SM Investments 9-Month Net Income Rises 14% to PHP16.1 billion

(8 November 2012. Pasay City, Philippines) SM Investments Corporation (SM) reported that net income for the first nine months of 2012 amounted to Php16.1 billion, up 14% from the Php14.2 billion earned during the same period last year. The growth in earnings was attributable largely to the strong performance of the banks, malls, and retail operations. Revenues rose 13% to Php157.9 billion compared to Php139.2 billion last year. EBITDA grew 15% year on year to Php36.7 billion, for an EBITDA margin of 23.2%, while return on equity held steady at 14.2%.
SM President Harley T. Sy said, “While SM’s strong financial performance is in part a reflection of a robust Philippine economy, it is equally a reflection of our continuing efforts to deliver value across our core businesses. As we approach the last quarter of the year, which has traditionally been our strongest period, we are confident of achieving our full-year target.”

Net Income Profile

Banks accounted for 36.1% of SM’s consolidated net income, followed by retail operations, which accounted for 25.8%. Malls and property development accounted for 23.3% and 14.8% of consolidated net income, respectively.

Retail Operations
SM Retail reported a net income for the first nine months of the year of Php4.1 billion, up 6.7% year on year, while sales increased 8.7% to Php110.8 billion. EBITDA amounted to Php7.6 billion, up 13.5% year on year, for an EBITDA margin of 6.9%. Net margin for the period stood at 3.7%

From January to September 2012, SM Retail grew its number of stores by a total of 25 stores, consisting of 5 department stores, 4 SM Supermarkets, 4 SM Hypermarkets, and 12 SaveMore stores. As a result, the group now has a total of 193 stores,
consisting of 46 department stores, 37 SM Supermarkets, 34 SM Hypermarkets, and 76 SaveMore stores.

In line with improving consumer sentiment and economic growth, the group will be continually expanding its various store formats, with particular emphasis on SaveMore stores. This stand-alone store format, which is similar to a typical neighborhood grocery store, has gained wide market acceptance and serves communities marked by the absence of organized retail.

On the department store business, initiatives are being undertaken not only to improve the stores’ look and feel but also to promote and enhance shoppers’ convenience. New store designs and layouts, as well as innovative display fixtures aimed at enhancing the presentation of merchandise collections, are being introduced. 

Also, in line with the department store business’s consumer focus, it has completed the roll-out of point-of-sale technology that would enable it to more efficiently manage high-volume, high value transactions involving complex promotional and pricing structures.

Mall Operations
SM Prime Holdings, Inc., (SM Prime) reported a 15% rise in consolidated net income of Php7.4 billion from P6.4 billion during the same period last year. Revenues likewise rose 15% year on year to Php22.1 billion. EBITDA for the nine-month period increased 12% year on year to Php14.6 billion, for an EBITDA margin of 66%. SM Prime’s strong results over the period were due largely to rentals from Philippine malls opened in 2010 and 2011, same store sales growth of 8%, and the improved performance of SM’s China malls.

Revenues from the four malls in China amounted to Php1.9 billion, contributing 9% of consolidated revenues. As of end-September 2012, gross revenues from the four malls in China increased 27% year on year on account of improved average occupancy levels, lease renewals, and an increase in gross floor area. The average occupancy rate of the four China malls now stands at 96%. The malls in China are located in the cities of Xiamen, Jinjiang, Chengdu, and Suzhou and have a total gross floor area of 0.6 million square meters. 

During the first nine months of the year, SM Prime opened SM City Olongapo in Zambales, SM City Consolacion in Cebu, SM City San Fernando in Pampanga, SM City General Santos in South Cotabato, and SM Lanang Premier in Davao. As of end-September 2012, SM Prime had 46 malls across the Philippines with a gross floor area of 5.5 million square meters. 
In December, SM Chongqing is scheduled to open, which will bring the combined gross floor area of SM Prime’s Philippine and China malls to about 6.3 million square meters.

For the first nine months of 2012, BDO Unibank, Inc. (BDO) posted a 38% rise in unaudited net income amounting to Php10.5 billion from Php7.6 billion during the same period last year. 

Fee-based income increased to Php10.0 billion, driven by growth from the service businesses. Trading and foreign exchange gains jumped 50% to Php7.0 billion. Overall, total non-interest income increased 23% to Php18.9 billion. Gross customer loans increased 17% to Php724.0 billion, while total deposits rose to Php860.0 billion. This led to an improvement in net interest income to Php26.8 billion. 

BDO’s gross non-performing loan (NPL) ratio as of end-September 2012 was at 3.1%. The bank’s gross NPL coverage was at 124%. Provisions set aside during the period amounted to Php4.2 billion. 

With the conclusion of a US$1.0 billion stock rights offer in July 2012, BDO’s capital base expanded to Php152.0 billion, making BDO the country’s largest-capitalized bank. As of end-September 2012, BDO’s Capital Adequacy Ratio (CAR) and Tier 1 Capital ratios remain comfortably above the regulatory minimums, at 20.3% and 15.2% respectively.

Property Development
For the first nine months of the year, SM Land reported revenues of Php19.3 billion, up 36% year on year. Consolidated net income for the period grew 11% to Php4.2 billion from Php3.8 billion during the same period last year, for a net margin of 22%. The bulk of SM Land’s revenues and net income were attributable to its residential unit, SM Development Corporation (SMDC).
SMDC reported that for the period January to September 2012, revenues from real estate sales rose 42.7% to Php16.1 billion from Php11.3 billion during the same period last year. 

Consolidated net income for the period increased 5.7% year on year to Php3.3 billion. EBITDA for the period amounted to Php3.7 billion, for an EBITDA margin of 23%, while net margin stood at 20%. Return on equity was maintained at 12%. 
SMDC’s asset base expanded 33.6% year on year to Php70.6 billion. As of end-September 2012 SMDC’s net debt to equity ratio remained conservative at a ratio of 23% net debt to 77% equity.

As in the first half of the year, the majority of the units sold in the first nine months of the year were from Shell Residences in the Mall of Asia Complex, Green Residences along Taft Avenue, Jazz Residences in Makati, Light Residences along EDSA, Sun Residences near the Welcome Rotunda in Quezon City, and Wind Residences in Tagaytay. 

SMDC’s projects have been very well received by the market because of their quality, affordability, location, and also because they offer amenities that had until recently been unavailable to mid-range buyers, including swimming pools, function rooms, and well-appointed, hotel-like lobbies. 

SM Balance Sheet
The total assets of SM Investments increased 26% year on year to Php527.2 billion. In February, SM raised US$250.0 million through a five-year convertible bond (“CB”) offering, with a yield to maturity of 2.875% per annum, while in July, SM issued Php15.0 billion of seven- and ten- year retail bonds with fixed annual coupon rates of 6.0% and 6.9442%, respectively. In August, SM raised US$150.0 million in equity via a top-up placement, and in October, issued US$500.0 million of seven-year bonds with a fixed rate of 4.25% per annum. As of end-September 2012, SM maintained a strong balance sheet with a gearing ratio of 36% net debt to 64% equity.

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For further information, please contact:

Ms. Corazon P. Guidote
Senior Vice President for Investor Relations
SM Investments Corporation
Tel. No. 857-0117

Date: Thursday, November 8, 2012