744
Fair value of net plan assets 2,323,703 2,396,143 1,649,977 1,489,585
Deficit in the plan 56,585 363,196 160,974 107,159
Experience adjustments on plan
liabilities (230,864) 9,888 173,538 141,002
Experience adjustments on plan assets 132,028 (265,664) 39,413 194,020

The Group expects to contribute about P187.7 million to its defined benefit plans in
2010.

25. Related Party Disclosures

Transactions with related parties are made at normal market prices. For the periods ended
December 31, 2009 and 2008, the Group did not provide any allowance for impairment
losses relating to amounts owed by related parties. An assessment is undertaken at each
financial year by examining the financial position of the related party and the market in
which the related party operates.

- 46 -
Transactions with related parties and the related balances include the following:

Name of Company Relationship* Nature of Transactions 2009 2008

SMC Parent Sales P2,187,330 P7,437,073
Company Purchases 292,327 561,929
Trade and other
receivables 88,122 1,906,940
Trade payables and other
current liabilities 1,778,448 704,221
SMC Shipping and Lighterage Affiliate Sales 135 -
Corporation Purchases 240,927 204,298
Trade and other
receivables 14,380 17,925
Trade payables and
other current liabilities 409,074 534,820
San Miguel Rengo Affiliate Purchases 81,651 193,022
Packaging Corporation Trade and other
receivables 245 -
Trade payables and other
current liabilities 16,650 54,798
San Miguel Yamamura Affiliate Sales 2,083 5,702
Packaging Corporation Purchases 102,095 117,632
Trade and other
receivables 8,117 18,480
Trade payables and
other current liabilities 61,730 86,848
San Miguel International, Ltd. Affiliate Trade and other
and subsidiaries receivables 41,186 42,990
Trade payables and other
current liabilities 9 3,612
Anchor Insurance Brokerage Affiliate Purchases 49 12,044
Corporation Trade and other
receivables 585 204
Trade payables and other
current liabilities 241 190
SMC Stock Transfer Service Affiliate Sales 54 -
Corporation Trade and other
receivables 86 147
Ginebra San Miguel, Inc. and Affiliate Sales 1,314 2,110
subsidiaries Purchases 472,815 553
Trade and other
receivables 68,739 19,148
Trade payables and other
current liabilities 62,612 11,168
San Miguel Properties, Inc. Affiliate Sales 51 -
Purchases - 957
Trade and other
receivables 230 1,312
Noncurrent receivables - 291
Trade payables and
other current liabilities 395 691
SMITS, Inc. and a subsidiary Affiliate Sales 116 251
Purchases 18,347 57,675
Trade and other
receivables 854 1,040
Trade payables and
other current liabilities 121,126 88,617
SDI Affiliate Purchases 12,533 6,883
Trade and other
receivables 530 -
Trade payables and
other current liabilities - 89,287
Forward

- 47 -
 Name of Company Relationship* Nature of Transactions 2009 2008
ArchEn Technologies, Inc. Affiliate Sales P28 P -
Purchases 1,005 1,601
Trade and other
Receivables 94 122
Trade payables and
other current liabilities 7,806 2,288
San Miguel Yamamura Asia Affiliate Purchases 32,962 30,240
Corporation Trade and other
receivables - 479
Trade payables and
other current liabilities 5,534 4,126
San Miguel Brewery Inc. Affiliate Sales 2,748 7,859
Purchases 716,471 3,241
Trade and other
receivables 23,943 20,857
Trade payables and
other current liabilities 250,097 19,955
San Miguel Beverages, Inc. Affiliate Sales 4,755 4,322
Purchases 83,213 1,363
Trade and other
receivables 7,145 12,618
Trade payables and
other current liabilities 5,492 2,875
SM Bulk Water Company, Affiliate Trade payables and
Inc. other current liabilities 36 93
San Miguel Distribution Co., Affiliate Sales 7 -
Inc. Purchases 4,349 4,294
Trade and other
receivables 28 209
Trade payables and
other current liabilities 20 3,169
Beer World Inc. Affiliate Trade payables and
other current liabilities 31 -
Mindanao Corrugated Fibreboard, Affiliate Purchases 16,146 -
Inc. Trade payables and
other current liabilities 11,523 -
Pacific Central Properties, Inc. Affiliate Trade payables and
other current liabilities 545 -
Philippine Breweries Affiliate Trade payables and
Corporation other current liabilities 839 678
* Affiliates refer to companies owned by SMC.

On May 1, 2009, the transfer of the receivables, inventories and fixed assets of SMC’s
Centralized Key Accounts Group (CKAG) to SMFI was completed, for a total
consideration of P2,352.5 million. CKAG was a unit of SMC engaged in the business of
selling and distributing various products of some companies within the SMC Group,
including SMPFC’s subsidiaries, to modern trade customers.

On December 28, 2004, SMC and Monterey executed a Trademark Licensing Agreement
with PF-Hormel to license the Monterey and Gannado trademarks for a period of 20
years renewable for the same period for a royalty based on net sales revenue. The royalty
fee will apply only for as long as SMC and any of its subsidiaries own at least 51% of
PF-Hormel. In the event that the ownership of SMC and any of its subsidiaries is less
than 51%, the parties will negotiate and agree on the royalty fee on the respective
licenses of the Monterey and Gannado trademarks.

- 48 -
 The compensation of the key management personnel of the Group, by benefit type,
follows:

2009 2008 2007

Short-term employee benefits P52,878 P44,053 P28,892
Retirement costs 22,417 13,267 2,609
P75,295 P57,320 P31,501

Several key management personnel of the Group were employees of SMC in 2008 and
2007.

The compensation of key management personnel, which were charged by SMC to the
Group as management fee, amounted to P6.4 million, P26.7 million and P62.1 million in
2009, 2008 and 2007, respectively.

26. Basic and Diluted Earnings Per Share

Basic EPS is computed as follows:

2009 2008 2007

Net income attributable to equity
holders of the Parent Company (a) P2,596,963 P77,194 P30,591
Common shares issued and outstanding 141,243,350 141,243,350 70,378,272
Add weighted average number of
shares issued during the year - - 70,865,078
Weighted average number of shares (b) 141,243,350 141,243,350 141,243,350
Basic EPS (a/b) P18.39 P0.55 P0.22

The Group does not have diluted earnings per share for the years ended December 31,
2009, 2008 and 2007.

27. Operating Lease Agreements

The Group entered into various operating lease agreements. These non-cancellable
leases will expire in various years. All leases include a clause to enable upward revision
of the rental charge on an annual basis based on prevailing market conditions. The
minimum future rental payables under these operating leases as of December 31 are as
follows:

2009 2008
Within one year P34,460 P109,234
After one year but not more than five years 109,122 174,688
After more than five years 409,280 406,798
P552,862 P690,720

Rent expense charged to operations amounted to P659.3 million, P662.5 million and
P597.0 million in 2009, 2008, and 2007, respectively (Notes 18 and 19).

- 49 -
28. Financial Risk Management Objectives and Policies

Objectives and Policies

The Group has significant exposure to the following financial risks primarily from its use
of financial instruments:

interest rate risk

foreign currency risk

commodity price risk

liquidity risk

credit risk

This note presents information about the Group’s exposure to each of the foregoing risks,
the Group’s objectives, policies and processes for measuring and managing these risks,
and the Group’s management of capital.

The Group’s principal non-trade related financial instruments include cash and cash
equivalents, AFS financial assets, short-term loans and derivative instruments. These
financial instruments, except derivative instruments, are used mainly for working capital
management purposes. The Group’s trade-related financial assets and liabilities such as
trade and other receivables and accounts payable and accrued expenses arise directly
from and are used to facilitate its daily operations.

The Group’s outstanding derivative instruments such as commodity options are intended
mainly for risk management purposes. The Group uses derivatives to manage its
exposures to commodity price risks arising from the Group’s operations.

The BOD has the overall responsibility for the establishment and oversight of the
Group’s risk management framework. The Group’s risk management policies are
established to identify and analyze the financial risks faced by the Group, to set
appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk
management policies and systems are reviewed regularly to reflect changes in market
conditions and the Group’s activities.

The Group Audit Committee oversees how management monitors compliance with the
Group’s risk management policies and procedures, and reviews the adequacy of the risk
management framework in relation to the risks faced by the Group. The Group Audit
Committee is assisted in its oversight role by Internal Audit. Internal Audit undertakes
both regular and ad hoc reviews of risk management controls and procedures, the results
of which are reported to the Audit Committee.

The Group’s accounting policies in relation to derivatives are set out in Note 3 to the
financial statements.

Interest Rate Risk

Interest rate risk is the risk that future cash flows from a financial instrument (cash flow
interest rate risk) or its fair value (fair value interest rate risk) will fluctuate because of
changes in market interest rates. The Group’s exposure to changes in interest rates relates
primarily to the Group’s notes payable (Note 14).

The Group follows a prudent policy to ensure that its exposure to fluctuations of interest
rates is kept within acceptable limits. The Group does not have short-term loans and
long-term installment payables with variable interest rates.

- 50 -
Foreign Currency Risk
The Group’s exposure to foreign currency risk results from significant movements in
foreign exchange rates that adversely affect the foreign-currency denominated
transactions of the Group. The Group’s risk management objective with respect to
foreign currency risk is to reduce or eliminate earnings volatility and any adverse impact
on equity. The Group enters into foreign currency hedges using non-derivative
instruments such as foreign currency forwards to manage its foreign currency risk
exposure.

Information on the Group’s foreign currency-denominated monetary assets and liabilities

and their Philippine peso equivalents are as follows:

2009 2008
U.S. Peso U.S. Peso
Dollar Equivalent Dollar Equivalent
Assets:
Cash and cash equivalents US$1,157 P53,453 US$1,127 P53,556
Accounts receivable (included
under “Trade and other
receivables - net” account in the
consolidated statements of
financial position) 2,724 125,849 3,049 144,889
Total 3,881 179,302 4,176 198,445
Liabilities (included under “Trade
payables and other current
liabilities” account in the
consolidated statements of
financial position):
Acceptances payable 410 18,942 925 43,956
Trade payables 1,478 68,284 1,340 63,677
Total 1,888 87,226 2,265 107,633
Net foreign currency-denominated
assets US$1,993 P92,076 US$1,911 P90,812

The Group reported net foreign exchange gains (losses) amounting to (P1.0 million),
P5.9 million and (P54.3 million) in 2009, 2008 and 2007, respectively, with the
translation of its foreign currency-denominated assets and liabilities. These resulted from
the movements of the Philippine peso against the US dollar as shown in the following
table:

Peso to US Dollar
December 31, 2009 46.20
December 31, 2008 47.52
December 31, 2007 41.28

- 51 -
The following table demonstrates the sensitivity to a reasonably possible change in the
US dollar exchange rate, with all other variables held constant, of the Group’s profit
before income tax (due to changes in the fair value of monetary assets and liabilities) and
the Group’s equity (due to translation of results and financial position of foreign
operations) as of December 31, 2009 and 2008.

2009
P1 decrease in the US dollar P1 increase in the US
exchange rate dollar exchange rate
Effect on Effect on Effect on
Income Effect on Income Equity
before Equity (net before (net of
Income Tax of tax) Income Tax tax)
Cash and cash equivalents (P1,157) (P810) P1,157 P810
Trade and other receivables (2,724) (1,907) 2,724 1,907
(3,881) (2,717) 3,881 2,717
Trade payables and other
current liabilities 1,888 1,322 (1,888) (1,322)
(P1,993) (P1,395) P1,993 P1,395

2008
P1 decrease in the US dollar P1 increase in the US dollar
exchange rate exchange rate
Effect on Effect on Effect on Effect on
Income before Equity (net Income before Equity (net
Income Tax of tax) Income Tax of tax)
Cash and cash equivalents (P1,127) (P733) P1,127 P733
Trade and other receivables (3,049) (1,982) 3,049 1,982
(4,176) (2,715) 4,176 2,715
Trade payables and other
current liabilities 2,265 1,472 (2,265) (1,472)
(P1,911) (P1,243) P1,911 P1,243

Commodity Price Risk

Commodity price risk is the risk that future cash flows from a financial instrument will
fluctuate because of changes in market prices. The Group, through SMC, enters into
various commodity derivatives to manage its price risks on strategic commodities.
Commodity hedging allows stability in prices, thus offsetting the risk of volatile market
fluctuations. Through hedging, prices of commodities are fixed at levels acceptable to
the Group, thus protecting raw material cost and preserving margins. For hedging
transactions, if prices go down, hedge positions may show mark-to-market losses;
however, any loss in the mark-to-market positions is offset by the resulting lower
physical raw material cost.

The Group uses commodity futures and options to manage the Group’s exposures to
volatility of prices of certain commodities such as wheat and fuel oil.

Liquidity Risk
Liquidity risk pertains to the risk that the Group will encounter difficulty in meeting
obligations associated with financial liabilities that are settled by delivering cash or
another financial asset.

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The Group’s objectives to manage its liquidity risk are as follows: a) to ensure that
adequate funding is available at all times; b) to meet commitments as they arise without
incurring unnecessary costs; c) to be able to access funding when needed at the least
possible cost; and d) to maintain an adequate time spread of refinancing maturities.

The table below summarizes the maturity profile of the Group’s financial assets and
liabilities based on contractual undiscounted payments as of December 31, 2009 and
2008.

2009
Carrying Contractual Less than
amount cash flow 1 year
Financial Assets
Cash and cash equivalents P3,950,346 P3,950,346 P3,950,346
Trade and other receivables - net 9,023,953 9,023,953 9,023,953
Derivative assets 47,070 47,070 47,070
AFS financial assets (included under
“Retirement and other noncurrent assets”
account in the consolidated statements of
financial position) 13,761 13,761 13,761
Financial Liabilities
Notes payable including accrued interest 8,841,254 8,858,334 8,858,334
Trade payables and other current
liabilities 12,628,560 12,628,560 12,628,560
Derivative liabilities (included under
“Trade payables and other current
liabilities” account in the consolidated
statements of financial position) 13,362 13,362 13,362

2008
Carrying Contractual Less than
Amount cash flow 1 year
Financial Assets
Cash and cash equivalents P2,782,206 P2,782,206 P2,782,206
Trade and other receivables - net 7,762,091 7,762,091 7,762,091
Derivative assets 35,757 35,757 35,757
AFS financial assets (included under
“Retirement and other noncurrent assets”
account in the consolidated statements of
financial position) 11,426 11,426 11,426
Financial Liabilities
Notes payable including accrued interest 11,749,174 11,784,993 11,784,993
Trade payables and other current
liabilities 9,623,458 9,623,458 9,623,458
Derivative liabilities (included under
“Trade payables and other current
liabilities” account in the consolidated
statements of financial position) 144,213 144,213 144,213

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Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a
financial instrument fails to meet its contractual obligations, and arises principally from
the Group’s trade receivables. The Group’s exposure to credit risk is influenced mainly
by the individual characteristics of each customer or counterparty. Thus, the Group has
established detailed credit policies under which each new customer is reviewed
individually for creditworthiness before standard payment and delivery terms and
conditions are implemented. The Group ensures that sales on account are made to
customers with appropriate credit history. The Group has detailed credit criteria and
several layers of credit approval requirements before engaging a particular customer or
counterparty. The Group also manages its credit risk mainly through the application of
transaction limits and close risk monitoring. It is the Group’s policy to enter into
transactions with a wide diversity of creditworthy counterparties to mitigate any
significant concentration of credit risk.

The Group has regular internal control reviews to monitor the granting of credit and
management of credit exposures. Goods are subject to retention of title clauses so that in
the event of default, the Group would have a secured claim. Where appropriate, the
Group obtains collateral or arranges master netting agreements.

The Group recognizes provision for uncollectible accounts and impairment losses, based
on specific and collective impairment tests, when objective evidence of impairment has
been identified either on an individual account or on a portfolio level.

Financial information on the Group’s maximum exposure to credit risk as of

December 31, 2009 and 2008, without considering the effects of collaterals and other risk
mitigation techniques, are presented below.

ote 2009 2008

Cash and cash equivalents 6 P3,950,346 P2,782,206
Trade and other receivables - net 7 9,023,953 7,762,091
Derivative assets 29 47,070 35,757
AFS financial assets 29 13,761 11,426
P13,035,130 P10,591,480

The Group has no significant concentration of credit risk with any counterparty.

Financial and Other Risks Relating to Livestock

The Group is exposed to financial risks arising from the change in cost and supply of
feed ingredients and the selling price of chicken, hogs and cattle and related products, all
of which are determined by constantly changing market forces of supply and demand,
and other factors. The other factors include environmental regulations, weather
conditions and livestock diseases for which the Group has little control. The mitigating
factors are listed below.

The Group is subject to risks affecting the food industry, generally, including risks
posed by food spoilage and contamination. Specifically, the fresh meat industry is
regulated by environmental, health and food safety organizations and regulatory
sanctions. The Group has put into place systems to monitor food safety risks
throughout all stages of manufacturing and processing to mitigate these risks.
Furthermore, representatives from the government regulatory agencies are present at
all times during the processing of dressed chicken, hogs and cattle in all dressing and
meat plants and issue certificates accordingly. The authorities, however, may impose
additional regulatory requirements that may require significant capital investment at
short notice.

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The Group is subject to risks relating to its ability to maintain animal health status
considering that it has no control over neighboring livestock farms. Livestock health
problems could adversely impact production and consumer confidence. However,
the Group monitors the health of its livestock on a daily basis and proper procedures
are put in place.

The livestock industry is exposed to risk associated with the supply and price of raw
materials, mainly grain prices. Grain prices fluctuate depending on the harvest
results. The shortage in the supply of grain will result in adverse fluctuation in the
price of grain and will ultimately increase the Group’s production cost. If necessary,
the Group enters into forward contacts to secure the supply of raw materials at
reasonable price.

Capital Management
The primary objective of the Group’s capital management is to ensure that it maintains a
strong credit rating and healthy capital ratios in order to support its business and
maximize shareholder value.

The Group manages its capital structure and makes adjustments, in the light of changes in
economic conditions. To maintain or adjust the capital structure, the Group may adjust
the dividend payment to shareholders, pay-off existing debts, return capital to
shareholders or issue new shares.

The Group defines capital as paid-in capital stock, additional paid-in capital and retained
earnings, both appropriated and unappropriated. Other components of equity such as
treasury stock and cumulative translation adjustments are excluded from capital for
purposes of capital management.

The BOD has overall responsibility for monitoring capital in proportion to risk. Profiles
for capital ratios are set in the light of changes in the Group’s external environment and
the risks underlying the Group’s business, operation and industry.

The Group monitors capital on the basis of debt-to-equity ratio, which is calculated as
total debt divided by total equity. Total debt is defined as total current liabilities and total
noncurrent liabilities, while equity is total equity as shown in the consolidated statements
of financial position.

There were no changes in the Group’s approach to capital management during the year.

The Group is not subject to externally imposed capital requirements.

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29. Financial Assets and Liabilities

The table below presents a comparison by category of carrying amounts and fair values
of the Group’s financial instruments as of December 31, 2009 and 2008:

2009 2008
Carrying Carrying
Amount Fair Value Amount Fair Value
Financial Assets:
Cash and cash equivalents P3,950,346 P3,950,346 P2,782,206 P2,782,206
Trade and other receivables - net 9,023,953 9,023,953 7,762,091 7,762,091
Derivative assets 47,070 47,070 35,757 35,757
AFS financial assets (included under
“Retirement and other noncurrent
assets” account in the consolidated
statements of financial position) 13,761 13,761 11,426 11,426
Financial liabilities:
Notes payable 8,816,090 8,816,090 11,666,380 11,666,380
Trade payables and other current
liabilities 12,653,724 12,653,724 9,706,252 9,706,252
Derivative liabilities (included under
“Trade payables and other current
liabilities” account in the
consolidated statements of financial
position) 13,362 13,362 144,213 144,213

The following methods and assumptions are used to estimate the fair value of each class
of financial instruments:

Cash and Cash Equivalents and Trade and Other Receivables. The carrying amounts of
cash and receivables approximate their respective fair values primarily due to the
relatively short-term maturity of these financial instruments.

Derivatives. The fair values of forward exchange contracts are calculated by reference to
current forward exchange rates. In the case of freestanding commodity derivatives, the
fair values are determined based on quoted prices obtained from their respective active
markets. Fair values for stand-alone derivative instruments that are not quoted from an
active market and for embedded derivatives are based on valuation models used for
similar instruments using both observable and non-observable inputs.

AFS Financial Assets. The fair values of publicly traded instruments and similar
investments are based on quoted market prices in an active market. For debt instruments
with no quoted market prices, a reasonable estimate of their fair values is calculated
based on the expected cash flows from the instruments discounted using the applicable
discount rates. Unquoted equity securities and derivative instruments linked to unquoted
stocks are carried at cost less impairment.

&otes Payable and Trade Payables and Other Current Liabilities. The carrying amounts
of notes payable and trade payables and other current liabilities approximate their
respective fair values due to the relatively short-term maturity of these financial
instruments.

Derivative Financial Instruments

The Group, through SMC, enters into various commodity derivative contracts to manage
its exposure on commodity price risk. The portfolio is a mixture of instruments including
futures and options covering the Group’s requirements on wheat and fuel oil.

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The Group’s freestanding and embedded derivative financial instruments are accounted
for as hedges or transactions not designated as hedges.

Derivative Instruments Accounted for as Hedges

Cash Flow Hedge. The Group had options in 2008 entered into on its behalf by SMC,
designated as hedge of forecasted purchases of fuel oil requirements for 2009. These
options were exercised at various calculation dates in 2009 with specified quantities on
each calculation date. As of December 31, 2008, the notional quantity allocated to the
Group is 571 metric tons. The net unrealized fair value change (after tax) reported as
part of other comprehensive income and the amount charged to profit and loss on these
call and put options as of December 31, 2008 amounted to P7.8 million and
(P0.2 million), respectively.

As of December 31, 2009, the Group has no outstanding options designated as hedge on
the purchase of commodity. However, the amount charged to profit and loss for 2009
amounted to P7.6 million.

These option contracts are being used to hedge the commodity price risk of the Group’s
commitments. There were no ineffective portions in this hedge.

Other Derivative Instruments Not Designated as Hedges

The Group enters into certain derivatives as economic hedges of certain underlying
exposures. Such derivatives, which include freestanding commodity options and
embedded currency forwards, are not designated as accounting hedges. Changes in fair
value of these instruments are accounted for directly in the 2009 and 2008 consolidated
statements of income. Details are as follows:

Freestanding Derivatives. Freestanding derivatives consist of various commodity options

entered into by SMC on behalf of the Group.

The Group had bought and sold options to hedge fuel oil requirements in 2009. These
options were exercised at various calculation dates in 2009 with specified quantities on
each calculation date. As of December 31, 2009, the Group has no outstanding
commodity option for the purchase of fuel oil. As of December 31, 2008, the notional
quantity allocated to the Group is 1,714 metric tons. The negative fair value of these
options amounted to P25.8 million.

The Group also had outstanding bought and sold wheat options with various maturities in
2009 and 2010. As of December 31, 2009 and 2008, the notional quantity allocated to
the Group is 59,874 and 34,292 metric tons, respectively. The net negative fair value of
these options as of December 31, 2009 and 2008 amounted to P5.8 million and P93.9
million, respectively.

Embedded Derivatives. The Group’s embedded derivatives include currency forwards

embedded in non-financial contracts. As of December 31, 2009 and 2008, the total
outstanding notional amount of such embedded currency forwards amounted to US$28.6
million and US$23.4 million, respectively. These non-financial contracts consist mainly
of foreign-currency denominated purchase orders, sales agreements and capital
expenditures. As of December 31, 2009 and 2008, the net positive fair value of these
embedded currency forwards amounted to P39.5 million and P21.1 million, respectively.

For the years ended December 31, 2009 and 2008, the Group recognized mark-to-market
gains (losses) from freestanding and embedded derivatives amounting to P54.5 million
and (P388.3 million), respectively.

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 Fair Value Changes on Derivatives
The net movements in fair value changes of all derivative instruments for the years ended
December 31, 2009 and 2008 are as follows:

2009 2008
Balance at beginning of year (P108,456) P437,927
Net changes in fair value of derivatives:
Designated as accounting hedges 3,645 (10,945)
Not designated as accounting hedges 55,267 (472,066)
(49,544) (45,084)
Less fair value of settled instruments (83,252) 63,372
Balance at end of year P33,708 (P108,456)

Hedge Effectiveness Results. The Group has no outstanding derivatives designated as

hedges as of December 31, 2009.

As of December 31, 2008, the effective fair value changes, net of tax, on the Group’s
cash flow hedges that were deferred in equity amounted to P7.8 million.

Fair value hierarchy

The table below analyzes financial instruments carried at fair value, by valuation method.
The different levels have been defined as follows:

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly.

Level 3: inputs for the asset or liability that are not based on observable market data.

2009

Level 1 Level 2 Total

Financial Assets
Derivative assets P4,863 P42,207 P47,070
AFS financial assets - 13,761 13,761
Financial Liabilities
Derivative liabilities 10,698 2,664 13,362

As of December 31, 2009, the Group has no financial instruments valued based on
Level 3. During the year, there were no transfers between Level 1 and Level 2 fair value
measurements, and no transfers into and out of Level 3 fair value measurements.

30. Employee Stock Purchase Plan

SMC offers shares of stocks to employees of SMC and its subsidiaries under the
Employee’s Stock Purchase Plan (ESPP). Under the ESPP, all permanent Philippine-
based employees of SMC and its subsidiaries who have been employed for a continuous
period of one year prior to the subscription period will be allowed to subscribe at a price
equal to the weighted average of the daily closing market prices for three months prior to
the offer period less 15% discount. A participating employee may acquire at least 100
shares of stocks through payroll deductions.

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 The ESPP requires the subscribed shares and stock dividends accruing thereto to be
pledged to SMC until the subscription is fully paid. The right to subscribe under the
ESPP cannot be assigned or transferred. A participant may sell his shares after the second
year from exercise date.

The ESPP also allows subsequent withdrawal and cancellation of participants’

subscriptions under certain terms and conditions.

Expenses for share-based payments charged to operations and included in “Selling and
Administrative Expenses” amounted to P6.3 million, P5.5 million and P6.1 million in
2009, 2008 and 2007, respectively.

31. Other Matters

a. Toll Agreements
The significant subsidiaries are into toll processing with various contract growers,
breeders, contractors and processing plant operators (collectively referred to as “the
Parties”). The terms of the agreements, among others, include the following:

The Parties have the qualifications to provide the contracted services and have
the necessary manpower, facilities and equipment to perform the services
contracted.

Tolling fees paid to the Parties are based on the agreed rate per acceptable output
or processed product. The fees are normally subject to review in cases of
changes in costs, volume and other factors.

The periods of the agreement vary. Negotiations for the renewal of any
agreement generally commence six months before expiry date.

Total tolling expenses in 2009, 2008 and 2007 amounted to P3,137.9 million,
P2,663.8 million, and P2,876.9 million, respectively.

b. Contingencies
The Group is a party to certain lawsuits or claims (mostly labor related cases) filed
by third parties which are either pending decision by the courts or are subject of
settlement agreements. The outcome of these lawsuits or claims cannot be presently
determined. In the opinion of management and its legal counsel, the eventual liability
from these lawsuits or claims, if any, will not have a material effect on the Group’s
consolidated financial statements.

c. Commitments
The outstanding capital and purchase commitments as of December 31, 2009 and
2008 amounted to P9,516.0 million and P9,640.9 million, respectively.

d. Registration with the Board of Investments (BOI)

Certain operations of consolidated subsidiaries are registered with the BOI as pioneer
and non-pioneer activities. As registered enterprises, these consolidated subsidiaries
are subject to some requirements and are entitled to certain tax and non-tax
incentives which are considered in the computation of the provision for income tax.

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 Monterey

Monterey’s Sumilao Hog Project (Sumilao Project) was registered with the BOI
under Registration No. 2008-192, in accordance with the provisions of the Omnibus
Investment Code of 1987 on a pioneer status as New Producer of Hogs on
July 30, 2008. As a BOI-registrant, the Sumilao Project is entitled to incentives
which included, among others, income tax holiday (ITH) for a period of six (6) years,
extendable under certain conditions to eight (8) years, from February 2009 or actual
start of commercial operations, whichever is earlier, but in no case earlier than the
date of registration.

SMFI

SMFI was registered with the BOI on a non-pioneer status as a New Producer of
Animal Feeds for its Mariveles, Bataan plant and as a New Producer of Chicken
(Dressed) for its Orion, Bataan farm in August 2006 and July 2007, respectively.

Under the terms of SMFI’s BOI registration and subject to certain requirements as
provided in the Omnibus Code of 1987, SMFI is entitled to incentives which
included, among others, ITH for a period of four (4) years from January 2007 for
Animal Feeds and from October 2007 for Dressed Chicken (can be extended to
maximum of 8 years provided certain conditions are met).

PF-Hormel

The existing registration of PF-Hormel with the BOI was made on May 18, 2006 in
accordance with the provisions of the Omnibus Investments Code of 1987 as a new
producer of processed meat products on a non-pioneer status. Under the terms of this
new registration, PF-Hormel is entitled to certain tax incentives, including income
tax holiday (ITH) for four years from July 2007, or from the actual start of
commercial operations, which ever comes first, but in no case earlier than the date of
registration.

PF-Hormel’s new registered activity with the BOI commenced commercial

operations in July 2007 and began to avail tax incentives since then.

32. Subsequent Events

On February 2, 2010, the Company’s BOD approved, among others, the following
corporate actions, subject to the necessary approvals of the Company’s stockholders, as
necessary, and of the SEC:

De-classification of SMPFC’s common shares and increase in SMPFC’s authorized

capital stock by P1,000 million or 100,000,000 shares at P10.00 par value.

Declaration of 18% stock dividend based on the issued and outstanding shares to be
taken out of the proposed increase in authorized capital stock.

Potential issuance of up to 75,000,000 new SMPFC shares to SMC or third parties.

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The BOD also approved on the same date the proposal of SMPFC management to
a) purchase food-related brands and intellectual property rights from SMC at a purchase
price of P3,200 million, and b) acquire, through SMPFIL, a British Virgin Islands
company and a wholly-owned subsidiary of SMPFC, SMC’s 51% interest, through San
Miguel Foods and Beverage International Limited, in San Miguel Pure Foods Investment
(BVI) Limited (SMPFI Limited) at book value. SMPFI Limited owns 100% of San
Miguel Pure Foods Vietnam (SMPFVN).

The unaudited financial information relative to the acquisition of SMPFVN as of

December 31, 2009 follows:

Cash and cash equivalents P107,589

Trade and other receivables - net 126,532
Inventories - net 540,857
Prepaid expenses and other current assets 23,647
Property, plant and equipment - net 1,162,875
Intangible assets 71,518
Other noncurrent assets 14,508
Trade payables and other current liabilities (543,070)
Other noncurrent liabilities (2,848)
Net assets P1,501,608

- 61 -
 Parties to the Offer
Issuer SAN MIGUEL PURE FOODS COMPANY, INC.
JMT Building, ADB Avenue, Ortigas Center, Pasig City

Lead Underwriters BDO CAPITAL & INVESTMENT CORPORATION

20th Floor, South Tower, BDO Corporate Center
7899 Makati Avenue, Makati City

THE HONGKONG AND SHANGHAI BANKING CORPORATION

LIMITED
HSBC Centre, 3058 Fifth Avenue West, Bonifacio Global City,
Taguig City

RCBC CAPITAL CORPORATION

7th Floor, Yuchengco Tower, RCBC Plaza
6819 Ayala Avenue, Makati City

SB CAPITAL INVESTMENT CORPORATION

18th Floor, Security Bank Center
6776 Ayala Avenue, Makati City

STANDARD CHARTERED BANK

6788 Ayala Avenue, Makati City

Co-Lead Underwriter FIRST METRO INVESTMENT CORPORATION

45th Floor, GT Tower, 6813 Ayala Avenue corner H.V. dela Costa St.,
Makati City

Participating CHINA BANKING CORPORATION

Underwriters 5th Floor, 8745 Paseo de Roxas cor. Villar St., Makati City

INSULAR INVESTMENT AND TRUST CORPORATION

2nd Floor, Insular Life Building, 6781 Ayala Avenue, Makati City

MULTINATIONAL INVESTMENT BANCORPORATION

22nd Floor, Multinational Bancorporation Centre, 6805 Ayala Avenue,
Makati City

PHILIPPINE COMMERCIAL CAPITAL, INC.

PCCI Corporate Ctr., 118 L.P. Leviste St., Salcedo Village, Makati City

Underwriters UNICAPITAL, INC.

3rd Floor, Majalco Building, Benavidez cor. Trasierra Sts.,
Legaspi Village, Makati City

VICSAL INVESTMENT, INC.

1009 - 1011 Tower One & Exchange Plaza, Ayala Triangle,
Ayala Avenue, Makati City

Financial Advisor ATR KIMENG CAPITAL PARTNERS, INC.

to the Issuer 17th Floor, Tower One and Exchange Plaza
Ayala Triangle, Ayala Avenue, Makati City

Selling Agents THE TRADING PARTICIPANTS OF THE PHILIPPINE STOCK

EXCHANGE, INC.

151
Legal Counsel to the PICAZO BUYCO TAN FIDER & SANTOS
Issuer 18th Floor, Liberty Center
104 H. V. dela Costa Street, Salcedo Village, Makati City

Legal Counsel to the ROMULO MABANTA BUENAVENTURA SAYOC & DE LOS

Lead Underwriters ANGELES
30th Floor, Citibank Tower
8741 Paseo de Roxas, Makati City

Receiving Agent and SMC STOCK TRANSFER SERVICE CORPORATION

Registrar and Paying Podium Level, SMC Head Office
Agent 40 San Miguel Avenue, Mandaluyong City

Depository Bank BANK OF COMMERCE

G/F PhilFirst Building, 6764 Ayala Avenue, Makati City

Independent Auditors MANABAT SANAGUSTIN & CO.

The KPMG Center, 9/F
6787 Ayala Avenue
Makati City

152