Background
Emperador Inc. (EMI) was incorporated in the Philippines and registered with the Securities and Exchange Commission on November 26, 2001. It presently operates as a holding company of a global conglomerate in the distilled spirits and other alcoholic beverages business. It is primary-listed on the Philippine Stock Exchange and secondary-listed on Singapore Exchange.
The period from its founding in 1979 until 2013, Emperador became not only the biggest spirits company in the Philippines but more importantly the undisputed brandy leader in the world. From 2014 to present, Emperador was firm in its resolve to start building a global portfolio with a clear brand focused strategy. This is the transformative years where Emperador made international acquisitions such as the 5th biggest scotch whisky maker in Scotland, Whyte & Mackay, and the biggest and oldest brandy maker in Spain, Bodegas Fundador. It is also during this period where its vast portfolio was emerging as a fast-growing global disruptor in spirits in more than 100 countries.
Business Model
Emperador has established its identity as the largest liquor company in the Philippines and the largest brandy producer globally through its subsidiaries – Whyte and Mackay Group, Ltd. (WMG), Bodegas Fundador (BF) and Emperador Distillers, Inc. (EDI).
EMI is a subsidiary of Alliance Global Group, Inc, a publicly-listed domestic holding company with diversified investments in real estate development, food and beverage, quick-service restaurants, and tourism-entertainment and gaming businesses.
Management Background
Andrew L. Tan, Chairman and Non-Executive Director
Mr. Tan was elected as a Non-Executive Director and Chairman of the Board on 28 August 2013. He is the Chairman of Emperador Distillers, Inc. since its incorporation in 2003. He has served as Director of Alliance Global Group, Inc. since 2003 and as its Chairman of the Board from September 2006 to present and Chief Executive Officer from September 2006 to June 2018 and as Vice-Chairman of the Board from August 2003 to September 2006.
Mr. Tan is concurrently the Chairman of the Board and President of Megaworld Corporation, Megaworld Land, Inc., Megaworld Globus Asia, Inc., Mactan Oceanview Properties and Holdings, Inc., Richmonde Hotel Group International Limited, The Bar Beverage, Inc. and Yorkshire Holdings, Inc. He is also the Chairman of Megaworld Newport Property Holdings, Inc., Alliance Global Group Cayman Islands, Inc., Empire East Land Holdings, Inc., Alliance Global Brands, Inc., Global-Estate Resorts, Inc., Suntrust Properties, Inc., Adams Properties, Inc., Consolidated Distillers of the Far East, Inc., and Townsquare Development, Inc.
He sits in the boards of Infracorp Development, Inc., Eastwood Cyber One Corporation, Megaworld Cayman Islands, Inc., Megaworld Cebu Properties, Inc. (formerly known as Forbes Town Properties & Holdings, Inc.), Gilmore Property Marketing Associates, Inc., Megaworld Central Properties, Inc., Fairways & Bluewater Resort Golf & Country Club, Inc., Twin Lakes Corporation, Anglo Watsons Glass, Inc., Alcazar De Bana Holdings Company, Inc., Raffles & Company, Inc., Travellers International Hotel Group, Inc. and The Andresons Group, Inc. He is also the Vice-Chairman and Treasurer of Golden Arches Development Corporation and Golden Arches Realty Corporation and a Director and Treasurer of Andresons Global, Inc. Mr. Tan graduated Magna Cum Laude from the University of the East with a degree of Bachelor of Science in Business Administration and was conferred Doctor of Philosophy in Humanities (Honoris Causa) in 2011 by the same university.
Emperador Inc Posted P7.2bil profit in 9 months
Emperador Inc. ended the first nine months of the current year with P42.6bil revenues and other income, up 11% YoY, from its global Brandy and Scotch whisky segments. Global business remained robust in the third quarter as revenues and other income climbed 12% YoY to P14.6bil . This is attained on the backdrop of worldwide challenges of rising costs, supply chain disruptions and logistics issues that saw higher-than-expected inflation alongside the lingering COVID-19 pandemic.
Net profit (NP) and net profit attributable to owners (NPO) were sustained at P7.3biland P7.2bil, respectively, relatively flat YoY. Third quarter NP and NPO contracted 12% and 11%, respectively, mainly from higher input costs and promotional activities YoY.
The Group achieved 32% gross profit rate (GPR) this year compared to 37% a year ago, and 17% net profit rate (NPR) compared to 19% a year ago, amidst inflationary and logistic pressures. Impact of these pressures was more evident in Brandy segment which has low-margin products. The Group’s GPR remained above the 30ish level, i.e. 31% in the third quarter and 32% throughout the two earlier quarters. The Group continued to maintain caution and optimization in its spending.
The Brandy segment grew its first 9-months’ revenues and other income from external customers 8% YoY (+P2.0bil) to P26.9bil, attributable to a strong third quarter which grew 6% (+P0.5bil) YoY to P9.0bil. The easement of pandemic restrictions and resumption of travel from the second quarter helped improve sales results. The brands sustained growths in key markets in the Philippines, Spain, Mexico and North America. Although profit margins were affected by the rising costs, GPR was maintained at 26% at end of the nine-month period as it was at first half of the year. With increased promotional activities, NPR and NPOR were registered at 14% for the nine-month period.
The Scotch Whisky segment grew its first 9-month’s revenues and other income from external customers 17% YoY (+P2.2bil) to P15.8bil, with third quarter expanding 24% YoY (+P1.1bil), driven by the single malt products which accounted for 83% of branded sales (as compared to 79% a year ago). Scotch Whisky products sold strongly in Europe, Asia Pacific and North America as restrictions eased in most regions and global travel retail opened up. Supply chain challenges continued to affect this segment’s markets, yet demand remains high with orders on hand. GP expanded 14% YoY to P6.1 bil and GPR was maintained at 41% at end of the 9-months period as it was at first half of the year. With increased promotional spending in third quarter, NP and NPOR rates stood at 21% for the nine-month period as compared to 23% in the first half.
Operating expenses for the first nine months increased 18% YoY (+P0.8 bil ) to P5.3bil due to increased business activities in global markets during the current interim periods. Advertising and promotions (+P0.4bil), professional fees and other services (+P0.2bil), travel and transportation (+P0.09bil) and fuel and oil (+P0.03bil) went up YoY.
Selling and distribution. In general, as economies opened up and mobility became less restricted, both segments increased strategic and promotional marketing spends to support their brands to boost sales. Relative to this, Brandy segment had spent more on merchandising service fees and fuel and oil while Scotch Whisky segment had spent more this year on travel and transportation, professional fees and salaries and employee benefits. As a result, consolidated selling and distribution expenses went up 18% from a year ago.
General and administrative. Both segments increased expenses on travel and transportation this year. Brandy segment recorded professional fees related to the SGX secondary listing during the interim. There were other costs that could fluctuate on a monthly basis, and these increased YoY. Overall, consolidated general and administrative expenses went up 17% from a year ago.
Interest expense jumped 37% YoY (+P0.2bil) to P0.8bil mainly due to increase in interest expense at the Scotch Whisky segment because of additional drawdowns since last year, which was offset by decrease in Brandy’s interest expense due to loan repayments and the variable interest on ELS paid a year ago.
Other income soared 91% YoY (+P0.6bil) to P1.3bil mainly from foreign exchange gains, other operating income and share in net profit of BLC.
Tax expense decreased 49% YoY (-P1.1bil ) to P1.1bil primarily due to deferred tax adjustment last year, more particularly on intangibles, attributed to prospective increase in UK corporate tax rates from 19% to 25% (P0.7bil). Both segments incurred lower taxable income in current interim period from a year ago.
EBITDA, which is computed as profit before interest expense, tax, depreciation and amortization, amounted to P10.2bil this interim period as compared to P11.1bil a year ago, primarily due to the lower tax expense, showing margin of 24% this interim period versus 29% a year ago.
Total assets amounted to P136.3bil at September 30, 2022, a 6% increase (+P7.8bil) from P128.5 bil at December 31, 2021. The Group is strongly liquid with current assets exceeding current liabilities 2.9x at end and 2.8 at the beginning of the current interim period.
Cash and cash equivalents swelled 34% (+P3.2bil) to P12.5bilat end of interim period, mainly provided from operations and collection of receivables. Cash flows from operations and financing activities were used for capital expenditures, loan and interest payments and laying up of inventories.
Future Prospects
The COVID-19 pandemic which put the Philippines in a state of calamity is continuing globally as of date of this report, with new variants of the virus coming out and causing upsurges and re-imposition of restrictions in countries so affected at varying degrees. The government’s vaccination program is ongoing. The Group has started its vaccination program for its employees in May 2021, and later on to their family members, to help achieve the herd immunity that the government is aiming for.
There were global economic disruptions in the first quarter brought about by the Omicron variant waves of infection that caused record peaks in most countries in January, including UK, Spain, Mexico, and Philippines. As the situation had improved globally, public health restrictions had eased in most places while there were still tightening in other places due to new variants causing infections.
The world is not yet out of the pandemic in which the ultimate impact is still uncertain and subject to change. Accordingly, management cannot reliably estimate the quantitative impact of the pandemic on the Group’s interim consolidated financial position and results of operations for future periods. The Group follows dutifully government guidelines and pronouncements.
Fundamental Analysis
Market Cap: 319.5bil
Number of Shares: 15,736,471,238
PE Ratio: 32.39
EPS (PHP): 0.624
Dividend Yield: 1.68%
Technical Analysis
Resistance Level: SGD0.53, SGD0.50
Support Level: SGD0.475
According to the daily charts of Emperador, Inc. (EMI), the stock is currently consolidated between SGD0.475 and SGD0.500. If EMI can break and hold above the SGD0.500 price level, it indicates a bullish trend and points to the next resistance price of SGD0.53.
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