Lopez Holdings

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2013 Management Discussion and Analysis

Lopez Holdings reported ₱1.943 billion in net income attributable to equity holders of the Parent in 2013, or 55% lower than ₱4.294 billion in net income attributable to equity holders of the Parent in 2012, as restated. This was primarily due to the absence of one-off gains. Lopez Holdings booked a consolidated gain on sale of investment in equity securities of ₱6.093 billion in 2012 (none in 2013) and a gain on business combination of ₱2.136 billion in 2012 (none in 2013), after subsidiary FPH sold a 2.66% stake (₱30 million shares) in Meralco in January 2012 and recorded a gain on business combination following :

(1) Meralco’s declaration of Rockwell Land as a property dividend; (2) the receipt by FPH of the Rockwell Land shares as a contingent consideration of its previous sale of Meralco shares; and the listing by introduction of Rockwell Land Corporation in May 2012. Subsequently, Rockwell Land became a subsidiary of FPH.

Consolidated revenues decreased by 6% year-onyear (YoY) to ₱94.624 billion from ₱100.731 billion, as restated. This resulted from the 8% decrease in the sale of electricity and the 61% decline in sale of merchandise, as manufacturing joint ventures remained in arbitration.

Sale of electricity (-8%) was down due to the temporary shutdown of San Lorenzo’s Unit 60 under First Gen Corporation (FGEN). A fire occurred at San Lorenzo’s main transformer in May 2013 halving its production until the transformer’s replacement toward the end of the year. FG Hydro, under publicly listed Energy Development Corporation (EDC), also experienced lower ancillary service revenues, decreased dispatch and lower spot market prices. EDC likewise derived lower revenues from Unified Leyte and Tongonan due to the damage to plant facilities caused by typhoon Yolanda. This decrease was partially offset by higher sales volume and higher average tariff of EDC-controlled Green Core Geothermal, Inc. (owner of Tongonan 1 and Palinpinon geothermal plants), and the revenues from electricity generated by Bacman 2 Unit 3.

Revenues from real estate (-2%) and from contract and services (+142%) reflect the consolidation of Rockwell Land accounts. Equity in net earnings from associates/PDRs (+24%) primarily reflects the company’s beneficial ownership in ABS-CBN.

Consolidated costs and expenses decreased by 5% to ₱75.964 billion from ₱79.810 billion. Lower operations and maintenance (O&M) costs (-6%) resulted from lower average fuel prices for the gas plants, as well as lower electricity generated due to the fire. EDC also booked lower repairs and maintenance and lower personnel costs during the period. General and administrative expenses remained flat. The 61% decrease in merchandise sold is in line with the arbitration status of manufacturing joint ventures. Cost of real estate (+19%) and contracts and services (+95%) reflect the consolidation of Rockwell Land accounts.

Finance costs decreased by 10% to ₱7.288 billion due to lower debt levels of FPH parent and prepayment of loans at the level of FGEN and subsidiaries. Finance income (+5%) increased primarily due to Rockwell Land’s higher interest income accretion arising from existing projects. The weaker peso led to a foreign exchange loss of ₱1.451 billion compared to a foreign exchange gain of ₱922 million in 2012.

Net impairment loss decreased by 66% to ₱1.349 billion from ₱4.012 billion. In 2012, FPH subsidiary First Philec Corporation recognized a ₱3.9 billion impairment loss due to the arbitration proceedings against its joint venture partners in the photovoltaic sector, while FPH recorded an impairment loss of ₱156 million on its investment in Narra Venture. Consolidated dividend income declined by 17% as FPH share in Meralco dividend payout declined on account of its lower stake in the electric utility.

Mark-to-market loss on derivatives of ₱17 million was a reversal of the gain of ₱36 million in 2012. This refers to the movement in derivative transactions such as interest rate swaps, cross currency swap and foreign currency forward contracts at the level of the Parent Company, FGEN and associates.

Other income amounted to ₱138 million compared to other income of ₱240 million in 2012. This pertains to gain on sale of property, rental income and management fees, among others, booked in the previous year at the level of FPH and subsidiaries.

Affiliates

ABS-CBN reported a 25% increase in net income for 2013 to ₱2.028 billion from ₱1.618 billion in 2012. Consolidated net revenues increased by 15% to ₱33.378 billion from ₱28.984 billion. Advertising revenues remained on the upswing, climbing by 16%, with consumer sales jumping by 14% YoY. Consolidated costs and expenses grew by a slower 11% YoY. ABS-CBN remained dominant in national TV ratings with the top 10 programs on free-to-air TV, excluding specials, coming from the kapamilya network. Its global distribution and pay TV business units also registered solid numbers, with costefficiency measures in place.

FPH reported a 74% decrease in net income attributable to equity holders of the Parent to ₱2.350 billion in 2013, from ₱9.175 billion in 2012, primarily due to the absence of a gain from sale of investment. FPH revenues were down by 6% YoY to ₱93.412 billion from ₱99.794 billion, on lower electricity and merchandise sales. Sale of electricity accounted for 86% of consolidated revenues in 2013, and 88% in 2012.

Key Performance Indicators

As a holding company, Lopez Holdings receives revenues from asset sales and dividends from investees. Hence, the key performance indicator (KPI) 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.

Return on average equity dropped from 12.0% in 2012 to 3.2% this year as the Company’s net income attributable to parent went down by ₱6.83 billion (-74%). The net income for the period decreased mainly due to the absence of the ₱6.08 billion gain from sale of Meralco shares and the ₱2.14 billion gain on business combination last year.

Interest coverage ratio decreased from 3.43:1.00 in 2012 to 2.38:1.00 this year due to the significant decline in the earnings before interest and taxes from ₱27.66 billion in 2012 to ₱17.21 billion this year (-38%) primarily due to the absence of the gain on sale of Meralco shares this year.

Earnings per common share (diluted) dipped from 16.00 to 4.08 as the Company’s net earnings available to common shareholders significantly decreased from ₱8.80 billion last year to ₱2.26 billion (-74%) this year as a result of the absence of the nonrecurring gains from the sale of Meralco shares and gain on business combination in 2012.

The ratio of FPH Total Assets to FPH Total Equity grew from 3.39:1.00 in 2012 to 4.14:1.00 in 2013. Total assets went up by ₱34.40 billion (+13%) because of the increase in cash balance, growth in shortterm investments of the Parent Company, increase in receivables of Rockwell Land and FGEN group, and the increase in property, plant and equipment mainly due to the capital expenditures of EDC for its geothermal projects. The decrease in equity attributable to parent from ₱75.89 billion in 2012 to ₱70.41 billion this year contributed positively to this ratio.

The ratio of Long-term debt (excluding current portion but including Bonds) to Total Equity presented an increase from 1.36:1.00 in 2012 to 1.94:1.00 in 2013 as long-term debt (excluding current portion) increased by ₱33.58 billion (+33%) primarily due to the additional debts availed by Rockwell Land and FGEN and the issuance of the ₱7.0 billion fixed-rate bond of EDC in May 2013, moderated by the scheduled principal payments of the existing outstanding loans of First Gen during the year.

Current ratio showed an increase from 2.07:1.00 in 2012 to 2.54:1.00 in 2013 because the growth in current assets of ₱26.14 billion (+35%) exceeded the growth in current liabilities of ₱3.65 billion (+10%). Current assets increased due to the rise in cash, short term investments and receivables. Current liabilities grew due to higher short-term loans and trade payables and accruals, tempered by the full redemption of the remaining principal balance of FGEN’s Convertible Bonds.

Quick ratio likewise increased, from 1.57:1.00 in 2012 to 2.05:1.00 in 2013, mainly due to the ₱14.65 billion (+38%) increase in cash and the ₱7.99 billion (+43%) increase in receivables.

FPH book value per common share is down from 130.64 in 2012 to 127.54 in 2013. The decrease was brought about by the decline in stockholder’s equity attributable to parent, excluding preferred shares, from ₱71.59 billion in 2012 to ₱70.41 billion in 2013.

Financial Condition

Lopez Holdings invested in ₱197 million worth of preferred shares and ₱1.5 billion worth of common shares issued by ABS-CBN, through Lopez Inc. PDRs. This is reflected in investments in and advances to associates/PDRs (+29%).

Movements in: Cash and cash equivalents (+36%), short-term investments (+407%), trade and other receivables (+43%), inventories (-4%), other current assets (+46%), investments in equity securities (-6%), property, plant and equipment (+12%), investments in joint venture and joint operations (+3%), investment properties (+6%), goodwill and intangible asset (-2%), retirement benefit asset (-88%), other noncurrent assets (-3%), trade and other payables (+16%), loans payable (+297%), current bonds payable (-100%), income tax payable (-39%), long-term debt-net of current portion (+32%), deferred tax liabilities (+11%), retirement benefit liability and other employee benefits (+43%), asset retirement obligation (+141%), other noncurrent liabilities (+89%), unrealized fair value gains on investment in equity securities (-15%), cumulative translation adjustments (+35%), equity reserve (-8%) and non-controlling interests (-5%) are all or primarily FPH accounts.

Increases in capital in excess of par value (+417%) and in share-based payment plans (+13%) represent/ related to the exercise of ESOP (Employee Stock Option Plan) and ESPP (Employee Stock Purchase Plan) in 2013.

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CONTACT US

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