Lopez Holdings

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2016 Management’s Discussion and Analysis of Operations

The following management’s discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the accompanying audited consolidated financial statements and the related notes as at December 31, 2016 and 2015 and for each of the three years in the period ended December 31, 2016.

PFRS 10 — Consolidated Financial Statements replaces the portion of PAS 27 — Consolidated and Separate Financial Statements which addresses the accounting for consolidated financial statements.  A reassessment of control was performed by the Group on all its subsidiaries and associates in accordance with the provisions of PFRS 10. Followingthe reassessment and based on the new definition of control under PFRS 10, the Group determined that it does not control ABS-CBN (accounted for as a subsidiary in 2012 and prior years) but it controls First Philippine Holdings Corporation (FPH) (accounted for as an associate in 2012 and prior years). 

As a result, since January1, 2013, the Group deconsolidated ABS-CBN and consolidated FPH retrospectively.

Results of Operations for the year ended December 31, 2016 compared with December 31, 2015

Lopez Holdings reported P6.557 billion in net income attributable to equity holders of the Parent in 2016. This is 6% higher than the P6.191 billion in net income attributable to equity holders of the Parent reported in 2015. The steady performance of investees First Philippine Holdings Corporation (FPH) and ABS-CBN Corporation (ABS-CBN) accounted for these results. FPH units also reported oneoff gains during the period.

Consolidated revenues decreased by 5% year on-year (YoY) to P91.910 billion from P96.510 billion. This was primarily due to the decrease in the sale of electricity (-11%) of FPH subsidiary First Gen Corporation (FGEN). Revenues from realestate (+41%), contracts and services (+37%) and sale of merchandise (+3%) werehigher.

Consolidated costs and expenses decreased by 10% to P67.408 billion from P74.670 billion, reflecting essentially the decrease in the costs of sale of electricity (-21%). Costs and expenses for real estate(+63%), contracts and services (+55%), merchandise sold (+24%), and general and administrative expenses (-9%) also reflect accounts consolidated by FPH.

Equity in net earnings of associates, PDRs and a joint venture surged by 30%, representing the record performance of ABS-CBN Corporation for the period, as well as share in the performance of FPH units. ABS-CBN’s net income increased by 39% YoY. All other income and expenses primarily reflect FPH accounts, including the 198% increase in net other income comprising one-time gains booked by FPH units.

Associates, PDRs and joint venture

FPH posted an 84% increase in net income attributable to equity holders of the parent to P9.933 billion in 2016 from P5.406 billion in 2015. It reported a 5% decrease in revenues to P91.910 billion from P96.510 billion. Sale of electricity accounted for 81% of revenues in 2016, and 86% of revenues in 2015. Costs and expenses declined by 10% YoY. FPH registered P6.432 billion in net other income during the period, compared to P2.204 million in 2015. Other income consists primarily of one-off gains from arbitration settlement proceeds received by the First Philec group, income from First Philec affiliate First Philippine Solar Corporation for the final settlement of outstanding liabilities at lower than provision, and collection of liquidated damages by FGEN for the San Gabriel flex-plant.

ABS-CBN reported a 39% increase in net income in 2016 to P3.525 billion from P2.545 billion, driven by an 11% growth in advertising revenues that included election-related spending. It reported revenues of P41.630 billion, 9% higher than P38.278 billion in 2015. Ad revenues accounted for 57% of 2016 revenues, compared to 56% in 2015. The top 10 most watched TV programs from January to December 2016 were all aired on ABS-CBN’s flagship Channel 2, based on average audience share during the period.

Key Performance Indicators

As a holding company, Lopez Holdings receives revenues from asset sales and dividends from investees. Hence, the key performance indicator with the most direct impact on Lopez Holdings is the net income of investees. Any dividend received by Lopez Holdings is based on the investees’ net income in the previous year. For the period in review, the  financial performance of investees was within expectations.

Lopez Holdings received cash dividends amounting to P365 million from ABS-CBN and P515 million from FPH in 2016. ABS-CBN declared cash dividends of P0.75 per common share in April, while FPH declared cash dividends of P1 per common share in May and the same in November.

Return on average equity increased from 6.75% in 2015 to 11.48% this year due to the P4.5 billion or 84% jump in consolidated net income attributable to equity holders of the Parent (from P5.4 billion to P9.9 billion). Correspondingly, earnings per common share (diluted) also increased from P9.58 to P17.74 or 85% as the increase in net income attributable to Parent resulted into higher net earnings available to common shareholders for 2016.

Interest coverage ratio also improved from 2.81:1 in 2015 to 3.63:1 this year brought by the stronger consolidated earnings before interest and taxes (up by P8.3 billion or 33%).

The ratio of total assets to total equity decreased from 2.67:1 in 2015 to 2.46:1 this year mainly due to the P13.7 billion or 11% increase in stockholder’s equity (from P127.5 billion in December 2015 to P141.0 billion in December 2016). The growth in total equity was primarily driven by the P6.4 billion or 52% increase in net income for the current period, partly reduced by the unrealized fair value losses (P2.4 billion) on the Group’s Meralco shares due the decline in its share price. Consolidated net income reached the P18.5 billion as the strong earnings from operations were supplemented by significant non-recurring gains from (a) FNPC’s receipt of P1.7 billion (after tax) liquidated damages paid by its contractor for delays in the construction of the San Gabriel plant; and (b) First Philec and FPSC receipt of arbitration settlement proceeds amounting to P2.4 billion. Meanwhile, total assets in 2016 had a 2% modest increase from last year as higher year end balances of Property, plant and equipment and Investment Properties were partially negated by the decline in Cash and cash equivalents and Short-term investments.

The debt to equity ratio decreased from 1.33:1 in 2015 to 1.15:1 in 2016 mainly due to the increase in stockholder’s equity supplemented by lower total long term debt outstanding as of year-end. The decline in total debt was largely caused by the loan principal repayments of the Group in 2016 tempered by the loan drawdowns of FNPC ($35.4 million), Rockwell (P4.0 billion), EDC (P3.5 billion), and First Philec Inc. (P235 million).

Current ratio also registered a downward movement from 2.04:1 in 2015 to 1.94:1 this year primarily due to the P3.2 billion decline in the total balance of current assets (from P103.0 billion in December 2015 to P99.1 billion in December 2016). Decline in current assets was caused by the combined P9.3 billion or 20% drop in Cash and cash equivalents and Short-term investments following the debt service payments made by various companies of the Group partly tempered by additional drawdown of loans. Cash was also utilized for the Group’s acquisition of various investments and capital assets, and First Gen’s buyback of its Series “F” and Series “G” preferred shares during the year

Similarly, quick ratio declined from 1.45:1 in 2015 to 1.33:1 this year also as a result of the decline in Cash and Short-term investments partly tempered by the increase in Trade and other receivables. Trade and other receivables were up by P3.6 billion or 13% primarily on account of the higher trade receivable balances of First Gen’s EDC, FNPC, and PMPC as well as Rockwell.

Book value per common share grew from P147.43 in 2015 to P158.42 this year. The increase was brought about by the P6.1 billion or 8% increase (from P81.7 billion* in December 2015 to P87.8 billion* in December 2016) in equity attributable to equity holders of the parent, which mostly reflects the net income generated during the period.

Financial Condition

Changes in: Cash and cash equivalents (-22%), short-term investments (-10%), trade and other receivables (+15%), inventories (+4%), other current financial assets (-7%), prepayments and other current assets (+23%), assets of discontinued operations held for sale (-100%), property, plant and equipment (+6%), investments accounted for at equity method (+8%), available-for-sale financial assets (-12%), goodwill and intangible assets (-1%), investment properties (+20%), net deferred tax assets (+8%), other noncurrent financial assets (+11%), other noncurrent assets (+8%), trade payables and other current liabilities (+7%), loans payable (-31%), income tax payable (+43%), current portion of long-term debts (+3%), liabilities related to assets of discontinued operations held for sale (-100%), long-term debts-net of current portion (-5%), derivative liabilities (-34%), deferred tax liabilities (+20%), retirement and other long-term employee benefits liability (-24%), asset retirement and preservation obligations (+0.2%), other noncurrent liabilities (+3%), capital stock (+1%), unrealized fair value gains on investments in equity securities (-41%), cumulative translation adjustments (-15%), equity reserve (+2%), and share-based payment plans (-87%) are FPH accounts.

Capital in excess of par value (+176%) reflects the effect of the exercise of Employee Stock Option and full payment of Employee Stock Purchase Plans during the year. Increase in retained earnings (+11%) reflects the net income for the period minus dividends paid. Lopez Holdings paid out cash dividends of P0.20 per common share in June 2016.

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Lopez Holdings Corporation (formerly Benpres Holdings Corporation)
4/F Benpres Building, Exchange Road, 1605 Pasig City, Philippines

  • Trunkline: (632) 449-2345
  • Fax: (632) 634-3009