• Understanding the numbers in financial filings


    CERTAIN details in the financial filings of listed companies will, more likely than not, remain hidden. The reason for this is not surprising: because the few public investors are passive, they don’t challenge any imposition on them by the majority stockholders who control the board.

    It is up to individual investors to guess what is hidden behind the numbers disclosed in quarterly and annual financial reports. As long as they receive dividends either in cash or in stock, they would be satisfied with the results of the operations of companies in which they own a few shares.

    Neither is it the responsibility of the Securities and Exchange Commission to force listed companies to make their disclosures on the website of the Philippine Stock Exchange more transparent. As the securities industry regulator, the SEC allows the PSE, a self-regulatory organization, to regulate itself and more than 250 public companies listed on its board.

    Yet, listed companies make public the results of their financial operations with their quarterly filings, which are not audited, and with audited annual financial reports. The financial performance of the last quarter is reported in the final audited annual financial posting.

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    If public investors would only try to decipher the quarterly filings of listed companies, then they would learn more about the numbers behind the disclosed financials. Their diligence would make them the active investors that they should be, making them realize that without public investors like them, there would be no stock market.

    Due Diligencer is presenting here two examples that are well known to public investors who are not only small stockholders but also consumers of the products sold by a unit of SM Investments Corp. (SMIC) and by Robinsons Retail Holdings Inc.

    SMIC is the listed flagship holding company of the SM group, which is owned or controlled by businessman Henry Sy Sr. and his family. Robinsons Retail, on the other hand, belongs to the JGS group of businessman John Gokongwei Jr.

    Here are the numbers that make SMIC and Robinsons transparent in providing the public how much they made in the second quarter and first six months of 2014, compared with their posted financial results in 2013.

    In its second-quarter consolidated financial filing, SM Retail, the unlisted retail arm of SMIC, reported P49 billion as merchandise revenue and P37.4 billion as cost of sales for a gross profit of P11.6 billion, which is equivalent to 23.7 percent of merchandise revenue, representing its gross return from its sales of merchandise or consumer products sold by SM’s various outlets nationwide.

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    For the six months to June this year, SM Retail grossed P91.2 billion from merchandise sales and reported cost of sales and expenses of P69.3 billion. This means its gross profit in the six months totaled P21.8 billion, or 24 percent of sales.

    In the second quarter of 2013, it reported merchandise revenue of P47.4 billion and cost of sales of P36.6 billion for a gross profit of P10.7 billion, equivalent to 22.7 percent of merchandise revenue. From January to June this year, SM Retail said it grossed P83.6 billion from sales of merchandise that cost it P63.3 billion, for a difference of P20.3 billion. Computed, P20.3 billion is 24.3 percent of P83.6 billion.

    Based on these numbers and as computed, SM Retail did better in the second quarter of 2014 but in comparing its six-month financial performance, the company fell behind this year.

    Unlike SMIC, Robinsons group had its unit Robinsons Retail Holdings Inc. (RRHI) listed on the exchange. In the second quarter of 2014, RRHI said its gross profit amounted to P4.2 billion on revenue of P19.5 billion, or 21.6 percent of sales. In two quarters, it reported revenue of P37 billion and gross profit of P7.9 billion, or 21.3 percent of sales.

    In the second quarter of 2013, it made a gross profit of P3.5 billion on revenue of P16.3 billion, or 21.3 percent of sales. In the first six months last year, its gross revenue of P31.3 billion resulted in gross profit of P6.5 billion or 20.9 percent of sales.

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    I presented here the financial performances of SM Retail and Robinsons Retail in anticipation of their annual financial reports, particularly their net profits for 2014, with their revenues set to get a big boost from consumers who would be spending much for the holidays.

    Unfortunately not all Filipinos, as consumers, could well afford to spend more for Christmas. Yet most of them would be forced by necessity to buy the best that they can afford for their families, particularly their children who look forward to enjoying the season.

    I used the word “forced” because personally, I believe that many, if not most, of those who cannot afford the luxury of holiday shopping would most likely be using their credit cards not for convenience, but to absorb as much of the Christmas expenses as possible, then pay their card dues on installment.

    Meanwhile, the very poor Filipinos who do not qualify to own credit cards have only the loan sharks to turn to for their holiday spending.


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