AgriNurture cancels 20-year supply deal with SM Group
Listed AgriNurture Inc., one of the largest biggest producers of fruits and vegetables, canceled an almost two-decade supply relationship with major client SM Group, which owns the Philippines's largest supermarket chain, a disclosure to the Philippine Stock Exchange showed on Thursday.
AgriNurture's move could hurt its revenues in the short term but company President Antonio Tiu said in a phone interview that profits are likely to improve. Tiu, who noted that the SM Group accounts for about a 10th of revenues, said AgriNurture decided that it would be more profitable to sell products through traditional "wet" markets.
He added that pricing contracts with SM were no longer "realistic" for the company. A spokesman for the SM Group did not immediately respond with any comment. "At the end of the day this will bring more value to the bottom line," Tiu said.
AgriNurture booked ₱1.45 billion in revenues in the first half, up 51 percent, although net income dipped 6.7 percent to ₱101.38 million. In its disclosure, AgriNurture said its units First Class Agricultural Corp. and Fresh & Green Harvest Corp. have given notice to Super Value Inc. and Super Shopping Market Inc. that it would stop supplying SM Supermarkets and SM Hypermarkets with fresh fruits and vegetables.
It also intends to pull out of all inventories in the supermarket chains of the SM Group by October 26 for SM Supermarkets and October 31 for SM Hypermarkets. "The end of the two-decade-old supply relationship with the supermarket chains of the SM Group is expected to have only a small positive effect on the company's income for the rest of 2012, but will result in a more pronounced positive effect in 2013," AgriNurture said.
The cessation of the supply relationship will free up approximately ₱60 million in working capital tied up in credit lines to the SM Group supermarket chains, the disclosure added. AgriNurture shares closed flat at ₱8.06 each on Thursday, giving it a market value of ₱4.3 billion. (read more here http://goo.gl/fj66p )
Business Mirror
Written by Makisig Bayani
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