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Tuesday, May 21, 2024

The battle among San Miguel, SM and Ayala

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Those who still doubt that the Philippines is a growth story should look at the performance of three of the country’s largest corporations in 2016.

Taipan Henry Sy Sr.’s holding company, SM Investments Corp.’s profits grew 8 percent to P31.2 billion in 2016 on revenues of P332.8 billion which were up 9 percent.  That’s a return on sales of 9.37 percent.

Property accounted for 39 percent of total SMIC earnings, with banks contributing 37 percent and retail 24 percent.  SM makes more money from real estate and banking than from retailing at its malls now numbering 60 and growing at five malls per year.

Profits of the Philippines’ oldest company, Ayala Corp. rose 17 percent in 2016 to P26 billion on revenues of P237.28 billion, up 14.3 percent. That’s a return on sales of 10.95 percent.

Despite the seemingly spectacular performances of these two gilt-edged conglomerates, they still paled in comparison to that of San Miguel Corp.

SMC chalked up profits of over P52 billion on revenues of nearly P685 billion.  That’s a return on sales of 7.6 percent.

In both profits and sales, SMC clearly outperformed both SMIC and Ayala during 2016.

The reason: San Miguel was the first among the largest companies to pursue an aggressive growth and diversification strategy.   From three major businesses in 2008—beverage, food, and packaging, SMC went into nearly everything—power generation, fuel and energy, and infrastructure (tollways and airports), even as it improved the efficiencies and expanded production of the old core businesses.

The result: A dramatic rise in profits (P52 billion in 2016) and unheard of revenues (P685 billion).  In 2016, SMC’s fuel subsidiary alone, Petron Corp. grew profits by 73 percent to P10.8 billion despite revenues dipping 5 percent to P343.8 billion, thanks to a three-year $2-billion refinery upgrade completed just last year. 

Beer profits, meanwhile, bubbled 31 percent to P17.7 billion on the back of 18 percent revenue growth to P97.2 billion.  Had SMC not expanded exponentially, its revenues would have been at the level of its beer sales – P100 billion a year.  SMC would be only 32nd largest in sales (the Puregold sales in 2015), and not No. 1 as it is today.

“We exceeded expectations in 2016 and are well-poised to sustain our growth momentum this year with our continued focus on profitable market leadership, optimal product yields from our refinery, and further synergies internally and with other San Miguel companies,” gushed Petron president and CEO Ramon S. Ang. 

Ayala and SMIC have been relegated to playing catch-up.  Ayala’s P26-billion  profits are only half of San Miguel’s P52 billion; SMIC’s P31.2-billion profits are only 60 percent of SMC’s. Ayala‘s P237 billion  revenues are 34.5 percent of SMC’s P685 billion; SMIC’s P332.8 billion sales are 48.5 percent of SMC’s.

Ayala is now changing gears. It wants to grow big, really big. It is entering new businesses—power, health care, education, industrial technologies, and the internet of things, like online commerce, ala Amazon.com.  In the 1980s, Ayala tried internet commerce. The business fizzled out.

The Ayala group is increasing its capital expenditures this 2017 by 13 percent to a record P185 billion, to support growth strategies for its real estate, telecommunications, and water units and ramp up its emerging businesses in power, industrial technologies, healthcare, and education.

Ayala Land gets P88-billion capex mainly to bankroll the completion of its residential, office for sale and leasing projects.

Globe Telecom is allocated P37.5 billion data network infrastructure upgrades, including for deployment of LTE mobile and home broadband, expansion of network capacities and coverage, and enhancement of corporate data services.

Ayala will also deploy P21 billion for expansion plans of its power unit, AC Energy. Manila Water gets P20 billion to support Manila operation and expand outside Metro Manila.

The rest of the capex will be deployed across AC Industrials, Bank of the Philippine Islands, AC Health, and AC Education.

“The aggressive capital spending we have programmed this year reflects the Ayala group’s continued optimism in the domestic environment,” says Ayala chairman and CEO Jaime Augusto Zobel de Ayala. “While we remain mindful of macroeconomic indicators that may affect the overall business landscape, our business units continue to perform well and carry out their strategic direction for 2020,” Zobel notes.

Ayala hopes to double its net income by 2020 to P50 billion (San Miguel’s level now), on strong growth projections in its core businesses in real estate, banking, telecommunications, and water as well as emerging businesses in power and industrial technologies.

For its part, SMIC has allocated P73-billion capex for 2017 to finance the expansion of its property, retail and banking businesses.

Of the P73 billion, P62.7 billion is for property unit SM Prime Holdings Inc. to build new malls, office, hotels and residential units; P5.2 billion is for its retail business to open new stores and renovate existing one and P5 billion for BDO and China Bank, for brand expansion and IT enhancement projects.

“Our core businesses performed well and continue to grow in line with the country’s strong economic development. We are optimistic about continued development and that government plans for infrastructure, agriculture and tourism in particular will enable broader regional growth. SM continues to prioritize regional investment and our nationwide expansion plans are focused on effective execution,” says SMIC president Harley T. Sy.

SMC, meanwhile, is content with capex of P70 billion to P80 billion a year.  In the last seven years, it invested $5 billion in various businesses, making it the country’s largest investor for a number of years.

By 2050, Ayala projects a population of 155 million of whom 63 million will be in the age bracket of 25-54 years.  Today, half of Filipinos are below 23 years of age.

The Philippines is actually a rich country in terms of annual dollar income—$27 billion in OFW remittances, $25 billion in BPO and call center earnings.  That’s already $52 billion.  Add $28 billion earnings from other dollar sources and you have what Rep. Joey Salceda estimates to be $80 billion in dollar income annually—more dollars than what any other country in Asia makes from foreign direct investments.

Now, with so much dollars, why does the peso keep sinking against the US dollar?  Ask the central bank.

biznewsasia@gmail.com 

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