SAN MIGUEL BREWRY INC.
A subsidiary of San Miguel Corporation
April 15, 2011
Philippine Stock Exchange Inc.
Disclosure Department
3rd Floor, Philippine Stock Exchange Center
Ayala Triangle, Ayala Avenue
Makati City
Attention:
Ms. Janet A. Encarnacion
Head-Disclosure Department
Gentlemen:
We submit herewith the SEC Form 17-A of San Miguel Brewery Inc. for the fiscal year
ended December 31, 2010.
COVER SHEET
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(Company’s Full Name)
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(Business Address: No. Street City/Town/Province)
ATTY. ROSABEL T. BALAN
Contact Person
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632-3000
Company Telephone Number
17-A
FORM TYPE
Month
Day
Annual Meeting
Secondary License Type, If Applicable
Dept. Requiring this Doc.
Amended Articles Number/Section
Total Amount of Borrowings
Total No. of Stockholders
Domestic
Foreign
----------------------------------------------------------------------------------------------------------To be accomplished by SEC Personnel concerned
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File Number
LCU
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Document I. D.
Cashier
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-----------------Remarks = pls. Use black ink for scanning purposes
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-A
ANNUAL REPORT PURSUANT TO SECTION 17
OF THE SECURITIES REGULATION CODE AND SECTION 141
OF THE CORPORATION CODE OF THE PHILIPPINES
1. For the fiscal year ended DECEMBER 31, 2010
2.
SEC Identification Number CS200711828 3. BIR Tax Identification No. 006-807-251
4. Exact name of issuer as specified in its charter SAN MIGUEL BREWERY INC.
5. PHILIPPINES
Province, Country or other jurisdiction of
incorporation or organization
6.
(SEC Use Only)
Industry Classification Code:
7. 40 SAN MIGUEL AVENUE, MANDALUYONG CITY
Address of principal office
1550
Postal Code
8. (632) 632 3000
Issuer's telephone number, including area code
9. N.A.
Former name, former address, and former fiscal year, if changed since last report.
10. Securities registered pursuant to Sections 8 and 12 of the SRC, or Sec. 4 and 8 of the RSA
Title of Each Class
Number of Shares of Common Stock
Outstanding and Amount of Debt
Outstanding as of December 31, 2010
COMMON SHARES
15,410,478,960
LONG-TERM DEBT
P51.364 billion
11. Are any or all of these securities listed on a Stock Exchange.
Yes [ √ ]
No [ ]
If yes, state the name of such stock exchange and the classes of securities listed therein:
THE PHILIPPINE STOCK EXCHANGE, INC.
COMMON SHARES
12. Check whether the issuer:
(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17.1 thereunder
or Section 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of The Corporation
Code of the Philippines during the preceding twelve (12) months (or for such shorter period that the
registrant was required to file such reports):
Yes [√ ]
No [ ]
(b) has been subject to such filing requirements for the past ninety (90) days.
Yes [√ ]
No [ ]
13. The aggregate market value of the voting stock held by non-affiliates of the Company as of December
31, 2010 and March 31, 2011 are P 2,828,994,300.00 and P 2,837,734,705.00, respectively.
DOCUMENTS INCORPORATED BY REFERENCE
14.
The following documents are attached and incorporated by reference:
None.
2
PART I – BUSINESS AND GENERAL INFORMATION
Item 1. Business
San Miguel Brewery Inc. (the “Company” or “SMB”) and its subsidiaries, Iconic Beverages, Inc. (“IBI”)
and San Miguel Brewing International Limited (“SMBIL”) and its subsidiaries (“SMBIL Group”) (and
together with Brewery Properties Inc. (“BPI”) and its subsidiary, collectively, the “Group”), is primarily
engaged in the manufacture and sale of fermented and malt-based beverages, particularly beer of all kinds
and classes. The Company, a majority-owned subsidiary of San Miguel Corporation (“SMC”), is the
largest producer of beer in the Philippines with five breweries strategically located across the Philippines
and a highly developed distribution system serving 475,355 outlets.
With the completion of its acquisition of the international beer and malt-based beverage business of SMC
through its purchase of the 100% issued and outstanding capital stock of SMBIL from San Miguel
Holdings Limited, a wholly-owned subsidiary of SMC, in January 2010, the Company broadened its
geographical participation with operations in Hong Kong, Indonesia, mainland China, Thailand, and
Vietnam. The SMBIL Group operates one brewery each in Indonesia, Vietnam, Thailand, and Hong
Kong, and two breweries in China. International operations account for 17% of the total beer volume of
the Group.
Following approval by the shareholders of SMC of the spin-off of the domestic beer business on July 24,
2007, and the creation of the Company, all plant and equipment used in the domestic beer business were
transferred to the Company, while SMC retained ownership of the brands and land assets used in the
domestic beer business.
The Company undertook an initial public offering of its shares (“IPO”) in April to May 2008 pursuant to
which the Company offered to the public a total of 77,052,000 new common shares. After the IPO, the
Company’s resulting outstanding common shares totaled 15,410,478,960 which were listed on the PSE on
May 12, 2008.
On February 20, 2009, SMC and Kirin Holdings Company, Limited (“Kirin”) signed a share purchase
agreement for the acquisition by Kirin of approximately 43.249% stake in the Company. Such sale by
SMC to Kirin was completed in May 2009. The additional shares acquired by Kirin from all existing
shareholders of the Company by virtue of the mandatory tender offer resulted in Kirin increasing its stake
in the Company, which currently stands at 48.39%.
The Company issued on April 3, 2009, Philippine peso-denominated fixed rate bonds in the aggregate
principal amount of P38.8 billion to finance its acquisition of the interests of SMC in IBI and BPI.
IBI is the company into which SMC transferred certain Philippine beer and malt-based beverages brands,
including related trademarks, copyrights, patents, and other intellectual property rights and know-how,
while BPI is the company into which SMC transferred certain parcels of land on which all of the
Company’s production facilities and certain sales offices used by the Company for its beer businesses are
located (“Land”). Brewery Landholdings, Inc. (“BLI”), the wholly-owned subsidiary of BPI, also owns
land on which certain sales offices used by the Company in its domestic beer operations are located.
The Company completed its purchase of SMC’s interests in IBI on April 29, 2009, as a result of which
IBI became a wholly-owned subsidiary of the Company. On the other hand, the Company and SMC
executed a Deed of Absolute Sale of Shares on November 10, 2010 for the purchase by the Company of
all the interests of SMC in BPI, comprising 40% of the issued and outstanding capital stock of BPI. A
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portion of the purchase price for the said shares, corresponding to the 128 Land titles transferred in the
name of BPI, has been paid by the Company to SMC, with the balance to be paid upon transfer by SMC
of the remaining eight Land titles in the name of BPI.
The developments in the Group are also discussed in the Group’s Management Discussion and Analysis
attached hereto as Annex “E” and in Notes 2, 10, 12, 13, 17, 19, 26 and 34 of the Group’s Audited
Consolidated Financial Statements attached hereto as Annex “F”.
Other than the foregoing, there was no bankruptcy, receivership or similar proceeding or material
reclassification, merger, consolidation, or purchase or sale of a significant amount of assets by the
Company which is not in the ordinary course of business since the Company’s incorporation in 2007.
Products
The Company’s and SMBIL Group’s (the “SMB Beer Group”) product portfolio has grown over the past
120 years from a single product produced in a single brewery in 1890.
SMB now has an array of popular beer products catering to the distinct tastes and preferences of beer
drinkers across all segments and markets in the Philippines. San Miguel Pale Pilsen, the SMB Beer
Group’s flagship brand, has been an iconic Philippine brand for most of the 20th century and up to today.
After considering the Filipino beer drinker’s evolving preferences, other brands and products have been
introduced, and these have been very successful. Today, the Company offers a portfolio of eleven strong
and popular brands: Pale Pilsen, Red Horse, San Mig Light, Super Dry, Cerveza Negra, San Mig Strong
Ice, Gold Eagle, San Miguel Premium All-Malt, Oktoberfest Brew (a seasonal beer), Cali, the country’s
only malt-based non-alcoholic drink and the recently launched San Miguel Alcoholic Malt Beverage in
apple and lemon flavors. The country’s top four beer brands (Red Horse, Pale Pilsen, San Mig Light, and
Gold Eagle) are all produced by the Company. Unlike most other markets for beer, imported beer brands
account for only 0.1% of the Philippine beer market, with distribution limited to upscale bars and hotels
and high-end supermarkets.
The international beer operations also offer the Pale Pilsen and San Mig Light brands in the Hong Kong,
China, Thailand, Vietnam and Indonesia markets and Red Horse in the Thailand market, in addition to
local brands: Valor (Hong Kong, China), Blue Ice (Hong Kong), Dragon and Guang’s Pineapple
(South China), Super Cool and Blue Star (North China), W1N Bia and Dzo (Vietnam) and Anker, Kudah
Putih, Sodaku, and Soda Ice (Indonesia).
The SMB Beer Group’s beverage products are listed in Annex “A” hereof.
The Company derives much of its revenue from the sale of its most popular brands Red Horse and Pale
Pilsen. Together, revenues of these two brands contribute 78% of the total revenues of the Company.
Export sales from the Philppines were only 0.74% of total revenues of the Company in 2010.
The Company’s top three export markets in 2010 were Taiwan, Korea and Singapore. Exports to these
markets accounted for approximately 21%, 13% and 11%, respectively, of its total export volumes. Other
Revenues include sales of CO2 and traded products.
In addition to serving their local markets, the breweries of the SMBIL Group also sell their products in
various export markets.
4
The following table presents the Group’s net sales for the periods indicated:
For the Year ended
December 31, 2010
P
For the Year ended
December 31, 2009
P
(in millions)
Beer Sales
Philippines .....................................................................................................
55,211
50,441
Exports ..........................................................................................................
365
391
International...................................................................................................
11,789
Other Revenues .................................................................................................
210
177
Total ..................................................................................................................
67,575
51,009
For the Year ended
December 31, 2008
P
48,310
366
111
48,787
Distribution Methods of Products
The Company maintains a network of five local breweries that are strategically located in the three main
islands of the Philippines: Luzon, Visayas and Mindanao. The Company has breweries in each of
Valenzuela City, Metro Manila; San Fernando City, Pampanga; Mandaue City, Cebu; Bacolod City,
Negros Occidental; and Darong, Sta. Cruz, Davao del Sur. The strategic location of the Company’s
breweries in the Philippines reduces overall risks by having alternative product sources to avert possible
shortages and meet surges in demand in any part of the country. This also assists the Company in
ensuring that the beer is freshly delivered to customers at an optimal cost. Currently under construction
is the bottling plant in Sta. Rosa, Laguna.
The Company has a far-reaching and efficient distribution system in the Philippines, which is based on
five strategically located breweries and effective management of third party service providers. The
Company’s products are delivered from any one of the Company’s five breweries by contract haulers
and, in certain circumstances, by a fleet of boats contracted by the Company, to a sales office or dealer
warehouse generally within five days from production in the breweries. The sales office or dealer then
delivers the beer to the wholesaler or retailer promptly afterward, ensuring ample stock and quality
wherever and whenever San Miguel Beer products are needed. As of December 31, 2010, the Company
had more than 50 administrative and sales offices and approximately 500 dealers throughout the
Philippines.
As of December 31, 2010, the Company, together with its distributors and call center associates, had a
sales force of approximately 1,251 in the Philippines.
For the international operations, the SMBIL Group has one brewery each in Indonesia, Vietnam,
Thailand, and Hong Kong, and two breweries in China. Third party service providers transport the
products produced from these breweries to the customers of the SMBIL Group, which may consist of
dealers, wholesalers, retail chains, or outlets, depending on the market as discussed in Customers below.
The SMBIL Group maintains a total sales force of approximately 656 in the said five countries with 18
sales regions in China (Guangzhou, Greater Foshan, Baoding), seven in Thailand, four in Vietnam and
five in Indonesia. In Thailand, all local sales are done through the Group’s marketing arm, San Miguel
Marketing Thailand Limited (“SMMTL”), while in Indonesia, the distribution of products is through
Jangkar Delta Indonesia (“JDI”), a subsidiary in the Group.
5
Status of any publicly-announced new products
The Company launched in the domestic market the San Miguel Alcoholic Malt-Beverage in apple and
lemon flavors in 2010. The SMBIL Group also introduced the lower alcohol, lower calorie, lower
original gravity San Mig Light in long neck bottle in Hong Kong, the local brand Dzo in Vietnam and the
San Miguel Pale Pilsen in steinie bottles in Indonesia in 2010.
Competition
The Company faces domestic competition from another domestic producer, Asia Brewery, Inc. (“ABI”),
which sells both its own brand and foreign brands it produces under license, and from foreign brewers.
ABI is the Company’s largest competitor in the Philippine market. It operates two breweries and also
holds the license for Carlsberg, Coors and Colt 45 in the Philippines. ABI competes, mainly on the basis
of price, through its own Beer na Beer and Colt 45 brands. ABI also competes with the Company’s
market-leading high-alcohol beer product, Red Horse, with its licensed Colt 45 brand. Competition from
imported beers is minimal.
In its main international markets, the SMBIL Group contends with both foreign and local beer brands,
such as Blue Girl (Hong Kong), Carlsberg (Hong Kong, Thailand), Heineken (Hong Kong, South China,
Thailand, Vietnam and Indonesia), Tsingtao (Hong Kong, China), Yanjing (China), Tiger (Thailand,
Vietnam and Indonesia), Guinness (Hong Kong and Indonesia), Bintang (Indonesia), Budweiser and
Snow (China), Singha and Asahi (Thailand), and Foster’s and Saigon Beer (Vietnam).
The SMB Beer Group also competes with producers of other alcoholic beverages, primarily low-priced
gin and brandy.
In the beer industry — and more generally the alcoholic beverage industry — competitive factors
generally include price, product quality, brand awareness and loyalty, distribution coverage, and the
ability to respond effectively to shifting consumer tastes and preferences. The Company believes that its
market leadership, size and scale of operations, and extensive distribution network in the Philippines
create high entry barriers and provide the Company with a competitive advantage in the Philippines.
Sources and Availability of Raw Materials and Packaging Supplies
A. Malted Barley, Hops, and Adjuncts
The SMB Beer Group depends on raw materials sourced from third parties to produce its products. The
SMB Beer Group procures key raw materials for its beer operations through a procurement group that
uses standardized procurement procedures. Beer production requires malted barley and hops, which are
sourced generally from the United States, Australia and Europe, while new sources in China and India
are being developed; and adjuncts, primarily corn, sugar and rice, which are generally sourced
domestically (where the breweries are located).
The SMB Beer Group enters into supply contracts with key raw material suppliers with terms ranging
from approximately one month to five years. These contracts typically provide for a pre-determined price
for the duration of the contract. In addition, depending on considerations such as price trends and the
quality of raw materials, the SMB Beer Group also makes spot purchases in the open market. To ensure
the quality of its products, the SMB Beer Group closely monitors the quality of its raw materials.
6
B. Bottles and Packaging Materials
In 2010, approximately 98% of the Company’s beer sales in the Philippines are in returnable glass bottles
in plastic cases, while approximately 95% of the glass bottles used by the Company were returned bottles.
The Company’s efficient returnable bottle system decreases its exposure to rising packaging costs driven
by increases in fuel and therefore helps the Company to keep its products affordable. The durable nature
of the returnable glass bottles and plastic crates results in an average usage of 60 cycles over a span of 10
years. New glass bottles and plastic cases are purchased only to support accelerating sales and to replace
broken and scuffed bottles.
For the international operations, the returnable bottle system is also used in Vietnam and Indonesia,
except for products which are intended for exports which use one-way containers. Products in Hong Kong
and Thailand are also in one-way containers, while China employs both returnable bottle system and oneway containers.
The SMB Beer Group also sells its products in aluminum cans and kegs.
The SMB Beer Group sources most of its packaging materials from San Miguel Yamamura Packaging
Corporation, a subsidiary of SMC, and its subsidiaries, which manufacture, among other packaging
products, new glass bottles, aluminum cans, crowns, plastic cases and carton boxes.
The SMB Beer Group’s top suppliers of raw materials and packaging supplies are listed in Annex “B”
hereof.
Customers
The SMB Beer Group markets, sells and distributes its products principally in the Philippines and in Asia.
Many of the Company’s products have strong market positions in the Philippines. The Company believes
that it maintains the most extensive distribution network in the Philippine beverage market. The
Company’s beer products are distributed and sold at 475,355 outlets in the Philippines, including offpremise outlets such as supermarkets, grocery stores, sari-sari stores, and convenience stores, as well as onpremise outlets such as bars, restaurants, hotels and beer gardens. As of December 31, 2010, the Company
had approximately 500 dealers throughout the Philippines.
Customers of the international beer operations vary across markets. In Hong Kong, the Group directly
sells to retail chains, wholesalers and on-premise outlets, which is similar to Vietnam, wherein the Group
also directly sells to dealers (who then distributes to wholesalers, retailers and outlets) and retail chains.
The SMBIL Group only sells to dealers in China, which dealers then serves wholesalers, retailers,
supermarkets and outlets. For Thailand and Indonesia, the sales are conducted by their respective selling
arm, SMMTL and JDI. As of December 31, 2010, the international operations had 266 dealers in China,
Thailand, Vietnam and Indonesia and serves 14 wholesalers and over 5,000 outlets (including retail
chains, supermarkets, convenience stores) in Hong Kong.
Dealers generally provide their own warehouse facilities and trucks, considerably reducing the SMB Beer
Group’s own investment requirements. The SMB Beer Group enters into written distribution agreements
with its dealers that specify the territory in which the dealer is permitted to sell the SMB Beer Group’s
products, the brands that the dealer is permitted to sell, the performance standards applicable to the dealer,
procedures to be followed by the dealer in connection with the distribution rights and circumstances upon
which distribution rights may be terminated
7
The SMB Beer Group also handles the sale and distribution of its beer brands in modern trade outlets
such as hotels, bars and restaurants, supermarkets, hypermarkets, malls and convenience stores. The sales
to these modern trade channels account for only 4.8% of total sales revenue of the Company in 2010. The
Company is not dependent on modern trade given its strong relationship and the relatively large
contributions of the secondary and tertiary trades in the Philippines.
Transactions with and/or dependence on related parties
The Group, in the normal course of business, has transactions with related parties. Significant related
party transactions include (i) those of the Company with IBI relating to licensing of the brands and related
intellectual property rights used in its beer business under a licensing agreement; (ii) those with BPI and
BLI relating to leasing of land owned by BPI and BLI on which the Company’s production facilities and
sales offices are located, (iii) those with SMC and its subsidiaries (other than the Group) relating to leases
of office space and land, licensing of trademark under a licensing agreement, and shared corporate
services rendered by SMC such as treasury services; (iv) those of the Company with Petron Corporation
primarily for supply of fuel, and (v) those with the San Miguel Yamamura Packaging Group for
purchases of bottles and packaging materials. The SMBIL Group also purchases products from the
Company in the normal course of business.
Other related party transactions include cost-sharing arrangements for certain expenses and costs of
services such as utilities, rental of office space, internet, and photocopying services (SMC; San Miguel
Pure Foods Co., Inc. (“SMPFC”) and subsidiaries); information technology and systems services
(SMITS, Inc.); toll-manufacturing services (San Miguel Beverages, Inc. and Ginebra San Miguel, Inc.);
logistics and warehousing services (SMC Shipping and Lighterage Corporation); insurance brokering
services (Anchor Insurance Brokerage Corporation); stock transfer services (SMC Stock Transfer
Services Corporation); deposit pick up arrangements (Bank of Commerce); liaison and consultancy
services for power and energy (Archen Techonologies, Inc.) and sale of waste products (SMPFC
subsidiary).
The Group’s transactions with related parties are described in Note 27 of the Group’s Audited
Consolidated Financial Statements attached hereto as Annex “F”.
Registered trademarks/Patents, Etc.
Brands, trademarks, patents and other related intellectual property rights used by the Company are either
registered or pending registration in the name of IBI in the Philippines. Most of the brands, trademarks
and other intellectual property rights used by the international operations are registered or pending
registration in the name of SMBIL, with certain local brands in the name of its subsidiaries in Hong Kong
and Thailand. IBI and SMBIL are wholly-owned subsidiaries of the Company.
Government Approval
The permits or licenses of the Company for its domestic operations have been transferred from SMC
except for the water permits covering the deep wells in the breweries (except in Polo Brewery which
relies on a third-party for its water supply).
The Group has obtained all necessary permits, licenses and government approvals to manufacture and sell
its products, and undertake its businesses.
8
Government Regulation
Various government agencies in the Philippines regulate the different aspects of the Company’s beer
manufacturing, sales and distribution business.
Philippine national and local government legislation require a license to sell alcoholic beverages and
prohibit the sale of alcoholic beverages to persons below 18 years of age or within a certain distance from
schools and churches.
The Bureau of Food and Drugs (under the Department of Health) administers and enforces the law, and
issues rules and circulars, on safety and good quality supply of food, drug and cosmetic to consumers; and
regulation of the production, sale, and traffic of the same to protect the health of the people. Pursuant to
this, 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.
The Department of Health also prescribed the Guidelines on Current Good Manufacturing Practice in
Manufacturing, Packing, Repacking, or Holding Food for food manufacturers.
The Consumer Act of the Philippines, the provisions of which are principally enforced by the Department
of Trade and Industry, seeks to protect consumers against hazards to health and safety and against
deceptive, unfair and unconscionable sales acts and practices; and provide information and education to
facilitate sound choice and the proper exercise of rights by the consumer.
The Standards of Trade Practices and Conduct in the Advertising Industry as formulated by the Philippine
Advertising Board, a voluntary association of various companies and groups engaged in the fields of
advertising, marketing and media in the Philippines, prescribe rules on the advertising activities of its
members.
The Securities and Exchange Commission (“SEC”) issues regulations on the registration and regulation of
securities exchanges, the securities market, securities trading, the licensing of securities brokers and
dealers and reportorial requirements for publicly listed companies and the proper application of the
Securities Regulation Code, as well as the Corporation Code, and certain other statutes. Its shares and its
Peso-denominated fixed rate bonds being listed on the First Board of The Philippine Stock Exchange, Inc.
(“PSE”) and the Philippine Dealing & Exchange Corp. (“PDEx”), respectively, the Company is also
subject to the listing rules of the PSE and PDEx.
The Company is subject to extensive regulation by the Philippine Department of Environment and
Natural Resources (“DENR”). The Company is required to comply with the provisions of the Philippine
Environmental Impact Statement System (“EIS Law”). The EIS Law is the general regulatory framework
for any project or undertaking that is either (i) classified as environmentally critical; or (ii) is situated in
an environmentally critical area. The law is implemented by the DENR. Under the EIS Law, an entity that
will undertake any such declared environmentally critical project or operate in any such declared
environmentally critical area is required to submit an Environmental Impact Statement and secure an
Environmental Compliance Certificate (“ECC”). This ECC requirement is applicable to each of the five
(5) breweries that the Company operates throughout the Philippines.
The Company is also subject to the provisions of the Philippine Clean Water Act of 2004 (“Clean Water
Act”) and its implementing rules and regulations. The Clean Water Act requires the Company to secure a
wastewater discharge permit, which authorizes it to discharge liquid waste and/or pollutants of specified
concentration and volume from its breweries into any water or land resource for a specified period of
9
time. The Environmental Management Bureau (“EMB”) of the DENR is responsible for issuing discharge
permits and monitoring and inspection of the facilities of the grantee of the permit.
The provisions of the Philippine Clean Air Act and its implementing rules and regulations are likewise
applicable to the Company. The Clean Air Act provides that before any business may be allowed to
operate facilities and equipment, which emit regulated air pollutants, the establishment must first obtain a
Permit to Operate Air Pollution Source and Control Installations. The EMB is responsible for issuing
permits to operate air pollution source and control installations as well as monitoring and inspection of
the facilities of the grantee of the permit.
Other regulatory environmental laws and regulations applicable to the Company are as follows:
 The Water Code, which governs the appropriation and use by any entity of water within the
Philippines. Water permits are issued by the National Water Resources Board.
 Toxic Substances and Hazardous and Nuclear Wastes Control Act of 1990 and its
implementing rules and regulations, which requires waste generators to register with the EMB.
The law aims to regulate the management of hazardous wastes generated by various
establishments such as the Company.
The SMBIL Group’s international operations are also regulated by various applicable laws in their
respective markets, including the regulations on food labeling in China and Hong Kong, the regulatory
ban on advertising alcohol in Thailand, and the local regulations in Indonesia passed by cities,
municipalities and provinces which are influenced by the sharia (religious law of Islam) or the peraturan
daerah (“perda”). In addition, the SMBIL Group’s Hong Kong and Indonesia subsidiaries are listed
companies, and are thus subject to the regulatory and listing requirements of their respective stock
exchanges.
Taxation
In the Philippines, excise tax represents a significant component of beer production costs. Excise tax is
payable by the producer, and the tax rate varies depending on the type of alcoholic beverage being
produced, with more expensive products being subject to higher rates. Excise tax accounts for a
significant portion of the Company’s production costs. As of January 1, 2010, the excise tax rates
applicable to the Company’s products ranged from P9.64 per liter to P19.05 per liter. Excise tax rates
applicable to beer have been raised by a further 8% effective January 1, 2011. The sale of beer in the
Philippines is also subject to a value-added tax.
Save for Hong Kong, the SMBIL Group’s products are also subject to excise tax in the markets in which
the SMBIL Group operates. The rates are: IDR11,000/liter for Indonesia; 45% of taxable price for
Vietnam; 60% of the ex-factory price (which is an established price floor, the product is the “beer tax”)
plus 10% of the beer tax (interior tax) plus 2%of the beer tax (healthy tax) plus 1.5% TBPS for Thailand;
and RMB220/ton for products priced less than RMB3,000 and RMB250/ton for products priced more
than RMB3,000 for China.
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Research and Development
The following table presents the amounts spent by the SMB Beer Group on research and development
activities, in millions of pesos and as a percentage of net sales, for the periods indicated:
For the years ended
December 31,
2010
2009
2008
Amount (in millions)
Percentage of net sales
……………………………………………………………
……………………………………………………………
P108.0
P43.0
P32.0
0.16%
0.08%
0.06%
Cost of Compliance with Environmental Laws
In 2010, the SMB Beer Group spent P 94.4 million in complying with environmental laws and
regulations.
Human Resources and Labor Matters
The table below presents the SMB Beer Group’s personnel numbers by functional category for the periods
indicated.
Category
Number of Employees
For the year ended December 31, 2010
Executives (Officers and Managers). . . .
Project Employees and Consultants. . . .
All other Employees. . . . . . . . . . . . . . . . .
4,168
Total. . . . . . . . . . . . . . . . . . . . . .. . . . . . .
4,495
237
90
The SMB Beer Group does not expect the number of its employees to materially change in the next 12
months.
The Company has nine existing domestic Collective Bargaining Agreements (“CBAs”) as of December
31, 2010 that cover approximately 50% of the Company’s employees. The international operations has
five existing collective labor agreements (“CLAs”). Details of the CBAs and CLAs and their expiration
dates, in respect of both the term of the agreement for employment and the term for the union to represent
employees, are set out in Annex “C”. The Company has not experienced any strikes or work stoppages
in the last three years.
The Company and some of its international subsidiaries have a funded, noncontributory retirement plans
covering all of their permanent employees.
Under the Company’s plan, all regular monthly-paid employees and daily-paid workers of the Company
are eligible members. Eligible members who reach the age of 60 (65 for employees transferred from
SMC) are entitled to compulsory retirement. The Company may, however, at its own discretion, continue
11
an employee’s membership under the plan on a year-to-year basis after he/she reaches compulsory
retirement. Eligible members may opt to retire earlier after they have completed at least 15 years of
credited service at the Company. Upon retirement, eligible members will receive a certain percent of their
final monthly pay for each year of their credited service. The amount varies depending on the years of
service of the retiree. Eligible members may receive certain resignation benefits if they resign before they
reach an eligible retirement date if they have completed at least five years of service at the Company. The
retirement plan of the Group is further described in Note 29 of the Audited Consolidated Financial
Statements of the Group attached hereto as Annex “F”.
Major Business Risks
Competitor Risks
The SMB Beer Group faces competition from domestic or local producers, which sells both its own brand
and foreign brands it produces under license, and from foreign brewers. The consolidation of the SMB
Beer Group’s competitors, the entrance of a new, larger competitor into the markets, or unanticipated
actions or irrational behavior by existing competitors, could lead to downward pressure on prices or a
decline in the SMB Beer Group’s market share. The SMB Beer Group also competes with producers of
other alcoholic beverages, primarily from low-priced gin and brandy. In the beer industry — and more
generally the alcoholic beverage industry — competitive factors generally include price, product quality,
brand awareness and loyalty, distribution coverage, and the ability to respond effectively to shifting
consumer tastes and preferences. The SMB Beer Group also competes with other discretionary items,
including both other food and beverage products and other goods and services generally.
Catastrophy and Environmental Risks
Natural catastrophes such as typhoons, volcanic eruptions, earthquakes, mudslides, droughts and floods
may impair the economic conditions in the affected areas, as well as the overall economy in the market
where the SMB Beer Group operates, and disrupt the SMB Beer Group’s ability to produce or distribute
its products, and may materially disrupt and adversely affect the Company’s business and operations.
Regulatory Risks
The Group’s operations are subject to various regulations and taxes.
Regulatory restrictions in the Group’s activities, such as promotions and advertising particularly in
Thailand and changes in regulations and actions by national or local regulators can result in increased
competitive pressures.
Excise tax accounts for a significant portion of the Company’s production costs. The Philippine
government increased the excise tax rates applicable to beer products on January 1, 2005 by 20%, on
January 1, 2007 by 8% and on January 1, 2009 by an additional 8%. The excise tax rates applicable to
beer has been raised by a further 8% effective January 1, 2011. In general, the SMB Beer Group attempts
to pass on higher taxes to its consumers by raising the prices of its products.
Sourcing Risks/Price Risks
The SMB Beer Group depends on raw materials sourced from third parties to produce its products. Beer
production requires malted barley and hops, which are sourced primarily from the United States, Australia
and Europe, and adjuncts, primarily corn and sugar, which are primarily sourced domestically. Raw
12
materials are subject to price volatility caused by a number of factors, including changes in global supply
and demand, weather conditions and governmental controls.
Financial Risks
a. Interest Rate Risk
The Group’s exposure to changes in interest rates relates primarily to the SMB Beer Group’s long-term
borrowings. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. On the
other hand, borrowings issued at variable rates expose the Group to cash flow interest rate risk. The
Group manages its interest cost by using an optimal combination of fixed and variable rate debt
instruments.
b. Currency Risk
The SMB Beer Group’s foreign currency exchange rate risk exposure results primarily from business
transactions denominated in foreign currencies. The SMB Beer Group uses a combination of natural
hedges and buying foreign currencies at spot rates, where necessary, to address short-term imbalances
from importations, revenue and expense transactions, and other foreign currency-denominated
obligations.
c. Credit Risk
The Group’s exposure to credit risk arises from default of counterparties to settle its obligations. Credit
risk is controlled by the stringent policies on credit approvals, determination of appropriate credit limits,
and credit monitoring procedures. It is the Group’s policy to enter into transactions with a diversity of
creditworthy parties to mitigate any concentration of credit risk.
The Group ensures that sales of its products are made to customers with appropriate credit history and
sufficient collateral. The Group has an internal mechanism to monitor the granting of credit and adopts a
prudent credit policy to manage credit exposures. If necessary, the Group makes provisions for potential
losses on credit accounts and obtains additional collateral to cover increase in credit limit as a result of
price adjustments.
The Group’s exposure to credit risk arises from the default of the counterparties with a maximum
exposure equal to the carrying amount of these instruments, net of the value of collaterals, if any.
The Group does not expect any counterparty to default on its obligations given the rich credit ratings and
the careful process to establish creditworthiness of its customers. The Group has no significant
concentration of credit risk with any counterparty.
d. Liquidity Risk
The Company’s liquidity risk exposure arises primarily from its financial liabilities resulting from the
issuance of its fixed rate bonds and unsecured loan facility. The Group manages its liquidity risk by,
among others, constantly monitoring its liquidity position, liquidity gaps or surplus on a daily basis;
maintaining an adequate time spread of refinancing maturities; being able to access funding when needed
at the least possible cost; and ensuring adequate funding is available at all times.
For other financial risks material to the Group’s operation, see Note 32 of the Group’s Audited
Consolidated Financial Statements attached hereto as Annex “F”.
13
Social and Cultural Risks
The ability of the SMB Beer Group to successfully launch new products and maintain demand for its
existing products depends on the acceptance of these products by consumers, as well as the purchasing
power of consumers. Consumer preferences may shift because of a variety of reasons, including changes
in demographic and social trends or changes in leisure activity patterns. The SMB Beer Group intends to
expand its product and brand portfolio to cover a wider range of the market. The SMB Beer Group has
also introduced products that try to address or are attuned to the evolving lifestyles and need of its
consumers. The SMB Beer Group is likewise developing packaging improvements for existing brands as
well as convenience pack formats consistent with faster-paced lifestyles and addressing the various
activities and interest of consumers.
Political Risk
Political or social instability in the markets where the SMB Beer Group operates could negatively affect
the general economic conditions and operation environment therein, which could have a material impact
on the SMB Beer Group’s business, financial position and results of operation.
Personnel Risk
The SMB Beer Group depends on certain key personnel, and its business and growth prospects may be
disrupted if their services were lost. The SMB Beer Group’s future success is dependent upon the
continued service of its key executives and employees. If many of its key personnel were unable or
unwilling to continue in their present positions, or if they joined a competitor or formed a competing
company, the SMB Beer Group may not be able to replace them easily, and the business of the SMB Beer
Group may be significantly disrupted and its financial position and financial performance may be
materially and adversely affected. For example, the Company has 30 brewmasters, a position critical to
its manufacture of beer. These brewmasters typically have degrees in chemistry or chemical engineering,
and each of them has over ten years of on-the-job-training experience working for the Company, making
them difficult to replace.
Item 2. Properties
The Company’s principal owned properties in the Philippines consist of five breweries and 41
warehouses, administrative and sales offices. The Company leases the land where its properties are
located from BPI and BLI, while the land improvements, buildings, machinery, transportation equipment,
office equipment and furniture, and/or tools and small equipment on these parcels of land in which these
breweries, region offices, sales offices and warehouses are located are owned by the Company. The
locations and general asset description of the properties of the Group are set out in Annex “D” attached
hereto.
The properties owned and/or leased by the Company are in good condition and are free from liens
and encumbrances, other than those permitted under the Trust Agreement dated March 16, 2009 between
the Company and The Hong Kong Shanghai Banking Corporation in connection with the Company’s
offer of its Philippine peso-denominated fixed rate bonds in the aggregate principal amount of P38.8
billion.
14
Item 3. Legal Proceedings
The Group is not a party to any material pending legal proceedings, and none of the properties owned by
the Group are the subject of any legal proceeding.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year
covered by this report.
PART II – OPERATIONAL AND FINANCIAL INFORMATION
Item 5. Market for Issuer’s Common Equity and Related Stockholder Matters
The Company's common shares are traded in the PSE. Such shares were listed on the Main Board of the
PSE on May 12, 2008.
The Company’s high and low closing prices for the following quarters are as follows:
1st
2nd
3rd
4th
1st
High
10.75
9.30
9.40
9.70
2009
High
33.00
Low
8.20
8.50
8.70
8.70
2011
High
9.60
10.50
10.25
31.95
2010
Low
8.20
9.00
9.00
9.50
Low
26.10
The closing price as of April 4, 2011, the latest practicable trading date is P30.40.
The approximate number of shareholders of common shares as of December 31, 2010 is 960.
The top 20 stockholders as of December 31, 2010 are as follows:
Rank
1
2
3
4
5
6
1
2
Name of Stockholders
San Miguel Corporation
Kirin Holdings Company, Limited
PCD Nominee Corporation (Filipino)
Henry Sy, Sr.
San Miguel Corporation Retirement Plan
PCD Nominee Corporation (Non-Filipino)
Total No. of
Shares
7,859,319,2701
7,456,859,8802
73,306,510
12,500,000
3,129,000
1,593,800
% of
Total O/S
50.999838
48.388242
0.475693
0.081114
0.020304
0.010342
Excludes beneficial shares held by the five nominee directors of 5,000 shares each (25,000 shares).
Excludes beneficial shares held by the four nominee directors of 5,000 shares each (20,000 shares).
15
Rank
7
8
9
10
11
12
13
14
15
16
17
18
19
20
Name of Stockholders
Macario Enriquez Asistio III
Ponciano V. Cruz, Jr.
Marivic L. Almeda
Michael Ryan R. Fernando
Cecilio D. Hipolito, Sr.
Rene Michael S. French
Mario Ong
Florito F. Santos
Mariano P. Blanco and/or Ligaya V.
Blanco
Jennifer L. Sarrosa
Arturo John J. Ledesma, Jr.
Luzviminda Santos and/or Cynthia C.
Santos
Michelle Ledesma
John Paul V. Blanco and/or Christina S.
Blanco
Total No. of
Shares
63,000
62,500
62,000
62,000
62,000
62,000
62,000
60,000
50,000
% of
Total O/S
0.000409
0.000406
0.000402
0.000402
0.000402
0.000402
0.000402
0.000389
0.000324
50,000
50,000
50,000
0.000324
0.000324
0.000324
50,000
40,000
0.000324
0.000260
Cash dividends declared per share amounted to P0.550 and P0.595 in 2010 and 2009, respectively.
There were no securities sold by the Company since its incorporation in 2007 which were not registered
under the Securities Regulation Code or exempt securities (including issuance of securities constituting an
exempt transaction), other than the (i) subscription by SMC to 250,000 common shares (then with a par
value of P100.00 per common share) prior to the incorporation of the Company to comply with the
requirements under the Corporation Code as to the percentage of the capital stock of a corporation which
should be subscribed before it can be registered with the SEC (SRC Section 10.1 (i)); (ii) the issuance of a
total of 15,308,416,960 Common Shares, comprising of 75,000,000 Common Shares from its unissued
authorized capital stock and 15,233,416,960 common shares from the increase in its authorized capital
stock, in exchange for the net assets of the domestic beer business of SMC with a net book value
equivalent to P 15,308,416,960 (SRC Section 10.1 (e)); (iii) issuance of 5,000 common shares to each of
the independent directors of the Company (SRC Section 10.1 (c)); and (iv) initial public offering of its
common shares in April-May 2008 and issuance of fixed rate bonds in the aggregate principal amount of
P38.8 billion in April 2009 pursuant to registration statements rendered effective and permits to sell
issued by the SEC.
Item 6. Management's Discussion and Analysis or Plan of Operation.
The information required by Item 6 (A) may be found on Annex “E” hereto.
Item 7. Financial Statements
The 2010 Audited Consolidated Financial Statements of the Group and Statement of
Management’s Responsibility are attached hereto as Annex “F” with the Supplementary Schedules
attached as Annex “G”.
16
Item 8. Information on Independent Accountant and Other Related Matters
(A)
External Audit Fees and Services
The accounting firm of Manabat Sanagustin & Co., CPAs served as the Company’s external auditors for
the last two fiscal years.
Fees for the services rendered by the external auditor to the Company for the last (2) fiscal years are as
follows:
(in millions, approximate)
Audit Fees
Tax Fees
All Other Fees
2009
P 6.0
2010
6.0
P 0.60
All Other Fees are fees paid to the external auditor for the advisory services rendered in connection with
the valuation of the contigent consideration as set out in the Audited Consolidated Financial Statements of
the Group. Other than the foregoing, no other services were rendered by the external auditor to the
Company.
The stockholders approve the appointment of the Company’s external auditors. The Audit Committee
reviews the audit scope and coverage, strategy and results and endorses the same for the approval of the
board and ensures that audit services rendered shall not impair or derogate the independence of the
external auditors or violate SEC regulations.
(B)
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There are no disagreements with the Company’s external auditors on accounting and financial disclosure.
PART III – CONTROL AND COMPENSATION INFORMATION
Item 9. Directors and Executive Officers of the Issuer
The names of the incumbent directors and key executive officers of the Company, and their respective
ages, periods of service, directorships in other reporting companies and positions held in the last five (5)
years, are as follows:
Ramon S. Ang, 57, Filipino, has served as Chairman of the Company since July 26, 2007 and is the
Chairman of the Company’s Executive Committee. He also holds, among others, the following positions:
Vice Chairman, President and Chief Operating Officer of SMC; Chairman of San Miguel Properties, Inc.
(“SMPI”), San Miguel Yamamura Packaging Corporation (“SMYPC”), Anchor Insurance Brokerage
Corporation (“AIBC”), and San Miguel Brewery Hong Kong Limited (Hong Kong); and a Director of
Ginebra San Miguel, Inc. (“GSMI”), San Miguel Pure Foods Company, Inc. (“SMPFC”) and Top
Frontier Investment Holdings, Inc. (“Top Frontier”). He is also the Chairman and Chief Executive
Officer of Petron Corporation and SMC Global Power Holdings Corp. (“SMC Global”); Chairman of
Liberty Telecoms Holdings Inc., Philippine Diamond Hotel & Resort, Inc., Philippine Oriental Realty
Development, Inc., Atea Tierra Corporation and Cyber Bay Corporation; Vice Chairman of The Manila
Electric Company; and an Independent Director of Philweb Corporation. Mr. Ang has held directorships
in various subsidiaries of SMC during the last five years and was previously the Company’s President
(2007-2009).
17
Roberto N. Huang, 62, Filipino, has served as Director since October 8, 2007 and President of the
Company since April 30, 2009. He is also a Member of the Company’s Executive Committee; and
Chairman and President of IBI, SMBIL, BPI and BLI. He also served as General Manager of the
Company (2007-2009); Director of GSMI (2004-2008), SMPFC (2004-2008); President of San Miguel
Beverages, Inc. (2007-2008); and President of Coca-Cola Bottlers Philippines, Inc., Cosmos Bottling
Corporation and Philippine Beverage Partners, Inc. (2003-2007).
Ferdinand K. Constantino, 59, Filipino, has served as Director of the Company since July 26, 2007 and
is the Chairman of the Company’s Executive Compensation Committee, and a Member of its Audit
Committee. He also holds, among others, the following positions: Director, Senior Vice President, Chief
Finance Officer and Treasurer of SMC; President of AIBC; and a Director of SMYPC, SMC Global, Top
Frontier and Bank of Commerce. Mr. Constantino previously served SMC as Chief Finance Officer of the
San Miguel Beer Division (1999-2005); and as Director of SMPFC (2008-2009), GSMI (2008-2010) and
SMPI (2001-2009); Chief Finance Officer of Manila Electric Company (2009); and as Chief Finance
Officer and Treasurer of the Company (2007-2009). He has held directorships in various subsidiaries of
San Miguel Corporation during the last five years.
Keisuke Nishimura, 54, Japanese, has served as Director of the Company and its Executive Vice
President since April 30, 2009. He is a Member of the Company’s Executive Committee and Executive
Compensation Committee and a Director of San Miguel Brewery Hong Kong Limited (Hong Kong) and
San Miguel Brewing International Limited (BVI). His previous work experience includes: Chairman and
CEO of Kirin (China) Investment Company, Limited (2005); and Manager, Corporate Planning
Department (2002).
Carmelo L. Santiago, 68, Filipino, has served as Independent Director of the Company since February
25, 2010. He was an Independent Director of the Company from October 8, 2007 to April 30, 2009. He is
the Chairman of the Company’s Audit Committee and a Member of its Executive Committee, Executive
Compensation Committee and Nominations and Hearing Committee. He is currently an Independent
Director of SMC, GSMI, SMPI, AIBC, Liberty Telecoms Holdings Inc. and San Miguel Brewery
Hong Kong Limited (Hong Kong); and Director of Terbo Concept, Inc. Mr. Santiago is the founder
and owner of several branches of Melo’s Restaurant and founder of Wagyu Restaurant.
Alonzo Q. Ancheta, 78, Filipino, has served as an Independent Director of the Company since April 30,
2009 and is the Chairman of the Company’s Nominations and Hearing Committee and a Member of its
Audit Committee. Atty. Ancheta is a Director of Philippine Tobacco Flue-Curing and Redrying
Corporation; President of Zobella & Co. (A.Q. Ancheta and Partners), Ogilvy & Mather (Philippines),
Inc., Kinoshita Pearl (Philippines), Inc. and Growe Investments Ltd.; Member of the Board of Trustees
and Corporate Secretary of St. Luke’s Medical Center; Corporate Secretary of Ingasco, Inc.; Council
Adviser of the Intellectual Property Association of the Philippines; and Philippine National Committee
member and Vice Chair of the ASEAN Law Association. He was the Senior Vice President (2000-2006)
and President (2006-2009) of the Asian Patent Attorneys Association.
Yoshinori Isozaki, 57, Japanese, has served as Director of the Company since May 18, 2010. He is the
Managing Director of Kirin Holdings Company, Limited (“Kirin”). His previous work experience in
Kirin includes: Managing Executive Officer and General Manager (2009), and Executive Officer and
General Manager (2008), Corporate Planning Department; and Deputy General Manager, Media Section,
Corporate Communication Department. (2001). He was previously a Director of SMC (2004).
18
Carlos Antonio M. Berba, 45, Filipino, has served as Director of the Company since August 10, 2010.
He is the Managing Director of SMBIL since January 1, 2008. He is also currently Vice Chairman of San
Miguel Brewery Hong Kong Limited (Hong Kong), a Commissioner of PT Delta Djarkarta Tbk
(Indonesia); and a Director of San Miguel Beer (Thailand) Limited and San Miguel Holdings (Thailand)
Ltd. He previously served SMC as President of the San Miguel Beer Division (2006); and Vice
President, CFO for International Beer Operations and Director for Business Planning and Information
Management, San Miguel Beer Division (2002-2006).
Takahiro Kobayashi, 57, Japanese, has served as Director of the Company since August 10, 2010. He is
the Executive Officer, General Manager of the Strategy Planning Department of Kirin. His previous
work experience in Kirin includes: Executive Officer, General Manager of Corporate Planning
Department (2010), CSR and Quality Assurance Department (2009), Internal Audit Department (2008);
General Manager of the Internal Audit Department (2006-2007).
Virgilio S. Jacinto, 54, Filipino, has served as Director of the Company since October 14, 2010 and is a
Member of the Audit Committee and the Nominations and Hearing Committee. He is the Corporate
Secretary, Compliance Officer, Senior Vice- President and General Counsel of SMC; and a Director and
Corporate Secretary of GSMI and Top Frontier. He was formerly the Vice President and First Deputy
General Counsel of SMC (2006-2010) and SMC Deputy General Counsel (2005). He was Director and
Corporate Secretary of United Coconut Planters Bank; Partner at Villareal Law Offices and Associate at
SyCip, Salazar, Feliciano & Hernandez Law Office. Mr. Jacinto is a professorial lecturer at the University
of the Philippines. He holds various directorships in various local and offshore subsidiaries of SMC.3
Teruyuki Daino, 50, Japanese, has served as Director of the Company since April 12, 2011 and is a
member was the Executive Committee and Audit Committee. He is the Executive Financial Advisor of
the Company. His previous work experience includes: General Sales Manager of Gifu Branch of Kirin
Brewery Company Limited (2009- March 2011); President and Chief Executive Officer of Four Roses
Distillery, LLC (2002-2009), Planning Manager of Corporate Planning Department of Kirin Brewery
Company Limited (1998-2002), Business Planning Manager of Budweiser Japan Company (1993-1997)
and Brand Manager of Marketing Department of Kirin Brewery Company Limited (1988-1993).4
Mercy Marie Jacqueline L. Amador, 49, Filipino, is Vice President and Chief Finance Officer and
Treasurer of the Company since March 16, 2009. She was previously Chief Finance Officer of San
Miguel Brewing International Limited (2007-2009); and Division Finance Officer of the San Miguel Beer
Division (2006-2007), and Vice President and Manager, Financial Planning Analysis and Investor
Relations (2001-2006), of SMC.
Minerva Lourdes B. Bibonia, 52, Filipino, is Senior Vice President and Marketing Manager of the
Company since October 1, 2007. She is also a Commissioner of PT Delta Djarkarta Tbk (Indonesia). She
previously served SMC as Senior Vice President and Marketing Head for Corporate Marketing (20022007); and was Director of San Miguel Brewery Hong Kong Limited (Hong Kong) (2006-2010).
Atty. Jacinto replaced Atty. Francis H. Jardeleza who resigned as Director, Corporate Secretary and Compliance
Officer on October 14, 2010 in view of his resignation as General Counsel of SMC.
3
Mr. Daino replaced Mr. Motoyasu Ishihara who resigned as Director and Executive Financial Advisor on April
12, 2011 on account of his new assignment in Kirin.
4
19
Debbie D. Namalata, 45, Filipino, is Vice President and National Sales Manager of the Company since
October 1, 2007. She was previously Vice President and National Sales Manager of the San Miguel Beer
Division of SMC (2007); Executive Assistant to the San Miguel Beer Division President (2007); General
Manager of San Miguel Super Coffeemix Co., Inc. (2006-2007); and General Manager of Magnolia, Inc.
(2005-2006).
Rosabel Socorro T. Balan, 47, Filipino, is Vice President and General Counsel since January 1, 2010
and Corporate Secretary and Compliance Officer since October 14, 2010. She is also currently the
Corporate Secretary of SMBIL and its various subsidiaries, IBI, BPI and BLI. She was Vice President
and Deputy General Counsel of SMC (2003-2009) and Assistant Corporate Secretary of the Company
prior to her appointment as Corporate Secretary. She also acted as Assistant Corporate Secretary of SMC,
GSMI, SMPFC and SMPI; and Compliance Officer of AIBC and SMC Stock Transfer Service
Corporation. Atty. Balan has also been a director, corporate secretary and/or assistant corporate secretary
of other various subsidiaries of SMC, during the last five years.
Rebecca S. Flores, 55, Filipino, is the Assistant Vice President and Head of the Brewing Technical
Group of the Company since February 16, 2008. She was previously Plant Manager of San Miguel
Baoding Brewery, North China Operations (2006-2008) and Mandaue and Bacolod Breweries (20012006), San Miguel Beer Division; and Brewmaster and Brewing Manager of Mandaue Brewery of San
Miguel Brewing Philippines (former name of the San Miguel Beer Division) (1996-2000) of SMC.
Rene T. Ceniza, 48, Filipino, is Assistant Vice President and Logistics Head since October 1, 2007. He
previously served SMC in the following capacities, among others: Assistant Vice President and Manager
for National Logistics of the San Miguel Beer Division (May 2005-2007), and Manager, National
Logistics (2004-2005) of the San Miguel Beer Division.
Enrico E. Reyes, 48, Filipino, is Assistant Vice President and Human Resources and Business Affairs
Communications Head since October 1, 2007. He previously served SMC in the following capacities:
Assistant Vice President and Human Resources and Business Affairs and Communications Head (2007)
and Compensation and Benefits Manager, Human Resources Division (2006-2007), and Human
Resources and Administration Manager for San Miguel Beer Division, Visayas (1997-2005).
Term of Office
Pursuant to the Company’s By-Laws, the directors are elected at each annual stockholders' meeting by
stockholders entitled to vote. Each director holds office until the next annual election and his successor is
duly elected, unless he resigns, dies or is removed prior to such election.
Under the Company’s By-Laws, the annual stockholders’ meeting of the Company is held on the last
Tuesday of May. The change in the date of the annual stockholders’ meeting of the Company from first
Tuesday of May to last Tuesday of May was approved by the SEC on June 9, 2010.
Independent Directors
The independent directors of the Company are as follows:
1. Atty. Alonzo Q. Ancheta
2. Carmelo L. Santiago
20
On June 9, 2010, the SEC approved the amendment to the Amended Articles of Incorporation of the
Company to increase the number of its directors from nine to 11.
Significant Employees
The Company has no employee who is not an executive officer but who is expected to make a significant
contribution to the business.
Family Relationships
There are no family relationships up to the fourth civil degree either by consanguinity or affinity among
the Company’s directors, executive officers or persons nominated or chosen by the Company to become
its directors or executive officers.
Involvement in Certain Legal Proceedings
None of the directors, nominees for election as director, executive officers, underwriters or control
persons of the Company have been involved in any legal proceeding, including without limitation being
the subject of any (a) bankruptcy petition, (b) conviction by final judgment, (c) order, judgment or decree,
or (d) violation of a securities or commodities law, for the past five (5) years up to the latest date, that is
material to the evaluation of his ability or integrity to hold the relevant position in the Company.
Item. 10. Executive Compensation
The aggregate compensation paid or incurred during the last two (2) fiscal years and estimated to be paid
in the ensuing fiscal year to the Chief Executive Officer and senior executive officers of the Company are
as follows:
NAME
Total
Compensation of
the Chief Executive
Officer (President)
and the senior
executive officers
other than the
President5
All other officers
and directors as a
group unnamed
YEAR
2011
(estimated)
2010
2009
2011
(estimated)
2010
2009
5
SALARY
P 71.2
Million
P 63.1
Million
P 41.8
Million
BONUS
P 25.7
Million
P 28.5
Million
P 18.5
Million
OTHERS
P 18.5
Million
P 16.7
Million
P 13.5
Million
TOTAL
P 115.4
Million
P 108.3
Million
P 73.8
Million
P 92.5
Million
P 81.1
Million
P 41.4
Million
P 34.6
million
P 41.7
Million
P 16.9
Million
P 32.3
Million
P 30.6
Million
P 17.6
Million
P 159.4
Million
P 153.4
Million
P 75.9
Million
The President and senior executive officers of the Company for 2011 and 2010 are: Roberto N. Huang, Carlos
Antonio M. Berba, Minerva Lourdes B. Bibonia, Mercy Marie J. L. Amador, Rosabel Socorro T. Balan, Debbie D.
Namalata, Rebecca S. Flores, Rene T. Ceniza and Enrico E. Reyes. For 2009: Roberto N. Huang, Mercy Marie J.
L. Amador, Minerva Lourdes B. Bibonia, Debbie D. Namalata, Rebecca S. Flores, Rene T. Ceniza, Enrico E. Reyes
and Nelson M. Makalintal.
21
Total
NAME
YEAR
2011
(estimated)
2010
2009
SALARY
P 163.7
Million
P 144.2
Million
P 83.2
Million
BONUS
P 60.3
Million
P 70.2
Million
P 35.4
Million
OTHERS
P 50.8
Million
P 47.3
Million
P 31.1
Million
TOTAL
P 274.8
Million
P 261.7
Million
P 149.7
Million
By resolution of the Board of Directors, each director shall receive a reasonable per diem allowance for
his attendance at each board meeting. The Company provides each director with reasonable per diem of
P20,000 and P10,000 for each Board and Board Committee meeting, respectively, attended by such
director. Other than these per diem amounts, there are no standard arrangements pursuant to which the
directors of the Company are compensated, or are to be compensated, directly or indirectly, by the
Company for services rendered by such directors.
There are no outstanding warrants or options held by the Company’s President, named executive officers
and all directors and officers as a group.
There are no other arrangements pursuant to which the directors of the Company are compensated, or are
to be compensated, directly or indirectly, by the Company for services rendered by such directors.
There are no employment contracts between the Company and its executive officers. There is no
compensatory plan nor arrangement with respect to an executive officer which results or will result from
the resignation, retirement or any other termination of such executive officer’s employment with the
Company, or from a change-in-control of the Company, or a change in an executive officer’s
responsibilities following a change-in-control of the Company.
Item 11.
Security Ownership of Certain Beneficial Owners and Management
Owners of record of more than 5% of the Company’s voting securities as of December 31, 2010 were as
follows:
Title of Class
Common
6
Name, Address
of Record
Owner and
Relationship
with Issuer
San Miguel
Corporation, 40
San Miguel
Avenue,
Mandaluyong
City 1550
Philippines,
parent company6
Name of
Citizenship
Beneficial Owner
and Relationship
with Record
Owner
San
Miguel Filipino
Corporation
Number of
Shares Held
Percent
7,859,344,2707
51.00%
The Board of Directors of SMC authorizes any one Group A signatory or any two Group B signatories to act and
vote in person or by proxy, shares held by SMC in other corporations. The Group A signatories of SMC are
Eduardo M. Cojuangco, Jr., Ramon S. Ang, Ferdinand K. Constantino, Ma. Belen C. Buensuceso, Sergio G. Edeza,
22
Title of Class
Common
Name, Address
of Record
Owner and
Relationship
with Issuer
Kirin Holdings
Company,
Limited
10-1 Shinkawa,
2-Chome, ChuoKu, Tokyo,
Japan
Name of
Citizenship
Beneficial Owner
and Relationship
with Record
Owner
Kirin
Holdings Japanese
Company, Limited
Number of
Shares Held
7,456,879,8808
Percent
48.39%
The following are the number of common shares comprising the Company’s capital stock (all of which
are voting shares) owned of record by the directors and key executive officers of the Company, as of
December 31, 2010:
Title of Class
Name of Record Owner
Common
Common
Common
Common
Common
Common
Common
Ramon S. Ang
Roberto N. Huang
Ferdinand K. Constantino
Keisuke Nishimura
Motoyasu Ishihara*
Yoshinori Isozaki
Carmelo L. Santiago
Common
Common
Alonzo Q. Ancheta
Carlos Antonio M. Berba
Common
Common
Takahiro Kobayashi
Virgilio S. Jacinto
Name of Beneficial
Owner and
Relationship of
Record Owner
Amount and Nature of
Beneficial Ownership
SMC, nominee
SMC, nominee
SMC, nominee
Kirin, nominee
Kirin, nominee*
Kirin, nominee
Carmelo L.
Santiago
Alonzo Q. Ancheta
SMC, nominee
Carlos Antonio M.
Berba
Kirin, nominee
Kirin, nominee
Citizenship
%
5,000 (Indirect)
5,000 (Indirect)
5,000 (Indirect)
5,000 (Indirect)
5,000 (Indirect)
5,000 (Indirect)
5,000 (Direct)
Filipino
Filipino
Filipino
Japanese
Japanese
Japanese
Filipino
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
10,000 (Direct)
5,000 (Indirect)
13,000 (Direct)
Filipino
Filipino
0.00%
0.00%
5,000 (Indirect)
5,000 (Indirect)
Japanese
Filipino
0.00%
0.00%
Mr. Motoyasu Ishihara was replaced by Mr. Teruyuki Daino as Director on April 12, 2011.
*
Joseph N. Pineda and Virgilio S. Jacinto. The Group B signatories of SMC are David S. Santos, Bella O. Navarra,
Cecile Caroline U. de Ocampo, Manuel M. Agustin, and Virgilio S. de Guzman.
7
Inclusive of shares held by its five nominee directors of 5,000 shares each.
8
Inclusive of shares held by its four nominee directors of 5,000 shares each.
23
The aggregate number of shares owned of record by the Chairman and President, key officers and
directors as a group as of December 31, 2010 is 73,000 shares or approximately 00.0% of the Company’s
outstanding capital stock.
The aggregate number of shares owned of record by all officers and directors as a group as of December
31, 2010 is 73,000 shares or approximately 0.00% of the Company’s outstanding capital stock.
There is no person holding more than 5% of the Company’s voting securities under a voting trust or
similar agreement.
Since the beginning of the last fiscal year, there were no arrangements, which resulted in a change in
control of the Company.
Item 12. Certain Relationships and Related Transactions
See Note 27 (Related Party Disclosures) of the Audited Consolidated Financial Statements attached
hereto as Annex “F” and discussion under Transactions with and/or dependence on related parties in
Item 1. Business and General Information of this report.
There were no transactions with directors, officers or any principal stockholders (owning at least 10% of
the total outstanding shares of the Company) not in the ordinary course of business. The Company
observes an arm’s length policy in its dealings with related parties.
PART IV – CORPORATE GOVERNANCE
Item 13. Corporate Governance
The evaluation by the Company to measure and determine the level of compliance of the Board of
Directors and top level management with its Manual of Corporate Governance is vested by the Board of
Directors in the Compliance Officer. The Compliance Officer is mandated to monitor compliance by all
concerned with the provisions and requirements of the Manual of Corporate Governance (“Manual”). The
Compliance Officer has certified that for 2010, the Company has substantially adopted all the provisions
of the Manual.
Amendments to the Company’s Manual were approved by the Board on March 25, 2010 and March 11,
2011 in compliance with the Revised Code of Corporate Governance of the SEC.
Pursuant to its commitment to good governance and business practice, the Company continues to review
and strengthen its policies and procedures, giving due consideration to developments in the area of
corporate governance which it determines to be in the best interests of the Company and its stockholders.
24
PART V – EXHIBITS AND SCHEDULES
Item 14. Exhibits and Reports on SEC Form 17-C
(a) Exhibits
The 2010 Consolidated Audited Financial Statements of the Company are attached as Annex “F” and the
Supplementary Schedules are attached as Annex “G” hereto. The other Schedules as indicated in the
Index to Schedules are either not applicable to the Company or require no answer.
(b) Reports on Form 17-C
A summary list of the reports on Form 17-C filed during the last six month period covered by this
report is attached as Annex “H”.
25
ANNEX “A”
LIST OF PRODUCTS
As of December 31, 2010
1. San Miguel Pale Pilsen
2. San Mig Light
3. San Mig Strong Ice
4. San Miguel Super Dry
5. San Miguel Premium All-Malt
6. Red Horse
7. Gold Eagle
8. Cerveza Negra
9. Oktoberfest Brew
10. Cali
11. San Miguel Alcoholic Malt Beverage
12. San Miguel Dark Beer
13. San Miguel Premium Lager
14. Valor
15. Blue Ice
16. Dragon
17. Super Cool
18. Blue Star
19. W1N Bia (Bia Hoi)
20. Dzo
21. Anker
22. Kuda Putih
23. Sodaku
24. Soda Ice
BREWED UNDER LICENSING AGREEMENT
1. Carlsberg
2. Guang’s Pineapple
IMPORTED / DISTRIBUTED
1. Kirin Ichiban
2. Samuel Adams
3. Stella Artois
4. Hoegaarden
5. Beck's
6. Lowenbrau
7. Boddington's
8. James Boag’s
ANNEX “B”
TOP SUPPLIERS FOR RAW MATERIALS AND PACKAGING SUPPLIES
A. Malt and Hops
B. Corn Grits/Tapioca/Rice/
Sugar
Joe White Maltings Pty. Ltd.
Malteurop
MalteriesSoufflet
Barrett Burston Malting Co. Pty. Ltd.
Kirin Australia Pty. Ltd
Taiwan Hon Chuan Enterprise Co. Ltd.
Boortmalt N.V.
Cofco Malt (Dalian) Co. Ltd.
Guangzhou Malting Co., Ltd
Malteurop (Baoding) Malting Co. Ltd
Wugang Malt Co.Ltd.
Bohemia Hop , a.s.
Gansu Tianma Hops Co., Ltd.
HVG Hopfenverwertungsgenossenschaf
HVG-Germany
Simon H. Steiner, Hopfen, GmbH
Zhuhai Steiner Trade Co., Ltd
John Haas, Inc.
Cagayan Corn Products
Northern Star Rice
Chaodee Starch (2004) Co. Ltd.
Udtong Agrarian Reform Beneficiaries Multipurpose Cooperative
RJJ Enterprises
Limketkai Manufacturing Corporation
Heindrich Trading
A. Hernal Enterprises
C.P.Food Store Co.,Ltd.
Costimex S.A.
CtyCp My Tuong
DNTN TOAN DAO
FoshanGaoming Co. Ltd
HefeiLongjieCo.Ltd
Hefei Longjie Grain & Oil Com. Ltd.
SinarUnigrainIndonesia
SuizhouYinxing Trade Co., Ltd
TeguhwibawaBhaktipersada, PT
TonghuaBuayai (1994) Co.,Ltd.
Cty Duong KhanhHoa
Cty TM ThanhThanh Cong
Fengpu Industrial Co.Ltd.
FoshanQiaobai.Co.Ltd
Tai Koo Sugar Ltd.
C. Packaging Materials
San Miguel Yamamura Packaging Corporation
San Miguel Yamamura Asia
Health Keepers Leasing Co. Inc.
Printwell, Inc.
Cong Ty TNHH Co KhiBao Bi Lam Hung
Cong Ty TNHH LD Bao Bi United
Ditsorn Containers Co.,Ltd.
Fo Shan Shi NanHaiHuaXiang Packing Co.,Ltd.
Guang Dong ManchangKeyi Materials Co.,Ltd.
High Win Industrial Ltd.
Karya Indah Multiguna, PT
SCA (Baoding) Packaging Co.,Ltd
TristarMakmurKartonindo, PT
Constantia CM Label Sdn. Bhd.
CtyCp Minh Phuc
Dwi Indah, PT
Guangdong Man Cheong Packaging Printing Co.,Ltd.
H&N (Suzhou) Packaging materials limited
Haendler&Natermann GmbH
HaiLiBaoColour Printing Co.,Ltd.
JiaxingHaoneng Packing Co.,Ltd.
Altinex, PT
Citra MandiriMetalindo, PT
CPMC (Tianjin) Co., Ltd.
Crown Seal Public Company Limited
GuangzhongNewspring Packaging Co.,Ltd.
Shenyang Ziquan Packaging Co.,Ltd.
Shijiazhuang Shengyi Packaging Co.,Ltd.
CangzhouCangshun Glass Co.,Ltd.
Fangyuan Glass Co.,Ltd.（Qinhuandao/Huailai)
Farma East Jaya, PT
GuandongHuaxing Glass Co. Ltd.
GuandongHuaxing Glass Co. Ltd.
Guangdong OI Glass Co.,Ltd.
Qingdao Laoshan Glass Co.,Ltd.
Shandong Lianxing Glass Co.,Ltd.
Tianjin OI Glass Container Co.,Ltd.
Yantai NBC Glass Packaging Co.,Ltd.
Ball Asia Pacific Shenzhen Metal
Bangkok Can Manufacturing Co.,Ltd.
BAP Beijing Metal Container Limited
Conpac, PT
Crown Bevcan and Closures (Thailand) Co.,Ltd.
Crown Beverage Cans Beijing Limited
Foshan Crown Can Co.,Ltd.
Fountain Can Corporation
Huizhou Crown Can Company Limited
Pacific Can (ZhangZhou) Company Ltd.
Thai Beverage Can Ltd.
Vinacan
Annex "C"
San Miguel Brewery Inc.
Collective Bargaining Agreements as of December 31, 2010
INSTALLATION / DESCRIPTION
EXPIRATION
ECONOMIC
REPRESENTATION
UNION
Member
No. of
Remarks
CBAs
1
GMA Dailies Union - SMB
June 30, 2010
June 30, 2009
Concerned Workers of SMC - Polo Brewery (CWSPB)
2
GMA Monthlies Union -SMB
June 30, 2010
June 30, 2009
3
SFB - Monthlies Union
Dec. 31, 2010
4
GMA Sales Force Union
5
CBA was renegotiated and concluded last November 11, 2010.
Expiration of Economic is June 30, 2013 and the Representation is
June 30,2014.
CBA was renegotiated and concluded last November 11, 2010.
Expiration of Economic is June 30, 2013 and the Representation is
June 30, 2014.
CBA was renegotiated and concluded last March 8, 2011. Expiration of
Economic is December 31, 2013 and the Representation is December
31, 2014.
Representation aspect was expired but no Certification Election(CE)
was conducted. Existing union is still the bargainging agent. CBA to be
renegotiated starting April, 2011.
CBA was renegotiated and concluded last March 11, 2011. Expiration
of Economic is February 15, 2014 and the Representation is February
15, 2015.
229
1
SMC Employees Union (SMCEU) - PTGWO
83
1
Dec. 31, 2009
San Fernando Complex Monthly-Paid Emp. Union IBM No. 48
95
1
Jan. 31, 2011
Jan. 31, 2010
New San Miguel Corporation Sales Force Union
78
1
SFB - Dailies Union
Feb. 15, 2011
Feb. 15, 2010
Ilaw at Buklod ng Manggagawa (IBM) Local No. 42-San
Fernando Beer Bottling Plant Chapter
263
1
6
Mandaue Dailies Union
Dec. 31, 2011
Dec. 31, 2010
Ilaw at Buklod ng Manggagawa (IBM)-Mandaue Chapter
130
1
CBA to be renegotiated
7
Davao Dailies Union
Nov. 30, 2009
Nov. 30, 2012
San Miguel Davao Brewery Employees Independent Union
77
1
CBA was renegotiated and concluded last March 25, 2010 Expiration
of Economic is Movember 30, 2012 and the Representation is
November 30, 2012.
8
Bacolod Dailies Union
July 31, 2010
Apr. 27, 2014
San Miguel Bacolod Brewery Employees Union-Independent
63
1
9
Bacolod Monthlies Union
Oct. 31, 2010
Oct. 31, 2013
Phil. Agricultural, Commercial and Industrial Workers Union
43
1
CBA was renegotiated and concluded last September 24, 2010.
Expiration of Economic is July 31, 2013 and the Representation is April
27, 2014.
CBA was renegotiated and concluded last December 2, 2010.
Expiration of Economic is October 31, 2013 and the Representation is
October 31,, 2013.
San Miguel Brewing International Limited and Subsidiaries
Collective Labor Agreements as of December 31, 2010
COUNTRY
Vietnam
Thailand
Indonesia
INSTALLATION
San Miguel Brewery Vietnam Limited
San Miguel Marketing Thailand Limited &
San Miguel Beer Thailand Limited
PT Delta Djakarta Tbk.
NAME OF UNION/ORG
REPRESENTING
EMPLOYEES
No. of CLAs
Cycle
SMBVL Trade Union is
under the supervision of
Trade Union of the Khan
Hoa Industrial & Economic
Zone, Khan Hoa Province,
Vietnam
1
2 yrs
n/a
Ikatan Keluarge KaryawanEmployee Family Bond
(IKKA Delta)
Period of CLA
n/a
1
n/a
2 yrs
Date of Expiration
Start
Expiration
January 01, 2011
December 31, 2012
n/a
January 01, 2003
n/a
Trade Union
n/a
REMARKS
No Trade Union but there is an Employee
Welfare Committee composed of Employer
Representatives and Employee
Representative. The Employee
Representatives are selected by Employees.
The Company Rules & Regulations
(equivalent name of CLA in Indonesia) of PT
Delta Djakarta Tbk is a result of the
negotiation between the employees
represented by the committee IKKA Delta
and the Management.
December 31, 2010
The Company Rules & Regulations is
registered yearly with the Department of
Labor & Transmigration, Bekasi, Indonesia.
China/ HK
San Miguel Brewery Hongkong Ltd.
n/a
n/a
Trade Union Committee of
Guangzhou San Miguel
Brewery Co. Ltd.
1
2 yrs
Jan 4, 2010
January 03, 2012
San Miguel Guangdong Brewery Co.
SMGB Trade Union
Committee
1
3 yrs
June 26, 2010
June 25, 2013
San Miguel Baoding Brewery Co. Ltd.
SMBB Trade Union
Committee
1
3 yrs
July 1, 2010
June 30, 2013
Guangzhou San Miguel Brewery Co. Ltd.
The Trade Union
Committee Heads are
replaced every 3 or 5
years, next election in
2012 or 2014.
The Trade Union
Committee Heads are
replaced every 3 or 5
years, next election in
2012 or 2014.
- All employees are part of the Labor Union
- All employees are part of the Labor Union
The Trade Union
- All employees are part of the Labor Union
Committee Heads are
replaced every 3 or 5
years, next election in
Aug. 2011 or Aug 2013.
ANNEX “D”
PROPERTIES
OWNED PROPERTIES
The Group owns land, land improvements, buildings, machinery, transportation, office
equipment, tools and/or furniture for its breweries, offices and warehouses located in the
Philippines and abroad.
Breweries
The Group has 11 breweries in the following locations:

Polo Brewery
Marulas, Valenzuela City, Metro Manila

San Fernando Brewery
Brgy. Quebiawan, San Isidro, San Fernando, Pampanga

Bacolod Brewery
National Road, Brgy. Granada, Sta. Fe, Bacolod City, Negros Occidental

Mandaue Brewery
National Highway, Brgy.Tipolo, Mandaue City

Davao Brewery
Brgy. Darong, Sta. Cruz, Davao del Sur

San Miguel Beer (Thailand) Ltd.
89 Moo2, Tivanon Rd., Bann Mai, Muang , Pathumtani 12000

PT. Delta Djakarta Tbk
Inspeksi Tarum Barat Desa Setia Darma Tambun Bekasi

San Miguel Brewery Hong Kong Limited (SMBHK)
22 Wang Lee St. Yuen Long Industrial Estate
Yuen Long, New Territories, Hong Kong

San Miguel (Guangdong) Brewery Co.,Ltd (SMGB)
San Miguel Road 1#, Longjiang Town, Shunde District, Guangdong Province, China

San Miguel (Baoding) Brewery Co. Ltd. (SMBB)
Shengli street, Tianwei West Road, Baoding City ,Hebei Province, China

San Miguel Brewery Vietnam Ltd.
Quoc Lo 1 , Suoi Hiep , Dien Khanh , Khanh Hoa
Sales/Area Offices and Warehouses



Central North Luzon Area

SMC Complex, Brgy. Quebiawan, McArthur Highway, San Fernando, Pampanga

Carmen East, Rosales, Pangasinan

Caranglaan Dist., Dagupan City, Pangasinan

Naguilian Road, San Carlos Heights, Brgy. Irisan, Baguio City, Benguet

Pennsylvania Ave., Brgy. Madayegdeg, San Fernando, La Union

Brgy. San. Fermin, Cauayan, Isabela

National Road, Brgy. Mabini, Santiago City, Isabela

San Andres St., San Angelo Subdivision, Sto. Domingo, Angeles City, Pampanga

Maharlika Road, Bitas, Cabanatuan City, Nueva Ecija

Brgy. 22, San Guillermo, San Nicolas, Ilocos Norte
Greater Manila Area North

Cagayan Valley Rd., Brgy. Sta. Cruz, Guiguinto, Bulacan

Gapan-Olongapo Rd., Poblacion San Isidro, Nueva Ecija

A. Cruz St., Brgy. 96, Caloocan City

Honorio Lopez Blvd., Guidote St., Tondo, Manila

Brgy. Mangga, Cubao , Quezon City

Bldg. 23 Plastic City Cpd., #8 T. Santiago St., Brgy. Canumay, Valenzuela City, Metro
Manila

Quirino Highway, Novaliches, Quezon City, Metro Manila
Greater Manila Area South

Brgy. 425, Zone 43, Sampaloc District, Manila

M. Carreon St., Brgy. 864, Sta. Ana District, Manila

Manila East Rd., Brgy. Dolores, Taytay, Rizal



No. 100 Bernabe Subd., Brgy. San Dionisio, Sucat, Parañaque City, Metro Manila

Mercedes Ave., Pasig City, Metro Manila
South Luzon Area

Silangan Exit, Canlubang, Calamba City, Laguna

Maharlika Highway, Brgy. Isabang, Lucena City, Quezon

Maharlika Highway, Brgy. Villa Bota, Gumaca, Quezon

Maharlika Highway, Brgy. Concepcion Grande Pequeña, Naga City, Camarines Sur

Brgy. Mandaragat, Puerto Princesa City, Palawan

Aurora Quezon and Calderron St., Brgy. Labangan, San Jose, Occidental Mindoro

Brgy. Lankaan II, Governor’s Drive, Dasmariñas, Cavite

National Rd., Brgy. Balagtas, Batangas City, Batangas

Ayala Highway, Brgy. Balintawak, Lipa City, Batangas

Corner Gogon and Patricio Streets, Bgy. Cruzada, Legaspi City, Bicol

Tirona Highway, Habay, Bacoor, Cavite

T. de Castro St., Zone 2, Bulan, Sorsogon

Matungao, Tugbo, Masbate City

Brgy. Pagsawitan, Sta. Cruz, Laguna
Negros

Brgy. Granada, Sta. Fe, Bacolod City, Negros Occidental

Muelle Loney St., Brgy. Legaspi, Iloilo City

National Hi-way, Brgy. 4, Himamaylan City, Negros Occidental

Flores St., Brgy. Sum-Ag, Bacolod City, Negros Occidental

Brgy., Camansi Norte, Numancia, Aklan

Brgy. Libas, Roxas City, Capiz

Brgy. Pulang Tubig, Dumaguete City



Visayas

National Highway, Brgy. Tipolo, Mandaue City

Access Rd., Fatima Village, Brgy. 73 (formerly part of Brgy. Sagcahan), Tacloban
City, Leyte

Graham Ave., Tagbilaran City, Bohol

San Bartolome St., Catbalogan, Samar
Mindanao

Brgy. Darong Sta. Cruz, Davao del Sur

Ulas Crossing, Ulas, Davao City

National Highway, Brgy. Magugpo, Tagum City

Sergio Osmeña, Brgy. Poblacion, Koronadal City

National Highway, Brgy. Lagao, Gen. Santos City

National Highway, Brgy. Luyong Bonbon, Opol, Misamis Oriental

R.T. Lim Blvd., Baliwasan, Zamboanga City

Fort Poyohan, Molave St., Butuan City, Agusan del Norte

Brgy. Mangangoy, Bislig City, Surigao del Sur (building only)

Brgy. Bongtod, Tandag City, Surigao del Sur

J.P. Rizal Ave., Poblacion, Digos City

National Highway, Sta. Felomina, Dipolog City

Pandan, Sta. Filomena, Iligan City

Baybay, Liloy, Zamboanga del Norte
San Miguel Brewery Hong Kong Limited

9th Floor, Citimark Building , No.28 Yuen Shun Circuit, Siu Lek Yuen, Shatin, NT,
Hong Kong

San Miguel Industrial Building, Nos. 9-11 Shing Wan Road, Tai Wai, Shatin, NT,
Hong Kong

Guangzhou San Miguel Brewery


Shantou Sales Office
Room 803 and Room 804, Underground Parking, Huamei Garden, Shantou City
San Miguel (China) Investment Co.Ltd.

1-7A Parkview tower Chaoyang DistrictBeijing 100027 , China

1-11A Parkview tower Chaoyang DistrictBeijing 100027 , China

1-12A Parkview tower Chaoyang DistrictBeijing 100027 , China

1-9C Parkview tower Chaoyang DistrictBeijing 100027 , China

1-7C Parkview tower Chaoyang DistrictBeijing 100027 , China
Power Plant
San Miguel Baoding Utility
Shengli Street, Tianwei West Road, Baoding City ,Hebei Province, China
Terminal
Bataan Malt Terminal, Mariveles, Bataan (building, machineries and equipment, furniture and
fixtures only).
LEASED PROPERTIES OF THE COMPANY
Terminal
Bataan Malt Terminal
*average
Location
Leased Asset
Description
Mariveles, Bataan
Land
40 San Miguel
Ave.,
Mandaluyong City
Office Space
Monthly Rental
–net of VAT (P)
Expiration
Date
460,000.00*
12/16/2013
3,499,167
12/31/2011
46,606.05
10/15/2011
266,932.05
04/30/2013
Head Office
Head Office
Greater Manila Area
North
Tondo S.O.
Valenzuela S.O.
Guidote St., Tondo, Land
Manila
Bldg. 23 Plastic
City Cpd., #8 T.
Land & Land
Improvement
Location
Santiago St., Brgy.
Canumay,
Valenzuela City
Leased Asset
Description
Monthly Rental
–net of VAT (P)
Expiration
Date
Novaliches S.O.
Quirino Highway,
Novaliches,
Quezon City
Land &
Buildings
619,290.00
12/31/2012
Bottle Segregation Site
Maysilo, Malabon
Open Space
100,000.00
02/28/2011
Bottle Segregation Site
Potrero, Malabon
Open Space
171,000.00
02/28/2011
Mercedes Ave.,
Pasig City, Metro
Manila
Land &
Warehouse
664,453.10
7/31/2011
No. 140, Bitas,
Cabanatuan City
Land &
Building
70,153.65
03/31/2012
Corner Gogon and
Patricio Streets,
Bgy. Cruzada,
Legaspi City, Bicol
Land &
Land
Improvements
264,000.00
12/31/2013
Dasmarinas S.O.
Brgy. Langkaan II
Governors Drive,
Dasmarinas, Cavite
Warehouse
260,115.43
02/29/2012
Bacoor S.O.
Tirona Highway,
Habay 1, Bacoor,
Cavite
Warehouse
173,992.60
03/31/2011
Bulan S.O.
T. de Castro St.,
Zone 2, Bulan,
Sorsogon
Warehouse
44,642.86
01/31/2012
Masbate S.O.
Magtungao, Tugbo,
Masbate City
Warehouse
77,142.86
01/31/2012
Sta. Cruz S.O.
Brgy. Pagsawitan,
Sta. Cruz, Laguna
Warehouse
74,685.47
03/31/2011
Sta. Rosa Bottling
Plant – under
construction
Sta. Rosa Industrial
Complex, Bgy.
Pulong, Sta.Cruz,
Sta.Rosa City,
Laguna
Land
775,200.00
05/31/2017
San Bartolome St.,
Catbalogan, samar
Office Space
25,000.00
11/30/2011
Greater Manila Area
South
Pasig S.O.
Central North Luzon
Cabanatuan S.O.
South Luzon Area
Legazpi S.O.
Negros
Samar Region Office
Leased Asset
Description
Monthly Rental
–net of VAT (P)
Expiration
Date
Brgy. Pulang
Tubig, Dumaguete
City
Brgy. Pulang
Tubig, Dumaguete
City
Land
Improvement
41,368.16
01/31/2015
Warehouse
67,641.42
09/30/2012
Graham Ave.,
Tagbilaran City
Warehouse
50,000.00
02/29/2012
Fort Poyohan,
Molave St., Butuan
City,
Agusan del Norte
Land &
Land
Improvement
80,408.99
05/31/2015
Location
Dumaguete Region
Office
Dumaguete S.O.
Tagbilaran S.O.
Mindanao
Butuan Region Office
Ozamis Region Office
Bonifacio St., Lam- Land &
an, Ozamis City,
Building
Misamis
Occidental
42,000.00
01/31/2012
Iligan S.O.
Pandan, Sta.
Filomena, Iligan
City
Warehouse
70,000.00
09/30/2012
Liloy, S.O.
Baybay, Liloy,
Zamboanga del
Norte
Warehouse
50,000.00
09/30/2012
Dipolog S.O.
Sta. Felomina,
Dipolog City
Warehouse
57,000.00
09/30/2012
Parking Space
National Highway,
Brgy. Darong, Sta.
Cruz, Davao
Parking Space
50,000.00
10/31/2011
All of the Company’s existing lease contracts contain a provision that the contract is renewable
upon agreement by the parties.
Investment Properties

HAD Flora St. Brgy. Estefania, Bacolod City

No. 31 Rosario St., Brgy. Granada, Bacolod City

Brgy. Penabatan, Pulilan, Bulacan

L26 B11, Brgy. Sto.Domingo, Sta.Rosa, Laguna

Guangzhou San Miguel Brewery
Room 302, Haitao Building, Marine Fisheries Pier, North Binhai Avenue, Haikou City

Guangzhou San Miguel Brewery
1th -4th Floor, Xianda Building, Shuichan Pier, North Binhai Avenue, Haikou City

San Miguel Beer (Thailand) Ltd
369/1 the corner of Pracharat Sai 2 Road and Chao Phraya River, Bangsue Sub-district,
Bangsue District, Bangkok
Annex “E”
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL POSITION AND PERFORMANCE
INTRODUCTION
This discussion summarizes the significant factors affecting the financial performance, financial
position and cash flows of San Miguel Brewery Inc. (the “Company”) and its subsidiaries
(collectively referred to as the “Group”) for the year ended December 31, 2010, 2009 and 2008.
The following discussion should be read in conjunction with the attached audited consolidated
statements of financial position of the Group as of December 31, 2010 and 2009, and the related
statements of income, changes in equity and cash flows for the years ended December 31, 2010,
2009 and 2008. All necessary adjustments to present fairly the Group’s financial position as of
December 31, 2010 and 2009 and the financial performance and cash flows for the years ended
December 31, 2010, 2009 and 2008, have been made.
I. BASIS OF PREPARATION
Basis of Measurement
The consolidated financial statements of the Group have been prepared on a historical cost
basis of accounting, except for the following:



derivative financial instruments are measured at fair value;
available-for-sale (AFS) financial assets are measured at fair value; and
defined benefit asset is measured as the net total of the fair value of the plan assets,
less unrecognized actuarial gains and the present value of the defined benefit
obligation.
Functional and Presentation Currency
The consolidated financial statements are presented in Philippine peso, which is the
Company’s functional currency. All values are rounded off to the nearest million (P000,000),
except when otherwise indicated.
Statement of Compliance
The consolidated financial statements as at and for the years ended December 31, 2010 and
2009 refer to the consolidated accounts of the Group while the financial statements as at and
for the year ended December 31, 2008 refer to the accounts of the Company. The financial
statements have been prepared in compliance with Philippine Financial Reporting Standards
(PFRS). PFRS includes statements named PFRS and Philippine Accounting Standards (PAS)
and Philippine Interpretations from International Financial Reporting Interpretations
Committee (IFRIC), issued by the Financial Reporting Standards Council (FRSC).
Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented
in these consolidated financial statements, except for the changes in accounting policies as
explained below.
1
Adoption of New or Revised Standards, Amendments to Standards and Interpretations
The FRSC approved the adoption of a number of new or revised standards, amendments to
standards, and interpretations (based on IFRIC Interpretations) as part of PFRS. Accordingly,
the Group changed its accounting policies in the following areas:
Adopted Effective January 1, 2010

Revised PFRS 3, Business Combinations (2008), effective for annual periods beginning
on or after July 1, 2009, incorporates the following changes that are likely to be relevant
to the Group’s operations:
-
The definition of a business has been broadened, which is likely to result in more
acquisitions being treated as business combinations.
Contingent consideration will be measured at fair value, with subsequent changes
therein recognized in profit or loss.
Transaction costs, other than share and debt issue costs, will be expensed as
incurred.
Any pre-existing interest in the acquiree will be measured at fair value with the
gain or loss recognized in profit or loss.
Any non-controlling interest will be measured at either fair value, or at its
proportionate interest in the identifiable assets and liabilities of the acquiree, on a
transaction-by-transaction basis.
The Group has applied Revised PFRS 3 (2008) in the acquisition of SMBIL and BPI
(Note 10).

Revised PAS 27, Consolidated and Separate Financial Statements (2008), effective for
annual periods beginning on or after July 1, 2009, requires accounting for changes in
ownership interests by the Group in a subsidiary, while maintaining control, to be
recognized as an equity transaction. When the Company loses control of a subsidiary, any
interest retained in the former subsidiary will be measured at fair value with the gain or
loss recognized in profit or loss. The adoption of revised PAS 27 did not have a material
effect on the consolidated financial statements.

Philippine Interpretations IFRIC 17, Distributions of Non-cash Assets to Owners,
provides guidance on the accounting for non-reciprocal distributions of non-cash assets to
owners acting in their capacity as owners. It also applies to distributions in which the
owners may elect to receive either the non-cash asset or a cash alternative. The liability
for the dividend payable is measured at the fair value of the assets to be distributed. The
interpretation is effective for annual period beginning on or after July 1, 2009. The
adoption of this Philippine Interpretation did not have a material effect on the
consolidated financial statements.

Improvements to PFRSs 2009 contain 15 amendments to 12 standards. The improvements
are generally effective for annual periods beginning on or after January 1, 2010. The
following are the said improvements or amendments to PFRSs, none of which has a
significant effect on the consolidated financial statements of the Group:
-
PAS 38, Intangible Assets. The amendments clarify that: (i) an intangible asset that is
separable only together with a related contract, identifiable asset or liability is
recognized separately from goodwill together with the related item; and (ii)
complementary intangible assets with similar useful lives may be recognized as a
single asset. The amendments also describe valuation techniques commonly used by
2
entities when measuring the fair value of intangible assets acquired in a business
combination for which no active market exists.
-
Philippine Interpretations IFRIC 9, Reassessment of Embedded Derivatives. The
International Accounting Standards Board (IASB) amended the scope of IFRIC 9 so
that embedded derivatives in contracts acquired in business combinations as defined
in PFRS 3 (2008), joint venture formations and common control transactions remain
outside the scope of IFRIC 9.
-
PFRS 8, Operating Segments. The amendments clarify that segment information with
respect to total assets is required only if such information is regularly reported to the
chief operating decision maker.
-
PAS 1, Presentation of Financial Statements. The amendments clarify that the
classification of the liability component of a convertible instrument as current or
noncurrent is not affected by terms that could, at the option of the holder of the
instrument, result in settlement of the liability by the issue of equity instruments.
-
PAS 7, Statement of Cash Flows. The amendments clarify that only expenditures
that result in the recognition of an asset can be classified as a cash flow from
investing activities.
-
PAS 17, Leases. The IASB deleted guidance stating that a lease of land with an
indefinite economic life is normally classified as an operating lease, unless at the end
of the lease term title is expected to pass to the lessee. The amendments clarify that
when a lease includes both the land and building elements, an entity should
determine the classification of each element based on paragraphs 7 - 13 of PAS 17,
taking account of the fact that land normally has an indefinite economic life.
-
PAS 36, Impairment of Assets. The amendments clarify that the largest unit to which
goodwill should be allocated is the operating segment level as defined in PFRS 8
before applying the aggregation criteria of PFRS 8.
-
PAS 39, Financial Instruments: Recognition and Measurement. The amendments (i)
provide additional guidance on determining whether loan prepayment penalties result
in an embedded derivative that needs to be separated; (ii) clarify that the scope
exemption in PAS 39 paragraph 2(g) is restricted to forward contracts, i.e. not
options, between an acquirer and a selling shareholder to buy or sell an acquiree that
will result in a business combination at a future acquisition date within a reasonable
period normally necessary to obtain any required approvals and to complete the
transaction; and (iii) clarify that the gains or losses on a cash flow hedge should be
reclassified from other comprehensive income to profit or loss during the period that
the hedged forecast cash flows impact profit or loss.
Additional disclosures required by the revised standards and improvements were included
in the consolidated financial statements, where applicable.
II. MAJOR DEVELOPMENTS IN 2010

On January 29, 2010, the Company’s acquisition of the international beer and malt-based
beverage business of San Miguel Corporation (SMC), through the purchase by the Company
of the shares of San Miguel Holdings Limited (SMHL), a wholly-owned subsidiary of SMC,
in San Miguel Brewing International Limited (SMBIL) (SMBIL Shares), was completed.
3
The SMBIL Shares, which comprise 100% of the outstanding capital stock of SMBIL, were
acquired by the Company for a price of US$302 million, after adjustments pursuant to the
terms of the Share Purchase Agreement (SPA) among the Company, SMC and SMHL
executed on December 18, 2009. As a result of the acquisition, SMBIL became a whollyowned subsidiary of the Company.
On January 28, 2010, the Company entered into a US$300 million unsecured loan facility
agreement to finance the acquisition of SMBIL. The loan will mature five (5) years from
agreement date.

On November 10, 2010, the Company and SMC executed a Deed of Absolute Sale for the
purchase of all the shares of SMC in Brewery Properties Inc. (BPI) corresponding to 40% of
the outstanding capital stock of BPI (BPI Shares), at the aggregate purchase price of P6,829
million. BPI, and its wholly-owned subsidiary, Brewery Landholdings, Inc. (BLI), are the
companies to which SMC transferred the parcels of land where the production facilities and
sales offices used by the Company in its domestic beer operations are located. On the same
day, the Company paid P
=6,629 million, corresponding to the appraised value of the 128 land
titles transferred in the name of BPI. The balance will be paid upon the transfer of the
remaining eight (8) land titles in the name of BPI.
III. FINANCIAL PERFORMANCE
2010 vs. 2009
The financial performance for the year 2010 already reflects the consolidated transactions of the
Company, Iconic Beverages, Inc. (IBI, acquired in 2009), BPI and SMBIL and their subsidiaries.
SMBIL and its subsidiaries are responsible for the international beer operations of the Group.
The Company accelerated growth in 2010 owing to the strong economic recovery, electionrelated spending, an improving cost environment and stepped-up consumption-generating
programs despite volume declines from its international operations. With the consolidation of
international operations, consolidated sales revenue for the year amounted to P
=67,575 million,
=55,835 million of which came from domestic operations and US$262 million or P
P
=11,788 million
from international operations.
Cost of sales amounted to P
=34,505 million while operating expenses amounted to P
=14,519
million. Operating income amounted to P
=18,551 million, with domestic operations accounting
for P
=18,563 million while international operations suffered US$.41 million or P
=12 million in
losses. The loss was due to lower volumes and write-off of certain receivables, inventories and
prepaid expenses amounting to US$3.4 million or P
=146 million of its San Miguel Hong Kong
(SMBHK) and San Miguel Guangdong (SMGB) breweries.
Interest expense and other financing charges increased primarily due to the additional financing
cost of the US$300 million loan. Interest income also increased due to consolidation of
international operations’ balances and increased short-term money market placements for
domestic operations. The increase in other income is primarily due to appreciation of local
currencies against the US Dollar.
Despite higher financing charges and impairment loss of SMBHK’s and SMGB’s noncurrent
assets amounting to P
=3,694 million which was offset by the income from acquisition of assets at
fair value, consolidated net income amounted to P
=10,373 million, an improvement of 3.4% from
last year. The income from acquisition of assets at fair value is the excess of the net identifiable
assets including non-controlling interests over the consideration paid.
4
The operating and financial highlights of each business segment are as follows:
Domestic Beer Operations
Total domestic beer volumes reached an all-time high level of 183.6 million cases, representing a
growth of 5.2% versus year-ago levels. The Company maintained its lead of the growing beer
market, directly attributable to the Company’s outlet conversion and occasion-creation programs
and improved frequency of call and SRP (suggested retail price) campaigns. Comprehensive
brand-building and offtake-generating programs also strengthened preference and consumption of
beer brands.
To capture the growing ranks of entry-point and female drinkers, the Company introduced San
Miguel Alcoholic Malt Beverage in lemon and apple flavors through a soft launch in midDecember 2010. The new products have lower alcohol content relative to regular beers and are
available in 330ml bottles. All together, this robust performance generated stronger financial
results in 2010. Net sales revenue grew by 9.5% due to higher volumes and a price increase
implemented in November 2009. Cost of sales increased by only 3.4% despite the increase in
volume due to lower cost of imported raw materials.
Operating expenses increased by 15.8% due to higher advertising and promotional activities,
purposive replacement of containers and higher pension expense.
Operating income continued to grow, closing the year with a 15.9% increase over last year owing
to higher revenues and contained costs, while net income posted a 14.3% growth versus last year,
notwithstanding higher interest expense.
An important milestone for the Company included the acquisition of a 100% stake in SMBIL in
February 2010. In SMBIL, the Company has acquired a platform for its beer business in
Southeast Asia and China. By integrating both the domestic and international beer businesses, the
Company will improve the growth and returns of the business as a whole and broaden the
Company’s geographic participation, strengthening its brands and presence in the region.
International Beer Operations
SMBIL’s Exports business as well as San Miguel brands in Vietnam and Thailand performed
strongly, with volumes significantly higher compared to 2009. These gains however were not
enough to offset volume losses suffered in South China, Hong Kong and Indonesia. As a result,
consolidated volumes for SMBIL fell by 11% behind last year.
Beer export volumes surged by 15% versus 2009 fueled by incremental volumes from new
markets as well as sustained on-premise promotional activities in existing major markets. In
Vietnam, San Miguel brands continued their growth momentum in 2010 as a result of outlet
coverage expansion and strong sales of draught beer. Despite the political unrest in Thailand
during the first half of 2010, domestic volumes grew by 18% in the last seven months of the year
driven by increased outlet penetration and yield. Volumes in North China were slightly ahead
versus 2009 due to improvements in wholesaler channel management.
In South China, sales remained sluggish due to aggressive trade offers of competitors and lower
volumes from base markets Dongguan and Foshan, which continue to suffer from the lingering
effects of the global recession. Hong Kong’s domestic volumes continued to be weighed down
by intense competition. Sales in Indonesia were adversely affected by the beer tax restructuring
5
in the country, with the decline in Anker brands offsetting double-digit growth of San Miguel
Pale Pilsen and San Mig Light.
Consequently, cost of sales decreased by 3%. However, operating expenses increased by 23.2%
due to the full-year impact in 2010 of the acquisition of San Miguel Marketing Thailand Limited
(SMMTL) in 2009 and write-off of certain receivables and inventories amounting to US$3.4
million.
With lower volumes and higher operating costs, international operations suffered an operating
loss of US$.41 million. Subsequently, net loss amounting to US$92.3 million was incurred
primarily due to impairment of SMBHK and SMGB noncurrent assets amounting to US$95.8
million.
2009 vs. 2008
The financial performance for the year ended 2009 pertains to the consolidated financial
performance of the Company and Iconic Beverages, Inc. while 2008 pertains to the financial
performance of the Company only.
The Company ended 2009 with sales volumes reaching a record high of 175.8 million cases,
representing a growth of 0.8% versus 2008. The Company’s favorable performance was driven
by on-going efforts to stimulate volumes through comprehensive and integrated implementation
of its advertising and promotional initiatives, improving cost efficiencies as well as managing
fixed costs.
Net sales increased by 5% from P
=48,787 million in 2008 to P
=51,009 million in 2009, reflecting
improvement in beer volumes and the price increase effective November 1, 2009.
Cost of sales increased by 6% from P
=24,800 million in 2008 to P
=26,261 million in 2009 mainly
due to the 8% hike in excise taxes effective January 1, 2009.
Operating expenses increased by 4% from P
=8,366 million in 2008 to P
=8,737 million in 2009 as a
result of higher business taxes and distribution cost due to higher volumes and purposive
replacement of containers. Income from operating activities, however, still increased from
=15,621 million in to P
P
=16,011 million in 2009 due to higher revenues.
Despite the P
=2,600 million financing cost for the issuance of its fixed-rate bonds (Bonds), net
income remained flat at P
=10,033 million in 2009 from P
=10,042 million in 2008. This is mainly
due to lower income tax rate of 30% effective January 1, 2009 from 35% in 2008, and the
offsetting effect of the interest earned on the remaining proceeds from the Bonds issuance that is
earmarked for the purchase of SMC’s interests in BPI.
IV. FINANCIAL POSITION
2010 vs. 2009
The statement of financial position for 2010 already reflects the consolidated assets, liabilities and
equity of both domestic and international operations, while the 2009 statement of financial
position only reflects the financial position of the Company and IBI.
Cash and cash equivalents amounted to P
=15,076 million in 2010 compared to P
=13,563 million in
2009 primarily due to consolidation of international operations’ cash amounting to P
=3,855
million. Domestic operations’ cash balance decreased by P
=2,342 million primarily due to the
purchase of the BPI shares amounting to P
=6,629 million.
6
Trade and other receivables amounted to P
=4,366 million compared to P
=3,311 million in 2009.
Receivables from domestic operations decreased by P
=993 million basically due to higher cash
sales. International operations accounted for P
=2,267 million after reflecting an impairment loss
of other receivables in SMGB and SMBHK amounting to P
=47 million.
Inventories increased to P
=3,557 million in 2010 as against P
=3,246 million in 2009 mainly due to
consolidation of international operations’ inventory balance. Domestic operations’ inventories
decreased by P
=462 million primarily due to lower materials and supplies and containers on hand.
International operation’s inventory accounted for P
=773 million. SMGB and SMBHK posted
impairment loss in materials and supplies and containers amounting to P
=45 million.
Prepaid expenses and other current assets increased by P496 million to P
=1,149 million in 2010
mainly due to the consolidation of international operations’ assets. International operations
prepaid expenses decreased by P
=55 million this year mainly due to impairment loss in SMBHK
and SMGB amounting to P
=54 million.
Investments pertain to investment in shares of stocks and other club shares of international
operations.
Property, plant and equipment increased from P
=5,765 million in 2009 to P
=19,635 million in 2010
primarily due to the consolidation of the international operations’ and BPI’s fixed assets. With
the addition of BPI’s land assets, domestic operations’ property, plant and equipment increased
by P
=7,053 million to P
=12,818 million. Meanwhile, international operations’ fixed assets
decreased by US$91 million this year primarily due to the impairment loss of SMBHK and
SMGB’s fixed assets amounting to P
=3,848 million.
Intangible assets increased by P
=4,116 million from P
=32,020 million in 2009 to P
=36,136 million in
2010 primarily due to the addition of international operations’ brands and licenses. International
operations intangible assets posted a decrease of P
=346 million this year mainly due to impairment
loss of SMBHK and SMGB’s goodwill and land use rights amounting to P
=291 million.
Deferred tax assets amounted to P
=68 million in 2010 from P
=232 million in 2009. The balance
pertains to international operations only as domestic operations’ gain from revaluation of longterm debt and marked-to-market gains resulted in a deferred tax liability.
Other noncurrent assets amounted to P
=5,620 million in 2010 from P
=5,300 million in 2009
primarily due to the consolidation of international operations’ balance of P
=607 million after
reflecting an impairment loss of deferred containers in SMGB and SMBHK amounting to P
=43
million.
Drafts and loans payable pertain to short-term loans of international operations.
Accounts payable and accrued expenses increased to P
=6,833 million in 2010 from P
=4,077 million
in 2009 due to consolidation of international operations’ payable balances.
=2,263 million in 2010 as against P
=1,679 million in
Income and other taxes payable amounted to P
2009. Taxes payable from domestic operations increased by P
=447 million to P
=2,126 million due
to higher fourth quarter net income as compared to the last quarter of 2009. International
operations’ taxes payable accounted for P
=137 million of the total amount.
Long-term debt increased by P
=12,948 million from P
=38,416 million in 2009 primarily due to the
US$300 million loan availed of by the Company for the purchase of the SMBIL shares.
7
Deferred tax liabilities amounting to P
=89 million is the result of domestic operations’ gain from
revaluation of long-term debt and marked-to-market gains on embedded derivatives, and to
international operations amounting to P
=46 million temporary taxable differences.
Other noncurrent liabilities pertain to international operations’ pension liability accruals.
Cumulative translation adjustments of P
=542 million is basically the foreign currency translation
adjustment of international operations’ accounts.
Non-controlling interests pertain to the share of the non-controlling stockholders in the assets and
liabilities of P.T. Delta Djakarta Tbk., San Miguel Holdings Thailand Limited, SMBHK and BPI.
2009 vs. 2008
The financial position for the year ended 2009 pertains to the consolidated financial position of
the Company and Iconic Beverages, Inc. while 2008 pertains to the financial position of the
Company only.
The Group’s consolidated total assets as of December 31, 2009 amounted to P
=64,090 million,
=39,456 million higher than 2008 basically due to the acquisition of IBI, which owns the
P
domestic beer and malt-based beverages brands and other intellectual property rights and knowhow (IP Rights), and the remaining proceeds from the Bonds issuance that will be used to
purchase SMC’s interests in BPI.
Cash and cash equivalents increased by 124.5% from P
=6,041 million in 2008 to P
=13,563 million
in 2009 primarily due to the proceeds from the issuance of the Bonds, net of the acquisition of
SMC’s interests in IBI.
The 9.6% decrease in trade and other receivables is brought about by effective collection
measures and continued conversion of credit dealers to cash.
Prepaid expenses and other current assets increased by P
=194 million primarily due to the advance
contribution made to the Company’s retirement fund.
The increase in intangible assets is attributed to the acquisition of the IP Rights from SMC.
Deferred tax assets decreased by 45.7% mainly due to the effect of recognition of deferred
income tax on the maturity of free-standing fuel derivatives in 2009 and the write-off of reserve
for inventory losses.
Other noncurrent assets increased by 8.3% brought about by the purchase of new bottles and
shells.
Accounts payable and accrued expenses increased by 35.9% from P
=3,000 million in 2008 to
P4,077 million in 2009 mainly due to accrual of interest expense on the Bonds.
Income and other taxes payable decreased by P906 million due to lower income tax expense as
compared to the same period last year as a result of lower income tax rate, from 35% to 30% in
2009.
Long-term debt – net of debt issue costs pertains to the Bonds issued in April 2009.
Other noncurrent liabilities decreased by 100% due to the reversal of the accrual of 10%
escalation clause on the lease liability to SMC that was terminated in 2009.
8
Cumulative translation adjustments decreased by 100% due to maturity of free-standing fuel
derivatives in December 2009.
The increase (decrease) in equity is due to:
Group
Group
Company
For the year For the year For the year
Ended
Ended
Ended
December 31, December 31, December 31,
2010
2009
2008
P 10,033
P 10,042
P 11,768
592
-
Income during the period
Issuance of capital stock
Non-controlling interests from acquisition of a
subsidiary
Effect of translation adjustments
Cash dividends
2,152
(542)
(8,475)
P 4,903
45
(9,170)
P 908
(45)
(9,222)
P 1,367
V. SOURCES AND USES OF CASH
A brief summary of cash flow movements is shown below:
Net cash flows provided by operating activities
Net cash flows used in investing activities
Net cash flows provided by financing activities
Group
Group
Company
For the year For the year For the year
Ended
Ended
Ended
December 31, December 31, December 31,
2010
2009
2008
P 12,024
P 10,994
P 14,912
(33,645)
(1,604)
(17,746)
29,147
(8,603)
4,584
Net cash flows from operations basically consist of income for the period and changes in noncash
current assets, certain current liabilities and others.
Net cash flows used in investing activities included the following:
Acquisition of subsidiaries, net of cash received
Increase in intangibles and other noncurrent
assets
Additions to property and equipment
Interest received
Proceeds from sale of property and equipment
9
Group
Group
Company
For the year For the year For the year
Ended
Ended
Ended
December 31, December 31, December 31,
2010
2009
2008
(P32,000)
P
(P16,464)
(1,033)
(956)
694
13
(1,559)
(626)
535
5
(973)
(934)
259
44
Major components of cash flow provided by (used in) financing activities are as follows:
Group
For the year
Ended
December 31,
2010
Proceeds from long-term debt
P 13,469
Cash dividends paid
(8,475)
Dividends paid to non-controlling interests
(300)
Increase (decrease) in other noncurrent liabilities
(83)
Payments of short-term borrowings, net of
availments
(27)
Proceeds from issuances of capital stock
-
Group
Company
For the year For the year
Ended
Ended
December 31, December 31,
2009
2008
P38,356
P
(9,170)
(9,222)
(39)
27
-
592
The effect of exchange rate changes on cash and cash equivalents amounted to P
=237 million, (P
=4)
and (P
=8) million as of December 2010, 2009 and 2008 respectively.
VI. KEY PERFORMANCE INDICATORS
The following are the major performance measures that the Group uses. Analyses are employed
by comparisons and measurements based on the financial data on the periods indicated below:
December 31
2010
Liquidity:
Current Ratio
Solvency:
Debt to Equity Ratio
Interest-bearing Debt to Equity
Ratio
Profitability:
Return on Average Equity
Domestic Operations
Operating Efficiency:
Volume Growth
Revenue Growth
Operating Margin
10
2009
2.25
3.61
2.51
2.22
2.16
1.93
55.3%
51.5%
5.2%
9.5%
33.2%
0.8%
4.6%
31.4%
The manner by which the Group calculates the above indicators is as follows:
KPI
Formula
Current Assets
Current Liabilities
Current Ratio
Debt to Equity Ratio
Total Liabilities (Current + Noncurrent)
Equity
Interest-bearing Debt
to Equity Ratio
Total Interest-bearing Debt
Equity
Return on Average
Equity
Net Income
Average Equity
Volume Growth
Current Period Sales Volume
Prior period Sales Volume
Revenue Growth
Current period Net Sales
Prior Period Net Sales
Operating Margin
-1
-1
Income from Operating Activities
Net Sales
VII. OTHER MATTERS
a) Cash Dividends
On March 11, 2011, the Company’s Board of Directors declared cash dividends of P 0.14
per share payable on April 11, 2011 to all stockholders of record as of March 25,
2011.
b) Commitments
The outstanding purchase commitments of the Group as of December 31, 2010 and 2009
amounted to P 4,272 million and P 2,141 million, respectively.
Amounts authorized but not yet disbursed for capital projects as of December 31, 2010
and 2009 is approximately P 1,980 million and P 707 million, respectively.
c) Foreign Exchange Rates
The foreign exchange rates used in translating the US dollar accounts of foreign
subsidiaries to Philippine peso in 2010 were closing rates of P 43.84 and average rates of
P 45.12 for income and expense accounts.
d) There are no unusual items as to nature and amount affecting assets, liabilities, equity, net
income or cash flows, except those stated in Management’s Discussion and Analysis of
Financial Position and Performance.
e) There were no material changes in estimates of amounts reported in prior interim periods
of the current year or changes in estimates of amounts reported in prior financial year.
f) There were no known trends, demands, commitments, events or uncertainties that will
have a material impact on the Group’s liquidity.
11
g) There were no known trends, events or uncertainties that have had or that are reasonably
expected to have a favorable or unfavorable impact on net sales or revenues or income
from continuing operation.
h) There were no known events that will trigger direct or contingent financial obligation that
is material to the Group, including any default or acceleration of an obligation, other than
those disclosed in the Management’s Discussion and Analysis and the Audited
Consolidated Financial Statements.
i) There were no material off-statements of financial position transactions, arrangements,
obligations (including contingent obligations), and other relationship of the Group with
unconsolidated entities or other persons created during the reporting period.
12
SAN MIGUEL BREWERY INC. AND SUBSIDIARIES
ACCOUNTS RECEIVABLE - TRADE
AS OF DECEMBER 31, 2010
TYPE OF ACCOUNTS RECEIVABLE
DOMESTIC
TOTAL
P
CURRENT
1 - 30 DAYS
PAST DUE
31 - 60 DAYS
OVER 60 DAYS
2,246,800,333
2,003,903,075
53,965,949
1,454,971
187,476,339
INTERNATIONAL
1,924,466,306
1,276,259,266.66
169,624,470
204,810,487.31
273,772,082
TOTAL
4,171,266,639
ALLOWANCE FOR DOUBTFUL ACCOUNTS
NET
(926,064,561)
P
3,245,202,078