Quick Take: Holcim's 2022 bottom line and 1 more market update
Holcim [HLCM 3.87 0.8%] [link] FY22 net income of P0.9 billion, down 63% from its FY21 net income of P2.6 billion. Gross revenues were down marginally to P26.6 billion, from P26.9 billion. HLCM said that, excluding a one-off expense in Q3, its net income would have been P1.6 billion for FY22, which still represents a drop of 38%. The company said that its “excellence” allowed it to increase prices in an attempt to offset the inflationary pressure on its unit costs for coal, fuel, and power, but that the “surge” in the price for fuel and energy caused costs associated with these inputs to rise 60%, overwhelming those price increase efforts and other cost-cutting efforts.
MB Quick Take: Inflation is eating HLCM alive, and what is happening to HLCM here is a good demonstration of how elevated inflation will impact the average consumer going forward. The increased input prices for HLCM cause HLCM to raise its prices, which in turn, become increased input prices for new construction projects like dams, roadways, condo towers, and housing developments. The increased inputs for those developers cause the developers to raise their prices.
Citicore Energy REIT [CREIT 2.48 0.4%] [link] said that it believes that it is fully indemnified against any negative results in the arbitration case it disclosed last week. The legal dispute in question was between Enfinity Philippines Renewable Resources (EPRR) and two contractors that assisted EPRR to build a solar power project. After the contract between EPRR and the two contractors was signed, EPRR was acquired by CREIT, but the project that forms the basis of the complaint was “carved out” prior to CREIT’s purchase of EPRR. CREIT’s Investor Relations department said that EPRR has provided indemnity protection to CREIT as part of the purchase agreement, which the IR team says “effectively relieved us of any monetary consequences or claims”.
MB Quick Take: An indemnity clause is a very important one in the mergers and acquisition space. When you buy physical assets (like a car or a painting), you just get that physical assets, but when you buy a corporation (like when CREIT bought EPRR), you don’t just buy its products and facilities, you buy all of its rights and obligations as a legal entity as well. Doing due diligence on “all the potential legal liability with respect to everything the company did before right now” is (obviously) a rather overwhelming scope for a pre-deal legal review, so indemnification agreements become a more-efficient workaround to solve the problem.
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Merkado Barkada's opinions are provided for informational purposes only, and should not be considered a recommendation to buy or sell any particular stock. These daily articles are not updated with new information, so each investor must do his or her own due diligence before trading, as the facts and figures in each particular article may have changed.
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