PureFoods investing P2.5B in grains terminal in Batangas

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MANILA, Philippines—Local food giant San Miguel PureFoods Co. Inc. is investing P2.5 billion in a bulk grains terminal in Mabini, Batangas.

The move is aimed at controlling production costs, protecting operating margins and boosting overall profit.

In a disclosure to the Philippine Stock Exchange Monday, PureFoods said the new terminal, which would be operational by the fourth quarter of 2013, is located close to the company’s two flour mills in Batangas.

“Because of the terminal’s proximity to seaports, freight costs for the flour and feeds milling operations are expected to significantly decrease,” the company said in the disclosure.

The food subsidiary of diversifying conglomerate San Miguel Corp. expects payback from this new terminal in seven years.

Other initiatives mapped out by PureFoods to temper cost pressures are the following:

• Adopt an “asset light” model whereby most farms, breeding and grow-out facilities, feed mills and processing plants are contracted to third parties to minimize investments, achieve more flexibility in capacity expansion, lower labor costs and enable staff to focus on core competencies.

• Look for ways to enhance productivity in raw materials use such as by using cassava as a substitute to corn. It has contracted 50,000 hectares for cassava production, which can supply 200,000 metric tons per year, which the company plans to double in the next five years. The substitution of cassava for corn allowed the company to save P500 million in 2011.

• Replace the meat production capacity lost by subsidiary The Purefoods-Hormel Co. in September 2009 when Typhoon Ondoy hit Metro Manila. Much of the lost capacity has been recovered through a toll-packing arrangement and expansion of internal capacity. Rationalization of low-margin products reduced total stock-keeping units by half, thereby improving margins and freeing up capacity.

PureFoods has likewise announced a strategy to boost its revenue base, particularly by shifting product portfolio from commodity to value-added products. These value-added products accounted for about 50 percent of consolidated revenue in 2011, up from only 33 percent in 2003 and 27 percent in 2000.

Among the new value-added products launched by PureFoods are ice cream, coffee and chicken nuggets. “Market acceptance for chicken nuggets has been especially strong and as a result, the company has quickly doubled production capacity,” the disclosure said.

PureFoods also reported a continuing rise in the number of branded distribution outlets such as the Monterey Meatshops and Magnolia Chicken Stations.

As of end-2011, the company had expanded its Magnolia Chicken and Monterey Meatshop outlets by 57 percent and 37 percent, respectively, from the September 2010 outlet count.

Nearly half of the company’s poultry and basic meat revenue in 2011 was contributed by stable-priced outlets, including Monterey and Magnolia Chicken stations.

PureFoods grew its net profit last year by 4 percent to P4.21 billion despite sharp increases in the prices of raw materials. Consolidated revenue went up by 13 percent to P89.6 billion from the year before.

Originally posted at 02:11 pm | Monday, March 19,  2012

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