San Miguel Pure Foods Company reports 89.6 billion pesos revenues in 2011

1) Shift in product portfolio from commodity to value-added products

The Company has shifted more of its revenue source from commodity products to value-added and/or branded products to assure greater price stability and higher margins. These value-added products account for approximately 50% of the Company's consolidated revenues in 2011, a significant shift from 33% in 2003 and 27% in 2000. The following are some of the initiatives to support this strategy:

• The continuous development and launch of new value-added products, examples of which include 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.
• Continuing increases in the number of branded distribution outlets such as the Monterey Meatshops and Magnolia Chicken Stations. As of the end of 2011, the Company grew its Magnolia Chicken Stations and Monterey Meat Shops by 57% and 37% respectively over September 2010 outlet count. Nearly half of the Company's poultry and basic meats revenues in 2011 were contributed by stable-priced outlets, which include branded retail outlets (Monterey Meatshops and Magnolia Chicken Stations), food service and exports.

2) Continuinq initiatives to achieve cost leadership

The Company continues to find ways to control production costs and protect its margins. Among its major programs include:

• 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 the Company personnel to focus on its core competencies.
• The Company continues to look for ways to enhance productivity in raw materials use. The Company currently imports over 40% of its raw material needs, so achieving greater diversity in its sources reduces its risks. Most notable among its strategies has been the use of cassava as a substitute for higher-priced corn. The Company has contracted 50,000 hectares for cassava production equivalent to 200,000 metric tons per year. The Company plans to double this supply within the next five years. The Company estimates that it has saved close to P500 million in 2011 from the substitution of cassava for higher priced corn.
• The Company is investing in a bulk grains terminal in Mabini, Batangas, close to its two flour mills. Because of the terminal's proximity to seaports, freight costs for the flour and feeds milling operations are expected to significantly decrease. The bulk grains terminal, which will cost approximately P2.5 billion, is expected to start operations by the fourth quarter of 2013 and has a payback period of seven years.
• The Company has also moved quickly to replace the meat production capacity lost by The Purefoods-Hormel Co. Inc. (TPHCI) 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.