AEV closes first semester with P9.5 billion net income

On a year-to-date (“YTD”) basis, Aboitiz Equity Ventures, Inc.’s (“AEV” or the “Company”) consolidated net income declined by 20% year on year (YoY) to P9.5 billion from P11.9 billion. This translates to P1.72 in earnings per share. Power accounted for 74%, followed by the Banking, Food and Land Development strategic business units (SBUs) with income contributions of 17%, 7%, and 2%, respectively.

For the period ending June 30, 2014, the Company incurred a non-recurring gain of P785 million (versus last year’s P217 million), which resulted from the revaluation of the Power SBU’s consolidated dollar-denominated liabilities and placements and a one-off gain of P634 million from the sale of a couple of the Group’s investments. In addition, the Power SBU booked a non-recurring cost for the acquisition of LiMA Utilities Corporation (LUC). Adjusting for these one-offs, AEV’s core net income amounted to P8.7 billion, which is 26% lower than last year.

“Despite the decline in our net income, we remain focused on executing our strategy and growing our business. We continue to be on the lookout for public-private partnership (PPP) infrastructure projects that make sense to us and support our country’s economic growth. We intend to seize growth opportunities among the P900 billion worth of PPP projects that the government has yet to roll out,” said Erramon I. Aboitiz, AEV President and Chief Executive Officer.

Strategic Business Units

Power 
Aboitiz Power Corporation (“AboitizPower”) ended the semester with an income contribution of P6.8 billion vis-à-vis last year’s P7.3 billion, 7% lower YoY. The decline was mainly due to the implementation of the Geothermal Resources Sales Contract  for the Tiwi-MakBan plants and weaker ancillary performance of the Magat plant. When adjusted for non-recurring items, the Power SBU recorded a 21% YoY decrease in its earnings share, from P8.4 billion to P6.6 billion.

As of the semester’s end, AboitizPower’s attributable net generation rose by 4% YoY, from 5,360 gigawatt-hours (GWh) to 5,556 GWh, as electricity sold through bilateral contracts expanded by 7% to 4,692 GWh. The improvement was mainly due to the higher contracted levels of the large hydros and Therma Mobile. On the other hand, spot market sales decreased by 13% from 996 GWh to 863 GWh as low water levels constrained the operations of the Magat, Ambuklao, and Binga plants. In terms of capacity, higher sales through bilateral contracts and ancillary services resulted to a 21% YoY increase in AboitizPower’s attributable sales from 1,465 megawatts (MW) to 1,766 MW. It must be noted though that ancillary sales have been weaker quarter on quarter as a result of the low water levels which begun in the second half of March.

In addition to ongoing works for the 14-MW Sabangan run-of-river hydro plant and 300-MW Davao coal plant, AboitizPower also expects to begin construction of its 420- MW Pagbilao expansion, 300-MW Cebu coal, and 69-MW Manolo Fortich projects within the next few months.

Meanwhile, the power distribution group’s income contribution for the first half of 2014 decreased by 11% from P1.3 billion to P1.1 billion.  Spearheaded by a growth in industrial sales, total attributable electricity sales increased by 6% YoY, from 1,997 GWh to 2,122 GWh. However, during the same period, the group’s gross margin declined by 8% YoY to 1.58 kilowatt-hours. The unfavorable variance was brought about by the higher direct costs registered due to the lag in recovery of VECO’s cost of purchase power and the additional costs incurred by Davao Light and Cotabato Light due to the running of their embedded plants to cover for the energy shortfall in the Mindanao grid.

During the period, AboitizPower acquired LUC, the electricity distribution utility of LiMA Technology Center located in Batangas, from LiMA Land, a wholly owned subsidiary of our affiliate AboitizLand. The move is in line with the Group’s strategy of expanding its EnerZone brand.

“The challenges the power industry is currently facing, especially in terms of supply, only serve to remind us of our responsibility to provide reliable, ample, and reasonably priced power with the least impact on the environment and our host communities,” Aboitiz said.

“Thus, we remain committed to growing our portfolio of projects in step with the country’s growth trajectory.  For this year, AboitizPower is investing P80 billion in greenfield and brownfield projects across the country, increasing our power capacity by an additional 2,000 MW over the next five years,” he added.

Banking 
Union Bank of the Philippines’ (“UnionBank”) income contribution for the semester recorded a 46% decline YoY, from almost P2.8 billion to P1.5 billion.

Net interest income grew by 29% to P5.2 billion, underpinned by the robust growth in earning assets coupled with the continuous reduction in average costs of interest bearing liabilities. Total other income, meanwhile, dropped by 57% to P3.7 billion in view of the exceptionally higher trading gains posted in the same period of the previous year. Service charges, fees and commissions jumped by 61% to P1.6 billion, predominantly due to the sustained expansion in consumer loans, led by salary loans. Total operating expenses decreased by 16% to P4.8 billion, attributed to compensation-related items, and lower trust fund contribution based on the reduced level of pre-need sales.

As of end-June 2014, UnionBank’s resources posted a slight drop of 6% to settle at P373.2 billion from P396.1 billion as of end-December 2013. This was mainly accounted by a P20.0 billion or 14% decline in net loans and other receivables to P122.2 billion, resulting from a reduction in securities purchased under reverse repurchase agreements that was partly offset by an increase in salary loans. Total deposits was flat at P297.9 billion. Capital ratios (solo basis) remained above the minimum regulatory requirements, with Common Equity Tier 1 and total capital adequacy ratio at 12.5% and 13.0%, respectively.

“UnionBank is strengthening its capital base to make sure it is able to capture growth opportunities and stay ahead of Basel III requirements. We remain committed to build a great retail bank that offer relevant and innovative banking solutions for our customers,” Aboitiz noted.

Food
Meanwhile, AEV’s non-listed food subsidiary, Pilmico Foods Corporation (“Pilmico”), recorded a 3% YoY increase in its first semester income contribution in 2014, from P630.7 million to P647.8 million. The Feeds segment saw its income contribution sink to P166.4 million in the first half from P285.9 million in the same period last year due to higher input cost and the expiration of the income tax holiday of the Iligan feedmill. The Flour segment, meanwhile, posted a YoY growth of 34% buoyed by the higher income contribution from by-products and lower financing costs. On the other hand, the Farms segment continued to perform well registering a 50% surge YoY. The robust performance was driven by the improvement in average selling price & volume.

Last May 29, 2014, Pilmico also acquired a majority stake in a Vietnamese feeds company, Vin Hoan 1 Feed JSC (“VHF”). VHF is one of the largest aqua feed producers in Vietnam.  The acquisition is in line with AEV’s strategy of expanding its core feeds business and expanding into the Vietnamese market.

“Our entry into the Vietnamese market is a historic event for the Aboitiz Group because it is our first international operation. The ASEAN markets will provide a growth platform for our core businesses, especially in food. We are excited to be expanding Pilmico’s businesses outside the Philippines, where we can leverage our experience in the flour, feeds, and farms business,” Aboitiz said.

Land Development
AEV’s property SBU, AboitizLand Inc. (“AboitizLand”), registered YoY growth of 63% in its net income contribution for the semester from P111.1 million to P181.3 million. Aboitizland exhibited extraordinary growth for the first half of the year. Revenues more than doubled to P1.3 billion due to the consolidation of LiMA Land, which the property SBU fully acquired last February.

Main operations continue to perform. Sales are up by 26%, coming from across the different products: condominiums, lots, and house packages. The residential segment posted a solid growth in revenues of 28%. Net income grew by 68% from the same period last year.
New Business Developments

Last June 2014, AEV’s newly-formed subsidiary, Aseagas Corporation (“Aseagas”) signed a Notes Facility and Security Agreement in the amount of up to P2 billion with the Development Bank of the Philippines to finance the construction of Aseagas’ first biomass renewable energy plant to be located in Lian, Batangas.  Construction of the facility is expected to begin within the next few months and is expected to be completed in two years.

In the same month, AEV was also informed by its partner, J.V. Angeles Construction Corporation, that it received, on behalf of the Jose V. Angeles Construciton Consortium, the Notice of Award  from the Davao City Water District (“DCWD”) for the financing, design, construction and operation of the Tamugan Surface Water Developments Project.  The project aims to provide 300 million liters per day of treated bulk water to DCWD once completed.

Additionally, AEV was informed by AboitizLand that the Team Orion (“Orion”) consortium of AboitizLand and AC Infrastructure Holdings Corporation, a wholly-owned subsidiary of Ayala Corporation, submitted the highest bid of P11.659 billion for the Cavite-Laguna Expressway Project. However, San Miguel Corporation’s unit Optimal Infrastructure Development, Inc. (“Optimal”), is appealing the decision with the Office of the President.  The members of Orion have together filed a motion to dismiss Optimal’s appeal.

“We are optimistic that the issue on the CALAX bidding will soon be resolved, and that the integrity of the public bidding process will be respected. A loss of confidence in our government’s PPP program will prove a great loss to the country as potential local and international bidders lose faith in the process and set their sights on other countries,” Aboitiz said.

Financial Condition
As of June 30, 2014, the Company’s consolidated assets amounted to P253.5 billion, 3% higher than the year-end 2013 level. Cash and cash equivalents was at P31.0 billion, 14% lower than the year-end 2013 level of P36.1 billion. Consolidated liabilities amounted to P132.1 billion while Equity Attributable to Equity Holders of the Parent increased by 0.4% to around P97.3 billion. Current ratio as of June 30, 2014 was at 2.2x (versus year-end 2013’s 2.6x), while net debt-to-equity ratio was at 0.6x (versus year-end 2013’s 0.5x).

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