Posted on 09:57 PM, March 14, 2010 [ BusinessWorld Online ]
THE SM Group of mall and banking magnate Henry Sy has allotted a record capital budget of P30 billion this year to ensure continuous growth, an executive said last week.
SM City North EDSA is the world’s third-largest mall, with a floor area of 460,000 square meters. -- Crecencio I. Cruz
Despite the huge budget, the SM group is not looking at borrowing from banks this year, pointing to a strong balance sheet that includes $1 billion in cash.
“As a group, our capital expenditure in SM is almost P32 billion [this year],” Jose T. Sio, chief finance officer of SM Investments Corp., told BusinessWorld in an interview. “We see the opportunity, we have the resources and we believe in [the growth prospects of the] Philippines,” Mr. Sio said.
An analyst said the SM group’s higher capital allotment was in line with strategies other companies are implementing to allow rapid expansion.
The SM group last year committed to spend P211 billion from 2010 to 2014 to double yearly profits to P30 billion.
Last year, the SM Group disbursed almost P24 billion in capital, Mr. Sio said. It was higher than the P19 billion spent in 2008.
Listed SM Investments, the holding firm of the SM Group, has five core businesses -- retail (SM Retail, Inc.), malls (SM Prime Holdings, Inc.), banking (Banco de Oro Unibank, Inc. and China Banking Corp.), property (SM Development Corp.) and hotel and entertainment.
Bulk of earnings of the SM Group came from the retail group, which accounted for more than a third of profits, followed by the banking group at 27.6% and property segment at 11%.
“Two-thirds of the P30-billion [spending this year] will be internally funded. The [remaining] one-third, P10 billion, is only about $250 million. We can proceed without the need to borrow,” Mr. Sio said.
Mr. Sio said the budget would be “spread out to malls, retail, property and banking.”
“[But the budget for] banking is not that much. They can take care [of their needs].”
Last year, Banco de Oro posted a 173% increase in net income to P6.1 billion given growth in operating income and a slower increase in operating costs.
SM Prime, the country’s largest mall operator, earlier announced a P12-billion investment this year to put up 11 new malls until 2011. At the end of this year, SM Prime will have 41 local malls totalling 4.5 million square meters, and four malls in China.
Property arm SM Development meanwhile is into preselling to secure funds, Mr. Sio said.
“We are more opportunistic at the right price, right time and right terms because we have strong cash flow. We are not pressured [to borrow],” he added.
Net income of SM Investments went up by 14% last year to P16 billion. Profit growth for 2009 was faster than the previous year, when net income went up by a tenth to P14 billion.
Sought for comment, Grace C. Cerdenia, chief operating officer of online brokerage firm 2TradeAsia.com, said the record capital expenditure was “in line with industry expectations.”
“Consumer spending is expected to remain brisk for this year. Filipinos are really accustomed to malling,” Ms. Cerdenia said.
Shares in SM Investments were unchanged on Friday at P365.00 each. -- Neil Jerome C. Morales