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1
COVER SHEET
SEC Registration Number
P W - 9 3 7
Company Name
E E I C O R P O R A T I O N A N D S U B S I D I A R I
E S
Principal Office (No./Street/Barangay/City/Town/Province)
N o . 1 2 M a n g g a h a n S t r e e t , B a g u m
b a y a n , Q u e z O n C i t y
Form Type Department requiring the report Secondary License Type, If Applicable
1 7 - Q
COMPANY INFORMATION
Company’s Email Address Company’s Telephone Number/s Mobile Number
[email protected] 334-2677 N/A
No. of Stockholders
Annual Meeting (Month/Day)
Fiscal Year (Month/Day)
3,135 Every Third Friday of
March
March 31
CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation
Name of Contact Person Email Address Telephone Number/s Mobile Number
Atty. Leovigildo R. de Castro,
Jr. [email protected] 880-1941 N/A
Contact Person‟s Address
No. 12 Manggahan St., Bagumbayan, Quezon City, Metro Manila, Philippines
Note: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.
2
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17 (2)(b) THEREUNDER
1. For the quarterly period ended March 31, 2019 2. Commission identification number 937 3. BIR tax identification number 000-391-438-000 4. Exact name of issuer as specified in its charter - EEI Corporation 5. Province, country or other jurisdiction of incorporation or organization Quezon City, Philippines 6. Industry Classification Code (SEC use only) 7. Address of issuer's principal office/Postal code No. 12 Manggahan St., Bagumbayan, Quezon City 1110 8. Issuer‟s telephone number, including area code (02) 334-26-77 9. Former name, former address and former fiscal year, if changed since last report Not Applicable 10. Securities Registered pursuant to Sections 8 and 12 of the code, or Sections 4 and 8 of
the RSA Title of each Class Number of Shares of Common Stock Outstanding Common shares - P1 par value No. of shares Amount Authorized 2,000,000,000 2,000,000,000 Issued and Outstanding 1,036,281,485 1,036,281,485
11. Are any or all of the securities listed on a Stock Exchange? Yes [x] No [ ] If yes, state the name of such Stock Exchange and the class/es of securities listed therein: Philippine Stock Exchange, Inc. Common Shares 12. Indicate by check mark whether the registrant:
(a) has filed all the reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding twelve (12) months (or for such shorter period the registrant was required to file such reports)
Yes [x] No [ ] (b) has been subject to such filing requirements for the past ninety (90) days. Yes [x] No [ ]
3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements The Interim Condensed Consolidated Financial Statements - EEI Corporation and Subsidiaries March 31, 2019 with comparative figures for the period ended December 31, 2018 and March 31, 2018. Cash Flows and Schedule of Aging of Accounts Receivable are incorporated by reference as Exhibit 1.
Item 2. Management's Discussion and Analysis
EEI Corporation and Subsidiaries MANAGEMENT’S DISCUSSION AND ANALYSIS As of March 31, 2019 Results of Operations EEI Corporation‟s consolidated revenues in the first quarter grew by 30% to P5.6 billion from the same period last year. Domestic construction revenues increased by 31% to P5.3 billion as the constraints that used to impede the progress of large infrastructure projects are being resolved. Revenues from services improved by 9% to P287.1 million mainly from the increase in orders for manpower from Gulf Asia Manpower Services, Inc. (GAMSI), EEI Corporation‟s manpower subsidiary; as well as from the newly awarded service contracts acquired by EEI Power Corporation. Merchandise sales revenues grew by 42% to P74.8 million due to higher sales from Equipment Engineers, Inc., EEI Corporation‟s subsidiary involved in trading of construction materials. Meanwhile, Real Estate Sales revenues were down 9% to P6.5 million due to lower sales in its socialized housing project in Tanza, Cavite. The Company‟s direct costs and expenses increased 26% to P4.8 billion, slower compared to the 30% revenue growth. Construction costs grew by 27% with the increase in construction activities while Service costs grew by 8%. Costs associated to Merchandise Sales expanded by 45% to P58.7 million, higher than the 42% increase of sales while Costs related to Real Estate Sales grew by 14%. Equity earnings in associates and joint venture decreased by 40% to P71.6 million primarily due to 75% drop in the earnings of the Company‟s Joint Venture in Saudi Arabia, Al-Rushaid Construction Company Limited (ARCC) although slightly tempered by earnings from investments in Petro Wind Energy, Inc. and Petro Solar Corporation with a combined P54.4 million equity earnings compared to P49.8 million in 2018 or a 9% increase. Selling and administrative expenses increased by 12%, due to personnel related expenses, taxes and licenses and software maintenance. Cost of borrowings, expanded 140% from P52.6 million to P126.0 million due to higher loan level coupled with increasing interest rates. EEI Corporation ended the quarter with a consolidated net income of P326.6 million, 15% more than that earned in the same period in 2018. Earnings per share increased from P0.275 per share in the first quarter of 2018 to P0.315 in the same period in 2019.
4
Financial Position EEI‟s total assets grew 3% to P23.2 billion since the end of 2018. The most significant contributors to this were the 29% increase in Receivables to P4.6 billion and the 26% increase in Other Current Assets to P1.4 billion. Cash and cash equivalents also grew by 5% to P1.09 billion from down payments received for newly awarded projects and from collections from progress billings. Investments in associates and joint ventures also grew by 4% to P2.3 billion due to earnings contributed by the Company‟s investments in renewable energy. Due from related parties decreased by 52% to P88.3 million, due to payment received from ARCC. Other non-current assets decreased by 12% to P1.55 billion due to the reclassification of retention receivable from noncurrent to current account. EEI‟s total liabilities stood at P15 .2 billion, 3% higher than the liabilities as of December 2018, due to increase in short term and long term bank loans, from P8.8 billion in December 2018 to P9.2 billion as of March 31, 2019. EEI‟s total equity increased 4% to P8.0 billion in the 3-month period due to increase in retained earnings. The Company‟s book value per share increased from P7.43 at the end of 2018 to P7.74 as of March 31, 2019.
Operating Highlights
PROJECTS OBTAINED: In the first three months of 2019, EEI won the contracts to construct the Glam Residences and Light Residences 2, both of SM Development Corporation, and the Cebu Cyberzone Mixed Use – Tower 3 and 4 of Cyberzone Properties, Inc. in Cebu. Under infrastructure, EEI was awarded the Sucat to Alabang Viaduct Improvement of the Metro Manila Skyway Stage 2; Stage 4 Section 5 Extension of the Balintawak Flyover both of San Miguel Corporation; and the McArthur Ramps 1 & 2 of NLEX Corporation. Under electromechanical construction, the Company was awarded the construction of Pilmico Feedmill foundation works of Pilmico Foods Corporation in Iligan City, Lanao del Norte; and continued to acquire more repairs and rehabilitation work packages for Petron Corporation‟s plant in Bataan. In the Kingdom of Saudi Arabia, ARCC acquired the contract to replace AC equipment at the Ras Tanura Refinery for Saudi Aramco; the Rabigh Flue Gas Duct Rectification under Mitsubishi Heavy Industries; and the Coil Set Replacement Services for Furnace 7 under Tasnee. ON-GOING PROJECTS The building projects that the Company continued to work on were three projects for Megaworld Corporation namely, the One Eastwood Avenue Tower 2 in Eastwood City, Quezon City, the Noble Place in Binondo, Manila, and the Bayshore Residential Resort in Pasay City; three proje cts for SM Development Corporation, namely Air Residences in Makati City, Fame Residences Towers 3 & 4 in Mandaluyong City, and Coast Residences in Pasay City; the SM Four E-Com Center in Pasay City for SM Prime Holdings, Inc.; three projects for Federal Land namely, the Grand Hyatt Manila Gold Residences 2, the Seasons Residences (formerly known as Sunshine Fort), and the Big Apple – Park Avenue Building, all in Bonifacio Global City, Taguig; Finance Center of Daiichi Properties, Inc. in Bonifacio Global City,Taguig; Mapua Makati Building of Malayan Education Systems Inc.; Torre Lorenzo Development Corporation‟s 3 Torre Lorenzo and Torre Lorenzo Malate in Malate, Manila and the Unioil Tower (formerly known as Exquadra Office Tower) at Ortigas Center, Pasig City. Although housed in industrial facilities, EEI is also constructing the Administration building, the Maintenance Workshop, and the Warehouse for Pagbilao Energy
5
Corporation; the Preheater Building for Northern Cement; and the SM Silangan Warehouse for SM Prime Holdings. Infrastructure projects in progress were the design and construction of the MRT 7 Civil Works Package and for the Interfacing and Integration of Civil Works with the Systems Contractor based on High Level Interfaces Delineation for Universal LRT Corporation; Sections 3 & 4 of the Skyway Stage 3 of San Miguel Corporation/Citra Central Expressway Partnership; the C3 – A. Bonfacio Interchange, the Skyway Balintawak Flyover, and Section 1 of the South East Metro Manila Expressway; the New Bohol (Panglao) Airport of the Chiyoda-Mitsubishi Corporation joint venture in Bohol; the taxiway, remote apron, and other additional work packages for the Runway Expansion of Caticlan Airport of Transaire Development Holdings Corporation in Malay, Aklan; and, National Grid Corporation of the Philippines‟ (NGCP) erection and construction for the relocation of transmission facilities affected by the construction of Skyway Stage 3. Electromechanical projects that were still in-progress include Nestle Philippines, Inc.‟s Ready to Drink Building, and expansion of the IS Building in Tanauan, Batangas: SMC Yamamura‟s Glass Plant Expansion in Imus, Cavite; San Miguel Northern Cement, Inc.’s expansion of its cement plant in Sison, Pangasinan; the Didipio Dewatering Pump Station for Oceanagold Philippines; the turnkey supply and installation of Conical Cylindrical tanks for San Miguel Brewery; the fabrication and installation of Water Tanks for the proposed San Miguel Cagayan de Oro Brewery; the design, fabrication, and erection of various tanks for the Southern Star project of D&L Industries, Inc. in Batangas; the construction of Holcim Philippines, Inc.‟s Kalayaan – Davao Cement Mill; and Hyundai (HEC)‟s manpower supply for the Ain Arnat 1,200 MW Combined Cycle Power Plant, for the Biskra 1,338 MW Combined Cycle Power Plant, and for the Jijel 1,398 MW Combined Cycle Power Plant, all in Algeria. ARCC continued to work on the Jazan Refinery and Terminal of Saudi Aramco under Daewoo; and the Pressure Vessel Replacement Project in South Gawar for Saudi Aramco; the Global Gas & NGL Recovery and Handling Project under JGC Gulf International, Ltd.; the Furnace Retubing at UNITED under SABIC; the FGD System Inlet Duct Works under Mitsubishi Heavy Industries; and the SAFCO III Reliability Improvement under TCC Aside from these, ARCC continues with the maintenance contract of the Saudi Aramco Total Refining and Petrochemical Company‟s Refinery in a joint venture with Sankyu of Japan. Outlook The Philippines‟ first quarter GDP growth of 5.6% was the lowest since 2015. It is lower than the 6.5% growth in the first quarter of 2018, and lower than the government‟s target of 6% to 7% for the year. The slowdown is attributed to the delayed approval of the national budget which led to slower government spending. However, the National Economic and Development Authority said that growth may pick up in the second and third quarters as the government catches up with its first quarter delays and its planned infrastructure build up. The government has rolled out more projects under its Build, Build, Build program and if it is implemented as planned, is expected to have a positive impact on the construction industry in the short to medium term. There are also government initiatives to boost the output of the manufacturing sector, which could lead to an increased demand for new and modernized manufacturing plants. EEI continues to view this as positive for the construction sector in general, and a good opportunity for the Company‟s growth considering its competitive position among companies involved in construction. From EEI‟s perspective, private construction is still active, while public construction will most likely continue as the government rolls out more if its infrastructure projects.
6
Last February 2019, groundbreaking was held for the construction of the Mega Manila Subway, the first underground railway system in the Philippines. The design and build contract for the first three stations of this subway was awarded to a joint venture composed of three Japanese firms and EEI. This will definitely add again to the Company‟s backlog once the project is underway. At the end of March, 2019, EEI Corporation‟s unworked portion of existing contracts was at P50.4 billion including ARCC‟s backlog of P3.6 billion. This is just slightly lower compared to the P50.6 billion at the end of the first quarter of 2018, despite the drop of the backlog of ARCC which was at P9.0 billion in 2018. The Company considers this order book level as healthy and it expects this to lead to a strong performance in its domestic operations. Even with its existing backlog, the Company can take on more projects which is why it continues to actively seek for growth opportunities. The construction activities in Saudi Arabia significantly slowed down in 2018 and the Company expects this trend to continue in 2019. Nonetheless, the Company is hopeful that ARCC will start winning projects within the year while it continues working on other prospects for foreign projects outside the Kingdom of Saudi Arabia. With this outlook, the Company remains cautious but is optimistic that it will achieve sustained growth in the medium term.
7
PART II – OTHER INFORMATION
None
SIGNATURES
Pursuant to the requirements of Section 17 of the SRC, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Registrant – EEI CORPORATION Atty. LEOVIGILDO R. DE CASTRO, Jr. REBECCA R. TONGSON SVP Legal Services and Vice President and Controller Subsidiaries Operations & Corporate Secretary Date: May 15, 2019
8
Exhibit 1
EEI CORPORATION AND SUBSIDIARIES
Interim Condensed Consolidated Financial Statements
March 31, 2019 & 2018 (Unaudited) and December 31, 2018 (Audited)
9
EEI CORPORATION AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
At March 31, 2019 and December 31, 2018
(In Thousand Pesos)
March 31, 2019 December 31, 2018 (Unaudited) (Audited)
ASSETS Cash and cash equivalents 1,092,727 1,036,673 Receivables 4,583,565 3,563,310 Contract assets 4,807,755 4,966,435 Due from related parties 88,280 185,555 Inventories 1,632,127 1,700,869 Other current assets 1,359,182 1,082,857
Total Current Assets 13,563,636 12,535,699
Noncurrent Assets Investments in associates and joint ventures 2,346,758 2,254,714 Equity investments at Fair value through other
comprehensive income (FVOCI) 929,870 926,557 Investment properties 15,695 15,699 Property and equipment 4,709,748 4,878,224 Retirement assets 15,623 16,049 Deferred tax assets - net 82,689 70,329 Other noncurrent assets 1,551,344 1,757,228
Total Noncurrent Assets 9,651,727 9,918,800
TOTAL ASSETS 23,215,363 22,454,499
LIABILITIES AND EQUITY
Bank loans 6,880,000 6,240,000 Accounts payable and other current liabilities 5,483,819 5,449,385 Due to related parties 148,266 149,544 Current portion of long-term debt 952,381 674,603
Total Current Liabilities 13,464,466 12,513,532
Noncurrent Liabilities Long-term debt - net of current portion 1,404,762 1,920,635 Retirement liabilities 88,556 89,766 Other noncurrent liabilities 142,164 142,164 Deferred tax liabilities 76,458 76,458
Total Noncurrent Liabilities 1,711,940 2,229,023
Total Liabilities 15,176,406 14,742,555
Equity Attributable to the holders of the Parent Company:
Capital Stock - P1 par value
Authorized - 2,000,000,000 shares
Issued - 1,036,401,386 shares 1,036,401 1,036,401
Additional paid-in capital 477,037 477,037
Treasury stock (3,721) (3,721)
Other comprehensive income – net 633,185 632,762
Retained earnings
Unappropriated 1,883,531 1,557,444
Appropriated 4,000,000 4,000,000
8,026,433 7,699,923
Noncontrolling interests 12,524 12,021
Total Equity 8,038,957 7,711,944
TOTAL LIABILITIES AND EQUITY 23,215,363 22,454,499
10
EEI CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the periods ended March 31, 2019 and 2018
(In Thousand Pesos Except Earnings Per Share)
JANUARY TO MARCH
2019 2018
REVENUE Construction contracts
5,250,701 4,008,446
Services
287,094 264,242
Merchandise sales
74,782 52,499
Real estate sales
6,511 7,140
5,619,088 4,332,327
COSTS AND EXPENSES Construction contracts
4,521,100 3,546,305
Services
246,802 228,402
Merchandise sales
58,739 40,575
Real estate sales 4,700 4,121
4,831,341 3,819,403
GROSS PROFIT 787,747 512,924
EQUITY IN NET EARNINGS OF ASSOCIATES AND JOINT VENTURE
71,551 119,182
INTEREST INCOME
6,102 6,436
OTHER INCOME – Net
4,928 48,130
SELLING AND ADMINISTRATIVE EXPENSES
(314,170) (279,632)
INTEREST EXPENSE
(126,011) (52,587)
(440,181) (332,219)
INCOME BEFORE INCOME TAX
430,147 354,453
PROVISION FOR INCOME TAX 103,557 70,723
NET INCOME 326,590 283,730
Net Income attributable to:
Equity holders of the Parent Company
326,087 284,763
Noncontrolling interests*
503 (1,033)
326,590 283,730
Earnings Per Share – Basic and Diluted
0.3146 0.2748
* 40% noncontrolling interests (KYC Machine Industry Co., Ltd. and Sansin Sangyo Co., Ltd.) in JP
Systems Asia, Inc., a local subsidiary of Equipment Engineers, Inc.
11
EEI CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the periods ended March 31, 2019 and 2018
(In Thousand Pesos)
JANUARY TO MARCH
2019 2018
NET INCOME 326,590 283,730
OTHER COMPREHENSIVE INCOME
Items not to be reclassified to profit or loss in subsequent periods: Cumulative translation adjustments
308
35,033 Changes in fair value of equity investments carried at FVOCI
115
1,805
TOTAL COMPREHENSIVE INCOME 327,013 320,568
Total comprehensive income attributable to:
Equity holders of the Parent Company 326,510 321,601
Noncontrolling interests 503 (1,033)
327,013 320,568
12
EEI CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the periods ended March 31, 2019 and 2018
(In Thousand Pesos)
March 31, 2019 March 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax 430,147 354,453 Adjustments for: Interest expense 126,011 52,587 Depreciation and amortization 124,285 154,742 Gain on sale of investment properties - (1,804) Gain on sale of property and equipment (152) - Effect of exchange rates income (1,060) (26,907) Equity in net earnings of associates (71,551) (119,182) Interest income (6,102) (6,436) Dividend income (12,231) (600)
Operating income before changes in working capital 589,347 406,853 Decrease (increase) in: Receivables (922,971) 133,901 Cost and estimated earnings in excess of billings on uncompleted contracts - (390,273) Contract assets 158,680 - Inventories 68,743 (1,318) Other current assets (276,325) (155,380) Increase (decrease) in: Accounts payable and other current liabilities 20,080 519,173 Billing in excess of cost and estimated earnings on Uncompleted contracts - (635,227)
Net cash used in operations (362,446) (122,271) Interest received 6,093 6,482 Interest paid (130,984) (50,528) Income taxes paid (86,636) (38,583)
Net cash flows used in operating activities (573,973) (204,900)
CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposals of: Investment properties - 4,703 Property and equipment 3,014 - Net reductions in (additions to): Equity investments at Fair value through other comprehensive income (FVOCI) (3,277) - Property and equipment 41,328 (84,749) Investment properties 4 (2,312) Other noncurrent assets 193,948 41,852 Investments in associates (25,126) 989 Dividends received 18,231 600
Net cash flows provided by (used in) investing activities 228,122 (38,917)
CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from: Bank loans 3,100,000 1,250,000 Payments of: Bank loans (2,460,000) (1,170,000) Long-term debt (238,095) (71,429)
Net cash flows provided by financing activities 401,905 8,571
NET DECREASE IN CASH AND CASH EQUIVALENTS 56,054 (235,246)
CASH AND CASH EQUIVALENTS - BEGINNING 1,036,673 667,151
CASH AND CASH EQUIVALENTS - END 1,092,727 431,905
13
EEI CORPORATION AND SUBSIDIARIES
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
For the periods ended March 31, 2019 and 2018
(In Thousand Pesos)
Equity attributable to holders of the Parent Company
Other comprehensive income - net of deferred tax effect
Capital stock
Additional paid-in capital
Treasury stock
Remeasure-ment losses
on retirement
liability
Cumulative translation
adjustments
Fair value reserve of
equity instruments
at FVOCI
Subtotal
Retained Earnings
Subtotal
Non-controlling interests
Total Unapproriated Appropriated
For the period ended March 31, 2019
Balances at beginning of year
1,036,401
477,037 (3,721)
(143,221)
333,099
442,883
632,762
1,557,444
4,000,000
7,699,923
12,021
7,711,944
Net income
326,087
326,087
503
326,590
Other comprehensive income
1
307
115
423
-
423
-
423
Total comprehensive income
-
- -
1
307
115
423
326,087
326,510
503
327,013
Balances at end of period
1,036,401
477,037 (3,721)
(143,220)
333,406
442,999
633,185
1,883,531
4,000,000
8,026,433
12,524
8,038,957
14
Equity attributable to holders of the Parent Company
Other comprehensive income - net of deferred tax effect
Capital stock
Additional paid-in capital
Treasury stock
Remeasure-ment losses
on retirement liability
Cumulative translation
adjustments
Unrealized Gain on
AFS Financial Assets
Fair value reserve of
equity instruments at
FVOCI
Subtotal
Retained Earnings
Subtotal
Non-controlling interests
Total Unapproriated Appropriated
For the period ended March 31, 2018
Balances at beginning of year
1,036,401
477,037 (3,721)
(121,990)
283,678
5,689
-
167,377
4,982,608
-
6,659,702
15,722
6,675,424
Net income (loss)
284,763
284,763
(1,033)
283,730
Other comprehensive income
35,033
1,805
-
36,838
-
36,838
-
36,838
Total comprehensive income (loss)
-
- -
-
35,033
1,805
-
36,838
284,763
321,601
(1,033)
320,568
Balances at end of period
1,036,401
477,037 (3,721)
(121,990)
318,711
7,494
-
204,215
5,267,371
-
6,981,303
14,689
6,995,992
- 15 -
EEI CORPORATION AND SUBSIDIARIES
AGING OF TRADE RECEIVABLES
As at March 31, 2019
(In Thousand Pesos)
Current 30 Days 60 Days 90 Days
120 Days/ Over
Total
EEI Corporation
2,054,953
677,830
88,585
162,345 624,839
3,608,552
Gulf Asia International Corporation
38,868
8,023
25,975
8,346 16,302
97,513
EEI Construction and Marine, Inc.
118,001
158,236
-
58,230 -
334,468
Equipment Engineers, Inc.
42,368
14,648
6,805
6,972 61,149
131,942
EEI Power Corporation
37,949
26,325
353
2,667 9,043
76,337
EEI Realty Corporation
30,390
138
169
134 1,278
32,109
Others
- 9,578
9,578
Total
2,322,529
885,200
121,887
238,694 722,189
4,290,499
- 16 -
EEI CORPORATION AND SUBSIDIARIES
SEGMENT INFORMATION (UNAUDITED)
For the periods ended March 31, 2019 and 2018
(In Thousand Pesos)
2019
Domestic Foreign Combined Elimination Consolidated
Assets
Current assets 15,230,400 4,058,106 19,288,506 (5,724,871) 13,563,636
Noncurrent assets 10,747,248 2,318,447 13,065,695 (3,413,968) 9,651,727
Total Assets 25,977,648 6,376,553 32,354,201 (9,138,839) 23,215,363
Liabilities
Current liabilities 14,253,997 3,672,355 17,926,352 (4,461,886) 13,464,466
Noncurrent liabilities 1,711,940 914,340 2,626,280 (914,340) 1,711,940
Total Liabilities 15,965,937 4,586,695 20,552,632 (5,376,226) 15,176,406
Revenue 5,744,886 1,960,996 7,705,882 (2,086,794) 5,619,088
Direct cost (4,957,139) (1,827,414) (6,784,553) 1,953,212 (4,831,341)
Operating expenses (317,372) (53,251) (370,623) 56,453 (314,170)
Interest expense (127,260) (39,211) (166,471) 40,460 (126,011)
Share in net income of associates and joint ventures 60,998 17,147 78,145 (6,594) 71,551
Other income 17,396 706 18,102 (7,072) 11,030
Income before tax 421,509 58,973 480,482 (50,335) 430,147
Provision for income tax (103,948) (8,748) (112,696) 9,139 (103,557)
Net income 317,561 50,225 367,786 (41,196) 326,590
Net Income Attributable to:
Equity holders of Parent
Company 317,058 50,225 367,283 (41,196) 326,087
Noncontrolling interests 503 - 503 - 503
317,561 50,225 367,786 (41,196) 326,590
Cash flows arising from:
Operating activities (572,804) 1,238,236 665,432 (1,239,405) (573,973)
Investing activities 228,122 57,397 285,519 (57,397) 228,122
Financing activities 401,905 (1,321,923) (920,018) 1,321,923 401,905
- 17 -
2018
Domestic Foreign Combined Elimination Consolidated
Assets
Current assets 14,754,362 8,604,745 23,359,107 (9,603,029) 13,756,078
Noncurrent assets 8,323,684 3,170,596 11,494,280 (3,610,757) 7,883,523
Total Assets 23,078,046 11,775,341 34,853,387 (13,213,786) 21,639,601
Liabilities
Current liabilities 14,021,500 5,719,355 19,740,855 (6,182,713) 13,558,142
Noncurrent liabilities 1,085,467 910,732 1,996,199 (910,732) 1,085,467
Total Liabilities 15,106,967 6,630,087 21,737,054 (7,093,445) 14,643,609
Revenue 4,445,548 2,299,907 6,745,455 (2,413,128) 4,332,327
Direct cost (3,932,624) (2,049,968) (5,982,592) 2,163,189 (3,819,403)
Operating expenses (279,389) (48,314) (327,703) 48,071 (279,632)
Interest expense (53,346) (40,562) (93,908) 41,321 (52,587)
Share in net income of associates and joint ventures 49,785 69 69,397 119,182 - 119,182
Other income 56,681 14,371 71,052 (16,486) 54,566
Income before tax 286,655 244,831 531,486 (177,033) 354,453
Provision for income tax (70,723) - (70,723) - (70,723)
Net income 215,932 244,831 460,763 (177,033) 283,730
Net Income Attributable to:
Equity holders of Parent
Company 216,965 244,831 461,795 (107,636) 284,763
Noncontrolling interests (1,033) - (1,033) - (1,033)
215,932 244,831 460,763 (107,636) 283,730
Cash flows arising from:
Operating activities (199,814) (3,220,016) (3,419,830) 3,214,930 (204,900)
Investing activities (38,241) 256,464 218,223 (257,140) (38,917)
Financing activities 8,571 324,360 332,931 (324,360) 8,571
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Key Performance Indicators The most significant key indicators of future performance of the Company are the following:
1. Construction contracts and orders – denote the value of construction projects won
by the Company. Work to be done on these projects determines its revenue potential. In our domestic market, contracts and orders increase during an expansionary period when private business is on an investment mode, with significant capital expenditures allotted for new capacity and expansion and upgrading, and when government is spending for physical infrastructure. In our overseas markets, orders tend to rise when investors (quasi private/government entities) and corporations invest on new upstream and downstream petroleum facilities and new power and mining facilities. This usually happens during a period of prolonged high price of oil or basic metals/minerals which encourages capacity expansion projects and spurs new infrastructure projects in the host countries. The regime of high petroleum and metal prices in the past has spurred increased construction activities in the Middle East, East Asia and Africa. But when the price of oil and precious metals go down, projects for expansion are sometimes put on hold.
2. Production – represents the value of construction work accomplished by the Company during the period in review. It is synonymous to sales revenue since these are recognized at the value corresponding to the percentage of completion of the projects and orders. Production is determined through the Company‟s efforts or inputs towards satisfying the performance obligation relative to the total expected efforts or inputs to complete the performance obligation. Wherein, total inputs corresponds to costs incurred as of to date. These translate to better financial performance.
3. Orders backlog – corresponds to the value of unfinished portions of projects; thus
providing a measure of the near-term future source of production and revenues of the Company. Backlog has a tendency to increase during times when private companies (both local and foreign) are on an expansionary cycle, as they undertake capital expansion and/or modernization of their respective factories and plants. It also occurs when national and local government is on a pump priming mode of investing on infrastructure. Bigger backlog means a probability of higher profit in the future.
4. Liquidity – refers to existing cash and cash resources and the capability of the Company to quickly draw financial resources (such as working capital and other credit lines) to fund operations and construction activities. This ability to deploy financial resources is critical in fulfilling its contract obligations and ensuring the operational and financial viability of the Company.
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EEI CORPORATION AND SUBSIDIARIES
Corporate Information
EEI Corporation (the Parent Company) is a stock corporation incorporated on April 17, 1931 under the laws of the Philippines. On July 15, 1980, the Parent Company‟s corporate life was extended for another fifty years starting April 17, 1981. Its registered office address is No. 12 Manggahan Street, Bagumbayan, Quezon City. The Parent Company‟s shares of stock are publicly traded at the Philippine Stock Exchange (PSE). It is a subsidiary of House of Investments, Inc., which is also incorporated in the Philippines. The ultimate parent company of EEI Corporation is Pan Malayan Management and Investment Corporation (PMMIC).
The Parent Company is engaged in general contracting and construction equipment rental. The Parent Company‟s subsidiaries, associates and joint ventures are mainly involved in the provision of manpower services, construction, trading of construction equipment and parts, power generation, steel fabrication, scaffoldings rental, and real estate. The accompanying interim condensed consolidated financial statements of the Group were approved and authorized for issue by its Board of Directors on May 10, 2019.
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Item 1. Financial Statements Required Under SRC Rule 68.1
5. Earnings Per Share The following table presents information necessary to calculate basic earnings per share:
(In Thousand Pesos) As at 03.31.19 As at 03.31.18
Net income 326,087 284,763
Issued and subscribed shares 1,036,401 1,036,401
Earnings per share P 0.3146 P0.2748
6. The accompanying interim condensed consolidated financial statements have been
prepared in compliance with PAS 34, Interim Financial Reporting.
7.a Basis of Preparation The interim condensed consolidated financial statements have been prepared on a historical cost basis, except for equity investments at FVOCI which have been measured at fair value. The accompanying interim condensed consolidated financial statements are presented in Philippine Peso (P=), which is also the Parent Company‟s functional currency. Except as indicated, all amounts are rounded off to the nearest Peso. Statement of Compliance The interim condensed consolidated financial statements have been prepared in compliance with Philippine Financial Reporting Standards (PFRSs). For PFRS 16, “Leases”, the group is currently assessing the impact on the financial statements. This will be presented for the first time in June 30, 2019 filing. Basis of Consolidation The interim condensed consolidated financial statements include the Parent Company and the following companies that it controls:
Percentage of Ownership
Place of Incorporation Nature of Business Functional Currency
March 2019 December 2018
Direct Indirect Direct Indirect
EEI Limited (formerly EEI BVI Ltd.) British Virgin Islands Holding company US Dollar 100 ‒ 100 ‒ Clear Jewel Investments, Ltd. (CJIL) British Virgin Islands Holding company US Dollar ‒ 100 ‒ 100 Nimaridge Investments,Limited British Virgin Islands Holding company US Dollar ‒ 100 ‒ 100 EEI (PNG), Ltd Pap a New Guinea Holding company US Dollar − 100 − 100
EEI Corporation (Guam), Inc. United States of America
Construction US Dollar 100 ‒ 100 ‒
EEI Construction and Marine, Inc. Philippines Construction Philippine Peso 100 ‒ 100 ‒ EEI Realty Corporatio (EEI Realty) Philippines Real es ate Philippine Peso 100 ‒ 100 ‒ EEI Subic Corporation Philippines Construction Philippine Peso 100 ‒ 100 ‒ Equipment Engineers, Inc.(EE) Philippines Construction Philippine Peso 100 ‒ 100 ‒
JP Systems Asia Inc. (JPSAI) Philippines
Rental of scaffolding and formworks
Philippine Peso ‒ 60 ‒ 60
EEI Power Corporation (EPC) Philippines Power generation Philippine Peso 88 12 88 12 Gulf Asia International Corporation
(GAIC) Philippines Manpower services
Philippine Peso
100 ‒ 100 ‒
GAIC Professional Services Inc. (GAPSI) Philippines Manpower services Philippine Peso ‒ 10 ‒ 100 GAIC Manpower Services, Inc. (GAMS ) Philippines Manpower services Philippine Peso ‒ 100 ‒ 100 Bagumbayan Equipment & Industrial
Products, Inc. Philippines
Consultancy services
Philippine Peso 100 ‒ 100 ‒
Philmark, Inc Philippines Construction Philippine Peso 100 ‒ 100 ‒ Philrock Construction and Services, Inc. Philippines Manpower services Philippine Peso 100 ‒ 100 ‒
Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has:
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a) power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); b) exposure, or rights, to variable returns from its involvement with the investee;
and c) the ability to use its power over the investee to affect its returns.
Generally, there is a presumption that a majority of voting rights result in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:
a) the contractual arrangement with the other vote holders of the investee b) rights arising from other contractual arrangements c) the Group‟s voting rights and potential voting rights
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statements of income and consolidated statements of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The consolidated financial statements are prepared with the same financial reporting period as the Parent Company using the consistent accounting policies. All significant intercompany balances and transactions, intercompany profits and expenses and gains and losses are eliminated during consolidation.
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the financial year, except that the Group has adopted the following new accounting pronouncements starting January 1, 2018.
PFRS 15, Revenue from Contracts with Customers PFRS 15 supersedes PAS 11, Construction Contracts, PAS 18, Revenue, and related Interpretations and it applies, with limited exceptions, to all revenue arising from contracts with customers. PFRS 15 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer.
PFRS 9, Financial Instruments
PFRS 9 Financial Instruments replaces PAS 39, Financial Instruments: Recognition and Measurement, for annual periods beginning on or after January 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.
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Amendments of PFRS 12, Clarification of the Scope of the Standard (Part of Annual Improvements to PFRSs 2014-2016 Cycle)
Amendments of PAS 7, Statement of Cash Flows, Disclosure Initiative
Amendments of PAS 12, Income Taxes, Recognition of Deferred Tax Assets for Unrealized Losses
Amendments to PFRS 2, Share-based Payment, Classification and Measurement of Share-based Payment Transactions
Amendments to PFRS 4, Applying PFRS 9 Financial Instruments with PFRS 4 Insurance Contracts
Amendments to PAS 28, Investments in Associates and Joint Ventures, Measuring an Associate or Joint Venture at Fair Value (Part of Annual Improvements to PFRSs 2014 - 2016 Cycle)
Amendments to PAS 40, Investment Property, Transfers of Investment Property
Philippine Interpretation International Financial Reporting Interpretation Committee (IFRIC) -22, Foreign Currency Transactions and Advance Consideration
Effective beginning on or after January 1, 2019
Amendments to PFRS 9, Prepayment Features with Negative Compensation
PFRS 16, Leases
PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under PAS 17, Leases. The standard includes two recognition exemptions for lessees – leases of ‟low-value‟ assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset. Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). The lessee will generally recognize the amount of the remeasurement of the lease liability as an adjustment to the right-of-use asset. Lessor accounting under PFRS 16 is substantially unchanged from today‟s accounting under PAS 17. Lessors will continue to classify all leases using the same classification principle as in PAS 17 and distinguish between two types of leases: operating and finance leases. PFRS 16 also requires lessees and lessors to make more extensive disclosures than under PAS 17.
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A lessee can choose to apply the standard using either a full retrospective or a modified retrospective approach. The standard‟s transition provisions permit certain reliefs. The Group is currently assessing the impact of adopting PFRS 16.
Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement
Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures
Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments
Annual Improvements to PFRSs 2015-2017 Cycle
o Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements, Previously Held Interest in a Joint Operation
o Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments Classified as Equity
o Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization
Standards Issued But Not Yet Effective Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Group does not expect that the future adoption of the said pronouncements will have a significant impact on its consolidated financial statements. The Group intends to adopt the following pronouncements when they become effective.
Effective beginning on or after January 1, 2020
Amendments to PFRS 3, Definition of a Business
Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, Definition of Material
Effective beginning on or after January 1, 2021
PFRS 17, Insurance Contracts
Deferred effectivity
Amendments to PFRS 10, Consolidated Financial Statements, and PAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
Summary of Significant Accounting Policies
Revenue Recognition Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The Group has generally concluded that it is the principal in its revenue arrangements, because it typically controls the goods or services before transferring them to the customer
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Revenue from construction contracts The Group assessed that there is only one performance obligation for each construction agreement that it has entered and that revenue arising from such agreements qualify for recognition over time because the Group‟s performance creates or enhances an asset that the customer controls as the asset is created or enhanced by applying par. 35(b) of PFRS 15. Control of an asset refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, the asset. The customer, having the ability to specify the design (or any changes thereof) of the asset, controls the asset as it is being constructed. Furthermore, the Group builds the asset on the customer‟s land (or property controlled by the customer), hence, the customer generally controls any work in progress arising from the Group‟s performance. The Group also recognized as part of its construction revenue, the effects of variable considerations arising from various change orders and claims, to the extent that they reflect the amounts the Group expects to be entitled to and to be received from the customers, provided that it is highly probable that a significant reversal of the revenue recognized in connection with these variable considerations will not occur in the future. For unpriced change orders and claims, the Group uses the “most likely amount” method to predict the amounts the Group expects to be entitled to and to be received from the customers. The Group elected to use the input method to measure the progress of the fulfilment of its performance obligation, which is based on the actual costs incurred to date relative to the total estimated cost to complete the construction projects because there is a direct relationship between the Group‟s effort (i.e., costs incurred) and the transfer of service to the customer. Revenue from power generation The Group‟s power supply agreement with its customer requires the Group to deliver certain units of electricity (in kWh) to the customer per month. As delivery of electricity constitutes a series of distinct good or services that are substantially the same and have the same pattern of transfer to the customer (i.e., the good or service would be recognized over time using the same measure of progress), this was treated by the Group as a single performance obligation. Because electricity is simultaneously provided and consumed, the Group‟s performance obligation to deliver electricity qualifies for revenue recognition over time by applying par. 35(a) of PFRS 15. The Group recognizes revenue from power generation by applying the “right to invoice” practical expedient since the Group‟s right to payment is for an amount that corresponds directly with the value to the customer of the Group‟s performance to date. Revenue from manpower services Under the Group‟s service agreements with its customers, the Group is required to provide manpower services (including but not limited to janitorial, messengerial and other allied services). As provision of these services constitutes a series of distinct good or services that are substantially the same and have the same pattern of transfer to the customer (i.e., the good or service would be recognized over time using the same measure of progress), this was treated by the Group as a single performance obligation. Because the services are simultaneously provided and consumed by the customer, the Group‟s performance obligation to render such services qualifies for revenue recognition over time by applying par. 35(a) of PFRS 15. The Group recognizes revenue from manpower supply services by applying the “right to invoice” practical expedient since the Group‟s right to payment is for an amount that corresponds directly with the value to the customer of the Group‟s performance to date. Revenue from sale of merchandise Revenue from sale of merchandise is recognized at a point in time when control of the asset is transferred to the customer, generally on delivery and acceptance of the inventory item. Contract balances arising from revenue with customer contracts
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Receivables A receivable represents the Group‟s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional. Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Group performs under the contract. The Group presents each contract with customer in the consolidated statement of financial position either as a contract asset or a contract liability. Expenses Expenses are recognized in the consolidated statement of income when decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. Cost of sales and services Cost of sales is recognized as an expense when the related goods are sold. Cost of services include all direct materials and labor costs and those indirect costs related to contract performance which are recognized as incurred. Selling and administrative expenses Selling expenses are costs incurred to sell goods and services. Administrative expenses constitute costs of administering the business. Selling and administrative expenses are expensed as incurred.
Current versus Noncurrent Classification The Group presents assets and liabilities in consolidated statement of financial position based on current/noncurrent classification. An asset as current when it is:
Expected to be realized or intended to be sold or consumed in normal operating cycle
Held primarily for the purpose of trading
Expected to be realized within twelve months after the reporting period or
Cash and cash equivalent unless restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period
All other assets are classified as noncurrent. A liability is current when:
It is expected to be settled in normal operating cycle
It is held primarily for the purpose of trading
It is due to be settled within twelve (12) months after the financial reporting period or
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There is no unconditional right to defer the settlement of the liability for at least twelve (12) months after the reporting period
The Group classifies all other liabilities as noncurrent. Deferred tax assets and liabilities are classified as noncurrent assets and liabilities.
Cash and Cash Equivalents 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 with original maturities of three (3) months or less and that are subject to an insignificant risk of change in value. Fair Value Measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability, or
In the absence of a principal market, in the most advantageous market for the asset or
liability.
The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or
liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair
value measurement is unobservable
For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each financial reporting period.
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For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Financial Instruments The Group recognizes a financial asset or a financial liability in the interim condensed consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on the settlement date. The Group follows the settlement date accounting where an asset to be received and liability to be paid are recognized on the settlement date and derecognition of an asset that is sold and the recognition of a receivable from the buyer are recognized on the settlement date.
Inventories Inventories are stated at the lower of cost and net realizable value (NRV). Cost includes purchase price and other costs directly attributable to its acquisition such as non-refundable taxes, handling and transportation cost. The cost of real estate inventories includes (a) land cost; (b) freehold and leasehold rights for land; (c) amounts paid to contractors for construction; (d) borrowing costs, planning and design cost, cost of site preparation, professional fees, property taxes, construction overheads and other related costs that are directly attributable in bringing the real estate inventories to its intended condition.
Cost of inventories is generally determined using the moving-average method, except for land inventory of EEI Realty which is accounted for using the specific identification method.
NRV is the estimated selling price in the ordinary course of the business less the estimated costs necessary to make the sale.
Prepaid Expenses These are recorded as asset before they are utilized and apportioned over the period covered by the payment and charged to the appropriate account in the consolidated statement of income when incurred.
Other Current Assets Other current assets pertain to other resources controlled by the Group as a result of past events and from which future economic benefits are expected to flow to the Group within the financial reporting period.
Value-Added Tax (VAT) Revenues, expenses, and assets are recognized net of the amount of VAT, if applicable. When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on from purchases of goods or services (input VAT), the excess is recognized as payable in the consolidated statement of financial position. When VAT passed on from purchases of goods or services (input VAT) exceeds VAT from sales of goods and/or services (output VAT), the excess is recognized as an asset in the consolidated statement of financial position up to the extent of the recoverable amount.
Investments in Associates and Joint Venture The Group has 49% investment in Al-Rushaid Construction Company Limited (ARCC) which is incorporated and based in the Kingdom of Saudi Arabia and is currently accounted for as an associate.
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In 2013, EPC acquired 20% stake in PetroWind Energy, Inc. (PWEI) P118.75 million and was accounted for as an associate. In 2014, investment in PWEI is accounted as joint venture due to change in equity ownership in PWEI after the Shareholders Agreement became in effect. In 2015, the EPC purchased 3.7 million shares from PSOC amounting to P=366.43 million which resulted to 44% ownership on the latter. PSOC was incorporated on June 17, 2015 primarily to carry out the general business of generating, transmitting, and/or distributing power derived from renewable energy resources. It has a 50-megawatt solar farm in Tarlac City. In February 2019 and 2018, EPC made additional investments to PSOC amounting to P25.1 million and P175.8 million, respectively. These transactions did not result to a change in the 44% ownership of EPC over PSOC.
An associate is an entity in which the Group has significant influence. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in associates and joint venture are accounted for using the equity method of accounting. Under this method, the investment amount is increased or decreased to recognize the Group‟s share in the profit or loss of the investee after the date of acquisition. Dividends received from the investee reduces the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for changes in the Group‟s proportionate interest in the investee arising from changes in the investee‟s other comprehensive income. Gains and losses resulting from „upstream‟ and „downstream‟ transactions between the Group and its associate or joint venture are recognized in the consolidated financial statements only to the extent of unrelated investors‟ interests in the associate or joint venture. The reporting dates and the accounting policies of the associates and joint venture conform to those used by the Group for like transactions and events in similar circumstances. The reporting dates and the accounting policies of the associate and joint venture conform to those used by the Group for like transactions and events in similar circumstances. Property and Equipment Property and equipment, except for land, is stated at cost, less accumulated depreciation, amortization and impairment in value, if any. Land is carried at cost less any impairment in value. The initial cost of property and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the assets have been put into operation, such as repairs and maintenance, are normally charged to operations in the year in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment. Depreciation is computed using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of property and equipment of the Group are as follows:
Number of years
Machinery, tools and construction equipment 1 - 20 Buildings and improvements 10 - 20 Transportation and service equipment 5 Furniture, fixtures and office equipment 3 - 5
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Amortization of leasehold improvements is computed over the estimated useful life of the improvement of 20 years or term of the lease, whichever is shorter. The estimated useful lives and depreciation and amortization method are reviewed periodically to ensure that the periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.
Construction in progress represents property and equipment under construction and is stated at cost. This includes cost of construction and other direct costs. Construction in progress are reclassified to the appropriate class of property and equipment when construction of the asset is completed. Property and equipment are written-off when either these are disposed of or when these are permanently withdrawn from use and there is no more future economic benefits expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statement of income in the year the asset is derecognized. Investment Properties Investment properties, except for land, are stated at cost, less accumulated depreciation and impairment loss, if any, including transaction costs. Land is carried at cost less any impairment in value, if any. 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. Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property to owner-occupied property, the deemed cost for subsequent accounting is the carrying amount of the investment property transferred at the date of change in use. If owner-occupied property becomes an investment property, the group accounts for such property in accordance with the policy stated under property and equipment up to the date of change in use. Depreciation is computed using the straight-line method over the estimated useful life of twenty (20) years. Software Costs Software costs are stated at cost less accumulated amortization and any impairment in value. Costs related to software purchased by the Group for use in the operations are amortized on a straight-line basis over a period of three (3) years. Impairment of Non-financial Assets For property and equipment, software costs, investments in associates and joint venture and investment properties, the Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, the Group makes an estimate of the asset‟s recoverable amount. An asset‟s recoverable amount is the higher of an asset‟s or cash-generating unit‟s fair value less costs to sell and its value in use, and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less cost to sell, recent market transactions are taken into account, if
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available. If no such transaction can be identified, an appropriate valuation model is used.
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 may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset‟s recoverable amount 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 amount cannot exceed the carrying amount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the consolidated statement of income. Foreign Currency-denominated Transactions and Translation Transactions denominated in foreign currencies are recorded using the applicable exchange rate at the date of the transaction. Outstanding monetary assets and monetary liabilities denominated in foreign currencies are retranslated using the applicable rate of exchange at the end of reporting period. Foreign exchange gains or losses are recognized in the Group‟s consolidated statement of income. Nonmonetary items that are measured in terms of historical cost in foreign currency are translated using the exchange rates as at the dates of initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. The functional currency of EEI Limited and Subsidiaries, the Group‟s foreign subsidiaries, is United States Dollar. As at reporting date, the assets and liabilities of foreign subsidiaries are translated into the presentation currency of the Group (the Philippine Peso) at the closing rate as at the reporting date, and the consolidated statements of income accounts are translated at monthly weighted average exchange rate. The exchange differences arising on the translation of foreign subsidiaries are taken directly to a separate component of equity under cumulative translation adjustments account. Upon disposal of a foreign subsidiary, the deferred cumulative amount recognized in other comprehensive income relating to that particular foreign operation is recognized in the consolidated statement of income.
Retirement Benefits The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the financial reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined pension asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The cost of providing benefits under the defined pension plans is actuarially determined using the projected unit credit method. Retirement expenses comprise the following:
a) a) Service cost b) b) Net interest on the net defined benefit liability or asset c) c) Remeasurements of net defined benefit liability or asset
Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are
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recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries. Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group.
Income Tax Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and the tax laws used to compute the amount are those that are enacted or substantially enacted at reporting date. Deferred tax Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the financial reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except:
When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
In respect of taxable temporary differences associated with investments in subsidiaries, associates and joint venture, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:
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When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
In respect of deductible temporary differences associated with investments in associates and interests in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be used. Unrecognized deferred tax assets are re-assessed at each financial reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax assets to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year 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 financial reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same entity and the same taxation authority. Current tax and deferred tax shall be recognized outside profit or loss if the tax relates to items that are recognized outside profit or loss. Operating Leases Operating leases represent those leases under which substantially all risks and rewards of ownership of the leased assets remain with the lessors. Lease receipts (payments) under operating lease agreements are recognized as income (expense) on a straight-line basis over the term of the lease. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessment of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as interest expense. For contract with customer identified by the Group to be onerous (i.e., the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it.), the Group records a provision for the loss it expects to make on such contract. Contingencies Contingent liabilities are not recognized in the interim condensed consolidated financial statements. Contingent assets are not recognized in the group financial statements but disclosed in the notes to group financial statements when an inflow of economic benefits is probable.
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Stock Option Plan
No benefit expense is recognized relative to stock options granted. When the shares related to the stock options plan are subscribed, these are treated as capital stock issuances. The stock option plan is exempt from PFRS 2, Share-based Payment. Basic and Diluted Earnings per Share Basic earnings per share is computed by dividing net income for the year attributable to equity holders of the Parent Company by the weighted average number of common shares outstanding during the year, after giving retroactive effect for any stock dividends, stock splits or reverse stock splits. Diluted earnings per share is computed by adjusting the net income for the year attributable to equity holders of the Parent Company and the weighted average number of common shares outstanding during the year after giving retroactive effect for any stock dividends, stock splits or reverse stock splits and adjusted for the effects of all dilutive potential common shares.
Capital Stock The Group records common stocks at par value and additional paid-in capital in excess of the total contributions received over the aggregate par values of the equity shares. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as a deduction from proceeds, net of tax. When the Group purchases its own shares of capital stock (treasury shares), the consideration paid, including any attributable incremental costs, is deducted from equity until the shares are cancelled or reissued of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects is included in equity. Retained Earnings Retained earnings represent the cumulative balance of periodic net income or loss, prior period adjustments, effect of changes in accounting policy and other capital adjustments. Retained earnings are restricted for dividend declaration to the extent of the cost of treasury shares Events After the Financial Reporting Date
Any post year-end events up to the date of auditor‟s report that provide additional information about the Group‟s position at the reporting date (adjusting events) are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed when material, in notes the consolidated financial statements.
Significant Accounting Judgments and Estimates
The preparation of the Group‟s interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenue, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. The effects of any changes in estimates will be reflected in the consolidated financial statements as they become reasonably determinable. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
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The following presents a summary of these significant accounting judgments and estimates:
Judgments Recognition of revenue from construction contracts (applicable beginning January 1, 2018) Under PFRS 15, Revenue from Contracts with Customers, which the Group adopted starting January 1, 2018, the Group assessed that there is only one performance obligation for each construction agreement that it has entered and that revenue arising from such agreements qualify for recognition over time. The Group elected to use the input method to measure the progress of the fulfilment of its performance obligation, which is based on the actual costs incurred to date relative to the total estimated cost to complete the construction projects. The Group believes that this method faithfully depicts the Group‟s performance towards satisfaction of its performance obligation because there is a direct relationship between the Group‟s effort (i.e., costs incurred) and the transfer of service to the customer. Provisions and contingencies The Group is involved in various claims in the ordinary course of business. Management and its legal counsels believe that the Group has substantial legal and factual bases for its position. The Group‟s management believes that the outcome of these claims will not have a material adverse effect on the Group‟s financial position or operating results. It is possible, however, that future results of operations could be materially affected by changes in estimates or in the effectiveness of the strategies relating to these claims. No provisions have been recognized as of March 31, 2019 and December 31, 2018. Estimates and Assumptions The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting 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 described below. The Group based its assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in the assumptions when they occur. Estimating variable considerations arising from change orders and claims The Group frequently agrees to change orders that modify the scope of its work previously agreed with customers and regularly submits claims to customers when unanticipated additional costs are incurred because of delays or changes in scope caused by the customers. PFRS 15 requires the Group to recognize, as part of its revenue from construction contracts, the estimated amounts the Group expects to be entitled to and to be received from customers due to these change orders and claims (otherwise known as variable considerations), provided that it is highly probable that a significant reversal of the revenue recognized in connection with these variable considerations will not occur in the future. For these unpriced change orders and claims, the Group uses the “most likely amount” method to predict the amount to which it will be entitled and expected to be received from the customers.
The aggregate carrying values of receivables and contract assets arising from construction contracts amounted to P=9.4 billion as of March 31, 2019.
Fair value measurement of unquoted equity investments at FVOCI The Group uses valuation techniques such as discounted cash flow approach and adjusted net asset method with significant unobservable inputs to calculate the fair value of its unquoted equity investments at FVOCI. These inputs include revenue growth assumptions, discount rates, appraised value of real properties, among others. Changes in assumptions relating to
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these factors could affect the reported fair value of these unquoted equity financial instruments. Provision for expected credit losses of trade receivables and contract assets The Group uses the simplified approach in calculating the ECL of its trade receivables and contract assets wherein the Group does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The model is based on the Group‟s historical observed default rates and adjusted to include forward looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed. The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Group‟s historical credit loss experience and forecast of economic conditions may also not be representative of customer‟s actual default in the future. As of March 31, 2019, the aggregate carrying values of receivables and contract assets amounted to P9.4 billion. Estimation of 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 collectability of the accounts. These factors include, but are not limited to, the length of the Group‟s relationship with the customer, the customer‟s payment behavior and other 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 or those with existing allowances needing reversals.
As of March 31, 2019, the aggregate carrying values of receivables amounted to P4.6 billion. Estimation of retirement obligations The determination of the obligation and retirement cost are dependent on certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, discount rates and salary increase rates. While the Group believes that the assumptions are reasonable and appropriate, significant differences in the actual experience or significant changes in the assumptions may materially affect the retirement obligations. Retirement assets amounted to P=15.6 million and P=16.0 million as at March 31, 2019 and December 31, 2018, respectively whereas retirement liabilities amounted to P=88.6 million and P=89.8 million as at March 31, 2019 and December 31, 2018, respectively. Realizability of deferred tax assets The Group reviews the carrying amounts of deferred taxes of each entity in the Group at each reporting date and reduces deferred 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 tax assets to be utilized.
7.b.
We have nothing to disclose in notes to interim condensed consolidated financial statements regarding seasonality or cyclicality as it has no material effect on our interim operations.
7.c Nature and amount of items affecting assets, liabilities, equity, net income, or cash flows that are unusual because of their nature, size, or incidents:
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Cash and Cash Equivalents
(In Thousand Pesos) 03.31.19 12.31.18
Cash on hand 4,683 5,091
Cash in banks 981,719 1,030,255
Cash equivalents 106,325 1,327
1,092,727 1,036,673
Cash in banks earns interest at the respective bank deposit rates. Cash equivalents are made for varying periods up to three (3) months depending on the immediate cash requirements of the Group and earn annual interest at the respective short-term investment rates.
Receivables
(In Thousand Pesos) 03.31.19 12.31.18
Trade receivables
Non-interest bearing
Billed receivables 4,290,499 3,259,543
Unbilled receivables 56,587 52,700
Interest bearing 52,196 65,201
Receivable from sale of investment properties 125,308 125,789
Receivable from EEI RFI 55,000 55,000
Other receivables 49,614 51,593
4,629,204 3,609,826
Less: Allowance for doubtful accounts 45,639 46,516
4,583,565 3,563,310
Trade receivables mainly pertain to amounts arising from domestic and foreign construction contracts. These receivables are based on the monthly progress billings provided to customers over the period of the construction. These trade receivables are generally on 30-day credit term.
Inventories
(In Thousand Pesos) 03.31.19 12.31.18
At cost :
Land and land development 152,691 152,726
Subdivision lots and condominium units for sale
76,924
76,793
Raw lands 45,229 45,229
274,844 274,748
At cost and at NRV :
Construction materials 1,113,959 1,163,220
Merchandise 94,451 117,184
Spare parts and supplies 148,873 145,717
1,357,283 1,426,121
1,632,127 1,700,869
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Other Current Assets
(In Thousand Pesos) 03.31.19 12.31.18
Advances to suppliers and subcontractors 873,330 712,413
Creditable withholding taxes 179,918 192,351
Input value-added taxes (VAT) 86,131 2,718
Prepaid expenses 60,964 27,150
Miscellaneous deposits 90,302 87,608
Advances to officers and employees 38,539 30,982
Others 33,529 33,213
1,362,713 1,086,435
Less: Allowance for impairment 3,531 3,578
1,359,182 1,082,857
Investments in Associates and Joint Ventures
(In Thousand Pesos) 03.31.19 12.31.18
Acquisition cost:
Balance at beginning of year 2,425,294 2,249,498
Acquisitions 25,126 175,796
Balance at end of period 2,450,420 2,425,294
Accumulated equity in net earnings (loss)
Balance at beginning of year (358,181) (184,200)
Prior year adjustment (6,594) -
Equity in net earnings (loss) 78,145 (126,507)
Dividend received (6,000) (48,400)
Other comprehensive income - 925
Balance at end of period (292,630) (358,182)
Sub-total 2,157,790 2,067,112
Equity in cumulative translation adjustments 188,968 187,602
2,346,758 2,254,714
Equity investments at Fair value through other comprehensive income (FVOCI)
(In Thousand Pesos) 03.31.19 12.31.18
Quoted shares 23,185 23,069
Unquoted shares 906,685 903,488
929,870 926,557
Rollforward analysis of this account follows:
(In Thousand Pesos) 03.31.19 12.31.18
Balance at beginning of year 926,557 390,531
Transition adjustment relating to initial adoption of PRFS 9 - 509,719
Additions 3,198 22,374
Fair value 115 3,933
929,870 926,557
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Property and Equipment
(In Thousand Pesos) 03.31.19 12.31.18
Cost
Machinery, tools and construction equipment 6,226,029 5,779,801
Land, buildings and improvements 1,134,536 1,062,891
Transportation and service equipment 1,033,314 1,030,451
Furniture, fixtures and office equipment 377,848 834,616
Construction in progress 19,987 89,199
8,791,714 8,796,958
Accumulated depreciation and amortization 4,081,966 3,918,734
4,709,748 4,878,224
Investment Properties
(In Thousand Pesos) 03.31.19 12.31.18
Cost
Balance at beginning of year 15,769 25,021
Additions - 3,250
Transfer-in - 7,000
Disposals - (19,502)
15,769 15,769
Accumulated depreciation
Balance at beginning of year 70 10,639
Depreciation 4 346
Disposals - (10,915)
74 70
Net book value 15,695 15,699
Other Noncurrent Assets
(In Thousand Pesos) 03.31.19 12.31.18
Contract assets – net of current portion 963,051 1,152,108
Deferred input VAT 186,804 205,384
Receivable from sale of investment property – net of current portion
155,246
155,246
Receivable from EEI RFI - net of current portion 78,000 78,000
Interest-bearing trade receivables – net of current portion
88,307
88,307
Deposit for future subscription of shares of stock BiotechJP Corp.
81,000
81,000
Others 8,631 8,504
1,561,039 1,768,547
Less: Allowance for doubtful accounts – receivable from customers
(9,695)
(11,321)
1,551,344 1,757,228
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Bank Loans
(In Thousand Pesos) 03.31.19 12.31.18
Unsecured bank loans 6,880,000 6,240,000
Bank loans consist of unsecured peso-denominated short term loans from local banks with annual interest rates of 5.5% - 6.1% and 4.82% - 6.13% as at March 31, 2019 and December 31, 2018, respectively. Accounts Payable and Other Current Liabilities
(In Thousand Pesos) 03.31.19 12.31.18
Accounts payable 4,174,363 3,902,798
Deferred output taxes 443,688 744,187
Retention payable 434,521 419,147
Accrued expenses 206,002 222,789
Advances from joint venture partners 32,382 32,382
VAT output taxes 109,564 -
Withholding taxes 32,199 47,812
Subscription payable - 14,357
Income tax payable 44,553 27,632
Dividends payable 6,000 6,000
Others 547 32,281
5,483,819 5,449,385
Long-term Debt
(In Thousand Pesos) 03.31.19 12.31.18
Fixed-rate corporate promissory notes 2,107,143 2,327,381
Fixed-rate term loan 250,000 267,857
2,357,143 2,595,238
Less: current portion 952,381 674,603
1,404,762 1,920,635
Revenue from contracts with customers (In Thousand pesos) Set out is the disaggregation of the Group‟s revenue from contracts with customers:
Construction contracts P=5,250,701 Manpower services 166,437 Power generation 108,555 Merchandise sales 74,782 Real estate sales 6,511 Others 12,102
P=5,619,088
Construction contracts
Infrastructure P=3,216,685 Building 1,271,920 Electro-mechanical 469,022 Industrial 295,072
P=5,250,701
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7.d 7.e
There was no change in amount reported in prior financial year that have material effect in the current interim period. As at March 31, 2019, availment of loans amounted to P3.1 billion while repayment is P2.7 billion.
7.f Future dividends will depend on the earnings, cash flow, and financial condition of the Company and other factors and subject to the availability of retained earnings not earmarked for capital expenditures.
7.g Segment Information - Please refer to pages 16-17.
7.h There was no material event subsequent to the end of the interim financial period that has not been reflected in the interim condensed consolidated financial statements.
7.i
There was no material change in the composition of the issuer during the interim period, including business combinations, acquisition or disposal of subsidiaries and long-term investments, restructurings, and discontinuing operations.
7.j There was no material change in contingent liabilities or contingent assets since the last annual statement position.
7.k Commitments and Contingencies
a.) Surety Arrangement and Guarantees
The Company is contingently liable for guarantees arising in the ordinary course of business, including performance, surety and warranty bonds for various construction
projects amounting to P6.0 billion and P5.3 billion as at March 31, 2019 and December 31, 2018, respectively.
Also, the Company issued a Parent Company Guarantee for the repayment of a 7-year
long-term loan granted to its subsidiary by a local bank with an outstanding balance of P250.0 million and P267.9 million as at March 31, 2019 and December 31, 2018, respectively.
b.) Standby Letters of Credit
The Company has outstanding irrevocable domestic standby letters of credit amounting to P11.2 billion and P11.3 billion as at March 31, 2019 and December 31, 2018, respectively, from local banks which are used for bidding, guarantees for the down payments received. Performance, retention and warranty from its ongoing construction projects. The Group also has outstanding irrevocable foreign standby letters of credit amounting to JPY 6.7 million and JPY 6.7 million as at March 31, 2019 and December 31, 2018.
c.) Contingencies
There are pending legal cases against the Group that are being contested by the Group and its legal counsels. The information required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed until final settlement, on the ground that it might prejudice the Group‟s position. Management and its legal counsels believe that the final resolutions of these cases will not have a material effect on the consolidated financial position and operating results of the Group.
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Quarterly high, low and closing prices of the Company: 2019 High Low Close
January – March 10.10 7.95 9.21
2018 High Low Close
January – March 13.60 10.50 10.76
April – June 12.38 10.50 11.00
July – September 11.00 8.40 8.50
October - December 9.16 7.75 7.95
As at May 14, 2019, EEI shares were traded at its highest for the price of Php 9.10, lowest for Php 8.92 and closed at Php 8.95.
7.l Market Information
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Related Party Transactions
The outstanding balances and transactions with related parties as of March 31, 2019 and December 31, 2018 consist of the following:
(In Thousand of Pesos) March 31, 2019
Related party Transaction
Amount /
Volume
Outstanding
Receivable/
(Payable) Terms Conditions
Parent
company
Rendering of janitorial services P=2,994 P=2,509 Non-interest bearing Unsecured,
no impairment
Purchase of management services (1,182) 10 Non-interest bearing Unsecured
Associate Rendering of service − 3,556 Non-interest bearing Unsecured
Extension of advances 839,307 3,538 Non-interest bearing Unsecured
Availment of advances − (131,213)
Non-interest
bearing Unsecured
Entities under
the common
control
Bank deposits 900 585,321 Interest bearing;
0.20%-0.25%
per annum
Unsecured
no impairment
Revenue from construction
contracts
88,830 214,563 Non-interest bearing Unsecured
Rendering of janitorial services 112,993 78,476 − −
Sale of supplies 30 − − −
Availment of advances − (17,042) Non-interest bearing −
Other
affiliates
Interest income on receivables 1,660 131,112 Interest bearing,
5% per annum
Unsecured
Interest earned from EEI-RFI 1,484 133,000 Interest bearing,
5% per annum
Unsecured
Lease of property (16,885) − Non-interest bearing Unsecured
December 31, 2018
In Thousand Pesos)
Related party Transaction Amount / Volume
Outstanding
Receivable/ (Payable) Terms Conditions
Parent company Rendering of janitorial services P=12,654 P=3,735 Non-interest bearing Unsecured,
no impairment
Purchase of management services (3,655) 2,258 Non-interest bearing Unsecured
Associate Rendering of services ‒ 117,670 Non-interest bearing Unsecured
Extension of advances 850,895 3,528 Non-interest bearing Unsecured
Availment of advances − (131,069) Non-interest bearing Unsecured
Entities under the
common control
Bank deposits 3,296 883,623 Interest bearing; 0.20%
-0.25% per annum
Unsecured,
no impairment
Revenue from construction services
346,036 161,539 Non-interest bearing Unsecured
Rendering of janitorial services 429,109 60,622 − − Sale of supplies 586 − − −
Availment of advances − (16,217) Non-interest bearing −
Other
related parties
Interest income on receivables 8,795 141,112 Interest bearing,
5% per annum
Unsecured
Sale of property 7,671 133,000 Interest bearing,
5% per annum
Unsecured
Lease of property (57,433) − Non-interest bearing Unsecured
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a. In 2018, the Company was contracted by Malayan Education Systems, Inc. for the General Construction Works, Excavation. Structural, Civil, Architectural, MEPF Works and Attendance of Mapua Makati Building for provisional contract amount of ₱790.9 million. As of March 31, 2019 the project is 24.10% completed. The outstanding receivables amounted to ₱69.0 million, including retention receivable of ₱15.0 million as of March 31, 2019.
b. In 2017, the Parent Company was contracted by Malayan Colleges Mindanao for the
general construction works of Mapua School in Davao City with contract price amounted to ₱1,158.5 million. The project was completed on July 31, 2018. The outstanding receivables amounted to ₱145.6 million, including retention receivable of ₱100.0 million as of March 31, 2019.
c. In 2013, the Parent Company was contracted by PWEI for the construction of 18 units WTG foundations, roadways and temporary landing pad intended for the 36MW Nabas Wind Power Project (NWPP) in Nabas, Aklan for P=1,100.0 million. The project was completed on April 30, 2015. The outstanding receivables amounted to P=131.1 million as of March 31, 2019.
d. In 2006, the Parent Company sold parcels of land to EEI-RFI, a trustee of the Parent Company employees retirement fund (the Fund). The Fund is managed by RCBC Trust and Investment Division. The parcels of land sold are located in Manggahan, Quezon City and Bauan, Batangas. The receivables bear interest of 5% per annum in 2019, 2018 and 2017. Starting January 2007, the Parent Company and EEI-RFI entered into operating lease agreements for the said land and improvements. The lease terms are for one year and renewable every year with 5% increase effective January 1, 2014. Rental expense for the property located in Manggahan, Quezon City amounted to P=16.9 million and P=57.4 million as of March 31, 2019 and December 31, 2018, respectively.
In 2013, the receivable from the EEI-RFI amounting to P=390.0 million was restructured and reclassified to other noncurrent assets with fixed 5% interest rate per annum. In 2016, the Parent Company and the Fund agreed to extend the term of the payment until April 30, 2021. The outstanding receivables amounted to P=133.0 million as of March 31, 2019.
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Item 2 Management’s Discussion and Analysis (MDA) of Financial Position and Results of Operations.
2.e.
Material change/s (5% or more) from period to period in one or more line items of the issuer‟s financial statements.
Statements of Financial Position
(In Thousand Pesos)
03.31.19 (Unaudited)
12.31.18 (Audited)
Increase (Decrease)
Amount % Cash and cash equivalents 1,092,727 1,036,673 56,054 5%
Receivables – net 4,583,565 3,563,310 1,020,255 29%
Due from related parties 88,280 185,555 (97,275) -52%
Other current assets 1,359,182 1,082,857 276,325 26%
Deferred tax assets – net 82,689 70,329 12,360 18%
Other noncurrent assets 1,551,344 1,757,226 (205,882) 12%
Bank loans 6,880,000 6,240,000 640,000 10%
Current portion of long-term debt 952,381 674,603 277,778 41%
Long-term debt - net of current portion 1,404,762 1,920,635 (515,873) -27%
Retained earnings – Unappropriated 1,883,531 1,557,444 326,087 21%
Statements of Income For the period ending Increase (Decrease)
(In Thousand Pesos)
03.31.19 (Unaudited)
03.31.18 (Unudited)
Amount
%
Revenue on construction contracts 5,250,701 4,008,446 1,242,255 31%
Revenue on services 287,094 264,242 22,852 9%
Revenue on merchandise sales 74,782 52,499 22,283 42%
Revenue on real estate sales 6,511 7,140 (629) -9%
Equity in net earnings of associates and joint venture 71,551 119,182 (47,631) -40%
Interest income 6,102 6,436 (334) -5%
Other income – net 4,928 48,130 (43,202) -90%
Cost of construction contracts 4,521,100 3,546,305 974,795 27%
Cost of services 246,802 228,402 18,400 8%
Cost of merchandise sales 58,739 40,575 18,164 45%
Cost of real estate sold 4,700 4,121 579 14%
Selling and administrative expenses 314,170 279,632 34,538 12%
Interest expense 126,011 52,587 73,424 140%
Provision for income tax 103,557 70,723 32,834 46%
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EEI CORPORATION AND SUBSIDIARIES ANALYTICAL REVIEW March 31, 2019 Consolidated Statement of Financial Position Accounts
Cash and cash equivalents The net increase of P=56.1 million or 5% was due to down payment received from newly awarded projects and collection of progress billings from SMC Mass Transit 7 Inc., Citra Central Expressway Corporation and SM Prime Holdings Inc.
Receivables
The increase of receivables amounting to P=1.0 billion or 29% was due to increase in trade and retention receivables from various customers, particularly SMC Mass Rail Transit Inc., and Citra Central Express Corporation.
Due from related parties The net decrease of P=97.3 million or 52% pertains to payment for the reimbursable cost made by Al Rushaid Construction Company (ARCC) to EEI Corporation.
Other current assets
The increase of P=276.3 million or 26% pertains to advances to suppliers and subcontractors of P=160.9 million, input value-added tax of P=83.4 million and prepaid taxes of P=32.0 million.
Deferred tax assets - net
The net increase of ₱12.3 million or 18% pertains mainly to the tax effect on unrealized foreign exchange gain last year which was realized this year.
Other noncurrent assets
The decrease of ₱205.9 million or 12% was mainly due to reclassification of retention receivable account from noncurrent to current.
Bank loans
Total loan availments from various local banks by the Parent Company amounting to P=3.1 billion against repayments of P=2.5 billion increased bank loans account by P=640 million or 10%.
Long-term debt Current/noncurrent portion
The increase in long term debt of P=277.8 million or 41% in the current portion and decrease of P=515.9 million or 27% in the noncurrent portion pertains mainly to the P=2.0 billion three (3) year long-term debt entered by the Parent Company with a local bank.
Retained Earnings The increase of P=326.1 million or 21% pertains to net income posted for the first quarter of 2019. Consolidated Statement of Income Accounts Revenue on construction contracts
The net increase in construction revenue amounting to P=1.2 billion or 31% and its corresponding costs of P=974.8 million or 27% was attributable mainly to the increase in construction activities of ongoing domestic projects particularly:
1. MRT 7 Project for SMC Mass Rail Transit, Inc. in Metro Manila;
2. Metro Manila Skyway Stage 3 Project Section 3 & 4 for Citra Central Expressway Corporation
in Metro Manila;
3. Southern Star Project Storage Tank Fabrication & Erection for Natura Aeropack Corporation
and D&L Premium Foods Corp. in Tanauan, Batangas;
4. Overhead Heat Exchanger Sparing Project for Petron Corporation in Limay, Bataan; and
5. Seasons Residences Project for Federal Land, Inc. in Bonifacio Global City, Taguig
- 46 -
Revenue and costs of services The increase in revenue from services amounting to P=22.9 million or 9% and its related costs of P=18.4 million or 8% pertain mainly to higher manpower requirements of various existing and new clients of Gulf Asia Manpower Services, Inc. Also, the increase in revenue and cost was driven by newly awarded service contracts for the supply and installation of power related equipment and preventive maintenance of generator sets of EEI Power Corporation, all local subsidiaries of EEI Corporation.
Revenue and costs of merchandise sales
The increase in revenue from merchandise sales amounting to P=22.3 million or 42% and its related costs of P=18.2 million or 45% was due to higher sales on water proofing and UPP product lines of Equipment Engineers, Inc., another local subsidiary.
Revenue and costs of real estate sales
The P=.63 million or 9% drop in revenue from real estate sales of EEI Realty Corp. a local subsidiary, was due to lower sales at Suburbia East in Marikina City and socialized housing units at The Royal Parks at Grosvenor Place in Cavite. The increase in cost of P=.58 million or 14% was due to cost of repairs of one foreclosed unit at Suburbia East.
Equity in net earnings of associates and joint venture
The net decline of P=47.6 million or 40% was due to the movement of the equity share in net income from the following associates and joint venture:
(In Thousand Pesos)
Equity Share Q1 2019 Q1 2018
ARCC 49% P=17,147 P=69,397
Petro Solar Corporation 44% 26,040 31,704
Petro Wind Energy Inc, 20% 28,364 18,081
Total P=71,551 P=119,182
Interest income
The account declined by P=.33 million or 5% due to lower receivable balance from a client. Other income
The net decrease of P=43.2 million or 90% was due to net effect of last year‟s unrealized foreign exchange gain versus loss this year.
Selling and administrative expenses
The account increased by P=34.5 million or 12% due to personnel related expenses amounting P=15.5 million, taxes and licenses of P=13.9 million and software maintenance of P=4.8 million.
Interest expense
Interest expense expanded by P=73.4 million or 140% due to higher loan level from P=6.3 billion in 2018 to P=9.2 billion in 2019 coupled with increase in interest rates from 2.6% - 3.8% p. a. to 5.5% – 6.1% p.a. in 2019.
Provision for income tax Higher taxable income posted by Parent Company for the first quarter increased the provision for income tax by P=32.8 million or 46%.
- 47 -
Financial Risk Management Objectives and Policies
The main purpose of the Group‟s financial instruments is to raise finances for the Group‟s operations.
The main risks arising from the Group‟s financial instruments are credit risk, liquidity risk and foreign currency risk. The policies for managing these risks are summarized as follows:
Credit Risk The exposure to credit risk on its receivables relates primarily to the inability of project owners to fully settle the unpaid balance of contract receivables and other claims owed to the Group. Credit risk is managed in accordance with the Group‟s credit risk policy which requires the evaluation of the creditworthiness of the project owners by engaging the service of an accredited third party credit analyst. The Group does not have any significant concentration of credit risk. Its gross maximum exposure to credit risk is equivalent to the carrying value of its financial assets as presented in the consolidated statements of financial position.
Credit risk is managed since the titles of the properties sold by the Group from its real estate operations are retained until receivables are fully collected and the fair values of these properties held as collateral are sufficient to cover the carrying values of the receivables.
There can be some credit exposures on project commitments and contingencies as at March 31, 2019 and December 31, 2018 represented by work accomplishments on backlog of projects which are not yet invoiced. These exposures are, however, limited to a few month work accomplishment as work are frozen as soon as the Group is able to determine that the risk of non-collection materializes. This risk is, however, mitigated by the Group‟s contractor‟s lien on the project. A contractor‟s lien is the legal right of a contractor to take-over the project in-progress and has priority in the settlement of contractor‟s receivables and claims on the project in the event of insolvency of the project owner. The Group assesses that the value of projects in-progress is usually higher than receivables from and future commitments with the project owners. The analyses of loans and receivables follow: March 31, 2019
(In Thousand Pesos)
Neither
Past Due
nor Impaired
Past Due but Not Impaired Impaired
Financial
Assets
<30 days
30 to <60
days
60 to <90
days >90 days Total
Trade receivables P=2,379,116 P=885,199 P=121,887 P=238,694 681,408 P=40,781 P=4,347,085 Receivable from sale of
investment properties 280,554 − − − − − 280,554
Other receivables 25,690 701 966 1,271 8,332 4,858 41,818
Due from related parties 1,632 − − − − − 1,632
Interest-bearing trade
receivables 130,808 − − − − 9,696 140,504
Miscellaneous deposits 3,831 834 900 3,230 78,172 3,335 90,302
Receivable from EEI
Retirement Fund, Inc. 133,000 − − − − − 133,000
P=2,954,631 P=886,734 P=123,753 P=243,195 P=767,912 P=58,670 P=5,034,895
- 48 -
December 31, 2018
Neither
Past Due
nor Impaired
Past Due but Not Impaired Impaired
Financial
Assets
<30 days
30 to <60
days
60 to <90
days >90 days Total
Trade receivables P=912,596 P=47,034 P=411,702 P=225,313 P=1,666,994 P=48,604 P=3,312,243 Receivable from sale of
. investment properties 281,035 − − − − − 281,035
Other receivables 26,936 1,168 3,045 4,381 19,611 4,956 60,097 Due from related parties 185,555 − − − − − 185,555
Interest-bearing trade
receivables 143,813 − − − − 9,695 153,507 Miscellaneous deposits 1,900 3,263 996 1,772 76,104 3,572 87,608
Receivable from EEI Retirement Fund, Inc. 133,000 − − − − − 133,000
P=1,684,835 P=51,465 P=415,743 P=231,466 P=1,762,709 P=66,827 P=4,213,046
The risk that past due receivables from project owners will not be collected is mitigated by the fact that the Group can resort to carry out its contractor‟s lien over the project with varying degrees of effectiveness depending on the jurisprudence applicable on or country location of the project. Trade and retention receivables from project owners are normally high standard because of the creditworthiness of project owners and the collection remedy of contractor‟s lien accorded contractor in certain cases. The tables below summarize the credit quality of the Group‟s neither past due nor impaired loans and receivables. March 31, 2019
Neither Past Due nor Impaired
(In Thousand Pesos) High Grade Standard Grade Total
Trade receivables P=1,952,027 P=427,089 P=2,379,116 Receivable from sale of investment properties 280,554 − 280,554 Other receivables 25,061 630 25,691 Due from related parties 1,632 − 1,632 Interest-bearing trade receivables 130,808 − 130,808 Miscellaneous deposits 1,329 2,501 3,831 Receivable from EEI-RFI 133,000 − 133,000
P=2,524,411 P=430,220 P=2,954,631
December 31, 2018
Neither Past Due nor Impaired
High Grade Standard Grade Total
Trade receivables P=311,704 P=600,892 P=912,596
Receivable from sale of investment properties 281,035 − 281,035
Other receivables 26,377 559 26,936
Due from related parties 185,555 − 185,555
Interest-bearing trade receivables 143,813 − 143,813
Miscellaneous deposits 1,329 571 1,900
Receivable from EEI-RFI 133,000 − 133,000
P=1,082,813 P=602,022 P=1,684,835
Neither past due nor impaired trade receivables, consultancy fees, other receivables and miscellaneous deposits are classified into „high grade‟ and „standard grade‟. Neither past due nor impaired cash and cash equivalents, due from related parties and receivables from EEI-RFI are normally „high grade‟ in nature. The Group sets financial assets as „high grade‟ based on the Group‟s positive collection experience. On the other hand, „standard grade‟ are those which have credit history of default in payments.
- 49 -
Liquidity Risk Liquidity risk is the risk that the Group will be unable to meet its payment obligations as they fall due. The Group seeks to manage its liquidity risk to be able to meet its operating cash flow requirements, finance capital expenditures and service maturing debts. To cover its short-term and long-term funding requirements, the Group intends to use internally generated funds and available short-term and long-term credit facilities. Credit lines are obtained from BOD-designated banks at amounts based on financial forecasts approved by BOD.
The tables below summarize the maturity profile of the Group‟s financial assets. The maturity groupings are based on the remaining period from the end of the reporting period to the contractual maturity date.
*Excludes statutory liabilities
*Excludes statutory liabilities
March 31, 2019
(In Thousand Pesos) On demand < 1 year 1 to < 2 years > 2 years Total
Financial Liabilities
Accounts payable and other
current liabilities* P=3,630,621 P=613,184 P=164,531 P=272,163 P=4,680,499
Bank loans
Peso loan -- 6,880,000 − − 6,880,000
Interest − 110,928 − − 110,928
Long-term debt
Peso loan − 934,524 1,023,809 398,810 2,357,143
Interest − 83,036 50,691 9,107 142,834
Due to related parties 148,266 − − − 148,266
3,778,887 8,621,672 1,239,031 680,080 14,319,670
Financial Assets
Cash and cash equivalents 1,092,727 − − − 1,092,727
Receivables
Trade receivables 3,199,141 709,677 416,841 21,427 4,347,086
Other receivables 30,333 5,877 3,236 2,372 41,818
Due from related parties 1,632 − − − 1,632
4,323,833 715,554 420,077 23,799 5,483,263
Liquidity gap (position) (P=544,946) P=7,906,118 P=818,954 P=656,281 P=8,836,407
December 31, 2018
On demand < 1 year 1 to < 2 years > 2 years Total
Financial Liabilities
Accounts payable and other
current liabilities* P=4,149,597 P=656,709 P=225,780 P=389,667 P=5,421,753 Bank loans
Peso loan -- 6,240,000 − − 6,240,000
Interest − 196,231 − − 196,231 Long-term debt
Peso loan − 674,603 1,301,682 619,043 2,595,238
Interest − 95,779 61,726 15,201 172,706 Due to related parties 149,544 − − − 149,544
4,299,141 7,863,322 1,589,188 1,023,911 14,775,562
Financial Assets
Cash and cash equivalents 1,036,675 ‒ ‒ 1,036,675 Receivables − − −
Trade receivables 985,016 2,315,358 6,048 5,822 3,312,244
Other receivables 39,602 14,026 1,520 4,948 60,096 Due from related parties 185,555 − − − 185,555
2,246,848 2,329,384 7,568 10,770 4,594,570
Liquidity gap (position) P=2,052,294 P=5,533,939 P=1,582,619 P=1,013,140 P=10,180,992
- 50 -
Foreign currency risk
Currency risk is the potential decline in the value of the financial instruments due to exchange rate fluctuations. The Group‟s currency arise mainly from cash and receivables which are denominated in a currency other than the Group‟s functional currency or will be denominated in such a currency. The following tables demonstrate the sensitivity to a reasonably possible change in the US dollar (USD), Singapore dollar (SGD), Euro (EUR), Japan yen (YEN) and UK Pound (GBP) currency rates, with all variables held constant, of the Group‟s profit before tax (due to changes in the fair value of monetary assets and liabilities):
March 31, 2019 December 31, 2018
Percentage
increase/decrease in
foreign currency
Effect on profit
before tax
(in PHP)
Percentage increase/
decrease in foreign
currency
Effect on profit
before tax
(in PHP)
USD + 0.2% P=497,213 + 0.1% P=100,100
SGD + 2.0% 21,694 + 0.2% 1,938
EUR + 2.3% 16,633 + 3.2% 506,330
YEN + 2.4% 18,715 + 2.0% 13,697
GBP + 2.9% - + 1.7% −
USD - 0.2% (P=497,213) - 0.1% (P=100,100)
SGD - 2.0% (21,694) - 0.2% (1,938)
EUR - 2.3% (16,633) - 3.2% (506,330)
YEN - 2.4% (18,715) - 2.0% (13,697)
GBP - 2.9% - - 1.7% −
The forecasted movements in percentages used were sourced by management from an affiliated bank. The foreign currency denominated financial assets and financial liabilities in original currencies and equivalents to the functional and presentation currency are as follows: March 31, 2019
(In Thousand Pesos) USD SGD EUR YEN GBP
Equivalents
in PHP
Financial assets
Cash and cash equivalents $2,442,594 S$27,510 €10,900 ¥197,246 £− P=130,735
Receivables 1,715,489 − 1,325 1,439,193 − 91,312
4,158,083 27,510 12,225 1,636,439 − 222,047
Financial liabilities
Accounts payable and
Other current liabilities 14,638 − − − − 773
$4,143,445 S$27,510 €12,225 ¥1,636,439 − P=221,274
December 31, 2018
(In Thousand Pesos) USD SGD EUR YEN GBP
Equivalents
in PHP
Financial assets
Cash and cash equivalents $1,910,819 S$28,026 €10,900 ¥208,852 £− P=102,581
Receivables 1,694,556 − − 1,229,193 − 89,928
3,605,375 28,026 10,900 1,438,045 − 192,509
Financial liabilities Accounts payable and
….other current liabilities 268,711 − 275,454 − − 30,780
$3,336,664 $28,026
(€264,554) ¥1,438,045
−
P=161,729
- 51 -
Capital Management
The primary objective of the Group‟s capital management is to ensure that it maintains healthy
capital ratios in order to support its business and maximize shareholder value.
Group manages its capital structure and makes adjustments to it, in light of changes in economic
conditions. To maintain or adjust the capital structure, the Group may adjust the dividend
payment to shareholders or issue new shares. No changes were made in the objectives, policies
or processes as at March 31, 2019 and December 31, 2018.
The Group considers total equity as its capital.
The Group monitors capital using a debt-to-equity ratio, which is total liabilities divided by total
equity. The Group‟s policy is to maintain a debt-to-equity ratio lower than 3:1.
(In Thousand Pesos) March 31, 2019 December 31, 2018
Current liabilities 13,464,466 12,513,532
Noncurrent liabilities 1,711,940 2,229,023
Total liabilities (a) 15,176,406 14,742,555
Equity (b) 8,026,433 7,699,923
Debt to equity ratio (a/b) 1.89:1 1.91:1
Signed:
REBECCA R. TONGSON
- 52 -
EEI CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION AND DISCLOSURES REQUIRED ON SRC RULE 68 AS AMENDED AS OF MARCH 31, 2019 Philippine Securities and Exchange Commission (SEC) issued the amended Securities Regulation Code Rule SRC Rule 68 which consolidates the two separate rules and labeled in the amendment as “Part I” and “Part II”, respectively. It also prescribed the additional information and schedule requirements for issuers of securities to the public. Below are the additional information and schedules required by SRC Rule 68, as Amended (2011) that are relevant to the Group. This information is presented for purposes of filing with the SEC and is not required part of the basic financial statements. Schedule A. Equity investments at FVOCI The following is the detailed schedule of equity in investments at FVOCI as at March 31, 2019.
Number of Shares
Amount Shown in the Statement of Financial
Position Movement Valuation
Name of Issuing Entities
Quoted:
Sta. Elena Golf Club Inc. 2 12,000,000 -
Philippine Long Distance Telephone Co. 37,942 5,674,216 115,300
Manila Southwood Golf & Country Club 2 2,600,000 -
The Orchard Golf and Country Club 1 500,000 -
Valle Verde Country Club 2 700,000 -
Canyon Woods 1 70,000 -
Royale Tagaytay Country Club 1 60,000 -
Related Parties:
The Orchard Golf 1 650,000 -
Sherwoods Hills Golf Club 1 250,000 -
Fairways & Blue Water Resort Golf 1 250,000 -
Club Filipino 1 180,000 -
Forest Hill golf share 1 180,000 -
Royale NorthWoods 1 121,856 -
Eagle Ridge Golf & Country Club 1 60,000 -
PLDT 925 10,333 -
Unquoted:
Hermosa Ecozone Development Corp (HEDC) 1,000,000 404,918,702 -
Brightnote Assets Corporation 11,000,000 10,677,732 -
YGC Corporate Services, Inc. 12,000 2,509,932 -
Tower Club (Philam Properties Corp.) 1 500,000 -
YGC Corporate Services, Inc. 1,389 795,515 -
Architectural Center Club, Inc. (ACCI) 1 32,000 -
Philippine Contractors Association 10,000 10,000 -
Philippine Exporters Trading Corp. 5,000 5,000 -
Pilipino Telephone Company 150 675 -
Related Party:
Petro Green Energy Corp. 258,144,888 487,114,443
3,197,855
Total
Php 929,870,403 Php 3,313,155
- 53 -
Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties) Below is the schedule of advances to officers and employees of the Group with balances above P=100,000 as at March 31, 2019:
Name
Balance at
beginning
of year Additions
Collections/
Liquidations
Balance at
end of period
Macapagal, Norman K. (Senior Vice President) P=1,532,054 P= - (P=-) P= 1,532,054
Narzoles, Laila L. ( Field Civil Engineer ) 695,610 - (25,000) 670,610
Realin, Marco Dindo H. 668,405 - - 668,405
Nacpil, Almario R. (Pipefitter) 348,384 - − 348,384
Martirez, Lucio F. - 300,000 - 300,000
Puyat, Gil S. (Construction Manager) 280,002 - - 280,002
Torres, Joel R. ( Specialist, HVAC Design ) 326,487 - (49,500 ) 276,987
Bukas, Alex P. - 275,065 - 275,065
Dolaoco, Regner Jose M. - 271,983 - 271,983
Tutor, Ritchel R. ( Sr. Officer, Legal Svcs. ) 271,971 - (15,109) 256,862
Bancosta, Edsil B. - 250,000 - 250,000
Sumastre, Elizabeth M. ( Supervisor ) 237,740 - (8,545 ) 229,195
De Castro, Ma. Lourdes H - 217,968 - 217,968
Demetillo, Allan G. - 212,662 - 212,662
De Guzman, Alvin R. ( Group Supervisor, Traffic ) 212,055 - - 212,055
Jao, Mario A. ( Manpower Controller ) 202,146 - - 202,146
Serrano, Efren A. ( Project Manager ) 330,650 - (128,943) 201,707
Castillo, Noemi P. - 201,164 - 201,164
Ander Jr., Herminio R. ( Project Manager ) 200,000 - - 200,000
Meñez, Jefferson DG. - 200,000 - 200,000
Herrera, Gaudencio M. ( Foreman, General - Electrical ) 191,209 - - 191,209
Aquino, Perpetua Rita Karel - 175,719 - 175,719
Madarang, Lito O. ( Group Supervisor, Eqpt. Svcs. ) 173,929 - - 173,929
Domingo, Remy R. ( Foreman, General - Electrical ) 168,183 - - 168,183
Jimenez, Marivic J. - 164,157 - 164,157
Francia, Melito M. ( Supv, Transport ) 163,504 - - 163,504
Destacamento, Noel M. ( Piping Supervisor ) 162,119 - - 162,119
Villanueva, Cirilo D. ( Fitter, Structural ) 159,228 - - 159,228
Mapalad, Virgilio S. ( Foreman, General - Electrical ) 157,459 - - 157,459
Villania, Junard I. ( Foreman, Eqpt. Svcs. ) 151,492 - - 151,492
Buensalida, Wilfredo N. - 151,029 - 151,029
Orillo, Raymundo P. - 147,688 - 147,688
Tampos Jr., Eduardo C. ( Foreman, Equipt./Tools Ctrl. ) 157,500 - (15,000) 142,500
Delos Santos, Benjamin R. - 142,316 - 142,316
Gapasin, Jorge Timothy T. ( Specialist, Org. Dev't ) 151,268 - (18,000) 133,268
Rana, Ricardo H. - 133,063 - 133,063
Rempillo, Jose R. - 130,590 - 130,590
Lloza, Rogelio P. - 128,004 - 128,004
Ramas, Hermesio G. - 126,730 - 126,730
Frane, Pio F. - 126,264 - 126,264
Sevilla, Exequiel E. ( Group Supervisor, Tech. Training ) 122,416 - - 122,416
Sison, Edgardo G. ( Service Driver ) 122,205 - - 122,205
Penas, Abrilleno F. ( Supervisor, Safety ) 126,120 - (6,000) 120,120
Bayeta, Eddie S. ( Foreman, Gen. Fabrication ) 118,324 - - 118,324
Izar, Juan D. - 109,660 - 109,660
Burgos, Manuel B. ( Construcion Manager ) 108,150 - - 108,150
Montecalvo, Dennis S. ( Superintendent, Construction ) 108,115 - - 108,115
Espiritu, Jaime S. ( Superintendent, Construction ) 107,784 - - 107,784
Satur, Salustiano O. ( Superintendent, Construction ) 106,947 - - 106,947
Chan, Eric J. ( Foreman, Eqpt. SVC./Prev. Maint. ) 106,597 - - 106,597
Villanueva, Jose P. ( Superintendent, Construction ) 103,915 - - 103,915
Cuaresma, Jovito O. - 102,886 - 102,886
Bundalian, Rolando S. ( Manager, Eqpt. Svc./Prev. Maint. ) 101,760 - - 101,760
Macabenta, Danilo P. - 100,730 - 100,730
Agtoto, Jerry O. ( Project Manager ) 100,000 - - 100,000
Padrique, Danilo N. ( Foreman, Gen. Eqpt. Svc/Prv. M ) 100,000 - - 100,000
P= 6,146,064 P= 3,667,678 (P=241,097) P= 9,572,645
- 54 -
The amounts of advances to employees as shown above are classified under current assets. There were no amounts written off during the year. Schedule C. Amounts Receivable from/Payable to Related Parties which are Eliminated during the Consolidation of Financial Statements The following is the schedule of receivables from related parties, which are eliminated in the interim consolidated financial statements as at March 31, 2019:
Name and Designation of Debtor
Balance at
beginning
of year Additions
Amounts
Collected
Balance at
end of year
EEI Realty Corp P= 946,828 348,038
(1,153,024) 141,842
EEI Power Corp. 994,757 123,884,736 (1,397,710) 123,481,783
Gulf Asia International Corp. 8,597,765 712,794 (5,019,486) 4,291,073
GAIC Manpower Services Inc. 13,190 15,052,458 (40,674) 15,024,974
Philrock Construction & Services, Inc. 42,117,353 - - 42,117,353
Philmark, Inc. 33,704,595 - - 33,704,595
Equipment Engineers, Inc. 73,237,613 3,754,113 (19,294,904) 57,696,822
EEI Construction & Marine, Inc. 715,081 1,510,739 (1,842,281) 383,539
EEI Corporation (GUAM) Inc. 2,438,444 - - 2,438,444
Bagumbayan Equipment Industrial Products, Inc - 14,000 - 14,000
JPSAI - 26,691 26,691
EEI Limited 821,094,608 - (11,175,698) 809,918,910
P= 983,860,234 P= 145,303,569 (P=39,923,777) P=1,089,240,026
The amounts of receivables from related parties as shown above are classified under current assets. There were no amounts written off during the year.
The following is the schedule of payable to related parties, which are eliminated in the interim condensed consolidated financial statements as at March 31, 2019:
Name and Designation of Creditor
Balance at
beginning
of year Additions
Amounts
Paid
Balance at
end of year
EEI Construction & Marine, Inc. 148,726,951 115,702,001 (32,659,799) 231,769,153
Equipment Engineers, Inc. 26,578,416 480,035 (28,999,711) (1,941,260)
EEI Subic Corporation 89,079,662 - - 89,079,662
Gulf Asia International Corp. 248,326 4,255,793 (1,157,355) 3,346,764
GAIC Manpower Services Inc. 592,650 654,961 (1,247,611) -
Bagumbayan Equipment Industrial Products, Inc. 6,133 - (6,133) -
JP Asia - 1,257,287 - 1,257,287
EEI Realty Corp. 3,432,762 2,142,475 (4,920,167) 655,070
EEI Power Corp 101,021 316,057 (1,617) 415,461
P= 268,765,921 P= 124,808,609 (P=68,992,393) (P=324,582,137
The amounts of payables to related parties as shown above are classified under current liabilities. There were no amounts written off during the year.
Schedule D. Intangible Asset The Group has no intangible asset as at March 31, 2019.
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Schedule E. Long-term Debt Below is the schedule of long-term debt of the Group as at March 31, 2019:
Type of Obligation Amount Current Noncurrent Collateral
Parent Company
Fixed-rate corporate promissory notes
with effective interest of 5.50% per
annum for seven (7) years. P= 2,107,142 P=880,952 P= 1,226,190
Clean/No
Collateral
EEI Power
Peso-denominated seven (7) year term
loan, with interest of 5.50% per
annum inclusive of two-year grace
period on principal amortization. 250,000 71,429 178,571
With Corporate
Guarantee
P=2,357,142 P= 952,381 P=1,404,761
Schedule F. Indebtedness to Related Parties (Long Term Loans from Related Companies) The Group has no long term indebtedness to related parties as at March 31, 2019. Schedule G. Guarantees of Securities of Other Issuers There are no guarantees of securities of other issuing entities by the Group as at March 31, 2019. Schedule H. Capital Stock
Title of issue
Number of
shares
authorized
Number of
shares issued
and
outstanding as
shown under
related
balance sheet
caption
Number of
shares
reserved for
options,
warrants,
conversion
and other
rights
Number of
shares held
by related
parties
Directors,
Officers and
Employees Others
Common Shares 2,000,000,000 1,036,281,485 35,000,000 563,363,646 3,318,385 469,599,454
Preferred Shares 400,000,000 – – – – –
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EEI CORPORATION AND SUBSIDIARIES
SCHEDULE OF FINANCIAL SOUNDNESS INDICATORS AS AT MARCH 3, 2019 and DECEMBER 31, 2018 Financial Soundness Indicator Below are the financial ratios that are relevant to the Group for the period ended March 31, 2019 and December 2018:
Financial ratios 03.31.19
12.31.18
Current ratio Current assets 1.01:1 1.00:1
Current liabilities
Solvency ratio
Net income
plus depreciation 0.03:1 0.08:1
Total liabilities
Debt to equity ratio Total liabilities 1.89:1 1.91:1
Total equity
Asset-to-equity ratio Total assets 2.89:1 2.92:1
Total equity
Interest rate coverage ratio EBIT* 4.37:1 4.10:1
Interest expense
Return on assets Net income 1% 2%
Average total assets
Return on equity Net income 5% 7%
Average total equity
*Earnings before interest and taxes (EBIT)
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EEI CORPORATION
RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION
Unappropriated retained earnings, January 1, 2019 P= 769,416,494
Less: Deferred tax asset (42,892,297)
Less: Treasury stock (3,720,790)
Unappropriated retained earnings, January 1, 2019, as adjusted 722,803,407
Net income actually earned/realized during the period 214,786,543
Unappropriated retained earnings available for dividend
distribution, March 31, 2019 P= 937,589,950
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EEI CORPORATION AND SUBSIDIARIES
SCHEDULE OF ALL THE EFFECTIVE STANDARDS AND
INTERPRETATIONS UNDER PFRS AS AT MARCH 31, 2019
Below is the list of all effective PFRS, Philippine Accounting Standards (PAS) and Philippine Interpretations of
International Financial Reporting Interpretations Committee (IFRIC) as at March 31, 2019:
PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as of March 31, 2019
Adopted
Not
Adopted
Not
Applicable
Philippine Financial Reporting Standards
PFRS 1 First-time Adoption of Philippine Financial
Reporting Standards
PFRS 2 Share-based Payment
Amendments to PFRS 2, Classification and
Measurement of Share-based Payment
Transactions
PFRS 3 Business Combinations
PFRS 4 Insurance Contracts
Amendments to PFRS 4, Applying PFRS 9
Financial Instruments with PFRS 4 Insurance
Contracts
PFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
PFRS 6 Exploration for and Evaluation of Mineral
Resources
PFRS 7 Financial Instruments: Disclosures
PFRS 8 Operating Segments
PFRS 9 Financial Instruments
PFRS 10 Consolidated Financial Statements
PFRS 11 Joint Arrangements
PFRS 12 Disclosure of Interests in Other Entities
PFRS 13 Fair Value Measurement
PFRS 14 Regulatory Deferral Accounts
PFRS 15 Revenue from Contracts with Customers
PFRS 16* Leases
Philippine Accounting Standards
PAS 1 Presentation of Financial Statements
*The Group is currently assessing the impact of adopting PFRS 16.
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PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as of March 31, 2019
Adopted
Not
Adopted
Not
Applicable
PAS 2 Inventories
PAS 7 Statement of Cash Flows
PAS 8 Accounting Policies, Changes in Accounting
Estimates and Errors
PAS 10 Events after the Reporting Period
PAS 12 Income Taxes
PAS 16 Property, Plant and Equipment
PAS 17 Leases
PAS 19 Employee Benefits
PAS 20 Accounting for Government Grants and
Disclosure of Government Assistance
PAS 21 The Effects of Changes in Foreign Exchange
Rates
PAS 23 Borrowing Costs
PAS 24 Related Party Disclosures
PAS 26 Accounting and Reporting by Retirement Benefit
Plans
PAS 27 Separate Financial Statements
PAS 28 Investments in Associates and Joint Ventures
Amendments to PAS 28, Measuring an Associate
or Joint Venture at Fair Value (Part of Annual
Improvements to PFRSs 2014 - 2016 Cycle)
PAS 29 Financial Reporting in Hyperinflationary
Economies
PAS 32 Financial Instruments: Presentation
PAS 33 Earnings per Share
PAS 34 Interim Financial Reporting
PAS 36 Impairment of Assets
PAS 37 Provisions, Contingent Liabilities and
Contingent Assets
PAS 38 Intangible Assets
PAS 39 Financial Instruments: Recognition and
Measurement
PAS 40 Investment Property
Amendments to PAS 40, Transfers of Investment
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PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as of March 31, 2019
Adopted
Not
Adopted
Not
Applicable
Property
PAS 41 Agriculture
Philippine Interpretations
Philippine
Interpretation
IFRIC-1
Changes in Existing Decommissioning,
Restoration and Similar Liabilities
Philippine
Interpretation
IFRIC-2
Members’ Shares in Co-operative Entities and
Similar Instruments
Philippine
Interpretation
IFRIC-4
Determining whether an Arrangement contains a
Lease
Philippine
Interpretation
IFRIC-5
Rights to Interests arising from
Decommissioning, Restoration and
Environmental Rehabilitation Funds
Philippine
Interpretation
IFRIC-6
Liabilities arising from Participating in a Specific
Market—Waste Electrical and Electronic
Equipment
Philippine
Interpretation
IFRIC-7
Applying the Restatement Approach under PAS
29 Financial Reporting in Hyperinflationary
Economies
Philippine
Interpretation
IFRIC-10
Interim Financial Reporting and Impairment
Philippine
Interpretation
IFRIC-12
Service Concession Arrangements
Philippine
Interpretation
IFRIC-14
PAS 19—The Limit on a Defined Benefit Asset,
Minimum Funding Requirements and their
Interaction
Philippine
Interpretation
IFRIC-16
Hedges of a Net Investment in a Foreign
Operation
Philippine
Interpretation
IFRIC-17
Distributions of Non-cash Assets to Owners
Philippine
Interpretation
IFRIC-19
Extinguishing Financial Liabilities with Equity
Instruments
Philippine
Interpretation
IFRIC-20
Stripping Costs in the Production Phase of a
Surface Mine
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PHILIPPINE FINANCIAL REPORTING STANDARDS
AND INTERPRETATIONS
Effective as of March 31, 2019
Adopted
Not
Adopted
Not
Applicable
Philippine
Interpretation
IFRIC-21
Levies
Philippine
Interpretation
IFRIC-22
Foreign Currency Transactions and Advance
Consideration
Philippine
Interpretation
SIC-7
Introduction of the Euro
Philippine
Interpretation
SIC-10
Government Assistance—No Specific Relation
to Operating Activities
Philippine
Interpretation
SIC-15
Operating Leases—Incentives
Philippine
Interpretation
SIC-25
Income Taxes—Changes in the Tax Status of an
Entity or its Shareholders
Philippine
Interpretation
SIC-27
Evaluating the Substance of Transactions
Involving the Legal Form of a Lease
Philippine
Interpretation
SIC-29
Service Concession Arrangements: Disclosures
Philippine
Interpretation
SIC-32
Intangible Assets—Web Site Costs
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EEI CORPORATION AND SUBSIDIARIES
MAP OF RELATIONSHIPS OF THE COMPANIES WITHIN THE GROUP
Group Structure
Below is a map showing the relationship between and among the Group and its ultimate parent company, subsidiaries, and associates as at March 31, 2019:
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