Aboitiz Closes H1 with P11.9-B Net Income

ECOND QUARTER / YTD JUNE 2013
FINANCIAL AND OPERATING RESULTS PRESS STATEMENT

Aboitiz closes H1 with P11.9-B net income

Aboitiz Equity Ventures, Inc. (AEV) posted a consolidated net income of P11.9 billion for the first semester of 2013, or up 1% year-on-year (YoY) from P11.8billion in 2012. This translates to P2.16 in earnings per share. The Power strategic business unit (SBU) accounted for 67%, followed by the Banking, Food and Real Estate SBUs with income contributions of 26%, 6%, and 1%, respectively.

For the same six-month period, the Company incurred a non-recurring gain of P217 million versus last year’s P508million, which resulted from the revaluation of consolidated dollar-denominated liabilities and placements. In addition, AEV booked gains of P1,272 million from the sale of CitySavings Bank. The pre-termination of loans by the Power SBU also resulted in a one-time write-off of the unamortized borrowing costs amounting to P71 million. Adjusting for these one-offs, AEV’s core net income amounted to P11.7 billion, which is 3.5% higher than last year.

Meanwhile, AEV ended the second quarter of 2013 with a consolidated net income of P5.1 billion, recording a decrease of 15% YoY. Out of the total earnings contributions from AEV’sSBUs, Power accounted for 74% while the income contribution of the Banking, Food and Real Estate SBUs were at 19%, 6%, and 1% respectively.

For the three-month period in review, the revaluation of consolidated dollar-denominated liabilities and placements resulted to a non-recurring loss of P1,102 million, versus last year’s non-recurring gain of P294 million. Adjusting for these, AEV closed the quarter with a core net income of P6.2 billion, up 6% YoY.

“Our first semester performance figures are within our expectations.  As a conglomerate, our earnings are diversified, which gives it more stability,” Erramon I. Aboitiz, AEV President and Chief Executive Officer, said.

“We remain excited about the opportunities that the public-private partnership projects of the government will bring to us,” Aboitiz added.

Strategic Business Units

Power

Aboitiz Power Corporation (AboitizPower) ended the semester with an income contribution of P7.3 billion, registering a 22% decrease when compared to the previous year’s P9.4 billion. When adjusted for non-recurring items, the Power SBU recorded a 6% YoY decrease in its earnings share, from P8.9 billion to P8.4 billion.

“The drop in earnings of the power business was made up by the stellar performances of the banking and food businesses,” Aboitiz noted.

The group’s average price for its power decreased by 11% YoY during the first half of 2013. This was due to the YoY decline in both the average selling price of electricity sold to the spot market and average selling price under bilateral contracts of 19% and 10%, respectively.

On the other hand, AboitizPower’s attributable net generation for the semester grew by 5% YoY, from 5,096 gigawatt-hours (GWh) to 5,360 GWh for the period in review due to the increase in demand brought about by the hotter weather during the summer months. Power sales through bilateral contracts decreased by 3% YoY to 4,365 GWh. The decline has been partly due to the conversion of a number of the Company’s expiring power supply agreements from energy-based contracts to capacity-based type contracts. Meanwhile, spot market sales improved by 69% YoY from 589 GWh to 996 GWh. On a capacity basis, the Company’s attributable sales decreased by 6% YoY from 1,560 megawatts (MW) to 1,465 MW as a result of lower sales for ancillary services. Ancillary volumes dropped by 63% during the period due to the lower acceptance rate by the National Grid Corporation of the Philippines. This more than offset the impact of the 74% increase in capacity sales made by the Company through bilateral contracts.

Meanwhile, expansions in volumes and margins resulted to a 15% YoY growth in the power distribution group’s earnings share for the first semester of 2013, from P1.4 billion to P1.6 billion. Total attributable electricity sales increased by 2% YoY, from 1,949 GWh to 1,997 GWh. The residential segment spearheaded the growth in sales with a 6% YoY expansion in volume sales, while commercial and industrial accounts registered 4% and 0.6% YoY increases, respectively. The group’s year-to-date gross margin on a per kilowatt-hour basis slightly improved to P1.71. Adding to the group’s gross margin was the continued improvement in systems loss levels of both Visayan Electric Co., Inc. and Cotabato Light and Power Co., which registered reductions of 1.1 and 3.1 percentage points, respectively. The latest reduction puts both distribution utilities within the regulator-imposed cap on systems loss levels of 8.5%. Approved adjustments under PBR also helped support the increase in gross margins.

Banking

The Banking SBU’s income contribution recorded a 42% growth YoY, from almost P2 billion to P2.8 billion. This was driven by increases in both net interest income and other income.

Net interest income climbed by 11% to P4.1 billion primarily due to the YoY expansion in the average level of earning assets.  Total other income surged by 56% to P8.7 billion largely on account of higher trading gains and substantial improvement in fee-based income, which breached the P1-billion mark.  Premium revenue, on the other hand, declined to P1 billion on lower sales of First Union Plans, Inc.’s (FUPI) pre-need plans.

Total operating expenses rose by 23% to P5.7 billion mainly on increases in salaries and employee benefits, and taxes and licenses.  Trust fund contribution slid to P0.9 billion with the decline in premium revenue.

UnionBank’s resources expanded by 22% to P340.8 billion as of end-June 2013, propelled by the 37% growth in total deposits to P259.5 billion.  Loans and other receivables amounted to P99.7 billion from P119.7 billion, due principally on lower level of securities purchased under reverse repurchase agreements.  Capital ratios remained strong, providing adequate headroom to support growth, with Tier 1 ratio and total capital adequacy ratio at 16.7% and 19.5%, respectively.

Food

AEV’s Food unit, Pilmico Foods Corporation, recorded a 21% YoY increase in its first semester income contribution in 2013, from P522.2 million to P630.7 million. The movement was primarily due to the strong perfromance of the Farms division, which registered a net income of P114.6 million versus last year’s net loss of close to P7 million as a result of the improved average selling price of market hogs for the period in review. Meanwhile, the Flour division posted weaker performance during the second quarter as a result of softer prices, registering a decline of 6% in its income contribution to P229.9 million. On the other hand, the Feeds division posted a 1% increase in its income contribution to P285.9 million as higher input costs continued to be a challenge.

Real Estate

“Our investment in AboitizLand (Aboitiz Land, Inc.) has already begun to contribute to our earnings and will further diversify our earnings base,” Aboitiz shared.

In November 2012, AEV acquired AboitizLand, thereby making it the real estate arm of AEV. AboitizLand posted a consolidated net income contribution of P111.1 million during the first half of 2013. Total revenues amounted to P612.5 million, 68% of which came from the residential segment.

Meanwhile, the industrial segment posted P179.2 million in revenues, equivalent to 29% of total revenues for the first half of 2013. The remaining amount of P17.7 million came from the commercial and property management business segments. The Company plans to spend P1billion over the year for the construction of various projects, namely, Priveya Hills Phase 1, which AboitizLand launched early in 2012, the Persimmon Studios and Ajoya.

Financial Condition

As of June 30, 2013, the Company’s consolidated assets amounted to P193.9 billion, 13% lower than the year-end 2012 level. Cash and cash equivalents were at P15.7 billion, 54% lower than the year-end level of P33.7 billion. Consolidated liabilities amounted to P83.4 billion while Equity Attributable to Equity Holders of the Parent decreased by 2% to around P89.5 billion. Current ratio as of June 30, 2013 was at 2.2x (versus year-end 2012’s 2.6x), while net debt-to-equity ratio was at 0.5x (versus year-end 2012’s 0.5x).

“Our cash flows and balance sheet continue to be strong, which will give us the capability of funding our expansion plans,” Aboitiz said.