PHINMA Corporation 2017 Annual Report PHINMA GROUP's MISSION STATEMENT
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MOVING FORWARDPHINMA Corporation 2017 Annual Report PHINMA GROUP'S MISSION STATEMENT The PHINMA Group’s Mission is to help build our Nation through competitive and well- managed business enterprises that enable FIlipinos to attain a better quality of life. With WHO WE ARE professional and effective management as our distinctive edge, we aim to give communities, PHINMA is a proudly Filipino conglomerate not only in the Philippines but wherever else that seeks to make lives better and build the we might find the need, improved access to the nation through successfully run and profitable essentials of a dignified life. businesses while remaining consistent with our core values of Integrity, Patriotism, Competence In the pursuit of our Mission, we look to our and Professionalism. tradition, our experience, our reputation, and above all, our people, as the principal factors that will enable us to achieve our lofty goals. The PHINMA Group will demonstrate that private business can mutually serve the needs of society and the aspirations of shareholders. TABLE OF CONTENTS Financial Highlights 1 Message to Shareholders 2 Business Review Education 6 Construction Materials 12 Energy 16 Housing 20 Hotels 24 Strategic Consulting 26 Corporate Social Responsibility 28 Board of Directors 32 Executive Committee 38 Corporate Governance Report 40 Financial Statements 45 Corporate Directory 128 Corporate Information IBC FINANCIAL HIGHLIGHTS 2017 2016 2015 (as restated) INCOME AND DIVIDENDS (In Thousand Pesos) Revenues 6,419,212 6,302,141 5,710,308 Net Income Attributable to PHN Equity Holders (29,233) 277,178 390,394 Consolidated Net Income 46,053 367,206 492,554 Cash Dividend 103,611 103,666 104,176 FINANCIAL POSITION (In Thousand Pesos) Current Assets 5,558,529 3,684,736 3,322,283 Total Assets 16,741,507 14,572,966 14,223,264 Current Liabilities 2,661,219 2,132,575 2,108,073 Non-current Liabilities 6,154,589 4,017,345 4,045,691 Equity Attributable to PHN Equity Holders 6,962,396 7,437,212 6,862,967 Total Equity 7,925,699 8,423,046 8,069,500 PER SHARE (In Pesos) Earnings (0.10) 0.97 1.37 Cash Dividend Per Share 0.40 0.40 0.40 Book Value of Common Shares 24.44 26.11 24.09 FINANCIAL RATIOS Current Ratio 2.09 1.73 1.58 Debt to Equity Ratio 1.11 0.73 0.76 1 2017 Annual Report Dear Shareholders, Consolidated revenue of your Company amounted enrolment for the second straight year. Despite to P6.4 billion in 2017, an increase of 2% over this, the Phinma Education schools again posted the previous year due to increased revenue from the largest senior high school enrollment for our construction materials group as well as from private schools in the areas where they operate. our education group. Consolidated net income Despite the effects of K12, total enrollment for of your Company, however, decreased to P46 the first five schools increased 8% to 58,837 in million in 2017 from P367 million in the previous school year 2017/2018. Consolidated net income year. The decrease in net income is primarily due of Phinma Education however decreased to P150 to a decrease in income from affiliates. Phinma million in 2017 from P219 million in the previous Energy Corporation was challenged in 2017 by year due to expenses from newly established continued low market prices for electricity due international operations. Net income was also to the competitive supply environment. Phinma adversely affected by the K12 implementation as a Properties posted a net loss in 2017 due to a second batch of college freshman was replaced by delay in sales recognition as well as increased relatively lower-yield senior high school students. construction costs. In addition, in 2017 your company reported higher interest and financing In 2017, Phinma Education implemented initiatives charges due to additional debt in connection with to improve and integrate Southwestern University increased investment in new subsidiary Philcement into the network by renovating facilities and Corporation and in subsidiary Phinma Education developing Active Learning curriculum specifically Holdings, Inc. in relation to the acquisition of for SouthWestern programs. The Phinma Training Saint Jude College, Inc. Net income attributable to Center in Yangon, Myanmar also started offering shareholders of the parent amounted to a net loss training programs in 2017 for nursing assistants, of P29 million for the year. bringing the network closer to its goal of offering full degree programs. Phinma Education continued 2017 Highlights efforts at improving retention and quality at its Phinma Education Holdings, Inc. (Phinma schools. Education) holds your Company’s investment in 6 tertiary education schools. In 2017, the tertiary Phinma Education ended the year with the education industry continued to be affected by the acquisition of St. Jude College, a school known for implementation of the Department of Education’s its strong tertiary allied health sciences courses, new K12 curriculum which added two senior high also offering programs in business, education, school years and decreased college freshman information technology, and hospitality. 2 PHINMA Corporation MESSAGE TO SHAREHOLDERS OSCAR J. HILADO RAMON R. DEL ROSARIO, JR. Chairman President 3 2017 Annual Report In 2017, the electricity supply industry continued to be challenged by excess capacity and low market prices. Revenue of Phinma Energy Corporation (Phinma Energy) increased 10% to P17 billion as the company increased its retail electricity supply In 2017, Trans Asia Renewable client base. Margins however were challenged by Energy Corporation, a the competitive supply environment and low energy prices. Consolidated net income of Phinma Energy subsidiary of Phinma Energy, decreased to P347 million in 2017 from P1.383 billion in the previous year. Of the P347 million net income, amended its corporate P92.1 million was equitized by the Company in 2017. name to Phinma Renewable In 2017, Trans Asia Renewable Energy Corporation, a Energy Corporation (Phinma subsidiary of Phinma Energy, amended its corporate Renewable) to highlight name to Phinma Renewable Energy Corporation (Phinma Renewable) to highlight Phinma’s continuing Phinma’s continuing commitment to renewable energy. In 2017 our 54- commitment to renewable MW wind farm in San Lorenzo Guimaras generated 89.6 GWH of clean and renewable energy. During the energy. year, Phinma Energy subscribed to an increase in capital and preferred shares in Phinma Renewable worth P2.35 billion, to set the stage for possible wind generation capacity expansion in light of the Department of Energy’s (DOE) Renewable Portfolio Standards implementation in 2020. Phinma Energy also sees a bright future in solar renewable energy. 4 PHINMA Corporation In 2017, the DOE awarded solar energy service Mall of Asia hotel by offering more premium contracts to Phinma Energy for 40 MW and 45 accommodations catering to a younger, more hip, MW solar farms in Pangasinan and Batangas, and energetic clientele. respectively. In partnership with Union Galvasteel, Phinma Energy through Phinma Solar Energy In 2017, Phinma sold its majority stake in Fuld & Corporation will also explore the market for smaller Co. Inc., its US-based strategic consulting firm,to solar generation facilities and retail solar products. allow the Company to focus its efforts on its local consulting practice as it develops new markets and Despite strong growth in the construction sector, opportunities in the Philippines and Southeast Asia. Union Galvasteel Corporation (UGC) faced higher In 2017, our local company changed its name to global steel prices in 2017 due to capacity cutbacks Integrative Competitive Intelligence Asia, Inc. (ICI- in China. Despite an increase in revenue, UGC Asia). ICI-Asia showed marked improvement in 2017, posted net income of P182 million in 2017, less with revenue doubling over the previous year to P52 than the P221 million net income of the previous million and the company posting net income of P6.3 year which included an extraordinary gain on sale of million from a net loss of P16.7 million in the previous land. During the year, UGC expanded its product line year. In 2017, ICI-Asia won projects from several and geographical coverage, sourced new supplier clients as the company continued its campaign to partners abroad, and brought in new leadership, all increase its presence in the consulting market for part of key strategic initiatives of the company for government, multilateral, and aid agencies. long term growth and better shareholder value. In September 2017, your Company initiated its Despite brisk sales take up of projects in the re-entry into the cement business through its latter part of the year, Phinma Property Holdings investment in Philcement Corporation, the vehicle Corporation (Phinma Properties) posted a that will re-introduce into the market this year consolidated net loss of P400 million in the year Phinma’s Union Cement brand, once very well known due to delayed sales recognition and an increase in the local industry. The brand will combine world in construction costs. During the year, Phinma class standards with Filipino expertise to once again Properties initiated measures to improve profitability make Filipino lives better through quality affordable and customer focus through better product margins cement products. Together, Union Galvasteel and and operational reorganization. The operations Union Cement form what we now call Phinma’s teams of the Urban Housing and Socialized Housing Construction Materials Group through which Phinma Divisions will be combined into a single Operations sees greater and more meaningful participation in the Team, divided into brands, which will provide high-growth construction sector in the coming years. increased focus on specific target market and customer needs. Phinma Corporation ended 2017 with a strong balance sheet, with total assets of P16.7 billion In 2017, Microtel Development Corporation changed and a current ratio and debt-to-equity ratio of its corporate name to Phinma Hospitality to more 2.09:1 and 1.11:1, respectively.