Aboitiz Equity Ventures, Inc. (PSE ticker symbol: AEV) ended 2011 with a consolidated net income of P21.2 billion (bn), recording a decline of 3% year-on-year (YoY). This translates to P3.84 in earnings per share. The company's power business continued to account for the lion's share of its income at 78%, followed by the banking and food units with income contributions of 16% and 6%, respectively.
Aboitiz Equity Ventures, Inc. (AEV) ended 2011 with a consolidated net income of P21.2 billion (bn), recording a decline of 3% year-on-year (YoY). This translates to P3.84 in earnings per share. The company’s power business continued to account for the lion’s share of its income at 78%, followed by the banking and food units with income contributions of 16% and 6%, respectively.
The company incurred a non-recurring gain of P366 million (mn) (versus last year's P30 mn), which comprises the following: (1) a net loss of P123 mn due to the revaluation of consolidated dollar-denominated loans and placements; (2) a P266 mn gain given a power subsidiary's revenue adjustment that resulted from a favorable ruling by the industry regulator involving its ancillary services tariff structure; (3) a P163 mn gain as a power associate company recovered costs relating to its fuel importation; (4) a P149 mn gain consequent to a reversal of an accrued expense relating to a power subsidiary's IPPA contract; and (5) an P89 mn one-time fee relating to loan preterminations. Accounting for these one-offs, AEV's core earnings for 2011 was at P20.8 bn, lower by 5% YoY.
In the fourth quarter of 2011, AEV's consolidated net income of P5.1 bn was 2% higher YoY.
For the three-month period in review, the company recorded one-off losses of P157 mn versus the previous year's P379 mn. The revaluation of consolidated dollar-denominated loans and placements resulted in a non-recurring loss of P94 mn for the quarter. In addition, an associate company of its power subsidiary incurred a P26 mn gain as costs relating to its fuel importation were recovered during the period. The pretermination of loans by AEV and its power subsidiary resulted to one-time fees of P89 mn. Adjusting for all these non-recurring items, AEV closed the quarter with a 2% YoY decline in core net income, from P5.4 bn to P5.3 bn.
Strategic Business Units
Aboitiz Power Corporation (AboitizPower) ended 2011 with an income contribution of P16.5 bn versus last year's P19.1 bn. When adjusted for non-recurring items, the company recorded a 14% YoY reduction in its earnings share to AEV, from P18.7 bn to P16.1 bn.
In 2011, the power generation business contributed earnings of P15.6 bn, down by 16% YoY. The decline in the generation group's bottomline performance was due to the lower average selling price and net generation recorded for the period.
As a group, AboitizPower's generation business registered a 7% decline in average selling prices, given the softening of prices at the Wholesale Electricity Spot Market (WESM). Both demand and supply conditions that prevailed during the year were responsible for the recorded 41% YoY drop in the average price of electricity in the WESM's Luzon spot market. Demand for electricity was relatively flat compared to the previous year. Supply, in the meantime, showed marked improvements as average outage levels for Luzon-based power plants went down vis-à-vis 2010 levels. The adverse impact on earnings, however, was tempered by AboitizPower's strategic move to lower its exposure at the spot market with the generation group's increased contracted capacity. The company's net generation for the year registered a 3% YoY decline, from 9,762 gigawatt hours (GWh) to 9,422 GWh. The drop in energy sales was mainly caused by reduced spot market transactions brought on by low prices that prevailed in the WESM.
“The strength of our power business lies in our diversified, complementary and competitive portfolio of generating assets. We have also been able to mitigate earnings volatility through our contracting strategy. We are confident that this, coupled with our experienced management team, provides us with the ingredients necessary to thrive in a more challenging environment with the onset of more competition, open access, and the full implementation of WESM nationwide,” said Erramon Aboitiz, AEV president & CEO.
The YoY increase in fuel costs resulted in a margin squeeze for Therma Luzon, Inc. (TLI), a wholly owned subsidiary of AboitizPower. Terms of its existing bilateral contracts do not allow TLI to cover for the increase in its fuel cost, which was mainly driven by the unfavorable global supply situation in 2011. Moreover, costs incurred by TLI relating to an unplanned shutdown in the last quarter of the year further weighed down its profit contribution in 2011.
The ancillary services provided by AboitizPower's merchant hydro assets grew significantly in 2011 over the previous year. With water levels elevated compared to 2010, the capability of both the Magat and Binga plants to offer ancillary services was substantially enhanced. The year saw a higher level of accepted capacities by the National Grid Corporation of the Philippines. The combined income contribution of these assets recorded an 84% YoY expansion for the year.
As of end-2011, AboitizPower's attributable capacity was at 2,350 megawatts (MW), up by 15% YoY. The expansion was due to the following: the assumption of full ownership of and control over the 70-MW Bakun hydro run-of-river plant in May 2011; acquisition of the 242-MW Navotas power barges in May 2011; the full completion of the rehabilitation of the Ambuklao hydro facility as well as the completion of the 4-MW Irisan hydro Greenfield project in September 2011; and the partial completion of the rehabilitation works at the Binga hydro facility.
Improved volumes and margin expansions resulted in a 24% YoY increase in the power distribution group's income contribution for the year 2011, from P1.5 bn to P1.8 bn. AboitizPower's attributable electricity sales grew by 3% YoY, from 3,606 GWh to 3,727 GWh. Growth was mainly a result of the increased electricity sales to the industrial customer segment, which recorded a 6% YoY increase. The group's gross margin for the period in review improved by 15% YoY to P1.44/kWh, which was partly due to the favorable effect of the implementation of the approved distribution tariffs (under the Performance Based Regulation scheme) of some of AboitizPower's distribution utilities. Moreover, Davao Light & Power Company, Inc. recorded a reduction in operating expenses as operation of its back-up power plant was not required during the year in review.
AEV's banking subsidiaries' income contribution for 2011 improved by 31% YoY from P2.6 bn to P3.4 bn.
Union Bank of the Philippines (UnionBank) ended the period with an earnings contribution of P2.9 bn, up by 26% YoY. The bank's total interest income in 2011 was flat at P11.8 bn as the expansion of average earning assets offset the decline in average asset yields. Interest earnings on loans and other receivables recorded an 8% YoY increase. Said growth, however, was countered by a decline in the bank's interest income on trading and investment securities, as the lower average yields neutralized the expansion in UnionBank's securities portfolio. Higher impairment losses booked for the year in review resulted in a 17% YoY decrease in the bank's net interest income after impairment losses.
Non-interest income for the period improved to P9.6 bn, up by 56% from 2010's P6.1 bn, as the bank continued to take profit in its securities position. Higher premium revenues also contributed to the significant increase in non-interest income resulting from higher sales of its subsidiary's pre-need plans. The corresponding trust fund contributions on these plans, and higher salaries and employee benefits in support of the bank's business expansion, drove operating expenses to increase by 26% YoY.
UnionBank's asset base stood at P270.2 bn as of yearend 2011, with a deposit base of P204.2 bn and a loan book of P105.2 bn. The bank's capital adequacy ratio strengthened to 18.2% as of end-2011 from the previous year's 17%, notwithstanding the exercise of the call option on P1.3 bn of unsecured subordinated debt in September 2011.
AEV's non-listed thrift bank, City Savings Bank (CitySavings), contributed earnings of P531 mn in 2011, up by 69% YoY. The higher earnings contribution could be attributed to the increased ownership stake in CitySavings, coupled with the 7% YoY improvement in the bank's bottomline performance. The bank also recorded a 29% YoY expansion in its net interest income, mainly brought on by a 33% YoY increase in its interest income on loans and service fees. This robust growth, however, was tempered by a 36% YoY rise in operating expenses that resulted from the implementation of the bank's expansion program and its various initiatives during the year.
CitySavings ended the year with a total loan book of P9.9 bn, up by 52% YoY. Total resources as of yearend was close to P13 bn, a 44% YoY increase. The bank's NPL ratio as of end-2011 was less than 1% while its NPL coverage ratio was at 195%. Total capital funds amounted to P1.8 bn with a capital adequacy ratio of 16.8%.
“Our banking group performed very well in 2011. UnionBank's growth has been above industry averages which means we are expanding our market share. CitySavings has aggressively pursued expansion in Luzon, confident that it will be able to replicate the success it has in the Visayas and Mindanao,” Aboitiz added.
The 2011 income contribution from AEV's food subsidiary, Pilmico Foods Corporation (Pilmico), decreased by 19% YoY, from P1.5 bn to P1.2 bn. A 14% topline expansion was due to volume increases recorded by the feeds and swine operating divisions, coupled with higher average selling prices (ASP) booked by the company's flour and feeds units.
However, higher input costs weighed down the profitability of the flour and swine segments, as income contributions posted YoY declines of 36% and 75%, respectively. It was only the bottomline performance of the feeds unit that recorded a positive growth rate of 14% YoY, as higher ASP cushioned the rise in raw material costs.
For the year ending December 31, 2011, AEV's consolidated assets amounted to P201.7 bn, up by 15% from the yearend 2010 level. Cash and cash equivalents was at P29.5 bn, 13% higher than the P26.1 bn at yearend 2010. Consolidated liabilities amounted to P106.4 bn, while Equity Attributable to Equity Holders of the Parent increased by 20% to P77.4 bn. Current ratio as of yearend 2011 was at 2.9x (versus yearend 2010's 2.4x), while net debt-to-equity ratio was at 0.6x (versus yearend 2010's 0.7x).
AEV is the publicly listed holding and investment company of the Aboitiz Group with major investments in power, banking and food. Two of its investee companies are also listed on the Philippine Stock Exchange. AEV is consistently recognized in international surveys as among the Philippines' best managed companies and has also been cited for its commitment to good corporate governance. (www.aboitiz.com)