San Miguel Brewery net profit rises 17.4% to P12.2 billion

MANILA, Philippines — San Miguel Brewery Inc., the beer unit of conglomerate San Miguel Corp., grew its net profit last year by 17.4 percent to P12.2 billion on the back of higher volume and selling prices.

In a disclosure to the Philippine Stock Exchange on Tuesday, SMB also announced plans to issue P20 billion in bonds with a tenor of between five and 10 years to refinance maturing debts.

Citing unaudited 2011 results, SMB said its consolidated net sales revenue grew by 6.3 percent to reach P71.9 billion in 2011.  This was in turn driven by higher sales volume, for both domestic and international operations, as well as higher selling prices.

Operating income for the year amounted to P20.5 billion, up by 10 percent from a year ago.

The disclosure added that the P20-billion bond issue would fund the redemption of the first tranche of fixed rate bonds amounting to P13.6 billion maturing on April 3, 2012, as well as the prepayment of the company’s $300-million term facility.

SMB earlier sought approval from bondholders to amend the terms of its P38.8-billion outstanding bonds, citing the need to strengthen investor protection, align with global credit rating debt metrics and make room for more efficient use of resources.

The previous bond covenant required SMB to maintain a minimum current ratio (current assets divided by current liabilities) of 1:1 and a maximum debt-to-equity (total indebtedness divided by capital) ratio of 3.5:1.

The beer-maker kept the debt-to-equity requirement but replaced the minimum current ratio with a minimum interest coverage ratio of 4.75:1.

Interest coverage ratio is defined as EBITDA (earnings before interest, taxes, depreciation and amortization) divided by interest expense for the period.

In the past two years, SMB kept an average of P24 billion in current assets, and in particular, an average of P15 billion in cash to support working capital requirements. As the first tranche of the bond fell current and reclassified to form part of the current liabilities, SMB would have otherwise been compelled to keep sizable cash balances and current assets to comply with the minimum current ratio instead of using the same money for other productive purposes.