Liberty Flour Mills’ ongoing search for alternative strategic options to stay in play

2026-02-20 - 00:03

Listed Liberty Flour Mills Incorporated (LFM) made a disclosure to the Philippine Stock Exchange (PSE) last January 29 that it has commenced to evaluate all available strategic corporate options to sustain its 67 years of corporate existence. As explained, the move was prompted by the normal desire “to maximize shareholder value and ensure the company’s capital is allocated to the highest-growth opportunities.” Beneath the veneer of this conventional language of the disclosure, LFM is in reality not just in a matter-of-fact search for growth opportunities. It is actually navigating a major corporate challenge to a potential path of divestment from its flour business in the face of low growth rates and declining profits due to a family feud that is driving down the company. The company has been additionally confronted with external challenges affecting its corporate directions resulting from a business environment that is changing, for the industry has attracted new and bigger players that is making competition even stiffer. Must Read Liberty Flour Mills at the crossroads: Family feud, falling profits amid turmoil in milling business Hence, the focus of LFM’s strategic review included “a potential sale, demerger, joint venture (JV), or the continued retention and further development of the flour business within the company’s existing structure,” as the flour business remains a significant part of the company’s core operation. Currently, LFM has two subsidiaries: LFM Properties Corporation (LPC) and Liberty Engineering Corporation (LEC). LPC is engaged in the business of leasing out office and commercial spaces, while LEC is engaged in the sale, lease, and purchase of equipment and machinery. Developments and challenges in the industry The good news is that the industry’s overall outlook is positive. The flour industry is poised to grow steadily, driven by an expanding population, increased purchasing power and shifting dietary habits. No player in the industry has a distinct advantage over the other in as much as the country does not produce wheat domestically. But it is 100% dependent on imports so that the industry is highly sensitive to global wheat price fluctuations. Supplies are primarily coming from the United States for milling wheat and Australia for feed wheat. Consumption for human-grade milling wheat is projected to reach 3.75 million metric tons (MT) in the 2025/26 marketing year on an estimated gross domestic product (GDP) growth rate of 6% per year. This is fueled by a growing appetite for bread, noodles, and high-end baked goods like cheese buns. More profit margins also exist: there is a rising preference for premium, certified flours, including gluten-free, organic, and fortified options, particularly among health-conscious and middle-income consumers. These products command prices that could make up for profit margins otherwise lost due to currency depreciation, input cost volatility or from rising operating costs because of high energy and logistics expenses. Again, the biggest threat to the industry is while wheat prices have softened recently, local millers face rising operational costs, including high energy and logistics expenses. These factors have tempered profitability. The number of flour mills has also grown from 12 to around 20 in recent years, leading to a more crowded and competitive marketplace. And the industry has a lack of climate-controlled storage facilities in the Philippines’ high-humidity environment forcing players to play “hand-to-mouth” delivery pattern, as long-term storage of wheat is difficult. On top of these developments, major players like Universal Robina Corporation (URC) and San Miguel Food and Beverages (SMFB) are investing billions in advanced, automated milling facilities, and high-capacity mills. For instance, URC has invested in a milling plant with a daily capacity of 1,320 tons or 297,000 metric tons annually in Sariaya, Quezon, that stands to enhance food security and market share. Corporate options taken and current dilemma Beyond milling, LFM made a significant structural move: it diversified, and in November 2022, it listed its property arm LFM Properties Corporation (incorporated in 1995 by way of introduction or LBWI). Previously, the board of LFM declared a property dividend with an entitlement ratio of 69 LPC common shares for every one LFM common share as of December 18, 2020. The Securities and Exchange Commission (SEC) approved this declaration on August 19, 2021. The stock certificates were distributed on June 30, 2022. Again, LBWI is a method where a company lists its existing shares on a stock exchange without an initial public offering (IPO), meaning no new capital is raised and no new shares are issued. The primary purpose is not to raise funds but to introduce its shares to a trading market, sparing the company the expensive underwriting and marketing costs associated with traditional IPOs. This is generally permitted in situations when shares are already widely held, or mandated by regulation, among others. LFM has also a history of a stable, profitable, and dividend-paying performance over the years, but recently, core profitability has weakened. Revenues dropped by about 10.3% in late 2025 due to lower selling prices and a marginal dip in sales volume. And yet, LFM reported a net income of P413.08 million in 2025 (a massive jump from P70.21 million in 2024) because this was largely due to a one-time gain from property dividend distributions. To recall, LFM again approved a property dividend of LPC shares with an entitlement ratio of 97 LPC shares for every one LFM share. This was approved by the SEC on August 5, 2025. In addition, LFM declared a cash dividend of P0.60 per share with a payment date of February 10, 2026. While LFM remains active in returning capital to its shareholders, a significant portion of its revenue has been tied up in receivables from its main distributor and biggest shareholder, Parity Values Incorporated (PVI). LFM has an outstanding receivable of P804.7 million from PVI as of late 2024. Critics blame the interlocking directorships between LFM and PVI as the culprit to the problem. LFM executed a nearly P1-billion sale of its Liberty Building in Makati City to its subsidiary, LPC, to streamline its balance sheet. In the process, it is also streamlining its organizational decision-making by reducing the size of its board from 11 to 7 members. Stock performance The price of LFM shares has shown stability but has generated some negative returns over the 90-day period leading to February 2026 due to the internal family feud involving management. Surprisingly, its shares experienced a surge by as much as 8.7% following the review announcement. LFM’s shares have a 52-week high of P39.50, established on October 21, 2025. In comparison to the broader Philippine market, LFM’s shares generally a have stable share price movement. Its shares have maintained a consistent trading price, hovering around the P33 price range. As of this month, LFM’s valuation is reflected in a trailing twelve-month (TTM) P/E ratio of 11.10x. The stock market has been less kind to LPC than its balance sheet suggests: its market capitalization has dropped significantly since its IPO, currently sitting at approximately P925 million. LPC’s shares have hovered near its all-time low of P0.032 to P0.040, rendering LPC shares a “penny stock” status. It has an outstanding 25 billion shares. Unlike its parent LFM, LPC does not currently pay cash dividends. However, it recently approved a 60% stock dividend (to be issued in 2026) as part of a move to increase its authorized capital stock and potentially improve trading liquidity. LPC’s strategy is focused on “consolidation.” By moving the Liberty Building from LFM to LPC, the group has successfully separated the volatile flour business from the stable, recurring income of the property assets. LPC is currently an asset-rich but “liquidity-poor” stock. It serves as a stable rental-income vehicle, but investors have been wary due to the high debt taken on for acquisitions and the lack of cash dividends compared to its parent. Significant insights LFM is in a big mess far too complicated: despite good investor returns, LFM is too tightly held by a small group of related investors who are at the moment are at odds. Even if the company is now faithfully complying with the order of the SEC to regularly file reports from now on its related party transactions with PVI, which was the root cause — and now the solution — to its financial predicament, it is further beset with several external challenges that would require the current controlling shareholders to either put up more capital (which looks difficult at the moment) or open up to other strategic investors. LFM’s board has also appointed an adviser to assist in the process. Separating the traditional flour milling business from the company’s other high-value assets, particularly its real estate holdings is a given. But whatever other corporate directions the review may reveal to revitalize the company, LFM is not an investment target recommended for the ordinary investor with its present management still controlling. Until then, LFM is not a hold or a buy, but a sell. And if you are not yet invested in it, it’s certainly a target to avoid. – Rappler.com (The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach the writer at densomera@yahoo.com) Must Read [Vantage Point] Liberty Flour Mills: From breadbasket to balance-sheet risk