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DMCI Annual Report 2019

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DMCI Annual Report 2019 ANNUAL REPORT 2019 TABLE OF CONTENTS Company Profile 2 Letter To Shareholders 8 Business Review 23 Financial Statements 61 Annex 263 FACe THE FUTURE Like many of our industry peers, we are confronted by extraordinary new challenges. Our businesses are disrupted by the evolving regulatory environment, climate conditions and market expectations. We acknowledge the difficulty of our reality and commit to facing the future with resilience and a renewed sense of purpose. about this annual report The 2019 Annual Report of DMCI Holdings, Inc. focuses on the financial performance of the Company for the reporting period. We encourage our stakeholders to read this publication together with our 2019 Sustainability Report, which provides information on the economic, environmental, social and governance issues that are most material to our stakeholders and the Company. Both reports are available on our website at www.dmciholdings.com. ANNUAL REPORT 2019 | 1 WHO WE ARE mission DMCI Holdings, Inc. was listed on the Philippine Stock To invest in engineering and construction-related businesses that bring real benefits to Exchange on 18 December 1995 to extract greater the people and to the country. value from the engineering expertise and construction resources of D.M. Consunji, Inc. (DMCI), the pioneering contractor behind some of the biggest and most complex infrastructures in the Philippines. VISION Since then, DMCI Holdings has grown into a diversified engineering conglomerate, primarily engaged in general We are the leading integrated engineering and management conglomerate in the Philippines. construction, real estate development, power generation, Through our investments, we are able to do the following: mining and water distribution. Deliver exceptional shareholder value Among the publicly listed holding companies in the Philippines, it is the only one that has construction as its Motivate and provide employees with opportunities and just rewards core investment. Cultivate growth in remote areas and key sectors Integrate sustainable development with superior business results VALUES We are guided by the following values: • Integrity • Fairness • Customer focus • Teamwork • Accountability • Innovation • Sustainability 2 | DMCI HOLDINGS, INC. ANNUAL REPORT 2019 | 3 THE DMCI CREED WE BELIEVE: That construction is a noble profession whose activities are vital to economic development and national progress; That fair competition is essential to the growth and stability of the construction industry; That a contractor’s primary responsibility to his client is to give his best in faithful compliance with their agreement; That labor and capital should cooperate with one another so that labor may live with dignity and capital may find its just rewards; That the ill-gotten violates business ethics and the ill-conceived wreaks havoc on the public good; That the ultimate objectives are to serve not only man but humankind, and to build not only an enterprise but an institution that will serve society. 4 | DMCI HOLDINGS, INC. ANNUAL REPORT 2019 | 5 KEY FIGURES CONSOLIDATED as of and for the period ending 31 December 2019 FINANCIAL HIGHLIGHTS BILLION in millions of Philippine pesos P10.5 NET INCOME As of and for the period ending 31 December 2019 2018 % CHANGE BILLION Total assets 200,787 182,405 10% P28.0 EBITDA Total liabilities 97,949 85,325 15% Total equity 102,838 97,080 6% % Revenue 87,761 82,843 6% Cost of sales and services 60,055 51,888 16% 32 EBITDA MARGIN Gross profit 27,706 30,955 -10% Operating expenses 8,231 8,072 2% % Government share 3,927 3,569 10% 13 ROE - PARENT Income before income tax 16,604 23,054 -28% Provision for income tax 1,759 3,205 -45% % Net income before noncontrolling interest 14,845 19,849 -25% 25 NET DEBT TO EQUITY Net income after noncontrolling interest 10,533 14,513 -27% Nonrecurring items (1,897) 38 -5092% BILLION Core net income 12,430 14,475 -14% P82.4 EQUITY ATTRIBUTABLE TO PARENT PER SHARE P0.79 EPS % 44 TOTAL DIVIDEND PAYOUT BILLION P87.8 MARKET CAPITALIZATION 6 | DMCI HOLDINGS, INC. ANNUAL REPORT 2019 | 7 The steep reductions were attributable to a confluence The price decline effectively reduced the economically of factors but three things had the most impact on our mineable and estimated saleable resource in ZDMC and bottom line and, to a large extent, stock performance. ZCMC to 29 million tons, which is 30 percent lower than our 2014 resource estimate of 42 million tons. First is the life extension program (LEP) of Semirara Mining and Power Corporation (SMPC) for Calaca Aside from sluggish market conditions, both mining Units 1 and 2. Unit 1 was offline for 9 months beginning assets are saddled with regulatory issues. ZCMC is still in December 30, 2018 while Unit 2 ran on a derated capacity the process of renewing its Mineral Production Sharing LETTER TO (200MW) for the most part of the year until its shutdown Agreement, the original term of which ended in 2016. in October 2019. Meanwhile, ZDMC was non-operational for the first 9 As a result, annual gross generation and sales volume of months of the year because of the suspension order from Units 1 and 2 fell 54 percent and 45 percent, respectively. the Department of Environment and Natural Resources. However, once the LEP is completed, the economic life of both plants will be extended by another 20 years or more. Even after the lifting of its suspension in September, ZDMC was unable to commence full commercial Excluding nonrecurring items, SMPC’s core income production as it needed to secure ancillary permits in Fellow shareholders, attributable to DMCI Holdings declined by 23 percent other areas. from ₱7.4 billion to ₱5.7 billion. In many ways, 2019 was a disappointing year. As the DMCI Homes which represents more than a fifth Philippine gross domestic product (GDP) rate fell to Secondly, we expected the coal segment to soften of our earnings struggled with lower construction its lowest level in eight years, so did our consolidated the blow of the plant shutdowns but the record high accomplishments and the industry-wide issue of labor earnings and share price. production and sales of SMPC was moderated by the shortage. This led to a 4-percent decline in core earnings 22-percent cut in global coal prices. Consequently, from ₱3.2 billion to ₱3 billion. The Philippine economy slowed down to 5.9 percent due SMPC’s consolidated net income after tax declined by 20 mainly to the delayed approval of the national budget. percent to ₱9.6 billion, reducing our earnings share at the To lift earnings next year, the company is banking on Public spending only picked up in May, when the election same rate to ₱5.5 billion. more product launches and aggressive manpower ban on public works was lifted. recruitment. It also reorganized its in-house construction For 2020, falling commodity prices may significantly group to boost labor productivity and construction As for the DMCI group, we were negatively impacted by deflate coal revenues but the improved output and accomplishments. weak commodity prices, slower construction activities availability of Units 1 and 2 could provide some upside. and an impairment loss for certain mining assets. Maynilad, another key contributor to our bottom line, Thirdly, we recognized a one-time noncash goodwill registered a 4-percent drop in net income contributions Consequently, our Company ended the year with a impairment charge of ₱1.6 billion in relation to our to over ₱1.7 billion. This was due to higher amortization consolidated net income of P10.5 billion, a 27-percent acquisition of Zambales Diversified Metals Corporation and depreciation expenses for its capital expenditure drop from ₱14.5 billion the previous year. Our core net (ZDMC) and Zambales Chromite Mining Company (ZCMC). program and limited raw water supply from Angat Dam in income declined at a much slower pace (14%) from ₱14.5 the middle of the year. billion to ₱12.4 billion while our share price plunged 48 We purchased these mining assets in 2014, when percent to ₱6.61. mid-grade nickel prices averaged US$49. In 2019, the The company continues to face uncertainty over the average selling price of mid-grade nickel plummeted to terms and validity of its water contract with the Philippine US$27. government. This puts a tremendous amount of pressure 8 | DMCI HOLDINGS, INC. ANNUAL REPORT 2019 | 9 on the company’s cash flow and future investments. Until However, including the noncash goodwill impairment this matter is resolved, we do not expect any dividend charge of ₱1.6 billion for ZDMC and ZCMC, DMCI payout from Maynilad. Mining sustained a net loss of ₱1.5 billion. To improve profitability next year, the company plans to increase its The absence of significant realized claims and savings production and shipments while keeping a tight rein on from projects nearing completion led to a 25-percent costs. decrease in profitability for D.M. Consunji, Inc. (DMCI). Its net income fell to P906 million compared to P1.2 billion in Income generated at the parent company level and other 2018. investments slipped 6 percent from ₱237 million to ₱223 million owing to lower interest income. Construction could be a key revenue driver for us next year because of DMCI’s involvement in big-ticket Looking back at the events of 2019, I am reminded of how infrastructure projects such as the North South quickly and dramatically business conditions can change. Commuter Railway (Phase 1), NLEX-SLEX Connector All the more reason for me to be grateful to those who Road, and several joint venture and building projects. The helped our Company during this challenging time. company also hopes to secure a significant share in the Build, Build, Build program of the government.
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