SLIDE 1:

EXECUTIVE SUMMARY

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

SLIDE 2:
OVERVIEW OF THE CONGLOMERATE
 BREWERY
o San Miguel Brewery Inc. (2016)
Consolidated Revenues: P 97.2 B
Sales volume: 230.4 million cases
Operating Income : P 27.2B
Net Income: P 17.7B
o Ginebra San Inc. (2016)
Consolidated Revenues: P 18.6 B
Sales volume: 25.2 million cases
Operating Income : P 978 M
Net Income: P 361 M
FOOD
o San Miguel Pure Foods Company Inc. (2016)
Operating Income : P 8.9B
Net Income: P 6B
PACKAGING
o San Miguel Packaging Group (2016)
Consolidated Revenues: P 27.4 B
Operating Income : P 2.6B
POWER
o SMC Global Power (2016)
Off-take volume: 17,355 Gwh
Consolidated Revenues: P 78B
Operating Income : P 26.7B
Net income: P 4.2B
FUEL AND OIL
o Petron Corporation (2016)
Sales Voume: 98 M Barrels
Operating Income : P 23.8B
Net income: P 10.8B

INFRASTRUCTURE
o San Miguel Holdings Corp., (2016)
Revenues: P 19.9B
Operating Income: P 9.8B
PROPERTIES
o San Miguel Properties Inc. (2016)
Revenues: P 1.7B
Operating Income: P 210 M


Starting as a single brewery in 1890, San Miguel Corporation (SMC) has

transformed itself into one of the largest and most diversified conglomerates in
the Philippines, engaging in various businesses - Beverage, Food, Packaging, Fuel
and Oil, Energy, Infrastructure, and Banking - with an extensive portfolio of
products that includes beer, liquor, non-alcoholic beverages, poultry, animal
feeds, flour, fresh and processed meats, dairy products, coffee, various packaging
products and a full range of refined petroleum products, most of which are leaders
in their respective markets. For the year 2016, SMC generated sales of about 4.7%
of the Philippine gross domestic product.

For its beverage businesses, SMC operates through San Miguel Brewery Inc.
(SMBI) and subsidiaries (51.16% owned) and Ginebra San Miguel Inc. (GSMI) and
subsidiaries (78.27% owned). SMBI engaged in the manufacture and sale of
fermented and malt-based beverages and non-alcoholic drinks such as ready-to-
drink tea and bottled water. Meanwhile, GSMI produces hard liquor products.
 The food operations is conducted through San Miguel Pure Foods Company, Inc.
(SMPFC) and subsidiaries (85.37% owned). In addition to its Philippine operations,
the food business also has a presence in Indonesia and Vietnam. Through SMPFCs
subsidiaries, it diversified into poultry and livestock operations, feeds and flour
milling, dairy and coffee operations, franchising and young animal ration
manufacturing and distribution.
SLIDE 3:
OVERVIEW OF THE CONGLOMERATE
The packaging group of SMC is comprised of San Miguel Yamamura Packaging
Corporation (SMYPC), San Miguel Yamamura Packaging International Limited
(SMYPIL), San Miguel Yamamura Asia Corporation (SMYAC), SMC Yamamura
Fuso Molds Inc. (SYMFC), Can Asia, Inc. (CAI) and Mindanao Corrugated
Fibreboard, Inc. (Mincorr). The packaging business is a total packaging solutions
business servicing many of the leading food, pharmaceutical, chemical, beverages,
spirits and personal care manufacturers in the region.
 The energy business is conducted through SMC Global Power Holdings Corp. (SMC
Global) administering three power plants, located in Sual, Pangasinan (coal), Ilijan,
Batangas (natural gas) and San Roque, Pangasinan (hydroelectric), with a
combined capacity of 2,545 MW making it as one of the largest power companies
in the Philippines, which holds a 21.2% market share of the total installed power
generation capacity for the Luzon power grid, 6.9% market share of the Mindanao
grid and a 16.6% market share of the national grid according to the Energy
Regulatory Commission of the Philippines (ERC).
SLIDE 4:
OVERVIEW OF THE CONGLOMERATE
For its fuel and oil business, SMC operated through Petron, which is involved in
refining crude oil and marketing and distribution of refined petroleum products
mainly in the Philippines and Malaysia.

San Miguel Holdings Corp. (SMHC) managed the infrastructure business of SMC,
which consists of investments in companies that hold long-term concessions in
the infrastructure sector. Current operating tollroads include the Tarlac-
Pangasinan-La Union Toll Expressway (TPLEX), South Luzon Expressway
(SLEX), Skyway Stage 1 and 2, the Southern Tagalog Arterial Road (STAR) and
the NAIA Expressway (NAIAx) tollways. Ongoing tollroad projects include
Skyway Stage 3, Skyway Stage 4 and SLEX TR4. It also operates and is currently
expanding the Boracay Airport. In addition, it has the concession right to
construct, operate and maintain the Mass Rail Transit Line 7 (MRT-7) and has
 recently invested in Manila North Harbour Port Inc. It has also won the bid for the
Bulacan Bulk Water Supply Project.

SLIDE 5:
OVERVIEW OF THE CONGLOMERATE
SMC through SMPI made a series of acquisitions of Bank of Commerce (BOC) shares in 2007
and 2008 and has a current ownership of 39.9%. BOC is a commercial bank licensed to engage
in banking operations in the Philippines.

Other major subsidiaries include the following as of December 31, 2016:

SMC Shipping and Lighterage Corporation and subsidiaries [including SL Harbour Bulk
Terminal Corporation, MG8 Terminal Inc., SMC Cebu Shipyard Land, Inc. and Mactan
Shipyard Corporation]
Anchor Insurance Brokerage Corporation
SMC Stock Transfer Service Corporation
ArchEn Technologies Inc.
SMITS, Inc. and subsidiaries
San Miguel Equity Investments Inc. and subsidiaries
SLIDE 6:
MACROECONOMIC ASSESSMENT

SLIDE 7:
Industry Players (NO PRODUCT PORTFOLIO)
o San Miguel Super Coffeemix Co., Inc. (SMSCCI) - is 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 coffeemix with cereals.
o Nestle Philippines- a large-scale, well-known international food manufacturing
corporation engaged in the manufacture of instant coffee, milk, and ready-to-
cook noodles. It is among the Philippines' Top 10 Corporations. Its products are
No. 1 or No. 2 brands in their respective categories. .
o Tridharma Marketing Corporation (TMC)- the exclusive national distributor of
PT Mayora Indah in the Philippines in November 2005. Product lines are
confectionaries, black coffee, brown coffee, candy and cereal drinks.
o Universal Robina Corporation (URC)- a dominant player with leading market
shares in Savory Snacks, Candies and 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 and Cup Noodles business and is a respectable 2nd
player in Coffee business.

SLIDE 8:
SMSCCI
SLIDE 9:
SMSCCI

*Value Market Shares Based on Nielsen Data Moving Annual Total (MAT) and Latest Reading Mar
2016 (Exit)
The coffee market split is divided by two major segments; instant coffee and coffee mixes (e.g. 3-in-1).
Instant coffee takes 19% of the market while the remaining 81% the constitutes the latter. Coffee mixes,
being the larger segment, is further divided into several variants. The largest of which is the white coffee
variant, capturing 49% of the segment and 40% of the whole coffee market split. Original coffee mixes
have 19% presence in the coffee market, closely followed by a 13% share of the brown coffee variant.
Other flavors of coffee mixes that do not fall under the variants white, brown, and original takes the
remaining 9% of the coffee market.

Geographical Industry Segmentation

Distribution of Coffee Production, by Region, April-June: 2017. Source: Philippine Statistics Office

Production of dried coffee berries went down as of the second quarter of 2017 by 12.1 percent,
from 7.70 thousand metric tons last year to its current level of 6.77 thousand metric tons (Table 4). This
decrease was due to a fruit borer infestation in Sultan Kudarat and continuous rains in Surigao del Sur
which curtailed harvesting activities.

SOCCSKSARGEN was the largest coffee producer at 2.58 thousand metric tons (38.1 %). It was
followed by Davao Region (20.7 %) and ARMM (18.5 %), respectively.

Industry Regulations
a. The Food Safety Act of 2013- enacted into law to strengthen the food safety
regulatory system in the country. 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.
b. 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.
c. 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.
d. The Price Act- the prices of basic commodities may be automatically frozen or
placed under price control in areas declared as disaster areas, under emergency
or martial law, or in a state of rebellion or war, for a maximum period of 60 days
only. 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.
e. Tax Reform for Acceleration and Inclusion (TRAIN) bill- includes the proposed
excise tax on sugar-sweetened beverages (SSBs) such as sweetened juice drinks,
sweetened tea, sweetened coffee, all carbonated beverages with sugar, including
those with caloric and non-caloric sweeteners, flavored water, energy drinks,
sports drinks, powdered drinks not classified as milk, juice, tea and coffee, cereal
and grain beverages and even non-alcoholic beverages with sugar. Once the
proposed additional tax is applied, a 3-in-1 coffee sachet, currently priced at P5,
will be P8.

SLIDE 10:
SMSCCI
Porters Five Forces Analysis

1. Competitive Rivalry
a. High Competitive Rivalry
i. San Mig Coffee products have little market share
ii. Competitors have strong brand identity and customer loyalty, dominating the
market
 iii. Competitors are more innovative through new products and competitive
marketing strategies

*COMPANY (PIE CHART)

2. Threat of New Entry

a. Moderate threat of new entry:
i. Regulations for entry of coffee products are not strict although there are
requirements for compliance as it is part of the food industry
ii. Since there is an increasing demand for coffee which cannot be met by the
current local supply, companies who would like to enter the industry will be
forced to turn to foreign suppliers. The capital outlay to enter the industry is
very high.
iii. Profitability of the industry attracts many competitors
3. Bargaining Power of Buyers
a. Low Buyer power
i. There are many buyers in the market as coffee is the #2 most demanded
beverage
ii. SMPFC and its subsidiaries taken as a whole is not dependent on a single
customer or a few customers.
iii. There is low cost for buyer to switch from one supplier to another, especially
since San Miguel coffee products are more expensive than other brands
4. Bargaining Power 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.
ii. There were no plans mentioned on new products to be developed. Last
innovative product was released a year ago.
 iii. There was a decline in sales volume and revenue due to phasing out of slow
variants.
iv. The cost of switching from one supplier to another is high since SMSCCI is the
importer for repacking and distribution of coffee mixes from its suppliers.
5. Threat of Substitution
a. High threat of substitution
i. Close substitute goods exist in the market such as energy drinks, tea and other
alternative caffeinated drinks.
ii. Since the company has limited suppliers, its competitors have the advantage of
using advanced and various processes.
*Create Infographic
*Conclusion

SLIDE 11:
FS Analysis
Infograph of Ratios (in accordance to activity, liquidity, solvency, profitability and
leverage; SEE XLXS. FILE)

SLIDE 12:
FS Analysis
Activity Analysis
o 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.

SMSCCIs fixed asset turnover is 28,438.080, exceeding the others by more than 28,000
times. This huge asset turnover is due to SMSCCIs fixed assets comprising only 0.00520%
of the total assets. The large amount does not imply an effective fixed asset utilization for
SMSCCI to generate revenue.
Liquidity Analysis

o 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.

Solvency Analysis
 o 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

o 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

o 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.

SLIDE 13-14:
SMSCCI
Analysis of Competitor
*Use chart of graph comparing performance indicators of the companies (e.g. EBITDA, Assets, Net
Assets)

NOTE: BE SPECIFIC WITH THE PRODUCT

Nestle Philippines-
 ASSETS:
NET ASSETS:
EBITDA:
Nestle transformed from a manufacturer into a diversified global food company.
Its coffee product portfolio includes Nescafe Classic, Nescafe Decaf, Nescafe
Gold, Coffee mate and 3-n-1 Nescafe variants- Original, Brown and Creamy,
Creamylatte, Chocolatte, Capuccino and Frappe. Nestle employs corporate-level
strategy that consists of moderate to high levels of diversification. It generated
most revenues 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 Marketing Corporation

ASSETS:
NET ASSETS:
EBITDA:

Tridharma is a member of TAO Corporation, one of the Top 100 Corporations in

the Philippines. Its product coffee portfolio includes its 3-n-1 variants- Astig,
Low Acid, Brown Coffee, Caf Blanca, Capuccino, and its own Kopiko coffee
candy. 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. Fleet, sales depots and area distribution partners
also grew in numbers to accommodate the saturation drive of the company.
Partnership with around 54 regional distributors covers over 74,000 active
buying accounts in different channels. With its nationwide coverage, well
established distribution networks, Tridharma employs related diversification
strategies, further expanding its product portfolio to facilitate Market
Penetration.
Universal Robina Corporation
ASSETS:
NET ASSETS:
EBITDA:
Being one of the largest branded food product companies in the Philippines,
URC has established a strong presence in ASEAN and has further expanded its
reach to the Oceania region through the acquisition of Griffins Food Limited,
the number one snack foods company in New Zealand. Its coffee product
portfolio includes Great Taste variants, - Original, Brown Coffee, White Coffee,
Sugarfee, Premium-Blend 45 and Cream All. URC placed 2nd in the coffee
business, with an effective nationwide distribution chain and sales network
enabling it to sell its branded food products primarily to supermarkets, as well
as directly to top wholesalers, large convenience stores, large scale trading
 companies and regional distributors, which in turn sell its products to other
small retailers and down line markets. To further penetrate the market, URC
intends to enlarge its distribution network coverage in the Philippines by
increasing the number of retail outlets that its sales force and distributors
directly service
San Miguel Super Coffeemix Co., Inc. (SMSCCI)
ASSETS:
NET ASSETS:
EBITDA:

The coffee product portfolio of SMSCCI includes San Mig Coffee Super, San Mig
100% Premium Coffee, San Mig Coffee Brown, San Mig Coffee Chococino, San
Mig Coffee Cremdensada, San Mig Coffee Honeycino and San Mig Coffee Sugar
Free variants. SMSCCI continues to be affected by the phase out of slow-moving
variants as well as increased pressure from major players who aggressively spend
on advertising and promotion to push their products. In spite of this, SMSCCI
continue to improve and introduce quality coffee products and create product
differentiation with San Miguel Integrated Sales (SMIS) providing logistics and
selling services in the identified modern trade and general trade customers.

Slide 15-16
Other Information
Edge of the Market Leader
o Innovation Leadership
Based on Leading and Shaping the New Coffee Reality by Bula, Nestle
has been taking chances on the opportunities that the coffee world
offers. For 77 years, the company posed a profitable growth driven by
the innovations evident on the diverse products that it offers in the
market.
o Marketing and advertising
The promotional strategy of Nestle for its coffee segment has been
comprehensive that it does not fail to make its products appealing.
Most of the advertisements of the brand attempts to reach the
emotional state of the customers. The brand has been successful with
this strategy paving the way for an excellent customer relationship. In
connection with this, the customer relationship has been further
strengthened by the various products that the brand offers which suit
the different tastes of the customers.
o Technological Facilities
Being a leader in innovation, the research and development team of
Nestle has developed various technologies for its products. These
technologies include those that enable Nestle to have extra-fine
micronized coffee, foam booster for its Nescaf cappuccino, and
intensive aroma and taste at affordable cost. These technologies have
 been protected by Nestle through patents, hence adding strength to its
operations.

Recommendation
o 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, research and analysis shows that there are serious
problems encountered by San Miguel Super Coffeemix Co. Inc. that has been
going on for the past years. 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 17% decline in sales volume of 2015 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.
The total equity