Dear Fellow Shareholders,

This has been another strong year for SM Investments Corporation (SMIC). We delivered solid revenue and profit growth across our core businesses. This resulted in record high consolidated net income of PHP44.6 billion in 2019, up 20% from PHP37.1 billion in 2018. Consolidated revenues rose 12%
to PHP501.7 billion from PHP449.8 billion in 2018.

Our results were driven by sustained growth momentum in our property group, led by residential and commercial developments, as well as our domestic expansion in retail and improved net income in our banking businesses. We generated solid cash flows and grew our total assets to PHP1.1 trillion, up 8%.

Strong revenue and profit growth

All our core businesses performed well in 2019.

In retail, we posted 9% increase in total revenues to PHP366.8 billion while total net income stood at PHP12.5 billion, up 10%. We grew our retail portfolio by 412 new outlets this year.

As we sharpen our focus on creating inclusive economic opportunities, we remain committed in strengthening our ability to create meaningful impact to society and deliver greater shareholder value.

THE SM STORE opened two new stores in Ortigas, Pasig City and Olongapo, Zambales. These contributed an additional 8,575 square meters, bringing the gross selling areas of all the department stores to 807,854 square meters.  Our specialty retail portfolio, led by appliances, sports apparel and health and beauty, continued to exhibit strong sales and superior margins. Meanwhile in food retailing, SM Markets opened 248 stores in 2019, strengthening its domestic presence and tapping new market opportunities outside Metro Manila.

Alfamart, which is expanding in underserved residential communities, opened an additional 228 new stores in 2019.
It surpassed its 700-store target across the country to cap the year with a total of 754 stores.

SM Prime Holdings, Inc. (SM Prime), our property group, had a very good year in 2019. The sustained growth trajectory of SM Prime was attributed to strong sales take-up and reservation sales of its residential projects and improved same-mall-sales growth across all mature malls.  SM Prime delivered consolidated net income of PHP38.1 billion, up 18% from PHP32.2 billion in 2018.

Philippine mall revenues posted an 8% increase to PHP57.8 billion while revenues from the residential group, led by SM Development Corporation (SMDC), increased 24% to PHP45.2 billion. Meanwhile SM Prime’s other business segments, comprised of office buildings, hotels and convention centers, contributed combined revenue growth of 14% to PHP9.6 billion.

In banking, BDO Unibank, Inc. (BDO) and China Banking Corporation (China Bank) both posted record high net income due to robust performance of core recurring earnings, network expansion and improved loan mix on broad-based growth across market segments.

BDO recorded a net income of PHP44.2 billion in 2019, up 35% from PHP32.7 billion in 2018.  This translated to a Return on Common Equity (ROCE) of 12.8% from 10.7% in 2018. Net interest income grew by 22% to PHP119.9 billion on improved Net Interest Margin (NIM). Customer loans rose by 9% to PHP2.2 trillion across market segments while total deposits increased by 3% to PHP2.5 trillion. BDO had a strong balance sheet with total resources of PHP3.2 trillion as at end 2019.

China Bank also achieved 24% growth in net profits to an all-time high of PHP10.1 billion.  This translated to an improved ROCE of 11%. Earnings were driven by the sustained growth of its core businesses — gross loans expanded 13% to PHP577.8 billion and total deposits jumped 7% to PHP775.4 billion. The bank posted net interest income growth of 14% to PHP26.1 billion supported by non-interest income which surged 49% to PHP8.4 billion. China Bank capped off the year with total resources of PHP962.2 billion, up 11% in 2019. 

Amid our robust financial performance, we made significant progress in our sustainability journey which strengthened our role as an active partner for sustainable development.

As we sharpen our focus on creating inclusive economic opportunities, we remain committed in strengthening out ability to create meaningful impact to society and delivery shareholder value.

Embracing technology and innovation

Recognizing the pervasiveness of digital technology, we continue to embed this in our operations, especially in retail to enhance customer experience and in digital banking to improve our service and to stay competitive. Our banks have strengthened their digital capabilities including mobile and online banking services, enhanced their cyber resiliency and invested in digital infrastructure to ensure consistent delivery of quality products and services.

As we expand our footprint, we continue to work hard to make our shopping malls and retail outlets relevant to evolving customers’ needs.  We are mindful of the rapidly changing trends and we are committed to applying digital innovations in our businesses.  We continue to build on our capabilities with best-in-class partners to enhance our online and offline presence. We invested in new technologies by partnering with end-to-end customer solutions that allow digital payments and cashless transactions in our retail outlets.  To complement our physical retail stores we launched ShopSM, the company’s online shopping platform and enhanced the Click & Collect concept, an in-store pick-up option for online shoppers.

In 2019, SMIC participated in the joint venture with GrabPay mobile wallet in the Philippines, enabling us to drive more financial inclusion for unbanked Filipinos.  This strategic partnership combines our expansive network of establishments and merchant partners nationwide with the strength of Grab’s fintech platform to expand cashless opportunities to more Filipinos.

Deepening our Commitment to Sustainability

Amid our robust financial performance, we made significant progress in our sustainability journey which strengthened our role as an active partner for sustainable development. We leverage the synergies of our businesses which drive us to serve communities better and stimulate economic activities where we are present. In particular, we capitalize on our expansive footprint to create economic opportunities and activity in terms of job creation, access to financing through our banks and formal retailing, especially for thousands of micro, small and medium enterprises (MSMEs) in our inclusive supply chain. We are partners for growth for MSMEs as we help them increase their exposure through our retail businesses and gain access to capital through our banks. Likewise, our banks are strongly positioned to help the underserved and unserved markets segments in the country. 

Our strategy of building property developments and integrated lifestyle cities supports national goals by developing city centers nationwide that spur economic growth while we ensure that these developments are sustainable in terms of operation and design.

Meanwhile, our social investments are targeted towards the basic needs of the communities we serve such as in education through our scholarship and school building programs, healthcare through our medical and wellness programs and sustainable agriculture and food security through farmers’ trainings.

We anchor all our businesses on good corporate governance and sustainability is integral to the way we do business at SM. We look at balancing our long-term success with the best interest of our various stakeholders and this drives us to create long-term shareholder value.

Amid our robust financial performance, we made significant progress in our sustainability journey which strengthened our role as an active partner for sustainable development.

One of the highlights of the year are the numerous accolades for SMIC which recognized the company’s outstanding environmental, social and governance (ESG) performance.

In 2019, we remained the only Philippine corporate named as one of the Top 250 Best Regarded Companies globally by Forbes.

We also ranked for the third consecutive year on Forbes Global 2000 – World’s Best Employers 2019. We are also a constituent in the recognized sustainability index, FTSE4Good Index Series.  This Index recognizes companies worldwide that demonstrate strong ESG practices against globally recognized standards.  Moreover, SMIC is also included in the FTSE4Good Emerging Index Series, whose constituents come from over 20 countries worldwide.

This year, SMIC was among the top ranked in governance in the region based on the ASEAN Corporate Governance Scorecard and has been consistently honored as a Platinum Awardee for leadership in sustainability and governance by The Asset. We were also included in the 2020 Bloomberg Gender-Equality Index (GEI) which reflectsour commitment to gender equality and inclusive work environment through measurement and data transparency.

As we aspire to be the employer of choice, we are dedicated to attracting talent and developing our employees to be a globally competitive workforce. We continue to align with the global human and labor principles of the United Nations Global Compact (UNGC).  As a signatory to the UNGC, we support its 10 Principles relating to human rights, labor, environment and anti-corruption.

We enjoin you to read more on our commitment to sustainability and the progress we are making in our full 2019 Sustainability Report.

Towards a more Sustainable Future

As we sharpen our focus on creating inclusive economic opportunities, we remain committed in strengthening our ability to create meaningful impact to society and deliver greater shareholder value. We look forward to your continued support as well as the support of our Board of Directors, management team, business partners, customers and colleagues as we continue to grow our portfolio.

We are confident about the long-term growth potential of the country and we remain committed to maintain a strong balance sheet that gives us financial flexibility to remain resilient and enables us to capture growth opportunities.

Frederic C. DyBuncio
President and CEO
SM Investments Corporation