JG Summit cuts year’s budget by 30%

By Denise A. Valdez, Reporter

JG SUMMIT Holdings, Inc. is cutting its 2020 capital expenditure (capex) budget to P58 billion as its earnings plunged 71% to P1.9 billion in the first quarter.

The Gokongwei-led holding firm announced in its annual stockholders’ meeting on Thursday that its revised 2020 capex is 30% lower than its initial allocation of P82 billion, and 20% lower than the P72.1 billion it spent in 2019.

“Given the need to manage capex, cash flow and our liquidity, given the COVID-19 (coronavirus disease 2019) situation, we have identified projects and pre-delivery payments that can be deferred. This has resulted in a revised capex budget of P58 billion in 2020,” JG Summit President and Chief Executive Officer Lance Y. Gokongwei said.

He noted the bulk of the reduction came from airline arm Cebu Air, Inc., which is now renegotiating payments and delivery schedules related to its orders of new aircraft. Some are also in property arm Robinsons Land Corp. (RLC), which will be deferring projects that it hasn’t started yet.

But Mr. Gokongwei noted the company will continue spending for the expansion of petrochemicals business JG Summit Petrochemicals Corp., which looks to immediately resume construction work for its production facilities once quarantine measures are lifted.

“We expect an overall delay of about three months in the completion of our project, but nonetheless, we do expect that the bulk of the expansion will be completed by 2020, with the last part…being completed in Q3 (third quarter) of 2021,” he said.

JG Summit posted a core net income decline of 19% to P4.3 billion in the first quarter, largely due to the slowdown in its airline and petrochemicals businesses and the increase in foreign exchange losses.

Consolidated revenues slid 10% to P67.9 billion, as the growth in the property and banking segments was offset by the declines in the airline and petrochemicals units and the flat revenues in the food unit.

“Coming from a strong performance in 2019, the unexpected turn of events driven by the evolving global pandemic started to have a material impact to the JG Summit group in the first quarter of 2020,” Mr. Gokongwei said in a statement.

Food group Universal Robina Corp. posted a 35% profit decline to P2 billion, mainly due to higher foreign exchange losses during the three-month period. Its topline was flat at a 0.4% uptick to P33.5 billion.

RLC contributed P3.3 billion in net income, jumping 82% from a year ago, on the back of changes in its accounting policy and lower operating expenses. Its revenues grew 68% to P11.4 billion.

Cebu Pacific operator Cebu Air swung to a net loss of P1.2 billion as travel restrictions dragged its passenger volumes during the three-month period. A 25% drop in revenues to P15.9 billion, together with higher aircraft maintenance costs and depreciation, weighed on the company’s bottomline.

JG Petrochemicals also posted a net loss of P1.1 billion, as unfavorable market conditions pushed its revenues down 71% to P2.8 billion. It noted dull demand, uncompetitive market prices, facility shutdowns and slow trading activity during lockdown as factors that affected its topline.

Robinsons Bank contributed P350 million in net income, surging 722% from the same time last year, as a 14% growth in consumer loans drove revenues up 23% to P2.3 billion.

As the rest of the world adjusts to a so-called “new normal”, Mr. Gokongwei said the plan of JG Summit is to continue investing in digital transformation initiatives, which will be anchored on new operating models that it will roll out across the group.

“The situation has… driven us to review our current business and operating models to adapt to the new normal as we predict shifts in the way consumers buy/use our products and services,” he said in a statement.

“With the strength of our balance sheet and the diversity of our portfolio, we expect to weather the COVID-19 situation and we hope to emerge stronger,” he added.

Shares in JG Summit at the stock exchange gained 60 centavos or 1.24% to P49 each on Thursday.