3rd and 6th Floors, San Miguel Properties Centre ANNUAL REPORT 2014 GINEBRA SAN MIGUEL INC. 7 St. Francis Street, Mandaluyong City 1550 Metro Manila, Philippines www.ginebrasanmiguel.com A SUBSIDIARY OF SAN MIGUEL CORPORATION San Miguel Corporation Philippines’ largest diversified conglomerate Frasco Original version of Façade of La Tondeña, Inc., Cuatro Cantos, 1930s c. 1950s Continued the tradition of excellence, 1924 to 1987 Damajuana 1834 - 1930s Façade of the Distileria Licorea de Ayala, c. 1900s Producer of first Ginebra San Miguel, 1834 to 1924 GINEBRA SAN MIGUEL INC.GINEBRA 2014 CELEBRATING Annual Report 180 YEARS FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS In Thousands Pesos, Except Per Share Data GINEBRA SAN MIGUEL INC. GINEBRA Annual Report TABLE OF 2014 CONTENTS FINANCIAL 1 HIGHLIGHTS MESSAGE TO 2 STOCKHOLDERS PORTFOLIO OF 4 BEVERAGES 180 YEARS OF 8 GINEBRA SAN MIGUEL 10 DISTILLING THE FILIPINO SPIRIT 14 A RAY OF HOPE 16 BOARD OF DIRECTORS 17 CORPORATE GOVERNANCE 22 REPORT OF THE AUDIT COMMITTEE 23 FINANCIAL STATEMENTS 1 Exclusive of discontinued operations 2 Based on the number of shares outstanding at the end of each year Celebrating 180 years 1 MESSAGE TO STOCKHOLDERS TO MESSAGE These efforts helped the company reassert its position in different parts of the country, especially in North Luzon where we MESSAGE TO re-established our dominance. In South Luzon, we continued to encroach on the competition’s market and are primed to reclaim leadership. Shares in the Visayas, on the other hand, nearly doubled as modest gains were realized in the GMA and STOCKHOLDERS Mindanao areas. To mitigate the effects of higher taxes arising from the ad valorem portion of the excise tax, we sought to further improve efficiencies in our operation. We worked to extract higher yield from distillery, driving alcohol costs down 3% from the previous Ginebra San Miguel Inc. finally turned the corner in time for our 180th anniversary. year. Vigilance in monitoring sources of used bottles was also key, allowing us to maintain container cost efficiencies. GINEBRA SAN MIGUEL INC. GINEBRA The effects of higher excise taxes, shifting consumer preference, and greater Notwithstanding improved operating results, a net loss of about ₱766 million was realized due to the recognition of deferred competition in the hard liquor market, have all contributed to years of successive income taxes incurred in 2011 and 2012. operating losses for our company. We have brands with strong market shares in numerous categories, but after a thorough assessment of our business and recent Still, our path to recovery is clear. performance, we made a conscious effort to focus on winning back the market of This year, we are taking bolder steps to outdo, or at the very least, replicate our Annual Report our flagship, Ginebra San Miguel. 2014 performance. We will lay the groundwork to sustaining our volume growth by protecting and further growing our market share, particularly in the gin NET REVENUES UP BY 2014 category. We will also continue to introduce new, exciting brands to meet changing In 2014, we regained our footing and reported ₱14.9 billion in The campaign resonated extremely well with consumers, consumer needs. revenues, a 9% increase from the previous year. Income from increasing volumes for the Ginebra San Miguel brand by as continuing operations before income tax rose by about ₱1.3 much as 9%, and thereby pushing total liquor volumes by Primera Light will be our main brandy offering. Since introducing it to the market early billion, to break even this year. With reduced variable costs, gross 4% from prior year. this year, consumers have rated it highly for its superior taste, aroma and smoothness. profit margin rose to 27% ―the highest in more than five years. We are also introducing innovations to the GSM Blue brand to strengthen its appeal Our brand strengthening efforts were also reinforced among young consumers. Overall, this remarkable recovery is the result of programs by our year-long celebration of Ginebra San Miguel’s we implemented to strengthen both the company’s top- milestone anniversary, which doubled as an effective We expect competition to further intensify as fresh rounds of tax hikes lie on the and bottomline. promotional strategy for our products. horizon and trade borders fall with the ASEAN integration. As such, we will be focusing our efforts on aligning more closely with our customers and consumers, focusing our Last year, we paid homage to the hardworking Filipino through Furthermore, our anniversary theme, “Kabahagi ng product portfolio and further growing our markets. the thematic campaign, ‘Ganado sa Buhay’. It depicted the Sambayanang Pilipino”, underscored our brand’s value ordinary Filipino as a hero who presses on despite everyday as an integral part of the everyday celebrations and Related to this, we have also divested our stake in the non-alcoholic beverage business challenges to give his family a better future. The material was social gatherings. and have transferred this to San Miguel Brewery Inc. This will allow us to concentrate aired on TV and radio, and was supported by on-ground and on our core strength—liquor. promotional activities such as Ginumanfest, which is now on its Other brands also contributed to growth, improving third nationwide installment. our volumes in key regions. GSM Blue Flavors, a recent Fellow stockholders, our achievements this year would not have been possible without addition to the GSM Blue family, was launched via your support, and we thank you for your continued commitment to our growth. We’d 4% 9% availability and consumption drives mainly in the Eastern increase increase also like to thank our Board, for their trust and steady guidance, and our employees, from from part of the Visayas. Vino Kulafu, the country’s dominant for their unwavering dedication. prior year prior year Chinese Wine brand, meanwhile continued to perform well in Mindanao and other parts of the Visayas. As we close the book on 2014 and look to the future, it’s worth being reminded that our LIQUOR GINEBRA anniversary was not a mere milestone, but a significant achievement. After all, very We also worked on enhancing our distribution capability VOLUMES SAN MIGUEL few companies in the Philippines today can say they have lasted half as long as ours. VOLUMES and coverage by entering into partnership with new, roving wholesalers who served to extend our reach nationwide. And while we have always been proud of our brand’s heritage and how generations of Filipinos have identified with its credos, we know too that longevity is borne out of an ability to constantly recalibrate, transform, and adapt to the changing markets and the changing times. We believe we have succeeded in doing exactly that these past few years. With one of our more robust years behind us, and with the next phase of our growth strategy already in place, Ginebra San Miguel is back on familiar ground, determined to deliver on the promise of a new start. EDUARDO M. COJUANGCO, JR. BERNARD D. MARQUEZ Chairman & CEO President “Our anniversary was not a mere milestone, but a significant achievement.” Celebrating 180 years 3 PORTFOLIO OF BEVERAGES PORTFOLIO GINEBRA SAN MIGUEL Angelito (250ml) Round (350ml) Frasquito (350ml) Frasco (700ml) * Alcoholic GINEBRA SAN MIGUEL INC. GINEBRA Annual Report 2014 PORTFOLIO OF BEVERAGES 4 Celebrating 180 years 5 VINO KULAFU OF BEVERAGES PORTFOLIO Classic (350ml) Long Neck (700ml) * Alcoholic G.S.M. BLUE Solo (350ml) GINEBRA SAN MIGUEL INC. GINEBRA Long Neck (700ml) Litro (1000ml) G.S.M. BLUE FLAVORS Solo (350ml) TONDEÑA MANILA RUM Long Neck (700ml) Gold, Silver, Dark Annual Report Mojito (700ml) Brown Coffee 2014 For Export only * Alcoholic * Alcoholic GINEBRA SAN MIGUEL PREMIUM GIN (750ml) * Alcoholic ANTONOV VODKA GRAN MATADOR BRANDY SOLERA MAGNOLIA HEALTHTEA MAGNOLIA PUREWATER (700ml) Solo (350ml) RGB (250ml) PET (355ml, 500ml, 1000ml) Long Neck (700ml) Apple, Lemon, and Strawberry ANTONOV VODKA MIXED DRINK Litro (1000ml) Powdered (35g) Ice (330ml) Apple and Lemon BERRI (NATURAL FRUIT JUICES) Apple, Dark Grape, Orange, GRAN MATADOR LIGHT MAGNOLIA FRUIT DRINK DON ENRIQUE MIXKILA Solo (350ml) Tomato, Cranberry (1000ml) RGB (250ml) (700ml) Long Neck (700ml) Grape and Orange Apple, Orange, Multi V, Dark Grape, Litro (1000ml) Pink Guava (2400ml) * Alcoholic Powdered (35g, 400g) Lemonade, Calamansi, * Alcoholic Orange-Mango and Valencia Orange Mango (400g) For Export only * Non-Alcoholic 6 Celebrating 180 years 7 GINEBRA SAN MIGUEL GINEBRA 180 YEARS OF 180 YEARS By 1864, Ginebra’s popularity had trickled down to the working-class. To suit the palate of the masa, Ginebra San Miguel was made stronger and more flavorful. It became an alternative to the colonial version of moonshine, Vino de Nipa. GINEBRA SAN MIGUEL INC. GINEBRA With its strong alcohol content and soothing flavor, Ginebra San Miguel gained new adherents. By the the turn of the 20th century, the brand became the most sought-after liquor drink by Filipinos and the new colonizers, the Americans. In 1924, Filipino-Chinese businessman Don Carlos Palanca Sr., Annual Report owner of La Tondeña distillery, acquired the distillery from the 2014 Ayalas. Palanca’s success was such that he became known as the “Alcohol King”; La Tondeña became the country’s leading distiller with Ginebra San Miguel as its flagship liquor brand. On August 1, 1987, San Miguel Corporation (SMC), the country’s largest brewer with interests in food, packaging, and other businesses, acquired La Tondeña Distillery Inc (LTDI) in a bid to expand its beverage business portfolio. In 2003, LTDI was renamed Ginebra San Miguel 180-TAON KABAHAGI NG Incorporated (GSMI) in homage to the flagship brand Under San Miguel Corporation, Ginebra benefitted from access and its roots. SAMBAYANANG PILIPINO to its new parent company’s vast domestic and international distribution network. Ginebra San Miguel became the Ginebra San Miguel is the epitome of excellence, country’s leading liquor brand, cornering over 50% of the reaping accolades both locally and internationally.