Aboitiz Equity ends 2011 Q3 with P16B in income

Aboitiz Equity Ventures Inc. (PSE ticker symbol: AEV) ended the first nine months of 2011 with a consolidated net income of P16 billion, a decline of 5 percent year-on-year (YoY), which translates to P2.91 in earnings per share, according to a report released by AEV on Monday. AEV is the publicly listed holding and investment company of the Aboitiz Group with major investments in power, banking and food. The power group kept the lion’s share of earnings (77 percent), followed by the banking (17 percent) and food subsidiaries (6 percent). For the period ending Sept. 30, the company incurred a non-recurring gain of P523 million versus last year’s P408 million. The books recorded a net loss of P28 million due to the revaluation of consolidated dollar-denominated loans and placements, a P266 million gain given a power subsidiary’s revenue adjustment in the first quarter on its ancillary services tariff structure, a P137 million gain as fuel importation recovery by a power associate company in the second quarter, and a P149 million gain after an accrued expense under a power subsidiary’s Independent Power Producer Administration (IPPA) contract was reversed. Accounting for these one-offs, AEV’s core earnings for the first nine months of 2011 was at P15.5 billion, lower by 6 percent YoY. For the third quarter alone, AEV recorded a consolidated net income of P5.8 billion, up by 5 percent YoY. Out of the total earnings contributions from the company’s strategic business units (SBUs), the power SBU accounted for 74 percent while banking SBU got 21 percent and food SBU got 5 percent. In that same quarter, the company recorded one-off gains amounting to P11 million, vis-à-vis last year’s P528 million. The revaluation of consolidated dollar-denominated loans and placements resulted to a non-recurring loss of P138 million. In addition, an associate company of its power SBU incurred a one-off gain of P149 million, as it reversed an accrued expense booked in 2010 relating to its IPPA contract. Adjusting for these one-offs, AEV closed the quarter ending September 30, 2011 with core profits of P5.8 billion, a 16 percent YoY expansion. Aboitiz Power earnings down 14 percent Aboitiz Power Corporation (AboitizPower) ended the third quarter with an income contribution of P12.4 billion, vis-a-vis last year’s P14.2 billion. When adjusted for non-recurring items, the power SBU recorded a 14 percent YoY reduction in its earnings per share, from P13.8 billion to P11.9 billion. The power SBU contributed earnings of P11.7 billion, down by 16 percent YoY, due to the lower average selling price and net generation recorded for the period. As a group, it logged a 10 percent drop in average selling prices, given the softening of the spot market prices compared to last year. The average price of electricity in the Wholesale Electricity Spot Market (WESM) dropped by 48 percent YoY for the period ending Sept. Demand for electricity, particularly in the island of Luzon, was relatively flat versus last year. Supply, in the meantime, showed increases given marked improvements on outage levels for Luzon-based power plants. AboitizPower tempered the adverse impact on its earnings, however, by lowering its exposure to the spot market with the group’s increased contracted capacity. On the other hand, the power SBU’s net generation for the first nine months of 2011 registered a 2 percent YoY decline, from 7,340 gigawatt hours (GWh) to 7,175 GWh. The drop in the level of generated power was mainly caused by reduced spot market transactions because of the prevailing low prices in the WESM. AboitizPower’s 100 percent-owned Therma Luzon Inc. (TLI), the IPP administrator of the Pagbilao coal plant, recorded a margin squeeze for the period in review. 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. For the first nine months of 2011, the ancillary services provided by AboitizPower’s merchant hydro assets grew significantly over last year. With the elevated water levels during the period vis-à-vis the same time last year, the capability of both Magat and Binga to offer ancillary services was significantly enhanced by a higher level of accepted capacities by the National Grid Corporation of the Philippines. The combined income contribution of these assets recorded a 152 percent YoY expansion for the period ending September 2011. As of end-September, AboitizPower’s attributable capacity was at 2,344 MW, posting a 15 percent YoY increase. The expansion was due to the completion of the third unit (82 MW) of the 26 percent-owned 246-MW Cebu coal-fired power plant in the fourth quarter of 2010, the assumption of full ownership of and control over the 70-MW Bakun hydro run-of-river plant last May, the acquisition of the 242-MW Navotas power barges also last May, and the full completion of the rehabilitation of the Ambuklao hydropower facility last Sept. “The completion of Ambuklao’s rehabilitation further propels AboitizPower’s renewable energy capacity and reinforces our commitment to optimize our country's limited renewable resources," said AEV president and CEO Erramon Aboitiz. “Up to 2015, we will focus on bringing in badly needed base load generation capacity in Mindanao and Luzon with our projects in Davao, Subic and Pagbilao." Improved volumes and margin expansions resulted to a 41 percent YoY increase in the power distribution group’s income contribution for the first nine months of 2011, from P948 million to P1.3 billion. AboitizPower’s attributable electricity sales for the period ending Sept. 30 grew by 3 percent YoY, from 2,677 GWh to 2,764 GWh. Growth was mainly a result of the strong showing of the industrial customer segment with a 6 percent YoY increase in attributable power consumption. The group’s gross margin for the period in review improved by 23 percent YoY to P1.41/kWh, which was partly due to the favorable effect of the implementation of the approved distribution tariffs of some of its distribution utilities. Moreover, Davao Light & Power Company reduced its operating expenses as operation of its back-up power plant was not required given the improved power supply situation in Mindanao during the period in review. Aboitiz banks’ income The banking group’s income contribution for the period ending Sept. 30 recorded a 38 percent YoY improvement, from P1.9 billion to P2.7 billion. Union Bank of the Philippines (UnionBank) ended the period with an earnings contribution of P2.3 billion, up by 26 percent YoY. UnionBank’s interest earnings on loans and due from other banks recorded YoY expansions of 7 percent and 18 percent, respectively. The expansion in the bank’s average securities portfolio was countered by lower average yields in these assets, resulting to a 12 percent YoY decline in interest earnings on trading and investment securities. Net interest income after impairment losses declined by 5 percent YoY to P4.6 billion. Non-interest income for the period improved to P7.5 billion, up by 68 percent from last year’s P4.5 billion, as UnionBank 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 37 percent YoY. UnionBank’s asset base stood at P252.1 billion as of end-Sept. 2011, with a deposit base of P187.5 billion and a loan book of P100.3 billion. The bank’s capital adequacy ratio strengthened to 17.1 percent from 16.6 percent a year ago, notwithstanding the exercise of call option on P1.3 billion of unsecured subordinated debt last September. AEV’s non-listed thrift bank, City Savings Bank (CitySavings), contributed earnings of P360 million during the period, up by 227 percent YoY. With AEV’s ownership in CitySavings increasing from 40.6 percent to 99.3 percent, the higher earnings contribution can be attributed to the 31 percent growth in its interest income on loans and service fees. CitySavings ended the period Sept. 30 with a total loan book of P8.3 billion, up by P1.9 billion, or 30 percent YoY. Total resources amounted to close to P11 billion from the 2010 year-end level of P9 billion. The bank’s NPL ratio as of end-Sept. was below 1 percent while its NPL coverage ratio was at 187 percent. Total capital funds amounted to P1.6 billion with a capital adequacy ratio of 19 percent. Pilmico income contribution down 24 percent For the first nine months of 2011, income contribution from AEV’s food SBU, Pilmico Foods Corporation (Pilmico), recorded a 24 percent YoY decline, from P1.2 billion to P937 million. Topline expansion of 16 percent was due to volume increases recorded by the feeds and swine operating divisions, coupled with higher average selling prices (ASP) booked by the flour and feeds units. However, higher input costs weighed down the profitability of the flour and swine segments, as income contribution posted YoY declines of 45 percent and 44 percent, respectively. It was only the feeds unit that recorded a positive growth rate of 9 percent YoY, as higher ASP cushioned the rise in raw material costs. The company’s consolidated assets amounted to P193.7 billion, up by 11 percent from 2010. Cash and cash equivalents was at P29.5 billion, 13 percent higher than the 2010 level of P26.1 billion. Consolidated liabilities amounted to P105.8 billion, while Equity Attributable to Equity Holders of the Parent increased by 10 percent to P71.0 billion. Current ratio as of Sept. was at 3.0x (versus 2010’s 2.4x), while net debt-to-equity ratio was at 0.7x (versus 2010’s 0.7x). — With Marlon Anthony R. Tonson/VS, GMA News