Pepsi Philippines may go into candy making

Posted at 11/09/10 10:47 PM

MANILA, Philippines - Listed Pepsi-Cola Products Philippines Inc. is preparing for its possible diversification into the “confectionery” segment, offering a glimpse at the new business direction being set by Lotte Group, the newest strategic investor in the Philippine beverage maker.

The new board of Pepsi Philippines approved on Tuesday a plan to amend its primary business purpose to include confectionery products, possibly to manufacture sweetened snacks such as candy bars and chocolates.

Should Pepsi Philippines pursue this track, it would be the first time the 21-year-old company will enter the non-beverage segment.

At present, Pepsi Philippines manufactures both carbonated and non-carbonated drinks like Pepsi, Seven UP, Mountain Dew, Gatorade, Tropicana and Lipton.

Pepsi Philippines corporate communication manager Bobby Franco confirmed yesterday that the company is amending its articles of incorporation to give it “flexibility” to enter new businesses in the future.

“But right now there are no immediate changes to the business direction and changes in the product portfolio. The board of Pepsi Philippines will make the final decision on future business,” he said in a phone interview.

Franco added that if Pepsi Philippines enters the sweet snacks business, it will likely be in partnership with Lotte Confectionary Co. Ltd., which already sells chewing gum and biscuits in the country through a local unit.

The Lotte Group formally entered Pepsi Philippines last month after its beverage unit, Lotte Chilsung Beverage Co. Ltd., acquired a 34.4% stake worth P4.45 billion, making it the single largest shareholder in Pepsi Philippines. The buy-in valued Pepsi Philippines’ at P3.50 per share.

Lotte Chilsung is a sister firm of Lotte Confectionery with manufacturing concerns in Vietnam, Russia, India and China, and claims a lead in market share in South Korea for its chewing gum, candy, biscuit, ice cream and chocolate goods.

Lotte Chilsung, the listed South Korean bottler of US-based PepsiCo. Inc. for the past 30 years, is considered that country’s No. 1 beverage company with a 40% share in the softdrinks sector.

PepsiCo. also owns about 30% of Pepsi Philippines, making it the company’s second-largest shareholder after Lotte Chilsung.

Pepsi Philippines has 11 bottling plants in the country. About 70% of the company’s production is geared toward carbonated drinks, with the remainder allotted to the faster growing and more profitable non-carbonated products.

For the fiscal year ending June, Pepsi Philippines’ year-on-year net sales grew 13.33% to P16.13 billion although higher sugar prices tempered profits. The company said operating income slipped to P996 million from the previous year’s P1.1 billion.

Lotte Chilsung recorded $1 billion in annual sales last year, and is a subsidiary of the Lotte Group which recorded $45 billion in sales for 2009 through its various businesses which also include retail, travel and tourism, petrochemicals, construction and finance.

Shares of Pepsi Philippines lost 1.35% to P2.91 apiece on Tuesday’s close.