JG Summit Holdings, Inc. (JGS) Earnings Call Transcript & Summary

The Annual Stockholders Meeting of JG Summit Holdings will now start. Ladies and gentlemen, the Philippine National Anthem. [Presentation]

Good afternoon, ladies and gentlemen. Welcome to the 2023 Annual Stockholders' Meeting of JG Summit Holdings Inc. May I request the Corporate Secretary to please certify on the sending of notices to the stockholders and to the existence of a quorum for this meeting.

Mr. Chairman, I hereby certify that notice of this meeting has been sent to the stockholders of record as of April 5, 2023, via the following methods: first, by publication in the Manila Standard and the BusinessWorld for 2 consecutive days, specifically on April 20 and April 21, 2023, in both online and print formats; second, by posting on the website of the corporation; and third, by disclosure to the Philippine Stock Exchange. Thus, the stockholders have been notified of this meeting in compliance with applicable rules and regulations. I hereby certify that there are present in this meeting via remote communication or by proxy stockholders entitled to vote representing 86.21% of the corporation's total outstanding shares, and that this meeting is therefore competent to transact the business provided for in the agenda.

There being a quorum, the annual meeting of the stockholders of JG Summit Holdings Inc. is hereby called to order. May I request the corporate secretary to share with us the rules and procedures for this meeting.

The rules and regulations are set forth in the definitive information statement and in the explanation of agenda items integrated into the notice of this meeting. All tabulation results for this meeting are subject to validation by SyCip Gorres Velayo & Co. For the information of the stockholders who are with us now during this live broadcast, the corporation has requested stockholders to send their questions or comments by e-mail at the e-mail address flashed on the screen. Questions which were received by May 5, 2023 have been collated and selected questions will be answered during this meeting. The corporation will reply to the questions and comments not taken up during this meeting through e-mail.

Let us now proceed to the next item in the agenda, the approval of the minutes of the Annual Meeting of the Stockholders held on May 13, 2022.

Mr. Chairman, copies of the minutes have been distributed to the stockholders by providing the link to the said minutes in the information statement and by showing the QR code on the screen prior to the meeting. The minutes have been approved as submitted by votes representing 86.20% of the total outstanding shares of the corporation.

Thank you. The minutes are hereby approved as presented. Moving on the next item in the agenda, may I now call on Mr. Lance Gokongwei, President and Chief Executive Officer of the corporation, to present his report together with the audited financial statements for the preceding calendar year.

Good afternoon. 2022 was the start of our pivot back to growth with the reopening of the economy and the lifting of most mobility restrictions. We experienced a significant uptake in consumption, which drove the strong demand for our products and services across our food, real estate and airline businesses. The demand was sustained throughout the year against a backdrop of cost inflation. This translated to a 36% increase in our total revenues to a record PHP 312 billion, already surpassing pre-pandemic levels. Despite margin pressures from unprecedented levels of fuel and commodity prices, the group's core net income doubled to PHP 6.2 billion in 2022. We saw better performances across most of our businesses, especially Cebu Pacific, and we realized gains from monetizing some of our stake in Meralco. These outweighed the impact of the curtailed operations of JG Summit Olefins given the challenges in the global chemical space. Incorporating the effects of the sharp peso depreciation on our U.S. dollar debt, our 2022 consolidated net income settled at PHP 700 million. This is lower than our reported PHP 5.1 billion net income in 2021, which included the PHP 6 billion gain from URC's Oceania exit. On the key results of our business units, beginning with URC. Sales momentum remains strong with fiscal year 2022 revenues growing 28% year-on-year and our Domestic Branded Food businesses hitting new record highs. Coupled with pricing moves and productivity initiatives, this top line resulted in double-digit growth in operating profits. Excluding the gain on sale of Oceania in 2021, URC's net income rose 12% to PHP 14 billion in 2022. Beyond financials, URC launched Chill and Goodday in the alcohol and cultured milk yogurt drink segments, respectively. Also in our efforts to reach plastic neutrality, URC led our group-wide waste recovery project called Juan Goal for Plastic. For Robinsons Land Corporation, revenues expanded, especially in malls and hotels, which saw significant recovery as mobility restrictions were fully lifted. Domestic residential sales also skyrocketed, particularly in the fourth quarter. EBIT rose a hefty 45% to PHP 14.1 billion, largely driven by our investment portfolio, including the steadily growing office segment. With this, RLC posted an all-time high net income of PHP 9.8 billion, up 21% year-on-year. Throughout 2022, RLC launched multiple properties, such as the Fili Urban Resort in Cebu, Robinsons Gapan, Springdale Baliwag, SYNC Tower in Pasig and 2 new office buildings in the Visayas. For Cebu Pacific Air, higher travel demand along with easing travel regulations drove the company's recovery in 2022. CEB captured 57% of the domestic market, and it ramped up its international network as North Asia relaxed health requirements. With this, system-wide revenue surged 261%, but margins continue to be affected by elevated jet fuel prices. Nonetheless, CEB consistently operated with positive EBITDA since second quarter 2022, reducing its net losses to PHP 14 billion for the full year 2022. I'm also pleased to announce that after 30 months of being in the red, Cebu Air has returned back to profitability in December and is fully restoring its system-wide capacity this second quarter 2023. For JG Summit Olefins, fresh contributions from its new products cushioned the 11% decline in revenues. JGSOC curtailed its operations in line with industry-wide production cuts given the challenging global petrochemical landscape. As geopolitical tensions in Europe pushed up input and freight cost and with higher interest expenses, JGSOC ended 2022 with a PHP 14.9 billion net loss. Looking ahead, its recently completed PE3 plant would enable the production of higher value bimodal and metallocene products. Also, the first phase of its 14-megawatt solar rooftop project is now supplying renewable energy to the complex. These investments will result in better economies of scale, lower energy cost and higher productivity, gearing up JGSOC for the anticipated recovery in the global petrochemical cycle. For Robinsons Bank, despite the rapid rise in interest rates, gross loans expanded 13% year-on-year, led by its consumer book. Revenues and net income also grew by 15% and 13%, respectively, with bottom line benefiting from better net interest margins and lower provisions. Last September 30, we have also agreed to merge Robinsons Bank with BPI, a deal that will unlock various synergies across several products and service platforms, expanding the client and deposit base of both banks and enhancing overall customer experience. We are currently working on security and regulatory approvals for the merger, which we expect to close this 2023. On our core investments, our equity earnings from Meralco rose 15% year-on-year driven by higher profits from our Singapore power plant and larger volumes from our local distribution business. For Singapore Land, the strong performance of its hotels and residential projects translated to a 10% increase in our equity earnings in 2022. Lastly, we received higher dividends from PLDT, including special dividends from its tower sale. Now we go to our ecosystem plays. JGDEV's initial fund has been fully deployed by the end of 2022 with a portfolio of 13 companies covering e-commerce, logistics, fintech and enterprise solutions. On Data Analytics Ventures, Inc. or DAVI, the GoRewards members program has grown to more than 7 million with more than half engaged members for the year ended 2022. For LIPAD, we saw a recovery in passenger traffic, primarily driven by the resumption of flights to South Korea and Boracay. Lastly, DSSI has consistently delivered strong transport service performance in support of URC's record-breaking revenues. The company also finished onboarding all of RRHI's Supermarket DCs in Luzon. Lastly, our digital bank GoTyme officially launched last October '20 with better-than-expected uptake in terms of customer onboarding. Customers like GoTyme's mobile app user interface and how easy it is to open an account, especially given the physical side of opening at a kiosk. Synergies within the JG Summit ecosystem underpin the strength of GoTyme's value proposition. And GoTyme's digital kiosks in RRHI stores and RLC's properties nationwide is an important channel for customer acquisition. In addition, GoTyme customers will be able to deposit and withdraw cash in the checkout counters of RRHI. Beyond higher GoRewards points, GoTyme works closely with other JG Summit companies such as Cebu Pacific to provide more rewarding experiences and innovative products to the group's customers. Moving on to our balance sheet, the group's financial statements remain strong as we anticipate any potential headwinds given the highly volatile global landscape. Consolidated gearing ratio is at 0.77x while net debt equity ratio is at 0.56. At the parent level, net debt fell to PHP 55.2 billion as we received higher dividends from our investments plus collected the proceeds of the Meralco share sale. As of December 2022, our average cost of debt was at 4.5%, still below prevailing 5-year BVAL rates. And this January 2023, we were able to settle our $750 million bond maturity without need for refinancing. Total CapEx for 2022 inched down from 2021 as URC spending normalized and as JGSOC completed its expansion projects. RLC's growing investment portfolio and land bank continue to account for the bulk of 2022 CapEx. CEB's CapEx rose significantly as it restored capacity to meet rapidly recovering demand. However, the numbers in this chart exclude aircraft financed through sale and leaseback arrangements. Including these planes and RLC spending for its residential businesses, total group-wide CapEx in 2022 amounted to PHP 71 billion. Before I end, I'm pleased to share our group-wide ESG targets. Incorporating sustainability risks into our long-term strategic plans, we have set nonfinancial goals by identifying common themes among our businesses across 5 key focus areas to establish a concerted action across the group. On climate action, we aim to release our low carbon transition road map by 2025 as we aspire to achieve net 0 by 2050. We will also ensure that risk assessment and key management programs for all our major hotspots are completed by 2030. On resource efficiency and circularity, we focused our target on plastic neutrality by 2030 as plastic waste is a material part of our business. For employee growth and well-being, we continue our commitment to safety and aim to ensure 0 annual lost time incidents. We also target to have our employees receive at least 24 hours of relevant training annually. And under shared success, we would ensure that all our major suppliers are aligned and comply with JG Summit's key ESG practices by 2025. And lastly, for Better Choices, the group will continue to offer healthier and nutritious food, greener buildings and more affordable and accessible flight options, as well as innovative petrochemical products, among others. We have been very proactive in addressing the volatilities and cost pressures we saw in 2022. With the objective of protecting our margins, we implemented carefully considered price adjustments and productivity initiatives across our different business units. We were intentional in our efforts to create sustainable efficiencies in our operations, as evidenced by our agile at scale, digital transformation and ESG projects, among others. We have also made key moves in the financial services sector with GoTyme's launch and Robinsons Bank's merger with BPI. All this will aid us as we continue living out our purpose. We continue to remain cautiously optimistic in 2023, given the lingering geopolitical and global economic risks. With inflation forecasted to slowly ease out on a sequential basis, we are hopeful that domestic consumption will remain buoyant, while we expect to benefit from the reopening of China to our airline and petrochemical businesses. With a strong balance sheet, a highly competent organization with agile and dedicated employees, as well as a supportive set of stakeholders, including shareholders, business partners and patrons, together, let us continue on our path towards a future with better choices and shared success. Thank you.

Thank you. May I call on the Corporate Secretary to present the results of voting for the approval of the audited financial statements for the preceding calendar year.

Mr. Chairman, we are pleased to report that stockholders representing 86.15% of the total outstanding shares of the corporation have approved the audited financial statements of the corporation for the preceding calendar year as presented. The report of the President is hereby also duly noted.

The report of the President is accordingly noted, and the audited financial statements for the preceding calendar year are hereby approved as presented. We now go to the election of the members of the Board of Directors. May I request the Corporate Secretary to read the names of the incumbent members of the Board of Directors.

Mr. Chairman, the incumbent members of the Board of Directors are: Mr. James L. Go; Mr. Lance Y. Gokongwei; Mr. Patrick Henry C. Go; Ms. Robina Gokongwei Pe; and Mr. Johnson Robert G. Go, Jr. And the independent directors are Mr. Jose T. Pardo; Mr. Renato T. De Guzman; Mr. Antonio L. Go; and Mr. Artemio V. Panganiban.

Thank you. May we now have the list of nominees for election to the Board of Directors and the voting results.

Mr. Chairman, in accordance with the nomination process stated in the bylaws of the corporation, the following have been nominated as members of the Board of Directors and have consented to their nomination: Mr. James L. Go, Mr. Lance Y. Gokongwei; Ms. Robina Gokongwei Pe; Mr. Patrick Henry C. Go; and Mr. Johnson Robert G. Go, Jr. And as Independent Directors, Mr. Jose T. Pardo; Mr. Renato T. De Guzman; Mr. Antonio L. Go; and Mr. Artemio V. Panganiban. There being no other nominations, the affirmative votes in favor of those nominated have been tabulated, and they have received enough votes for election to the Board. The following are hereby declared as the duly elected members of the Board of Directors of the corporation for the ensuing year until their successors shall have been elected and qualified. Mr. Chairman, shown on the screen are the numbers of affirmative votes for each director. Mr. James L. Go, with total votes of 85.52%; Mr. Lance Y. Gokongwei, with 85.56%; Ms. Robina Y. Gokongwei Pe with 85.89%; Mr. Patrick Henry C. Go, with 85.91%; and Mr. Johnson Robert G. Go, Jr., with 85.92%. And for our independent directors, Mr. Jose T. Pardo with total votes of 84.69%; Mr. Renato T. De Guzman with 86.11%; Mr. Antonio L. Go, with 85.72%; and Mr. Artemio V. Panganiban, with 82.68%.

Thank you, and congratulations to the elected members of the Board of Directors of the corporation for 2023. Let us move on to the next item in the agenda, which is the appointment of the external auditor of the corporation. May I call on the Corporate Secretary to present the results of voting for the agenda item.

Mr. Chairman, the accounting firm of SyCip Gorres Velayo & Co. has been nominated as the external auditor of the corporation for the calendar year 2023. After tabulation of the votes, the appointment of SyCip Gorres Velayo & Co. as external auditor of the corporation has been approved by stockholders representing 86.12% of the total outstanding shares of the corporation.

Thank you. The accounting firm of SyCip Gorres Velayo & Co. is hereby appointed as the external auditor of the corporation for the calendar year 2023. Let us proceed to the next item in the agenda, which is the ratification of the acts of the Board of Directors and its committees, officers and the management of the corporation.

Mr. Chairman, the list of acts for ratification of the stockholders are shown right now on the screen. Copies of the said list have also been distributed to the stockholders present by showing the link and QR code to the said list on the screen prior to the meeting. After tabulation of the votes, we are pleased to report that stockholders representing 86.12% of the total outstanding shares of the corporation have confirmed and ratified the acts of the Board of Directors and its committees, officers and the management of the corporation for the period beginning from the last annual stockholders' meeting up to the current stockholders meeting as duly recorded in the corporate books and records of the corporation.

The acts of the Board of Directors and its committees, officers and management of the corporation for the period beginning from the last annual meeting of the stockholders up to the current meeting of the stockholders as duly recorded in the books and records of the corporation are hereby confirmed and ratified. We will now respond to questions which were earlier submitted via e-mail. The questions will be answered by the President and CEO, Mr. Lance Gokongwei.

How much is JG Summit's exposure to rising interest rates, both from the group and the parent perspective? From a consolidated perspective and excluding the parent's $750 million bond that was redeemed in early 2022, JG Summit has roughly 35% to 40% of its outstanding debt in long-term fixed rates. About 30% are short term in nature and the balance would either reprice or mature in the next 12 months. As such, every 1 percentage point change in borrowing rates may have a PHP 1 billion impact on our consolidated net profit. At the parent, fixed rates account for more than 60% of total outstanding debt, and less than 40% could be impacted by interest rate fluctuations in the near term. Nonetheless, the strength of our balance sheet, our credit reputation and our relationship with local and international banks, would help us securing market competitive funding costs. For instance, we earlier mentioned that our blended cost of debt at the parent level is still less than prevailing BVAL rates. Which sectors are you most positive about for 2023? While the market is pricing in slower GDP expansion in 2023 relative to the 7.6% growth in 2022, everyone agrees that consumption remains quite strong. This is on the back of unrestricted mobility, the 100% return to school, middle income tax cuts and expected recession in inflation. This bodes well for the group as we are able to touch on about 80% of the average Filipino spending. We continue to see strong underlying demand in our food business. We also anticipate full year impact of recovery on our malls, our hotels and the sustained growth in our other property business. Banking should also benefit from higher rates and higher net interest margins. And China's reopening should be positive for both our petrochemical and air transport business. Higher demand for tourism accelerates the return of Cebu to full year profitability. We have already restored capacity to prepandemic levels, and we see encouraging forward bookings. Stabilizing commodity prices and foreign exchange should also help. All in all, I think 2023 will be a much better year for the group. That's why we're investing a total of PHP 73 billion in CapEx for 2023, including planes we are planning to acquire through sale and leaseback financing. This is higher than the comparable CapEx figure of PHP 71 billion in 2022.

Thank you. Other questions sent by the stockholders will be answered through e-mail. Thank you. Are there any other matters to be taken up for consideration of the stockholders?

There's none, Mr. Chairman.

I'm pleased to announce that the Board of Directors of JG Summit has approved a regular cash dividend in the amount of PHP 0.40 per common share to stockholders of record as of May 23, 2023, which has been paid on June 14, 2023. The details are being flashed on the screen. Despite headwinds in the past year, JG Summit continued to progress towards across our businesses. As we march onward this 2023 we acknowledge the uncertainties brought about by global recession fears and rising interest rates. We will however continue to reap the benefits of the economic reopening and demand recovery in post-pandemic world. We are also encouraged by the decelerating inflation and easing commodity prices, as well as stabilizing foreign exchange rates. I am confident that the hard work and dedication of our employees towards our agile transformation and sustainability journey will help us conquer any challenges we may face in the future. Our purpose of providing better choices by creating shared successes fuel our passion to reach meaningful breakthroughs in meeting the ever-changing needs of our customers and ensuring ESG is at the very core of our growth strategy. To our shareholders, on behalf of JG Summit, we are extremely grateful for your continued trust and support. This ends the 2023 Annual Stockholders' Meeting of JG Summit Holdings Inc. A link where a replay of the meeting may be viewed shall be made available in the website of the corporation. Once again, thank you very much for joining.