San Miguel Corporation

San Miguel Corporation

Company type	Public (PSE: SMC SMCB)
Founded	Manila, Philippines (1890)
Headquarters	Mandaluyong City, Philippines
Key people	Eduardo Cojuangco, Jr., chairman Ramon S. Ang, president
Revenue	PHP226.737 billion (30%) (2005)
Net income	PHP8.973 billion (10%) (2005) [1]
Website	www.sanmiguel.com.ph

San Miguel Corporation (PSE: SMC and SMCB) is the largest publicly listed food, beverage and packaging company in the Philippines. As of 2001, its business generated 3.6 percent of the Philippines' gross domestic product and 4.5 percent of the government's tax revenue.

Founded in 1890 as a brewery, San Miguel now makes nine out of every 10 bottles of beer, 87 percent of the soft drinks, 60 percent of the processed meat and 40 percent of the poultry sold in the Philippines.

The company has over 100 facilities in the Philippines, Southeast Asia, China, and Australia. Its major operating facilities include five breweries, four glass plants, two metal closure and lithography plants, two plastic case plants, and a coconut oil mill. San Miguel is one of the Philippines' biggest private employers, with over 25,900 employees.

The company reported a net income of $171 million in 2005. As of the first half of 2006, the company's net income had grown 15 percent from a year earlier to P4.36 billion ($83.4 million) following the consolidation of its Australian subsidiary, National Foods Ltd.

History

Early years

San Miguel's old Manila brewery.

Under a royal grant from Spain, Enrique Barretto y de Ycaza opened La Fabrica de Cerveza de San Miguel, Southeast Asia's first brewery, on September 29, 1890 at 6 Calzada de Malacañang in Manila, near the Palace of the Governor-General of the Philippines. He named the company after the section of Manila in which he lived and worked.

Barretto was soon joined by Pedro Pablo Roxas, who brought with him a German brewmaster, Ludwig Kiene, as technical director. San Miguel's brew won its first major award at 1895's Philippines Regional Exposition. After six years of operation, the fledgling brewery was outselling imported brands five to one. At the outbreak of World War I, San Miguel was exporting its beer to Hong Kong, Shanghai, and Guam.

The company was incorporated in 1913 following the death of Roxas.

Reign of the Sorianos: 1918 to 1998

In 1918, Andres Soriano y Roxas joined San Miguel as a clerk in the accounting department, beginning a multigeneration (albeit interrupted) reign of the Sorianos.

An ad that appeared in the Jan. 17, 1924 edition of the Manila-based Spanish-language satirical magazine Aray.

Soriano initiated the company's diversification, which proceeded rather logically via vertical integration. The experience cultivating barley, for instance, naturally evolved into other agricultural businesses. The brewery diversified into soft drinks in 1922 with the construction of the Royal soft drinks plant. It then expanded into ice cream and dairy products in 1925 with the Magnolia ice cream plant.

In 1927, San Miguel secured the first non-US national Coca-Cola bottling and distribution franchise. The company owned 70 percent of the joint venture, which grew to become Coke's sixth largest operation. By the early 1990s, San Miguel had captured over two-thirds of the domestic soft drink market.

Expanding and modernizing the company, however, meant diluting family control. San Miguel was the first Filipino company to be owned by thousands of shareholders. To retain control, the Sorianos relied on their alliances with relatives and associates.

Before World War II broke out, San Miguel had built a glass factory in Paco and the Cebu Royal plant, its first installation outside Luzon. When the war reached the Philippines, Soriano was commissioned as a colonel and served as an aide to General Douglas MacArthur.

After the war, San Miguel rebuilt and mounted a large-scale expansion program. The company acquired and modernized a second brewery in Polo, Bulacan in 1947. Two years later, five other plants were opened: the Manila glass plant in Farola, a carbon dioxide plant in Otis, a carton plant, the Iloilo Coca-Cola plant and the Farola power plant. Exports of San Miguel Pale Pilsen resumed. New soft-drink plants followed in Davao and Naga.

In 1953 Soriano signed the so-called "Manila Agreement" which allowed the Spanish beer brewing subsidiary La Segarra to become independent of its parent company. La Segarra continued producing its own line of beers under the San Miguel brand.

Growth and expansion: 1964 to 1984

Andres Soriano, Jr.

A new era dawned in the 1960s, signaled by a new corporate name (the company's name was shortened to San Miguel Corporation), a new head office along Ayala Avenue in Makati and Soriano's death in 1964.

At the time of his death, Soriano had parlayed his family's vast San Miguel fortune into mining, dairies, factories, a newspaper and a radio station. He had investments in Philippine Airlines, held the largest Coca-Cola franchise, and owned five insurance agency distributorships, a Kansas City brewery that made Lone Star and Colt 45, gold mines in British East Africa and a development company in Spain.

Antonio Roxas was elected chairman of San Miguel and Andres Soriano, Jr. became president in 1964.

Soriano, Jr. has been credited with instituting modern management theory, including decentralization along product lines.

The Mandaue complex was inaugurated in 1967, and the Mandaue brewery and glass plant commenced operations a year later. In 1973, San Miguel sales exceeded a billion pesos for the first time and profits topped the hundred-million-peso mark.

A new corporate logo was adopted in 1975. The escudo, the symbol of the royal grant, was retained for beer, its original grantee.

Soriano Jr. continued to diversify the food business during the early 1980s, expanding into poultry production in 1982, building an ice cream plant in 1983 and adding shrimp processing and freezing in 1984.

Over the decades, San Miguel earned a formidable reputation as a fierce competitor. The company used all the tools at its disposal. When it could not beat a rival through traditional means, it acquired and intimidated upstarts into submission.

The Filipino government's complicity did not hurt, either. Long protected by high tariffs, San Miguel encountered its first major competitor in the beer market in the late 1970s. That was when Asia Brewery Inc. entered the segment. The rivalry between Asia Brewery and San Miguel came to a head in 1988, when Asia Brewery cannily introduced a bargain-priced "brand" called, simply, "Beer." (Asia Brewery also called the brand as "Beer na Beer").The imported product looked and tasted like its primary competitor, playing upon the fact that in the Philippines, the San Miguel brand was synonymous with "beer." It was a creative counter to San Miguel's notoriously aggressive and sometimes cutthroat competitive strategy, which had reportedly included "attempts to sabotage Asia Brewery's sales network and smash its empty bottles." Asia Brewery even hired away San Miguel's brewmaster.

At that time, The Brewery buildings in San Miguel District were demolished upon transfer to the Philippine Government as Property of Malacanang Palace. The site became a park as of today.

Turbulence: 1984 to 1986

File:Smcpyramid.jpg

San Miguel's current head office in Mandaluyong City

Soriano Jr.'s administration also witnessed battles for corporate control. A thorny issue of management transparency broke the Sorianos' longstanding alliance with the Zobel-Ayala clan. The result was a historical corporate battle that resulted in the loss of effective control by both the Sorianos and Zobels of San Miguel. Both families were related to each other through the line of Pedro Pablo Roxas.

In 1983, Enrique Zobel, a wealthy cousin of the Sorianos who owned the Zobel-Ayala real estate and banking group and was vice chairman of the San Miguel board, instigated a takeover on his own. The seeds of the "family feud" lay in the refusal of the Soriano-led management to share corporate information with Zobel, especially regarding contracts that SMC management was entering into with companies under the A. Soriano group. The Sorianos viewed Zobel as a competitor, while Zobel (holding nearly 20% of SMC stake) viewed the Sorianos (with about 7%) as mismanaging the company and engaging in sweetheart deals.

Unable to oust Soriano Jr., Zobel sold his group's 19.5-percent stake to Eduardo Cojuangco Jr., a resourceful businessman and an astute political adviser of then President Ferdinand Marcos. Cojuangco's Coconut Industry Investment Fund (a.k.a., United Coconut Planters Bank) accumulated an additional 31 percent of San Miguel, giving him effective control of the conglomerate and leaving the Soriano family with a mere 3 percent.

When Soriano Jr. died of cancer in 1984, Cojuangco scooped up the chairmanship of San Miguel in 1984. That same year, San Miguel moved to a new head office in Mandaluyong.

Cojuangco brought coconut oil milling and refining operations into San Miguel's portfolio. His reign, however, was cut short when Marcos was toppled in 1986.

After the "People Power" revolution in 1986, Corazon Aquino, Cojuangco's estranged cousin, became president of the Philippines. Aquino rode on the crest of widespread public outrage over the assassination of her husband, Benigno Aquino, Jr., in 1983. One of the people she blamed for her husband's death was Cojuangco, who fled on the same private jet as Marcos to Hawaii in 1986.

The Aquino administration sequestered Cojuangco's stake in San Miguel and agreed to let Soriano Jr.'s son, Andres Soriano III, run the company although the Soriano family's holdings had by then dwindled to a mere 1 percent.

Soriano III launched a campaign to reclaim the family legacy, but when he tried to buy back the abandoned shares, he was blocked by the Aquino administration's Presidential Commission on Good Government. The PCGG assumed control (but not legal ownership) of the 51.4-percent stake and refused to relinquish it. The government asserted that the stake had been illegally obtained.

In the 1970s, Marcos imposed a tax on the production of coconuts, a major Philippine cash crop, with the proceeds supposed to fund that industry's development. It was alleged, however, that the money was funneled into the Cojuangco-controlled United Coconut Planters Bank, and that Cojuangco then used much of the funds to help him purchase his controlling stake in San Miguel. The controlling interest carried nine of San Miguel's 15 directors seats with it.

The PCGG continued to tend its San Miguel stake into the early 1990s, but it acceded de facto control of the conglomerate to Soriano III via a management contract with his A. Soriano Corp.

Soriano III continued the company's program of expansion, acquiring majority control of La Tondeña Distillers Inc., the leading producer of hard liquor in the Philippines, in 1987 and adding beef and pork production to the company's food operations in 1988.

Internationalization: 1986 to 1998

Soriano III led the company to a new era of growth based on internationalization, hoping to expand into other countries and mitigate the effects of the Philippines' unstable economy. He also wanted to head off encroaching competition from the world's biggest breweries, namely Anheuser-Busch and Miller of the United States, Kirin of Japan, and BSN of France.

Soriano III allocated $1 billion to a five-year strategic internationalization program that focused on shaping up domestic operations, then progressing to licensing and exporting, overseas production, and finally to distribution of non-beer products.

A subsequent decentralization created a holding company structure, with 18 non-beer operations positioned as subsidiaries. This corporate reorganization freed the spun-off businesses from the bureaucratic shackles of a large conglomerate. In the course of this multifaceted effort to attain optimum efficiency, San Miguel reduced its workforce by more than 16 percent, from a 1989 high of 39,138 to 32,832 by 1993.

With its domestic "ducks in a row," San Miguel turned to the next stage in its internationalization, beer licensing and exporting initiative. Although the company had exported beer for most of its history, this effort was intensified dramatically in the late 1980s. San Miguel's beer exports grew by 150 percent from 1985 to 1989 alone, and the brand was soon exported to 24 countries, including all of Asia's key markets as well as the United States, Australia, and the Middle East.

Once the core brand was established in a particular market, San Miguel would begin to create production facilities, sometimes on an independent basis and sometimes in concert with an indigenous joint-venture partner. By 1995, San Miguel had manufacturing plants in Hong Kong, China, Indonesia, Vietnam, Taiwan and Guam.

Thus, in spite of the overarching quarrel regarding San Miguel's ownership (not to mention other problems endemic to operating in the Philippines), the company's sales quintupled from P12.23 billion in 1986 to P68.43 billion by 1994. Net income increased twice as fast, from P1.11 billion to P 11.86 billion over the same period, although San Miguel's overseas operations (as a whole) were not yet profitable.

In 1996 San Miguel purchased full control of its Hong Kong arm, San Miguel Brewery Hong Kong Ltd. In April of the following year, San Miguel's domestic soft-drink bottling unit, Coca-Cola Bottlers Philippines Inc., was merged into the Australia-based Coca-Cola Amatil Ltd. In effect, San Miguel exchanged its 70-percent interest in a Philippine-only operation for a 25-percent stake in CCA, which had operations in 17 countries. CCA soon demerged the latter operations into a UK-based firm called Coca-Cola Beverages plc (resulting in a reduction of San Miguel's stake in CCA to 22 percent).

From 1995 through 1997, San Miguel suffered from a downturn in its main domestic businesses, while overseas operations were still in the red. Profits plummeted. In response, a major restructuring of the company's loss-making food businesses was undertaken. San Miguel's ice cream and pasteurized milk business was merged with the operations of Nestlé to form Nestlé Philippines Inc., and late in 1998 San Miguel's stake in this business was sold off. San Miguel also exited from the ready-to-eat meal sector and curtailed the operations of its shrimp farming business.

By late 1997, the company was also beginning to feel the effects of the exploding Asian economic crisis.

A new Cojuangco era

Cojuangco wound his way back to the top when the time was right. After returning from exile in 1989, he ran in the 1992 presidential elections with former actor Joseph Estrada. Fidel Ramos, an Armed Forces chief who turned on Marcos in 1986, beat Cojuangco resoundingly to the presidency, taking over from Aquino, but Estrada won the vice-presidency. In 1998, Estrada went the whole way, taking Cojuangco with him.

Cojuangco made his comeback in characteristic style. On July 7, 1998, he barged into the boardroom of San Miguel and had himself elected chairman and chief executive officer. Cojuangco took with him an old friend who shared his passion for expensive cars, Ramon Ang. Ang became vice chairman in 1999 and then president and chief operating officer in 2002.

Under Cojuangco's and Ang's most recent reign, San Miguel has grown strong, fortified by their efforts to weed out joint ventures that the company does not control and to enter those which it does. Five years since the two took the company's helm, San Miguel's revenue grew 21 percent and its shares came close to doubling.

In 1999, San Miguel acquired Metro Bottled Water Corp., the company behind the "Wilkins" brand, for P1.4 billion. It bought Sugarland Multi-Food Corp. for P2.9 billion the following year.

In 2001, San Miguel bought Purefoods Corp., a profitable, though not a central, business of the Ayala group, for P7 billion, making San Miguel the Philippines' No. 1 manufacturer of processed food. That same year, the company decided to buy back, in a transaction involving P60 billion, the Coca-Cola business that Soriano III sold to Coca-Cola Amatil. San Miguel ended up owning 65 percent of CCBPI.

In 2002, San Miguel bought low-end soft-drinks maker Cosmos Bottling Corp. from RFM Corp. for P14.1 billion and folded its operations into CCBPI.

Cojuangco and Ang have also been on an international shopping spree. In the past three years, San Miguel has bought six companies in four nearby countries. In 2004, it boosted international sales to 13 percent of total revenues from 10 percent the previous year.

San Miguel's first major acquisition under Cojuangco and Ang was Australian boutique brewer J. Boag and Son for A$96 million in 2000.

San Miguel paid $97 million for Thai Amarit Brewery Ltd. and $35.5 million for food processor TTC (Vietnam) Co. in 2003. In 2004,it bought 51 percent of Berri Ltd., Australia's top juicemaker, for $97.9 million.

To shore up its war chest, San Miguel took in Japanese brewer Kirin Brewery Co. Ltd., which bought a 15-percent stake in San Miguel, for $540 million in 2002. Another strategic partner, the SM retailing giant of tycoon Henry Sy, came on board in 2002, securing a 6.2-percent stake valued at P10 billion.

In 2005, the company made its biggest purchase with the takeover of National Foods Ltd., Australia's largest publicly traded dairy, which it bought for P80.38 billion. That was followed later in the year with its $420-million purchase of Singapore-based Del Monte Pacific Ltd., the world's largest pineapple canner.

San Miguel has merged National Foods' operation with Berri. Following the merger, National Foods is now the largest citrus and fruit processor in Australia, packaging half of all fruit juice beverages sold in the continent.

In 2006, San Miguel has sold its 65% stake at its Coca-Cola Philippine venture (including its subsidiaries Cosmos Bottling and Philippine Beverage Partners) to Coca-Cola Company for $590 million, due to the unprofitability of the CSD market.

Businesses and products

San Miguel Beer Division

The San Miguel Beer Division manufactures and distributes San Miguel Pale Pilsen, the Philippines' No. 1 beer and a leading brand in Hong Kong and South China. It is one of the world’s largest-selling beers and is among the top 15 beer brands in the world.

San Miguel also produces a wide range of products that are runaway market leaders in their product categories. J. Boag & Son, the company's Australian brewer, is a leader in the fast-growing premium beer segment with James Boag Premium lager, while Anker Bir is the second largest-selling beer brand in Indonesia.

Ginebra San Miguel

Ginebra San Miguel Inc. was incorporated in 1902 by Carlos Palanca Sr. as La Tondeña Incorporada. San Miguel acquired a 70-percent stake in the company in 1987 and renamed it La Tondeña Distillers Inc. Under San Miguel, La Tondeña ventured into the bottled water and fruit juice businesses and became a publicly listed corporation. In 2003, the company's name was again changed to Ginebra San Miguel Inc.

Ginebra San Miguel's flagship brand, Ginebra San Miguel, is currently the largest-selling gin brand in the world, with 22 bottles consumed every second in the Philippines. The company also makes the Gran Matador brandy, Erg alcotonic drink, Tondeña Premium rum, GSM Blue variant and the Vino Kulafu Chinese wine.

Coca-Cola Beverage Group

Coca-Cola Bottlers Philippines Inc. is one of the top 10 bottlers of Coca-Cola in the world and one of the Philippines' top 20 corporations in terms of revenue. It has two San Miguel subsidiaries under its wing: Cosmos Bottling Corp. and Philippine Beverage Partners Inc. CCBPI currently has 39 manufacturing facilities and some 200 sales offices across the Philippines. It employs over 9,000 people, mostly outside Metro Manila. Coca-Cola is currently the brand leader in the Philippine soft drink industry.

San Miguel-Purefoods Co. Inc.

San Miguel Pure Foods Company, Inc. is the largest Filipino-owned food company, with nearly 3,000 employees deployed in a broad nationwide network of offices, farms, manufacturing, processing and distribution facilities. The Company was formed by Acquiring the stocks of the Ayala's Purefoods-Hormel Company. Purefoods then was one of the competitors of San Miguel before its Acquisition.

It holds in its portfolio the names of some of the most formidable brands in the Philippine food industry, among them, Magnolia, Pure Foods, Monterey, Star and Dari Crème (Star and Dari Crème was owned by the Philippine Manufacturing Company-Proctor and Gamble Philippines Inc. before aquisition by San Miguel). B-Meg and Pure Blend, on the other hand, are the market-leaders in the animal feeds industry.

San Miguel Pure Foods' integrated operations range from breeding, contract growing, processing and marketing of chicken, pork and beef to the manufacture of refrigerated, canned and ready-to-cook meat products, butter, cheese, margarine, oils and fats, as well as animal and aquatic feeds.

San Miguel Packaging Products

San Miguel Packaging Products services many of the region's leading food, pharmaceutical, chemical, beverages and personal care manufacturers. The company serves clients in the United States, Europe, Japan and Australia, among other foreign markets. SMPP manufactures glass bottles, PET bottles, corrugated cartons, flexible packaging, plastic crates and pallets, plastic caps, metal closures and two-piece aluminum libog cans.

San Miguel Properties Philippines

Established in 1990, San Miguel Properties Inc. is a leading developer of residential and commercial real estate in the Philippines. Distinguished by and capitalizing on its blue chip parentage, SMPI is moving towards establishing itself as a market leader in the property sector through mixed-use developments with middle-income housing as its main thrust, property leasing, strategic real estate ventures and corporate real estate services.

Others

In 2004, E-aji was found. It has 6 different chips with sauces came from Magnolia Corporation. In 2006, Pure Oil was found. It is a Vegetable Oil used for cooking.

Divisions and subsidiaries

San Miguel Beer Division

• San Miguel Brewery Hong Kong Ltd.
• Guangzhou San Miguel Brewery Co. Ltd.
• San Miguel Guangdong Brewery Co. Ltd.
• San Miguel Baoding Brewery Co. Ltd.
• San Miguel Brewery Vietnam Ltd.
• San Miguel Beer Thailand Ltd.
• San Miguel Marketing Thailand Ltd.
• J. Boag & Son Ltd.
• PT Delta Djakarta Tbk

Coca Cola Bottlers Philippines Inc.

• Philippine Beverage Partners Inc.
• Cosmos Bottling Corp.

This division has now been sold to the Coca-Cola Company.

San Miguel Pure Foods Co., Inc.

• San Miguel Foods Inc.
• Poultry Business
• Feeds Business
• Monterey Foods Corp.
• San Miguel Mills Inc.
• Agribusiness
• Pure Foods Hormel Co. Inc.
• PT San Miguel Pure Foods Indonesia
• Magnolia Inc.
• San Miguel Pure Foods (VN) Co. Ltd.
• National Foods Ltd.
• King's Creameries Ltd.

San Miguel Packaging Products

• Premium Packaging International Corp.
• San Miguel Yamamura Asia Corp.
• San Miguel Yamamura Fuso Mold Corp.
• Zhaoqing San Miguel Glass Co. Ltd.
• San Miguel Yamamura Haiphong Glass Co. Ltd.
• Foshan San Miguel Packaging Co.
• San Miguel Sampoerna Packaging Industries
• San Miguel Yamamura Ball Corp.
• San Miguel Phu Tho Packaging Co. Ltd.
• San Miguel Rengo Packaging Corp.
• Mindanao Corrugated & Fibreboard Inc.
• Rightpak International Corp.
• San Miguel Packaging & Printing Sdn Bhd
• San Miguel Plastic Films Sdn Bhd
• San Miguel Woven Products Sdn Bhd
• Packaging Research Centre Sdn Bhd

Other businesses

• Anchor Insurance Brokerage Corp.
• San Miguel Properties Philippines Inc.
• SMC Stock Transer Service Corp.
• SMITS Inc.
• San Miguel Holdings Inc.
• SM Bulk Water Co. Inc.
• San Miguel Shipping & Lighterage Corp.
• ArchEn Technologies Inc.

Basketball teams

• In the Philippine Basketball Association:
  • Barangay Ginebra Kings
  • Purefoods Tender Juicy Giants
  • San Miguel Beermen
• In the Philippine Basketball League:
  • San Miguel-Magnolia Ice Cream Spinners
• Others:
  • San Miguel All-Stars (barnstorming team, to be disbanded)

The San Miguel Foundation for the Performing Arts

• The San Miguel Philharmonic Orchestra
• The San Miguel Master Chorale

Shareholders

Owners of more than 5% of the Company's voting securities as of March 17, 2006 were as follows:

• CIIF Companies, 24%
• ECJ Companies, 17.40%
• Kirin Brewery Co., Ltd., 20.01%
• SM Investments Corp., 10.80%
• Government Service Insurance System, 6.25%
• Social Security System, 5.64%
• Others, 15.89%