SMC Delivers Strong Growth Despite Debt Concerns

San Miguel Corporation (SMC) reported robust financial performance for the first half of 2024, showcasing a 15% growth in consolidated revenues to ₱789.0 billion, a testament to the resilience of its diversified business portfolio.

San Miguel Corporation reports robust first-half results for 2024, driven by strong performances across key business segments, despite ongoing concerns over its dollar-denominated debt. | Illustrator: ASK

This growth was driven by strong performances across various segments, including Petron Corporation, San Miguel Global Power, San Miguel Foods, Ginebra San Miguel Inc., and San Miguel Infrastructure.

Despite these positive results, investor concerns loom large due to the company's significant exposure to dollar-denominated debt, which continues to weigh on its bottom line.

In the first quarter of 2024, SMC’s net income plummeted to ₱8.9 billion, half of what it was during the same period last year.

This sharp decline was primarily attributed to foreign exchange losses, a consequence of the company’s substantial foreign currency borrowings. Currently, about 37% of SMC’s total borrowings, or approximately ₱559 billion, are in foreign currencies, prompting the company to hedge as much as 70% of its overseas loans.

According to a recent Forbes Asia report, “San Miguel has among the largest exposures to dollar-denominated debt in the Philippines, so it’s a double whammy for the stock—the weaker peso and higher interest rates.”

Nonetheless, SMC demonstrated its ability to weather economic challenges, with operating income rising by 22% to ₱85.1 billion, supported by improved margins in its Power business and reduced raw material costs in its Food segment.

Net income, excluding unrealized foreign exchange effects, surged by 66% to ₱33.5 billion, underscoring the company’s underlying financial strength. In the Food and Beverage sector, San Miguel Food and Beverage, Inc. (SMFB) recorded a 4% increase in consolidated sales, reaching ₱192.9 billion.

The company’s net income grew by 6% to ₱20 billion, reflecting its continued business growth.

Ginebra San Miguel Inc. also posted impressive results, with an 18% sales increase to ₱30 billion, driven by volume growth and effective marketing campaigns. San Miguel Global Power Holdings Corp. reported a 17% rise in revenues to ₱98.9 billion, bolstered by improved margins and higher contributions from ancillary services.

Meanwhile, Petron Corporation saw a 21% growth in consolidated revenues to ₱444.5 billion, driven by strong volume growth in the Philippines and Malaysia.

Despite these achievements, SMC’s shares remain under pressure, down 46% from their August 2019 peak, as investors continue to grapple with concerns over the company's dollar-denominated debt.

However, SMC Chairman and CEO Ramon S. Ang remains optimistic, stating, “Our strong first semester performance shows the resilience of our businesses even in a challenging market. We expect this positive momentum to continue throughout the year and deliver sustained value to all our stakeholders.”