GMA-7 sees 50% income growth in ’01

The country’s second largest broadcast company, GMA Network Inc., has announced that it expects its net income to grow by 50 percent in 2001 compared to the previous year, although the growth still pales in comparison to the more than 4,600 percent growth as of July last year.

The STAR learned that from P200 million in 2000, the company’s net income is expected to hit P300 million last year.

However, analysts said that the real net income may be flat compared to 2000, if one considers the 15 percent rate increase effected every year and the one-time gain from political ads, which amounted to P90 million.

Gross revenue for 2001 is projected to reach P3.4 billion, a 17 percent increase from the P2.9 billion registered in 2000. Earnings before interest, taxes, depreciation, and amortization (EBITDA) may reach P1.3 billion by yearend 2001.

GMA officials attributed the slowdown in the company’s performance during the second half of the year to a huge reduction in advertising revenues, especially after the Sept. 11 terrorist attacks on the United States. However, sources reveal that the downward trend started as early as August of last year.

Analysts noted that the company must have performed very badly if earnings during the fourth quarter of 2001 were worse than the same period in 2000. This is because starting October up to December of 2000, both GMA and industry leader ABS-CBN were forced to show the Erap impeachment trials all the way to primetime without a single advertiser.

In an interview, GMA vice president for finance Ronaldo Mastrili told The STAR that he agrees that the downward trend in income started as early as August but was more pronounced after September.

"It was a double whammy for us. Advertising revenues went down, especially during the last quarter but we had to proceed with our programed expenses," Mastrili said, as he agreed that the fourth quarter 2001 performance in terms of revenues was far worse than the same period in 2000. In November 2001 alone which is a peak month in terms of advertising revenues, net income dropped by 70 percent compared to November 2000. The same trend is expected in December.

As of July 2001, GMA’s net income reached P248 million, compared to P5.2 million during the same period in 2000, or a 4,269 percent growth. Gross revenues increased 36 percent to P2.1 billion during the same period while EBITDA grew 67 percent, from P526 million to P879 million.

Mastrili attributed the outstanding performance in the first seven months of 2001 to the 38 percent increase in television revenues, eight percent improvement in loading, 18 percent increase in effective rate, radio revenue increase of 14 percent, and political ads amounting to P90 million.

He said cash operating expenses went up by 25 percent while non-cash opex went down 16 percent due to lower program rights amortization.

Industry observers, however, noted that GMA substituted the imported programs with locally produced ones that are more expensive, and therefore, the program production cost should have increased.

Mastrili said that use of locally produced programs to substitute for the canned programs inceased production cost by 22 percent, but he said this is an investment on the part of the company since these local programs like sitcoms attract more viewers.

GMA earlier reacted adversely to a STAR story which mentioned that the 4,600 percent growth as of July 2001 could be due to an effort on the part of the company to make its financials look good on paper in order to get a better valuation from the Philippine Long Distance Telephone Co. (PLDT).

It will be recalled that PLDT and GMA entered into a memorandum of understanding in February of 2001 whereby the former would acquire 67 percent of the network for around P8 billion. The valuation of GMA prior to the due diligence work of PLDT was P14.58 billion, which Mastrili admitted was pegged on a promised EBITDA for 2001.

"I cannot divulge the details of the MOU. Suffice it to say that the promised EBITDA was on the upside and that if ever that is reached, the owners will get some sort of a bonus," he said.

However, sometime during the second quarter of 2001, PLDT announced that it was no longer pursuing its bid to acquire GMA.

GMA president Felipe Gozon said that the company will resort to an initial public offering (IPO) of its shares to raise money for its expansion program.