JG Summit profit declines 35% amid ‘perfect storm’ in 2018

EARNINGS of JG Summit Holdings, Inc. dropped by 35% last year, amid what its President and Chief Executive Officer Lance Y. Gokongwei called a “perfect storm” of high inflation and oil prices, weak peso, and intense competition.
In a regulatory filing, JG Summit said its net income attributable to equity holders of the parent declined to P19.18 billion in 2018, from P29.36 billion in the year prior, due to “weaker Philippine peso against the US dollar, higher financing costs and market valuation losses on financial assets.”
The Gokongwei family’s holding company said consolidated core net income after taxes fell 24% to P22.40 billion.
“We may say that the group braved a perfect storm in 2018. Our cyclical and food businesses were challenged by high inflation and fuel prices, weaker peso, as well as intense competitive dynamics. 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,” Mr. Gokongwei said in a statement.
Consolidated revenues went up 6.8% to P291.92 billion, driven by solid sales across all segments from Robinsons Land Corp., growth from Robinsons Bank, as well as strong passenger and cargo revenues from budget carrier Cebu Pacific.
At the same time, consolidated cost of sales and services jumped 13% to P193.59 billion, while operating expenses jumped 5.8% to P53.06 billion.
Financing costs and other charges grew 20% to P9.63 billion from P7.83 billion in the previous year, “due to the higher level of financial debt of the parent company and airline business, as well as net increase in trust receipts of the petrochemical business.”
JG Summit also recognized a net foreign exchange loss of P2.85 billion in 2018 from P902.72 million in the year prior, due to the peso’s depreciation against the US dollar.
By business unit, URC saw revenues rise 2% to P127.76 billion, but reported a 15% drop in net income to P9.2 billion due to “(coffee) volume decline and higher selling and distribution costs in BCF (Branded Consumer Food) Philippines; higher input costs in Flour and Feeds divisions; higher operating expenses and lower selling price in Farms division; and net forex loss from the peso devaluation.”
Cebu Air, Inc., operator of Cebu Pacific, reported its net income fell 50% to P3.92 billion in 2018, mostly due to higher operating expenses as a result of increased fuel prices and the weaker peso against the US dollar.
Cebu Air generated 9% rise in revenues to P74.11 billion last year, as passenger revenues went up 9% to P54.26 billion. This was attributed to the budget carrier’s 5.8% hike in average fares to P2,676 last year.
The airline operator also registered a 119% increase in interest income to P401.62 million. It also incurred a P322.58 million hedging loss, as well as P1.63 billion in net foreign exchange losses. Cebu Pacific said it has started creating natural hedges as part of its forex risk management program.
JG Summit also said its petrochemicals segment recorded “flattish” revenues of P42.35 billion, but costs and expenses went up 17% due to higher naphtha cost. The segment’s net income plunged 82% to P1.05 billion in 2018, as a result of higher interest expense from trust receipts.
Robinsons Land Corp. (RLC) grew its net income by 40% to P8.23 billion in 2018, following a 31% increase in consolidated revenues to P29.44 billion.
RLC attributed its strong sales performance to robust same-mall rental revenue growth, contribution from new malls and cinema box office receipts. “Offices sustained its solid performance on the back of rent escalation and new developments; (while) Residential’s remarkable results were attributable to the successful reorganization, improved product development, influx of demand from overseas buyers and new project launches,” the property developer said.
Robinsons Bank generated P6.13 billion in revenues, up 37% year on year, alongside a 37.5% rise in cost and expenses as it continued to expand. The bank’s net income increased by 3.4% to P317.68 million.