CHAIRMAN'S MESSAGE

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 while practicing integrity and being good stewards of the resources entrusted to us.

James L. Go

Chairman

Accelerating our Progress

Realizing progress amidst a challenging environment is a daunting task. Still, the Philippine economy posted a strong 5.6% growth in 2023, beating consensus expectations and its ASEAN peers.

2023 GDP Growth for ASEAN 6

Sources: Philippines Department of Finance, Vietnam General Statistics Office, BPS-Statistics Indonesia, Central Bank of Malaysia, Thailand Office of the National Economic and Social Development Council, Ministry of Trade and Industry Singapore

International Tourist Arrivals to the Philippines (in millions) and Tourism Receipts in the Philippines (in Php billion)

Sources: Statista, Department of Tourism

Despite the rapid rise in interest rates, the real estate industry saw a 12.9% increase in prices year-on-year, based on the Residential Real Estate Price Index (RREPI) of the Banko Sentral ng Pilipinas (BSP). This was propelled by the sustained expansion of housing loans across the nation. The buoyant demand was also observed in our own property business, with its strong residential uptake in 2023. With the full year of unrestricted global mobility, our malls and hotels had more favorable consumer activity. Demand for our airline business also escalated as more people were eager to travel. Our target market – the growing middle class – proved to be relatively more resilient against the elevated inflation print.

Further boosting our airline was the influx of international tourist arrivals in the Philippines to 5.45 million in 2023, exceeding the government’s projection of 4.8 million arrivals and already about two-thirds of the record 8.3 million in 2019. The country's international tourism receipts have likewise more than doubled, from Php214.6 billion in 2022 to an estimated Php482.5 billion in 2023, and surpassed 2019 receipts of Php482.2 billion.

Overall Headline Inflation and Rice Inflation throughout 2023

Source: Philippine Statistics Authority

On the other hand, the secondary effects of inflation affected the ordinary Filipino. We have seen softer demand especially on discretionary items, which includes our snacks and beverages. This resulted in lower consumer demand that impacted sales volumes. Given the significant input cost inflation, we also had to implement phased and considered pricing adjustments to recover lost margins. The increase in rice prices during the latter half of the year also exacerbated the problem. Being a Filipino household staple, rice ate up a bigger share of wallet and displaced non-essential goods.

We also had to make difficult decisions for our petrochemicals arm, JG Summit Olefins (JGSOC). With a relatively slower China demand recovery, cross-border supply chain bottlenecks, and elevated feedstock prices, we strategically shut down the plant in the first half of 2023, longer than the one we had in 2022. This enabled us to minimize the impact of depressed global petrochemical spreads. We resumed JGSOC’s plant operations in the second half—after inventory levels began to normalize. The new downstream products from our recently completed plant expansion project also showed healthy margins. These contributed positively to the business and partially cushioned the narrow domestic and negative export margins of polymers.

Reshaping our Future

In the latter part of 2023, we also made bold strides to support our petrochemicals business. The appointment of Arnel L. Santos as its new President and CEO came with a mandate to steer the business into improved operations and profitability. With the new leadership, JGSOC started its transformation journey with a three-pronged strategy. First, the accelerated commercial excellence theme is centered on making JGSOC the actively sought-after partner and supplier of quality products. Second, disciplined operational excellence focuses on the business’ aim for continuous improvement and optimization to capture opportunities and effectively identify and mitigate the risks the business may face. Lastly, the integrated people plan will further develop the business’ talents to maximize their capabilities and contributions to the business.

Our Strategic Themes

A business-wide transformation journey accompanied by leading experts.

We are committed to sustaining an environment where everyone feels safe, included, trusted, inspired, supported, and developed to be the best each can be.

We aim to be the actively sought-after partner and supplier of quality products.

We aim to be passionate about continuous improvement, 24/7 optimization, relentless in waste elimination, agile in problem-solving and opportunity realization and effective in risk identification and mitigation.

Beyond our core businesses, our recent portfolio recalibrations have also shown much progress. We secured all regulatory approvals for the merger between the Bank of the Philippine Islands (BPI) and Robinsons Bank (RBank) by the end of 2023 and became effective last January 1, 2024. Integration is ongoing, and we are excited to collaborate closely with the Ayala group on this. Our digital banking venture, GoTyme, surpassed 2 million subscribers and attracted over Php10.0 billion in deposits. It also currently has a footprint of over 420 kiosks across the Philippines, maximizing the group’s ecosystem in its expansion.

As we do our part in reshaping the financial services space, GoTyme has also launched its first lending product. Created in partnership with PayMongo, this is the Philippines’ first fully automated MSME loan product. It allows clients in the PayMongo network to get a formal loan in real-time after completing a two-step digital procedure. This streamlines the process and eliminates the need for lengthy paperwork required by traditional financial institutions.

We have also progressed in our sustainability journey as we launched our Climate Resilience Project, which identifies climate risks and creates mitigating steps on critical facilities across the group. Through this initiative, we aim to better prepare our businesses against these risks that may jeopardize our operations and integrate this step into future projects we will undertake as a group.

GoTyme in partnership with Paymongo

2024 Outlook

With the relatively lower inflation we’ve seen so far compared to the previous year, we are optimistic about consumer demand as we push for volume growth in our food business. We also hope to see more favorable lending rates in the latter half of the year, with the Bangko Sentral ng Pilipinas (BSP) expected to follow suit once the Federal Reserve (Fed) cuts rates. This would bode well for residential property demand and real estate valuations. Additionally, we are putting efforts into bringing our airline’s international short-haul network back to pre-pandemic levels, working on ways to improve our capacity while engine issues persist in the near term. Our petrochemicals unit will likely remain challenged, so we are accelerating our efforts on the transformation project to address what we can control and be prepared for when the cycle turns. We also remain cognizant of our risks, such as the impact of El Nino as well as geopolitical and economic tensions, but I am confident that the group can effectively navigate through 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 while practicing integrity and being good stewards of the resources entrusted to us.