Inflation, weak peso batter JG Summit's earnings in 2018

MANILA, Philippines – Gokongwei-led conglomerate JG Summit faced a turbulent business environment in 2018, with its net income plummeting by 24% to P22.4 billion.

JG Summit said on Tuesday, April 16, that the dip was due mainly to the exposure of cyclical businesses to higher fuel and input costs, the 9-year high inflation in 2018, and a weak peso, amid a very competitive business environment.

"We may say that the group braved a perfect storm in 2018.... We are more optimistic in 2019, but we would remain vigilant of various risks and continue strengthening our diverse strategic business units to ensure balanced sources of profitability," JG Summit president and chief executive officer Lance Gokongwei said.

Revenues for 2018 inched up by 7% year-on-year to P291.9 billion, driven by Robinsons Land Corporation's solid performance, Cebu Pacific's passenger and cargo revenues, and Robinsons Bank's sustained growth momentum.

But revenues were slightly tempered by lower coffee volumes of Universal Robina Corporation (URC) and lower polymer sales of JG Petrochemicals, as well as flat earnings contributions from its affiliates Manila Electric Company (Meralco), Global Business Power, United Industrial, and PLDT.

The conglomerate's debt-to-equity ratio stood at 0.53 as of end-December 2018.

Caffeine crash

URC's net income fell 15% year-on-year to P9.2 billion, as brewing competition in the coffee sector lingers.

The company's Kopiko faces its longtime competitors, Nestle's Nescafé, and Indonesian firm PT Mayora's Kopiko.

Full-year revenues inched up by 2% to P127.8 billion on the back of higher average selling prices and volumes of Agro-Industrial and Commodities' sugar and flour divisions, strong recovery of Branded Consumer Foods Vietnam, and consistent performance of BCF Australia. 

Higher input costs in flour and feeds as well as higher operating expenses and lower selling prices in farms, amid a weak peso, were also among the challenges that URC faced.

Turbulent skies

Cebu Pacific's core net income after taxes plummeted by 33% to P5.9 billion, as jet fuel costs and higher interest rates kicked in last year amid a weak peso.

The 6-month shutdown of Boracay and airport runway closures also dented the company's earnings.

Despite the dip, Cebu Pacific said its revenues remained robust, rising by 9% to P74.1 billion.

"The company has managed to reduce fuel consumption through various fuel saving initiatives and we expect to further reduce this with the arrival of Airbus NEOs. CEB has also begun creating natural hedges as part of its forex risk management programs," JG Summit said.

Petrochemicals

JG Petrochemicals was the biggest loser among JG Summit's companies, with net income only at P1.1 billion, 81.6% lower than the P5.99 billion registered in 2017.

The company attributed the drop to higher interest expense from trust receipts.

Sales were flat at P42.4 billion, as higher average selling prices of most of its products were offset by lower volumes of pyrolysis gas and polymers.

The company saw weaker demand towards the latter part of the year when oil prices began to fall and customers waited on the sidelines, anticipating a further drop in prices.

Real estate, banking

Robinsons Land pulled up the conglomerate's numbers, posting a 40% year-on-year net income growth of P8.2 billion.

Revenues also saw a double-digit growth of 31% to P29.9 billion, driven by strong growth in mall rentals, office leasing, and residential unit sales.

Robinsons Bank's net income slightly went up by 3% to P318 million, amid higher operating expenses.

The bank's revenues grew by 37% to P6.1 billion, driven by higher interest income from loans.

Meanwhile, JG Summit's net earnings of associated companies and joint ventures inched up by 3% to P10.2 billion, mainly driven by the 18% growth in equity earnings from Meralco. – Rappler.com

Ralf Rivas

A sociologist by heart, a journalist by profession. Ralf is Rappler's business reporter, covering macroeconomy, government finance, companies, and agriculture.

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