What Tomorrow
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Annual Report 2018
What Tomorrow
San Miguel Corporation’s consolidated revenues from its food, beverage and spirits, packaging, fuels and petrochemicals, power, and infrastructure businesses, reached P1.02 trillion in 2018, 24% higher than the previous year. With growth driven mainly by higher volumes and favorable selling prices across all our major businesses, we reached our target of hitting trillion-peso level revenues a full two years ahead of schedule.
Consolidated operating income was also up 5% at P117.1 billion. This growth was partly softened by higher raw material costs that impacted Petron and the Food businesses.
Consolidated recurring net income excluding the effect of foreign exchange translation amounted to P55.2 billion, 1% higher than the P54.7 billion recorded in the previous year. Growth was tempered by the sharp decline in crude oil prices which affected Petron during the fourth quarter of 2018. Reported consolidated net income, as a result, amounted to P48.6 billion.
Consolidated EBITDA amounted to P157.9 billion, 7% higher than 2017.
In 2018, SMC completed the consolidation of its Beer, Spirits, and Food businesses, establishing the largest consumer company in the Philippines—San Miguel Food and Beverage, Inc. (SMFB). A follow-on shares offering was completed in November 2018. With proceeds amounting to P35 billion, it was named as among the biggest Philippine equity transactions for the year.
SMFB will work to further strengthen the Beer, Food, and Spirits businesses by expanding its product offerings and by increasing its presence and scale through synergies, in order to deliver better value for shareholders.
SMFB delivered a strong performance in 2018, posting consolidated revenues of P286.4 billion, 14% higher than the P251.6 billion recorded in 2017. This strong performance was driven by higher volumes and revenues across the Beer, Spirits, and Food segments.
Consolidated operating income and net income both increased 8%, to P46.0 billion and P30.5 billion, respectively.
Beer
San Miguel Brewery, Inc. (SMB) reported revenues amounting to P129.2 billion, 14% higher than 2017, as volumes increased 10% to 284.6 million cases. Consolidated operating income rose 13% to P35.3 billion while net income grew 15% to P23.8 billion.
Domestic Operations
SMB’s domestic operations continued to be robust, with volumes growing 11% year-on-year as consumption across the country remained strong. Red Horse Beer and San Miguel Pale Pilsen maintained their position as the company's top-selling brands. SMB’s performance was boosted by consumption-generating initiatives and defense programs which further strengthened the equity of SMB brands.
With facilities nearing full utilization, SMB is currently building a new brewery in Tagoloan, Misamis Oriental in Mindanao and converting its Sta. Rosa Bottling plant into a full brewery. This will add four million hectoliters to its total current capacity and help strengthen its distribution networks in Mindanao and Southern Luzon, which will result to savings on logistics.
International Operations
SMB’s International Operations benefited from volume growth in South China, Indonesia, and its Exports business. A better sales mix also helped improve performance. As such, despite continuing challenges in the business environment in North China, Hong Kong, Vietnam, and Thailand, SMB International registered double-digit growth in operating income.
Key programs have been put in place to improve volumes of San Miguel brands and strengthen trade support, promotions, and channel programs.
Spirits
It was a banner year for Ginebra San Miguel Inc. (GSMI), which sustained strong sales volumes in 2018. Volumes reached 31.4 million cases, 13% better than last year. Flagship brand Ginebra San Miguel continued to drive growth, driven by its nationwide “Ginebra Ako” campaign, various on-ground activities, and trade promotions. Vino Kulafu, its Chinese wine brand, also continued to post strong growth. The brand got a boost from its “Dosenang Lakas, May Instant Pa-Buenas” under-the-cap promo and tactical consumer activities in Visayas and Mindanao regions.
All these translated to revenues of P24.8 billion for GSMI, 19% higher than the previous year. Operating income surged 40% to P1.8 billion, due to strong volumes and lower operating costs. Net income jumped 75% to breach the billion profitability level at P1.05 billion.
Food
San Miguel Pure Foods posted consolidated revenues of P132.3 billion, 13% higher than 2017, on account of the strong performance of the Animal Nutrition & Health, Protein, and Prepared & Packaged Food segments. Most of the food business segments registered double-digit revenue growth as a result of increased sales volumes and better selling prices.
Revenues from the Animal Nutrition & Health segment, comprised of our feeds and vetmed businesses, posted a growth of 14%. The Protein segment, which includes our poultry and fresh meats businesses, grew by 11%. Prepared and Packaged Food expanded by 15%.
Rising costs of major raw materials, intense competition, and peso depreciation, however, pulled the Food Group’s operating income down 7% to P9.2 billion compared to the same period last year.
Similarly, net income fell 15% to P5.9 billion, due to the weaker peso, pre-operating expenses for new facilities, and higher interest expenses related to expansion projects.
The Food Group completed a number of new facilities. These include feedmills in Bulacan and Bataan and a hotdog plant in Cavite. Ongoing projects include additional feedmill facilities in Davao, Cebu, and Cagayan de Oro; a flour mill in Mabini, Batangas, and its first ready-to-eat facility which will address growing demand for convenient, pre-prepared, and pre-cooked meals.
The San Miguel Packaging Group completed two acquisitions. In June 2018, it acquired, through San Miguel Yamamura Packaging International Ltd., JMP Holdings Pty. Ltd., a supplier of packaging products for various industries such as retail packaging, cargo protection, and materials handling. In December 2018, through San Miguel Yamamura Woven Products Ltd., it signed a definitive agreement to acquire INSA Alliance Sdn Bhd, a Malaysian manufacturer of high-quality bulk bags. The transaction was completed on January 17, 2019. This acquisition complements the Packaging Group's existing woven bags plant in Malaysia.
Sales revenues for the year amounted to P37.3 billion, 16% higher than 2017, as all business segments delivered solid results. Glass set record deliveries to SMB and GSMI; Metals benefited from a favorable sales mix for crowns, and Plastics sustained deliveries of crates and pallets. Logistics operations also delivered significant growth with increased demand for rented pallets and trucking services.
Similary, the Packaging Group’s Australian operations continued to contribute significantly to overall growth, registering strong sales across its various operations.
With the implementation of stringent fixed cost management measures and further improvements in productivity, operating income grew 11% to P3.3 billion.
SMC Global Power Holdings Corp’s consolidated off-take volume for 2018 reached 23,864 GWh, 39% higher than the previous year. Much of this growth was attributed to the start of commercial operations of Units 2 and 3 of the Malita and Limay Greenfield plants in February and March, respectively. Together, these new units have brought online 300 MW of fresh capacity. With the acquisition of the Masinloc power plant in March 2018, which added a combined capacity of 684 MW, total installed capacity reached 4,197 MW by the end of 2018.
With higher off-take volumes and average realization prices, consolidated revenues rose 45% to P120.1 billion from P82.8 billion in the previous year. This was mainly driven by additional revenues from the greenfield power plants, the Masinloc power plant, and higher average prices from the Sual and Ilijan bilateral and spot offtake volumes. Operating income reached P33.2 billion, 37% higher than the previous year. Net income amounted to P8.3 billion, 1% higher than last year, offset by the effects of currency movements.
Petron Corporation reported consolidated revenues of P557.4 billion for 2018, 28% higher than the P434.6 billion it reported in 2017. Revenue growth was mainly driven by strong domestic sales of high-margin products such as gasoline, Jet-A1, and LPG, on account of higher prices of crude oil and finished products.
Petron’s consolidated volume reached 108.5 million barrels, boosted by strong retail sales in Malaysia. This is slightly higher than the 107.8 million barrels it sold in 2017.
In the fourth quarter, the oil industry saw an increase in global oil production supply, which resulted to a sharp drop in crude prices starting in the second half of October until December. Benchmark Dubai crude averaged US$79.4 per barrel in October and fell to US$57.3 per barrel in December, a US$22.1 per barrel drop. This situation was exacerbated by substantially weak gasoline refining margins on the supply side.
Consolidated operating income and net income stood at P18.9 billion and P7.1 billion, a 32% and 50% decline respectively, as a result of inventory losses incurred in November and December.
Petron’s Bataan refinery utilization in 2018 hit 95%, an all‑time high for the refinery, allowing it to produce even more high-value fuels and petrochemicals. Petrochemical and polypropylene sales grew by 3% and 28% respectively, driving export volumes growth by 7%.
The number of Petron stations continued to grow. In the Philippines, there are now over 2,400 stations, while in Malaysia, there are now 640 stations.
SMC Infrastructure reported a 9% increase in revenues to P24.5 billion, driven by continued growth in volume at all operating tollroads. As a result, operating income reached P11.8 billion, a 13% growth from 2017.
Construction of ongoing projects are on track. The 17.22-kilometer Skyway Stage 3 project is in the advanced stages of construction. Meanwhile, the 88.95-kilometer Tarlac-Pangasinan-La Union Expressway (TPLEX) is now operational up to the Pozzorubio exit. Completion of the last phase from Bued to Rosario, La Union is scheduled by the end of 2019.
Construction of the 22-kilometer MRT-7 project is likewise progressing well. Work on the stretch from Quezon Memorial Circle to Quirino Highway, traversing Commonwealth Ave. and Regalado Ave. in Quezon City, is partially complete.
Phase 1 of the Bulacan Bulk Water Supply Project was completed at the end of last year and started operations in January. It currently supplies potable water to six municipalities, namely Meycauayan, Marilao, Obando, Bocaue, Balagtas, and San Jose Del Monte.
Meanwhile, the company broke ground for SLEX–TR4 in March this year.