Companies likely to cut 2021 capex

24-Nov-2020 Intellasia | PhilStar | 6:02 AM Print This Post

Companies may further reduce their capital expenditures next year despite the gradual recovery of the economy as they need to protect their balance sheets, according to top company officials.

JG Summit Holdings Inc. president and CEO Lance Gokongwei said there is a need to protect the balance sheet especially as many businesses reeled from the impact of COVID-19.

“All of us have to manage our balance sheets carefully because business conditions are more challenging,” Gokongwei told The STAR.

Gokongwei said that given that there is “excess capacity” there won’t be much need for a higher capex. “Capex would be muted,” he said.

While there are no definite figures yet, Gokongwei said JG Summit’s capex for next year would likely be lower than that of 2019 and 2020 levels.

The listed conglomerate slashed earlier its 2020 capex to P53 billion from P58 billion originally and from P87 billion in 2019.

Alfred Ty, vice chair of GT Capital Holdings Inc., said businesses, including his group of companies, would continue to support the reopening of the economy.

At the same, he said 2021 would indeed be a test for businesses, coming from a difficult 2020.

Commenting on the general business environment for corporates, Ty said expenditures may be muted for some companies, especially those with losses in 2021.

For smaller listed firms such as Fruitas Holdings Inc., there won’t be a reduction in capex.

Fruitas’ total capex for 2021 is P240 million to P270 million, broken down as follows: P150 million for expansion, P70 to P100 million for acquisitions and P20 million for commissary expansion.

“It is still according to plan because we see a lot of opportunities,” said Fruitas director and chief financial adviser Calvin Chua.

Michael Ricafort, chief economist at Risal Commercial Banking Corp., said that cost cutting measures could continue in 2021 for companies to remain competitive especially if demand conditions and the overall economic recovery remains relatively soft.

Some businesses, he said, would still try to recover lost revenues and income for 2020.

“This is true if new COVID-19 cases locally remain relatively higher relative to other Asean countries that would still necessitate social-distancing and other stringent measures that reduce capacity of many businesses, resulting in unusually lower sales and income, as well as much lower employment opportunities and livelihood opportunities for both the formal and informal sectors of the economy,” Ricafort said.

However, Ricafort said corporates and conglomerates with deeper pockets would take the opportunity to raise funding amid near record low borrowing costs, thereby increasing investments in terms of expansion plans around the country.

He also said that companies would also take the opportunity to do so while there is a correction in property prices, lease rates, and in other costs, known as the contrarian, approach while the opportunity to take bargains and save, present themselves.

“Increased infrastructure spending as facilitated by the timely approval of the P4.5 trillion 2021 national budget would help pump-prime the economy and would spur more business for contractors, suppliers, and other related industries that also would have higher multiplier effects on real estate/property and many other industries in the supply chain of infrastructure projects,” Ricafort said.


Category: Philippines

Print This Post

Comments are closed.