Huge forex losses drag SMC to P2.4-B loss

MANILA, Philippines - Huge foreign exchange losses dragged diversified conglomerate San Miguel Corp. (SMC) into the red in the first semester.

“Including unrealized forex losses, net loss attributable to the equity holders of the parent company amounted to P2.4 billion,” the food-to-power conglomerate said in a regulatory filing.

In contrast, SMC posted a net income of P14.12 in the first semester of 2012.

SMC said the strengthening of the dollar against the peso “resulted in foreign exchange losses of P10.2 billion in June dragging the company’s overall performance for the (first half).”

However, excluding unrealized forex losses, SMC’s recurring net income hit P7.8 billion in the January to June period.

“Forex losses mask the solid performance we had in our businesses. But we remain bullish about our underlying performance, which we attribute to a series of competitive advantages that should help us moving forward,” said SMC chairman and CEO Eduardo M. Cojuangco Jr.

In the first half, the diversified conglomerate’s revenues reached P357.5 billion, up nine percent from last year due to strong performances from food subsidiary San Miguel Pure Foods and Petron Malaysia, which was consolidated into the the SMC Group in April 2012.

SMC said its operating income picked up 19 percent to P28.9 billion “brought about by lower generation costs from SMC Global Power Corp. and growth in volumes in the food group’s operations.”

Specifically, it benefited from favorable prices of raw materials on the back of higher cassava supply and better overall efficiencies, the company said.

“These gains largely offset the effects of the increase in excise taxes on beer and liquor and the volatility of crude prices, which adversely affected Petron in the second quarter,” SMC said.

Republic Act 10351 or the Sin Tax Law took effect on Jan. 1, imposing higher excise tax on tobacco and alcohol products that aims to increase the government’s revenues while discouraging heavy consumption of cigarettes, beer, liquor, wine, and other tobacco and alcohol products.

“As our beverage and fuel businesses emerge from a challenging first semester, we remain positive and confident about these businesses’ ability to turn in durable results and deliver on their commitments for the remainder of the year,” Cojuangco said.

San Miguel Brewery Inc.‘s first half revenues was flat at P36.8 billion while liquor maker Ginebra San Miguel was hit hard by higher taxes that resulted in a 12-percent drop in revenues to P6 billion.

Solid performances from SMC’s new and core businesses are also expected to further mitigate the effects of currency fluctuations, the conglomerate said.

SMC also said its unrealized foreign exchange losses were nearly covered by the P9.6-billion gain from the sale of 64.3 million Manila Electric Co. shares last month.

For long-term growth, Cojuangco said the company is banking on sustained investments, good cash flows, leadership in many of the industries and positioning in high-growth businesses like infrastructure and power.