Ayala’s P112B retained earnings

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Emeterio Sd. Perez

Emeterio Sd. Perez

Ayala Corp. (AC), the listed holding company of the Zobel family, raised the regular cash dividend for holders of common shares by 20 percent to P2.88 per share from P2.40 previously. The total dividend payment would amount to P1.8 billion and will be taken from AC’s retained

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Here is a precautionary warning: Don’t be misled by the numbers as they appear in financial filings, not only by AC but also by other listed companies. It pays to read the footnotes to financial statements explaining the surplus and the deductions from it.

Back to Ayala Corp.: As of March 31, 2015, AC reported retained earnings of P112.08 billion in a consolidated financial filing. But the public should consider the deductions and not immediately jump to the conclusion that more than P100 billion in retained earnings should make AC an attractive “buy”.

Investors should not be misled by the size of the amount because P112.08 billion is retained earnings based on a consolidated report. Being consolidated, there are deductions that should leave AC only the amount that it really owns.

As reported by the company, here are the deductions: P80 billion in accumulated equity in net earnings of subsidiaries, associates and joint ventures and P2.3 billion to cover treasury shares.

At the end of the computations, AC had only P29.7 billion “available for declaration as dividend” either in cash or in stock.

Remember SEC rule
As explained in the footnotes, “subsidiaries, associates and joint ventures” had yet to remit AC’s “accumulated equity” in their net earnings because they had yet to declare dividends to be taken from their respective retained earnings.

Years ago, before the Securities and Exchange Commission (SEC) granted the Philippine Stock Exchange self-regulatory status, SEC analysts used to review the financial statements of listed companies. The SEC at the time would not allow companies to keep in their books retained earnings in excess of 100 percent of their paid-up capital.

Said SEC rule has been strictly implemented and compliance with it closely monitored. Violators were required to explain why they maintained so much of their retained earnings. The only problem then was that the SEC did not follow up its “why” inquiries. Had it done so, they would have raised two questions: (1) If subsidiaries have not declared dividends yet, why don’t you order them to do so? (2) Who, anyway, are running these units?

Of course, as the top managers of holding companies, the same people usually are also running the units. The SEC then missed the chance to penalize listed companies for failing to reduce their retained earnings by declaring dividend.

Capital profile
Sta. Lucia Land Inc. (SLI) has authorized capital stock of 16 billion common shares, of which 10.8 billion are issued and 8.5 billion are outstanding, net of 2.25 billion treasury shares. In a financial filing, the company valued its treasury shares at P900 million or P0.40 each.

As of March 31, 2015, SLI reported total equity of P11.93 billion, up 1.67 percent from P11.73 billion as of Dec. 31, 2014. This year’s total included capital stock of 10.8 billion; additional paid-in capital of P192 million; and retained earnings of P1.24 billion.

In the first three months of 2015, SLI reported net profit of P228.1 million, up 23 percent from P185.17 million in the same period last year. Gross revenues surged 60.6 percent to P893.9 million in the first quarter from P556.4 million in the same quarter last year.

Missing numbers
The public may have already known SLI’s first-quarter financial performance thru published reports and postings on the website of the PSE. But they need more than the numbers that have been disclosed, such as how revenues had shot up by 60.6 percent while net income went up by only 23 percent.

For instance, SLI’s real estate sales soared 44.5 percent to P614.37 million in the first quarter of 2015 from P425.13 million in the comparable period in 2014. Was the additional huge revenue of P189.2 million a result of more lots sold or because of an increase in prices?

As in other listed property companies, the numbers that the public missed from SLI’s financials are the number of lots sold and the adjustment in price per square meter, if there was any.

esdperez@gmail.com.

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