Alaska Milk lowers capital outlay for ’08

Uytengsu-led Alaska Milk Corp. plans to spend P230 million this year largely for maintenance and the upgrade of manufacturing facilities, the company said in a filing with the Securities and Exchange Commission. The amount is 27.67% lower than the P318 million in expenditures last year, used primarily for the expansion of Alaska Milk’s manufacturing facilities and the construction of a warehouse. It has completed a new instant filled milk powder plant in San Pedro, Laguna, consisting of a recombined milk processing plant, equipment for spray-drying, and filling and packaging lines. "The company does not foresee the need to raise additional funds externally to meet its working capital requirements and planned capital expenditure for 2008," the listed company said. For 2008, Alaska Milk said it would continue to focus on growing its core milk business by expanding to other categories within the domestic milk market, either through a new product or through strategic alliances such as licensing agreements, joint ventures, or business acquisitions. "The company will likewise focus heavily on intensifying the sales and distribution of its existing and newly acquired product lines. The deployment of regional/area distributors to cover downline retail accounts will help expand the company’s penetration levels and develop relationships with new customer accounts," Alaska Milk said. Alaska Milk offers a wide range of milk products beyond the traditional canned evaporated filled and sweetened condensed filled milk, powdered filled milk and plain and chocolate-flavored UHT (ultra-high temperature) milk in Tetra briks. In 2003, it introduced an evaporated creamer to complete a cheaper line of liquid canned milk, and repackaged its classic line of evaporated and sweetened condensed filled milk in UHT Tetra briks to offer greater convenience to customers. A UHT-processed all-purpose cream was likewise launched in the market in July 2003 to expand into the dairy industry. In May 2005, it signed an agreement with Kellogg’s Asia Marketing, Inc. to exclusively distribute the Kellogg’s line of ready-to-eat cereals in the Philippines. Alaska Milk further strengthened its core business by acquiring three brands from Swiss food and beverage giant Societe de Produits Nestlé S.A. — Alpine, Liberty and Krem Top — for an undisclosed amount. "Today, Alaska Milk has a dominant position in the liquid milk category, accounting for about 80% of the market," the milk company said. Alaska Milk saw a 66% year-on-year increase in net income at P669.04 million in 2007 from P402.58 million in 2006 amid inflationary pressure from cost increases for many of its major ingredients and packaging materials. As domestic consumption of milk products recovered last year, net sales grew by 53.38% to P9.08 billion from P5.92 billion through aggressive sales and marketing. "The robust revenue growth stemmed from higher sales volumes realized across the company’s core product lines combined with favorable selling prices. Sales volume of the company’s liquid canned milk business surged year on year driven by the robust takeoff of the Alaska brands as well as the additional sales volume generated from the acquired and licensed Nestlé liquid canned milk brands," Alaska Milk said. The acquisition of the Alpine and Liberty brands and the license for the Carnation and Milkmaid brands have widened Alaska Milk’s portfolio and revenue base. "These brands bring with [them] a loyal customer following both in retail and food service accounts. In 2007, these brands contributed nearly P2 billion in additional revenues to the company," Alaska added. Cost of sales reached P6.69 billion, up by 52.74% from P4.38 billion as global prices of skimmed milk powder rose to an all-time high of $5,000 per metric ton brought about by strong demand amid weak dairy production output. Alaska Milk said the global supply of skimmed milk powder will likely remain tight, saying last year’s conditions are expected to prevail this year. These are dry weather conditions in Australia, low buffer stocks in Europe, the weak dollar and stable demand. "Following a sharp spike in 2007, current trends indicate that prices of skimmed milk powder appear to be in a correction phase. In addition, there is a concern that demand in certain countries may be falling as higher dairy prices are finally finding their way to consumers. "As skimmed milk powder prices [constitute] a substantial portion of the company’s costs, this trend will impact on the company’s operating margins in 2008, notwithstanding the company’s efforts to manage the effects of higher skimmed milk powder prices by hedging part of its skimmed milk powder requirements for the year," it said. On Tuesday, Alaska Milk share prices closed 1.02% weaker at P4.85. — Ruby Anne M. Rubio, BusinessWorld