San Miguel Corporation

San Miguel Corporation

INTRODUCTION San Miguel Corporation (SMC) was originally founded in 1890 as a single brewery in the Philippines. The Company has since then transformed itself from a beverage, food and packaging business into a diversified conglomerate with businesses in fuel and oil, energy, infrastructure, and banking industries. The Company's product portfolio includes beer; spirits; non-alcoholic beverages; poultry; animal feeds; flour; fresh and processed meats; dairy products; coffee; various packaging products; and a range of refined petroleum products. SMC has strategic partnerships with international companies, among them are Kirin Holdings Company, Limited for beer; Hormel Foods International Corporation for processed meats; Nihon Yamamura Glass Company, Ltd., Fuso Machine & Mold Mfg. Co. Ltd. and Can-Pack S.A. for packaging products; and Korea Water Resources Corporation for its power business. The Company's subsidiaries include San Miguel Brewery, Inc.; Ginebra San Miguel, Inc.; San Miguel Food and Beverage, Inc.; SMC Global Power Holdings Corp.; SEA Refinery Corporation; San Miguel Holdings Corp.; and San Miguel Properties, Inc. San Miguel Corporation (SMC) is one of the Philippines’ largest and most diversified conglomerates, with revenues that accounted for about 5.9% of the country’s GDP in 2018, through its highly integrated operations in food and beverages, packaging, fuel and oil, power, and infrastructure.

We are one of the nation’s largest employers, with a direct workforce of 28,586 employees as of December 2018. For each job created within the San Miguel system, many additional jobs are created through suppliers, distributors, retailers and other business partners. At present, we have more than 100 major facilities in the Philippines, Southeast Asia, China, Australia, and New Zealand. Established in 1890 as a single brewery in the Philippines under La Fabrica de Cerveza de San Miguel, Southeast Asia's first brewery produced and bottled what would eventually become one of the best-selling beers in the region, and among the top beer brands in the world. We own San Miguel Food and Beverage, Inc., the Philippines’ leading food and beverage company, with popular brands in the food, beer and spirits categories that are top-of-mind of consumers and maintain market-leading positions in their respective categories. We are a majority owner of Petron Corporation, the market leader in the fuels and oils industry in the Philippines, and a strong player in the Malaysian downstream oil market. SMC Infrastructure, our infrastructure arm handles the construction, management, and operation of the country’s largest infrastructure network. Its current portfolio includes: the TarlacPangasinan-La Union Expressway (TPLEX), the Southern Tagalog Arterial Road (STAR), South Luzon Expressway (SLEX), the Skyway System, and the NAIA Expressway (NAIAX), Boracay Airport, the MRT-7 rail and road project, and the Bulacan Bulk Water Supply Project. Through strategic partnerships forged with major international companies, we have access to managerial expertise, international practices and advanced technology. Our partners are world leaders in their respective businesses, including Kirin Brewery Co., Ltd., Nihon Yamamura Glass, US-based Hormel Foods Corporation, and Korea Water Resources Corporation.

MISSION To provide goods vital services well within the reach of every Filipino, making every day life a celebration.

VISION Guided by a strong sense of social, environmental and economic responsibility, our businesses will lead efforts to deliver on national goals, setting the pace of progress in the Philippines.

OBJECTIVES For San Miguel Corporation objective is to expand the market share to multiply their current scope, to grow their products-services portfolio, and to increase sales. To assess whether the current business strategy is appropriate given the current business situation and determine the right business strategy. To achieve business growth and ensure profitability of business operations

EXTERNAL ANALYSIS

● General Environment Economic Development San Miguel Corporation (SMC) chairman and chief executive officer Eduardo Cojuangco Jr. expressed confidence that the company’s strategy of diversifying into non-allied industries will help secure its future and spur economic growth. SMC, which reported 2009 net sales of P174.2 billion, up 4% from the previous year; operating income of P19.7 billion, up 33%, and net income of P57.8 billion, a 199% improvement, is transforming into a powerhouse conglomerate with interests in essential industries as power, oil, telecommunications, infrastructure, banking, and mining. “From both a financial and portfolio standpoint, your company is stronger than at any time in its 120-year history,” Cojuangco told stockholders at their annual meeting. “Having spent the last decade or so transforming ourselves into a more efficient and profitable company, our growth plans are as aggressive as ever,” he said. The company, he said, is also in a unique position to help the country as its new businesses will allow it to take part in economic development “in a meaningful way.” Describing San Miguel as “virtually unrecognizable” from what it was five or six years ago, Cojuangco outlined its prospects in its new growth areas.

Power, oil, infrastructure, coal mining “Self sufficiency in power is critical to the national economy, and we are determined to play an active role particularly now that the combination of private sector efficiencies and an open market, can bring prices down for consumers and industry in the foreseeable future.” SMC currently has four power-generating plants in its portfolio—Limay, Sual, San Roque, and Ilijan. The first three plants generated revenues of P11.4 billion for the first three quarters alone. Petron Corp., its fuels business and one of the dominant local players, meanwhile continues to have “excellent prospects,” Cojuangco said. “Petron (is) a highly attractive business, with an ROE (return on equity) far outstripping that of our traditional businesses… We will be exercising our option on the remaining shares before year-end.” Meanwhile, SMC’s infrastructure projects now include the upgrade of Caticlan airport, the construction of the North Luzon East Expressway, and the Metro Rail Transport-Line 7. All are Build-Operate-Transfer (BOT) projects that offer long-term benefits to the company.

SMC also recently gained a foothold in the coal mining industry through new acquisitions Daguma Agro Minerals Inc., Bonanza Energy Resources, Inc. and Sultan Energy Mining and Development Corp. It is estimated that the Philippines uses more than 12 million tons of coal annually, most of which is used for energy generation. This total is expected to rise by 2014. “So this is a good business to be in,” he said.

Synergies Cojuangco also stressed that the company will be extracting synergies between its core businesses and its new acquisitions. “Petron is in the position to give our plants access to fuel at very competitive terms. Petron’s over 1,500 service stations already carry our food and beverage products,” he said. “Related to this, we have also located booths for our property developments and WiMax service in these stations and are working on deploying Bank of Commerce ATMs to widen our network of cash machines.” “Caticlan airport and our other infrastructure projects are also potential retail points. In our banking business, Bank of Commerce has provided credit line for buyers of our property projects and also service the financing needs of SMC’s employees, dealers, agents and wholesalers.” SMC’s new coal mining ventures are also seen to complement its power generation businesses, particularly the Sual facility, a coal-fired power plant.

Smc bucks economic downtrend, continues to diversify to spur economic growth July 24, 2009 Bucking the global economic downtrend and posting positive results for 2008, conglomerate San Miguel Corporation (SMC) yesterday emphasized that its aggressive diversification program is a way to secure future growth for the company and spur economic growth and development in the Philippines. The company, which reported P19.3 billion in consolidated net income for 2008, 124% higher than in 2007, is currently undertaking a massive diversification into important industries such as power generation, oil refining, telecoms, water distribution, tollways, and infrastructure. In his address to stockholders at the company’s annual meeting yesterday, SMC Chairman and Chief Executive Officer Eduardo M. Cojuangco Jr., said: “Beyond seeking profit, we want to be in industries that serve as the backbone of our country’s development, and impact the lives of Filipinos in a meaningful way. We have complete confidence in our country’s potential.” San Miguel recently invested in Manila Electric Co. (Meralco), the country’s largest power distributor. It has also signed an option agreement to acquire UK-based Ashmore Group’s 100% stake in Sea Refinery Corp., which holds 50.1% of the Philippines’ largest oil refiner, Petron. The company has also acquired 32.7% of Liberty Telecommunications Holdings, Inc. In

February 2009, it submitted an unsolicited proposal for the government’s Laiban Dam project. More recently, San Miguel announced that it had entered into a non-binding agreement to acquire a significant stake in Private Infrastructure Development Corp. (PIDC), the consortium behind the 88.57-kilometer Tarlac-Pangasinan-La Union Toll Expressway project. “We have moved beyond consumer products and services, and are working towards programs that make a real difference in people’s lives. We are proud to be part of a San Miguel that keeps as many people as possible working, earning and contributing to the economy,” he said. “We hope to see in a few years, more efficient and affordable electricity services, more accessible and affordable fuel, the creation of thousands of new jobs, and a sustainable supply of potable water for millions of residents in the National Capital Region.” Cojuangco also pointed out that despite the world’s deepening economic woes, San Miguel was able to attract foreign investors from Japan, Southeast Asia, the United States, and the Middle East for its projects. The chief executive, however, acknowledged lingering scepticism from some quarters for the company’s strategy, first articulated in 2007. “Some of these doubts still linger, but let me assure you that the San Miguel we have built has the resources and preparedness to run these new ventures as efficiently as we do our traditional businesses. While the global financial meltdown has sent many companies into full retreat, our company is powering ahead, investing heavily in a strategy to reaccelerate growth,” he said. Minus non-recurring gains on the sale of investments, SMC reported strong net income results, totaling P7.22 billion, 4% higher than in the previous year. Its consolidated sales revenue rose 14% to P168 billion and operating income was up by 26% to P14.8 billion. “As shareholders ourselves, we understand that dividends and earnings from our investments are tied very much to the company’s annual gains. These new ventures will add more value to our investments—complementing the contributions of our traditional businesses,” he assured stockholders. San Miguel stockholders, meanwhile, voted in favor of an Exchange Offer to convert 1.104 billion common shares to series 1 preferred shares. Cojuangco explained that while they are optimistic about SMC’s the long-term value, this alternative would be for “more conservative” investors who may have a different risk profile.

Environmental and Other Programs The environmental program of San Miguel Foundation Inc. covers the protection of land, water, and air. On a smaller scale, the Foundation conducts tree-planting projects on areas identified by different San Miguel Corporation (SMC) plants. Tree-planting projects are usually scheduled to coincide with plant celebrations. The Foundation advocates the protection of coastal waters through its Coastal Resource Management, which engages in mangrove reforestation, artificial reef installation and regeneration of marine resources. Training on waste management and donation of trash bins through plant facilities are also conducted.

Corporations that go beyond regulatory compliance are rated favorably by most government offices. They are recognized for taking proactive measures in preventing negative environmental, health and safety impacts. Recycling and recovery are key factors which cut waste disposal costs. Reducing gas emissions that contribute to global climate change also lower costs. Pollution prevention is a discipline practiced in SMC plants which eliminates the generation of waste at the source. SMC has pioneered a number of so-called trend-setting practices in its environment program. It was the first Filipino company that published an Environmental Update in 1996, a report which was well received by the local business community and its stakeholders, as well as by business and environment groups abroad. The uniqueness of SMC’s environment program is its dual focus on both the external and internal environment. The Corporation not only takes care of the natural environment, but also of its own people and domain.

Emission Profiling Corporate Technical Services - Environmental Management Group (CTS-EMG) has been conducting stack emission sampling in SMC-owned plants throughout the country since 1999 even before the promulgation of the Philippine Government’s Clean Air Act (RA 8749) in 2001. The sampling measures the quality of the fl ue gas emission of fuel combustion from boilers, furnaces, and power generator sets using the fully automated Napp-Baldwin Isokinetic sampler. Its fl ue gas analyzer, Testo350, a high-tech instrument, is also used to obtain quick results in air emission quality measurement. The emission testing determines the compliance of a plant with the Clean Air Act. Plants which fail the test are directed to improve the quality of their emission to comply with the law. The testing carried out in the plants generates savings for the Corporation since it does not need to spend for the services of testing contractors. More importantly, it improves the performance and efficiency of air pollution source equipment. Task Force Hangin Task Force Hangin is responsible for helping plants comply with the Clean Air Act. The word “hangin” means “air”. The Task Force is composed of representatives from CTS-EMG, CTSEngineering, Corporate Planning and Development, and Corporate Purchasing Unit. It is tasked to pinpoint the best available fuel and control technology for the plants’ fuel burning equipment. It conducted numerous studies and came up with recommendations to utilize low sulfur fuel oil (LSFO) and scrubbers as the most efficient options for solving the problem, and maintain the level of sulfur content in its fuel to about 0.7%S. It also studied the range of fuel cost that determines when LSFO fuel is advantageous to use versus scrubbers, and when a plant needs to shift from LSFO to scrubbers. The study enabled the Task Force to guide the plants in their compliance efforts. All SMCowned plants are expected to institute the necessary actions congruent with the Clean Air Act.

The use of electric heaters at the Mandaue Glass Plant’s furnace reduced the consumption of bunker fuel oil and the generation of combustion flue gas.

Biogas Recovery SMC’s breweries in Mandaue, Davao and Polo, and Distileria Bago, Inc. treat their wastewater employing the anaerobic biological process. A by-product of this process is biogas, which contains methane gas. The simple molecular structure of methane gas makes it the cleanest gas in use today. The gas is recovered by the breweries and used as fuel for their boiler units. A total of 25,940,173. EMS Trainor/Auditor The Environmental Management System (EMS or ISO 14001) represents a universal blueprint in managing the environmental impact of a plant or organization. Minimizing the environmental impact translates into savings through improved effi ciency and cost reduction, particularly in production. The principal role of an EMS Auditor is to conduct audits in plants to ensure that they satisfy all the requirements of EMS certification. The auditors undergo training with local agencies or abroad. CTS-EMG, together with the plant manager, is responsible for the implementation of the EMS in SMC’s five breweries and Mandaue Packaging Products Plant. CTS-EMG recommends that every facility be certified in the EMS, assuring adequate maintenance of the system through secondparty audit and surveillance visits. EMS Implementation in SMPP The EMS implementation at San Miguel Packaging Products Mandaue Plant resulted in significant savings worth P4,140,032 and minimized the use of virgin raw materials. The plant utilizes the treated wastewater originating from the Mandaue Brewery for its production process. Part of the wastewater from the production process is recycled after undergoing oil-water separation. The water used at the cullet conveyor is also collected and reused. This scheme reduces the use of raw water and the volume of wastewater discharged to the environment. There are other energy-reduction initiatives at the plant. An automatic shut-off controller is installed in the air-conditioning unit of the offices to cut down on power consumption. Transparent plastic roofing in the production section also improves illumination and saves energy. The plant has a central segregation area for solid waste and used oil. Used oil collected from the oil-water separation process in wastewater and from the fuel combustion engines is reused as fuel for power generation at the power plant. Recyclable/reusable solid waste is sold to recyclers.

In 2002, 12,777 metric tons of solid waste sold generated an income of P4,061,965. Best Practices Applied Color Labeling (ACL) Recovery – The previous method for dealing with misprints on bottle labels was water intensive due to the thorough washing of the bottles. To correct this, a cleaner and better technology was devised through ACL recovery by manually scraping the misprints, collecting and melting the paint, then adding it to virgin raw materials for producing labeling paint. The practice of this alternative method resulted in the reduction of raw water use and the amount of virgin materials for paint production. The end results are considerable savings. Mandaue Glass Plant and San Miguel Yamamura Asia scrape Applied Color Label waste from misprinted glass bottles and mix it again with virgin material. San Miguel Yamamura Ball Corporation uses water-based paint for their two-piece aluminum cans, thus eliminating emission of volatile organic solvents. Rightpak’s printing cylinders employ mechanical etching instead of chemical etching to avoid generation of hazardous wastewater. Both San Miguel Rengo and Mincorr use lead-free printing ink for their cartons, making them safe to use and recycle. Vermicomposting of Mandaue Brewery – Vermicomposting is a method of composting where cultured worms eat and partially digest the organic material in organic solid waste. The composting site is a roofed concrete housing in a dark environment conducive to worms. The resulting product or vermicompost is made up of partially digested waste and the excreta of worms. The vermicompost is applied to a soil conditioner, and is of a more superior quality than ordinary compost. The variety of worm Mandaue Brewery uses is the African Night Crawler. Recycling Practices at Manila Plastics Plant – Recycling has been part of the Manila Plastics Plant’s regular operations for 30 years. From the very start, the plant was already recycling its inhouse rejects in the form of plastic. The rejects are put through a grinding machine then added to virgin raw material at a ratio of 10% recycled crates and 90% virgin raw material. The practice reduces manufacturing cost and contributes to a cleaner environment. Crates rendered defective through handling and usage are condemned, crushed, reduced to pellet size, and now recycled to make San Miguel Beer green crates. The plant is on a continuous improvement journey as it studies and develops new technology for achieving the ideal shades of crate colors by adjusting pigment strength and formulation. It has gone up to 50% in the recycled material ratio to produce plastic pallets, the containers used to hold bottled beverages. It is looking into making productive use of plastic waste and trimmings with the goal that nothing goes to waste. Rightpak also recycles its waste laminates as components of plastic pallets.

Cullet Recovery at Glass Plants – Broken bottles or cullets are given a second life at the Mandaue Glass Plant, Manila Glass Plant, PrimePak, and SM Yamamura Asia Corporation, where glass bottles for beverages, liquor and other products are manufactured. In these glass plants, cullets are used as raw material for production. The cullets originate from in-house rejects and from plant-accredited glass buyers. The cullets collected undergo a segregation process. Amber is for Beer, green is for Sprite, and flint is for transparent bottles. The bottles are ground, mixed with virgin raw material, and fed into the furnace for melting. Cullet recycling reduces the amount of virgin raw material used in production. Cullets contain silica, limestone, feldspar, and soda ash. The plants were able to cut down on their power consumption since cullets melt faster than raw materials. Cullet recycling also decreases the volume of glass bottles disposed to the environment. SM Yamamura Asia Corporation also produces GLASSLite bottles that are lightweight, using less raw materials. These lightweight bottles have the same quality and strength as their heavier counterparts. Waste Ink Reuse at San Miguel Rengo Packaging Corporation – In the printing of corrugated carton boxes, the ink formulated purposely for a specific requirement usually has leftovers, which can be used only for the same type of job. When reorders come far apart, the leftover ink is rendered useless and wasted. In March 2003, the plant developed a method to reformulate or reconstitute the leftover ink to approximate the same or a different color shade. Since midAugust 2003, the plant has reused 5,779 kg. of waste ink, and has saved P650,000 in substituted raw material cost. This helped the plant avoid expensive waste treatment and disposal costs. Using Waste for Feeds – Distileria Bago, Inc. reuses its fermentation sludge for fertilizer. SMC breweries also have a recovery system where spent grain and bagasse from the production process are collected and used for fertilizer by B-Meg. Coca-Cola’s “Mission P.E.T.” – Coca-Cola Bottlers Philippines Inc. established the groundwork for this project as early as 1999. The acronym PET stands for Pinoy Environment Team. The project promotes the recognition, collection, segregation and recovery of postconsumer PET containers and aluminum cans in support of CCBPI’s marketing of its products in one-way containers. CCBPI set up recovery centers in selected supermarkets to rescue post-consumer PET soft drink bottles with monetary value to encourage consumers to participate in the collection. The project’s continuing implementation has proven to be a viable contribution towards the reduction of the solid waste volume. At the same time, collection of PET and aluminum containers provides livelihood opportunities, helps in the conservation of oil and bauxite resources, and communicates the value of proper waste management.

Project Blue Sky SMC’s Polo Brewery pioneered the anti-smoke belching campaign within its premises by requiring all vehicles entering the plant to submit a certificate of compliance (COC). This initiative by a private company preceded the much lauded Project Blue Sky of the Department of Environment and Natural Resources’ Clean Air Campaign launched in 1994. Now more than 120 companies are implementing the “no COC, no entry” policy in their facilities, including SMC’s Mandaue and San Fernando Breweries. The project is spearheaded by the Center for Corporate Citizenship of the Philippine Business for Social Progress. Environmental Forum CTS-EMG organizes the quarterly Environmental Forum, which started in 1998. The forum is designed for SMC staff responsible for pollution management and control, particularly the Pollution Control Officer. Its purpose is to broaden knowledge of environmental laws, technology updates, waste management, and operation of waste treatment facilities. Disaster Management This project includes relief distribution to calamity stricken areas and rehabilitation activities such as provision of livelihood projects and repairs of school buildings and day care centers. San Miguel Business Units play an active role as well as the employees who answer the call for fund raising campaigns. Local Consumer Activities These are Marketing and Sales projects to support their operation either in areas where SMC have a stronghold or in areas where they want to establish their position.

Technological Development SMC to enter high-tech businesses San Miguel Corp. is preparing for its next wave of diversification which seeks to add nextgeneration technology businesses such as the production of micro-chips, smart phones and electric cars to its portfolio. SMC president Ramon S. Ang told reporters after the stockholders meeting of Top Frontier Investments Holdings Inc. on Wednesday that SMC was heading into a new phase of

diversification nine years after the conglomerate built and acquired new businesses outside of its traditional food and beverage bailiwick. “The next phase is go to the next-generation electronics and manufacturing,” Ang said. These may include chips, plug-in or battery-operated vehicles or consumer electronics like smart phones, he said. The next wave of diversification may also include e-commerce businesses, Ang said.

Political Legal and Government Aspect The Political Dimension San Miguel's President and Chief Operating Officer Ramon Ang has announcedhe is proceeding to purchase an influential Philippine newspaper, the Philippine Daily Inquirer. The sum is thought to be about 3.5 billion pesos (US$70 million). The paper has a circulation of 1.4 million and is controlled by two of Manila's patrician groups, the Prieto and Rufino families. This "old money" from the capital Manila has not been very favorably disposed to the less genteel President Duterte. He hails from the southern island of Mindanao which is currently under martial law. Duterte's style can be deduced by his comments about the "shameless...sons of whore journalists" of the paper. The families are also involved in a land dispute with the Government. This is wending its way slowly through the court system. Human rights groups have been vocal about Duterte's apparent willingness to ride roughshod over the human rights safeguards enshrined in the Philippines constitution. There has been much publicity over his shoot-to-kill drug enforcement policies. These have led to over 10,000 informal executions. By his purchase of the Philippine Daily Inquirer, Ang is clearly signaling he can be trusted by Duterte to back his policies. Previously, he had even reportedly offered the President the gift of a private jet. In return, Duterte has referred to Ang as a "fast friend". The Philippine economy and its politics are very much controlled by old Manila based tycoons such as Lucio Tan, Henry Sy, Manuel Pangilinan, and the Cojuangco family. Infrastructure Developments The friendship with Duterte has a direct impact on San Miguel's moves in recent years into infrastructure development. It may not be coincidental that the move comes at the same time as San Miguel has re-proposed its ideas for a new airport to serve the capital Manila.

My recent article gave some details of these huge projects under way. They include three major expressways. They include the recent award of the MRT-7 metro rail transit system to a value of 79 billion pesos (US$1.58 billion). Ang is pictured below at this event, courtesy of ABS-CBN news:

Other projects being carried out include an airport on the tourist island of Boracay, and a road toll project with Government body PNOC (Philippine National Construction Corporation). That road project has a value of 554 billion pesos (US$11 billion). As Government figures show, infrastructure development approvals are on this year. Many more projects are due to be bid over the next few years. Duterte has a target of 8 trillion Pesos (US$160 billion) to be spent on infrastructure development. Ang is no doubt confident that his recent moves will not harm San Miguel's prospects in these tenders. They are usually Government and private industry partnerships. Political influence is obviously very important for infrastructure projects. It also comes into play in the telecoms sector. Last year, San Miguel sold its dormant telecoms assets to the two telecom players in the Philippines, Globe Telecom (OTCPK:GTMEF) and PLDT (NYSE:PHI). This raked in 52.8 billion pesos (US$1.05 billion). The sales have been challenged in the courts and by the regulators. Observers feel the telecoms situation in the Philippines is inefficient and should not be restricted to the current two players. The deal is still being challenged in court by the Philippines Competition Commission. The challenge is unlikely to be successful given the political clout of the players involved. The Economy The Philippines economy is expected to grow by 6.7% this year. That would make it the bestperforming economy in South-east Asia. The stock market is expected to continue to rise in tandem with the economy. It should be cautioned however that the Philippines Stock Exchange has quite a low turnover. It can thus be manipulated by some of the big players in the country. For instance, figures show daily turnover of only about US$316 million. The Securities & Exchange Commission is in fact bringing in new rules on public listings. As from 2020, all listed stocks must have a minimum 20% public ownership requirement. The time line for this may get extended, but it will affect San Miguel. It has been calculated that if all firms comply with this, it would lead to about 130 billion pesos (US$2.6 billion) being raised on the market. Positive factors for the country include a growing and youthful population, low levels of private debt, consistent GDP growth, and financial assets rising in value. Employment is up but so are the birth rates, and the currency is not strong. There is always a political risk in the country. The country risk is manageable for most investors. The Economist Intelligence Unit (subscription required) gives the following view:

Sovereign Risk BBB Currency Risk BBB Banking Risk BB

Legal issues San Miguel shares are also involved in the controversial Coco Levy Case (Sandiganbayan Civil Case No. 33), which is actually subdivided into a total of eight cases involving different parties and properties. Arguably the most important case is Case No. 33-F, which involves 51% of the shares of San Miguel. This majority stake at San Miguel has been further subdivided into three separate litigations, each of which reaching the Supreme Court in highly contentious proceedings. The first case involved 4% of San Miguel shares, which, in the case of San Miguel Corporation vs. Sandiganbayan,[18] was awarded by the Supreme Court to the government. The second case, Republic of the Philippines vs. Sandiganbayan and Eduardo Cojuangco Jr.,[19] involved a 20% block that the Supreme Court, voting 7-4, awarded to Eduardo “Danding” Cojuangco. The most recent High Court pronouncement came early this year, Philippine Coconut Producers Federation, Inc. (COCOFED) vs. Republic of the Philippines,[20] where the Court, voting 11-0, declared that the remaining 27% of San Miguel is owned by the government.[21] (Note: The 27% had been diluted to 24% due the government's failure to subscribe to the increased authorized capital stock of San Miguel)

● MARKET DEMAND AND OPPORTUNITIES

Types of Products and Services Beverages San Miguel Brewery Inc. (“SMB”) is primarily engaged in the manufacture and sale of fermented and maltbased beverages, particularly beer of all kinds and classes. SMB has six (6) production facilities in the Philippines strategically located in Luzon, Visayas and Mindanao and operates one (1) brewery each in Hong Kong, Indonesia, Vietnam, Thailand, and two (2) breweries in China. In addition, SMB has recently acquired the non-alcoholic beverage business. The SMC Group also produces hard liquor through its majority-owned subsidiary, Ginebra San Miguel, Inc. (“Ginebra”). Ginebra is one of the largest gin producers in the world by volume with some of the most recognizable brands in the Philippine liquor market. It operates one (1) distillery, five (5) liquor bottling plants and one (1) cassava starch milk plant, and has engaged two (2) toll bottlers strategically located throughout the Philippines and one (1) bottling and distillery plant in Thailand.

Food The food operations of SMC holds numerous market-leading positions in the Philippine food industry, offering a wide range of high-quality food products and services to household, institutional and foodservice customers. The food business is conducted through San Miguel Pure Foods Company, Inc. (“San Miguel Pure Foods”). In addition to its Philippine operations, the food business also has a presence in Indonesia and Vietnam. San Miguel Pure Foods has some of the most recognizable brands in the Philippine food industry, including Magnolia for chicken, ice cream and dairy products, Monterey for fresh and marinated meats, Purefoods for refrigerated processed meats and canned meats, Star and Dari Crème for margarine, San Mig Super Coffee for coffee, La Pacita for biscuits and B-Meg for animal feeds. Packaging The packaging business is a total packaging solutions business servicing many of the leading food, pharmaceutical, chemical, beverages, spirits and personal care manufacturers in the region. The packaging business is comprised of San Miguel Yamamura Packaging Corporation (“SMYPC”), San Miguel Yamamura Packaging International Limited (“SMYPIL”), San Miguel Yamamura Asia Corporation (“SMYAC”), SMC Yamamura Fuso Molds Inc. (“SYMFC”), Can Asia, Inc. (“CAI”) and Mindanao Corrugated Fibreboard, Inc (“Mincorr”), collectively referred to as the Packaging Group. The Packaging Group has one of the largest packaging operations in the Philippines, producing glass, metal, plastic, aluminum cans, paper, flexibles, PET (Polyethylene Terephthalate) and other packaging products and services such as beverage tolling for PET bottles and aluminum cans. The packaging business is the major source of packaging requirements of the other business units of SMC. It also supplies its products to customers across the Asia-Pacific region, the United States, South Africa, Australia and the Middle East, as well as to major multinational corporations in the Philippines, including Coca-Cola Femsa Philippines, Inc., Nestle Philippines and Pepsi Cola Products Philippines, Inc. The Packaging Group has 13 international packaging facilities located in China (glass, plastic and paper packaging products), Vietnam (glass and metal), Malaysia (composite, plastic films, woven bags and a packaging research center) and Australia (glass, trading, wine closures and bottle caps) and New Zealand (plastics and trading). Aside from extending the reach of the packaging business overseas, these facilities also allow the Packaging Group to serve the packaging requirements of SMB breweries in China, Vietnam, Indonesia and Thailand. Properties San Miguel Properties Inc. (“SMPI”) was created in 1990 initially as the corporate real estate arm of SMC. It is the primary property subsidiary of the SMC Group, currently 99.68% owned by SMC. SMPI is presently engaged in commercial property development, sale and lease of real properties, management of strategic real estate ventures and corporate real estate services.

New Businesses Fuel and Oil SMC operates its fuel and oil business through Petron, which is involved in refining crude oil and marketing and distribution of refined petroleum products mainly in the Philippines and Malaysia. Petron is the number one integrated oil refining and marketing company in the Philippines, with a market share of 35.4% as of December 2014, according to the Department of Energy of the Philippines (“DOE”). Petron participates in the reseller (service station), industrial, lube and liquified petroleum gas (“LPG”) sectors. In addition, Petron is also engaged in nonfuels business by earning income from billboards and locators, which are largely situated within the premises of the service stations. In Malaysia, Petron holds a 17.1% share of the retail market as of September 30, 2015, based on Petron estimates and information from Fahrenheit Research (M) Sdn. Bhd (“Fahrenheit Research”), the market research consultant appointed by Malaysian retail market participants to compile industry data. Petron owns and manages the most extensive oil distribution infrastructure with 30 depots, terminals and airport installations and approximately 2,200 retail service stations in the Philippines and ten (10) product terminals and more than 560 retail service stations in Malaysia. Petron also exports various petroleum products and petrochemical feedstock, including naphtha, mixed xylene, benzene, toluene and propylene, to customers in the Asia-Pacific region. Petron owns and operates a petroleum refining complex, with a capacity of 180,000 barrels per day located in Limay, Bataan Philippines. The refinery has its own piers and two (2) offshore berthing facilities. In 2010, Petron upgraded its refinery by undertaking the Petron Bataan Refinery Master Plan Phase-2 Upgrade (“RMP-2”) which was completed in 2014. RMP-2 upgraded the Petron Bataan Refinery to a full conversion refining complex, where all its fuel oil production is converted to higher value products – gasoline, diesel, jet fuel and petrochemicals, making it comparable to highly complex refineries worldwide. The completion of RMP-2 made Petron the only oil company in the Philippines capable of producing Euro IV-standard fuels, 15 the global clean air standards for fuels. Petron also has a refinery in Malaysia with a capacity of 88,000 barrels per day.

Energy The energy business, which is conducted through SMC Global Power Holdings Corp. (“SMC Global Power”), is one of the leaders in the Philippine power generation industry in terms of installed capacity. SMC Global Power administers three (3) power plants, located in Sual, Pangasinan (coal), Ilijan, Batangas (natural gas) and San Roque, Pangasinan (hydroelectric), with a combined capacity of 2,545 MW, pursuant to the IPPA agreements with PSALM and National Power Corporation of the Philippines (“NPC”). SMC Global Power began acting as an IPPA of the Sual power plant in November 2009, the San Roque power plant in January 2010 and the Ilijan power plant in June 2010. SMC Global Power sells power through off take agreements either directly to customers, including Manila Electric Company and other distribution utilities, electric cooperatives and industrial customers, or through the Philippine Wholesale Electricity Spot Market (“WESM”). In September 2013, SMC Powergen Inc. (“SPI”),

a subsidiary of SMC Global Power, acquired the 2 x 35 MW co-generation solid fuel fired plant of Petron located in Limay, Bataan. The plant added 140 MW to the total capacity of SMC Global Power. During the same period, SMC Global Power was awarded the winning concessionaire for the rehabilitation, operations and maintenance of Albay Electric Cooperative (“ALECO”), located in Albay, Bicol. A new subsidiary, Albay Power and Energy Corp. (“APEC”) was created for this purpose. In 2013, San Miguel Consolidated Power Corporation broke ground on the new coal-fired power plant in Malita, Davao and SMC Consolidated Power Corporation on another coal-fired power plant in Limay, Bataan, both of which will have an initial capacity of 300 MW each. These power plants are expected to be commercially available by 2016. In 2014, PowerOne Ventures Energy Inc. (“PVEI”), a subsidiary of SMC Global Power, and Korea Water Resources Corporation (“K-Water”) entered into a joint venture partnership for the acquisition, rehabilitation, operation and maintenance of the 218 MW Angat Hydroelectric Power Plant (“AHEPP”) awarded by PSALM to K-Water. This brought total installed capacity of SMC Global Power to 2,903 MW. As of September 30, 2015, SMC Global Power is one of the largest power companies in the Philippines, which holds a 22.2% market share of the total installed power generation capacity for the Luzon power grid and a 16.5% market share of the national grid according to the Energy Regulatory Commission of the Philippines (“ERC”). SMC Global Power, through San Miguel Energy Corporation (“SMEC”), likewise owns three (3) coal mining companies which are concession holders of coal deposits in Southern Mindanao. Infrastructure The infrastructure business, conducted through San Miguel Holdings Corp. (“SMHC”), consists of investments in companies that hold long-term concessions in the infrastructure sector in the Philippines. Current operating tollroads include the Tarlac-Pangasinan-La Union Toll Expressway (“TPLEX”), South Luzon Expressway (“SLEX”), Skyway Stage 1 and 2 and the Southern Tagalog Arterial Road (“STAR”) tollways and ongoing tollroad projects are the NAIA Expressway (“NAIAx”) and the Skyway Stage 3. It also operates and is currently expanding Boracay Airport. In addition, it has the concession right to construct, operate and maintain the Mass Rail Transit Line 7 (“MRT-7”).

TPLEX SMHC, through its subsidiary, Rapid Thoroughfares, Inc. (“Rapid”), owns a 70.11% equity interest in PIDC. PIDC is a company which holds a 35-year Build-Transfer-Operate (“BTO”) concession rights to construct, operate and maintain an 88.85 km toll expressway from La Paz, Tarlac, through Pangasinan, to Rosario, La Union. Boracay Airport SMC, through the 99.80% interest of SMHC in TADHC, is undertaking the expansion of Boracay Airport under a 25-year Build-Rehabilitate-Operate-Transfer (“BROT”) concession

granted by the Republic of the Philippines (“ROP”), through the Department of Transportation and Communications of the Philippines (“DOTC”).

STAR Tollway SMHC, through Cypress Tree Capital Investments, Inc. (“CTCII”) has an effective 100.0% interest in Star Infrastructure Development Corporation (“SIDC”). SIDC holds the 30-year BTO concession rights of the STAR Project consisting of: Stage 1 - operation and maintenance of the 22.16 km toll road from Sto. Tomas to Lipa City; and Stage 2 - financing, design, construction, operation and maintenance of the 19.74 km toll road from Lipa City to Batangas City.

NAIAx On May 31, 2013, SMHC incorporated Vertex Tollways Devt. Inc. (“Vertex”), a company that holds the 30- year BTO concession rights for the construction and operation of the NAIA Expressway (“NAIAx”) – a four (4) lane elevated expressway with end-to-end distance of 5.4 km that will provide access to NAIA Terminals 1, 2 and 3. NAIAx will connect to the Skyway system, the Manila-Cavite Toll Expressway (“CAVITEX”) and the Entertainment City of the Philippine Amusement and Gaming Corporation (“PAGCOR”).

SLEX / Skyway Stage 1 and 2 On March 5, 2015, SMHC increased its shareholdings in AAIBV to 95.0% stake in AAIBV. AAIBV has the following shareholdings:  80.0% stake in South Luzon Tollway Corporation (“SLTC”), through MTD Manila Expressways, Inc. (“MTDME”), a wholly-owned subsidiary of AAIBV. SLTC holds a 30-year concession rights to operate the 36.1 km South Luzon Expressway (“SLEX”), one of the three (3) major expressways that link Metro Manila to Southern Luzon;  87.84% beneficial ownership in Citra Metro Manila Tollways Corporation (“CMMTC”), through Atlantic Aurum Investments Philippines Corporation (“AAIPC”), a wholly-owned subsidiary of AAIBV. CMMTC holds a 30-year concession to construct, operate and maintain the 29.59 km Skyway Stage 1 and 2 Project. Skyway Stage 3 On February 28, 2014, SMHC through AAIBV incorporated Stage 3 Connector Tollways Holdings Corp. (“S3HC”), which holds an 80.0% ownership interest in Citra Central Expressway Corp. (“CCEC”). CCEC holds a 30-year concession to construct, operate, and maintain the Skyway Stage 3, an elevated roadway with the entire length of approximately 14.82 km from Buendia Avenue in Makati to Balintawak, Quezon City and will connect to the existing Skyway Stage 1 and 2. This is envisioned to inter-connect the southern and northern areas of Metro Manila to help decongest traffic in Metro Manila and stimulate the growth of trade and industry in Luzon, outside of Metro Manila.

MRT-7 In October 2010, SMC, through SMHC, acquired a 51.0% stake in Universal LRT, which holds the 25-year Build-Gradual Transfer-Operate-Maintain (“BGTOM”) concession for MRT-7. MRT-7 is a planned expansion of the metro rail system in Manila which mainly involves the construction of 22 km mass rail transit system with 14 stations that will start from San Jose del Monte City and end at the integrated LRT-1 / MRT-3 / MRT7 station at North EDSA and a 22 km six (6) lane asphalt highway that will connect the North Luzon Expressway to the intermodal transport terminal in San Jose del Monte City, Bulacan and a 22-km road component from San Jose del Monte City, Bulacan to the Bocaue exit of the NLEX. Telecom SMC has made investments in the telecommunications sector in the Philippines through acquisitions of stakes in Liberty Telecom, BellTel and Eastern Telecom. Liberty Telecom In 2010, SMC through its subsidiary, Vega Telecom Inc. (“Vega”), owns a 41.48% stake in Liberty Telecom, a telecommunications carrier listed in The Philippine Stock Exchange, Inc., offering data communications and data connectivity services. Vega increased its ownership from 41.48% to 45.05% in April 2014,to 45.58% in December 2014 and 97.46% of the total issued and outstanding shares of Liberty Telecom effective September 2, 2015. BellTel Also, in 2010, Vega subscribed to the shares of stock equivalent to 100.0% of Two CassandraCCI Conglomerates, Inc., Power Smart Capital Limited, and Perchpoint Holdings, Corp. that collectively owns 100.0% of BellTel. In December 2014, Vega made a direct additional investment to BellTel by subscribing to its unissued shares. BellTel, which began commercial operations in 2002, offers an integrated package of services, including local and long distance telephony, high speed data connectivity and Internet. It has various licenses that include local exchange carrier, international gateway facility, inter-exchange carrier, very small aperture terminal, internet service provider, and wireless local loop telephone systems in various cities and municipalities in the National Capital Region of the Philippines (“NCR”). It is authorized to provide the full range of services throughout the Philippines. In 2014, BellTel acquired 100.0% of Dominer Pointe, Inc. and Somete Logistics & Dev’t. Corp. from various individuals. Both tower companies are engaged in the business of conceptualization, construction, installation, establishment, operation, leasing, sale and maintenance, and rendering of specialty technical services for tower infrastructures to be utilized by telecommunication companies. Eastern Telecom In 2010, SMC, through Vega, acquired 100.0% of the outstanding and issued shares of stock of AGNP, the beneficial owner of approximately 40.0% of Eastern Telecom, inclusive of the existing businesses, investments and telecommunications service facilities of Eastern Telecom.

On October 20, 2011, the Parent Company through its wholly-owned subsidiary, SMESI, acquired an additional 37.7% of the outstanding and issued shares of stock of Eastern Telecom bringing its total indirect equity interest in Eastern Telecom to 77.7%. Established more than 130 years ago, Eastern Telecom offers a full range of telecommunication services, including internet, data, voice and certain value added services. Eastern Telecom is a provider of voice, data and internet services to the business process outsourcing market.

Intensity Competition SMC believes that its principal strengths include the following: Diversified platform with broad exposure to the Philippine economy. The Philippines has become one of the fastest growing economies in Asia, with consecutive annual positive gross domestic product growth since 1999. According to the Association of South East Asian Nations (“ASEAN”) briefing, the Philippines announced a gross domestic product growth of 6.1% in 2014, the second (2nd) highest in the Asia-Pacific region. According to the International Monetary Fund (“IMF”), the Philippines is expected to experience gross domestic product growth at the rate of 6.0% and 6.2% for 2016 and 2017, respectively. In addition, the Philippine population is young, comparably literate and growing, which provides the Philippine economy with favorable demographics for further growth. Market leading positions in key Philippine industries Many of the businesses of SMC are leaders in their domestic markets.

Beverages: The domestic beer business of SMC has consistently dominated the Philippine beer market, with a market share of 90.0% by volume in 2012, according to Canadean data, with no significant changes thereafter. SMB has held this position since 1999. SMC also produces some of the most recognizable brands in the Philippine liquor market. It also has a growing nonalcoholic beverage business which produces non-carbonated ready to drink teas, fruit juices and water. Food: San Miguel Pure Foods is a leading Philippine food company with market-leading positions in key food categories and offers a broad range of high-quality food products and services to household, institutional and foodservice customers. Based on data from certain Philippine government agencies and its own internal assumptions and calculations, San Miguel Pure Foods believes it has market shares of 38.0% for poultry, 40.0% for fresh meats (based on sow population of large commercial farms), and 43.0% for animal feeds, in each case as of December 2014 and 16.0% for flour as of September 30, 2015. According to Kantar Worldpanel, San Miguel Pure Foods has a market share of 58.0% for hotdogs sold in Philippine supermarkets, 84.0% in the chicken nugget product category, and market shares of 42.0% for butter, 97.0% for refrigerated margarine, in each case based on value as of September 2015. According to Nielsen,

San Miguel Pure Foods has a 97.0% market share for nonrefrigerated margarine and 20.0% market share for cheese as of August 2015. San Miguel Pure Foods has continuously enhanced brand recognition and trust with consumers by consistently maintaining high product quality, as well as through active and targeted advertising and promotional campaigns. Packaging: The packaging business is one of the largest packaging operations in the Philippines, producing glass, metal, plastic, aluminum cans, paper, flexibles, PET and other packaging products. The packaging business is the major source of packaging requirements of the other businesses of SMC. It also supplies its products to major multinational corporations in the Philippines and customers across the Asia-Pacific region, the United States, Africa, Australia and the Middle East. Fuel and oil: Petron refines crude oil and markets and distributes refined petroleum products in the Philippines and Malaysia. In the Philippines, Petron is the number one integrated oil refining and marketing company, with an overall market share of 35.4% of the Philippine oil market in terms of sales volume based on industry data from the DOE as of December 2014. Petron also has a 17.1% share of the Malaysian retail market as of September 30, 2015, according to Petron and Farenheit Research estimates. Energy: SMC Global Power is one of the largest IPPAs in the Philippines, holding a 22.2% market share of the total installed capacity of the Luzon power grid and a 16.5% market share of the national grid as of September 30, 2015, according to the ERC. SMC Global Power administers three (3) power plants, located in Sual, Pangasinan (coal-fired), Ilijan, Batangas (natural gas) and San Roque, Pangasinan (hydroelectric) and owns the power plant in Limay, Bataan (coal co-generation). In addition, SMC also owns 60.0% interest in the AHEPP. This brings total combined capacity of SMC Global Power to 2,903 MW. The energy trading team of SMC comprises of pioneers in WESM trading. Infrastructure: SMHC has become one of the major infrastructure companies in the country, with concessions in toll roads, airport and mass rail transit. SMHC has rights to about 52.7% of the total road length of awarded toll road projects. This includes operating toll roads such as TPLEX, SLEX, Skyway Stages 1 and 2 and STAR tollways while ongoing projects include NAIAx and Skyway Stage 3. SMHC also operates the Boracay Airport which is currently doing improvement and expansion activities that will take advantage of the growing number of tourists in the area. In addition, SMHC holds the concession to construct, operate and maintain the MRT7 project, a 22-km rapid mass rail transit system, which spans from North EDSA to San Jose del Monte City, Bulacan, and a 22-km road component from San Jose del Monte City, Bulacan to the Bocaue exit of the NLEX.

Experienced management team SMC has an extensive pool of experienced managers who have been with SMC for more than 20 years. The management team has a deep knowledge and understanding of the Philippine operating environment and has been able to effectively manage SMC through periods of crisis

and instability in the Philippines. In addition, the management team has successfully directed the diversification strategy of SMC, including retaining key management personnel from acquired companies in order to maintain their expertise and leverage their industry experience. Operating businesses provide sustainable stream of income and cash flows The beverage, food and packaging businesses provide SMC with a sustainable stream of income. These businesses demonstrated resilience during the global financial crisis and provided SMC with a strong financial base from which to pursue its recent diversification strategy. In 2014, the core businesses of beverage, food and packaging businesses provided 28.3% of total SMC sales and 43.9% of total SMC EBITDA. For the period ending September 30, 2015, core businesses provided 32.2% of total SMC sales and 37.6% of total SMC EBITDA. For the period ending September 30, 2015, SMC generated ₱77,466 million of EBITDA and ₱6,167 million of net income attributable to the Parent Company with ₱43,983 million of capital expenditure. In 2014, SMC generated ₱88,096 million of EBITDA and ₱14,692 million of net income attributable to the Parent Company with ₱38,951 million of capital expenditure. In 2013, it generated ₱77,283 million of EBITDA and ₱38,053 million of net income attributable to the Parent Company with ₱65,865 million of capital expenditure. In 2012, it generated ₱76,626 million of EBITDA and ₱26,806 million of net income attributable to the Parent Company with ₱52,917 million of capital expenditure.

Supplies and Distribution

Feeds Production and Raw Materials Compound feeds are manufactured at seven (7) San Miguel Pure Foods-owned facilities that are operated by third parties and 33 third party-owned and operated feeds plants, located throughout the Philippines. Most of these plants are capable of producing pelleted and crumble format feeds, and five (5) plants have 97 extrusion capabilities to produce aquatic floating feeds. San Miguel Pure Foods also maintains tolling arrangements for six (6) rendering facilities that convert animal by-products used as raw materials in some feed types. The largest single component of the cost of sales of San Miguel Pure Foods for animal feeds is the cost of ingredients used to prepare nutritionally balanced feed, including: corn, soybean meal, cassava, feed wheat, pollard, rice bran, copra and pork meal. San Miguel Pure Foods purchases corn locally from corn traders and occasionally from suppliers in the United States and Southeast Asia. Soybean meal is imported from Argentina, the United States and India, while other raw materials are purchased from various suppliers in North America, Asia, Europe and the Philippines. In 2015, San Miguel Pure Foods bought over 60.0% of its total grain purchases in the domestic market and the rest from the United States, Southeast Asia and Argentina. Raw materials used in the animal feeds business of San Miguel Pure Foods are sourced by its Business Procurement Group (“BPG”).

San Miguel Pure Foods also uses as raw materials spent grain, malt dust and yeast, which are byproducts of SMB, pollard from SMMI and offals and feathers from the poultry dressing plants of San Miguel Pure Foods.

Poultry Production and Raw Materials San Miguel Pure Foods primarily utilizes third party-owned facilities operated under tolling arrangements for its poultry production. Approximately 99.0% of its poultry growing output and 96.0% of its processing output come from tolled facilities, allowing San Miguel Pure Foods to outsource production at a lower cost and direct more resources toward improving its marketing, sales and distribution capabilities. Approximately 84% of these poultry growing facilities employ climate-controlled systems, which provide more comfortable and stable temperatures in growing facilities, thus, increasing efficiency and reducing mortalities. As of September 30, 2015, San Miguel Pure Foods contracted with tolled growing farms with an aggregate estimated annual capacity of more than 300 million birds. The vertically controlled poultry operations of San Miguel Pure Foods also includes two (2) owned and 32 processing plants operated under tolling arrangements and utilizes an extensive network of third party cold storage warehouses and distribution facilities throughout the Philippines. The primary raw materials used in the chicken operations of San Miguel Pure Foods are live chickens raised primarily by independent contract growers. Breeder flocks (grandparents of birds that are ultimately sold) are raised to maturity in grandparent growing and laying farms where fertile eggs are produced. Fertile eggs are hatched at the grandparent hatchery and produce day-old parent stock (parents of birds that are ultimately sold). Parent stocks are then sent to breeder houses, and the eggs produced are sent to the hatcheries. Once eggs are hatched, the chicks are sent to the broiler farms. There, contract growers care for and raise the chicks according to the standards of San Miguel Pure Foods, with feeds supplied by the feeds business and with advice from its technical service personnel, until the chicks reach marketable weight. Grown chickens are transported to processing plants, where they are dressed and processed into finished products, which are then sent to distribution centers and sold to customers. As of September 30, 2015, feeds accounted for the majority of production costs for the poultry business, representing approximately 61.0% of the cost of growing a live chicken. All of the feeds required by the poultry business are supplied by its feeds business.

Fresh Meats Production and Raw Materials The fresh meats business raises its hogs using a two-site system, which separates breeding from nursery and growing into isolated facilities to minimize the risk of disease. San Miguel Pure Foods believes that it pioneered the use of the vertically controlled pork and beef production system in the Philippines, controlling the entire value chain including selection of genetic stocks, growing and processing of hogs and cattle and selling, mainly through its Monterey Meatshop

operations. Approximately 56.0% of its hog production capacities are third party-owned and operated under tolling arrangements. As of September 30, 2015, approximately 54.0% of the hog growing facilities employ climatecontrolled and elevated housing systems, which provide more comfortable and stable temperatures in growing facilities, thus increasing efficiencies and reducing mortalities. The primary raw materials for the processing plants are live hogs and cattle. In 2014, San Miguel Pure Foods sourced all of its live hogs from its contract growing farms. With respect to sourcing beef supply in 2014, San Miguel Pure Foods imported all of its feeder cattle from Australia and its boxed beef from Australia, New Zealand and Brazil. Other primary raw materials of the fresh meats business are hog and cattle feed. All of the feeds required by the fresh meats business are supplied by the feeds business

For each tranche of the Offer, the Company shall distribute a supplement (the “Offer Supplement”) which shall be disclosed to the public through the filing with the SEC and the PSE and made available for download from the website of SMC specifically, in http://www.sanmiguel.com.ph. The Offer Supplement shall contain the following information: (a) timetable, offer size of the specific offering, the applicable dividend rate and the mode of settlement of the offering; (b) capital structure of the Company after the offering; (c) any changes to the risk factors and tax consequences of the offering; (d) description of the specific distribution and underwriting arrangements; and (e) amount and use of proceeds.

Plan of Distribution SMC plans to issue the Offer Shares to institutional and retail investors through a public offering to be conducted through the Underwriters (for a more detailed discussion, see the relevant Offer Supplement) Expected Timetable The indicative timetable of the Offer is expected to be as follows: Particulars Filing of the Initial Registration Statement with the SEC Filing of the PSE Listing Application PSE Listing Approval Receipt of SEC Pre-Effective Approval Shelf Registration

Dates February 10, 2016 February 11, 2016 February 24, 2016 March 8, 2016 March 10, 2016 to March 10, 2019

The dates indicated above are subject to market and other conditions and may be changed by the agreement of SMC and Underwriters, subject to the approval by the SEC and PSE. After the Registration Statement of the Company for the Offer Shares becomes effective, the Company will secure a permit to sell from the SEC for each tranche of the Offer.

Industry and Competition Analysis

Market Information

Ginebra Ginebra markets its products through a variety of channels, including television, radio, billboard and print advertisements, as well as special event sponsorships, consumer promotions and trade promotions. Ginebra targets the Popular and Economy market segments. The major competitors of Ginebra in these segments include Emperador Distillers Inc. and Tanduay Distillers Inc. In the Premium market segment, the major competitors of Ginebra include Gilbey’s and Absolut. As Ginebra endeavors to create a niche in the Premium market segment with the introduction of premium brand names, Ginebra will continue to rely on its competitive advantages including price, quality and extensive distribution network. Feeds The commercial feed products include hog feeds, layer feeds, poultry feeds, aquatic feeds, branded feed concentrates and specialty and customized feeds. These animal feeds are sold and marketed under various brands including B-Meg, B-Meg Premium, Integra, Expert, Dynamix, Essential, Pureblend, Bonanza and Jumbo The Philippine feeds industry derives its sales mainly from hog and broiler producers. Many of these feed millers have evolved from merely selling feed products to offering total value service packages to customers, such as technical services and after-harvest payment schemes. The feed milling industry is a commoditybased industry, with most of its major raw materials consisting of commodities, such as corn, soybean meal and feed wheat. Since most feed millers use imported raw materials, the industry is affected by foreign exchange fluctuations Poultry In its poultry business, San Miguel Pure Foods breeds broilers and produces and markets chicken products, mostly for retail. The broad range of chicken products is sold under the Magnolia Fresh Chicken brand. These products include fresh-chilled or frozen whole and cut-up products. Through its Magnolia Chicken Stations, San Miguel Pure Foods offers a wide variety of fresh and easy-to-cook products. San Miguel Pure Foods also sells customized products to foodservice and export clients, supplies supermarket house brands, serves chicken products to wet markets through distributors, and sells live chickens to dealers. The poultry business of San Miguel Pure Foods operates a vertically-integrated poultry production process that spans from breeding broilers to producing chickens and related products. Traditionally, the Philippine poultry industry was highly fragmented and primarily a commercial industry. However, several major producers, including San Miguel Pure Foods, have been successful in introducing modern technologies and processes to the industry, allowing them to consolidate market share and achieve economies of scale. Most of the major integrated producers employ contract-growing schemes for the production of live broilers, and also engage in contract breeding and toll dressing arrangements. The Philippine poultry industry has commodity characteristics and is subject to frequent changes in demand and 98 supply. Based on data from the Philippine Statistics Authority and certain internal

assumptions and calculations, San Miguel Pure Foods estimates the Philippine market for poultry was approximately ₱104 billion as of September 30, 2015.

Operation/Production Aspects Ginebra Feeds Compound feeds are manufactured at seven (7) San Miguel Pure Foods-owned facilities that are operated by third parties and 33 third party-owned and operated feeds plants, located throughout the Philippines. Most of these plants are capable of producing pelleted and crumble format feeds, and five (5) plants have 97 extrusion capabilities to produce aquatic floating feeds. San Miguel Pure Foods also maintains tolling arrangements for six (6) rendering facilities that convert animal by-products used as raw materials in some feed types. The largest single component of the cost of sales of San Miguel Pure Foods for animal feeds is the cost of ingredients used to prepare nutritionally balanced feed, including: corn, soybean meal, cassava, feed wheat, pollard, rice bran, copra and pork meal. San Miguel Pure Foods purchases corn locally from corn traders and occasionally from suppliers in the United States and Southeast Asia. Soybean meal is imported from Argentina, the United States and India, while other raw materials are purchased from various suppliers in North America, Asia, Europe and the Philippines. In 2015, San Miguel Pure Foods bought over 60.0% of its total grain purchases in the domestic market and the rest from the United States, Southeast Asia and Argentina. Raw materials used in the animal feeds business of San Miguel Pure Foods are sourced by its Business Procurement Group (“BPG”). San Miguel Pure Foods also uses as raw materials spent grain, malt dust and yeast, which are by-products of SMB, pollard from SMMI and offals and feathers from the poultry dressing plants of San Miguel Pure Foods.

Poultry San Miguel Pure Foods primarily utilizes third party-owned facilities operated under tolling arrangements for its poultry production. Approximately 99.0% of its poultry growing output and 96.0% of its processing output come from tolled facilities, allowing San Miguel Pure Foods to outsource production at a lower cost and direct more resources toward improving its marketing, sales and distribution capabilities. Approximately 84% of these poultry growing facilities employ climatecontrolled systems, which provide more comfortable and stable temperatures in growing facilities, thus, increasing efficiency and reducing mortalities. As of September 30, 2015, San Miguel Pure Foods contracted with tolled growing farms with an aggregate estimated annual capacity of more than 300 million birds. The vertically controlled poultry operations of San Miguel Pure Foods also includes two (2) owned and 32 processing plants operated under tolling arrangements and utilizes an extensive network of third party cold storage warehouses and distribution facilities throughout the Philippines. The primary raw materials used in the chicken operations of San Miguel Pure Foods are live chickens raised primarily by independent contract growers. Breeder flocks (grandparents of birds that are ultimately sold) are raised to maturity in grandparent growing and laying farms where fertile eggs are

produced. Fertile eggs are hatched at the grandparent hatchery and produce day-old parent stock (parents of birds that are ultimately sold). Parent stocks are then sent to breeder houses, and the eggs produced are sent to the hatcheries. Once eggs are hatched, the chicks are sent to the broiler farms. There, contract growers care for and raise the chicks according to the standards of San Miguel Pure Foods, with feeds supplied by the feeds business and with advice from its technical service personnel, until the chicks reach marketable weight. Grown chickens are transported to processing plants, where they are dressed and processed into finished products, which are then sent to distribution centers and sold to customers. As of September 30, 2015, feeds accounted for the majority of production costs for the poultry business, representing approximately 61.0% of the cost of growing a live chicken. All of the feeds required by the poultry business are supplied by its feeds business.

COMPETITOR ANALYSIS Major Competitor

Ginebra Ginebra markets its products through a variety of channels, including television, radio, billboard and print advertisements, as well as special event sponsorships, consumer promotions and trade promotions. Ginebra targets the Popular and Economy market segments. The major competitors of Ginebra in these segments include Emperador Distillers Inc. and Tanduay Distillers Inc. In the Premium market segment, the major competitors of Ginebra include Gilbey’s and Absolut. As Ginebra endeavors to create a niche in the Premium market segment with the introduction of premium brand names, Ginebra will continue to rely on its competitive advantages including price, quality and extensive distribution network.

Feeds Based on data from the Philippine Statistics Authority and certain internal assumptions and calculations, San Miguel Pure Foods believes it is the largest producer of commercial feeds in the Philippines, with an estimated market share of approximately 43.0% of the commercial feeds market by volume as of December 31, 2014. In its animal feeds business, San Miguel Pure Foods competes on quality, customer service, distribution

network and price. San Miguel Pure Foods competes with major domestic producers such as Pilmico Foods Corporation, Univet Nutrition and Animal Healthcare Company, Universal Robina Corporation, as well as numerous regional and local feed mills. It also faces increasing competition from foreign feeds manufacturers, such as Charoen Pokphand Foods of Thailand and New Hope Group of China, which have established operations in the Philippines.

Poultry Based on data from the Philippine Bureau of Animal Industry and certain internal assumptions and calculations, San Miguel Pure Foods believes that it held an approximately 38.0% market share in the Philippine broiler market as of December 2014 based on volume sold, ahead of the second and third major players, which had market shares of approximately 21.0% and 5.0%, respectively. In its poultry business, San Miguel Pure Foods competes on quality, distribution network and customer service. The poultry business faces competition from large integrated producers such as Bounty Fresh Foods Inc., Bounty Agro Ventures, Inc., Gama Foods Corp. and the Charoen Pokphand Group, as well as numerous smaller independent broiler producers. San Miguel Pure Foods also faces competition from lowerpriced imports from the United States, Canada and Brazil.

COMPETITOR’S PROFILE Ginebra Emperador Brandy

Emperador Brandy is the world’s best-selling brandy. In 2013, it sold 400 million bottles in Asia, primarily in the Philippines and the Middle East. It is a brandy of unparalleled quality, smoothness and flavor. Emperador Brandy owes its success to an intricate blending and aging process. All it takes is one sip to fully appreciate Emperador Brandy as a world-class product – that just happens to be conveniently affordable. In 2010, Emperador Light was introduced, becoming the country’s first light yet full-flavored brandy. Factoring in the brand’s monumental success are its exceptional quality, widespread market availability, and charming campaign focused on keeping things light. In 2011, the brand launched its “Gawin mong Light” campaign, which encouraged drinkers to look at the lighter side of life’s daily challenges. This philosophy resonated well with our target consumers, who constantly work hard to achieve their personal goals but prefer to keep things light when it comes to their social life. Dr. Andrew L. Tan’s vision of Emperador as a producer of worldclass quality products led to the acquisition of the renowned Bodega San Bruno in Jerez – the brandy capital of the world. This investment included sweeping tracts of vineyards in Toledo, the latest viniculture technology, and a sizable inventory of high-quality brandy that is now being meticulously aged in sherry-oak casks at Bodega San Bruno. Emperador’s acquisition of Bodega San Bruno brings together over two centuries of brandy-making tradition. This enables the company to pursue innovations in brandy production in a competitive and thriving global market. More importantly, the acquisition provides a platform to expand Emperador’s global footprint and product offerings. The launch of Emperador Deluxe in 2013 further strengthened the company’s brandy portfolio. This fine spirit has been well-received by consumers who enjoy its unparalleled taste and topnotch quality. In less than a year, Emperador Deluxe became one of the largest brands in the imported liquor segment. This established Emperador as a global brand, and a major player in the premium liquor category.

Poultry Universal Robina Corporation Uno Feeds

Some people have been asking about Uno Feeds and were wondering if any info is available online. Well, just to clear things up, that’s actually the brand name of one of the products of RobinaAgriPartners.com, and is aimed at entrepreneurs who want to fatten their hogs or pigs. There are two main categories: Uno Feeds Supreme and Uno Feeds Premium.Each category has its own feeding guide, and targets either fatteners or breeders. The main difference is about 100 to 200 grams per pig (based on the guide for breeders), and about 50 to 100 grams per pig (based on the guide for fatteners). These variations are spelled out in the Uno Feeds Supreme Feeding Guide and the Uno Feeds Premium Feeding Guide. Just take note, though, that the variations are not only in terms of amount of feeds to give to your pigs. Please also pay careful attention to the age of your pigs, as listed in the guides. Poultry Bounty Fresh

Bounty Fresh Chicken is a brand under Bounty Fresh Food Inc. and Bounty Agro Ventures Inc. that supplies dressed chicken to various hotels, restaurants, institutional food companies (HRI) as well as supermarkets in the Philippines.Bounty's story started during the 1980s when the Chen family put up one layer house in Sta. Maria, Bulacan, Philippines and loaded the first 5,000 heads of chicken. From a 5,000-head layer farm, the business grew to be one of the largest broiler integrators in the country. It is the only fully-integrated poultry company that has continuously invested in company-owned facilities – Grand Parent farm, Parent Stock farm, Hatcheries, Dressing Plants, Feed Mills, and Cool-cell Broiler Complexes in the Philippines.