SM INVESTMENTS CORPORATION 2014 ANNUAL REPORT REPORT 2014 ANNUAL CORPORATION SM INVESTMENTS Pursuing New Opportunities 10th Floor, OneE-com Center Harbor Drive, Mall of Asia Complex for Growth Pasay City 1300 Philippines Email: [email protected] www.sminvestments.com 2014 ANNUAL REPORT Pursuing New Opportunities for Growth 2014 ANNUAL REPORT SM INVESTMENTS CORPORATION 2014 Annual Report VISION To build world-class businesses that are catalysts for development in the communities we serve. MISSION We will partner with our host communities to provide a consistently high standard of service to our customers, look after the welfare of our employees, and deliver sustainable returns to our shareholders, at all times, upholding the highest standards of corporate governance in all our businesses. 2 SM INVESTMENTS CORPORATION 2014 Annual Report CONTENTS 2 Business Units 4 At a Glance 6 Financial Highlights 8 Message to Our Shareholders 10 President’s Report 42 14 Retail Operations Banking 16 Year in Review: THE SM STORE 44 Year in Review: BDO Unibank, Inc. 22 Year in Review: SM Food Retail Group 48 Year in Review: China Banking Corporation 26 SM Retail Stores in the Philippines 28 Property Other Investments 52 30 Year in Review: SM Properties Property Map: Philippines and China 32 New Malls in 2014 33 Mall Expansions in 2014 34 Philippine Malls in 2015 35 SM City Zibo: Creates a Haven SM Foundation for the Young and Trendy Market 36 SM Residences: Three New Game-Changers in Urban Living 54 37 Creating Aspirational Lifestyles in 2015 38 Commercial Properties: Another Icon Rises 39 Future E-comCenters: Going Beyond Business 62 Board of Directors 40 SM Hotels and Conventions: 65 Executive Officers and Board Committees Manila Awaits Launch of Iconic Conrad Hotel 66 Corporate Governance A Heritage That Lasts Forever- 75 Awards and Accolades 75th Anniversary of Taal Vista Hotel 78 Corporate Information 41 Establishing a Hub for Conventions in the Visayas 79 Financial Statements 1 SM INVESTMENTS CORPORATION 2014 Annual Report BUSINESS UNITS Retail PHP197.1bn Revenues Property PHP66.2bn Revenues Banking PHP65.3bn *Banks not consolidated Total Net Interest Income Other PHP19.4bn Investments Total Revenues 2 SM INVESTMENTS CORPORATION 2014 Annual Report PHP197.1bn PHP76.5bn PHP118.4bn Revenues - THE SM STORE Revenues - SM Food Retail Group PHP41.5bn PHP24.7bn Recurring Revenues Non-Recurring Revenues PHP51.2bn PHP14.1bn Total Net Interest Income BDO Net Interest Income China Bank Net Interest Income PHP3.2bn PHP16.2bn Belle Operating Revenues Atlas Mining Revenues 3 SM INVESTMENTS CORPORATION 2014 Annual Report AT A GLANCE EFFECTIVE INTEREST OF SM INVESTMENTS CORE BUSINESSES BDO CHINA BANK 50 45 20 PROPERTY BANKING 100 RETAIL OTHER INVESTMENTS 28 29 BELLE CORP. ATLAS MINING 34 CITYMALL 4 SM INVESTMENTS CORPORATION 2014 Annual Report GROUP-WIDE EMPLOYEE PROFILE NET INCOME PROFILE 41% 38% 21% PHP28.4bn +3.5% YOY Retail Property Banking AWARDS 23 31 - SM - - SM - RECEIVED INVESTMENTS PRIME IN 2014 AWARDS AWARDS 25 11 4 - BDO - - SM - - SM - - CHINA BANK - RETAIL FOUNDATION AWARDS AWARDS AWARDS 2014 PERFORMANCE OF SM FOUNDATION 220 19 118 Graduates Farmer Trainings Medical Missions 30,547 69 Kalinga (Relief) Packs Distributed Honor Students 2,798 Training Graduates 326 105,936 Scholars Beneficiaries 56 14 Classrooms Built Modernized Health Centers 5 SM INVESTMENTS CORPORATION 2014 Annual Report FINANCIAL HIGHLIGHTS 2014 2013 2012 Balance Sheet Highlights (PHP billion) Total Assets 711.88 632.99 561.80 Current Assets 186.02 162.94 145.89 Non-current Assets 525.87 470.06 415.92 Current Liabilities 96.28 132.07 105.09 Non-current Liabilities 265.66 200.69 195.07 Total Liabilities 361.94 332.75 300.16 Stockholders’ Equity 349.95 300.24 261.64 Book Value per Share (Php) 322.73 275.58 240.93 Income Statement Highlights (PHP billion) Revenues 275.72 253.29 223.88 Gross Profit 52.19 51.29 46.88 Other Income / (Expenses) -5.73 -7.63 -5.93 Net Profit Before Tax 46.46 43.66 40.95 Net Income 28.40 27.45 24.67 Minority Interest 10.49 10.79 9.73 Basic EPS (Php) 35.66 34.85 31.76 Financial Ratios (in percent) Current Ratio (x) 1.93:1 1.23:1 1.39:1 Return on Equity (%) 12.0% 13.5% 14.3% Debt/Equity Ratio (%) 50:50 52:48 54:46 Net Debt 131.65 126.53 93.61 Net Debt/Equity Ratio (%) 34.66 37:63 33:67 Revenue Growth (%) 8.9% 13.1% 12.0% Net Income Growth (%) 3.50% 11.2% 16.3% Interest Cover Ratio 5.43 5.24 5.54 EBITDA 63.10 60.80 54.93 EBITDA Margin (%) 22.88% 24.0% 24.5% Net Margin (%) 10.30% 10.8% 11.0% Revenue Profile (in percent) Retail Merchandising 73.1% 73.3% 73.2% Property 22.5% 22.0% 23.2% Banks 4.4% 4.7% 3.6% Income Profile (in percent) Retail Merchandising 20.90% 21.4% 28.1% Property 37.8% 35.5% 37.5% Banks 41.4% 43.1% 34.4% 6 SM INVESTMENTS CORPORATION 2014 Annual Report * Excluding: • 25% stock dividend in 2013 • 4.27% stock dividend in 2007 7 SM INVESTMENTS CORPORATION 2014 Annual Report MESSAGE TO OUR SHAREHOLDERS We are also proud of the catalyst role that SM Investments provides in developing the communities that we serve and this remains an important part of all our future plans. Henry Sy, Sr., Chairman 8 SM INVESTMENTS CORPORATION 2014 Annual Report 2014 was another strong year high recurring income and a unique In line with our environmental advocacy, for SM Investments Corporation portfolio of integrated assets that enable SM Prime also launched the largest and we are pleased to report that our core it to be a leader in developing large-scale, mall-based solar farm in the world businesses all delivered good financial mixed-use, master-planned lifestyle at our SM North EDSA mall. results with strong underlying growth. cities across the country. The economic environment in the Looking to 2015, the Philippines Philippines was strong with positive In 2014, SM Prime registered a net income continues to provide a strong economy corporate and consumer sentiment helping growth of 13.0% to PHP18.4 billion on and an optimistic business outlook. drive performance in all our business revenue growth of 10.8% to PHP66.2 It is our view that the country is still areas. With growing market opportunities, billion. In the course of the year we opened in the early stages of sustained we also experienced a robust competitive our milestone 50th mall in the Philippines economic growth and this will provide environment and in the course of the in addition to our five successful malls us with great long-term opportunities. year, each of our businesses took steps in China. We also expanded SM Megamall We will continue to expand our to expand and ensure they continue in Metro Manila to become the largest businesses to deliver financial growth to build their leading positions. mall in the country. and shareholder returns in line with our strong business franchises SM Investments delivered a record net Our retail businesses delivered revenue and long-term ambitions. We are income of PHP28.4 billion for the year growth of 9.0% to PHP197.1 billion with also proud of the catalyst role that on revenues of PHP275.7 billion. This earnings growth of 3.3% to PHP5.9 billion. SM Investments provides in developing represented strong recurring earnings SM Retail continued to expand its footprint the communities that we serve growth of 14.4% excluding extraordinary across the country by adding 26 stores and this remains an important items and was driven by healthy in 2014, in line with its strategy of helping part of all our future plans. performance across the group. Our two to develop the Philippines’ organized banks, BDO Unibank, Inc. (BDO) and retail sector. We ended the year having We would like to thank our board China Banking Corporation (China Bank), achieved over one million square meters members for their generous support accounted for 41% of consolidated net of net selling area. SM Retail also formed during the year and to recognize the earnings, with SM Prime Holdings, Inc. two strong new partnerships with CityMall considerable efforts of our management, (SM Prime), our property arm, delivering Commercial Centers, Inc. and Alfamart of employees and business partners. 38% and our retail business, SM Retail, Inc., Indonesia to increase the pace of our retail The millions of Filipinos who are our contributing the remaining 21%. expansion in the mid-sized supermarket customers continue to inspire us and mini-mart formats respectively. to be innovative in order to meet Our banks delivered strong underlying their changing needs and aspirations. earnings growth in 2014, reflecting the SM Investments received a number It remains our privilege to serve them. positive domestic economic environment. of governance awards last year from Finally, we would like to express BDO grew gross operating income by leading financial institutions and our sincere appreciation to you, 7.6% to PHP80.7 billion and reported publications. We are pleased to be our shareholders, for the trust net income of PHP22.8 billion. BDO’s recognized in this manner, reflecting and confidence that you continue recurring net income grew 18.0% excluding the primary importance we place on to place in our company. exceptional items such as one-off trading ensuring the highest standards of corporate gains experienced in 2013. China Bank’s practice across the group. Mr. Henry Sy, Sr. acquisition of Planters Development Bank was also the recipient of the Asia during the year helped deliver recurring CEO Awards’ Lifetime Contributors Award Henry Sy, Sr.