Aboitiz transport subsidiary to stay despite profit losses

Although its transport business has suffered from thin profit margin, among all its businesses, Aboitiz Equity Venture (AEV) is fighting through tough times in its shipping business, and will continue to carry the burden brought about by the upswing cost of fuel.

"All of AEV's operating companies performed exceptionally well, except for the transport group that was again affected by large increases in fuel cost," AEV president Jon Ramon Aboitiz told stockholders during the company's Stockholders Meeting held at Cebu City Marriott Hotel, Monday.

Overall however, Aboitiz reported that 2005 was a banner year for AEV, as it posted a record profit of P3.16 billion, a 29 percent increase over 2004's restated earnings.

The transport subsidiary through the Aboitiz Transport Group (ATS) had a loss of P126 million as against P97 million for the same period of last year. High fuel costs and an inability to pass on fully these cost increases meant lower operating margins for the business.

Although ATS continued to improve its operation efficiency in 2005, as it led the industry in fuel efficiency and reduced technical off-hire down to a world class level of 0.15 percent, greater efficiency was still not enough to offset the burden of rising fuel prices, with a market incapable of absorbing all the cost increases in a timely manner through rate adjustments.

Competition from airline promos, buses and short ferry roll-on and roll-off operations also put pressure on passage rate, Aboitiz stressed.

"ATS passage and freight volumes were lower versus the first quarter of last year because of a smaller fleet, stiffer competition and weaker market, resulting in a 12 percent drop in revenue," said AEV chief operating officer Erramon Aboitiz.

Despite its transport's ordeal in profitability, Aboitiz said the company will "once again" rationalize, and maximize further its transport operation, and come up with strategy of better routing, to turn its performance around.

In the last four years, the shipping business of the AEV had experienced a downtrend revenue performance, due to volatility of fuel cost, lesser people traveling, and among other factors.

Nevertheless, Aboitiz said the company has not entertained any consideration of letting its shipping business go but rather they will find a way to cope with the challenging times.

"We want it [ATS] to sail away, not letting it go. No," Aboitiz said in an interview.

In terms of income contribution per business group for the year 2005, the transport group contributed P34 million, which is (only) one percent of total contribution. The company's power business continued to account for the lion's share of its earnings, contributing P2.123 billion, equivalent to 61 percent of the total contributions from AEV's business segments.

The distribution of revenue is followed by the banking group including Union Bank and City Savings Bank, which accounted for 27 percent or P930 million.

The company's food business through Pilmico Foods Corporation, and Fil-Am Foods, contribution accounted for 11 percent or P382 million. The remaining 12 million came from the company's portfolio investments.

Aboitiz added that the company will continue to invest in its core businesses and competencies while continuing to operate as low-cost producers and service providers; maintaining balanced portfolio, prudent debt levels, and a healthy cash flow, strengthening the Aboitiz brands and their positive image in order to build compelling and long-lasting brand relationships with its different customers.