ABS-CBN Financial Analysis. ABS-CBN Corporation is a Filipino media conglomerate and the country's largest and foremost media and entertainment company,

As at December 31, 2011, total assets stood at P35.5 billion, P3.1 billion or 10% higher than total assets of P32.3 billion as at December 31, 2010.

Cash and cash equivalents of P3.8 billion is P1.3 billion or 54% higher than the December 31, 2010 balance.

Consolidated trade and other receivables stood at P6.9 billion, P1.3 billion or 24% higher than as at the end of 2010.

The corresponding increase in receivables and accretion of Days Sales Outstanding are well anticipated with the removal of discount schemes on prompt payment.

Program rights all in all decreased by 7% compared last 2010.

Investment in subsidiaries and associates which form part of 28% of total assets decreased by 6% due to sale of Sky Cable PDR’s and issuance of convertible note.

There was no significant increase in Available for sale investments.

Deferred tax assets increase significantly by 46% as a result of increase in present value of the defined benefit obligation.

Property plant and equipment which is 27% of total assets increased by P178 million, 2% of last year caused by additional acquisitions to increase the company’s capacity to produce additional shows.

Major payments to related parties decrease the Trade and other payables account which form part of 24% of total liabilities and stockholders’ equity by 13%.

Obligations for program rights represent liabilities to foreign and local film suppliers for program rights purchased by the Company. This represents 2% of total liabilities and stockholders’ equity and has increased by 5% as a result of foreign program acquisitions.

Total interest-bearing loans went up by P2.9 billion or 40% to P10.9 billion compared with P7.9 billion at the end of 2010. This financing is intended to refinance existing indebtedness and fund working capital requirements.

Shareholders’ equity stood at P15.2 billion, P964 million or 6% lower than the P16.2 billion shareholders’ equity at the end of December 2010.

        

As we notice, company’s mode of financing its capital requirements is as much as possible to be equally divided among capital and debt acquisition. This is to maintain the debt covenant requirements of the bank.

The financing made by the company in 2011 was invested majorly on current assets to finance the working capital requirements.

It is pretty obvious that the company is working on its working capital to be able to continue its operations and to ensure that it has sufficient cash to satisfy both maturing short-term debt and upcoming operational expenses.

        

        

ABS-CBN CORPORATION        

PARENT COMPANY STATEMENTS OF INCOME

(Amounts in Thousands)

                

For the year ended December 31, 2011, ABS-CBN Corporation (“ABS-CBN” or the “Company”) generated

 Net revenues of P13.9 billion from advertising and consumer sales, P2.7 billion or 16% lower year on-year. Minus the revenues of P3.1 billion from political advocacies and political advertisements in 2010, net revenues decreased by 4% year-on-year. Advertising revenues contributed 62% of total revenues while consumer sales made up the balance of 38%.

Total operating and other expense in 2011 were at P13.3 billion, or a 1% decline year-on-year.

Reported net income was at P682 million in 2011, inclusive of the P489 million gain in sale of Sky Cable

Philippine Depositary Receipts (PDRs), a 72%decline year-on-year. Removing the effects of this one-time

gain in 2011 and P3.1 billion revenues generated from political advocacies and political advertisements in

2010, net income would still be down by 31% year-on-year.

Reported EBITDA reached P1.2 billion for the full year 2011, or a 31% decline year-on-year. Stripping the one-time gain in 2011 and discarding the P3.1 billion revenues generated from political advocacies and political advertisements in 2010, EBITDA would still be down by 31% year-on-year. The table below summarizes the key performance indicators for the period as discussed above.

Operating and Other Expenses

Total operating and other expense in 2011 were at P13.2 billion, or a 1% decline year-on-year.

Production Costs

Total production costs rose by almost P2.0 billion or 25% to P9.8 billion. Cash production costs went up by P1.6 billion or 25% year-on-year, mostly from increases from talent fee adjustments, and from new programs that brought talent fees, equipment rentals and service fees, and other expenses substantially higher.

General and Administrative Expenses

Total General and Administrative Expenses (GAEX) posted an 18% or P986 million year-on-year decline to P13.2 billion which is highly attributable to increase in personnel expenses. These personnel expenses are due to migration of support employees to a shared service.

Overall, the company should keep up with the increasingly competition in the market hand in hand with reducing production expenses.

The company engaged in long term financing to fund the working capital to ensure that its business will be able to continue its operations and it has sufficient cash to satisfy both maturing short-term debt and upcoming operational expenses. It also used the fund to refinance the existing debt obligations

The company should consider closely the manner of managing its capital. Since its capital structure is a mixture of long term debt and issuance of shares, it must ensure that it maintains a healthy capital ratios and strong credit ratings while viably supporting its business to maximize shareholder value.

RATIO ANALYSIS

With a current ratio and acid test ratio of less than 2, the company should work on increasing the current assets to finance the day to day operations as well as the nearly maturing indebtedness.  The company should also maintain a balance between continuity of funding and flexibility through the use of bank credit and investment facilities such as continuously assessing the conditions in the financial markets for opportunities to pursue fund raising activities.

Days Sales Outstanding of 104 days is 18 days more than the 87 days as at December 31, 2010. This was highly attributable to removal of discount schemes on prompt payment.  The company should consider bringing back or enhancing the ways to collect outstanding receivables because every day that has passed in collecting means another opportunity loss on income that was foregone in investing this money that should have been collecte.

The company has well employed its assets giving a 41% return compared to 54% last 2010.

The company can effectively pay its interest obligations 2 times of its income. The company can still accommodate to finance its capital requirements 2 times more of its current standing.

As to debt and equity ratio and equity multiplier, it’s pretty obvious that its capital structure uses more debt to finance its operations with an increase of .33 from previous year. Though this is less costly than declaring capital stocks which involves declaration of dividends, the company should ensure that its financing scheme still covers the debt covenant required by the banks. The company should also take into consider the saleability of its stocks to the public since it is a publicly listed company.

The company has significantly decreased its profitability ratios due to effects of P3.1 billion revenues generated from political advertisements in 2010.Removing these effects, EBITDA is still down to 14% year on year. This is highly attributable to decreasing advertising spending of corporate companies and increasingly competition in the market. The company should find ways to attract the market again like producing calibre shows that is trending in the public to increase its audience share.

DUPONT TECHNIQUE

DuPont method is an expression which breaks ROE (Return on Equity) into three parts.

For ABS-CBN’s ROE for years 2011 and 2010:

We can see that the superior source of return or the years 2011 and 2010 is its Equity Multiplier or its heavy return on investments while the inferior source of return is the Profit Margin which contributes only 4% for year 2011 and 15% for year 2010. The result of DuPont Technique shows that the company heavily depends on debt to finance its assets.

ALTMAN Z-SCORING METHOD

The Z-score formula is used to predicting the probability that a firm will go into bankruptcy within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company.

Z-score estimated for private firms:

T1 = Working Capital Ratio

T2 = Retained Earnings Ratio

T3 = Operating Income Ratio

T4 = Equity to Debt Ratio

T5 = Asset Turnover

Z' Score Bankruptcy Model:

Z' = 0.717T1 + 0.847T2 + 3.107T3 + 0.420T4 + 0.998T5

Zones of Discrimination:

Z' > 2.5 -“Safe” Zone

1.10 < Z' < 2. 5 -“Grey” Zone

Z' < 1.10 -“Distress” Zone

The company’s Z’s score from 2010 to 2011 has decreased by .54 from 1,76 to 1.10; ABS-CBN is in the “Grey” zone which means that there is still a possibility of bankruptcy for the coming years but not in the next 3 years.

EYEBALL TECHNIQUE

Eyeball technique is a quick and dirty way of assessing the health and profitability of the company developed by Prof. E. Aurellado.

Steps 1-6 show that the company is profitable overall.

BREAKEVEN SALES

The company should have sales of P13.8 billion in 2012 should it wished to maintain its contribution margin ratio to cover both the variable and fixed expenses. Once the company has reached this sale, it is safe to assume that sales above the breakeven sales will contribute to the profitability of the company.