Aboitiz Equity Ventures Reports Consolidated Net Income of PhP5.4B for 2Q 2019

Aboitiz Equity Ventures Inc. (PSE: AEV) recorded consolidated net income of PhP5.4 billion for the second quarter of 2019, a 3% increase from the PhP5.3 billion reported in the same period last year. The Company recognized non-recurring gains of PhP412 million during the period, primarily due to unrealized foreign exchange gains on the revaluation of dollar- denominated net liabilities, versus the PhP42 million in net foreign exchange losses in the corresponding period in 2018. Without these one-off gains, the Company’s core net income was PhP5.0 billion, a 6% decline year-on-year (YoY). For the relevant period, AEV recorded consolidated earnings before interest, tax, depreciation and amortization (EBITDA) of PhP14.1 billion, which was flat YoY.

On a year-to-date (YTD) basis, AEV’s net income for the first half of 2019 was PhP9.0 billion, 11% lower than the PhP10.1 billion recorded during the same period of last year. The Company recognized non-recurring gains of PhP78 million, versus the PhP467 million in non-recurring losses recorded in the previous year, representing foreign exchange differential in restating dollar-denominated net debt. Without these one-off gains, AEV’s core net income for the first half of 2019 was PhP8.9 billion, 16% lower from PhP10.6 billion YoY. AEV recorded consolidated EBITDA of PhP26.5 billion during the first six months of 2019, a 5% decrease from the PhP28.0 billion recorded in the same period last year.

Power accounted for 67% of the total income contributions from AEV’s Strategic Business Unit (SBU) for the first half of 2019, while the Financial Services, Food, Infrastructure, and Real Estate SBUs income contributions were at 24%, 6%, 2%, and 1%, respectively.

Strategic Business Units

Power

Aboitiz Power Corporation’s (AboitizPower) net income contribution to AEV for the first half of 2019 decreased by 5% YoY, from PhP7.0 billion to PhP6.7 billion.

On a stand-alone basis, AboitizPower’s core net income for the first half of 2019 was PhP8.5 billion, a 19% decrease YoY. Including non-recurring gains of PhP121 million for the first six months of 2019, AboitizPower’s net income was PhP8.6 billion, 5% lower compared to the corresponding period last year.

Income contributions from the generation and retail electricity supply businesses accounted for 82% of total income contributions from AboitizPower’s business segments, which totaled PhP8.1 billion during the first six months of 2019, 5% lower YoY. Consolidated EBITDA recorded for the period was PhP17.8 billion, a 12% decrease YoY, which was primarily due to the higher volume of purchased power during the first six months of 2019 combined with high spot market prices during the period. Aboitiz Power had purchased replacement power as a result of outages and contracting ahead in preparation for incoming capacity.

AboitizPower also recorded lower capacity sold for the first half of 2019, from 3,213 megawatts (MW) to 3,035 MW YoY, due to Therma Mobile, Inc.’s bunker C-fired diesel power plants being put on preservation mode in the first quarter of 2019.

AboitizPower’s distribution business recorded an income share of PhP1.8 billion during the first half of 2019, a 12% decrease YoY, and accounted for 18% of income contributions from AboitizPower’s business segments. Consolidated EBITDA for the distribution business during the period stood at PhP3.7 billion, a 5% decrease compared to the previous year, which was due to lost margins from the decommissioning of the Bajada power plant. On the other hand, energy sales increased by 5% to 2,842 gigawatt-hours (GWh), compared to 2,719 GWh recorded in the first half of 2018. This was primarily driven by the increase in new customers across all segments.

Banking & Financial Services

Union Bank of the Philippines’ (“UnionBank” or the “Bank”) income contribution to AEV for the first half of 2019 increased by 3% to PhP2.4 billion, from PhP2.3 billion recorded in the same period in 2018.

On a stand-alone basis, UnionBank and its subsidiaries recorded a net income of PhP4.8 billion in the first half of 2019, 2% higher compared to the PhP4.7 billion recorded in the same period last year, as the Bank sustained the growth of earning assets despite lower margins and strategic investment in its digital transformation. Higher fee income from consumer businesses and securities trading gains also contributed to the improved bottom line in the first half of 2019.

UnionBank’s earnings performance translated to a return on equity (ROE) of 10.6%, return on assets (ROA) of 1.4%, and revenue-to-expense ratio of 1.7x. As of end-June 2019, UnionBank’s total assets amounted to PhP704.4 billion, 13% higher YoY, as customer loans reached PhP328.3 billion, with credit cards, consumer business, and commercial loans driving the portfolio’s growth.

UnionBank’s capitalization remained well-above regulatory minimum levels, with total capital adequacy ratio of 15.0% and Common Equity Tier 1 ratio of 12.9%.

Food

AEV’s non-listed food subsidiaries’ (Pilmico Foods Corporation, Pilmico Animal Nutrition Corporation, and AEV International Pte. Ltd. (AEVI)) income contribution to AEV amounted to PhP552 million for the first half of 2019, a 17% decrease from the PhP662 million recorded in the corresponding period last year.

For the first half of 2019, the Food SBU’s Philippine subsidiaries reported net income amounting to PhP387 million. The Feeds business segment recorded a net income of PhP113 million during this period, 62% lower YoY due to higher operating expenses. The Farms business segment reported a net income of PhP44 million, 85% lower YoY, resulting from decreased margins following high cost of feeds and lower selling price of live hogs. Meanwhile, the Flour business segment’s net income amounted to PhP230 million, 283% higher YoY on the back of improved selling prices.

Pilmico International Pte. Ltd. (Pilmico International), a subsidiary of AEVI, delivered a net income of PhP412 million in the first semester of 2019, fifty-eight times the amount reported in the corresponding period last year. This was primarily due to fresh contributions from Gold Coin Management Holdings (Gold Coin), a newly acquired regional feeds player. AEVI reported a consolidated net income of PhP165 million from the PhP412 million contribution of Pilmico International, which was tempered by the PhP245 million in financing costs related to the acquisition of Gold Coin and PhP3 million in holding company expenses.

For the first half of 2019, 30% of the Food Group’s total earnings were generated offshore, versus 1% recorded in the previous year.

Real Estate

AEV’s non-listed real estate segment, comprising AboitizLand, Inc. (“AboitizLand”) and its subsidiaries, reported a consolidated net income of PhP60 million for the first half of 2019, 79% lower than the PhP283 million recorded in the same period in 2018.

AboitizLand’s revenues for the first half of 2019 totaled PhP1.4 billion, 28% lower YoY. This was primarily attributable to the deferred revenue recognition of industrial lot sales for the industrial business unit, which was offset by revenue contributions from the residential business unit due to significant construction progress primarily in key projects such as Seafront Residences and Amoa.

Of AboitizLand’s revenue for the first six months of 2019, the residential business unit contributed PhP935 million, the industrial business unit contributed PhP388 million, while the commercial business unit and others contributed the remaining PhP104 million, equivalent to 66%, 27%, and 7%, respectively. Infrastructure.

For the Infrastructure group, Republic Cement & Building Materials, Inc.’s income contribution to AEV for the first half of 2019 amounted to PhP249 million, 473% higher than the PhP44 million reported in the same period last year. This was primarily due to improved control on production costs together with higher market prices and increased private sector demand.

Financial Condition

As of June 30, 2019, the Company’s consolidated assets totaled PhP572.4 billion, a 3% increase from end-2018’s level of PhP554.5 billion. Cash and cash equivalents at the end of the first half of 2019 stood at PhP44.1 billion, 25% lower than the PhP59.0 billion as of end-2018. Consolidated liabilities totaled PhP369.7 billion, a 10% increase from the year-end 2018 level of PhP336.0 billion, while equity attributable to equity holders of the parent decreased by 7% to PhP165.0 billion. AEV’s current ratio as of June 30, 2019 stood at 1.4x while its net debt-to-equity ratio was 1.3x.

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