THE amount of retained earnings a company keeps in its audited financial statement is either consolidated or non-consolidated. It determines the ability of a listed company to declare dividend, either in cash or in stock. When public investors put money in listed companies by buying shares on the stock market, they enable the already rich owners of those companies even richer. We may say public investors are mainly responsible for making those businesses owned and controlled by the very rich in the Philippines. Yet, these public investors are not represented on the board of any of the listed companies and, instead, find themselves treated as anonymous investors even when they get a share of the profits via their individual investment.
Will the Securities and Exchange Commission (SEC) be able to do something about this?
The answer or answers should come only from SEC officials and their monitoring teams, along with the managers of the Philippine Stock Exchange (PSE). This is not to pressure either the SEC or the PSE, or even both, to allow the public to take a peek into the boardroom of listed companies. The decision depends on the SEC’s five-person commission.
Due Diligencer can only rely on postings on the PSE website for sources of information. The disclosures as posted should be read by public investors for their own consumption. They should check if these disclosures meet their expectations for the information they need as individual investors who have no other link with the listed companies where they have invested their money.
To illustrate, it is better to cite some examples of listed companies that religiously comply with the market’s disclosure policy.
US$ as functional currency
Like other listed companies, International Container Terminal Services Inc. (market symbol: ICT) includes in its financial filing the performance of its subsidiaries. It also posts its quarterly financials regularly for perusal by the public.
Unlike other listed companies, ICT uses the US dollar as a functional currency. At the same time, its board expresses the dividend it pays stockholders in US$.
By the way, ICT last paid a dividend of US$0.020 on May 17, 2017, which the company’s seven-person board approved on April 20, 2017. It reported in its annual financial filing audited by SGC and Co. consolidated retained earnings of $819.668 million as of Dec. 31, 2017. At P52 per US$, this is equivalent to P42.633 billion.
In its annual financial statement as of Dec. 31, 2017, ICT listed 2.034 billion as outstanding common shares. It also showed in the same PSE posting US$1,496.6 million as “the amount of debt outstanding as of Dec. 31, 2017.”
The same annual financial filing listed PCD Nominee as the majority stockholder holding 860.844 million ICT common shares, or 31.44 percent, and 723.865 million ICT common shares, or 26.44 percent, for non-Filipino and Filipino stockholders.
PCD Nominee acts only as record stockholder for the beneficial owners of the shares it holds.
Of course, public investors know that businessman Enrique K. Razon Jr. is ICT’s owner and controlling stockholder.
Due Diligencer’s take
As the common shares of listed companies are traded by public investors, their issuers should post on the PSE website their financial filings, whether quarterly or annual. This suggestion would mean separating the financial disclosures of a listed company from its consolidated group filing.
This is one way, if not the only way, for public investors to appreciate disclosures, particularly those that have something to do with financials. Why confuse the public with so many numbers shown in the consolidated annual or quarterly filings?
The public would probably not mind at all if listed companies were to use other foreign currencies in their financial postings. But they would appreciate more the amount of retained earnings as reported in the non-consolidated but audited yearly financial statements.
Of course, the public would also care about consistent profitability that enables a listed company to pile up retained earnings. What are financial statements for if they don’t report revenues, minus expenses, equals gross profit?
Another thing that the public would, perhaps, care to know is an entry in a financial filing about “others.” Would it be imposing too much on listed companies if they were asked to elaborate more, or specify those items under “others”? Just asking.