Monday, 11 May 2009

Philippine domestic spending resilient in Q1

1st-quarter corporate results show consumption resilient
By Darwin G. Amojelar, Senior Reporter and Chino S. Leyco, Reporter

FILIPINO consumers have brushed off the impact of the global financial crisis as spending remained resilient in the first quarter of the year, powering the earnings of consumer businesses.

Last week, the country’s two biggest telecom service providers as well as its largest shopping mall operator reported growth in the first quarter despite a global downturn that is expected to cut Philippine economic expansion to no more than 4 percent this year from 4.6 percent last year and a three-decade high of 7.3 percent in 2007.

Philippine Long Distance Telephone Co. (PLDT) and Globe Telecom Inc., which together make up over 80 percent of the domestic market, announced a 4 percent and 3 percent up tick, respectively. The marginal improvement indicated that people in the text messaging capital of the world are still pressing their alphanumeric keypads albeit at a less-than-frenetic pace.

Seven out of every P10 in telco revenues were generated by their wireless business, thus fueling a legislative clamor for a tax on text messaging. Its affordability has made text-messaging a national past time, promoting mobile-phone use into the hottest consumer business since the late 1990s.

In a country where consumers remain the main driver of economic expansion, telco use has become a barometer of overall household spending. The industry contributes about 4 percent to gross domestic product (GDP).

A proxy for economic output, GDP is the amount of goods and services produced in a country.

The National Economic and Development Authority (NEDA) earlier projected that GDP may have grown between 2.1 percent and 3.1 percent in the first quarter. For the full year, the country’s economic managers see GDP expansion hitting anywhere from 3.1 percent to 4.1 percent.

Remittances boosted consumption

Based on his company’s first-quarter results, Manuel Pangilinan, PLDT chairman said there is some indication that the economy is still in the black. He said overseas Filipino worker (OFW) remittances boosted consumption in the first three months of the year.

From January to February, OFW remittances, which contribute 10 percent to economic growth, grew 2.5 percent to $2.6 billion, according to the Bangko Sentral ng Pilipinas (BSP).

In its most recent survey, the BSP said consumer confidence improved in the first quarter to -25.7 percent from -32.1 percent and -40.3 percent in the first and fourth quarters last year.

The BSP said this was partly due to lower prices of oil and other food items, as well as positive news that the unfolding global financial crisis will not hit the Philippines as hard as other countries.

Ernest Cu, Globe president, agreed the weaker peso and lower inflation boosted consumer spending.

“When the peso depreciates, we have more remittances floating in the system available for spending,” he said.

The peso average 47.79 to a dollar in the first three months compared with the P40.95:$1 exchange rate in the same period last year.

“Despite earlier apprehensions that our core businesses would already be negatively impacted by the global recession, we are pleased by our strong performance in the first quarter of 2009—activations for the period were the highest in recent history and revenues continue to grow,” Napoleon Nazareno, president and chief executive of PLDT and unit Smart Communications Inc. said.

Astro del Castillo, managing director of First Grade Holdings said the first quarter earnings were not bad despite the softening.

“Remember our biggest scare is the remittances. There’s a slowdown, but it was not really a slump,” he said.

The analyst said the promotional offerings and price adjustments of the companies particularly the telcos helped stimulate consumer demand.

High foot traffic, healthy sales growth

“I think the economy is resilient . . . we’re not seeing the effect [of the crisis] in the first quarter,” Pangilinan said, adding that besides PLDT, the first quarter financial reports of the banking and retail industries were likewise “positive.”

Indeed, SM Prime Holdings Inc. announced signs of improving economic conditions, citing the 18-percent jump in its revenues in the first quarter after last year’s slump.

“The SM malls continue to enjoy high foot traffic and healthy sales growth,” Hans Sy, SM Prime president said.

At end-March, consumers resumed spending on entertainment, as SM Prime’s cinema ticket sales improved 8 percent year-on-year.

Last year, when inflation hit a 17-year high of 12.5 percent in August, the company’s entertainment segment suffered a drop in ticket sales, while commercial center sales slumped 13 percent.

Sy said skyrocketing commodity prices triggered lower spending last year.

This year, he said consumer spending would hold up as inflation moves at a much slower pace, amid the continued inflows of OFW money and a weaker peso.

Gregory Domingo, executive director of parent firm SM Investment Corp., said that even if remittances failed to grow this year, the “$16 billion is still a huge amount of money that would support our operations.”

In the fourth quarter last year, personal spending grew at its fastest pace in three years.

Moving forward, the BSP said consumption growth would stay resilient and drive economic expansion this year, citing the continued inflow of remittances from abroad and the expansion of malls in Metro Manila and provincial areas.

Pre-election spending to influence demand

“As we get on [to] the second half of the year, there could be some pre-election spending that might start the system, therefore influence demand,” said Alberto de Larrazabal, Globe head for treasury.

Ferdinand de la Cruz, the telco’s wireless business head, said the company is giving “all good value offering[s]” because the environment is still uncertain.

“You have to really offer good value whether on the postpaid or on the prepaid [to drive demand]. Promos make the service more affordable,” he said.

With the current shift to bulk packages and slower subscribers’ growth, average revenue per user (ARPU) is going down, Nazareno of PLDT said.

“We’re not seeing the situation dragging us down, although we are noticing that there are people taking advantage of bucket price promos. People are going to value for money,” he said.

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