Executive summary

introduction Economic condition

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

SMC Global Power Holdings Corp. and subsidiaries 100% energy

OWNERSHIP packaging
beverages

San Miguel Brewery Inc.

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

%
OWNERSHIP OWNERSHIP

other assets and investments 60% San Miguel Yamura Asia

Corporation
OWNERSHIP

San Miguel Properties, Inc.

and subsidiaries
99.94 100% Mindanao Corrugated
Fibreboard, Inc.

SMC Shipping and Lighterage

%
OWNERSHIP

70%
OWNERSHIP

Corporation and subsidiaries

OWNERSHIP
food
infrastructure
85.37
San Miguel Holdings Corp.
and subsidiaries 100% 100% Fuel
%
OWNERSHIP
San Miguel Pure Foods Company
OWNERSHIP and oil
OWNERSHIP
Sea Refinery Corporation Inc. and subsidiaries

*Contribution by EBITDA
 San Miguel brewery inc.

Brewery properties, inc.

Iconic beverages, inc.

San Miguel brewing international ltd

Ginebra san Miguel inc. and

subsidiaries

Ginebra san Miguel inc.

Distileria bago, inc.

East pacific star bottlers phils. Inc.

Healthy condiments, inc.

Agricrops industries, inc.

Crown royal distillers, inc.

Ginebra san Miguel holdings international, ltd.

Siam holdings, ltd.

Ginebra san Miguel international, ltd.

Global beverage holdings ltd.

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

San Miguel foods, inc. San Miguel energy corporation

San Miguel mills, inc. South premiere power corp.

magnolia., inc. Strategic power devt. Corp.

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

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

Smc consolidated power corporation

Realsnacks mfg. corp.

San Miguel pure foods San Miguel consolidated power corporation

international, limited

Limay premiere power corp.

Pt san Miguel pure foods, indonesia

San Miguel electric corp.

Smc power generation corp.

Albay power and energy corp.

Mantech power dynamics services inc.

Safetech power services corp.

Central Luzon premiere power corp.

49%
Mariveles power generation corporation

Grand planters international, inc.

ondarre holding corporation

packaging

San Miguel foods, inc.

 San miguel super
Coffeemix Co., inc.

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

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

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

Human Resource Management

General Administration

Research and Development

 Industry players

the exclusive national distributor of PT

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

a large-scale, well-known international Instant Coffee

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

a dominant player with leading market Brown Coffee

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

SMSCCI and others

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

Nestle
43%

Geographical segmentation Market share

The food safety

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

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