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JG
Summit Holdings Inc., owner of the country’s
second-largest food-and-beverage company, is cutting
portions on packaged biscuits and telling its airline’s
pilots to fly more slowly as inflation cuts margins.
“The
cost pressures are unlike anything I’ve experienced in
20 years,” president Lance Gokongwei, 41, said in an
interview.
The
company is raising prices while cutting costs because
“using just one lever isn’t going to work at this
point,” he added.
Profit
at JG Summit, with businesses that include phone
services, property development and selling hogs, may
decline this year on currency losses and as jet-fuel
costs for Cebu Air Inc. doubled this year, Gokongwei
said. Operating profit may rise or be little changed as
the company raises prices of residential apartments,
cuts planes’ water loads and reduces the weight of
cookies sold in Thailand.
“Anything that will result in savings or better cost
efficiencies will definitely help,” Lovell Sarreal, an
analyst at ATR-Kim Eng Securities Inc., said in an
interview. “Reducing portions is effectively a price
increase and should help offset higher costs as
consumers can shy away from products if they exceed
certain price points.”
JG
Summit shares have fallen 30 percent this year, while
Universal Robina declined 25 percent, compared with a
32-percent drop in the benchmark Philippine index.
The
margins of the group’s branded food business have
narrowed to about 33 percent from as high as 37 percent
last year, while operating margins will remain at about
10 percent, Gokongwei said.
Food,
agro-industrial products and commodities generate 54
percent of revenue for JG Summit, which controls
Universal Robina Corp., the country’s biggest snack-food
maker. Cebu Pacific contributes 15 percent, with Digital
Telecommunications Philippines Inc. adding 11.8 percent.
Universal Robina has increased the prices of its chips,
biscuits and tea-based drinks by as much as 10 percent
in the past six months and may raise them by another 5
percent this year, Gokongwei said.
The
property division, which contributes 10.3 percent of
revenue, has raised apartment prices by 10 percent
recently as it fights shrinking margins from residential
sales.
Revenue
growth at JG Summit will outstrip inflation and
operating profit will be higher from a year earlier in
all but its airline business, Gokongwei said. Net income
last year was P8.61 billion ($189 million) on sales of
P86.5 billion.
Universal Robina reported profit of P5.56 billion for
the fiscal year ending September.
Operating profit at Cebu Pacific excluding one-time
gains will probably fall from last year’s P1.7 billion,
Gokongwei said. The low-cost carrier is cutting some
overseas trips to destinations such as Shanghai.
“We’re
flying our aircraft slower, washing our engines each
week to be more efficient and reducing even the water we
carry onboard aside from reviewing flight plans,” JG
Summit’s president said.
Slowing
down a plane to fly closer to its optimum speed, while
increasing flight time by one or two minutes, can reduce
fuel consumption by “a couple of percent,” he said. Fuel
costs make up 50 percent of the airline’s expenses.
Universal Robina sells biscuits in Thailand and
Indonesia, where it aims to gain market share. It
reduced the weight of some cookies in Thailand instead
of raising prices.
JG
Summit, will maintain its plan to spend as much as P28
billion this year to expand businesses, although some
spending in the future may have to be delayed as demand
eases.
The
company is still interested in buying the government’s
stake in Petron Corp. and will continue to buy back
shares in Universal Robina.
“The
cheapest thing to do now is to buy your own stock,”
Gokongwei said. |
