April 16, 2009

Philippine milk giant Alaska Milk Corporation is earmarking US$4.24 million or P200 million for its capital expenditure programme this year mainly for maintenance and upgrade of existing manufacturing facilities.
 

In a company statement, the budget will be however lower than the P240 million spent by the dairy unit last year, which was used to purchase new production equipment and build its logistics distribution centre.

Alaska said it "regularly reviews the timing and allocated amounts for these planned projects and adjusts the appropriations accordingly to reflect changes in plans."

The funds will come from the company's internally generated cash.

Alaska reported a 56 percent drop in net earnings last year due to higher raw material, lower consumer spending and the continued weakening of the peso against the dollar.

The company's net income amounted to P291 million as against P667 million in 2007 while its net sales went up nine percent to P9.97 billion on higher volumes across its core milk product categories.

Operating income went down by 51 percent to P462 million due to fast growing sales on sharp increases in global prices of key imported raw ingredients and packaging materials.

Cost of sales and operating expenses reached P9.51 billion, up 17 percent, largely driven by higher cost of production inputs, particularly skim milk powder and tin plate.

Heightened advertising and promotional spending to support volume growth for the new and existing brands likewise contributed to the increase in operating expenses.

The company incurred a net interest expense of P57 million as it drew from its credit line from various banks to fund the increase in working capital requirements given its expanded business portfolio as well as higher cost of major raw and packaging materials.

Alaska said retail consumption of liquid canned milk and powdered milk products posted declines year-on-year as consumers scrimped on spending due to rising food and fuel prices.

Most consumers have reduced their consumption to the smaller and more affordable pack sizes.

Domestic consumption of milk products took a downturn in 2008 following a mild recovery the previous year as consumers put a tighter rein on spending amidst an impending economic slowdown.

Based on independent research, retail consumption across all milk categories registered high single-digit rate contractions year-on-year, reflective of a general slowdown in demand for basic goods and services triggered by inflationary concerns. Competition in the milk industry intensified as key players renewed their efforts to gain market share in a mature and sluggish industry amidst an influx of cheaper imported milk products.