Lopez Holdings

Report of Lopez Holdings President, Salvador G. Tirona
May 30, 2013
Annual Stockholders' Meeting held at ABS-CBN's Dolphy Theater

Our valued shareholders and colleagues in the Lopez Group, mga Kapamilya: Good morning!

During the past decade, your company has been through a lot of financial challenges. This experience has given your management several lessons on resiliency and creativity. The past has also taught us to focus on our core competencies and strengths.

From the year 2002 when your company first declared a standstill, our debt reached a high of US0 million. We gradually decreased this debt level over a span of 10 years. By the end of 2012, Lopez Holdings has been able to trim this down to only US million in restructured debt, and P67 million in unrestructured long-term commercial papers (LTCPs). We now have a clean and healthy balance sheet that enables your management to work on further improving company value and shareholder returns.

For the year ended December 31, 2012, Lopez Holdings reported a net income attributable to equity holders of the Parent of P4.54 billion, 15% higher than the 2011 income of P3.96 billion. The 2012 results of operations include the company’s share in the P6.1 billion gain on the sale of Meralco shares by associate First Philippine Holdings Corporation, shown as equity in net earnings of associates in the consolidated statements of income.

The Gain on extinguishment of debt represents the “Excess of the carrying amount of obligation over the buy-back price” or “over the fair value of restructured debt” made by Lopez Holdings for each of the three years in the period.

In 2011, ABS-CBN Corporation together with Lopez Holdings sold its Sky Cable Philippine Depositary Receipts or PDRs to a foreign investor resulting in a gain of P1.29 billion.

Lopez Holdings’ total consolidated assets grew from P77 billion in 2011 to P82.6 billion in 2012. This figure includes assets of ABS-CBN. Debt-to-equity ratio was at 0.39x in 2012 versus 0.33x in 2011. On the other hand, book value per share reached P9.97 a share at the end of 2012 from a value of P9.15 a share in 2011.

Due to changes in accounting policies, disclosures and presentation, your Company adopted the new and amended standards that took effect on January 1, 2013.

Philippine Financial Reporting Standards or PFRS 10 on Consolidated Financial Statements replaces the portion of Philippine Accounting Standard or PAS 27, i.e., 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. Following the reassessment and based on the new definition of control under PFRS 10, the Company determined that ABS-CBN, which was accounted for as a subsidiary in 2012, is now an associate due to existing regulatory restrictions on the exercisability of the Company’s Convertible Notes. On the other hand, First Philippine Holdings (FPH), which was accounted for as an associate in 2012, is now a subsidiary, due to de facto control over FPH, given the widely dispersed interest of the minority shareholders compared with the Company’s 46.2% interest in FPH.

As a result, starting January 1, 2013, the Company deconsolidated ABS-CBN and consolidated FPH. The consolidated financial statements as of December 31, 2012 and for the quarter ended March 31, 2012 were restated to consolidate subsidiary FPH accounts into Lopez Holdings, and to deconsolidate accounts of associate ABS-CBN.

Our share in the net income of ABS-CBN will now be accounted for under equity method of accounting, and will be recognized in the consolidated statement of income as “accretion and interest on Notes” account.

Let me assure you, our stockholders, that the change is simply a dictate of accounting standards for purposes of uniform and comparable presentation. We retain our economic interest in ABS-CBN and will continue to reap full benefits in terms of dividends and other rights due us as a controlling shareholder, even if such control does not fall under the strict definition preferred by the newly adopted accounting rules.

Following the new standard, Lopez Holdings’ total consolidated assets as of March 31, 2013 grew to P275 billion from P273 billion, as restated, in December 2012. On the other hand, long-term interest bearing loans and borrowings stood at P105 billion as of the end of the first quarter of 2013.

On a stand alone Parent Company’s financial position, Lopez Holdings total assets as of March 31, 2013 stood at P45.6 billion. It is composed of Current assets which is mainly cash and cash equivalents and Noncurrent assets representing our investments in ABS-CBN and First Philippine Holdings.

Total equity attributable to Parent stood at P44.2 billion.

For the first three months of 2013, Lopez Holdings reported P1.0 billion in net income attributable to equity holders of the Parent. This is 64% lower than the P2.752 billion in net income attributable to equity holders of the Parent reported in the first quarter of 2012, as restated. This was primarily due to the absence of a gain on sale of investment in equity securities (P3.339 billion in 1Q2012, none in 1Q2013) as subsidiary FPH sold a 2.66% stake (30 million shares) in Meralco in January 2012. Included in Other income or expenses is the Accretion and interest on Notes, which represents our share in the net income of ABS-CBN. This increased by 68% to P306 million for the quarter ended March 31, 2013 from P182 million for the same period last year.

Your company has remained focused on two core businesses:

– First Philippine Holdings Corporation is a recognized leader in clean and renewable energy through First Gen Corporation and Energy Development Corporation. In addition, FPH controls premier property developer Rockwell Land Corporation; the investor’s choice community, First Philippine Industrial Park; construction firm First Balfour, Inc.; and ventures in green manufacturing.

– ABS-CBN Corporation leads synergies with affiliate Sky Cable Corporation and sister company Bayan Telecommunications, Inc. and reflects the diverse nature of its operations, which include among other things, television, radio, cable, cinema, talent development, magazines, recording, international content distribution, licensing, and public service. ABS-CBN maintained national ratings leadership in 2012 with inspired programming that touched the hearts and minds of viewers.

As of March 31, 2013, Lopez Holdings owned 46.2% of First Philippine Holdings and 60.3% of ABS-CBN.

Let me now report on the financial performance of these companies.

FPH reported a net income attributable to equity holders of the parent of P9.6 billion, 351% higher than P2.1 billion in 2011. Net earnings in 2012 include P6.1 billion gain on sale of investment in associate, comprising of the gain from sale of 2.66% (30 million shares) ownership in Meralco, as well as the assignment of Rockwell Land shares from Beacon Electric to the FPH group. FPH also recorded a P5.2 billion gain on business combination related to its equity interest in Rockwell Land.

Consolidated revenues improved by 11 % year-on-year to P78.0 billion from P70.3 billion.

FGEN’s purchase of the BG Group’s 40 percent stake in the 1,000-megawatt (MW) Santa Rita and 500-MW San Lorenzo natural gas-fired combined cycle power plants in May 2012 resulted in additional income attributable to the acquired minority stake. The absence of a one-time impairment loss, as was booked by EDC in 2011, in the amount of P5.0 billion for the shut-down of its Northern Negros Geothermal Plant (NNGP), also contributed to the solid performance of the power and energy group.

In the first quarter of 2013, FPH posted a net income attributable to equity holders of the Parent of P1.8 billion, 64% lower than last year, primarily due to the absence of a gain from sale of investment.

FPH revenues amounted to P22.2 billion from P25.4 billion, down by 13% year-on-year , on the account of lower electricity and merchandise sales. Sale of electricity accounted for 91% of consolidated revenues in 1Q2013, and 89% in 1Q2012.

Sale of electricity was down because of lower gas prices and lower dispatch by the gas plants under publicly listed First Gen Corporation. Meanwhile, Sale of merchandise fell as First Philec Solar Corporation (FPSC) reduced production in the face of weak market conditions for solar wafers, coupled with ongoing disputes with its joint venture partner/customers.

In May 2012, Rockwell Land Corporation listed by way of introduction, and became a subsidiary of FPH. Hence, Real estate, revenues from commercial leasing, share in project revenues of joint ventures, and contracts and services accounts of Rockwell Land were consolidated into FPH.

Unaudited consolidated costs and expenses decreased by 12% to P16.763 billion from P19.152 billion. This resulted from the 14% slide in operations and maintenance (O&M) and the 80% drop in merchandise sold. Cost of power plant O&M decreased due to, among others, lower plant O&M by EDC. Meanwhile, lower cost of merchandise sold is in line with the lower production output of FPSC.

On April 30, 2013, FPH paid all of its 43 million outstanding preferred shares or FPHP, as well as the prepaid its remaining dual currency floating rate corporate notes (FXCNs) consisting of 7- and 10-year notes in the amount of P3.18 billion. FPHP holders as of April 3, 2013 received a final cash dividend of P2.180775 per share and shares were redeemed at par.

In 2012, ABS-CBN reported a consolidated net income attributable to equity holders of the Parent of P1.7 billion, 29% lower than its net income of P2.4 billion the previous year. Removing the effects of the P1.0 billion gain from sale of investments recognized in 2011, net income would have increased by 23%. Recurring income growth was driven by strong advertising revenues and consumer sales.

ABS-CBN Global’s overall viewer count increased by 2%, with steady growth in viewers in Canada, Asia Pacific, Australia, and North America. Viewership declined in the Middle East, Japan and Europe, reflecting continued economic and social challenges faced by customers in these areas. Meanwhile, TFC IPTV (The Filipino Channel Internet Protocol Television) was launched in Korea and New Zealand.

Cash capital expenditures and program rights acquisitions for 2012 amounted to P5.0 billion, P753 million or 18% higher than P4.2 billion the previous year.

Based on Kantar National TV Ratings, ABS-CBN maintained its national audience share and ratings leadership for urban and rural audiences, with primetime averaging 48 % in 2012, or a 20 percentage point lead over its nearest competitor.

ABS-CBN also focused on a digital convergence strategy in cooperation with affiliate Sky Cable Corporation.

For the first quarter of 2013, ABS-CBN registered a 66% increase in net income attributable to equity holders of the Parent to P508 million from P306 million in 1Q2012. Consolidated advertising revenues increased by 22% to P4.4 billion from P3.6 billion. The increase in advertising revenues is partly due to election-related advertisements amounting to P368 million. Without election-related advertisements, recurring advertising revenues grew 12% fuelled by ABS-CBN’s ratings leadership and the overall increase in the adspend of corporates. On the other hand, consumer sales for the period grew 18% year-on-year, primarily due to the 43% growth in SkyCable revenues.

In February 2013, ABS-CBN issued one billion preferred shares with a par value of P0.20 per share pro rata to existing stockholders at an issue price of P0.20 per share, following the conclusion of the rights offering. ABS-CBN’s board of directors fixed the cumulative interest rate at 2.0 percent per annum payable on each anniversary date from the issue date. Lopez Holdings invested in a total of P197 million worth of preferred shares through Lopez, Inc.

ABS-CBN Convergence, lnc. (ABS-C), a subsidiary of ABS-CBN Corporation, ushers in the media convergence era in the Philippines with the expansion of its telecommunication business via a network sharing agreement with Globe Telecom. This groundbreaking partnership, which converges two separate industries, will enable ABS-CBN to deliver unique content as well as offer traditional telecom services on mobile devices. Through the network-sharing agreement, Globe will provide capacity and coverage on its existing cellular mobile telephony network to ABS-CBN Convergence or ABS-C on a nationwide basis. The parties may also share assets such as servers, towers, and switches.

This arrangement will enable Globe and ABS-C to improve public service by enhancing utility, capacity, inter-operability and quality of mobile and local exchange telephony and data services to the public. This also allows ABS-C to modernize its existing PMTS-based service and expand to a retail base on top of its existing subscriber base.

ABS-CBN Convergence, lnc. (ABS-C), a subsidiary of ABS-CBN Corporation, ushers in the media convergence era in the Philippines with the expansion of its telecommunication business via a network sharing agreement with Globe Telecom. This groundbreaking partnership, which converges two separate industries, will enable ABS-CBN to deliver unique content as well as offer traditional telecom services on mobile devices. Through the network-sharing agreement, Globe will provide capacity and coverage on its existing cellular mobile telephony network to ABS-CBN Convergence or ABS-C on a nationwide basis. The parties may also share assets such as servers, towers, and switches.

This arrangement will enable Globe and ABS-C to improve public service by enhancing utility, capacity, inter-operability and quality of mobile and local exchange telephony and data services to the public. This also allows ABS-C to modernize its existing PMTS-based service and expand to a retail base on top of its existing subscriber base.

After concentrating management’s efforts for the past several years on attaining a clean and healthy balance sheet, the focus of attention is now on improving value to you, our shareholders.

Based on stock market prices as of end-first quarter 2013, the parent company’s combined shareholdings in ABS-CBN and First Philippine Holdings amounted to P44.2 billion (P17.5 billion for ABS-CBN and P26.7 billion for First Philippine Holdings).

As debt of the parent company has steadily decreased to a current manageable level of P958 million, net asset value per share has increased to P9.42 per share as of end-March 2013. Likewise, Lopez Holdings’ market capitalization of over P33.1 billion reflects a very comfortable coverage of almost 34x its debt level.

I would like to repeat that the deconsolidation of ABS-CBN from Lopez Holdings does not mean we have lost control over this very important asset. As this slide shows, we continue to derive full economic benefits and superior value from our investment in ABS-CBN.

Fellow shareholders, your Company is committed to support its core companies by all means necessary to secure their path toward sustainable growth. There are many opportunities in the horizon. Your management is guided by the lessons of Lopez Holdings’ young corporate history, as it approaches future investments with a balance of prudence and daring.

In behalf of the officers and staff members of Lopez Holdings, we thank you all for your trust in your company, your Board and your management team. Good morning!

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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
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