2005 Integrated Annual and Sustainability Report

Transcription

2005 Annual Report
“The story of Cebu Holdings is
interwoven with the story of Cebu.
We partner with entrepreneurs who
share our passion for innovation to
help catalyze development.”
- Jose Rene D. Almendras
President, Cebu Holdings, Inc.
Cafe Laguna
Laguna Garden
Lemon Grass
Julita P. Urbina
“Food Artisan”, Long-time Partner
Cooking has always been Madam Lita Urbina’s passion. It is this sphere that she pours
much of her time and talent on. Her family egged her to open a carenderia in 1979
which was later transformed into a place of fine dining in 1991. This was the first time
that Café Laguna was introduced to the public.
Little did Madam Lita expect that the upshot of her passion will be noticed and Cebu
Holdings saw the big potential. She, with her family linked up with Ayala Center Cebu
to set up Café Laguna and together served the Cebuano market in 1994.
After four years of enjoying the Cebuanos’ patronage, Madam Lita opened Laguna
Garden – a bigger set up at Ayala Center’s lagoon. Having decided to keep her outlet
in the mall, her expertise was put to severe test but managed to keep both outlets with
such high volume of patrons.
The 12-year partnership of CHI and Madam Lita has continued to score with the
opening of her third outlet, Lemon Grass, in Ayala Food and Entertainment Center.
Madam Lita’s outlets have done so well. Her commitment and dedication as a
merchant of Ayala Center has helped sustain the brand that she built. Laguna Group
of Companies has now moved ahead into franchising which has widened its reach to
Mindanao.
“I’m so thankful for the confidence Cebu Holdings has given me. It started with a good
opportunity and constant support for our sustainability. It has helped me achieve my
business goals,” she quips.
As an entrepreneur, passion with a lot of hard work is what drives Madam Lita Urbina
to achieve her targets.
Now, Café Laguna has been considered a perfect case of CHI’s thrust of CREATING
LANDMARKS -- a name synonymous with good food – a product of creativity,
business sense and passion.
Nestor D. Archival, Sr.
Top Contractor, Risk-taker, “Imagineer”
In the early 1980’s Nestor Archival took on a lot of small businesses to augment his salary
as an engineering professor at a university. But he only hit that spark when he put his
efforts into what he was most passionate about: electrical systems.
He started with trading his electrical installation services for rent-free office space in
the same building. In late 1993, Cebu Holdings commissioned his services to handle
troubleshooting of streetlights at the Cebu Business Park, and he has been trusted with
many other CHI projects since then.
Today, his company owns offices in one of the condos in the Cebu Business Park, as well
as a couple of commercial establishments within Cebu.
Nestor credits his relationship with Cebu Holdings which helped him establish the
business when he was just starting up.“Working with CHI has motivated us to develop a
system that guarantees quality output and on-time delivery of services. This system has
given us a name in the construction industry,” he explains.
As an entrepreneur, quality and consistency are important to gain the trust of your clients
and the people you work with. Both Nestor and Cebu Holdings believe in SETTING
STANDARDS as key to success in the business.
Rosario Antoinette R. Rama and Sybil C. Sybico
Star Brokers, Passionate Salespeople, Reliable Partners
In a business, trust is essential. Trust, not only from your clients, but from the people you
work with. This, coupled with a passion for what you do, is the key to success.
Ma. Rosario Antoinette “Chacha” Rama first started as a private employee dabbling in
various marketing disciplines, but eventually discovered her entrepreneurial flair when
she put up her own real estate company, Scorpio Realty. From the beginning, it has been
Chacha’s gift of connecting with people which has helped her evolve from executing
marketing concepts for the mall, to becoming one of Cebu Holdings’ top brokers. In
2005, Chacha topped sales for Cebu Business Park and Amara.
At an early age, Sybil C. Sybico was already familiar with the art of selling. She remembers
her elementary days when she would sell fruits harvested from their farm to earn
her allowance. After 17 years in the banking industry, she returned to what she was
most passionate about and started selling CHI projects in 1999. Her professional, yet
charismatic demeanor, together with her broad circle of friends and clients, has made
her one of CHI’s top brokers, landing sales for various projects including Park Towers 1 &
2, City Sports Club Cebu and Amara.
“CHI is a good growth platform for brokers because when you are accredited by the
country’s most solid real estate corporation, you gain the reputation of being honest
and trustworthy as well, just like the property you are selling,” Chacha explains.
As an entrepreneur, the trust you earn for standing by your product and delivering
what you have promised is vital in BUILDING RELATIONSHIPS. As partners in business,
Cebu Holdings and brokers like Chacha and Sybil believe in nurturing these relationships
to continue to thrive as frontrunners in the field.
Cebu Holdings, Inc.
Creating Landmarks. Setting Standards. Building Relationships.
OUR MISSION
We shall be the premier real estate company
in Cebu creating products of enduring value
through a customer-focused and highly
motivated team of professionals.
We ensure the trust and confidence of our
shareholders while improving the quality of life
of the communities in the markets that we
serve with honor and integrity.
01. Financial
Highlights
* M stands for Php Million
** B stands for Php Billion
Cebu Holdings, Inc.
Annual Report 2005
02. Message to Stockholders
Fellow Stockholders,
2005 was a year of resiliency in the Philippine
economy and that of the property market.
Despite political uncertainties, the property
market continued to be on a consistent uptrend,
particularly in Cebu.
For Cebu Holdings, Inc. (CHI), 2005 was marked
by successes of its business as measured in
the four categories defined in the company’s
strategic management system, the Balanced
Scorecard. This system focuses on financial
performance, customer, internal business
process and learnings and growth. Driven by a
definitive set of strategic thrusts for each of our
product lines, we reached our goals faster and
better than our target.
CHI has maintained leadership in the
development of business districts and in
providing facilities for I.T. and I.T.-enabled
services. The Cebu Business Park, the premier
financial district in Southern Philippines, and
Asiatown I.T. Park, the only I.T. Park outside Luzon,
registered combined gross sales of P109.5
million from commercial lots. This represents a
12% growth compared to the year-ago level.
Our retail business also grew by 12%, grossing
P371.8 million. A contributor to this growth
was the success that Cebu achieved in tourism
in 2005 as tourist arrivals grew by 21.3%. Ayala
Center Cebu became the shopping haven for
both domestic and foreign tourists on top of its
growing A, B and C+ target markets.
The growth in Cebu tourism brought in a
significant share of the market for the Cebu City
Marriott Hotel (37% owned by CHI) in 2005. The
hotel maintained an average occupancy rate of
86%. Its commendable guest service resulted
in the hotel’s market leadership and robust
financial performance.
Revenues posted in 2005 reached P396.7
million, or 18% increase versus last year’s level.
Office leasing revenues contributed by CHI’s
subsidiary, Cebu Property Ventures and
Development Corporation, reached P50.3
million, up by 14 % over last year’s results. This
can be attributed to the vigor of BPOs which
spawned a significant area of additional office
spaces at Asiatown I. T. Park. As Cebu positions
itself as a highly competitive destination for
global I.T. locators, Asiatown I.T. Park continues
to secure its significant share of opportunities
related to I.T. and I.T.-enabled services.
A strategic entry in the high-end residential
product line brought CHI to Liloan,a neighboring
town in northern Cebu. CHI launched Amara in
partnership with Coastal Highpoint Ventures,
Inc., landowner of a scenic property near a 100year-old working lighthouse. It is the newest
concept in upscale subdivision development.
The project broke past sales records in takeup time and peso value, with gross sales of
P189.7 million. Eighty percent (80%) take up
was recorded on the day the lots were offered
for sale. Take up rose to 93% six days after, and
remaining inventory was sold out in less than
two weeks from the date of the sales launch.
The execution of CHI’s strategies in 2005 resulted
in a significant growth in net income by 30%, or
P117.3 million versus the previous year’s P90.6
million. This translates to an earnings per share
of P.061 versus last year’s P.047.
Bottomline growth resulted from an increase
in revenues to P690.2 million for 2005
coupled with improved margins in all its
product lines and effective management of
cost and expenses.
Cebu Holdings, Inc.
Annual Report 2005
CHI’s financial position further strengthened
with total assets growing by 6% to 4.67 billion
and bank debt reduced to a low of P350 million
at yearend.
Passion for Quality and Continuous
Improvement in Internal Business Processes
Your company’s entrepreneurial spirit comes
with the passion for quality and continuous
improvement in business processes. CHI
commits to further improve systems to uphold
the quality of products and services the
company delivers, to minimize, if not eliminate
environmental risks in its projects and to provide
a healthy and safe workplace for its employees
and outsourced personnel.
In 2005, the company developed its QEHS
(Quality, Environment, Health and Safety)
Management Systems. These are benchmarked
against three ISO standards, namely Quality
(ISO 9001: 2000), Environment (ISO 14001: 2004)
and Health and Safety (OHSAS 18001: 1999)
Management Systems. CHI underwent internal
and pre-certification audits in 2005 to measure
the organization’s readiness for certification
audits in the early part of 2006. Based on these
audits, an Integrated Management System
certification in the three ISO standards is
expected in 2006.
Meanwhile, your company undertook several
innovations in its internal business processes which
were aimed at organizational strengthening.
Significant improvements were made in the way
we handle customer complaints. We enhanced
the features of our TCS MS (Total Customer
Satisfaction Management System) mindful of
our customers in various market segments.
Jose Rene D. Almendras
President
Francis O. Monera
Executive Vice President / Chief Operating Officer
In 2005, we significantly improved our response
time to customers’ complaints. In Ayala Center
Cebu, within-the-day responses improved
to 83% in 2005, from 63% in 2004. Our text
feedback system is an equally effective source
of customer response – both for complaints
and for appreciation.
Furthermore, an initiative taken by the mall
to improve its service and commitment to its
merchants was the formation of Merchant
Service Teams composed of representatives
from operations, marketing and property
management departments.
The service
team members are tasked to ensure that
merchants’ concerns are addressed properly
and expediently.
The introduction of Sureseats or the online
cinema booking system is another innovation
to better serve patrons of Ayala Cinemas.
The automated card system for the basement
carpark generated an increase in parking
turnovers which contributed five percent to the
mall’s recurring income.
Another customer-oriented innovation is
eGC or the electronic gift certificate that was
launched last year -- a novelty for the shoppers’
convenience that translates to more business
for our mall merchants.
Other I.T.-based initiatives were applied across
the company’s core businesses. Our bricks-andmortar products are balanced with systems
that use new technologies. This is evidenced in
Amara where we infused creativity in a website
to boost sales from our market prospects
overseas.
Sales from the OFW market
accounted for slightly more than a quarter of
the Amara’s sales pie.
The summary of experiences during the Amara
launch and the pre-sales services was rated
excellent by the majority of buyers.
Our successes in customer handling will
be our passport to the gradual shift from
customer satisfaction to customer delight in
the years to come.
For mall operations, merchants’ survey covering
building facilities, utilities, systems and
procedures, marketing and security showed
very satisfactory rating of 7.8 out of 10.
The Passion to Serve our Customers
Mystery shopper survey garnered an average
rating of 8.1 out of 10 for improved facilities,
mall events and, highlighting customer service
as the top-line item.
In 2005, your company’s entrepreneurial drive
was given a big boost when we partnered
with entrepreneurs – joint venture partners,
merchants, suppliers and brokers to serve our
customers better.
Explicit in CHI’s quality policy, the customer is first
and quality is everyone’s job. This serves as the
platform for a long-term customer partnership
that starts from the development of our product
lines following a value delivery chain approach
where all players in the value chain are aligned
to add value for the customer.
CHI continues to implement customer
satisfaction surveys to understand customers’
needs and ever-growing expectations.
In the company’s managed properties,
satisfaction survey results among building
occupants pulled off an average rating of 8.5
out of 10 (with 10 being the highest level of
satisfaction). This resulted in the renewal of
property management contracts with two
office buildings (Cebu Holdings Center and
Ayala Life FGU Center Cebu) and two residential
buildings (Park Tower One and Park Tower Two)
at the business park.
Cebu Holdings,Inc.
Annual Report 2005
The organization was amply prepared to take
on the commitment and the passion to serve.
Trainings on advanced customer service were
rolled out to all associates, in-house property
specialists and accredited brokers.
Also in 2005, CHI honored 15 men and women
for exemplary customer service during
the company’s 17th founding anniversary
celebration. The Customer Service Excellence
Awards recognized the selfless service of
in-house and outsourced service providers.
Among them were security guards,
electricians, plumbers, a trained cleaner, a
food attendant and a building superintendent
who have demonstrated honesty and service
beyond routine.
The company’s customer satisfaction scorecards
and the recognition of exemplary service inspire
everyone in the organization to continually
improve our product and service deliveries.
Neighbor of Choice
Aside from being a good corporate citizen,
CHI always aims to be a neighbor of choice. In
partnership with Ayala Foundation, Inc., your
company strengthened its alliance with its
neighbors – the fenceline barangays of the Cebu
Business Park. Special focus on this Corporate
Social Responsibility thrust are education and
networking, health, sanitation and solid waste
management, livelihood and peace and order.
The Cebu Business Park and Neighboring
Barangays Altruistic Alliance, Inc. (CBPNBAAI)
intensified its network resource mobilization
and community skills inventory and
databanking activities for skills matching and
job generation.
All member barangays in the alliance have
also adopted good environmental practices,
based on a Barangay Solid Waste Management
Manual. For one, Barangay Luz has taken its
recycling and composting project one step
further, generating initial revenues of P1.6
million through its ‘Kwarta sa Basura’ program.
Also in 2005, CBPNBAAI was re-accredited as a
private sector organization (PSO) member of
the Cebu City Local Development Council, aside
from being an accredited NGO in Cebu City.
Guided by the company’s core values,
everyone in the organization shall be
steadfast to the strategic objectives that have
been set, tempered with the most prudent
management of resources and aligned
with customers’ needs and expectations.
Looking Beyond
As we face the year 2006, we will adhere to
a discipline in skillful planning and great
execution - doing the right things and
doing things the right way.
After another year of remarkable growth, your
company aims to improve that growth next
year. Beginning 2006, CHI will strengthen its
retail rental portfolio by 17% by adding 13, 500
square meters of leasable space at Ayala Center
Cebu. Plans are afoot for the development of the
remaining undeveloped five-hectare property
within Asiatown I.T. Park to take advantage of
business opportunities in I.T. and I.T.-enabled
services. Additional phases in the company’s
high-end residential development, Amara, will
be pursued, while more buildings by Cebu
Business Park locators will rise at Cebu’s premier
business district.
President
Cebu Holdings, Inc.
Annual Report 2005
We would like to thank our associates for their
dedication and hard work, the management
team members for their innovation and
initiatives, our directors for their valuable
contribution in policy and governance, and,
most importantly,you,our valued shareholders
for your continued trust.
Francis O. Monera
Executive Vice President/Chief Operating Officer
CEBU BUSINESS PARK
Enhancements of the premier financial district, Cebu Business Park (CBP) continued in 2005 as planned. Pedestrian crosswalks were installed and the park’s
greeneries were augmented in certain areas. In 2005, CBP registered gross sales of P37.3 million derived from the sale of one (1) lot with an area of 1,411
square meters. More locators will commence construction in 2006.
Cebu Holdings,Inc.
Annual Report 2005
Cebu Holdings, Inc.
Annual Report 2005
AYALA CENTER CEBU
The introduction of fresh concepts, family oriented events and
innovative product mixes maintained Ayala Center Cebu’s position as
the mall of choice in the Visayas and Mindanao regions.
In 2005, Ayala Center Cebu operations registered gross revenues of P371.8
million, 12% higher than last year’s level. Growth can be attributed to
higher sales per square meter, rental rate and occupancy increases.
Rental from retail operations amounted to P334 million or about 90% of
aggregate commercial center revenues.
Theater revenues of P19 million posted an impressive 78% increase in last
year’s figures. Carpark operations posted revenue of P19 million, 9% higher
than the previous year.
In Ayala Food and Entertainment Center, Lemon Grass introduced
authentic Thai and Vietnamese cuisine while the newly-relocated Majestic
at the second level continued to serve home-grown Chinese recipes.
ASIATOWN I.T. PARK
Build up at Asiatown I.T. Park continues steadily with two more lots purchased by Primary Industrial Properties Corporation for their second building
which offers an additional 16,000 square meters of office space. The building will be completed in July 2006. Skyrise Building of Skyrise Realty
and Development Corporation will also provide another 15,500 square meters of office space which will be completed in May 2006. Current locators
at PIPC’s Engineering Sciences Building include eTelecare, Dash Engineering Philippines, Inc. and SPI Technologies, Inc.
CPVDC’s e-Office One continued to be a beehive of I.T. activities, hosting PeopleSupport, NEC Telecom Software Philippines, Inc.,Tsuneishi Technical
Services (Phils.), Inc., NCR Cebu Development Center and Epson Precision (Phils.), Inc. More e-Office modules will be constructed within 2006.
Cebu Holdings, Inc.
Annual Report 2005
AMARA
CHI’s latest innovation, Amara took the market
in a frenzy when it was opened for sale late last
year. Amara, a 46-hectare coastal property, is
the country’s first master-planned lighthouse
community, a seaside residential subdivision in
partnership with Coastal Highpoint Ventures, Inc.
The site is located in Barangay Catarman, Liloan,
approximately 18 kilometers north of Cebu City.
The future residential oasis will provide resort
living where one can discover the renewing
powers of the sea which rejuvenates the spirit
and the ties that bind one’s family. Another
distinctive feature at the site is the century-old
Bagacay lighthouse which accentuates the
subdivision design. The beacon it casts makes
evenings in Amara quite an experience.
The word Amara connotes home where a
family will find safe harbor.
In 2005, earthworks and road tracing were
done on the project’s phase one.
Cebu Holdings,Inc.
10 Annual Report 2005
Cebu Holdings, Inc.
Cebu Holdings, Inc.
Antonio S. Abacan, Jr.
Dinna G. Bayangos
Enrique L. Benedicto
President
Jaime I. Ayala
Chairman of the Board
03. Board of Directors
Cebu Holdings, Inc.
COMMITTEES
EXECUTIVE: Jaime I. Ayala (Chairman), Jose Rene D. Almendras, Natividad N. Alejo , Dinna G. Bayangos , Miriam O. Katigbak
AUDIT: Anastacio T. Muntuerto, Jr (Chairman), Enrique L. Benedicto, Fr. Roderick C. Salazar, Jr.
NOMINATION: Jose Rene D. Almendras (Chairman), Jaime I. Ayala, Enrique L. Benedicto
COMPENSATION: Jaime I. Ayala (Chairman), Antonio S. Abacan, Jr., Natividad N. Alejo
CORPORATE SECRETARY: Renato O. Marzan ASSISTANT CORPORATE SECRETARY: Renan R. Osero
Anastacio T. Muntuerto, Jr.
Natividad N. Alejo
Miriam O. Katigbak
Fr. Roderick C. Salazar, Jr.
04. Management Committee
/ Management Team
ABOVE: Tetta B. Baad (center) - Mancom/Asst. Vice President for Sales and
Marketing, Suzette T. Go - Information Services Department Manager, Michael
P. Torres - Technical Planning Development Manager RIGHT: Erickson Y.
Manzano (third from left) - Mancom/Project Development and Property
Management Division Manager, Elson R. Homez - Property Management
Department Manager, Judilyn L. Boholst - Accounting Manager, Raul S.
Mananquil - Asiatown I.T. Park Administrator BELOW MIDDLE: Eleanore
R. Tomaneng (center) - Mancom/Finance and Control Officer, Myla G. Valle
- Audit Manager, Noel F. Alicaya - Control & Analysis Manager
BELOW RIGHT: Jose Rene D. Almendras BELOW LEFT: Francis O. Monera
Cebu Holdings, Inc.
BELOW: Clavel G. Tongco (center) - Mancom/Commercial Center Division
Manager, Rudy I. Reuyan - Property Management Department Manager,
Commercial Center Division, Rizalito S. Casinillo - Project Director,
Construction Management Division
ABOVE RIGHT : Virgilio J. Carsido, Jr. (center) - Mancom/
Construction Management Division Manager, Lormilo
L. Galo - Project Development Manager, Carol A. Alloso
- Sales and Sales Admin Manager RIGHT: Ver J.dela
Cerna (standing) - Mancom/Corporate Communication
and Customer Affairs Senior Division Manager, Cecil T.
Urbina - Human Resources and Admin Manager, Jovita
R. Polloso - Marketing Manager, Commercial Center
Division, Dominador M. Rey - Security Manager
Cebu Holdings, Inc.
05. Statement of Management’s
Responsibility for Financial Statements
The management of Cebu Holdings, Inc. is responsible for all information and representation contained in the financial statements for the years
ended December 31, 2005 and 2004. The financial statements have been prepared in conformity with generally accepted accounting principles
in the Philippines and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate
consideration to materiality.
In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that
transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized.
The management likewise discloses to the company’s audit committee and its external auditor: (i) all significant deficiencies in the design or
operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weaknesses in the
internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in internal controls.
The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the Company.
Sycip Gorres Velayo & Co., the independent auditors appointed by the stockholders, has examined the financial statements of the Company in
accordance with generally accepted auditing standards in the Philippines and has expressed its opinion on the fairness of presentation upon
completion of such examination, in its report to the Board of Directors and stockholders.
Signed under oath by the following:
Jaime I. Ayala
Chairman of the Board
President
Eleanore R. Tomaneng
Finance and Control Officer
Cebu Holdings, Inc.
SGV & CO
SyCip Gorres Velayo & Co.
6F Ayala Life - FGU Center
Mindanao Avenue corner Biliran Road
Cebu Business Park, Cebu City
6000 Cebu
Philippines
06. Report of
Phone: (032) 231-7551 to 55
Fax:
(032) 231-9539
2F Blk. A Mactan Marina Mall
Pusok, Lapu-Lapu City
6015 Cebu
Philippines
Phone: (032) 340-7945 to 46
Fax:
(032) 340-3507
www.sgv.com.ph
BOA/PRC Reg. No. 0001
SEC Accreditation No. 0012-F
Independent Auditors
Report of Independent Auditors
The Stockholders and the Board of Directors
Cebu Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Cebu Holdings, Inc. and Subsidiaries as of December 31, 2005 and 2004, and the
related consolidated statements of income, changes in equity and cash flows for the years then ended. These financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the Philippines. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cebu Holdings, Inc.
and Subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the Philippines.
SYCIP GORRES VELAYO & CO.
Jessie D. Cabaluna
Partner
CPA Certificate No. 36317
SEC Accreditation No.0069-A
Identification No. 102-082-365
PTR No. 4180816, January 2, 2006, Makati City
March 10, 2006
SGV & Co is a member practice of Ernst & Young Global
Cebu Holdings, Inc.
CEBU HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands, Except for Par Value, Authorized and Issued Shares)
December 31
2005
2004
(As Restated Note 2)
ASSETS
Current Assets
Cash and cash equivalents (Note 4)
Receivables - net (Notes 5 and 12)
Subdivision land for sale
Condominium units for sale
Sports club shares for sale (Note 12)
Other current assets (Note 6)
Total Current Assets
P
= 427,734
188,419
581,236
10,999
363,012
84,661
1,656,061
P
= 171,536
169,322
622,214
10,999
367,011
84,204
1,425,286
Noncurrent Assets
Noncurrent portion of trade receivables - net (Note 5)
Land and improvements (Note 13)
Investments in an associate (Note 7)
Investment properties - net (Notes 8 and 13)
Property and equipment - net (Note 9)
Deferred tax assets (Note 17)
Total Noncurrent Assets
169,593
736,189
206,884
1,842,344
23,777
38,792
3,017,579
128,638
729,290
182,705
1,887,852
31,310
6,738
2,966,533
P
= 4,673,640
P
= 4,391,819
P
= 280,000
232,317
P
= 280,000
168,401
49,720
133,971
44,462
42,734
783,204
57,436
74,072
–
34,448
614,357
19,995
67,281
22,728
102,274
212,278
995,482
69,743
–
21,838
90,191
181,772
796,129
LIABILITIES AND EQUITY
Current Liabilities
Bank loans (Note 10)
Accounts payable and accrued expenses (Notes 11 and 12)
Current portion of:
Long-term debt (Note 13)
Estimated liability for land and property development (Note 22)
Unrealized gain on real estate sales
Customers’ deposits and other current liabilities
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion (Note 13)
Estimated liability for land and property development - net of current portion (Note 22)
Deferred tax liabilities (Note 17)
Noncurrent liabilities and deposits
Total Noncurrent Liabilities
Total Liabilities
(Forward)
Cebu Holdings, Inc.
December 31
2005
Equity
Equity Attributable to Equity Holders of Cebu Holdings, Inc.
Capital stock - P
= 1 par value
Authorized - 3,000,000,000 shares
Issued - 1,920,073,623 shares
Additional paid-in capital
Retained earnings
Minority interests
See accompanying Notes to Consolidated Financial Statements.
Cebu Holdings, Inc.
2004
P
= 1,920,073
856,685
667,186
3,443,944
234,214
3,678,158
P
= 1,920,073
856,685
571,873
3,348,631
247,059
3,595,690
P
= 4,673,640
P
= 4,391,819
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Earnings Per Share)
Years Ended December 31
2004
2005
REVENUE
Real estate (Note 21)
Equity in net earnings of an associate (Note 7)
Interest and other income
COSTS AND EXPENSES
Real estate
General and administrative (Notes 12 and 14)
Interest and others (Notes 10, 13 and 15)
Provision for income tax (Note 17)
NET INCOME
Net Income Attributable to:
Equity holders of Cebu Holdings, Inc.
Minority interests
Earnings Per Share (Note 18)
Cebu Holdings, Inc.
P
= 624,979
24,179
40,995
690,153
P
= 612,998
9,938
18,876
641,812
370,002
120,701
42,845
31,338
564,886
350,626
119,552
48,505
25,151
543,834
P
= 125,267
P
= 97,978
P
= 117,346
7,921
P
= 125,267
P
= 90,606
7,372
P
= 97,978
P
= 0.061
P
= 0.047
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
(Amounts in Thousands)
2004
(As Restated 2005
Note 2)
ATTRIBUTABLE TO EQUITY HOLDERS OF CEBU
HOLDINGS, INC.
CAPITAL STOCK
ADDITIONAL PAID-IN CAPITAL
RETAINED EARNINGS
Balance at beginning of year, as previously reported
Effect of changes in accounting policies (Note 2)
Balance at beginning of year, as restated
Cumulative effect of change in accounting policy for financial instruments as of January 1, 2005 (Note 2)
Balance at beginning of year, as adjusted
Net income
Balance at end of year
MINORITY INTERESTS
Balance at beginning of year, as previously reported
Cumulative effect of change in accounting policy (Note 2)
Balance at beginning of year, as restated
Net income
Dividends paid to minority interests
P
= 1,920,073
P
= 1,920,073
856,685
856,685
614,897
(43,024)
571,873
(22,033)
549,840
117,346
667,186
3,443,944
525,168
(43,901)
481,267
–
481,267
90,606
571,873
3,348,631
247,059
(2,904)
244,155
7,921
(17,862)
234,214
P
= 3,678,158
Cebu Holdings, Inc.
239,687
–
239,687
7,372
–
247,059
P
= 3,595,690
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)
2004
(As Restated 2005
Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Depreciation and amortization (Notes 8, 9 and 14)
Equity in net earnings of an associate (Note 7)
Unrealized foreign exchange loss (gain) (Note 15)
Interest expense
Interest income
Operating income before working capital changes
Decrease (increase) in:
Receivables
Subdivision land for sale
Condominium units for sale
Sports club shares for sale
Other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Retirement expense (income)
Customers’ deposits and other current liabilities
Estimated liability for land and property development
Net cash generated from operations
Interest paid
Income taxes paid
Net cash provided by operating activities
P
= 156,605
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to:
Investment properties
Property and equipment (Note 9)
Decrease (increase) in:
Land and improvements
Other noncurrent assets
Interest received
Net cash used in investing activities
(Forward)
Cebu Holdings, Inc.
P
= 123,129
117,197
(24,179)
2,439
31,941
(13,653)
270,350
105,288
(9,938)
(160)
41,065
(9,222)
250,162
(53,717)
31,072
–
4,497
(11,171)
(9,814)
39,682
14,038
17,422
(3,013)
38,748
149
8,286
136,588
424,802
(32,004)
(40,052)
352,746
(16,255)
(778)
5,853
(77,811)
219,486
(41,500)
(27,334)
150,652
(49,338)
(4,290)
(139,678)
(6,762)
(15,689)
(6,373)
22,587
(53,103)
8,755
(11,639)
9,811
(139,513)
2004
(As Restated 2005
Note 2)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of:
Bank loans
Long-term debt
Increase in:
Àmount due to related parties
Noncurrent liabilities and deposits
Dividends paid
Net cash used in financing activities
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
P
=–
(57,385)
(P
= 30,000)
(57,436)
10,292
12,083
(5,996)
(41,006)
29,439
15,727
–
(42,270)
(2,439)
160
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
256,198
(30,971)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR (Note 4)
171,536
202,507
CASH AND CASH EQUIVALENTS AT
END OF YEAR (Note 4)
P
= 427,734
P
= 171,536
See accompanying Notes to Parent Company Financial Statements.
Cebu Holdings, Inc.
CEBU HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis of Consolidation
Corporate Information
The consolidated financial statements comprise the financial statements of
Cebu Holdings, Inc. (the Company) is incorporated in the Republic of the
Philippines and is engaged in real estate development, sale of subdivision
land, residential and office condominium units and sports club shares, and
lease of commercial spaces. The registered office address of the Company is
The financial statements of the subsidiaries are prepared for the same
reporting year as the Company, using consistent accounting policies.
7th Floor, Cebu Holdings Center, Cebu Business Park, Cebu City.
All intra-company balances and transactions, including income, expenses and
The consolidated financial statements of Cebu Holdings, Inc. and Subsidiaries
transactions that are recognized in assets are eliminated in full.
dividends, are eliminated in full. Profits and losses from intra-company
for the years ended December 31, 2005 and 2004 were authorized for issue
by the Audit Committee on February 15, 2006 and Board of Directors (BOD)
2.
Cebu Holdings, Inc. and its subsidiaries as of December 31, 2005 and 2004.
Subsidiaries are fully consolidated from the date of acquisition, being the date
on March 10, 2006.
on which the Group obtain control, and continue to be consolidated until the
Summary of Significant Accounting Policies
The consolidated financial statements represent the consolidation of the
Basis of Financial Statement Preparation
majority-owned subsidiaries:
date such control ceases.
financial statements of the Company and the following wholly owned and
The consolidated financial statements of Cebu Holdings, Inc. and its
subsidiaries (the Group) have been prepared in conformity with accounting
principles generally accepted in the Philippines as set forth in Philippine
Financial Reporting Standards (PFRSs). These consolidated financial
statements are the Group’s first financial statements to be prepared in
accordance with PFRSs.
The Group applied PFRS 1, First-time Adoption of Philippine Financial
Reporting Standards, in preparing the consolidated financial statements, with
Percentage of Ownership
Cebu Leisure Company, Inc. (CLCI)
CBP Theatre Management Company, Inc. preoperating
Cebu Property Ventures & Development
Corporation (CPVDC)
100%
100
76
The excess of the Company’s cost of investment in CPVDC over its
proportionate share in the underlying net assets at date of acquisition was
January 1, 2004 as the date of transition. The Group applied the accounting
identified to, and thus allocated to “Subdivision land for sale” and “Land and
policies set forth below to all the years presented except those relating to
improvements” accounts in the consolidated balance sheets. It is amortized in
financial instruments and business combination.
proportion to the area of lots (in square meters) sold by CPVDC.
The consolidated financial statements have been prepared using the historical
Minority interests represent the interest in CPVDC not held by the Group and
cost basis.
are presented separately in the statements of income and within equity in the
consolidated balance sheets, separately from the Company’s equity.
The preparation of financial statements in conformity with PFRS requires the
use of certain critical accounting estimates. It also requires management to
Explanation of Transition to PFRS
exercise its judgment in the process of applying the Group’s accounting
The transition to PFRSs resulted in certain changes to the Group’s previous
policies. The areas involving a high degree of judgment or complexity, or
accounting policies. The comparative figures for the 2004 financial statements
areas where assumptions and estimates are significant to the consolidated
were restated to reflect the changes in policies except those relating to
financial statements are disclosed in Note 3.
financial instruments. The Group availed of the exemption under PFRS 1 and
as allowed by Securities and Exchange Commission (SEC) and applied PAS
32 and PAS 39, the standards on financial instruments, from January 1, 2005.
The cumulative effect of adopting PAS 39 was charged to the January 1, 2005
retained earnings.
Cebu Holdings, Inc.
The effects of the transition to PFRS are discussed below:
The adoption of this standard decreased retained earnings as of January 1,
a.
million and increased deferred tax assets by P
= 10.39 million and deferred tax
2005 by P
= 22.03 million, receivables by P
= 32.48 million, long-term debt by P
= 0.08
PAS 19, Employee Benefits
Under PAS 19, pension benefits are determined using the projected unit
credit method and the resulting net pension asset or liability is recognized
in the financial statements. Actuarial gains and losses that exceed a 10%
liabilities by P
= 0.02 million.
d.
“corridor” may be amortized over the expected average remaining
This standard prescribes the accounting treatment for investment
working lives of participating employees or recognized immediately in the
property and related disclosure requirements. It permits the company to
statements of income. Vested past service cost is recognized
use either the fair value model or cost model in accounting for investment
immediately. Also, under PFRS, an entity is required to recognize
property.
short-term employee benefits when an employee has rendered service in
exchange for those benefits. The adoption of PAS 19 increased net
The Group has adopted the cost model and has continued to carry
income by P
= 0.78 million for the year ended December 31, 2004,
investment properties at depreciated cost less any accumulated
decreased retained earnings by P
= 0.75 million as of January 1, 2005 and
impairment losses. Additional disclosures required by this standard have
P
= 1.53 million as of January 1, 2004.
b.
been included in the consolidated financial statements.
PAS 21, The Effects of Changes in Foreign Exchange Rates
e.
PAS 21 does not allow capitalization of foreign exchange differentials
amortization of goodwill and a requirement for an annual test for goodwill
January 1, 2005, the Company’s share in the undepreciated balance of
impairment. Any resulting negative goodwill after performing
capitalized foreign exchange losses included in hotel property and
reassessment will be credited to income. Moreover, pooling of interests
equipment of Cebu Insular Hotel Company, Inc., were adjusted
in accounting for business combination will no longer be permitted.
retroactively to beginning retained earnings.
The Company elected not to apply PFRS 3 to its business combinations
The adoption of the standard increased net income by P
= 0.10 million for
that were recognized before January 1, 2004. Accordingly, business
the year ended December 31, 2004 and decreased retained earnings by
combinations before January 1, 2004 were not restated and goodwill and
P
= 42.27 million as of January 1, 2005 and P
= 42.37 million as of January 1,
negative goodwill were not adjusted for the previous amortizations made.
2004.
PAS 32, Financial Instruments: Disclosure and Presentation/ PAS 39,
Financial Instruments: Recognition and Measurement
PFRS 3, Business Combinations
PFRS 3, Business Combination, will result in the cessation of the
related to the acquisition of property and equipment. Thus, effective
c.
PAS 40, Investment Property
f.
PFRS 5, Noncurrent Assets Held for Sale and Discontinued Operations
PFRS 5 specifies the accounting for assets held for sale and the
PAS 32 covers the disclosure and presentation requirements for financial
instruments. The adoption of this standard resulted to more
comprehensive disclosures about the Group’s financial assets and
liabilities (see Note 19).
presentation and disclosure requirements for discontinued operations.
Under this standard, qualifying noncurrent assets or disposal groups held
for sale shall be carried at fair value less cost to sell if this amount is
lower than its carrying amount less accumulated impairment losses. A
company shall not depreciate (or amortize) noncurrent assets (or
Under PAS 39, loans and receivables are initially recognized at fair value
and subsequently measured at amortized cost less any provision for
impairment. Moreover, transaction costs directly attributable to financial
liabilities are deferred and amortized using the effective interest method.
As allowed by SEC, the effect of adopting PAS 39 did not result to
restatement of prior period’s financial statement. The cumulative effect of
the standard was charged to the January 1, 2005 retained earnings.
Cebu Holdings, Inc.
disposal groups) while classified as held for sale. Any gain or loss on the
remeasurement of a noncurrent asset (or disposal group) classified as
held for sale shall be included in the profit or loss from continuing
operations.
As of December 31, 2005 and 2004, the Group has no qualifying
noncurrent assets held for sale.
The increasing (decreasing) effects of adopting the new and revised
Standards not yet Effective
accounting standards follow (in thousands):
The Group will adopt the following Standards and amendments that have been
approved on their effectivity dates:
December 31, 2004
•
PAS 19
PAS 21
Current Noncurrent
Assets
Assets
(P
= 295)
P
=–
–
42,269
(P
= 295)
P
= 42,269
Noncurrent Retained Earnings
Net
Liabilities
January 1, 2004 Income
P
= 460
(P
= 1,533) P
= 778
–
(42,368)
99
P
= 460
(P
= 43,901) P
= 877
Amendments to PAS 19, Employee Benefits - Actuarial Gains and
Losses, Group Plans and Disclosures. The revised disclosures from the
amendments will be included in the consolidated financial statements
•
when the amendments are adopted in 2006.
PFRS 7, Financial Instruments - Disclosures. The revised disclosures on
financial instruments provided by this standard will be included in the
consolidated financial statements when the standard is adopted in 2007.
The reconciliation of the increasing (deceasing) effects of transition to PFRS
as they apply to stockholders’ equity as of December 31, 2004 and net income
Cash and Cash Equivalents
and earnings per share for the year then ended are set out below:
Cash includes cash on hand and in banks. Cash equivalents are short-term,
highly liquid investments that are readily convertible to known amounts of cash
2004
with original maturities of three months or less from dates of placement and
Equity
December 31, 2004
Earnings
Net Income
Equity Holders of Cebu
Receivables
Holdings, Inc.
As previously reported
Receivables are recognized initially at fair value and subsequently measured
at amortized cost using the effective interest method, less provision for
P
= 3,391,655
P
= 97,101
P
= 0.0467
(755)
778
0.0004
impairment. A provision for doubtful accounts of trade receivables is
(42,269)
99
0.0001
established when there is objective evidence that the Group will not be able to
3,348,631
97,978
0.0472
collect all amounts due according to the original terms of receivables. The
247,059
–
–
P
= 3,595,690
P
= 97,978
P
= 0.0472
PAS 19
PAS 21
Minority interests
As restated
that are subject to an insignificant risk of changes in value.
Per Share
The Group has also adopted the following revised standards during the year
and comparative figures have been amended as required. Adoption of the
revised standards did not have any effect on stockholders’ equity as of
amount of the provision is the difference between the asset’s carrying amount
and the present value of estimated future cash flows, discounted at the original
effective interest rate. The provision is recognized in the statements of
income.
Subdivision Land for Sale and Condominium Units for Sale
January 1, 2004.
Subdivision land for sale and condominium units for sale are valued at the
•
PAS 1, Presentation of Financial Statements;
complete and sell). Cost includes those incurred for the development and
•
PAS 8, Accounting Policies, Changes in Accounting Estimates and
lower of cost or net realizable value (estimated selling price less costs to
Errors;
•
PAS 10, Events After the Balance Sheet Date;
•
PAS 17, Leases;
•
PAS 24, Related Party Disclosures;
•
PAS 27, Consolidated and Separate Financial Statements;
•
PAS 28, Investments in Associates;
•
PAS 31, Interests in Joint Ventures;
•
PAS 33, Earnings Per Share;
•
PAS 36, Impairment of Assets; and
•
PAS 38, Intangible Assets.
improvement of the properties.
Sports Club Shares for Sale
Sports club shares for sale are valued at the lower of cost or net realizable
value.
Land and Improvements
Land and improvements consist of properties acquired exclusively for future
development and are carried at the lower of aggregate cost or net realizable
value. Cost includes those incurred for development and improvement of the
properties.
Cebu Holdings, Inc.
Investments in an Associate
Transfers between investment property, owner-occupied property and
The investment in associate is accounted for under the equity method of
inventories do not change the carrying amount of the property transferred and
accounting. An associate is an entity in which the Company has significant
they do not change the cost of that property for measurement or disclosure
influence and which is neither a subsidiary nor a joint venture of the
purposes.
Company. The investment in associate is carried in the consolidated balance
sheets at cost plus post-acquisition changes in the Company’s share in the net
Financial Assets
assets of the associate, less any impairment in value. The consolidated
Financial assets in the scope of PAS 39 are classified as either financial
statements of income reflect the Company’s share in the results of operations
assets at fair value through profit or loss (FVPL), loans and receivables, held-
of the associate. Unrealized gains arising from transactions with the associate
to-maturity (HTM) investments, or available-for-sale (AFS) financial assets, as
are eliminated to the extent of the Company’s interest in the associate.
appropriate. When financial assets are recognized initially, they are measured
Unrealized losses are eliminated similarly but only to the extent that there is no
at fair value, plus, in the case of investments not at fair value through profit or
impairment of the asset transferred. Dividends received are treated as a
loss, directly attributable transaction costs. The Group determines the
reduction in the carrying value of the investment.
classification of its financial assets after initial recognition and, where allowed
and appropriate, re-evaluates this designation at each financial year-end. As
The reporting dates of the investee company and the Company are identical
of December 31, 2005, the Group has no financial assets at FVPL, HTM
and the investee company’s accounting policies conform to those used by the
investments and AFS financial assets. The Group also has no derivative
Company for like transactions and events in similar circumstances.
transactions (including embedded derivates).
Investment Properties
Loans and receivables are nonderivative financial assets with fixed or
Investment properties consist of properties that are held to earn rentals or for
determinable payments that are not quoted in an active market. Such assets
capital appreciation or both, and that are not occupied by the Group.
are carried at amortized cost using the effective interest method. Gains and
Investment properties, except for land, are carried at cost less accumulated
losses are recognized in income when the loans and receivables are
depreciation and amortization and any impairment in value. Land is carried at
derecognized or impaired, as well as through the amortization process.
cost less any impairment in value.
Impairment of Financial Assets
Depreciation and amortization of investment properties are computed using
The Group assesses at each balance sheet date whether a financial asset or
the straight-line method over its useful life, regardless of utilization. The
group of financial assets is impaired. If there is objective evidence that an
estimated useful lives of investment properties are as follows:
impairment loss on loans and receivables carried at amortized cost has been
Land improvements
Buildings
-
incurred, the amount of the loss is measured as the difference between the
40 years
5 to 40 years
asset’s carrying amount and the present value of estimated future cash flows
(excluding future credit losses that have not been incurred) discounted at the
Investment properties are derecognized when either they have been disposed
of or when the investment property is permanently withdrawn from use and no
future economic benefit is expected from its disposal. Any gains or losses on
the retirement or disposal of an investment property are recognized in the
income statement in the year of retirement or disposal.
financial asset’s original effective interest rate (i.e., the effective interest rate
computed at initial recognition). The carrying amount of the asset shall be
reduced either directly or through use of an allowance account. The amount of
the loss shall be recognized in profit or loss.
The Group first assesses whether objective evidence of impairment exists
Transfers are made to investment property when, and only when, there is a
change in use, evidenced by ending of owner-occupation, commencement of
an operating lease to another party or ending of construction or development.
Transfers are made from investment property when, and only when, there is a
change in use, evidenced by commencement of owner-occupation or
commencement of development with a view to sale.
individually for financial assets that are individually significant, and individually
or collectively for financial assets that are not individually significant. If it is
determined that no objective evidence of impairment exists for an individually
assessed financial asset, whether significant or not, the asset is included in a
group of financial assets with similar credit risk characteristics and that group
of financial assets is collectively assessed for impairment. Assets that are
individually assessed for impairment and for which an impairment loss is or
continues to be recognized are not included in a collective assessment of
impairment.
Cebu Holdings, Inc.
If, in a subsequent period, the amount of the impairment loss decreases and
When assets are retired or otherwise disposed of, the cost of the related
the decrease can be related objectively to an event occurring after the
accumulated depreciation and amortization and accumulated provision for
impairment was recognized, the previously recognized impairment loss is
impairment losses, if any, are removed from the accounts and any resulting
reversed. Any subsequent reversal of an impairment loss is recognized in the
gain or loss is credited or charged against current operations.
income statement, to the extent that the carrying value of the asset does not
exceed its amortized cost at the reversal date.
Impairment of Assets
The Group assesses at each reporting date whether there is an indication that
Recognition and Derecognition of Financial Instruments
an asset is impaired. If any such indication exists, the asset’s recoverable
The Group recognizes a financial asset or a financial liability in the balance
amount is estimated. An asset’s recoverable amount is calculated as the
sheet when it becomes a party to the contractual provisions of the instrument
higher of the asset’s or cash-generating unit’s fair value less cost to sell and its
and derecognizes a financial asset when it no longer controls the contractual
value in use and is determined for an individual asset, unless the asset does
rights that comprise the financial instrument, which is normally the case when
not generate cash inflows that are largely independent of those from other
the instrument is sold, or all the cash flows attributable to the instrument or
assets or group of assets. Where the carrying amount of an asset exceeds its
passed to an independent third party. A financial liability (or a part of a
recoverable amount, the asset is considered impaired and is written down to
financial liability) is derecognized when the obligation is extinguished. In the
its recoverable amount. In assessing value in use, the estimated future cash
case of a regular way purchase or sale of financial assets, recognition and
flows are discounted to their present value using a pre-tax discount rate that
derecognition, as applicable, is done using settlement date accounting.
reflects current market assessment of the time value of money and the risks
specific to the asset. Impairment losses of continuing operations are
Offsetting Financial Instruments
recognized in the income statement in those expense categories consistent
Financial instruments are offset when there is a legally enforceable right to
with the function of the impaired asset.
offset and intention to settle on a net basis or to realize the asset and settle the
liability simultaneously.
An assessment is made at each reporting date as to whether there is any
indication that previously recognized impairment losses may no longer exist or
Property and Equipment
may have decreased. If such indication exists, the recoverable amount is
Property and equipment, except for land, are carried at cost less accumulated
estimated.
depreciation and any impairment in value. Land is carried at cost less any
impairment in value. The initial cost of property and equipment consists of its
A previously recognized impairment loss is reversed only if there has been a
purchase price and any directly attributable costs of bringing the asset to its
change in the estimates used to determine the asset’s recoverable amount
working condition and location for its intended use.
since the last impairment loss was recognized. If that is the case, the carrying
amount of the asset is increased to its recoverable amount. That increased
Subsequent costs are capitalized as property and equipment only when it is
amount cannot exceed the carrying amount that would have been determined,
probable that future economic benefits associated with the item will flow to the
net of depreciation, had no impairment loss been recognized for the asset in
Group and the cost of the items can be measured reliably. All other repairs
prior years. Such reversal is recognized in the statements of income unless
and maintenance are charged against current operations as incurred.
the asset is carried at revalued amount, in which case the reversal is treated
as a revaluation increase. After such a reversal, the depreciation charge is
Depreciation and amortization of assets commences once the assets are
adjusted in future periods to allocate the asset’s revised carrying amount, less
available for use and put into operational use and is computed on a straight-
any residual value, on a systematic basis over its remaining useful life.
line basis over the estimated useful lives of the assets as follows:
Office condominium and improvements
Furniture, fixtures and equipment
Transportation equipment
-
Short-term and Long-term Debts
40 years
3 to 10 years
3 to 5 years
Short-term and long-term debts are initially recognized at the fair value of the
consideration received less directly attributable transaction costs.
The useful lives and depreciation and amortization method are reviewed
After initial recognition, short-term and long-term debts are subsequently
periodically to ensure that the period and method of depreciation and
measured at amortized cost using the effective interest method. Amortized
amortization are consistent with the expected pattern of economic benefits
cost is calculated by taking into account any related issue costs and premium
from items of property and equipment.
or discount.
Cebu Holdings, Inc.
Provisions
Rental income from investment properties is recognized in the consolidated
Provisions are recognized when the Group has a present obligation (legal or
statements of income either on a straight-line basis over the lease term, or
constructive) as a result of a past event, it is probable that an outflow of
based on certain percentage of the gross income of the tenants, as provided
resources embodying economic benefits will be required to settle the
under the terms of the lease contract.
obligation and a reliable estimate can be made of the amount of the obligation.
Where the Group expects some or all of the provision to be reimbursed, for
Management fees from administrative, property management and other fees
example under an insurance contract, the reimbursement is recognized as a
are recognized when the related services are rendered.
separate asset but only when the reimbursement is virtually certain. If the
effect of the time value of money is material, provisions are discounted using a
Interest is recognized as it accrues (using the effective interest method that is
current pre-tax rate that reflects, where appropriate, the risks specific to the
the rate that exactly discounts estimated future cash receipts through the
liability. Where discounting is used, the increase in the provision due to the
expected life of the financial instrument to the net carrying amount of the
passage of time is recognized as a borrowing cost. Provisions are reviewed at
financial asset).
each balance sheet date and adjusted to reflect current best estimates.
Retirement Cost
Revenue and Cost Recognition
Retirement cost is actuarially determined using the projected unit credit
Income from sales of subdivision land, condominium and housing units and
method. This method reflects services rendered by employees up to the date
sports club shares is accounted for under the full accrual method. Under this
of valuation and incorporates assumptions concerning employees’ projected
method, the income is recognized when collectibility of the sale price is
salaries. Actuarial valuations are conducted with sufficient regularity, with
reasonably assured and the earnings process is virtually complete. The
option to accelerate when significant changes to underlying assumptions
percentage of completion method is used to recognize income from sales of
occur. Retirement cost includes current service cost, interest cost, expected
projects where the Company and certain subsidiaries have material obligations
return on any plan assets, actuarial gains and losses and the effect of any
under the sales contract to complete the project after the property is sold.
curtailment or settlement.
Under this method, the gain on sale is recognized as the related obligations
are fulfilled.
The liability recognized in the balance sheet in respect of the defined benefit
pension plans is the present value of the defined benefit obligation at the
When a sale of real estate does not meet the requirements for income
balance sheet date less the fair value of the plan assets. The defined benefit
recognition, the sale is accounted for under the deposit method. Under this
obligation is calculated annually by independent actuaries using the projected
method, the sale is not recognized, and the receivable from the buyer is not
unit credit method. The present value of the defined benefit obligation is
recorded. The inventories continue to be reported on the consolidated
determined by discounting the estimated future cash outflows using risk-free
balance sheets as “Subdivision land for sale”, “Condominium units for sale”,
interest rates of government bonds that have terms to maturity approximating
“Sports club shares for sale” and “Land and improvements”, and the related
to the terms of the related pension liability.
liability as deposits under “Customers’ deposits and other current liabilities”.
Actuarial gains and losses arising from experience adjustments and changes
Cost of subdivision land and housing units sold before the completion of the
in actuarial assumptions are charged or credited to the consolidated
development is determined on the basis of the acquisition cost of the land plus
statements of income immediately.
its full development costs, which include estimated costs for future
development works, as determined by the Group’s in-house technical staff.
Borrowing Costs
Cost of condominium units and sports club shares sold before completion of
Borrowing costs are generally expensed as incurred. Interest and other
the project is determined based on actual costs and project estimates of
financing costs incurred during the construction period on borrowings used to
contractors and Group’s in-house technical staff. The estimated future
finance property development are capitalized as part of development costs
expenditures for the development of the sold portion of the subdivision land,
(included in “Investment properties” account in the consolidated balance
condominium and housing units and sports club project are shown under
sheets). Capitalization of borrowing costs commences when the activities to
“Estimated liability for land and property development” account in the
prepare the asset are in progress and expenditures and borrowing costs are
consolidated balance sheets with the portion expected to be incurred within
being incurred. Capitalization of borrowing costs ceases when substantially all
the succeeding year presented as current liability.
the activities necessary to prepare the asset for its intended use or sale are
complete. If the carrying amount of the asset exceeds its recoverable amount,
an impairment loss is recorded. Capitalized borrowing cost is based on
applicable weighted average borrowing rate.
Cebu Holdings, Inc.
Income Taxes
Segments
Deferred income tax is provided, using the balance sheet liability method, on
The Group’s operating businesses are organized and managed separately
all temporary differences, with certain exceptions, at the balance sheet date
according to the nature of the products and services provided, with each
between the tax bases of assets and liabilities and their carrying amounts for
segment representing a strategic business unit that offers different products
financial reporting purposes.
and serves different markets. Financial information on business segments is
presented in Note 20 to the consolidated financial statements.
Deferred income tax liabilities are recognized for all taxable temporary
differences with certain exceptions. Deferred income tax assets are
Subsequent Events
recognized for all deductible temporary differences, carryforward benefits of
Post year-end events that provide additional information about the Group’s
unused tax credits from excess of minimum corporate income tax (MCIT) over
position at the balance sheet date (adjusting events) are reflected in the
the regular corporate income tax and unused operating loss carryover
consolidated financial statements. Post year-end events that are not adjusting
(NOLCO), to the extent that it is probable that taxable profit will be available
events are disclosed in the notes to the consolidated financial statements
against which the deductible temporary differences and carryforward benefits
when material.
of unused tax credits and NOLCO can be utilized.
Contingencies
The carrying amount of deferred income tax assets is reviewed at each
Contingent liabilities are not recognized in the consolidated financial
balance sheet date and reduced to the extent that it is no longer probable that
statements. These are disclosed unless the possibility of an outflow of
sufficient taxable profit will be available to allow all or part of the deferred
resources embodying economic benefits is remote. A contingent asset is not
income tax asset to be utilized.
recognized in the consolidated financial statements but disclosed when an
inflow of economic benefits is probable.
Deferred income tax assets and liabilities are measured at the tax rates that
are expected to apply to the period when the asset is realized or the liability is
settled, based on tax rates (and tax laws) that have been enacted or
substantially enacted at the balance sheet date.
3.
Significant Accounting Judgments and Estimates
Judgments
Foreign Currency Transactions
The functional and presentation currency of the Group is the Philippine Peso.
Transactions denominated in foreign currencies are recorded in Philippine
Peso based on the exchange rate at the date of the transactions. Monetary
assets and liabilities are translated to Philippine Peso at exchange rates
In the process of applying the Group’s accounting policies, management has
made the following judgments, apart from those involving estimations, which
have the most significant effect on the amounts recognized in the consolidated
financial statements:
prevailing at the balance sheet date. Foreign exchange differentials between
Revenue Recognition
rate at transaction date and rate at settlement date or balance sheet date of
Selecting an appropriate revenue recognition method for a particular sale
foreign currency-denominated monetary assets or liabilities are credited or
charged to current operations.
transaction requires certain judgments based on sufficiency of cumulative
payments by the buyer, collection experience and completion of development.
Operating Leases
Operating Lease Commitments - Group as Lessor
Leases where the lessor retains substantially all the risks and benefits of the
The Group has entered into commercial property leases on its investment
ownership of the asset are classified as operating leases. Fixed lease
payments are recognized on a straight-line basis over the lease term while the
variable rent is recognized as an expense based on the terms of the lease
contract.
property portfolio. The Group has determined that it retains all significant risks
and rewards of ownership of these properties which are leased out on
operating leases.
Distinction Between Investment Properties and Owner-occupied Properties
Earnings Per Share
Earnings per share (EPS) is computed by dividing net income for the year
attributable to common stockholders by the weighted average number of
common shares issued and outstanding during the year adjusted for any
subsequent stock dividends declared.
The Group determines whether a property qualifies as investment property. In
making its judgment, the Group considers whether the property generates
cash flows largely independent of the other assets held by an entity. Owneroccupied properties generate cash flows that are attributable not only to
property but also to the other assets used in the production or supply process.
Cebu Holdings, Inc.
Some properties comprise a portion that is held to earn rentals for capital
•
appreciation and another portion that is held for use in the production or supply
of goods or services or for administrative purposes. If these portions cannot
projected future operating results;
•
be sold separately, the property is accounted for as investment property only if
an insignificant portion is held for use in the production or supply of goods or
services or for administrative purposes. Judgment is applied in determining
whether ancillary services are so significant that a property does not qualify as
investment property. The Group considers each property separately in making
its judgment.
significant underperformance relative to expected historical or
significant changes in the manner of use of the acquired assets or
the strategy for overall business; and
•
significant negative industry or economic trends.
An impairment loss is recognized whenever the carrying amount of an asset
exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s net selling price and value in use. The net selling price is the amount
obtainable from the sale of an asset in an arm’s length transaction while value
in use is the present value of estimated future cash flows expected to arise
Management’s Use of Estimates
The key assumptions concerning the future and other key sources of
estimation uncertainty at the balance sheet date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
from the continuing use of an asset and from its disposal at the end of its
useful life. Recoverable amounts are estimated for individual assets or, if it is
not possible, for the cash-generating unit to which the asset belongs.
For the Group, the recoverable amount represents the value in use. In
determining the present value of estimated future cash flows expected to be
Estimating allowance for doubtful accounts
The Group maintains allowances for doubtful accounts at a level considered
adequate to provide for potential uncollectible receivables. The level of this
allowance is evaluated by management on the basis of factors that affect the
collectibility of the accounts. These factors include, but are not limited to, the
length of the Group’s relationship with the customers and tenants, the
customers’ and tenants’ payment behavior and known market factors. The
Group reviews the age and status of receivables, and identifies accounts that
are to be provided with allowances on a continuous basis. The amount and
timing of recorded expenses for any period would differ if the Group made
different judgments or utilized different estimates. An increase in allowance for
doubtful accounts would increase recorded operating expenses and decrease
generated from the continued use of the assets, the Group is required to make
estimates and assumptions that can materially affect the consolidated financial
statements.
Deferred tax assets
The Group reviews the carrying amounts of deferred taxes at each balance
sheet date and reduces deferred income tax assets to the extent that it is no
longer probable that sufficient taxable profit will be available to allow all or part
of the deferred income tax assets to be utilized. However, there is no
assurance that the Group will generate sufficient taxable profit to allow all or
part of its deferred income tax assets to be utilized (see Note 17 for the related
assets (see Note 5 for the related balances).
balances).
Estimating useful lives of property and equipment and investment properties
Pension and other employee benefits
The Group estimates the useful lives of its property and equipment and
investment properties based on the period over which these assets are
expected to be available for use. The estimated useful lives of property and
equipment and investment properties are reviewed at least annually and are
updated if expectations differ from previous estimates due to physical wear
and tear and technical or commercial obsolescence on the use of these
assets. It is possible that future results of operations could be materially
affected by changes in estimates brought about by changes in factors
The determination of obligation and cost of pension and other employee
benefits is dependent on the selection of certain assumptions used by the
Group in calculating such amounts. Those assumptions include, among
others, discount rates, expected returns on plan assets and salary increase
rates and price, and projected dividend yields, risk free interest rate and
volatility rate, for the retirement of pension and cost of share-based payments,
respectively (see Note 16). In accordance with Philippine GAAP, actual
results that differ from the Group’s assumptions are accumulated and
mentioned above (see Notes 8 and 9 for the related balances).
amortized over future periods and therefore, generally affect the recognized
Asset impairment
believes that the assumptions are reasonable and appropriate, significant
expense and recorded obligation in such future periods. While the Group
The Group assesses the impairment of assets whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The factors that the Group considers important which could
differences in the actual experience or significant changes in the assumptions
may materially affect the pension and other retirement obligations (see Note
16 for the related balances).
trigger an impairment review include the following:
Cebu Holdings, Inc.
4.
Cash and Cash Equivalents
7.
This account consists of:
Investments in an Associate
2005
Cash on hand and in banks
Short-term investments
2004
(In Thousands)
P
= 68,065
P
= 42,149
359,669
129,387
P
= 427,734
P
= 171,536
Cash in banks earn interest at the respective bank deposit rates.
Short-term investments are made for varying periods of up to three
months depending on the immediate cash requirements of the Group,
and earn interest at the respective short-term investment rates.
5.
Receivables
2005
Trade receivables (see Note 12)
Related parties (see Note 12)
Advances to officers and employees
Advances to contractors
Others
Less allowance for doubtful accounts
Less noncurrent portion
6.
2004
(In Thousands)
P
= 335,489
P
= 278,673
5,146
2,223
2,390
4,064
1,672
1,507
26,461
22,108
371,158
308,575
13,146
10,615
358,012
169,593
297,960
128,638
P
= 188,419
P
= 169,322
Other Current Assets
2005
2004
(In Thousands)
P
= 37,564
P
= 52,245
Value-added input tax
27,572
27,942
Others
19,525
4,017
P
= 84,661
P
= 84,204
Creditable withholding tax
Cebu Holdings, Inc.
Common shares - at equity:
Acquisition cost of Cebu Insular Hotel
Company, Inc. (CIHCI - 37%
ownership)
Accumulated equity in net losses:
Balance at beginning of year,
as previously reported
Change in accounting policy
(see Note 2)
Balance at beginning of year,
as restated
Equity in net earnings for the
year
Preferred shares (CIHCI) - at cost
2004
2005
(As restated)
(In Thousands)
P
= 239,302
P
= 239,302
(81,031)
(90,870)
(42,269)
(42,368)
(123,300)
(133,238)
24,179
(99,121)
140,181
66,703
P
= 206,884
9,938
(123,300)
116,002
66,703
P
= 182,705
The following table presents the summarized financial information for
equity investment in CIHCI as of December 31, 2005 and 2004 and
for the years ended December 31, 2005 and 2004:
2004
2005
(As restated)
(In Thousands)
P
= 101,663
P
= 99,135
Noncurrent assets
668,005
704,899
Total assets
769,668
804,034
Current liabilities
118,558
171,261
Noncurrent liabilities
94,113
141,019
Stockholders’ equity
556,997
491,754
Total liabilities and equity
769,668
804,034
Revenue
396,668
336,816
Costs and expenses
331,425
310,001
Net income
P
= 65,243
P
= 26,815
Current assets
8.
Investment Properties
Ayala Center Cebu (ACC):
(see Note 13)
Buildings and improvements - net
of accumulated depreciation
and amortization of
P
= 514,839 in 2005 and
P
= 450,358 in 2004
Asiatown IT Park:
E-office building - net of
accumulated depreciation
of P
= 74,101 in 2005 and
P
= 43,736 in 2004
2005
2004
(In Thousands)
P
= 166,623
P
= 166,623
1,344,706
1,371,209
263,563
263,563
67,452
P
= 1,842,344
86,457
P
= 1,887,852
Consolidated depreciation and amortization on buildings and
improvements charged to operations amounted to P
= 94.8 million in
2005 and P
= 81.5 million in 2004.
In estimating the Cost of Reproduction, New, of the improvements,
the valuer used the Modified Quantity Survey Method. This method
requires an analysis of the improvements by breaking them down into
major components such as foundation, columns, beams, floorings,
walls, roofings, etc. Bills of quantities for each building component
using the appropriate basic unit are prepared and related to the unit
cost of each component developed on the basis of current costs of
materials, labor, plant and equipment prevailing in the locality to arrive
at the direct costs such as contractor’s profits, overhead, taxes, fees,
and other related expenses are then added.
For imported items, the pricing process gave full consideration to all
expenditures normally incurred in importation such as packing and
crating charges, inland and ocean freight, insurance, duties and
taxes, bank charges and commissions, wharfage, and brokerage and
handling.
The aggregate fair value of the Group’s investment properties
amounted to P
= 5.46 billion as of December 31, 2005.
The Group’s investment properties were valued by an independent
professionally qualified valuer. The fair value represents the amount
at which the assets could be exchanged between a knowledgeable,
willing buyer and knowledgeable, willing seller in an arm’s length
transaction at the date of valuation.
The value of the land and condominium units was arrived at using the
Market Data Approach. In the approach, the value of the land is
based on sales and listings of comparable property registered within
the vicinity. The technique of this approach requires the establishing
of comparable property by reducing reasonable comparative sales
and listings to a common denominator. This is done by adjusting the
differences between the subject property and those actual sales and
listings regarded as comparable.
The value of the improvements was arrived at by the use of the Cost
Approach. Under this approach, an estimate is made of the current
Cost of Reproduction, New, of the improvements in accordance with
prevailing market prices for materials, labor, and contractor’s
overhead, profit, and fees. Adjustments are then made to reflect
depreciation resulting from physical deterioration, functional and
economic obsolescence based on personal inspection of
improvements and comparison with similar new properties.
Cebu Holdings, Inc.
9.
Property and Equipment
Office
Condominium
and Improvements
Furniture,
Fixtures
and Equipment
P
= 40,048
153
Cost
January 1
Additions
Transfers to investments
in real properties
Reclassifications
December 31
Accumulated Depreciation
January 1
Depreciation
Reclassifications
December 31
Net book value
Transportation
Equipment
(In Thousands)
2005
Total
2004
Total
P
= 32,854
3,547
P
= 6,864
590
P
= 79,766
4,290
P
= 100,816
6,762
–
–
40,201
–
–
36,401
–
–
7,454
–
–
84,056
(27,277)
(535)
79,766
30,596
3,662
–
34,258
P
= 5,943
13,495
6,729
–
20,224
P
= 16,177
4,365
1,432
–
5,797
P
= 1,657
48,456
11,823
–
60,279
P
= 23,777
35,960
12,961
(465)
48,456
P
= 31,310
Consolidated depreciation and amortization charged to general and administrative expenses amounted to P
= 11.8 million in 2005 and P
= 13.0 million in
2004.
10. Bank Loans
12. Related Party Transactions
These represent the Group’s short-term unsecured peso loans
obtained from local banks which bear annual interest ranging from
6.88% to 8.75% in 2005 and 7.38% to 9.75% in 2004.
11. Accounts Payable and Accrued Expenses
The Group in their regular conduct of business with associates, have
entered into transactions with other related parties principally
consisting of:
a.
Construction and lease contracts, advances and reimbursement
of expenses, development, management, administrative service
and related agreements. Sales and purchases of goods and
services to and from related parties are made at normal market
prices.
b.
Management and service agreement with Ayala Land, Inc. (ALI),
a shareholder (see Note 14).
2005
2004
(As restated)
(In Thousands)
P
= 104,689
P
= 74,875
Related parties (see Note 12)
70,451
57,236
Output tax payable
25,252
15,523
Dividends payable
15,131
3,264
Retention payable
5,452
5,692
Interest payable
1,294
1,357
109
909
Accrued expenses (see Note 12)
Construction bond payable
Others
9,939
9,545
P
= 232,317
P
= 168,401
Cebu Holdings, Inc.
As of December 31, 2005, the effect of the foregoing are shown under
the appropriate accounts in the consolidated financial statements as
follows:
2005
Amounts
This account consists of long-term bank loans availed by the
Company as follows:
Amounts
Owed
Owed
Cost and
by Related
to Related
Revenue
Expenses
Parties
Parties
P
= 3,701
P
= 36,118
(In Thousands)
Affiliates
13. Long-term Debt
P
= 5,146
P
= 70,451
Amounts
Amounts
Owed
Owed
2004
Cost and
by Related
to Related
Revenue
Expenses
Parties
Parties
P
= 3,617
P
= 40,820
At 1.25% per annum spread over the average
91-day treasury bill rate payable in 13
quarterly installments of P
= 7,692 starting on
September 8, 2003 up to September 7,
2006 (net of deferred transaction costs of
P
= 5 in 2005)
At 1.5% per annum spread over the average
91-day treasury bill rate payable in 15
quarterly installments of P
= 6,667 starting on
March 26, 2004 up to September 27, 2007
(net of deferred transaction costs of P
= 23 in
2005)
Less current portion (net of deferred transaction
costs of P
= 23 in 2005)
(In Thousands)
Affiliates
P
= 2,223
2004
(In Thousands)
Short-term employee benefits
medical benefits
P
= 53,846
46,643
69,715
73,333
127,179
49,720
P
= 19,995
57,436
P
= 69,743
P
= 11,850
P
= 13,887
2,848
4,751
2,694
4,638
P
= 17,392
P
= 23,276
Repayments of long-term debt are scheduled as follows:
2005
2005
2006
2007
Post-employment pension and
Other benefits
P
= 23,072
P
= 57,236
Compensation of key management personnel by benefit type follows:
2005
2005
2004
(In Thousands)
P
=–
49,720
19,995
P
= 69,715
(In Thousands)
2004
P
= 57,436
49,743
20,000
P
= 127,179
These loans, which were availed from a local bank, are secured by
mortgage trust indenture on ACC and other prime lots in the Cebu
Business Park (lodged under “Land and improvements” and
“Investment properties” accounts in the consolidated balance sheets)
with carrying values of P
= 345.4 million in
2004.
The loan agreements provide for certain restrictions and requirements
with respect to, among others, payment of dividends, major disposal
of property, pledge of assets, liquidation, merger or consolidation and
maintenance of financial ratios at certain levels. These restrictions
and requirements were complied with by the Group.
Cebu Holdings, Inc.
The components of pension expense (included in staff costs under
“General and administrative expenses”) in the consolidated
statements of income are as follows:
14. General and Administrative Expenses
2005
Manpower cost (see Notes 12 and 16)
Depreciation and amortization
Utilities
Others
P
= 66,465
9,558
12,136
32,542
P
= 120,701
2004
(As restated)
(In Thousands)
P
= 66,209
10,185
10,084
33,074
P
= 119,552
2004
2005
(In Thousands)
Current service cost
Interest cost on benefit obligation
Expected return on plan assets
Net actuarial gain
Total pension expense
15. Interest and Other Charges
P
= 2,179
P
= 2,067
884
658
(591)
(444)
(210)
P
= 2,262
(1,176)
P
= 1,105
The amounts recognized in the consolidated balance sheets for the
pension plan as of December 31, 2005 and 2004 are as follows:
2005
Interest expense (see Notes 10 and 13)
Provision for doubtful accounts
Foreign exchange loss (gain) - net
Others
(As restated)
P
= 35,341
3,437
2,439
1,628
P
= 42,845
2004
(In Thousands)
P
= 44,465
3,510
(160)
690
P
= 48,505
2004
2005
(As restated)
(In Thousands)
P
= 10,297
P
= 8,035
Plan assets
9,689
7,575
Pension liability
P
= 608
P
= 460
Benefit obligation
Changes in the present value of the defined benefit obligation are as
follows:
16. Retirement Plan
The Group has a funded, noncontributory retirement plan covering all
its regular employees. The benefits are based on the employees’
years of service and final monthly salary. Retirement costs charged
to operations amounted to P
= 1.1 million in
2004.
The principal actuarial assumptions used to determine retirement
benefits with respect to the discount rate, salary increases and return
on plan assets were based on historical and projected normal rates.
Actuarial valuations are made at least every three years. The
Group’s annual contribution to the retirement plan consists of a
payment covering the current service cost for the year plus a payment
toward funding the actuarial accrued liability.
Cebu Holdings, Inc.
2004
2005
(As restated)
(In Thousands)
Balance at January 1
Current service cost
P
= 8,035
P
= 6,930
2,179
2,067
Interest cost
884
Actuarial gain
(801)
P
= 10,297
658
(1,620)
P
= 8,035
Changes in the fair value of plan assets are as follows:
A reconciliation between the statutory income tax rate and the
effective income tax rates follows:
2004
2005
(As restated)
(In Thousands)
Balance at January 1
Contributions
P
= 7,575
P
= 5,692
2,114
1,883
591
444
(591)
(444)
Expected return on plan
assets
Actuarial loss
Balance at December 31
P
= 9,689
P
= 7,575
The assumptions used to determine pension benefits for the Group
for the years ended December 31, 2005 and 2004 are as follows:
2005
2004
Discount rate
11.0%
9.5%
Salary increase rate
10.0%
10.0%
7.8%
7.8%
Expected rate of return on plan
assets
17. Income Tax
The components of income tax for the years ended December 31 are
as follows:
2004
2005
(As restated)
Statutory income tax rate
Tax effect of:
Changes in unrecognized NOLCO
Interest income and capital gains
taxed at lower rates
Equity in net earnings of investees
Income subjected to lower income
tax rates (see Note 23)
Effect of change in statutory income
tax rate
Others - net
Effective income tax rate
Corporate income tax
P
= 48,184
P
= 25,606
Final withholding tax on
interest income
Deferred income tax
2,582
1,728
50,766
27,334
(19,428)
P
= 31,338
(2,183)
P
= 25,151
Cebu Holdings, Inc.
5.84
2004
(As restated)
32.00%
–
(11.56)
(5.02)
(6.92)
(2.58)
(1.30)
(3.40)
(0.70)
0.25
20.01%
–
1.23
20.43%
The components of deferred tax assets and liabilities as of December
31, 2005 and 2004 are as follows:
2005
2004
(In Thousands)
Deferred tax assets:
Unrealized gain, deposits and accruals
for various expenses on real estate
transactions
Allowance for doubtful accounts
MCIT
NOLCO
Others
Deferred tax liabilities:
Unamortized capitalized interest
Others
(In Thousands)
Current income tax:
2005
32.50%
P
= 32,298
3,284
47
–
3,163
P
= 38,792
P
=–
2,192
47
2,362
2,137
P
= 6,738
P
= 22,172
556
P
= 22,728
P
= 21,360
478
P
= 21,838
Deferred tax assets are recognized only to the extent that taxable
income will be available against which the deferred tax assets can be
used. The Group will recognize a previously unrecognized deferred
tax asset to the extent that it has become probable that future taxable
income will allow the deferred tax asset to be recovered. As of
December 31, 2005, one of the Company’s subsidiaries has
deductible temporary differences arising from NOLCO amounting to
P
= 20.8 million, the deferred tax asset of which was not recognized.
The details of the Group’s NOLCO and MCIT follow (in thousands):
NOLCO:
2002
2005
Amount
Addition
Used
Balance
P
= 7,380
–
P
= 7,380
P
=–
20,764
P
= 20,764
P
= 7,380
–
P
= 7,380
P
=–
20,764
P
= 20,764
MCIT:
2003
2004
35
12
P
= 47
–
–
P
=–
–
–
P
=–
35
12
P
= 47
Expiry
Date
2005
2008
2006
2007
There are no income tax consequences attaching the payment of
dividends by a subsidiary to the shareholders of the Company.
RA No. 9337
RA No. 9337 was enacted into law amending various provisions in the
existing 1997 National Internal Revenue Code. On October 18, 2005,
the Supreme Court (SC) rendered its final decision declaring the
validity of the RA No. 9337. Among the reforms introduced by the
said RA, which became effective on November 1, 2005, are as
follows:
•
•
•
•
•
Increase in the corporate income tax rate from 32% to 35% with a
reduction thereof to 30% beginning January 1, 2009;
Grant of authority to the Philippine President to increase the 10%
VAT rate to 12% effective February 1, 2006, subject to
compliance with certain economic conditions;
Revised invoicing and reporting requirements for VAT;
Expanded scope of transactions subject to VAT; and
Provision of thresholds and limitations on the amounts of VAT
credits that can be claimed.
18. Earnings Per Share
The following table presents information necessary to compute EPS
(in thousands except EPS):
a.
b.
c.
Net income
Weighted average number
of outstanding shares
Earnings per share (a/b)
2005
P
= 117,396
2004
(As restated)
P
= 90,606
1,920,073
P
= 0.061
1,920,073
P
= 0.047
Cebu Holdings, Inc.
19. Financial Assets and Liabilities
Fair Value
The following tables set forth the carrying values and estimated fair
values of the Group’s financial assets and liabilities recognized as of
December 31, 2005.
Carrying Value Fair Value
(In Thousands)
Current Financial Assets
Cash and cash equivalents
Receivables - net
Total current financial assets
Noncurrent Financial Assets
Receivables - net
Current Financial Liabilities
Accounts payable and accrued expenses
Customers’ deposits and other current
liabilities
Total current financial liabilities
Noncurrent Financial Liabilities
Long-term debt - inclusive of current portion
P
= 427,734
188,419
616,153
P
= 427,734
188,419
616,153
169,593
195,688
231,709
231,709
42,734
274,443
42,734
274,443
20,000
19,995
The following methods and assumptions were used to estimate the
fair value of each class of financial instrument for which it is
practicable to estimate such value:
Financial Assets
Due to the short-term nature of the transaction, the fair value of cash
and cash equivalents and short-term receivables approximate the
carrying amounts as of balance sheet dates.
Financial Liabilities
The carrying value of the Group’s variable rate loans approximated
the fair value because of recent and regular repricing based on
market condition.
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise cash, short-term
bank deposits and bank loans. The financial debt instruments were
issued primarily to raise financing for the Group’s operations. The
Group has various other financial assets and liabilities such as trade
receivables and trade payables, which arise directly from its
operations.
Exposure to credit, interest rate, liquidity and currency risks arise in
the normal course of the Group’s business activities. The main
objectives of the Group’s financial risk management are as follows:
•
to identify and monitor such risks on an ongoing basis;
•
to minimize and mitigate such risks; and
•
to provide a degree of certainty about costs.
The use of financial derivative instruments (if any) is solely for
management of the Group’s financial risk exposures. It is the Group’s
policy not to enter into derivative transactions for speculative
purposes.
The Group’s financing and treasury function operates as a centralized
service for managing financial risks and activities as well as providing
optimum investment yield and cost-efficient funding for the Group.
The Group’s BOD reviews and agrees with policies for managing
each of these risks.
Credit Risk
The investment of the Group’s cash resources is managed so as to
minimize risk while seeking to enhance yield. The Group’s holding of
cash exposes the Group to credit risk of the counterparty if the
counterparty is unwilling or unable to fulfill its obligations, and the
Group consequently suffers financial loss. Credit risk management
involves entering into financial instruments only with counterparties
with acceptable credit standing. The treasury policy sets aggregate
credit limits of any one counterparty and annually reviews the
exposure limits and credit ratings of the counterparties. The Group
has credit management policies in place to ensure that contracts are
entered into with customers who have sufficient financial capacity and
good credit history.
The Group has no significant credit risk concentrations on its lease
receivable. Policies are in place to ensure that lease contracts are
made with customers with an appropriate credit history.
Interest Rate Risk
The Group’s interest rate exposure management policy centers on
reducing the Group’s overall interest expense and exposure to
changes in interest rates. Changes in market interest rates relate
primarily to the Group’s interest-bearing debt obligations with floating
interest rate. The Group adopts a policy of managing its interest rate
exposure by maintaining a debt portfolio mix of both fixed and floating
interest rates.
The following table sets out the carrying amount, by maturity, of our
financial instruments that are exposed to variable interest rate risk:
Below 1 Year
1-2 Years
Total
(In Thousands)
Liabilities
Long-term Debt
Philippine Peso
Interest rate
P
= 23,077
P
= 46,666
Floating rate based
Floating rate based
on 91-day T-bill
on 91-day T-bill
+1.25% spread
+1.5% spread
Liquidity Risk
The Group monitors its cash flow position, debt maturity profile and
overall liquidity position in assessing its exposure to liquidity risk. The
Group maintains a level of cash and cash equivalents deemed
sufficient to finance operations and to mitigate the effects of
fluctuation in cash flows. Accordingly, its loan maturity profile is
regularly reviewed to ensure availability of funding through an
adequate amount of credit facilities with financial institutions.
Year-end 2005 current ratio remained at 2.11, with cash and cash
equivalent of P
= 427.7 million accounting for 26% of the total current
assets, and resulting in a net working capital of P
= 873 million.
Meanwhile, out of the Group’s consolidated debt, 79% is short term in
nature, i.e. with final maturities within the next one-year period, while
21% is long term.
Overall, the Group’s funding arrangements are designed to keep an
appropriate balance between equity and debt, to give financing
flexibility while continuously enhancing the Group’s businesses.
Foreign Currency Risk
Financial assets and financing facilities extended to the Group were
mainly denominated in Philippine Peso. As such, the Group’s foreign
currency risk is minimal.
20. Segment Information
The business segments where the Group operates are as follows:
Core business:
•
Residential and commercial development - sale of commercial
and high-end residential lots and office and residential
condominium
•
Shopping center - development of shopping centers and lease to
third parties of retail space and land therein; operation of movie
theaters, food courts, entertainment facilities and carparks in
these shopping centers; management and operation of malls
•
Corporate business - development and lease of office buildings
•
Others - other income from investment activities
P
= 69,743
Repricing of floating rate financial instruments are mostly done on
intervals of three months.
Cebu Holdings, Inc.
Business Segments
The following tables regarding business segments present assets and liabilities as of December 31, 2005 and 2004 and revenue and expense
information for the years then ended.
2005
Revenue
Costs and expenses
Earnings before interest, taxes,
depreciation and
amortization (EBITDA)
EBIT
Segment assets
Deferred tax assets
Total assets
Segment additions to property
and equipment and investment
properties
Segment liabilities
Deferred tax liabilities
Total liabilities
Residential and
Commercial
Development
Shopping
Centers
P
= 115,758
156,185
Others
Total
P
= 463,809
190,634
Corporate
Business
(In Thousands)
P
= 50,283
12,221
P
= 60,303
22,931
P
= 690,153
381,971
(40,427)
8,917
(49,344)
1,693,659
33,397
1,727,056
273,175
69,125
204,050
1,769,889
2,986
1,772,875
38,062
30,365
7,697
379,456
–
379,456
37,372
8,790
28,582
791,844
2,409
794,253
308,182
117,197
190,985
4,634,848
38,792
4,673,640
1,862
341,041
546
P
= 341,587
40,056
562,504
22,182
P
= 584,686
13,144
21,178
–
P
= 21,178
–
48,031
–
P
= 48,031
55,062
972,754
22,728
P
= 995,482
2004
Revenue
Costs and expenses
Earnings before interest, taxes,
depreciation and
amortization (EBITDA)
EBIT
Segment assets
Deferred tax assets
Total assets
Segment additions to property
and equipment and
investment properties
Segment liabilities
Deferred tax liabilities
Total liabilities
Residential and
Commercial
Development
Shopping
Center
P
= 117,730
89,404
Others
Total
(As restated)
P
= 371,921
211,376
Corporate
Business
(In Thousands)
P
= 45,357
5,826
P
= 106,804
65,884
P
= 641,812
372,490
28,326
5,929
22,397
1,221,051
3,102
1,224,153
160,545
66,559
93,986
1,712,912
2,215
1,715,127
39,531
23,979
15,552
387,944
–
387,944
40,920
8,821
32,099
1,063,174
1,421
1,064,595
269,322
105,288
164,034
4,385,081
6,738
4,391,819
4,334
98,382
427
P
= 98,809
97,755
126,470
21,405
P
= 147,875
48,076
22,697
–
P
= 22,697
–
526,742
6
P
= 526,748
150,165
774,291
21,838
P
= 796,129
Cebu Holdings, Inc.
21. Leases
As a PEZA registered enterprise, CPVDC is entitled to the
following incentives:
The Group enters into lease agreements with third parties covering
rentals of space and land therein. These leases have terms ranging
from 1 to 34 years and generally provide for either (a) fixed monthly
rent, or (b) minimum rent on a certain percentage of gross revenue,
whichever is higher. All leases include a clause to enable upward
revision on its rental charge on annual basis based on prevailing
market conditions.
1)
Availment of four years Income Tax Holiday (ITH) incentive,
subject to the provisions of Executive Order 226 and the
Investment Priorities Plan; or
2)
Option to waive the ITH in favor of immediate availment of
the 5% gross income tax incentive, in lieu of all national and
local taxes except real property tax on land owned by the
developers. In the event that the ITH incentive is not
waived, the 5% income tax scheme shall apply only after the
expiration of the ITH period;
3)
Permanent resident status for foreign investors and
immediate family members with initial investment of at least
US$150,000 subject to such guidelines as may be
prescribed by the PEZA Board;
4)
Employment of foreign nationals; and
5)
Simplified customs procedure.
22. Joint Development Agreements
The Company entered into a Joint Development Agreement (the
Project) with Coastal Highpoint Ventures, Inc. (CHVI) on April 5,
2004, where both jointly undertake the development of a portion of
the CHVI Property with an aggregate area of approximately 47.16
hectares more or less into a primarily residential community with
mixed support uses such as a school and a commercial area, called
Amara. In order to undertake the aforesaid development, the
Company has agreed to contribute cash to finance the development
of the Project, and CHVI has agreed to contribute the land, and to
distribute and allocate among themselves the development
corresponding to their respective interests in the Project.
The Project consists of the planning of the Project Site and
development of a subdivision thereon into an integrated and
controlled community primarily for residential uses and supplemented
by educational, commercial and recreational uses in such a manner
contemplated in the master plan and the Site Development Plan, as
well as the marketing, sale and/or lease of Salable Lots therein.
23. Philippine Economic Zone Authority (PEZA) Registration
a.
On February 21, 2000, the BOD of CPVDC approved a resolution
to develop the Cebu Civic and Trade Center (CCTC) consisting
of 236,973 square meters located in Barangays Apas and Lahug,
Cebu City, into a special economic zone in accordance with the
Special Economic Zone Act of 1995.
b.
On April 6, 2000, the Executive Committee of the PEZA
approved the application of CPVDC for CCTC to be registered as
an Information Technology (IT) Park.
Cebu Holdings, Inc.
c.
On February 27, 2001, the Office of the President declared
CCTC as an IT Park per Proclamation No. 12.
d.
On October 10, 2001, CPVDC was granted its PEZA Certificate
of Registration No. EZ 01-006, which certifies that the PEZA has
duly registered CPVDC as the Developer/Operator of the CCTC
IT Park, pursuant to Presidential Proclamation No. 12 and the
provisions of Republic Act No. 7916. Hence, CPVDC may avail
of the aforementioned incentives from the date of the
Registration.
As an IT zone registered enterprise, CPVDC enjoys certain tax
and non-tax incentives, including ITH up to October 10, 2005.
Upon expiry of the ITH incentive, CPVDC, in lieu of all local and
national taxes, shall be subject to the prescribed tax rate of 5% of
gross revenues, net of certain deductions specifically provided for
in the Act.
07. Shareholder
Information
SUBSIDIARIES AND AFFILIATE
Cebu Property Ventures
and Development Corporation
Mixed-use Development
Cebu Insular Hotel, Inc.
Hotel Development
CBP Theatre Management Company, Inc.
Theatre Management
Cebu Leisure Company, Inc.
Entertainment Company
CORPORATE HEADQUARTERS
SHAREHOLDER SERVICES
AND ASSISTANCE
For inquiries regarding dividend payments,
change of address and account status, lost
or damaged stock certificates, please write
or call Stock Transfer Service, Inc.
5/F Phinma Plaza
39 Plaza Drive
Rockwell Center
Makati City 1226 Philippines
Tel (632) 898 7555
(632) 848 7590
Fax (632) 8487598
7/F Cebu Holdings Center
Cardinal Rosales Avenue
Cebu Business Park
Cebu City 6000 Philippines
www.abcapitalonline.com
[email protected]
Tel (6332) 2315301
Fax (6332) 2315300
For inquiries from institutional investors,
analysts and the financial community,
please write or call Cebu Holdings, Inc.Comptroller’s Office
www.cebuholdings.com
[email protected]
INSTITUTIONAL INVESTOR INQUIRIES
4/F Tower One
Ayala Triangle, Ayala Avenue
Makati City 1226 Philippines
Tel (632) 8415575
Fax (632) 8485382
Cebu Holdings, Inc.
CEBU HOLDINGS, INC.
An Affiliate of Ayala Land, Inc.
7/F Cebu Holdings Center, Cardinal Rosales Avenue
Cebu Business Park, Cebu City 6000 Philippines
Tel (6332) 2315301 or Fax (6332) 2315300

2005 Integrated Annual and Sustainability Report

Transcription

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