Diversification starting to bear fruits for SMC

MANILA, Philippines - Food-to-infrastructure conglomerate San Miguel Corp. (SMC) is reaping gains from its massive diversifacation as it expects new businesses to power growth on the back of a recovery in sales, completion of a refinery upgrade, and the consolidation of a toll road project.

New businesses, composed of infrastructure and power units, will continue growing its revenue share through new ventures and the start of numerous operations in the coming years, SMC’s top executive said yesterday.

“I think for 2014, new business will grow by at least 20 percent while old business will grow by five to 10 percent in revenues,” SMC president and chief operating officer Ramon S. Ang told reporters after the company’s annual stockholders meeting.

In contrast, revenues of the traditional businesses inched up two percent while the new ventures posted a nine-percent uptick, Ang said. Last year, consolidated revenues of SMC rose seven percent to P747.7 billion, with new businesses accounting for 70 percent of total revenues.

Ang said the conglomerate will partially benefit from the pre-commissioning activities under the $2-billion Refinery Master Plan Phase 2 of Petron Corp., the country’s biggest oil refiner and retailer. The refinery upgrade will double the production capacity of Petron’s high-value gasoline, diesel and petrochemical products.

Additional revenues will also be derived from the consolidation of the 42-kilometer Southern Tagalog Arterial Road or STAR Tollway, Ang said.

“For the traditional business, it will recover from the high tax increase and drop in volume,” Ang said. The traditional business consists of food (San Miguel Pure Foods Co. Inc.), beverage and liquor (Ginebra San Miguel Inc.), brewery (San Miguel Brewery Inc.) and packaging (San Miguel Yamamura Packaging Group) units.

For this year, revenue contribution of the new businesses might increase to 76 percent from 70 percent last year, Ang said.

In 2013, Petron accounted for 61 percent of the P747.7 billion total revenues, followed by food (13.1 percent), beverage (11.8 percent), power generation (9.7 percent), packaging (3.3 percent) and others (1.1 percent).

Additional revenues will be sourced from the completion of the 88.85-km Tarlac-Pangasinan-La Union Expressway late in 2015, three years ahead of schedule, and the operations of the NAIA Expressway and Skyway Stage 3 in 2016, Ang said.

“These major project is confirm SMC’s commitment to grow profitability,” Ang said.

SMC is also pursuing new projects to sustain growth in the long term.

Ang said SMC will continue joining Public-Private Partnership (PPP) project auctions despite hurdles, including rival bidders’ call to disqualify the conglomerate’s infrastructure arm Optimal Infrastructure Development Inc. in the P35-billion Cavite-Laguna Expressway.

For the $10-billion international airport project, Ang said SMC already talked to the Gokongwei and Sy families for possible partnerships.

“They are both welcome. More groups also like to join,” Ang said.

With the delivery of new fuel-efficient aircraft, Philippine Airlines (PAL) is on track to returning to profitability in the fiscal year ending March 2015.

PAL is enjoying strong cash flow since April but “great results” will be seen at the end of its fiscal year, Ang said.

Foreign exchange losses continued to weigh down the income of the diversified conglomerate even as it posted higher revenues in the first quarter.

Its net income was nearly halved to P2.2 billion in January to March compared with P4.2 billion year-on-year. Without the foreign exchange losses, SMC’s net income was at P4 billion, 23 percent higher than the comparable income for the same period last year.

Revenues rose almost a tenth to P195 billion in the first quarter, driven by Petron Corp. and SMC Global Power Holdings Corp. that posted double-digit improvement even as core businesses reported better quarter-on-quarter results while liquor unit Ginebra made a solid recovery.