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

Ladies and gentlemen, the Philippine National Anthem. [Presentation]

Good afternoon, everyone. The Annual Stockholders Meeting of JG Summit Holdings, Inc. is broadcasting live from the Sapphire room of Crowne Plaza Manila Galleria. We would like to acknowledge the following members of the Board of Directors of the corporation present here at the venue and those joining us virtually. Here at the venue, we have the following: Mr. Lance Y. Gokongwei, Mr. Patrick Henry C. Go, Mr. Johnson Robert G. Go, Jr., and Mr. Antonio L. Go. and our incoming Independent Director, Ms. Bernadine T. Siy. Please note that our beloved Chairman, Mr. James L. Go, and Ms. Robina Gokongwei, Mr. Renato T. De Guzman and former Chief Justice, Artemio Panganiban, are currently joining the meeting remotely. Also joining us today in person are other officers of the corporation and representatives of our external auditor, SyCip Gorres Velayo & Co. Let us now start the meeting. Please welcome our Chairman, Mr. James L. Go.

Good afternoon, ladies and gentlemen. Welcome to the 2024 Annual Stockholders Meeting of JG Summit Holdings, Inc. May I request the Corporate Secretory 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 had been sent to the stockholders of record as of April 5, 2024, via the following methods: first, by publication in the Manila Standard and the BusinessWorld for 2 consecutive days, specifically on May 9 and May 10, 2024, 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. Mr. Chairman, I hereby certify that there are present in this meeting via remote communication or by proxy stockholders entitled to vote representing 83.96% 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...

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

The rules and procedures 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. Questions which were received by May 24, 2024, have been collated and selected questions will be answered later on. 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 15, 2023.

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 this meeting.

Mr. Chairman, inasmuch as copies of the minutes of the previous annual stockholders' meeting had been made available to the stockholders prior to this meeting, I move that the reading of the minutes be dispensed with, and I request that all votes without restrictions be recorded in favor of its approval.

Mr. Chairman, my name is [ attorney Phoebe-Ann Bion ], and I second the motion.

Mr. Chairman, the minutes have been approved as submitted by votes representing 83.83% of the total outstanding shares of the corporation.

Since it has been moved and seconded, and there are no objections, the reading of the minutes is hereby dispensed with, and the minutes are hereby approved as presented. Secretory, please make sure that the minutes of today's meeting [indiscernible] records, the tabulation of votes on all agenda items [indiscernible], requiring stockholders' approval. Moving on to the next item in the agenda. May I now call on Mr. Lance Y. 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. We saw strong progress across our businesses in 2023. Travel demand boomed as we saw a full year of east mobility, which propelled our airline back into profitability after the pandemic. Our real estate business also saw robust growth as foot traffic in malls and bookings in hotels improved. In addition, margin expansion in our food and real estate businesses offset the volatility in prices -- fuel prices and the elevated inflation that affected consumer demand. This resulted in our full year core net income tripling to PHP 19.8 billion in 2023 on the back of a 14% growth in total revenues. The remarkable performance of our strategic business units outweighed the absence of the PHP 3.2 billion gain we recognized on the sale of Meralco shares in 2022. More favorable ForEx and mark-to-market adjustments further nudged our net income to PHP 20 billion or nearly 30x the same period last year. Comparing to prepandemic levels, revenues are already about 21% above 2019, while core profits and net incomes have moved closer to the 2019 record highs. On the key results of our business units, beginning with URC, operating income rose more than twice the pace of revenue growth as margins expanded from key pricing moves, favorable product mix and significant operating savings. Higher revenues came from the robust growth seen in our agro-industrial group as well as the expansion in our international branded businesses and in most other categories in the Philippines. As such, core profits rose 4% to PHP 11.9 billion, but one-off gains recognized in 2022 led to a 13% decline in net income. Beyond financials, we continue to build our pet food business with a well-loved TopBreed and newly launched TopCat as growth anchors in the Philippines. We also made significant progress with the integration of Munchies with URC Malaysia. For Robinsons Land Corporation, net income grew 24% to PHP 12.1 billion in 2023, mainly fueled by increases in consumer spending and mobility that benefited our malls and hotel groups, coupled with sustained project development in our residential business. If we exclude Chengdu contributions recognized in 2022, RLC's full year revenues and net income were up 28% and 45% year-on-year, respectively. Additionally, occupancy rates for our malls and offices remain above industry levels. We also continued expanding our footprint, opening NUSTAR last December '23, while Opus and Pagadian malls are slated in 2024, along with 2 new office buildings. For Cebu Pacific, our efforts to fully recover system-wide seat capacity and cost effectivity served the robust travel demand and enabled the company to post its first full year profitability since the pandemic. We have flown over 20.8 million passengers in 2023, increasing total revenues by 60% year-on-year and surpassing our previous 2019 record top line by 7%. Together with more efficient operations and lower fuel costs, this drove a PHP 21.9 billion turnaround in profitability, closing our 2023 with a net income of PHP 7.9 billion. As of the end of 2023, CEB had 85 aircraft flying over 2,700 flights weekly after we resumed several routes from Manila, Cebu and Clark, thus CEB solidified its position as the leading domestic carrier with a 53% market share. For JG Summit Olefins, recall that we had shut down the facility in February 2023 given unfavorable polymer spreads from weak global demand. Nonetheless, we managed to expand total sales volume by 19% year-on-year and deliver a 6% full year revenue growth after assuming plant operations in June. This shutdown, together with healthy margin contributions from new downstream products, helped JGSOC significantly curb EBITDA losses by PHP 4.3 billion year-on-year, leading to net losses to narrow to PHP 12.9 billion. Before 2023 ended, we have embarked on a business-wide transformation program aimed to turn around the business despite operating in an extremely competitive and unforgiving environment. We successfully completed the robust diagnostics last December and have set realizable performance targets for 2024. JGSOC, together with our external consultants, Bain & Company, has identified and is now progressing various initiatives anchored and driving accelerated commercial and operational excellence. We are also focused on capacity building as well as cultural and leadership transformation, which would help ensure the achievement and sustainability of the overall transformation. On our core investments, the significant contributions from Meralco's power generation businesses, along with the growth of the distribution business resulted in a 26% increase in our equity income. Our equity income from Singapore land declined as most of its residential projects were substantially sold by the end of 2022, but this was cushioned by the recovery of its hotel operations. Lastly, we received lower dividends from PLDT as the special dividends from tower sales were halved. However, regular dividends continue to increase. Moving on to our Ecosystem Plays, GoTyme successfully exceeded its target of 2 million customers by the end of 2023 and attracted more than PHP 10 billion in deposits. This has now reached more than 3 million customers and around PHP 15 billion deposits as of the end of 2024. It also launched its first lending product that caters to SMEs in partnership with PayMongo. JGDEV's Fund 2 saw its first deployment in 2023, while JGDEV also participated in follow-on rounds that increased the valuation of its current investees. DAVI hit nearly 10 million users or 35% higher versus the end of 2022, with about 2/3 of the new GoRewards members coming from our partnership with GoTyme. LIPAD was able to service nearly 2 million passengers and increase the number of airlines flying to and from Clark to a total of 12. Finally, DSSI, our joint venture with DHL, has onboarded 4 new customers as it expands its operations via the Gokongwei Group. JG Summit's financial position also remains solid with the consolidated debt-to-equity and net gearing ratio of 0.68 and 0.57 at the close of 2023. At the parent level, cash and long-term debt fell versus the end of 2022 after we paid our $750 million bond in January 2023. Meanwhile, the parent's net debt only rose by PHP 2 billion year-on-year after infusing PHP 11 billion into JG stock in four quarter 2023 to help company meet its debt covenants, and after paying about PHP 6 billion in interest and dividends to JG Summit's capital providers. These were offset by the PHP 15.7 billion dividends that the parent received, which includes higher dividend that's notably from URC and Meralco. Group-wide CapEx grew 39% year-on-year, mainly driven by capacity expansion initiatives of both URC and CEB. For 2024, the group continues to invest in expansion projects specifically in sites such as the Malvar property of URC, increasing the leasable area for RLC, additional 18 aircraft deliveries for CEB, and CapEx to sustain JGSOC operations and settle its previous project contract payments. While we initially budgeted PHP 87 billion in CapEx for 2024, we are anticipating additional engine deliveries for CEB, which may put our total 2024 spending above 2023. Since the publication of our inaugural JG Summit sustainability report in 2020, we have worked on integrating governance -- sustainability risk into our governance and ERM processes and promoted climate education and disclosures across the group. In 2023, we released our group-wide ESG standards in the first quarter and later on initiated our climate resilience project, which aims to advance our understanding of climate risks and opportunities across our strategic business units through scenario analysis. With our efforts to communicate our sustainability progress, we saw improvements in our 2023 scores from independent providers such as Sustainalytics and CDP as well as maintaining our BBB rating with MSCI. After discussing our full year performance for 2023, allow me to give you a snapshot of our first quarter results for 2024. In the first quarter, we recorded a consolidated net income of PHP 12.6 billion or more than 3x that of first quarter '23. This was delivered on the back of an 18% rise in total revenues with a continued top line expansion across all our business units, led by JGSOC's higher utilization and CEB's progressing international operation. CEB's increased capacity and improved efficiency, RLC's record-breaking EBITDA and URC's growing volume and improving margins uplift set the baseline for our core profit. This was boosted by a PHP 7.9 billion gain from the RBank BPI merger, which became effective at the start of 2024. Even without the merger gain, the solid performance of our listed units translated to a 16% growth in JG Summit's core net income. Incorporating noncore items, first quarter net income ended at PHP 11 billion, which is already more than half of JG Summit's 2023 full year results. In closing, we saw the continued improvement in JG Summit's full year results as our airline reclaimed profitability, our food and property business expanded their margins and our petrochemical unit trimmed its losses. Our listed subsidiaries also posted strong results in the first quarter of 2024, which were further propelled by the gain from the BPI, Robinsons Bank merger. While we remain cautious given short-term headwinds from elevated fuel prices, interest and ForEx rates, we continue to work hard to accelerate recurring core profits in succeeding quarters. With these advancements across the group, we hope to remain ahead of the curve as we continue our commitment to providing our customers with better choices and create shared success with all our stakeholders. I'm extremely grateful for everyone's contributions and for enabling us to accelerate our progress and reshaping our future. Thank you.

Thank you for the report. Are there any questions? If there are no questions from the floor, the Chair will entertain a motion to note the report of the President and approve the audited financial statements for the preceding fiscal year.

Mr. Chairman, I move that the report of the President be noted and that the audited financial statements for the preceding fiscal year be approved as presented.

I second the motion.

Are there any objections? If there are no objections, Corporate Secretory, may we please have the voting results?

Mr. Chairman, we are pleased to report that stockholders representing 83.76% of the outstanding shares of the corporation have approved the audited financial statements of the corporation for the preceding calendar year as presented.

The reported of the President is accordingly noted, and the audited financial statements for the preceding fiscal 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 Secretory 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; Mr. Robina Gokongwei Pe; 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. The table is now open for the nomination of the members of the Board of Directors of the corporation. Madam Secretory, may we have the list of nominees?

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. Mr. James L. Go; Mr. Lance Y. Gokongwei; Mr. Robina Gokongwei Pe; Mr. Patrick Henry C. Go; and Mr. Johnson Robert G. Go, Jr. And as Independent Directors, Mr. Renato T. De Guzman; Mr. Antonio L. Go; Mr. Artemio V. Panganiban; and Mr. Bernadine T. Siy.

Mr. Chairman, I move the nominations be closed.

I second the motion.

Is there any objection? The Chair hears none, the motion is carried and the nominations are closed. There being no other nomination, secretory is hereby directed to tabulate affirmative votes in favor of those nominated.

Mr. Chairman, the affirmative votes in favor of those nominated have been tabulated and 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 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 81.87%; Mr. Lance Y. Gokongwei with 83.37%; Mr. Robina Gokongwei Pe with 83.54%; Mr. Patrick Henry C. Go with 83.67%; Mr. Johnson Robert G. Go, Jr. with 83.65%. For our independent directors, Mr. Renato T. De Guzman with 83.21%; Mr. Antonio L. Go with 82.94%; Mr. Artemio V. Panganiban with 81.48%; and Ms. Bernadine T. Siy with total votes of 83.79%.

Thank you, and congratulations to the elected members of the Board of Directors of the corporation for the year 2024. Let us now move to the next item in the agenda, which is the appointment of the external auditor of the corporation. The table is now open to the nomination of the external auditor.

Mr. Chairman, I nominate the accounting firm of SyCip Gorres Velayo & Co. as the external auditor of the corporation for the fiscal year 2024.

Mr. Chairman, I move to close the nomination.

I second the motion.

It having been moved and seconded, the nomination be closed, does the Chair hear any objections? The Chair hears no objection. Corporate secretory, do we have evolving results over this agenda item?

After tabulation of the votes, the appointment of SyCip Gorres Velayo & Co. as external auditors of the corporation has been approved by stockholders, representing 83.78% 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 2024. Let us proceed to the next item in the agenda, which is the ratification of the act of Board of Directors, 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 stockholders present by showing the link and QR code to the said list on the screen prior to the meeting.

Mr. Chairman, I move that all the acts of the Board of Directors, the committees of the Board of Directors, 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 be confirmed and ratified.

I second the motion.

Is there any objection to the motion as presented and seconded? If there are no objections, Madam Secretory, can we please have the voting results for this item?

After tabulation of the votes, stockholders representing 83.75% 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.

Thank you. 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 records 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. Questions will be answered by the President and CEO, Mr. Lance Gokongwei.

Mr. Lance, we have received the following questions from our shareholders. For our first question, what are you looking forward to given the merger between Robinsons Bank and BPI that has taken into effect at the start of 2024?

Thank you for that question, Mr. Shareholder. We are excited to unlock the merger synergies between BPI and combined Ayala and Gokongwei Groups. This includes being able to provide a wider variety of financing solutions to our suppliers, such as supply chain financing, which we were previously able to offer only at a limited scale due to the smaller size of Robinsons Bank. On the other hand, many of Robinsons Bank's innovative products such as motorcycle lending and teachers' loans will now be able to reach more customers through the extensive breadth of the BPI network. From JG Summit's perspective, we look forward to realizing additional cash flows from our banking investments in the form of cash dividends, which we can then allocate towards efforts to further grow and support our other business.

Mr. Lance, this is our second question. Could you give us more color on the group's plans for expansion in the coming months?

Our listed strategic business units are continuously expanding their capacity and footprint. URC is currently constructing a mega plant in Malvar Batangas, the first line of which is expected to be operational by the end of 2024. This will cover both expansion and replacement capacities for URC. For RLC, we opened the NUSTAR Mall in the Western Manila in 2023. And we intend to open the Opus Mall in July this year as well as Robinsons Pagadian. We are further expanding NUSTAR Hotel, adding new rooms in the fourth quarter of this year as well as various logistics facilities. For Cebu Pacific, we aim to grow total full year capacity by between 12% to 15%, with the 18 additional aircraft that will be delivered this year, 5 of which have already been delivered in Q1. On our Ecosystem Plays, our joint venture with DHL, DSSI will be onboarding more customers outside the Gokongwei Group after adding 2 new major customers in Q1. Our digital bank, GoTyme, continues to expand its product offering, such as SME lending and earned wage access, and we are very excited about GoTyme's shareholders recently acquiring SAVii, which is the largest salary lender in the Philippines with a loan book of over PHP 3 billion and more than 500,000 employees across 150 of the country's biggest corporations.

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

There are none, Mr. Chairman.

I'm pleased to announce that the Board of Directors of JG Summit Holdings has approved a regular cash dividend in the amount of PHP 0.42 per common share to stockholders on record as of May 23, 2024, which shall be paid on June 5, 2024. The details of the dividends are being flashed on the screen. With the receding inflation we have seen so far, we are optimistic about the return of the consumer demand for our food business as we push for volume growth. We also hope to see more favorable lending rate environment in the latter half of the year. This will bode well for residential property demand and real estate evaluation. Additionally, we are putting efforts into bringing our airline's international [indiscernible] network to the prepandemic levels, working on ways to improve capacity. Our petrochemical unit will likely remain challenged, though we are doubling down on our efforts on the transformation and projects to address what we can control and be prepared [indiscernible] return. We also remain cognizant of our risk [indiscernible] El Nino as well as geopolitical and economic tensions. But I'm confident that the group can effectively navigate this ever-changing business landscape. As we progress on our journey as a conglomerate, we continuously refine our strategy to meet our customers' evolving needs and embed sustainability in our operations across the group. We look forward to reshaping the future with more innovative products and services in the years to come, putting to work our entrepreneurial mindset by practicing integrity and being good stewards of the resources entrusted with us. To our shareholders, on behalf of JG Summit, we're extremely grateful for your continued trust and support. Since there are none other matters to discuss, may I have a motion to adjourn the meeting?

Mr. Chairman, I move that the meeting be adjourned.

Mr. Chair, I second the motion.

Since it has been moved and seconded, the meeting is now adjourned. Thank you all of you for joining today's meeting.

This ends the 2024 Annual Stockholders Meeting of JG Summit Holdings, Inc. A link where a replay of this meeting may be viewed shall be made available at the website of the corporation. Thank you very much for joining.