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2011 ANNUAL REPORT

table of contents

The First Philippine Holdings 2011 Annual Report is printed on Venus Lite, a paper made of carbon neutral quality composed of 55% post-consumer waste.

IFC About Our Cover1 New Mission / Vision and About Our Logo 2 About the Company 3 FPH’s Areas of Responsibilities4 2011 Year Highlights6 At A Glance8 Financial Highlights9 Company Organizational Structure10 Message of the Chairman and Chief Executive Officer12 Message of the President and Chief Operating Officer14 Message of the Chief Finance Officer Business Review16 Energy First Gen Corporation (First Gen) Energy Development Corporation (EDC) Manila Electric Company (Meralco) Panay Electric Company (PECO)22 Real Estate Rockwell Land Corporation (Rockwell Land) First Philippine Industrial Park (FPIP) 28 Manufacturing First Philippine Electric Corporation (First Philec)30 Infrastructure and Other Businesses First Balfour, Inc. (First Balfour) First Philippine Industrial Corporation (FPIC) Securities Transfer Services, Inc. (STSI) 34 Board of Directors 38 Senior Management 40 Corporate Governance44 Business Excellence46 Talent Management48 Corporate Social Responsibility 50 Management’s Discussion and Analysis of Financial Condition 62 Director and Executive Officers of the Registrant68 Compensation of Directors and Executive Officers69 Security Ownership of Certain Beneficial Owners and Management74 Statement of Management’s Responsibility for Financial Statements75 Report of Audit Committee76 Independent Auditor’s Report77 Financial Statement Corporate DirectoryIBC Lopez Credo and Acknowledgments

and Results of Operation

about our cover

The Next 50: Braving New HeightsThe next 50 years of achievement began in 2011. As First Philippine Holdings Corporation (FPH) celebrated 50 years of investments in nation-building, groundwork was done for the expansion of its energy portfolio outside the Philippines. Energy Development Corporation (EDC), controlled by FPH affiliate First Gen Corporation, was the epitome of a pioneering entrepreneurial spirit as it signed agreements with an Australian company to explore and develop geothermal fields in Chile and in Peru.

The cover shows the Philippine flag being unfurled in the Andes mountain range by the EDC exploration team on their first assignment in South America. As the world’s largest integrated geothermal company, EDC has much to teach and much to gain, with renewables slowly but surely finding a much bigger space in the global energy mix.

With clear strategic vision, FPH advances steadily, braving new heights by bringing Filipino expertise to the world.

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FIRST PHILIPPINE HOLDINGS CORPORATION 1

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about our logo

In 2011, First Philippine Holdings commemorated 50 years of business leadership that has contributed vitally to national development. As we look forward to the next 50, we see a changing world powered by technology and shaped by the spirit of human innovation. We recognize that an exciting new beginning lies ahead, not just for our country but for FPH and the Lopez Group.

Our new logo embraces this change around us and emphasizes our strategic direction. It speaks of journeys through roads of opportunity moving towards a more vibrant and dynamic FPH – a company built on a pioneering entrepreneurial spirit and anchored on sustainability. We will continue to brave new horizons by building a diverse and global portfolio of investments that balances growth with a sense of stewardship. After all, the future will ultimately be shared by our descendants, and we at First Philippine Holdings are fully committed to doing our part in ensuring that future generations will inherit a better world.

BLUE The color blue signifies our commitment to business excellence, dependability, and trustworthiness. This reflects our stability and illustrious history in pioneering historic ventures.

GREEN The green road represents our investments in clean and renewable businesses while signifying vibrancy and fresh dynamism. The color green also symbolizes our sustainability and corporate responsibility, and continued growth in all aspects of our business.

YELLOW The yellow quarter crescent evokes our vision of a bright future for the Filipino. Yellow stands for looking forward to our future and our contributions to progress.

Uplifting lives by creating value in

key industries and infrastructure that advance national

development.

We will leverage our distinct competencies

and experience from energy, infrastructure, real estate,

and industry to drive innovative business

strategies and solutions for the benefit of our customers and other

stakeholders.

vIsIon

MIssIon

2 2011 ANNUAL REPORT

Its energy subsidiary, First Gen Corporation (First Gen), is the

country’s leading clean and renewable energy producer, with

power plants that use geothermal, hydro, and natural gas for fuel.

Today, it has a total installed capacity of 2,763 MW, or 18% of the

country’s total installed capacity. First Gen manages the world’s

largest integrated geothermal power producer.

In real estate, FPH expands its reach through Rockwell Land

Corporation (Rockwell Land) and First Philippine Industrial Park

(FPIP). Rockwell Land has raised the bar for residential and

commercial development in the country, by developing brands of

unparalleled luxury and innovation. FPIP is the country’s market

leader in industrial parks, hosting prominent multinational

companies in the consumer, electronics, and technology industries.

First Philippine Electric Corporation (First Philec) operates Philippine

Electric Corporation (Philec), the country’s pioneer in transformer

manufacturing. Philec continues to be the market leader after

40 years in operation. First Philec also operates the country’s first

large-scale silicon wafer-slicing facility called First Philec Solar

Corporation (FPSC), which supplies some of the world’s leading

photovoltaic companies.

In infrastructure, FPH’s major companies are First Balfour Inc., a

Triple-IS0 certified construction and engineering company, and

First Philippine Industrial Corporation (FPIC), the country’s largest

commercial pipeline.

FPH’s businesses are built on the cornerstones of business

excellence, good corporate governance and social responsibility.

An environment of openness, a culture of learning and innovation

and a spirit of unity enable FPH to drive and promote the Filipino

vision of development and true progress.

about tHe coMPanY

First Philippine Holdings Corporation (FPH) is a 50-year-old company

managing businesses in energy, real estate, manufacturing, and infrastructure. It has pioneered and grown some of the country’s best companies, recognized as market leaders in key industries.

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fPH’s areas of oPeratIons

CENTRAL LUZON112-MW Pantabangan, Masiway Hydroelectric Power Plant

METRO MANILAHead/Corporate Offices of: First Philippine Holdings Corporation First Gen Corporation First Gas Power Corporation Energy Development Corporation First Philippine Industrial Corporation Meralco First Balfour Inc. First Philippine Electric Corporation Rockwell Land Corporation Asian Eye Institute Securities Transfer Services, Inc.

Batangas1000-MW Santa Rita Combined Cycle Power Plant500-MW San Lorenzo Combined Cycle Power PlantFirst Philippine Industrial ParkFirst Philec Solar CorporationFirst Philec Solar SolutionsFirst Electro Dynamics CorporationFirst Sumiden Circuits, Inc.

Taytay, RizalPhilippine Electric Corporation

SOUTHERN LUZON55-MW Bacon-Manito Geothermal Production Field

VISAYAS AND MINDANAO701-MW Leyte Geothermal Production Field 49-MW Northern Negros Geothermal Production Field and 49-MW

Power Plant 192-MW Southern Negros Geothermal Production Field 1.6-MW FG Bukidnon Power Corporation Run-of-River Hydroelectric

Power Plant106-MW Mindanao Geothermal Production Field

FIRST PHILPPINE HOLDINGS CORPORATION’S AREAS OF OPERATIONS

Aiming for a higher peak

4 2011 ANNUAL REPORT4 2011 ANNUAL REPORT

2011 Year HIgHlIgHts

Quarter 1

MarcH 3 FPH CFO and Treasurer Francis Giles B. Puno is elected as director and member of the Finance and Investment Committee.

Quarter 2

EDC engages the drilling and work-over services of ThermaPrime Well Services, Inc., a wholly-owned subsidiary of First Balfour.MarcH

MaY 25 FPH receives Platinum award for the 2010 Corporate Governance scorecard, from the Institute of Corporate Directors.

MAY

First Balfour transfers to its new corporate facility in Sucat, Parañaque.

June 30 FPH’s 50th Anniversary Mass and Lunch at EDSA Shangri-La, launches new logo

MAY

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Quarter 3 Quarter 4

sePteMber 21FPH 50th Anniversary Cocktails Event @ Makati Shangri-La

SEPTEMBER

noveMber 4 FPH appoints Ferdinand Edwin Sy Co Seteng as senior vice president.

noveMber

JULY

JulY 14 FPH subscribes to P5.245 billion of First Gen’s Series F Perpetual Preferred Shares issue.


DeceMber

DeceMber 13 Meralco approves the plan to distribute its shares in Rockwell Land Corp. as a property dividend. This leads to Rockwell Land’s becoming a subsidiary of FPH by 2012.

2011Year Highlights

Senior vice presidents Francis Giles B. Puno and Richard B. Tantoco are promoted as executive vice presidents. Vice presidents Perla R. Catahan, Anthony M. Mabasa, and Victor Emmanuel B. Santos are promoted as senior vice presidents.

sePteMber 29 FPH 50th Anniversary Gala Concert @ PICC

october 25 FPH signs a P4.8 billion Corporate Notes Facility Agreement with BDO Capital and Investment Corporation and several financial institutions.

OCTOBER

DeceMber 4 EDC signs Head of Terms Agreement (HOTA) with Australia-based Hot Rock Limited (HRL), relating to four geothermal projects in Chile and Peru.


at a glance

TODAY FPH is expanding its renewable power solutions through First Gen and EDC, so TOMORROW it can serve the world’s energy needs sustainably.

Energy RealEstate

Real Estate

TODAY, FPH is growing the country’s leading industrial park through FPIP, so TOMORROW it can serve the most demanding global customers.

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Infrastructureand OtherBusinesses

TODAY FPH is championing in pioneering enterprises through First Philec, so TOMORROW it will create truly transformational products and solutions.

TODAY FPH is investing in fully-integrated property

developments through Rockwell Land, so TOMORROW it can

build communities that adapt to individual needs.

TODAY FPH is increasing its expertise in construction and infrastructure development through First Balfour, so TOMORROW it can broaden its participation in nation-building.

Manufacturing


fInancIal HIgHlIgHts

DeceMber 31oPeratIng results (In MIllIon PHP)1 2011 2010

Revenues 70,315 64,285

Sale of electricity 58,094 52,973 Sale of merchandise 7,618 6,076 Contracts and services 3,252 1,697 Sale of real estate 787 657 Equity in net earnings of associates 562 2,777 Share in project revenue of joint ventures 2 105

Finance costs (4,567) (5,594)Foreign exchange loss (289) (241)Provision for income tax 2,133 1,935 Gain on sale of investment in an associate 42 23,560 Net income for the year 4,776 28,372 Net income attributable to equity holders of the Parent 2,117 24,850

fInancIal PosItIon (In MIllIon PHP)2

Total assets 167,003 160,534 Investments in associates 61,320 57,209 Total debt3 66,002 66,437 Total long-term debt4 46,493 42,311 Total liabilities 69,186 69,154 Total equity attributable to equity holders of the Parent 64,114 63,679 Total equity attributable to equity holders of the Parent - adjusted 5 79,375 79,005 Total equity 97,817 91,380 Total equity - adjusted5 113,078 106,706

fInancIal ratIos

Return on equity6 2.67% 37.41%Dividend payout ratio7 4.48% 13.23%Current Ratio (times)8 2.56 1.87 Debt to equity (times)9 0.58 0.62

Per sHare Data (In PHP)

Earnings per share10

Basic 3.099 41.043 Diluted 3.074 40.619

Book value per share11 133.54 126.24 Price earnings ratio12 19.85 1.53 Market price 61.50 62.60 Cash dividend per share13 1.99 1.98 Number of common shares issued, subscribed and outstanding 546,335,264 574,194,048 Weighted average number of common shares

Basic 562,187,781 591,747,998 Diluted 566,839,539 597,918,289

Number of stockholders14 12,728 12,899

1 The statements of income for the years ended December 31, 2011 and 2010 are set out on the consolidated financial statements. 2 The statements of financial position as of December 31, 2011 and 2010 are set out on the consolidated financial statements.3 Total debt = total liabilities but excludes income tax payable, derivative liabilities, deferred tax liabilities, retirement benefit liability4 Total long-term excludes current portion but includes noncurrent portion of bonds payable.5 Equity - adjusted excludes cumulative translation adjustments (CTA), share in other comprehensive income of associates and equity reserve pertaining to effect of dilution of a

subsidiary and effect of acquisition of non-controlling interests6 Return on equity = net income for the year attributable to equity holders of the Parent / ave. total equity attributable to equity holders of the Parent - adjusted7 Dividend payout ratio = dividend declared to common shareholders by Parent / last year’s net income attributable to equity holders of the Parent8 Current ratio = current assets / current liabilities9 Debt to equity ratio = total debt / total equity - adjusted10 The EPS computations for the years ended December 31, 2011 and 2010 are set out on the notes to the consolidated financial statements (Note 29).11 Book value per share = (total equity attributable to equity holders of the parent - adjusted less preferred equity) / weighted ave. no. of common shares outstanding - basic12 Price earnings ratio = market value per share / basic earnings per share13 Cash dividend per share = cash dividends declared to common shareholders / average number of common shares issued, subscribed and outstanding 14 Includes common and preferred stockholders.

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coMPanY organIzatIonal structure

ManufacturingReal EstateEnergy

66.2%First Gen Corporation

31.15%Energy Development Corp.

100%First Philippine Electric Corporation

49%Rockwell Land Corporation

70%First Philippine Industrial Park

Infrastructure andOther Businesses

100%Securities TransferServices, Inc.

100%First Balfour, Inc.

60%First Philippine Industrial Corp.

99.15%Philippine Electric Corporation

46.50%First Philippine Holdings

6.60%Manila Electric Company

30%Panay Electric Company

70%First Philec Nexolon Corporation

100%First Philec Manufacturing Technologies Corporation

100%ThermaPrime

80%TerraPrime

74.54%First Philec Solar Corporation

100%First Electro Dynamics Corporation

100%First Philippine Power Systems, Inc.

39.75%First Gas Power Corporation

45.19%First Gen Hydro Power Corporation

San Lorenzo

39.75%FGP Corp.


Message of the ChairManand Chief exeCutive offiCer

“The farther backward you can look, the farther forward you are likely to see.” – Winston Churchill

Last year, we celebrated our first 50 years of First Philippine Holdings (FPH). A good juncture to commemorate the past, learn from it, rediscover our roots, and appreciate why we do the things we do. FPH has had a tumultuous but powerful history, one that never lacked color. While we momentarily glance backwards to refresh our eyes and jog our memories, it revitalizes us for the task of looking forward. Even as we honor that legacy, not for a moment do we forget that we are now stewards of FPH’s potential. In shaping our vision for the next 50 years we reflect objectively about the past to gain an intimate appreciation of our DNA and our capabilities. This is captured in a simple vision statement we’ve crafted for our next 50 years:

“Uplifting lives by creating value in key industries and infrastructure that advance national development.”

This single sentence captures many thoughts. It captures the value created by FPH as it acquired Meralco from its American owners in 1961 and built it into the country’s largest distribution utility. It captures how FPH successfully established a wide range of businesses: the country’s first oil products pipeline, first lube oil refinery, first electric transformer manufacturing plant, first natural gas-fired power plant, first silicon wafer-slicing facility for the solar photovoltaic (PV) industry as well as the country’s leading industrial park; the list goes on. FPH has pioneered and excelled in key industries and developed vital infrastructure that have been pivotal to our country’s progress. There is no doubt in our minds that we have touched and uplifted many lives in the process.

The spirit of that vision has inspired FPH for the past five decades and will continue to do so well into the future wherever in the world we may be. We will fulfill that vision as we “leverage our distinct competencies and experience from energy, infrastructure, real estate and industry to drive innovative business strategies and solutions for the benefit of our customers and other stakeholders.”

These are all well chosen words. Our redrafted Vision-Mission statement taken together with our cherished Lopez Group values, such as integrity and social justice, must always position us as partners in progress with countries we choose to do business in – utilizing our strengths and capabilities to build key industries that advance national development. Here in the Philippines, we see a nation that harbors many strengths but is filled with countless institutional gaps and market discontinuities. Our challenge at FPH is to provide those business solutions as we bridge those gaps domestically and bring the best that our country has to offer to the global arena as well.

There lies the power of our platform today.

In the field of power and energy we recognize the dearth of options our country has had, relative to our neighbors, in its use of indigenous energy. This is why our power generation portfolio today is resolutely fueled by indigenous sources such as natural gas, steam, and hydro. We made a big strategic decision acquiring Energy Development Corporation (EDC) in 2007 arising from a sense of urgency to develop more clean and indigenous

federico r. lopezChairman and Chief Executive Officer

“Although we close the chapter

on our first 50 years,

we turn towards our next 50 with a ship that’s ready

to brave new horizons

and take FPH to even greater shores.”

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energy for the country and our aspiration to further sharpen this unique Filipino expertise and prepare it for global expansion.

Our construction arm First Balfour has its roots in 1969 as a power plant construction and engineering arm of Meralco named Philippine Engineering and Construction Company (PECCO). As such PECCO stored all the knowledge and experience of Filipinos who worked alongside American counterparts, building power plants in the decade fondly remembered as Meralco’s “golden age” from 1962 to 1972. Although First Balfour is a different company today, we believe we can strengthen the platform even more by building up its resources and engineering capabilities alongside and complementary to our growing power and energy businesses. The establishment of ThermaPrime Well Services Inc. (ThermaPrime), our geothermal well-drilling services company, is just the start. The synergy between both arms of FPH will be mutually beneficial.

Our pipeline company First Philippine Industrial Corporation (FPIC) is still suffering from an unfortunate leak incident in Bangkal and, although operationally ready, it still awaits the lifting of the Supreme Court’s Writ of Kalikasan before it can operate. However, our team has decisively taken responsibility for cleaning up and restoring the community and environment. What’s more important is that FPIC is doubling its efforts to ensure that when the pipeline begins operating again, we build-in levels of monitoring and safety that ensure such incidents can never happen again. Further, we must reflect on the real potential of FPIC, and the role it can play in energy transport and national development in the decades to come. Its right-of-way is unique and will be very difficult to replicate given the build-up of urban density since the 1960’s. The exciting possibilities are not lost on us, and we will surely consider the best and most strategic use of this asset in the decades to come.

The potential of our manufacturing platform has not yet been fully reached. I believe that our electrical transformer business has concentrated too much on serving a single customer – Meralco. Over the years Philippine Electric Corporation (Philec) has also lost its edge in manufacturing efficiency. There is no reason we cannot regain that lost edge, but we must, among other things, benchmark our processes with the best in the world and reorient the company around the needs of its current and future customers.

Our PV solar wafer manufacturing platform is going through rough times. The spectacular demand growth of the PV business in the previous decade was primarily driven by huge subsidies and incentives in Europe and the United States (US). Recent economic difficulties in these economies have meant a massive reduction, and in some cases withdrawal, of these incentives for renewable energy. This collapse in demand, coupled with overbuilding of new capacity, has led to a supply glut that is placing a squeeze on margins and profitability everywhere along the PV industry.

The bright side is the incredibly rapid plunge in installed costs of solar PV projects worldwide. Many are predicting the holy grail of grid parity to be reached sooner than expected.

But we’ll watch closely how this plays out given that plunging natural gas prices in the US from fracking and shale gas could further lower power prices.

We have no doubt that a shakeout of PV industry players will occur before dark clouds clear. Nevertheless, First Philec Corporation (First Philec) continues to work with its customers to help each other weather the storm. However, a sobering lesson for First Philec from all its manufacturing activities is that we must always pay very close and deliberate attention to industry structure, our business models, as well as have intimate knowledge of our markets and customers. It’s never enough just to manufacture a good product.

Our real estate sector is anchored by superior brands built by First Philippine Industrial Park (FPIP) in the industrial park segment and Rockwell Land Corporation (Rockwell) in the residential/commercial sector. With both businesses, we have been successful at creating integrated communities that bridge the gaps and discontinuities of living, working, and establishing manufacturing operations in an emerging market country such as the Philippines. Both Rockwell and FPIP have, in their inimitable ways, created world-class residential and industrial communities that enable the many things that are good about our country to shine. However, we still need to drive them towards better investment returns in the future and deepen our management benches for these businesses if we are to deploy more of our capital resources to this sector in the coming decades.

Last but not least are our remaining investments in the electric distribution utility business through our 3.9% stake in Meralco as well as our 30% stake in the Panay Electric Company. We are not active in the management of both companies with Metro Pacific and the Cacho family driving both companies, respectively. Although, over the last few years we have greatly reduced our vulnerabilities to this highly regulated sector, both now deliver reasonable yields as portfolio investments because of the more stable Performance-Based Ratemaking regime.

At parent company FPH, not only do we intend to drive strategic clarity and accountability for investment returns among our platform of businesses but we will ensure that they must also work together in synergy. For us, each business represents a distinct and unique capability. The power to create new, more compelling customer experiences means building and combining all those skills and evolving new ones as we move forward together.

Although we close the chapter on our first 50 years, we turn towards our next 50 with a ship that’s ready to brave new horizons and take FPH to even greater shores. To all our stakeholders, we’re grateful for your unwavering support especially through all those trying times. We look forward to bringing you on an exciting and even more profitable journey in the decades to come. To take from Rainer Rilke’s Book of Hours, “We see the brightness of a new page where everything yet can happen.” And we hope you share our excitement on that journey we are just beginning.


fellow shareholders:

First Philippine Holdings Corporation (FPH) reported a net income of P4.8 billion for the year ended December 31, 2011, compared to P28.4 billion in 2010. The results of 2010 were remarkably higher as we realized a substantial gain of

P23.6 billion on the divestment of a 6.6% stake in Meralco. On the other hand, in 2011, EDC provided P5 billion loss on impairment of the Northern Negros Geothermal Plant (NNGP) assets, versus the P3.4 billion provision on the same assets in 2010. Net income attributable to Parent shareholders amounted to P2.1 billion this year, as against P24.9 billion last year. Removing the effects of the gain on sale and impairment losses, FPH’s recurring net income attributable to equity holders of the Parent was stronger in 2011 at P3.4 billion as against P1.5 billion in 2010.

Our financial performance benefited from lower debt levels, reducing finance costs by 18% or P1 billion, from P5.6 billion to P4.6 billion. As of December 31, 2011, consolidated debt stood at P51.7 billion against P55.8 billion as of December 31, 2010. In addition, lower personnel expenses and professional fees in 2011 also contributed to better recurring net income.

operating results

ENERGY First Gen posted a net income of $86.6 million (P3.8 billion)1, 28% less than the $121 million (P5.5 billion)1 income that was recognized in 2010 principally due to the substantial decline in the contribution of EDC. This was moderated by lower finance costs after the settlement of the P5 billion bonds in July 2010 and the buy-back of the Convertible Bonds in 2011.

Message of the president and Chief operating offiCer

EDC registered a net income of P614.8 million in 2011, 86% down from its net income of P4.4 billion in 2010. This was, as mentioned earlier, brought about by the additional P5 billion non-cash impairment of the NNGP assets and foregone steam revenues from the 150-MW Bacon-Manito Geothermal Plant (BacMan), which is undergoing rehabilitation following its acquisition by EDC in 2010. Notwithstanding the lower earnings contribution of EDC, we remain positive on the future value of the company, as we, in fact, further increased our stake inthe company.

In 2011, EDC took landmark steps in pursuit of its objective of becoming a global leader in clean and renewable energy production. It entered into Joint Venture Agreements (JVA) with Hot Rock Limited of Australia (HRL). The two companies will co-develop four geothermal exploration projects in Chile2 and Peru3. Under the JVA, EDC will hold 70% interest in each of these projects.

We are also pleased with the improved performance of our gas and hydropower plants as they continue to deliver good returns to First Gen. Santa Rita and San Lorenzo earned a combined net income of $132.1 million (P5.7 billion) in 2011, slightly higher than the $130.2 million (P5.9 billion) in 2010. The combined net capacity factor of these plants went up from 82.7% in 2010 to 89.2% in 2011, the highest dispatch level since the plants went into commercial operations.

elpidio l. ibañezPresident and Chief Operating Officer

“In its first 50 years, FPH

consistently invested in nation-building, job creation and economic development. In the

next 50 years, FPH can be expected

to do the same. We will continually look

at sectors that will employ Filipino expertise and promote inclusive economic growth. Our values and

track record make us the partner of choice in many endeavors.”

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FG Hydro’s net earnings climbed to P1.2 billion for the year from P0.7 billion in 2010, driven by revenues earned from ancillary services it began providing in August 2011 to the National Grid Corporation of the Philippines (NGCP).

PROPERTY DEVELOPMENT Rockwell Land’s net income amounted to P914.9 million in 2011, up by 14% from P801.3 million in 2010 as a result of higher contributions from the condominium sales of Edades and The Grove. The Rockwell Center in Makati expanded in 2011 from an original 15.5 hectares to 19.1 hectares with the acquisition of the former Colgate-Palmolive lot along J.P. Rizal Ave., giving birth to a “Greater Rockwell.”

First Philippine Industrial Park (FPIP) marked another banner year as net income soared 64% to P510.6 million in 2011 from P312.3 million in 2010. Revenues increased by 30% or P265.2 million to P1.1 billion as all its core businesses, namely, land sales, ready-built factories (RBF), water distribution and wastewater treatment, outperformed last year’s results.

MANUFACTURING Our manufacturing sector, through First Philec, was adversely affected by significant challenges to its solar wafer-slicing business in 2011. First Philec ended 2011 with a consolidated net income of P21.8 million, 90% or P193.3 million down from P215.1 million in 2010. Demand for solar panels slowed down in major country markets worldwide in the first three quarters of 2011 due to incentive cutbacks by various governments. Moreover, production capacities, particularly in China, grew and outstripped demand.

INFRASTRUCTURE First Balfour posted a net income of P183.1 million for 2011, a significant improvement from its 2010 result of P35.8 million. This is attributable to growth in the construction business and new revenues coming from well-drilling services of its new subsidiary, ThermaPrime. ThermaPrime started operations in March 2011. It has an interim service agreement to provide geothermal well-drilling services to EDC.

First Philippine Industrial Corporation’s (FPIC) net losses reached P357.2 million for the year ended December 31, 2011 compared to P45.6 million of net losses in 2010. The white oil pipeline operations remained shut down as the temporary environment protection order is still in effect. As mentioned last year, we continue to be committed to global business practices in safety, security, health and environmental standards. As of March 2012, total costs of P659 million have been incurred related to the petroleum seepage.

MAjOR DEVELOPMENTS AND OUTLOOk We sold an additional 30 million common shares or 2.66% ownership in Meralco for P295 per share or a total consideration of P8.8 billion in January 2012. With the sale, our ownership in Meralco stood at 3.9%. Proceeds from the sale will be utilized mainly in the expansion of the power generation and property businesses.

We will also become the majority owner of Rockwell Land after we receive our property dividends in 2012. On February 27, 2012, Meralco declared its 51% common equity stake in Rockwell Land as property dividends in favor of its common shareholders of record as of March 23, 2012. The increased ownership in Rockwell Land will further benefit FPH with Rockwell’s drive to achieve higher growth in its revenues and to leverage its brand into more projects.

We also plan to further strengthen our leadership position in the industrial property sector with the expansion of landholdings as a major objective for 2012.

In its first 50 years, FPH consistently invested in nation-building, job creation and economic development. In the next 50 years, FPH can be expected to do the same. We will continually look at sectors that will employ Filipino expertise and promote inclusive economic growth. Our values and track record make us the partner of choice in many endeavors.

Once again, we wish to thank you, our fellow shareholders, for your continued support.

1 Average rate of P43.33:$1.00 in 2011 and P45.31:$1.00 in 2010. 2 Calerias and Longavi.3 Quellaapacheta and Chocopata.


Message of the Chief finanCe offiCer

It is my pleasure to present FPH’s key financial highlights for 2011.

FPH’s consolidated revenues increased by 9% to P70.3 billion from P64.3 billion in 2010 due to improved contribution across the business units. Of the total revenues, 83% or P58.1 billion came from the power generation group through First Gen while another 10% or P7.6 billion came from the sale of merchandise such as distribution transformers and sliced wafers through First Philec. Consolidated net income attributable to the Parent showed a decline of 91% from P24.9 billion in 2010 to P2.1 billion in 2011. However, without the gain on sale of investment in Meralco in 2010 of P23.6 billion, the 2011 consolidated net income attributable to Parent of P2.1 billion was significantly better than the 2010 attributable earnings of P1.3 billion.

FPH earned cash dividends of about P2.5 billion in 2011 from its subsidiaries and associates, down by 60% from the dividend earnings of around P6.2 billion in 2010. First Philippine Utilities Corporation paid P5.7 billion dividends in 2010 from the earnings it derived from sale of Meralco shares versus P1.4 billion paid in 2011 that was mainly sourced from regular cash dividends from our remaining Meralco shares. Meralco paid a total of P7.80 per share of cash dividends in 2011. First Gen did not pay any cash dividend in 2011 as a result of the current debt-reduction program and increased investment in EDC.

In October 2011, FPH issued a new Floating Rate Corporate Notes for P4.8 billion that was used to fully repay the remaining US$36.6 million and P3.2 billion outstanding principal of the Dual Currency Floating Rate Notes that were originally issued in 2007. This refinancing exercise gave FPH the flexibility to extend its loan maturity profile and smoothen out its principal repayment schedule. At the end of 2011, the Parent Company’s interest-bearing debt fell to P9.6 billion from P10.4 billion in 2010. The Parent Company’s cash balance as of the end of 2011 stood at a comfortable level of P9.1 billion from P14.7 billion in 2010.

Total Group interest-bearing debt reached P51.7 billion in 2011 versus P55.8 billion in 2010 or a decline of 7%. The decline in consolidated debt was due to loan repayments and partial redemption of First Gen’s convertible bonds. As a result, the ratio of total debt to total equity improved from 0.71:1 in 2010 to 0.67:1 in 2011. Current ratio went up from 1.87:1 in 2010 to 2.56:1 in 2011 as current assets rose by P7.4 billion and current liabilities fell by P3.3 billion.

francis giles b. punoTreasurer and Chief Finance Officer

“Our Company is

confident that it can continue

to achieve sustainable earnings growth and

maintain leadership in

our various businesses.”

2010 Annual Report

a result, First Gen’s consolidated debt level declined by 11% or US$130.0 million from US$1.13 billion in 2009 to US$1.00 billion in 2010. The face value of the remaining First Gen convertible bonds amounting to US$113.5 million will mature in February 2013.

First Gen’s affiliate, EDC, likewise issued a US$175.0 million three-year loan and prepaid its Japanese Yen loans to further re-denominate its foreign currency exposure to Philippine Peso and US Dollar. EDC has a natural hedge since more than 40% of its revenues are linked to US Dollars. On April 19, 2010, First Gen entered into Call Option Agreements to purchase 585 million EDC common shares. These call options can be exercised at the applicable exercise price ranging from P5.67 per share to P6.76 per share on or before April 2013.

LOOKING AHEADWe will continue to focus on the success of our current business platform to deliver a steady increase in revenues, earnings and operating results of the portfolio. We will utilize our excess cash balances to reduce our negative carry and will implement an investment and funding strategy for the Parent Company that is coordinated with our subsidiaries and affiliates. We are evaluating our options to refinance our remaining debts to take advantage of the favorable debt market.

As of the first quarter of 2011, total buyback of FPH common shares reached 33.4 million shares for a total of P2.1 billion or 5.89% of the total outstanding shares of the Company since the program started. In March and April 2011, First Gen fully exercised its call option over 585 million EDC common shares that resulted in increasing its

economic interest in affiliate EDC to over 46%. EDC began the year with a successful launch of a 10-year Regulation-S non-rated US$300 million bond at a fixed coupon of 6.5% that was close to four times oversubscribed.

The Parent Company’s remaining cash may be used to continue its share buyback program, maintain its P2.0 per annum cash dividend, reduce debt and/or redeem Preferred Shares and make further investments in (a) power generation through First Gen for its potential expansion and acquisition opportunities, (b) manufacturing through First Philec for the expansion of its solar wafer slicing business, (c) First Balfour for its projects in drilling services and middle-income housing, and (d) other existing business expansions and/or opportunities.

We would like to express our sincere appreciation to our stakeholders for their continued trust and confidence in FPH.

FRANCIS GILES B. PUNOTreasurer and Chief Finance Officer

23

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Our healthy cash balance allowed us to continue with our share buy-back program that was approved by the Board in July 2010 and maintain the distribution of the regular P2.0 per share cash dividend to common shareholders and P8.72 per share cash dividends on its perpetual preferred shares in 2011. By the end of 2011, a cumulative total of 55 million FPH shares had already been purchased for P3.3 billion. This is equivalent to 10.15% of total outstanding common shares purchased at an average price of P60.33 per share.

In February 2012, we received a total cash payment of P8.85 billion from Beacon Electric Asset Holdings (Beacon) for the additional sale of another 2.66% stake in Meralco at an attractive price of P295 per share. After the transaction, FPH continues to own approximately 3.9% of Meralco shares, which is now booked as investment in equity securities. Consequently, FPH will recognize another gain of more than P3.0 billion in its consolidated statement of income in the first quarter of 2012.

FPH continued its efforts to ensure the further financial strengthening of its investment in First Gen. In July 2011, FPH subscribed to P5.245 billion out of the total issuance of P10 billion in the issuance of First Gen’s Series F Perpetual Preferred Shares. In 2011, First Gen redeemed US$72.5 million of its convertible bond at the pre-agreed put price of 115.6% and bought back another $117.5 million at an average price of 116.5%. The balance of US$70.0 million convertible bonds will mature in February 2013. First Gen’s consolidated debt level stood at US$928 million in 2011, a decrease of 9% from US$1.0 billion in 2010.

First Gen’s affiliate, EDC, undertook a US$300.0 million international bond issue due 2021 to fund growth projects, capital expenditures and debt servicing requirements. EDC also issued a six-year $175.0 million syndicated facility to refinance its existing loan maturing in June 2013 and signed a 15-year US$75.0 million loan with the International Finance Corporation (IFC) to fund the company’s capital expenditure program.

First Gen increased its ownership in EDC to 47.02% through exercised of its call option over 195 million common shares of EDC at the exercise price of P5.67 per share on March 8, 2011. The company likewise exercised its call option over 390 million common shares of EDC at the exercise price of P5.51 per share on April 1, 2011.

Our Company is confident that it can continue to achieve sustainable earnings growth and maintain leadership in our various businesses. FPH remains focused on delivering long-term value to our shareholders and will continue to focus on areas of improvement such as evaluating and monitoring its investments and enhancing its risk management system. At the same time, we will continue to evaluate options to refinance our remaining debts to take advantage of the favorable debt market conditions.

We would like to express our appreciation to all our stakeholders for their continuing support to the Company.

(aMount in Million php)

2011 2010

Current nonCurrent total Current nonCurrent total

PARENT 1.890 7,695 9,585 1,722 8,667 10,389

POWER 2,563 36,450 39,013 10,981 31,981 42,962

MANUFACTURING 611 2,271 2,882 495 1,550 2,045

OTHERS 156 77 233 329 113 442

TOTAL 5,220 46,493 51,713 13,527 42,311 55,838

CoMparative Consolidated interest Bearing Cost


First Gen remains committed to perform its role as the country’s leading developer and operator of electricity generating plants utilizing indigenous, clean and/or renewable sources of energy.

Its current installed capacity of 2,763 MW, comprising 1,500 MW from natural gas, 1,129 MW from geothermal steam and 134 MW from hydro resources makes up approximately 18% of the country’s total installed power generation capacity. FPH currently owns 66.2% common and 76.4% voting shares in First Gen.

First Gen operates its natural gas-fired plants through First Gas Power Corporation (FGPC) and FGP Corp. (FGP), which operate the 1,000-MW Santa Rita and 500-MW San Lorenzo power plants. The gas projects are owned under a 60:40 joint venture between First Gen and BG Group plc of the United Kingdom. First Gen subsidiary First Gen Renewables, Inc. (FGRI) fully owns FG Bukidnon Power Corporation, which operates the 1.6-MW FG Bukidnon mini hydroelectric power plant. First Gen’s associates are Energy Development Corporation (EDC), with an aggregate installed capacity of approximately 1,129 MW of integrated geothermal power; and First Gen Hydro Power Corporation (FG Hydro), which operates the 132-MW Pantabangan-Masiway hydroelectric power plants. FG Hydro is 60.0%-owned by EDC and 40.0% by First Gen resulting in a 68.2% effective economic stake of First Gen in FG Hydro as of December 31, 2011.

First Gen reported significantly reduced attributable net income of $35.0 million in 2011 compared to $70.2 million in 2010. The 50.1% drop in earnings was mainly derived from

Harnessing LimiTLEss

ENERGYHarnessing LimiTLEss

ENERGY

FiRsT PHiLiPPiNE HOLDiNGs CORPORATiON 17

a $115.3 million (or P5.0 billion) one-time non-cash full impairment provision recorded by its affiliate, EDC, due to the inadequacy of steam reserves at the Northern Negros Geothermal Project (NNGP). The impairment had severely affected EDC’s earnings (excluding FG Hydro’s income) in 2011, which contributed a net loss of $9.3 million to First Gen compared to an income contribution of $52.5 million in 2010. This was further exacerbated by the loss of steam sales, as discussed below.

Improved earnings from First Gas and FG Hydro combined with reduced operating and financing costs helped offset the loss at EDC. The First Gas plants contributed stable attributable earnings to First Gen of $70.9 million in 2011 compared with $69.4 million in the previous year. FG Hydro’s attributable effective 68.2% earnings rose dramatically by 150.5% to $24.8 million from $9.9 million previously as it generated supplemental earnings from additional electricity sales through ancillary services it provided to the transmission grid operator. Additional benefits were derived from $19.3 million in savings from lower interest expense and financing charges and a $3.6 million reduction in administrative costs.

Adjusting for non-recurring items, First Gen reported a remarkable increase in recurring attributable net income of $83.1 million in 2011. This was $26.1 million, or 45.8%

First Gen total installed CapaCity and Generation Mix

Natural gas1,500 MW Indigenous energy Base load

geothermal1,129 MW Indigenous and renewable energy Base load / Mid merit

hydro134 MW Indigenous and renewable energy Base load / Peak5%

41%

54%

1,523 MWNet attributable capacity

Notes

(1) Actual installed capacity of 2,763 MW and net attributable capacity of 1,523 MW

(2) Based on Santa Rita, San Lorenzo, Pantabangan-Masiway and BacMan plants as a percentage of Luzon grid capacity

(3) Based on Palinpinon, Tongonan, Mindanao 1&2, Unified Leyte and Agusan Hydro plants as a percentage of Visayas and Mindanao grid capacity

First Gen share in national grid installed capacity(1)

15% of Luzon(2)

25% of Visayas-Mindanao(3)

a

aNet Income attributable to equity holders of the Parent decreased by 50% = US$35M Consolidated revenues up by 10% = US$1.3B

18%

EnergyEnergy


higher than the recurring net income of $57.0 million in 2010. First Gen’s consolidated revenues increased by $119.2 million, or 9.6%, to $1,363.5 million in 2011 from $1,244.3 million in the previous year. The increase was driven by higher fuel prices and dispatch of the First Gas plants that operated at a combined net capacity factor record of 89.2% in 2011 from 82.7% in 2010. This was the gas plants’ highest dispatch level since their start of commercial operations.

EDC also reported improved electricity revenues of P24.6 billion in 2011 from P22.9 billion previously. Its Palinpinon and Tongonan power plants generated higher revenues by P1.6 billion to P8.4 billion from its bilateral power contracts and wholesale electricity spot market sales. However, for the same period, EDC had foregone steam revenues of P1.2 billion. It previously generated steam sales from the then 150-MW Bacon-Manito geothermal power plant because of the then prevailing steam sales agreement with National Power Corporation (NPC). Following EDC’s acquisition of the geothermal power plant, the steam contract was cancelled in September 2010. EDC’s P24.6 billion sales also include P2.4 billion from FG Hydro as its 60%-owned subsidiary.

On the finance front, First Gen redeemed $72.5 million of its Convertible Bonds at a price of 115.6% as part of a scheduled put option that was exercised on February 11, 2011. The redeemed amount formed part of the $260 million in Convertible Bonds that First Gen issued on February 11, 2008. The bonds bear interest at the rate of 2.5% per annum, and will be repayable in full on February 11, 2013. Upon maturity, First Gen is required to redeem the bonds at 128.02% of its principal amount. In addition, First Gen bought back and retired another $117.5 million of the bonds at an average price of 116.5%. By the end of 2011, First Gen’s Convertible Bonds in the reduced amount of $70.0 million in face value remained outstanding.

In July 2011, First Gen raised P10.0 billion in fresh capital by issuing a non-call 7-year Series “F” Perpetual Preferred Shares at an 8.0% dividend rate. On November 15, 2011, the Series “F” Perpetual Preferred Shares were listed in the PSE with stock trading symbol “FGENF.” The proceeds enabled the Company to prepay the P5.1 billion outstanding debt of its subsidiary, Unified Holdings Corporation with interest of 9.4% and buy back some of its Convertible Bonds. As a result, the company’s consolidated interest expense and financing charges dropped by $19.3 million from $104.2 million in 2010 to $84.9 million in 2011. This partially offset the effect of EDC’s impairment charge.

MaJor deVelopMents and CHallenGes

The First Gas plants reached several milestones in 2011, most notable of which was the combined net capacity factor of the Santa Rita and San Lorenzo plants that went up from 82.7% in 2010 to 89.2% in 2011 delivering 12,237 Gigawatt-hours of electricity—their highest dispatch level since the plants went into commercial operations. The 2011 annual gas consumption of 77.11 PJ (NCV) is likewise at an all-time high for the plants, exceeding the combined 74.55 PJ (NCV) annual contract quantities for the first time. The high dispatch also enabled the consumption of the remaining banked gas of the plants. The plants’ level of safety also reached a new high as they achieved three million man-hours without lost time to an incident while its operator, Siemens Power Operations, Inc., achieved five million man-hours without lost time incident.

“The First gas plants reached several

milestones in 2011, most

notable of which was the

combined net capacity

of the Santa Rita and

san lorenzo Plants.”

1000-MW Santa Rita Power Plant

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In 2011, FG Hydro celebrated its milestone fifth year as owner and operator of the Pantabangan-Masiway plants. During the five-year period, a major rehabilitation and upgrade of Pantabangan’s capacity by 20 MW to 132 MW from 112 MW was completed. FG Hydro also realized an additional source of revenue when it secured the approval from the Energy Regulatory Commission for its executed Ancillary Services Procurement Agreement with the National Grid Corporation of the Philippines (NGCP) for ancillary services; namely, contingency reserve, dispatchable reserve, reactive power support, and black start service. In addition, under the Company’s management, Certification International of the Philippines certified FG Hydro with three integrated management standards for quality (ISO 9001:2008), environment (ISO 14001:2004) and occupational health and safety (OHSAS 18001:2007).

After conducting extensive analysis and third-party expert review, EDC concluded that NNGP could only be sustainably operated at 5 MW to 10 MW compared to the power plant’s rated capacity of 49.4 MW. NNGP was then decommissioned, and correspondingly, an impairment provision was booked for the remaining value of the NNGP assets. The provision of P5.0 billion in 2011 is in addition to the P3.4 billion recorded in 2010 and P0.4 billion in 2009. EDC is currently conducting a steam field optimization test to determine the right size of the power plant to be located at the site. In the meantime, EDC is already working on a program to transfer the 49.4-MW power plant to EDC’s concession in Palinpinon by 2014.

EDC continued to pursue the rehabilitation of the power generating plants purchased from PSALM, including the 192.5-MW Palinpinon, 112.5-MW Tongonan, and 130-MW BacMan power plants (formerly 150 MW). Since the turnover of the BacMan geothermal complex in September 2010, EDC undertook a comprehensive rehabilitation program to rebuild the power plants in order to operate the plants safely and reliably at a capacity of 130 MW comprising two units of 55 MW and one unit of 20 MW. (After the purchase, one of the units of the BacMan plant was deemed beyond repair; hence, the de-rated nameplate capacity.)

Unfortunately, poor quality work on the repair of the generator rotors by the original service provider required EDC to completely redo the rewinding with another contractor. This caused some delay in the geothermal company’s internal accelerated schedule. The generator rotor rewind will be redone by Alstom of France and the generator rotor of BacMan Unit 1 has been shipped to Alstom’s facility in the United Kingdom. The second unit, which is currently going through commissioning, will also be sent for rewinding after the work in Unit 1 is completed. Complete rehabilitation of the three units is expected by September 2012.

To align its practices with global best practices, EDC approved in February 2011 the closure of its drilling operations, as these were not among its core functions. EDC subsequently engaged the drilling and work-over services of ThermaPrime Well Services, Inc., a wholly-owned subsidiary of First Balfour Inc. FPH owns 100% of First Balfour Inc.1000-MW Santa Rita Power Plant

132.8 MW Pantabangan – Masiway Hydroelectric Plant

First Gen engineers monitoring the Malitbog Powerplant control room

701-MW Leyte Geothermal Steamfield


With so much focus and attention given to sustain and create value for EDC and despite the negative earnings contribution of EDC in 2011, First Gen continued to seize the opportunity to increase its ownership in the company. It exercised its call option over 195 million EDC shares at an exercise price of P5.67 per share on March 8, 2011. It subsequently exercised its call option over an additional 390 million EDC common shares at an exercise price of P5.51 per share on April 1, 2011. The shares were purchased pursuant to the Call Option Agreements executed on April 20, 2010 by First Gen with Philplans First, Inc., Rescom Developers, Inc., Philhealthcare, Inc., and Systems Technology Institute, Inc. By the end of 2011, First Gen had increased its economic ownership in EDC to 47.02%.

strateGiC initiatiVes and proGraMs

First Gen continues to pursue its growth strategy across its portfolio. It has undertaken studies to expand its gas portfolio and, depending on the availability of additional gas reserves from Camago-Malampaya, its San Gabriel project which will be located adjacent to the existing Santa Rita and San Lorenzo units that, in the Company’s estimate, can be constructed in two to three years. In addition, the Company intends to work towards arriving at a mutually-beneficial arrangement with BG Group plc, its partner in the First Gas projects, for the orderly divestment of the company’s 40.0% stake in the gas plants. First Gen has expressed keen interest in the BG Group stake.

First Gen is also pursuing several run-of-river projects that include 30 MW along Puyo River in Jabonga, Agusan del Norte; 23 MW along Bubunawan River in Baungon and Libona, Bukidnon; 10 MW along Cabadbaran River in Cabadbaran, Agusan del Norte; 8 MW along Tumalaong River in Baungon, Bukidnon; and 20 MW along Tagoloan River in Impasugong and Sumilao, Bukidnon. Through EDC, First Gen is likewise pursuing an 86-MW wind power project in Burgos, Ilocos Norte. Other wind projects being pursued by EDC are located in Balaoi-Pagudpud, Ilocos Norte; and in Camiguin.

In 2011, First Gen, through affiliate EDC, also took significant steps in becoming a global leader in clean and renewable energy production. EDC signed in November 2011 a Heads of Terms Agreement with Australia-based company Hot Rock Limited (HRL), relating to four geothermal projects in Chile and Peru. In February 2012, both EDC and HRL entered into a Joint Venture Agreement (JVA) to co-develop the Calerias and Longavi projects in Chile, as well as the Quellaapacheta and Chocopata projects in Peru. Under the JVA, EDC will own a 70.0% controlling interest in each of the projects while the remaining 30.0% will be owned by HRL.

EDC has also recently been granted concessions as part of a third round of tender offers for geothermal concessions held by Chile’s Ministry of Energy. EDC participated in this tender process in November 2010, and submitted bids for five concessions, winning three of these bids. The concessions known as Newen, San Rafael, and Batea will be solely developed by EDC.

EDC will be relying on its 36 years of geothermal expertise to develop the Latin American region’s rich geothermal potential. EDC has assigned a team of geochemists, geologists, and engineers to Chile’s Calerias and Longavi areas located in the Andes mountain region.

Consolidated reVenues

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Meralco’s consolidated core net income, which excludes one-time, exceptional charges, was P14.9 billion in 2011, up by 22 % compared to P12.2 billion in 2010. Consolidated reported net income increased by 37 % to P13.2 billion from P9.7 billion in 2010. This improvement was due to strong energy sales which surpassed record levels in 2010; the implementation of the 3rd Regulatory Period (RP) tariff further boosted by the S-factor rewards gained for beating regulatory performance metrics; reduced interest rates from debt financing; and higher revenue and profits for subsidiaries.

Energy sales recorded a modest increase of 1% in 2011, despite the lower growth in GDP affected by recession in Western economies, drop in consumer optimism, decline in industrial demand and the prevalent lower average temperature coupled with natural calamities. Customer-centric efforts by the company’s sales force were instrumental to this sales growth led by the industrial segment which posted a 4% rise, driven by semiconductor companies, fabricated metals firms and food and beverage products. Sales to the commercial sector increased likewise, but sales to the residential segment declined as a result of cooler temperature experienced during the year. Residential customers comprised 91% of the total customer base. Meralco’s total customer count rose 4% to 5,026,543 from 4,847,238 in 2010.

Consolidated revenues, which substantially represent electricity sales, went up by 7% to P256.8 billion in 2011. Consolidated electric revenue rose by 6% to P254.0 billion in 2011, which is attributed to the 1% increase in volume over the record 2010 level, higher transmission charge and slightly higher distribution rate. The higher transmission and distribution charges, however, were offset by the significantly lower system loss charge to consumers. Overall average retail rate for 2011 was P9.14 per kWh, P0.19 or 2% higher than in 2010. This was largely due to the lower pass-through generation charges, as the Sta. Rita and San Lorenzo gas-fired plants of First Gas Corporation (First Gas) remained as Meralco’s cheapest source of supply.

Non-electric revenue, excluding revenues from the real estate business, went up by 52% due to the completion of a major specialty engineering services contract of Meralco Industrial Engineering Services Corporation or Miescor, as well as increased third party billers handled by CIS Bayad Center, Inc. The subsidiaries collectively contributed 2% to the consolidated core net income of the company, their highest contribution in the last five years.

In February 2012, the Meralco board of directors declared its entire common shareholdings in Rockwell Land Corporation as property dividend, to shareholders of record as at March 23, 2012, payable in five days after the approval by the Securities and Exchange Commission of such property dividend.

Manila eleCtriC CoMpany (MeralCo)

Meralco’s consolidated core EBITDA (earnings before interest, taxes, depreciation and amortizations) was higher in 2011 at P26.8 billion, up by 7%, equivalent to a core EBITDA margin of 10% on consolidated revenues. EBITDA margin on distribution revenues was at 47%, reflecting the modest increase in both volume sold and distribution rate. The return on distribution assets was at 7% in 2011 versus 6% in 2010.

Consolidated capital expenditure for 2011 amounted to P8.7 billion. A substantial portion, or 89%, went to electric capital projects. These included the development of the new Calamba Substation, expansion of the Legaspi, Tegen, and Diliman Substations; construction of the new Balintawak-Sta. Mesa and Urdaneta-Fort Bonifacio Global City 115kV sub-transmission lines; and replacement of the old power transformers in Novaliches, Tegen, Meycauayan, and Dasmariñas Substations. Several residual projects were also completed which further strengthened the Meralco distribution network.

The consolidated debt balance as of the end of 2011 was P24.4 billion. Gross debt to EBITDA stood at 1.05x. On a net debt basis, the company’s position remains negative. Total principal debt repayments and refunds, inclusive of financial charges, amounted to P7.2 billion on a consolidated basis. Meralco’s debts are principally denominated in Philippine peso with maturities comfortably spread out up to 2022, and none of these maturities exceed P5.0 billion in any given year. Of the consolidated debt balance of P24.4 billion, current maturities amount to P2.7 billion.

Total cash dividend payout amounted to 70% of the company’s 2011 consolidated core net income, and is 43% higher compared to 2010. Meralco ended 2011 as the fourth largest Philippine company in terms of market capitalization, at US$6.4 billion.

panay eleCtriCCoMpany

PECO is one of the oldest private electricity distribution utilities in the Philippines. It currently serves about 52% of the whole power demand in Panay Island.

In 2011, production of electricity increased by 8% compared to previous year due to the growth in the entertainment district of Mandurriao. However, revenue from sale of energy decreased by 14% from P3.8 billion to P3.3 billion caused by the reduced generation charges brought about by the introduction of the lower-priced coal plant supply.

System Average Interruption Frequency Index (SAIFI) and System Average Interruption Duration Index (SAIDI) decreased significantly in 2011. The decrease in outages was attributable to the introduction of supply from the Coal Plant. A significant reduction in the distribution-related interruptions was achieved as SAIFI decreased from 14.09 to 9.64 this year and as SAIDI dropped from 2,552.52 to 617.85.

Year 2011 was an exceptional year for Meralco which outperformed a stellar year in 2010. The company’s outstanding

results in financials and operations were achieved in spite of the recession in other companies, natural calamities, lower GDP (gross domestic product) growth, and lower average temperature during the year.


Rockwell Land claimed a banner year in 2011 with several milestones in land acquisition, project completion, and retail presence. These served to widen Rockwell Land’s reach

within Metro Manila.

FinanCial results

The company’s total revenues grew by 26%, amounting to P6.2 billion. Residential development revenues, which consider both unit sales and the percentage of project completion, amounted to P5.2 billion or 85% of total revenues. Compared to the previous year, residential development experienced a 30% growth due to higher booking of sales and construction completion of The Grove, as well as the start of revenue recognition from Edades Towers and Garden Villas upon completion of its substructure in April 2011.

Together with strong macroeconomic fundamentals, the company achieved a 16% growth in residential sales alone amounting to P4.9 billion, translated from 95% of Edades units sold out by yearend. With a similar positive market response for The Grove in Pasig City, Rockwell Land began selling the last two Towers E and F in August 2011.

Similar positivity spread across the company’s main business sectors. The company’s recurring income business consisting of retail leasing, office leasing and cinema operations, grew 9% to P941.5 million in 2011, accounting for the balance of 15% of total revenues.

26%Improvement of revenues

Designing QUALiTY

LiViNGDesigning QUALiTY

LiViNG


Total EBITDA (earnings before interest, taxes, depreciation and amortization) of the company amounted to P1.6 billion, a 10% improvement from the previous year’s P1.5 billion. Residential development and commercial leasing contributed 53% and 47% to total EBITDA, respectively. However, 2011 growth in EBITDA was driven primarily by higher contribution from commercial leasing, specifically with increases in rental rates and significant improvements in retail and office occupancy at the Rockwell Business Center. Correspondingly, Rockwell Land’s net income after tax (NIAT) amounted to P914.9 million, up by 14% from the previous year’s P801.3 million.

Rockwell Business Center in Ortigas

Real EstateReal Estate

“In the next FIVE YEARS

Rockwell Land will focus on

driving more

positive growth in both

its revenues

and brand equity...”


a dynaMiC year

Rockwell Center, the company’s flagship development, changed the Makati skyline with the substructure completion of Edades and the completion and turnover of both towers of One Rockwell. The East and West towers, respectively, welcomed new residents in February and November with 82% of the total units turned over to the corresponding owners.

The Grove, Rockwell Land’s first residential project outside Makati City, also made its mark in 2011, with stronger residential sales leading to the launch of its last two towers. Construction-wise, the topping-off of Towers A and B in November signaled the start of finishing works targeting a mid-2012 handover. Board piling of Towers C and D also commenced in 2011. In anticipation of incoming residents by mid-2012 and to expand the Rockwell lifestyle in the C-5 Pasig area, retail spaces were leased-out as early as September 2011 to give exciting and new food and dining concepts in the area.

The Rockwell Business Center (RBC) started to generate in positive and higher share in net income from its operations in 2011 due to occupancy reaching 95% and a center-wide increase in rental rates.

The Power Plant Mall continued to be a stronghold through multiple re-branding and new dining choices. The Lopez strip introduced new concepts such as Mamou, Barcino’s, and Achiote, thereby inviting a new set of patronizing customers after work and mall hours. These factors drove growth in over-all sales performance of all stores by 10% and same stores by 5%. Cinema operations likewise profited with a total growth of P200.3 million or 11% higher than 2010 with better average seating occupancy levels.

Additional locators around Rockwell Center allowed for better tenant diversity. With the completion of One Rockwell, two new retail concept stores opened shop in the East Tower. Univers is the country’s first multi-brand luxury concept store which opened in September, and Beyond the Box is a premium retailer of Apple products which opened in November. These are two new additions to a long list of exclusive and first-class brands that will continue to open side by side in One Rockwell.

Rockwell Club

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priMed For GrowtH

The year 2011 likewise marked the growth of the Rockwell Center from an original 15.5 hectares to 19.1 hectares with the acquisition of the adjacent former Colgate-Palmolive lot. Negotiations for the 3.6-hectare property along J.P. Rizal Avenue were completed in November 2011 and gave birth to the company’s plans for a “Greater Rockwell.”

Further, with the acquisition of a 1.8-hectare property along Santolan Road, Quezon City in June, Rockwell Land will launch its flagship townhouse community development to be called 205 Santolan, planned for turnover in June 2013. This project not only expanded Rockwell Land’s geographic scope to a prime location in Metro Manila, but also established a new business model catering to an underserved market, which will continue to be a focus for future Rockwell projects.

In the next five years, Rockwell Land will focus on driving more positive growth in both its revenues and brand equity through the introduction of new product offerings, continued geographic expansion, and building its strong recurring income base.

’11’10’09

4

4.9

6.1

’11’10’09

1.2

1.51.6


ebitda

’11’10’09

4

4.9

6.1

’11’10’09

1.2

1.51.6

The Grove


In yet another landmark year, FPIP posted 2011 total revenues of P1.1 billion and a corresponding net income of P511 million. FPIP’s second consecutive year of record performance

shows a 30% increase in revenues and a 64% improvement in net income.

These results reflect the right combination of events both in the country and overseas that are bringing investments to the Philippines.

Under a robust environment, FPIP was in the best position to maximize market opportunities. It has established its brand based on a reputation of delivered and continuing world-class infrastructure and excellent customer service support systems. It is able to respond to the needs of dynamic global companies such as: Arkray Philippines, Inc.; B/E Aerospace B.V.; Hoya Glass Disk Philippines, Inc.; Honda Philippines, Inc.; Ibiden Philippines, Inc.; IM Company Ltd.; Nestle Philippines, Inc.; Nittetsu Micrometal Corporation; Shing Hung Plastics Co., Inc.; Philippine Manufacturing Company of Murata, Inc.; POSCO Philippine Manila Processing Center, Inc.; Sonion Philippines, Inc.; Sunpower Philippines Mfg. Ltd.; Tann Philippines, Inc.

The 2011 results come from strong performances of all the core businesses of FPIP. Land sales exceeded target by 156%. The ready-built factory (RBF) segment generated record highs on account of a 17% increase in revenues and 100% take-up of total leasable areas. The water business also posted record revenues on an increase of 79%.

Developing Tomorrow’s iNDUsTRiAL

mETROPOLisDeveloping Tomorrow’s iNDUsTRiAL

mETROPOLis

‘


Developing Tomorrow’s iNDUsTRiAL

mETROPOLisDeveloping Tomorrow’s iNDUsTRiAL

mETROPOLis64%Improvement in net income

Real EstateReal Estate

’11’10’09

1.2

.873

1.1

’11’10’09

726.5

312.3

510

reVenues net inCoMe’11’10’09

1.2

.873

1.1

’11’10’09

726.5

312.3

510

The continuing location of new global leaders in the Park and the expansion of existing ones have pushed total direct employment in the area to about 28,000 people. The expanded number of locators, operations, and population inside the Park has also placed an increasing demand for more services and amenities. Thus, FPIP pursued major expansion projects in 2011 with the acquisition of additional land, construction of new and refurbishment of old RBFs, and the continuing rehabilitation of old and development of new deep wells, pump stations, and reservoirs for water. In addition, FPIP completed the construction of a second hotel, the SanTomas Suites which is a 40-room, all-suites hotel to cater to the burgeoning requirements for accommodations within the Park.


Significant challenges in 2011 preempted the growth plans of First Philec, particularly in its Photovoltaics

(PV) Sector. Consolidated revenues increased slightly from P6.1 billion in 2010 to P7.7 billion in 2011 resulting from the capacity expansion at the PV Sector in 2010. However, market conditions in 2011 did not allow the sector to reap the full benefits of this added capacity. It found itself operating in an unpleasant combination of a global demand slowdown and substantial capacity overhang. This led to steep drops in prices across the PV Solar chain. Net income attributable to Parent was at P19.3 million for year 2011 compared to P159.9 million for year 2010.

Engineering iNNOVATiVE

sOLUTiONsEngineering iNNOVATiVE

sOLUTiONs pHotoVoltaiCs

In mid-2008, First Philec expanded its portfolio when it ventured into the PV space. It made its initial investment in First Philec Solar Corporation (FPSC) through a joint venture with SunPower Corporation, an established technology leader in the industry. FPSC manufactures silicon wafers that form the core in the production of high-efficiency solar cells and panels. In December 2010, First Philec, through First PV Ventures (FPV), entered into another joint venture agreement with Nexolon Corporation, the leading manufacturer of solar wafers in Korea, to form First Philec Nexolon Corporation (FPNC). This brought the total wafer slicing capacity of First Philec to 1 GW with both companies operating under long-term supply agreements with their customers.

With the PV solar crisis in 2011, industry supply and demand dynamics were altered dramatically. Incentive cutbacks by governments led to pricing pressure that reduced margins for all manufacturers. Long-term supply agreements with customers mitigated the impact on First Philec. However, a renegotiation of contract terms became necessary for survival.

FPV, First Philec’s subsidiary and FPNC, both filed for arbitration against Nexolon. FPNC is seeking to enforce its rights under the supply agreement, including the payment of unpaid sums


manufacturingmanufacturing

of money by Nexolon, and for such other reliefs as the arbitration panel shall deem appropriate.

Industry expectations are that the crisis will extend through 2013. For First Philec’s PV Sector, the key task is to weather the storm by focusing on cost competitiveness, maintaining high quality workmanship, increasing its customer base and being conservative in managing its finances.

eleCtriCal utilities The other leg of First Philec is the Electrical Utilities (EU) Sector which provides solutions in the electrical transmission and distribution industry. The EU Sector has been operating in a mature industry.

In the last two years, the sector has invested in an organizational renewal program in order to make the companies more agile in what has become a more competitive industry. Significant steps have been undertaken to rationalize operations and processes. The sector aims to maintain leadership in the Philippine market across all customer segments, and breaking new grounds in local and regional markets. ’11’10’09

4.4

6.1

7.7

’11’10’09

55.3

159.9

19.3


net inCoMe’11’10’09

4.4

6.1

7.7

’11’10’09

55.3

159.9

19.3


Building the NATiON’siNFRAsTRUCTUREBuilding the NATiON’siNFRAsTRUCTURE

First balFour, inC.

First Balfour turned in consolidated revenues of P3.03 billion and a net income of P183.08 million in 2011, representing a 225% and 411% improvement, respectively, from 2010 figures. The

significant improvement is attributable to growth in the construction business and new revenues coming from well-drilling services.

Revenues from construction reached P2.13 billion in 2011 compared to P937 million in 2010. The construction business accounted for 70% of total consolidated revenues.

CONsTRUCTiON The year was highlighted by repeat business from satisfied clients.

After winning the site development works (Package 1) in 2010, First Balfour started work on two more packages (Civil Work, Egron Warehouse, pavement and underground utilities) for Nestlé Philippines, Inc. Project Frontier in early 2011.

First Balfour was awarded the Mechanical Building Expansion Project by Texas Instruments (TI) in April 2011, which it completed December 2011. Prior to that, it completed work on the Bump Module Expansion Project in November 2011. This project was ranked first among 14 nominees around the world in TI’s Right Results, Right Behaviors (RRRB) Team Award. First Balfour was also selected as a 2011 Regional Supplier Recognition Award winner for its outstanding performance in this project. These citations are testaments to First Balfour’s pursuit of excellence.

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411% Improvement in net income

infrastructure and

Other Businesses

infrastructure and

Other Businesses

First Balfour was awarded by the Asian Development Bank (ADB) to rehabilitate its cafeteria and kitchen facilities in its Ortigas Center headquarters in May 2011. This is the second project of First Balfour with ADB.

It also continued to work on projects in the power and energy sector. In 2011, Energy Development Corporation (EDC) awarded two projects to First Balfour: Bacman I and II and the restoration of the Palayan Powerhouse. Aboitiz Power awarded the site development for the proposed 300-MW coal-fired power project in Redondo Peninsula. This was a follow-on for other contracts under the SN Aboitiz Group (Ambuklao and Binga projects).

sAFETY AND QUALiTY First Balfour reached a significant milestone in its quest for excellence in its Environment, Safety, and Health (ESH) affairs – the Five Million Safe Man Hours mark.

ISO-certified for the 10th straight year, the results of the external audit conducted by TÜV SÜD established the company as one of the few construction firms to have maintained its triple-certification (International Management System) under the standards ISO 9001:2008 for quality, ISO 14001:2009 for environment, and OHSAS 18001:2007 for safety and occupational health.

’11’10’09

2.5

0.934

3.03

’11’10’09

138.2

35.8

183.07

ConsolidatedreVenues

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’11’10’09

2.5

0.934

3.03

’11’10’09

138.2

35.8

183.07


FPIC continued to comply with the Writ of Kalikasan with Temporary Environmental Protection Order effective 4th quarter of 2010. FPIC kept the court and all stakeholders updated

of its various efforts to check and maintain pipeline integrity and remediation of Bangkal.

In December, FPIC conducted a pressure-controlled leak test under the direct control and supervision of the Department of Energy. The results, based on readings of volatile organic compounds and low explosivity levels at various locations of the pipeline, support a finding that the pipeline is leak-free.

Clean-up equipment from the US was specifically engineered and fabricated for the Bangkal soil and underground profiles. FPIC’s environmental remediation specialty contractor will complete the installation and balance-of-plant works in time for commissioning by middle of 2012. After having recovered at least 50% of the estimated volume of petroleum products leaked from the pipeline, the chosen technology (the multi-phase extraction system) could complete the clean-up in just a few years without causing any disruption to the community and motorists in Barangay Bangkal, Makati.

A second report on the health risk assessment conducted by FPIC’s US-based health risk expert confirmed the earlier finding that none of the residents briefly exposed to petroleum products were at serious risk. The experts said that the Company’s timely response to address exposure pathways made the likelihood of any chronic effect on the health of residents insignificant.

Restoration of the West Tower basements continued. Petroleum seepage in the building basements was managed by a package of solutions and technologies. In the past year, for the areas where FPIC had access, about 80% of the necessary rehabilitation works in the building basements were complete. Damaged equipment were repaired or replaced with items of equal or superior quality.

First pHilippine industrial Corp. (FpiC)

Texas Instruments - Bump Building Expansion project by First Balfour

subsidiaries

TERRAPRimE Terraprime was registered in May 2011 and is a joint venture of First Balfour (80%) and Estuar Development Corporation (20%). It is the property development arm that handles the construction of Prima Residences. The first tower, called Brise, started construction in July 2011 and is expected to be completed by the last quarter of 2012.

Prima Residences is an inner city affordable residential condominium located along Quezon Avenue, in front of the Sto. Domingo Church. Valued at approximately P3 billion, the multi-tower development will be constructed in phases over the next four years on a 6,000-square-meter property.

THERmAPRimE Incorporated in December 2010 and starting operations in March 2011, ThermaPrime contributed P994 million in revenues and a net income of P131 million.

It has an existing interim service agreement to provide geothermal well-drilling services to EDC. ThermaPrime and EDC are in discussion for a long-term (two years) service agreement. ThermaPrime currently operates in five EDC geothermal fields: Palinpinon, Dumaguete; Tongonan, Leyte; Bacman, Sorsogon; Kidapawan, Cotabato; and Lihir Island in Papua New Guinea.

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WRevenues in 2011 slightly decreased by 2% from P11 million to P10.9 million because of the reduction in transfer and other fees. STSI incurred a net loss of P12.1 million which is

significantly lower (by 33%) than the net loss of P18 million in 2010. The company continued to make its operations more efficient.

STSI’s quality management system is certified to the standards of ISO 9001:2008. It passed the surveillance audit conducted by Certification International in November 2011. As part of continuous improvement, STSI implemented a re-organization during the year with some functions and responsibilities realigned to meet the growing needs of listed companies under the Lopez Group. Moreover, the Customer Care section was strengthened and together with the Evaluation and Processing sections, underwent training.

Systems improvement and upgrade will be the next thrust of STSI as it commits to provide its clients with the best securities transfer service.

seCurities transFer serViCes, inC. (stsi)

FPIC pipeline


Board of directors

Mr. Oscar M. LOpez is also the Chairman Emeritus of Lopez Holdings Corp. and Chairman of Lopez Group Foundation, Inc. Mr. Lopez finished his Master of Public Administration at the Littauer School of Public Administration (now the John F. Kennedy School of Government) at Harvard University, where he also earned his Bachelor of Arts, cum laude.

Mr. ManueL M. LOpez is the Philippine Ambassador to Japan. Ambassador Lopez retains his position as the Chairman of the Board of the Manila Electric Company where he served as its Chairman and Chief Executive Officer from 2001 to May 2010. He also serves as the Chairman and Chief Executive Officer of Lopez Holdings Corporation. He obtained his Bachelor of Science Degree in Business Administration, and pursued advanced studies in Financial and Management Development from the Harvard Business School.

Mr. FedericO r. LOpez is also the Chairman and Chief Executive Officer of First Gen Corporation and Energy Development Corporation. He graduated with a Bachelor of Arts Degree with a Double Major in Economics and International Relations, cum laude, from the University of Pennsylvania.

federico r. LopezChairman and Chief Executive Officer

Mr. augustO aLMeda-LOpez is Vice Chairman of ABS-CBN Corporation among others. He graduated with an Associate in Arts Degree from the Ateneo de Manila University and a Bachelor of Laws Degree from the University of the Philippines. He placed fourth in the 1952 Bar Examinations.

augusto aLmeda-LopezDirector

oscar m. LopezChairman Emeritus and Chief Strategic Officer

manueL m. LopezVice Chairman

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Mr. eLpidiO L. ibañez is Chairman of the Board of First Batangas Hotel Corp., Vice Chairman of First Philippine Electric Corp., and President of First Philippine Utilities Corp. He is also a Director of various FPH subsidiaries and affiliates. He graduated with an AB Economics Degree from Ateneo de Manila University and obtained his MBA at the University of the Philippines.

Mr. cesar b. bautista is a member of the Risk Management Committee and the Compensation and Remuneration Committee. He was an Ambassador Extraordinary and Plenipotentiary to the United Kingdom of Great Britain and Northern Island, Republic of Ireland and Republic of Iceland. He was a Permanent Representative to the United Nations International Maritime Organization and a Special Presidential Envoy to Europe. He was also the Secretary of the Department of Trade and Industry. He graduated with a Degree in Bachelor of Science in Chemical Engineering from the University of the Philippines and pursued his Master’s Degree in Chemical Engineering at the Ohio State University.

cesar B. BautistaIndependent Director

Mr. arthur a. de guia has been the Managing Director for Manufacturing and Portfolio Investments since he joined the Corporation in June 1997 and is currently the President of First Philippine Electric Corp. He completed his Degree in BS Electrical Engineering at the Mapua Institute of Technology and his Master of Engineering Degree in Industrial Management from the Asian Institute of Technology and received the Alumni Award for Academic Excellence. He pursued his Doctor of Engineering Degree at the University of California (Berkeley) under the Fulbright Hayes Fellowship Program.

Mr. peter d. garruchO, Jr. was the Managing Director of the Corporation from 1994 to January 2008. He is a Board Member of First Gen Corp and Energy Development Corp. He was former Secretary of the Department of Trade and Industry and Tourism. He has likewise served as Executive Secretary and Adviser on Energy Affairs in the Office of the President of the Philippines in 1992. He has an AB-BSBA Degree from De La Salle University and an MBA Degree from Stanford University.

peter d. garrucho, Jr. Director

eLpidio L. iBañezPresident and Chief Operating Officer

arthur a. de guiaDirector


Mr. Oscar J. hiLadO sits as Chairman of the Audit Committee and a member of the Nomination, Election and Governance Committee. Mr. Hilado is the Chairman of the Philippine Investment Management, Inc. He is also the Chairman of Holcim Phils., Inc. He graduated with Highest Honors and with a Gold Medal for General Excellence and a Bachelor of Science in Commerce Degree from De La Salle College (Bacolod). He earned his Master’s Degree in Business Administration at the Harvard Graduate School of Business Administration.

Mr. arteMiO V. panganiban is the Chairman of the Risk Management Committee. He was the Chief Justice of the Supreme Court of the Philippines from 2005 to 2006. He was Justice of the Supreme Court from 1995 to 2005. At present, he is a columnist of the Philippine Daily Inquirer, and acts as adviser, consultant or independent director of several business, civic, non-government, and religious groups. He graduated with an Associate in Arts with Highest Honors from the Far Eastern University with a Bachelor of Laws Degree, cum laude, and as the Most Outstanding Student. He placed sixth in the 1960 Bar Examinations.

Mr. eugeniO L. LOpez iii is a member of the Finance and Investment Committee. He is the Chairman of the Board of ABS-CBN Corporation. He graduated with a Bachelor of Arts Degree in Political Science from Bowdoin College and has a Master’s Degree in Business Administration from the Harvard Business School.

eugenio L. Lopez iiiDirector

Mr. Francis giLes b. punO is a member of the Finance and Investment Committee. He is President and Chief Operating Officer of First Gen. He is also a director and officer of First Gen’s subsidiaries and affiliates. He has a Bachelor of Science Degree in Business Management from the Ateneo de Manila University and a Master of Business Administration Degree from Northwestern University’s Kellogg Graduate School of Management in Chicago, Illinois.

francis giLes B. punoDirector

oscar J. hiLadoIndependent Director

artemio V. panganiBanIndependent Director

Board of directors

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Mr. ernestO b. ruFinO, Jr. is a member of the Finance and Investment Committee and the Risk Management Committee. He is Chairman and Chief Executive Officer of Health Maintenance, Inc. and the President of Securities Transfer Services, Inc. He has AB and BSBA Degrees, cum laude, from De La Salle University and an MBA Degree from Harvard University.

Mr. Juan b. santOs is a member of the Audit Committee and the Nomination, Election, and Governance Committee. He is Chairman of the Social Security Commission. He was former Chairman and President of Nestlé Philippines, Inc. and Secretary of Trade and Industry. Mr. Santos obtained his BSBA Degree from the Ateneo de Manila University and pursued post-graduate studies at the Thunderbird Graduate School of Management in Arizona, USA. He completed the Advanced Management Course at IMD in Lausanne, Switzerland.

Juan B. santosIndependent Director

Mr. WashingtOn z. sycip is a member of the Audit Committee, Nomination, Election and Governance Committee, and the Compensation and Remuneration Committee. Mr. Sycip is the founder of the SGV group, auditors and management consultants, with operations throughout East Asia. He is the Chairman Emeritus of the Board of Trustees and Board of Governors of the Asian Institute of Management. He graduated with a Bachelor of Science in Commerce Degree, summa cum laude, and a Master of Science in Commerce Degree (Meritissimus) from the University of Santo Tomas. He pursued his Master of Science in Commerce at Columbia University.

ernesto B. rufino, Jr.Director

Washington z. sYcipIndependent Director


seniormanagement

richard B. tantocoEDC President

oscar r. Lopez, Jr.Vice President

ferdinand edWin s. co setengSenior Vice President

anthonY m. maBasaFPIC and ThermaPrimePresident

ricardo B. YatcoVice President

nestor J. padiLLaRockwell Land President

hector Y. dimacaLiFPIP President

BenJamin r. LopezVice President

fioreLLo r. estuarFirst Balfour Vice Chairman and ThermaPrime Chairman

Leonides u. gardeVice President

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perLa r. catahanSenior Vice President and Comptroller

daniLo c. LachicaFPSC President

enrique i. quiasonCorporate Secretary and Compliance Officer

Victor emmanueL B. santos, Jr.Senior Vice President

arieL c. ongPhilec President

eLizaBeth m. canLasVice President

anthonY L. fernandezFirst Balfour President

anna Karina p. gerochiVice President*(As of March 2012)

rodoLfo r. Waga, JrVP and Asst. Corp. Sec.& Asst. Compliance Officer

ramon t. pagdagdaganVice President andInternal Auditor


Beyond ComplianCe

Values as Building BloCks

First Philippine Holdings Corporation (FPH) Chairman Federico R. Lopez summed up the Lopez Group’s commitment to governance and values by saying that its values ”come from a powerful history that gives us identity as a family and business group and have kept us on an

even keel through complex and difficult times.” He added that to thrive and prosper through the next 400 years requires that we are anchored through the permanence of timeless values, yet have the foresight to reinvent ourselves and adapt to a constantly changing world.

Group-wide, the Lopez Credo has been launched as a statement on the principles which serve to guide the FPH’s businesses. The distinct Lopez values are: a pioneering entrepreneurial spirit; business excellence; unity; nationalism; social justice; integrity and employee welfare and wellness. These values underpin FPH’s commitment to transparency and good corporate governance, not merely as requirements to comply with but as words to live by. Continuing adherenCe to good goVernanCe

As echoed by FPH President and Chief Operating Officer Elpidio L. Ibañez, “corporate governance in FPH is anchored quite simply on business excellence and social responsibility” stating further that it should be recognized that notwithstanding compliance with requirements, “good governance can only be mandated and enforced to a limited extent. Going beyond compliance has to start from within.”

Corporate goVernanCe

Values ”... come from a powerful history that gives us identity as a family and business group and have kept us on an even keel through complex and difficult times.”

- FPH Chairman Federico R. Lopez

FPH received Platinum award for Corporate Governance from the Institute of Corporate Directors at the Manila Peninsula in May 2011.

The Platinum award is merited after having three consecutive Gold awards. Chairman Emeritus Oscar Lopez (seated, fourth from left) and

President Elpidio Ibañez (seated, third from left) accepted the award together with other Lopez group awardees.

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FPH adopted its Manual on Corporate Governance (Manual) on January 1, 2003 as amended last March 29, 2010. FPH filed on March 30, 2011, an amended Manual enhancing and clarifying its provisions. On March 4, 2010, the board approved the Charters of the four (4) committees, namely: the Nomination and Governance Committee, the Finance and Investment Committee, the Risk Management Committee and the Compensation and Remuneration Committee. Its commitment to sound corporate governance is further shown by FPH’s participation in the Institute of Corporate Directors (ICD) and supports the Good Governance Advocates and Practitioners of the Philippines (GGAP). It is also a member of the Philippine Association of Publicly-Listed Companies. Apart from its own governance initiatives, FPH has set compliance with legal requirements as the minimum standard.

With respect to the management and direction of the company, FPH has taken steps to ensure that its board of directors is composed of individuals with proven competence, probity, and integrity. Having chosen such directors, FPH provides them with the structures and support that will help them fulfill their duties. The company holds annual strategic sessions with management and members of the board.

FPH’s current board is particularly well balanced with five independents, five non-executive and five executive directors. The Board has constituted standing committees that exercise the duties and functions provided for in the Manual for Corporate Governance. The committees are as follows: the Nomination Election and Governance Committee; the Compensation and Remuneration Committee; the Finance and Investment Committee; and the Risk Management Committee. Worthy of note is that the audit and risk management committees are chaired by independent directors.

Board Committees

1 ExECUTIVE COMMITTEEChairman: Oscar m. Lopez members: Federico r. Lopez

manuel m. Lopez augusto almeda-Lopez elpidio L. ibañez

2 AUDIT COMMITTEEChairman: Oscar J. hilado members: manuel m. Lopez

augusto almeda-Lopez Peter D. Garrucho, Jr. Washington Z. sycip Juan b. santos

3 COMPENSATION AND REMUNERATION COMMITTEE Chairman :augusto almeda-Lopez members: Washington Z. sycip

Cesar b. bautista

4 FINANCE AND INVESTMENT COMMITTEEChairman: Federico r. Lopez members: Peter D. Garrucho, Jr.

eugenio L. Lopez iii ernesto b. rufino, Jr. Francis Giles b. Puno

5 NOMINATION, ELECTION, AND GOVERNANCE COMMITTEEChairman: Oscar m. Lopez members: Federico r. Lopez

manuel m. Lopez Juan b. santos Washington Z. sycip Oscar J. hilado

6 RISk MANAGEMENT COMMITTEE Chairman artemio V. Panganiban members: manuel m. Lopez

Cesar b. bautista ernesto b. rufino, Jr. Peter D. Garrucho, Jr. arthur a. De Guia

7 ESSP BOARD OF ADMINISTRATORS Chairman: elpidio L. ibañezmembers: Perla C. Catahan

Francis Giles b. Puno

8 BOARD OF TRUSTEES OF FPH RETIREMENT FUND Chairman: elpidio L. ibañezmembers: Perla r. Catahan

arthur a. De Guia Francis Giles b. Puno elizabeth m. Canlas

“Corporate Governance in FPH is anchored quite simply on business excellence and social responsibility.”

- FPH President Elpidio L. Ibañez


direCtors FeB 3 mar 3 apr 7 may 5 may 301 may 302 July 14 aug 10 sept 1 oCt 6 noV 3 deC 1

O.M. Lopez √ √ √ √ √ √ X √ √ √ X √

F.R. Lopez √ √ √ √ √ √ √ √ √ √ √ √

M.M. Lopez X √ X √ √ √ X X X X X √

A.A. Lopez √ √ √ √ √ √ √ √ X √ √ √

C.B. Bautista √ √ √ √ √ √ √ X √ √ √ √

A.A. De Guia √ √ √ √ √ √ √ √ √ √ √ √

P.D. Garrucho Jr. √ √ √ √ √ √ √ √ √ √ √ √

O.J. Hilado √ √ √ X √ √ √ √ √ √ √ √

E.L. Ibañez X √ √ √ √ √ √ √ √ √ √ √

E.L. Lopez III √ √ X √ √ √ √ X √ √ X √

A.V. Panganiban √ √ √ √ √ √ √ √ X √ √ √

E.B. Rufino Jr. √ √ √ √ X X √ √ √ √ √ √

G.B. Puno * √ √ √ X X √ √ √ √ √ √

J.B. Santos √ √ √ √ X X √ √ √ X √ X

W.Z. Sycip X √ √ √ √ √ √ √ X X X √

Legend √ - Present X - Absent * - Not a Board Member Yet 1 - Annual Stockholders’ Meeting 2 - Organizational & Regular Board Meetings

FPH continues to have five (5) independent directors over and above the legal requirement for just two (2) such directors.

FPH likewise implements corporate excellence initiatives both at the Parent and subsidiary levels such as ISO certification, Environment, Safety and Health programs, Risk Management, Six Sigma and Knowledge Management, the Oscar M. Lopez Award for Performance Excellence and the Lopez Achievement Award, among others. On January 31, 2012 FPH successfully met the requirements of the re-certification to the standards of an Integrated Management System under ISO 9001:2008 (Quality Management System), ISO 14001:2004 (Environmental Management System) and OHSAS 18001:2007 (Health and Safety Management System).

Corporate goVernanCe

Board attendanCe

SETTING THE STANDARD FPH received the Gold award (rating 95% or higher) for three consecutive years in the 2010, 2009, and 2008 Corporate Governance Scorecard of the ICD, thereby meriting a Platinum award (three consecutive Gold awards) also for 2010. The Platinum recognition, together with the third Gold, was awarded to FPH in May 2011. The awards give life to FPH’s advocacy that corporate governance is an indispensable component of “sound strategic business management to improve the economic and commercial prosperity of the corporation and enhance shareholder value.” BEYOND COMPLIANCE Apart from the Manual, FPH has also adopted a Corporate Code of Conduct. The Corporate Code of Conduct reiterates the values and principles instilled by its founder and carried on by the company, namely: nationalism, integrity, entrepreneurship and innovation, teamwork and a strong work ethic.

Chairman and CEO Federico R. Lopez delivering his speech during the 2010 Annual Stockholders’ Meeting.

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operating struCture

Since late 2007, the FPH Group’s Enterprise-wide Risk Management (ERM) efforts have been overseen by a Risk Management Committee (RMC) which meets quarterly. The RMC is

composed of six members of the board of directors as follows: independent director former Chief Justice Artemio V. Panganiban; independent director former Ambassador Cesar B. Bautista; Ambassador Manuel M. Lopez; Peter D. Garrucho Jr.; Dr. Arthur A. De Guia; and Ernesto B. Rufino Jr. Mr. Panganiban is RMC Chairman and is supported by a team of FPH executives composed of ERM champion Benjamin K. Liboro, Atty. Rodolfo R. Waga, Jr. and Ronaldo C. Sabella. The RMC provides oversight in evaluating strategic and emerging risks, and the plans and programs to manage these risks. At the Parent level, a team of senior executives forms the Executive Risk Management Unit (ERMU). The ERMU, headed by FPH President Elpidio L. Ibañez, manages these risks directly and oversees the implementation of the mitigating plans of action.

Framework and implementation

ERM efforts started in 2005, overseen by a Lopez Group Risk Management Committee (LGRMC). The LGRMC coordinated the efforts, both at the operating and holding company levels (FPH, Lopez Holdings), in managing business operating risks, as well as exploiting opportunities derived from managing these risks. Using the COSO (Committee of Sponsoring Organizations of the Treadway Commission) model as the initial template, the ERM methodologies used by the different companies in the Group have evolved continuously over the years. At FPH, “top 10 risks” reporting has become a staple activity in the company’s planning and review sessions. The reporting of risks and mitigating strategies are included in the sector holding and operating companies’ annual and five-year plans. These are evaluated in one-on-one sessions, the annual Group budget conference and mid-year reviews. The FPH ERMU has identified 19 major risks, with the top three strategic risks being Reputation, Portfolio Management, and Talent Management.

enterprise-wide risk management

Forward aCtions

To maintain FPH’s competitiveness and business resiliency, the RMC will align its risk management efforts, policies, and processes with two widely accepted risk management standards: ISO 31000 (Risk Management: Guidelines and Principles) and BS25999 (Business Continuity Management).

ISO 31000 will be FPH’s guiding framework in linking risk management with strategy and performance management. The first step is a series of strategic risk reviews with the various FPH companies. The outcome of these discussions will be the identification of each business unit’s “top 10 risks” on an enterprise-wide basis, that may affect the achievement of their five-year strategy. These risks and risk mitigation activities will be monitored throughout the year.

The RMC will also be pushing for the review and enhancement of the group’s business continuity management capabilities. A pilot enhancement project was performed in 2011 with FPH’s natural gas power plant, under the First Gen group. For 2012, the geothermal power company, EDC, will launch a multi-year BCM enhancement project in all its project sites.

These projects involve the revision of BCM documents, processes and policies covering emergency response, crisis management and business recovery plans with the objective of enhancing FPH’s resiliency against major crises such as natural disasters, prolonged business interruptions, and major economic downturns.

For the continuous improvement of these risk management efforts, processes and policies, the RMC will also be developing a cross-functional risk committee. The committee will consist of risk management specialists with experience in strategy management, financial and credit analyses, legal and regulatory, and operations. The committee will also help FPH companies assess their respective risk management processes and policies in order to increase the Group’s ability to manage risks.


Lopez Group Business Excellence seizes opportunities to provide innovative solutions and exemplary achievements through the efforts of talented individuals and teams that demonstrate a history of achievements across a wide range of expertise. It developed the Lopez Achievement Award (LAA) as a means to track

success through commitment to quality and the promotion of an environment where both team and individual achievements are recognized and rewarded.

Outstanding achievements that exceed performance expectations contribute to the Group’s business objectives and exemplify its core values are given recognition in the LAA, in any of the six award categories:

• CustomerFoCus: introduction, enhancement and quality improvement of products and services, customer service and customer relations, leading to customer delight and satisfaction

• Businessmanagement: strategic positioning, business growth and management of assets or funds, liabilities and equities, leading to attainment of strategic objectives, high financial returns or increase in shareholder value

• operationsmanagement: management and improvement of processes, systems and capabilities, leading to productivity, organizational effectiveness and efficiency

• HumanresourCeFoCus: improvement in work organization and performance management systems, employee development and well-being, leading to high performance and employee satisfaction

• puBliCresponsiBility: business ethics, governance, environmental stewardship and community investment, leading to a better climate and support structure for the business and better quality of life for its publics

• Corporateimage-Building: proactive communication through word or deed of company and Group values, directions, activities and governance systems with relevant stakeholders, leading to positive corporate image and business reputation

Business eXCellenCe

“We fully support the development of the Balanced Scorecard Framework as strategic tool to measure organizational performance.”

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Since its launch in August 2002, 195 nominations from the Group’s various business units or foundations have been processed, where, for individual nominations, the impact of the achievement must have extended beyond his/her employer organization, while teams may be composed of intra- or inter-functional members from one or more Group entities. From these nominations, the LAA has been conferred to 49 teams and three individuals.

For the 2010-2011 cycle, nine teams were honored during the Lopez Group Business Excellence Awards ceremony. Of these, four were from the FPH group:

• Tongonan Geothermal Power Plant (TGPP) Restoration Team of Energy Development Corporation (EDC) – Green Core Geothermal Incorporated (GCGI) for “GCGI – TGPP Averted a Generation Loss Amounting to P1.5 billion with the Provisional Operation of T/G Unit No.1” for Operations Management Category;

• Clinical Research Team of Asian Eye Institute for “Asian Eye’s Successful Clinical Research: A Vital Contribution to the Company’s Growth, the First in the Philippines and Preferred by Global Partners” for Corporate Image-Building Category;

• Kananga-EDC Institute of Technology (KEITECH) Team of Energy Development Corporation for “KEITECH: Producing the World’s Greatest Nation Builders” for Public Responsibility Category;

• BacMan Community Partnerships Department of Energy Development Corporation for “BacMan Gives Back Real Power to the Community” for Public Responsibility Category.

For Business Excellence Learning Sessions, two batches of Group functional managers participated in the Balanced Scoreboard (BSC) 2011 Systems Thinking, as follow through on the Balanced Scorecard (BSC) workshops conducted in 2010. This second module introduced the fundamental characteristics of systems and the importance of systems thinking in organizational dynamics. It fully supports the development and deployment of the BSC framework as a strategic tool to measure organizational performance through four integrated perspectives: financial; customer satisfaction; internal capability; and learning and growth.

The Tongonan Geothermal Power Plant Restoration Team of Energy Development Corporation

FPH Chairman Federico R. Lopez

addresses Lopez Group Business

Excellence Awardees.


Through its Talent Management System, the company ensures that it is able to attract, develop, and retain the best qualified talents across the organization. For FPH Chairman and CEO, Federico R. Lopez, talent

management is a key priority of FPH because he believes that “the key foundation for a culture of excellence always begins with having the right people and developing their true potential.”

To attract prospective high potential employees, the company joins job fairs with the top universities. It has successfully recruited from the “cream of the crop” of these universities to fill various requirements in the areas of comptrollership, finance, and audit, among others. The company, likewise, utilizes its various networks, including executive search firms, for the recruitment and hiring of key managerial to senior level positions.

The company endeavors to ensure that the right people on the bus are taking the right seats. Top management reviews the profiles of high potential employees and implements deployment to the subsidiary companies either to address certain developmental requirements or to fill much needed critical roles and responsibilities.

Deployment of high potential employees for developmental purposes is done through the FPH Developmental Assignment Program. On the other hand, to address specific functional competency requirements at the subsidiary companies, high potential employees, including senior level executives are deployed either through special assignment or secondment to the subsidiary companies.

FPH sends some of its talents to the Asian Institute of Management (AIM) for Executive Masters in Business Administration (EMBA) program. It also provides employees with developmental opportunities, such as the Leadership Development Series which featured such topics as John Maxwell’s “How the Mighty Fall” and “5 Levels of Leadership,” Development Dimension International’s “Global Leadership Forecast 2011,” as well as some leadership video casts on “The Act of Making a Decision” by Seth Godin and “Innovation” by Franz Johansson.

Upon the initiative of the chairman and as part of FPH Group Leadership Development Program, two professors from Harvard Business School conducted executive learning sessions in 2011. Professor Ranjay Gulati discussed customer-centricity and shared his insights and research findings on the importance of addressing customers’ articulated needs and discovering other needs that are not fully enunciated. Tarun Khanna, on the other hand, focused on formulating strategy in emerging markets. Professor Khanna co-authored the book, Winning in Emerging Markets (A Road Map for Strategy and Execution).

The company likewise encourages and supports high potential employees to pursue specialized functional training programs and certifications, including Certified Internal Auditor (CIA), Certified Information Systems Auditor (CISA), Chartered Financial Analyst (CFA), Certified Management Accountant (CMA), Certificate in Human Resource Management (CHRM), Mandatory Continuing Legal Education (MCLE),

talent management

Harvard Professor Ranjay Gulati conducted learning

session in September 2010 at EDC’s GZV Hall.

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Project Management, Financial Modeling, etc. It also reinforces soft skills requirements through programs, such as Effective Employee Communications and Human Relations Skills, among others.

In support of its corporate initiatives and committees, the company likewise ensures that people involved in Integrated Management System (IMS), Environment, Safety, Health (ESH), and Emergency Response Organization (ERO) are equipped with the required competencies for them to be able to effectively take on their respective roles and responsibilities.

The company retains its key talents by providing them with opportunities for employee engagement, empowerment, as well as growth and development, and ensuring an internally and externally equitable compensation and benefits package.

perFormanCe management systems

A values-based Performance Management System (PMS), for implementation in the next PMS cycle, is being developed by Human Resources Management Group and the PMS Team. It will also be integrated in the other HR systems such as recruitment, rewards and recognition, human resource development and promotion, as well as in various company events, code of conduct and other HR policies.

employee wellness program

The company continues to provide a balanced and holistic approach to mind-body-spirit health through its Employee Wellness Program. To revitalize the 14-year-old program, FPH created a wellness circle composed of representatives from the different employee groups to help plan and revitalize the program. The theme “HealThy Life” was conceptualized by the wellness circle. For the initial activity, a survey and baseline medical/fitness and psychological/lifestyle assessments were done by professional fitness and medical consultants to determine the medical and fitness status of each employee. Based on the results of the baseline assessment, various wellness activities and interventions were proposed by the circle to address the wellness needs and preferences of the employees.

employee Volunteerism

Aligned with the Lopez Group Values of Social Justice, the company provides opportunities for volunteerism through its Employee Volunteerism (EV) Programs. Through EV, the company allows employees to share their time, talent, and resources to help improve the lives of the marginalized people, uplift the conditions of victims of calamities, and protect the environment, among others.

Employees voluntarily made their personal donations in cash and in kind for the victims of Typhoons Pedring and Quiel through the ABS-CBN Foundation and the Philippine Business for Social Progress (PBSP).

FPH chairman emeritus and wellness advocate Oscar M. Lopez with his family and the Mt. Everest team reaching the summit of Mt. Kota Kinabalu, Malaysia, the highest mountain range in Southeast Asia.

The key foundation

for a culture of excellence always begins with having

the right people and developing their true potential.


FPH believes that part of its role is to be a responsible corporate citizen. Its CSR and corporate giving activities are linked to the United Nations Millennium Development Goals, particularly education, environment, health, and poverty alleviation. In 2011,

FPH continued its support for the following organizations:

EDUCATION

ASIAN INSTITUTE OF MANAGEMENT FPH continued its support for educational excellence in business management and development, by donating funds for the Lopez Group Foundation Inc.’s (LGFI) renovation of the AIM Eugenio Lopez Foundation Building. The AIM building was donated by the Lopez family through the Eugenio Lopez Foundation Inc. in 1968. At that time, it was considered the single biggest donation made by private business to an educational institution. More than 40 years later, the Lopez Group reaffirmed its support for AIM by funding the renovation. Renovated were the case rooms (named after ABS-CBN, Lopez Holdings Corporation, and First Philippine Holdings Corporation), Alumni Relations Office, Student Services Admissions and Registration.

LOPEz MEMORIAL MUSEUM (LMM) LMM is the oldest privately owned and managed museum and library specializing in Philippine

Corporate Social RESPONSIbILITy

“The whole concept of corporate social responsibility – from its

beginnings in charitable work

to philanthropy, to expressions

of enlightened citizenship, to

community relations, and its recent evolution to issues of

sustainability and shared values – the strategic CSR we embrace in the Lopez Group

grew from the seeds of ethical principles. “

Oscar M. LOpez

FPH Chairman Emeritus

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material. Its rare collection includes books and maps of the 16th century, with works by the first internationally acclaimed duo of Filipino painters, Juan N. Luna and Felix Resurreccion Hidalgo, plus priceless personal effects of Philippine National hero Jose Rizal. With over 500 works in its growing museum collection and over 20,000 titles in its expanding library catalogue, the museum is the steward of 600 years of scholarly work and artistic masterpieces.

KNOWLEDGE CHANNEL FOUNDATION INC. (KCFI) KCFI operates the Knowledge Channel, which airs curriculum–based educational television programs for public grade schools and high schools, including the ARMM schools in Mindanao. Through cable and satellite dishes, it has connected 1,600 schools, reaching 2.6 million students.

ENvIrONmENT

FPH continues to support the Philippine Business for the Environment (PBE), an organization that addresses environmental issues. Its major activities include advocacy, education, information, promotion of cleaner environmental technologies and networking.

HEAlTH

WALK THE TALK (WTT) WTT is the Lopez Group’s monthly walkathon activity created by FPH Chairman Emeritus Oscar Lopez with the Lifelong Wellness Team.

In 2011, WTT celebrated its fifth anniversary with hundreds of participants, from only 30 participants in 2006.

ASIAN EyE INSTITUTE (ASIAN EyE)

In celebration of its 10th year anniversary, Asian Eye collaborated with the Cataract Foundation Philippines, Inc. to launch the Bringing Hope to Life: 150 Eyes Cataract Surgery Mission. This was in honor of the 150th anniversary of Dr. Jose Rizal, an ophthalmologist.

POvErTy AllEvIATION

LOPEz GROUP FOUNDATION INC. (LGFI) Incorporated in 2004, LGFI coordinates and creates synergy among the CSR initiatives of the whole Lopez Group. Through LGFI, the Lopez Group has scaled up its CSR programs to address not only community projects of the Lopez companies, but also problems of national concern.

AbS-CbN FOUNDATION INC. (AFI) AFI’s major thrusts are educational television, disaster relief and rehabilitation operations, volunteerism, and broadcast media advocacies. In 2011, it has taken great strides toward rehabilitation of its pilot site, Estero De Paco, a tributary of the Pasig River.

PHILIPPINE bUSINESS FOR SOCIAL PROGRESS (PbSP) PBSP is the social development arm of the Philippine Business Community. As the lead organization, FPH partnered with PBSP for the Integrated Community Development Program at Paliparan III in Dasmariñas, Cavite. Commencing this year, the program’s second phase aims to further develop local capabilities.

From top: (1) Tree planting in San Jose del Monte, Bulacan; (2) Asian Eye Medical Mission; (3) FPH donates to ABS-CBN Foundation’s Sagip Kapamilya; (4) FPH through PBSP contributes to donating Ecobikes to the flood-damaged Hagonoy Bulacan.

(1)

(2)

(3)

(4)


mANAgEmENT’s DIsCUssION AND ANAlysIs Of fINANCIAl CONDITION AND rEsUlTs Of OPErATION

The following management’s discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the accompanying audited consolidated financial

statements and the related notes as at December 31, 2011 and 2010 and for each of the three years in the period ended December 31, 2011, 2010 and 2009. This discussion includes forward-looking statements, which may include statements regarding future results of operations, financial condition or business prospects, which are subject to significant risks, uncertainties and other factors and are based on the Company’s current expectations, some of which are beyond the Company’s control and are difficult to predict. These statements involve risks and uncertainties and our actual results may differ materially from those anticipated in these forward-looking statements.

OvErvIEW

The FPH Group’s (the Group) operating businesses are organized and managed separately according to the nature of the products and services, with each segment representing a strategic business unit that offers different products and serves different markets. The Group conducts the majority of its business activities in the following areas:

• PowergenerationandrelatedcomPanies- power generation subsidiaries under First Gen Corporation (First Gen)

• manufacturing - manufacturing subsidiaries under First Philippine Electric Corporation (First Philec)

• others - investments holdings, oil transporting, construction, real estate development, securities transfer services and financing

The table below shows the contribution of each of our business segments to our consolidated revenues, equity in net earnings of associates, finance income, finance costs, provision for/benefit from income tax and net income/loss. Our revenues are derived from our operations conducted in the Philippines.

(IN mIllIONs)

POWEr gENErATION

AND rElATED COmPANIEs mANUfACTUrINg

INvEsTmENT HOlDINgs, OIl

TrANsPOrTINg, CONsTrUCTION,

rEAl EsTATE DEvElOPmENT AND

OTHErs ElImINATIONs CONsOlIDATED

For the year ended December 31, 2011

Revenues* P58,094 P7,642 P4,017 P– P69,753

Equity in net earnings of associates

215 –

347 – 562

Finance income 354 11 – 935

Finance costs 3,682 164 760 (39) 4,567

Provision for (benefit from) income tax

2,156 (8) (15) – 2,133

Segment income 3,745 31 2,374 (1,374) 4,776

For the year ended December 31, 2010

Revenues* P52,973 P6,076 P2,459 P– P61,508

Equity in net earnings of associates

2,163 39 575 – 2,777

Finance income 402 3 746 (74) 1,077

Finance costs 4,722 137 809 (74) 5,594

Provision for income tax 1,895 20 20 – 1,935

Segment income 5,482 190 22,716 (16) 28,372

* External sales

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fINANCIAl CONDITION

As of December 31, 2011, the Group’s audited consolidated assets totaled P167.0 billion, higher by 4% or P6.5 billion, compared to the December 31, 2010 audited consolidated balance of P160.5 billion.

CASH AND CASH EqUIVALENTS DECREASED by 6% Cash consists of cash on hand, in banks and cash equivalents. Cash in bank earns interest at the prevailing bank deposit rates. Cash equivalents consist of short-term placements for varying periods of up to three months depending on the immediate cash requirements of the Group. Cash equivalents and short-term investments earn interest at the prevailing short-term placement rates.

Cash and cash equivalents had a net decrease of 6% or P1.6 billion, from December 31, 2010 balance of P25.9 billion. Last year, cash and cash equivalents still included majority of the proceeds from the sale of investment in Manila Electric Company (MERALCO). The partial buyback and the exercise of the put option by certain holders of Convertible Bonds (CBs), principal and interest payments on existing loans, additional investments in the common shares of Energy Development Corporation (EDC) by First Gen and share repurchases by FPH (the Parent Company) were made in 2011. These contributed to the overall decrease in cash and cash equivalents, which was partially offset by the inflows from the issuance of the P10-billion Series “F” preferred shares of First Gen, as well as from the drawdown of additional loans by First Gen and the Parent Company.

SHORT-TERM CASH INVESTMENTS DECREASED by 89% This account consists of short-term placements with original maturities of more than three months but less than one year. The P528 million short-term cash investments pertain to the Parent Company. The decrease in this account by 89%, or P4.4 billion, from P5.0 billion as of December 31, 2010 was the result of loan repayments made by the Parent Company for its Fixed- and Floating-Rate Corporate Notes (FXCNs and FRCNs) in April and October 2011 and buyback of common shares during the year.

TRADE AND OTHER RECEIVAbLES INCREASED by 96% This account consists of trade receivables, cost and estimated earnings on uncompleted contract of First Balfour, Inc. (First Balfour), dividends receivable and others. Trade receivables are non-interest bearing and are generally on 30-day credit terms.

Trade and other receivables increased by 96%, or P5.5 billion, to P11.2 billion as of December 31, 2011. The increase was due to a higher amount of trade receivables of FGPC (Santa Rita) and FGP (San Lorenzo) by P4.7 billion primarily due to a portion of the November 2011 billing still being outstanding as of the end of the year, as well as the increase in fuel charges and dispatch during the year. The receivables of First Philippine Industrial Park (FPIP) and First Balfour also increased during the year as a result of increases in water revenues and land sales of FPIP and drilling services of First Balfour.

INVENTORIES INCREASED by 26% Inventories consist of fuel inventories, real estate for sale, raw materials, finished goods, spare parts and others. Inventories increased by 26%, or P1.0 billion, to P4.7 billion this year mainly due to the increase in usable fuel stock by Santa Rita and San Lorenzo gas plants in anticipation of the scheduled Malampaya outage in 2012. As such, additional fuel was imported in the fourth quarter of 2011 which resulted in the increase in inventory levels.

OTHER CURRENT ASSETS INCREASED by 256% This account includes investment in equity securities, prepaid expenses and taxes, share in current assets of joint ventures and others. Other current assets increased by 256%, or P6.9 billion, as a result of the reclassification of investment in equity securities in MERALCO, representing 30,093,270 shares, held by First Philippine Utilities Corporation (FPUC) as of December 31, 2011 with a fair market value of P7.4 billion. This was partially offset by the decrease in other current assets of First Gen and First Balfour due to decrease in prepayments.

INVESTMENTS IN ASSOCIATES INCREASED by 7% Investment and deposits in associates increased by 7%, or P4.1 billion to P61.3 billion, due to the purchase of EDC shares in the market by First Gen and its wholly-owned subsidiary, Northern Terracotta. As of December 31, 2011, First Gen had an additional 7% ownership in EDC on top of the 40% economic interest directly owned by Prime Terracota through Red Vulcan.

INVESTMENTS IN EqUITy SECURITIES DECREASED by 35% Investments in equity securities mainly pertain to the 44,382,436 shares of MERALCO held by the Parent Company. The decrease was due to the reclassification of FPUC’s investment in equity securities in MERALCO pertaining to 30,093,270 shares, previously classified under this account, to “Other current assets” as it was subsequently sold in January 2012. This was partially tempered by the unrealized fair value gains on said investments amounting to P852 million.

PROPERTy, PLANT AND EqUIPMENT INCREASED by 2% Property, plant and equipment increased by 2%, or P728 million, to P32.9 billion due to reclassification of prepaid major spare parts resulting from the scheduled major maintenance outage of the Santa Rita and San Lorenzo plants, as well as new capital equipment purchased by First Philec’s wafer slicing business during the year. These were reduced by the depreciation and amortization for the year.

INVESTMENT PROPERTIES INCREASED by 14% Investment properties increased by 14%, or P181 million, to P1.5 billion due to the re-acquisition of industrial lot by FPIP from a tenant. Said lot will be used as a site for future ready-built factories (RBF). This account was reduced by the depreciation and amortization for the year.

DECEmBEr 31, 2011 COmPArED TO DECEmBEr 31, 2010


GOODWILL AND INTANGIbLE ASSETS DECREASED by 4% Goodwill and intangible assets decreased by 4%, or P26 million, to P608 million mainly due to amortization for the year and translation of First Gen’s U.S. dollar-denominated financial statements into Philippine peso.

RETIREMENT bENEFIT ASSET INCREASED by 5% Retirement benefit asset increased by 5%, or P41 million, to P947 million due to contribution to the Parent Company’s pension fund.

DEFERRED TAx ASSETS INCREASED by 32% The increase in deferred tax assets was due to foreign currency movements during the period.

LOANS PAyAbLE DECREASED by 73% This account consists of short-term loans mainly, those of First Philec group, First Balfour and First Philippine Industrial Corporation (FPIC). Loans payable decreased by 73%, or P321 million, to P120 million as of December 31, 2011 due to the conversion of short-term loans of Philippine Electric Corporation to long-term loan, and loan repayments by First Balfour. These were moderated by the availment of short-term loan by FPIC during the year.

TRADE PAyAbLES AND OTHER CURRENT LIAbILITIES INCREASED by 54% This account includes, among others, trade payables, accrued interest and financing costs. Trade payables are non-interest bearing and are normally settled on 30 to 60 days’ payment terms. Accrued interest and financing costs are normally settled semi-annually throughout the year.

Trade payables and other current liabilities increased by 54%, or P5.0 billion, to P14.1 billion mainly due to increase in trade payables of FGPC and FGP due to higher gas prices and higher dispatch during the year. This was partially offset by the decrease in accrued expenses due to the buyback of a portion of the CBs as well as full prepayment of the Unified Holdings’ loan.

INCOME TAx PAyAbLE INCREASED by 9% The increase in income tax payable of 9% or P23 million, to P290 million could be attributed to the increase of taxes of FGPC due to the higher taxable income for the year 2011, as well as to the switch to Optional Standard Deduction computation scheme for the current year, from the Regular Corporate Income Tax method used in 2010. This was partially offset by the lower payables from FGP due to lower taxable income resulting from increased depreciation expenses in 2011.

bONDS PAyAbLE, INCLUDING CURRENT PORTION, DECREASED by 56% This pertains to the CBs that First Gen issued on February 11, 2008 for US$260 million. Said CBs are due on February 11, 2013 with a coupon rate of 2.5%. The CBs are listed in the Singapore Exchange Securities Trading Limited. First Gen has bought back some of its CBs in 2011. The P3.4 billion represents the carrying value of the remaining CBs that will mature on February 11, 2013.

LONG-TERM DEbT, INCLUDING CURRENT PORTION, INCREASED by 2% Long-term debt, including current portion increased by 2%, or P850 million, to P47.9 billion, due to loans obtained by First Gen and First Philec groups tempered by principal payments on existing loans.

DERIVATIVE LIAbILITIES INCREASED by 46% The increase in derivative liabilities by 46%, or P808 million, to P2.6 billion was a result of the unfavorable movements in the mark-to-market (MTM) valuation of FGPC’s and FGP’s respective interest rate swaps owing to a decrease in projected LIBOR rates as of December 2011 as compared to December 2010. This was partially offset by the settlement of a portion of the interest rate swaps that were due in May and November 2011.

FGPC and FGP recognized a derivative liability when they entered into interest rate swap agreements to hedge the interest payments of their floating-rate loans to a fixed-rate.

DEFERRED TAx LIAbILITIES DECREASED by 59% The P273 million or 59% decrease in deferred tax liabilities to P186 million as of December 31, 2011 was primarily a result of the decrease in First Gen’s deferred tax liabilities arising from unfavorable movements in the MTM valuation of FGPC’s interest rate swaps.

RETIREMENT bENEFIT LIAbILITy DECREASED by 38% Retirement benefit liability decreased by 38%, or P91 million, to P150 million mainly due to fund contributions made by First Philec and First Gen during 2011.

OTHER NONCURRENT LIAbILITIES DECREASED by 89% Other noncurrent liabilities decreased by 89%, or P1.3 billion, to P163 million mainly due to the reduction in unearned revenues following the use of prepaid gas during the last quarter of 2011.

TOTAL EqUITy ATTRIbUTAbLE TO EqUITy HOLDERS OF THE PARENT INCREASED by 1% Total equity attributable to equity holders of the Parent increased by 1%, or P435 million, to P64.1 billion. The following major items brought about the net increase in equity attributable to equity holders of the Parent:

Treasury stock increased by 106%, or P1.7 billion, to P3.3 billion due to the repurchases by the Parent Company of its own common shares totaling 29,753,630 for the year at an average cost of P60.33 per share;

Unrealized fair value gains on investments in equity securities increased by 41%, or P1.4 billion, to P4.9 billion, due to the revaluation of the remaining MERALCO shares held by the Group;


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rEsUlTs Of OPErATIONs

rEvENUEs

The Group’s consolidated revenues totaled P70.3 billion for the year ended December 31, 2011. This is higher by 9% or P6.0 billion, compared to the previous year’s P64.3 billion.

The following table sets out the contribution of each of the components of revenues as a percentage of the Group’s total revenue for December 31, 2011 and 2010:

fOr THE yEAr ENDED DECEmBEr 31(AmOUNTs IN mIllIONs)

2011 2010INCrEAsE (DECrEAsE)

AmOUNT (%)

Sale of electricity P58,094 83% P52,973 82% P5,121 10%

Sale of merchandise 7,618 10% 6,076 10% 1,542 25%

Contracts and services 3,252 5% 1,697 3% 1,555 92%

Sale of real estate 787 1% 657 1% 130 20%

Equity in net earnings of associates 562 1% 2,777 4% (2,215) -80%

Share in project revenue of joint ventures 2 –% 105 –% (103) -98%

total P70,315 100% P64,285 100% P6,030 9%

Negative cumulative translation adjustments decreased by 3%, or P453 million, to P15.3 billion from P15.8 billion last year due to translation gains from the peso depreciation during the year;

Retained earnings increased by 1%, or P628 million, to P61.0 billion due to the P2.1 billion net income, reduced by the dividends declared of P1.5 billion; and

Share in other comprehensive income of associates decreased by 7%, or P388 million, to P5.3 billion from P5.7 billion due to the effect of translation of peso-denominated balances of Prime Terracota group to the U.S. dollar, the functional currency of First Gen.



The Group’s revenues comprise of:

SALE OF ELECTRICITy Sale of electricity accounts for 83% of total revenues in 2011 and 82% in 2010. Revenue from sale of electricity went up by 10% (P5.1 billion) to P58.1 billion due to higher fuel charges resulting from higher fuel prices as well as higher dispatch. For the year, both the Santa Rita and San Lorenzo gas plants experienced high plant dispatch, posting a combined net capacity factor of 89.2% compared to 82.7% in 2010.

SALE OF MERCHANDISE Revenue from sale of merchandise is derived from the sale of power and distribution transformers and production of sliced silicon wafers. Sale of merchandise contributed 10% to total revenues in 2011 and 2010. Sale of

NON-CONTROLLING INTERESTS INCREASED by 22% The increase in non-controlling interests by 22%, or P6.0 billion, to P33.7 billion in December 2011 as compared to P27.7 billion in December 2010 was the result of the earnings from FGPC, FGP and FPIP, partially offset by the net loss of FPIC and dividends declared during the period.

merchandise grew by 25% (P1.5 billion) to P7.6 billion due to higher revenues reported by First Philec Solar, First Philec’s wafer slicing unit.

CONTRACTS AND SERVICES Revenue from contracts and services is primarily derived from drilling and construction contracts, engineering projects, pipeline shipment of fuel and other petroleum products, and waste-water treatment facility of the industrial park. Revenue from contracts and services accounts for 5% of total revenues in 2011 and 3% in 2010.

Revenues from contracts and services went up by 92% (P1.6 billion) to P3.3 billion, mainly due to the consolidated revenues on construction and drilling contracts of First Balfour and its wholly-owned subsidiary, ThermaPrime Well Services, Inc.


(ThermaPrime) which was consolidated in July 2011. The increase was partially offset by the decline in revenues of FPIC due to the impact of the continued shutdown of white oil pipeline operations.

SALE OF REAL ESTATE Revenue from sale of real estate is derived from sale of industrial lots and ready-built factories (RBF) of FPIP in Batangas. Sale of real estate amounted to P787 million and P657 million, in 2011 and 2010, respectively, accounting for 1% of total revenues in the said years. Sale of real estate grew by 20% or P130 million, mainly due to the increase in revenues on sale of industrial lots. In 2011, a total of 30 hectares were sold at an average price of P2,750 per square meter, while in 2010 an aggregate land area of 36 hectares was sold at an average price of P2,164 per square meter.

EqUITy IN NET EARNINGS OF ASSOCIATES This represents the Company’s share in the consolidated net income of, among others, Prime Terracota group (including EDC and FG Hydro), Rockwell Land Corporation (Rockwell Land) and in 2010, MERALCO, First Private Power Corporation (FPPC) and First Sumiden Circuits, Inc. (FSCI).

Equity in net earnings declined by 80% (P2.2 billion) from 2010 resulting in equity in net earnings of P562 million this


year primarily due to First Gen’s share in net losses incurred by Prime Terracota group. The net loss of Prime Terracota group in 2011 is mostly a result of the full impairment provision on the Northern Negros Geothermal Plant (NNGP) assets. This was partially offset by the slightly higher earnings of FG Hydro due to the increase in revenues from the ancillary services it began providing in August 2011.

The Group ceased the recognition of equity in net earnings of certain investees following events leading to loss of significant influence by the Group over said investees. MERALCO is treated as an available-for-sale (AFS) financial assets beginning March 30, 2010. The consolidated ownership of the Group in MERALCO as of December 31, 2011 was 6.6%. FSCI was reclassified as an asset held for sale effective January 1, 2011 and was sold in December 2011. FPPC turned over the Bauang power plant to NPC/PSALM following the expiration of the 15-year Cooperation Period on July 26, 2010.

SHARE IN PROjECT REVENUE OF jOINT VENTURES First Balfour entered into several unincorporated construction and engineering joint venture agreements. The share in project revenue of joint ventures amounted to P2 million this year, as against P105 million last year as most joint venture projects entered into in 2009 were concluded in 2010.

COsTs AND ExPENsEs

The Group’s consolidated costs and expenses totaled P60.9 billion. This is higher by 14% or P7.3 billion compared to the previous year’s P53.6 billion.

The following table sets out the contribution of each of the components of costs and expenses as a percentage of the Group’s total costs and expenses for 2011 and 2010:



AmOUNT (%)

Operations and maintenance P46,980 77% P41,383 77% P5,597 14%

Merchandise sold 6,889 11% 5,338 10% 1,551 29%

General and administrative expenses 3,603 6% 4,957 9% (1,354) -27%

Contracts and services 3,091 5% 1,523 3% 1,568 103%

Real estate sold 354 1% 369 1% (15) -4%

Share in project costs of joint ventures 7 –% 19 –% (12) -63%

total P60,924 100% P53,589 100% P7,335 14%

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The major changes in the Group’s costs and expenses were due to the following:

OPERATIONS AND MAINTENANCE Power plant operations and maintenance (O&M) expenses include fuel charges, pipeline charges, fixed and variable O&M charges, start-up costs and Net Dependable Capacity bonuses paid to Siemens Operations as O&M contractor for Santa Rita and San Lorenzo. Cost of power plant operations and maintenance accounts for 77% of total costs and expenses in 2011 and in 2010.

Cost of power plant operations and maintenance increased by 14% (P5.6 billion) to P47.0 billion due to, among others, increase in fuel cost resulting from higher dispatch of the gas plants and higher depreciation as a result of turbine blades and vanes replaced during the scheduled major maintenance. These were slightly reduced by the lower variable O&M costs for Santa Rita due to the cap on chargeable Net Electrical Output (NEO) that was reached in July. Reaching the cap resulted in the non-charging of variable O&M costs by Siemens Power Operations, Inc. (SPOI) from the date the cap was reached and extended until August 2011.

MERCHANDISE SOLD Cost of merchandise sold pertains to costs which are related to the manufacture of products. Cost of merchandise sold accounts for 11% of total cost and expenses in 2011 and 10% in 2010. This account increased by 29% (P1.6 billion) to P6.9 billion, due to the increase in manufacturing costs of First Philec Solar, in line with the increase in its revenues.

GENERAL AND ADMINISTRATIVE ExPENSES General and administrative expenses include depreciation and amortization, salaries and wages, taxes and license fees, insurance premiums and professional fees, repairs and maintenance, transportation and travel, rentals, and office supplies, among others. General and administrative expenses account for 6% of total costs and expenses in 2011 and 9% in 2010. General and administrative expenses declined by 27% (P1.4 billion) to P3.6 billion attributed to lower personnel expenses and professional fees.

CONTRACTS AND SERVICES Cost of contracts and services pertains to contract costs, which include all direct materials, labor costs and indirect costs related to contract performance. Provision for estimated losses on uncompleted contracts, likewise, forms part of the cost of contracts and services. Such provision is recognized in the period in which the loss is determined. Cost of contracts and services accounts for 5% of total costs and expenses for 2011 and 3% in 2010. Cost of contracts and services went up, by 103% (P1.6 billion) to P3.1 billion largely due to drilling-related costs of ThermaPrime.

REAL ESTATE SOLD Cost of real estate sold is determined on the basis of the acquisition cost of the land plus its full development costs, which include estimates of costs for future development work. Cost of real estate sold accounts for 1% of total costs and expenses in 2011 and 2010. Cost of real estate sold went down by 4% (P15 million) to P354 million, over that of last year due to less industrial lots sold this year of 30 hectares as compared to last year’s 36 hectares.

SHARE IN PROjECT COSTS OF jOINT VENTURES The share in project costs of joint ventures was down by P12 million from P19 million last year following the completion of the major joint venture projects (St. Luke’s and LRT 1 Northlink) in 2010.

FINANCE COSTS Finance costs comprise of interest expense on debt facilities of the Parent Company and its subsidiaries. Finance costs went down by 18% or P1.0 billion, to P4.6 billion, mainly as a result of the lower outstanding debt in 2011 compared to 2010. First Gen group paid loan principals including the P5.0 billion peso-denominated bonds on July 30, 2010 and bought back CBs in 2011. These were offset by the payment and amortization of interest on existing loans by the Parent Company.

FINANCE INCOME Finance income decreased by 13% (P142 million) to P935 million due to lower average cash balance this year in contrast to last year when the Group had a higher cash balance arising from the sale of MERALCO shares. The absence of interest income on annual deficiency of MERALCO this year also contributed to the overall decrease in finance income from last year.

FOREIGN ExCHANGE LOSS Foreign exchange gain or loss arises primarily from the restatement of dollar-denominated transactions. For the period, net foreign exchange losses amounted to P289 million, higher by 20% or P48 million against the previous year, as the appreciation of the Philippine peso against the US dollar (weighted average exchange rate of US$1: P45.309 last year to US$1: P43.330 this period) negatively impacted the Group.

DIVIDEND INCOME Dividend income represents dividends received from the Group’s 6.6% stake in Manila Electric Company (MERALCO). Dividend income increased by 106% (P299 million) to P582 million due to higher dividends earned in 2011. With the remaining 6.6% shares in MERALCO, the Group no longer used equity method of accounting since March 30, 2010. The recognition of dividend income for nine months in 2010 and full year in 2011, contributed to the overall increase.


GAIN ON SALE OF INVESTMENT IN AN ASSOCIATE On December 16, 2011, the Group sold its 40% stake in FSCI corresponding to 900,000 shares of common stock to Sumitomo Electric Industries for P203.6 million (US$4.6 million). The Group recognized a gain of P42 million as a result of the sale.

On March 30, 2010, Beacon Electric Asset Holdings, Inc. exercised its call option on the 6.6% of the total outstanding common shares of MERALCO held by the Group. The Company received a payment of P300 per share or a total purchase price of P22.4 billion. The combined gain on the sale and mark-to-market accounting treatment of the residual shares amounted to P23.6 billion. With the remaining 6.6% shares in MERALCO, the Company no longer used the equity method of accounting. Said investment is now treated as an AFS financial asset classified under “Investments in equity securities” account in the consolidated statements financial position that will have to be adjusted for changes in the market price on a regular basis.

MARK-TO-MARKET GAIN ON DERIVATIVES Mark-to-market (MTM) gain on derivatives was attributable to the gain on derivative transactions related to First Gen’s call option to purchase EDC shares in the market and its CBs. MTM gain for 2011 amounted to P161 million which mostly came from the option assets. This was an P86 million or 35% decrease compared to the same period in 2010 wherein First Gen recognized a P247 million gain. The MTM gain recognized in 2010 comprised of a P177 million gain on the same option assets, as well as a P70 million gain on derivatives relating to the CBs.

The derivative gains related to EDC shares arose from the difference between the market price and the call option price at the time the option was exercised. In April 2010, First Gen entered into a Call Option Agreement to purchase an aggregate of 585 million common shares of EDC for a period of three years (up to April 2013) with one third of the options expiring at the end of each year. Subsequently, in April 2011, First Gen fully exercised this call option.

OTHER INCOME Other income represents management fees and others (like rent and miscellaneous income). Other income increased by 134% (P375 million) to P654 million due to the gain on partial buyback of CBs, gain on sale of property, plant and equipment and investment properties, among others.

INCOME bEFORE INCOME TAx As a result of the foregoing, income before income tax for the period decreased by P23.4 billion or 77% to P6.9 billion.PROVISIONS FOR (bENEFIT FROM) INCOME TAx The Group registered a provision for income tax of P2.1 billion, higher than the prior year by 10% as current and deferred taxes fell due to combined impact of the drop in taxable income and movements in foreign exchange rates between the Philippine peso and U.S. dollar.

NET INCOME

Net income decreased by 83%, or P23.6 billion, to P4.8 billion primarily due to the full impairment provision on NNGP assets this year as well as the absence of the gain on sale of investment in an associate (MERALCO) which was recognized last year, lower earnings reported by the Group’s associates and the discontinuance of equity method of accounting for investment in MERALCO.

NET INCOME ATTRIbUTAbLE TO EqUITy HOLDERS OF THE PARENT Of the total net income, the portion that is attributable to equity holders of the Parent amounted to P2.1 billion, in contrast to last year’s P24.9 billion.

NON-CONTROLLING INTERESTS Non-controlling interests also decreased by 25% to P2.7 billion mainly due to lower income reported by Prime Terracota and net losses incurred by FPIC.

EARNINGS PER SHARE (EPS) FOR NET INCOME ATTRIbUTAbLE TO EqUITy HOLDERS OF THE PARENT Basic EPS for the current period is P3.099 while diluted EPS is P3.074. These are significantly lower than last year’s BEPS and DEPS of P41.043 and P40.619, respectively, due to lower net income available to common shareholders this year compared to the previous year. The acquisition of treasury stocks by the Parent Company during the period brought a slight positive impact in EPS.

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD Total comprehensive income of P5.7 billion is lower by P30.3 billion or 84% compared to last year. The movements in the comprehensive income of the Group were as follows:

Net income declined by 83%, or P23.6 billion, to P4.8 billion due to the full impairment provision on NNGP assets this year as well as the absence of the gain on sale of investment in an associate (MERALCO), lower earnings reported by the Group’s associates and the discontinuance of equity method of accounting for investment in MERALCO;


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Exchange gains on foreign currency translation for the current period totaled P464 million, as against prior period’s exchange gains of P2.0 billion. Such exchange gains arose from translation of First Gen’s U.S. dollar-denominated financial statements into Philippine peso for consolidation purposes;

Unrealized gains on investment in equity securities, which pertains to the movements in fair value of MERALCO shares held by the Group, declined by P2.0 billion because of the increase in market price of MERALCO was P19.2 per share in 2011 (from P228.0 per share to P247.2 per share) compared to P46.0 per share in 2010 (from P182 per share to P228 per share). Said shares were initially marked to market on March 30, 2010;

Share in other comprehensive losses of associates amounted to P365 million this period, a turnaround from a P2.6 billion gain last year. This represents First Gen’s share in the translation of the peso-denominated balances of Prime Terracota group into U.S. dollar, the functional currency of First Gen; and

Net losses on cash flow hedge deferred in equity amounted to P613 million, up from prior year’s P462 million. This pertains to MTM valuation of First Gen’s FGPC and FGP’s derivative instruments, particularly its interest rate swap agreements for its Covered and Uncovered facilities.

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIbUTAbLE TO EqUITy HOLDERS OF THE PARENT Total comprehensive income attributable to equity holders of the Parent decreased significantly, by P24.6 billion or 87%, to P3.6 billion, due to lower net income of the Parent and lower other comprehensive income as a result of those discussed in the foregoing.

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ATTRIbUTAbLE TO NON-CONTROLLING INTERESTS Total comprehensive income attributable to the non-controlling interests also had a significant decrease, P5.7 billion (73%) to P2.1 billion, due to higher net income and non-controlling interests’ share in other comprehensive income reduced by losses on cash flow hedge and foreign currency translations.


rEsUlTs Of OPErATIONs

rEvENUEs

The Group’s consolidated revenues totaled P64.3 billion for the year ended December 31, 2010. This is higher by 9% or P5.2 billion, compared to that of 2009 amounting to P59.1 billion.


The following table sets out the contribution of each of the components of revenues as a percentage of the Group’s total revenue for December 31, 2010 and 2009:



AmOUNT (%)

Sale of electricity P52,973 82% P48,243 82% P4,730 10%

Sale of merchandise 6,076 10% 4,341 7% 1,735 40%

Equity in net earnings of associates 2,777 4% 2,097 4% 680 32%

Contracts and services 1,697 3% 1,390 2% 307 22%

Sale of real estate 657 1% 1,044 2% (387) -37%

Share in project revenue of joint ventures 105 –% 1,979 3% (1,874) -95%

total P64,285 100% P59,094 100% P5,191 9%


The Group’s revenues comprise of:

SALE OF ELECTRICITy Sale of electricity accounts for 82% of total revenues in 2010 and in 2009. Revenue from sale of electricity went up by 10% (P4.7 billion) to P53.0 billion due to higher fuel charges resulting from the (1) combined slightly higher average plant dispatch of the gas plants to 82.7% for 2010 against 82.3% in 2009, and (2) use of the more expensive liquid fuel during the maintenance outage of the Malampaya platform.

SALE OF MERCHANDISE Revenue from sale of merchandise is derived from the sale of power and distribution transformers and production of sliced silicon wafers. Sale of merchandise contributed 10% to total revenues in 2010, up from 7% in 2009. Sale of merchandise grew by 40% (P1.7 billion) to P6.1 billion due to higher revenues reported by First Philec Solar, First Philec’s wafer slicing unit.

EqUITy IN NET EARNINGS OF ASSOCIATES This represents the Group’s share in the consolidated net income of, among others, MERALCO, Prime Terracota Group (including EDC and FG Hydro), FPPC, Rockwell Land, and FSCI.

There was a significant increase in equity in net earnings of associates, by 32% (P680 million) to P2.8 billion, due mainly to the full year recognition of equity arising from the deconsolidation of First Gen’s Prime Terracota group. Prior to the deconsolidation, First Gen’s equity in net earnings pertains to share in the earnings of FPPC/BPPC only. First Gen’s share in earnings for this period totaling P2.2 billion includes the combined share in net earnings from Prime Terracota group and FPPC.

Equity earnings from Rockwell Land also increased due to the higher earnings combined with the increase in the Group’s stake to 49% when the Group bought Lopez Holdings’ (formerly Benpres Holdings) stake in August 2009.

In the case of MERALCO, in spite of the growth of its bottom line, the Group’s share in the net earnings of MERALCO went

down by 82% to P285 million, as the Group’s ownership in MERALCO went down further, from 13.3% (in July 2009 until March 30, 2010) to the current level of 6.6% (beginning March 31, 2010). At this level, the Philippine Accounting Standards dictates the reclassification of our investment in MERALCO from “Investments in associates” to “Investments in equity securities” account, also presented in the noncurrent portion of the consolidated statement of financial position. Investments in equity securities are measured at fair value. Any periodic gain or loss is recorded to an unrealized gain or loss account that is reported as a separate item in the Equity section of the consolidated statement of financial position. The gains or losses from investments in equity securities are not reported in the consolidated statement of income until such time that the investments are sold or determined to be impaired. This, however, is shown as part of the consolidated statement of comprehensive income.

CONTRACTS AND SERVICES Revenue from contracts and services is primarily derived from construction contracts, engineering projects, pipeline shipment of fuel and other petroleum products, and waste-water treatment facility of the industrial park. Revenue from contracts and services accounts for 3% of total revenues in 2010 and 2% in 2009.

Revenues from contracts and services increased by 22% (P307 million) to P1.7 billion, due to higher revenues reported by FPIP, First Philec and First Balfour.

SALE OF REAL ESTATE Revenue from sale of real estate is derived from sale of industrial lots and RBFs of FPIP in Batangas. Sale of real estate amounted to P657 million, accounting for about 1% of total revenues in 2010 against 2% in 2009. Sale of real estate contracted by 37% (P387 million) as FPIP failed to match major sale in 2009.

SHARE IN PROjECT REVENUE OF jOINT VENTURES First Balfour entered into several unincorporated construction and engineering joint venture agreements. The share in project revenue of joint ventures amounted to P105 million only, a significant decline (-95%) from the almost P2.0 billion posted last year due to the completion of major joint venture projects (St. Luke’s and LRT 1 Northlink).


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COsTs AND ExPENsEs

The Group’s consolidated costs and expenses totaled P53.6 billion. This is higher by 14% (P6.6 billion) compared to 2009’s consolidated costs and expenses of P47.0 billion.

The following table sets out the contribution of each of the components of costs and expenses as a percentage of the Group’s total costs and expenses for 2010 and 2009:

fOr THE yEAr ENDED DECEmBEr 31 (AmOUNTs IN mIllIONs)


AmOUNT (%)

Operations and maintenance P41,383 77% P36,089 77% P5,294 15%

Merchandise sold 5,338 10% 4,036 9% 1,302 32%

General and administrative expenses 4,957 9% 4,082 9% 875 21%

Contracts and services 1,523 3% 934 2% 589 63%

Real estate sold 369 1% 169 –% 200 118%

Share in project costs of joint ventures 19 –% 1,679 3% (1,660) -99%

total P53,589 100% P46,989 100% P6,600 14%

The major changes in the Group’s costs and expenses were due to:

OPERATIONS AND MAINTENANCE Power plant operations and maintenance (O&M) expenses include fuel charges, pipeline charges, fixed and variable O&M charges, start-up costs and Net Dependable Capacity bonuses paid to Siemens Operations as O&M contractor for Santa Rita and San Lorenzo. Cost of power plant operations and maintenance accounts for 77% of total costs and expenses in 2010 and in 2009.

Cost of power plant operations and maintenance increased by 15% (P5.3 billion) to P41.4 billion due to, among others, increase in fuel cost resulting from higher dispatch of the gas plants and use of liquid fuel during the maintenance outage of the Malampaya natural gas.

MERCHANDISE SOLD Cost of merchandise sold pertains to costs which are related to the manufacture of products. Cost of merchandise sold accounts for 10% of total cost and expenses in 2010 from 9% in 2009. Cost of merchandise sold increased by 32% (P1.3 billion) to P5.3 billion, due to the increase in manufacturing cost of First Philec Solar, in line with the increase in its revenues.

GENERAL AND ADMINISTRATIVE ExPENSES General and administrative expenses include depreciation and amortization, salaries and wages, taxes and license fees,

insurance premiums and professional fees, repairs and maintenance, transportation and travel, rentals, and office supplies, among others. General and administrative expenses account for 9% of total costs and expenses in 2010 and in 2009. General and administrative expenses increased by 21% (P875 million) to P5.0 billion attributed to higher personnel expenses and professional fees, among others.

CONTRACTS AND SERVICES Cost of contracts and services pertains to contract costs, which include all direct materials, labor costs and indirect costs related to contract performance. Provision for estimated losses on uncompleted contracts, likewise, form part of the cost of contracts and services. Such provision is recognized in the period in which the loss is determined. Cost of contracts and services accounts for 3% of total costs and expenses for 2010 and 2% in 2009. Cost of contracts and services went up, by 63% (P589 million) to P1.5 billion. The increase came from new projects of First Balfour, and from FPIC, as well.

REAL ESTATE SOLD Cost of real estate sold is determined on the basis of the acquisition cost of the land plus its full development costs, which include estimates of costs for future development work. Cost of real estate sold accounts for 1% of total costs and expenses in 2010 against less than 1% in 2009. Cost of real estate sold went up, by 118% (P200 million) to P369 million, over that of last year due to higher cost relating to the lot and RBF sold this year.


SHARE IN PROjECT COSTS OF jOINT VENTURES

The share in project costs of joint ventures was reduced to P19 million from P1.7 billion last year following the completion of the major joint venture projects (St. Luke’s and LRT 1 Northlink) and the late start of new joint venture project.

gAIN ON sAlE Of INvEsTmENT IN AN AssOCIATE

On March 30, 2010, Beacon Electric Asset Holdings, Inc. exercised its call option on the 6.6% of the total outstanding common shares of MERALCO held by the Group. The Parent Company received a payment of P300 per share or a total purchase price of P22.4 billion. The combined gain on the sale and MTM accounting treatment of the residual shares amounted to P23.6 billion against P9.0 billion – which was the gain recognized during 2009 sale of the 20% share in MERALCO. With the remaining 6.6% shares in MERALCO, the Parent Company may no longer use the equity method of accounting. Said investment is now treated as an AFS financial asset that will have to be adjusted for changes in the market price on a regular basis.

fINANCE COsT

Finance cost comprises of interest expense on debt facilities of the Parent and its subsidiaries, the biggest share (84%) of which comes from the Power Generation Group. Finance cost went down by 19% (P1.3 billion) to P5.6 billion, as a result of principal debt repayments made by the Group.

mArk-TO-mArkET gAIN (lOss) ON DErIvATIvEs

Mark-to-market (MTM) gain on derivatives of P247 million in 2010 represents First Gen’s gain on call option to purchase EDC shares in the market and on its Convertible bonds. A derivative gain or loss arises from the movement of EDC’s share price in the market vis-à-vis the call option’s exercise price and from the change in the price of the Convertible bonds in the market vis-à-vis the put option.

The derivative loss in 2009 mainly pertains to the underlying derivative on the Exchangeable Note Agreement between the Group and Piltel on P2.0 billion worth of voting common stock of MERALCO. The said Note was settled on July 14, 2009. A derivative loss of P1.7 billion was recognized to account for the increase in share price of MERALCO from the agreed price exchange price of P90.00 a share vis-à-vis the market price of MERALCO share of P168.00.

fINANCE INCOmE

Finance income increased by 50% (P361 million) to P1.1 billion due to higher average cash balance of the Parent Company and First Gen available for short-term investments.

fOrEIgN ExCHANgE lOss

Foreign exchange gain or loss arose primarily from the restatement of dollar-denominated transactions. For the period, net foreign exchange losses amounted to P241 million, lower (by 45% or P201 million) against 2009’s, as the appreciation of the Philippine peso against the US dollar (weighted average exchange rate of US$1: P47.769 last year to US$1: P45.309 this period) positively impacted the Group.

DIvIDEND INCOmE

Dividend income represents the dividends received from the remaining 6.6% stake in MERALCO. Dividend income increased by 100% to P283 million due to the discontinuance of the use of equity method in accounting for the said shares starting March 30, 2010.

OTHEr INCOmE Other income represents management fees and others (like rent and miscellaneous income). Other income decreased 35% (P153 million) to P279 million due to higher unrealized fair value loss on FVPL investments and other miscellaneous expenses.

INCOmE BEfOrE INCOmE TAx

As a result of the foregoing, income before income tax for the period increased by P17.2 billion (131%) to P30.3 billion.

PrOvIsIONs fOr (BENEfIT frOm) INCOmE TAx

The Group registered a provision for income tax of P1.9 billion, lower against the prior year (-5%) as current provision for income tax went down, while deferred benefit from income tax increased (P420 million this year vis-à-vis P362 million last year), resulting from the movements in the foreign exchange rates between Philippine peso and US dollar.

INCOmE frOm DIsCONTINUED OPErATIONs

Following the deconsolidation of Prime Terracota and its subsidiaries, operating results of EDC from the period beginning January 1, 2009 up to April 30, 2009 amounting to P2.0 billion were treated as income from discontinued operations.

NET INCOmE

Net income increased by P15.3 billion (117%) to P28.4 billion primarily due to gain from sale of MERALCO shares, as well as from higher earnings reported by subsidiaries’ First Gen and First Philec.


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NET INCOmE ATTrIBUTABlE TO EqUITy HOlDErs Of THE PArENT

Of the total net income, net income attributable to equity holders of the Parent amounted to P24.9 billion, significantly better against the P8.7 billion reported in 2009 owing to the larger gain on sale of MERALCO shares and higher income posted by First Gen and First Philec.

NON-CONTrOllINg INTErEsTs

PFRS requires changes in the presentation of non-controlling interests in the consolidated statements of financial position and consolidated statements of income. Non-controlling interests are now presented as a footnote in the consolidated statements of income and as part of Equity in the consolidated statements of financial position.

Non-controlling interests decreased by 19% to P3.5 billion due to the deconsolidation of EDC.

EArNINgs PEr sHArE (EPs) fOr NET INCOmE ATTrIBUTABlE TO EqUITy HOlDErs Of THE PArENT

Basic EPS is at P41.043, while diluted EPS is at P40.619, both significantly higher vis-à-vis the prior year owing to the bottom line growth.

EPs frOm CONTINUINg OPErATIONs ATTrIBUTABlE TO EqUITy HOlDErs Of THE PArENT

Basic EPS on net income from continuing operations is at P41.043, while diluted EPS is at P40.619, both significantly higher vis-à-vis the prior year as the bottom line growth was driven by result from continuing operations.

EPs frOm DIsCONTINUED OPErATIONs ATTrIBUTABlE TO EqUITy HOlDErs Of THE PArENT

Year 2009 basic and diluted EPS from discontinued operations pertains to the deconsolidation of Prime Terracota group, which was deconsolidated from First Gen effective May 1, 2009.

TOTAl COmPrEHENsIvE INCOmE fOr THE PErIOD

Total comprehensive income of P36.0 billion is higher by P22.9 billion (176%) compared to last year. The movements in the comprehensive income of the Group were as follows:

Net income increased by P15.3 billion (117%) to P28.4 billion due to gain from sale of MERALCO shares, as well as from higher earnings reported by subsidiaries’ First Gen and First Philec;

The movements on exchange gains on foreign currency translation totaled P6.3 billion, due mainly from translation of First Gen’s US dollar-denominated financial statements into Philippine peso for consolidation purposes;

Unrealized gains on MERALCO now treated as an AFS financial asset under “Investments in equity securities” amounted to P3.4 billion;

Share in other comprehensive income of associates of P2.6 billion in 2010 against P3.1 billion in 2009. This represents First Gen’s share in the translation of the peso-denominated balance of Prime Terracota group into US dollar, the functional currency of First Gen; and

Losses on cash flow hedge deferred in equity amounted to P462 million – a reversal of the prior year’s gains of P1.2 billion, this pertains to MTM valuation of First Gen’s FGPC and FGP’s derivative instruments, particularly its interest rate swap agreements for its Covered and Uncovered facilities.

TOTAl COmPrEHENsIvE INCOmE fOr THE PErIOD ATTrIBUTABlE TO EqUITy HOlDErsOf THE PArENT

Total comprehensive income attributable to equity holders of the Parent increased significantly, by P17.3 billion (158%) to P28.2 billion, due to (1) higher income of the Parent (resulting from sale of MERALCO shares), (2) exchange gains on foreign exchange translations, and (3) unrealized gains on investments in equity securities (MERALCO). This was reduced by the losses on cash flow hedge.

TOTAl COmPrEHENsIvE INCOmE fOr THE PErIOD ATTrIBUTABlE TO NON-CONTrOllINg INTErEsTs

Total comprehensive income attributable to the non-controlling interests also increased significantly, by P5.6 billion (263%) to P7.7 billion, due to higher net income and non-controlling interests’ share in other comprehensive income reduced by losses on cash flow hedge and foreign currency translations.


DIrECTOrs AND ExECUTIvE OffICErs

BOArD Of DIrECTOrs

OSCAR M. LOPEZ82 years Old, Filipino

Mr. Oscar M. Lopez was bestowed the title Chairman Emeritus on May 31, 2010 which became effective on June 12, 2010. He is the Corporation’s Chief Strategic Officer. He was Chairman and Chief Executive Officer of the Corporation from 1986 to 2010. Mr. Lopez is the Chairman of the Executive Committee and the Nomination, Election and Governance Committee of the Corporation. Mr. Lopez is also the Chairman Emeritus of Lopez Holdings Corp., First Balfour, Inc., First Philec Solar Corp., First Phil. Electric Corp., First Phil. Industrial Corp., First Phil. Realty Corp., First Phil. Realty & Dev’t. Corp., First Phil. Utilities Corp. and Securities Transfer Services, Inc. He is likewise Chairman of the Board of Adtel, Inc., Griffin Sierra Travel, Inc., Inaec Aviation Corp., Inaec Business Solutions, Inc., ABS-CBN Holdings Corp., Eugenio Lopez Foundation, Inc., Lopez Group Foundation, Inc., Asian Eye Institute, Inc., and First Phil. Industrial Park, Inc., among other companies. He is also the Vice Chairman of Rockwell Land Corporation. Before joining the Corporation, he was the President of Lopez Holdings Corp. (formerly Benpres Holdings Corp.) from 1973 to 1986. He studied at the Harvard College and graduated cum laude (Bachelor of Arts) in 1951. He finished his Master of Public Administration at the Littauer School of Public Administration, also at Harvard in 1955. He has been part of the Lopez group in a directorship and executive capacity for the last five (5) years. Mr. Lopez is likewise a director in ABS-CBN Broadcasting Corporation.

FEDERICO R. LOPEZ50 years Old, Filipino

Mr. Federico R. Lopez was elected as Chairman and Chief Executive Officer on May 31, 2010 which became effective on June 12, 2010. He has been a Director of the Corporation since February 2006 and became a Senior Vice President in December 2007. He was appointed Managing Director for Energy in February 2008. He also sits as a member of the Executive Committee and the Nomination, Election and Governance Committee and the Chairman of the Finance and Investment Committee. He is also the Chairman and CEO of First Gen and Energy Development Corp. He is likewise Chairman of First Balfour, Inc., First Philec Solar Corp., First Phil. Dev’t. Corp., First Philippine Electric Corp., First Phil. Industrial Corp., First Phil. Realty Corp., First Phil. Realty and Dev’t. Corp., First Phil. Utilities Corp. and Securities Transfer Services, Inc., among other corporations. He graduated with a Bachelor of Arts Degree with a Double Major in Economics and International Relations (cum laude) from the University of Pennsylvania in 1983. He has been part of the Lopez group in an executive capacity for the last five (5) years.

MANUEL M. LOPEZ69 years Old, Filipino

Mr. Manuel M. Lopez was sworn in as the Philippine Ambassador to Japan last December 2, 2010. Ambassador Lopez retains his position as the Chairman of the Board of

the Manila Electric Company (MERALCO) where he served as its Chairman and Chief Executive Officer from 2001 to May 2010. He now also serves as the Chairman and CEO of Lopez Holdings Corporation. Concurrently, he is the chairman of the Board of Bayan Telecommunications, Inc., Bayan Telecommunications Holdings Corp., Indra Philippines Inc., Rockwell Land Corporation and Rockwell Leisure Club. He is the Vice Chairman of First Philippine Holdings Corporation and Lopez Inc. as well as a Director of ABS-CBN Corp., ABS-CBN Holdings Corp., Sky Cable Corp., Sky Vision Corp., Adtel Inc., First Philippine Realty Corp., Griffin Sierra Travel Inc. and the Lopez Group Foundation, Inc. He remains as the President of the Eugenio Lopez Foundation Inc. He is a member of the Executive Committee, the Nomination, Election and Governance Committee, the Audit Committee and the Risk Management Committee. He obtained his Bachelor of Science degree in Business Administration and pursued advanced studies in financial and management development from the Harvard Business School. He has been part of the Lopez group and of First Phil. Holdings Corp. in a directorship capacity for the last five (5) years.

AUGUSTO ALMEDA-LOPEZ83 years Old, Filipino

Mr. Augusto Almeda-Lopez has been a Director of the Corporation since 1986. He was Vice Chairman from 1993 to 2010. Mr. Almeda-Lopez is a member of the Executive Committee. He is Chairman of the Compensation and Remuneration Committee and a member of the Executive Committee and the Audit Committee. Mr. Almeda-Lopez is also the Chairman of the Board of ADTEL, Inc. and ACRIS Corporation, Vice Chairman of ABS-CBN and a Director of First Phil. Industrial Corp., Bayantel, Skyvision Corp., Radio Communications of the Phils., Inc. and a Trustee of ABS-CBN Foundation, Inc. He graduated with an Associate in Arts degree from Ateneo de Manila and a Bachelor of Laws degree from the University of the Philippines. He placed fourth in the 1952 Bar Exams. He has been part of the Lopez group in a directorship capacity for the last five (5) years.

CESAR B. BAUTISTAIndependent Director, 74 years Old, Filipino

Mr. Cesar B. Bautista is a member of the Risk Management Committee and the Compensation and Remuneration Committee. He was an Ambassador Extraordinary and Plenipotentiary to the United Kingdom of Great Britain and Northern Island, Republic of Ireland and Republic of Iceland. He was a Permanent Representative to the United Nations International Maritime Organization and a Special Presidential Envoy to Europe. Ambassador Bautista served as Secretary of the Department of Trade and Industry for five years. He served as Chairman of the Board of Investments, Export Development Council, Industry and Development Council, WTO/AFTA Advisory Commission, the National Development Corp., the Presidential Committee on National Museum Development and Cabinet Committee on Tariff and Related Matters, Economic Growth Areas/Zones. He was President and Chairman of Philippine Refining Company Inc.-Unilever for eight years. He graduated with a Degree in Bachelor of

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Science in Chemical Engineering from the University of the Philippines and pursued his Master’s Degree in Chemical Engineering at the Ohio State University. His business experience for the last five (5) years includes the positions held above. Mr. Bautista is likewise an independent director of Philratings Corp., Pilipinas Shell, Bayantel, Phinma Inc., Maxicare Corp. and Chartis Insurance Corp. He is also the Chairman of CIBI Inc. and St. James Ventures, Inc. He is country eminent person to the ASEAN Connectivity Task Force and ASEAN-ROK EPG. He assumed office as a Director of FPH last June 29, 2007 and has been part of the Group within the last five (5) years.

ARTHUR A. DE GUIA60 years Old, Filipino

Arthur A. De Guia was elected Director of the Corporation on August 5, 2010. He is a member of the Risk Management Committee and the Board of Trustees of the FPHC Retirement Fund. He has been the Managing Director for Manufacturing and Portfolio Investments since he joined the Corporation in June 1997. He is currently the President of First Phil. Electric Corp. He is also a member of the Board of Directors of various FPHC subsidiaries and affiliates. He worked for Colgate-Palmolive Company in a senior executive position in overseas assignments in New York, New Zealand, and Malaysia. He graduated Gold Medalist/Cum Laude from the Mapua Institute of Technology with a Bachelor of Science Degree in Electrical Engineering. He completed his Master of Engineering Degree in Industrial Management from the Asian Institute of Technology and received the Alumni Award for Academic Excellence. He pursued his Doctor of Engineering Degree at the University of California (Berkeley) under the Fulbright Hayes Fellowship Program. He has been part of the Lopez group in an executive capacity for the last five (5) years.

PETER D. GARRUCHO, JR.68 years Old, Filipino

Mr. Peter D. Garrucho, Jr. was the Managing Director of the Corporation from 1994 to January 2008. He has been a member of the Board for the same period and up to the present. He is a member of the Audit Committee, Finance and Investment Committee and Risk Management Committee. Mr. Garrucho was formerly the Vice Chairman and Chief Executive Officer of First Gen, and the First Gas companies. He is also a Board Member of First Gen and Energy Development Corp. He was also formerly Secretary of the Department of Trade and Industry (1991-1992) and of the Department of Tourism (1989-1990). He has likewise served as Executive Secretary and Adviser on Energy Affairs in the Office of the President of the Philippines in 1992. Prior to joining government in June 1989, he was President of C.C. Unson Co., Inc., which he joined in 1981 after serving as a Full Professor at the Asian Institute of Management. He has an AB-BSBA degree from De La Salle University (1966) and an MBA degree from Stanford University (1971). He has been part of the Lopez group and of First Phil. Holdings Corp. in a directorship capacity for the last five (5) years.

OSCAR J. HILADOIndependent Director, 74 years Old, Filipino

Mr. Oscar J. Hilado has been a Director of the Corporation since 1996. Mr. Hilado sits as Chairman of the Audit Committee and a member of the Nomination, Election and Governance Committee. Mr. Hilado is the Chairman of the Philippine Investment Management (“PHINMA”), Inc. He is also the Chairman of Holcim Phils., Inc.; Chairman of Atlas Holdings Corporation. He is currently Chairman of the Board and Chairman of the Executive Committee of Phinma Corporation, Vice Chairman of Trans Asia Power Generation Corp.; Chairman of Trans Asia Oil and Energy Development Corp. and Chairman of Union Galvasteel Corp. He graduated with Highest Honors and with a Gold Medal for General Excellence and a Bachelor of Science in Commerce Degree from De La Salle College (Bacolod). He pursued his Degree of Master’s in Business Administration at the Harvard Graduate School of Business Administration from 1960-1962. Mr. Hilado is a Certified Public Accountant. He has been part of the Lopez Group in a directorship capacity within the last five (5) years. Mr. Hilado is likewise an independent director of A. Soriano Corporation and Philex Mining Corporation. He is also a Director of Manila Cordage Company, Seven Seas Resorts & Leisure, Inc.; and Beacon Property Ventures, Inc.

ELPIDIO L. IBAÑEZ61 years Old, Filipino

Mr. Elpidio L. Ibañez has been a Director of the Corporation since 1988 and became President and Chief Operating Officer in May 1994, a position which he holds up to the present. Prior to this, Mr. Ibañez was an Executive Vice President from 1987 to 1994 and a Vice President from 1985 to 1987. He is a member of the Executive Committee and the Chairman of the Board of Trustees of the Retirement Fund and the Employee Stock Purchase Plan Board of Administrators. He is Chairman of the Board of First Batangas Hotel Corp., Vice Chairman of First Phil. Electric Corp. and First Phil. Power Systems, Inc. and the President of First Phil. Utilities Corp. and FPH Capital Resources, Inc. He is also a Director of various FPH subsidiaries and affiliates such as First Gen Corp. and Energy Development Corporation. He is a member of the Board of Trustees of the Philippine Business for the Environment and a member of the Management Association of the Philippines and the Makati Business Club. He graduated with an AB Economics Degree from Ateneo de Manila University. He obtained his MBA at the University of the Philippines in 1975. He has been part of the Lopez group in an executive and directorship capacity for the last five (5) years.

EUGENIO L. LOPEZ III59 years Old, Filipino

Mr. Eugenio L. Lopez III is a Director and member of the Finance and Investment Committee. He has been a director of the Corporation since June 2005. He is also the Chairman of the Board of ABS-CBN and has held this position since December 10, 1997. He joined ABS-CBN in 1986 as Finance


Director before he became General Manager in 1988 and thereafter President in 1993. He previously worked as General Manager of the MIS group, Crocker National Bank in San Francisco, USA. Mr. Lopez is a recipient of various Philippine broadcasting industry awards. Mr. Lopez served as Director of ABS-CBN from 1986 to 1997 and as Chairman and Chief Executive Officer since 1997. He graduated with a Bachelor of Arts degree in Political Science from Bowdoin College and has a Master’s Degree in Business Administration from the Harvard Business School. He has been part of the Lopez group in a directorship capacity within the last five (5) years.

ARTEMIO V. PANGANIBANIndependent Director, 75 years Old, Filipino

Hon. Artemio V. Panganiban was the Chief Justice of the Supreme Court of the Philippines from 2005 to 2006. He was Justice of the Supreme Court from 1995 to 2005. At present, he is a columnist of the Philippine Daily Inquirer, and an Adviser, Consultant or Independent Director of several business, civic, non-government and religious groups. He graduated with an Associate in Arts with Highest Honors from the Far Eastern University in 1956 and with a Bachelor of Laws degree, cum laude and as the Most Outstanding Student in 1960. He placed sixth in the 1960 Bar Examinations with a grade of 89.55 percent. Aside from FPHC, Chief Justice Panganiban is also an independent director of GMA Network, Inc., Meralco, Metro Pacific Investments Corporation, Robinsons Land Corporation, Bank of P.I., Petron Corporation, Metro Pacific Tollways, Asian Terminals Incorporated, Jollibee Foods Corporation and Tollways Management Corp. He is also Senior Adviser to Metropolitan Bank and Trust Company and Independent Adviser of PLDT. He assumed office as an independent director of FPH last July 5, 2007 and is Chairman of the Risk Management Committee. He has been part of the Lopez group in a directorship capacity for the last six (6) years.

FRANCIS GILES B. PUNO47 years Old, Filipino

Mr. Francis Giles B. Puno was elected Director of the Corporation on March 3, 2011. He is a member of the Finance and Investment Committee. He was appointed Chief Finance Officer and Treasurer of FPH in October 2007, and was promoted to Executive Vice President in September 2011. He was Vice President since he joined the Corporation in June 1997. He is currently the President and Chief Operating Officer of First Gen. He is also a director and officer of First Gen, its subsidiaries and affiliates, and of First Balfour, Inc., First Phil. Dev’t. Corp., First Phil. Electric Corp., First Phil. Industrial Park, Inc., First Phil. Realty Corp., First Phil. Realty and Dev’t. Corp., First Phil. Utilities Corp. and Energy Development Corp. Before joining FPH, he worked with The Chase Manhattan Bank as Vice President for Global Power and Environmental Group. He has a Bachelor of Science degree in Business Management from the Ateneo de Manila University and a Master in Business Administration degree from Northwestern University’s Kellogg Graduate School of Management in Chicago, Illinois. He has been part of the Lopez group in an executive capacity for the last five (5) years.

ERNESTO B. RUFINO, JR.70 years Old, Filipino

Mr. Ernesto B. Rufino, Jr. became a Director of the Corporation from 1986 to 2001. He was re-elected to the board in January 2003 and has remained a director since then. He was the Chief Finance Officer, Treasurer, and a Senior Vice President of the Corporation until his retirement in 2007. He sits as member of the Finance and Investment Committee and the Risk Management Committee. He is also the Chairman and Chief Executive Officer of Health Maintenance, Inc. and the President of Securities Transfer Services, Inc. He is also the Chairman and President of Xyloid Management, Inc. and a Director of Trust International Paper Corp. Before joining the Corporation, he served as the President of Merchants Investments Corp. and Chairman and CEO of Mever Films, Inc. He has AB and BSBA degrees (cum laude) from De La Salle University and an MBA degree from Harvard University. He is currently active with the Knights of Malta and General Lim’s Division Bataan, Inc. He has been part of the Lopez group in a directorship capacity for the last five (5) years.

JUAN B. SANTOSIndependent Director, 73 years Old, Filipino

Mr. Juan B. Santos has been a Director of the Corporation since 2009. He is a member of the Audit Committee and the Nomination, Election and Governance Committee. He is currently the Chairman of the Social Security Commission, the top policy-making body of the Social Security System. Mr. Santos was the Chairman and President of Nestlé Philippines, Inc. (NPI) up to end March 2003. Prior to his appointment as President of NPI in 1987, he served as CEO of the Nestlé Group of Companies in Thailand. From 1989 to 1995, he acted on concurrent capacity as CEO of Nestlé Singapore Pte. Ltd. and NPI. In addition to his post at NPI, he served as Director of San Miguel Corp., PLDT, Manila Electric Company, Malayan Insurance Company, Inc., Equitable Savings Bank, Inc., PCI Leasing and Finance, Inc., Inter-Milling Holdings Limited and PT Indofood Sukses Makmur Tbk. He is also currently a Director of Grepalife Financials, Inc., Alaska Milk Corp., Zuellig Group, Inc. and Philex Mining Corp.; a Consultant for Marsman Drysdale Group of Companies; a Trustee of the St. Luke’s Medical Center; and a Member of the Board of Advisers of Coca Cola Bottlers Phils., Inc. and East-West Seeds Co., Inc. He served as Secretary of Trade and Industry from 14 February to 8 July 2005. Mr. Santos obtained his BSBA degree from the Ateneo de Manila University and pursued post-graduate studies at the Thunderbird Graduate School of Management in Arizona, U.S.A. He completed the Advanced Management Course at IMD in Lausanne, Switzerland. He has been part of the Lopez group in a directorship capacity for the last four (4) years.

WASHINGTON Z. SYCIPIndependent Director, 90 years Old, American

Mr. Washington Z. Sycip has been a Director since 1997. Mr. Sycip also sits as member of the Audit Committee, Nomination, Election and Governance Committee and the Compensation and Remuneration Committee. Mr. Sycip is


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the Founder of the SGV group, auditors and management consultants, with operations throughout East Asia. He is the Chairman Emeritus of the Board of Trustees and Board of Governors of the Asian Institute of Management. He was Chairman of the Euro-Asia Centre, INSEAD Fountainbleau from 1981 to 1988 and President of the International Federation of Accountants from 1982 to 1985. He graduated with a Bachelor of Science in Commerce degree (Summa Cum Laude) and a Master of Science in Commerce degree (Meritissimus) from the University of Santo Tomas, Philippines. He pursued his Master of Science in Commerce at Columbia University, New York and was admitted to the Beta Gamma Sigma, Honorary Business Society. He has been part of the Lopez group in a directorship capacity within the last five (5) years. Mr. Sycip is likewise Chairman of MacroAsia Corporation, Cityland Development Corp., Lufthansa Technik Philippines, Inc., State Properties Corp. and Steag State Power, Inc. and an independent director of Lopez Holdings Corp., Belle Corporation, Highlands Prime, Inc., Aboitiz Transpot Systems, Inc., Asian Eye Institute, Century Properties, Commonwealth Foods, Inc., Phil. Equity Management, Inc., Philippine Hotelier, Inc., Philamlife, Inc., The PHINMA Group, Realty Investment, Inc. and Stateland, Inc. Mr. Sycip is also an Adviser to the Board of Asian Terminals, Inc., Banco de Oro and PLDT; and a Director of Philippine Airlines, Inc. and Philippine National Bank. He was the third person to receive the lifetime achievement award from the Columbia Business School.

ExECUTIvE/COrPOrATE OffICErs

RICHARD B. TANTOCO45 years Old, Filipino

Richard B. Tantoco was promoted to Executive Vice President last September 2011. He has been a Vice President of the Corporation since May 1997. He is currently Executive Vice President and Chief Operating Officer of First Gen. He is also a director and officer of First Gen subsidiaries and affiliates. He is currently the President of EDC. Prior to joining FPH, he worked as a Brand Manager with Procter and Gamble Philippines and as a member of the consulting firm Booz Allen and Hamilton, Inc. based in New York. He has a BS in Business Management degree from the Ateneo de Manila University where he graduated with honors and an MBA in Finance from the Wharton School of Business of the University of Pennsylvania. He has been part of the Lopez group in an executive capacity for the last five (5) years.

DANILO C. LACHICA57 years Old, Holds American and Filipino Citizenships

Danilo C. Lachica has been a Senior Vice President of the Corporation since July 2005. He was a Vice President from May 1999 until June 2005. He was President of First Sumiden Circuits, Inc. until October 1, 2007. He is a Director and Managing Director for Electronics of First Philec, Philec, and FEDCOR. He is currently President of First Philec Solar Corporation, First Philec Solar Solutions Corporation, and First Philec Nexolon Corporation. He graduated with a B.S.

in Electrical Engineering degree from the University of the Philippines and pursued his MBA at the San Jose State University, San Jose, California, USA. He pursued his DBA degree at De La Salle University. He has been part of the Lopez group in an executive capacity for the last five (5) years.

PERLA R. CATAHAN59 years Old, FilipinoPerla R. Catahan was promoted to Senior Vice President last September 2011. She has been a Vice President and Comptroller of the Corporation since 1994. She is a Director of First Philec, Philippine Electric Corp., and Securities Transfer Services, Inc. She is Group Comptroller of the Lopez Group of Companies and is also the comptroller of various FPH subsidiaries. She graduated Magna Cum Laude with a Bachelor of Science in Commerce (Major in Accounting) degree from the Philippine College of Commerce in 1974 and pursued her Master in Business Management degree at the Asian Institute of Management in 1983. She has been part of the Lopez group in an executive capacity for the last five (5) years.

ANTHONY M. MABASA52 years Old, Filipino

Anthony M. Mabasa was promoted to Senior Vice President last September 2011. He has been a Vice President of the Corporation since 1994. He is currently the President of First Phil. Industrial Corp. and of ThermaPrime Well Services, Inc. He is also a Director of First Balfour, Inc. He was President of Tollways Management Corporation from 2003 to 2008, President of FPIC from 2000 to 2003, an Executive Vice President of First Balfour from 1998 to 1999 and President and Chief Operating Officer of ECCO-Asia from August 1994 to October 1999. He has a Bachelor of Science in Commerce degree, Major in Management of Financial Institutions, from the De La Salle University in 1979. He pursued his Master in Business Administration degree at the University of the Philippines in 1994. He has been part of the Lopez group in an executive capacity for the last five (5) years.

VICTOR EMMANUEL B. SANTOS, JR.44 years Old, Filipino

Victor Emmanuel B. Santos, Jr. was promoted to Senior Vice President last September 2011. He has been Vice President since March 30, 2001. He is currently Senior Vice President and Compliance Officer of First Gen and Senior Vice President of FGP. Before joining FPH, he worked as Director for Global Markets at Enron Singapore. He earned his MBA in Finance at Fordham University, New York in 1995. He has been part of the Lopez group in an executive capacity for the last five (5) years.

FERDINAND EDWIN SY CO SETENG49 years Old, Filipino

Ferdinand Edwin Sy Co Seteng was appointed Senior Vice President last November 2011. He is a BS Electrical Engineering graduate from the University of the Philippines and holds a Master of Business Administration with Distinction from the Johnson Graduate School of Management, Cornell University, New York, USA. His


professional experience includes being a Tax Consultant at Arthur Andersen & Company, New York, USA from 1988-1990; Engagement Manager at McKinsey & Company, Hong Kong from 1990-1993; President of Marisawa Manufacturing, Inc. from 1993-2006 and Chairman of the Board and President of Mariwasa Siam Ceramics, Inc. from 1996-2006. In 2007, Mr. Co Seteng joined LF Logistics in Hong Kong as Executive Vice President and headed the international logistics and freight forwarding business.

FIORELLO R. ESTUAR73 years Old, Filipino

Fiorello R. Estuar became the Head of the Infrastructure Business Development of the Corporation in August 2007. He has been the Vice Chairman and Chief Executive Officer of First Balfour since November 2006. He is currently the Chairman of Thermaprime Well Services, Inc. and the President of Terraprime, Inc. He was President of Maynilad Water Services from 2004 up to June 2007. He also served as President of First Balfour from 2001 to 2004, and as a Board Member of Security Land Corporation from 2004 to 2006. He was Head of Agency of four major government agencies, namely, NIA, PNCC, ESF and DPWH from 1980 to 1991. He earned his PhD degree in Civil Engineering at the age of 27 while serving as a faculty and research staff at Lehigh University USA from 1960 to 1965. He was also a faculty member at the UP Graduate School of Engineering from 1968 to 1970. He has been part of the Lopez group in an executive capacity within the last five (5) years.

RAMON T. PAGDAGDAGAN53 years Old, Filipino

Ramon T. Pagdagdagan is a Vice President and Head of Internal Audit of the Corporation since August 2007. He has been with FPH since October 1994. He graduated with a Bachelor of Science degree in Commerce-Accounting from the Polytechnic University of the Philippines in 1980. He pursued his Executive Masters in Business Administration degree at the Asian Institute of Management from 1999 to 2000. He has been part of the Lopez group in an executive capacity for the last five (5) years.

LEONIDES U. GARDE54 years Old, Filipino

Leonides U. Garde has been a Vice President of the Corporation since 1994. He is currently a Consultant for First Philippine Industrial Corp. of which he was President from August 2003 to January 2011. He earned a degree in BSME from the University of the Philippines in 1979 and pursued his MBA at the Ateneo Graduate School of Business from 1981 to 1984. He has been part of the Lopez group in an executive capacity for the last five (5) years.

RICARDO B. YATCO57 years Old, Filipino

Ricardo B. Yatco has been a Vice President of the Corporation since 1996. Prior to this posting, he was a Vice President

of FPIC. He is currently the General Manager of Securities Transfer Services, Inc. He earned a degree in BS Industrial Management Engineering from the De La Salle University from 1972 to 1977 and pursued his MBA at the University of San Francisco from 1980 to 1982. He has been part of the Lopez group in an executive capacity for the last five (5) years.

OSCAR R. LOPEZ, JR.53 years Old, Filipino

Oscar R. Lopez, Jr. has been Vice President of the Corporation since May 2001. He is currently the Head of the Administration Group of FPH. He is currently the President of First Philippine Realty Corp. and First Philippine Development Corp. He also serves as a Director in First Phil. Electric Corp. He has been with the Corporation since October 1996. He went to college at the De La Salle University and has attended the Executive Masters in Business Administration Program of the Asian Institute of Management. He has been part of the Lopez group in an executive capacity for the last five (5) years.

BENJAMIN R. LOPEZ42 years Old, Filipino

Benjamin R. Lopez is a Vice President and Head of Corporate Communications of the Corporation. He has occupied this position since November 2006. He has been with FPH since October 1993. He was assigned to Rockwell in May 1995 where he held various posts in Business Development, Sales and Marketing. Prior to his recall to FPH in June 2004, he was a Vice President for Project Development of Rockwell. He is also a member of the Board of Directors of various subsidiaries such as First Balfour, Inc., First Philec and First Philippine Utilities Corp. He graduated with a Bachelor of Arts degree in International Affairs in 1992 from the George Washington University. He pursued his Executive Masters in Business Administration degree at the Asian Institute of Management in 2001. He has been part of the Lopez group in an executive capacity for the last five (5) years.

ARIEL C. ONG50 years Old, Filipino

Ariel C. Ong was elected as Vice President of FPH last September 6, 2007 and is seconded to First Philec as a Senior Vice President. He is currently the President of Philippine Electric Corp., First Electro Dynamics Corp., and First Phil. Power Systems, Inc. He has over 20 years of experience in plant general management and end-to-end supply chain leadership as well as project management and business process engineering. Prior to joining First Philec, he was Regional Vice President / General Manager and Supply Chain Head for Southeast Asia of Avon Products - Asia Pacific Supply Chain. He is a Mechanical Engineer and obtained his Master of Science in Engineering (Energy) from the University of the Philippines in 1990.

ELIZABETH M. CANLAS60 years Old, Filipino

Elizabeth M. Canlas has been a Vice President of the


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Corporation since November 2007. She is currently a core group member of the Lopez Group’s Corporate HR, HR Council, CSR (Corporate Social Responsibility) Council, and the Lopez Lifelong Wellness team. She is the chair of the HR professional development committee of the HR Council and the functional head of the Human Resource Officers’ Committee of the First Holdings’ Group HRs. She is also the Managing Editor of Tanglaw, the official publication of the First Holdings Group of Companies. She has been part of the Lopez group in an executive capacity for the last five (5) years.

ANNA KARINA P. GEROCHI44 years Old, Filipino

Anna Karina P. Gerochi was appointed Vice President on March 1, 2012. She is currently the Vice President and Head of Human Resource Dept. of First Gen. Ms. Gerochi is a graduate of Bachelor of Arts in Mathematics from Cornell University in 1988. She also pursued a Master’s Degree in Operations Research and Industrial Engineering in the same university in 1989. She completed her Executive Masters in Business Administration (with distinction) at Asian Institute of Management (AIM) last 2006. Before joining First Gen, she was assigned for five years as Vice President and General Manager of Asian Eye Institute (AEI). Prior to joining FPH, she was the Project Development Officer of Ayala Land Corp. for 4.5 years. She started her career with Pacific Gas and Electric Company in California as Planning Analyst, a position she held for four years.

ENRIQUE I. QUIASON51 years Old, Filipino

Enrique I. Quiason has been the Corporate Secretary of the Corporation since 1993. He is a Senior Partner of the Quiason Makalintal Barot Torres Ibarra & Sison Law Firm. He is also the Corporate Secretary of Lopez Holdings and Assistant Corporate Secretary of ABS-CBN. He is also the Corporate Secretary and Assistant Corporate Secretary of various subsidiaries or affiliates of FPH and Lopez Holdings. He graduated with a BS Business Economics degree in 1981 and with a Bachelor of Laws degree in 1985 from the University of the Philippines. He pursued a degree in LL.M. Securities Regulation at Georgetown University in 1991. His law firm has acted as legal counsel to the Lopez group for the last five (5) years.

RODOLFO R. WAGA, JR.52 years Old, Filipino

Rodolfo R. Waga, Jr. has been a Vice President of the Corporation since May 2001 and is the Assistant Corporate Secretary of the Corporation. He is also the Corporate Secretary and Assistant Corporate Secretary of various FPH subsidiaries and affiliates. He is also a director of some subsidiaries. He graduated Magna Cum Laude with a Bachelor of Arts degree Major in Economics from the Xavier University (Ateneo de Cagayan) in 1979 and a Bachelor of Laws degree from the University of the Philippines in 1983. He completed the academic requirements for his EMBA at the Asian Institute of Management. He has been part of the Lopez group in an executive capacity for the last five (5) years.

SIGNIFICANT EMPLOYEES

The Corporation considers all its employees to be significant partners and contributors to the business.

FAMILy RELATIONSHIPSa) Oscar M. Lopez and Manuel M. Lopez are brothers.b) Ernesto B. Rufino, Jr. is the brother-in-law of Oscar M.

Lopez. His sister, Mrs. Consuelo Rufino-Lopez, is the wife of Oscar M. Lopez.

c) Federico R. Lopez, Oscar R. Lopez, Jr. and Benjamin R. Lopez are the sons of Oscar M. Lopez.

d) Francis Giles B. Puno is the brother-in-law of Federico R. Lopez.

e) Eugenio L. Lopez III is the nephew of Oscar M. Lopez and Manuel M. Lopez.

INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS

With respect to the last five (5) years and up to the date of this Information Statement:

(i) The Corporation is not aware of any bankruptcy proceedings filed by or against any business of which a director, person nominated to become a director, or executive officer or control person of the Corporation is a party or of which any of their property is subject.

(ii) The Corporation is not aware of any conviction by final judgment in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding, domestic or foreign, of any of its directors, or executive officer or control person nominated to become a director, executive officers or control person. The Malicious Prosecution under Section 35 of the Ombudsman Act of 1990 filed by Atty. Estrella Elamparo against its directors was dismissed by the Department of Justice.

(iii) The Corporation is not aware of any order, judgment or decree not subsequently reversed, superseded or vacated, by any court of competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring, suspending or otherwise limiting the involvement of a director, person nominated to become a director, executive officer or control person in any type of business, securities, commodities or banking activities except for a disqualification directed against Messrs. W.Z. Sycip and E.L. Lopez III to sit as a director in a finding made by the SEC’s CFD. This is still being questioned before the Commission. The Commission in a Decision dated 16 June 2011 has set aside the Letter-Order of the CFD against Mr. Sycip.

(iv) The Corporation is not aware of any findings by a

domestic or foreign court of competent jurisdiction (in a civil action), the Commission or comparable foreign body, or a domestic or foreign exchange or electronic marketplace or self-regulatory organization, that any of its directors, person nominated to become a director, executive officer, or control person has violated a securities or commodities law.


STANDARD ARRANGEMENTS. Directors receive a per diem of P20,000 for every board meeting. Under the Corporation’s By-Laws, directors may receive up to a maximum of Three Fourths (3/4) of One Percent (1%) of the Corporation’s annual profits or net earnings as may be determined by the Chairman of the Board and the President.

OTHER ARRANGEMENTS. The Corporation does not have any other arrangements pursuant to which any director is compensated directly or indirectly for any service provided as a director.

EmPlOymENT CONTrACTs AND TErmINATION Of EmPlOymENT AND CHANgE-IN-CONTrOl ArrANgEmENTs

(A) All employees of the Corporation, including officers, sign a standard engagement contract which states their compensation, benefits and privileges. Under the Corporation’s By-Laws, officers and employees may receive not more than Two and Three Fourths (2 ¾ %) Percent of the Corporation’s annual profits or net earnings as may be determined by the Chairman of the Board and the President. The Corporation maintains a qualified, non-contributory

COmPENsATION Of DIrECTOrs AND ExECUTIvE OffICErs

NAmE AND PrINCIPAl POsITION yEAr sAlAry BONUs OTHEr COmPENsATION

Oscar M. Lopez – Chairman Emeritus/Chief Strategic Officer

Federico R. Lopez – Chairman & CEO

Elpidio L. Ibañez – President & COO

Arthur A. De Guia – Managing Director, MPIG

Perla R. Catahan – Vice President & Comptroller

total1 (Estimated) 2012 118,353,086 55,512,461

(Actual) 2011 117,255,460 99,471,610 0

(Actual) 2010 98,103,356 117,766,806 0

allotherdirectors (Estimated) 2012 0 9,878,000

(Actual) 2011 0 128,662,500 0

(Actual) 2010 0 48,825,000 0

allotherofficers (Estimated) 2012 81,532,990 33,516,829

as a Group unnamed (Actual) 2011 65,443,577 46,449,987 0

(Actual) 2010 50,286,868 63,443,537 0

1 Includes projected movements of personnel who would qualify.

2011

NAmE NO. Of sHArEs DATE Of grANT ExErCIsE PrICE mArkET PrICE AT DATE Of grANT

*Federico R. Lopez Various Various Various

*Victor Emmanuel B. Santos Various Various Various

*Arthur A. De Guia Various Various Various

*Elpidio L. Ibañez Various Various Various

*Raul J. Sinocruz Various Various Various

Sub-Total 1,533,441

All Other Officers 361,405

total 1,894,846 *Top Five

trusteed pension plan covering substantially all employees.

(B) The Corporation does not have any compensatory plan or arrangement resulting from the resignation, retirement, or any other termination of an executive officer’s employment with the Corporation or its subsidiaries or from a change in control of the Corporation or a change in an executive officer’s responsibilities following a change-in-control except for such rights as may have already vested under the Corporation’s Retirement Plan or as may be provided for under its standard benefits.

OPTIONs OUTsTANDINg

The Corporation has an existing Executive Stock Option Plan (ESOP) which is based on compensation. The ESOP entitles the directors and senior officers to purchase up to 10% of the Corporation’s authorized capital stock on the offering years at a pre-set purchase price with payment and other terms to be defined at the time of the offering. Non-executive and independent directors are not granted ESOP shares. The outstanding options are held as follows:

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sECUrITy OWNErsHIP Of CErTAIN BENEfICIAl OWNErs AND mANAgEmENT

The equity securities of the Corporation consist of common and preferred shares.

fPHC sECUrITy OWNErs Of CErTAIN rECOrD AND BENEfICIAl OWNErs Of mOrE THAN 5%As Of mArCH 31, 2012

(a) Security Ownership of Certain Record and Beneficial Owner/s of more than 5%

TITlE Of ClAss

NAmE AND ADDrEss Of rECOrD OWNEr AND rElATIONsHIP WITH IssUEr

NAmE Of BENEfICIAl OWNEr &

rElATIONsHIP WITH rECOrD OWNEr

CITIzENsHIP NO. Of sHArEs HElD

PErCENT TOTOTAl IssUED

AND OUTsTANDINg

Common Lopez Holdings Corporation (LHC)5/F Benpres Building Exchange Road cor. Meralco Avenue, Ortigas Ctr.Pasig CityLHC is the parent of the Corporation.1

Lopez Holdings Corporation2

Filipino 254,121,719 46.42%

Common PCD Nominee CorporationG/F Makati Stock Exchange6767 Ayala Avenue, Makati City

Various FilipinoNon-Filipino

118,483,531 79,779,709

21.64%14.58%

As advised to the Corporation, the following are the owners of more than 5% under the PCD:

The Hongkong & Shanghai Banking Corp.Custody and Clearing Dept.30/F Discovery Suites25 ADB Ave., Ortigas Center, Pasig City


046,184,478

0.00% 8.43%

1 The Chairman Emeritus of Lopez Holdings Corp. (“LHC”), Mr. Oscar M. Lopez, is also the Chairman Emeritus of the Corporation.

Apart from the foregoing, there are no other persons holding more than 5% of FPHC’s outstanding capital stock.

fPHC sECUrITy OWNErs Of CErTAIN rECOrD AND BENEfICIAl OWNErs Of mOrE THAN 5%As Of mArCH 31, 2012

(a) Security Ownership of Certain Records

TITlE Of ClAss

NAmE AND ADDrEss Of rECOrD OWNEr AND rElATIONsHIP WITH IssUEr

NAmE Of BENEfICIAl OWNEr &

rElATIONsHIP WITH rECOrD OWNEr

CITIzENsHIP NO. Of sHArEs HElD

PErCENT TOTOTAl IssUED

AND OUTsTANDINg

Preferred“B”

PCD Nominee CorporationG/F Makati Stock Exchange,6767 Ayala Avenue, Makati City


40,695,87061,690

94.64%0.14%

As advised to the Corporation, the following are the owners of 5% or more under the PCD:

Preferred“B”

The Hongkong and Shanghai BankHSBC Securities Services12th Floor, The Enterprise Center Tower 16766 Ayala Avenue cor. Paseo de RoxasMakati City


6,048,5200

14.06%

Preferred“B”

The Insular Life Assurance CompanyIL Corporate CenterInsular Life Drive, Filinvest Corporate CityAlabang, Muntinlupa City

Various Filipino 5,130,800 11.93%

Preferred“B”

RCBC Trust & Investment Division333 Sen. Gil J. Puyat Ave., Makati City


Preferred“B”

Banco de Oro – Trust Banking Group317/F, South Tower, BDO CorporateCenter, H.V. dela Costa cor. MakatiAve., Makati City


Preferred“B”

MBTC – Trust Banking Group5/F MetroBank Plaza, Sen. Gil PuyatAve., Makati City


Preferred“B”

Social Security System (“SSS”)SSS Bldg., East Ave., Diliman, Q.C.

SSS Filipino 4,300,000 10.00%

Preferred“B”

BDO Securities Corporation27/F Tower 1 & Exchange PlazaAyala Avenue, Makati City


2 The Board of Directors of LHC has the authority to decide how the shares of LHC in the Corporation are to be voted. It has, however, executed a Voting Trust Agreement in favor of Lopez, Inc.

3 Under the law, the Board of Directors of BDO has the authority to decide how its shares in the Corporation are to be voted, including the grant of a proxy. This is, however, subject to any internal arrangements on trust or otherwise that the Corporation may have. BDO has previously issued a proxy in favor of the Chairman Emeritus, Mr. Oscar M. Lopez, in connection with the special stockholders’ meeting last January 15, 2009.


LHC has disclosed the execution of a Voting Trust Agreement dated 4 December 2008 in favor of Lopez, Inc. as voting trustee over 254,121,720 shares of common stock in the Corporation. This is for a period of five (5) years. The voting trustee is entitled to exercise all voting rights and powers over the said shares.

(2) sECUrITy OWNErsHIP Of mANAgEmENT As Of mArCH 31, 2012.

To the best of the knowledge of FPHC, the following are the shareholdings of the directors and officers:

sECUrITy OWNErsHIP Of CErTAIN BENEfICIAl OWNErs AND mANAgEmENT

COmmON sHArEs

TITlE Of ClAss NAmE Of BENEfICIAl OWNErAmOUNT & NATUrE Of BENEfICIAl OWNErsHIP CITIzENsHIP PErCENT Of ClAss

Common Oscar M. Lopez 8,301,758–D/I Filipino 1.5167%

Common Augusto Almeda-Lopez 172,001-D Filipino 0.0314%

Common Peter D. Garrucho, Jr. 463,123-D/I Filipino 0.0846%

Common Elpidio L. Ibañez 2,350,768–D Filipino 0.4295%

Common Oscar J. Hilado 1–D/I Filipino 0.0000%

Common Manuel M. Lopez 2,283,929–D/I Filipino 0.4173%

Common Ernesto B. Rufino, Jr. 1,265,797–D/I Filipino 0.2313%

Common Juan B. Santos 1–D Filipino 0.0000%

Common Federico R. Lopez 2,621,869–D/I Filipino 0.4790%

Common Washington Z. Sycip 1–D American 0.0000%

Common Arthur A. De Guia 359,940–D Filipino 0.0658%

Common Eugenio L. Lopez III 14,335–D Filipino 0.0026%

Common Artemio V. Panganiban 25,001–D Filipino 0.0046%

Common Cesar B. Bautista 1–D Filipino 0.0000%

Common Francis Giles B. Puno 2,790,843-D/I Filipino 0.5099%

Common Perla R. Catahan 718,917-D/I Filipino 0.1315%

Common Anthony M. Mabasa 137,535–D Filipino 0.0251%

Common Richard B. Tantoco 431,376–D/I Filipino 0.0788%

Common Victor Emmanuel B. Santos - Filipino 0.0000%

Common Ferdinand Edwin Sy Co Seteng 6,950–D Filipino 0.0013%

Common Elizabeth Canlas 31,799-D Filipino 0.0058%

Common Leonides Garde 141,662–D Filipino 0.0259%

Common Ricardo B. Yatco 76,842-D Filipino 0.0140%

Common Danilo C. Lachica 92,710–D American 0.0169%

Common Oscar R. Lopez Jr. 27,958–D/I Filipino 0.0051%

Common Benjamin R. Lopez 276,001-D/I Filipino 0.0504%

Common Ramon T. Pagdagdagan - Filipino 0.0000%

Common Fiorello R. Estuar 10,048-D Filipino 0.0018%

Common Ariel C. Ong 9,000-D Filipino 0.0016%

Common Anna Karina P. Gerochi - Filipino 0.0000%

Common Enrique I. Quiason - Filipino 0.0000%

Common Rodolfo R. Waga Jr. 25,674-D Filipino 0.0047%

Sub-total 22,635,840 4.1354%

Common Lopez Holdings Corp. 254,121,719-D Filipino 46.4265%

Common Other Stockholders 270,605,434 Filipino & Non-Filipino 49.4380%

total 547,362,993 100.0000%

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PrEfErrED sHArEs

TITlE Of ClAss NAmE Of BENEfICIAl OWNErAmOUNT & NATUrE Of BENEfICIAl OWNErsHIP CITIzENsHIP PErCENT Of ClAss

Preferred Oscar M. Lopez 218,530 Filipino 0.5082%

Preferred Augusto Almeda-Lopez - Filipino -

Preferred Peter D. Garrucho, Jr. - Filipino -

Preferred Elpidio L. Ibañez - Filipino -

Preferred Oscar J. Hilado - Filipino -

Preferred Manuel M. Lopez - Filipino -

Preferred Ernesto B. Rufino, Jr. 100,000 Filipino 0.2326%

Preferred Juan B. Santos - Filipino -

Preferred Federico R. Lopez - Filipino -

Preferred Washington Z. Sycip - American -

Preferred Arthur A. De Guia - Filipino

Preferred Eugenio L. Lopez III - Filipino -

Preferred Artemio V. Panganiban - Filipino -

Preferred Cesar B. Bautista - Filipino -

Preferred Francis Giles B. Puno - Filipino -

Preferred Perla R. Catahan 50,000 Filipino 0.1163%

Preferred Anthony M. Mabasa 10,000 Filipino 0.0233%

Preferred Richard B. Tantoco - Filipino -

Preferred Victor Emmanuel B. Santos - Filipino -

Preferred Ferdinand Edwin Sy Co Seteng - Filipino -

Preferred Elizabeth M. Canlas 10,000 Filipino 0.0233%

Preferred Leonides U. Garde 10,000 Filipino 0.0233%

Preferred Ricardo B. Yatco 10,000 Filipino 0.0233%

Preferred Danilo C. Lachica - American -

Preferred Oscar R. Lopez, Jr. - Filipino -

Preferred Benjamin R. Lopez 30,000 Filipino 0.0698%

Preferred Ramon T. Pagdagdagan - Filipino -

Preferred Fiorello R. Estuar - Filipino -

Preferred Ariel C. Ong - Filipino -

Preferred Anna Karina P. Gerochi - Filipino -

Preferred Enrique I. Quiason - Filipino -

Preferred Rodolfo R. Waga, Jr. - Filipino -

Sub-total 438,530 1.0198%

Other Stockholders 42,561,470 Filipino & Non-Filipino 98.9802%

total 43,000,000 100.0000%

There has been no change of control of the Corporation since the beginning of its last fiscal year.

(3) vOTINg TrUsT HOlDErs Of 5% Or mOrE

TITlE Of ClAss

AmOUNT Of sECUrITIEs UNDEr TrUsT Or AgrEEmENT

DUrATION Of AgrEEmENT

NAmE AND ADDrEss Of vOTINg TrUsTEE

OUTlINE Of vOTINg rIgHTs

Common 254,121,719 Five (5) years Lopez, Inc.5/F Benpres Building, Meralco Ave cor. ExchangeRoad, Pasig City,

Among others, the voting trustee is entitled to exercise all voting rights and powers over the shares, including but not limited to: (i) the right and power to vote thereon and to take part in and consent to any stockholders action of any kind whatsoever and to receive dividends in distribution on the shares. The right to vote shall include the right to vote for election or removal of directors, amendment of the articles of incorporation or by-laws, approval of mergers, consolidations, liquidation or dissolution of FPHC, the sale of all or substantially all of the assets of FPHC and in favor of, or in opposition, to any resolution or proposed action of any character whatsoever which may be presented at any meeting or require the consent of stockholders of FPHC.

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