C O V E R S H E

C O V E R S H E E T for SEC FORM 17-A

SEC Registration Number C S 2 0 0 6 0 4 4 9 4

C O M P A N Y N A M E M E T R O P A C I F I C I N V E S T M E N T S C O R P

O R A T I O N A N D S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province ) 1 0 t h F l o o r , M G O B u i l d i n g , L e g a

s p i c o r n e r D e l a R o s a S t r e e t s ,

L e g a s p i V i l l a g e , M a k a t i C i t y

Form Type Department requiring the report Secondary License Type, If Applicable A C F S

C O M P A N Y I N F O R M A T I O N Company’s Email Address Company’s Telephone Number Mobile Number [email protected] +632-888-0888 –

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day) 1,307 as of 12.31.2019 Last Friday of May December 31

CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation Name of Contact Person Email Address Telephone Number/s Mobile Number Mr. David J. Nicol [email protected] +632-8888- – 0888

CONTACT PERSON’s ADDRESS

10/F MGO Building, Legaspi corner Dela Rosa Streets Legaspi Village, Makati 0721 Philippines NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated. 2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SECTION 141 OF THE CORPORATION CODE OF THE PHILIPPINES

1. For the fiscal year ended December 31, 2019

2. SEC identification number CS200604494

3. BIR Tax Identification No. 244-520-457-000

4. Exact name of issuer as specified in its charter METRO PACIFIC INVESTMENTS CORPORATION

5. Province, country or other jurisdiction of incorporation or organization Makati City, Philippines

6. Industry Classification Code: (SEC Use Only)

7. Address of issuer's principal office Postal Code 10/F MGO Bldg., Legaspi cor. Dela Rosa Sts., Legazpi Village, 0721 Makati City

8. Issuer's telephone number, including area code (632) 8888 0888

9. Former name, former address and former fiscal year, if changed since last report N/A

10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA

Title of each Class Number of shares of common stock outstanding and amount of debt outstanding

Common Shares 31,568,738,752* *Reported by the stock transfer agent as at February 29, 2020 and excluded the shares held by the Company

11. Are any or all of these securities listed on the Philippine Stock Exchange? Yes [ x ] No [ ]

12. Check whether the registrant:

a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17 thereunder or Section 11 of the RSA and RSA Rule 11 (1)-1 thereunder and Sections 26 and 141 of the Corporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports);

Yes [ x ] No [ ]

b) has been subject to such filing requirements for the past 90 days.

Yes [ x ] No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. The aggregate market value shall be computed by reference to the price at which the stock was sold; or the average bid and asked price of such stock, as of a specified date within sixty (60) days prior to the date of filing. If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of the common stock held by non-affiliates may be calculated on the basis of assumptions reasonable under the circumstances, provided the assumptions are set forth in the Form.

The aggregate market value of voting stocks held by non-affiliates representing 57.75% of outstanding common shares is P=55,972 million, computed on the basis of the closing price as at February 29, 2020 of P=3.07 per share.

METRO PACIFIC INVESTMENTS CORPORATION

SEC FORM 17-A

December 31, 2019

TABLE OF CONTENTS

PART I – BUSINESS AND GENERAL INFORMATION ...... 1 Item 1. Description of Business ...... 1 Item 2. Description of Properties ...... 41 Item 3. Legal Proceedings ...... 43 Item 4. Submission of Matters to a Vote of Security Holders ...... 43 PART II – OPERATIONAL AND FINANCIAL INFORMATION ...... 44 Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters ...... 44 Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD & A) ...... 48 Financial Highlights and Key Performance Indicators ...... 48 Operational Review ...... 50 I - MPIC Consolidated ...... 50 II - Operating Segments of the Group ...... 54 MPIC Consolidated Statement of Financial Position ...... 61 Liquidity and Capital Resources ...... 65 Comparison of Other Financial Years ...... 66 2018 versus 2017 ...... 66 2017 versus 2016 ...... 80 Item 7. Consolidated Financial Statements ...... 97 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures ...... 97 PART III – CONTROL AND COMPENSATION INFORMATION ...... 98 Item 9. Directors and Executive Officers of the Issuer ...... 98 Item 10. Executive Compensation ...... 120 Item 11. Security Ownership of Certain Record and Beneficial Owners and Management .... 123 Item 12. Certain Relationships and Related Party Transactions ...... 125 PART IV – CORPORATE GOVERNANCE ...... 125 Item 13. Corporate Governance portion of the Annual Report ...... 125 Item 14. Sustainability Report ...... 127 PART V – EXHIBITS AND SCHEDULES ...... 128 Item 15. Exhibits and Reports on SEC Form 17-C (Current Reports) ...... 128 Item 16. Signatures ...... 128 Item 17. Index to Financial Statements and Supplementary Schedules ...... 130 i. Exhibit I - 2019 Audited Financial Statements ...... 130 ii. Exhibit II - Supplementary Schedules ...... 130

PART I – BUSINESS AND GENERAL INFORMATION

Item 1. Description of Business

(A) Business Development

Metro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in the Philippines and registered with the Philippine Securities and Exchange Commission (SEC) on March 20, 2006 as an investment holding company. MPIC’s common shares of stock are listed in and traded through the Philippine Stock Exchange (PSE). On August 6, 2012, MPIC launched Sponsored Level 1 American Depositary Receipt (ADR) Program with Deutsche Bank as the appointed depositary bank in line with the Parent Company’s thrust to widen the availability of its shares to investors in the United States.

The principal activities of the Parent Company’s subsidiaries and equity method investees are described in Notes 1, 10 and 40 of the attached 2019 Audited Consolidated Financial Statements. The Parent Company and its subsidiaries are collectively referred to as “the Company”.

Metro Pacific Holdings, Inc. (MPHI) owns 41.9% of the total issued and outstanding common shares of MPIC as at December 31, 2019 and 41.9% of the total issued shares (or 42.0% of the total outstanding common shares) as at December 31, 2018. As sole holder of the voting Class A Preferred Shares, MPHI’s combined voting interest as a result of all of its shareholdings is estimated at 55.0% as at December 31, 2019 and 2018 (see Note 20, Equity to the attached 2019 Audited Consolidated Financial Statements).

MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH; 60.0% interest), Intalink B.V. (26.7% interest) and First Pacific International Limited (FPIL; 13.3% interest). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries Intalink B.V. and FPIL, holds 40.0% equity interest in EIH and investment financing which under Hong Kong Generally Accepted Accounting Principles, require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as part of FPC group of companies in Hong Kong.

MPIC is a leading infrastructure holding company in the Philippines. MPIC’s intention is to maintain and continue to develop a diverse set of infrastructure assets through its investments in water, toll roads, power generation and distribution, healthcare services, light rail and logistics. MPIC is therefore committed to investing through acquisitions and strategic partnerships in prime infrastructure assets with the potential to provide synergies with its existing operations.

The list of MPIC’s subsidiaries is disclosed in Note 40, Consolidated Subsidiaries to the attached 2019 Audited Consolidated Financial Statements.

(B) Business of the Issuer

For management purposes, the Company is organized into the following segments based on services and products:

▪ Power, which primarily relates to the operations of Manila Electric Company (MERALCO) in relation to the distribution, supply and generation of electricity and Global Business Power Corporation (GBPC) in relation to power generation. The investment in MERALCO is held both directly and indirectly through Beacon Electric Asset Holdings, Inc (Beacon Electric)

while the investment in GBPC is held through Beacon Electric’s wholly-owned entity, Beacon PowerGen Holdings Inc. (BPHI).

▪ Toll operations, which primarily relate to operations and maintenance of toll facilities by Metro Pacific Tollways Corporation (MPTC) and its subsidiaries NLEX Corporation (NLEX Corp), Cavitex Infrastructure Corporation (CIC), and foreign investees, CII Bridges and Roads Investment Joint Stock Company (CII B&R), Don Muang Tollway Public Ltd (DMT) and PT Nusantara Infrastructure Tbk (PT Nusantara).

▪ Water, which relates to the provision of water and sewerage services by Maynilad Water Holding Company, Inc. (MWHC) and its subsidiaries Maynilad Water Services, Inc. (Maynilad) and Philippine Hydro, Inc. (PHI), and other water-related services by MetroPac Water Investments Corporation (MPW) and its foreign investees, B.O.O. Phu Ninh Water Treatment Plant Joint Stock Company (PNW) and Tuan Loc Water Resources Investment Joint Stock Company (TLW).

▪ Healthcare, which primarily relates to operations and management of hospitals and nursing colleges and such other enterprises that have similar undertakings by Metro Pacific Hospital Holdings, Inc. (MPHHI) and subsidiaries. MPHHI has been deconsolidated starting December 9, 2019 and thereafter, investment retained has been classified as an equity method investment.

▪ Rail, which primarily relates to Metro Pacific Light Rail Corporation (MPLRC) and its subsidiary, Light Rail Manila Corporation (LRMC), the concessionaire for the operations and maintenance of the Light Rail Transit – Line 1 (LRT-1) and construction of the LRT-1 south extension.

▪ Logistics, which primarily relates to the Company’s logistics business through MetroPac Logistics Company, Inc. (MPLC) and its subsidiaries.

▪ Others, which represent holding companies and operations of subsidiaries and other investees involved in real estate and provision of services and waste-to-energy projects.

The following tables show the breakdown of the Group’s revenues, core income and reported net income by major segment with Logistics included in others as it is too small to report separately:

Year Ended December 31, 2019 (in Php Millions) Toll HO and

Power Operations Water Healthcare Rail Total Others Consolidated Total revenue from external sales 24,648 18,503 25,469 14,658 3,287 86,565 1,592 88,157

MPIC's share in the Core Income 11,669 5,089 3,619 867 319 21,563 (5,961) 15,602

Operating companies contribution (%) 54% 24% 17% 4% 1% 100% − −

Non-recurring income (charges) (304) (331) (12,752) 25,837 (18) 12,432 (4,178) 8,254

Segment Income (Loss) 11,365 4,758 (9,133) 26,704 301 33,995 (10,139) 23,856

Year Ended December 31, 2018 (in Php Millions) Toll HO and

Power operations Water Healthcare Rail Total Others Consolidated Total revenue from external sales 27,026 15,486 22,894 12,950 3,310 81,666 1,363 83,029

MPIC's share in the Core Income 10,902 4,394 3,823 771 394 20,284 (5,224) 15,060

Operating companies contribution (%) 54% 22% 19% 4% 2% 100% − −

Non-recurring income (charges) 292 (184) (301) 138 (63) (118) (812) (930)

Segment Income (Loss) 11,194 4,210 3,522 909 331 20,166 (6,036) 14,130

Year Ended December 31, 2017 (in Php Millions) Toll HO and

Power operations Water Healthcare Rail Total Others Consolidated Total revenue from external sales 13,042 13,107 21,327 10,737 3,155 61,368 1,144 62,512

MPIC's share in the Core Income 9,378 3,901 3,733 685 283 17,980 (3,876) 14,104

Operating companies contribution (%) 52% 22% 21% 4% 1% 100% − −

Non-recurring income (charges) 260 1,118 (428) 4 (3) 951 (1,904) (953)

Segment Income (Loss) 9,638 5,019 3,305 689 280 18,931 (5,780) 13,151

Refer to Note 5, Operating Segment Information of the 2019 Audited Consolidated Financial Statements for the reconciliation of the segment information to the amounts reflected in the consolidated financial statements

While the Company’s geographic focus is still predominantly the Philippines, MPIC has started increasing its presence in Southeast Asia with its investments in Indonesia (PT Nusantara), Thailand (DMT) and Vietnam (CII B&R, Tuan Loc Water Resources Investment Joint Stock Company and BOO Phu Ninh Water Treatment Plant Joint Stock Company).

Except as stated in the succeeding paragraphs and in the discussion for each of MPIC’s significant subsidiaries, there has been no other business development such as bankruptcy, receivership or similar proceeding not in the ordinary course of business that affected MPIC for the past three years.

(B.1a) Power - MERALCO

Business Development Investment in MERALCO is held directly by MPIC at 10.5% and held indirectly through Beacon Electric at an effective interest of 35.0% as at December 31, 2019 and 2018, respectively.

MERALCO is the Philippines’ largest electric power distribution company, with franchise area covering 9,685 square kilometers. It provides power to more than 6.8 million customers in 36 cities and 75 municipalities including the whole of Metro Manila, provinces of Rizal, Cavite, and Bulacan, and parts of Pampanga, Batangas, Laguna and Quezon. Business establishments in the franchise area account for about 50% of the country’s Gross Domestic Product.

Through Clark Electric Distribution Corporation (Clark Electric), a 65%-owned subsidiary, MERALCO holds the power distribution franchise of Clark Special Economic Zone in Clark, Pampanga. Clark Electric’s franchise area covers 320 square kilometers and 2,518 customers as at December 31, 2019.

MERALCO is organized into two major operating segments, namely, power (distribution, generation and retail electricity supply) and other services.

Electricity distribution This is principally electricity distribution and supply of power on a pass-through basis covering all captive customers in the MERALCO and the Clark Electric franchise areas in Luzon. Electricity distribution within the MERALCO franchise area accounts for approximately 55% of the power requirements of the country.

Power generation MERALCO PowerGen Corporation (MGen), the power generation arm of MERALCO, has a 14% equity interest in Global Business Power Corporation (GBPC). GBPC owns a total of 854 Megawatt (MW) (gross) of coal and diesel-fired power plants.

MGen owns an effective 28% equity in PacificLight Power Pte Ltd. (PacificLight Power) in Jurong Island, Singapore. PacificLight Power owns and operates a 2 x 400 MW combined cycle turbine power plant mainly fueled by liquefied natural gas (“LNG”).

MGen, through San Buenaventura Power Limited (SBPL), a 51% owned joint venture entity, constructed and owns a 455 MW (net) supercritical coal-fired power plant in Mauban, Quezon. The Power Supply Agreement (PSA) with MERALCO was approved by the Energy Regulatory Commission (ERC) on May 19, 2015. The power plant began commercial operations on September 26, 2019.

MGen is developing a 2 x 600 MW (net) coal-fired power plant in Atimonan, Quezon through its wholly-owned subsidiary, Atimonan One Energy, Inc. (A1E). It will be the first ultra- supercritical coal-fired facility to be built in the country. A1E shall participate in a Competitive Selection Process (CSP) to be conducted by MERALCO for a 1,200 MW greenfield power plant capacity. In the meantime, advance site preparation and early engineering are being done in order to meet the targeted operations date.

A1E is classified as a Committed Project of National Significance by the Department of Energy (DOE) and has the requisite Department of Environment and Natural Resources (DENR) approvals and permits. It is also recognized by the Board of Investments (“BOI”) as a registered Pioneer Project.

MGen Renewable Energy, Inc. (MGreen), a wholly owned subsidiary of MGen was incorporated and registered with the SEC on June 6, 2019 to engage in the development of renewable projects.

On December 5, 2019, MGen acquired 70% of Nortesol III Inc. (“NorteSol”), a company incorporated in the Philippines and engaged in the development, construction and operation of power plant and related facilities using renewable energy system and hybrid energy system. Nortesol is currently developing a 110 MW dc/90 MWac floating facility in Laguna de Bay and waiting for the Laguna Lake Development Authority leasing policy.

Retail Electric Supply This covers the sourcing and supply of electricity to qualified contestable customers. MERALCO and Clark Electric serve as local retail electricity suppliers within their franchise area under a separate business unit, MPower and Cogent Energy, respectively. Under Retail Competition and Open Access (RCOA), qualified contestable customers who opt to switch to contestability and elect to be among contestable customers may source their electricity supply from any retail electricity suppliers, including MPower and Cogent Energy.

Other Services The other services segment is involved principally in electricity-related services, such as; electro- mechanical engineering, construction, consulting and related manpower services, e-transaction and bills collection, telecoms services, rail-related operations and maintenance services, insurance and re-insurance, e-business development, power distribution management, energy systems management and harnessing renewable energy.

Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract MERALCO holds a congressional franchise under Republic Act (RA) No. 9209 effective June 28, 2003. RA No. 9209 grants MERALCO a 25-year franchise valid through June 28, 2028 to construct, operate, and maintain the electric distribution system in the cities and municipalities of Bulacan, Cavite, Metro Manila, and Rizal and certain cities, municipalities, and barangays in the provinces of Batangas, Laguna, Pampanga, and Quezon. On October 20, 2008, the ERC, granted MERALCO a consolidated Certificate of Public Convenience and Necessity for the operation of electric service within its franchise coverage, effective until the expiration of MERALCO’s congressional franchise. MERALCO’s participation in Retail Electricity Supply (RES) is through its local RES unit, MPower. In 2017, the ERC granted MERALCO’s wholly owned subsidiary, Vantage Energy Solutions and Management, Inc. (Vantage), Solvre, Inc., a wholly owned subsidiary of MGen, and MeridianX Inc., a wholly owned subsidiary of Comstech Integration Alliance, Inc., distinct RES licenses to operate as retail electricity suppliers in Luzon and Visayas.

Principal Products or Services MERALCO’s and Clark Electric’s markets are categorized into four sectors and the consolidated relative contributions to sales of each are as follows:

Contribution in terms of Sales Volume 2019 2018 Commercial 39.43% 39.41% Residential 31.13% 30.59% Industrial 29.14% 29.69% Streetlights 0.30% 0.31% Total 100.00% 100.00%

Dependence on Licenses and Government Approval MERALCO was among the first entrants to the Performance-Based Regulation (PBR). Rate- setting under PBR is governed by the Rules for Setting Distribution Wheeling Rates (RDWR). The PBR scheme sets tariffs based on the regulated asset base of the Distribution Utility (DU), and the required operating and capital expenditures to meet operational performance and service level requirements responsive to the need for adequate, reliable and quality power, efficient service, and growth of all customer classes in the in the franchise area as approved by the ERC. PBR also employs a mechanism that penalizes or rewards a DU depending on its network and service performance. Rate filings and setting are done every regulatory period (RP) where one RP consists of four regulatory years. A regulatory year (RY) begins on July 1 and ends on June 30 of the following year. Refer to Note 30 to the 2019 Audited Consolidated Financial Statements containing disclosures on: Performance-Based Regulations; Maximum Average Price (“MAP”) for MERALCO’s 3rd RP; MERALCO’s Interim Average Rate beginning RY 2016; MERALCO’s CAPEX for 4th RP and RY 2020; and MERALCO’s 4th and 5th RP Reset Application.

Application for Recoveries MERALCO also files with the ERC its applications for recoveries of advances for pass-through costs. These advances consist mainly of unrecovered or differential generation and transmission charges technically referred to as under-recoveries, which are recoverable from the customers, as allowed by law.

Customers MERALCO’s customers are mass-based such that the loss of a few customers would not have a material adverse effect on MPIC and its subsidiaries taken as a whole. There is also no single customer that accounts for twenty percent (20%) or more of the segment’s sales.

Competition Distribution of electricity at its usable voltage to end-consumers is performed by investor-owned electric utilities, notably MERALCO and Clark Electric, a few local government-owned utilities and numerous electric cooperatives which sell to households as well as commercial and industrial enterprises located within their franchise areas at retail rates regulated by the ERC. Given that distributors are assigned franchise areas, as well as the significant investment involved in the setting-up of a distribution network, MERALCO and Clark Electric have no significant competition in their franchise areas.

At 78 months since the start of RCOA, a good number of contestable customers have so far decided to wait for mandatory contestability and have therefore remained as captive customers, which continue to be served by the DU. In terms of demand, however, almost half of the estimated contestable customer demand has opted to switch into the competitive market. This comprises mostly large customers with high load factors, who were able to obtain competitively priced energy from competing retail electricity suppliers. Of the 1,088 qualified and registered contestable customers, 440 or 42% in terms of number of accounts have opted to be served by MPower, the MERALCO RES unit. MPower, with a group of highly competent engineers and commercial executives with broad experience in the power industry, including load profiling and forecasting, energy operations and management, and its customer-centric product and price offerings, among others, has created significant value for its customers through its service offerings and reliable supply portfolio.

Distribution MERALCO and Clark Electric have distribution facilities comprising of land, various buildings and improvements, as well as property and equipment such as substation equipment, towers, poles, underground conduit and conductors and overhead conductors and devices.

Source and availability of raw materials MERALCO and Clark Electric do not operate their own generation capacity. Both purchase all of the power they distribute from the power generators under PSA and Power Purchase Agreements or through the Wholesale Electricity Sport Market (WESM). WESM is a venue where suppliers and buyers trade electricity as a commodity.

(B.1b) Power - GBPC

Business Development/ Products and Services GBPC is an independent power producer with operations in the Visayas, Mindoro and Mindanao. Its generation facilities provide power to fast-growing, dynamic regions, ramping up economic growth and transforming communities.

The largest clean coal-fired power plants located in Iloilo City, with a combined capacity of 314 MW, are operated by Panay Energy Development Corporation (PEDC), in which GBP holds an 89.3% beneficial interest. PEDC has operated a 164 MW clean coal-fired power plant to serve the energy requirement of Panay and the rest of the Visayas region since 2011. A new 150 MW coal-fired circulating fluidized bed (CFB) plant in Panay began commercial operations during the first quarter of 2017. Upon completion of rectification works, the plant was accepted on May 31, 2018.

The second largest power generation facility is the 246 MW clean coal-fired power plant in Toledo City, Cebu, which is operated by Cebu Energy Development Corporation (CEDC). CEDC is a joint venture between Abovant Holdings, Inc. and Global Formosa Power Holdings, Inc. (GFPHI) with GFPHI having 56.0% beneficial interest. GBPC, having 93.2% ownership stake in

GFPHI, effectively has 52.2% interest in CEDC. This facility is the first commercial clean coal power plant in the Philippines.

Both the PEDC and CEDC plants utilize circulating fluidized bed boiler technology that produces very low levels of sulfur dioxide and nitrogen oxide and captures most solid emissions.

GBPC’s other power generation facilities consist of a 60 MW coal facility, an 82 MW coal facility and a 40 MW fuel oil facility operated by Toledo Power Co. (TPC); a 72 MW fuel oil facility, a 20 MW fuel oil facility, a 7.5 MW fuel oil facility and a 5 MW fuel oil facility operated by Panay Power Corporation (PPC); and a 7.5 MW fuel oil facility operated by GBH Power Resources Inc. (GPRI).

In 2017, GBPC expanded to Mindanao, gaining a foothold in the island through a 50% equity in Alsons Thermal Energy Corporation (ATEC), the holding company of Alsons Consolidated Resources, Inc.’s (ACR) baseload coal-fired power plants. ATEC owns a 75% stake in Sarangani Energy Corporation, which operates a 2x118.5 MW baseload coal-fired plant in Maasim, Sarangani Province, with the second unit declaring commercial operations on October 10, 2019. ATEC also holds 100% equity in San Ramon Power, Inc. (SRPI) which is developing a baseload coal-fired plant in Zamboanga City with a gross capacity of 120 MW.

Distribution Methods of Products and Services GBPC, through its power generation companies, sells electricity through its bilateral power supply agreements or the Wholesale Electricity Spot Market (WESM).

GBPC enters into bilateral off-take arrangements through Electric Power Purchase Agreements (EPPA) between its generation subsidiaries and the power-off-takers such as DUs, electric cooperatives and other industrial off-takers. An EPPA provides for a specific amount of capacity to be allocated to each customer, with provisions that allow for the periodic revision of the amounts in the agreement.

GBPC, through its Global Energy Supply Corporation (GESC), a retail electricity supplier accredited by the ERC, provides power to big-load customers also known as “Contestable Customers”. This was made possible through the execution of Retail Supply Contracts.

GBPC also enters into Ancillary Service Procurement Agreements (ASPA) with the National Grid Corporation of the Philippines (NGCP) to help maintain a reliable electric grid system.

New Products and Services As a committed partner to nation building, the company explores expansion projects that support the development of high growth and emerging markets.

SEC’s second 118.5 MW coal-fired plant commenced commercial operations on October 10, 2019. With this, SEC currently serves more than six million people from ten provinces and twelve cities in Mindanao, covered by the franchise areas of its contracted distribution utilities.

Competition GBPC’s power generation facilities are subject to competition from existing and future power generation plants that supply electricity to the Visayas grid. GBPC believes that its experience in designing, building and operating power plant projects in Visayas and Mindoro is stronger than any of its competitors in the region.

The key competitor in the region is the Unified Leyte Geothermal Power Plants, which were operated by the Philippine Government through National Power Corporation (NPC). These power

plants are now privatized. The Leyte plants service both the Luzon and Visayas grids. Geothermal power plants are significant competitors because they can produce power at a relatively lower cost than fossil-fuel and coal-based producers. Specific to GBPC’s facilities in Iloilo, Palm Concepcion Power Corporation’s 135 MW coal-fired power plant remains to be its biggest competitor.

GBPC will face competition in both the development of new power generation facilities and the acquisition of existing power plants, as well as the financing for these activities. Factors such as the performance of the Philippine economy and the possibility of a shortfall in the Philippines’ energy supply have attracted many potential competitors, including multinational development groups and equipment suppliers, to explore opportunities in the development of electric power generation projects in the Philippines. Accordingly, competition for and from new non-renewable and renewable power projects has increased in line with the expected long-term economic growth of the Philippines. For instance, in Toledo City, Cebu, Therma Visayas Inc. started operating the first 170 MW coal-fired power plant in the first half of the year, with the second one undergoing testing and commissioning. As for GBPC, the Company is looking at several projects to expand its energy portfolio through investments in renewable technologies.

Sources and Availability of Raw Materials and the Names of Principal Suppliers GBPC has local and imported long-term Coal Supply Agreements with selected suppliers. GBPC gets the majority of its local coal supplies from Semirara Mining, while imported coal comes from international partners from Indonesia and Russia. See Note 29, Long-term Coal Supply Agreements to the 2019 Audited Consolidated Financial Statements.

Coal prices under these agreements are indexed to Global Newcastle Coal prices and are adjusted if the guaranteed coal qualities are not met but within the rejection limits. These coal qualities include calorific value, moisture, sulphur, ash and volatile matter. Coal procurement is being handled by GBPC’s Supply Chain Management Group, particularly, the Coal Trading Team in coordination with the Fuel Management Department.

Major Customers A summary of power off-taker customers having EPPAs with the generation subsidiaries as of December 31, 2019 is as follows:

Cebu Energy Development Corporation (CEDC) ▪ Visayan Electric Company, Inc. (VECO) ▪ Philippine Economic Zone Authority - Mactan Economic Zone I (PEZA-MEZ 1) ▪ Mactan Electric Company (MECO) ▪ Bohol I Electric Cooperative, Inc. (BOHECO 1) ▪ CEBU I Electric Cooperative, Inc. (CEBECO 1) ▪ CEBU II Electric Cooperative, Inc. (CEBECO 2) ▪ Balamban Enerzone Corporation (BEZ) ▪ National Grid Corporation of the Philippines (NGCP) ▪ Global Energy Supply Corp. (GESC) - Contestable Customers

Panay Energy Development Corporation (PEDC) ▪ Panay Electric Company, Inc. (PECO) ▪ Aklan Electric Cooperative, Inc. (AKELCO) ▪ Capiz Electric Cooperative, Inc. (CAPELCO) ▪ Antique Electric Cooperative, Inc. (ANTECO) ▪ Iloilo I Electric Cooperative, Inc. (ILECO 1) ▪ Iloilo II Electric Cooperative, Inc. (ILECO 2) ▪ Iloilo III Electric Cooperative, Inc. (ILECO 3)

▪ Iloilo Provincial Capitol ▪ Guimaras Electric Cooperative, Inc. (GUIMELCO) ▪ National Grid Corporation of the Philippines (NGCP) ▪ Manila Electric Company (MERALCO) ▪ Global Energy Supply Corp. (GESC) - Contestable Customers

Toledo Power Co. (TPC) ▪ Carmen Copper Corporation (Carmen Copper) ▪ CEBU III Electric Cooperative, Inc. (CEBECO 3) ▪ Philippine Mining Service Corp. (PMSC) – Bohol Facility ▪ Global Energy Supply Corp. (GESC) - Contestable Customers ▪ National Grid Corporation of the Philippines (NGCP)

Panay Power Corporation (PPC) ▪ Panay Electric Company (PECO) ▪ Iloilo I Electric Cooperative, Inc. (ILECO 1) ▪ Aklan Electric Cooperative (AKELCO ) ▪ Negros Occidental Electric Cooperative, Inc. (NOCECO) ▪ National Grid Corporation of the Philippines (NGCP)

GBH Power Resources Inc. (GPRI) ▪ Oriental Mindoro Electric Cooperative, Inc. (ORMECO)

Effect of Existing or Probable Government Regulations on the Business The following regulations may have significant impact on GBPC’s business operations:

Wholesale Electricity Spot Market (WESM) The WESM provides a venue through which independent power producers may sell power, and at the same time, distributors and wholesale consumers can purchase electricity where no bilateral contract exists between the two. In June 2002, the Department of Energy (DOE), in cooperation with electric power industry participants, promulgated detailed rules for the WESM thereby allowing the creation of the Philippine Electricity Market Corporation (which will operate the market) and providing a framework for the establishment of the WESM. These rules set the guidelines and standards for participation in the market, reflecting accepted economic principles and providing a level playing field for all electric power industry participants, and procedures for establishing the merit order for dispatch for each trading period. The WESM began market operations in 2006 for Luzon and 2010 for Visayas. GBPC’s subsidiaries, PEDC, CEDC, PPC and TPC, have been registered participants of the WESM since 2011. On June 26, 2017, PEMC commenced trial operations of WESM in Mindanao and is targeted to be fully-operational by first semester of 2020.

Below are various circulars, issuances and proposed amendments affecting WESM members:

• Shorter Trading and Dispatch Interval. To further enhance the design and operation of WESM, DOE Circular No. 2015-10-001 series of 2015 called for a number of changes which included a shorter trading and dispatch interval from one (1) hour to five (5) minutes.

• Price Determination Methodology. Substituting Philippine Electricity Market Corporation (PEMC) as Applicant, the Independent Electricity Market Operator of the Philippines, Inc. (IEMOP), also filed an Application on 16 May 2017 for the approval of the Price Determination Methodology for the WESM under ERC Case No. 2017-042 RC.

Some enhancements in the proposed rule are the shortening of scheduling and pricing intervals from one hour to five minutes and ex ante only pricing, automatic pricing re-run, and preferential scheduling in the event that dispatch targets need to be restricted.

• Ancillary Services – Causers Pay Mechanism. DOE has drafted a Policy for the Effective Utilization of Ancillary Services in the Grid through Causer Pays Mechanism which has yet to be formalized in a memorandum circular. The proposed policy seeks to recover equitably the cost from the WESM member that requires or caused to require the use of Ancillary Services. The National Grid Corporation of the Philippines (NGCP), for its part, filed a Petition for the Approval of Amended Ancillary Services – Cost Recovery Mechanism (AS-CRM) on September 14, 2018. The amendment aims to reflect the new provision on Ancillary Services under the 2016 Philippine Grid Code and for AS-CRM to be consistent with the Open Access Transmission Service (OATS) Rules.

• Renewable Energy Market (REM) Rules. On 4 December 2019, the DOE issued Department Circular No. DC2019-12-0016 entitled Promulgating the Renewable Energy Market Rules (the “REM Rules”). The REM Rules establish the basic rules, requirements and procedures that govern the operation of the Renewable Energy Market (REM), which is a market for the trading of Renewable Energy Certificates (RECs). The REM is intended as a venue for mandated participants to comply with the Renewable Portfolio Standards (RPS) requirements. Among the mandated participants are: DUs for their captive customers, Suppliers of electricity for the Contestable Market, generating companies to the extent of their actual supply to directly connected customers, RE generation companies registered with the WESM, net metering for RE participants and Green Energy Option Program (GEOP) participants.

• Ancillary Services Rules. On 4 December 2019, the DOE issued Department Circular No. DC2019-12-008 entitled Adopting a General Framework Governing the Provision and Utilization of Ancillary Services in the Grid (the “AS Rules”). The AS Rules prescribe the required levels of AS per trading interval per grid. It provides the mandatory AS capability testing of all generating facilities.

The AS Rules prescribes the manner of procurement of AS prior to and after the commercial operation of the WESM Reserve Market. Essentially, prior to such operation: Regulating, Contingency, Dispatchable Reserves, Reactive Power Support AS and Black Start AS shall be procured through firm contracts only. Upon commercial operation of the WESM Reserve Market, the System Operator shall procure Regulating, Contingency and Dispatchable Reserves through firm contracting and the Reserve Market. Reactive Power Support AS and Black Start AS shall be procured through firm contracts only.

The AS Rules sets 26 March 2020 as the deadline for the co-optimization of the energy and reserves in the WESM, but subject to certain criteria. The existing cost-recovery mechanism for AS shall continue until a new mechanism is adopted by the DOE and/or the ERC.

The AS Rules provides that the Systems Operator is shall re-negotiate, as necessary, its existing contracts with AS providers in accordance with the AS Rules.

Retail Competition and Open Access The EPIRA likewise provides for a system of open access on transmission and distribution wires, under which the National Grid Corporation of the Philippines (NGCP) is the transmission operator, and the DUs may not refuse the use of their wires for the delivery of electricity by

qualified persons, subject to the payment of transmission or distribution wheeling charges. Commercial operations of the retail competition and open access commenced on June 26, 2013.

The ERC issued ERC Resolution No. 10, series of 2016 on May 12, 2016 which contained the Revised Rules on Contestability. Under said rules, the Threshold Reduction Date was set to June 26, 2016, where end-users with demand of at least 750kW shall be allowed to contract with any Retail Electricity Supplier (RES). On the other hand, for end-users with demand of at least 1MW, mandatory contestability was set to December 26, 2016. Lastly, the lowering of the threshold to cover end-users with demand of at least 500kW was set on June 26, 2018. However, the date for mandatory contestability for end-users with demand of at least 1MW was later moved to February 26, 2017 through ERC Resolution No. 28, series of 2016, issued on November 15, 2016, due to various issues on implementation of mandatory contestability.

The implementation of mandatory contestability has further been suspended by the issuance of a Temporary Restraining Order (TRO) on February 21, 2017 by the Supreme Court (SC). Acting on a petition filed by the Philippine Chamber of Commerce and Industry (PCCI), San Beda College Alabang, Inc., Ateneo de Manila University, and the Riverbanks Development Corp., the SC ruled that there was no legal basis for the mandatory migration being ordered under RCOA, and that EPIRA only provides for voluntary migration of end-users to the contestable market.

In response, the ERC has filed a motion seeking to lift the TRO and clarify the scope of the SC’s ruling. Particularly, the ERC asked if it can lower the threshold to 750 kW for contestable customers, and if it can still issue new RES licenses to qualified energy industry players. To date, no further resolutions have been issued by the SC.

Notwithstanding above pending case before the SC, the DOE issued Department Circular 2017- 12-0013 on November 29, 2017 which provides policy on RCOA that allows voluntary participation of Contestable Customers (CCs) with lower threshold. CCs with monthly average peak demand of 750 kW and above allows participation in the retail market on a voluntary basis upon the effectivity of the circular, with 500 kW to 749 kW monthly average peak demand effective June 26, 2018 and with no less than 500 kW monthly average peak demand effective December 26, 2018 or an earlier date set by the ERC.

GBPC, through its wholly-owned subsidiary GESC, is able to participate in the retail competition open access initiative to directly supply electricity to end users, including major industrial customers. As of December 31, 2019, GESC has a contracted capacity of 85 MW.

Tax Reform for Acceleration and Inclusion Act (TRAIN) The first package of the government’s tax reform package - the Tax Reform for Acceleration and Inclusion Act (TRAIN) - was signed into law by President Rodrigo R. Duterte last December 19, 2017.

The TRAIN Law, or Republic Act No. 10963, introduces sweeping tax reforms, including the restructuring of excise tax base on mineral products, particularly coal. The tax reform increased the excise tax of coal from P=10 to P=50 per metric ton effective January 1, 2018; P=100 effective January 1, 2019; and P=150 effective January 1, 2020. Likewise, 12-percent value added tax (VAT) will be added on the NGCP’s wheeling charge.

The House of Representatives, under the 18th Congress of the Philippines, approved on third and final reading House Bill No. 4157 or the Corporate Income Tax and Incentive Rationalization Act (“CITIRA”) last September 13, 2019, and transmitted the bill to the Senate on September 16, 2019. CITIRA is the second package of the TRAIN law. This bill proposes to gradually lower the corporate income tax rate and rationalize corporate tax incentives.

Proposed Comprehensive Income Tax and Incentives Rationalization Act (CITIRA) Congress is tacking various bills on the CITIRA. Among the notable provisions of the proposed CITIRA Bill are as follows:

• Income Tax Holiday (ITH): for existing registered enterprises, the ITH shall be the remaining ITH grant or 5 years ITH, whichever is shorter. For newly-registered enterprises, ITH shall be 3 years (for National Capital Region (NCR)), 4 years for provinces near NCR, and 6 years for other locations.

• Reduced Income Tax Rate After ITH: for existing registered enterprises, 5% tax on gross income in lieu of all taxes (after expiration of ITH) with time limit ranging from 2-5 years. For newly-registered enterprises, reduced income tax rate of 18% (from 2020) and gradually reducing to 13% (by 2030) with time limit ranging from 2-5 years.

• Income Tax on Domestic Corporation: 29% starting 1 January 2020 and reducing gradually to 20% by 2029.

The CITIRA Bill is pending review and deliberation of the Senate Committee on Ways and Means.

Renewable Energy Act of 2008 The Renewable Energy Act of 2008 (RE Law) is a landmark legislation and is considered the most comprehensive renewable energy law in Southeast Asia. The RE Law was signed by then President Gloria M. Arroyo on December 16, 2008 and took effect on January 30, 2009.

One of the main objectives of the RE Law is to accelerate the exploration and development of renewable energy resources such as, but not limited to, biomass, solar, wind, hydro, geothermal and ocean energy sources, including hybrid systems, to achieve synergy self-reliance, through the adoption of sustainable energy development strategies to reduce the country’s dependence on fossil fuels and thereby minimize the country’s exposure to price fluctuations in the international markets, the effects of which spiral down to almost all sectors of the economy.

The RE Law also offers key fiscal and non-fiscal incentives to developers of renewable energy facilities, including hybrid systems, subject to certification from DOE and in consultation with the Board of Investments (BOI). All fiscal incentives apply to all RE capacities upon the RE Law becoming effective. Key incentives are as follows:

▪ income tax holiday for the first seven years of operation; ▪ duty-free importations of RE machinery, equipment and materials, effective within ten years upon issuance of certification, provided that the said machinery, equipment and materials are directly, exclusively and actually used in the RE facilities; ▪ special realty property tax rates on equipment and machinery not exceeding 1.5% of the net book value; ▪ net operating loss carry-over for a period of seven years; ▪ corporate income tax rates of 10% after the income tax holiday; ▪ accelerated depreciation for the purposes of computing taxable income; ▪ zero percent value-added tax on the sale of fuel or power generated from emerging energy sources and purchases of local supply of goods, properties and services of renewable energy facilities; ▪ cash incentives for renewable energy developers for missionary electrification; ▪ tax exemption, applicable to both value-added tax and corporate income tax, on carbon emission credits; and ▪ tax credits on domestic purchases of capital equipment and services.

The non-fiscal incentives or market mechanism include the Renewable Portfolio Standard (RPS), which sets a minimum percentage of generation from eligible renewable energy resources; the Feed-in Tariff System, which authorizes a fixed tariff for electricity produced from emerging renewable energy resources; the Renewable Energy Market (REM), which will operate in the WESM to facilitate compliance with the Renewable Portfolio Standard; and the Green Energy Option, which allows end-users to contract their energy requirements directly from renewable energy facilities. On December 22, 2017, DOE issued Department Circular No. DC2017-12-0015 “Promulgating the Rules and Guidelines Governing the Establishment of the RPS for On-Grid Areas” and on August 24, 2018, DOE issued Department Circular No. DC2018-08-0024 “Promulgating the Rules and Guidelines Governing the Establishment of the RPS for Off-Grid Areas.” On July 18, 2018, DOE issued Department Circular No. DC2018-07-0019 “Promulgating the Rules and Guidelines Governing the Establishment of the Green Energy Option Program.”

GBPC is exploring opportunities in renewable energy facilities, such as hydro, biomass and solar facilities, to complement its existing portfolio and bring down its average cost of generation.

Licenses Under the EPIRA, no person or entity may engage in the generation of electricity unless such person or entity has complied with the standards, requirements and other terms and conditions set by the ERC and has received a Certificate of Compliance (COC) from the ERC to operate facilities used in the generation of electricity. Pending issuance of the COC, the ERC may issue a Provisional Authority to Operate (PAO) to enable the entity to operate its generation facility.

The power generation companies of GBPC possess the required COCs.

Government Approval Process As set forth in the EPIRA, power generation is not considered a public utility operation. Thus, an entity engaged or intending to engage in the generation of electricity is not required to secure a franchise. However, no person or entity may engage in the generation of electricity unless such person or entity has complied with the standards, requirements and other terms and conditions set by the ERC and has received a COC from the ERC to operate facilities used in the generation of electricity. A COC is valid for a period of five years from the date of issuance.

In addition to the COC requirement, a generation company must comply with technical, financial and environmental standards. A generation company must ensure that its facilities connected to the grid meet the technical design and operational criteria of the Grid Code and Distribution Code promulgated by the ERC. In this connection, the ERC has issued “Guidelines for the Financial Standards of Generation Companies,” which sets the minimum financial capability standards for generation companies. Under the guidelines, a generation company is required to meet a minimum annual interest cover ratio or debt service coverage ratio of 1.5x throughout the period covered by its COC. For COC applications and renewals, the guidelines require the submission to the ERC of, among other things, comparative audited financial statements, a schedule of liabilities, and a five-year financial plan. For the duration of the COC, the guidelines also require a generation company to submit audited financial statements and forecast financial statements to the ERC for the next two financial years, as well as other documents. The failure by a generation company to submit the requirements prescribed by the guidelines may be grounds for the imposition of fines and penalties.

Upon the introduction of retail competition and open access, the rates charged by a generation company will no longer be regulated by the ERC, except rates for Captive Markets (which are determined by the ERC). In addition, since the establishment of the WESM, generation

companies are required to comply with the membership criteria and appropriate dispatch scheduling as prescribed under the WESM Rules.

In the course of developing a power plant, permits, approvals and consents (including environmental licenses) must be obtained from relevant national, provincial and local government authorities relating to site acquisition, construction and operation.

Energy Investment Coordination Committee In June 2017, President Rodrigo R. Duterte signed Executive Order (EO) No. 30 creating the Energy Investment Coordinating Council (EICC) which aims to streamline the regulatory procedures affecting energy projects of national significance. The EICC is an inter-agency group to be chaired by a representative from the DOE.

A salient provision of EO 30 is that it classifies energy projects with capital investment of at least P=3.5 billion as Energy Projects of National Significance (EPNS), and government agencies are required to act upon such applications within a 30-day period. Other criteria for energy projects to be classified as EPNS include significant contribution to the country’s developments, significant potential contribution to the country’s balance of payments, significant impact on the environment, complex technical processes and engineering designs, and significant infrastructure requirements.

Energy Virtual One Stop Shop On 8 March 2019, Congress enacted RA No. 11234 or the Energy Virtual One-Stop Shop (EVOSS) essentially mandating the creation of an online system that allows the coordinated submission and processing of all applications for permits and/or certifications for new power generation, transmission and distribution projects. It provides for a specific timeframe for each agency to issue an action (either a decision approving or rejecting an application. Compliance with the timeframe is mandatory and punishable by administrative penalties. Failure to act is generally deemed an approval of the application. Among other agencies, the following departments and their attached agencies are mandated to act within the following specific timeframes:

• DOE and its attached agencies - 60 calendar days. • ERC - 270 calendar days • Department of Agrarian Reform (DAR) and its attached agencies - 75 calendar days. • Department of Environment and Natural Resources (DENR) and its attached agencies - 120 calendar days. • National Water Resources Board (NWRB) - 60 calendar days.

The prescribed timeframe shall be the total number of days for the mother agency and its attached agencies, at both national and local levels, and GOCCs as a whole to release actions on the applications. The time frame shall be counted from the complete submission of documentary requirements.

Costs and Effects of Compliance with Environmental Laws The operations of GBPC’s power generation facilities are subject to a broad range of environmental laws and regulations. These laws and regulations impose controls on air and water discharges, the storage, handling, discharge and disposal of fuel, chemicals and wastes, and other aspects of the operations. GBPC has incurred operating costs and capital expenditures and will continue to do so to comply with these environmental laws and regulations.

GBPC has undertaken carbon sink projects and has allocated funds for Energy Regulation No. 1- 94 to finance reforestation, watershed management, as well as health and environment

enhancement projects. GBPC also actively seeks ISO accreditations, and all power generation facilities are certified under ISO 14001:2015 (Environmental Management System).

Environmental Laws GBPC’s power generation operations follow laws, regulations and policies that concern environmental protection and sustainability. Each plant consistently submits periodic Self- Monitoring Report (SMR), Compliance Monitoring Report (CMR) and Compliance Monitoring and Validation Reports (CMVR) to the Environmental Management Bureau Central and Regional Offices to ensure that its operations, which include but are not limited to water discharges and air emissions, comply with the requirements of R.A.9275 Clean Water Act and R.A. 8749 Clean Air Act. These monitoring reports are performed in the presence of Multi-Partite Monitoring Team (MMT). The MMT is composed of representatives from various government and non- government institutions who are tasked to conduct regular monitoring of potential sources of pollution and help recommend solutions.

On October 8, 2018, the DENR-EMB Office of the Regional Director of Region VI issued interim guidelines in handling, storage, transport, and offsite utilization of coal combustion residual. Currently, PEDC under the jurisdiction of DENR Region VI has faithfully complied with the requirements mentioned in the guidelines.

(B.1c) Others – Energy-from-Waste

Dependence on Licenses and Government Approval With no comparable proposals to challenge the Quezon City Solid Waste Management Facility Project, the MPIC-led consortium with Covanta Energy, LLC and Macquarie Group, Ltd. is waiting for the issuance of the Notice of Award from the Quezon City Government as of February 26, 2020. The waste treatment facility will convert up to 3,000 metric tons a day of municipal waste into 36 MW (net) of electricity.

Status of any publicly announced product or services In November 2018, MPIC through its wholly owned subsidiary Metpower Venture Partners Holdings, Inc. signed agreements with Dole Philippines Inc. (Dole) to design, construct and operate integrated waste-to-energy (WTE) facilities specifically for Dole. This project uses the derived biogas from the anaerobic digestion of fruit waste to supply a portion of the diesel and power requirements of Dole’s canneries located in South Cotabato. The biogas facilities, with construction completion expected within 2020, will have a capacity of 5.7 MW of clean energy for Dole and reduce its CO2 emission by 100,000 tons per year.

This project was granted a 50% CAPEX subsidy by the Japanese Ministry of Environment under the Joint Credit Mechanism Program.

(B.2) Toll Operations

Business Development The Company holds its toll road assets through MPTC.

As at December 31, 2019, MPTC’s subsidiaries hold the following concession rights:

▪ Through its 75.1% effective interest in NLEX Corp: o Construction, operation and maintenance of the North Luzon Expressway (NLEX) o Management, operation and maintenance of the Subic-Clark-Tarlac Expressway (SCTEX).

o Construction, operation and maintenance of the NLEX-South Luzon Expressway Connector Road (Connector Road). ▪ Through CIC, which holds the concession rights for the operation and maintenance of the Manila-Cavite Toll Expressway (CAVITEX). ▪ Through its wholly owned subsidiary, MPCALA Holdings, Inc. (MPCALA), which was granted the concession to design, finance, construct, operate and maintain the 47-km Cavite Laguna Expressway (CALAX). ▪ Through its wholly owned subsidiary, Cebu Cordova Link Expressway Corporation (CCLEC), which holds the concession rights for the construction, the operation and maintenance of the Cebu-Cordova Link Expressway (CCLEX).

MPTC also has the following foreign investments:

▪ 29.4% stake in DMT. DMT is a major toll road operator in Bangkok, Thailand. The concession for DMT runs until 2034 for the operation of a 21.9-kilometer six-lane elevated toll road from central Bangkok to Don Muang International Airport and further to the National Monument, north of Bangkok, Thailand. ▪ 44.9% effective interest in CII B&R. CII B&R has various road and bridge projects in and around Ho Chi Minh City and its current portfolio includes 105.0 kilometers of roads operating at approximately 41,000 vehicles per day and roads under pre-construction or on-going construction covering a total of 40.1 kilometers. MPTC acquired CII B&R in 2015 through an equity investment and financing transaction with Ho Chi Minh City Infrastructure Investment Joint Stock Co. (CII) of Vietnam that effectively provided MPTC a 44.9% minority equity interest in CII B&R. ▪ 76.3% effective interest in PT Nusantara. PT Nusantara is a leading infrastructure company in Indonesia. Nusantara’s areas of operations comprise of toll roads, ports, water and energy which serve over 103 million customers, 550,000 households, 266 factories and 210 vessels. ▪ PT Nusantara’s concession assets comprise of toll roads, water concession rights and power supply. Toll road concession rights cover the following toll road sections: (a) Tallo-Hasanuddin Airport; (b) Soekarno Hatta Harbor – Pettarani; (c) Pondok Ranji and Pondok Aren. The water concession rights pertain to right to treat and distribute clean water in the Serang District, Banten and Province of North Sumatera in Indonesia. The power supply services pertain to the biomass powerplant located in Jalan Raya Wajok Hulu, West Kalimantan.

Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract The toll segment’s concession comprise of the rights, interests and privileges to finance, design, construct, operate and maintain toll roads, toll facilities and other facilities generating toll-related and non-toll related income (see Note 29, Significant Contracts, Agreements and Commitments - Concession Arrangements to the attached 2019 Audited Consolidated Financial Statements).

NLEX Corp holds the concession for the largest toll road in the Philippines, the NLEX Project. The NLEX currently spans approximately 103.4 kilometers and services an average of 290,000 vehicles per day. The NLEX is the main infrastructure backbone that connects Metro Manila to 15 million people in Central and Northern Luzon. NLEX Corp has been in commercial operations since February 2005 and has since established the NLEX brand as the standard for toll road operations and management excellence in the Philippines. In February 2019, NLEX Harbor Link Segment 10, a segment of NLEX, opened to the public. C3-R10 Section of NLEX Harbor Link Segment 10 had its partial opening in February 2020.

On February 9, 2015, NLEX Corp received the Notice of Award from the Bases Conversion and Development Authority (BCDA) for the management, operation and maintenance of the

94-kilometer SCTEX. On February 26, 2015, NLEX Corp and BCDA entered into a Business Agreement involving the assignment of BCDA’s rights and obligations relating to the management, operation and maintenance of SCTEX as provided in the SCTEX concession (Toll Operation Agreement or “TOA”). The assignment includes the exclusive right to use the SCTEX toll road facilities and the right to collect toll until October 30, 2043. The management, operation and maintenance of the SCTEX was officially turned over to NLEX Corp on October 27, 2015.

NLEX Corp also holds the concession right for the Connector Road. The Connector Road is a four (4) lane toll expressway structure with a length of eight (8) kilometers all passing through and above the right of way of the Philippine National Railways (PNR) starting NLEX Segment 10 in C3 Road Caloocan City and seamlessly connecting to SLEX through Metro Manila Skyway Stage 3 Project. The concession period shall commence on the commencement date and shall end on its thirty-seventh (37th) anniversary, unless otherwise extended or terminated in accordance with the Concession Agreement. The Connector Project is expected to be completed by 2021.

CIC holds the concession for the operation and maintenance of the CAVITEX. The first phase of the CAVITEX is a 14-km long toll road built in two segments running from Airport Road to Cavite. The concession period extends to 2033 for the originally built road and to 2046 for a subsequent extension. The second phase of the CAVITEX (C5 South Link Expressway), which will connect the C5 road in Taguig to one of the segments in the CAVITEX, commenced construction in June 2017 and is expected to be fully completed by 2022. Segment 3A-1, a segment of the C5 South Link, commenced operations in July 2019.

MPCALA was granted the concession to design, finance, construct, operate and maintain the CALAX. On July 10, 2015, MPCALA signed the Concession Agreement for the CALAX with the DPWH. Under the Concession Agreement, MPCALA is granted the concession to design, finance, construct, operate and maintain the CALAX, including the right to collect toll fees, over a 35-year concession period. The CALAX is a closed-system tolled expressway connecting the CAVITEX and the SLEX. Construction is ongoing with expected full completion by 2022. Sub- sections 6 to 8, a segment of CALAX, commenced operations in October 2019. Notice to start collection for the said sub-sections was received in February 2020.

CCLEC is granted the concession to design, finance, construct, operate and maintain the CCLEX, including the right to collect toll fees over a 35-year concession period. CCLEX, consists of the main alignment starting from the Cebu South Coastal Road and ending at the Mactan Circumferential Road, inclusive of interchange ramps aligning the Guadalupe River, the main span bridge, approaches, viaducts, causeways, low-height bridges, at-grade road, toll plazas and toll operations center. Construction of the project is ongoing and is estimated to be completed by 2021.

PT Nusantara, through its subsidiaries, holds investments in toll road operators PT Bintaro Serpong Damai (BSD), PT Jalan Tol Seksi Empat (JTSE), and PT Bosowa Marga Nusantara (BMN), in water and waste management service providers, PT Sarana Catur Tirta Kelola (SCTK) and PT Dain Celicani Cemerlang (DCC) and in power supply providers, PT Rezeki Perkasa Sejahtera Lestari (RPSL).

BSD entered into a Toll Road Operational Authority Agreement with Jasa Marga for the development and operations of Pondok Aren - Serpong toll road lane for a period of twenty-eight (28) years, including construction period. The toll road has been in operations since 1999. Pondok Aren - Serpong toll road lane is a 7-km toll road that connects Serpong and Pondok Aren, South Tangerang, Indonesia .

JTSE entered into a Toll Road Concessionaire Agreement with the Department of Public Works of the Republic of Indonesia (DPU) for the right to develop, operate and maintain Makassar Section IV Toll Road for a period of thirty-five (35) years, including construction period. The toll road has been in operations since 2008. Makassar Section IV toll road is a 12-km toll road that connects Tallo Bridge to the Mandai Makassar intersection, providing access to Sultan Hasanuddin International Airport as well as the national road to Maros, Indonesia.

BMN entered into a joint operation agreement with PT Jasa Marga (Persero) Tbk (Jasa Marga), a third-party toll road operator in Indonesia, for the operations of Ujung Pandang toll road. BMN will operate the said toll road for thirty (30) years and after which, the toll roads, including all the facilities in the area, will be handed over to Jasa Marga. The toll road has been in operations since 1998. In October 2017, BMN was granted by the Ministry of Public Works Republic Indonesia the extension of the concession period for the Ujung Pandang toll road to 2043. Ujung Pandang toll road is a 6- km toll road connects Soekarno-Hatta port in Makassar and A.P. Pettarani road (Urip Sumoharjo flyover). Pettarani toll road, which is an extension of the Ujung Pandang toll road, is a 4-km toll road that will connect Soekarno-Hatta Port (Makassar) and Sultan Hasanuddin Airport to Makassar’s business district and city center. Construction of the Pettarani toll road is still ongoing and is expected to be completed by 2020.

SCTK is a water treatment plant and water distribution company which operates in Desa Cijeruk, East Serang Regency, Banten, Indonesia and accommodates industrial, commercial and household needs of clean water at total capacity of 375 liters per second. Its water treatment plant sources its raw water from Ciujung River, East Serang, Banten which is serving over 140 factories in various industrial estates.

DCC is a holder of a 20-year water treatment concession in Medan Industrial Estate or Kawasan Industri Medan (KIM), North Sumatera. The plant is servicing potential demand up to 250 liter per second clean water supply and sources its raw water from the Deli River to supply clean water to 153 factories in KIM Industrial Estate.

RPSL is an independent power producer for Siantan Biomass Powerplant in Mempawah, West Kalimantan with a capacity of 15MW. It is contracted to supply 8MW to the State Electricity Company (PLN) and is the first Biomass Power Plant in West Kalimantan.

Dependence on Licenses and Government Approval Necessary government approvals in relation to the operation of the toll roads have been secured and documented in the related concession agreements. The concession agreements establish a toll rate formula and adjustment procedure for setting the appropriate toll rate.

Effect of Existing or Probable Governmental Regulations on the Business There are no anticipated changes to government regulations that will significantly affect the toll business of the Group.

However, the main variable affecting the extent or likelihood of earnings growth at MPTC is the ability of the subsidiaries to secure the tariff adjustments they are owed under the regulatory frameworks that govern their concessions. NLEX Corp and CIC derive substantially all of their revenues from toll collections from the users of the toll roads.

On March 6, 2019, NLEX Corp received the TRB’s order to publish the adjusted toll rates for the NLEX System (the “Order”). The Order contains the adjusted authorized final period adjustments for the whole NLEX system due in 2013 (2012 Petition) and 2015 (2014 Petition) constituting 50% of the approved adjustment (with the remaining adjustments to be implemented in subsequent years), and the provisional add-on toll rate for the NLEX open system due to the

opening of the NLEX Harbor Link Project. The TRB issued the Notice to Collect on March 20, 2019. NLEX Corp implemented the toll rate adjustments effective March 21, 2019.

On June 14, 2019, NLEX Corp. implemented the Petition for Periodic Toll Rate Adjustment effective 2012 in the SCTEX. Apart from this Petition, all the remaining toll rate adjustments for SCTEX remain pending with the TRB.

In October 2019, the TRB approved the add-on toll rate for Phase 1 of the R-1 Enhancement Project on Segment 1 (R-1 Expressway) of the CAVITEX. The new toll increase was implemented on October 24, 2019. The additional toll rates shall be added on to the toll rates authorized as of 2009. These add-on toll rates are intended to cover the enhancement of the R-1 Expressway, which include the widening of R-1 Expressway with an addition of one (1) lane in both directions, converting the carriageways from 2x3 lanes to 2x4 lanes, or a total of 5.20 kms. along each direction, as well as the construction of the Marina Bay flyover and left-turning lanes.

In October 2019, the TRB has approved the initial toll for the first 2.2 kilometers of the Segment 3A-1 toll rate adjustments which were due since January 1, 2012 for both R1 and R1-Extension is portion of the C-5 Link Expressway, which forms part of the Manila-Cavite Toll Expressway Project (MCTEP). The initial toll was implemented on October 24, 2019.

In November 2019, JTSE implemented its new effective toll rates based on the Decree of Minister of Public Works No. 1076/KPTS/M/2019.

In February 2020, the TRB issued the Toll Operation Permit (TOP) for the CALAX Sub-sections 6 to 8. TRB issued the Notice to Start Collection effective February 11, 2020.

See Note 30, Contingencies – Toll Rate Adjustments – NLEX Corp and CIC to the attached 2019 Audited Consolidated Financial Statements.

Customers The toll road business of the Company enjoys sole concession as provided for in the concession agreements. Moreover, this segment is mass-based such that the loss of a few customers would not have a material adverse effect on MPIC and its subsidiaries taken as a whole. There is also no single customer that accounts for twenty percent (20%) or more of the segment’s sales.

Sales contributed by foreign sales Revenue contribution from PT Nusantara amounted to P=2.2 billion in 2019 (see Note 5, Operating Segment Information to the 2019 Audited Consolidated Financial Statements).

For the year ended December 31, 2019, net foreign contribution from investments in CII B&R, DMT, JLB (a material associate of PT Nusantara)through share in equity in net earnings, contributed approximately P=584 million to MPIC’s consolidated income before tax (see Note 10, Investments and Advances of the attached 2019 Audited Consolidated Financial Statements).

Distribution Tollroad revenues are from manual toll fee payment, electronic toll collection and badges/cards for buses, trucks and jeepneys.

Competition While the tollroad companies were granted sole right to operate and maintain toll roads under their respective concession agreements (see Note 29 – Significant Contracts, Agreements and Commitments – Concession Agreements to the 2019 Audited Consolidated Financial Statements for further information), alternative routes and roads are the toll roads’ competitors:

▪ NLEX. A viable alternative road to North Luzon is the MacArthur Highway, a road extending from Manila to Pangasinan that passes through small towns. The NLEX has historically served as the main artery between Metro Manila and Central and Northern Luzon and as such, it has a long and stable track record of traffic volume. Further, the NLEX has a stable service area, which is characterized by the lack of comparable competing traffic routes and the resilience of the user profile.

▪ CAVITEX. The free alternative routes to the R1 Expressway and R1 Extension are Quirino Avenue, Aguinaldo Highway, Tirona Highway and Evangelista Road. While these roads are complementary to the R1 Expressway and R1 Extension, they do not offer the same direct and contiguous route from northern Cavite to Metro Manila and vice-versa. The alternative roads have limited capacity and narrow lanes and are controlled by traffic lights and stop signs which are heavily congested at peak times.

▪ PT Nusantara’s competitors are mostly within Indonesia’s toll road networks or free alternative roads. BSD belongs to a wide toll road network in the Jakarta metropolitan area, hence, there are various alternative toll roads but serving different routes. However, competition with these other toll roads within the network is present for customers coming from West of the metropolitan area to Central Jakarta and vice versa. For Nusantara’s toll roads located in Makassar, there are free alternative roads to BMN and JTSE but have limited capacity and are heavily congested during peak times. There are no other toll roads in Makassar.

Traffic volumes on the tollroads are likewise affected by competition from alternative modes of transportation and there can be no assurance that existing modes of transport will not significantly improve their services.

The Company continues to promote traffic growth on these tollroads by providing more entry and exit points along the expressway. Likewise, the Company continues to boost the value proposition of its tollroads by implementing measures to enhance customer satisfaction, safety, and convenience. While there is insignificant threat posed by competing toll roads in the Philippines covered by NLEX Corp and CIC’s concessions, there is competition elsewhere from Ayala Corporation, which was awarded the contract to build the Daang Hari-SLEX Link, and San Miguel Corporation, which invested in the controlling shareholders of Metro Manila Skyway, South Luzon Expressway, Tarlac-Pangasinan-La Union Expressway and NAIA Expressway.

Source and availability of raw materials CIC’s main supply contract consists of the O&M Agreement PEA Tollway Corporation (“PEATC”) for the operations and maintenance of CAVITEX (see Note 29 – Significant Contracts, Agreements and Commitments to the 2019 Audited Consolidated Financial Statements).

On October 1, 2016, CIC and Metro Pacific Tollways Management Services Inc. (MPTMSI, a wholly-owned subsidiary of MPTC) entered into a Toll Collection Services Agreement to facilitate the toll collection function of CIC. PEATC and MPTMSI provide CIC with the following operations and maintenance services:

▪ Collection of toll fees from motorists at toll plazas, both in cash and electronic form; ▪ Routine maintenance and repairs of the road and equipment; and ▪ Management of CAVITEX in order to, among other things, improve traffic flows, maintain road safety, and enhance the facilities and services along CAVITEX.

Transactions with related parties See details and other related party transactions disclosed under Note 19, Related Party Transactions to the 2019 Audited Consolidated Financial Statements.

Costs and effects of compliance with environmental laws Prior to the commencement of construction activities, the grantee must obtain an ECC from the DENR. An ECC typically requires the grantee to submit its proposed policies for, among others, (1) relocation and compensation of individuals and families who are affected by the toll road project, (2) mitigation of the effects of the toll road project on the natural environment, (3) environmental monitoring, and (4) public information and education regarding the toll road project. In addition, the ECC typically requires the grantee to submit a quarterly report of its environmental monitoring activities.

NLEX Corp and CIC have dedicated teams that regularly monitor compliance with its ECCs and ensure measurement of significant environmental metrics for purposes of compliance with the reporting requirements under its loan agreements. Quarterly air quality sampling is conducted to measure the level of pollutants and harmful particulates along the toll roads. A solid and hazardous waste management system is also in place to ensure proper waste disposal and compliance with the Ecological Solid Waste Management Act of 2001 and Toxic Substances and Hazardous Wastes Control Act of 1990. All required areas for reclamation and re-vegetation are regularly monitored and maintained to prevent soil erosion and scouring along river banks and slope areas.

PT Nusantara ensures that all projects are reviewed and evaluated against the following social and environment requirements of relevant and applicable Indonesian laws on environment, health, safety and social issues. They committed to follow a Social and Environmental Management System (SEMS) that details the policy, operating procedures, institutional arrangements and workflow to identify social and environmental risks that may arise from the projects it is involved in, and therefore ensure the avoidance, minimization or mitigation of those risks during the entire cycle from project inception, through appraisal, tendering, award, construction, maintenance and decommissioning.

Status of any publicly announced product or services As discussed in the 2019 Audited Consolidated Financial Statements, certain toll projects are either under pre-construction or on-going construction (see Note 29, Significant Contracts, Agreements and Commitments – Concession Arrangements to the Audited Consolidated Financial Statements).

Status of the toll projects as follows:

Construction Length Target Right of Way Cost (In Km) Completion Progress (In Billions) Expansions to existing roads NLEX Harbour Link (Radial Road 2.6 ₱6.7 2020 94% 10) NLEX Lane Widening Phase 2 N/A 1.6 2020 N/A CAVITEX Segment 4 Extension 1.2 1.5 2022 85% CAVITEX - C5 South Link 7.7 12.7 2022 73% NLEX Citi Link 11.5 18.8 2024 0%

Stand-alone road projects NLEX-SLEX Connector Road 8.0 23.3 2021 Section 1: Caloocan- 78% Manila-58%

Section 2: 74% Cebu Cordova Link Expressway 8.5 26.6 2021 100% Cavite-Laguna Expressway 44.7 14.1 2022 Total - 54% Laguna segment – 84% Cavite segment – 37% TOTAL 84.2 ₱105. 3

Toll Collection Interoperability Agreement. On September 15, 2017, Toll concessionaires/operators, Department of Transportation, DPWH, and Land Transportation Office, signed the MOA for Toll Collection Interoperability with TRB; whereby the concessionaires or facility operators agreed to timely, smoothly, and fairly implement the interoperability of the electronic toll collection systems and cash payment systems of the covered expressways and of future toll expressways, consistent with and subject to the concessionaires and operators’ respective concession agreements, toll operations agreements, and supplemental toll operations agreement, as applicable.

The agreement will be implemented in two phases and to be operationalized within twelve (12) months from signing of the MOA. The first phase covers electronic collection interoperability, while the second phase covers cash collection interoperability. MPTC’s Toll Collection Lanes (NLEX, SCTEX, CAVITEX and portion of the CALAX) are currently accepting Autosweep tags enrolled to the Easytrip system. As at February 26, 2020, the implementation is still in the works.

(B.3a) Water - Maynilad

Business Development MWHCI’s main activity is the holding of controlling shares in Maynilad, which holds the exclusive concession granted by the Metropolitan Waterworks and Sewerage System (MWSS), on behalf of the Philippine Government, to provide water and sewerage services in the West Service Area of Metro Manila. MPIC’s effective ownership in Maynilad was at 52.8% as at December 31, 2019, 2018 and 2017.

Maynilad’s subsidiaries are PHI and Amayi Water Solutions, Inc. (Amayi). PHI, which was acquired by Maynilad on August 3, 2012 through a Share Purchase Agreement (SPA) with a third party, is engaged in waterworks construction, engineering and engineering consulting services. PHI has 25-year Bulk Water Supply Agreements with various provincial municipalities outside the West Service Area and a Memorandum of Agreement with certain provincial municipality for the construction and operation of water treatment facilities for water distribution services. Amayi, incorporated on July 18, 2012, was established for the purpose of operating, managing, maintaining and rehabilitating waterworks, sewerage and sanitation system and services outside Maynilad’s concession area.

Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract In February 1997, Maynilad entered into a concession agreement with MWSS, with respect to the MWSS West Service Area. Under the concession agreement, MWSS grants Maynilad, the sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets required to provide water and sewerage services in the West Service Area for 25 years ending in 2022. In September 2009, MWSS approved an extension of its concession agreement with Maynilad for another 15 years to 2037.

Maynilad’s subsidiary, PHI, is granted the sole right to distribute water in a certain part of Bulacan under concession agreements granted by the Philippine government for 25 years to 2035.

On February 19, 2019, Amayi Water Solutions, Inc., a wholly owned subsidiary of Maynilad, entered into a concession agreement with the Municipality of Boac, Marinduque. The concession agreement shall be effective for a period of 25 years beginning on the commencement date.

Dependence on Licenses and Government Approval Necessary government approvals in relation to the operation of the water business have been secured and documented in the related concession agreements.

Under Maynilad’s concession agreement with the Philippine Government (see Note 29, Significant Contracts, Agreements and Commitments – Concession Arrangements to the 2019 Audited Consolidated Financial Statements), Maynilad is entitled to tariff rate adjustments based on movements in the Philippine consumer price index, foreign exchange currency differentials, and following a rate rebasing process conducted every five years (Rate Rebasing) and certain extraordinary events. Any rate adjustment requires approval by MWSS and the Regulatory Office (RO). Any tariff adjustments that are not granted, in a timely manner, in full or at all, could have a material adverse effect on the Maynilad’s results of operations and financial condition as well as of MPIC. However, the Republic of the Philippines has provided Maynilad with a “make whole” guarantee in respect of any interference by any government agency in the setting of the tariff.

On December 11, 2019, Maynilad received a letter from the MWSS informing Maynilad that the MWSS Board of Trustees, in a special meeting held on December 5, 2019, passed a resolution revoking the resolution that approved the extension of Maynilad’s Concession Agreement from its original expiry of 2022 to 2037 (the “Subject Resolution”).

The MWSS Board of Trustees likewise revoked a similar resolution that extended the term of the Concession Agreement of the other concessionaire.

Subsequently, however, when Maynilad formally asked the MWSS and the Regulatory Office what the effect of the Subject Resolution is, the Regulatory Office, in a letter to Maynilad dated December 23, 2020, stated that “as of to date, the 25-year Concession Agreement (CA) that covers the years 1997 to 2022 and the Memorandum of Agreement (MOA) that provides for the 15-year extension of the concession period from year 2022 to 2037 have not yet been cancelled.”

On December 9, 2019, Maynilad received a letter from MWSS informing the former that the latter was directed to perform a review of the Concession Agreement. The amendments to the provisions of the Concession Agreement may affect, among others, future tariff increases and service commitments, and the concession period. Any future amendments to the provisions of the Concession Agreement will be reflected in the financial statements as these are determined. As of February 26, 2020, Maynilad is awaiting the draft of the amendments to its Concession Agreement.

See disclosures in Note 30, Concession Agreement Review and Amendment to the 2019 Audited Consolidated Financial Statements.

Effect of Existing or Probable Governmental Regulations on the Business The matter of the Maynilad tariff implementation remains unresolved as does the related claim on the Republic of the Philippines.

On December 29, 2014, Maynilad’s water tariff under the rate rebasing for the period from 2013 to 2017 (the “Rebasing Period”) received a favourable award in arbitration proceedings in the Philippines. However, the MWSS has not implemented the awarded tariff increase.

Maynilad subsequently proceeded to arbitration in Singapore and the final hearing was completed in December 2016. On July 24, 2017, the three-person Arbitral Tribunal (the “Tribunal”) unanimously upheld the validity of Maynilad’s claim against the undertaking letter issued by the Republic, through the Department of Finance, to compensate Maynilad for the delayed implementation of its relevant tariffs for the Rebasing Period.

The Tribunal ordered the Republic to reimburse Maynilad ₱3.4 billion (subsequently adjusted to ₱3.2 billion) for losses from March 11, 2015 to August 31, 2016, without prejudice to any rights that Maynilad may have to seek recourse against the MWSS for losses incurred from January 1, 2013 to March 10, 2015. Further, the Tribunal ruled that Maynilad is entitled to recover from the Republic its losses from September 1, 2016. On February 9, 2018, the Republic filed an application with the High Court of Singapore to set aside the arbitration award issued on July 24, 2017 and seeks to have a sealed hearing rather than an open court process.

On September 4, 2018, the High Court of Singapore dismissed the Republic’s application to set aside the Second Award and awarded S$40,000.00 in favor of Maynilad by way of costs. The Republic did not appeal the decision to the Singapore Court of Appeal within the prescribed 30- day period, hence, the dismissal of the Republic’s application became final on October 4, 2018.

As at December 31, 2018, Maynilad has an outstanding claim against the Republic of the Philippines (ROP), through the Department of Finance (DOF), in relation to the decision of the Arbitral Tribunal to compensate Maynilad for the delayed implementation of its relevant tariffs for the rebasing period 2013 to 2017 in the amount of P=3.18 billion and cost of litigation of litigation amounting to S$40,000.

Total claim from the DOF at ₱6.7 billion comprising of the ₱3.18 billion fixed award and the remaining as variable award still to be resolved. As at December 31, 2017, Maynilad’s total cumulative revenue losses due to the delayed implementation of the arbitration awards are estimated at P=11.4 billion.

On September 13, 2018, the MWSS issued Resolution No. 2018-136-RO adopting RO Resolution No. 2018-09-CA dated September 7, 2018 granting Maynilad a partial rate adjustment of P=5.73/cu.m. for the Fifth Rate Rebasing Period (2018 to 2022), to be implemented on an uneven staggered basis of (i) P=0.90/cu.m. effective October 1, 2018; (ii) P=1.95/cu.m. effective January 1, 2020, (iii) P=1.95/cu.m. effective January 1, 2021, and (iv) P=0.93/cu.m. effective January 1, 2022. The approved rate adjustment still does not include the corporate income tax (“CIT”) component to which Maynilad is entitled by virtue of the First Award. In their Resolutions, the MWSS and RO stated that the inclusion of the CIT in Maynilad’s tariff is subject to the SC’s resolution of MWSS’s Petition for Review.

To preserve its right to the CIT which has already been adjudged in its favor in the First Award, and pursuant to Article 12 of the Concession Agreement, Maynilad, on October 12, 2018, filed a Dispute Notice, signaling the start of another arbitration. However, on November 9, 2018, MWSS and Maynilad filed a joint application with the Appeals Panel to suspend proceedings to give the parties time to try to settle their differences amicably.

On February 11, 2019, Maynilad wrote the DOF about the amount of its updated claim for compensation by the ROP, which is P=6.7 billion with a request that the DOF order the MWSS and the MWSS-Regulatory Office to meet with Maynilad to agree and discuss a proposed settlement of the updated claim.

Under the pressure and duress of a Congresional Hearing, prior to which Maynilad was threatened with the revocation of its concession, Maynilad made an oral offer to waive its claims against ROP amounting to P=6.7 billion which represents Maynilad’s foregone revenues for the period March 11, 2015 to December 31, 2017 (see Note 30). On January 2, 2020, Maynilad executed the Release From and Waiver of Claim on Arbitral Award (“Waiver”) in favor of the ROP. No recognition of this claim has been mde in the consolidated financial statements.

See Note 30, Contingencies – Rate Rebasing Adjustment to the attached 2019 Audited Consolidated Financial Statements.

Customers The water business of the Company, through Maynilad enjoys a sole concession of Metro Manila’s West Service Area. This segment is mass-based such that the loss of a few customers would not have a material adverse effect on MPIC and its subsidiaries taken as a whole. There is also no single customer that accounts for twenty percent (20%) or more of the segment’s sales.

Distribution Water is distributed through Maynilad’s network of pipelines, pumping stations and mini- boosters. As at December 31, 2019, Maynilad's network consisted of around 7,713 kms of total pipeline.

Competition Maynilad has no direct competition given that it has right to provide water and sewerage services to the West Service Area under its concession agreement with the Philippine Government.

Under Maynilad’s Concession Agreement, MWSS grants Maynilad (as contractor to perform certain functions and as agent for the exercise of certain rights and powers under the Charter), the

sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets required (except certain retained assets of MWSS) to provide water and sewerage services in the West Service Area up to 2037.

Source and availability of raw materials Under Maynilad’s Concession Agreement, MWSS supplies raw water to Maynilad’s distribution system and is required to supply a minimum quantity of raw water. Maynilad currently receives substantially all of its water from MWSS.

Maynilad has some supply side risk in that: (i) it secures most of its supply from a single source – the Angat dam; and (ii) this water source is shared by another water concessionaire, a hydroelectric plant, and the needs of farmers for irrigation. A water usage protocol is in place to ensure all users receive water as expected within the constraints of available supply. Following significant water supply disruption in late 2009 arising indirectly from typhoons, the business entered 2010 with less water supply available than allowed for in its concession. Maynilad has worked to moderate its reliance on Angat by developing the Putatan Water Treatment Plant while continuing to reduce leakage and theft rates.

Transactions with related parties Maynilad, entered into certain construction contracts with D.M. Consunji, Inc., a subsidiary company of DMCI Holdings, Inc. (DMCI, a non-controlling shareholder in MWHCI), in relation to the provision of engineering, procurement and construction services to Maynilad. Refer to Note 19, Related Party Transactions to the 2019 Audited Consolidated Financial Statements for further details.

Costs and effects of compliance with environmental laws Maynilad’s wastewater facilities are required to be maintained in compliance with environmental standards set primarily by the Department of Environment and Natural Resources (DENR) regarding effluent quality. All projects are assessed for their environmental impacts, and, where applicable, must obtain an Environmental Compliance Certificate from the DENR prior to construction or expansion. Subsequent to construction, effluents from facilities, such as sewage and septage treatment plants, are routinely sampled and tested against DENR standards using international quality sampling and testing procedures.

Maynilad has made efforts to meet and exceed all statutory and regulatory standards. Maynilad’s regular maintenance procedures involve regular disinfection of service reservoirs and mains and replacement of corroded pipes. Maynilad believes all wastewater treatment processes and effluents meet the current standards of the DENR.

Maynilad’s Dagat-Dagatan Sewage and Septage Treatment Plant in Caloocan is the first facility of its kind in the Asia-Pacific Region to attain triple international standard accreditations on Quality Management (ISO 9001:2008) and Environmental Management (ISO 14001:2004) in January 2007, and Occupational Safety and Health Management (OHSAS 18001:2007).

(B.3b) Water - MPW

Business Development MPIC’s wholly-owned subsidiary, MPW is pursuing water infrastructure projects and other water-related investments across the Philippines.

As at December 31, 2019, MPW’s subsidiaries hold the following concession rights (see Note 29, Significant Contracts, Agreements and Commitments to the 2019 Audited Consolidated Financial Statements):

▪ Through 95% in Cagayan De Oro Bulk Water Inc. (COBI) through its wholly-owned subsidiary, MetroPac Cagayan De Oro Holdings, Inc. (MCOH). COBI holds a 30-year 100 million liters per day (MLD) Bulk Water Supply Project (CDO Project). Operations commenced effective December 31, 2017.

▪ Through 80% in Metro Iloilo Bulk Water Supply Corporation (MIBWSC). MIBWSC holds a 25-year 170 million liters per day (MLD) Bulk Water Supply Project (Metro Iloilo Project). On July 5, 2016, MIBWSC officially took over water production operations from the MIWD.

▪ Through 80% in Metro Pacific Iloilo Water Inc. (MPIWI). MPIWI, a joint venture between MPW and Metro Iloilo Water District (MIWD), holds a 25-year concession to rehabilitate, operate, maintain and expand MIWD’s existing water distribution system and construct wastewater facilities in Iloilo City. MPIWI commenced operations in July 2019.

▪ Through 80% in Metro Pacific Dumaguete Water Services Inc. (MPDW). MPDW holds a 25-year concession to rehabilitate, operate, maintain and expand Dumaguete City Water District’s (DCWD) existing water distribution system and develop wastewater facilities in Dumaguete City. As at February 26, 2020, the conditions precedent for the declaration of commencement date has not yet been achieved.

▪ Through 52.5% in B.O.O Phu Ninh Water Treatment Plant Joint Stock Company (PNW). Pursuant to a 50-year BOO contract with the Chu Lai Open Economic Zone Authority, PNW is licensed to develop a water supply system that will meet clean water demand in the Chu Lai Open Economic Zone, and urban areas, industrial zones and adjacent rural areas in Quang Nam province. PNW has substantially completed the construction and commissioning of a water treatment plant with capacity of 25 MLD and has potential to increase its capacity to 300 MLD. MPW also has interest in the following entities:

▪ Effective interest of 27% in Laguna Water District Aquatech Resources Corp. (LARC) through its direct ownership of 30% in EquiPacific HoldCo Inc. (EquiPacific). LARC implements the Joint Venture Project (JV Project) for the financing, rehabilitation, improvement, expansion, operation and maintenance of the Water Supply System of the Joint Venture Area covering the municipalities of Los Banos, Bay, Calauan and Victoria of the Province of Laguna. LARC commenced the operation and management of the distribution network of the Laguna Water District (LWD) on January 1, 2016.

▪ Effective economic interest of 27% in Cebu Manila Water Development, Inc. (CMWD) through its direct ownership of 39% in Manila Water Consortium Inc. (MWCI). CMWD holds a 20-year Water Purchase Agreement (WPA) for the supply of 18 MLD for the first year and 35 MLD of water for the 2nd to 20th year to Metropolitan Cebu Water District (MCWD).

▪ Effective interest of 49% in Tuan Loc Water Resources Investment Joint Stock Company (TLW) through its wholly-owned subsidiary, Metro Pacific TL Water International Limited. TLW is one of the largest water companies in Vietnam, with 310 MLD of installed capacity. TLW’s main project assets are the: (1) Song Lam Raw Water Plant, (2) Ho Cau Moi Water Treatment Plant, and (3) Nhon Trach 6A Sewage Treatment Plant.

MPW also has a 65% ownership in ESTII. ESTII is engaged in the business of designing, supplying, constructing, installing, and operating and maintaining wastewater and sewage treatment plant facilities. The transaction allows MPIC, through MPW, to diversify its water sector investment holdings and invest in the high growth wastewater Engineering, Procurement and Construction (EPC) and Operation & Maintenance (O&M) markets.

Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract See discussion above and disclosures in Note 29, Significant Contracts, Agreements and Commitments - Concession Arrangements to the attached 2019 Audited Consolidated Financial Statements.

MPW’s subsidiary, ESTII owns certain patents and utility models relating to water/wastewater treatment, the use of which are governed by an exclusive and perpetual license.

Dependence on Licenses and Government Approval Various government agencies and regulatory bodies require the possession of certain licenses and permits with respect to water extraction, treatment and distribution. The Company maintains compliance with the requirements and conditions for obtaining and maintaining such licenses and permits.

The guidelines implemented by the National Water Resources Board (NWRB) and/or the Local Water Utilities Administration (LWUA) regulate the water tariffs that may be charged by water distribution companies to customers. The Company maintains adequate operational and financial documentations, conducts robust studies and implementation plans, and maintains regular dialogue with local government and regulatory authorities to ensure compliance with the requirements and conditions needed for the approval of proposed water tariff adjustments.

Customers MPW’s investees were granted sole right to supply and/or distribute water to districts/areas as per their respective joint venture agreements with the local water districts (see “Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract”).

For the year ended December 31, 2019, revenues from these customers do not represent a significant percentage of MPIC’s consolidated water revenues.

Sales contributed by foreign sales Revenue contribution from the water concession operated by PNW amounted to P=5million from the date of business combination, September 5, 2019 (see Note 4, Business Combination to the 2019 Audited Consolidated Financial Statements).

Foreign contribution from investments in PNW (prior to date of business combination) and TLW under share in equity in net earnings is disclosed in Note 10, Investments and Advances to the 2019 Audited Consolidated Financial Statements.

Distribution MPW, through its subsidiaries and associates, delivers treated water to customers through a system of transmission and distribution pipelines, reservoirs and pumping stations

Competition The water supply agreements that are in place, and the significant cost of putting up competing water production and distribution facilities in the same service area generally restrict other private water operators’ from supplying to customers currently being served by MPW through its subsidiaries and associates.

Source and availability of raw materials Sources of water requirements as follows:

Company Water Source Domestic: MIBWSC Maasin Dam LARC 90% from groundwater, and 10% from a bulk water supplier Vietnam: Song Lam Raw Water Plant Lam River Ho Cau Moi Water Treatment Plant Cau Moi Lake PNW Water Treatment Plant Phu Ninh Lake

MIBWSC currently sources a significant portion of its raw water requirement from the Maasin Dam and treats close to around eighty percent (80%) of its water requirement through the Sta. Barbara water treatment plant. Other sources of water by MIBWSC are groundwater and bulk water suppliers. MIBWSC is undertaking preparatory activities for the development of additional water sources and the construction of new water treatment facilities for the expansion phases.

MPIWI sources all its potable water requirements from the Metro Iloilo Water District.

MPDW shall source all its water requirements from groundwater.

Transactions with related parties ESTII, a subsidiary of MPW, entered into contracts with Maynilad for the construction of wastewater treatment plants. MIBWSC also has a technical services agreement with Maynilad for the provision of technical and specialized services relating to maintenance, operation, expansion, rehabilitation of facilities, and other related works and also entered into a management services agreement with MPW for the provision of accounting, treasury, branding, corporate governance, information technology and other management services. Transaction with Maynilad are eliminated in the process of consolidation.

Costs and effects of compliance with environmental laws All projects are assessed for their environmental impacts, and, where applicable, must obtain an Environmental Compliance Certificate from the DENR prior to construction or expansion.

Status of any publicly announced products and services MPDW has not commenced operations yet pending fulfillment of conditions precedent to the signing of the Joint Venture Agreement.

(B.4) Healthcare

Business Development MPIC’s Hospital group comprises of full-service hospitals and mall-based diagnostic and surgical centers and is the largest private provider of premier hospital services in the Philippines. It delivers medical services including diagnostic, therapeutic and preventive medicine services in all three major island groupings in the country.

MPHHI completed the following acquisitions in 2019, 2018 and 2017:

▪ On December 11,2019, MPHHI completed its acquisition of a 77.1% interest in Santos Clinic Incorporated (SCI), owner and operator of Manuel J Santos Hospital (MJSH) a 100-

bed Level 2 hospital in Butuan, Mindanao. Total consideration paid amounted to P=373 million.

▪ From August to October 2018, MPHHI purchased 132,975 shares of DDH for aggregate consideration of P=669 million which increased its ownership from 35.16% to 49.91%.

▪ On October 5, 2017, MPHHI completed the acquisition of a 54% stake in St. Elizabeth Hospital, Inc. (SEHI), a 248-bed tertiary level hospital located in General Santos City on December 8, 2017, MPHHI made an additional cash infusion in SEHI through subscription of primary shares that increased its interest in SEHI to 80%. The cash infusion from MPHHI was intended for expansion and improvement of facilities and for the purchase additional medical equipment.

▪ On January 31, 2017, MPHHI infused approximately P=133.5 million of cash into Delgado Clinic Inc. (DCI), owner and operator of the Dr. Jesus C. Delgado Memorial Hospital (JDMH) via a subscription to preferred shares representing approximately 65% of the total expanded capital stock of DCI. The cash infusion from MPHHI is intended for the upgrade of equipment and facilities.

On October 14, 2019, MPIC, together with MPHHI, entered into a series of transactions for the investment and entry of global investment firm KKR & Co. (see Note 32 to the 2019 Audited Consolidated Financial Statements).

Customers As at December 31, 2019, MPHHI had interest in fifteen (15) hospitals with approximately 3,100 beds throughout the country: ▪ Eight (8) in Metro Manila: Makati Medical Center (MMC), Cardinal Santos Medical Center (CSMC), Our Lady of Lourdes Hospital (OLLH), Asian Hospital (AHI), De Los Santos Medical Center (DLSMC), Manila Doctors Hospital (MDH), MVMC and JDMH; and ▪ Seven (7) in other parts of the country: Davao Doctors Hospital (DDH), Riverside Medical Center (RMCI) in Bacolod, Central Luzon Doctors Hospital (CLDH) in Tarlac, West Metro Medical Center (WMMC) in Zamboanga, Sacred Heart Hospital of Malolos Inc. (SHHM) in Bulacan, SEHI in General Santos City and MJSH in Butuan.

In addition, MPHHI has also invested in mall-based primary care clinics in MegaClinic in SM Megamall and TopHealth in SM San Lazaro, and opened Metro Sanitas in Met Live Pasay; newly-built cancer centers in joint venture with Lipa Medix in Batangas and with our own hospitals, CLDH in Tarlac and RMCI in Bacolod; and has indirect ownership in two healthcare colleges, Davao Doctors College in Davao and Riverside College Inc. in Bacolod.

This segment is mass-based such that the loss of a few customers would not have a material adverse effect on MPIC and its subsidiaries taken as a whole. There is also no single customer that accounts for twenty percent (20%) or more of the segment’s sales.

Dependence on Licenses and Government Approval The Department of Health (DOH) through the Health Facilities and Services Regulatory Bureau (HFSRB) exercises the regulatory functions over hospitals. The HFRSB’s functions included standards setting for regulation of health facilities and services; and issuances of (i) permit to construct (PTC), (ii) license to operate (LTO), (iii) clearance to operate (CTO), (iv) Health Maintenance Organizations (HMOs), and (v) certificate of accreditation (COA).

Hospitals are required to obtain the following permits or licenses from the HFSRB: (1) prior to the construction of the hospital, the operators must have its plans approved and acquire a Permit

to Construct; and (2) prior to its operation, it must be registered and the operators must obtain a License to Operate. The Permit to Construct is required for the construction of a new hospital, substantial alteration, expansion or renovation of an existing hospital, a change in its classification, or an increase in bed capacity. It is a prerequisite for a license to operate. The license to operate is required for the operation of a hospital. It is secured after the construction and completion of the hospital. In order for a hospital to be registered and issued a license, it must comply with the minimum standards as well as other rules and regulations prescribed by the HFSRB. The license to operate a hospital shall be automatically renewed every year upon the submission of certain requirements.

Under Presidential Decree No. 1586, ‘‘Environmental Impact Statement (EIS) System’’ (PD 1586), hospitals are required to secure an Environmental Compliance Certificate (ECC) prior to the construction and operation of new hospital buildings or expansion of existing hospitals as well as or the installation and operation of health care waste treatment systems like pyrolosis, autoclave, microwave, landfills, and other similar treatment technology.

The Company’s hospitals are fully compliant with these regulations and have secured necessary ECCs and licenses to operate.

Competition Major competitors in the healthcare business include other tertiary hospitals. However, increasing health awareness creates unsatisfied demand in the industry.

MPHHI uses its skill as a corporate manager to enhance operating efficiency and streamline the business models of its hospitals. Additionally, MPHHI continues to realize economies of scale through group purchasing and the sharing of technical and human resources.

Transactions with related parties Colinas Healthcare, Inc. (CHI) (a wholly-owned subsidiary of Colinas Verdes Hospital Managers Corporation) operates and manages the MERALCO Corporate Wellness Center (Wellness Center), an outpatient diagnostic and consultation center for its employees and their dependents. Refer to Note 19, Related Party Transactions to the 2019 Audited Consolidated Financial Statements for further details.

Effect of Existing or Probable Government Regulations on the Business Republic Act No. 11223 or the Universal Health Care Law, approved on February 20, 2019 automatically enrolls all Filipino citizens in PhilHealth and prescribes complementary reforms in the health system. Under the act, contributors of PhilHealth are divided into direct and indirect. Direct contributors refer to those who have the capacity to pay premiums, are gainfully employed and are bound by an employer-employee relationship, or are self-earning, professional practitioners, migrant workers, including their qualified dependents, and lifetime members. Indirect contributors, on the other hand, refer to all others not included as direct contributors, as well as their qualified dependents, whose premium shall be subsidized by the national government including those who are subsidized as a result of special laws. The act also mandates that in availing any of the health services provided in the National Health Program, providers shall not require from the member a PhilHealth Identification Card.

The Universal Health Care Law further mandates for private hospitals to operate not less than 10% of their bed capacity as basic or ward accommodation. Basic ward or accommodation, under the law, refers to the provision of regular meal, bed in shared room, fan ventilation, and shared toilet and bath. The law also requires hospitals to submit a report on the allotment or percentage of their bed capacity to basic or ward accommodation to DOH. Under the draft of the

implementing rules and regulations, existing hospitals will be given until the end of 2022 to fully comply with the required bed capacity.

The Universal Health Care Law also requires health service providers and insurers to maintain a health information system consisting of enterprise resource planning, human resource information, electronic health records, and an electronic prescription log consistent with DOH standards, which shall be electronically uploaded on a regular basis through interoperable systems This health information system shall be developed and funded by the DOH and PhilHealth. Accordingly, patient privacy and confidentiality shall at all times be upheld, in accordance with the Data Privacy Act.

The Hospital Group is currently evaluating the impact and shall enforce the implementation and compliance of entities covered by RA 11223.

As of February 26, 2020, the DOH and PhilHealth have yet to issue the implementing rules and regulations of the Universal Health Care Law.

(B.5) Rail

Business Development MPIC operates its rail business through its wholly-owned subsidiary, MPLRC. MPLRC’s main activity is the holding of shares both at Light Rail Manila Holdings Inc. (LRMH) as well as LRMC. LRMC holds the exclusive concession granted by the Department of Transportation (DOTr) and Light Rail Transit Authority (LRTA), on behalf of the Philippine Government to operate and maintain the existing LRT Line 1, as well as to extend the south line from Baclaran to Niog, Cavite. LRMH holds shares in LRMC. MPLRC’s effective stake at LRMC (directly and through LRMH) as at December 31, 2019 and 2018 was 55%.

Patents, Trademarks, Licenses, Franchises, Concessions or Labor Contract On October 2, 2014, LRMC entered into a concession agreement with DOTr and LRTA. Under the concession agreement, DOTr and LRTA granted LRMC the exclusive right to operate and maintain the existing LRT-1 and construct an 11.7-kilometer extension from the present end-point at Baclaran to the Niog area in Bacoor, Cavite. LRMC was formally awarded the project by the DOTr and LRTA following the submission of a lone bid with a premium of P=9.35 billion. The concession period is for 32 years from takeover date and ends in 2047.

DOTr granted an Operating Franchise to LRMC on September 11, 2015. LRMC took over the operations and maintenance of LRT-1 the next day, September 12, 2015.

Dependence on Licenses and Government Approval Necessary government approvals in relation to the operation of the rail business and the related non-rail revenues have been secured and documented in the related concession agreement.

On July 30, 2014, the Supreme Court issued a temporary restraining order on the commencement of the construction of common station at the vicinity of the existing MRT-3 North Avenue Station along EDSA. Although the common station is a deliverable of the Philippine Government, LRMC’s business is materially impacted by any potential delays because ridership is expected to increase materially with the completion of common station. Under the concession agreement, the Philippine Government is obligated to hand over the common station to LRMC by April 1, 2019 or 54 months after the signing date. The NTP for the construction of the common station was issued by the Government in 2019 and the expected completion date is now 2021. This is 2 years behind the original deadline stated in the Concession Agreement.

LRMC is entitled to be compensated by the Grantors for the failure of meeting certain conditions and mechanisms set in the concession agreement, including existing system requirement (ESR) costs, structural defect restoration (SDR) costs, LRV shortfall, and Grantor’s compensation payment. All these claims are be recovered through the “Balancing Payments” mechanism and are still undergoing discussion as at December 31, 2019.

LRMC also depends on the Philippine Government approvals for the acceptance and the funding of any potential liquidated damages resulting from unfulfilled obligations.

Effect of Existing or Probable Governmental Regulations on the Business The main variable affecting the extent or likelihood of earnings growth at MPIC is the ability of LRMC to secure the fare adjustments and ability to collect the liquidated damages under the concession agreement that governs LRMC’s concession.

The concession agreement establishes an initial fare rate and an adjustment formula for setting the appropriate fares. The fare adjustment is scheduled every two calendar years beginning in August 1, 2016 with a starting initial fare supposedly implemented on August 1, 2014. If the fares approved by the government is lower than the fares stipulated in the concession agreement, the Philippine Government is obligated to pay the difference and keep LRMC whole.

As at December 31, 2019, LRMC continues to await approval by the Philippine Government of the full initial fares as stipulated in the concession agreement.

Republic Act No. 11314, Student Fare Discount Act, which was signed on April 17, 2019, grants students who ride LRT-1 an entitlement of 20% fare discount. As a noticeable percentage of LRT-1 riders are students, the law would have some negative effect on revenues. This would be slightly offset by tax benefits under the law. Subject to the provisions under section 29.3 of the Concession Agreement, this may be characterized as a “Material Adverse Government Action (Change in Law)” for which LRMC would be entitled to compensation.

Customers The rail business of LRMC enjoys a sole concession of the LRT-1. This segment is mass-based such that the loss of a few customers would not have a material adverse effect on MPIC. There is also no single customer that accounts for twenty percent (20%) or more of the segment’s sales.

Distribution Rail farebox revenues are from manual fare payment through single journey tickets and usage of pre-paid credits on stored value cards. Non-farebox revenues are primarily from direct payments by tenants and advertising partner.

Competition While LRMC was granted the sole right to operate and maintain LRT-1, customers have non-rail alternatives such as buses and jeepneys.

Source and availability of raw materials LRMC purchases spare parts from various suppliers, including foreign suppliers from Germany and Japan, for the rehabilitation of the existing LRVs.

Transactions with related parties In 2014, AF Payments Inc. (AFPI), in which MPIC has a stake of 20%, was granted the rights and obligations to design, finance, construct, operate, and maintain the Automated Fare Collection System Project (AFCS Project) for LRT-1, LRT-2, and Metro Railway Transport 3 (MRT-3). The AFCS Project, which was founded under the Build-Operate-Transfer Law, accommodates a contactless smartcard technology for stored value and single journey ridership. When AFPI bid for the AFCS Project, AFPI won the bid because it will not be charging public transport offices fees for the use of its system. As such, LRMC is not paying AFPI for the use of its system (see Note 19, Related Party Transactions to the 2019 Audited Consolidated Financial Statements).

In 2017, LRTA and MERALCO entered into a memorandum of agreement for the relocation of electrical sub-transmission and distribution facilities which will be affected by the construction works of the Cavite Extension. LRTA shall pay MERALCO all costs and expenses to be incurred for the relocation of its facilities (relocation charge). The agreement requires LRTA to enter into an Escrow Agreement to facilitate its payment of relocation charges. MERALCO may suspend the implementation of the relocation activities should LRTA fail to settle such charges. Since LRTA will only pay upon completion of the activities and MERALCO wants to receive advance payment for the costs to be incurred, LRMC has entered into a memorandum of agreement with MERALCO to pay in advance such charges to enable execution of the relocation activities. MERALCO shall reimburse LRMC of the relocation charges upon receipt from the Escrow Agent or LRTA (see Note 19, Related Party Transactions to the 2019 Audited Consolidated Financial Statements).

Other transactions with related parties (Meralco, Maynilad, PLDT, Smart and others) were made in the ordinary course of business and are for daily operation and general administration.

Costs and effects of compliance with environmental laws LRMC’s facilities are required to be maintained in compliance with the environmental standards set primarily by the DENR. ECC have been issued previously to LRTA, namely ECC 0801004- 7110 issued 2008, and ECC-O-8507-078-208 issued 1987 for the existing LRT-1 rail system.

For the commencement of the construction of the Cavite extension, LRTA has already obtained an ECC from the DENR under reference no. ECC-CO-1305-0018 issued in 2013. The ECC requires the proponent to abide by the following conditions: (1) Implementation of a Solid Waste Management Program, (2) Implementation of a dust control system at the construction site, (3) Construction and Installation of drainage structures, (4) Implementation of a social development program including priority employment for local residents within the direct impact areas, (5) Conduct and submit a Traffic Impact Assessment and a Traffic Management Program, (6) Submit evidence of compliance to all pertinent environmental regulations, (7) Set up an Environmental Guarantee Fund (EGF), a Multipartite Monitoring Team (MMT) and an Environmental Monitoring Fund (EMF), (8) Establish an Environmental unit, and (9) Submit a joint undertaking between Grantor and Concessionaire. Regulations require the grantee to submit a quarterly report of its environmental monitoring activities and a semi-annual report of its compliance to the above stated ECC.

LRMC has a dedicated environmental team that regularly monitors compliance not only with its ECCs but also with the International Finance Corporation (IFC) Performance Standards as stipulated in its Concessionaire’s Agreement. LRMC has established its Environmental and Social Management System that ensures measurement of significant environmental and social metrics for purposes of compliance with the reporting requirements. In addition, the presence of the MMT, established in January 2016, validates all the environmental activities and measurements of LRMC. LRMC has monthly Lenders Technical Advisers (LTA) audits conducted by ARUP and

commissioned TUV Rheinland to conduct independent environmental monitoring and compliance audits for the LRT-1 Cavite Extension Project. LRMC achieved ISO 14001 certification in July 2017.

Status of any publicly announced products and services In 2019, LRMC expanded LRT-1 EDSA Station through a property lease with Mayson Realty Corporation to accommodate the growing circulation of commuters in the said station. LRMC also launched ikotMNL (ikot Manila) mobile application in 4th quarter of 2019, a further development in the tourism program started in 2018 together with DOTr and accredited partners to promote the use of LRT-1 as the main mode of transportation in rediscovering Manila.

Several units of e-loading stations for Beep Cards were deployed in 2019. Moreover, LRMC entered into lease agreements with various merchants to expand its commercial business.

Common Station. On February 13, 2019, the DoTR signed the contract for the development of the Unified Common Station (UCS) which will provide a connection between LRT-1, MRT-3, MRT-7 and the Metro Manila Subway. As part of the Existing System signaling work, the EPC Contractor must make provision for the UCS signaling requirements to allow the provision of a signaling system associated with Roosevelt Station and the turnback track up to, and including, the Switch 17 in its new location. As of December 31, 2019, the installation of Switch 17 by the UCS Contractor is still on-going, which may delay the completion of the necessary signaling installation works by the EPC Contractor.

(B.6) Logistics

Business Development MPIC through MMI provides services in warehousing, trucking, freight forwarding and e- commerce fulfillment.

MMI completed the following acquisitions in 2019, 2018 and 2017:

▪ In February 2020, MMI entered into a Long-Term Lease Agreement for a 25-year lease of a 52,750 square meter property located along the Sta. Rosa-Tagaytay Road in Sta. Rosa City, Laguna. MMI intends to build a dry goods and refrigerated warehouse facility on the site which is targeted to be operational by 2021.

▪ On various dates in 2018, MMI signed agreements for the purchase of land that were intended for the development and management of distribution centers. (see Note 29 to the 2019 Audited Consolidated Financial Statements).

▪ On April 4, 2017, Premier, a subsidiary of MMI, completed the purchase of the businesses and assets, including key customer contracts of Ace Logistics Inc. (Ace) for an aggregate purchase price of P=280.0 million. Ace is engaged in the business of logistics, including warehousing, courier express and parcel delivery, e-commerce delivery, trucking, freight forwarding, customs brokerage and domestic shipping. Ace also has a strong presence in pre- delivery inspection in the automotive industry, which Premier intends to expand. The assets and business that was acquired in the transaction was intended for the expansion of MPIC’s logistics business.

Dependence on Licenses and Government Approval The Group relies on government permits to be able to operate its warehouses, trucks and freight forwarding services.

Civil Aeronautics Board MMI and PLI has obtained a Civil Aeronautics Board certification to engage in business of International and Domestic Freight Forwarding.

Domestic Freight Forward License (Department of Trade and Industries) The Group is currently obtaining its domestic freight forward license to operate pick-up and delivery transactions in the Philippines. The group is still completing requirements of the agency.

Courier License (General Authority – Department of Information and Communications Technology) The Group is currently obtaining its license to operate private express and/or messenger delivery services. The group is still completing requirements of the agency.

Land Transportation Franchising Regulatory Board (LTFRB) The Group utilizes trucks to deliver customer’s products from MMI’s warehouses to agreed delivery locations. These delivery trucks are required to be registered with the Land Transportation Franchising and Regulatory Board (LTFRB). MMI has obtained provisional approval from LTFRB to operate its trucks. MMI is expecting to receive all the relevant franchises from LTFRB as all documents requirement and audit/inspection has complied for.

Dependence on a Single Customer The logistics primary customers are top local manufacturers of fast-moving consumer goods. No single customer accounts for 20% or more of the Company’s revenues.

Source of Raw Materials Sources of its cost of services are from realtors for leasing of warehouses and purchase of land for Mega DC Projects; manpower, warehouse and trucking service providers; transportation equipment vendors for trucks to complement temporary lacking manpower, warehouse and trucking services; material handling vendors such as forklifts and racks.

Competition The logistics business competes against multiple service providers, mostly global companies and locally established logistics companies varying in size. These companies include Fast Logistics, DHL, DB Schenker, Royal Cargo and Li & Fung and 2GO Supply Chain and Freight Forwarding.

Cost and effects of compliance with environmental laws The group has been improving the old warehouses to comply with the fire and environmental laws of the local government unit or country. For 2020, the Group is expected to invest in fire detection and alarm systems.

All new warehouses will be built following international, national and local requirements.

Transactions with related parties The logistics group acts together when servicing a client. For instance, the trucking group serves the transportation needs of the customers of PLI and MMI.

(B.7) Others

On July 18, 2012, the stockholders and BOD of Neo Oracle Holdings Inc. (NOHI) resolved to amend its Articles of Incorporation to reflect (1) the change in name from Metro Pacific Corporation to Neo Oracle Holdings, Inc.; (2) shortened corporate life until December 31, 2013; and (3) reduce its BOD members from 11 to 5. Hence, NOHI is deemed dissolved as at December 31, 2013 and can no longer conduct business except with respect to transactions in furtherance of its liquidation. With the shortening of the corporate life, NOHI is not currently active but holds investments in lands and properties. NOHI continues to implement measures geared towards generating liquidity to meet maturing obligations which include settlement of the remaining third party debts via debt-for-asset swap arrangements, negotiation for discounts on principal and waiver of interests and penalties.

On February 19, 2020, MPIC announced the signing of a ₱1.6 billion investment agreement with Dusit to develop and manage jointly hospitality and residential properties in the Philippines. The investment agreement is subject to certain specific performance conditions precedent, including the approval of the Philippine Competition Commission.

As at December 31, 2019, the Parent Company has a total headcount of 55 employees (Administrative: 41, Rank and File: 14), who are neither unionized nor covered by special incentive arrangements. The Parent Company expects to increase its headcount in the next twelve months to 59.

Registrant’s Major risks

As an investment and management company, MPIC undertakes risk management both within the holding company and within the operating companies:

(D.1) On entering new investments Prior to making a new investment, any business to be acquired is subject to an extensive due diligence including financial, operational, regulatory, environmental and risk assessment as well as dispute resolution mechanisms. Risks to investment returns are then calibrated and specific measures to manage these risks are determined. The Company is highly selective in the investment opportunities it examines. Due diligence is conducted on a phased basis to minimize costs of evaluating opportunities that may ultimately not be pursued.

MPIC’s investments involve to varying degrees, a partnership approach with MPIC co-investing with partners that provide operational and technological input, thereby mitigating risks associated with new business areas.

Financing for new investments is through a combination of debt and/or equity by reference to the underlying strength of the cash flow of the target business and the overall financing position of MPIC itself.

MPIC’s geographic focus is predominantly the Philippines but with some additional assets in Indonesia, Thailand, and Vietnam. MPIC is mitigating its foreign investment risk through partnerships with reputable and influential local firms in these countries and engaging strong and reputable advisers.

(D.2) On ongoing Management of the Financial Stability of the Holding Company MPIC does not guarantee the borrowings of its investee companies and there are no cross-default provisions from one investee operating company to another. Financial stability of the holding company, including its dividend commitment to shareholders, is managed by reference to the ability of the investee companies to remit dividends to MPIC to cover operating costs and service borrowings. MPIC avoids currency and investment cycle mismatches by borrowing mostly in Pesos using primarily long-term instruments with fixed rates.

MPIC sets the level of debt on the Parent Company’s balance sheet so as to withstand variability of dividend receipts from its operating companies associated with regulatory and other risks described below.

(D.3) Risk Management within the Operating Companies

Each of the operating companies has a management team which is responsible for having their own plan to manage risk. These are reviewed semi-annually by their respective Risk Management Committees and periodically by MPIC. o Political and Regulatory risks. The majority of MPIC’s invested capital is deployed into businesses which are directly regulated by arms of the state: electricity distribution; water supply and distribution along with sewage treatment; tollroads; and light rail. Each of these businesses has concession or franchise agreements which involve a degree of operating performance obligation in order to retain our rights and earn our expected returns. In some cases, these agreements provide for retrospective assessment of the extent of our overall operational and financial performance sometimes over a period of years.

Risks arising from these types of businesses include the potential for differences with regulators involving interpretation of the relevant agreements – either during the period in question or in retrospect. To manage these risks, the operating companies have dedicated regulatory management groups with experienced personnel. Their duty is to manage the relationship with regulators, keep management up-to-date on the status of the relationship and ensure companies are well prepared for any forthcoming regulatory changes or challenges.

As of December 31, 2019, the Group has a sizeable amount of pending past due revenue claims accumulated for its water, toll and rail businesses (see Note 30 – Contingencies to the December 31, 2019 Audited Consolidated Financial Statements). The risk of being unable to collect these claims is being mitigated by continuing to deliver its obligations under its concession and franchise agreements and maintaining open communication lines with the various responsible government agencies. In December 2019 and following a water shortage in the first half of 2019, there have been significant regulatory and political challenges faced by the Group especially by Maynilad with respect to its 15-year extension of Concession Agreement from 2022 to 2037 awarded and operationalized under President Gloria Macapagal Arroyo.

According to a letter sent by MWSS to Maynilad dated December 11, 2019, in response to the President’s directive on the “Revision of Concession Agreements”, MWSS, through its Board Resolution No. 2019-201-CO revoked its own earlier resolutions (Resolution No. 2009-72 and Resolution No. 2010-172).

In response, Maynilad, through a letter to the MWSS Board dated December 12, 2019, sought urgent and unequivocal confirmation from the MWSS that the 2019 Resolution shortened the term of Maynilad’s Amended Concession Agreement.

In a letter to Maynilad dated December 23, 2019, the MWSS Regulatory Office (RO) confirmed that “as of to date, the 25-year Concession Agreement (CA) that covers the years 1997 to 2022 and the Memorandum of Agreement (MOA) that provides for the 15-year extension of the concession period from year 2022 to 2037 have not yet been cancelled.”

These matters are dealt with in detail elsewhere in this report and in the 2019 Audited Consolidated Financial Statements. o Competition and Market. There is strong competition in bidding for Public-Private Partnership (PPP) projects offered by the Philippine Government, and this may reduce forecast equity returns for winning bids. MPIC’s preferred approach is to provide unsolicited proposals to government in order to receive Original Proponent Status on its ideas. In this way it seeks to increase the prospect of winning projects and avoid plain vanilla ‘lowest return on capital’ bidding.

MPIC’s investments in coal generation through Global Business Power and MGEN are also becoming increasingly competitive due to Retail Electricity Supply (RES), migration of contestable customers from the captive market, increasing number of competitors and the amended Competitive Selection Process (CSP) rules. This is being addressed through the use of efficient process and technology and using low calorie coal in order to remain competitive.

Other competition risks in MPIC’s relevant operating companies are discussed in each operating company’s writeup (see Item 1 - Description of Business to the 2019 SEC Form 17- A). o Supply risk. MPIC’s water company, Maynilad, has fundamental supply side risk in that: (i) it secures almost all of its supply from a single source – the Angat dam (about 91% of Maynilad’s water supply source); and (ii) this water source is shared by another water concessionaire, a hydro electric plant, and the needs of farmers for irrigation. The Angat Dam water level only reached 201 Meters by the end of December 2019 (compared with the normal water level of 212 Meters). A water usage protocol is in place to ensure all users receive water as expected within the constraints of available supply. Following significant water supply disruptions in the past, the business has experienced periods of lower water supply than allowed for in its concession. Maynilad has worked to moderate reliance on Angat by tapping raw water from Laguna Lake. Currently, Maynilad has operationalized Putatan Water Treatment Plants to 300 MLD to augment water supply in preparation for the 2020 summer. Other projects in the pipeline include Laguna Lake Water Treatment Plant (150 MLD) in Poblacion, Muntinlupa and Teresa Water Treatment Plant (300MLD) in congruence with the planned Kaliwa Dam project. The Government-initiated 188 MLD Sumag Diversion Project to be undertaken by Maynilad and Manila Water has, however, been suspended by the Local Government, pending issuance of permits. The Company has also other plans in place to mitigate the projected water shortage in 2020 including activating deep wells in the affected areas.

The power generation companies in the MPIC portfolio depend on varying grades of coal for their fuel. Primary supply sources are backed up by alternative supply sources and carrying appropriate inventories.

We are reviewing all supply chain and inventory levels in light of the rapidly spreading COVID 19.

o Safety and Security risk. The operation of LRMC has significant operational safety and security risks. These risks have been exacerbated by the poor condition and inadequate maintenance of the system prior to the September 12, 2015 takeover by LRMC. LRMC is mitigating these risks by establishing a Safety Management System driven from the top, appointing a strong senior management team with extensive light rail operating experience and using a combination of engineering and administrative controls in the operations and maintenance of LRT-1. The risk of terrorism in the trains and stations, which is assessed as a key risk of LRMC, is also mitigated through strict inspection of incoming passengers, x-ray screening in high density stations, banning of wrapped packages as well as potentially harmful tools and chemicals and use of dogs trained in bomb detection in each station.

For GBPC, possible hazards facing its employees include fires, electrical shocks and burns, boiler fires and pressure vessel explosions, contact with hazardous chemicals, moving objects and heavy equipment, fall, confined space works, and marine operations such as off- loading of coal which are common risks in power plant facilities. GBPC is implementing safety programs and policies aimed at reducing and/or eliminating accidents. In addition, GBPC is investing in manpower safety training, machine safety design, fire protection systems, emergency response equipment and regular fire-drills, provision of personal protective equipment, site inspections, regular equipment maintenance and 3rd party certifications, and monitoring systems for emergency and security purposes. All GBPC power plants are ISO-certified.

For Maynilad, possible common safety-related incidents include potential slips, trips and falls into a confined space such as in waste water treatment plants. These incidents become more acute with the presence of dangerous gases in the air throughout the facility. Specifically, the main gases of concern in wastewater treatment plants are methane, hydrogen sulfide and too much or the lack of oxygen. Beyond these gas hazards are the dangers that can be brought by chlorine, a purifying chemical that is used by Maynilad in the decontamination of the waste and effluent water. Maynilad is mitigating these risks through closely monitoring employees who are at higher risk for hazard exposure and providing preventive measures to ensure safety.

Any incident of poor water quality distributed by Maynilad can severely impact on the health and safety of its customers. Maynilad mitigates this risk by performing both quality assurance and quality control checks to ensure that the water distributed to the customers is compliant with the Philippine National Standard for Drinking Water 2017. At the plant level, the process control laboratories of its La Mesa and Putatan plants conduct quality assurance at every stage of the treatment process. Likewise, at the water distribution level, Maynilad’s Central Laboratory performs quality control activities through daily testing of the water quality of water samples collected from the tap of the customers at a ratio of 1 sample per 10,000 population.

For MERALCO, their safety risks are those attendant to operating an above ground power distribution system serving approximately 28 million people. The primary risks are death or injury through fall, burn or electrocution. Extensive training is made on using safety equipment and operating protocols to minimize safety incidents.

The Group has institutionalized monitoring and reporting of work-related fatalities and serious injuries for review by the MPIC Risk Management Committee.

o Climate change risk and related issues. ▪ Extreme or unusual weather patterns associated with climate change is one of the Group’s key risks. MPIC’s principal operating companies’ risk mitigation measures include: weather hardening for above ground power distribution; increasing water processing capacity for highly turbid water; and improved drainage and flood protection for toll roads. The principal operating companies have also formalized and are continuously improving their Business Continuity Plans including coordination with government and private organizations such as the Philippine Institute of Volcanology and Seismology (PHIVOLCS), National Disaster Risk Reduction and Management Council (NDRRMC) and Philippine Disaster Resilience Foundation (PDRF) together with the operating companies’ respective regulators.

o Other operational risk In LRMC, there are risks to projected financial returns through late delivery of Government procured items such as Rights of Way, additional Light Rail Vehicles (LRVs), and the Common Station. Plans to mitigate these risks include consistently engaging the regulators on the status of the projects’ milestones and joint regular performance reviews by both parties – the Concessionaire (LRMC) and the Grantors (the DOTC and the Light Rail Transit Authority or LRTA).

Other risk associated with the Group’s operations, specifically on its Environmental, Social and Governance aspects were discussed in the Company’s Sustainability Reports (SR).

(D.4) Financial Risk Management The financial risks of MPIC’s operating companies are primarily: interest rate risk, foreign currency risk, liquidity risk, credit risk and equity price risk (see Note 33 - Financial Risk Management Objectives and Policies to the 2019 Audited Consolidated Financial Statements for more details on these risks).

Equity Price Risk. MPIC’s operating companies are generally not faced with equity price risk beyond that normal for any listed company, where relevant.

The regulatory returns for MERALCO and Maynilad are benchmarked in part to the changing cost of equity (and debt) in the Philippines with a positive correlation between rising equity risk premiums and nominal returns. For more details on MERALCO’s risk factors, refer to MERALCO’s December 31, 2019 SEC Form 17-A as also uploaded on the edge website of the PSE.

Refer to the Risk Management section of MPIC’s Annual Report for the Company’s risk governance structure and overview of risk management process.

Item 2. Description of Properties

Power Segment. GBPC’s generation subsidiaries owned power generation facilities, buildings, land and other land improvements and property and equipment for the operation of its power generation business. The power plant complexes of the generation subsidiaries have been mortgaged and/or pledged as security for their long-term debt (see Note 13, Property, Plant and Equipment to the 2019 Audited Financial Statements).

Toll Operations Segment. NLEX Corp and CIC own their head office buildings in Balintawak, Caloocan City and Paranaque City, respectively. Other equipment, which is relatively insignificant, consists of transportation equipment and office equipment primarily located in their respective head

offices. NLEX Corp and CIC do not own the parcels of land over which the toll roads have been built as these are owned by the Republic of the Philippines. In 2017 and 2016, NLEX Ventures Corporation (NVC), a wholly-owned subsidiary of NLEX Corp, acquired parcels of land located in Valenzuela City. A parcel of land acquired in 2016 is presently the site of a service facility under a lease agreement, while the other parcels of land are being developed as a property for lease with business proponents.

Metro Pacific Tollways South Corporation (MPTSC), a wholly-owned subsidiary of MPTC, acquired a parcel of land in Cavite to be developed into headquarters for concessions held in the south part of Luzon. Metro Pacific Tollways Vizmin Corporation (MPTVC), a wholly-owned subsidiary of MPTC, also acquired a parcel of land in Cordova, Cebu to be developed into headquarters for CCLEC.

PT Nusantara’s properties consist of land, building and building improvements. PT Nusantara and its subsidiaries, PT Margautama Nusantara (MUN) and BSD, owns building units which serve as their office space in South Jakarta and Banten, Indonesia. PT Inpola Meka Energi (IME), another indirectly owned subsidiary, owns a land which serves as the site of construction of its hydro-power plant located in the Province of North Sumatera, Indonesia. Other equipment consists of transportation equipment, machinery and office equipment primarily located in their office and operation sites.

Water Segment. Maynilad is tasked to manage, operate, repair, decommission and refurbish certain specified MWSS facilities in the West Service Area. The legal title to these assets remains with MWSS. The legal title to all property, plant and equipment contributed to the existing MWSS system by Maynilad during the concession period remains with Maynilad until the expiration date (or on early termination date) at which time, all rights, titles and interest in such assets will automatically vest to MWSS.

Maynilad leases the office space and branches where service outlets are located, equipment and service vehicles, renewable under certain terms and conditions to be agreed upon by the parties. Refer to Note 29 - Significant Contracts, Agreements and Commitments to the 2019 Audited Consolidated Financial Statements.

MPW, through its subsidiaries and associates, took over the operations of certain assets from the counterparty water districts upon the commencement of the Projects. Legal title to such assets remains with these water districts. The legal title to assets acquired and constructed during the term of the Projects accrues to the joint venture companies until the expiration date (or the early termination date), after which all rights, titles and interest in such assets automatically vest to these water districts.

MPW, through the share purchase transactions, has gained proportionate ownership over the assets in TLW and PNW. Legal title to all existing assets remained in TLW and PNW after the purchase transaction.

Rail Segment. Under the LRT-1 concession agreement, the ownership of the existing LRT-1 system taken over by LRMC remains with the Grantors (the LRTA and DOTr). This includes the existing depot, railway system, rolling stock, stations and track. Moreover, the ownership of all items procured by the Grantors after LRMC’s takeover, including any new LRVs, will remain with the Grantors. The ownership of the planned railway infrastructure extension (south of the Baclaran station) and new signaling system will vest to the Grantors upon the final commissioning and acceptance. LRMC does not own the parcels of land over which the railway system lies as these are owned by the Grantors.

Logistics. MMI owned land in San Rafael, Bulacan and General Trias, Cavite with a total combined area of 421,000 sqm for developing into covered warehouses. MMI also owned a fleet of trucks and

other equipment. In December 2019, the BOD has approved the sale of the land purchased in San Rafael, Bulacan and General Trias, Cavite. The proceeds will be used to fund the operating requirements of the Group.

Healthcare Segment. MPHHI is developing the Philippines’ first nationwide chain of leading hospitals to deliver comprehensive in-patient and out-patient hospital services, including medical and surgical services, diagnostic, therapeutic intensive care, research and training facilities in strategic locations in the Philippines: ▪ MMC is a multi-specialty tertiary medical centre situated in the central business district of Makati, Metro Manila. ▪ AHI is a hospital located in Alabang, Muntinlupa in Southern Metro Manila. ▪ DLSMC is a mid-market teaching and training hospital in Quezon City, the largest city in Metro Manila. ▪ MDH, a tertiary hospital located in the City of Manila. ▪ MVMC is a prominent tertiary hospital along Sumulong Highway in Marikina City. ▪ JDMH is a tertiary general hospital is located in Kamuning Road, Quezon City ▪ SHHM is a level two hospital in Malolos, Bulacan. ▪ DDH is considered to be the largest and one of the best medical facilities offering modern diagnostic, therapeutic and intensive care services in Southern Philippines. ▪ RMCI, also known as Dr. Pablo O. Torre Memorial Hospital, is the largest and a leading medical facility in Bacolod in the island of Negros, Western Visayas. ▪ CLDH is the largest tertiary hospital in Tarlac. ▪ SEHI is the largest hospital in SOCCSKSARGEN region. ▪ WMMC is a secondary-level private hospital in Zamboanga City. ▪ Santos Clinic Incorporated is a level two hospital in Butuan, Mindanao ▪ MegaClinic, TopHealth and Metro Sanitas Metlive are mall-based diagnostic and ambulatory care centers located in Metro Manila. ▪ Lipa Medix Cancer Center Corporation, Metro CLDH Cancer Center Corporation and Metro RMCI Cancer Center Corporation are radiotherapy facilities located in Batangas, Tarlac and Bacolod, respectively.

Lease Arrangements. East Manila Hospital Managers Corp. (EMHMC) and CVHMC entered into lease agreements with Servants of the Holy Spirit, Inc. and Roman Catholic Archbishop of Manila for the management and operation of OLLH and CSMC, respectively. The lease of EMHMC and CVHMC are for a period of 20 years, renewable for successive periods of 10 years upon the mutual consent of both parties. As consideration for the lease agreement fixed and variable monthly rates are paid where the variable rate is based on the prior year’s net revenues (see Note 32 to the 2019 Audited Consolidated Financial Statements).

Item 3. Legal Proceedings

The Group is a party to various legal matters and claims arising in the ordinary course of business. These various legal proceedings are properly disclosed in Note 30, Contingencies to the 2019 Audited Consolidated Financial Statements attached hereto.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report.

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters

• Market information

The Registrant’s common shares are listed on the PSE. The high and low sales prices of such shares for the last quarter of the years 2017, 2018, 2019 and the first two months of 2020 are set out below. The share price as at the close of business on February 29, 2019 was P=3.07.

Quarter Low High 2017 1st 6.63 6.78 2nd 6.37 6.50 3rd 6.64 6.77 4th 6.66 6.78 2018 1st 6.02 6.18 2nd 4.84 5.01 3rd 4.82 4.97 4th 4.69 4.81 2019 1st 4.55 5.18 2nd 4.11 4.89 3rd 4.37 5.28 4th 2.69 5.20 2020 February 2.87 3.82

• Holders

The total number of stockholders as at February 29, 2020 is 1,305

Top 20 Stockholders as at February 29, 2020

Number of Rank Stockholder Name Percent Shares 1 Metro Pacific Holdings, Inc. 13,222,948,170 41.89%

2 PCD Nominee Corporation (Non-Filipino) 6,972,156,367 22.09%

3 PCD Nominee Corporation (Filipino) 6,331,371,982 20.06%

4 GT Capital Holdings, Inc. 4,900,000,000 15.52%

5 Sergio Ong or Shirley Olano 55,000,000 00.17%

6 Evelyn Ong or Shirley Olano 30,000,000 00.10% Albert F. Del Rosario and/or Margaret 7 12,774,224 00.04% Gretchen V. Del Rosario 8 Manuel Velez Pangilinan 9,500,001 00.03%

9 Ray Celis Espinosa 7,600,001 00.02%

10 Lucio W. Yan and/or Clara Y. Yan 2,850,000 00.01%

11 Lydia B. Echauz 2,030,000 00.01%

12 Ferdinand G. Inacay 1,500,000 00.00%

13 Baby Lea M. Wong 1,000,000 00.00%

14 Lucio W. Yan and/or Clara Y. Yan 1,000,000 00.00%

15 Raul L. Ignacio 1,000,000 00.00%

16 Nicolas G. Manalo 1,000,000 00.00%

17 Tessa Acosta 1,000,000 00.00%

18 First Life Financial Co., Inc. 830,000 00.00%

19 Berck Y. Cheng 650,000 00.00%

20 J. Luigi L. Bautista 650,000 00.00%

• Dividends

Apart from cash restrictions and a retained deficit position of the Parent Company, it may not declare or pay cash dividends to its stockholders or retain, retire, purchase or otherwise acquire any claims of its capital stock or make any other capital or asset distribution to its stockholders if, at the time of such declaration: (i) its Debt-to-Equity Ratio exceeds 70:30; (ii) its Debt Service Coverage Ratio is below 1.3x; and (iii) the funds in deposit in the Debt Service Account do not meet the required Debt Service Account balance.

Following are the cash dividends declared by MPIC’s board of directors in favor of MPIC common and preferred shares for the past three years ended December 2017, 2018 and 2019:

Rate per Preferred Year Record Date Payable Date Common Share Dividends P=0.068 P=4.6 million 3/30/2017 4/26/2017 2017 P=0.035 P=4.6 million 9/1/2017 9/26/2017 P=0.076 P=4.6 million 3/28/2018 4/26/2018 2018 P=0.035 P=4.6 million 8/31/2018 9/25/2018 P=0.076 P=4.6 million 3/20/2019 4/3/2019 2019 P=0.035 P=4.6 million 8/19/2019 8/30/2019

On February 26, 2020, the BOD approved the declaration of the cash dividends of P=0.076 per common share in favor of the Parent Company’s shareholders of record as at March 12, 2020 with payment date of March 20, 2020. On the same date, the BOD approved the declaration of cash dividends amounting to P=4.6 million in favor of the preferred shareholders.

• Recent Sales of Unregistered or Exempt Securities

MPIC issued the following shares via private placements for which exemptions from registration were claimed and notices of exempt transactions were accordingly filed with the Philippine SEC:

1. On May 27, 2016, MPIC entered into a Shares Subscription Agreement with GT Capital Holdings, Inc. (GTCHI) for the subscription by GTCHI of 3,600,000,000 common shares in MPIC at a subscription price of P=6.10 per share. The subscription Shares was issued out of the increased Authorized Capital Stock approved last August 5, 2016.

2. On May 27, 2016, MPIC also entered into a Share Subscription Agreement with MPHI for the subscription by MPHI of 4,100,000,000 newly issued Class A Voting Preferred Shares at par value for a total consideration of P=41.3 Million.

3. MPIC, together with its principal shareholder, MPHI, entered into a placement agreement with UBS AG, Hong Kong Branch on February 9, 2015, in respect of the offer and sale (the “Offer”) by MPHI of 1,812,000,000 common shares of MPIC at the Offer Price of P=4.90 per share. Closing of the Offer is conditioned, among others, on MPHI subscribing (or agreeing to subscribe) to the same number of shares at the offer price or a total of approximately P=8.9 billion.

The abovementioned notices of exempt transactions were made on the basis of:

i. Section 10.1(e) of the Securities Regulation Code (SRC) – The sale of capital stock of a corporation to its own stockholders exclusively, where no commission or other remuneration is paid or given directly or indirectly in connection with the sale of such capital stock.

The abovementioned issuances were issued by MPIC to MPHI, its majority stockholder, and GTCHI, exclusively and no commission or other remuneration was paid or given directly or indirectly in connection with such issuances. ii. Section 10.1 (k) of the SRC – The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period.

MPIC issued securities to fewer than twenty (20) persons in the Philippines during any twelve-month period.

The above described request for exemption from registration was made on the basis of Section 10.1 of the SRC. MPIC averred that by reason of the relative small amount and limited character of the aforesaid issuance, registration is not necessary for the public interest and for the protection of prospective investors who are employees of MPIC and/or its subsidiaries and affiliates and are in the position to know the present affairs of MPIC and the risks of investing therein.

Item 6. Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD & A)

Financial Highlights and Key Performance Indicators

The following discussion and analysis of the Group’s financial condition and results of operations should be read in conjunction with the accompanying 2019 Audited Consolidated Financial Statements and the related notes included in this Report. Key performance indicators of the Group are as follows:

2019 2018 2017 Audited (in Php Millions) Operating Revenues 88,157 83,029 62,512 Net income attributable to owners of the Parent 23,856 14,130 13,151 Company Core EBITDA 42,260 37,665 32,570 Core income 15,602 15,060 14,104 Non-recurring income (expense) 8,254 (930) (953) Core EBITDA margin 48% 45% 52%

Overview

Highlights for 2019 which had significant impact on the financial statements of the Group are as follows:

Toll Operations ▪ On February 26, 2019, MPTC acquired a 100% interest in Southbend Express Services Inc. (SESI) for a consideration of P=93 million. SESI is engaged in providing manpower services to public and private offices, as well as industrial, commercial and other establishments ▪ On September 23, 2019, MPTC increased its effective interest in PT Margautama Nusantara (MUN) to 81.9% from 56.9% for a consideration of P=3.5 billion. MUN is a private company in Indonesia engaged in the development and operation of toll roads, and currently manages four toll roads in Indonesia.

Healthcare ▪ On December 9, 2019, MPIC completed the divestment of its 40% interest in MPHHI to Buhay Ventures Holdings (PH) Inc. (Buhay), a subsidiary of KKR & Co. Inc., for a consideration of P=30.1 billion of which MPIC had received P=26.1 billion, with the balance of P=1.6 billion pesos and P=2.4 billion payable by Buhay within six months and 12 months of closing, respectively. As part of the transaction, Buhay also invested P=5.2 billion in MPHHI for business expansion. Buhay had injected half of the committed amount to MPHHI on December 9, 2019 and the remaining half is payable within three years of closing. On a fully diluted basis, MPIC’s effective economic interest in MPHHI was reduced to 20.0% from 60.1% after this transaction (see Note 32 to the 2019 Audited Consolidated Financial Statements). ▪ On December 11, 2019, MPHHI acquired a 77.1% interest in Santos Clinic Incorporated, owner and operator of Manuel J. Santos Hospital for a consideration of approximately P=373 million pesos.

Water ▪ On September 3, 2019, MPIC through its wholly-owned subsidiary MPW signed a 80/20 joint venture agreement with the Dumaguete City Water District (DCWD) for the rehabilitation,

operation, maintenance and expansion of DCWD’s existing water distribution system and the development of wastewater facilities. The estimated cost for this 25-year joint venture project is P=1.6 billion and MPW has injected P=560 million as its portion of the initial equity investment in the project. ▪ On September 5, 2019, MPW completed its acquisition of additional 7.5% ownership interest in BOO Phu Ninh Water Treatment Plant Joint Stock Company (PNW) for P=78 million which increased its shareholding from 45.0% to 52.5%

Adoption of New Standards and Interpretations

The Company’s accounting policies are consistent with those followed in the preparation of the Company’s most recent annual consolidated financial statements, taking into account the changes in accounting policies and the adoption of the new and amended Philippine Financial Reporting Standards (PFRS), which became effective on January 1, 2019. Except for the adoption of PFRS 16, Leases, adoption of new standards did not have a material impact on the Company’s financial results. Refer to Note 38, Significant Accounting Policies to the 2019 Audited Consolidated Financial Statements.

Description of Operating Segments of the Group

As discussed under Item 1 – B. Business of Issuer, the Group is organized into the following segments based on services and products: power, toll operations, water, healthcare, rail, logistics and others.

Operational Review

I - MPIC Consolidated

The Company’s chief operating decision maker is the BOD. The BOD monitors the operating results of each business unit separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on: consolidated net income for the year; earnings before interest, taxes and depreciation and amortization, or Core EBITDA; Core EBITDA margin; and Core Income. Net income for the year is measured consistent with consolidated net income in the consolidated financial statements.

Core EBITDA is measured as net income excluding depreciation and amortization of property and equipment and intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity in net earnings (losses) of associates and joint ventures, net foreign exchange gains (losses), net gains (losses) on derivative financial instruments, provision for (benefit from) income tax and other non-recurring gains (losses). Core EBITDA margin pertains to Core EBITDA divided by service revenues.

Performance of the operating segments is also assessed based on a measure of recurring profit or core income. Core income is measured as net income attributable to owners of the Company excluding the effects of foreign exchange and derivative gains or losses and non-recurring items (NRI), net of tax effect of aforementioned. NRI represent gains or losses that, through occurrence or size, are not considered usual operating items.

The following section includes discussion of the Company’s results of its operations as presented in its consolidated financial statements as well as management’s assessments of the performance of the Group which is translated to core (or recurring) profit and non-core (or non-recurring) profit.

2019 versus 2018

MPIC Consolidated Statements of Income

Increase 2019 2018 (Decrease) Audited Amount % (in Php Millions) Operating Revenues 88,157 83,029 5,128 6 Continuing operations 73,499 70,079 3,420 5 MPHHI 14,658 12,950 1,708 13 Cost of Sales and Services 43,720 42,714 1,006 2 Continuing operations 34,825 35,202 (377) (1) MPHHI 8,895 7,512 1,383 18 General and administrative expenses 16,272 14,972 1,300 9 Continuing operations 12,496 11,152 1,344 12 MPHHI 3,776 3,820 (44) (1) Interest expense 11,994 10,388 1,606 15 Continuing operations 11,800 10,230 1,570 15 MPHHI 194 158 36 23 Share in net earnings of associates and joint 11,402 11,073 329 3 ventures Continuing operations 11,172 10,791 381 4 MPHHI 230 282 (52) (18) Interest income 2,304 1,496 808 54 Continuing operations 2,257 1,451 806 56 MPHHI 47 45 2 4 Construction revenue 42,975 27,363 15,612 57 Construction costs (42,975) (27,362) (15,613) 57 Other income (expense) - net 9,486 1,488 7,998 >100 Continuing operations: Provision for decline in (22,020) (798) (21,222) >100 value of assets Gain on deconsolidation of MPHHI 32,031 0 32,031 >100 Others (525) 2,286 (2,811) >100 Provision for income tax 11,611 7,008 4,603 66 Continuing operations 4,743 6,395 (1,652) (26) MPHHI 6,868 613 6,255 >100 Net income attributable to owners of the Parent 23,856 14,130 9,726 69 Company Other comprehensive income (loss) (1,476) 321 (1,797) >100 Total comprehensive income attributable to 22,549 14,307 8,242 58 owners of the Parent Company Core income 15,602 15,060 542 4 Non-recurring income (expense) 8,254 (930) 9,184 >100

Revenues The Company’s revenues from continuing operations increased by 5% to P=73,499 million in 2019, reflecting improved performances from the following operating segments. ▪ Water utilities posted an 11% increase in revenues on the strength of Maynilad’s 2% billed volume growth together with basic and inflation-linked tariff increases; and (ii) MPW’s Bulk water and Sewage Treatment Plant services contribution. ▪ Toll revenues are higher by 19% with average daily entries for 2019 up by 7% on the NLEX, 13% on the SCTEX and 24% on the CAVITEX compared with 2018 and toll rate increases in NLEX in March 2019, SCTEX in June 2019 and CAVITEX in October 2019. In addition, full year revenues from the consolidation of PT Nusantara beginning July 2018. ▪ Logistics and other revenues during 2019 increased by 20% to P=2,010.

The above improvements in revenues were partially offset by the decline in GBPC and LRMC’s earnings. GBPC’s revenues decreased by 9% due to the end of various bilateral contracts partially offset the higher margins from WESM sales. Rail revenues decreased by 1% driven by decrease in ridership due to shortened operating hours and fewer running LRVs.

See the relevant segment information under section II - OPERATING SEGMENTS OF THE GROUP.

Cost of Sales and Services Cost of sales and services from continuing operations decreased by 1% to P=34,825 million mainly due to lower pass through cost driven by lower coal and fuel prices. This was partially offset by the consolidation of PT Nusantara and increase in concession amortization from continued growth of concession assets through ongoing capital expenditures, as well as increased traffic and billed volume of water (amortization on U-o-P basis) (see Note 21 to the 2019 Audited Consolidated Financial Statements).

General and administrative expenses General and administrative expenses from continuing operations increased by 12% to P=12,496 million in 2019 mainly due to consolidation of PT Nusantara beginning July 2018 and inflationary growth in personnel costs (see Note 22 to the 2019 Audited Consolidated Financial Statements).

Interest expense The Company’s consolidated interest expense from continuing operations increased by 15% to P=11,800 million with new bank loans drawn for capital expenditure (see Note 18 to the 2019 Audited Consolidated Financial Statements).

Share in net earnings of associates and joint ventures Share in net earnings of equity method investees from continuing operations increased by 4% to P=11,172 million mainly due to improved performance at ATEC (see Note 10 to the 2019 Audited Consolidated Financial Statements). The Company’s lower share in in net earnings in 2018 was also a result of absorption of losses in PT Nusantara prior to its consolidation in July 2018.

Other income (expense) - net Consolidated other income (expense) for 2019 included gain on the deconsolidation of MPHHI, partially offset by provisions for decline in value of assets in water and logistics businesses and penalties for loan prepayment (see Notes 24 and 32 to the 2019 Audited Consolidated Financial Statements).

Consolidated net income attributable to equity holders of the Parent Company The increase in this account is mainly attributable to substantial Core Net Income growth from MERALCO and continuing traffic growth on all domestic roads.

Other comprehensive income (loss) - net The Company recognized a net other comprehensive loss of P=1,476 million in 2019 as compared with the net comprehensive income of P=321 million in 2018. Year 2019 includes higher share in actuarial valuation adjustment from MERALCO and cumulative translation adjustments from DMT, CII B&R, PT Nusantara and PNW.

Core Income attributable to equity holders of the Parent Company MPIC’s share in the consolidated core income increased by 4% from P=15,060 million in 2018 to P=15,602 million in 2019 primarily reflecting the following: ▪ Power (distribution and generation) accounted for P=11.7 billion or 55% of the aggregate contribution; ▪ Toll operations contributed P=5.1 billion or 25% of the total; ▪ Water (distribution, production and sewerage treatment) contributed P=3.6 billion or 17% of the total; ▪ Hospital group contributed P=867 million or 4% of the total; and, ▪ the Rail, Logistics and others contributed combined net loss of P=352 million.

The figures referred to above represent MPIC’s share in the stand-alone core income of the operating companies, net of consolidation adjustments. See the relevant segment information under section II - OPERATING SEGMENTS OF THE GROUP.

Non-recurring income (expense) Non-recurring income amounting to P=8,254 million in 2019 is primarily due to deconsolidating the Group's investment in the Hospitals portfolio partly offset by restructuring costs of logistics business and reduction in the carrying values of some of our water investments. 2018 non-recurring expenses of P=930 million were primarily due to the net effect of Peso weakening, project write-downs, loan refinancing and provisions for asset impairment.

II - Operating Segments of the Group

Power

MPIC’s power business contributed P=11.7 billion to Core Net Income in 2019, a 7% increase driven largely by MERALCO.

MERALCO

Increase 2019 2018 (Decrease) MERALCO Audited Amount % (in Php Millions) Revenues 318,315 304,454 13,861 5 Expenses 287,076 276,012 11,064 4 Core Income 23,832 22,408 1,424 6 Reported net income attributable to equity holders of MERALCO 23,285 23,017 268 1 Capital Expenditure 20,233 13,669 6,564 48

Increase Key Performance Indicators (Decrease) 2019 2018 Amount % Volume Sold (in mln kwh) 46,871 44,313 2,558 6 System Loss (12-month moving average) 5.54% 5.67% -0.13% (2)

MERALCO’s Core Net Income in 2019 rose 6% to P=23.8 billion, driven by a 6% increase in energy sales, lower borrowing costs on lower debt, and higher investment returns.

Energy sales rose across all of MERALCO’s customer classes. Residential sector growth accelerated due to warmer weather and new customer connections. Commercial sector sales grew on continued expansion of business-to-consumer services, while growth in the industrial sector was broadly based.

Lower fuel prices and a stronger Peso reduced pass-through generation charges with the result that the 5% increase in total revenues to P=318.3 billion was outpaced by the 6% increase in energy sales.

MERALCO spent P=20.2 billion on capital expenditures in 2019 to address critical loading of existing facilities and to support growing demand and customer connections.

GBPC

Increase 2019 2018 (Decrease) GBPC Audited Amount % (in Php Millions) Revenue 24,223 26,822 (2,599) (10) Expenses 17,568 20,598 (3,030) (15) EBITDA Core 9,871 9,159 712 8 Core Income 2,725 2,458 267 11 Reported Net Income attributable to equity holders of GBPC 2,628 2,431 197 8

Increase Key Performance Indicators (Decrease) 2019 2018 Amount % Electricity Sold (consolidated; GWh) 4,818 4,822 (4) (0) Bilateral – Generation 4,005 3,688 317 9 Bilateral – WESM 236 524 (288) (55) WESM – Spot Sales 577 610 (33) (5)

Global Power recorded an 11% growth in Core Net Income of P=2.7 billion in 2019 from P=2.5 billion in 2018 despite flat sales volumes.

Core Net Income remains positive with higher margins on increased WESM prices and ancillary service agreements which largely offset the end of various short-term power supply agreements and rising depreciation and interest expenses.

Contribution from 50%-owned Alsons Thermal Energy Corporation (“ATEC”) rose to P=418 million from last year’s P=249 million due to the earnings from ATEC’s expansion plant which started commercial operations on October 10, 2019. ATEC’s second 105 MW (80 MW contracted) expansion plant currently supplies electricity to an additional 4 million people in Mindanao.

Global Power plans to invest in renewable energy projects to complement its current fossil fuel capacity.

Toll Operations

Increase 2019 2018 (Decrease) Metro Pacific Tollways Corporation Audited Amount % (in Php Millions) Consolidated Statements of Income Net toll revenues 18,503 15,486 3,017 19 Cost of Services 9,060 7,645 1,415 19 Core EBITDA 13,267 10,474 2,793 27 Core Income 5,265 4,450 815 18 Reported net income attributable to equity holders of MPTC 4,926 4,274 652 15 Capital Expenditure 26,172 11,795 14,377 122

Increase Key Performance Indicators (Decrease) 2019 2018 Amount % Average Daily Vehicle Entries: NLEX 283,296 265,530 17,765 7 SCTEX 70,551 62,684 7,867 13 CAVITEX 181,656 146,315 35,341 24 DMT 92,914 99,479 (6,565) (7) CII B&R 40,982 33,007 7,975 24 PT Nusantara 278,309 306,086 (27,776) (9)

Metro Pacific Tollways Corporation (“MPTC”) recorded Core Net Income of P=5.3 billion in 2019, an 18% increase from P=4.5 billion a year earlier, as a result of higher traffic on domestic roads and tariff adjustments in NLEX, SCTEX and CAVITEX, offset by lower traffic on our regional roads and higher borrowing costs. Overall, MPTC’s system-wide vehicle entries, including both our domestic and regional road networks, averaged 947,708 a day in 2019 versus 913,101 in 2018.

Tollroads in the Philippines: Average daily vehicle entries on all three of our domestic tollways (NLEX, CAVITEX and SCTEX) rose 13% to 535,503 in 2019 compared with 474,529 in 2018.

In 2019, MPTC opened three road developments – (i) the NLEX Harbor Link Segment 10 in February; (ii) in July, the first section of CAVITEX C5 South Link, the 2.2 – kilometer flyover crossing South Luzon Expressway (SLEX) traversing Taguig and Pasay City; and (iii) in October, the first 10.7 km of the Cavite-Laguna Expressway (CALAX). The first sub-section of the CALAX, which received authority to start full commercial operations on 11th February 2020, provides travelers with an alternative route between Sta. Rosa-Tagaytay Road and Mamplasan Road, helping to decongest Aguinaldo hi-way and Sta. Rosa-Tagaytay road.

C3-R10 Section of NLEX Harbor Link Segment 10, the elevated expressway that provides direct access between R10 in Navotas City and NLEX, had a partial opening in February 2020. MPTC is on track to fully operationalize the entire C3-R10 Section by March 2020. With full completion of this project, travel time from the Port Area to NLEX will be reduced to 10 minutes, significantly benefitting the transport logistics industry as cargo trucks are spared from the truck ban and congestion on local roads.

Meanwhile, construction continues on MPTC’s other road projects – the NLEX Radial Road 10, remaining portions of the CAVITEX C5 South Link, CALAX, and the Cebu Cordova Link Expressway. Our tollways management is focused on speeding up Right of Way acquisition to meet Target Completion dates.

MPTC expects to spend an additional P=25 billion on building roads if it secures the Cavite-Tagaytay- Batangas Expressway (CTBEx), for which it was awarded Original Proponent status. The final award of the CTBEx Project will be subject to a Swiss Challenge expected before the second quarter of 2020.

In 2019, MPTC also made meaningful progress on regulatory matters on our toll roads with the approval and implementation of the new toll rate matrices for NLEX, SCTEX, CAVITEX R-1 and C5 South Link Express Way. The new toll rate matrix for the NLEX addresses toll increases due in 2012 and 2014, albeit on a staggered basis, and also includes recovery of investment in the NLEX Harbor Link Segment 10. The resolution of various regulatory matters encourages us to remain on track with investment programs geared towards increasing the productivity of the economy.

Tollroads outside the Philippines: Average daily vehicle entries for the toll investments outside the Philippines declined 6% to 412,205 in 2019 compared with 438,572 in 2018. Lower traffic volumes on DMT (Bangkok) and PT Nusantara (Indonesia) were due to construction and road integration within their concession areas.

In September 2019, MPTC increased its effective ownership of PT Margautama Nusantara (MUN) from 56.2% to 81.9%. MUN is PT Nusantara’s holding company for toll roads investment.

Water

Maynilad Water Services, Inc. 2019 2018 Increase (Decrease) Audited Amount % (in Php Millions) Consolidated Statements of Income Revenues 23,992 22,024 1,968 9 Costs and Expenses 10,616 9,606 1,010 11 Core EBITDA 16,294 15,454 840 5 Core Income 7,723 7,731 (8) (0) Reported Net Income 7,316 7,368 (52) (1) Capital Expenditure 12,380 11,944 436 4

Key Performance Indicators Increase (Decrease) 2018 2017 Amount % Volume of water supplied (MCM) 727.3 750.8 (23.6) (3) Volume of water billed (MCM) 535.3 527.2 8.2 2 Volume of water billed (MCM) - Consolidated 553.6 546.1 7.5 1 Non revenue water % (average) 26.4% 29.8% -3.4% (11) Non revenue water % (period end) 25.3% 27.1% -1.7% (6) Billed customers (period end) 1,453,979 1,407,503 46,476 3 Customer mix (% based on billed volume)

Maynilad Water Services, Inc. 2019 2018 Increase (Decrease) Audited Amount % (in Php Millions) Domestic (residential and semi-business) 80.0% 80.5% -0.5% (1) Non-domestic (commercial and industrial) 19.7% 19.5% 0.2% 1

MPIC’s water business comprises investments in Maynilad, the biggest water utility in the Philippines, and MetroPac Water Investments Corporation (MPW), focused on building new water businesses outside Metro Manila. The water segment’s contribution to Core Net Income amounted to ₱3.6 billion in 2019, most of it from Maynilad.

Maynilad Maynilad’s Core Net Income for 2019 remained flat at P=7.7 billion. While revenues rose 9% to P=24.0 billion from P=22.0 billion in 2018 as a result of the combined effect of increases in tariff (basic and inflation-linked) and the number of water connections, Maynilad’s Core Net Income remained flat as a result of higher amortization and depreciation expenses as a consequence of Maynilad’s heavy investments in Non-Revenue Water Reduction Program and continuing facilities upgrades.

In September 2019, Maynilad received a copy of a Supreme Court decision that the water concessionaires and MWSS are jointly and severally liable for violating Section 8 of the Clean Water Act. In October 2019, Maynilad filed a Motion for Reconsideration of the decision to the Supreme Court. Before Maynilad was re-privatized in 2007, there were only two operating sewage treatment plants (“STPs”), sewerage coverage in the West Zone was only 6% of the then 677,930 water-served domestic accounts. Maynilad has since built several new STPs, and, as of December 2019, has expanded its sewerage coverage to 21.2% of the now 9.7 million water-served population.

Water coverage has grown nearly one-third under MPIC management to 9.7 million people and 3,137 kilometers of new pipes have been laid. NRW at the DMA level has been reduced to 25.3% as at end of December 2019 from 68% 13 years ago, saving almost 1 billion liters of water every day, or enough water to provide the needs of a large city.

Despite Maynilad’s excellent record of service delivery, the matter of Maynilad’s two related arbitration awards in its favor, has been set aside as the Government conducts a review of the concession agreement.

Maynilad nevertheless remains focused on programs to maximize water distribution from the limited resources provided by the Angat Dam, where water levels have declined to disturbing lows. Maynilad will continue its mission to provide safe, affordable and sustainable water solutions for healthier, safer, and more comfortable life.

MPW Outside the Maynilad concession which currently bills approximately 1,470 MLD, MPW currently bills 325 MLD, with planned expansion of up to 633 MLD capacity in the Philippines and 660 MLD in Vietnam under current plans.

MPIWI, a joint venture between Metro Iloilo Water District and MPW, commenced operation in July 2019. This 25-year joint venture concession aims to improve water delivery, expand service coverage, and reduce NRW from its current level of 50%. MPIWI has a current volume capacity of 90 MLD and serves approximately 210,000 people in its service area.

On September 3, 2019, MPW signed a joint venture agreement with Dumaguete City Water District for the rehabilitation, operation, maintenance, and expansion of the existing water distribution system

and the development of wastewater facilities for P=1.6 billion over 25 years. Turnover of operations to Metro Pacific Dumaguete Water Service Inc. is expected later in 2020.

MPW’s contribution to MPIC is currently immaterial but as these new projects are completed, it is expected to become a major profit contributor.

Healthcare Increase 2019 2018 (Decrease) Healthcare Group Audited Amount % (in Php Millions) Gross Revenues 28,802 25,655 3,147 12 Expenses 23,002 20,331 2,671 13 Core EBITDA 6,506 5,559 947 17 Core Income 2,685 2,357 328 14 Reported Net Income 2,683 2,363 320 14

Increase Key Performance Indicators (Decrease) 2019 2018 Amount % Occupancy rate (%) - Standard Beds 71% 68% 4% 5 Total beds available 3,235 3,200 35 1 No. of Patients – In patient 201,131 193,824 7,307 4 No. of Patients – Out patient 3,686,721 3,323,104 363,617 11 No. of Accredited Doctors 8,561 8,373 188 2 No. of Enrollees (schools) - average YTD 8,288 7,506 782 10

MPHHI reported a 12% rise in aggregate revenues in 2019 on an 11% increase in outpatient visits to 3,686,721 and 4% growth in inpatient admissions to 201,131. Core income rose 14% to P=2.7 billion.

MPHHI continues to improve patient care across its network of hospitals and is establishing new service centers.

On December 9, 2019, Buhay completed its investment in MPHHI through a series of transactions in common shares in MPHHI and in mandatorily exchangeable bonds issued by MPIC. A significant proportion of the proceeds will be directed towards investment for further growth and improvement in patient care.

Rail Increase 2019 2018 (Decrease) Rail Audited Amount % (in Php Millions) Farebox revenues 3,287 3,310 (23) (1) Expenses 2,810 2,567 243 9 Core EBITDA 744 988 (244) (25) Core Income (loss) 645 716 (71) (10) Reported Net Income (loss) 629 645 (16) (2)

Increase Key Performance Indicators (Decrease) 2019 2018 Amount % Average daily ridership 446,943 458,021 (11,078) (2) Available LRV (period end) 116 112 4 4

LRMC served an average daily ridership of 446,943 in 2019 peaking at 596,500 riders. While LRMC contributed P=319 million to MPIC’s Core Income in 2019, all earnings are fully reinvested in improving train operations and passenger experience.

As at December 31, 2019, LRMC had successfully restored 39 Light Rail Vehicles, bringing the total available to 116 from the 77 it inherited in 2015. The resulting surge in available capacity has reduced passenger waiting time to less than three and a half minutes during peak hours from more than five minutes four years ago. In 2019 alone, LRMC deployed P=8.4 billion of capital expenditure for the rehabilitation of the train system, structural repairs and improvements, and an extension of the line to Cavite.

Most of LRMC’s Station Improvement Project has been completed ahead of a mid-2020 due date with the completion of expansion work on the EDSA Station, the line’s second-busiest.

Construction work for the LRT-1 Cavite Extension covering the five stations from Pasay City to Paranaque City has started, although long-overdue tariff increases will be necessary to secure financing for this project.

Logistics Metropac Movers, Inc. (“MMI”) is focused on providing our clients with first-class warehousing and cold storage facilities. Optimum locations for distribution centers are currently being evaluated.

MMI is not yet contributing positively to MPIC’s Core Net Income but following an extensive restructuring in 2019, we expect better in the years ahead.

MPIC Consolidated Statement of Financial Position

Assets

The following table summarizes the individual increase (decrease) of consolidated asset accounts.

Increase Audited Audited (Decrease) 2019 % 2018 % Amount % (in Php Millions) ASSETS Current assets Cash and cash equivalents and short-term deposits 74,697 71 47,521 59 27,176 57 Restricted cash 5,011 5 5,421 7 (410) (8) Receivables 14,624 14 12,495 16 2,129 17 Other current assets 10,905 10 12,892 16 (1,987) (15) 105,237 100 78,329 98 26,908 34 Asset held for sale – – 1,250 2 (1,250) (100) 105,237 100 79,579 100 25,658 32

Noncurrent Assets Investments and advances 169,092 33 152,993 32 16,099 11 Service concession assets 240,489 47 205,992 43 34,497 17 Property, plant and equipment 58,591 12 71,926 15 (13,335) (19) Goodwill 15,676 3 27,856 6 (12,180) (44) Intangible assets 3,279 1 3,897 1 (618) (16) Deferred tax assets 927 0 1,270 0 (343) (27) Other noncurrent assets 18,487 4 14,433 3 4,054 28 506,541 100 478,367 100 28,174 6

• Cash and cash equivalents and short-term deposits – (Increase) The significant increase in cash and cash equivalents is attributable to the proceeds from MPIC’s issuance of a Mandatorily Exchangeable Bond to Buhay in relation to the latter’s investment in MPHHI. P=26,091 million out of the total subscription price of P=30.1 billion was settled in December 2019 (see Note 32 to the 2019 Audited Consolidated Financial Statements). Other transactions that contributed to increase in cash included loan drawdowns during the period (with proceeds at approximately P=59 billion) net of scheduled payment of loans and interest, payable to PCEV and additional capital expenditures (see section Liquidity and Capital Resources for the summary of the Group’s statement of cash flows for 2019).

• Receivables – current and noncurrent portions – (Increase) Mainly driven by the receivable portion of the Exchangeable Bond issued by MPIC to Buhay (see Notes 8 and 32 to the 2019 Audited Consolidated Financial Statements). As at December 31, 2019, receivable portion of the Exchangeable Bond’s subscription price amounted to P=3,872.5 million,

• Other current assets – (Decrease) Mainly driven by the application of the advances to contractors and suppliers to the relevant asset accounts and deconsolidation of the hospital group (see Note 9 to the 2019 Audited Consolidated Financial Statements).

• Asset held for sale – (Decrease) In December 2019, CEDC concluded the transfer of the transmission assets to the National Grid Corporation of the Philippines (NGCP). The remaining transmission assets were reclassified back to property, plant and equipment (see Note 29, Transfer of transmission facilities to the NGCP to the 2019 Audited Consolidated Financial Statements).

• Investments and advances – (Increase) Increase significantly attributable to value of the retained investment in MPHHI amounting to P=16,695 million (see Notes 10 and 32 to the 2019 Audited Consolidated Financial Statements).

• Service concession assets – (Increase) Mainly due to the additional capital expenditures, implementation of new water concession project and consolidation of PNW, net of amortization and impairment (see Note 12 to the 2019 Audited Consolidated Financial Statements for the nature of the additions to the service concession assets).

• Property, plant and equipment – (Decrease) Significant decrease attributable to the deconsolidation of the hospital group. Deconsolidated Hospital fixed assets amounted to P=15,083 million (see Notes 13 and 32).

• Goodwill – (Decrease) Mainly driven by the impairment charge recognized in 2019 amounting to P=9,825 million and the deconsolidation of the goodwill attributable to the hospital segment (see Notes 11, 14 and 32).

• Other noncurrent assets – (Increase) Mainly driven by the increase in advances made to contractors for the ongoing construction of service concession assets.

Liabilities and Equity

The following table summarizes the individual increase (decrease) of consolidated liability and equity accounts.

Increase Audited Audited (Decrease) 2019 % 2018 % Amount % (in Php millions) Current Liabilities Accounts payable and other current liabilities 36,363 48 31,951 56 4,412 14 Income tax payable 1,639 2 1,533 3 106 7 Due to related parties 5,638 8 4,462 8 1,176 26 Current portion of: Provisions 6,742 9 6,004 11 738 12 Service concession fees payable 6,277 8 693 1 5,584 806 Long-term debts 18,459 25 11,619 21 6,840 59 75,118 100 56,262 100 18,856 34

Noncurrent Liabilities Noncurrent portion of: Provisions 4,997 2 2,528 1 2,469 98 Service concession fees payable 26,621 9 29,946 11 (3,325) (11) Long-term debts 231,450 79 203,474 77 27,976 14 Due to related parties 2,240 1 7,392 3 (5,152) (70) Deferred tax liabilities 14,170 5 9,930 4 4,240 43 Other long-term liabilities 11,137 4 9,411 4 1,726 18 290,615 100 262,681 100 27,934 11

Equity Capital stock 31,661 17 31,633 18 28 – Additional paid-in capital 68,638 36 68,494 40 144 – Treasury Shares (4) – (178) – 174 (98) Equity reserves (574) – 6,968 4 (7,542) (108) Retained earnings 90,650 47 64,533 37 26,117 40 Other comprehensive income reserve 591 – 1,861 1 (1,270) (68) Total equity attributable to owners of the Parent Company 190,962 100 173,311 100 17,651 10

Non-controlling interest 55,083 65,692 (10,609) (16)

• Accounts payable and other current liabilities – (Increase) Mainly due to the increase in accrued construction costs and retention payable attributable to Toll Roads, Maynilad and Rail (see Note 15 to the 2019 Audited Consolidated Financial Statements).

• Service concession fees payable – current and noncurrent portions – (Increase) Aside from the interest accretion that increases the liability, additions to service concession fees payable was attributable to increase in concession fees for Maynilad (see Note 29, MWSS JBIC Loan) to the 2019 Audited Consolidated Financial Statements) and the recognition of annual service fees under the service contract agreement between MPIWI and MIWD (see Notes 17 and 36 to the 2019 Audited Consolidated Financial Statements).

• Due to related parties – (Decrease) The decrease is mainly driven by the scheduled payment of payable to PCEV in relation to the acquisition of shares in Beacon (see Notes 19 and 36 to the 2019 Audited Consolidated Financial Statements.

• Provisions – current and noncurrent portions – (Increase) Includes provision arising from the exchangeable bonds issued to Buhay for estimated tax warranties and indemnities (See Note 32, Deconsolidation of a Subsidiary and Note 16, Provisions to the 2019 Audited Consolidated Financial Statements).

• Long-term debt – current and noncurrent portions – (Increase) See Note 18 to the 2019 Audited Consolidated Financial Statements for details of the Company’s new loan facilities and borrowings.

• Equity reserves – (Decrease) Dilution gain of P=5,726 million which was originally recognized in equity reserve, was directly charged to retained earnings in relation to the deconsolidation of MPHHI (see Note 32 to the 2019 Audited Consolidated Financial Statements).

• Non-controlling interest – (Decrease) Decrease is mainly due to the derecognition of NCI from the deconsolidation of the hospital segment (see Note 32 and the Consolidated Statements of Changes in Equity for the other movements in the NCI account).

Liquidity and Capital Resources

The following table shows a summary of the Group’s audited statements of cash flows for the years ended 2019 and 2018 as well as the consolidated capitalization as at December 31, 2019 and 2018:

Increase Audited (Decrease) 2019 2018 Amount % (in Php Millions) Cash Flows Net cash provided by operating activities 41,020 31,996 9,024 28 Net cash used in investing activities (23,460) (25,441) (1,981) (8) Net cash provided by financing activities 9,044 (783) 9,827 >100 Net increase in cash and cash equivalents 26,604 5,772 20,832 >100 Capital expenditures 51,247 34,234 17,013 50

Capitalization Long-term debt net of current portion 231,450 203,474 27,976 14 Current portion of long-term debt 18,459 11,619 6,840 59 Total 249,909 215,093 34,816 16 Non-controlling interest 55,083 65,692 (10,609) (16) Total equity attributable to owners of the Parent Company 190,962 173,311 17,651 10

Cash and cash equivalents 73,211 46,607 26,604 57 Short-term deposits 1,486 914 572 63

As at December 31, 2019, MPIC’s consolidated cash and cash equivalents and short-term deposits totaled P=74,697 million, an increase of P=27,176 million from P=47,521 million as at December 31, 2018. This increase mainly resulted from the proceeds in relation to the issuance of Exchangeable Bonds to Buhay. Refer to the Company’s Consolidated Statements of Cash Flows in the 2019 Audited Consolidated Financial Statements.

Operating Activities

MPIC’s consolidated net operating cash flow in 2019 posted a 22% increase from P=31,996 million to P=41,020 largely attributable to the improvement in the operating results. Total revenues for 2019 increased by P=3,420 million to P=73,499 million which is mainly driven by the increased volume and improvement in operating performance of the subsidiaries.

Investing activities

Net cash used in investing activities amounted to P=23,460 million during 2019. Proceeds from the Exchangeable Bond issued to Buhay provided significant cash inflow of P=26,091 million (see Note 32 to the 2019 Audited Consolidated Financial Statements). Cash outflows included CAPEX spending on service concession assets with significant progress made towards completion of on-going toll concession projects.

Financing Activities

The Company’s consolidated net cash used in financing activities amounted to P=9,044 million in 2019. Significant outflows aside from dividend payments and scheduled repayment of obligations from bank debts and service concession, included acquisition of additional stake in PT Margautama Nusantara (MUN), a subsidiary of PT Nusantara. Consideration paid for the increase in interest in MUN amounted to P=3,487 million.

See Note 35 to 2019 Audited Consolidated Financial Statements for details of the significant changes in liabilities arising from financing activities.

Comparison of Other Financial Years

2018 versus 2017

MPIC Consolidated Statements of Income

Increase 2018 2017 (Decrease) Audited Amount % (in Php Millions) Operating Revenues 83,029 62,512 20,517 33 Continuing Operations 70,079 51,775 18,304 35 MPHHI 12,950 10,737 2,213 21 Cost of Sales and Services 42,714 29,374 13,340 45 Continuing Operations 35,202 23,189 12,013 52 MPHHI 7,512 6,185 1,327 21 General and administrative expenses 14,972 12,126 2,846 23 Continuing Operations 11,152 8,992 2,160 24 MPHHI 3,820 3,134 686 22 Interest expense 10,388 7,995 2,393 30 Continuing Operations 10,230 7,850 2,380 30 MPHHI 158 145 13 9 Share in net earnings of associates and joint ventures 11,073 8,045 3,028 38 Continuing Operations 10,791 7,795 2,996 38 MPHHI 282 250 32 13 Dividend income 172 2,631 (2,459) (93) Interest income 1,496 623 873 140 Others 1,488 360 1,128 313 Continuing Operations 925 64 861 1,345 MPHHI 563 296 267 90 Provision for income tax 7,008 5,649 1,359 24 Continuing Operations 6,395 5,114 1,281 25 MPHHI 613 535 78 15 Net income attributable to owners of the Parent Company 14,130 13,151 979 7 Other comprehensive income (loss ) 321 (466) 787 169

Total comprehensive income attributable to owners of the Parent Company 14,307 12,864 1,443 11 Core income 15,060 14,104 956 7 Non-recurring income (expense) (930) (953) (23) (2) Amounts presented represents both continuing and discontinued operations

The significant increases in the accounts enumerated in the above table are primarily attributable to the step-acquisitions of Beacon Electric, BPHI and GBPC on June 27, 2017 and PT Nusantara on July 2, 2018 (see Note 4 to the 2019 Audited Consolidated Financial Statements). Other factors contributing to the increases (or decreases, as applicable) are discussed below.

Revenues The Company’s revenues increased by 33% to P=83,029 million in 2018, reflecting consolidation of GBPC in June 2017 which contributed 22% or P=21,026 million to the group’s revenues together with improved performances from the following operating segments. ▪ Water utilities posted an 8% increase in revenues on the strength of Maynilad’s 3% billed volume growth together with basic and inflation-linked tariff increases; and (ii) MPW’s Bulk water and Sewage Treatment Plant services contribution. ▪ Toll revenues are higher by 18% with average daily entries for 2018 up by 7% on the NLEX, 15% on the SCTEX and 5% on the CAVITEX compared with 2017 and a P=0.25/km add-on toll rate on NLEX Closed system beginning November 6, 2017. ▪ Hospital revenues increased by 21% to P=12,950 million driven by (i) contributions from St. Elizabeth Hospital (acquired in October 2017) and DDH (step-acquisition in August 2018); and (ii) increased number of patients served across all hospitals. ▪ Rail revenues growth at 5% at par with the average daily ridership growth. ▪ Logistics revenues during 2018 increased by 9% to P=1,242.

See the relevant segment information under section II - OPERATING SEGMENTS OF THE GROUP.

Cost of Sales and Services Cost of sales and services increased by 45% to P=42,714 million. Out of the total increase in expenses, 51% or P=9,760 million is attributable to GBPC. 2018 reflected full consolidation of GBPC’s operations as compared to 2017 when GBPC was consolidated only beginning June 27, 2017. As a result of GBPC’s consolidation, there were significant increases in expenses such as depreciation expense and purchased power and transmission charges (see Note 21 to the 2019 Audited Consolidated Financial Statements). Other factors contributing to the increase in cost of services included: (i) consolidation of PT Nusantara and DDH (see Note 4 to the 2019 Audited Consolidated Financial Statements) and trucking and warehousing with the expansion of logistics segment.

General and administrative expenses General and administrative expenses increased by 23% to P=14,972 million in 2018 mainly due to consolidation of GBPC and PT Nusantara.

Interest expense The Company’s consolidated interest expense increased by 30% to P=10,388 million with the additions of debt from the consolidation of Beacon Electric, BPHI and GBPC (starting June 2017), new bank loans drawn for capital expenditure (net of the capitalized interest) and interest charge accreting from MPIC’s payable to PCEV (see Notes 18 and 19 to the 2019 Audited Consolidated Financial Statements).

Share in net earnings of associates and joint ventures Share in net earnings of equity method investees increased by 38% to P=11,073 million mainly due to the combined impact of the increase in effective ownership in MERALCO beginning June 27, 2017

(see Note 10 to the 2019 Audited Consolidated Financial Statements) and improvement in MERALCO’s operating results (see discussion under section II - OPERATING SEGMENTS OF THE GROUP). Share in the net earnings of MERALCO amounted to P=10,412 million for 2018 while the combined share in the net earnings of MERALCO and Beacon Electric amounted to P=7,236 million during the same period last year.

Dividend income Dividend income in 2018 was mainly from the Company’s investment in Citra Metro Manila Tollways Corporation (2% equity interest). Dividend income in 2017 was significantly higher as this included dividend income from the Company’s investment in Beacon Electric preferred shares amounting to P=2,541 million.

Other income (expense) - net Other income (net) for 2018 included forex gain, net gain on prepayment of loan, gain on remeasurement of previously held interest in PT Nusantara and DDH and proceeds from indemnity claim (see Note 24 to the 2019 Audited Consolidated Financial Statements).

Consolidated net income attributable to equity holders of the Parent Company The increase in this account is mainly attributable to (i) an expanded power portfolio through increased investment in Beacon Electric; (ii) continuing traffic growth on all domestic roads; and (iii) steady volume growth coupled with inflation-linked tariff increases at Maynilad.

Other comprehensive income (loss) - net The Company recognized a net other comprehensive income of P=321 million in 2018 as compared with the net comprehensive loss of P=466 million in 2017. Year 2018 includes higher share in actuarial valuation adjustment from MERALCO and cumulative translation adjustments from DMT, CII B&R, PT Nusantara and MERALCO.

Core Income attributable to equity holders of the Parent Company MPIC’s share in the consolidated core income increased by 7% from P=14,104 million in 2017 to P=15,060 million in 2018 primarily reflecting the following: ▪ Power (distribution and generation) accounted for P=10.8 billion or 55% of the aggregate contribution; ▪ Toll operations contributed P=4.4 billion or 23% of the total; ▪ Water (distribution, production and sewerage treatment) contributed P=3.8 billion or 19% of the total; ▪ Hospital group contributed P=771 million or 4% of the total; and, ▪ the Rail, Logistics and others contributed combined net loss of P=248 million.

Non-recurring expenses Non-recurring expense amounting to P=930 million in 2018 primarily due to the net effect of a weaker peso, project write-downs, loan refinancing and provisions for asset impairment.

II - Operating Segments of the Group

Power

MPIC’s power business contributed P=10.8 billion to Core Net Income in 2018, an increase of 15% driven by the June 2017 purchase of the last 25% in Beacon Electric not already owned by MPIC and good results at MERALCO which more than offset a decline at GBPC.

MERALCO

Increase 2018 2017 (Decrease) MERALCO Audited Amount % (in Php Millions) Revenues 304,454 282,556 21,898 8 Expenses 276,012 256,109 19,903 8 Core Income 22,408 21,213 1,195 6 Reported net income attributable to equity holders of MERALCO 23,017 20,384 2,633 13 Capital Expenditure 13,669 12,127 1,542 13

Increase Key Performance Indicators (Decrease) 2018 2017 Amount % Volume Sold (in mln kwh) 44,313 42,102 2,211 5 System Loss (12-month moving average) 5.67% 5.91% -0.24% (4)

MERALCO’s Core Net Income for 2018 rose 6% to P=22.4 billion. Core Net Income growth was driven by a 5% increase in energy sales, slightly lower tariffs, and a reversal of provisions following the adoption of a new accounting standard.

Energy sales rose across all customer classes. Residential growth was driven by expansion in the south section of MERALCO’s franchise while the commercial sector grew on continued expansion of the real estate, retail trade, and hotel sectors, with Industrial sector growth rooted in the healthy performance of the semiconductor, food & beverage, and rubber and plastics industries.

Total revenues rose 8% to P=304.5 billion on higher energy sales together with increased pass- through generation charges partly offset by customers transitioning to other retail electricity sellers.

MERALCO spent P=13.7 billion on capital expenditures in 2018 to address critical loading of existing facilities and to support growth in demand and customer connections.

GBPC

Increase 2018 2017 (Decrease) GBPC Audited Amount % (in Php Millions) Revenue 26,822 23,794 3,028 13 Expenses 20,598 17,168 3,430 20 EBITDA Core 9,159 9,184 (25) (0) Core Income 2,458 2,883 (425) (15) Reported Net Income attributable to equity holders of GBPC 2,431 2,808 (377) (13)

Increase Key Performance Indicators (Decrease) 2018 2017 Amount % Electricity Sold (consolidated; GWh) 4,822 4,466 356 8 Bilateral – Generation 3,688 3,758 (70) (2) Bilateral – WESM 524 351 173 49 WESM – Spot Sales 610 357 253 71

GBPC sold 4,822 GWH in 2018, an increase of 8% from a year earlier. However, Core Net Income for 2018 declined 15% to P=2.5 billion due to depreciation and interest costs for Panay Energy Development Corporation’s 150 MW plant from June 1, 2018 onwards and lower margins from WESM sales due to higher coal and fuel costs.

Alsons Thermal Energy Corporation, in which GBPC has a 50% interest, is on track to commence operation of its second 105 MW (80 MW contracted) expansion plant in Maasim, Saranggani by the second half of this year.

GBPC plans to invest in renewable energy projects to complement its current fossil fuel capacity.

Toll Operations

Increase 2018 2017 (Decrease) Metro Pacific Tollways Corporation Audited Amount % (in Php Millions) Consolidated Statements of Income Net toll revenues 15,486 13,107 2,379 18 Cost of Services 7,645 6,228 1,417 23 Core EBITDA 11,795 4,425 7,370 167 Core Income 15,486 13,107 2,379 18 Reported net income attributable to equity holders of MPTC 7,645 6,228 1,417 23 Capital Expenditure 4,450 3,935 515 13

Increase Key Performance Indicators (Decrease) 2018 2017 Amount % Average Daily Vehicle Entries: NLEX 253,577 237,046 16,531 7 SCTEX 62,684 54,566 8,118 15 CAVITEX 146,315 139,208 7,107 5 DMT 99,479 97,919 1,560 2 CII B&R 33,007 52,788 (19,781) (37) PT Nusantara 306,085 307,468 (1,383) (0)

Metro Pacific Tollways Corporation (“MPTC”) recorded Core Net Income of P=4.5 billion in 2018, a 13% increase from P=3.9 billion a year earlier. MPTC’s system-wide vehicle entries averaged 916,886 a day, including road networks in the Philippines, Indonesia, Thailand and Vietnam.

Tollroads in the Philippines:

Average daily vehicle entries for all three of our domestic tollways system (NLEX, CAVITEX and SCTEX) rose 7% to 478,315 compared with 445,350 in 2017.

Traffic rose 7% on the NLEX and surged by 15% on the SCTEX following integration of these two roads and the opening of additional lanes in 2017. Traffic on the CAVITEX rose 5% driven by growth in residential communities in Cavite and tourism in Batangas.

MPTC expects to spend approximately P=104.3 billion on road projects over the next five years, although this figure could rise by a further P=25 billion if MPTC were to secure the Cavite-Tagaytay- Batangas Expressway for which it was recently awarded Original Proponent status.

The estimates for planned road investments assume satisfactory resolution of various overdue tariff adjustments, now ranging between 20% and 48% on different parts of the network, without which further investment will be delayed. MPTC is waiting for notice to publish increased toll rates for NLEX coinciding with the opening of the NLEX Harbour Link and implemented on a staggered basis. Full implementation of overdue tariff adjustments on all roads has yet to be agreed.

Tollroads outside the Philippines: DMT in Bangkok reported a 2% increase in daily traffic to 99,479 in 2018.

In Vietnam, CII B&R saw a decline in vehicle entries to 33,007 due to the end of the concession for the Rach Chiec Bridge. Traffic is expected to improve again by approximately 32,000 with the opening of part of the Hanoi Highway Expansion later in 2019.

Nusantara’s traffic in Indonesia averaged at 306,085 vehicle entries per day in 2018. In July of 2018, MPTC increased its interest in Nusantara from 48.3% to 53.3% on a fully-diluted basis. This step-up acquisition triggered the need for a General Offer which further increased MPTC’s ownership of Nusantara to 77.9%.

Water

Maynilad Water Services, Inc. 2018 2017 Increase (Decrease) Audited Amount % (in Php Millions) Consolidated Statements of Income Revenues 22,024 20,774 1,250 6 Costs and Expenses 9,606 9,166 440 5 Core EBITDA 15,454 14,136 1,318 9 Core Income 7,731 7,379 352 5 Reported Net Income 7,368 6,853 515 8 Capital Expenditure 11,944 12,006 (62) (1)

Key Performance Indicators Increase (Decrease) 2018 2017 Amount % Volume of water supplied (MCM) 750.8 755.4 (4.6) (1) Volume of water billed (MCM) 527.2 511.7 15.5 3 Volume of water billed (MCM) - Consolidated 546.1 528.3 17.8 3 Non revenue water % (average) 29.8% 32.3% -2.5% (8) Non revenue water % (period end) 27.1% 31.7% -4.6% (15) Billed customers (period end) 1,407,503 1,358,758 48,745 4 Customer mix (% based on billed volume) Domestic (residential and semi-business) 80.5% 80.9% -0.4% (0) Non-domestic (commercial and industrial) 19.5% 19.1% 0.4% 2

MPIC’s water business comprises investments in Maynilad, the biggest water utility in the Philippines, and MetroPac Water Investments Corporation, focused on building new water businesses outside Metro Manila. The water segment’s contribution to Core Net Income amounted to ₱3.8 billion in 2018, most of it from Maynilad.

Maynilad – 1 million people receiving water at P=1 centavo per liter In September 2018, MWSS approved Maynilad’s Rebasing adjustment for the Fifth Rate Rebasing Period (2018 to 2022) of P=5.73 per cubic meter which will be implemented on a staggered basis over four years.

However, the matter of Maynilad’s tariffs for the entire 2013-2017 five-year Business Plan period and two related arbitration awards in its favor, remain unresolved. In summary:

• In 2015, Maynilad received an arbitration award in its favor against the Metropolitan Waterworks and Sewerage System (“MWSS”), which centered on treatment of Corporate Income Tax as an expense to be recovered through the tariff. The dispute on implementing this tariff is working its way through the Philippine Court System with MWSS now seeking recourse to the Supreme Court following awards in Maynilad’s favor by lower courts.

• On July 24, 2017, Maynilad was notified by an arbitration panel in Singapore that it had ruled in Maynilad’s favor on its claim to recover from the Republic of the Philippines (“RoP”) revenues forgone because of the failure to increase tariff (P=6.7 billion as of 31st

December 2017). On 4th October 2018, the Singapore High Court upheld the award in favor of Maynilad and dismissed RoP’s Setting Aside Application in February 2018.

Maynilad is striving to meet its service obligations but financing these requires resolution of the remaining claim and tax recovery matters.

Maynilad’s revenues in 2018 rose 6% to P=22.0 billion from P=20.8 billion in 2017, lifted by a 3% increase in volume sold and a combination of basic and inflation-linked tariff increases of 1.9% in April 2017, 2.8% in January 2018 and 2.7% in October 2018. The number of water connections (or billed customers) rose 4% to 1,407,503 at the end of 2018.

Core Net Income for 2018 rose 5% to P=7.7 billion, driven by revenue growth, lower provisions and lower interest expense.

Non-Revenue Water (“NRW”) measured at the District Metered Area level fell to 27.1% as at the end of 2018 from 31.7% at the end of 2017 while total NRW is now down to 38.5%.

Capital expenditure stood at P=11.9 billion in 2018, much of it directed to upgrading and building reservoirs and pumping stations, laying primary pipelines, and constructing wastewater facilities to improve public health.

For the Fifth Rate Rebasing Period, Maynilad is set to build three new sewage treatment plants and upgrade one sewage treatment plant. Once completed, these new wastewater facilities will be able to serve approximately 2 million customers.

MetroPac Water Investments Corporation Outside the Maynilad concession which currently bills 1,444 Million Liters per Day (MLD), MPWIC currently bills 253 MLD. MPW is expanding MPIC’s water investment portfolio with up to 393 MLD of installed capacity in the Philippines and 660 MLD in Vietnam, when these projects are completed. A further 430 MLD of projects around the Philippines are under negotiation and awaiting final award.

MPW’s contribution to MPIC is currently immaterial but as these new projects are completed, it is expected to become a major profit contributor.

Healthcare Increase 2018 2017 (Decrease) Healthcare Group Audited Amount % (in Php Millions) Gross Revenues 25,655 22,464 3,191 14 Expenses 20,331 17,784 2,547 14 Core EBITDA 5,559 4,924 635 13 Core Income 2,357 2,046 311 15 Reported Net Income 2,363 2,052 311 15

Increase Key Performance Indicators (Decrease) 2018 2017 Amount % Occupancy rate (%) - Standard Beds 68% 68% 0% (1) Total beds available 3,200 3,211 (11) (0) No. of Patients – In patient 193,824 173,939 19,885 11 No. of Patients – Out patient 3,323,104 3,085,638 237,466 8 No. of Accredited Doctors 8,373 8,057 316 4 No. of Enrollees (schools) - average YTD 7,506 6,640 866 13

MPHHI reported a 14% rise in aggregate revenues in 2018 on the strength of an 8% increase in outpatient visits to 3,323,104 and 11% growth in in-patient admissions to 193,824. Investments made in Jesus Delgado Memorial Hospital in Quezon City and St. Elizabeth Hospital in General Santos City in 2017 contributed significantly to this improvement.

In 2018, MPHHI increased its ownership in DDH from 35.16% to 49.91%.

MPHHI is rolling out improved patient care across its network of hospitals and establishing new service centers in the communities it serves. This is bringing new patients to our network, but startup costs for some of these new programs restrained growth in Core Income to 15%.

Rail Increase 2018 2017 (Decrease) Rail Audited Amount % (in Php Millions) Farebox revenues 3,310 3,155 155 5 Expenses 2,567 2,355 212 9 Core EBITDA 988 961 27 3 Core Income (loss) 716 514 202 39 Reported Net Income (loss) 645 507 138 27

Increase Key Performance Indicators (Decrease) 2018 2017 Amount % Average daily ridership 458,021 435,199 22,822 5 Available LRV (period end) 112 108 4 4

As at December 31, 2018, LRMC had successfully restored 35 Light Rail Vehicles (LRVs), bringing the total available LRVs to 112 from the 77 it inherited in 2015. The resulting surge in available capacity has reduced passenger waiting time to 3.45 minutes during peak hours from more than five minutes when LRMC took over.

The majority of the P=750 million Station Improvement Project has been substantially completed with remaining work expected to be finished by mid-2019. LRMC is currently undertaking pre- construction preparations for the LRT-1 Cavite Extension. On-site construction works will begin this year but long-overdue tariff increases must be resolved to make this financeable.

LRMC served an average daily ridership of 458,021 in 2018, an improvement of 5% from a year earlier while the highest daily ridership was 613,000, up from 578,000 a year earlier.

LRMC contributed P=394 million to MPIC’s Core Income for 2018.

Logistics MMI is now an established force in the Philippine logistics sector. Average warehouse dispatch for 2018 rose 3% to over 60.2 million cases from 58.7 million cases last year. The focus of this business is to provide our clients with first-class transportation, warehousing and order fulfillment as we broaden our service offering to include cross docking and freight forwarding.

MMI has acquired over 400,000 square meters of land in Cavite and Bulacan for developing into covered warehouse space to be utilized by MMI to build the leading logistics firm in the Philippines.

MMI is not yet contributing to MPIC’s Core Net Income as our focus has been on getting established and building a best-in-class customer service platform and culture.

MPIC Consolidated Statement of Financial Position

Assets

The following table summarizes the individual increase (decrease) of consolidated asset accounts.

Increase Audited Audited (Decrease) 2018 % 2017 % Amount % (in Php Millions) ASSETS Current assets Cash and cash equivalents and short-term deposits 47,521 59 49,317 66 (1,796) (4) Restricted cash 5,421 7 4,047 5 1,374 34 Receivables 12,495 16 10,899 15 1,596 15 Other current assets 12,892 16 10,432 14 2,460 24 78,329 98 74,695 100 3,634 5 Asset held for sale 1,250 2 250 0 1,000 400 79,579 100 74,945 100 4,634 6

Noncurrent Assets Investments and advances 152,993 32 150,971 35 2,022 1 Service concession assets 205,992 43 168,783 40 37,209 22 Property, plant and equipment 71,926 15 67,606 16 4,320 6 Goodwill 27,856 6 25,384 6 2,472 10 Intangible assets 3,897 1 4,637 1 (740) (16) Deferred tax assets 1,270 0 1,045 0 225 22 Other noncurrent assets 14,433 3 10,380 2 4,053 39 478,367 100 428,806 100 49,561 12

The significant increases in the accounts enumerated in the above table are primarily attributable to the step-acquisitions of PT Nusantara and DDH (see Note 4 to the 2019 Audited Consolidated Financial Statements). Other factors contributing to the increases (or decreases, as applicable) are discussed below.

• Cash and cash equivalents and short-term deposits – (Decrease) Mainly due to Beacon Electric’s loan prepayment, MPIC’s scheduled settlement of the amount owed to PCEV and acquisitions of TLW, PNW and JLB.

• Restricted Cash – (Increase) Restricted cash pertains to sinking fund or debt service account (DSA) representing amounts set aside for principal and interest payments of certain long-term debt. This DSA is maintained and replenished in accordance with the provision of the loan agreements.

• Receivables – (Increase) Mainly driven by the increase in trade receivables in relation to the improvement in revenues particularly on the power generation business.

• Asset held for sale – (Increase) Mainly driven by GBPC’s reclassification to Asset held for sale of transmission facilities to be transferred to NGCP.

• Other current assets – (Increase) Mainly driven by the increase in advances to contractors and consultants of Maynilad and GBPC and reclassification of the deposits for various incentive plans from noncurrent to current assets as these plans were to be settled in March 2019.

• Investments and advances – (Increase) Mainly due to the combined effects of the acquisition of new associates (TLW and PNW) and associates acquired through the step acquisition of PT Nusantara and share in net earnings partially offset by the dividend income for the period step acquisitions of PT Nusantara and DDH.

• Property, plant and equipment – (Increase) Aside from the step acquisition of PT Nusantara and DDH, contributing to the increase is MMI’s acquisition of land.

• Service concession assets – (Increase) Aside from the step acquisition of PT Nusantara, increase is due to the on-going construction of toll, water and rail concession assets.

• Goodwill – (Increase) Step acquisitions of PT Nusantara and DDH and acquisition of PT Rezeki through PT Nusantara.

• Other noncurrent assets – (Increase) Mainly driven by the increase in advances made to contractors for the ongoing construction of MPTC’s toll road and LRMC’s LRT-1 rehabilitation and extension projects.

Liabilities and Equity

The following table summarizes the individual increase (decrease) of consolidated liability and equity accounts.

Increase Audited Audited (Decrease) 2018 % 2017 % Amount % (in Php millions) Current Liabilities Accounts payable and other current liabilities 31,951 56 27,142 49 4,809 18 Income tax payable 1,533 3 1,415 3 118 8 Due to related parties 4,462 8 3,879 7 583 15 Current portion of: Provisions 6,004 11 5,997 11 7 0 Service concession fees payable 693 1 871 2 (178) (20) Long-term debts 11,619 21 15,573 28 (3,954) (25) 56,262 100 54,877 100 1,385 3

Noncurrent Liabilities Noncurrent portion of: Provisions 2,528 1 2,106 1 422 20 Service concession fees payable 29,946 11 28,873 12 1,073 4 Long-term debts 203,474 77 173,510 75 29,964 17 Due to related parties 7,392 3 11,767 5 (4,375) (37) Deferred tax liabilities 9,930 4 6,836 3 3,094 45 Other long-term liabilities 9,411 4 10,103 4 (692) (7) 262,681 100 233,195 100 29,486 13

Equity Capital stock 31,633 18 31,626 20 7 0 Additional paid-in capital 68,494 40 68,465 42 29 0 Treasury Shares (178) 0 (167) 0 (11) 7 Equity reserves 6,968 4 5,742 4 1,226 21 Retained earnings 64,533 37 53,894 33 10,639 20 Other comprehensive income reserve 1,861 1 1,684 1 177 11 Total equity attributable to owners of the Parent Company 173,311 100 161,244 100 12,067 7

Non-controlling interest 65,692 54,435 11,257 21

The significant increases in the accounts enumerated in the above table are primarily attributable to the step-acquisitions of PT Nusantara and DDH. Other factors contributing to the increases (or decreases, as applicable) are discussed below.

• Accounts payable and other current liabilities – (Increase) Mainly due to the increase in accrued construction costs attributable to Toll Roads, Maynilad and Rail.

• Service concession fees payable – current and noncurrent portions – (Increase) Represents movement in foreign exchange and interest accretion net of actual payment of concession fees.

• Due to related parties – (Decrease) The decrease is mainly driven by the scheduled payment of payable to PCEV in relation to the acquisition of shares in Beacon.

• Long-term debt – current and noncurrent portions – (Increase) Additions included MPIC’s P=21.4 billion loan drawdown, proceeds from NLEX Corp’s bond issuance and loans through step acquisition of PT Nusantara.

• Equity reserves – (Increase) Change in ownership in subsidiaries charged to equity (see Consolidated Statements of Changes in Equity for other movements in the Equity reserves account).

• Non-controlling interest – (Increase) Aside from the NCI’s share in Net Income, additions to NCI included NCI in the step acquisitions of PT Nusantara and DDH, and infusion of the other shareholders of LRMH and LRMC into the LRT-1 project. Refer to the Statements of Changes in Equity for the other movements in the NCI account.

Liquidity and Capital Resources

The following table shows a summary of the Group’s audited statements of cash flows for the years ended 2018 and 2017 as well as the consolidated capitalization as at December 31, 2018 and 2017:

Increase Audited (Decrease) 2018 2017 Amount % (in Php Millions) Cash Flows Net cash provided by operating activities 31,996 26,508 5,488 21 Net cash used in investing activities (25,441) (12,848) 12,593 98 Net cash provided by financing activities (783) 11,720 (12,503) 107 Net increase in cash and cash equivalents 5,772 25,380 (19,608) (77) Capital expenditures 34,171 22,396 11,775 53

Capitalization Long-term debt net of current portion 203,474 173,510 29,964 17 Current portion of long-term debt 11,619 15,573 (3,954) (25) Total 215,093 189,083 26,010 14 Non-controlling interest 65,692 54,435 11,257 21 Total equity attributable to owners of the Parent Company 173,311 161,244 12,067 7

Cash and cash equivalents 46,607 40,835 5,772 14 Short-term deposits 914 8,482 (7,568) (89)

As at December 31, 2018, MPIC’s consolidated cash and cash equivalents and short-term deposits totaled P=47,521 million, a decrease of P=1,796 million from P=49,317 million as at December 31, 2017. This decrease mainly resulted from increased CAPEX spending, acquisition of new investments (TLW, PNW and JLB), scheduled payment of amount owed to PCEV and the prepayment of certain borrowings. Refer to the Company’s Consolidated Statements of Cash Flows in the 2019 Audited Consolidated Financial Statements.

Operating Activities

MPIC’s consolidated net operating cash flow in 2018 posted a 20% increase from P=26,508 million to P=31,996 largely attributable to the improvement in the operating results. Total revenues for 2018 increased by P=20,517 million to P=83,029 million owing to the consolidation of GBPC beginning June 27, 2017 and improved operating performance.

Investing activities

Net cash used in investing activities amounted to P=25,441 million during 2018. Cash outflows included CAPEX spending comprising of additions to service concession and hospital assets and acquisitions of TLW, PNW and JLB. See the 2019 Audited Consolidated Financial Statements - Note 10 for details of the additions to investments in associates and joint venture and Note 12 for the nature of the additions to the service concession assets.

Financing Activities

The Company’s consolidated net cash used in financing activities amounted to P=783 million in 2018. Significant outflows included: (i) scheduled payments of debt (including interest), portion of Maynilad’s service concession fees and payable to PCEV; (ii) Beacon Electric’s prepayment of loan; and (iii) dividends paid to both owners of the parent company and to non-controlling shareholders. See Note 36, Supplemental Cash Flow Information to the significant changes in liabilities arising from financing activities

2017 versus 2016

MPIC Consolidated Statements of Income

Increase 2017 2016 (Decrease) Audited Amount % (in Php Millions) Operating Revenues 62,512 44,820 17,692 39 Cost of Sales and Services 29,374 18,370 11,004 60 General and administrative expenses 12,126 9,062 3,064 34 Interest expense 7,995 5,328 2,667 50 Share in net earnings of associates and joint ventures 8,045 6,808 1,237 18 Dividend income 2,631 1,353 1,278 94 Interest income 623 417 206 49 Construction revenue 19,344 16,799 2,545 15 Construction costs (19,344) (16,799) 2,545 15 Others 360 299 61 20 Provision for income tax 5,649 4,158 1,491 36 Net income attributable to owners of the Parent Company 13,151 11,456 1,695 15 Other comprehensive income (loss) (466) 1,468 (1,934) >100 Total comprehensive income attributable to owners of the Parent Company 12,864 12,917 (53) (0) Core income 14,104 12,106 1,998 17 Non-recurring income (expense) (953) (650) 303 47 Amounts presented represents both continuing and discontinued operations

Revenues The Company’s revenues increased by 39% to P=65,512 million in 2017, reflecting consolidation of GBPC which contributed 21% or P=13,042 million to the group’s revenues together with improved performances from the following operating segments: ▪ Water utilities posted a 3% increase in revenues on the strength of Maynilad’s 3% billed volume growth and a 1.9% inflationary increase in tariff effective end of April 2017. ▪ Toll revenues are higher by 10% with average daily entries in 2017 up by 8% on the NLEX, 21% on the SCTEX and 9% on the CAVITEX compared with 2016. ▪ Hospital revenues increased by 20% to P=10,737 million driven by (i) contributions from Marikina Valley Medical Center (acquired on July 29, 2016), JDMH (acquired on January 31, 2017) and SEHI (acquired on October 5, 2017) and (iii) increased number of out- patients served across all hospitals.

▪ Rail revenues grew 5% driven by the 6% growth in average daily ridership. ▪ Also, contributing to the increase in revenues is the Logistics business owing to the acquisition of certain logistics assets and businesses in May 2016. Logistics revenues during 2017 was P=1,144 million compared to P=469 million in 2016.

Cost of Sales and Services Cost of sales and services increased by 60% to P=29,374 million in 2017 due to: ▪ GBPC’s consolidation accounting for 47% or P=8,645 million of the increase. Significant increase in expenses included fuel costs amounting to P=5,033.0 million relating to the consumption of coal and other fuel related costs for generation of electricity. ▪ Maynilad’s one-time separation expenses for redundancies and redefined job functions brought about by changes in work processes. ▪ Logistics business grew with the expansion of trucking and warehouse services resulting in increased personnel, maintenance and other warehouse cost. ▪ Increased amortization expense of concession assets from completed capital expenditures at Maynilad and MPTC.

General and administrative expenses General and administrative expenses increased by 34% to P=12,126 million in 2017 due to: ▪ consolidation of GBPC accounting for 16% or P=1,431 million of the total increase. ▪ increases in personnel costs with annual salary increases and expanded headcount to support the growing logistics business. ▪ increase in depreciation and amortization is mainly attributable to Maynilad and LRMC driven by increased CAPEX.

Interest expense Interest expense increased by 50% to P=7,995 million in 2017 due to: ▪ Interest from acquired debt from consolidating Beacon Electric including BPHI and GBPC beginning June 27, 2017. ▪ Interest from loan drawdowns made during the year.

Share in net earnings of associates and joint ventures Share in net earnings of equity method investees increased by 18% to P=8,045 million in 2017 mainly due to the increase in effective ownership in MERALCO.

Dividend income In 2017 and 2016, the Parent Company’s dividend income from Beacon Electric’s preferred shares amounted to P=2,541 million and P=1,215 million, respectively.

Provision for income tax Provision for income tax increased to P=5,649 million in 2017 compared with the P=4,158 million in 2016. Consolidation of GBPC accounted for 16% or P=687 million of the total increase. In addition, 2016 provision for income tax benefitted from Maynilad’s deferred tax adjustment from adopting Optional Standard Deduction.

Consolidated net income attributable to equity holders of the Parent Company The 15% increase to P=13,151 million in the consolidated net income attributable to equity holders of the Parent Company was mainly attributable to (i) an expanded power portfolio through increased investment in Beacon Electric; (ii) robust traffic growth on each of the roads held by MPTC; and (iii) continuing growth in the Hospital Group.

Other comprehensive income (loss) - net The Company recognized a net other comprehensive loss of P=466 million in 2017 as compared with the net comprehensive income of P=1,468 million in 2016. Year 2017 includes higher share in actuarial valuation adjustment from MERALCO and Maynilad and cumulative translation adjustments from DMT, CII B&R, PT Nusantara and MERALCO.

Core Income attributable to equity holders of the Parent Company MPIC’s share in the consolidated core income increased by 17% from P=12,106 million in 2016 to P=14,104 million in 2017 primarily reflecting the following: ▪ Power (distribution and generation) accounted for P=9.4 billion or 52% of the aggregate contribution; ▪ Toll operations contributed P=3.9 billion or 22% of the total; ▪ Water (distribution, production and sewerage treatment) contributed P=3.7 billion or 21% of the total; ▪ Hospital group contributed P=685 million or 4% of the total; and, ▪ the Rail, Logistics and others contributed P=150 million or 1% of the total.

The figures referred to above represent MPIC’s share in the stand-alone core income of the operating companies, net of consolidation adjustments.

Non-recurring expenses Non-recurring expenses amounted to P=953 million in 2017 and comprised of (a) accounting loss on remeasurement of previously held interest in Beacon Electric, (b) provision for impairment of goodwill in MMI, (c) provision for impairment in investment in AFPI, (d) refinancing costs, (e) project expenses and (f) one-time separation expense as a result of Maynilad’s redundancy and right-sizing program, offset by (a) an accounting gain from remeasurement of previously held interest in TMC and ESC and (b) a gain on sale of MERALCO shares. Non-recurring income in 2016 amounted to P=650 million and mainly included Maynilad’s remeasurement of future deferred taxes.

II - Operating Segments of the Group

Power

MPIC’s power business contributed P=9.4 billion to Core Net Income in 2017, an increase of 30% driven by step-up investments in MERALCO and GBPC.

MPIC is continuing its development of power-related services and investments in the Philippines with its combination of distribution, generation and retail electricity sales across Luzon, the Visayas and Mindanao.

In March 2017, an MPIC led consortium was granted Original Proponent Status by the Quezon City Government for a 42 MW energy-from-waste project. The project is expected to be subjected to competitive challenge within the year. MPIC is also talking with other local government units to develop similar projects.

In June 2017, MPIC deepened its participation in the Philippine power sector as it acquired the remaining 25% ownership in Beacon Electric at an aggregate purchase price of P=21.8 billion. Following this and related transactions, MPIC’s economic interest in MERALCO is 45.5% and in GBPC 62.4% as at December 31, 2017.

In November 2017, GBPC completed its acquisition of a 50% stake in ATEC, the holding company for Alsons Consolidated Resources, Inc.’s baseload coal-fired power plant assets in Mindanao.

MPIC is committed to providing reliable and economic power generation throughout the Philippines. Coal, even with the clean coal technologies we are committed to, may not be popular with certain segments of society but remains for the time being the most efficient way to supply the essential base load to provide stable power to homes and businesses throughout the country. MPIC is also committed to seeking increased investment in renewable energy compatible with the demand profile of the Philippines.

MERALCO

Increase 2017 2016 (Decrease) MERALCO Audited Amount % (in Php Millions) Revenues 282,556 257,181 25,375 10 Expenses 256,109 231,473 24,636 11 Core Income 21,213 19,583 1,630 8 Reported net income attributable to equity holders of MERALCO 20,384 19,176 1,208 6 Capital Expenditure 12,127 11,584 543 5

Increase Key Performance Indicators (Decrease) 2017 2016 Amount % Volume Sold (in mln kwh) 42,102 40,142 1,960 5 Average Distribution Revenue per kWh YTD 1.42 1.42 0.00 0

MERALCO’s Core Net Income for 2017 rose 3% to P=20.2 billion. Distribution revenues grew 5% in line with volume growth on flat tariffs which combined with an improved result from associated companies to increase Core Income for the period.

The 5% increase in energy sales was noted across all customer classes. Residential growth was driven by the increasing number of condominiums, apartments and government housing. The commercial sector grew on continued expansion of the Business Process Outsourcing and Gaming sectors while the Industrial sector was anchored on the robust performance of the semiconductor, food & beverage, and basic metal industries.

Total revenues rose 10% to P=282.6 billion on higher energy sales and pass-through generation charges driven by sharply higher fuel prices caused by a scheduled maintenance shutdown of the Malampaya gas facilities, increased coal and oil prices and the depreciation of the Philippine Peso against the U.S. dollar.

MERALCO spent P=12.1 billion on capital expenditures in 2017 to address critical loading of existing facilities and to support growth in demand and customer connections.

GBPC

Increase 2017 2016 (Decrease) GBPC Audited Amount % (in Php Millions) Revenue 23,794 17,637 6,157 35 Expenses 17,168 11,419 5,749 50 EBITDA Core 9,184 8,597 587 7 Core Income 2,883 2,843 40 1 Reported Net Income attributable to equity holders of GBPC 2,808 2,644 164 6

Increase Key Performance Indicators (Decrease) 2017 2016 Amount % Electricity Sold (consolidated; GWh) 4,466 3,646 820 22 Bilateral – Generation 3,758 3,214 544 17 Bilateral – WESM 351 250 101 40 WESM – Spot Sales 357 182 175 96

GBPC sold 4,465 GWH in 2017, an increase of 22% from a year earlier. Core Net Income for 2017 rose 1% to P=2.9 billion.

GBPC’s subsidiary, Panay Energy Development Corporation, began operation of its 150 MW expansion plant in the first quarter of 2017. Rectification works are close to completion with the final plant acceptance expected within the first quarter of 2018.

In November 2017, GBPC completed acquisition of a 50% stake in ATEC. The partnership with Alsons is an opportunity for GBPC to accelerate its entry into fast growing energy markets in Mindanao. With the planned interconnection between the Visayas and Mindanao grids, the partnership will greatly benefit power consumers as we work towards maximizing use of energy resources and optimizing power supply.

GBPC is looking at several projects to expand its energy portfolio through investment in solar, bagasse, pumped storage, hydro and run of river energy sources as part of the company’s commitment to offer flexible energy solutions to its customers.

Toll Operations

Increase 2017 2016 (Decrease) Metro Pacific Tollways Corporation Audited Amount % (in Php Millions) Consolidated Statements of Income Net toll revenues 13,107 11,902 1,205 10 Expenses 6,228 6,207 21 0 Core EBITDA 8,607 7,020 1,587 23 Core Income 3,935 3,276 659 20 Capital Expenditure 4,425 8,856 (4,431) (50)

Increase Key Performance Indicators (Decrease) 2017 2016 Amount % Average Daily Vehicle Entries - NLEX 237,046 220,010 17,036 8 Average Daily Vehicle Entries - SCTEX 54,566 45,025 9,541 21 Average Daily Vehicle Entries - CAVITEX 139,208 128,137 11,071 9 Average Daily Vehicle Entries - DMT 97,919 96,265 1,654 2 Average Daily Vehicle Entries - CII B&R 52,788 48,915 3,873 8 Average Daily Vehicle Entries - PT Nusantara 307,468 - 307,468 100

MPTC recorded Core Net Income of P=3.9 billion in 2017, a 20% increase from the P=3.3 billion recorded a year earlier. System-wide vehicle entries increased by 64% to an average of 903,525 a day due mainly to the investment in PT Nusantara in Indonesia.

Tollroads in the Philippines: Average daily vehicle entries for all three of our domestic tollways system (NLEX, CAVITEX and SCTEX) rose 10% to 445,350 compared with 405,576 in 2016.

Traffic on the NLEX grew 8% and surged by 21% on the SCTEX following integration of these two roads in 2016. Traffic on the CAVITEX rose 9% driven by growth in residential communities in Cavite and tourism in Batangas.

For all our built roads, we are focused on investment to meet rising demand: • An additional 64 kilometers of lane widening was added to the NLEX together with further toll plaza expansions; • Completed rehabilitation of the entire SCTEX pavement from Tipo to Tarlac and modernization of the SCTEX and CAVITEX Traffic Control Room; and • Diversified electronic payment options enabling motorists to pay tollway fees using Easy Trip RFID, beep cards, and Mastercard and Smart Mastercard.

Progress on new projects is as follows: • NLEX Harbour Link (P=10.5 billion, 5.8 km) to Caloocan City will be completed this year. Direct travel between the Ports of Manila and the NLEX will then be reduced to only 10 minutes. • NLEX Harbour Link Radial Road 10 (P=6.0 billion, 2.6km) broke ground in August 2017 and construction is expected to start in the first half of 2018 with completion in 2019. • CAVITEX C5 South Link Expressway (P=12.6 billion, 7.7km) joining C-5 Road Taguig to

R-1 (Coastal) is in full construction with completion due in 2020. • Cebu-Cordova Link Expressway (P=26.3 billion, 8.3km) contract award was made in November 2017 with completion due in 2021. • Cavite Laguna Expressway (P=16.9 billion, 44.6km) construction of the Laguna section commenced in the second half of 2017, a portion of which will be completed by the first quarter of 2019. The groundbreaking of the Cavite section is expected by the second quarter of 2018 with completion by 2020. • NLEX-SLEX Connector Road (P=23.3 billion, 8.0km elevated) is due to begin in the third quarter of 2018 and complete in 2020.

MPTC will spend approximately P=122.8 billion in the next five years on building highways and tollroads around the Philippines. The amount of investment is an estimate that assumes the satisfactory resolution of various overdue tariff adjustments, now ranging between 20% and 48% on different parts of the network.

Tollroads outside the Philippines: DMT in Bangkok reported a 2% increase in daily traffic to 97,919 while CII B&R in Vietnam delivered an 8% increase to 52,788 in 2017.

On November 3, 2017, MPTC acquired 48.3% of PT Nusantara, a publicly listed limited liability company in Indonesia. PT Nusantara’s infrastructure portfolio generates approximately 80% of its Core Net Income from Tollroads operations, which attract over 300,000 vehicle entries a day.

MPIC’s presence now in the Philippines, Thailand, Vietnam and Indonesia means we are well on the way to establishing a PAN-ASEAN Tollways group.

Water

Maynilad Water Services, Inc. 2017 2016 Increase (Decrease) Audited Amount % (in Php Millions) Consolidated Statements of Income Revenues 20,774 20,224 550 3 Costs and Expenses 9,166 8,285 881 11 Core EBITDA 14,136 14,403 (267) (2) Core Income 7,379 7,171 208 3 Reported Net Income 6,853 6,748 105 2 Capital Expenditure 12,006 9,664 2,342 24

Key Performance Indicators Increase (Decrease) 2017 2016 Amount % Volume of water supplied (MCM) 755.4 711.5 43.9 6 Volume of water billed (MCM) 511.7 498.6 13.1 3 Volume of water billed (MCM) - Consolidated 528.3 511.9 16.4 3 Non revenue water % (average) 32.3% 29.9% 2.4% 8 Non revenue water % (period end) 31.7% 30.6% 1.1% 4 Billed customers (period end) 1,358,758 1,312,223 46,535 4

Maynilad Water Services, Inc. 2017 2016 Increase (Decrease) Audited Amount % (in Php Millions) Customer mix (% based on billed volume) Domestic (residential and semi-business) 80.9% 81.1% -0.2% (0) Non-domestic (commercial and industrial) 19.1% 18.9% 0.2% 1

MPIC’s water business comprises its investments in Maynilad, the biggest water utility in the Philippines, and MPW, the Company’s unit focused on business development outside Metro Manila. The water segment’s contribution to Core Net Income amounted to P=3.7 billion in 2017, most of it attributable to Maynilad.

Maynilad Despite Maynilad’s excellent record of service delivery, the matter of Maynilad’s tariffs for the entire 2013-2017 five-year Business Plan period, together with the two related arbitration awards in its favor, remain unresolved. In summary: • In 2015, Maynilad received an arbitration award in its favor against the Metropolitan Waterworks and Sewerage System (MWSS), which centered on treatment of Corporate Income Tax as an expense to be recovered through the tariff. • MWSS did not act on this award and so Maynilad, in accordance with its concession agreement, sought to be kept whole by the Republic of the Philippines (RoP). RoP refused to act on this so Maynilad, with reluctance, launched an arbitration claim in Singapore seeking full recovery of forgone revenues. On July 24, 2017, Maynilad was notified that all three members of the arbitration panel voted unanimously to uphold its claim. • On February 9, 2018, the RoP unexpectedly applied to the High Court in Singapore seeking to have the award in Maynilad’s favor vacated. Furthermore, the RoP is seeking to have the hearings in secret rather than in open court.

Maynilad is in constructive and collaborative dialogue with a newly revitalized MWSS regarding the 2018-2022 five-year Business Plan. However, it appears that the matter of the Corporate Income Tax recoverability through the tariff and the now sizeable cash claim on the RoP will take further time to resolve. While Maynilad strives to meet its service obligations, the ongoing refusal of MWSS and RoP to address either the tariff matter or the revenue claim is hampering financing of the required capital expenditures.

Non-Revenue Water (NRW) measured at the District Metered Area level increased to 31.7% as at the end of 2017 from 30.6% in 2016 due to abnormal water production in connection with last year’s El Niño phenomenon while total NRW is now down to 39%. Just eleven years ago, when MPIC first invested in Maynilad, NRW was at a staggering 68% and millions of customers had inadequate access to water.

Maynilad repaired 26,792 pipe leaks across its concession area in 2017 and installed 38 kilometers of water pipes, expanding its distribution line to 7,675 kilometers. At the end of the year, drinking water supply and sewerage coverage were 93% and 15% of its population, respectively, while 24- hour service and average water pressure of over 7 psi were maintained at 100%.

Capital expenditure for 2017 stood at P=12.0 billion, much of it directed to upgrading and building reservoirs and pumping stations, laying primary pipelines and construction of wastewater facilities to improve public health. Maynilad is currently building six new sewage treatment plants. Once completed, these new wastewater facilities will be able to serve approximately 1,340,000 Maynilad customers.

MetroPac Water Investments Corporation

Outside the Maynilad concession, MPW is delivering on its water project development program.

Philippines • In Metro Iloilo, together with partners, we now have a bulk water supply project (170 million liters per day or MLD when complete) as well as a concession for water distribution and the provision of wastewater services currently serving 38,000 connections across Iloilo City and nearby municipalities. • Laguna Water District Aquatech Resources Corporation has expanded its coverage to additional barangays in Nagcarlan, increased water pressure in several locations and improved 24/7 water availability coverage from 57% (pre-takeover) to 95%. • In August 2017, MPW signed a joint venture agreement to undertake the supply of up to 100 MLD of bulk treated water to address the requirements of Cagayan de Oro City. The project has a minimum term of 30 years with operations commencing on December 31, 2017. • Also in August 2017, MPW was granted Original Proponent status for the Pampanga Bulk Water Supply Project by the Office of the Governor of Pampanga. Detailed negotiations are on-going.

Vietnam In November 2017, MPW entered into an agreement (expected to close in March 2018) for the acquisition of 45% of BOO Phu Ninh Water Treatment Plant Joint Stock Company (PNW). PNW has a license to serve clean water demand in the Chu Lai Open Economic Zone and adjacent areas in Quang Nam province. PNW is close to completing the construction of a water treatment plant with capacity of 25MLD and has a potential to increase its capacity to 300 MLD.

To date, MPW’s projects have a total contracted or potential capacity to provide more than 390 MLD of water – equivalent to 28% of Maynilad’s current billed volume of 1,402 MLD.

Healthcare Increase 2017 2016 (Decrease) Healthcare Group Audited Amount % (in Php Millions) Gross Revenues 22,464 19,641 2,823 14 Expenses 17,784 15,508 2,276 15 Core EBITDA 4,924 4,315 609 14 Core Income 2,046 1,756 290 17 Reported Net Income 2,052 1,759 293 17

Increase Key Performance Indicators (Decrease) 2017 2016 Amount % Occupancy rate (%) - Standard Beds 68% 69% -1% (1) Total beds available 3,211 2,839 372 13 No. of Patients – In patient 173,939 160,581 13,358 8 No. of Patients – Out patient 3,085,638 2,702,996 382,642 14 No. of Accredited Doctors 8,057 7,420 637 9 No. of Enrollees (schools) - average YTD 6,640 5,836 804 14

Metro Pacific Hospital Holdings, Inc. (MPHHI) saw aggregate Core Net Income surge by 17% to P=2.0 billion in 2017 compared with the same period last year. Of the increase in Core Net Income, 4% was attributable to the contribution from new hospital acquisitions while 13% was through organic growth driven by lower interest expense, cost savings from purchasing synergies and increasing patient numbers; outpatient visits increased by 14% to 3,085,638, and in-patient admissions rose 8% to 173,939.

In January 2017, MPHHI signed an agreement to infuse approximately P=133.5 million into Delgado Clinic Inc. (DCI), owner and operator of the Dr. Jesus C. Delgado Memorial Hospital (JDMH) for approximately 65% of the total expanded capital stock of DCI.

In October 2017, MPHHI completed the acquisition of a 54% stake in St. Elizabeth Hospital, Inc. (SEHI) which increased to 80% in December 2017. SEHI is a 248-bed tertiary level hospital located in General Santos City.

The Hospital group’s contribution to MPIC’s Core Net Income grew 16% to P=685 million in 2017 from P=589 million in 2016.

MPHHI has grown to 14 hospitals as at end-December 2017, with approximately 3,300 beds – eight hospitals in Metro Manila and six around the country (Bulacan, Tarlac, Bacolod, Davao, Zamboanga, and General Santos). MPHHI’s healthcare portfolio also includes two healthcare colleges, Davao Doctors College and Riverside College in Bacolod, three primary care clinics, Megaclinic in SM Megamall Ortigas, TopHealth in SM San Lazaro and Una Konsulta in Bacolod, and a newly built cancer center in a joint venture with Lipa Medix in Batangas.

Rail Increase 2017 2016 (Decrease) Rail Audited Amount % (in Php Millions) Farebox revenues 3,155 3,016 139 5 Expenses 2,355 2,394 (39) (2) Core EBITDA 961 734 227 31 Core Income (loss) 514 505 9 2 Reported Net Income (loss) 507 511 (4) (1)

Increase Key Performance Indicators (Decrease) 2017 2016 Amount % Average daily ridership 435,199 409,595 25,604 6 Available LRV (period end) 109 100 9 9

LRMC has operated the LRT Line 1 (LRT-1), since September 12, 2015. LRMC has improved efficiencies resulting in increased number of trains and trips, reduced passenger waiting time, improved safety and cleanliness of the stations, increased ridership, extended operating hours and increased customer satisfaction all while achieving ISO certifications for quality management and environmental management.

As at the end of 2017, LRMC has successfully restored 32 Light Rail Vehicles (LRVs), bringing the total available to 109 LRVs and reducing passengers waiting time to 3.4 minutes from more than five minutes when LRMC took over.

LRMC served an average daily ridership of 435,000 in 2017, an improvement of 6% from 2016 while the highest daily ridership was 578,000 (2016: 533,000).

Further improvements in the overall riding experience are expected as the company is on track with its overall rehabilitation plan for the LRT-1 existing line: • By the second quarter of 2018, LRMC should be ready to run its trains at 60 kph (currently at 40 kph) so shortening travel and waiting time and adding more trips per day. • The Company is also on track with its ₱750-million Station Improvement Project. LRMC has already completed stations Doroteo Jose, UN, Gil Puyat, Abad Santos, Pedro Gil and R Papa. Remaining stations will be completed by the fourth quarter of 2018.

Assuming the Philippine Government delivers a sufficient portion of the necessary Right-of-Way, the Company will start construction of the LRT-1 extension by the middle of 2018.

LRMC contributed P=283 million to MPIC’s Core Income for 2017.

In September 2017, MPIC was granted the original proponent status for the rehabilitation, operation and maintenance of MRT-3. The proposal consists of the full and comprehensive rehabilitation of MRT-3 and its operation and maintenance under a 30-year concession. Due diligence on the line is largely complete and the Company will be ready to take up operations as soon as May 2018. Our proposal must first be endorsed to the National Economic and Development Authority.

Logistics Following the acquisition of a majority of Basic Logistics in 2016, Metropac Movers Inc. (MMI) signed an agreement in January 2017 to acquire certain assets and business of Ace Logistics, Inc. (Ace) for an aggregate purchase price of P=280 million. The acquisition was conditionally completed in April 2017. Ace is engaged in warehousing, courier express and parcel delivery, e-commerce delivery, trucking, freight forwarding, customs brokerage and domestic shipping. Ace also has a strong presence in pre-delivery inspection in the automotive industry, which MPIC intends to expand.

MMI’s momentum continues with the addition of 31 new clients and an increase in its warehouse footprint to 235,000 square meters at the end of 2017. MMI also purchased 512 trucks to service its warehousing, freight forwarding and trucking clients. MMI is expected to achieve profitability in 2018 and is in active discussions for further opportunities in the logistics business.

MPIC Consolidated Statement of Financial Position

Assets

The following table summarizes the individual increase (decrease) of consolidated asset accounts.

Increase Audited Audited (Decrease) 2017 % 2016 % Amount % (in Php Millions) ASSETS Current assets Cash and cash equivalents and short-term deposits 49,317 66 19,469 61 29,848 153 Restricted cash 4,047 5 2,432 8 1,615 66 Receivables 10,899 15 5,171 16 5,728 111 Other current assets 10,432 14 4,728 15 5,704 121 74,695 100 31,800 100 42,895 135 Asset held for sale 250 0 − − 250 100 74,945 100 31,800 100 43,145 136

Noncurrent Assets Restricted cash − − 889 0 (889) (100) Investments and advances 150,971 35 126,556 40 24,415 19 Service concession assets 168,783 40 152,693 48 16,090 11 Property, plant and equipment 67,606 16 10,480 3 57,126 545 Goodwill 25,384 6 21,004 6 4,380 21 Intangible assets 4,637 1 1,934 1 2,703 140 Deferred tax assets 1,045 0 467 0 578 124 Other noncurrent assets 10,380 2 5,779 2 4,601 80 428,806 100 319,802 100 109,004 34

Significant increase in all asset accounts substantially resulted from the consolidation of Beacon Electric (including GBPC). Other factors contributing to the increase are discussed below:

• Cash and cash equivalents and short-term deposits – (Increase) Drawdown of additional loans by MPTC, MPIC and LRMC less capital expenditure payments (see “Liquidity and Capital Resources” for the summary of the Group’s statement of cash flows for the year ended December 31, 2017).

• Restricted Cash – current and non-current portions – (Increase) Increase in restricted cash allotted for the scheduled payment of loans offset by the partial release of MPTC’s restricted cash related to the construction of NLEX Segment 10.

• Investments and advances – (Increase) Acquisition of 48.3% interest in PT Nusantara by MPTC and 50% stake in ATEC by GBPC and increase in equity investment in MERALCO (increase in effective ownership by 4.5% beginning June 2017). The increase was offset by the step up

acquisitions of Beacon Electric, TMC and ESC (derecognition of the equity investment to line-by- line consolidation).

• Goodwill – (Increase) Goodwill arising from (i) business combinations of TMC, ESC, SEHI; (ii) acquisition of assets of Ace and (iii) the finalization of purchase price allocation of MMI and ESTII which were acquired in 2016.

• Service concession assets – (Increase) Mainly due to the additional capital expenditures for the year, net of amortization.

Liabilities and Equity

The following table summarizes the individual increase (decrease) of consolidated liability and equity accounts.

Increase Audited Audited (Decrease) 2017 % 2016 % Amount % (in Php millions) Current Liabilities Accounts payable and other current liabilities 27,142 49 14,965 56 12,177 81 Income tax payable 1,415 3 466 2 949 204 Due to related parties 3,879 7 1,713 6 2,166 126 Current portion of: Provisions 5,997 11 5,229 19 768 15 Service concession fees payable 871 2 874 3 (3) − Long-term debts 15,573 28 3,797 14 11,776 310 54,877 100 27,044 100 27,833 103

Noncurrent Liabilities Noncurrent portion of: Provisions 2,106 1 239 0 1,867 781 Service concession fees payable 28,873 12 28,000 21 873 3 Long-term debts 173,510 75 93,219 68 80,291 86 Due to related parties 11,767 5 6,726 5 5,041 75 Deferred tax liabilities 6,836 3 3,925 3 2,911 74 Other long-term liabilities 10,103 4 4,368 3 5,735 131 233,195 100 136,477 100 96,718 71

Increase Audited Audited (Decrease) 2017 % 2016 % Amount % (in Php millions) Equity Capital stock 31,626 20 31,619 21 7 − Additional paid-in capital 68,465 42 68,438 45 27 − Treasury Shares (167) 0 (167) 0 − − Equity reserves 5,742 4 6,282 4 (540) (9) Retained earnings 53,894 33 43,889 29 10,005 23 Other comprehensive income reserve 1,684 1 1,971 1 (287) (15) Total equity attributable to owners of the Parent Company 161,244 100 152,032 100 9,212 6

Non-controlling interest 54,435 36,049 18,386 51

Significant increase in the liabilities and equity accounts substantially resulted from the consolidation of Beacon Electric (including GBPC). Other factors contributing to the increase are discussed below:

• Due to related parties – current and noncurrent portions – (Increase) The increase is mainly driven by the deferred purchase portion of MPIC’s acquisition of the remaining 25% of Beacon Electric from PCEV in June 2017 net of payments made during 2017.

• Service concession fees payable – current and noncurrent portions – (Increase) Represents movement in foreign exchange and accretion net of actual payment of concession fees.

• Long-term debt – current and noncurrent portions – (Increase) Aside from loans resulting from consolidating Beacon Electric, BPHI and GBPC, additional loan drawdowns were also made during 2017.

• Equity reserves – (Decrease) Mainly due to the premium on acquisition of non-controlling interest.

• Retained earnings – (Increase) Attributable to the net income earned for the period, net of dividends declared in March 2017 and in August 2017.

• Non-controlling interest (NCI) – (Increase) Aside from the consolidation of GBPC which is effectively owned by MPIC at 56%, the acquisition of majority interest in entities TMC, ESC, DCI and SEHI also contributed to the increase.

Liquidity and Capital Resources

The following table shows a summary of the Group’s audited statements of cash flows for the years ended 2017 and 2016 as well as the consolidated capitalization as at December 31, 2017 and 2016:

Increase Audited (Decrease) 2017 2016 Amount % (in Php Millions) Cash Flows Net cash provided by operating activities 26,508 18,918 7,590 40 Net cash used in investing activities (12,848) (37,115) (24,267) (65) Net cash provided by financing activities 11,720 17,183 (5,463) 32 Net increase in cash and cash equivalents 25,380 (1,014) 26,394 >100 Capital expenditures 22,396 20,293 2,103 10

Capitalization Long-term debt net of current portion 173,510 93,219 80,291 86 Current portion of long-term debt 15,573 3,797 11,776 >100 Total 189,083 97,016 92,067 95 Non-controlling interest 54,435 36,049 18,386 51 Total equity attributable to owners of the Parent Company 161,244 152,032 9,212 6

Cash and cash equivalents 40,835 15,455 25,380 >100 Short-term deposits 8,482 4,014 4,468 >100

As at December 31, 2017, MPIC’s consolidated cash and cash equivalents and short-term investments totaled P=49,317 million, an increase of P=29,848 million from P=19,469 million as at December 31, 2016. This is mainly driven by the cash and cash equivalents and short-term deposits acquired from consolidating Beacon Electric and its subsidiaries, BPHI and GBPC.

Operating Activities MPIC’s consolidated net operating cash flow in 2017 posted a 40% increase from P=18,918 million to P=26,508 million with the improvement in the operations of the Company’s major segments. Total revenues 2017 increased by P=17,692 million to P=62,512 million.

Investing activities Net cash used in investing activities amounted to P=12,848 million which is 65% lower than last year’s net cash outflow. Below are the significant cash flow movements during 2017:

Cash inflow arising from the following transaction: ▪ Sale of 4.5% share in MERALCO. In June 2017, MPIC sold 50.7 million MERALCO shares or 4.5% out of its 15% direct interest in MERALCO to various institutional investors through overnight placement. Selling price is P=12.7 billion less transaction cost related to the sale of P=272 million. The proceeds were used to acquire the remaining 25% interest in Beacon Electric from PCEV. ▪ Redemption of Beacon Electric Class B Preferred Shares. In May 2017, Beacon Electric redeemed all Class B Preferred shares held by MPIC amounting to P=3.5 billion.

▪ Dividends received. Total dividends received in 2017 is P=9.6 billion of which majority are dividends from Beacon Preferred shares amounting to P=2.5 billion and dividends from associated companies amounting to P=6.9 billion.

Cash outflow arising from the following transactions: ▪ Acquisition of the remaining 25% interest in Beacon Electric. In June 2017, MPIC acquired the remaining 25% interest in Beacon Electric at an aggregate purchase price of P=21.8 billion of which P=12.0 billion was paid in cash and the remaining P=9.8 billion on a deferred purchase. Net cash outflow is net of cash and cash equivalents acquired from Beacon Electric including BPHI and GBPC. ▪ Capital expenditures. Capital expenditures for 2017 comprised additions to service concession assets of Maynilad, MPTC and LRMC and continuous improvements in the Hospitals and Logistics businesses.

Financing Activities The Company’s consolidated net cash inflow from financing activities amounted to P=11,720 million in 2017. Total proceeds from debt drawdowns amounted to P=36.5 billion. Aside from scheduled payment of debt (including interest) and service concession fees of Maynilad, cash outflow included dividends paid to owners of the Parent Company amounting to P=3.2 billion and dividends paid to non- controlling shareholders amounting to P=2.0 billion, a significant portion of which was attributable to the share in the dividends of the non-controlling shareholders of NLEX Corp and MWHC.

Other matters:

i. Events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation

There are various outstanding contingent liabilities which are not reflected in the accompanying consolidated financial statements. Refer to Note 30, Contingencies and Note 29, Significant Contracts, Agreements and Commitments to the 2019 Audited Consolidated Financial Statements for the updates on the Company’s financial obligations.

ii. All material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created during the reporting periods

iii. Description of any material commitments for capital expenditures, general purpose of such commitments, expected sources of funds for such expenditures

Refer to Note 29, Significant Contracts, Agreements and Commitments and Note 33, Financial Risk Management Objectives and Policies to the 2019 Audited Consolidated Financial Statements.

iv. Any known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations

Refer to Note 30, Contingencies to the 2019 Audited Consolidated Financial Statements. See also ITEM 1. DESCRIPTION OF BUSINESS for the relevant discussions on Dependence on Licenses and Government Approval and Effect of Existing or Probable Government Regulations on the Business. v. Any seasonal aspects that had a material effect on the financial condition or results of operations

Power. For MERALCO, electricity sales exhibit a degree of quarterly seasonality with the first quarter having lower than the average electricity sales as this period is characterized by cooler temperature and softer consumer demand following heightened consumer spending in the last quarter of the year. The second quarter is marked by higher than average electricity sales. The fourth quarter performance is about the average of the year.

For GBPC, electricity sales exhibit a degree of quarterly seasonality with the first quarter having lower than the average electricity sales. This period is characterized by cooler temperature, resulting to softer consumer demand. Higher than average electricity consumption is marked during the second quarter as temperature rises during the summer months. This increase in demand, however, is coupled with higher generation from solar plants in Negros thereby tempering market prices. The fourth quarter sees an increase in electric power consumption due to heightened consumer spending during the holiday season.

Toll Operations. The Company’s toll road operations are a seasonal business. Based on historical traffic on the NLEX, SCTEX and CAVITEX, the month of January is slightly below the normal average due to the end of the Christmas holidays. From February to May, traffic is above the normal average due to the summer holiday, which is traditionally a peak season for travel. The months of June to August remain to have the lowest seasonal factors due to the rainy season. Traffic is expected to improve from September until November, while the month of December has the highest seasonal factor due to the Christmas holidays.

Water. The Company’s water utilities business is also seasonal, with comparatively lower revenues during the rainy season in the Philippines.

Rail. The Company’s rail business is seasonal, with lower ridership during the second quarter of the year due to summer holiday in schools. In addition to this, LRT-1 is also closed from Holy Thursday to Easter Sunday, and this typically occurs in April or March.

Item 7. Consolidated Financial Statements

See Exhibit I - 2019 Audited Consolidated Financial Statements

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

Information of Independent Accountant and Other Related Matters

1. External Audit Fees and Services

Below are the fees paid for by the Registrant to its External Auditor:

Type of Service Nature of Service 2019 2018 2017 Audit and Audit Audit of registrant’s P=26,500,000 P=25,600,000 P=25,000,000 related fees annual financial statements and review of quarterly results

Non-Audit Fees Financial accounting 860,795 4,100,000 2,500,000 and advisory services for a bid project Risk-Advisory services - - 2,300,000 Agreed Upon 3,250,000 - - Procedure Tax Advisory services 1,600,000 700,000 -

The individual audit committees of the registrant and subsidiaries review and approve the audit plan and scope of work for the above services and ensure that the rates are competitive as compared to the fees charged by other equally competent external auditors performing similar nature and volume of activities.

2. Changes in and Disagreements with Independent Auditors on Accounting and Financial Disclosure

The auditing firm of SGV & Co. (SGV) is MPIC’s independent auditors since 2006.

Representatives of the said firm are expected to be present at the annual stockholders’ meeting and will have the opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.

During the Parent Company’s three most recent years or any subsequent interim periods, there was no instance when the Parent Company’s independent auditors have resigned or have indicated that they decline to stand for re-election or have been dismissed or where the Parent Company had any disagreement with its independent auditors or financial disclosure issue. The 2015 audit of the Company is in compliance with paragraph (3)(b)(ix) of the Securities Regulation Code Rule 68, as amended, which provides that the external auditor should be rotated, or the handling partner changed, every five (5) years or earlier.

SGV is willing to stand for re-election as external auditor of MPIC for the ensuing year.

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer

Directors

The following are the names, ages, citizenship and periods of service of the incumbent directors/independent directors of the Parent Company, all have been nominated for re-election at the Annual Meeting:

Period during which Name Age Citizenship individual has served as such Manuel V. Pangilinan 73 Filipino March 2006 up to present Jose Ma. K. Lim 67 Filipino March 2006 up to present David J. Nicol 60 Australian April 2010 up to present Christopher H. Young 62 British March 2019 up to present Augusto P. Palisoc Jr. 62 Filipino March 2006 up to present Ramoncito S. Fernandez 64 Filipino June 2009 up to present Ray C. Espinosa 63 Filipino November 2009 up to present Edward S. Go* 81 Filipino July 2006 up to present Artemio V. Panganiban* 83 Filipino August 2007 up to present Lydia B. Echauz* 72 Filipino November 2009 up to present Alfred V. Ty 52 Filipino November 2015 up to present Albert F. Del Rosario 80 Filipino May 2016 up to present Rodrigo E. Franco 60 Filipino May 2016 up to present Francisco C. Sebastian 65 Filipino June 2016 up to present Jose Jesus G. Laurel 65 Filipino June 2016 up to present * Independent Directors

Officers and Advisors

The following are the names, ages, positions, citizenship and periods of service of the incumbent officers and advisors of the Parent Company:

Period during which

individual has served as Name Age Position Citizenship such Manuel V. Pangilinan 73 Chairman Filipino March 2006 to present

Jose Ma. K. Lim 67 President & CEO Filipino March 2006 to present Executive Vice- David J. Nicol 60 Australian April 2010 to present President & CFO Vice President - PR and Melody M. del Rosario 55 Corporate Filipino March 2006 up to present Communications Vice President - Group Maida B. Bruce 46 Filipino November 2009 to present Controller Vice President – Karim G. Garcia 52 Filipino January 2015 to present Business Development Vice-President - Human Loudette Anne M. Zoilo 43 Filipino February 2012 to present Resources

Period during which

individual has served as Name Age Position Citizenship such Ricardo M. Pilares III 38 Vice President – Legal Filipino February 2015 to present Vice President – Melanie G. Bendijo 46 Filipino February 2015 to present Treasury Vice President – Maricris A. Ysmael 40 Filipino February 2016 to present Investor Relations Assistant Vice President 42 Filipino February 2014 to present Santhea V. delos Santos - Chief Risk Officer Assistant Vice President Armin T. Uy 40 Filipino February 2016 to present – Finance Assistant Vice-President Kristine Pineda-Fragante 32 Filipino February 2018 to present – Finance Jose Maria Niño Jesus P. 37 Assistant Vice President Filipino February 2018 to present Madara for Business Development Edison R. Mateo 40 Assistant Vice President Filipino February 2020 to present for Information Technology Antonio A. Picazo 78 Corporate Secretary Filipino March 2006 up to present Cristina S. Palma Gil- Assistant Corporate 51 Filipino May 2013 up to present Fernandez Secretary Corporate Governance Jose Jesus G. Laurel 65 Filipino May 2016 up to present Officer Ma. Joanna Carmela P. 32 Internal Auditor Filipino October 2019 up to present Sanalila

Business Experience and Other Directorships

The business experience of each of the directors of the Parent Company is as follows:

MANUEL V. PANGILINAN Filipino, 73 years old Chairman of the Board of Directors Member, Compensation Committee Director of Metro Pacific Investments Corporation since March 2006

Education and Training: • BA Economics Degree, Ateneo De Manila University • MBA Degree, Wharton School of Finance and Commerce University of Pennsylvania • Honorary Doctorate in Humanities, San Beda College/Xavier University/Holy Angel University/Far Eastern University

Membership in Boards of Listed Companies other than MPIC: • Philippine Long Distance Telephone Company • Manila Electric Company • Philex Mining Corporation • Philex Petroleum Corporation • Roxas Holdings, Inc.

Membership in Boards of Non-Listed Companies: • Beacon Electric Asset Holdings, Inc. • Smart Communications, Inc. • PLDT Communications and Energy Ventures Inc. (formerly Piltel) • Landco Pacific Corporation • Medical Doctors, Inc. • Colinas Verdes Hospital Managers Corporation • Davao Doctors Inc. • Asian Hospital, Inc. • Maynilad Water Services Corporation • Mediaquest, Inc. • Associated Broadcasting, Corporation (TV5) • Manila North Tollways Corporation • Makati Medical Center • Megaclinic, Inc. • Meralco Powergen Corporation • Metro Pacific Hospital Holdings, Inc. • Metro Pacific Zamboanga Hospital Corporation • MetroPac Movers, Inc. • MetroPac Logistics Company Inc. • MetroPac Water Investments Corporation • Cardinal Santos Medical Center • Cardinal Medical Charities Foundation, Inc. • Caritas Manila and Radio Veritas-Global Broadcasting Systems, Inc. • Central Luzon Doctor’s Hospital • De Los Santos Medical Center • Digital Telecommunications Phils. • Digitel Mobile Philippines, Inc. • East Manila Hospital Managers Corporation • Ideaspace Foundation, Inc. • Light Rail Manila Holdings, Inc. • Light Rail Manila Corporation • Metro Pacific Light Rail Corporation • Metro Pacific Investments Foundation, Inc. • Porrovia Corporation • Roxas Holdings, Incorporated • Metro Vantage Properties, Inc. • MetroPac Property Holdings, Inc.

Other Information: Mr. Pangilinan founded First Pacific in 1981 and serves as its Managing Director and Chief Executive Officer. Within the First Pacific Group, he holds the position of President Commissioner of P.T. Indofood Sukses Makmur, the largest food company in Indonesia.

He is currently the Chairman of the Board of Trustees of the San Beda College. In August 2016, the Samahang Basketbol ng Pilipinas (SBP) – the National Sport Association for basketball requested Mr. Pangilinan to be its Chairman Emeritus after serving as President since February 2007. Effective January 2009, MVP assumed the Chairman of the Amateur Boxing Association of the Philippines (ABAP), a governing body of amateur boxers in the country. In October 2009, Mr. Pangilinan was appointed as Chairman of the Philippine Disaster Resiliency Foundation, Incorporated (PDRF), a non-

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profit foundation established to formulate and implement a reconstruction strategy to rehabilitate areas devastated by floods and other calamities. Mr. Pangilinan is Chairman of Philippine Business for Social Progress (PBSP), the largest private sector social action organization made up of the country’s largest corporations. In June 2012, he was appointed as Co-Chairman of the US-Philippines Business Society (USPS), a non-profit society which seeks to broaden the relationship between the United States and the Philippines in the areas of trade, investment, education, foreign and security policies and culture.

JOSE MA. K. LIM Filipino, 67 years old President and Chief Executive Officer Executive Director Non-Voting Member, Nominations Committee Member, Finance Committee Director of Metro Pacific Investments Corporation since March 2006

Education and Training: • BA Philosophy Degree, Ateneo De Manila University • MBA Degree, Asian Institute of Management

Membership in Boards of Listed Companies other than MPIC: • Manila Electric Company

Membership in Boards of Non-Listed Companies: • Asian Hospital, Inc. • Beacon Electric Asset Holdings, Inc. • Beacon Powergen Holdings, Inc. • Metro Pacific Tollways Corporation • Medical Doctors, Inc. • Colinas Verdes Hospital Managers Corporation • Davao Doctors Hospital (Clinica Hilario), Inc. • Maynilad Water Services, Inc. • Maynilad Water Holding Company, Inc. • Indra Philippines, Inc. • East Manila Hospital Managers Corporation • Metro Pacific Hospital Holdings, Inc. • MetroPac Movers, Inc. • MetroPac Iloilo Holdings Corporation • MetroPac Logistics Company, Inc. • MetroPac Water Investments Corporation • MetroPac Iloilo Bulk Water Supply Corporation • MetroPac Cagayan de Oro, Inc. • Cagayan de Oro Bulk Water, Inc. • Metro Pacific Light Rail Corporation • Riverside Medical Center, Inc. • Riverside College Inc. • Metro Pacific Investments Foundation Inc. • Metro Strategic Infrastructure Holdings • Meralco PowerGen Corporation • Porrovia Corporation • DMCI-MPIC Water Company, Inc.

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• Cardinal Santos Medical Center • Pacific Global Aviation Inc. • Light Rail Manila Corporation • AIF Tollroads Holdings • AF Payments Inc. • AHI Hospital Holdings Corporation • Light Rail Manila Holdings, Inc. • Light Rail Manila Holdings 6, Inc. • Asian Institute of Management • Ateneo Graduate School of Business • Colinas Verdes Hospital Managers Corporation • Davao Doctors Hospital • Manila Medical Services, Inc. • Global Business Power Corporation • Eco-System Technologies International, Inc. • EasyTrip Services Corporation • Collared Wren Holdings, Inc. • MPCALA Holdings, Inc. • Metro Pacific Tollways Development Corporation • NLEX Corporation • Metro Pacific Tollways North Corporation • Metro Pacific South Corporation • Metro Pacific Tollways Vizmin Corporation • Cebu Cordova Link Expressway Corporation • Metro Strategic Infrastructure Holdings, Inc. • Larkwing Holdings, Inc. • Cavitex Infrastructure Corporation • Neo Oracle Holdings Inc. • Pacific Global One Aviation Company Inc. • Philippine Disaster Risk Foundation, Inc. • Philippine Telecommunications Investment Corp. • Metro Vantage Properties, Inc. • MetroPac Property Holdings, Inc. • Surallah Biogas Ventures Corp. • MetPower Venture Partners Holdings, Inc.

Other Information: Mr. Lim worked as a senior officer for various local and foreign banking institutions from 1988 to 1995. He was Director for Investment Banking of the First National Bank of Boston from 1994 to 1995, and prior to that, Vice President of Equitable Banking Corporation.

In 1995, Mr. Lim joined Fort Bonifacio Development Corporation (FBDC) as Treasury Vice President and eventually was appointed Chief Finance Officer in 2000.

In 2001, Mr. Lim assumed the position of Group Vice President and Chief Finance Officer of FBDC’s parent company, Metro Pacific Corporation (MPC) on a concurrent basis. He was then elected President and CEO of MPC in June 2003.

In 2006, MPC was reorganized into Metro Pacific Investments Corporation (MPIC), where he continues to serve as President and CEO.

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Mr. Lim has received various awards relating to Corporate Governance and Investor Relations and most recently, he was accorded the Triple A award from Asian Institute of Management for his excellent performance in his field of profession.

He is a founding member of the Shareholders Association of the Philippines and an active member in various business organizations.

DAVID J. NICOL Australian, 60 years old Executive Vice President and Chief Finance Officer Executive Director Alternate Member, Finance Committee Director of Metro Pacific Investments Corporation since April 2010

Education and Training: • B. Sc. Management Sciences, University of Lancaster, England • ACA Institute of Chartered Accountants in England and Wales

Membership in Boards of Non-Listed Companies: • AF Payments, Inc. • Asian Hospital, Inc. • Colinas Verdes Hospital Managers Corporation • Light Rail Manila Holdings, Inc. • Medical Doctors, Inc. • Metro Pacific Tollways Corporation • Don Muang Tollways Public Company Limited

Other Information: Mr. Nicol is an accomplished and versatile business leader having successfully held CEO and CFO positions in a wide range of industries in Europe and Asia.

Mr. Nicol began his career with PricewaterhouseCoopers where he served for 10 years in London, New York and Hong Kong. He joined First Pacific Company Limited in 1991 and in 1994 moved to their Thai affiliate Berli Jucker PCL where he served as CFO until 1998 and then as Group CEO until 2002 when First Pacific exited Thailand.

From 2002 until 2010 when Mr. Nicol joined MPIC, he held positions as CEO Europe and Asia for SIRVA, Inc., CEO of Pinnacle Regeneration group and as a director of Reconomy Limited in the UK’s waste and recycling sector. He has a consistent record of building shareholder value through operational improvement, restructuring, mergers and acquisitions and entering new markets.

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CHRISTOPHER H. YOUNG British, 62 years old Non-Executive Director Chairman, Nominations Committee Member, Nominations Committee Director of Metro Pacific Investments Corporation since March 2019

Education and Training: • Waid Academy, Scotland • Master of Arts (Honors) degree in Economics, St. Andrews University

Membership in Boards of Listed Companies other than MPIC: • First Pacific Company Limited • Roxas Holdings, Inc.

Other Information: Mr. Young is an Executive Director and Chief Financial Officer of First Pacific Company Limited, and serves as Commissioner of PT Indofood Sukses Makmur Tbk as well as a Trustee of IdeaSpace Foundation, Inc.

Mr. Young worked for PricewaterhouseCoopers in London and Hong Kong from 1979 until 1987, at which time he joined First Pacific in Hong Kong as Group Financial Controller. He joined Metro Pacific Corporation in 1995 as Finance Director, a position he held until he joined PLDT as its Chief Financial Advisor in November 1998. Mr. Young returned to First Pacific in 2015 as Chief Financial Officer and joined the First Pacific Board in August 2017.

AUGUSTO P. PALISOC JR. Filipino, 62 years old Non-Executive Director Director of Metro Pacific Investments Corporation since March 2006

Education and Training: • BA Economics, De La Salle University • Master’s in Business Management, Asian Institute of Management

Membership in Boards of Listed Companies other than MPIC: • NIL

Membership in Boards of Non-Listed Companies: • Medical Doctors, Inc. • Colinas Verdes Hospital Managers Corporation • Davao Doctors Hospital Inc. • Davao Doctors College Inc. • Asian Hospital, Inc. • Metro Pacific Hospital Holdings, Inc. • Riverside Medical Center, Inc. • Riverside College, Inc. • AHI Hospital Holdings, Inc. • Central Luzon Doctors Hospital, Inc. • Colinas Healthcare Inc. • De Los Santos Medical Center, Inc.

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• East Manila Hospital Managers Corporation • Metro Radlinks Network, Inc. • Metro Pacific Zamboanga Hospital Corporation • The Megaclinic, Inc. • Marikina Valley Medical Center, Inc. • Delgado Clinic, Inc. • Sacred Heart Hospital, Inc. • Metro SEHI Cancer Center Corporation • Metro RMCI Cancer Center Corporation • Metro CLDH Cancer Center Corporation • Metro Sanitas Corporation • Medi Linx Laboratory, Inc. • Manila Medical Services, Inc. • St. Elizabeth Hospital, Inc. • Western Mindanao Medical Center, Inc. • Keralty Manila, Inc. • Topheatlh Medical Clinics, Inc. • Santos Clinic, Inc. • Los Baños Doctors Hospital and Medical Center, Incorporated

Other Information: Mr. Palisoc has been with the First Pacific group of companies for over 35 years. He is currently an Non-Executive Director of MPIC and is the President & Chief Executive Officer and Director of Metro Pacific Hospital Holdings Inc.

Prior to joining MPIC, he was the Executive Vice President of Berli Jucker Public Company Limited in Thailand from 1998 to 2001. Mr. Palisoc served as President and CEO of Steniel Manufacturing Corporation in the Philippines from 1997 to 1998. He has held various positions within the First Pacific group as Group Vice President for Corporate Development of First Pacific Company Limited in Hong Kong, and Group Managing Director of FP Marketing (Malaysia) Sdn. Bhd. in Malaysia. Before he joined First Pacific in 1983, he was Vice President of Monte Real Investors, Inc. in the Philippines.

RAMONCITO S. FERNANDEZ Filipino, 64 years old Non-Executive Director Director of Metro Pacific Investments Corporation since June 2009

Education and Training: • Master’s in Business Management, Asian Institute of Management • Advanced Management Program of IESE (Spain) , University of Asia and the Pacific • BS Degree in Industrial Management Engineering, De La Salle University • Professional Directors Program, Institute of Corporate Directors

Membership in Boards of Listed Companies other than MPIC: • NIL

Membership in Boards of Non-Listed Companies: • Maynilad Water Services, Inc. • MetroPac Water Investments Corporation • Metro Iloilo Bulk Water Supply Corporation • Metro Iloilo Holdings Corporation

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• MetroPac Cagayan de Oro, Inc. • Tahanan Mutual Building and Loan Association, Inc. • First Pacific Leadership Academy • Shareholders Association of the Philippines (SHAREPHIL) • De La Salle College of Engineering

Other Information: Ramoncito S. Fernandez is the current President and Chief Executive Officer of Maynilad Water Services, Inc. He is the past President of the Management Association of the Philippines, the premiere management organization compose of CEOs/COOs of the top 1000 corporation in the Philippines. He is the 2009 PISM GAWAD SINOP Awardee, the highest award conferred by the Foundation of the Society of Fellows in Supply Management and the Philippine Institute for Supply Management to outstanding achievers in the field of supply management. He is a recognized ASEAN Engineer by the ASEAN Federation of Engineering Organisations (AFEO).

He is a strong advocate of increased infrastructure spending for national development.

Mr. Fernandez was head of the Tollroad business of the MVP group from 2008 to 2015; growing its portfolio inside and outside the Philippines. He is an advocate of customer satisfaction, operating efficiency and innovation. Mr. Fernandez has been with the MVP Group since 1994, first under the packaging business and later with the Telecoms Group (PLDT/Smart) before moving to MPIC.

RAY C. ESPINOSA Filipino, 63 years old Non-Executive Director Director of Metro Pacific Investments Corporation since November 2009

Education and Training: • BS General Studies, University of Santo Tomas • Bachelor of Laws, Ateneo de Manila University • Master of Laws, University of Michigan Law School

Membership in Boards of Listed Companies other than MPIC: • Lepanto Consolidated Mining Corporation • Manila Electric Company • Philippine Long Distance Telephone Company • Roxas Holdings Inc.

Membership in Boards of Non-Listed Companies: • AGN Philippines, Inc. • Atimonan Land Ventures Development Corporation • Atimonan One Energy, Inc. • BTF Holdings, Inc • Beacon Electric Asset Holdings, Inc • Beacon PowerGen Holdings, Inc. • Bell Telecommunication Philippines, Inc. • Bonifacio Communications Corp. • Bow Arken Holding Company, Inc. • Brightshare Holdings Corporation • Business World Publishing Corporation • Calamba Aero Power Corporation • Cignal Cable Corporation (formerly Dakila Cable TV Corporation)

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• Cignal TV, Inc. • Cinegear, Inc. • CIS Bayad Center, Inc. • Clark Electric Distribution Corporation • Cobaltpoint Telecom, Inc. • Comstech Integration Alliance, Inc. • Connectivity Unlimited Resource Enterprise Inc. • Corporate Information Solutions, Inc. • Dominer Pointe, Inc. • Eastern Telecommunications Philippines, Inc. • Enterprise Investments Holdings, Inc. • Epik Studios, Inc. • E-Meralco Ventures, Inc. • eSakay, Inc. • eTelco, Inc. • ESPI Real Estate Ventures Inc. • Federation of Philippine, Industries, Inc. • First Agri Holdings Corporation • First Coconut Manufacturing Inc. • First Pacific Leadership Academy, Inc • Francom Holdings Inc. • Global Business Power Corporation • Hastings Holdings, Inc. • Hi Frequency Telecommunications, Inc. • JS’ Publications (THE FREEMAN) Company, Inc. • Landco Pacific Corporation • Liberty Telecom Holdings, Inc. • Maybank Philippines, Inc. • Manila Electric Company • Manila Overseas Press Club • Med Vision Resources, Inc. • Mediaquest Holdings, Inc. • Media5 Marketing Corporation • MGen Renewable Energy, Inc. • Meralco Energy, Inc. • Meralco Industrial Engineering Services Corporation (MIESCOR) • Meralco Power Academy • Meralco PowerGen Corporation • Meralco Power Foundation, Inc. • Meridian Power Ventures Limited • Metro Pacific Assets Holdings, Inc. • Metro Pacific Holdings, Inc. • Metro Pacific Resources, Inc. • MPG Holdings Philippines, Inc. • MPG Mauban LP Corporation • M Pioneer Insurance, Inc. • MRail Inc. MSpectrum, Inc. • Multipay Corporation • Multisys Technologies Corporation • Multi Technology Investments Holdings, Inc.

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• MVP Rewards and Loyalty Solutions Inc. • Nation Broadcasting Corp. • New Century Telecoms, Inc. • One Meralco Foundation, Inc. • Pacific Aurora Plantation Corp. • Pacific Global One Aviation Company, Inc. • Pacific Light Power PTE LTD • Paragon Vertical Corporation • Perchpoint Holdings, Inc. • Perihelion, Inc. • PH Broadband Networks Holdings, Inc. • PH Communications Holdings Corporation • Philippine Telecommunications Investment Corp. • Philstar Daily, Inc. • Philstar Global Corporation • Pilipinas Global Network Limited • Pilipinas Natural Resources Holdings, Inc. • Pilipinas Pacific Enterprise Holdings, Inc. • Pilipina Pacific Natural Resources Holdings Inc. • Pilipinas Pacific Telecom Holdings, Inc. • Pilipino Star Ngayon, Inc. • Pilipino Star Printing Company, Inc. • PLDT, Inc. • PLDT - Beneficial Trust Fund • PLDT Capital PTE Ltd. • PLDT Capital Investments PTE Ltd • PLDT Communications and Energy Ventures, Inc • PLDT Digital Investments PTE Ltd • PLDT Global Corporation • PLDT Global Investments Corporation • PLDT Global Investments Holdings Inc. • PLDT Online Investments PTE Ltd • PLDT - Smart Foundation • Power Smart Capital Ltd. • Radius Telecoms, Inc. • Redondo Peninsula Energy, Inc. • Roxas Power Corporation • Sari Sari Network Inc. • SatVentures, Inc. • Skyphone Logistics, Inc. • Somete Logistics & Development Corporation • Smart Communications, Inc. • Stargate Media Corporation ( People Asia) • Straight Shooters Media, Inc. • Studio5, Inc. • Talas Data Intelligence Inc. • Telecommunication Technologies Philippines, Inc. • Telemedia Business Ventures, Inc. • Tori Spectrum Telecom, Inc. • Trans Digital Excel Inc.

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• Two Cassandra - CCI Conglomerate, Inc. • Two Rivers Pacific Holdings Corporation • TV5 Network Inc. • xS Inc. (formerly Unitel Production, Inc.) • Upbeam Investments, Inc. • Vega Telecom, Inc. • Wolfpac Mobile Inc.

Other Information: Mr. Espinosa was a partner of SyCip Salazar Hernandez & Gatmaitan from 1982 to 2000, a foreign associate at Covington and Burling (Washington, D.C., USA) from 1987 to 1988, and a law lecturer at the Ateneo de Manila School of Law from 1983 to 1985 and 1989. He ranked first in the 1982 Philippine Bar examination.

He is the chairman of the Philstar Daily Incorporated and BusinessWorld Publishing Corporation, chairman of the Finance Committee of Meralco, and chairman of the Audit Committee of Lepanto. He is also the Chief Executive Officer of Meralco, Head of PLDT’s Regulatory Affairs and Policy Office and a trustee of the Beneficial Trust Fund of PLDT. Mr. Espinosa joined First Pacific in June 2013. He is First Pacific Group’s Head of Government and Regulatory Affairs and Head of Communications Bureau for the Philippines.

EDWARD S. GO Filipino, 81 years old Independent Director Chairman, Audit Committee Member, Risk Management Committee Member, Nominations Committee Member, Corporate Governance Committee Member, Finance Committee Director of Metro Pacific Investments Corporation since July 2006

Education and Training: • Bachelor of Arts, Ateneo de Manila University • Post Graduate Studies, Ateneo de Manila University • Doctor of Philosophy in Corporate Management (Honoris Causa), University of Baguio

Membership in Boards of Listed Companies other than MPIC: • PHINMA Petroleum and Geothermal Corporation • Filipino Fund Inc. • PHINMA Energy Corporation

Membership in Boards of Non-Listed Companies: • PLDT Communications and Energy Ventures, Inc. • Hyundai Asia Resources, Inc • Negros Navigation Co., Inc. • ASA Philippines Foundation • Metro Pacific Tollways Corporation • BTF Holdings Inc • Mediaquest Holdings, Inc. • TV5 Network, Inc. • Cignal TV, Inc.

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• BusinessWorld Publishing Corporation • PhilSTAR Daily, Inc. • AB Capital Investments Corporation • Viscal Investment Corporation • Union Galvasteel Corporation • BusinessWorld Publishing Corporation • Filipino Fund, Inc. • Phinma Petroleum Geothermal, Inc. • Anvaya Cove Golf & Sports Club

Other Information: Mr. Go has over 40 years of management experience in banking and finance, starting as Executive Trainee with Citibank N.A. and became President of Philippine Bank of Communications in 1974 and Chairman and Chief Executive Officer of Chinabank in 1985. Mr. Go is also Chairman of the Audit Committee of MPIC and PCEV.

ARTEMIO V. PANGANIBAN Filipino, 83 years old Lead Independent Director Chairman, Corporate Governance Committee Member, Finance Committee Director of Metro Pacific Investments Corporation since August 2007

Education and Training: • Associate in Arts ("With Highest Honors"), Far Eastern University • Bachelor of Laws ("Cum Laude"), Far Eastern University • Doctor of Laws (Honoris Causa), University of Iloilo/Far Eastern University/ University of Cebu/ Angeles University/ Bulacan State University

Membership in Boards of Listed Companies other than MPIC: • Asian Terminals, Inc. • First Philippine Holdings Corporation • GMA Holdings, Inc. • GMA Network Inc. • Jollibee Foods Corporation • Manila Electric Company • Petron Corporation • PLDT, Inc. • Robinsons Land Corporation

Membership in Boards of Non-Listed Companies: • Asian Hospital, Inc. • Metro Pacific Tollways Corporation • TeaM Energy Corporation • Tollways Management Corporation • Claudio Teehankee Foundation • Foundation for Liberty and Prosperity • Manila Metropolitan Cathedral-Basilica Foundation, Inc. • Metrobank Foundation • Philippine Judges Foundation • Tan Yan Kee Foundation, Inc.

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• Arpan Investment and Management, Inc. • Pan Philippine Resources Corporation • Philippine Dispute Resolution Center

Other Information: A consistent scholar, retired Chief Justice Panganiban obtained his Associate in Arts “With Highest Honors” and later his Bachelor of Laws with “Cum Laude” and “Most Outstanding Student” honors. He placed sixth among 4,200 candidates who took the 1960 bar examinations. He is also the recipient of several honorary doctoral degrees. A well-known campus leader, he founded and headed the National Union of Students of the Philippines.

In 1995, he was appointed Justice of the Supreme Court of the Philippines, and in 2005, Chief Justice. Aside from being a prodigious decision writer, he also authored thirteen books while serving on the highest court of the land. His judicial philosophy is “Liberty and Prosperity Under the Rule of Law.” He believes that the legal profession and the judiciary must not only safeguard the liberty of our people but must also nurture their prosperity and economic well-being. To him, justice and jobs, ethics and economics, democracy and development, nay, liberty and prosperity must always go together; one is useless without the other. On his retirement on 7 December 2006, his colleagues in the Supreme Court acclaimed him unanimously as the “Renaissance Jurist of the 21st Century.”

Prior to entering public service, Chief Justice Panganiban was a prominent practicing lawyer, law professor, business entrepreneur, civic leader and Catholic lay worker. He was the only Filipino appointed by the late Pope John Paul II to be a member of the Vatican-based Pontifical Council for the Laity for the term 1996-2001. At present, he is a much sought-after independent director and adviser of business firms, and writes a column in the Philippine Daily Inquirer.

LYDIA B. ECHAUZ Filipino, 72 years old Independent Director Chairman, Risk Management Committee Chairman, Finance Committee Member, Audit Committee Member, Compensation Committee Member, Nominations Committee Member, Corporate Governance Committee Director of Metro Pacific Investments Corporation since November 2009

Education and Training: • Bachelor of Arts Degree Major in Economics and Mathematics, St. Theresa’s College • Master of Business Administration, Ateneo de Manila University • Doctor of Business Administration, De La Salle University

Membership in Boards of Listed Companies other than MPIC: • DNL Industries, Inc. • Pilipinas Shell Petroleum Corp.

Membership in Boards of Non-Listed Companies: • PLDT Beneficial Trust Fund • Tahanan Mutual Building and Liam Association, Inc. • Superior Parañaque Homes, Inc. • Bancholders, Inc.

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• Philstar Group • FERN Realty Corporation • Riverside College Inc. • Henry Sy Foundation, Inc. • Felicidad Sy Foundation, Inc. • SM Foundation, Inc. • NBS College, Inc. • Akademyang Filipino Asso. Inc. • Museo de Galeon Foundation, Inc. • De La Salle College of St. Benilde • Mano Amiga Academy

Other Information: Lydia Echauz is retired from academe. She was for ten years President of Far Eastern University and its three other affiliate schools. Prior to joining FEU in 2002, she served as Dean of De La Salle University Graduate School of Business for sixteen (16) years, Associate Director of the Ateneo de Manila University Graduate School of Business for five (5) years, and Associate Professor of the University of the East, College of Business Administration for twelve (12) years. She is currently a member of the board of a few organizations, life member and former governor of the Management Association of the Philippines, and past President of the Association of Southeast Asian Institutions of Higher Learning, RP Council. She has been awarded most outstanding Filipino and most distinguished alumna of ADMU, DLSU, and St. Theresa's College.

ALFRED V. TY Filipino, 52 years old Vice-Chairman of the Board of Directors Member, Risk Management Committee Director of Metro Pacific Investments Corporation since November 2015

Education and Training: • Bachelor of Science in Business Administration, University of Southern California

Membership in Boards of Listed Companies other than MPIC: • Metropolitan Bank & Trust Company • GT Capital Holdings, Inc.

Membership in Boards of Non-Listed Companies: • Toyota Motor Philippines Corporation and Group of Companies • Federal Land, Inc. and Group of Companies • Makati Commercial Estate Association, Inc.

Other Information: Mr. Ty is a director of the Metropolitan Bank & Trust Company, Vice-Chairman of GT Capital Holdings Incorporated, Chairman of Toyota Motor Philippines Group of Companies, Chairman of Federal Land Group of Companies. He holds a Bachelor of Science degree in Business Administration from the University of Southern California.

ALBERT F. DEL ROSARIO Filipino, 80 years old Non-Executive Director Chairman, Compensation Committee Director of Metro Pacific Investments Corporation since May 2016

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Education and Training: • Bachelor of Science Degree in Economics, New York University • Secondary School, Xavier Military School, New York

Membership in Boards of Listed Companies other than MPIC: • PLDT, Inc. • Rockwell Land Corporation

Membership in Boards of Non-Listed Companies: • Philippine Stratbase Consultancy, Inc. • Stratbase ADR Institute, Inc. • Asia Insurance (Phil.) Corporation • Enterprise Investments Holdings, Inc. • Indra Philippines, Inc. • Metro Pacific Asset Holdings, Inc. • Metro Pacific Holdings, Inc. • Metro Pacific Resources, Inc. • Metro Pacific Tollways Corp. • Philippine Telecommunications Investment Corp. • PLDT Inc. – Technology Strategy Committee • Two Rivers Pacific Holdings Corporation • CSIS Southeast Asia Program • Asia Society Global Council

Other Information: Mr. Del Rosario was the former Secretary of Foreign Affairs of the Philippines from February 2011 to March 2016. He also served as Philippine Ambassador to the United States of America from October 2011 to August 2006.

Prior to entering public service, Amb. del Rosario was on the Board of Directors of various firms. His business career for over four decades has spanned the insurance, banking, real estate, shipping, telecommunications, advertising, consumer products, retail, pharmaceutical and food industries. He also headed the development of Pacific Plaza Towers. He is Co- founder of Gotuaco del Rosario Insurance Brokers Inc., Chairman of Philippine Stratbase ADR Institute, Inc. and a Director of PLDT Inc., Metro Pacific Tollways Corporation, Indra Philippines, Inc. and Rockwell Land Corporation.

Ambassador del Rosario received numerous awards and recognition for his valuable contributions to the Philippines and abroad. In September 2004, Ambassador del Rosario was conferred the Order of Sikatuna, Rank of Datu, by H.E. President Gloria Macapagal-Arroyo for his outstanding efforts in promoting foreign relations for the Philippines and the Order of Lakandula with a Rank of Grand Cross (Bayani) for acting as Co-Chair of the 2015 APEC in December 2015. He was a recipient of the EDSA II Presidential Heroes Award in recognition of his work in fostering Philippine democracy in 2001 and the Philippine Army Award from H.E. President Corazon Aquino for his accomplishments as Chairman of the Makati Foundation for Education in 1991.

He was awarded as 2013 Professional Chair for Public Service and Governance by Ateneo School of Government and the Metrobank Foundation, 2014 Management Man of the Year by Management Association of the Philippines, 2016 Outstanding Government National Official by Volunteers Against Crime and Corruption (VACC), 2016 Asia CEO Award as Life Contributor, and Manuel L. Quezon Gawad Parangal as Quezon City’s Most Outstanding Citizens for 2016. He was elevated to the Xavier Hall of Fame in New York City in 2006. Ambassador del Rosario received the AIM

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Washington Sycip Distinguished Management Leadership Award in 2011, Doctor of Laws (Honoris Causa) for “principled commitment to democracy, integrity and the rule of law both at home and around the globe” conferred by the College of Mount Saint Vincent, New York City in September 2015, Rotary Club Makati West’s First “Albert del Rosario Award” (Tungo sa Makatarungang Pamumuhay) in August 2016, Outstanding Leadership in Diplomatic Service by Mirriam College Department of International Studies and Philippine Tatler’s Diamond Award both in November 2016. On September 25, 2018 he was conferred the Honorary Degree of Doctor for Humanities by the Ateneo de Manila University for staunchly defending the sovereignty and territorial integrity of the country, raising the standards of economic diplomacy and proactively ensuring the safety and security of overseas Filipinos everywhere.

RODRIGO E. FRANCO Filipino, 60 years old Non-Executive Director Director of Metro Pacific Investments Corporation since May 2016

Education and Training: • Masters of Business Administration, Ateneo Graduate School of Business • BS Management Engineering, Ateneo de Manila University • Secondary School, Philippine Science High School

Membership in Boards of Listed Companies other than MPIC: • NIL

Membership in Boards of Non-Listed Companies: • Metro Pacific Tollways Corporation • NLEX Corporation • Cebu Cordova Link Expressway Corporation • MPCALA Holdings, Inc. • Cavitex Infrastructure Corporation

Other Information: Before joining NLEX Corp. in April 2003, Mr. Franco spent 20 years with JPMorgan Chase Bank. He was Vice President for Investment Banking when he left the Manila branch of JPMorgan Chase by the end of 2002. While in JPMorgan Chase, he assisted several Philippine companies raise funds from the international loan and capital markets, and had been involved in originating and executing a number of mergers and acquisitions, equity capital markets and loan and bond restructuring transactions.

FRANCISCO C. SEBASTIAN Filipino, 65 years old Non-Executive Director Member, Audit Committee Member, Finance Committee Director of Metro Pacific Investments Corporation since June 2016

Education and Training: • AB Degree in Economics, Ateneo de Manila University

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Membership in Boards of Listed Companies other than MPIC: • GT Capital Holdings, Inc. • Metropolitan Bank & Trust Company

Membership in Boards of Non-Listed Companies: • First Metro Investment Corp. • First Metro Asset Mgmt. Inc. • Resiliency (SPC) Inc. • Federal Land, Inc. • Travel Services, Inc. • Property Company of Friends, Inc. • ST 6747 Resources Corporation

Other Information: Mr. Sebastian is concurrently the Chairman of First Metro Investment Corporation, Vice Chairman of Metropolitan Bank & Trust Company and Chairman of GT Capital Holdings Inc.

He joined the Metrobank Group in 1997 when he was appointed as President of First Metro Investment Corporation, a position which he held for 13 years until 2011 when he became Chairman.

Mr. Sebastian joined the Ayala Group in 1975, and was seconded in 1977 to Hong Kong by Ayala Investment and Development Corporation. He worked as an investment banker in Ayala International Finance Limited and then Filinvest Finance (HK) Ltd. until 1984. He then started his own corporate and financial advisory firm based in Hong Kong, Integrated Financial Services Ltd., which he managed until he returned after 20 years to the Philippines to join the Metrobank Group in 1997.

JOSE JESUS G. LAUREL Filipino, 65 Non-Executive Director Director of Metro Pacific Investments Corporation since June 2016

Education and Training: • AB Degree in Economics, Ateneo de Manila University • Law Degree, Ateneo de Manila University • Master of Laws, Yale University

Other Information: Mr. Laurel is an Ateneo Law professor for 37 years and a holder of commercial Law Professorial Chair. He is a fellow at the Institute of Corporate Directors and a Senior Adviser for Good Governance Advocates and Practitioners of the Philippines.

He served as General Counsel of Energy Development Corporation for 13 years, and as Securities Analyst up to Deputy Executive Director of Securities and Exchange Commission for 9 years. He also served Petron Corporation as VP - General Counsel from 2005-2010. Atty. Laurel is also the Corporate Governance Officer of MPIC following his retirement as VP-Legal of the Company from 2010 to 2016. He placed 6th in the 1981 bar. He also has a Master of Laws from Yale University.

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Officers

The business experience of each of the officers and executives of the Parent Company is as follows:

MELODY M. DEL ROSARIO Vice President Public Relations and Corporate Communications

Ms. Del Rosario has been with the Metro Pacific Group since 1993 and has over 21 years of experience heading MPIC’s public and media relations, corporate communications, advertising and corporate social responsibility (CSR). In these various capacities, Ms. del Rosario is in charge of strengthening the credibility and corporate public image of MPIC by planning and overseeing the implementation of strategic corporate communication programs, handling reputation and crisis management, as well as working closely with the corporate communication teams and CSR heads of the group. Ms. del Rosario is also the Corporate Information Officer of MPIC for the Philippine Stock Exchange and has recently been promoted President of the MPIC Foundation where she actively implements institutional programs on education, economic empowerment and environmental awareness.

MAIDA B. BRUCE Vice President Group Controller

Ms. Bruce joined MPIC in November 2009 as the Vice President Group Controller and IT Head, where she is responsible for strengthening and overseeing financial reporting, budgeting and forecasting, and systems enhancement processes. In 2017, she was also appointed as Data Protection Officer of MPIC. She is also a director and/or Chief Finance Officer and Treasurer of several subsidiaries of MPIC including MPIC Foundation and Ideaspace Foundation. Prior to joining MPIC, Ms. Bruce was the CFO of the Strategic Landbank Management group and some subsidiaries of Ayala Land, one of the largest real estate developers in the Philippines. She has more than thirteen years of extensive experience in the banking industry under Citigroup Australia and Manila. She was Vice President for Special Purpose Vehicles under the Financial Control Department of Citigroup Australia and has handled several roles and responsibilities also in Citibank Manila. She was part of a pioneer team that implemented, supported and continuously upgraded a proprietary global financial reporting system to multiple countries in the Asia-Pacific region. She started her career as a junior auditor of Ernst and Young here in the Philippines. She received her Bachelor of Accountancy Degree from St. Paul College of Manila.

KARIM MANUEL G. GARCIA Vice President Business Development

Mr. Garcia is responsible for new business development and integration into Metro Pacific’s businesses. His mandate is to increase shareholder value, by exploring new business ventures, and executing the development of Solicited and Unsolicited PPPs, Greenfield Projects and Merger and Acquisition (M&A) transactions, especially those with synergies to our existing businesses.

While living in Houston, Texas, Mr. Garcia managed the development of several international power projects, with a combined generation capacity of approximately 1000 MW, as well as executed energy venture capital M&A deals in South East Asia. Prior to joining MPIC, he was Vice President for Strategic Planning, responsible for the development of energy projects for Phinma Energy.

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As MPIC’s Vice President of Business Development, Karim is growing our rail business, advancing our foray into airports, and acquiring both fossil and renewable energy assets. He is also diversifying MPIC’s portfolio into deregulated and scalable infrastructure investments such as organic waste to biogas, and the production and distribution of industrial gases. Furthermore, he is currently exploring a gas to power project with the development of a Liquified Natural Gas (LNG) Import Terminal in the Philippines.

Mr. Garcia is a member of the Board and Executive Committee of Light Rail Manila Corporation which owns and operates the Light Rail Transit 1 system, and Global Business Power Corporation. And he is also the CEO of our newly formed biogas company, METPower.

Mr. Garcia holds a Bachelor of Science in Business Administration (BSBA), from the Questrom School of Business at Boston University, and obtained a Masters of Business Administration (MBA) from the Marshall School of Business at the University of Southern California. He is also an alumnus of the Ateneo de Manila.

LOUDETTE ANNE M. ZOILO Vice President Human Resources

Ms. Zoilo joined MPIC in September 2009. She currently heads MPIC HR and has been instrumental in managing and improving the MPIC organization’s People related Organizational Strategies. She brings with her 18 years of Human Resources experience, gained from PricewaterhouseCoopers where she was a Manager of the Global Human Resources Solutions team, an HR Consulting team of the firm which services a vast array of industries including but not limited to, Utilities, Consumer, Banking, Government, NGOs and others. Her project exposure included HR Consulting, Risk Management and Process Improvement projects. She was also part of the management team of Corporate Human Resources Group of Philamlife who oversaw the HR function of almost 21 affiliates where she instituted improvements in policies and procedures of the group. Prior to joining MPIC, she was the HR Head of Jollibee Worldwide Services, a shared- service organization of the Jollibee Group of Companies.

RICARDO M. PILARES III Vice President – Legal Compliance Officer

Mr. Pilares graduated Valedictorian from the Ateneo Law School in 2006 and passed the Philippine Bar Examinations in 2007 with the second highest ranking. Before joining MPIC in 2010, Mr. Pilares was an associate in ACCRA Law Offices, and subsequently in Puno and Puno Law Offices, where he handled litigation cases and special corporate projects for various clients. He also acts as legal counsel and corporate secretary of the various subsidiaries of MPIC. He is also a member of the faculty of the Ateneo Law School and University of Makati, teaching Statutory Construction, Conflicts of Law and Legal Forms.

SANTHEA V. DELOS SANTOS Assistant Vice President Chief Risk Officer

Ms. Delos Santos has over 18 years of extensive experience in finance, audit and Enterprise Risk Management (ERM) combined. She joined MPIC in February 2007. As one of the early members of MPIC Finance team, she set up the Company’s processes in financial and management reporting, planning, and budget. In 2014, she assumed the role of MPIC’s Chief Risk Officer. In this position, she is responsible for the implementation of the ERM program of the holding company and

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advocates adoption of the same across the Group. She has contributed in crafting investment and funding strategies and in assessing key enterprise risks for the Group. The early years in her career were spent at SGV & Co. where she gained her audit experience. She is a Certified Public Accountant, a Certified Financial Consultant and a Certified Risk Manager.

MELANIE RITA G. BENDIJO Vice President and Treasurer Treasury

Ms. Bendijo has been with Metro Pacific Group since 2004 and has over 14 years of experience in the field of Treasury and Fund Management. She is responsible for the Company’s overall Treasury Operations and Controls. She has been instrumental in various fund raising activities of the Company’s major investments, including securing a foreign loan to support MPIC’s Don Muang Tollway investment.

MARICRIS C. ALDOVER – YSMAEL Vice President of Investor Relations Investor Relations

Ms. Maricris Aldover-Ysmael joined MPIC’s Investor Relations team in 2010. Since then, she has been an integral part of the Company’s IR function and was appointed as Head of the department in January 2017. She is responsible for managing relationships with investors and investment analysts; spearheading efforts to align their interests with that of senior management. She provides support to the CEO and CFO and represents MPIC in international investor conferences and roadshows. She also maintains the underlying detailed financial models that drive MPIC’s internal net asset valuation. She has been instrumental in developing the Company’s key messaging points and facilitates events that are designed to keep investors and analysts updated on Company developments, growth opportunities, risks and challenges. Prior to MPIC, Ms. Aldover- Ysmael was an Associate Director in SGV & Co. (Ernst & Young Philippines) specializing in Assurance and Business Advisory Services. She has over 14 years of combined experience in Investor Relations, Finance and External Audit. She holds a Bachelor of Science degree in Accountancy, a Bachelor of Arts degree in Philosophy from De La Salle University - Manila and is a Certified Public Accountant.

ARMIN F. TULIO – UY Assistant Vice President Finance

Ms. Tulio-Uy is responsible for the Company’s overall accounting operations and financial reporting compliance. She graduated cum laude from the University of the Philippines Diliman in 2000 and was a CPA board topnotcher in 2001. Before joining Metro Pacific Investments Corporation in 2013, she was a Senior Director in SGV & Co. where she gained over 10 years of experience in external audit. Aside from external audits, she was one of the team leaders of SGV’s Capital Markets Group responsible for assisting clients in cross border capital market transactions and local initial public offerings. As a member of SGV’s Accounting Standards Group, she was a lead trainer for local and regional IFRS and US GAAP workshops. She has had international assignments with Ernst & Young Hong Kong, Ernst & Young US and Shell Shared Services India.

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KRISTINE PINEDA-FRAGANTE Assistant Vice President Finance

Ms. Pineda-Fragante has been MPIC’s financial planning head since 2014. She built financial models to assist management in achieving a deeper understanding of the various concession agreements and other revenue-cost structures to further maximize value drivers and make timely, relevant and informed decisions. She has been instrumental in structuring various Parent Company deals, ensuring all aspects enhance company value. Ms. Pineda-Fragante graduated cum laude from De La Salle University Manila in 2008 and placed first in the May 2008 Licensure Examination for Certified Public Accountants. She joined the company as an Investor Relations Specialist in 2009.

JOSE MARIA NIÑO JESUS P. MADARA Assistant Vice President Business Development

Mr. Madara joined MPIC’s Business Development team in January 2015. He is currently focused on building up MPIC’s environmental infrastructure / Energy from Waste portfolio. Prior to joining MPIC, Mr. Madara worked as an Investment Banker with the Investment & Capital Corporation of the Philippines advising on transactions with cumulative value of over PhP20 billion, spanning various industries, including, Power, Banking and Finance, Construction Materials, and Real Estate Development. Mr. Madara also worked in the assurance practice of Ernst & Young LLP in San Francisco, California, focusing on the Technology and Biotechnology sectors. He holds a Bachelor’s of Science in Business Administration Degree, cum laude, with a concentration in accounting and finance from the University of San Francisco in California.

MA. JOANNA CARMELA P. SANALILA Internal Auditor

Ms. Sanalila leads MPIC’s internal audit function starting October 2019. Her role involves directing a comprehensive internal audit program, including performance, operational, financial and compliance audit projects and in providing consulting services to MPIC and subsidiaries’ management and staff. She is establishing the MPIC Group Internal Audit Council and serves as a resource to the subsidiaries and affiliates’ audit committees to establish oversight within the Group. She also leads the audit of the MPIC subsidiaries without established internal audit function, including its establishment of internal controls.

Ms. Sanalila is a seasoned internal audit professional with more than 10 years of local and international experience. Prior to joining MPIC, she was the Regional Internal Audit Manager for Asia Pacific of WPP, the world’s largest advertising and marketing communications services company. She led financial and operational audits, including other ad hoc assignments such as fraud investigations and system reviews of the operating companies across the region. She was also a Director in SGV & Co. specializing in advisory and risk services where she led various compliance audit engagements, business process reviews, enterprise risk management, Sarbanes Oxley, UK Anti-Bribery Act and US Foreign Corrupt Practices Act compliance projects, and business control transformation projects of various companies across different industries.

ANTONIO A. PICAZO Corporate Secretary

Antonio A. Picazo is a founding Partner of Picazo Buyco Tan Fider & Santos Law Offices. He serves as a Director and/or Corporate Secretary of several large Philippine corporations, including Metro Pacific Investments Corporation, a position he has held since 2006, and/of Philippine

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Associated Smelting and Refining Corporation. He is currently also a member of the Board of the PGH Medical Foundation and the Gerry Roxas Foundation.

CRISTINA S. PALMA GIL-FERNANDEZ Assistant Corporate Secretary

Cristina S. Palma Gil-Fernandez was appointed to the position of Assistant Corporate Secretary of MPIC in May 2013. Atty. Palma Gil-Fernandez graduated with a Bachelor of Arts degree, Major in History (Honors) from the University of San Francisco in 1989, and with a Juris Doctor degree, second honors, from the Ateneo de Manila University in 1995. She is a Partner at Picazo Buyco Tan Fider & Santos Law Offices and has over 20 years of experience in corporate and commercial law, with emphasis on the practice areas of banking, securities and capital markets (equity and debt), corporate reorganizations and restructurings and real estate. She currently serves as a Corporate Secretary of several large Philippine corporations, including three (3) other publicly- listed Philippine corporations.

The Company has no other significant employee other than its Executive Officers. None of the aforementioned Directors or Executive Officers or persons nominated or chosen by the Company to become Directors or Executive Officers is related to the others by consanguinity or affinity within the fourth civil degree.

No Director has resigned or declined to stand for re-election to the Board of Directors since the date of the last annual stockholders’ meeting due to disagreement with the Company on any matter relating to the Company’s operations, policies or practices.

None of the aforementioned Directors or Executive Officers is or has been involved in any criminal or bankruptcy proceeding, or is or has been subject to any judgment of a competent court barring or otherwise limiting his involvement in any type of business, or has been found to have violated any securities laws during the past five (5) years and up to the latest date.

Item 10. Executive Compensation

The aggregate compensation paid in 2018 and 2019 and estimated to be paid in 2020, to the officers of the Parent Company is set out below:

Names Position Year Salary Bonus Others Manuel V. Pangilinan Chairman Jose Ma. K. Lim President & CEO David J. Nicol Chief Finance Officer Joseph J. Lacson* Chief Investment Officer Maida B. Bruce VP Controller Ricardo M. Pilares III VP Legal Aggregate for above-named 2018 115,942,433 89,110,160 18,087,784 officers 2019 122,482,366 109,149,653 364,135,101 2020 (est.) 131,056,131 117,881,625 - All Other Directors and 2018 50,762,506 36,479,149 1,365,016 Officers as a group excluding 2019 51,655,887 37,891,822 120,725,094 the above-named officers 2020 (est.) 56,821,476 41,681,004 - *Resigned June 30, 2019

The above executive officers are covered by standard employment contracts and employees’ retirement plan and can be terminated upon appropriate notice.

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Non–executive directors are entitled to a per diem allowance of P=100,000 for each attendance in the Parent Company’s BOD meetings and P=50,000 for each attendance in the Company’s Committee meetings.

The Parent Company’s By Laws provide that, additionally, an amount equivalent to 1 percent of net profit after tax shall be allocated and distributed amongst the directors of the Parent Company who are not officers of MPIC or its subsidiaries and affiliates, in such manner as the Board may deem proper. The amount paid to the directors in 2019 and estimated amount to be paid in the ensuing year are included in the above tabulation. There are no other special arrangements pursuant to which any director was compensated.

The aggregate number of options awarded to the Directors and Executive Officers are set out below: Names Position Amount of Date of Exercise Market Expiration Date Options Grant of the Price Price on Options the Date of Grant Manuel V. Pangilinan Chairman Jose Ma. K. Lim President/CEO David J. Nicol CFO / Director Edward A. Tortorici Executive Advisor Ramoncito S. Fernandez Executive Director Antonio A. Picazo Director/Corp. Sec. Edward S. Go Ind Director Artemio V. Panganiban Ind Director Lydia B. Echauz Ind Director Washington Z. SyCip* Ind Director Augusto P. Palisoc, Jr. Director Robert C. Nicholson Director Ray C. Espinosa Director Maida B. Bruce Vice President Melody M. del Rosario Vice President Loudette M. Zoilo Vice President Ricardo M. Pilares III Vice President Melanie G. Bendijo Vice President Maricris C. Aldover-Ysmael Vice President Santhea V. delos Santos Asst. Vice President Armin F. Tulio-Uy Asst. Vice President Jose Jesus G. Laurel Corporate Governance Officer Aggregate for above named 43,500,000 12/09/08 P=2.12 P=2.10 Jan. 2, 2013 directors/officers 43,500,000 03/10/09 P=2.73 P=2.70 March 10, 2013 59,500,000 07/02/10 P=2.73 P=2.65 July 2, 2015 10,000,000 12/21/10 P=3.50 P=3.47 Dec. 21, 2015 3,000,000 04/12/11 P=3.66 P=3.70 April 14, 2016 109,500,000 10/14/14 P=4.60 P=4.59 October 14, 2018 Others 17,500,000 12/09/08 P=2.12 P=2.10 Jan. 2, 2013 19,425,245 03/10/09 P=2.73 P=2.70 March 10, 2013 34,800,000 07/02/10 P=2.73 P=2.65 July 2, 2015 1,000,000 03/08/11 P=3.53 P=3.53 March 8, 2016 2,500,000 10/14/14 P=4.60 P=4.59 October 14, 2018 *Mr. Washington Sycip died on October 8, 2017.

Under the terms of the first grant, fifty percent (50%) of the first tranche granted (61,000,000 option shares) vested on January 2, 2009 and the remaining fifty percent (50%) of said first tranche vested on the first (1st ) anniversary of the initial vesting date for such tranche or January 2, 2010. On the

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other hand, fifty percent (50%) of the second tranche granted (62,925,245 option shares) vested on March 10, 2009 and the remaining fifty percent (50%) of said second tranche likewise vested on the first (1st ) anniversary of the initial vesting date for such tranche or March 10, 2010. Grantees of said options may exercise in whole or in part their respective options at any time after vesting but prior to the expiration of three (3) years after all of the option shares for such tranche have vested.

A second grant was issued on July 2, 2010 covering a total of 94,300,000 options, of which 62,500,000 options were granted to MPIC directors and officers while 31,800,000 were granted to certain key personnel of MPIC’s subsidiaries and affiliates. Of the 62,500,000 options granted, 50% vested on January 1, 2011 and the remaining 50% vested on January 1, 2012. Of the 31,800,000 granted, 30% vested on July 2, 2011, 35% will vest on July 2, 2012 and the remaining 35% will vest on July 2, 2013. Options granted under this grant may be exercised at any time after vesting but prior to expiration on July 2, 2015.

A third grant was subsequently issued on the following dates: (a) 10,000,000 option shares was granted to an executive officer of an MPIC subsidiary of which 30% vested on August 1, 2011, 35% will vest on August 1, 2012 and 35% will vest on August 1, 2013; (b) 1,000,000 option shares was granted to senior management of an MPIC subsidiary of which 30% vested on March 8, 2012, 35% will vest on March 8, 2013 and 35% will vest on March 8, 2014; and (c) 3,000,000 option shares was granted to an MPIC officer of which 50% will vest on April 14, 2012 and the remaining 50% will vest on April14, 2013. Options granted under this tranche may be exercised at any time after vesting but prior to expiration of a period of five years from grant date.

A fourth grant was issued on October 14, 2013 covering a total of 112,000,000 options were granted to MPIC directors and officers and certain key personnel of MPIC’s subsidiaries and affiliates. Of the total 112,000,000 options granted, 50% will vest on October 14, 2014 and the remaining 50% will vest on October 14, 2015. Options granted under this grant may be exercised at any time after vesting but prior to expiration on October 14, 2018.

The foregoing options were granted pursuant to, and subject to the terms and conditions provided in, the Executive Stock Option Plan of the Parent Company, as amended (the “Plan”). The procedure for the exercise of such options is as set forth in the Plan.

Long-term Incentive Plan (LTIP)

Certain of the Company’s employees are eligible for long-term employee benefits under a long-term incentive plan. The liability recognized on the LTIP comprises the present value of the defined benefit obligation and was determined using the projected unit credit method. Each LTIP performance cycle generally covers 3 years with payment intended to be made at the end of the each cycle (without interim payments) and is contingent upon the achievement of an approved target core income of the Company by the end of the performance cycle. 2019 LTIP payout pertains to performance cycle 2016 to 2018. Each LTIP performance cycle is approved by the Compensation Committee. See Note 23, Personnel Costs and Employee Benefits and Note 28, Share–based Payment to the 2019 Audited Consolidated Financial Statements for further details.

Restricted Stock Unit Plan (RSUP)

On July 14, 2016, the Compensation Committee of MPIC approved the RSUP as part of MPIC’s LTIP cycle 2016 to 2018. The RSUP, which has a validity period of ten (10) years, replaced the Parent Company’s ESOP.

The RSUP is designed, among others, to reward the Directors and certain key officers of MPIC who contribute to its growth to stay with MPIC for the long term. Under the RSUP, which shall have a

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cycle of three (3) years starting 2016, MPIC, at its cost will reacquire MPIC common shares to be held as treasury shares and reserved to be transferred to the Directors and key officers determined by the Committee to be eligible to participate under the RSUP. Vested shares will be transferred in the name of the eligible participants on full vesting date, at no cost as provided under the RSUP.

The RSUP also limits the aggregate number of shares that may be subject to award to no more than three percent (3%) of the outstanding common shares of MPIC. For the first 3-year cycle (i.e., 2016 to 2018), MPIC shall acquire common shares at such time and under such terms and conditions as the Committee may determine. The shares in relation to the LTIP cycle covering 2016 to 2018 were issued to the grantees in June 2019 (see Note 20, 23 and 28 to the 2019 Audited Consolidated Financial Statements for further details).

Item 11. Security Ownership of Certain Record and Beneficial Owners and Management

Security Ownership of Record and Beneficial Owners of at least 5% of the Parent Company’s Securities as at February 29, 2020.

Name and address of Name of Beneficial Type of record owner and Owner & No. of Shares Percent Citizenship Class relationship with Relationship with Held of class Issuer Record Owner Common Metro Pacific Holdings, Filipino MPHI is both record 13,222,948,170 41.89% Shares Inc. and beneficial owner. 17/F Liberty Centre Mr. Manuel V. Bldg. 104 H.V. dela Pangilinan is usually Costa, Salcedo Vill., designated as its Makati City representative, with authority to vote its shares, at meetings of shareholders. Common PCD Nominee Foreign Public ownership 6,972,156,367 22.09% Corporation* Common PCD Nominee Filipino Public ownership 6,331,371,982 20.06% Corporation* Common GT Capital Holdings, Filipino GT Capital Holdings, 4,900,000,000 15.52% Inc. Inc. is both record and 43/F GT Tower beneficial owner. International, Ayala Avenue cor. H.V. Dela Costa Street, Makati City

Class "A" Metro Pacific Holdings, Filipino MPHI is both record 9,128,105,319 100% Preferred Inc. and beneficial owner. Shares 17/F Liberty Centre Mr. Manuel V. Bldg. 104 H.V. dela Pangilinan is usually Costa, Salcedo Vill., designated as its Makati City representative, with authority to vote its shares, at meetings of shareholders.

* PCD Nominee Corporation is the registered owner of shares beneficially owned by participants in the Philippine Central Depositary, Inc. (PCD), a private company organized to implement an automated book entry system of handling securities transactions in the Philippines. Under the PCD procedures, when an issuer of a PCD-eligible issue will hold a stockholders’ meeting, the PCD shall execute a pro-forma proxy in favor of its participants for the total number of shares in their respective principal securities account as well as for the total number of shares in their client securities account. For the shares held in the principal securities account, the participant concerned is appointed as proxy with full voting rights

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and powers as registered owner of such shares. For the shares held in the client securities account, the participant concerned is appointed as proxy, with the obligation to constitute a sub-proxy in favor of its clients with full voting and other rights for the number of shares beneficially owned by such clients. As at 29 February 2020, Deutsche Bank Manila – Clients Acct., and The Hongkong and Shanghai Banking Corp. Ltd. – Clients Acct., participants of PCD, beneficially own 2,647,329,993 and 2,962,917,092 of the Company’s total outstanding shares.

Other than the abovementioned, MPIC has no knowledge of any person who, as at February 29, 2020, was directly or indirectly the beneficial owner of, or who has voting power or investment power (pursuant to a voting trust or other similar agreement) with respect to, shares comprising more than five percent (5%) of MPIC’s outstanding common shares of stock.

Security Ownership of Management as at February 29, 2020

Amount and Type of nature of Percent of Name and Address of Owner Citizenship Class Beneficial class ownership Manuel V. Pangilinan

7/F Ramon Cojuangco Bldg. 10,000,001* Filipino 0.03% Common Makati Avenue, Makati City

Jose Ma. K. Lim

10/F MGO Bldg., Legazpi corner dela Rosa Streets, 27,000,001* Filipino 0.09% Common Legazpi Village, Makati

David J. Nicol Common 10/F MGO Bldg., Legazpi corner dela Rosa Streets, 21,500,001* Australian 0.07% Legazpi Village, Makati

Lydia B. Echauz

Far Eastern University 2,630,000* Filipino 0.01% Common N. Reyes St., Sampaloc, Manila

Ray C. Espinosa Common 5/F Locsin Building, Ayala Avenue 8,600,001* Filipino 0.03%

Cor Makati Avenue, Makati City

Common Ramoncito S. Fernandez 10/F MGO Bldg., Legazpi corner dela Rosa Streets, 6,893,001* Filipino 0.02% Legazpi Village, Makati

Edward S. Go Unit 16-A Pacific Plaza Tower Common 1,700,000* Filipino 0.01% Fort Bonifacio, Bonifacio Global City Taguig, Metro Manila

Christopher H. Young Common Unit C, 10th Floor, Branksome Grande, No. 3 Treguner 1* British 0.00%

Path, Hong Kong

Augusto P. Palisoc Jr.

10/F MGO Bldg., Legazpi corner dela Rosa Streets, 16,850,001* Filipino 0.05% Common Legazpi Village, Makati

Artemio V. Panganiban

1203 Acacia, Dasmarinas Village, 1,600,001* Filipino 0.01% Common Makati City Rodrigo E. Franco Common Unit 10D Symphony Tower, 6 Sgt. Esguerra Street, South 600,001* Filipino 0.00% Triangle, Quezon City Common Francisco C. Sebastian 600,100* Filipino 0.00%

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Amount and Type of nature of Percent of Name and Address of Owner Citizenship Class Beneficial class ownership 454 Ma. Cristina St., Ayala Alabang Village, Muntinlupa City Albert F. Del Rosario Common 116 Valero cor. Rufino Street, Salcedo Village, Makati 14,824,224* Filipino 0.05% City, Metro Manila 1227

Common Alfred V. Ty 600,001* Filipino 0.00% 20/F GT Tower Ayala Avenue, Makati City 1226 Antonio A. Picazo 19/F Liberty Center 1,001,001* Filipino 0.00% Common 104 H.V. dela Costa Street Salcedo Village, Makati City Cristina S. Palma Gil-Fernandez Common 19/F Liberty Center Nil Filipino 0.00% 104 H.V. dela Costa Street Salcedo Village, Makati City

Aggregate for above named officers and directors 114,398,335 * Including at least one (1) qualifying share and shares under PCD, if any.

Changes in Control

MPIC is not aware of any voting trust agreements or any other similar agreements which may result in a change in control of the Parent Company. No change in control of the Parent Company has occurred since the beginning of last year.

Item 12. Certain Relationships and Related Party Transactions

Refer to Note 19, Related Party Transactions in the 2019 Audited Consolidated Financial Statements.

PART IV – CORPORATE GOVERNANCE

Item 13. Corporate Governance portion of the Annual Report

The Revised Manual on Corporate Governance (“Revised MOCG”) of the Parent Company details the standards by which it conducts sound corporate governance that are coherent and consistent with relevant laws and regulatory rules, and constantly strives to create value for its shareholders.

(A) Evaluation

In compliance with the Revised MOCG’s standard, evaluation is delegated to the Parent Company’s Corporate Governance Officer and Compliance Officer who are members of the Company’s senior management. The Corporate Governance Officer and the Compliance Officer are jointly tasked with the monitoring of the Parent Company’s compliance with its revised MOCG and related impositions of regulatory agencies. Atty. Jose Jesus G. Laurel, holds the position of Corporate Governance Officer, while Atty. Ricardo M. Pilares III, VP- Legal, holds the position of Compliance Officer.

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Ultimate responsibility for the Parent Company’s adherence to its Revised MOCG rests with its Board of Directors, who also maintain five (6) committees, each charged with oversight into specific areas of the Parent Company’s business activities:

• The Audit Committee (AC) is responsible for recommending the external auditor and ensuring that non audit work does not compromise their independence. The AC also approves the Internal Audit function and scope of work. • The Risk Management Committee (RMC) assists the Board in fulfilling its oversight responsibilities over the Company’s enterprise risk management policy and execution of risk management strategies and practices including regulatory and ethical compliance monitoring. The Committee investigates the risk exposures of the Company and evaluates the steps the management is taking in managing and controlling such exposures. • The Nominations Committee is charged with ensuring that membership to the Parent Company’s Board of Directors is filled by qualified members. The Nomination Committee also ensures fair representation of independent members on the Board of Directors by formulating screening policies to effectively review the qualification of nominees for independent directors. On April 19, 2016, the Nomination Committee and Corporate Governance Committee jointly approved the MPIC’s Guidelines on the Search, Screening and Selection of Directors. The same was thereafter approved by the Board on May 4, 2016. • The Compensation and Remuneration committee is tasked to ensure fair compensation practices are adhered to throughout the organization. • The Corporate Governance Committee is tasked to ensure that the Parent Company conducts its business following sound corporate governance principles and in accordance with relevant laws and regulatory rules. • The Finance Committee (FC) is established to review the Company’s key financial and investment strategies, including capital allocation decisions and monitoring investment performances. It also identifies any related matters for referral to the Board for review and further consideration. Its creation was approved by the Board on February 4, 2020.

The Parent Company’s AC has three (3) members, consisting of Mr. Edward S. Go, Ms. Lydia B. Echauz and Mr. Francisco C. Sebastian. Mr. Edward S. Go, the Chairman of the AC, and Ms. Lydia B. Echauz, are independent directors. Francisco C. Sebastian is a non- executive director.

The Parent Company’s Nominations Committee has three (3) voting members consisting of Mr. Christopher H. Young (Chairperson), Ms. Lydia B. Echauz and Mr. Edward S. Go. The Corporation’s President and Chief Executive Officer, Mr. Jose Ma. K. Lim, sits as a non- voting member of the Nominations Committee.

The Parent Company’s Compensation Committee has three (3) members consisting of Mr. Albert F. Del Rosario (Chairperson), Ms. Lydia B. Echauz and Mr. Manuel V. Pangilinan.

The Parent Company's Corporate Governance Committee has three (3) members consisting of Justice Artemio V. Panganiban (Chairperson), Mr. Edward S. Go and Ms. Lydia B. Echauz.

Finally, the Parent Company’s Finance Committee has (5) members consisting of Ms. Lydia Echauz (Chairperson), Justice Artemio V. Panganiban, Mr. Edward S. Go, Mr. Francisco C. Sebastian, and Mr. Jose Ma. K. Lim (with Mr. David J. Nicol as alternative).

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Each of the six committees adopted its own Charter to guide the Committee members in the performance of their functions and to formalize the applicable procedural mechanisms and oversight function of each committee. All of the Charters were presented to and approved by the Board.

(B) Measures Taken to Comply with Adopted Leading Practices on Good Corporate Governance

Since its incorporation in 2006, the Board of Directors of the Parent Company held regular meetings, each with a valid quorum. The Board committees regularly meet to ensure fair corporate governance standards were being applied throughout the organization.

The Parent Company’s Code of Corporate Governance, which was adopted by its Board of Directors on September 6, 2006, was revised and amended on March 3, 2011 taking into consideration the Revised Manual on Corporate Governance under Securities and Exchange Commission (SEC) Memorandum Circular No. 6, Series of 2009. The same was likewise amended on June 4, 2016 and on May 30, 2017 to substantially adopt the provisions of SEC Memorandum Circular No. 19, Series of 2016 (the “Code of Corporate Governance for Publicly Listed Companies.”)

The Parent Company is committed to fostering good corporate governance practices including a clear understanding by directors of the Parent Company’s strategic objectives, structures to ensure that the objectives are being met, systems to ensure the effective management of risks, and the mechanisms to ensure that the Parent Company’s obligations are identified and discharged in all aspects of its business.

(D) Any Plan to Improve the Parent Company’s Corporate Governance

The Parent Company continues to evaluate and review its Revised MOCG to ensure that the leading practices on good corporate governance are being adopted.

Item 14. Sustainability Report

MPIC prepares Sustainability Report in accordance with the Global Reporting Initiative Standards: Core Option. The Company’s fourth Sustainability Report containing information about MPIC’s environmental, social and governance (“ESG” or “Sustainability”) impacts for the year ending December 2019, was published on March 27, 2020 and is available for download from MPIC’s corporate website (https://www.mpic.com.ph/wp-content/uploads/2020/03/MPIC-2019-Sustainability- Report.pdf).

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PART V – EXHIBITS AND SCHEDULES

Item 15. Exhibits and Reports on SEC Form 17-C (Current Reports)

MPIC reported the following items on SEC Form 17-C for the year 2019:

Items Reported Date Filed 1 Amendments to Articles of Incorporation February 11 2 Inauguration of the NLEX Harbor Link Segment 10 and the groundbreaking of the NLEX Connector Road Project March 1 3 Appointment of Mr. Christopher H. Young as new member of the MPI Board of Directors and as Chairman of the MPI Nomination Committee, in replacement of Mr. Robert C. Nicholson who resigned effective 5 March 2019. March 5 4 Approval of Toll Rate Adjustments for North Luzon Expressway (“NLEX”) System March 6 5 MPIC Group signs MOU with DENR for Manila Bay Rehabilitation Program May 21 6 TRB approves SCTEX toll adjustments June 10 7 MPW signs JVA with Dumaguete City Water District. September 4 8 Maynilad’s receipt of the Supreme Court En Banc decision in the case of Maynilad v. The Secretary of DENR, et al. September 18 9 ndirect acquisition by Metro Pacific Tollways Corporation (MPTC), a subsidiary of Metro Pacific Investments Corporation (MPIC), of an aggregate additional 24.98% interest in PT Margautama Nusantara (MUN), through the acquisition of 100% equity interest in CIIF Infrastructure Holdings Sdn Bhd (CIIF) and CAIF III Infrastructure Holdings Sdn Bhd (CAIF III). September 24 10 TRB approves MCTEP (R-1 Expressway) toll adjustment October 14 11 TRB approves the provisional toll for Segment 3A-1 portion of the C-5 Link Expressway of the MCTEP October 14 12 Investment of KKR into Metro Pacific Hospitals Holdings, Inc. ("MPHHI"), the hospital and healthcare portfolio arm of Metro Pacific Investments Corporations ("MPIC") October 15 13 Submission of the revised Related Party Transaction Policy of MPIC October 24 14 Metro Pacific Hospitals Completes Investment by KKR December 9 15 Metro Pacific Invests in Manuel J. Santos Hospital in Butuan City December 11

Item 16. Signatures

128 METRO PACIFIC D:IIIICZla=lli!CII INVESTMENTS

SIGNATURES

Pursuant to the requirements of Section 17 of the Code and Section 141 of the Corporation Code, this report is signed on behalf of the issuer by the undersigned, thereunto duly authorized, in the City of Makati on -----

By:

d.1.e�lm Mr. David J. Nicol President and Chief Executive Officer Executive Vice President and Chief Financial Officer

\�Ms. Maida B. Bruce ty. Antonio A. Picazo VP Group Controller Corporate Secretary METRO PACIFIC l>:;.:.!.=-a�rrNVESTMENTS

SUBSCRIBED AND SWORN to beforeme this day of FEB7 6 ?[ij'fjiant(s)exhibiting to me his/their ResidenceCertificates, as follows:

NAMES PASSPORT NO. DATE OF ISSUE PLACE OF ISSUE Jose Ma. K. Lim P3389938B September 30, 2019 Manila David J. Nicol ACR No. F0000l33055 March I, 2019 Manila Maida B. Bruce P9504142A November 17, 2018 Manila Atty. Antonio A. Picazo P3259658B September 18, 2019 Manila

NotaryPublic

.. _ ....., ...... "'" ,, ,...... - ,-- ......

' ,,,.. I � _. Do't.No; ;�g

INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

Item 17. Index to Financial Statements and Supplementary Schedules i. Exhibit I - 2019 Audited Financial Statements ii. Exhibit II - Supplementary Schedules

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METRO PACIFIC INVESTMENTS CORPORATION INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES FORM 17-A, Item 16

CONTENTS

Exhibit I - Audited Financial Statements

Statement of Management Responsibility for Financial Statements Report of Independent Auditors Consolidated Statements of Financial Position as at December 31, 2019 and 2018 Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018, and 2017 Consolidated Statements of Changes in Equity for the years ended December 31, 2019, 2018, and 2017 Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018, and 2017 Notes to Consolidated Financial Statements

Exhibit II - Supplementary Schedules

Report of Independent Auditors on Supplementary Schedules Schedule I. Financial Soundness Indicators Schedule II. Retained Earnings Available for Dividend Declaration * Schedule III. Supplementary Schedules Required by Paragraph 6D, Part II Under SRC Rule 68, As Amended (2011) A. Financial Assets B. Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal stockholders (Other than Related Parties) C. Amounts Receivable from Related Parties which are Eliminated during the Consolidation of Financial Statements D. Intangible Assets- Other Assets E. Long-term Debt F. Indebtedness to Related Parties (Long-term Loans from Related Companies) G. Guarantees of Securities of Other Issuers H. Capital Stock Schedule IV. MPIC Group Structure as of December 31, 2019

SEC Form 17- A 2019 Index to Financial Statements and Supplementary Schedules

EXHIBIT I

2019 AUDITED FINANCIAL STATEMENTS

SEC Form 17- A 2019 Index to Financial Statements and Supplementary Schedules

C O V E R S H E E T for AUDITED FINANCIAL STATEMENTS

SEC Registration Number C S 2 0 0 6 0 4 4 9 4

C O M P A N Y N A M E M E T R O P A C I F I C I N V E S T M E N T S C O R P

O R A T I O N A N D S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province ) 1 0 t h F l o o r , M G O B u i l d i n g , L e g a

s p i c o r n e r D e l a R o s a S t r e e t s ,

L e g a s p i V i l l a g e , M a k a t i C i t y

Form Type Department requiring the report Secondary License Type, If Applicable A C F S

C O M P A N Y I N F O R M A T I O N Company’s Email Address Company’s Telephone Number Mobile Number [email protected] +632-8888-0888 –

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day) 1,307 as of 12.31.2019 Last Friday of May December 31

CONTACT PERSON’s ADDRESS 10/F MGO Building, Legaspi corner Dela Rosa Streets Legaspi Village, Makati 0721 Philippines NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated. 2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

*SGVFSM000023* METRO PACIFIC I @INVESTMENTS STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The Management of Metro Pacific Investments Corporation and Subsidiaries (the Company) is responsible forthe preparation and fair presentation of the consolidated financial statements including the schedules attached therein, as at December 31, 2019 and 2018 and for the three years in the period ended December 31, 2019, in accordance with the prescribed financial reporting framework indicated therein, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Company's financial reporting process.

The Board of Directors reviews and approves the consolidated financial statements including the schedules attached therein, and submits the same to the stockholders.

SyCip Gorres Velayo & Co., the independent auditors, appointed by the stockholders has audited the consolidated financial statements of the Company in accordance with Philippine Standards on Auditing, and in its report to the stockholders, has expressed its opinion on the fairness of presentation upon completion of such examination.

Signed under oath by the following:

Manuel V. Pangilinan Chairman of the Board

c:9--e/'U'__:µ a.:�K� David J. Nicol President and CEO · Executive Vice President and CFO

Signed this 26th day of February 2020 METRO

---taoPACIFIC 1NVliSTMENTS

SUBSCRIBED AND SWORN to beforeme this day of FEB? ..6 zartpant(s) exhibiting to me his/their Residence Certificates,as follows:

NAMES PASSPORT NO. DATE OF ISSUE PLACE OF ISSUE Manuel V. Pangilinan P9969361A December 18, 2018 NCR East Jose Ma. K. Lim P33899388 September 30, 2019 Manila David J. Nicol ACR No. F0000l33055 March I, 2019 Manila

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INDEPENDENT AUDITOR’S REPORT

The Board of Directors and Stockholders Metro Pacific Investments Corporation 10th Floor, MGO Building Legaspi corner Dela Rosa Streets Legaspi Village, Makati City

Opinion

We have audited the consolidated financial statements of Metro Pacific Investments Corporation and its subsidiaries (the Company), which comprise the consolidated statements of financial position as at December 31, 2019 and 2018, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for each of the three years in the period ended December 31, 2019, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for each of the three years in the period ended December 31, 2019 in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

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A member firm of Ernst & Young Global Limited - 2 -

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated financial statements.

Recoverability of goodwill, services concession assets (SCAs) not yet available for use, and SCA related to West Zone Concession

The Company has goodwill and SCAs not yet available for use which are required to be tested for impairment at least annually. In addition, as discussed in Note 30, there is an ongoing discussion with the Metropolitan Waterworks and Sewerage System (MWSS) on the provisions of Maynilad Water Services, Inc. (Maynilad)’s Concession Agreement identified for renegotiation and amendment. This is an impairment indicator which requires also an assessment of the recoverability of the Company’s SCA related to Maynilad. These impairment tests are significant to our audit because it requires management to make significant estimates and assumptions on the determination of the recoverable amounts of the cash-generating units (CGUs) to which the goodwill belongs or as it relates to the SCAs such as discount rate and revenue growth, mainly relating to the expected volume of traffic for the toll roads, ridership for the rail and billed water volume for the water concession. In addition, the valuation of the recoverable amount of Maynilad’s SCA requires judgment as to the remaining period of the concession agreement and assumption on revenue growth as it relates to tariff rate.

Refer to Notes 3, 14 and 30 to the consolidated financial statements for the details on goodwill, SCAs not yet available for use, and SCA related to Maynilad.

Audit response

We involved our internal specialist in evaluating the methodologies and the assumptions used in the determination of the recoverable amounts of the CGUs. These assumptions include the expected volume of traffic for the toll roads and ridership for the rail, billed water volume for the water concession, growth rate and discount rates. For the West Zone Concession, assumptions include the concession period and the discount rate considering the risks surrounding the Concession Agreement. We compared the forecast revenue growth against the historical data of the CGUs and inquired from management and operations personnel about the plans to support the forecast revenues. We also compared the Company’s key assumptions such as traffic volume, rail ridership and water volume against historical data and against available studies by independent parties that were commissioned by the respective subsidiaries. In cases where volume was determined by management specialists, we reviewed the reports of the management specialist and gained an understanding of the methodology and the basis of computing the forecasted volume. We tested the weighted average cost of capital (WACC) used in the impairment test by comparing it with WACC of other comparable companies in the region. We also discussed with management and its legal counsel the status of the review of the Concession Agreement and obtained copies of correspondences with MWSS. Furthermore, we reviewed the Company’s disclosures about those assumptions to which the outcome of the impairment test is most sensitive, specifically those that have the most significant effect on determining the recoverable amounts of the goodwill, SCAs not yet available for use, and SCA related to Maynilad.

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A member firm of Ernst & Young Global Limited - 3 -

Amortization of SCAs using the ‘units of production (UOP)’ method

The SCAs related to the toll roads and water concession agreements of the Company are being amortized using the UOP method. For the toll roads concession assets, amortization is generally based on the ratio of the actual traffic volume to the total expected traffic volume of the underlying toll expressways over the remaining period of the concession agreement. On the other hand, for the water-related concession assets, amortization is based on the actual billed volume over the estimated billable water volume for remaining period of the concession agreement. The UOP amortization method is a key audit matter as the method involves significant management judgment and estimates, particularly in determining the total expected traffic volume and the total estimated volume of billable water over the remaining periods of the concession agreements. The Company reviews annually the total expected traffic volume with reference to traffic projection reports and billable water volume with reference to water volume forecasts. It considers different factors such as population growth, supply and consumption, and service coverage including ongoing and future expansions.

Refer to Note 12 to the consolidated financial statements for the details of SCAs and Note 3 for the discussion of management estimate relating to amortization of SCAs.

Audit response

We reviewed the report of the management’s specialists and gained an understanding of the methodology and the basis of computing the forecasted traffic volume and billable water. We evaluated the competence, capabilities, and objectivity of management’s specialists who estimated the forecasted volumes. Furthermore, we compared the billable water volume and traffic volume during the year against the data generated from the billing system for water and from the toll collection system for tollways. We recalculated the amortization expense for the year and the SCAs as of year-end based on the established traffic volume and billable water volume.

Finalization of purchase price allocation on investment in PT Nusantara Infrastructure Tbk (PT Nusantara)

In 2018, the Company obtained control over PT Nusantara Infrastructure Tbk (PT Nusantara) through acquisition of additional interest of 29.67% for P=3.5 billion. Accordingly, the Company accounted for this acquisition as a business combination and the purchase price allocation (PPA) was determined on a provisional basis. The provisional goodwill arising from the acquisition amounted to P=1.6 billion. In 2019, the Company finalized the related PPA, including the fair values of service concession assets and equity method investments, which resulted to a final goodwill of =0.9P billion. This acquisition is significant to our audit as the amounts involved are material to the consolidated financial statements. In addition, accounting for this acquisition required significant management judgments and estimates. These include determining the fair values of the assets acquired and liabilities assumed and the disclosures in relation to the acquisition.

Refer to Notes 4 and 10 to the consolidated financial statements for details of the acquisition and Note 3 to the consolidated financial statements for the discussion of management estimates relating to the acquisition.

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Audit response

We reviewed the purchase price allocation prepared by the Company. We assessed the competence, capabilities and objectivity of the Company specialists who performed the purchase price allocation and the valuation of the service concession assets and equity method investments. We also involved our internal specialists in reviewing the valuation methodology and key inputs, such as revenue growth, margins and discount rates related to the valuation of the service concession assets and equity method investments. We compared the revenue growth and margins to the historical performance of the investees and industry data. We tested the parameters used in the determination of the discount rate against market data. We also reviewed the disclosures in the notes to the consolidated financial statements.

Accounting for KKR & Co. (KKR)’s investments in Metro Pacific Hospital Holdings, Inc. (MPHHI)

On December 9, 2019, the Company and MPHHI, completed a series of transactions for the investment and entry of global investment firm, KKR & Co. (KKR), through Buhay (SG) Investments Pte. Ltd (Buhay SG), alongside Arran Investment Private Limited (Arran), in MPHHI. Buhay (SG) invested P=5.2 billion for a 6.25% stake in MPHHI and advanced to MPIC P=30.1 billion by way of an Exchangeable Bond which will be exchanged into a 15.88% stake in MPHHI in the future, subject to certain conditions. These series of transactions which provided Buhay (SG) an economic interest of approximately 80%, on fully diluted basis post conversion of the Exchangeable Bonds, were accounted for as a single equity transaction with MPIC losing control over MPHHI. Subsequently, the retained investment in MPHHI is accounted for under the equity method. Moreover, results of MPHHI’s operations were presented as discontinued operations in the consolidated statements of income for the years ended December 31, 2019, 2018 and 2017. These transactions are significant to our audit as the amounts involved are material to the consolidated financial statements. In addition, accounting for these transactions required significant management judgments and estimates. These include the assessment of loss of control, subsequent accounting for retained investment, determination of the fair values of liabilities assumed as part of consideration and the accounting for the Exchangeable Bond.

Refer to Notes 10 and 32 to the consolidated financial statements for details of the deconsolidation and Note 3 to the consolidated financial statements for the discussion of management’s judgments and estimates relating to the deconsolidation.

Audit response

We obtained and reviewed relevant contracts and agreements related to the linked transactions. We evaluated management’s judgments on the loss of control over MPHHI, subsequent accounting for retained investment, and how the entry of KKR and issuance of Exchangeable Bond should be accounted for, by reference to the related purchase agreements and documents. We reviewed the assets and liabilities to be deconsolidated as at the date of loss of control. We also involved our internal specialists in reviewing the valuation methodology related to the fair values of liabilities assumed as part of consideration. Determining the fair values of the liabilities assumed includes assumptions as to the future results of business such as revenue growth and margins and estimates of certain taxes to which the Company had agreed to shoulder. We compared the revenue growth and margins to the historical performance of the investee. We also reviewed the presentation and disclosures in the notes to the consolidated financial statements.

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Provisions and contingencies

The Company is involved in certain claims and/or proceedings and dispute arbitration for which it has either recognized provisions for probable costs and/or expenses, which may be incurred, and/or has disclosed relevant information about such contingencies. This matter is significant to the audit because the assessment of potential outcome or liability involves significant management judgment and estimation.

Refer to Notes 16 and 30 to the consolidated financial statements for the relevant disclosures related to this matter.

Audit response

We involved our internal specialist in evaluating management’s assessment on whether provisions on the contingencies should be recognized, and the estimation of such amount. We also discussed with Company’s management of the status of the claims and/ or regulatory proceedings and dispute arbitration. In addition, we obtained correspondences with the relevant government agencies, including tax authorities, replies from third party legal counsels, and any relevant historical and recent judgments issued by the courts/tax authorities on similar matters.

West Service Area water and sewerage service revenue recognition

About 29% of the Company’s consolidated revenues comprises water and sewerage service revenues from the Metropolitan Waterworks and Sewerage System (MWSS) West Service Area. This matter is significant to our audit because water and sewerage service revenue recognition is affected by the: (a) completeness of data captured during monthly meter readings, which involves processing large volume of data from multiple locations and different billing cut-off dates for different customers; (b) the propriety of the application of the relevant rates to the billable consumption of different customers classified as residential, semi-business, commercial or industrial; and (c) the reliability of the systems involved in processing bills and recording revenues.

Notes 3 and 38 to the consolidated financial statements provide the relevant disclosures related to this matter.

Audit response

We obtained an understanding of the water and sewerage service revenue process, which includes maintaining the customer database, capturing billable water consumption, uploading captured billable water consumption to the billing system, calculating billable amounts based on MWSS approved rates, and uploading data from the billing system to the financial reporting system. We also evaluated the design of and tested the relevant controls over this process. In addition, we performed test recalculation of the billed amounts using the MWSS approved rates and formulae and compared them with the amounts reflected in the billing statements. Moreover, we involved our internal specialist in performing the procedures on the computer application automated aspects of this process.

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Investment in a significant associate

The Company has an investment in Manila Electric Company (Meralco) that is accounted for under the equity method. For the year ended December 31, 2019, the Company’s effective share in the net income of Meralco amounted to =10.2P billion and accounts for 37% of the Company’s consolidated net income. The Company’s share in Meralco’s net income is significantly affected by Meralco’s revenue recognition from the sale of electricity which arise from its service contracts with many customers who are classified as either commercial, industrial or residential customers. The revenue recognized depends on: (a) the complete capture of electric consumption based on the meter readings over the franchise area taken on various dates; (b) the propriety of rates computed and applied across customer classes; and (c) the reliability of the information technology (IT) systems involved in processing the billing transaction. In addition, Meralco is involved in certain proceedings for which it recognized provisions for probable costs and/or expenses, and/or has disclosed relevant information about such contingencies. This matter is important to our audit because the assessment of the potential outcome or liability involves significant management judgment and estimation which will significantly affect Meralco’s net income.

Note 30 to the consolidated financial statements provides the relevant disclosures related to this matter.

Audit response

We obtained the consolidated financial information of Meralco for the year ended December 31, 2019 and performed recomputation of the Company’s equity in net earnings of Meralco.

We obtained an understanding and evaluated the design of, as well as tested the controls over, the customer master file maintenance, accumulation and processing of meter data, and interface of data from the billing system to the financial reporting system. In addition, we performed a test recalculation of the bill amounts using the ERC-approved rates and formulae, as well as actual costs incurred, and compared them with the amounts reflected in the billing statements. We involved our internal specialist in understanding the IT processes and in understanding and testing the IT general controls over the IT systems supporting the revenue process.

We examined Meralco’s assessment of the possible outcomes and the related estimates of the probable costs and/or expenses that were recognized. In addition, we evaluated the input data supporting the assumptions used, such as tariffs, tax rates, historical experience, regulatory rulings and other developments, against Meralco’s internal and external data, and performed recalculations and inspection of relevant supporting documents.

\Other Information

Management is responsible for the other information. The other information comprises the information included in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Report for the year ended December 31, 2019, but does not include the consolidated financial statements and our auditor’s report thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Report for the year ended December 31, 2019 are expected to be made available to us after the date of this auditor’s report.

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Our opinion on the consolidated financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audits of the consolidated financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audits, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with PFRSs, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

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· Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

· Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Company to cease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

· Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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The engagement partner on the audit resulting in this independent auditor’s report is Marydith C. Miguel.

SYCIP GORRES VELAYO & CO.

Marydith C. Miguel Partner CPA Certificate No. 65556 SEC Accreditation No. 0087-AR-5 (Group A), January 10, 2019, valid until January 9, 2022 Tax Identification No. 102-092-270 BIR Accreditation No. 08-001998-55-2018, February 26, 2018, valid until February 25, 2021 PTR No. 8125270, January 7, 2020, Makati City

February 26, 2020

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A member firm of Ernst & Young Global Limited METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Millions)

December 31 2019 2018

ASSETS

Current Assets Cash and cash equivalents and short-term deposits (Notes 7, 32 and 33) P=74,697 P=47,521 Restricted cash (Notes 7, 30, 32 and 33) 5,011 5,421 Receivables (Notes 8, 19, 32 and 33) 14,624 12,495 Other current assets (Notes 9, 32 and 33) 10,905 12,892 105,237 78,329 Assets held for sale (Note 30) – 1,250 Total Current Assets 105,237 79,579

Noncurrent Assets Investments and advances (Notes 10, 32 and 33) 169,092 152,993 Service concession assets (Notes 1, 12 and 14) 240,489 205,992 Property, plant and equipment (Note 13) 58,591 71,926 Goodwill (Note 11) 15,676 27,856 Intangible assets (Note 11) 3,279 3,897 Deferred tax assets (Note 26) 927 1,270 Other noncurrent assets (Notes 8, 9, 23, 32, 33 and 34) 18,487 14,433 Total Noncurrent Assets 506,541 478,367

P=611,778 P=557,946

LIABILITIES AND EQUITY

Current Liabilities Accounts payable and other current liabilities (Notes 15, 19, 32 and 33) P=36,363 P=31,951 Income tax payable 1,639 1,533 Due to related parties (Notes 19, 32 and 33) 5,638 4,462 Current portion of: Provisions (Note 16) 6,742 6,004 Long-term debt (Notes 18, 32 and 33) 18,459 11,619 Service concession fees payable (Notes 17, 32 and 33) 6,277 693 Total Current Liabilities 75,118 56,262

(Forward)

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December 31 2019 2018

Noncurrent Liabilities Noncurrent portion of: Provisions (Note 16) P=4,997 P=2,528 Service concession fees payable (Notes 17, 32 and 33) 26,621 29,946 Long-term debt (Notes 18, 32 and 33) 231,450 203,474 Due to related parties (Notes 19, 32 and 33) 2,240 7,392 Deferred tax liabilities (Note 26) 14,170 9,930 Other long-term liabilities (Notes 15, 23, 32, 33 and 34) 11,137 9,411 Total Noncurrent Liabilities 290,615 262,681 Total Liabilities 365,733 318,943

Equity (Note 20) Owners of the Parent Company: Capital stock 31,661 31,633 Additional paid-in capital 68,638 68,494 Treasury shares (4) (178) Equity reserves (574) 6,968 Retained earnings 90,650 64,533 Other comprehensive income (OCI) reserve 591 1,861 Total equity attributable to owners of the Parent Company 190,962 173,311 Non-controlling interest 55,083 65,692 Total Equity 246,045 239,003

P=611,778 P=557,946

See accompanying Notes to Consolidated Financial Statements.

*SGVFSM000023* METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Amounts in Millions, Except Earnings Per Share Figures)

Years Ended December 31 2018 2017 2019 *Re-presented *Re-presented CONTINUING OPERATIONS OPERATING REVENUES (Notes 1, 5 and 37) P=73,499 P=70,079 P=51,775 COST OF SALES AND SERVICES (Note 21) (34,825) (35,202) (23,189) GROSS PROFIT 38,674 34,877 28,586 General and administrative expenses (Note 22) (12,496) (11,152) (8,992) Interest expense (Note 24) (11,800) (10,230) (7,850) Share in net earnings of equity method investees (Note 10) 11,172 10,791 7,795 Dividend income (Note 10) 66 172 2,631 Interest income (Note 24) 2,257 1,451 573 Construction revenue (Note 3) 42,795 27,363 19,344 Construction costs (Note 3) (42,795) (27,362) (19,344) Provision for decline in value of assets (Note 24) (22,020) (798) (763) Others (Note 24) (852) 1,723 827 INCOME BEFORE INCOME TAX FROM CONTINUING OPERATIONS 5,001 26,835 22,807 PROVISION FOR INCOME TAX (Note 26) 4,743 6,395 5,114 NET INCOME FROM CONTINUING OPERATIONS 258 20,440 17,693 DISCONTINUED OPERATIONS (Note 32): Gain on deconsolidation 25,908 – – Result of operations 1,652 1,737 1,334 27,560 1,737 1,334 NET INCOME 27,818 22,177 19,027 OTHER COMPREHENSIVE INCOME (LOSS) – NET (Note 25): From Continuing Operations: To be reclassified to profit or loss in subsequent periods 756 (578) 482 Not to be reclassified to profit or loss in subsequent periods (2,164) 839 (953) (1,408) 261 (471) From Discontinued Operations: To be reclassified to profit or loss in subsequent periods – – – Not to be reclassified to profit or loss in subsequent periods (68) 60 5 (68) 60 5 TOTAL COMPREHENSIVE INCOME P=26,342 P=22,498 P=18,561

Net income attributable to: Owners of the Parent Company P=23,856 P=14,130 P=13,151 Non-controlling interest 3,962 8,047 5,876 P=27,818 P=22,177 P=19,027

Total comprehensive income attributable to: Owners of the Parent Company P=22,549 P=14,307 P=12,864 Non-controlling interest 3,793 8,191 5,697 P=26,342 P=22,498 P=18,561

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Years Ended December 31 2018 2017 2019 *Re-presented *Re-presented Total comprehensive income (loss) attributable to Parent Company: From continuing operations (P=4,098) P=13,370 P=12,173 From discontinued operations 26,647 937 691 P=22,549 P=14,307 P=12,864

BASIC EARNINGS (LOSS) PER COMMON SHARE (Note 27) From continuing operations (P=0.0905) P=0.4193 P=0.3952 From discontinued operations 0.8466 0.0288 0.0219 P=0.7561 P=0.4481 P=0.4171

DILUTED EARNINGS (LOSS) PER COMMON SHARE (Note 27) From continuing operations (P=0.0905) P=0.4188 P=0.3949 From discontinued operations 0.8466 0.0288 0.0218 P=0.7561 P=0.4476 P=0.4167

*Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details).

See accompanying Notes to Consolidated Financial Statements.

*SGVFSM000023* METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Amounts in Millions)

Year Ended December 31, 2019 Attributable to Owners of the Parent Company Other Additional Comprehensive Non- Paid-in Treasury Retained Income controlling Capital Stock Capital Shares Equity Earnings Reserve Interest Total (Note 20) (Note 20) (Note 20) Reserves (Note 20) (Note 20) Total (NCI) Equity At January 1, 2019 P=31,633 P=68,494 (P=178) P=6,968 P=64,533 P=1,861 P=173,311 P=65,692 P=239,003 Total comprehensive income for the year: Net income – – – – 23,856 – 23,856 3,962 27,818 OCI (Note 25) – – – – – (1,307) (1,307) (169) (1,476) Executive Stock Option Plan (ESOP) (Note 28): Exercise of ESOP 28 121 – (23) – – 126 – 126 Expiration of ESOP – 13 – (58) 45 – – – – Cost of ESOP – – – – – – – – – Restricted Stock Unit Plan (RSUP) (Note 28) – 10 177 (196) 9 – – – – Treasury shares – – (3) – – – (3) – (3) Deconsolidation of subsidiary (5,723) 5,700 37 14 (9,121) (9,107) Cash dividends declared (Note 20) – – – – (3,493) – (3,493) – (3,493) Business combinations and other movements in NCI (Note 4) – – – – – – – 1,993 1,993 Acquisition of non-controlling interest (Notes 4 and 39) – – – (1,542) – – (1,542) (1,241) (2,783) Dividends declared to non-controlling stockholders (Note 6) – – – – – – – (6,033) (6,033) At December 31, 2019 P=31,661 P=68,638 (P=4) (P=574) P=90,650 P=591 P=190,962 P=55,083 P=246,045

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Year Ended December 31, 2018 Attributable to Owners of the Parent Company Additional Other Non- Paid-in Treasury Retained Comprehensive controlling Capital Stock Capital Shares Equity Earnings Income Reserve Interest Total (Note 20) (Note 20) (Note 20) Reserves (Note 20) (Note 20) Total (NCI) Equity At January 1, 2018 P=31,626 P=68,465 (P=167) P=5,742 P=53,894 P=1,684 P=161,244 P=54,435 P=215,679 Total comprehensive income for the year: Net income – – – – 14,130 – 14,130 8,047 22,177 OCI (Note 25) – – – – – 177 177 144 321 Executive Stock Option Plan (ESOP) (Note 28): Exercise of stock option 7 29 – (4) – – 32 – 32 Cost of ESOP – – – 24 – – 24 – 24 Restricted Stock Unit Plan (RSUP) (Note 28) – – – 67 – – 67 – 67 Treasury shares – – (11) – – – (11) – (11) Cash dividends declared (Note 20) – – – – (3,491) – (3,491) – (3,491) Business combinations and other movements in NCI (Note 4) – – – – – – – 8,382 8,382 Acquisition of non-controlling interest (Notes 4 and 39) – – – 1,139 – – 1,139 (774) 365 Dividends declared to non-controlling stockholders (Note 6) – – – – – – – (4,542) (4,542) At December 31, 2018 P=31,633 P=68,494 (P=178) P=6,968 P=64,533 P=1,861 P=173,311 P=65,692 P=239,003

*SGVFSM000023* - 3 -

Year Ended December 31, 2017 Attributable to Owners of the Parent Company Additional Other Non- Paid-in Treasury Retained Comprehensive controlling Capital Stock Capital Shares Equity Earnings Income Reserve Interest Total (Note 20) (Note 20) (Note 20) Reserves (Note 20) (Note 20) Total (NCI) Equity At January 1, 2017 P=31,619 P=68,438 (P=167) P=6,282 P=43,889 P=1,971 P=152,032 P=36,049 P=188,081 Total comprehensive income for the year: Net income – – – – 13,151 – 13,151 5,876 19,027 OCI (Note 25) – – – – – (287) (287) (179) (466) ESOP (Note 28) 7 27 – (5) – – 29 – 29 RSUP (Note 28) – – – 67 – – 67 – 67 Cash dividends declared (Note 20) – – – – (3,239) – (3,239) – (3,239) Business combinations and other movements in NCI (Note 4) – – – – 93 – 93 17,138 17,231 Acquisition of non-controlling interest (Notes 4 and 39) – – – (360) – – (360) 48 (312) Deferred tax on equity transaction (Note 26) – – – (242) – – (242) – (242) Dividends declared to non-controlling stockholders (Note 6) – – – – – – – (4,497) (4,497) At December 31, 2017 P=31,626 P=68,465 (P=167) P=5,742 P=53,894 P=1,684 P=161,244 P=54,435 P=215,679

See accompanying Notes to Consolidated Financial Statements.

*SGVFSM000023* METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in Millions)

Years Ended December 31 2019 2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax from continuing operations P=5,001 P=26,835 P=22,807 Income before income tax from discontinued operations (Note 32) 34,428 2,350 1,869 Income before income tax 39,429 29,185 24,676 Adjustments for: Impairment of goodwill and nonfinancial assets (Notes 3, 10 and 11) 21,990 798 763 Interest expense (Note 24) 11,800 10,230 7,850 Amortization of service concession assets (Note 21) 5,562 4,514 3,909 Depreciation and amortization (Notes 1, 13, 21 and 22) 6,386 5,604 3,379 Long Term Incentive Plan expense (Note 23) 922 710 629 Unrealized foreign exchange loss (gain) – net (215) 837 65 Share in net earnings of equity method investees (Note 10) (11,402) (11,073) (8,045) Dividend income (Note 10) (66) (172) (2,631) Gain on sale of investments (Note 10) (32,028) – (732) Interest income (Note 24) (2,257) (1,449) (575) Loss (gain) on remeasurement of previously held interest (Notes 4 and 24) – (721) 29 Others 21 (591) 626 Operating income before working capital changes 40,142 37,872 29,943 Decrease (increase) in: Restricted cash 410 (1,124) (775) Receivables (761) (787) (761) Other current assets (476) (1,951) (1,338) Increase (decrease) in: Accounts payable and other current liabilities 5,895 2,653 2,884 Provisions and accrued retirement cost 623 402 1,104 Net cash generated from operations 45,833 37,065 31,057 Income taxes paid (7,062) (6,531) (5,145) Interest received 2,249 1,462 596 Net cash from operating activities 41,020 31,996 26,508 CASH FLOWS FROM INVESTING ACTIVITIES Dividends received from: Equity method investees (Note 10) 9,027 8,589 6,903 Financial assets (Notes 33 and 34) 66 172 144 Beacon Electric’s preferred shares (Note 10) – – 2,541 Collection of or proceeds from sale/disposal of: Investment in a subsidiary (net of transaction costs, Note 32) 21,881 – – Financial assets (Notes 33 and 34) 4,274 12,366 14,968 Property, plant and equipment (Note 13) 346 55 22 Investment in associate (net of transaction cost; Note 10) – – 12,403 Redemption of preferred shares (Note 10) – – 3,500 Acquisition of subsidiaries, net of cash acquired (Note 4) (14) (807) (5,958)

(Forward) *SGVFSM000023* - 2 -

Years Ended December 31 2019 2018 2017 Additions to/issuance of: Service concession assets (Note 12) (P=45,602) (P=27,710) (P=18,707) Available-for-sale financial assets (Note 11) (3,549) (6,545) (20,409) Property, plant and equipment (Note 13) (5,645) (6,524) (3,689) Investments in equity method investees (Note 10) (796) (4,603) (12,652) Decrease (increase) in: Short-term deposits (896) 1,859 11,574 Other noncurrent assets (2,552) (2,293) (3,488) Net cash used in investing activities (23,460) (25,441) (12,848)

CASH FLOWS FROM FINANCING ACTIVITIES Receipt of or proceeds from: Long-term debt (Notes 18 and 35) 58,633 70,327 36,504 Contribution from non-controlling stockholders and other movements (Notes 4, 6 and 30) 2,027 1,354 37 Issuance of shares (Notes 20 and 28) 126 32 29 Payments of/for: Long-term debt (Notes 18 and 35) (22,307) (46,751) (9,822) Interest and other financing charges (9,502) (9,534) (6,544) Dividends paid to non-controlling stockholders (Note 6) (5,647) (5,399) (1,999) Due to related parties (Note 35) (4,451) (4,458) (2,001) Dividends paid to owners of the Parent Company (Note 20) (3,493) (3,491) (3,239) Acquisition of non-controlling interests (Note 4) (3,477) (1,056) – Service concession fees payable (Notes 17 and 35) (1,673) (1,007) (1,007) Lease liability (597) – – Debt issuance cost (Note 18) (592) (789) (238) Treasury shares (Note 20) (3) (11) – Net cash from (used in) financing activities 9,044 (783) 11,720

NET INCREASE IN CASH AND CASH EQUIVALENTS 26,604 5,772 25,380

CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 7) 46,607 40,835 15,455

CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 7) P=73,211 P=46,607 P=40,835

See accompanying Notes to Consolidated Financial Statements.

*SGVFSM000023* METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

General Metro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in the Philippines and registered with the Philippines Securities and Exchange Commission (SEC) on March 20, 2006 as an investment holding company. MPIC’s common shares of stock are listed in and traded through the Philippine Stock Exchange (PSE). On August 6, 2012, MPIC launched Sponsored Level 1 American Depositary Receipt (ADR) Program with Deutsche Bank as the appointed depositary bank in line with the Parent Company’s thrust to widen the availability of its shares to investors in the United States.

The principal activities of the Parent Company’s subsidiaries and equity method investees are described below (see Company’s Operating Segments) and in Notes 10 and 40. The Parent Company and its subsidiaries are collectively referred to as “the Company”.

MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH; 60.0% interest), Intalink B.V. (26.7% interest) and First Pacific International Limited (FPIL; 13.3% interest). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, Intalink B.V. and FPIL, holds 40.0% equity interest in EIH and investment financing which under Hong Kong Generally Accepted Accounting Principles, require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as part of FPC group of companies in Hong Kong.

The registered office address of the Parent Company is 10th Floor, MGO Building, Legaspi corner Dela Rosa Streets, Legaspi Village, Makati City.

The accompanying consolidated financial statements as at December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 were approved and authorized for issuance by the Board of Directors (BOD) on February 26, 2020.

Company’s Operating Segments For management purposes, the Company is organized into the following segments based on services and products:

§ Power, which primarily relates to the operations of Manila Electric Company (MERALCO) in relation to the distribution, supply and generation of electricity and Global Business Power Corporation (GBPC) in relation to power generation. The investment in MERALCO is held both directly and indirectly through Beacon Electric Asset Holdings, Inc. (Beacon Electric) (see Note 10) while the investment in GBPC is held through Beacon Electric’s wholly-owned entity, Beacon PowerGen Holdings Inc. (BPHI).

*SGVFSM000023* - 2 -

§ Toll operations, which primarily relate to operations and maintenance of toll facilities by Metro Pacific Tollways Corporation (MPTC) and its subsidiaries NLEX Corporation (NLEX Corp), Cavitex Infrastructure Corporation (CIC), and foreign investees, CII Bridges and Roads Investment Joint Stock Company (CII B&R), Don Muang Tollway Public Ltd (DMT) and PT Nusantara Infrastructure Tbk (PT Nusantara) (see Notes 4 and 10). Certain toll projects are either under pre-construction or on-going construction as at December 31, 2019 (see Note 29 for the Concession Arrangements).

§ Water, which relates to the provision of water and sewerage services by Maynilad Water Holding Company, Inc. (MWHC) and its subsidiaries, Maynilad Water Services, Inc. (Maynilad) and Philippine Hydro, Inc. (PHI), and other water-related services by MetroPac Water Investments Corporation (MPW) and its foreign investees, B.O.O. Phu Ninh Water Treatment Plant Joint Stock Company (PNW) and Tuan Loc Water Resources Investment Joint Stock Company (TLW) (see Note 29 for the Concession Arrangements).

§ Healthcare, which primarily relates to operations and management of hospitals and nursing colleges and such other enterprises that have similar undertakings by Metro Pacific Hospital Holdings, Inc. (MPHHI) and subsidiaries. MPHHI has been deconsolidated starting December 9, 2019 (see Note 32) and thereafter, investment retained has been classified as an investment in an associate (see Note 10).

§ Rail, which primarily relates to Metro Pacific Light Rail Corporation (MPLRC) and its subsidiary, Light Rail Manila Corporation (LRMC), the concessionaire for the operations and maintenance of the Light Rail Transit – Line 1 (LRT-1) and construction of the LRT-1 south extension (see Note 29 for the Concession Arrangements).

§ Logistics, which primarily relates to the Company’s logistics business through MetroPac Logistics Company, Inc. (MPLC) and its subsidiaries.

§ Others, which represent holding companies and operations of subsidiaries and other investees involved in real estate, provision of services and waste-to-energy projects.

See Note 40 for the complete list of the Company’s subsidiaries. The list of the Company’s associates and joint ventures are disclosed in Note 10.

2. Basis of Preparation, Consolidation and Statement of Compliance

Basis of Preparation The consolidated financial statements are prepared in compliance with Philippine Financial Reporting Standards (PFRS). The Company’s significant accounting policies are disclosed in Note 38.

The consolidated financial statements are prepared on a historical cost basis, except for certain debt and equity financial assets and financial liabilities that are measured at fair value. The consolidated financial statements are presented in Philippine Peso, which is MPIC’s functional and presentation currency, and all values are rounded to the nearest million peso (P=000,000), except when otherwise indicated.

The consolidated financial statements provide comparative information in respect to the previous periods.

*SGVFSM000023* - 3 -

Basis of Consolidation The consolidated financial statements of the Company include the accounts of the Parent Company and its subsidiaries.

Subsidiaries are all entities (including structured entities) over which the Company has control. The Company controls an entity when the Company is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. These are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Company.

Intercompany transactions, balances and unrealized gains on transactions between companies are eliminated. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Company.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of financial position respectively.

A complete list of the Company’s subsidiaries is provided for in Note 40.

3. Management’s Use of Judgments and Estimates

The preparation of the consolidated financial statements in compliance with PFRS requires management to make judgments and estimates that affect the reported amounts of revenues, expenses, assets and liabilities, the disclosure of contingent liabilities and other significant disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

Judgments In the process of applying the Company’s accounting policies, management has made the following judgments, apart from those involving estimations, which have the most significant effect on the amounts recognized in the consolidated financial statements.

Service Concession Arrangements under the Intangible Asset Model. In applying Philippine Interpretation IFRIC 12, Service Concession Arrangements, the Company has made a judgment that certain service concession arrangements of the Company’s water, tollway and rail businesses (see Note 29) qualify under the intangible asset model as these companies receive the right to charge users of public service. Details of the Company’s accounting policy in respect of the service concession arrangements are set out in Note 38 to the consolidated financial statements. Other significant judgments and estimates made in relation to concession arrangements are as follows:

§ Amortization of Service Concession Assets. The methods of amortization that the Company uses depends on which method best reflects the pattern of consumption of the concession assets.

The straight-line method is currently being used to amortize the water concession assets in relation with the provision of bulk water services [PHI and Metro Iloilo Bulk Water Supply Corporation (MIBWS), Metro Pacific Iloilo Water and PNW. The estimated useful lives used by the Company to amortize the service concession assets are based on the terms of the service concession contracts. *SGVFSM000023* - 4 -

The Units of Production (UOP) method is being used for the toll (NLEX Corp, CIC and PT Nusantara) and water concession assets (Maynilad). The Company annually reviews the estimated billable water volume in the case of the water concession with reference to water volume forecasts, and the total expected traffic volume/kilometers travelled in the case of the toll concession with reference to traffic projection reports, based on factors that include market conditions such as population growth, supply and consumption of water/usage of the toll facility, and service coverage including ongoing and future expansions. The Company makes appropriate adjustments to the assumptions of the water/traffic volume with reference to the latest studies, if any. It is possible that future results of operations could be materially affected by changes in the Company’s estimates brought about by changes in the aforementioned factors.

The Company has not started amortization of service concession assets under on-going rehabilitation or construction. The amortization period for the service concession assets will begin upon identification that the assets are ready for their intended use. For the LRT-1 Existing System, amortization may be triggered upon receipt of Safety Assessor’s certification that the speed can be raised to 60 kilometers per hour. For the service concession asset related to the construction of the LRT-1 Cavite Extension and certain toll roads [the Connector Road, Cavite Laguna Expressway (CALAEX), Cebu Cordova Link Expressway (CCLEX) and C5 South Link Project], the amortization will start upon full completion of the construction regardless of partial opening of certain segments as these were considered as a single intangible asset.

The total carrying values of service concession assets amounted to =240,489P million and P=205,992 million as at December 31, 2019 and 2018, respectively (see Note 12).

§ Service Concession Asset as Qualifying Asset and Capitalization of Borrowing Costs. The Company has made a judgment to apply PAS 23, Borrowing Costs, in classifying the service concession assets’ components undergoing rehabilitation (in the case of the existing LRT-1) and pre/on-going construction (in the case of the construction of the LRT-1 extension, the Connector Road, CALAEX, CCLEX and C5 South Link Project) as qualifying assets. The existing LRT-1 is severely deteriorated when turned over to LRMC and the intention of management to bring it at par with the standard for rail system played a key factor in the designation of the rehabilitation of the existing LRT-1 system as a qualifying asset.

The Company capitalizes borrowing costs that are directly attributable to the acquisition or construction of the qualifying asset as part of the cost of that asset using the specific borrowing approach, as the Company uses specific borrowings to finance its qualifying assets. Capitalized borrowing costs for the years ended December 31, 2019 and 2018 amounted to P=5,011 million and P=3,212 million, respectively (see Note 12). Capitalization of borrowing costs ceases when substantially all the activities necessary to prepare the components of the service concession asset for its intended use or sale are complete.

§ Construction revenue and costs. The Company recognizes construction revenues and costs in accordance with PFRS 15, Revenue from Contracts with Customers, beginning January 1, 2018 (PAS 11, Construction, Contracts prior to adoption of PFRS 15; see Note 38). Given that the rehabilitation and construction works have been subcontracted to outside contractors (excluding the cost of some materials for some contractors), the recognized construction revenue substantially approximates the related construction cost. Construction revenue recognized in the consolidated statements of comprehensive income amounted to =42,795P million, P=27,363 million and P=19,344 million for the years ended December 31, 2019, 2018 and 2017, respectively. Construction costs recognized in the consolidated statements of comprehensive income amounted to =42,795P million, P=27,362 million and P=19,344 million for the years ended December 31, 2019, 2018 and 2017, respectively. *SGVFSM000023* - 5 -

§ Provision for heavy maintenance. The Company also recognizes its contractual obligations to restore the toll roads to a specified level of serviceability. NLEX Corp, CIC and PT Nusantara recognize provision following PAS 37, Provisions, Contingent Liabilities and Contingent Assets, as the obligation arises which is a consequence of the use of the toll roads and therefore it is proportional to the number of vehicles using the roads and increasing in measurable annual increments. Provision for heavy maintenance amounted to P=511 million and =445P million as at December 31, 2019 and 2018, respectively (see Note 16).

Claims from the Grantor/s. Sizeable pending claims have accumulated for the Company’s water, toll and rail businesses:

§ Maynilad. On December 29, 2014, Maynilad’s proposed adjustment to its tariff for the rate rebasing period 2013 to 2017 was upheld against the MWSS-approved tariff adjustment in arbitration proceedings in the Philippines. However, MWSS did not implement the awarded tariff increase. Consequently, Maynilad called on the Letter of Undertaking (the “Undertaking”) which the Republic of the Philippines (the “Republic”), through the Department of Finance (“DOF”), issued in favor of Maynilad. For refusing to compensate Maynilad for its foregone revenues arising from the refusal of MWSS to implement the awarded tariff increase, Maynilad initiated arbitration proceedings against the ROP in Singapore, pursuant to the Undertaking. The arbitration hearings were completed in December 2016. On July 24, 2017, the three-person Arbitral Tribunal (the “Tribunal”) unanimously upheld the validity of Maynilad’s claim against the Undertaking, and ordered the Republic, through the DOF, to compensate Maynilad for its foregone revenues. The Tribunal ordered the Republic to reimburse Maynilad P=3.4 billion (subsequently corrected to =3.2P billion with cost of money as of August 31, 2016) for losses from March 11, 2015 to August 31, 2016, without prejudice to any rights that Maynilad may have to seek recourse against the MWSS for losses incurred from January 2013 to March 10, 2015. Further, the Tribunal ruled that Maynilad is entitled to recover from the Republic its losses from September 1, 2016.

Under the pressure and duress of a Congresional Hearing, prior to which Maynilad was threatened with the revocation of its concession, Maynilad made an oral offer to waive its claims against ROP amounting to =6.7P billion which represents Maynilad’s foregone revenues for the period March 11, 2015 to December 31, 2017 (see Note 30). On January 2, 2020, Maynilad executed the Release From and Waiver of Claim on Arbitral Award (“Waiver”) in favor of the ROP. No recognition of this claim has been mde in the consolidated financial statements.

§ NLEX Corp and CIC. In August 2015, for failure to implement toll rate adjustments, NLEX Corp and CIC filed notices with the TRB and DOTC demanding settlement of the past due tariff increases. Meaningful progress on regulatory matters on the toll road tariff has been made in 2019. However, certain tariff petition are still undergoing discussion with TRB (see Note 29).

§ LRMC. On various dates in 2015 through 2020, LRMC submitted letters to the DOTr representing its claim for costs incurred and estimated in relation to Existing System Requirement (ESR) and Light Rail Vehicle (LRV) shortfall on the premise of the Grantors’ obligation in relation to the condition of the Existing System as at the Effective Date (September 12, 2015) fare deficit, Structural Defect Restoration (SDR) costs, and contractor and other additional costs incurred less Key Performance Indicator (KPI) charges (see Notes 29 and 30).

As at December 31, 2019 and 2018, the consolidated financial statements do not include any adjustments for the abovementioned claims pending outcome of the discussions with the Grantor/s.

*SGVFSM000023* - 6 -

Issuance of Exchangeable Bonds as Equity Transactions. Under PFRS, the treatment of convertible bonds which compel the holder to convert the bond (rather than being at the holder’s option) depends on whether the number of shares issued on conversion are variable or fixed:

§ If the mandatorily convertible bond can only be settled by the issue of a variable amount of ordinary shares calculated to equal a fixed amount in the issuer’s functional currency (that is, there is a repayment of principal, albeit in shares), the instrument is a liability. § If the mandatorily convertible bond can only be settled by the issue of a fixed number of ordinary shares, that part of the instrument is an equity component.

In 2014 and 2019, MPIC issued Exchangeable Bonds with aggregate principal amount of P=36.6 billion. These Exchangeable Bonds are instruments that, at a certain time in the future, mandatorily convert into a fixed number of MPHHI common shares (see Note 32). The Exchangeable Bonds are forward contracts to deliver fixed number of shares for which consideration has been received in advance, and hence, are effectively accounted for as equity transactions in the Company’s consolidated financial statements.

Accounting for Arrangements as a Single Transaction. In determining whether to account for the arrangements as a single transaction, an entity considers all the terms and conditions of the arrangements and their economic effects. One or more of the following circumstances indicate that it is appropriate for a parent to account for multiple arrangements as a single transaction:

§ they are entered into at the same time or in contemplation of each other; § they form a single transaction designed to achieve an overall commercial effect; § the occurrence of one arrangement is dependent on the occurrence of at least one other arrangement; or § one arrangement considered on its own is not economically justified, but it is economically justified when considered together with other arrangements. An example is a disposal of shares priced below market and is compensated by a subsequent disposal priced above market.

The indicators clarify that arrangements that are part of a package are accounted for as a single transaction.

The series of transactions entered into by MPIC together with MPHHI for the investment and entry of KKR and Co. (“KKR”), alongside Arran Investments Private Limited (“Arran”), in and to MPHHI, were assessed to be linked agreements and thus, were accounted for as a single transaction that resulted to the deconsolidation of MPHHI considering MPIC’s loss of control over MPHHI with the remaining interest accounted for as investment in associate. Management’s judgements in concluding the loss of control over MPHHI and the accounting for the remaining investment are discussed in Note 32.

Consolidation of CIC in which the Company Holds No Voting Rights. The Company considers that it controls CIC even though it does not own any voting rights by virtue of a Management Letter Agreement (MLA). Under the MLA, MPTC has the power to solely direct the entire operations, including the capital expenditure and expansion plans of CIC. MPTC shall then receive all the financial benefits from CIC’s operations and all losses incurred by CIC are to be borne by MPTC.

Definition of Default and Credit-impaired Financial Assets upon Adoption of PFRS 9. The Company considers a financial asset in default, which is fully aligned with the definition of credit-impaired, when contractual payments are more than 60 to 180 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information *SGVFSM000023* - 7 - indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company.

Estimates The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Company based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions when they occur.

Determination of Fair Value of Financial Instruments. The Company initially records all financial instruments at fair value and subsequently carries certain financial assets and financial liabilities at fair value, which requires extensive use of accounting estimates and judgment. Valuation techniques are used particularly for financial assets and financial liabilities that are not quoted in an active market. Where valuation techniques are used to determine fair values (e.g., discounted cash flow and option pricing models), they are periodically reviewed by qualified personnel who are independent of the persons that initiated the transactions. All models are calibrated to ensure that outputs reflect actual data and comparative market prices. To the extent practicable, models use only observable data as valuation inputs. However, other inputs such as credit risk (whether that of the Company or the counterparties), forward prices, volatilities and correlations, require management to develop estimates or make adjustments to observable data of comparable instruments. The amount of changes in fair values would differ if the Company uses different valuation assumptions or other acceptable methodologies. Any change in fair value of these financial instruments would affect either the consolidated statement of comprehensive income or consolidated statement of changes in equity.

Fair values of financial assets and financial liabilities are presented in Note 35.

Purchase Price Allocation in Business Combinations and Acquisition of Associate and Goodwill. The Company accounts for the acquired businesses, and in part in an acquisition of associates, using the acquisition method which requires extensive use of accounting judgments and estimates to allocate the purchase price to the fair market values of the acquiree’s identifiable assets and liabilities and contingent liabilities, if any, at the acquisition date. Any difference in the purchase price and the fair values of the net assets acquired is recorded as either goodwill, a separate account in the consolidated statement of financial position (or subsumed in the investment for acquisition of an associate), or gain on bargain purchase in profit or loss. Thus, the numerous judgments made in estimating the fair value to be assigned to the acquiree’s assets and liabilities can materially affect the Company’s financial position and performance.

The Company’s acquisitions of certain subsidiaries have resulted in recognition of goodwill. The carrying value of goodwill amounted to =15,676P million and =27,856P million as at December 31, 2019 and 2018, respectively (see Note 11).

Provision for expected credit losses (ECL) of receivables upon adoption of PFRS 9. The Company uses a provision matrix to calculate ECLs for receivables. The provision rates are based on days past due for groupings of various customer/counterparty segments that have similar loss patterns (i.e., by location, service type, customer type and rating).

*SGVFSM000023* - 8 -

The provision matrix is initially based on the Company’s historical observed default rates. The Company will calibrate the matrix to adjust the historical credit loss experience with forward-looking information. At every reporting date, the historical observed default rates are updated and changes in the forward-looking estimates are analyzed.

The assessment of the correlation between historical observed default rates, forecast economic conditions and ECLs is a significant estimate. The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions. The Company’s historical credit loss experience and forecast of economic conditions may also not be representative of customer’s actual default in the future. The information about the ECLs on the Company’s receivables is disclosed in Note 33.

Incorporation of Forward-looking Information upon Adoption of PFRS 9. To capture the effect of changes to the economic environment in the future, the computation of Probability of Default (PD), Loss Given Default (LGD) and ECL, incorporates forward-looking information; assumptions on the path of economic variables that are likely to have an effect on the repayment ability of the Company’s counterparties. The starting point for the projections of economic variables is based on management’s view, which underlies the plan to deliver the Company’s strategy and ensures it has sufficient capital over the medium term. Management’s view covers a core set of economic variables required to set the strategic plan.

Accounting for Connection Fees. Under PFRS 15, the connection fee and the related water and sewer services are accounted for as arising from a single performance obligation that will be satisfied over the period when the related services are expected to be provided. The adoption of PFRS 15 requires that the connection fee collected for all active water service connections as at January 1, 2018 to be recognized as revenue over time. Management has made a judgment that it is impracticable to restate revenue from connection fee retrospectively given the impracticality in obtaining all the relevant information to properly and accurately estimate the cumulative impact of the change in accounting for connection fees, including among others, sources and number of active service connections, amount of connection fee paid per connection, and the related cost.

Considering impracticability of retrospective restatement, the Company adopted the change in accounting for connection fees prospectively starting on January 1, 2018 as allowed under PAS 8.

Recoverability of Goodwill, Service Concession Assets not yet Available for Use, and SCA related to West Zone Concession. Goodwill and service concession assets not yet available for use are subject to annual impairment test. In addition, as discussed in Note 30, there is an ongoing discussion with the MWSS on the provisions of West Zone concession agreement for renegotiation and amendment which is an impairment indicator requiring assessment of the recoverability of the SCA related to West Zone concession.

These require estimation of the value in use (VIU) of the cash generating units (CGUs) to which the goodwill is allocated or to which the service concession assets belong. Estimating the value in use requires the Company to estimate the expected future cash flows from the CGU and to choose an appropriate discount rate in order to calculate the present value of those cash flows. For the West Zone concession asset, assumptions include the concession period and the discount rate considering the risks surrounding the concession agreement.

Impairment of goodwill amounted to P=9,825 million, =43P million and =324P million in 2019, 2018 and 2017, respectively, while impairment of West Zone concession asset amounted to =11,344P million in 2019. The carrying values of goodwill amounted to P=15,676 million and P=27,856 million as at December 31, 2019 and 2018, respectively (see Note 11). The aggregate carrying value of service

*SGVFSM000023* - 9 - concession assets not yet available for use amounted to =70,326P million and P=60,274 million as at December 31, 2019 and 2018, respectively (see Note 14).

Impairment of Nonfinancial Assets. Impairment review is performed when certain impairment indicators are present. Determining the recoverable value of assets requires the estimation of cash flows expected to be generated from the continued use and ultimate disposition of such assets.

While it is believed that the assumptions used in the estimation of recoverable values reflected in the consolidated financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse impact on the results of operations.

The carrying values of non-financial assets subject to impairment review when impairment indicators are present are as follows: 2019 2018 (In Millions) Service concession assets (see Note 12) P=240,489 P=205,992 Investments and advances (see Note 10) 169,092 152,993 Property, plant and equipment (see Note 13) 58,591 71,926 Intangible assets (see Note 11) 3,279 3,897 Deferred project costs* 1,140 1,107 *Included under “Other noncurrent assets”.

In 2019, impairment loss on nonfinancial assets (other than goodwill) amounted to P=12,195 million,(see Note 12) . In 2018 and 2017, impairment loss on nonfinancial assets (other than goodwill) amounted to P=755 million and P=439 million, respectively (see Note 24).

Estimated Useful Lives of Property, Plant and Equipment and Intangible Assets. The useful lives of each of the item of the Company’s property, plant and equipment and intangible assets are estimated based on the period over which the asset is expected to be available for use. Such estimation is based on a collective assessment of similar businesses, internal technical evaluation and experience with similar assets. The estimated useful life of each asset is reviewed at each financial year-end and updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. It is possible, however, that future results of operations could be materially affected by changes in the amounts and timing of recorded expenses brought about by changes in the factors mentioned above. A reduction in the estimated useful life of any these items would increase the recorded depreciation and amortization expense and decrease the carrying values of these assets.

There were no changes in the estimated useful lives of these assets for all the periods presented.

Taxes. Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the diversity of the Company’s businesses and the long-term nature and complexity of existing contractual agreements or the nature of the business itself, changes in differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Company establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities under which the Company operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile or to the operations of the Company. *SGVFSM000023* - 10 -

Deferred tax assets are recognized for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilized. Significant management judgement is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. The carrying amount of deferred tax assets is reviewed at each end of the reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax assets to be utilized. The Company performs an annual evaluation of the realizability of deferred income tax assets in determining the portion of deferred tax assets which should be recognized. The Company’s assessment on the recognition of deferred income tax assets on deductible temporary differences is based on the forecasted taxable income of the following periods. This forecast is based on the Company’s past results and future expectations on revenue and expenses. Certain of the Company’s subsidiaries are entitled to income tax holiday period. The Company recognized deferred tax assets on deductible temporary differences expected to reverse after the income tax holiday period, while deferred taxes on deductible temporary differences expected to reverse during the income tax holiday and to items where doubt exists as to the tax benefits they will bring in the future, are not recognized.

Deferred tax assets amounted to P=927 million and P=1,270 million as at December 31, 2019 and 2018, respectively. The Company’s deductible temporary difference, including unused NOLCO and MCIT, for which no deferred tax assets have been recognized amounted to P=20,924 million and P=13,219 million as at December 31, 2019 and 2018, respectively (see Note 26).

Long-Term Incentives Plan (LTIP). The LTIP for key executives of MPIC and certain subsidiaries was approved by the Compensation Committee and the BOD and is based on profit targets for the covered performance cycle. The cost of LTIP is determined using the projected unit credit method based on prevailing discount rates and profit targets. While management’s assumptions are believed to be reasonable and appropriate, significant differences in actual results or changes in assumptions may materially affect the Company’s other long-term incentive benefits.

LTIP expense from continuing operations for the years ended December 31, 2019, 2018 and 2017 amounted to =837P million, P=623 million and =554P million, respectively, and presented as “Personnel costs and employee benefits” under “General and administrative expenses” in the consolidated statements of comprehensive income. LTIP payable as at December 31, 2019 and 2018 amounted to P=1,259 million and P=1,715 million, respectively, and is presented under “Accounts payable and other current liabilities” for the current portion and “Other long-term liabilities” account for the noncurrent portion in the consolidated statements of financial position (see Notes 15 and 23).

Provisions. The Company recognizes provisions based on estimates of whether it is probable that an outflow of resources will be required to settle an obligation. Where the final outcome of these matters is different from the amounts that were initially recognized, such differences will impact the financial performance in the current period in which such determination is made.

Provisions mainly consist of provision for estimated expenses related to the concluded and ongoing debt settlement negotiations and certain warranties and guarantees, claims and potential claims against the Company, provision for heavy maintenance and decommissioning liability.

§ Heavy maintenance. The provisions for the heavy maintenance require an estimation of the periodic cost, generally estimated to be every five to seven years or the expected heavy maintenance dates, to restore the assets to a level of serviceability during the concession term and in good condition before turnover to the Grantor. This is based on the best estimate of management to be the amount expected to be incurred to settle the obligation at every heavy maintenance dates discounted using a pre-tax *SGVFSM000023* - 11 -

rate that reflects the current market assessment of the time value of money and the risk specific to the liability.

§ Decommissioning liability. Certain of GBPC’s subsidiaries have legal obligations to decommission or dismantle the power plant assets at the end of their estimated useful lives. The Company recognizes the present value of the obligation to dismantle the power plant assets and capitalizes the present value of this cost as part of the balance of the related power plant assets, which are being depreciated and amortized on a straight-line basis over the useful lives of the related assets.

Cost estimates expressed at the current price levels at the date of the estimate are discounted using a rate of interest ranging from 1.71% and 3.37% in 2019 and 3.95% and 5.62% in 2018 to take into account the timing of payments. Each year, the provision is increased to reflect accretion of discount and to accrue an estimate for the effects of inflation, with charges being recognized as accretion expense, included under “Interest expense” in the consolidated statements of comprehensive income. Changes in the decommissioning liability that result from a change in the current best estimate of cash flow required to settle the obligation or a change in the discount rate are added to (or deducted from) the amount recognized as the related asset and the periodic unwinding of the discount on the liability is recognized in the consolidated statements of comprehensive income as it occurs.

While the Company has made its best estimate in establishing the decommissioning provision because of potential changes in the technology as well as safety and environmental requirements, plus the actual time scale to complete decommissioning activities, the ultimate provision requirements could either increase or decrease significantly from the Company’s estimates. The amounts and timing of recorded expenses for any period would be affected by the changes in these factors and circumstances.

Additional provisions including those arising from acquisitions (see Note 4), for the years ended December 31, 2019 and 2018 amounted to P=3,708 million and P=979 million, respectively. Cumulative provisions amounted to P=11,739 million and P=8,532 million as at December 31, 2019 and 2018, respectively (see Note 16).

Contingencies. Certain subsidiaries of the Parent Company are parties to certain lawsuits or claims arising from the ordinary course of business. However, the Company’s management and legal counsel believe that the eventual liabilities under these lawsuits or claims, if any, will not have a material effect on the consolidated financial statements (see Note 30).

4. Business Combinations and Acquisition of Non-controlling Interests

The Company’s intention is to maintain and continue to develop a diverse set of infrastructure assets through its investments in water, toll roads, power distribution and generation, health care services, rail, logistics and other businesses that complement the current infrastructure business of the Company. The Company is therefore committed to investing through acquisitions and strategic partnerships in prime infrastructure assets with the potential to provide synergies with its existing operations. Accordingly, the following acquisitions were made in 2019 and 2018.

Acquisitions in 2019

Step acquisition of BOO Phu Ninh Water Treatment Plant Joint Stock Company (PNW). On May 14, 2018, MPW, through its subsidiary Metro Pacific Water International Limited (MPWIL), completed the acquisition of 45.0% of the outstanding capital stock of PNW. The transaction was completed through the acquisition of 9,900,000 shares from an existing shareholder of PNW for *SGVFSM000023* - 12 -

272 billion Vietnamese Dong (VND) (equivalent to =622P million), subject to price adjustment through an escrow mechanism depending on the fulfillment of certain conditions. This initial investment in PNW was accounted for as an investment in an associate (see Note 10).

Pursuant to a conditional Share Subscription Agreement dated March 21, 2019 which was completed on September 5, 2019, MPW acquired an additional 7.549% ownership interest for =78P million which increased its shareholding from 45.0% to 52.549%.

With MPW acquiring control over PNW, this transaction was accounted for using the acquisition method under PFRS 3, Business Combinations. In accordance with PFRS 3, PNW was fully consolidated from September 5, 2019.

Below are the provisional fair values of the identifiable assets and liabilities as at the date of acquisition:

Provisional Values (In Millions) Assets Cash and cash equivalents P=156 Receivables 14 Other current assets 10 Property, plant and equipment 6 Service concession assets 1,363 Other noncurrent assets 15 1,564 Liabilities Accounts payable and other current liabilities 237 Long-term debt (current and noncurrent portions) 824 Deferred tax liabilities 53 1,114 Total identifiable net assets at fair value 450 Noncontrolling interest (213) Fair value of previously held interest (454) Goodwill arising on acquisition 295 Cash transferred P=78

The fair value and gross amount of the receivables amounted to =14P million. The non-controlling interest representing the minority shareholders who did not participate in the additional shares subscription was measured at the corresponding proportionate share in PNW net assets measured as at acquisition date.

Net cash inflow on acquisition is as follows:

(In Millions) Cash acquired with the subsidiary(a) P=156 Total cash transferred (78) Net cash inflow P=78 (a) Cash acquired with the subsidiary is included in cash flows from investing activities.

*SGVFSM000023* - 13 -

The provisional goodwill of =295P million is attributable to the synergies and other benefits from combining the assets and activities of PNW to the Company. None of the goodwill recognized is expected to be deductible for income tax purposes. The net assets recognized in the consolidated financial statements were based on a provisional assessment of the fair values while the Company sought an independent valuation for the assets of the acquired businesses.

PNW started supplying water in July 2019. If the step acquisition had taken place at the beginning of the year, gross revenue contribution would have been =0.5P million for the year ended December 31, 2019. Since this is a step acquisition, the incremental contribution to the net income attributable to MPW (pertaining to the additional 7.549% effective ownership interest in PNW) for the year ended December 31, 2019 amounted to P=0.5 million net income from date of acquisition and P=0.8 million net loss had the transaction taken place at the beginning of the year.

Acquisition of NCI in PT Margautama Nusantara (MUN). On September 23, 2019, MPTC, through its Singaporean subsidiary, Metro Pacific Tollways Asia, Corporation Pte. Ltd. (MPT Asia), acquired 100% equity interest in each of CIIF Infrastructure Holdings Sdn Bhd (CIIF) and CAIF III Infrastructure Holdings Sdn Bhd (CAIF III), respectively. Each of CIIF and CAIF III holds 20% and 4.98% (or an aggregate of 24.98%) equity interest in MUN, respectively. MUN is a private company in Indonesia engaged in the development and operation of toll roads. MUN currently manages four strategic toll roads in Indonesia.

This indirect acquisition of equity interest in MUN through CIIF and CAIF III was in addition to the existing indirect equity interest of MPTC in MUN through PT Metro Pacific Tollways Indonesia (MPTC’s wholly-owned Indonesian subsidiary), which holds an equity interest of 75.89% of PT Nusantara Infrastructure Tbk, which then holds 74.98% equity interest in MUN. The resulting effective ownership of MPTC in MUN after the transaction is 81.88%.

The increase in effective ownership in MUN is accounted for as an equity transaction in the consolidated financial statements with the difference between the carrying value of the additional interest acquired and the total consideration recognized in equity:

(In Millions) Total consideration P=3,487 Carrying value of net assets acquired (24.98%) (3,001) Difference recognized in equity reserves P=486

Acquisition of Southbend Express Services Inc. (SESI). On February 26, 2019, Metro Pacific Tollways Management Services Inc. (MPTMSI), a wholly-owned subsidiary of MPTC, acquired 100% of SESI for a purchase price of =93P million. SESI is engaged in providing manpower services to public and private offices, industrial, commercial and other establishments. The transaction was accounted for using the acquisition method under PFRS 3.

*SGVFSM000023* - 14 -

The final fair values of the identifiable assets and liabilities as at the date of acquisition:

Fair Values (in Millions) Assets Cash and cash equivalents P=3 Receivables 36 Other current assets 3 Property, plant and equipment 6 Other noncurrent assets 16 64

Liabilities Accounts payable and other current liabilities 21 Long-term debt (current and noncurrent portions) 3 Other long-term liabilities 21 45 Total identifiable net assets at fair value 19 Goodwill arising on acquisition 42 Consideration transferred 61 Intercompany account settled 32 Total consideration on acquisition P=93

The fair value and gross amount of the receivables amounted to =36P million. None of the receivables have been impaired and it is expected that the full contractual amounts can be collected.

The goodwill of P=42 million that arose on the acquisition is attributed to the expected synergies arising from the acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes.

From the date of acquisition, SESI contributed consolidated revenue of P=94 million after elimination. SESI derives most of its revenues from its services to NLEX Corp., CIC and MPT MSI and therefore eliminated at consolidated level. Meanwhile, the contribution to the consolidated net income amounted to =89P million net loss for the year ended December 31, 2019. If the combination had taken place at the beginning of the year, contributions to the consolidated revenue and consolidated net income would have been P=108 million of revenue and P=110 million of net loss for the year ended December 31, 2019. Total transaction cost amounting to =0.2P million, has been expensed and is included in the “General and administrative expenses” in the consolidated statement of comprehensive income and is part of operating cash flows for the year ended December 31, 2019.

Other acquisitions of NCI. The Company increased its ownership interest in the following entities: · In February 2019, MPHHI acquired an additional 35,674 common shares of De Los Santos Medical Center Inc. (DLSMC) which increased its ownership interest from 58% to 61%. Total consideration for the acquisition of NCI amounted to P=18 million. · In May 2019, PT Energi Infranusantara acquired an additional 228,000 shares of PT Inpola Meka Energi which increased its ownership interest from 54.6% to 56.2%. Total consideration for the transaction amounted to IDR22.8 billion (P=84 million). · In June 2019, PT Potum Mundi Infranusantara agreed to purchase 24,000 shares of PT Dain Celicani Cemerlang (DCC) at a purchase price of IDR3.7 billion (P=14 million). The acquisition of NCI resulted to increase in ownership in DCC from 51.0% to 74.5%.

*SGVFSM000023* - 15 -

The increases in effective ownership in these companies were accounted for as equity transactions.

Acquisitions in 2018

Step acquisition of PT Nusantara. On November 3, 2017, MPTC, through its Indonesian subsidiary, PT Metro Pacific Tollways Indonesia (PT MPTI), acquired a total of 6,600,000,000 shares of PT Nusantara at a consideration of P=1.05 (Indonesian Rupiah; IDR 270) per share. The acquired shares represented approximately 42.3% of the total issued capital stock of PT Nusantara on a fully-diluted basis. Together with PT MPTI’s earlier acquisitions, PT MPTI held a total of 48.3% of the total issued capital stock of PT Nusantara on a fully-diluted basis. The transaction was executed by way of a cross sale on the Indonesian Stock Exchange pursuant to definitive transaction documents entered into with PT Matahari and other related parties. This initial investment in PT Nusantara was accounted for as an investment in an associate.

On July 2, 2018, PT MPTI acquired an additional 760,000,000 PT Nusantara shares, representing 5.0% of the issued share capital of PT Nusantara, for an aggregate consideration of IDR160.36 billion (equivalent to approximately P=597.3 million), which is IDR 211 (equivalent to approximately P=0.79) per share. These shares were acquired by way of a cross sale on the Indonesian Stock Exchange. PT MPTI fully paid the consideration for the acquisition in cash on completion of this transaction. Immediately following this acquisition, PT MPTI held 8,114,495,300 PT Nusantara shares, representing 53.3% of the issued share capital of PT Nusantara. As a result, PT MPTI was required to make a mandatory tender offer (MTO) to purchase all of PT Nusantara shares which it did not already own. A total of 3,760,231,769 PT Nusantara shares, equivalent to 24.7% of the issued capital of PT Nusantara, were tendered at an approved price of IDR 211 per share. The total cost is IDR 802,109 million, equivalent to P=2.9 billion. PT MPTI after the MTO owns a total of 77.9%, issued capital stock of PT Nusantara (80.0% on the basis of issued and outstanding shares). The Settlement Date for the mandatory tender offer was on September 10, 2018.

PT Nusantara is a publicly listed limited liability company duly established and existing under the laws of the Republic of Indonesia. Its infrastructure portfolio in Indonesia includes toll roads, ports, energy and water although approximately 80% of its core income is attributable to the toll roads.

With MPTC acquiring control over PT Nusantara, this transaction was accounted for using the acquisition method under PFRS 3, Business Combinations. In accordance with PFRS 3:

§ remeasurement gain of =493P million was recognized in “Others” account in the December 31, 2018 consolidated statement of comprehensive income in relation with the previously held interest in PT Nusantara; and

§ PT Nusantara and its subsidiaries were fully consolidated from July 2, 2018.

*SGVFSM000023* - 16 -

The final fair values of the identifiable assets and liabilities as at the date of step acquisition:

Final Values (In Millions) Assets Cash and cash equivalents P=2,418 Receivables 549 Other current assets 509 Property, plant and equipment 728 Service concession assets 12,535 Investment in associates 4,155 Other noncurrent assets 2,000 22,894

Liabilities Accounts payable and other current liabilities 885 Long-term debt (current and noncurrent portions) 3,315 Deferred tax liabilities 2,263 Other long-term liabilities 258 6,721 Noncontrolling interest at PT Nusantara level 3,833

Total identifiable net assets at fair value 12,340 Noncontrolling interest (20.04%) (2,472) Fair value of previously held interest (7,248) Goodwill arising on acquisition 858 Cash transferred P=3,478

The non-controlling interest representing the minority shareholders who did not participate in the tender offer, was measured at the corresponding proportionate share in PT Nusantara’s net asset measured as at acquisition date. Cash transferred represents the sum of the purchase price of the shares acquired on July 2, 2018 and settlement price of the shares acquired as a result of the MTO.

Net cash outflow on acquisition is as follows:

(In Millions) Cash acquired with the subsidiary(a) P=2,418 Total cash transferred (3,478) Net cash outflow (=P1,060) (a) Cash acquired with the subsidiary is included in cash flows from investing activities.

The net assets recognized in the December 31, 2018 consolidated financial statements were based on a provisional assessment of fair value while MPTC sought an independent valuation for the assets of the acquired businesses. The valuation had not been completed by the date the 2018 consolidated financial statements were approved for issue by the BOD.

In 2019, the valuation was completed. Based on the final valuation, there were changes in the fair values of the following accounts which provisional fair values are as follows: (i) service concession assets, originally at =12,404P million; (ii) investment in associates at P=2,992 million; (iii) other noncurrent assets at =1,680P million; (iv) accounts payable and other current liabilities at *SGVFSM000023* - 17 -

=487P million; (v) deferred tax liabilities at =2,259P million; and noncontrolling interest at PT Nusantara level at P=3,542 million. The change in the net assets’ fair value in turn increased noncontrolling interest from P=2,288 million to =2,472P million and decreased goodwill from =1,594P million to P=858 million (see Note 10).

The fair value and gross amount of the receivables amounted to =549P million. Based on current assessment, none of the receivables have been impaired, and it is expected that the full contractual amounts can be collected.

The goodwill is attributable to the synergies and other benefits from combining the assets and activities of PT Nusantara to the Company. None of the goodwill recognized is expected to be deductible for income tax purposes.

If the step acquisition had taken place at the beginning of 2018, revenue contribution would have been P=2,566 million for the year ended December 31, 2018. Since this is a step acquisition, the incremental contribution to the net income attributable to MPIC (pertaining to the additional 30.44% effective ownership interest in PT Nusantara) for the year ended December 31, 2018 amounted to P=68 million from date of acquisition and P=223 million had the transaction taken place at the beginning of 2018.

Changes in ownership in PT Nusantara post step acquisition. On October 8, 2018, PT MPTI acquired an additional 761,783,600 shares representing 5% of the issued capital stock of PT Nusantara, from the public at an amount of IDR 249 per share or a total consideration of IDR189.7 billion (P=676 million). Also, on the same date, PT MPTI disposed 1,523,567,500 shares representing 10% of the issued capital of PT Nusantara to PT Indonesia Infrastructure Finance (PT IIF) at an amount of IDR 250 per share. The consideration received for the shares amounted to IDR380.9 billion (P=1.4 billion). PT MPTI after the sale owns a total of 72.9%, issued capital stock of PT Nusantara (74.8% on the basis of issued and outstanding shares).

The transactions on October 8, 2018 are accounted for as equity transactions with the difference between the carrying value of the additional interest acquired by noncontrolling interests and the total consideration received amounting to P=7 million recognized in equity.

(In Millions) Total cash received - net (=P676) Carrying value of the interest transferred to NCI 669 Difference recognized in “Equity reserves” account (=P7)

On December 28, 2018, PT Nusantara completed its rights issue process raising an amount of IDR 457.4 billion (equivalent to approximately P=1.7 billion). Out of the amounts raised, PT MPTI’s participation on the rights issue amounted to IDR 407.0 billion (equivalent to approximately P=1.5 billion) which resulted in an increase in ownership by MPTI from 74.8% to 75.9% (on the basis of issued and outstanding shares) in PT Nusantara, as there were noncontrolling shareholders who did not participate in the rights offer.

Noncontrolling interests’ participation on the rights issues amounted to IDR88.0 billion (equivalent to approximately P=320 million).

(In Millions) Total cash received - net of transaction costs (=P290) Carrying value of the interest transferred to NCI 278 Difference recognized in “Equity reserves” account (=P12) *SGVFSM000023* - 18 -

Acquisition of PT Rezeki Perkasa Sejahtera Lestari (RPSL). On August 16, 2018, PT Energi Infranusantara, a wholly-owned subsidiary of PT Nusantara, acquired a total of 84,000,000 shares of RPSL, a biomass power plant company, representing 80% of RPSL’s capital stock for a total consideration of IDR 115.0 billion (equivalent to P=420 million). The acquisition was accounted for using the acquisition method.

The final fair values of the identifiable assets and liabilities as at the date of acquisition:

Final Values (In Millions) Assets Cash and cash equivalents P=5 Receivables 38 Other current assets 19 Service concession receivable 785 Property, plant and equipment 7 Deferred tax asset 17 871 Liabilities Accounts payable and other current liabilities 150 Other noncurrent liabilities 401 551 Total identifiable net assets at fair value 320 Noncontrolling interest (64) Goodwill arising on acquisition 164 Cash transferred P=420

Net cash outflow on acquisition is as follows:

(In Millions) Cash acquired with the subsidiary(a) P=5 Total cash paid on acquisition (420) Net cash outflow (=P415) (a) Cash acquired with the subsidiary shall be included in cash flows from investing activities for the next reporting period.

In 2019, the valuation was completed. Based on the final valuation, there were no material changes in the fair values from their provisional fair values except that the concession is now accounted for under IFRIC 12, Service Concession Arrangements, financial asset model. In the provisional valuation, it was accounted for under the intangible asset model.

The goodwill arising from the acquisition is attributable to synergies and other benefits from combining the assets and activities of RPSL to the Company. None of the goodwill recognized is expected to be deductible for income tax purposes.

*SGVFSM000023* - 19 -

From the date of acquisition, RPSL has contributed =204P million to the consolidated finance income from concession financial receivable and =6P million to the consolidated net income. If the combination had taken place at the beginning of 2018, contributions to the consolidated finance income from concession financial receivable and consolidated net income would have been P=287 million of finance income and P=8 million of net income for the year ended December 31, 2018.

Step acquisition of Davao Doctors Hospital Inc. (DDH). From August to October 2018, MPHHI purchased 132,975 shares of DDH for aggregate consideration of P=669 million which increased its ownership from 35.16% to 49.91%.

With MPHHI acquiring control over DDH, the acquisition of additional shares is accounted for using the acquisition method under PFRS 3. In accordance with PFRS 3:

§ remeasurement gain amounting to =228P million was included in the Discontinued Operations in the December 31, 2018 re-presented consolidated statement of comprehensive income in relation with the previously held interest in DDH; and

§ DDH and its subsidiary were consolidated from acquisition date.

The final fair values of the identifiable assets and liabilities as at the date of acquisition:

Final Values (In Millions) Assets Cash and cash equivalents P=104 Receivables 336 Other current assets 155 Property, plant and equipment 2,363 Other noncurrent assets 82 3,040 Liabilities Accounts payable and other current liabilities 453 Long-term debt (current and noncurrent portions) 50 Deferred tax liability 211 Other long-term liabilities 63 777 Total identifiable net assets at fair value 2,263 Noncontrolling interest (1,134) Fair value of previously held interest (1,163) Goodwill arising on acquisition 703 Cash transferred P=669

Net cash outflow on acquisition is as follows:

(In Millions) Cash acquired with the subsidiary(a) P=104 Total cash paid on acquisition (669) Net cash outflow (=P565) (a) Cash acquired with the subsidiary is included in cash flows from investing activities.

*SGVFSM000023* - 20 -

The net assets recognized in the December 31, 2018 consolidated financial statements were based on a provisional assessment of fair value while MPHHI sought an independent valuation for the assets of the acquired businesses. The valuation had not been completed by the date the 2018 consolidated financial statements were approved for issue by the BOD.

In 2019, the valuation was completed and there were no changes between final and provisional fair values of the total identifiable fair values of DDH.

The fair value and gross amount of the receivables amounted to =336P million. Based on current assessment, none of the receivables have been impaired and it is expected that the full contractual amounts can be collected.

The goodwill of P=703 million is attributable to the synergies and other benefits from combining the assets and activities of DDH to the Company. None of the goodwill recognized is expected to be deductible for income tax purposes.

The non-controlling interest was measured at the corresponding proportionate share in DDH’s net asset measured as at acquisition date.

If the step acquisition had taken place at the beginning of the year, gross revenue contribution would have been P=2,247 million for the year ended December 31, 2018. Since this is a step acquisition, the incremental contribution to the net income attributable to MPHHI (pertaining to the additional 14.75% effective ownership interest in DDH) for the year ended December 31, 2018 amounted to P=14 million from date of acquisition and P=38 million had the transaction taken place at the beginning of 2018.

Subscription to common shares of Western Mindanao Medical Center, Inc. (WMMCI). In 2015, Metro Pacific Zamboanga Hospital Corp. (MPZHC), a wholly-owned subsidiary of MPHHI, signed a long-term lease of the land, buildings and equipment of WMMCI. The lease agreement qualified as business combination where the identifiable assets consist of property use rights for the use of existing land and building over the term of the lease of twenty (20) years.

On March 11, 2018, MPHHI subscribed to 393,641 Class B common shares representing 63.94% of the outstanding voting capital stock of WMMCI. Total subscription price per share is approximately P=435 per share or an aggregate value of =171P million. The assets and liabilities of WMMCI as at date of subscription (and prior to the proceeds of the subscription) included property plant and equipment (P=494 million), accounts payable and accrued expenses (P=247 million) and long-term debt (P=126 million).

The abovementioned subscription was accounted for as an equity transaction. The amount recognized in the “Equity reserves” account represents the difference between the carrying value of the interest acquired and the total consideration paid and the derecognition of the carrying values of the property use rights (see Note 11) and lease liability (see Note 15) arising from the 2015 lease agreement:

(In Millions) Total subscription price P=171 Carrying value of derecognized property use rights (see Note 11) 25 Less: MPHHI’s share in the net assets of WMMCI (170) Carrying value of derecognized lease liability (32) Difference recognized in “Equity reserves” account (=P6)

*SGVFSM000023* - 21 -

Acquisition of NCI in MetroPac Movers, Inc. (MMI). On February 28, 2018, MLCI, MMI and Yellowbear Holdings, Inc. (YHI) entered into a Memorandum of Agreement for MLCI’s acquisition of the 24% shareholding of YHI in MMI. Total acquisition cost amounted to P=739 million. The increase in effective ownership in MMI is accounted for as an equity transaction with the difference between the carrying value of the additional interest acquired and the total consideration recognized in equity:

(In Millions) Cash consideration paid to NCI P=739 MMI’s net assets acquired (24%) (634) Difference recognized in equity reserves P=105

The abovementioned transaction also involved the net settlement of MMI’s various claims against YHI amounting to P=217 million (net of indirect taxes of P=22 million) recognized in “Others” account in the consolidated statement of comprehensive income (see Note 24).

5. Operating Segment Information An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses, whose operating results are regularly reviewed by the Company’s chief operating decision maker who makes decisions about how resources are to be allocated to the segment and assesses its performance, and for which discrete financial information is available. For management purposes, the Company is organized into the following segments based on services and products namely: power, toll operations, water, healthcare, rail, logistics and others (see Note 1). However, given that the logistics business does not yet meet the quantitative thresholds to qualify as an operating segment, the results of the logistics operations are included in the ‘other businesses’ column.

Segment performance and monitoring. The Company’s chief operating decision maker is the BOD. The BOD monitors the operating results of each business unit separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on: consolidated net income for the year; earnings before interest, taxes and depreciation and amortization, or Core EBITDA; Core EBITDA margin; and core income (loss). Net income for the year is measured consistent with consolidated net income in the consolidated financial statements.

Core EBITDA is measured as consolidated net income excluding depreciation and amortization of property, plant and equipment and intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity in net earnings (losses) of associates and joint ventures, net foreign exchange gains (losses), net gains (losses) on derivative financial instruments, provision for (benefit from) income tax and other non-recurring gains (losses). Core EBITDA margin pertains to Core EBITDA divided by operating revenues.

Performance of the operating segments is also assessed based on a measure of recurring profit or core income. Core income is measured as net income attributable to owners of the Parent Company excluding the effects of foreign exchange and derivative gains or losses and non-recurring items (NRI), net of tax effect of the aforementioned. NRI represent gains or losses that, through occurrence or size, are not considered usual operating items.

*SGVFSM000023* - 22 -

Segment expenses and segment results exclude transfers or charges between business segments. These transfers are also eliminated for purposes of the consolidated financial statements.

There are no revenue transactions with a single customer that accounted for 10% or more of the Company’s consolidated revenues and no material inter-segment revenue transactions for the years ended December 31, 2019, 2018 and 2017. The Company’s revenue substantially comprises of services which revenue recognition is over time.

Segment capital expenditure is the total cost incurred during the period to acquire service concession assets, property, plant and equipment and intangible assets other than goodwill. For the consolidated statements of financial position, difference between the combined segment assets and the consolidated assets consist of adjustments and eliminations comprising of goodwill and deferred tax assets. Difference between the combined segment liabilities and the consolidated liabilities largely consist of deferred tax liabilities.

The following table shows the reconciliations of the Company’s consolidated Core EBITDA to consolidated net income for the years ended December 31, 2019, 2018 and 2017.

2019 2018 2017 (In Millions) Consolidated Core EBITDA P=42,260 P=37,665 P=32,570 Depreciation and amortization (11,948) (10,119) (7,288) Consolidated EBIT 30,312 27,546 25,282 Adjustments to reconcile with consolidated net income: Interest income 2,291 1,494 619 Share in net earnings of equity method investees 11,656 11,511 7,905 Interest expense (11,949) (10,388) (7,995) Non-recurring gains (losses) - net 3,286 (1,053) (1,297) Provision for income tax (7,778) (6,933) (5,487) Consolidated net income for the year P=27,818 P=22,177 P=19,027 *Includes net foreign exchange gains (losses)

The following table shows the reconciliations of Company’s consolidated core income to the Company’s consolidated net income for the years ended December 31, 2019, 2018 and 2017.

2019 2018 2017 (In Millions) Consolidated core income attributable to owners of the Parent Company P=15,602 P=15,060 P=14,104 Non-recurring expenses - net 8,254 (930) (953) Consolidated net income attributable to owners of the Parent Company 23,856 14,130 13,151 Consolidated net income attributable to non-controlling interest 3,962 8,047 5,876 Consolidated net income for the year P=27,818 P=22,177 P=19,027

The segment revenues, net income for the year, assets, liabilities, and other segment information of the Company’s reportable operating segments as at and for the years ended December 31, 2019, 2018 and 2017 are detailed in the succeeding tables. *SGVFSM000023* - 23 -

The following table presents consolidated information on core income and certain assets and liabilities regarding business segments for the years ended December 31, 2019, 2018 and 2017:

Year Ended December 31, 2019 (In Millions) Toll Other Adjustments/ Continuing Power Operations Water Rail Businesses Eliminations Operations Healthcare Consolidated Total revenue from external sales P=24,648 P=18,503 P=25,469 P=3,287 P=1,592 P=– P=73,499 P=14,658 P=88,157 Cost of sales and services (16,018) (6,524) (8,544) (2,042) (1,698) – (34,826) (8,895) (43,721) Gross Margin 8,630 11,979 16,925 1,245 (106) – 38,673 5,763 44,436 General and administrative expenses (2,354) (2,046) (4,153) (767) (1,796) – (11,116) (3,663) (14,779) Other income (charges) – net 380 691 (932) 87 102 – 328 327 655 Profit before Financing Charges 6,656 10,624 11,840 565 (1,800) – 27,885 2,427 30,312 Interest expense – net (2,204) (2,027) (1,639) 112 (3,753) – (9,511) (147) (9,658) Profit before NCI and Income Tax 4,452 8,597 10,201 677 (5,553) – 18,374 2,280 20,654 Non-controlling interest (2,436) (1,857) (3,470) (261) – – (8,024) (906) (8,930) Provision for income tax (1,171) (2,256) (3,048) (97) (461) – (7,033) (745) (7,778) Contribution from Subsidiaries 845 4,484 3,683 319 (6,014) – 3,317 629 3,946 Share in net earnings (losses) of equity method investees 10,824 605 (64) – 53 – 11,418 238 11,656 Contribution from Operations - Core Income (Loss) 11,669 5,089 3,619 319 (5,961) – 14,735 867 15,602 Non-recurring charges (304) (331) (12,752) (18) (4,178) – (17,583) 25,837 8,254 Segment Income (Loss) Attributable to owners of the Parent Company P=11,365 P=4,758 (P=9,133) P=301 (P=10,139) P=– (P=2,848) P=26,704 P=23,856

Core EBITDA P=10,020 P=12,643 P=16,344 P=678 (P=1,205) P=– P=38,480 P=3,780 P=42,260 Core EBITDA Margin 41% 68% 64% 21% –% –% 52% 26% 48%

Non-recurring Charges (P=219) (P=184) (P=20,106) (P=36) (P=4,250) P=– (P=24,795) P=31,915 P=7,120 Provision for (benefit from) income tax (58) (172) 2,504 3 12 – 2,289 (6,123) (3,834) Non-controlling interest (27) 25 4,850 15 60 – 4,923 45 4,968 Net Non-recurring Charges (P=304) (P=331) (P=12,752) (P=18) (P=4,178) P=– (P=17,583) P=25,837 P=8,254

Assets and Liabilities Segment assets P=78,137 P=136,080 P=130,466 P=30,870 P=50,530 P=16,603 P=442,686 P=– P=442,686 Investments and advances 132,156 16,031 2,131 – 2,079 – 152,397 16,695 169,092 Consolidated Total Assets P=210,293 P=152,111 P=132,597 P=30,870 P=52,609 P=16,603 P=595,083 P=16,695 P=611,778

Segment Liabilities P=55,448 P=102,398 P=73,162 P=17,291 P=103,264 P=14,170 P=365,733 P=– P=365,733 Other Segment Information Capital expenditures - Service concession assets and property, plant and equipment P=939 P=23,796 P=16,432 P=7,593 P=103 P=– P=48,863 P=1,806 P=50,669 Depreciation and amortization 3,364 2,019 4,504 113 595 – 10,595 1,353 11,948

*SGVFSM000023* - 24 -

Year Ended December 31, 2018 (In Millions) Toll Other Adjustments/ Continuing Power Operations Water Rail Businesses Eliminations Operations Healthcare Consolidated Total revenue from external sales P=27,026 P=15,486 P=22,894 P=3,310 P=1,363 P=– P=70,079 P=12,950 P=83,029 Cost of sales and services (18,968) (5,345) (7,527) (1,900) (1,455) – (35,195) (7,512) (42,707) Gross Margin 8,058 10,141 15,367 1,410 (92) – 34,884 5,438 40,322 General and administrative expenses (2,622) (2,103) (3,409) (669) (1,752) – (10,555) (3,818) (14,373) Other income (charges) – net 614 602 (102) 154 1 – 1,269 328 1,597 Profit before Financing Charges 6,050 8,640 11,856 895 (1,843) – 25,598 1,948 27,546 Interest expense – net (2,394) (1,667) (1,602) (10) (3,108) – (8,781) (113) (8,894) Profit before NCI and Income Tax 3,656 6,973 10,254 885 (4,951) – 16,817 1,835 18,652 Non-controlling interest (2,068) (1,572) (3,478) (322) 5 – (7,435) (735) (8,170) Provision for income tax (1,068) (1,823) (2,933) (169) (329) – (6,322) (611) (6,933) Contribution from Subsidiaries 520 3,578 3,843 394 (5,275) – 3,060 489 3,549 Share in net earnings (losses) of equity method investees 10,382 816 (20) – 51 – 11,229 282 11,511 Contribution from Operations - Core Income (Loss) 10,902 4,394 3,823 394 (5,224) – 14,289 771 15,060 Non-recurring charges 292 (184) (301) (63) (812) – (1,068) 138 (930) Segment Income (Loss) Attributable to owners of the Parent Company P=11,194 P=4,210 P=3,522 P=331 (P=6,036) P=– P=13,221 P=909 P=14,130

Core EBITDA P=9,652 P=10,072 P=15,518 P=987 (P=1,592) P=– P=34,637 P=3,028 P=37,665 Core EBITDA Margin 36% 65% 68% 30% –% –% 49% 23% 45%

Non-recurring Charges P=301 (P=109) (P=472) (P=121) (P=810) P=– (P=1,211) P=233 (P=978) Provision for (benefit from) income tax (6) (76) (1) 11 (1) – (73) (2) (75) Non-controlling interest (3) 1 172 47 (1) – 216 (93) 123 Net Non-recurring Charges P=292 (P=184) (P=301) (P=63) (P=812) P=– (P=1,068) P=138 (P=930)

Assets and Liabilities Segment assets P=83,428 P=107,777 P=126,789 P=21,372 P=16,775 P=29,126 P=385,267 P=19,686 P=404,953 Investments and advances 131,444 14,125 3,110 – 1,580 – 150,259 2,734 152,993 Consolidated Total Assets P=214,872 P=121,902 P=129,899 P=21,372 P=18,355 P=29,126 P=535,526 P=22,420 P=557,946

Segment Liabilities P=67,167 P=77,877 P=61,608 P=12,125 P=83,137 P=9,930 P=311,844 P=7,099 P=318,943 Other Segment Information Capital expenditures - Service concession assets and property, plant and equipment P=1,115 P=8,347 P=12,747 P=6,233 P=1,562 P=– P=30,004 P=2,692 P=32,696 Depreciation and amortization 3,602 1,433 3,665 92 250 – 9,042 1,077 10,119

*SGVFSM000023* - 25 -

Year Ended December 31, 2017 (In Millions) Adjustments/ Continuing Power Toll Operations Water Rail Other Businesses Eliminations Operations Healthcare Consolidated Total revenue from external sales P=13,042 P=13,107 P=21,327 P=3,155 P=1,144 P= P=51,775 P=10,737 P=62,512 Cost of sales and services (8,645) (4,858) (6,968) (1,773) (699) – (22,943) (6,185) (29,128) Gross Margin 4,397 8,249 14,359 1,382 445 – 28,832 4,552 33,384 General and administrative expenses (1,440) (1,417) (3,110) (583) (1,708) – (8,258) (3,129) (11,387) Other income (charges) – net 2,723 422 (251) 97 12 – 3,003 282 3,285 Profit before Financing Charges 5,680 7,254 10,998 896 (1,251) – 23,577 1,705 25,282 Interest expense – net (1,791) (1,399) (1,616) (5) (2,470) – (7,281) (94) (7,375) Profit before NCI and Income Tax 3,889 5,855 9,382 891 (3,721) – 16,296 1,611 17,907 Non-controlling interest (820) (1,175) (3,366) (231) 12 – (5,580) (641) (6,221) Provision for income tax (702) (1,422) (2,308) (377) (144) – (4,953) (534) (5,487) Contribution from Subsidiaries 2,367 3,258 3,708 283 (3,853) – 5,763 436 6,199 Share in net earnings (losses) of equity method investees 7,011 643 25 – (23) – 7,656 249 7,905 Contribution from Operations - Core Income (Loss) 9,378 3,901 3,733 283 (3,876) – 13,419 685 14,104 Non-recurring charges 260 1,118 (428) (3) (1,904) – (957) 4 (953) Segment Income (Loss) Attributable to owners of the Parent Company P=9,638 P=5,019 P=3,305 P=280 (P=5,780) P=– P=12,462 P=689 P=13,151

Core EBITDA P=7,417 P=8,408 P=14,290 P=962 (P=1,141) P=– P=29,936 P=2,634 P=32,570 Core EBITDA Margin 57% 64% 67% 30% –% –% 57% 25% 52%

Non-recurring Charges P=271 P=1,050 (P=486) (P=9) (P=1,971) P=– (P=1,145) P=10 (P=1,135) Benefit from income tax (8) 41 (189) 3 (7) – (160) (2) (162) Non-controlling interest (3) 27 247 3 74 – 348 (4) 344 Net Non-recurring Charges P=260 P=1,118 (P=428) (P=3) (P=1,904) P=– (P=957) P=4 (P=953)

Assets and Liabilities Segment assets P=88,066 P=80,251 P=109,110 P=13,988 P=19,707 P=26,429 P=337,551 P=15,229 P=352,780 Investments and advances 127,458 17,948 399 – 1,785 – 147,590 3,381 150,971 Consolidated Total Assets P=215,524 P=98,199 P=109,509 P=13,988 P=21,492 P=26,429 P=485,141 P=18,610 P=503,751

Segment Liabilities P=96,495 P=69,871 P=50,461 P=8,564 P=50,265 P=6,836 P=282,492 P=5,580 P=288,072 Other Segment Information Capital expenditures - Service concession assets and property, plant and equipment P=97 P=4,788 P=12,133 P=2,784 P=1,064 P=– P=20,866 P=1,530 P=22,396 Depreciation and amortization 1,736 1,155 3,293 64 111 – 6,359 929 7,288

*SGVFSM000023* - 26 -

The following table shows the analysis and allocation of the consolidated results of operations of the Company to core and NRI and is provided to reconcile the preceding consolidated segment information, amounts and balances with the consolidated statements of comprehensive income:

2019 2018 2017 Core NRI Reclassification Consolidated Core NRI Reclassification Consolidated Core NRI Reclassification Consolidated (In Millions)

CONTINUING OPERATIONS

OPERATING REVENUES Power and coal sales P=24,648 P=– P=– P=24,648 P=27,026 P=– P=– P=27,026 P=13,042 P=– P=– P=13,042 Water and sewerage services revenue 25,469 – (418) 25,051 22,894 – (319) 22,575 21,327 – (401) 20,926 Toll fees 18,503 – – 18,503 15,486 – – 15,486 13,107 – – 13,107 Rail revenue 3,287 – – 3,287 3,310 – – 3,310 3,155 – – 3,155 Logistics and other revenues 1,592 – 418 2,010 1,363 – 319 1,682 1,144 – 401 1,545 73,499 – – 73,499 70,079 – – 70,079 51,775 – – 51,775

COST OF SALES AND SERVICES (34,826) 1 – (34,825) (35,195) (7) – (35,202) (22,943) (246) – (23,189)

GROSS PROFIT (LOSS) 38,673 1 – 38,674 34,884 (7) – 34,877 28,832 (246) – 28,586 General and administrative expenses (11,116) (1,380) – (12,496) (10,555) (597) – (11,152) (8,257) (735) – (8,992) Interest expense (11,755) (45) – (11,800) (10,230) – – (10,230) (7,850) – – (7,850) Share in net earnings (losses) of equity method investees 11,425 (253) – 11,172 11,229 (438) – 10,791 10,197 139 (2,541) 7,795 Dividend income 66 – – 66 172 – – 172 90 – 2,541 2,631 Interest income 2,244 13 – 2,257 1,448 3 – 1,451 569 4 – 573 Construction revenue 42,795 – – 42,795 27,363 – – 27,363 19,344 – – 19,344 Construction costs (42,795) – – (42,795) (27,362) – – (27,362) (19,344) – – (19,344) Others 262 (23,134) – (22,872) 1,097 (172) – 925 371 (307) – 64

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAX 29,799 (24,798) – 5,001 28,046 (1,211) – 26,835 23,952 (1,145) – 22,807

PROVISION FOR (BENEFIT FROM) INCOME TAX 7,033 (2,290) – 4,743 6,322 73 – 6,395 4,954 160 – 5,114

NET INCOME (LOSS) FROM CONTINUING OPERATIONS 22,766 (22,508) – 258 21,724 (1,284) – 20,440 18,998 (1,305) – 17,693

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS 1,766 25,794 27,560 1,506 231 – 1,737 1,326 8 – 1,334

NET INCOME (LOSS) P=24,532 P=3,286 P=– P=27,818 P=23,230 (P=1,053) P=– P=22,177 P=20,324 (P=1,297) P=– P=19,027

Net Income Attributable to: Owners of the Parent Company P=15,602 P=8,254 P=– P=23,856 P=15,060 (P=930) P=– P=14,130 P=14,104 (P=953) P=– P=13,151 NCI 8,930 (4,968) – 3,962 8,170 (123) – 8,047 6,220 (344) – 5,876 P=24,532 P=3,286 P=– P=27,818 P=23,230 (P=1,053) P=– P=22,177 P=20,324 (P=1,297) P=– P=19,027

*SGVFSM000023* - 27 -

By Geographical Market While the Company’s geographic focus is still predominantly the Philippines, MPIC has started increasing its presence in Southeast Asia with its investments in Indonesia (PT Nusantara, which was consolidated beginning July 2018; see Note 4), Thailand (DMT; see Note 10) and Vietnam (CII B&R, Tuan Loc Water Resources Investment Joint Stock Company and BOO Phu Ninh Water Treatment Plant Joint Stock Company; see Notes 4 and 10).

2019 2018 2017 (In Millions) Revenue From Continuing Operations: Philippines P=71,341 P=68,971 P=51,775 Indonesia 2,153 1,108 – Vietnam 5 – – 73,499 70,079 51,775 From Discontinued Operations - Philippines (see Note 32) 14,658 12,950 10,737 P=88,157 P=83,029 P=62,512

Share in net earnings (losses) of equity method investees (see Note 10) From Continuing Operations: Philippines P=10,652 P=10,724 P=7,301 Indonesia 217 (479) 7 Thailand 445 593 537 Vietnam (142) (47) (50) 11,172 10,791 7,795 From Discontinued Operations Philippines (see Note 32) 230 282 250 P=11,402 P=11,073 P=8,045

Non-current assets (a): Philippines P=466,177 P=440,608 P=406,333 Indonesia 25,728 21,172 7,777 Thailand 8,079 6,852 7,038 Vietnam 3,482 5,542 3,133 P=503,466 P=474,174 P=424,281 (a) Excluding financial instruments and deferred tax assets.

6. Material Partly-owned Subsidiaries

In determining whether an NCI is material to the Company, management employs both quantitative and qualitative factors to evaluate the nature of, and risks associated with, the Company’s interests in these entities; and the effects of those interests on the Company’s financial position. Factors considered include, but not limited to, carrying value of the subsidiary’s NCI relative to the NCI recognized in the Company’s consolidated financial statements, the subsidiary’s contribution to the Company’s consolidated revenues and net income, and other relevant qualitative risks associated with the subsidiary’s nature, purpose and size of activities.

*SGVFSM000023* - 28 -

Based on management’s assessment, the Company has concluded that MWHC, NLEX Corp, MPHHI (up to December 31, 2018; see Note 32), Light Rail Manila Holdings Inc (LRMH, the intermediate holding company for LRMC), GBPC and PT Nusantara (starting 2018; see Note 4) are the subsidiaries with NCI that are material to the Company.

The ability of these subsidiaries to pay dividends or make other distributions or payments to their shareholders (including the Company) is subject to applicable laws and other restrictions contained in financing agreements, shareholder agreements and other agreements that prohibit or limit the payment of dividends or other transfers of funds. Such applicable restrictions are as follows:

§ Under the financing agreements as disclosed in Note 18, which include satisfying certain financial ratios and other covenants to be able to declare or pay cash dividends;

§ Under Philippine law, a corporation is permitted to declare dividends only to the extent that it has unrestricted retained earnings that represent the undistributed earnings of the corporation which have not been allocated for any managerial, contractual or legal purposes and which are free for distribution to the shareholders as dividends; and

§ Under NLEX Corp’s shareholders’ agreement, unless otherwise agreed upon by the shareholders, no amounts shall be distributed by way of dividends until PNCC’s share in the project revenue collection has been repaid in full.

Maynilad’s appropriated retained earnings as of December 31, 2019 and 2018 amounted to P=7.0 billion and =20.0P billion, respectively. Appropriation has been made for the following projects: (1) upgrading of Dagat-Dagatan sewage treatment plan to 205MLD South Caloocan-Malabon- Navotas (CAMANA) Water Reclamation Facility, and (2) the design and build of the 140 MLD Water Reclamation Facility for the Central Manila Sewerage System.

As at December 31, 2019, GBPC and NLEX Corp. have unpaid dividends to non-controlling shareholders amounting to P=2,095 million and P=761 million, respectively. As at December 31, 2018, GBPC and NLEX Corp have unpaid dividends to non-controlling shareholders amounting to P=1,961 million and P=552 million, respectively (see Note 15).

For years ended December 31, 2019 and 2018, equity infusion of NCI in LRMH and LRMC with an aggregate amount of =2,027P million and =1,354P million, respectively, are included in “Other changes in NCI” in the consolidated statements of changes in equity.

*SGVFSM000023* - 29 -

The summarized financial information are presented before inter-company eliminations but after consolidation adjustments for goodwill, other fair value adjustments on acquisition and adjustments required to apply uniform accounting policies at group level.

December 31, 2019 December 31, 2018 December 31, 2017 (Amounts in millions) NLEX PT NLEX PT NLEX GBPC MWHC Corp Nusantara LRMC GBPC MWHC Corp Nusantara MPHHI(a) LRMC GBPC MWHC Corp MPHHI(a) LRMC Equity share held by NCI 37.6% 47.2% 24.9% 23.7% 45.0% 37.6% 47.2% 24.9% 24.8% 39.9% 45.0% 37.6% 47.2% 24.8% 39.9% 45.0% Summarized statements of financial position Current assets P=20,230 P=16,174 P=5,867 P=3,080 P=2,341 P=22,316 P=17,421 P=4,216 P=4,014 P=5,468 P=2,241 P=24,178 P=11,711 P=4,719 P=5,429 P=1,795 Non-current assets(b) 60,139 103,681 55,845 24,719 28,066 61,533 109,209 48,845 21,321 19,424 18,873 63,025 100,516 42,252 14,846 12,049 Current liabilities 11,441 20,672 8,199 1,750 2,115 10,783 17,913 5,675 1,395 5,104 802 11,360 16,383 10,212 3,868 743 Non-current liabilities 34,099 48,434 30,646 7,521 15,293 38,570 44,133 25,453 5,453 2,283 11,515 43,553 35,349 19,601 1,770 7,948 Total equity 34,829 50,749 22,867 18,528 12,999 34,496 64,584 21,933 18,486 17,505 8,797 32,290 60,495 17,158 14,637 5,153 Attributable to: Equity holders of MPIC 17,397 26,631 19,366 14,426 7,148 17,259 36,659 18,723 11,585 8,760 4,837 16,180 34,499 14,364 7,826 2,832 NCI 17,432 24,118 3,501 4,102 5,851 17,237 27,925 3,210 6,901 8,745 3,960 16,110 25,996 2,794 6,811 2,321 Revenues 24,223 23,992 15,056 2,382 3,287 26,822 22,024 13,049 1,118 12,950 3,310 13,042 20,774 11,586 10,737 3,155 Net income (loss) 4,283 (8,739) 6,605 513 611 3,624 7,000 5,729 234 1,733 628 1,489 6,501 4,610 1,334 508 Total comprehensive income (loss) 4,283 (8,820) 6,531 515 595 2,923 7,114 5,661 282 1,783 652 1,432 6,162 4,610 1,339 508 Net income (loss) attributable to NCI 2,431 (1,401) 1,639 156 278 2,088 3,303 1,421 123 825 283 1,185 3,068 1,129 645 229 Dividends declared to NCI 2,095 2,352 1,399 – – 2,041 1,417 1,020 – 96 – 2,027 1,415 878 53 – Dividends paid to NCI 1,961 2,352 1,170 36 – 2,107 1,417 956 – 130 – 1,915 1,415 429 45 – Summarized statements of cash flows Operating 6,534 4,674 10,335 1,346 224 3,783 17,231 6,233 638 2,248 735 6,485 14,408 6,632 2,139 666 Investing (396) (3,135) (7,719) (2,728) (7,636) (1,656) (10,619) (3,960) (312) (2,652) (6,301) (6,059) (10,490) (3,649) (1,734) (4,497) Financing (6,892) (1.655) (665) 1,117 7,471 (6,471) 1,396 (2,539) (230) (129) 5,945 (1,218) (5,428) (658) (384) 3,860 Net increase (decrease) in cash and cash equivalents (754) (116) 1,951 (265) 59 (4,344) 8,008 (266) 97 (533) 379 (792) (1,510) 2,325 21 29 Cash and cash equivalents - beginning 9,070 11,542 2,449 2,423 1,580 13,414 3,534 2,715 2,326 2,991 1,201 14,206 5,044 390 2,970 1,172 Cash and cash equivalents - end P=8,316 P=11,426 P=4,400 P=2,158 P=1,639 P=9,070 P=11,542 P=2,449 P=2,423 P=2,458 P=1,580 P=13,414 P=3,534 P=2,715 P=2,991 P=1,201 (a) Includes the 25.51% equivalent shares of the Exchangeable bond (see Notes 30, 32 and 40) (b) Includes goodwill recognized as at acquisition date (see Note 11)

*SGVFSM000023* - 30 -

7. Cash and Cash Equivalents, Short-term Deposits and Restricted Cash

Cash and Cash Equivalents and Short-term Deposits. This account consists of:

2019 2018 (In Millions) Cash and cash equivalents P=73,211 P=46,607 Short-term deposits 1,486 914 P=74,697 P=47,521

Cash and cash equivalents include cash in banks and temporary placements that are made for varying periods of up to three months depending on the immediate cash requirements of the Company. Cash in banks and temporary placements earn interest at the prevailing bank and temporary placements rates, respectively.

Short-term deposits are deposits with original maturities of more than three months to one year from dates of acquisition and earn interest at the prevailing short-term deposits rates. Short-term deposits account also included investments in Unit Investment Trust Fund (UITF). While the UITF was classified as financial asset at fair value through profit or loss (FVPL), the entire investment in UITF is presented under the short-term deposits account as the fund comprises of short-term money market securities, time and special deposit accounts with average maturity of less than 30 days and is part of the Company’s cash management policy (see Note 33).

For the purpose of the consolidated statements of cash flows, cash and cash equivalents comprise of the following as at December 31:

2019 2018 2017 (In Millions) Cash on hand and in banks P=9,441 P=8,718 P=5,998 Short-term deposits that qualify as cash equivalents 63,770 37,889 34,837 P=73,211 P=46,607 P=40,835

Restricted Cash. Restricted cash classified under current assets pertains to sinking fund or debt service account (DSA) representing amounts set aside for semi-annual principal and interest payments of certain long-term debt. This DSA is maintained and replenished in accordance with the provision of the loan agreements.

Restricted cash also included cash held in escrow account in relation with the construction contract for the NLEX Segment 10 (see Note 30). The construction of Segment 10 was completed with the road accessible to the public in February 2019. The reserve amount was released in June 2019.

Interest income from the restricted cash is for the account of the Company.

Interest earned from cash and cash equivalents, short-term deposits and restricted cash from continuing operations amounted to =2,055P million, P=1,376 million and P=525 million for the years ended December 31, 2019, 2018 and 2017, respectively (see Note 24).

*SGVFSM000023* - 31 -

8. Receivables

This account consists of:

2019 2018 (In Millions) Trade: Power P=4,786 P=4,127 Water 2,436 3,387 Healthcare (see Note 32) − 1,805 Others 1,582 1,473 Receivable from Buhay (see Note 32) 3,873 − Contract assets/unbilled receivables 1,227 1,185 Concession financial receivable 1,117 269 Notes 150 150 Nontrade 2,479 2,012 17,650 14,408 Less allowance for ECL (see Note 33) 1,752 1,601 15,898 12,807 Less current portion 14,624 12,495 Noncurrent portion P=1,274 P=312

Trade receivables. Trade receivables which are non-interest bearing, included receivables arising from the following:

§ Power. Outstanding billings for energy fees and pass-through fuel costs arising from the delivery of electricity to customers and energy sales to the Wholesale Electricity Spot Market (WESM). Normal credit term is 15 to 30 days from the date of receipt of billing.

§ Water. Receivables from water service customers with generally a 60-day term. For bulk water services, with generally 45 to 60-day term.

§ Healthcare. Hospitals generally provide a 30-day credit term to its Health Maintenance Organizations (HMO), international insurance, PhilHealth and corporate accounts.

§ Others. Other trade receivables account included receivables arising from (i) operations and maintenance (O&M) and construction services of water and waste treatment facilities (with 30 to 60-day credit term) and (ii) logistics services (generally 30-day credit term with settlement period of 60 to 120 days).

Contract assets / unbilled receivables. Unbilled receivables represent right to consideration in exchange for water services that are yet to be billed to customers.

Concession financial receivable. Concession financial receivable pertains to the guaranteed minimum payment that will be received by the Company from grantors under the following service concession arrangements:

§ On April 24, 2012, PT Dain Celicani Cemerlang (DCC), a subsidiary of PT Nusantara (see Note 4) entered into a Cooperation Agreement for the supply of treated water to PT Kawasan Industri Medan (Persero) (KIM) for a period of 20 years (excluding construction phase). The concession financial receivable pertains to the guaranteed minimum payment that will be received by DCC from KIM under the water supply agreement. *SGVFSM000023* - 32 -

§ In August 2018, PT Energi Infranusantara, a wholly-owned subsidiary of PT Nusantara, acquired 80% of the capital stock of RPSL, a biomass power plant operator. The acquisition was accounted for using the acquisition method under PFRS 3 (see Note 4). RPSL has an Electrical Power Purchase Agreement with PT Perusahaan Listrik Negara (Persero) (PLN) for the construction and operation of a Biomass Power Plant for a period of twenty (20) years from the start of operations. Under the agreement, RPSL will supply a portion of the generated power from the power plant to PLN in accordance with the terms and conditions of the agreement. The concession financial receivable pertains to the guaranteed minimum payment that will be received by RPSL from PLN under the electrical power purchase agreement.

Finance income amounting to P=153 million and =30P million for the years ended December 31, 2019 and 2018, respectively, were recognized in the consolidated statement of comprehensive income (see Note 24).

Notes receivable. Notes receivable aggregating =150P million comprising of defaulted loans are fully provided with allowance as at December 31, 2019 and 2018.

Nontrade receivables. Aside from the advances to Department of Public Works and Highways (DPWH) covered by a Reimbursement Agreement (see Note 33), nontrade receivables also included (i) advances to customers, affiliates and officers and employees that are generally collectible within a year and (ii) advances to former subsidiaries and related parties (see Note 19). Portion of advances to former subsidiaries and affiliates of the Company are fully provided with allowance.

The noncurrent portion of the receivables are included under the “Other noncurrent assets” account in the consolidated statements of financial position.

9. Other Current Assets This account consists of the following:

2019 2018 (In Millions) Inventories - at cost (see Note 21) Power plant spare parts and consumables (see Note 4) P=1,735 P=1,551 Power plant coal and fuel (see Notes 4 and 30) 637 1,143 Rail engineering supplies 412 455 Hospital supplies (see Note 32) − 860 Others 282 242 Input value-added tax (VAT) (a) 4,210 3,647 Prepaid expenses (b) 1,233 675 Creditable withholding tax (CWT) (c) 995 930 Advances to contractors and consultants (d) 454 2,287 Fair value through other comprehensive income (FVOCI) 300 273 Due from related parties (see Note 19) 273 24 Deposits for LTIP (see Note 23) − 542 Miscellaneous deposits and others 705 594 11,236 13,223 Less allowance for decline in value (c) 331 331 P=10,905 P=12,892 *SGVFSM000023* - 33 -

a. Input VAT pertains to VAT imposed on purchases of goods and services. These are expected to be offset against output VAT (see Note 15) arising from the Company’s revenue/income subject to VAT in the future. Noncurrent portion as at December 31, 2019 and 2018 amounted to P=182 million and P=236 million, respectively, and is included under “Other noncurrent assets”. The noncurrent portion pertains to input VAT that can be offset against output VAT beyond one year and those that can be claimed as tax credits.

b. Prepaid expenses mainly pertain to insurance, premium bond and taxes and licenses.

c. This represents amount withheld by counterparty for services rendered by the Company which can be claimed as tax credits. Management provided allowance for decline in value representing CWT recognized in prior years that the Company may no longer be able to utilize.

d. Noncurrent portion included under “Other noncurrent assets” as at December 31, 2019 and 2018 amounted to =10,581P million and =7,328P million, respectively.

10. Investments and Advances This account consists of the following:

2019 2018 (In Millions) Equity method investees: Associates: Material Power MERALCO P=127,509 P=126,936 Alsons Thermal Energy Corporation (ATEC) 2,768 2,628 Toll DMT 7,266 6,825 PT Jakarta Lingkar Baratsatu (JLB) 5,255 5,201 CII B&R 3,364 3,095 Healthcare – MPHHI (see Note 32) 16,695 − Others 3,312 5,559 Joint ventures: Others − 223 166,169 150,467 Advances to equity method investees 2,923 2,526 P=169,092 P=152,993

In determining whether an equity method investee is material to the Company, management employs both quantitative and qualitative factors to evaluate the nature of, and risks associated with, the Company’s interests in these entities; and the effects of those interest on the Company’s financial position. Factors considered include, but not limited to, carrying value of the investee relative to the total equity method investments recognized in the Company’s consolidated financial statements, the equity investee’s contribution to the Company’s consolidated net income, and other relevant qualitative risks associated with the equity investee’s nature, purpose and size of activities.

*SGVFSM000023* - 34 -

Equity Method Investees Investments in equity method investees pertain to the Company’s investments in associates and joint ventures.

Movements in this account:

2019 2018 (In Millions) Acquisition costs Balance at beginning of year P=145,935 P=147,060 Additions during the year: Acquisitions 1,163 3,731 Equity infusion into existing investees 244 299 Acquired through step acquisitions: Associates through PT Nusantara − 2,992 Investment retained in MPHHI (see Note 32) 16,688 − Deconsolidation of MPHHI (see Note 32) (1,788) − Step acquisition (see Note 4): PNW (478) − PT Nusantara − (7,626) DDH − (521) Reclassification (37) − Balance at end of year 161,727 145,935 Accumulated equity in net earnings Balance at beginning of year 3,205 426 Share in net earnings (losses) for the year: Continuing operations: MERALCO 10,164 10,411 DMT 445 593 ATEC 418 249 JLB 178 103 CII B&R (39) 4 PT Nusantara − (601) Others 6 91 Discontinued operations (see Note 32) 230 223 Dividends: MERALCO (8,229) (6,854) ATEC (278) (188) DMT (202) (1,349) JLB (128) − PT Nusantara (a) − (150) Others (116) (81) Step-up acquisition 14 328 Deconsolidation of MPHHI (see Note 32) (1,292) − Balance at end of year 4,376 3,205

(Forward)

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2019 2018 (In Millions) Accumulated share in the investees’ OCI Balance at beginning of year P=2,650 P=2,100 Share in investees’ OCI during the year (947) 422 Step acquisitions − 128 Discontinued operations (see Note 32) (3) − Total 1,700 2,650 Less allowance for impairment loss Balance at beginning of year 1,323 1,323 Provision (see Note 24) 311 − Total 1,634 1,323 P=166,169 P=150,467

Material Associates. The Company’s investments in material associates substantially comprise of MPIC’s investments in:

Place of Ownership Interest in % Incorporation Principal Activities 2019 2018 Associates: MERALCO – Direct Philippines Power 10.5 10.5 MERALCO – Indirect (a) Philippines Power 35.0 35.0 ATEC Philippines Power 50.0 50.0 DMT Thailand Tollways 29.4 29.4 CII B&R Vietnam Tollways 44.9 44.9 PT Jakarta Lingkar Baratsatu (JLB) Indonesia Tollways 35.0 35.0 MPHHI (b) Philippines Healthcare 20.0 − (a) Held through Beacon Electric. (b) Interest in MPHHI has been effectively diluted to 20.0% on account of KKR’s investment in MPHHI on December 9, 2019 (see Note 32).

MERALCO MERALCO is a Philippine corporation with its shares listed in the PSE. It is the largest distributor of electricity in the Philippines with its franchise valid until June 2028.

The fair value of the Company’s effective investment in MERALCO at 45.5% amounted to P=162 billion and P=197 billion as at December 31, 2019 and 2018, respectively, based on the quoted price of MERALCO as at those dates.

A pledge on Beacon Electric’s investments in MERALCO shares secures Beacon Electric’s loan facilities with a syndicate of various financial institutions (see Note 18). In 2019, the pledge on the MERALCO shares have been terminated upon full and final discharge of the obligation under the Note Facility Agreements.

ATEC On November 27, 2017, GBPC completed the acquisition of a 50% less one share stake in ATEC .

ATEC has ownership in the following companies: (i) 75% in Sarangani Energy Corporation which owns a 2x118.5 MW (gross capacity) baseload coal-fired (with the second 118.5 MW unit in Sarangani Province declaring commercial operations on October 10, 2019) in Maasim, Sarangani Province; (ii) 100% in San Ramon Power, Inc. (SRPI) which is developing a 105 MW baseload coal-fired plant in Zamboanga City; and (iii) 100% in ACES Technical Services Corporation.

*SGVFSM000023* - 36 -

Termination of SRPI Power Supply Agreement. In a letter dated March 26, 2019, Zamboanga City Electric Cooperative (ZAMCELCO) sent a Notice of Termination for the Power Sales Agreement (PSA) with San Ramon Power, Inc. (SRPI). SRPI is a wholly owned subsidiary of ATEC.

ZAMCELCO’s basis for terminating the PSA was the failure of the parties to achieve the Effective Date under the PSA. Under the PSA, specific conditions needed to be achieved in order to trigger the Effective Date of the PSA. However, in an agreement dated October 25, 2018 – a full 5 months prior to the issuance of the termination letter – ZAMCELCO and SRPI entered into an agreement whereby the parties declared that the remaining conditions precedent for Effective Date shall be waived. Accordingly, in the same agreement, the parties agreed that the Effective Date of the PSA shall be set on October 5, 2018. Under the PSA, SRPI has 36 months from Effective Date, or until October 2021, to start delivering power to ZAMCELCO. SRPI may supply the power from its plant, or it may source the power from third parties.

In a letter dated May 14, 2019, SRPI responded to ZAMCELCO’s termination letter to repudiate the termination. SRPI essentially argued that the Effective Date has been achieved and there is no basis to terminate the PSA.

The parties are still in the process of discussing the issue.

DMT DMT is a major toll road operator in Bangkok, Thailand. The concession for DMT runs until 2034 for the operation of a 21.9-kilometer six-lane elevated toll road from central Bangkok to Don Muang International Airport and further to the National Monument, north of Bangkok.

CII B&R CII B&R and its subsidiaries are primarily engaged in the construction, development and operation in urban infrastructure sector under the BOT contracts and Built-Transfer contracts. CII B&R is incorporated in Vietnam and listed in Ho Chi Minh City Stock Exchange.

The fair value of CII B&R shares held by the Company (including the equivalent shares of the potential voting rights) based on quoted market price amounted to VND3,423 billion (P=7.5 billion) and VND3,059.3 billion (P=6.9 billion) as at December 31, 2019 and December 31, 2018, respectively.

JLB JLB is a toll road company that operates a 9.7 km length toll road that connects Kebon Jeruk (West Jakarta) with Penjaringan (Soekarno- Hatta International Airport area, Cengkareng).

*SGVFSM000023* - 37 -

Material Investees – Summarized Financial Information The tables below provide summarized financial information for the Company’s material investees. The information disclosed reflects the amounts presented in the financial statements of the relevant investees and not the Company’s share of those amounts.

December 31, 2019 December 31, 2018 MERALCO MPHHI ATEC DMT CII B&R JLB MERALCO ATEC DMT CII B&R JLB (In Millions) Summarized statements of financial position Current assets P=117,689 P=7,991 P=3,815 P=1,073 P=2,017 P=2,464 P=115,344 P=3,940 P=871 P=2,479 P=2,095 Non-current assets(a) 246,000 22,416 28,248 25,385 16,454 16,070 220,907 25,870 27,458 14,703 16,377 Current liabilities 127,561 5,879 7,827 6,092 4,894 201 115,517 6,685 5,384 4,770 278 Non-current liabilities 146,218 2,919 16,469 1,029 9,006 7,148 137,847 15,856 5,298 8,543 7,164 Net assets 89,910 21,609 7,767 19,337 4,571 11,185 82,887 7,269 17,647 3,869 11,030 Less: Equity attributable to NCI (1,011) (3,217) (2,689) – – – (845) (2,538) – – – Net assets attributable to common shareholders of investee 88,899 18,392 5,078 19,337 4,571 11,185 82,042 4,731 17,647 3,869 11,030 Ownership interest in investee 45.5% 20.0% 50% 29.5% 44.9% 35.0% 45.5% 50% 29.5% 44.9% 35.0% MPIC’s share in net assets of investee 40,449 3,678 2,539 5,695 2,054 3,915 37,304 2,366 5,197 1,739 3,861 Goodwill and other adjustments 87,060 13,017 229 1,571 1,310 1,340 89,633 262 1,628 1,356 1,340 Carrying amount of the Company’s investment P=127,509 P=16,695 P=2,768 P=7,266 P=3,364 P=5,255 P=126,937 P=2,628 P=6,825 P=3,095 P=5,201

Statements of comprehensive income Revenues P=318,315 P=15,921 P=5,411 P=4,668 P=1,109 P=1,919 P=304,454 P=4,728 P=4,933 P=858 P=1,708 Income before income tax 31,915 2,560 1,303 1,977 (135) 727 30,545 862 2,598 100 789 Net income (loss) 23,372 1,762 1,225 1,511 (210) 509 23,102 804 2,012 9 601 OCI (loss) (2,998) (81) (13) 672 687 9 480 1 1,939 – (195) Total comprehensive income (loss) 20,374 1,681 1,212 2,183 477 518 23,582 805 3,951 9 406 Total comprehensive income attributable to common shareholders of investee 20,287 1,315 902 2,183 477 518 23,947 599 3,951 9 406 Dividends received 8,229 – 277 202 – 128 6,854 188 1,349 – – (a) Includes “Investments in associates”

*SGVFSM000023* - 38 -

Individually immaterial investees. The Company has interests in the following individually immaterial investments in associates and joint ventures:

Place of Ownership Interest in % Incorporation Principal Activities 2019 2018 Associates: Water EquiPacific HoldCo Inc. (EHI) (a) Philippines Investment holding/ Water 30.0 30.0 Tuan Loc Water Resources Investment Joint Stock Vietnam Investment holding/ Water Company (TLW) (b) 49.0 49.0 Watergy Business Solutions, Inc. (WBSI) (c) Philippines Investment holding/ Water 49.0 49.0 Karayan Diliman Management, Inc. (KDMI) (c) Philippines Engineering consultancy 40.0 40.0 BOO Phu Ninh Water Treatment Plant Joint Stock Vietnam Investment holding/ Water Company (PNW, see Note 4) − 45.0 Manila Water Consortium Inc. (MWCI) (c) Philippines Investment holding/ Water 39.0 39.0 PT Tirta Kencana Cahaya Mandiri (TKC) (i) Indonesia Water installation 28.0 28.0 Healthcare (d) Medical Doctors Inc. (MDI) Philippines Hospital operations − 33.3 Manila Medical Services, Inc. (MMSI) Philippines Hospital operations − 20.0 Medi Linx Laboratory Inc. Philippines Clinical laboratory services − 40.0 Davao Doctors Oncology Center Inc. Philippines Radiation and oncology center − 30.0 Others AF Payments Inc. (AFPI) (e) Philippines Operator of contactless payment system 20.0 20.0 Indra Philippines, Inc. (Indra Phils.) (f) Philippines Management and IT consultancy 25.0 25.0 Costa De Madera (g) Philippines Real estate 62.0 62.0 PT Intisentosa Alam Bahtera (IAB) (i) Indonesia Port services 39.0 39.0 First Gen Northern Energy Corp. (FGNEC) Philippines Under liquidation (corporate life ended December 31, 2016) 33.3 33.3 Metro Pacific Land Holdings, Inc. Philippines Under liquidation (corporate life ended July 31, 2019) 49.0 49.0 Joint Ventures: Healthcare (d) Metro Sanitas Corporation (Sanitas) Philippines Clinical management − 50.0 Lipa Medix Cancer Center Corporation Philippines Oncology treatment center − 50.0 Others Land Pacific Corporation (Landco) (h) Philippines Real estate 38.1 38.1 a. EHI and the Laguna Water District (LWD) entered into a Joint Venture Agreement (JV Agreement) on November 3, 2015. Pursuant to the JV Agreement, EHI and LWD, at ownership interest of 90% and 10%, respectively, established Laguna Water District Aquatech Resources Corp. (LARC) which shall be responsible for the financing, rehabilitation, improvement, expansion, operation and maintenance of LWD’s water supply system. The JV Agreement is for a term of twenty-five (25) years from January 1, 2016. b. On June 11, 2018, MPW completed the acquisition of 49% of the outstanding capital stock of TLW. The transaction was completed through the acquisition of 37,926,000 shares from an existing shareholder of TLW for VND866 billion (equivalent to =2P billion). TLW is one of the largest water companies in Vietnam, with 310 MLD of installed capacity and a billed volume of approximately 102 MLD for the year ended December 31, 2018. TLW’s main project assets are the: § Song Lam Raw Water Plant, a 50-year Build-Own-Operate (BOO) contract with an installed capacity of 200 MLD expandable to 300 MLD. It supplies raw water to the Nghe An Water Supply JSC and surrounding industrial parks. Nghe An Province is the largest province in Vietnam by area and has a population of about 3.1 million people. § Ho Cau Moi Water Treatment Plant, a 50-year BOO with an installed capacity of 90 MLD expandable to 120 MLD. It supplies treated water to Dong Nai Water Company and surrounding industrial parks. Dong Nai Province is the manufacturing satellite of Ho Chi Minh City and will be the location of the Long Thanh International Airport – the new

*SGVFSM000023* - 39 -

100 million passenger airport of HCMC. Dong Nai Province has a population of about 2.9 million. § Nhon Trach 6A Sewage Treatment Plant, a 50-year BOO with an installed capacity of 20 MLD expandable to 40 MLD. It is the wastewater treatment facility for the 400-hectare Nhon Trach 6 Industrial Park in Dong Nai Province. c. MPW has investments in the following entities which were fully impaired as of December 31, 2019 (see Note 24): § MWCI has 51.0% voting interest and 70.6% economic interest in Cebu Manila Water Development, Inc. (CMWD). CMWD has a 20-year Water Purchase Agreement with the Metropolitan Cebu Water District for the supply of 18 million liters of water per day for the first year and 35 million liters of water per day for years two (2) up to twenty (20). CMWD made its initial delivery of water in January 2015. As of December 31, 2019, MPW made a full impairment provision amounting to =172P million given the initiated contract termination of MWCI’s Joint Investment Agreement by the Cebu Provincial Government. § In December 2015, MPW completed the acquisition of 49% ownership stake of the capital stock of WBSI. WBSI is a party to the Contractual Joint Venture Agreement (Contractual JVA) which purpose was to develop a bulk water supply project to be sourced from the Maragondon River. With no development since acquisition of the investment, MPW recognized impairment of P=29 million. § KDMI was incorporated in 2016 with MPW investing =40P million. With continuing losses and accumulated deficit, MPW recognized full impairment on investment amounting to P=15 million. d. MPHHI is the holding company for MPIC’s investments in the healthcare segment. Included in MPHHI’s associates are MDI and MMSI. MDI is the owner and operator of Makati Medical Center. MMSI is the owner and operator of Manila Doctors Hospital. Ownership interests in these entities reflected in the above table are at MPHHI level. On a fully-diluted basis, MPIC’s effective ownership interest in MDI is 20.0% and MMSI is 12.0% as at December 31, 2018. MPIC’s economic interest in MPHHI has been effectively diluted to 20% on account of KKR’s investment in MPHHI on December 9, 2019 which resulted to the deconsolidation of MPHHI (see Note 32). e. AFPI was granted the rights and obligations to design, finance, construct, operate, and maintain the Automated Fare Collection System (AFCS) Project for LRT-1, LRT-2, and Metro Railway Transit Line 3 (MRT-3). The AFCS Project accommodates a contactless smartcard technology for stored value ridership and contactless medium technology for single journey ridership. This system shall be expandable to allow the inclusion of accepted participants and issuers into a generic micropayment solution fulfilling other commercial functions. AFPI had its Full System Acceptance (FSA) on December 16, 2015. Unless otherwise extended or terminated in accordance with the Service Concession Agreement, the concession period shall commence on FSA date and end 10 years from the FSA date. In 2019, due to the lower than expected penetration rate into the micropayments business, the Company recognized additional allowance for decline in value of investment amounting to =94P million. The decline in value was recognized as “Other expense” in the statement of comprehensive income for the year ended December 31, 2019 (see Note 24). f. Indra Phils. is a subsidiary of Indra Sistemas, S.A., which has international knowledge, experience and track record in the information technology business. Indra Phils. is one of the leading providers of information technology solutions to various businesses and industries in the Philippines, with engagements in utilities and telecommunications, financial services and public administration. *SGVFSM000023* - 40 - g. Neo Oracle Holdings, Inc. (NOHI) has 62% interest in Costa de Madera but was accounted for as an investment in associate as control and management rests with the other shareholders of Costa de Madera. h. On December 22, 2014, MPIC entered into an agreement with Landco and its controlling shareholder, AB Holdings Corporation (ABHC) to restructure and clean up the balance sheet of Landco in preparation for an eventual sale to third parties. The investment in Landco’s common shares has been fully provided for an allowance in decline in value amounting to P=774 million. Additional allowance for decline in value covering advances to Landco of =755P million was recognized in 2018 (see Note 24). The decline in the value of the Company’s interest in Landco was due to changes in cash flow forecast attributable to Landco’s legacy projects. The Company’s advances to Landco amounted to P=1,043 million and =491P million, net of allowance for decline in value, as at December 31, 2019 and 2018, respectively. i. Associates through step acquisition of PT Nusantara. The following associates were effectively acquired through the step acquisition of PT Nusantara (see Note 4): § IAB is mainly engaged in the port services, warehousing, loading and unloading services, and storage tank rental services with its operations located in Lampung. § TKC owns a Water Treatment Plant at Cikokol, Tangerang, Banten, which operates at 1,275 liter per second capacity bulk water supplying clean water to PDAM Tirta Kerta Raharja (TKR) Tangerang.

The following table analyzes, in aggregate, the Company’s share in the net income and OCI of these investees for the years ended December 31:

2019 2018 Joint Venture Associate Joint Venture Associate (In Millions) Carrying amount of investment P=– P=3,166 P=163 P=6,554 Share in: Net income – 5 (12) 325 OCI – (74) – (2) Total comprehensive income – (69) (12) 323

The following table summarizes, in aggregate, the assets and liabilities of these investees:

2019 2018 Joint Venture Associate Joint Venture Associate (In Millions) Current assets P=3,329 P=2,960 P=2,969 P=6,211 Noncurrent assets 1,972 9,652 2,843 20,132 Current liabilities 1,601 1,786 1,753 4,821 Noncurrent liabilities 2,284 4,380 2,426 7,279 Dividend income – 117 – 81

Other transactions with these investees are disclosed in Note 19.

*SGVFSM000023* - 41 -

11. Goodwill and Intangible Assets

2019 Intangible Assets Customer Property Use Goodwill Contracts Rights Others Total (In Millions) Cost: Balance at beginning of year P=28,223 P=3,850 P=748 P=904 P=5,502 Adjustment (see Note 4) (722) − − − − Additions 338 − − 179 179 Discontinued operations (see (1,963) (748) (224) (972) Note 32) Exchange differences (8) − − − − Balance at end of year 25,868 3,850 − 859 4,709 Accumulated amortization: Balance at beginning of year − 866 307 432 1,605 Additions (see Note 21) − 180 37 93 310 Discontinued operations (see Note 32) − − (344) (161) (505) Balance at end of year − 1,046 − 364 1,410 Impairment: Balance at beginning of year 367 − − − − Additions (see Notes 14 and 9,825 20 − − 20 24) Balance at end of year 10,192 20 − − 20 P=15,676 P=2,784 P=− P=495 P=3,279

2018 Intangible Assets Customer Property Use Goodwill Contracts Rights Others Total (In Millions) Cost: Balance at beginning of year P=25,708 P=3,840 P=777 P=795 P=5,412 Adjustment (see Note 4) 12 − (29) 25 (4) Additions 2,461 10 − 84 94 Exchange differences 42 − − − − Balance at end of year 28,223 3,850 748 904 5,502 Accumulated amortization: Balance at beginning of year − 159 265 351 775 Adjustment (see Note 4) − (16) (4) − (20) Additions (see Note 21) − 723 46 81 850 Balance at end of year − 866 307 432 1,605 Impairment: Balance at beginning of year 324 − − − − Additions (see Note 14 43 − − − − and 24) Balance at end of year 367 − − − − P=27,856 P=2,984 P=441 P=472 P=3,897

*SGVFSM000023* - 42 -

Goodwill. The carrying amount of goodwill allocated to each of the CGU (determined to be at the subsidiary level):

2019 2018 (In Millions) Power: RPSL (see Note 4) P=164 P=164 Toll operations: MPTC/ Tollways Management Corporation (TMC) 8,859 8,859 CIC 4,966 4,966 PT Nusantara (see Note 4) 914 1,636 Easytrip Services Corporation (ESC) 388 388 SESI (see Note 4) 42 − Water: PNW (see Note 4) 287 − MWHC/Maynilad − 6,803 Eco-System Technologies International, Inc. (ESTII) − 1,227 PHI − 245 Healthcare (see Note 32): DDH (see Note 4) − 703 Marikina Valley Medical Center (MVMC) − 662 CVHMC − 234 Asian Hospital Inc. (AHI) − 192 St. Elizabeth Hospital, Inc. (SEHI) − 96 Riverside Medical Center, Inc. (RMCI) − 69 De Los Santos Medical Center Inc. (DLSMC) − 7 Logistics: MMI − 1,366 PremierLogisctics, Inc. (Premier) 56 239 P=15,676 P=27,856

Goodwill acquired from certain acquisitions in 2018, which included acquisitions of PT Nusantara, RPSL, and DDH, are based on provisional values. The purchase price allocation for the acquisitions of PT Nusantara, RPSL and DDH were finalized in 2019 (see Note 4). Goodwill based on final PPA for PT Nusantara amounted to =858P million. The increase in goodwill to P=914 million is attributable to translation adjustment.

Goodwill attributable to the entities of the Healthcare segment were derecognized in relation to the dilution in MPIC’s investment in MPHHI (see Note 32).

An impairment charge of =9,825P million and =43P million was recognized in 2019 and 2018, respectively. Impairment analyses are provided in Note 14.

Customer contracts. The customer contracts were acquired as part of a business combination. They are recognized at their fair value at the date of acquisition and are subsequently amortized on a straight-line over their estimated useful lives.

*SGVFSM000023* - 43 -

In 2019, the cash flow projections for MMI’s logistics business have been impacted by the Company’s decision to rationalize and scale-down its trucking and freightforwarding businesses. Impairment loss of P=20 million was recognized to write-down the logistics contracts that were acquired as part of the business combination (see Note 24). Property use rights. Certain subsidiaries entered into lease agreements for the operation and management of hospitals. The lease agreements qualified as business combinations where the identifiable assets consist of property use rights for the use of existing land and building over the term of the lease. As discussed in Note 4, MPHHI acquired 63.94% of the outstanding voting capital stock of WMMCI in 2018. The transaction resulted to the derecognition of the property use rights and the related accumulated amortization (reflected as “Adjustment” in the above table). Property use rights attributable to the entities of the Healthcare segment were derecognized in relation ot the dilution in MPIC’s investment in MPHHI (see Note 32). Other intangible assets. Comprises of license and technology, software and basketball franchise. The basketball franchise amounting P=100 million represents cost of MPTC’s Philippine Basketball Association franchise named “NLEX Road Warriors” and is not being amortized but is tested annually for impairment (see Note 14).

12. Service Concession Assets

This account consists of the following:

2019 2018 (In Millions) Water: Maynilad P=97,347 P=99,399 Metro Pacific Iloilo Water, Inc. (MPIWI) 1,656 – PNW (see Note 4) 1,365 – MIBWSC 1,042 938 PHI 475 581 PT Nusantara 469 416 Metro Pacific Dumaguete Water Service Inc. (MPDW) 39 – Toll operations: NLEX Corp (NLEX, SCTEX and Connector) 45,093 38,063 MPCALA (CALAEX) 32,522 27,058 PT Nusantara 14,946 12,081 CIC (CAVITEX) 10,898 10,037 CCLEC (CCLEX) 9,706 1,215 Rail: LRMC (LRT-1) 24,931 16,204 P=240,489 P=205,992

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The movements in the service concession assets follow:

2019 Water Toll Rail Total (In Millions) Cost: Balance at beginning of year P=127,001 P=96,409 P=16,204 P=239,614 Additions 14,425 22,682 7,557 44,664 Additions: Step acquisition (see Note 4) 1,363 – – 1,363 Additions: PPA finalization (see Note 4) 58 393 – 451 Capitalized borrowing cost 519 3,322 1,170 5,011 Exchange differences (64) (3) – (67) Balance at end of year 143,302 122,803 24,931 291,036 Accumulated amortization: Balance at beginning of year 25,667 7,955 – 33,622 Additions (see Note 21) 3,824 1,696 – 5,520 Additions: PPA finalization (see Note 4) 1 5 6 Exchange differences – (18) – (18) Balance at end of year 29,492 9,638 – 39,130 Impairment: Balance at beginning of year – – – – Additions (see Notes 14 and 24) 11,417 – – 11,417 Balance at end of year 11,417 – – 11,417 P=102,393 P=113,165 P=24,931 P=240,489

2018 Water Toll Rail Total (In Millions) Cost: Balance at beginning of year P=113,931 P=74,707 P=9,252 P=197,890 Additions 12,063 7,623 6,173 25,859 Additions: Step acquisition (see Note 4) 424 12,444 – 12,868 Capitalized borrowing cost 590 1,843 779 3,212 Exchange differences (7) (208) – (215) Balance at end of year 127,001 96,409 16,204 239,614 Accumulated amortization: Balance at beginning of year 22,409 6,698 – 29,107 Additions (see Note 21) 3,258 1,256 – 4,514 Exchange differences – 1 – 1 Balance at end of year 25,667 7,955 – 33,622 P=101,334 P=88,454 P=16,204 P=205,992

Service concession assets that are not yet available for use are subjected to impairment testing under PAS 36 (see Note 14). Service concession assets still under on-going construction and rehabilitation (see Note 29) amounting to P=80,998 million and P=49,762 million as at December 31, 2019 and 2018, respectively, are considered as contract assets under PFRS 15. Details of the significant provisions of the service concession arrangements are provided in Note 29.

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13. Property, Plant and Equipment

This account consists of:

Adoption of Discontinued Disposals/ January 1, New Lease Operations Reclassi- December 31, 2019 Standard Additions(a) (Note 32) fications(b) 2019 (In Millions) Cost Land and land improvements P=5,222 P=– P=564 (P=2,984) P=– P=2,802 Generation assets 55,028 – 653 – 1,636 57,317 Building and building improvements 9,100 – 976 (8,464) 434 2,046 Instruments, tools and other equipment 7,717 – 1,260 (6,563) 164 2,578 Office and other equipment, furniture and fixtures 3,545 – 633 (1,069) (174) 2,935 Transportation equipment 1,900 5 490 (116) (119) 2,160 Leasehold improvements 708 – 82 (559) 89 320 Right of use (ROU) asset (see Note 38) – 1,513 328 (305) (31) 1,505 83,220 1,518 4,986 (20,060) 1,999 71,663 Accumulated Depreciation Generation assets 3,964 – 3,127 – 276 7,367 Building and building improvements 1,828 – 426 (1,915) (11) 328 Instruments, tools and other equipment 3,808 – 995 (3,016) (159) 1,628 Office and other equipment, furniture and fixtures 1,903 – 482 (569) (21) 1,795 Transportation equipment 762 – 344 (62) (75) 969 Leasehold and land improvements 360 – 134 (287) (4) 203 ROU asset – – 555 (26) – 529 12,625 – 6,063 (5,875) 6 12,819 70,595 1,518 (1,077) (14,185) 1,993 58,844 Allowance for impairment loss (23) – – 23 (437) (437) Construction-in-progress 1,354 – 1,389 (921) (1,638) 184 P=71,926 P=1,518 P=312 (P=15,083) (P=82) P=58,591

January 1, Disposals/ December 31, 2018 Additions(a) Reclassifications(b) 2018 (In Millions) Cost Land and land improvements P=2,704 P=2,518 P=– P=5,222 Generation assets 55,341 961 (1,274) 55,028 Building and building improvements 6,091 1,980 1,029 9,100 Instruments, tools and other equipment 5,760 2,038 (81) 7,717 Office and other equipment, furniture and fixtures 2,663 876 6 3,545 Transportation equipment 1,850 143 (93) 1,900 Leasehold improvements 608 108 (8) 708 75,017 8,624 (421) 83,220 Accumulated Depreciation Generation assets 1,618 2,623 (277) 3,964 Building and building improvements 1,283 555 (10) 1,828 Instruments, tools and other equipment 3,246 649 (87) 3,808 Office and other equipment, furniture and fixtures 1,425 492 (14) 1,903 Transportation equipment 531 317 (86) 762 Leasehold and land improvements 249 114 (3) 360 8,352 4,750 (477) 12,625 66,665 3,874 56 70,595 Allowance for impairment loss (23) – – (23) Construction-in-progress 964 1,519 (1,129) 1,354 P=67,606 P=5,393 (P=1,073) P=71,926 (a)Includes acquisitions through business combination (see Note 4) and exchange differences. (b)Includes completion of purchase price allocation.

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The recognized ROU assets relate to the following types of assets:

December 31, January 1, 2019 2019 (in Millions) Building and building improvements P=440 P=1,229 Transportation equipment 139 224 Land 123 65 Total ROU assets P=702 P=1,518

In 2019, MMI’s logistics business have been impacted by the Company’s decision to rationalize and scale-down its trucking and freightforwarding businesses. Impairment loss on warehouses leases and trucks amounting P=437 million was recognized for the year ended December 31, 2019 (see Note 24).

The power generating assets of GBPC’s subsidiaries (TPC, CEDC and PEDC) with aggregate carrying value of P=50 billion and =51P billion as of December 31, 2019 and 2018 have been mortgaged/pledged as security for these subsidiaries’ long-term debt totaling =32P billion and P=36 billion, respectively (see Note 18).

14. Impairment of Goodwill and Intangible Assets

The Company performs its annual impairment test close to year-end, after finalizing the annual financial budgets and forecasts. The key assumptions used to determine the recoverable amount for the different CGUs are discussed below.

Except for the impairment charge on goodwill in 2019 and 2018 (see Note 11), management did not identify any other impairment losses for goodwill and service concession assets not yet in use. Management also believes that no reasonably possible change in any of the key assumptions would cause the carrying values of the CGUs and the service concession assets not yet in use to materially exceed their respective recoverable amounts.

Goodwill acquired from certain acquisitions in 2019 are based on provisional values (see Note 4). The Company performs annual impairment testing of the acquired goodwill (whether provisionally determined or final). If the initial allocation of goodwill acquired in a business combination cannot be reliably made before the end of the annual period in which the business combination is effected and the Company assessed that there are no indicators of impairment, such goodwill may not be tested for impairment test until that allocation shall be completed before the end of the first annual period beginning after the acquisition date.

Goodwill

Pre-tax Growth Occupancy Average Discount rate rate forecast period rate December 31, 2019: Toll 2.6% to 23.0% – 9 to 29 years 13.9% to 20.0% Toll (non-concession) 2.6% See below 11.6% to 11.9% Water 2.1% to 2.4% – 16 to 18 years 11.1% to 16.0% Water (non-concession) 3.0% – See below 14.4% Logistics 2.0% – See below 12.7%

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Pre-tax Growth Occupancy Average Discount rate rate forecast period rate December 31, 2018: Toll 2.4% to 15.2% – 10 to 30 years 13.4% to 19.0% Toll (non-concession) 5.1% See below 11.4% Water 2.0% to 2.7% – 17 to 18 years 13.5% to 16.1% Water (non-concession) 3.7% – See below 11.3% Healthcare – 68% to 82% See below 18.4% to 20.1% Logistics 2.0% – See below 14.1% to 14.3%

In assessing the impairment for goodwill, the Company compares the carrying amounts of the underlying assets against their recoverable amounts (the higher of the assets’ fair value less costs of disposal and their VIU).

The recoverable amounts for the toll and water businesses have been determined based on VIU calculations using cash flow projections covering the concession periods for the Company’s water and toll road businesses. The discount rates applied to cash flow projections reflect the weighted average cost of capital of the relevant businesses. In the assessment of the recoverable amount of the water and toll road businesses, their VIUs were calculated based on their cash flow projections as per the most recent financial budgets and forecasts, which management believes are reasonable and are management’s best estimates of the ranges of economic conditions that will exist over the forecast period. The forecasted periods for the Company’s water and toll road businesses are more than five (5) years as management can reliably estimate the cash flows for their entire concession periods. The cash flows during the projection periods are derived using estimated average growth rates which do not exceed the long-term average growth rate of the industry in the country where the businesses operate. As a result of the analysis, the Company recognized impairment charges of P=8,030 million and P=43 million (see Note 24) on goodwill in 2019 and 2018, respectively. Impairment loss was also recognized for the West Zone water service concession asset for the year 2019 amounting to P=11,417 million (see Notes 12 and 24).

In the assessment of the recoverable amount of the toll non-concession (which basically pertains to goodwill from acquisitions of ESC and SESI)and water non-concession business (which basically pertains to ESTII’s goodwill), ESC, healthcare businesses and logistics, their VIUs were calculated based on cash flow projections as per the most recent financial budgets and forecasts covering a five-year period, which management believes are reasonable and are management’s best estimates of the ranges of economic conditions that will exist over the forecast period. Cash flows beyond the five-year period were extrapolated using a growth rate that is consistent with the average growth rate of the industry. As a result of the analysis, the Company recognized an impairment charge of P=1,227 million (see Note 24) on goodwill of ESTII in 2019.

In 2018, no impairment loss was recognized for the logistics segment. Cash flows beyond the eight-year period were extrapolated using a 2% growth rate that is the same as long-term average growth rate for the industry. However, in 2019, the cash flow projections for MMI’s logistics business have been impacted by the Company’s decision to rationalize and scale-down its trucking and freightforwarding businesses. MMI’s cash flows yielded a net cash outflow and hence, prompted full impairment of the goodwill on MMI and additional impairment for its other assets (see Note 13) and partial impairment of PLI’s goodwill.

Assumed occupancy rates for the hospitals are consistent with the actual current occupancy rates. Average forecast period for purposes of goodwill impairment testing, except for CVHMC, is at five (5) years with terminal value computed based on a zero-growth assumption for forecasts beyond the 5-year period. The length of the projection for CVHMC is consistent with the remaining lease term (see Note 32). With the deconsolidation of the hospital business (see Note 32) in 2019, the *SGVFSM000023* - 48 - goodwill related to healthcare was likewise deconsolidated and therefore testing of goodwill related to healthcare done at MPHHI level.

Service Concession Assets not yet Available for Use

Pre-tax Capitalized Net Carrying Growth Average Forecast Discount Project Cost (a) value (b) Rate Period rate

December 31, 2019: Toll P=44,353 P=22,362 1.0% to 15.7% 29 to 37 years 11.0% to 14.7% Rail 24,931 21,388 8.5% 28 years 12.0% Water 1,042 1,042 8.1% 35 years 13.5% P=70,326 P=44,792

December 31, 2018: Toll P=43,398 P=22,614 0.4% to 11.0% 19 to 38 years 9.5% to 11.6% Rail 16,204 12,808 8.5% 29 years 12.6% Water 672 672 8.0% 36 years 11.5% P=60,274 P=36,094

(a) Included in the carrying value of the ‘service concession assets’ account in the consolidated statement of financial position (see Note 12) (b) Represents difference between the service concession assets and the corresponding net present value of the service concession fee payment (see Note 17)

In assessing the impairment for service concession assets not yet available for use, the Company compares the carrying amounts of the underlying assets against their recoverable amounts (the higher of the assets’ fair value less costs of disposal and their VIU). Risks related to the expected variations in the timing of cash flows have been incorporated in computing for the recoverable amounts of the relevant assets. Average growth for the toll, rail and water businesses represents expected growth in traffic, ridership for the rail business and billed volume for the water business, respectively. The average forecast period is consistent with the period covered by the concession agreements (see Note 29).

Philippine Basketball Association Franchise. The recoverable amount of the franchise cost has been determined using its FVLCD as of impairment testing date. The Company used market approach in determining the fair value of the intangible asset (franchise cost) in reference to prices generated in similar recent transactions from other market participants involving identical or comparable assets. The Company adjusted the price to account for costs of disposal to determine FVLCD as one of the measures of recoverable amount required by PAS 36. Based on the impairment testing, management did not identify any impairment loss for this intangible asset (franchise cost) as FVLCD exceeds the carrying amount of the intangible asset (franchise cost). The FVLCD of the franchise cost is classified under Level 2 of fair value hierarchy.

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15. Accounts Payable and Other Current Liabilities

2019 2018 (In Millions) Accrued construction costs P=8,451 P=7,135 Trade and accounts payable (a) 6,443 6,931 Retention payable (b) 3,442 2,743 Dividends payable (c) 2,900 2,513 Interest and other financing charges (see Note 18) 2,443 2,278 Output taxes payable 2,422 2,332 Accrued expenses (d) 2,223 1,362 Accrued outside services 1,886 1,235 Accrued personnel costs 1,681 1,878 Withholding taxes payable 992 555 Accrued PNCC and BCDA fees (see Note 29) 893 179 Loan prepayment and refinancing costs payable (see Note 18) 461 − PFRS 16 Lease liabilities (e) 348 − Deposit from National Grid Corporation of the Philippines (NGCP; Note 29) 126 159 Unearned revenues 71 227 Option liability (see Note 32) 46 − Contract liabilities/unearned connection and installation fees (f) 27 13 LTIP payable (see Note 23) − 1,430 PFRS 3 Lease liabilities - current portion (g) − 53 Others 1,508 928 P=36,363 P=31,951

a. This account includes unpaid billings of creditors, suppliers and contractors. It also includes liabilities relating to assets held in trust used in Maynilad’s operations amounting to =97P million as at December 31, 2019 and 2018 (see Note 30). Trade and accounts payables are non-interest bearing and are normally settled on 30 to 60 day terms.

b. Retention payable is the amount withheld by the Company until the completion of the construction of a specific project.

c. Dividends payable as at December 31, 2019 pertains to unpaid dividends to noncontrolling shareholders of GBPC and NLEX Corp.

d. This account includes accrued professional fees, utilities and repairs and maintenance charges.

e. The noncurrent portion of lease liabilities amounted to P=652 million as at December 31, 2019 and included under “Other long-term liabilities” (see Note 38).

f. Unearned connection and installation fees are initially recognized from the collection of the fees and is then recognized as revenue over the remaining concession period as the Company provides water and sewerage services to customers (see Note 38). The noncurrent portion amounted to P=442 million and P=236 million as at December 31, 2019 and 2018 and is reported under “Other long-term liabilities”.

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g. PFRS 3 Lease payable represents present value of future minimum lease payments relating to the lease agreements entered into by certain subsidiaries involved in hospital management, which lease agreements qualify as business combinations (see Note 11). The lease payable was initially determined at acquisition date and subsequently adjusted for payments and accretion. The noncurrent portion of the lease payable amounting to P=886 million as at December 31, 2018 and is included in the “Other long-term liabilities”. Lease liability is nil as at December 31, 2019 as a result of the deconsolidation of MPHHI (see Note 32).

16. Provisions

The table below presents the movements in this account:

Heavy Decommissioning Other Maintenance (a) Liability(b) Provisions (c) Total Balance at January 1, 2018 P=402 P=536 P=7,165 P=8,103 Additions* and accretion 279 12 688 979 Payments (235) – (314) (549) Exchange differences (1) – – (1) Balance at December 31, 2018 445 548 7,539 8,532 Additions* and accretion 340 66 3,302 3,708 Payments (274) – (227) (501) Balance at December 31, 2019 P=511 P=614 P=10,614 P=11,739 *Included additions by way of acquisitions (see Note 4)

Heavy Decommissioning Other Maintenance (a) Liability(b) Provisions (c) Total At December 31, 2018: Current portion P=161 P=– P=5,843 P=6,004 Noncurrent portion 284 548 1,696 2,528 At December 31, 2019: Current portion – – 6,742 6,742 Noncurrent portion 511 614 3,872 4,997

a. This pertains to the contractual obligations of segments to restore the toll service concession assets to a specified level of serviceability during the service concession term and to maintain the same assets in good condition prior to turnover of the assets to Grantor/s.

b. Decommissioning liability pertains to GBPC’s estimated liability to decommission or dismantle the power plants at the end of their useful lives. c. These consist of estimated liabilities for losses on claims by third parties. The information usually required by PAS 37 is not disclosed as it may prejudice the Company’s negotiation with third parties.

Included in the additions to the other provisions for the year ended December 31, 2019 is the estimated tax warranties and indemnities in relation to the deconsolidation of MPHHI (see Note 32).

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17. Service Concession Fees Payable This account consists of:

2019 Toll Operations Water Rail Total (In Millions)

Balance at beginning of year P=20,784 P=6,459 P=3,396 P=30,639 Additions – 2,132 – 2,132 Interest accretion – capitalized (see Note 12) 1,207 – 214 1,421 Interest accretion (see Note 24) – 582 ‒ 582 Foreign exchange differential – (136) – (136) Payment – (1,673) (67) (1,740) 21,991 7,364 3,543 32,898 Less current portion 4,368 1,652 257 6,277 P=17,623 P=5,712 P=3,286 P=26,621

2018 Toll Operations Water Rail Total (In Millions)

Balance at beginning of year P=19,645 P=6,925 P=3,174 P=29,744 Interest accretion – capitalized (see Note 12) 1,139 – 222 1,361 Interest accretion (see Note 24) – 518 ‒ 518 Foreign exchange differential – 23 – 23 Payment – (1,007) ‒ (1,007) 20,784 6,459 3,396 30,639 Less current portion ‒ 693 ‒ 693 P=20,784 P=5,766 P=3,396 P=29,946

Toll Operations

§ CALAEX. In consideration for granting the concession, MPCALA shall pay DPWH a concession fee totaling P=27.3 billion, 20% or P=5.5 billion of which was settled upon signing of the concession agreement (July 10, 2015). The balance of the concession fee (nominal amount of P=21.8 billion) is payable in equal annual installments beginning on the 5th year (2020) over a period of 9 years from the signing of the concession agreement. Service concession fee payable was initially recognized at its present value as at signing date of the concession agreement. For failure to pay the concession fee on or before the agreed upon dates, MPCALA shall pay interest at the rate of one year Philippine Dealing System Treasury Reference Rate PM (PDST-R2) plus 1.75%. The interest at such rate shall continue to accrue until the remaining concession fee is paid, or until a notice of default and termination is received by MPCALA. In the event of occurrence of a DPWH default, the obligation of MPCALA to pay the concession fee shall be suspended until such default has been cured by the DPWH. MPCALA shall no longer be obligated to pay any amount of unpaid concession fee to the DPWH in case this concession agreement is terminated pursuant to a DPWH default or due to a voluntary termination by the DPWH.

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§ Connector Project. Under the concession agreement, NLEX Corp shall pay periodic payments to DPWH representing the consideration for granting the concession and basic right of way in the Connector Road Project. Total payments to be made to DPWH amount to P=8.5 billion payable at P=243.2 million per annum. The payment shall commence on the first anniversary of the construction completion deadline, as extended, until the expiry of the concession period and shall be subject to an agreed escalation every two years based on the prevailing consumer price index (CPI) for the two-year period immediately preceding the adjustment or escalation. As at February 26, 2020, the project is still under construction.

Water

§ Maynilad. Concession fees relating to Maynilad’s service concession agreement are denominated in various currencies and are non-interest bearing. These are payable monthly following an amortization table up to the end of the concession period.

§ MPIWI. Under the service contract agreement between MPIWI and MIWD, MPIWI shall pay annual service fee to MIWD representing the sum of the contract monitoring fees and fixed lease fees. The annual fixed lease payments represent rentals for MIWD’s making the existing facilities available for the exclusive use and possession of MPIWI throughout the operational period of twenty five (25) years. The contract monitoring fees cover the day-to-day expenses of MIWD (residual office) as it retains its function as regulator of MPIWI. It is fixed at P=76 million for the first year and P=54.8 million for the second year with the succeeding years adjusted for CPI. An initial service fee of P=350 million was settled within a month from the signing of the service contract agreement.

Rail. Under LRMC’s concession agreement for the LRT-1 Project, LRMC is required to pay the bid premium of P=9.35 billion (inclusive of VAT) as concession fee, 20% or =1.87P billion of which was settled as at Effective Date in accordance with the LRT-1 Concession Agreement. The balance of the concession fee (nominal amount of =7.5P billion, inclusive of VAT) is payable in equal quarterly installments over the concession period with the first quarterly payment due beginning the fourth quarter of 2019. Settlement of the concession fee is through the quarterly balancing payment mechanism reflecting netting of payments due to Grantors against receivable from Grantors.

The schedule of undiscounted estimated future concession fee payments, based on the term of the concession agreements are disclosed in Note 33, Financial Risk Management Objectives and Policies – Liquidity Risk.

18. Long-term Debt This account consists of:

2019 2018 (In Millions) Current portions P=18,459 P=11,619 Noncurrent portions 231,450 203,474 P=249,909 P=215,093

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Details of the long-term debt per company/segment are as follows:

December 31, 2019 Long-term Loans Bonds Total (In Millions) MPIC P=85,771 P=– P=85,771 Power 41,544 – 41,544 Toll Operations 55,317 12,957 68,274 Water 42,891 – 42,891 Rail 11,983 – 11,983 Logistics 1,055 – 1,055 Healthcare (see Note 32) – – – 238,561 12,957 251,518 Less unamortized debt issue cost 1,521 88 1,609 P=237,040 P=12,869 P=249,909

December 31, 2018 Long-term Loans Bonds Total (In Millions) MPIC P=67,360 P=– P=67,360 Power 53,602 – 53,602 Toll Operations 36,713 12,957 49,670 Water 35,233 – 35,233 Rail 8,073 – 8,073 Logistics 1,366 – 1,366 Healthcare 990 – 990 203,337 12,957 216,294 Less unamortized debt issue cost 1,097 104 1,201 P=202,240 P=12,853 P=215,093

The table below presents the movements in unamortized debt issue costs:

2019 2018 (In Millions) Balance at beginning of year P=1,201 P=542 Debt issue costs incurred during the year 592 789 Amortization during the year charged to interest expense (see Notes 24 and 36) (125) (82) Amortization during the year capitalized to service concession assets (see Note 12) (52) (24) Derecognized (7) (24) Balance at end of year P=1,609 P=1,201

The schedule of repayments of loans based on existing terms are provided in Note 33, Financial Risk Management Objectives and Policies – Liquidity Risk.

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Interest rates and maturity of the borrowings per company/segment as follows:

Interest rate per annum Maturity 2019 2018 2019 2018 Loans: MPIC 4.9% to 9.2% 4.9% to 9.2% 2023 to 2033 2023 to 2033 Power 5.2% to 10.9% 5.2% to 10.9% 2021 to 2029 2021 to 2029 Toll Operations 2.1% to 12.5% 3.3% to 12.5% 2020 to 2034 2019 to 2033 Water 0.9% to 9.0% 4.8% to 6.8% 2022 to 2037 2024 to 2037 Rail 7.0% to 7.5% 7.1% to 7.5% 2031 2031 Healthcare – 3.0% to 8.0% – 2019 to 2025 Logistics 4.9% to 7.3% 5.4% to 7.3% 2019 to 2023 2019 to 2023 Long-term bonds: Toll Operations 5.1% to 6.9% 5.1% to 6.9% 2021 to 2028 2021 to 2028

An analysis of the carrying amounts of borrowings into fixed and variable interest rates per company/segment as follows:

Fixed Variable Total 2019 2018 2019 2018 2019 2018 MPIC P=85,198 P=67,001 P=– P=– P=85,198 P=67,001 Power 41,525 53,582 – – 41,525 53,582 Toll Operations 56,677 43,511 11,134 5,815 67,811 49,326 Water 34,990 28,760 7,551 6,138 42,541 34,898 Rail 11,779 7,930 – – 11,779 7,930 Healthcare – 990 – – – 990 Logistics 1,055 1,066 – 300 1,055 1,366 P=231,224 P=202,840 P=18,685 P=12,253 P=249,909 P=215,093

The carrying amounts of the borrowings are denominated in the following currencies:

December 31, 2019 Philippine Indonesian U.S. Thai Japanese Vietnamese Peso Rupiah Dollars Baht Yen Dong Euro Total MPIC P=85,198 P=– P=– P=– P=– P=– P=– P=85,198 Power 41,525 – – – – – – 41,525 Toll Operations 59,807 4,849 1,520 1,512 – – 123 67,811 Water 30,054 – 6,749 – 4,936 802 – 42,541 Rail 11,779 – – – – – – 11,779 Logistics 1,055 – – – – – – 1,055 P=229,418 P=4,849 P=8,269 P=1,512 P=4,936 P=802 P=123 P=249,909

December 31, 2018 Philippine Indonesian U.S. Thai Japanese Peso Rupiah Dollars Baht Yen Total MPIC P=67,001 P=– P=– P=– P=– P=67,001 Power 53,582 – – – – 53,582 Toll Operations 43,224 4,133 – 1,969 – 49,326 Water 25,007 – 6,138 – 3,753 34,898 Rail 7,930 – – – – 7,930 Healthcare 990 – – – – 990 Logistics 1,366 – – – – 1,366 P=199,100 P=4,133 P=6,138 P=1,969 P=3,753 P=215,093

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Other relevant information on the Company’s long-term borrowings are provided below:

§ Certain loan facilities were identified to have embedded derivatives such as prepayment options and interest rate floors. These embedded derivatives, however, are not required to be bifurcated from the host loan since: (1) the exercise price of the prepayment option approximates the carrying amount of the loan at each exercise date; and (2) interest rate floor is out of the money, hence, identified embedded derivatives are clearly and closely related to the host loan. Certain loans bear a fixed rate for the first five years but is subject to an interest rate repricing after five (5) years (see Note 33, Financial Risk Management Objectives and Policies – Interest Rate Risk).

§ The credit agreements provide for certain restrictions with respect to, among others, obtaining prior written consent from lenders prior to cash dividend payment, availing other loans or advances to any of the Company’s affiliates, subsidiaries, stockholders, directors and officers except in compliance with formally established and existing fringe benefit program of the Company. These restrictions were complied with by the Company.

§ The loan agreements contain among others, covenants regarding the maintenance of certain financial ratios such as debt-to-equity ratio, debt service coverage ratio and maintenance of debt service reserve account (see Note 33, Financial Risk Management Objectives and Policies – Capital Management). As at December 31, 2019 and 2018, MPIC and its subsidiaries are in compliance with their respective debt covenants.

§ Certain bank borrowings were secured by the Company’s property, plant and equipment (see Note 13) and the Company’s interests in GBPC (56%, held through BPHI), AIF (100%), DMT (25.9%, held through AIF), LRMC (55%, held through MPLRC), MPCALA (100%, held through MPTC) and CCLEC (100%, held through MPTC).

Beacon Electric’s outstanding loans were secured by a pledge on MERALCO shares. In 2019, the pledge on the MERALCO shares have been terminated upon full and final discharge of the obligation under the Note Facility Agreements.

§ In 2016, LRMC signed a 15-year Omnibus Loan and Security Agreement (OLSA) with various financial institutions (collectively, as “Lenders”) amounting to =24.0P billion, =15.3P billion of which is allocated for the Cavite Extension and =8.7P billion for the rehabilitation of the existing LRT 1 system. Cumulative drawn amount from this facility as at December 31, 2019 and 2018 amounted to =11,983P million and =8,073P million, respectively. The loan has a sponsors’ funding commitment wherein for each drawdown until end of the construction period, the sponsors/shareholders shall infuse additional equity or extend debt to LRMC in an amount necessary to meet the debt-to-equity ratio. Additional equity investment of the sponsors shall not exceed P=15,346 million, of which =8,440P million is effectively allocated to MPLRC.

On July 31, 2019, LRMC, together with its shareholders and lenders, signed an amendment agreement to the OLSA. The amendments include, but are not limited to, update of terms and definition, split of portions of the Cavite Extension facility to “other than the remaining Tranche B facility” and “the remaining Tranche B facility”, change in applicable interest rate for the remaining Tranche B facility and update in the drawdown schedule.

§ The loans of certain subsidiaries of GBPC (CEDC, PEDC and TPC) are under project finance and are secured by the projects’ assets and cash flows. All revenues derived from the power plants go into the Proceeds Account and are pushed down to (i) Operating and Tax Reserve accounts based on agreed budgets, (ii) Debt Service Reserve Account and (iii) Debt Service Payment Account. The remaining cash flows, after satisfying the required reserve accounts, go into the Balance *SGVFSM000023* - 56 -

Account, from which the subsidiaries can draw funds for distribution to shareholders. As at December 31, 2019 and 2018, the subsidiaries are in compliance with the covenants of the loan agreements.

§ All dividends in respect of the investment in DMT shall be applied to pay the Thai Baht-denominated loan.

§ Loan Prepayment. In 2019, 2018 and 2017, certain loans were prepaid with combined outstanding balance of =9,684P million, =35,746P million and P=2,820 million, respectively, prior to repayment). Prepayment penalties and other related costs (including derecognition of unamortized debt issue costs and PFRS 3 fair value increment) were recognized in the consolidated statement of comprehensive income (see Note 24).

In December 2019, as part of the Company’s plans to reduce its existing debts, MPIC sought consent from all of its lenders as it intended to prepay the outstanding portion of the debt under the =6.48P Billion, 10-Year Notes Facility Agreement dated June 19, 2013 with BDO Unibank, Inc. MPIC effected and implemented this debt reduction exercise on February 13, 2020. MPIC also sought consent from its lenders for the refinancing of a portion of its long-term debt which it intended to implement by June 2020. In connection with the prepayment and refinancing, the Company recognized estimated prepayment penalties and interests of P=460.5 million (see Note 24). The Company has access to the following undrawn borrowing facilities as at December 31, 2019:

Expiring Expiring within 2020 Beyond 2020 Total (In Millions) Toll Operations P=48,742 P=26,152 P=74,894 Water 4,939 918 5,857 Logistics 1,200 – 1,200 Rail – 12,017 12,017 P=54,881 P=39,087 P=93,968

19. Related Party Transactions

On October 18, 2019, MPIC’s Audit Committee acting through the authority granted by MPIC’s BOD in its BOD meeting held on August 1, 2019, approved and adopted the “Revised Related Party Transaction Policy” in compliance with the Philippine SEC Memorandum Circular No. 10, Series of 2019, or the Rules on Material Related Party Transactions for Publicly-Listed Companies.

This MRPT Policy applies to the MPIC Group and covers related party transactions that meet the Materiality Threshold of 10% of MPIC’s total consolidated assets. It defines the processes, controls and safeguards for the proper handling, including review, approval and disclosure, of such related party transactions in accordance with applicable laws and regulations.

MPIC’s Revised Related Party Transaction Policy also provides for the guidelines and the necessary approvals for transactions involving an amount below the Materiality Threshold. Transactions with related parties are disclosed below. See tabular presentation for the recorded transactions with these related parties.

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Transactions with PLDT, SMART and Digitel. The Company’s primary telecommunications carriers are PLDT (an associate of FPC) for its wireline and SMART (PLDT’s subsidiary) for its wireless services. The Company also has transactions with Digitel Mobile Philippines, Inc., (Digitel, a subsidiary of PLDT). Such services are covered by standard service contracts between the telecommunications carriers and each entity within the Company. Other than these service contracts, the Company also has the following transactions with these telecommunication carriers:

§ Utilities Facilities Contract between NLEX Corp and PLDT for the Fiber Optic Overlay along Phase I of the NLEX. PLDT pays an annual fee presented as “Others” in the consolidated statements of comprehensive income. Pursuant to the agreement, PLDT shall pay NLEX Corp fixed annual fee which shall then be escalated annually by a percentage indicated in the agreement. The contract shall be effective for a period of 20 years from April 15, 2010 and may be renewed or extended upon mutual agreement by NLEX Corp and PLDT. On September 19. 2016, the contract was renewed for a period of 5 years up to April 26, 2020.

§ Utilities Facilities Contract between NLEX Corp and SMART whereby NLEX Corp provides SMART an access for the construction, operation and maintenance of a cellsite inside the NLEX right of way for a fixed annual fee which shall then be escalated annually starting on the fourth year of the contract and every year thereafter. The contract is effective for a period of five (5) years from April 26, 2010. In September 2016, the contract was renewed with effective date of April 27, 2015 for a period of five (5) years which may be renewed or extended upon mutual agreement by NLEX Corp and SMART.

§ Agreement for the naming rights of the SMART Connect Interchange, whereby NLEX Corp grants SMART the exclusive rights to name the NLEX–Mindanao Avenue Cloverleaf as a SMART Connect Interchange and put up outdoor advertising structures near the interchange. The annual package is based on a predetermined timetable of when the official road signs are progressively built. The base price is from =175P million to =228P million and may increase depending on the final features and characteristics of the cloverleaf. This agreement shall take effect from April 1, 2012 until April 30, 2017, unless pre-terminated or renewed by mutual written agreement of the parties. The agreement was terminated on April 30, 2017.

§ Advertising arrangements of NLEX Corp with SMART related to various advertising mediums which include rental, material production, installation and maintenance at several locations along NLEX. § NLEX Corp has investment in corporate notes of PLDT with fair value of P=192 million and as at December 31, 2018. Investment was sold in September 2019. Transactions with D.M. Consunji, Inc. (Consunji). Maynilad, entered into certain construction contracts with Consunji, a subsidiary of DMCI Holdings, Inc. (a non-controlling shareholder in MWHC), in relation to the provision of engineering, procurement and construction services to Maynilad. Consunji also entered into construction contracts with MPCALA and NLEX Corp for the construction of the Laguna Segment of the CALAEX and first section of the NLEX-SLEX Connector Road. The contract price for the CALAEX and NLEX-SLEX Connector Road amounted to P=7.2 billion and =8.0P billion, respectively, subject to adjustments as provided for in the contract. The contract prices were determined after negotiations between parties and were based on normal commercial terms.

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Advances to DMCI in relation to the toll projects are included under the account “Advances to Contractors” presented under “Other noncurrent assets” account in the consolidated statements of financial position as at December 31, 2019 and 2018.

Transactions with MERALCO. MERALCO sells electricity to the Company for the Company’s facilities within MERALCO’s franchise area. The rates charged by MERALCO are the same mandated rates by the ERC applicable to customers within the franchise area. Aside from this transaction, listed below are the Company’s transactions with MERALCO and its subsidiaries: § Colinas Healthcare, Inc. (CHI) (a wholly-owned subsidiary of CVHMC) operates and manages the MERALCO Corporate Wellness Center (Wellness Center), an outpatient diagnostic and consultation center for its employees and their dependents. Income, comprising of management and retainer’s fee, pharmacy handling and manpower and administrative reimbursement plus margin, that was recognized for this arrangement in 2019, 2018 and 2017 amounted to P=49 million, =49P million and =48P million, respectively, and is included as part of “Discontinued Operations” in the consolidated statements of comprehensive income (see Note 32). § As at December 31, 2019 and 2018, NLEX Corp has advances to MERALCO amounting to P=18 million which was included as part of “Advances to contractors and consultants” presented under “Other current assets” in the consolidated statements of financial position. The advances relate to electric line applications for Segment 9 of the NLEX, and the Balintawak and Valenzuela drainage system. These advances are either refundable or consumable upon activation of the electric lines. § NLEX Corp has investment in corporate notes of MERALCO with fair value of =193P million as at December 31, 2018. The investment was redeemed in 2019. § Maynilad has outstanding payable to Meralco Industrial Engineering Services Corporation (MIESCOR, a subsidiary of MERALCO) amounting to P=6 million and =1P million as at December 31, 2019 and 2018 relating to construction costs on pipelaying. § In 2016, GBPC’s subsidiaries PPC and TPC entered into Interim Power Supply Agreements (IPSAs) with MERALCO for the intermediate and peak power requirements of MERALCO with the combined maximum capacity of 73MW covering the period February 2016 up to February 2017. Both IPSAs were extended up to February 2018. Also in 2016, GBPC’s subsidiary PEDC entered into a 20-year Power Supply Agreement (PSA) with MERALCO with a Contract Capacity of 70MW. The PSA was implemented in January 2017 at a rate based on the provisional authority granted by the ERC in ERC Case No. 2016-114 RC.

In 2018, GBPC’s subsidiary PEDC entered into a 3-month IPSA with MERALCO through its retail electricity supply business segment, MPower, for the purchase of up to 50MW covering the period April to June 2018.

§ GBPC’s subsidiary Global Luzon Energy Development Corporation (GLEDC) entered into a 20-year PSA with MERALCO in 2016 for the purchase of up to 600MW of electrical output. The approval of PSA is pending with the ERC. This is one of the PSAs affected by the Supreme Court Decision in ABP vs. ERC, et al (GR No. 227670). As a result, GLEDC and MERALCO filed a Joint Motion to Withdraw Joint Application before the ERC. The Joint Motion was granted by the ERC in an Order dated August 13, 2019.

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§ GBPC’s subsidiary Panay Energy Development Corporation (PEDC) entered into a 20-year PSA with MERALCO in 2016 for the purchase of up to 70MW of electrical output. This is one of the PSAs affected by the Supreme Court Decision in ABP vs. ERC, et al (GR No. 227670). MERALCO filed an application before the DOE to be granted a Certificate of Exemption from the conduct of competitive selection process to allow continued implementation of the PSA with PEDC, and was granted in a letter from the DOE dated 15 January 2020. A Certificate of Exemption was issued by the DOE for a period of one (1) year from August 26, 2019 to August 25, 2020. § In 2017, LRMC entered into a memorandum of agreement with MERALCO to pay in advance all costs and expenses to be incurred for the relocation of its electrical sub-transmission and distribution facilities affected by the construction works of the LRT-1 Cavite Extension. The advance payment shall be returned to LRMC by MERALCO upon payment of the applicable relocation charges by LRTA to MERALCO, as stated in the LRTA-MERALCO memorandum of agreement. As at December 31, 2019 and 2018, receivable from MERALCO amounted to P=83 million and P=45 million, respectively.

Transactions with PCEV. Due to PCEV represents the present value of the outstanding amount for the purchase price of Beacon Electric shares acquired in May 2016 and June 2017:

§ On May 30, 2016, MPIC acquired from PCEV 645,756,250 common shares and 458,370,086 preferred shares of Beacon Electric for the total consideration of =26.2P billion. Of the total consideration of =26.2P billion, =17.0P billion was settled immediately while the remaining payable to PCEV shall be paid as follows: (a) P=2.0 billion in June 2017, (b) P=2.0 billion in June 2018, (c) =2.0P billion in June 2019, and (d) P=3.2 billion in June 2020. The outstanding balance as at December 31, 2019 and 2018 amounted to P=3.2 billion and =5.2P billion (at nominal amounts), respectively. PCEV shall retain the voting rights over these shares until full payment of the total consideration.

§ On June 13, 2017, MPIC entered into a Share Purchase Agreement with PCEV for the purchase of PCEV’s 25% remaining interest in Beacon Electric for a total purchase price of =21.8P billion, P=12.0 billion was settled immediately while the remaining payable to PCEV shall be settled equally over the next four years beginning June 30, 2018. The outstanding balance as at December 31, 2019 and 2018 amounted to P=4.9 billion and =7.4P billion (at nominal amounts). PCEV shall retain the voting rights over these shares until full payment of the total consideration.

Transactions with Indra Phils. Indra Phils renders services to MPIC’s subsidiaries for the implementation of information systems and the conduct of business process analysis and other IT–related services. In 2018, services were provided to NLEX Corp and Maynilad. In 2019, services were provided to Maynilad, CIC, MPCALA, MPHHI and MMI.

Transactions with AFPI. As discussed in Note 10, AFPI was granted the rights and obligations to design, finance, construct, operate and maintain the AFCS Project for LRT-1, LRT 2, and MRT 3. LRMC as the concessionaire for the LRT-1 Project uses the AFCS at no consideration. The balance payable to AFPI represents amount payable by LRMC for the purchase of stored value cards and settlement arising from the rail revenue operations.

Transactions with former associates/joint venture. Certain subsidiaries such as ESC, Tollways Management Corporation (TMC, subsequently merged to NLEX Corp; see Notes 29 and 40) and Beacon Electric were former investees accounted for under the equity method prior to consolidation.

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ESC (which became a subsidiary of MPTC beginning October 2017) is the exclusive tag issuer at the NLEX. TMC (which became a subsidiary of MPTC in April 2017) was responsible for the operation & maintenance (O&M) of the NLEX, Segment 7 and SCTEX.

All intercompany relationships with these former associates/joint venture were effectively eliminated in the process of consolidation. Disclosures provided below in relation to PAS 24 apply to periods prior to these entities’ consolidation.

Transactions with Beacon Electric. Beginning June 2017, Beacon Electric became a subsidiary of MPIC and all intercompany relationships between Beacon Electric and the Company were effectively eliminated in the process of consolidation. Disclosures provided below in relation to PAS 24 apply to periods prior to Beacon Electric’s consolidation. Dividend income from Beacon Electric preferred shares as reflected in the table and in the consolidated statements of comprehensive income were earned and recognized prior to the step acquisition.

Transactions with ATEC. Refer to Note 10.

Transaction with Landco. Refer to Note 10.

Transaction with TKC. Revenue from management fee represents fee for management services provided by PT Tirta Bangun Nusantara (TBN) to TKC.

Transaction with IAB. In 2012, PT Portco Infranusantara, a wholly-owned subsidiary of PT Nusantara, made advances to IAB for the latter’s working capital. The nontrade receivables are interest bearing with interest computed at USD LIBOR plus 3.5% per annum. The term of the receivable is up to May 2022.

Transactions with MPHHI and subsidiaries. Beginning December 2019, from a subsidiary, MPIC started to account for its investment in MPHHI as an investment in an associate (see Note 10). Disclosures below in relation to MPHHI and its subsidiaries in relation to PAS 24 apply to periods after MPHHI’s deconsolidation:

§ MPIC provides legal, human resources, treasury and accounting functions to MPHHI.

§ MPIC as an employer, provides annual physical and medical examination to its employees as part of the employee benefits. Employees may choose the service provider, not necessarily hospitals operated by MPHHI. For employees who chose to use MPHHI operated hospitals, the rates charged are the same rates provided to all other patients.

Other transactions with related parties. Metro Pacific Investments Foundation, Inc. (MPIFI), Ideaspace Foundation, Inc. (Ideaspace; Philippines’ largest privately–funded idea incubator supported by FPC), Lucena Land Corporation (LLC; a subsidiary of Landco), FPC and others mainly relate to advances to finance various projects as well as intercompany charges for share in certain operating and administrative expenses.

Revenue from water and sewer services. In the ordinary course of business, Maynilad provides water services to its affiliates located within the West Zone of the Metropolitan Manila area at the same approved rates applicable to customers within the concession area.

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The following table provides the total amount of transactions with related parties, other than advances, for the years ended December 31, 2019, 2018 and 2017 (amounts in millions): Dividend Income Income from from Income Preferred Operator’s Contracted Utilities Rentals Hospital Management Utility from shares Construction Fee services (see Notes 21 Repairs and (see Notes 21 Name Revenues Revenues Fees* Facilities* Advertising* (see Note 10) Cost (see Note 21) (see Note 21) and 22) Maintenance and 22) Associates and Joint Venture (see Note 10): MERALCO (including MIESCOR) 2019 P=1,784 P=49 P=– P=– P=– P=– P=– P=– P=– (P=1,597) P=– P=– 2018 2,323 49 – – – – – – – (1,642) – – 2017 1,338 48 – – – – – – – (1,667) – –

TKC 2019 – – 10 – – – – – – – – – 2018 – – – – – – – – – – – – 2017 – – – – – – – – – – – –

Indra 2019 – – – – – – – – (422) – – – 2018 – – – – – – – – (318) – – – 2017 – – – – – – – – (258) – – –

Former Associates/Joint Venture: TMC 2017 – – 14 – – – – (568) – – 16 – Beacon Electric 2017 – – – – – 2,541 – – – – – – ESC 2017 – – – – – – – – (54) – – –

Other related parties: SMART 2019 – – – – – – – – – (114) – – 2018 – – – – 2 – – – – (53) – – 2017 – – – – 18 – – – – (55) – –

PLDT 2019 – – – 2 2 – – – – (78) – (4) 2018 – – – 2 1 – – – – (79) – (18) 2017 – – – 2 1 – – – – (57) – (17)

Consunji 2019 – – – – – – (5,081) – – – – – 2018 – – – – – – (1,157) – – – – – 2017 – – – – – – (2,519) – – – – – Total 2019 P=1,784 P=49 P=10 P=2 P=2 P=– (P=5,081) P=– (P=422) (P=1,789) P=– (P=4) 2018 2,323 49 – 2 3 – (1,157) – (318) (1,774) – (18) 2017 1,338 48 14 2 19 2,541 (2,519) (568) (312) (1,779) 16 (17) *Included as “Others” in the consolidated statements of comprehensive income.

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Outstanding balances of transactions with related parties are carried in the consolidated statements of financial position under the following accounts provided below (amounts in millions). Trade receivable, accounts payable and due to/from related parties are due and demandable, non-interest bearing, unsecured and requires cash settlement. Except for receivables from Landco, all receivables from related parties are not impaired.

Accounts Payable and Other Trade Receivables Current Liabilities (see Note 8) Due from related Parties* (see Note 15) Due to related Parties Company 2019 2018 2019 2018 2019 2018 2019 2018 Associates and Joint Venture MERALCO (including MIESOR) P=363 P=466 P=– P=– P=81 P=89 P=– P=– AFPI – – – – 25 3 – – Indra Phils. 1 6 – – 89 9 – – MPHHI – – 97 – – – – – TKC – – 22 – – – – – IAB – – 122 – – – – –

Other related parties: PCEV – – – – – – 7,791 11,767 Consunji 432 – – – 455 381 – – FPC – – 1 1 – – – – LLC – – – 7 – – – – PLDT 3 1 – – 7 38 – – Smart 3 2 – – 12 8 72 72 Landco – – 46 44 – – 15 15 Others – – 16 3 – – – – 802 475 304 55 669 528 7,878 11,854 Less allowance for impairment – – 31 31 – – – – Total 802 475 273 24 669 528 7,878 11,854 Less current portion 802 475 273 24 669 528 5,638 4,462 P=– P=– P=– P=– P=– P=– P=2,240 P=7,392 *Included under “Other current assets” in the consolidated statements of financial position. Directors’ Remuneration Annual remuneration of the directors amounted to =8P million, P=6 million and P=5 million in 2019, 2018 and 2017, respectively. Directors were also allocated common shares under the Company’s ESOP and RSUP (see Note 28). Non-executive directors are entitled to a per diem allowance of =100,000P for 2019, 2018 and 2017 for each attendance in the Parent Company’s BOD meetings and =50,000P for 2019, 2018 and 2017 for each attendance in the Company’s Committee meetings. The Parent Company’s By-Laws provide that an amount equivalent to 1.0% of net profit after tax of the Parent Company shall be allocated and distributed among the directors of the Parent Company who are not officers of the Parent Company or its subsidiaries and affiliates, in such manner as the BOD may deem proper. No accruals were made with respect to this scheme for the years ended December 31, 2019, 2018 and 2017 in the absence of resolution from the BOD. There are no other special arrangements pursuant to which any director will be compensated. Compensation of Key Management Personnel Compensation of key management personnel of the Company is as follows: 2019 2018 2017 (In Millions) Short-term employee benefits P=1,708 P=1,691 P=1,546 Share-based payment (see Note 28) – 90 67 Post employment benefits - Retirement costs 105 108 101 Other long-term benefits - LTIP expense (see Note 23) 922 710 629 P=2,735 P=2,599 P=2,343

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20. Equity

Details of authorized and issued capital stock are in the following tables:

2019 2018 No. of Shares Amount No. of Shares Amount (In Millions except for number of shares)

Authorized common shares - P=1.00 par value 38,500,000,000 P=38,500 38,500,000,000 P=38,500 Authorized preferred shares: Class A - P=0.01 par value 20,000,000,000 200 20,000,000,000 200 Class B - P=1.00 par value 1,350,000,000 1,350 1,350,000,000 1,350 Balance at December 31 59,850,000,000 P=40,050 59,850,000,000 P=40,050

Issued and Outstanding - common shares: Balance at beginning of year 31,541,548,752 P=31,542 31,534,548,752 P=31,535 Exercise of stock option plan (see Note 28) 27,790,000 28 7,000,000 7 Issued - common shares 31,569,338,752 31,570 31,541,548,752 31,542 Less: Treasury Shares (600,000) (1) (26,100,000) (26) Balance at end of year 31,568,738,752 P=31,569 31,515,448,752 P=31,516

Treasury shares - common shares: Balance at beginning of year 26,100,000 P=178 23,970,000 P=167 Share buy-back (see Note 28) 600,000 3 2,130,000 11 Share grant issuance (see Note 28) (26,100,000) (177) Balance at end of year 600,000 P=4 26,100,000 P=178

Issued - preferred shares - Class A: Balance at beginning and end of year 9,128,105,319 P=91 9,128,105,319 P=91

Total number of stockholders 1,307 − 1,303 −

Common Shares The increase in common shares for the years ended 2019, 2018 and 2017 resulted from the following transactions:

§ At various dates in 2019, 2018 and 2017, a total of 27.8 million, 7.0 million and 6.7 million common shares, respectively, were issued in connection with the Parent Company stock option plan (see Note 28).

§ In June 2019, MPIC’s eligible past and present directors and senior officers were granted MPIC shares totaling 26,100,000 common shares pursuant to MPIC’s LTIP (see Note 22).

Class A Preferred Shares Holders of Class A Preferred Shares are entitled to vote and shall receive preferential cash dividends at the rate of 10.0% per annum based on share’s par value, upon declaration made at the sole option of the BOD. Dividends on these preferred shares, which shall be paid out of the Parent Company’s unrestricted retained earnings, are cumulative whether or not in any period the amount is covered by available unrestricted retained earnings. No dividends or other distributions shall be paid or declared and set apart for payment in respect of the common shares, unless the full accumulated dividends on all Class A Preferred Shares shall have been paid or declared. Holders of Class A Preferred Shares do not have right to participate in any additional dividends declared for common shareholders. MPHI holds all of the Parent Company’s Class A Preferred Shares.

There are no undeclared dividends as at December 31, 2019, 2018 and 2017.

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Class B Preferred Shares The Parent Company may issue one or more series of Class B Preferred Shares, as the BOD may determine. The BOD shall also determine (a) cash dividend rate of such preferred share, which in no case to exceed 10.0% per annum; and (b) period and manner of conversion to common shares or redemption. Dividends on these preferred shares, which shall be paid out of the Parent Company’s unrestricted retained earnings, are cumulative whether or not in any period the amount is covered by available unrestricted retained earnings. No dividends shall be paid or declared and set apart for payment in respect of the common shares or Class A Preferred Shares, unless the full accumulated dividends on all Class B Preferred Shares shall have been paid or declared. Holders of Class B Preferred Shares do not have right to participate in any additional dividends declared for common shareholders. There were no Class B Preferred Shares issued in 2019, 2018 and 2017. Treasury Shares On September 1, 2016, MPIC acquired 23,970,000 MPIC common shares, at =6.9822P per share from the open market. On December 6, 2018, MPIC acquired additional 2,130,000 MPIC common shares, at P=4.8075 per share from the open market. On January 9, 2019, MPIC acquired additional 600,000 MPIC common shares, at P=4.74230 per share from the open market.

The treasury shares were acquired pursuant to the share buy-back that shall partially cover the up to approximately 26.7 million shares (originally 27.4 million shares) to be granted to the directors and key officers of the Company under the Company’s LTIP program, which includes the RSUP (see Note 28). The RSUP and the implementation thereof which included the share buy-back, were approved by MPIC’s Compensation Committee on July 14, 2016, pursuant to the authority granted to it by the MPIC’s BOD on March 1, 2016.

The cash portion of the LTIP was paid out in March 2019 while the shares in relation to the RSUP were issued to the grantees in June 2019. Record of Registration of Securities with the SEC In accordance with Revised SRC Rule 68, Annex 68–K, below is a summary of the Company’s track record of registration of securities:

Number of holders of securities as at Number of registered shares December 31, Issue Offer price Date of SEC approval securities 2019 2018 2017 Tender offer to shareholders of Metro Four (4) MPC shares for one October 25, 2006 Common shares of 56,878,766* 1,307 1,303 1,300 Pacific Corporation (MPC) (1) MPIC share plus covering common shares and three (3) warrants Subscription warrants of – – – subscription warrants relating to 170,636,298 common shares of MPIC with par value of P=1.0 per share

*Covered the 2006 registered shares only The shares relating to the transaction above were exchanged in the PSE on December 15, 2006, effectively listing MPIC via listing by way of Introduction. Out of the total warrants available for conversion, 143,976,756 warrants were converted as at December 31, 2007 and 2,549,211 warrants expired on December 15, 2007.

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Retained Earnings and Cash Dividends Of the Company’s consolidated retained earnings, =18,219P million and =19,559P million is available for dividend declaration as at December 31, 2019 and 2018, respectively. These amounts represent the Parent Company’s retained earnings available for dividend declaration calculated based on the regulatory requirements of the Philippine SEC. The difference between the consolidated retained earnings and the Parent Company’s retained earnings available for dividend declaration primarily consist of undistributed earnings of subsidiaries and equity method investees. Stand-alone earnings of the subsidiaries and share in net earnings of equity method investees are not available for dividend declaration by the Parent Company until declared by the subsidiaries and equity investees as dividends.

Dividends declared and paid are as follows:

2019 2018 2017 (In Millions) Declared and paid: Final dividend in respect of the previous financial year declared and paid during the following year: Common shareholders (P=0.076, =0.076P and P=0.068 per share for the calendar years 2018, 2017 and 2016, respectively) P=2,395.1 P=2,395.0 P=2,142.3 Class A preferred shareholders 4.6 4.6 4.6 Interim dividend declared and paid during the year: Common shareholders (P=0.0345per share in 2019, 2018 and 2017 1,088.3 1,087.2 1,087.1 Class A preferred shareholders 4.6 4.6 4.6 P=3,492.6 P=3,491.4 P=3,238.6

On February 26, 2020, the BOD approved the declaration of the cash dividends of =0.076P per common share in favor of the Company’s shareholders of record as of the record date at March 12, 2020 with payment date of March 20, 2020. On the same date, the BOD also approved the declaration of cash dividends amounting to a total of =4.6P million in favor of MPHI as the sole holder of Class A Preferred shares.

Amendment of Articles of Incorporation On February 8, 2019, MPIC’s BOD approved to amend the Company’s Articles of Incorporation. The amendment was made to update the primary purpose of the Company consistent with its current business operations. On May 27, 2019, such modification was approved by the stockholders.

After the amendment, the Company’s primary purpose is to acquire by purchase, exchange, assignment, gift or otherwise, and to hold, own, and use for investment or otherwise, and to sell, assign, transfer, exchange, lease, let develop, mortgage, pledge, deal in and with and otherwise operate, enjoy and dispose of, any and all properties of every kind and description and wherever situated (except a direct ownership of land in the Philippines), as and to the extent permitted by law, including, but not limited to bonds, debentures, promissory notes, shares of capital stock, or other securities and obligations, created, negotiated or issued by any corporation, association, or other entity, foreign or domestic and while the owner, holder, or possessor thereof, to exercise all the rights, powers, and privileges of ownership or any other interest therein, including the right to receive, collect and dispose of, any and all dividends, interests and income, derived therefrom, and the right to vote on any proprietary or other interest, on any shares of the capital stock and upon any bonds, debentures, or other securities, having voting power, so owned or held, and, in its capacity as a holding company, to invest in, submit proposals for or participate (whether by itself or as a

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consortium member, joint venture partner, or otherwise) in the acquisition of interests in and to infrastructure projects and other allied businesses, but without engaging in the business of an investments company under the Investment Company Act or a finance company or a broker or dealer in securities or stocks.

OCI Reserve OCI reserve consists of the following, net of applicable income taxes:

2019 2018 2017 (In Millions) Share in the OCI of equity method investees P=1,703 P=2,650 P=2,100 Fair value changes on financial assets at FVOCI (see Note 38) 69 65 – Fair value changes on AFS financial assets (see Note 38) – – 19 Actuarial losses (315) (24) (174) Cumulative translation adjustment (866) (830) (261) P=591 P=1,861 P=1,684

Refer to Note 25 for the movements and analysis of the OCI.

21. Cost of Sales and Services

This account consists of:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Fuel costs (a) P=9,044 P=10,858 P=5,033 Amortization of service concession assets (see Note 12) 5,520 4,514 3,909 Personnel costs and employee benefits (see Note 23) (b) 4,313 3,803 3,484 Depreciation and amortization (see Notes 11, 13 and 38) 3,809 3,756 1,869 Repairs and maintenance 2,076 1,769 1,044 PNCC and BCDA fees (see Note 29) 2,032 1,861 1,503 Purchased power and transmission charges (a) 1,720 2,773 940 Contracted services and professional fees 1,445 1,652 1,579 Utilities (see Note 19) 1,488 1,492 1,473 Materials and supplies 1,116 662 341 Insurance 370 329 174 Provision for heavy maintenance (see Note 16) 340 236 251 Trucking and freight forwarding costs 339 203 172 Operator’s fees (c) 105 56 585 Rentals (see Note 38) 85 428 255 Others 1,023 810 577 P=34,825 P=35,202 P=23,189 *Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details).

*SGVFSM000023* - 67 -

a. The Company started consolidating GBPC beginning June 27, 2017. Fuel costs relates to consumption of coal and other fuel related costs for the generation of electricity. Purchased power represents cost of replacement power from WESM. Transmission charges pertains to distribution and wheeling service billings related to resale of electricity to the contestable customers.

b. In line with its strategic goal to improve operational efficiency, Maynilad in 2017 offered a Special Opportunity Program (SOP), a redundancy and right-sizing program. This program offered a separation package based on the number of years, or fractions thereof, on a pro-rated basis, of service with Maynilad plus monetary equivalent of some benefits. Total severance paid out of the company funds for the separated employees amounted to =277P million in 2017.

c. The Company started consolidating TMC beginning April 4, 2017. Hence, the intercompany transactions under the O&M Agreement between NLEX Corp and TMC are effectively eliminated in the process of consolidation (see Note 19).

The remaining operator’s fee is for the O&M contract of CIC with PEA Tollways Corporation and PT Nusantara’s O&M agreement with Jasa Marga (see Note 29).

22. General and Administrative Expenses

This account consists of:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Personnel costs and employee benefits (see Note 23) P=3,982 P=3,778 P=3,623 Taxes and licenses 1,712 1,397 943 Depreciation and amortization (see Notes 11, 13 and 38) 1,266 771 581 Outside services (see Note 19) 1,178 900 738 Professional fees 785 830 606 Advertising and promotion 505 386 335 Corporate initiatives and others 452 351 360 Provision for ECL/doubtful accounts (see Note 8) 397 572 94 Transportation and travel 338 195 231 Entertainment, amusement and representation 268 229 151 Utilities (see Note 19) 249 167 112 Repairs and maintenance 244 331 190 Collection charges 147 147 145 Insurance 145 132 120 Administrative supplies 101 91 88 Rentals (see Note 29) 51 291 273 Miscellaneous** 676 584 402 P=12,496 P=11,152 P=8,992 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details). **Includes public relations, commissions and other various general and administrative expenses which are individually insignificant.

*SGVFSM000023* - 68 -

23. Personnel Costs and Employee Benefits

This account consists of:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Salaries and wages P=5,862 P=5,451 P=4,707 LTIP expense 837 623 554 Retirement costs 443 403 234 Provision for ESOP and RSUP (see Note 28) – 90 67 Severance cost (see Note 21) – 1 277 Other employee benefits 1,153 1,013 1,268 P=8,295 P=7,581 P=7,107 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details).

2018 2017 2019 *Re-presented *Re-presented (In Millions) Cost of sales and services (see Note 21) P=4,313 P=3,803 P=3,484 General and administrative expenses (see Note 22) 3,982 3,778 3,623 P=8,295 P=7,581 P=7,107 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details).

LTIP Certain of the Company’s employees are eligible for long–term employee benefits under a long-term incentive plan. The liability recognized on the LTIP comprises the present value of the defined benefit obligation and was determined using the projected unit credit method. Each LTIP performance cycle generally covers three (3) years with payment intended to be made at the end of each cycle (without interim payments) and is contingent upon the achievement of an approved target core income of the Company by the end of the performance cycle. Each LTIP performance cycle is approved by the respective BODs of the entities within the Company.

As at December 31, 2019, 2018 and 2017, the LTIP payable is as follows:

2019 2018 2017 (In Millions) Balance at beginning of year P=1,715 P=1,405 P=703 Current service cost - continuing 837 623 554 Current service cost - discontinued 85 62 52 Interest – 42 17 Actuarial loss (gain) – (8) 6 Deconsolidation of a subsidiary (85) – – Step-up acquisition (see Note 4) – – 73 Reversal (81) – – Payment (1,212) (409) – Balance at end of year P=1,259 P=1,715 P=1,405

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2019 2018 2017 (In Millions) Current (see Note 15) P=– P=1,430 P=459 Noncurrent 1,259 285 946 P=1,259 P=1,715 P=1,405

LTIP of MPIC, MPHHI and Maynilad covers cycle 2016 to 2018 with pay-out in 2019. LTIP of MPTC covers cycle 2015 to 2017 with pay-out in 2018.

On January 31, 2020, the Compensation Committee approved MPIC’s LTIP covering cycle 2019 to 2021. MPIC’s LTIP comprises of cash incentives and share award. The Company shall secure exemption ruling from the SEC on the share award, which is necessary for the Company to reacquire MPIC common shares in the market.

To fund the LTIP programs for each cycle, MPIC enters into Investment Management Agreement (IMA) with a Trustee Bank. The LTIP fund will continue to accumulate until the LTIP target payout. The investment portfolio of IMA is limited to the following: securities issued, directly or indirectly, or guaranteed by the government; and time deposit and money market placements issued by any of the top ten (10) banks in the Philippines.

Pension

Regulatory Environment. The Company operates both defined contribution and defined benefit schemes. In addition, the Company has made provisions for estimated liabilities for employee benefits for meeting the minimum benefits required to be paid to the qualified employees as required under the Republic Act (RA) No. 7641, The Philippine Retirement Law, for the entities operating in the Philippines; and the Indonesian Labor Law for PT Nusantara and its subsidiaries.

Under RA 7641, companies are required to pay a minimum benefit of equivalent to one-half month’s salary for every year of service, with six (6) months or more of service considered as one (1) year, to employee with at least five (5) years of services. For the entities of the Company operating in the Philippines, they provide for either a defined contribution retirement plan or a defined benefit plan that consider the minimum benefit guarantee mandated under RA 7641.

Under the Indonesian Labor Law, companies are required to pay separation, appreciation and compensation benefits to their employees if the conditions specified in the Indonesian Labor Law are met. PT Nusantara and its subsidiaries has recognized an unfunded employee benefits liability in accordance with the Indonesian Labor Law.

Defined Contribution Retirement Plan. Certain entities of the Company operating in the Philippines provide the retirement benefits of employees under a defined contribution scheme. Each of these companies operates its own retirement plan. The retirement plan is a contributory plan wherein the employer undertakes to contribute a predetermined amount to the individual account of each employee and the employee gets whatever is standing to his credit, upon separation, from the company. The retirement plans are being managed and administered by these companies’ respective compensation committee. Each entity has an appointed trustee bank which holds and invests the assets of the retirement fund in accordance with the provisions of the retirement plan.

Contributions to the retirement plan are made based on the employee’s monthly basic salary. Additionally, an employee has an option to make a personal contribution to the fund, at an amount not exceeding a certain percentage of his monthly salary in accordance with the entity’s policy. The employer then provides an additional contribution to the fund which aims to match the employee’s contribution but only up to a maximum of 5.0% of the employees’ monthly salary. Although the *SGVFSM000023* - 70 - retirement plans of these entities have a defined contribution format, these entities are covered under RA 7641, which provides a defined benefit minimum guarantee for its qualified employees. The defined minimum guarantee is equivalent to a certain percentage of the monthly salary payable to an employee at normal retirement age with the required credited years of service based on the provisions of RA 7641. Accordingly, these entities account for the retirement obligation under the higher of defined benefit obligation relating to the minimum guarantee and the obligation arising from the defined contribution plan. Disclosures required for a defined benefit retirement plan apply to these companies’ retirement plans and are provided together with the defined benefit retirement plans of the other subsidiaries of the Parent Company.

Each year, the compensation committee reviews compliance with RA 7641 to evaluate the level of funding that would ensure that the expected future value of the defined benefit contribution plan asset is sufficient to cover the future expected value of retirement benefits prescribed by RA 7641.

Defined Benefit Retirement Plan. These plans provide for a lump sum benefit payments upon retirement.

Certain entities of the Company have funded noncontributory defined benefit retirement plan covering all their eligible regular employees. For the entities with funded retirement benefit plans, plan assets are maintained in trust accounts with local banks. While there are no minimum funding standards in the Philippines, the companies annually engage the services of an actuary to conduct a valuation study to determine the retirement obligations and the level of funding to ensure that the assets currently in the fund would be sufficient to cover expected benefit payments.

The rest of the companies within the group each has an unfunded, noncontributory defined benefit retirement plan covering substantially all of their respective employees. While there are no minimum funding standards in the Philippines, these entities also annually engage the services of an actuary to conduct a valuation study to determine the retirement obligations and ensure that should there be maturing obligations in the immediately succeeding periods, these are appropriately considered in the budgeting process.

Retirement Costs. The following tables summarize the components of the retirement costs under the defined benefit plans and the defined contribution plans included in “Personnel costs and employee benefits” under “Cost of sales and services” and “General and administrative expenses” accounts in the consolidated statements of comprehensive income.

2018 2017 2019 *Re-presented *Re-presented (In Millions) Current service cost P=406 P=391 P=271 Net interest cost 83 94 58 Curtailment gain – – (31) Retirement costs for the year P=489 P=485 P=298 Actual return (loss) on plan assets P=136 (P=23) P=42 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details).

*SGVFSM000023* - 71 -

Pension Assets and Accrued Retirement Costs. Reconciliation of net liability recognized in the consolidated statements of financial position as at December 31 follows:

2019 2018 2017 (In Millions) Present value of defined benefit obligation (PVDBO) P=3,864 P=3,472 P=3,290 Fair value of plan assets (FVPA) 2,009 1,960 1,578 Net liability P=1,855 P=1,512 P=1,712

Pension asset(a) (P=10) (P=91) (P=60) Accrued retirement liability (b) 1,865 1,603 1,772 Net liability P=1,855 P=1,512 P=1,712 (a)Included under “Other noncurrent assets” account. (b)Included under “Other long–term liabilities” account.

Changes in PVDBO are as follows:

2019 2018 2017 (In Millions) PVDBO at beginning of year P=3,472 P=3,290 P=1,994 PVDBO from acquisitions – 302 1,010 Interest cost 230 195 150 Current service costs 406 391 271 Benefits paid from: Plan asset (145) (133) (437) Company funds (14) (39) (27) Curtailment – – (31) Actuarial losses (gains) due to: Changes in financial assumptions 757 (489) 271 Changes in demographics (68) (6) (3) Experience adjustments (43) (39) 92 Discontinued operations (see Note 32) (731) – – PVDBO at end of the year P=3,864 P=3,472 P=3,290

Changes in FVPA are as follows:

2019 2018 2017 (In Millions) FVPA at beginning of the year P=1,960 P=1,578 P=1,511 FVPA from acquired subsidiaries – 58 182 Interest income included in net interest cost 147 102 92 Benefits paid (145) (133) (437) Contributions by employer 498 514 270 Remeasurement in OCI from return on plan asset excluding amount included in net interest cost (17) (159) (40) Discontinued operations (see Note 32) (434) – – FVPA at end of the year P=2,009 P=1,960 P=1,578

The companies within the group expect to contribute a total of =P273 million to their respective retirement funds in 2020. *SGVFSM000023* - 72 -

The major categories of the plan assets are the following:

2019 2018 (In Millions) Philippine bonds and treasury notes P=1,254 P=969 Philippine equity securities 505 356 Cash in bank 62 404 Unit trust funds 91 121 Receivables and other assets 97 88 Philippine life insurance plans – 22 P=2,009 P=1,960

The plan assets’ carrying amount approximates fair value since these are short–term in nature or mark-to-market. Philippine bonds and treasury notes consist of government issued securities and corporate bonds and subordinated notes. Government securities consist primarily of fixed–rate treasury notes and retail treasury bonds that bear interest ranging from 3.2% to 8.6% (2019) and 2.1% to 11.7% (2018) and have varying maturities of ranging from 2020 to 2031 as at December 31, 2019 (2018: 2019 to 2032). Philippine equity securities pertain to investment in shares of various listed entities.

While the Company does not perform any Asset–Liability Matching Study, the risks arising from the nature of the assets comprising the fund are mitigated as follows:

§ Credit Risks. Exposure to credit risk arises from financial assets comprising of cash and cash equivalents, investments and receivables. The credit risk results from the possible default of the issuer of the financial instrument, with a maximum exposure equivalent to the carrying amount of the instruments. The risk is minimized by ensuring that the exposure is limited only to the instruments as recommended by the trust managers.

§ Share Price Risk. Exposure arises from holdings of shares of stock being traded at the PSE. The price risk emanates from the volatility of the stock market. Policy is to limit investments in shares of stock to blue chip issues or issues with good fair values.

§ Liquidity Risk. This risk relates to the risk that the fund is unable to meet its payment obligations associated with its retirement liability when they fall due. To mitigate this risk, the entities contribute to their respective fund from time to time, based on the recommendations of their actuaries with the objective of maintaining their respective fund in a sound condition.

Actuarial assumptions. Principal assumptions used in determining retirement obligations are shown below:

2019 2018 (In Percentage) Annual discount rate 4,7% to 5.6% 5.7% to 9.4% Future range of annual salary increases 3% to 8% 1% to 8%

The discount rate represents the range of single weighted average discount rate used by each of the entities within the group in arriving at the present value of defined benefit obligation, service and interest cost components of the retirement cost. Assumptions regarding future mortality rate are based on the Philippine Intercompany Mortality Table, which provides separate rates for males and females. *SGVFSM000023* - 73 -

Sensitivity Analysis. The calculation of the defined benefit obligation is sensitive to the assumptions set above. The following table summarizes how the present value of defined benefit obligation as at December 31 would have increased (decreased) as a result of change in the respective assumptions by:

% Change 2019 2018 (In Millions) Annual discount rate + 1.0% (P=301) (=P230) – 1.0% 356 272 Future range of annual salary increases + 1.0% 362 286 – 1.0% (313) (246)

The following table provides for the maturity analysis of the undiscounted benefit payments as at December 31: 2019 2018 (In Millions) Less than one year P=411 P=455 More than one year to five years 1,585 1,464 More than five to ten years 1,766 1,920 Beyond ten years 15,806 18,114 Total expected benefit payments P=19,568 P=21,953

The average duration of the defined benefit obligation is 18 years and 14 years as at December 31, 2019 and 2018, respectively.

24. Interest Income, Interest Expense and Others The following are the sources of the Company’s interest income:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Cash and cash equivalents, short–term deposits and restricted cash (see Note 7) P=2,005 P=1,378 P=523 Finance income from concession financial receivable (see Note 8) 153 30 – Debt instruments at FVOCI / AFS financial assets and others* 99 43 50 P=2,257 P=1,451 P=573 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details). **Includes investments in bonds and treasury notes

*SGVFSM000023* - 74 -

The following are the sources of the Company’s interest expense:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Long–term debt (see Note 18) P=10,455 P=8,852 P=6,548 Accretion on financial liabilities (see Notes 19 and 29) 604 708 595 Accretion on service concession fees payable (see Note 17) 582 518 575 Amortization of debt issue costs (see Note 18) 125 82 66 Others 34 70 66 P=11,800 P=10,230 P=7,850 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details). Provisions for decline in value of assets recognized in the consolidated statements of comprehensive income consists of the following:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Service concession assets (see Notes 11 and 12) P=11,417 P=– P=– Goodwill (see Notes 11 and 14) 9,825 43 324 Warehouses leases and trucks (see Note 13) 437 – – Investments and advances (see Note 10) 321 755 439 Customer contracts (see Note 11) 20 – – P=22,020 P=798 P=763 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details). “Others” recognized in the consolidated statements of comprehensive income consists of the following:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Provisions (see Note 16) (P=1,669) (P=233) (P=342) Net gain (loss) on prepayment of loan (see Note 18): Penalties and other prepayment charges (525) (854) (185) Derecognized unamortized debt issue cost (38) (186) (57) Derecognized unamortized PFRS 3 fair value increment – 1,059 – Foreign exchange gains (loss) - net (29) 131 6 Advertising, marketing and toll services 493 429 253 Gain on sale of assets: Transmission assets (see Note 29) 148 – – Investments (a) – – 732

(Forward)

*SGVFSM000023* - 75 -

2018 2017 2019 *Re-presented *Re-presented (In Millions) Remeasurement of previously held interest (b): PT Nusantara (see Note 4) P=– P=493 P=– Tollways Management Corporation (TMC; see Note 29) – – 1,391 ESC – – 198 Beacon Electric – – (1,618) Indemnity and claims (see Note 4) – 332 – Rental income 86 14 – Others (c) (see Note 10) 682 538 449 (P=852) P=1,723 P=827 * Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details).

a. In June 2017, MPIC completed the sale of 50.7 million shares representing approximately 4.5% of outstanding capital stock of MERALCO through an overnight private placement for P=250.0 per share or total proceeds of =12.7P billion which resulted to a gain of P=732 million, net of P=273 million transaction costs.

b. Remeasurement of previously held interest pertains to the gain (loss) recognized in a step acquisition of a subsidiary that was previously accounted for either as in investment in an associate or joint venture. The previously held interest is remeasured to fair value at the acquisition date.

c. Others include other incidental income.

25. Other Comprehensive Income

OCI recognized in the consolidated statements of comprehensive income consists of the following:

2019 2018 2017 (In Millions) Items to be reclassified to profit or loss in subsequent periods: Share in the OCI of an equity method investee coming from (see Note 10): Change in fair value of financial assets at FVOCI P=231 (P=62) P=– Change in fair value of AFS financial assets – – 350 Exchange differences on translation of foreign operations 511 62 326 Change in fair value of financial assets at FVOCI (see Note 38) 134 (35) – Change in fair value of AFS financial assets – – 21 Exchange differences on translation of foreign operations (106) (812) (310) Income tax effect (14) 269 95 756 (578) 482

(Forward) *SGVFSM000023* - 76 -

2019 2018 2017 (In Millions) Items not to be reclassified to profit or loss in subsequent periods: Share in the OCI of an equity method investee coming from (see Note 10): Actuarial gains (losses) on defined benefit plans (P=1,696) P=550 (P=594) Change in fair value of financial assets at FVOCI 7 – – Re–measurement gains (losses) on defined benefit plans (see Note 23) (566) 375 (400) Change in fair value of financial assets at FVOCI (64) 78 – Income tax effect 155 (104) 46 (2,164) 899 (948) (P=1,408) P=321 (P=466)

26. Income Tax

a. The Company’s deferred tax components as at December 31 are as follows:

2019 2018 (In Millions)

Provisions P=266 P=81 Accrued retirement cost and other accrued expenses 337 511 Lease payable – 118 MCIT 18 18 Excess of fair values over book values resulting from business combination (4,889) (6,955) Timing difference in depreciation method (2,412) (1,722) Equity transaction (see Note 32) (6,848) (725) Debt issue cost (159) (217) Unamortized past service cost (41) (32) Unamortized foreign exchange losses capitalized as service concession assets (17) (17) Improvement of facilities (4) (4) Others 506 284 Net deferred tax liabilities (P=13,243) (P=8,660)

Reflected in the consolidated statements of financial position:

2019 2018 2017 (In Millions) Deferred tax assets P=927 P=1,270 P=1,045 Deferred tax liabilities (14,170) (9,930) (6,836) (P=13,243) (P=8,660) (P=5,791)

*SGVFSM000023* - 77 -

2019 2018 2017 (In Millions) Net movement recognized in: Profit or loss From Continuing Operations P=1,850 (P=653) (P=285) From Discontinued Operations (see Note 32) (6,071) 43 26 Equity (OCI and Equity reserve) 149 (83) (187) Deferred taxes acquired in business combinations (453) (2,176) (1,887) Deferred taxes derecognized (see Note 32) (58) – – (P=4,583) (P=2,869) (P=2,333)

The Company has the following temporary differences for which no deferred tax assets have been recognized since management believes that it is not probable that these will be realized in the near future.

2019 2018 (In Millions) NOLCO P=20,597 P=13,133 Provisions and other accruals 160 68 Unrealized foreign exchange gains 143 – MCIT 24 18 P=20,924 P=13,219 b. As at December 31, 2019 and 2018, NOLCO of the Parent Company and various subsidiaries can be carried forward and claimed as deduction from regular taxable income as follows:

Acquisition/ Year Incurred Amount (Deconsolidation) Addition Expired Application Balance Expiry Year (In Millions) 2019 P=– P=10,999 P=– P=– P=– P=10,999 2022 2018 6,137 – – – – 6,137 2021 2017 3,977 – – – – 3,977 2020 2016 3,329 – – (3,329) – – 2019 P=13,443 P=10,999 P=– (P=3,329) P=– P=21,113 c. The following carryforward benefits of MCIT can be claimed as tax credits against future income taxes payable:

Year Incurred Amount Acquisition Addition Expired Application Balance Expiry Year (In Millions) 2019 P=– P=– P=13 P=– P=– P=13 2022 2018 5 – – – – 5 2021 2017 16 – – – – 16 2020 2016 8 – – (8) – – 2019 P=29 P=– P=13 (P=8) P=– P=34

*SGVFSM000023* - 78 - d. The current provision for income tax from continuing operations for years ended December 31 consists of the following:

2018 2017 2019 *Re-presented *Re-presented (In Millions) RCIT P=6,359 P=5,580 P=4,673 MCIT 4 1 68 Final tax 230 161 87 P=6,593 P=5,742 P=4,829 *Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details). e. The reconciliation of provision for income tax computed at the statutory income tax rate to provision for income tax as shown in the consolidated statements of comprehensive income is summarized as follows:

2018 2017 2019 *Re-presented *Re-presented (In Millions) Continuing operations P=5,001 P=26,835 P=22,807 Discontinued operations 34,428 2,350 1,869 Income before income tax from continuing operations P=39,429 P=29,185 P=24,676

Income tax at statutory tax rate of 30.0% P=11,829 P=8,755 P=7,403 Net income under ITH (241) (165) 111 Share in net earnings of equity method investees (3,420) (3,322) (2,414) Changes in unrecognized deferred tax assets and others 2,309 1,107 593 Effect of optional standard deduction (1,090) (1,070) (1,112) Various income subjected to lower final tax rates - net (354) (250) (141) Final tax on interest income 236 167 94 Nondeductible (nontaxable) expenses (income) - net 2,336 1,780 1,043 MCIT 5 3 70 Others 1 3 2 P=11,611 P=7,008 P=5,649 *Comparative years re-presented as a result of the deconsolidation of a subsidiary in 2019 (see Note 32 for details).

Optional Standard Deduction (OSD) On December 18, 2008, the BIR issued Revenue Regulation (RR) No. 16-2008, which implemented the provisions of RA 9504 on OSD, which allowed both individual and corporate tax payers to use OSD in computing their taxable income. For corporations, they may elect a standard deduction in an amount equivalent to 40% of gross income, as provided by law, in lieu of the itemized allowed deductions.

NLEX Corp and Maynilad opted to avail of the OSD for the taxable years 2019, 2018 and 2017.

*SGVFSM000023* - 79 -

Income Tax Holiday In 2016, LRMC was registered with the BOI for the modernization of the Existing System and the construction of the Cavite Extension. Under the BOI registration agreement, LRMC is entitled to ITH for a period of three (3) years from the indicated completion of the rehabilitation of the existing system beginning January 2018 and start of commercial operations of the Cavite Extension beginning April 2021. ITH incentive enjoyed by LRMC amounted to =91P million in 2019 and =127P million in 2018.

PEDC has two BOI registrations for its Phase I (164 MW) and Phase II (150 MW or PEDC 3) projects. As BOI registered entity, PEDC is entitled to several incentives including an ITH as a pioneer entity (for Phase I) for four years from March 26, 2011, the actual start date of commercial operations. PEDC has availed of a two-year ITH extension for the Phase I project until March 25, 2017. On the other hand, the Phase II project (PEDC 3) is also entitled to ITH incentive as an expansion entity for three (3) years from August 1, 2016 or on the actual start date of commercial operations, whichever is earlier, but in no case earlier than the date of registration. The ITH expired on July 31, 2019. ITH incentive enjoyed by PEDC amounted to P=150 million in 2019 and P=164 million in 2018.

In August 2017, the CALAEX project was registered with the BOI as a new project on a nonpioneer status under the Omnibus Investment Code of 1987. Under this registration, MPCALA will enjoy certain tax and nontax incentives including a four-year ITH on the income arising the CALAEX project starting from July 2020 or actual start of commercial operations, whichever is earlier and subject to certain conditions, which include among others, (i) MPCALA shall submit proof of upgraded service quality as result of the implementation of the modernization project; (ii) the ITH’s entitlement shall be based on the project’s ability to contribute to the economy’s development based on certain parameter indicated in Certificate of Registration; and (iii) MPCALA shall endeavor to undertake meaningful and sustainable corporate social responsibility activities. These conditions were not yet fully met as at December 31, 2019.

27. Earnings Per Share

The calculation of earnings per share for the years ended December 31 follows:

2019 2018 2017 (In Millions, Except for Per Share Amounts) Net income (loss) attributable to owners of the Parent Company Continuing operations (P=2,844) P=13,221 P=12,462 Discontinued Operations 26,700 909 689 (a) P=23,856 P=14,130 P=13,151 Effect of cumulative dividends on preferred shareholders of the Parent Company (see Note 20) (b) (9) (9) (9) Net income attributable to common owners of the Parent Company (c) P=23,847 P=14,121 P=13,142

*SGVFSM000023* - 80 -

2019 2018 2017 (In Millions, Except for Per Share Amounts) Outstanding common shares at the beginning of the year P=31,515 P=31,511 P=31,504 Effect of issuance of common shares during the year 24 3 3 Effect of share buy-back (see Note 20) (1) – – Weighted average number of common shares for basic earnings per share (d) 31,538 31,514 31,507 Effects of potential dilution from ESOP and share award (see Note 28): 2 34 31 Weighted average number of common shares adjusted for the effects of potential dilution (e) 31,540 31,548 31,538

Basic earnings per share (c/d) P=0.7561 P=0.4481 P=0.4171

Diluted earnings per share (c/e) P=0.7561 P=0.4476 P=0.4167

Weighted average number of shares issued and outstanding is derived by multiplying the number of shares outstanding at the beginning of the year, adjusted by the number of shares issued during the year, with a time–weighting factor. The time–weighting factor is the number of days that the common shares are outstanding as a proportion to the total number of days in the year. To calculate the earnings per share for discontinued operations (Note 32), the weighted average number of ordinary shares for both the basic and diluted earnings per share is as per the table above.

28. Share–based Payment ESOP On June 24, 2007, the shareholders of MPIC approved a share option scheme (the Plan) under which MPIC’s directors may, at their discretion, invite executives of MPIC upon the regularization of employment of eligible executives, to take up share option of MPIC to obtain an ownership interest in MPIC and for the purpose of long–term employment motivation. The scheme became effective on June 14, 2007 and is valid for 10 years. An amended plan was approved by the stockholders on February 20, 2009. As amended, the overall limit on the number of shares that may be issued upon exercise of all options to be granted and yet to be exercised under the Plan must not exceed 5.0% of the shares in issue from time to time. The exercise price in relation to each option shall be determined by the Company’s Compensation Committee, but shall not be lower than the highest of: (i) the closing price of the shares for one or more board lots of such shares on the PSE on the option offer date; (ii) the average closing price of the shares for one or more board lots of such shares on the PSE for the five business days on which dealings in the shares are made immediately preceding the option offer date; and (iii) the par value of the shares.

Fourth Grant. On October 14, 2013, MPIC made an ESOP grant (the Fourth Grant) consisting of 112.0 million common shares, to its directors and senior management officers, as well as, members of the senior management of certain MPIC subsidiaries. The grant was approved by the Philippine SEC on March 4, 2014.

On October 9, 2018, the deadline for the exercise of stock options from the Fourth Grant, originally on October 14, 2018, was extended by the Company’s Compensation Committee to

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October 14, 2019. In 2018, cost from the extension of exercise period for the ESOP amounted to P=23.6 million.

For the years ended December 31, 2019 and 2018, the weighted average share price of MPIC’s common share is =4.66P and =5.16P per share, respectively. Total ESOP expense recognized in “Personnel costs and employee benefits” and “Equity reserve” amounted to nil, =24P million and nil for the years ended December 31, 2019, 2018 and 2017 respectively (see Note 23). The following table illustrates the number of, exercise prices of, and movements in share options in 2018, 2017 and 2016 for the Fourth Grant:

Fourth Grant Tranche A Tranche B Number Exercise Number Exercise of shares Price of shares Price Outstanding at January 1, 2017 12,525,000 P=4.60 56,000,000 P=4.60 Exercised during the year (see Note 20) 6,700,000 4.60 – – Outstanding at December 31, 2017 5,825,000 P=4.60 56,000,000 P=4.60 Exercised during the year (see Note 20) 5,825,000 4.60 1,175,000 P=4.60 Outstanding at December 31, 2018 – – 54,825,000 P=4.60 Exercised during the year (see Note 20) – – 27,790,000 P=4.60 Expired during the year (see Note 20) – – 27,035,000 P=4.60 Outstanding at December 31, 2019 – – – –

Exercisable at: December 31, 2017 5,825,000 4.60 56,000,000 4.60 December 31, 2018 – – 54,825,000 4.60 December 31, 2019 – – – –

The fair value of the options granted is estimated at the date of grant using Black–Scholes–Merton formula, taking into account the terms and conditions at the time the options were granted. The following tables list the inputs to the model used for the ESOP:

Fourth Grant Tranche A Tranche B 50.0% vesting on 50.0% vesting on October 14, 2014 October 14, 2015 Spot Price P=4.59 P=4.59 Exercise price P=4.60 P=4.60 Risk–free rate 0.66% 2.40% Expected volatility* 35.23% 33.07% Term to vesting in days 365 730 Call price P=0.63 P=0.89 * The expected volatility reflects the assumption that the historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

RSUP On July 14, 2016, the Compensation Committee of MPIC approved the RSUP as part of MPIC’s LTIP. The RSUP, which has a validity period of ten (10) years, replaced the Parent Company’s ESOP.

The RSUP is designed, among others, to reward the Directors and certain key officers of MPIC who contribute to its growth to stay with MPIC for the long term. Under the RSUP, which shall have a cycle of three (3) years starting 2016, MPIC, at its cost will reacquire MPIC common shares to be held as treasury shares and reserved to be transferred to the Directors and key officers determined by the Committee to be eligible to participate under the RSUP. Vested shares will be transferred in the name of the eligible participants on full vesting date, at no cost as provided under the RSUP.

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The RSUP also limits the aggregate number of shares that may be subject to award to no more than three percent (3%) of the outstanding common shares of MPIC. For the first 3-year cycle (i.e., 2016 to 2018), MPIC will acquire up to 26.7 million common shares (originally 27.4 million common shares) at such time and under such terms and conditions as the Committee may determine. As at December 31, 2018, MPIC had already acquired 26.1 million shares from the open market at and held as treasury shares.

Fair value of the Share Award was determined using the market closing price of P=7.15 per share on date of grant. One third (or 33.33%) of the share award vests every 31st of December beginning 2016 until fully vested by December 31, 2018.

Total Share Award expense (in relation to the LTIP cycle covering 2016 to 2018) for the years ended December 31, 2019, 2018 and 2017 amounted to nil, P=66.7 million and P=66.7 million, respectively, included in “Personnel costs and employee benefits” under “General and administrative expenses” account in the consolidated statements of comprehensive income. The shares in relation to the LTIP cycle covering 2016 to 2018 were issued to the grantees in June 2019 (see Note 20).

29. Significant Contracts, Agreements and Commitments

Power

Electric Power Purchase Agreements (EPPA). GBPC’s power generation facilities consist of: (i) 246 MW clean coal-fired power plant in Toledo City, Cebu, which is operated by Cebu Energy Development Corporation (CEDC); (ii) 164 MW and 150 MW clean coal-fired power plants in Iloilo City, which is operated by Panay Energy Development Corporation (PEDC); (iii) 60 MW coal facility, an 82 MW clean coal fired power plant and a 40 MW fuel oil facility operated by Toledo Power Co. (TPC); (iv) a 72 MW fuel oil facility, a 20 MW fuel oil facility, a 7.5 MW fuel oil facility and a 5 MW fuel oil facility operated by Panay Power Corporation (PPC); and (v) 7.5 MW fuel oil facility operated by GBH Power Resources Inc.

GBPC, through its operating generation subsidiaries, entered into bilateral off-take arrangements with power off-takers such as distribution utilities, electric cooperatives, retail electricity suppliers and directly connected industrial customers which together accounted for 90%, 89% and 92% of GBPC’s total electricity sales for the years ended December 31, 2019, 2018 and 2017, respectively.

Long-term Coal Supply Agreements. In order to ensure that there is an adequate supply of coal to operate the power plants, the respective operating plants have entered into several long-term contracts with local and foreign coal suppliers. The long-term supply agreements are as follows:

PEDC

Contract Supplier Coal Type Duration Price Basis Quantity per Year Semirara Mining and Power Corporation Local 2010 - 2019 New C Index with Forex 300,000 MT PT Sakti Nusantara Bakti Indonesia 2017 - 2026 New C Index 150,000 MT Samtan Co., Ltd. Indonesia 2011 - 2020 New C Index 150,000 MT Samsung C&T Corporation Russian 2016 - 2019 Fixed Price 350,000 MT

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CEDC

Contract Supplier Coal Type Duration Price Basis Quantity per Year Semirara Mining and Power Corporation Local 2010 - 2019 New C Index with Forex 400,000 MT PT Adaro Indonesia 2017 - 2019 New C Index 300,000 MT

TPC

Contract Supplier Coal Type Duration Price Basis Quantity per Year Semirara Mining and Power Corporation Local 2015 - 2018 New C Index with Forex 180,000 MT

In view of expiring contracts in 2019 and to have additional coal sources, the respective operating plants have also undertaken spot transactions for trial shipments of prospective long-term coal supply. The spot transactions entered into throughout the year are as follows:

PEDC

Supplier Coal Type Price Basis Quantity Vitol Asia Pte. Ltd. Indonesia NewC Index 220,000 MT PT Antang Gunung Meratus Indonesia NewC Index 55,000 MT Galaxy Energy and Resources Co. Pte. Ltd. Indonesia NewC Index 55,000 MT PT Wirama Entiti Nusantara Indonesia NewC Index 45,000 MT

CEDC

Supplier Coal Type Price Basis Quantity Galaxy Energy and Resources Co. Pte. Ltd. Indonesia Fixed 275,000 MT

TPC Supplier Coal Type Price Basis Quantity PT Adaro Indonesia New C index 60,000 MT

Transfer of transmission facilities to the National Grid Corporation of the Philippines (NGCP). In 2016, the ERC issued Resolution No. 23, Series of 2016 “A Resolution Adopting Amended Rules on the Definition and Boundaries of Connection Assets for Customers of Transmission Providers”. Section 7 (Transitory Provision) of the ERC Resolution No. 23-2016 mandates the Generation Companies to start the disposal or transfer of their assets with transmission functions in favor of NGCP, Transmission Provider before the generation company’s Renewal of its Certificate of Compliance.

To comply with the ERC Resolution, GBPC’s generation subsidiaries, namely PEDC, TPC and CEDC entered into an agreement with the NGCP for the transfer of the generation companies’ transmission facilities which ownership was expected to be transferred to NGCP in 2018. NGCP made a deposit which is included in the Company’s “Accounts payable and accrued expenses” with balances P=126 million and P=159 million as at December 31, 2019 and 2018, respectively. The carrying value of the assets to be transferred to NGCP was presented as “Assets held for sale” in the consolidated statements of financial position as at December 31, 2018.

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In December 2019, CEDC concluded the transfer of the transmission assets with gain on sale amounting to P=148 million recognized in the consolidated statement of comprehensive income.

In 2019, PEDC, TPC and NGCP agreed to perform additional undertaking before the transmission assets can be transferred, Due to the uncertainty of the consummation of the sale of assets to NGCP, transmission facilities were reclassified and presented as “Property, plant and equipment” as of December 31, 2019. It shall remain as property, plant and equipment until such time that the schedule of the transfer and sale has been set.

Final Acceptance of PEDC 3. In 2014, PEDC began the construction of PEDC 3 in its existing Panay Coal Plant Facility in Barangay Ingore, La Paz, Iloilo City. PEDC 3 is registered with the Board of Investments (BOI) under BOI Registration Number 2014-110 on July 22, 2014. PEDC declared commercial operations of its 150 MW Expansion Plant on January 26, 2017 in accordance with the terms and conditions of its Power Supply Agreements. The Plant issued the Taking Over Certificate on May 31, 2018.

Market Participation Agreement (MPA). GBPC, through its power generation companies, sells electricity through its bilateral power supply agreements or the WESM. In 2011, GBPC’s subsidiaries and the PEMC entered into an MPA setting forth the terms and conditions for the eligibility of the entities to participate in the WESM and which allows electricity to be injected into or withdrawn from the Grid. For the year ended December 31, 2019, 2018 and 2017, GBPC and subsidiaries have sales from WESM transactions that amounted to P=3,154 million, P=2,503 million and P=1,533 million, respectively. Purchased power from the WESM amounted to P=1,222 million, P=1,607 million and P=1,114 million in 2019, 2018 and 2017, respectively.

Negotiations for Power Supply Contract with More Electric and Power Corporation (MORE). On January 19, 2019, the legislative franchise of Panay Electric Company, Inc. (PECO) to distribute electricity in Iloilo City expired without having been renewed. A bill was filed for its renewal but was not acted upon by Congress. News reports have indicated that PECO was pushing a bill for a new franchise from Congress; however, this was denied at the committee level. PEDC and Panay Power Corporation (PPC) have power supply agreements with PECO which will expire in 2036 and 2026, respectively.

In the meantime, in February 2019, RA No. 11212 was enacted into law. It granted a legislative franchise to MORE Power and Electric Corporation (“MORE”) to own and operate an electric distribution utility in Iloilo City. RA No. 11212 granted PECO an interim authority to operate the existing distribution system in Iloilo City until MORE establishes or acquires its own distribution system and completes the transition towards full operation. Such interim authority shall not exceed two (2) years from the grant of MORE’s legislative franchise. RA No. 11212 also directed the ERC to grant PECO a Certificate of Public Convenience and Necessity (CPCN) covering such interim period.

In an Order dated May 21, 2019, the ERC granted PECO a Provisional CPCN to replace its previous CPCN which expired on May 25, 2019. The Provisional CPCN is valid only for the aforesaid 2-year interim period and shall be automatically revoked once MORE is able to take over the distribution of electricity in Iloilo City pursuant to RA No. 11212. MORE has filed a CPCN application with the ERC. The said application is still pending with the ERC. In the meantime, PECO continues to operate the electric distribution utility in Iloilo City. PEDC and PPC continue to supply power to PECO under their respective power supply agreements.

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Under RA No. 11212, as well as under the DOE Department Circular DC 2018-02-0003, MORE is authorized to procure emergency power on a negotiated basis provided such supply shall not exceed one (1) year and the rates therefore shall not be higher than the latest ERC-approved rates in the area. Pursuant to such authority, PEDC and PPC are negotiating with MORE for the possible supply of emergency power to Iloilo City.

On July 1, 2019, in a Declaratory Relief case PECO filed to question the validity of RA No. 11212, the Regional Trial Court (RTC) of Mandaluyong City issued a Judgment declaring unconstitutional the provisions of RA No. 11212 that grants MORE the power to expropriate PECO’s distribution assets. News reports indicate that MORE has appealed this judgment.

On August 14, 2019, in the expropriation case MORE filed to acquire PECO’s distribution assets, the RTC of Iloilo City ordered the issuance of a Writ of Possession authorizing MORE to take over possession of PECO’s distribution assets. News reports indicate that PECO has filed a motion for reconsideration with the Iloilo RTC. As at February 26, 2020, the Company awaits the Court’s decision on this matter.

Toll Operations

Concession Arrangements

§ NLEX Corp –STOA for the North Luzon Expressway (NLEX). In August 1995, First Philippine Infrastructure Development Corporation (currently MPT North), the parent company of NLEX Corp, entered into a joint venture agreement with Philippine National Construction Corporation (PNCC), in which PNCC assigned its rights, interests and privileges under its franchise to construct, operate and maintain toll facilities in the NLEX and its extensions, stretches, linkages and diversions in favor of NLEX Corp, including the design, funding, construction, rehabilitation, refurbishing and modernization and selection and installation of an appropriate toll collection system therein during the concession period subject to prior approval by the President of the Philippines. In April 1998, the Philippine government, acting by and through the Toll Regulatory Board (TRB) as the grantor, PNCC as the franchisee and NLEX Corp as the concessionaire, executed a STOA whereby the Philippine government recognized and accepted the assignment by PNCC of its usufructuary rights, interests and privileges under its franchise in favor of NLEX Corp as approved by the President of the Philippines and granted NLEX Corp concession rights, obligations and privileges including the authority to finance, design, construct, operate and maintain the NLEX project roads as toll roads commencing upon the date the STOA comes into effect until December 31, 2030 or 30 years after the issuance of the Toll Operation Permit for the last completed phase, whichever is earlier. In October 2008, the concession agreement was extended for another seven years to 2037.

The concession agreement establishes a toll rate formula and adjustment procedure for setting the appropriate toll rate. Pursuant to the STOA, NLEX Corp is required to pay franchise fees to PNCC (see Notes 21 and 30) and to pay for the Government’s project overhead expenses based on certain percentages of construction costs and maintenance works on the project roads. Upon expiry of the concession period, NLEX Corp shall hand over the project roads to the Philippine Government without cost, free from any and all liens and encumbrances and fully operational and in good working condition, including any and all existing land required, works, toll road facilities and equipment found therein directly related to and in connection with the operation of the toll road facilities.

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The Manila-North Expressway Project (MNEP) consists of three (3) phases as follows:

Status/ Phase Description Date of Operation Phase I Expansion and i. 84 kilometers (km) of the existing NLEX February 5, 2005 (Segments 1, 2, 3 and 7) rehabilitation ii. 8.8-km stretch of a Greenfield expressway Phase II Construction i. 17-km circumferential road C-5 which Segment 8.1 – (Segments 8.1, 8.2, 9 and 10) connects the current C-5 expressway to June 5, 2010 the NLEX ii. 5.85-km road from McArthur to Letre Segments 9 – March 9, 2015 Segment 10 – Officially opened on February 28, 2019 Segment 8.2 – Pre construction Phase III Construction i. 57-km Subic arm of the NLEX to Subic Construction not yet (Segments 4, 5 and 6) Expressway started In consideration of the assignment by PNCC of its usufructuary rights, interests and privileges under its franchise, PNCC is entitled to receive payment equivalent to 6% and 2% of the toll revenues from the NLEX and Segment 7, respectively. Any unpaid balance carried forward will accrue interest at the rate of the latest Philippine 91-day Treasury bill rate plus 1% per annum. This entitlement, as affirmed in the Amended and Restated Shareholders’ Agreement (ARSA) dated September 30, 2004, shall be subordinated to operating expenses and the requirements of the financing agreements and shall be paid out subject to availability of funds. The PNCC franchise expired in May 2007. On April 12, 2011, the SC issued a resolution directing NLEX Corp to remit PNCC’s share in the net income from toll revenues to the National Treasury, and the TRB, with the assistance of the Commission on Audit (COA), was directed to prepare and finalize the implementing rules and guidelines relative to the determination of the net income remittable by PNCC to the National Treasury. In accordance with the TRB directive, 90% of the PNCC fee and dividends payable are to be remitted to the TRB, while the balance of 10% to PNCC.

§ NLEX Corp – Toll Operation Agreement (TOA) for the Subic-Clark-Tarlac Expressway (SCTEX). On February 9, 2015, NLEX Corp received the Notice of Award from the Bases Conversion and Development Authority (BCDA) for the management, operation and maintenance of the 94-kilometer SCTEX subject to compliance with specific conditions. On February 26, 2015, NLEX Corp and BCDA entered into a Business Agreement involving the assignment of BCDA’s rights and obligations relating to the management, operation and maintenance of SCTEX as provided in the SCTEX concession. The assignment includes the exclusive right to use the SCTEX toll road facilities and the right to collect tolls until October 30, 2043. On May 22, 2015, the TOA was executed by and among the Philippine Government and BCDA and NLEX Corp. At the end of the contract term, the SCTEX, as well as the as-built plans, specification and operation/repair/ maintenance manuals relating to the same shall be turned over to the BCDA or its successor-in-interest.

At a consideration of =3.5P billion upfront cash payment, the operation and management of the SCTEX was officially turned over to NLEX Corp on October 27, 2015. NLEX Corp shall also pay BCDA monthly concession fees amounting to 50% of the Audited Gross Toll Revenues of the SCTEX for the relevant month from effective date to October 30, 2043 (see Note 21).

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§ NLEX Corp – Concession Agreement for the NLEX-SLEX Connector Road Project (Connector Road). The Connector Road is a four (4) lane toll expressway structure with a length of eight (8) kilometers all passing through and above the right of way of the Philippine National Railways (PNR) starting NLEX Segment 10 in C3 Road Caloocan City and seamlessly connecting to South Luzon Expressway (SLEX) through Metro Manila Skyway Stage 3 Project. On November 23, 2016, NLEX Corp and the Republic of the Philippines (ROP) acting through the Department of Public Works and Highways (DPWH), signed the Concession Agreement for the design, financing, construction, operation and maintenance of the NLEX-SLEX Connector Road. The concession period shall commence on the commencement date and shall end on its thirty- seventh (37th) anniversary, unless otherwise extended or terminated in accordance with the Concession Agreement. The construction of the Connector Project, with an estimated project cost of P=23.3 billion, is expected to be completed by 2021.

Under the Concession Agreement, NLEX Corp will pay the DPWH periodic payments as consideration for the grant of the Right of Way for the project (see Note 17).

During the concession period, NLEX Corp shall pay for the project overhead expenses to be incurred by the DPWH and the TRB in the process of their monitoring, inspecting, evaluating and checking the progress and quality of the activities and works undertaken by NLEX Corp. NLEX Corp’s liability for the payment of the project overhead expenses due to TRB shall not exceed P=50 million and the liability for the payment of the project overhead expenses due the DPWH shall not exceed P=200 million; provided, that these limits may be increased in case of inflation, or in case of additional work due to a concessionaire variation that will result in an extension of the construction period or concession period, upon mutual agreement of the parties in the concession agreement.

§ CIC – Toll Operation Agreement (TOA) for the Manila - Cavite Expressway (CAVITEX). CIC is exclusively responsible for the design, financing and construction of the CAVITEX, pursuant to a TOA dated July 26, 1996 entered into with the Philippine Reclamation Authority (PRA) and the Government, acting through the TRB. Responsibility for the supervision of the operation and maintenance of the toll road, initially undertaken by the PRA, was also transferred to CIC pursuant to an Operations and Maintenance Agreement dated November 14, 2006 and a voting trust agreement dated November 16, 2006. The concession for CAVITEX extends to 2033 for the originally built road and to 2046 for a subsequent extension. Upon expiry of the concession period, CIC shall hand over the project to the Philippine Government.

The concession agreement establishes a toll rate formula and adjustment procedure for setting the appropriate toll rate. Pursuant to the TOA, PRA established PEA Tollways Corporation (PEATC), its wholly owned subsidiary, to undertake the O&M obligations of the PRA under the TOA. PEATC shall collect the toll fees from the toll paying traffic and deposit such collections to the O&M Account maintained with a local bank. On November 14, 2006, CIC, PRA and TRB entered into an O&M Agreement to clarify and amend certain rights and obligations under the JVA and TOA covering the CAVITEX. Included in the salient provisions of the O&M Agreement is the revenue sharing provision between PRA and CIC. PRA shall receive 8.5% of gross toll revenue, while CIC shall receive 91.5% of the gross toll revenue and will absorb all O&M costs and expenses. The share of PRA shall be increased by 0.5% every periodic toll rate adjustment under the TOA but not to exceed 10.0% of gross toll revenue at any one time during the repayment period of the loan. Upon repayment in full of the loans and interest costs, advances, capital investment and the return of equity, CIC and PRA shall share at the ratio of 40.0% and 60.0%, respectively, as originally

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agreed upon under the JVA. The current share of PRA based on gross revenue is 9.0% while CIC’s share is 91.0% which took effect on the last toll rate adjustment on January 1, 2009.

Under the amended Joint Venture Agreement with PRA, each of the following expressways shall be constructed in segments:

Status/ Phase Description Date of Operation Phase I Design and improvement i. 6.5 km R-1 Expressway which connects May 1998 the Airport Road to Zapote ii. Extension of the 7 km R-1 Expressway May 2011 which connects the existing R-1 Expressway at Zapote to Noveleta

Phase II Design and construction Extension of the C-5 Link Expressway which Ongoing Construction connects the R-1 Expressway to the South Luzon Expressway (SLEX)

C5 South Link 3A-1, portion of the CAVITEX Phase II, which is a 2.2-km flyover crossing SLEX traversing Taguig and Pasay City, commenced tollway operation in July 2019. The remaining portions of the CAVITEX Phase II is expected to be completed in 2022.

§ MPCALA Holdings, Inc. (MPCALA) – Concession Agreement for the Cavite Laguna Expressway (CALAEX). On July 10, 2015, MPCALA signed the Concession Agreement for the CALAEX Project with the DPWH. Under the Concession Agreement, MPCALA is granted the concession to design, finance, construct, operate and maintain the CALAEX, including the right to collect toll fees, over a 35-year concession period. The CALAEX is a closed-system tolled expressway connecting the CAVITEX and the SLEX. The CALAEX Project was awarded to MPCALA following a competitive public bidding process where MPCALA was declared as the highest complying bidder with its offer to pay the government concession fees amounting to =27.3P billion payable over nine (9) years from signing of the Concession Agreement (see Note 17). The project is expected to be completed by 2022.

On October 31, 2019, the Company opened the Subsections 6-8, portion of the CALAX Laguna Segment, which is the first 10-km stretch of CALAEX from Mamplasan Exit in Biñan City, Laguna to the Santa Rosa-Tagaytay Interchange with no toll fees. The construction of Subsection 5 (Silang East Interchange to Santa Rosa-Tagaytay Interchange) has also started.

On February 10, 2020, TRB issued Notice to Start Collection for the initial toll rates for Subsections 6-8 of the CALAEX effective February 11, 2020. MPCALA was granted a provisional initial toll for the 10-km segment of CALAEX effective on February 11, 2020.

As at February 26, 2020, the pre-construction works for CALAEX Cavite Segment is ongoing. Full completion of the CALAEX is expected in 2022.

§ Cebu Cordova Link Expressway Corporation’s (CCLEC) Cebu Cordova Link Expressway (CCLEX). On October 3, 2016, CCLEC, Cebu City and Municipality of Cordova (as grantors) signed the concession agreement for the CCLEX. CCLEX, consists of the main alignment starting from the Cebu South Coastal Road and ending at the Mactan Circumferential Road, inclusive of interchange ramps aligning the Guadalupe River, the main span bridge, approaches, viaducts, causeways, low-height bridges, at-grade road, toll plazas and toll operations center.

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Under the concession agreement, CCLEC is granted the concession to design, finance, construct, operate and maintain the CCLEX, including the right to collect toll fees over a 35-year concession period. CCLEX is estimated to cost =26.3P billion. No upfront payments or concession fees are to be paid but the grantors shall share 2% of the project’s revenue.

Construction is ongoing and expected to be completed by 2021.

§ Concession Agreements – PT Nusantara. As a result of a step acquisition (see Note 4), the Company started consolidating PT Nusantara beginning July 2, 2018. PT Nusantara’s concession assets comprise of toll roads and water concession rights. Toll road concession rights cover the following toll road sections: (a) Tallo-Hasudin Airport; (b) Soekarno Hatta Port – Pettarani; (c) Pondok Ranji and Pondok Aren. The water concession rights pertain to right to treat and distribute clean water in the Serang District, Banten in Indonesia.

o Ujung Pandang toll road (PT Bosowa Marga Nusantara (BMN) concession). BMN, a subsidiary of PT Metro Pacific Tollways Indonesia (PT MPTI) through PT Nusantara Infrastructure Tbk (PT Nusantara), and PT Jasa Marga (Persero) Tbk (Jasa Marga), a third-party toll road operator in Indonesia, entered into a joint operation agreement for the operations of Ujung Pandang toll road. BMN will operate the said toll road for 30 years and after which, the toll roads, including all the facilities in the area, will be handed over to Jasa Marga. The toll road has been in operation since 1998. PT MPTI is a wholly owned subsidiary of MPTC.

On October 23, 2017, BMN was granted by the Ministry of Public Works of the Republic of Indonesia the extension of the concession period for the Ujung Pandang toll road to 2043.

Ujung Pandang toll road is a 6.0-km toll road connects Soekarno-Hatta port in Makassar and A.P. Pettarani road (Urip Sumoharjo flyover). Pettarani toll road, which is an extension of the Ujung Pandang toll road, is a 4.4-km toll road that will connect Soekarno-Hatta Port (Makassar) and Sultan Hasanuddin International Airport to Makassar’s business district and city center. As at February 26, 2020, construction of the Pettarani toll road is still ongoing and is expected to be completed within 2020.

o Makassar Section IV toll road (PT Jalan Tol Seksi Empat (JTSE) concession). JTSE, a subsidiary of PT MPTI through PT Nusantara, entered into a Toll Road Concessionaire Agreement with the Department of Public Works of the Republic of Indonesia (DPU) for the right to develop, operate and maintain Makassar Section IV Toll Road for a period of 35 years, including construction period. The toll road has been in operation since 2008.

Makassar Section IV toll road is a 12-km toll road that connects Tallo Bridge to the Mandai Makassar intersection, providing access to Sultan Hasanuddin International Airport as well as the national road to Maros, Indonesia.

o Pondok Aren-Serpong toll road lane (PT Bintaro Serpong Damai (BSD) concession). BSD, a subsidiary of PT MPTI through PT Nusantara, entered into a Toll Road Operational Authority Agreement with Jasa Marga for the development and operations of Pondok Aren-Serpong toll road lane for a period of 28 years, including construction period. The toll road has been in operation since 1999.

Pondok Aren-Serpong toll road lane is a 7.3-km toll road that connects Serpong and Pondok Aren, South Tangerang, Indonesia. *SGVFSM000023* - 90 -

Construction Contract for NLEX Segment 10. On April 28, 2014, NLEX Corp signed a target cost construction contract with Leighton Contractors (Asia) Ltd. (LCAL) for the construction of NLEX Segment 10. The contract structure is collaborative in nature and provides a risk and reward sharing mechanism if the actual construction cost exceeds or falls below the agreed target. LCAL’s performance obligations under the contract are backed up by: (i) a bank–issued irrevocable stand–by letter of credit, (ii) cash retention, and (iii) a guarantee issued by Leighton Asia Limited.

On May 8, 2014, NLEX Corp issued the notice to proceed to LCAL, signaling the start of pre-construction activities. Pursuant to the contract, NLEX Corp placed a reserve amount of P=889 million in an escrow account on July 28, 2014 to cover payment default leading to suspension of works.

The balance of the reserve account as at December 31, 2018 amounted to P=321 million. Construction of Segment 10 was completed with the road accessible to the public in February 2019. The reserve amount was released in June 2019.

Merger between NLEX Corp and TMC. On October 19, 2016, the BOD of NLEX Corp approved the proposed merger between NLEX Corp and TMC, with NLEX Corp as the surviving corporation. On November 17, 2016, majority of the stockholders of NLEX Corp confirmed and ratified the proposed merger between MNTC and TMC, with MNTC as the surviving corporation. As the surviving corporation, NLEX Corp’s corporate existence shall continue and shall: (a) acquire all respective rights, businesses, assets and other properties of TMC, and (b) assume all the debts and liabilities of TMC.

The SEC approved the merger on November 29, 2018 with effectivity date of December 14, 2018. As a result of the merger, MPTC’s ownership stake in NLEX Corp decreased from 75.3% as at December 31, 2017 to 75.1% as at December 31, 2018.

Grant of Original Proponent Status to MPT South for Cavite Tagaytay Batangas Expressway (CTBEx) Project. On July 26, 2018, Metro Pacific Tollways South Corp. (MPT South), an indirect subsidiary of MPIC, was granted Original Proponent Status by the DPWH in relation to its unsolicited proposal for the CTBEx Project.

The CTBEx Project, a 50.42 kilometer toll facility, is intended to connect seamlessly with the CALAEX and CAVITEX of MPTC and is expected to provide congestion relief to Aguinaldo Highway and Tagaytay-Nasugbu road. It is currently configured to have eight (8) main interchanges and two (2) spur roads, and is estimated to cost approximately P=25 billion and if awarded, will be funded through a combination of internally-generated funds and debt.

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The final award of the CTBEx Project will be subject to a Swiss Challenge expected within 2020.

Water

Concession Arrangements

§ Maynilad concession agreement with Metropolitan Water Sewerage System (MWSS). In February 1997, Maynilad entered into a concession agreement with MWSS, with respect to the MWSS West Service Area. Under the concession agreement, MWSS grants Maynilad, the sole right to manage, operate, repair, decommission and refurbish all fixed and movable assets required to provide water and sewerage services in the West Service Area for 25 years ending in 2022. In September 2009, MWSS approved an extension of its concession agreement with Maynilad for another fifteen (15) years to 2037 (the expiration date). The legal title to all property, plant and equipment contributed to the existing MWSS system by Maynilad during the concession period remains with Maynilad until the expiration date at which time, all rights, titles and interests in such assets will automatically vest to MWSS. Under the concession agreement, Maynilad is entitled to charge its customers a Basic Standard tariff which is calculated to enable Maynilad to recover all expenditures efficiently and prudently incurred, including Philippines business taxes and concession fees while also providing Maynilad a real rate of return on the net cash sum invested in the concession from time to time. This tariff is subject to periodic changes due principally to (a) an annual standard rate adjustment to compensate for changes in the CPI subject to a rate adjustment limit; (b) an extraordinary price adjustment to account for the financial consequences of the occurrence of certain unforeseen events subject to grounds stipulated in the concession agreement; and (c) a rate rebasing mechanism which allows rates to be adjusted every five (5) years. The rate rebasing adjustment allows for updates to estimates for expenditures and demand forecasts while also resetting the real rate of return awarded to Maynilad in light of changes to costs of funding. Under Maynilad’s concession agreement with the Philippine Government, any rate adjustment requires approval by MWSS and the Regulatory Office (RO).

The Republic of the Philippines (ROP) also issued in favor of Maynilad on July 31, 1997 and March 17, 2010 an undertaking which provides, among other things, that the ROP shall indemnify Maynilad in respect of any loss that is occasioned by a delay caused by the ROP or any government-owned agency in implementing any increase in the standard rates beyond the date for its implementation in accordance with the concession agreement (the “Undertaking”).

The MWSS Board of Trustees likewise revoked a similar resolution that extended the term of the Concession Agreement of the other concessionaire.

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As of February 26, 2020, the review of the Concession Agreement is still ongoing and Maynilad has not been advised of any amendments to the provisions of the Concession Agreement. Any future amendments to the provisions of the Concession Agreement of Maynilad will be reflected in the consolidated financial statements as these are determined. As of December 31, 2019, the presentation of the consolidated financial statements, including the amortization of Maynilad’s service concession asset are based on the existing terms of the Concession Agreement.

See disclosures in Note 30, Concession Agreement Review and Amendment. Other material commitments under Maynilad’s concession agreement are disclosed below.

§ PHI. In August 2012, Maynilad acquired a 100% interest in PHI, which engages in water distribution business in certain areas in central and southern Luzon. PHI is granted the sole right to distribute water in these areas under certain concession agreements granted by the Philippine government for 25 years to 2035.

§ Cagayan de Oro 100 MLD Bulk Water Supply Project (CDO BWS Project). On August 14, 2017, MPW signed a joint venture agreement with the Cagayan de Oro Water District (COWD) for the formation of a joint venture company to undertake the supply of bulk treated water to address the requirements Cagayan de Oro City. The CDO BWS Project covers the (i) the delivery of at least 40 MLD of bulk treated water within the eastern sector of Cagayan De Oro, and (ii) the supply at least 60 MLD of bulk treated water to service the requirements of the western sector in accordance with the bulk water supply agreement. At COBI’s option, the CDO BWS Project may be implemented through (i) the design and construction of water production and transmission facilities with a capacity of approximately 100 MLD, (ii) the acquisition of ownership or leasehold rights to such production and transmission facilities and water rights, or (iii) the purchase of bulk treated water for supply to the western sector. The project has a term of 30 years (renewable for another 20 years subject to certain conditions). Operations commenced on December 31, 2017.

§ Metro Iloilo Bulk Water Supply Corporation (MIBWSC). On July 4, 2016, pursuant to a Joint Venture Agreement between MetroPac Iloilo Holdings Corporation (MILO; a wholly owned subsidiary of MPW), and Metro Iloilo Water District (MIWD), created and established MIBWSC, to implement the 170 Million Liters per Day (MLD) Bulk Water Supply Project (BWS Project). The BWS Project covers the (i) rehabilitation and upgrading of MIWD’s existing 55 MLD water facilities, (ii) the expansion and construction of new water facilities to increase production to up to 115 MLD; and (iii) delivery of contracted water demand to MIWD in accordance with the bulk water supply agreement. The BWS Project covers a period from the later of the Target Initial Delivery Date and the Initial Delivery Date and ending on the 25th anniversary thereof and shall be extended for an additional 25 years counted from completion of the agreed upon expansion obligation, but in no event shall exceed an aggregate of 50 years.

MIWD retains ownership of the existing facilities subject to the right of MIBWSC to access and use. MIBWSC in turn retains ownership of the new facilities but is required to handback the BWS Project, including transfer of the full ownership of the new facilities, at the end of the contract period.

On July 5, 2016, MIBWSC officially took over operations from the MIWD.

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§ Metro Iloilo Water District Water (MIWD) Concession Joint Venture Project. On November 13, 2018, MPW, entered into a Joint Venture Agreement (JVA) with MIWD for the rehabilitation, operation, maintenance, and expansion of MIWD’s existing water distribution system and construction of wastewater facilities (the “Project”). On January 17, 2019, Metro Pacific Iloilo Water, Inc. (MPIWI), the joint venture corporation, 80%-owned by MPW and 20%- owned by MIWD, was organized pursuant to the provisions of the JVA. MPIWI shall implement the Project and will have the right to bill and collect tariff for the water supply and wastewater services provided to the customers in the service area of MIWD. MPIWI commenced operations in July 2019.

The project cost for the duration of the 25-year concession is estimated at 12.35 billion, with an initial equity investment of P=745 million, of which MPW’s share is at P=596 million.

MPW provided performance security to MIWD amounting to =60.0P million in the form of a standby letter of credit.

MIWD’s service area includes Iloilo City and seven municipalities specifically Pavia, Oton, Maasin, Cabatuan, Sta. Barbara, Leganes and San Miguel.

§ Dumaguete City Water District (DCWD) Water Concession Joint Venture Project. On May 16, 2018, MPW officially received from DCWD the Notice of Award for the rehabilitation, operation, maintenance, and expansion of DCWD’s existing water distribution system and development of wastewater facilities.

On September 3, 2019, MPW signed a joint venture agreement (JVA) with DCWD. Pursuant to the provisions set in the JVA, Metro Pacific Dumaguete Water Service Inc. (MPDW) was incorporated on October 22, 2019 which is 80%-owned by MPW and 20%-owned by DCWD. MPDW shall implement the project and will have the right to bill and collect tariff for the water supply and wastewater services provided to the customers in the service area of DCWD. The JVA shall be effective for a term commencing on the commencement date (as defined in the JVA) and ending on the 25th anniversary thereof and may be renewed for another 25 years at the option of MPDW for as long as MPDW is not then in default under any of its material obligations under the JVA and provided, further, that the initial and renewal terms of JVA shall in no event exceed an aggregate of 50 years from commencement date.

On October 30, 2019, MPDW signed a Service Contract Agreement with DCWD. This grants MPDW the exclusive right and privilege to undertake the project.

As at February 26, 2020, the conditions precedent for the declaration of commencement date has not yet been achieved.

§ Amayi Water Concession Agreement. On February 19, 2019, Amayi Water Solutions, Inc., a wholly owned subsidiary of Maynilad, entered into a concession agreement with the Municipality of Boac, Marinduque. The concession agreement shall be effective for a period of twenty-five (25) years beginning on the commencement date with the option to renew for another maximum of 25 years at the sole discretion of the concessionaire. On January 23, 2020, the Office of the Boac Waterworks Operation of the Municipality of Boac, Marinduque notified Maynilad Boac of the order of their Local Chief Executive calling for the review and further study of the Concession Agreement. As at February 26, 2020, the Municipality of Boac, Marinduque has yet to fulfill their obligation under the Concession Agreement that are part of the contract’s conditions precedent.

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§ PNW’s BOO contract with the Chu Lai Economic Zone Authority (CLEZA). PNW is party to a BOO contract signed with the CLEZA in January 2016. Under the agreement, PNW has been granted a 50-year contract to build, own and operate a water treatment plant for the treatment and distribution of water to locators in the Chu Lai Open Economic Zone, and consumers in Tam Ky City, Duy Xuyen, Thang Binh, and Nui Thanh districts. Under the signed BOO contract, the average price of clean water is allowed to increase at a rate of 12.36% every 2 years. PNW is authorized to negotiate and sign separate offtake agreements with each locator/customer, and average price negotiated must be within the range allowed by the Quang Nam Province People’s Committee (PPC).

PNW is currently completing the construction of the first stage of Phase 1A of the water treatment plant, which has an initial capacity of 25 million liters per day (MLD). The Project has a potential to increase to 300 MLD beyond 2030.

Commitments under Maynilad’s Concession Agreement with MWSS. Significant commitments under the Concession Agreement follow: a. Payment of concession fees (see Note 17) b. Posting of performance bond

Under Section 6.9 of the Concession Agreement, Maynilad is required to post a performance bond to secure the performance of its obligations under certain provisions of the Concession Agreement.

The aggregate amount drawable in one or more installments under such performance bond during the Rate Rebasing Period to which it relates is set out below.

Aggregate Amount Drawable Under Rate Rebasing Period Performance Bond (In Millions) First (August 1, 1997 – December 31, 2002) US$120.0 Second (January 1, 2003 – December 31, 2007) 120.0 Third (January 1, 2008 – December 31, 2012) 90.0 Fourth (January 1, 2013 – December 31, 2017) 80.0 Fifth (January 1, 2018 – May 6, 2022) 60.0

Within 30 days from the commencement of each renewal date, Maynilad shall cause the performance bond to be reinstated to the full amount set forth above applicable for the year.

In connection with the extension of the term of Maynilad’s Concession Agreement, certain adjustments to the obligation of Maynilad to post the performance bond under Section 6.9 of the Concession Agreement have been approved and summarized as follows:

§ The aggregate amount drawable in one or more installments under each performance bond during the Rate Rebasing Period to which it relates has been adjusted to US$30.0 million until the Expiration Date;

§ The amount of the Performance Bond for the period covering 2023 to 2037 shall be mutually agreed upon in writing by the MWSS and Maynilad consistent with the provisions of the Concession Agreement. *SGVFSM000023* - 95 -

§ On December 14, 2017, Maynilad posted the Surety Bond for the amount of US$60.0 million issued by Prudential Guarantee and Assurance, Inc. (the Surety) in favor of MWSS, as security for Maynilad’s proper and timely performance of its obligations under the Concession Agreement. The liability of the Surety under this bond will expire on January 1, 2021. c. Payment of half of MWSS and MWSS–RO’s budgeted expenditures for the subsequent years, provided the aggregate annual budgeted expenditures do not exceed =200P million, subject to CPI adjustments. Beginning 2010, the annual budgeted expenditures shall increase by 100.0%, subject to CPI adjustments, as a result of the extension of the life of the Maynilad’s concession agreement. d. To meet certain specific commitments in respect to the provision of water and sewerage services in the West Service Area, unless modified by the MWSS–RO due to unforeseen circumstances. e. To operate, maintain, renew and, as appropriate, decommission facilities in a manner consistent with the National Building Standards and best industrial practices so that, at all times, the water and sewerage system in the West Service Area is capable of meeting the service obligations (as such obligations may be revised from time to time by the MWSS–RO following consultation with Maynilad). f. To repair and correct, on a priority basis, any defect in the facilities that could adversely affect public health or welfare, or cause damage to persons or third–party property. g. To ensure that at all times Maynilad has sufficient financial, material and personnel resources available to meet its obligations under the Concession Agreement. h. To prevent incurrence of debt or liability that would mature beyond the term of the Concession Agreement, without the prior notice of MWSS. Failure of Maynilad to perform any of its obligations under the Concession Agreement of a kind or to a degree which, in a reasonable opinion of the MWSS–RO, amounts to an effective abandonment of the Concession Agreement and which failure continues for at least 30 days after written notice from the MWSS–RO, may cause the Concession Agreement to be terminated.

Contracts with Manila Water. In relation to Maynilad’s Concession Agreement (see above), Maynilad entered into the following contracts with Manila Water (the “East Concessionaire”): a. Interconnection Agreement wherein the two Concessionaires shall form an unincorporated joint venture that will manage, operate, and maintain interconnection facilities. The terms of the agreement provide, among others, the cost and the volume of water to be transferred between zones; and, b. Common Purpose Facilities Agreement that provides for the operation, maintenance, renewal, and, as appropriate, decommissioning of the Common Purpose Facilities, and performance of other functions pursuant to and in accordance with the provisions of the Concession Agreement and performance of such other functions relating to the concession (and the concession of the East Concessionaire) as Maynilad and the East Concessionaire may choose to delegate to the Joint Venture, subject to the approval of MWSS.

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MWSS JBIC Loan (Concession Fee). The Loan Agreement between the Government and JBIC (formerly OECF) was signed on February 9, 1990. The proceeds of the Loan were used to fund the implementation of the Angat Water Supply Optimization Project (AWSOP), with MWSS as the implementing agency. Prior to privatization, actual drawdowns from the Loan were recorded by MWSS as equity from the Government while the draws during privatization were assumed and paid by the Concessionaires. The sharing is 61.83% and 38.17% for Maynilad and Manila Water, respectively.

On June 6, 2019, Maynilad received a letter from the MWSS requesting to pay =821P million (“Invoiced Amount”). Accordingly, Maynilad learned that the drawdowns made on the JBIC Loan prior to the privatization of MWSS’s operations are considered loans and not equity as formerly advised. MWSS’s request for the Concessionaires to pay was triggered by an instruction from the DOF to the Bureau of Treasury, to have the Concessionaires reimburse the Government for the latter’s payments on the JBIC Loan.

Maynilad replied to MWSS on July 1, 2019 and clarified the Invoiced Amount. Maynilad’s position is to pay only P=677 million because (ii) Maynilad remitted to the MWSS P=113 million representing Guarantee Fees based on MWSS’s invoice. However, the JBIC Loan makes no reference to and does not include the payment of Guarantee Fees, the borrower being the Government itself. This being the case, the Guarantee Fees that Maynilad remitted to MWSS must be set off or applied against the Invoiced Amount; and (2) while Maynilad always pays the foreign exchange shortfall in the debt servicing of MWSS-contracted loans, there is no need for Maynilad to pay the Forex Shortfall of P=31 million in the JBIC Loan catch-up payment. The difference in the foreign exchange rate (from Japanese Yen to Philippine Peso) has already been captured and reflected in the total peso amount billed by the Bureau of Treasury.

Further, Maynilad also requested to pay =677P million in eight monthly instalments of =84.6P million to commence in July 2019 until February 2020, to coincide with the full payment/ maturity of the JBIC Loan.

As communicated by MWSS-Finance on July 17, 2019, Maynilad can pay based on the requested amount and schedule while waiting for the response of the Bureau of Treasury concerning the guarantee fee and shortfall. Maynilad paid the first installment on July 30, 2019.

Rail

Concession Agreement - LRMC’s LRT-1 Project. On October 2, 2014, LRMC signed together with the Department of Transportation and Communications (DOTC, now Department of Transportation - DOTr) and the Light Rail Transit Authority (LRTA) (together with DOTr as “Grantors”) the Concession Agreement for the LRT-1 Cavite Extension and Operations & Maintenance Project (LRT-1 Project). The DOTr and LRTA formally awarded the Project to LRMC on September 15, 2014. Under the Concession Agreement, LRMC will operate and maintain the existing LRT-1 and construct an 11.7-km extension from the present end-point at Baclaran to the Niog area in Bacoor, Cavite. A total of eight (8) new stations will be built along the extension, which traverses the cities of Parañaque and Las Piñas up to Bacoor, Cavite. The Concession Agreement is for a period of thirty-two (32) years commencing from September 12, 2015 (the Effective Date).

LRMC has the right to apply for an adjustment of the fare based on the specific fare adjustment formula under LRMC’s concession agreement with the Philippine Government. This formula specifies an initial boarding and per-kilometer fare with 10.25% increases over these initial fares every two (2) years beginning in August 2016, subject to inflation rebasing if inflation falls outside an acceptable band. If the approved fare is different from the formula specified on the concession agreement, both the *SGVFSM000023* - 97 -

Philippine Government and LRMC are obligated to substantially keep the other party whole, depending on whether the actual fares represent a deficit or a surplus.

Rehabilitation of the existing system is on-going. Construction of the Cavite Extension Basic Right of Way (ROW) Package 1 commenced in April 2019. The Basic ROW Packages 2 and 3 have not yet been provided by the Grantors. As at February 26, 2020, the Company is carrying out the design and construction of the Viaduct and Stations in ROW Package 1.

Claims with Grantors. Aside from the payment of concession fees (see Note 17), other significant commitments under or that are related to the LRT-1 concession agreement follow:

The Section 5 of the LRT-1 Concession Agreement provides for conditions and mechanisms that will ensure and thereby compel the parties to fulfill their obligations in relation to LRT-1 Concession. In the event of failure to meet the conditions set forth therein, the parties to the agreement are accorded with rights, including rights to compensation from the party/parties in breach. For the LRMC as the Concessionaire, the LRT-1 Concession Agreement provides for the following claims from the Grantors:

§ Existing System Requirement (ESR) costs. LRMC is entitled to be compensated for the unavoidable incremental cost that LRMC will incur to restore the Existing System to the level necessary to meet all of the baseline Existing System Requirements, taking into consideration any Emergency Upgrade Contract executed by the Grantors for the same purpose, if the Existing System does not meet the ESR as certified by the Independent Consultant (IC).

§ Structural Defect Restoration (SDR) costs. LRMC is entitled to compensation for the cost incurred for restoration of the Structural Defect as certified by an IC which shall be the aggregate of the approved Restoration Cost in the Structural Defects Notice and any incremental cost approved by the IC.

§ Light Rail Vehicle (LRV) shortfall. If the Grantors do not make available a minimum of one hundred (100) light rail vehicles or the system is not able to operate to a cycle time of no more than one hundred and six (106) minutes, or a combination of the two on the Effective Date, then LRMC is entitled to receive a compensation from the Grantors based on the formula and procedures provided for in the LRT-1 Concession Agreement.

§ Fare Deficit/Surplus. The fare deficit/surplus pertains to the difference between the Approved and Notional Fare, as follows:

a) If Approved Fare is less than the Notional Fare, there is a deficit payment or a receivable from the Grantors;

b) If Approved Fare is more than the Notional Fare, there is a surplus payment or payable to Grantors.

The Approved Fare is the maximum fare that the Concessionaire is authorized to charge pursuant to Sections 20.3b and/or 30.4 of the LRT-1 Concession Agreement. Whereas, the Notional Fare is the agreed base fare provided in the LRT-1 Concession Agreement that should have been in effect upon turnover of the LRT-1 operation.

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§ Grantors’ Compensation Payment. The Grantors shall be liable to provide compensation to LRMC if LRMC is delayed in the completion of the Railway Infrastructure and Railway System Works or is prevented from operating any part of the System or incurs additional cost or loss of revenue by reason of: a) Material Adverse Government Action b) Grantors Delay Event c) Subject to Sec. 5.3(b) Grantors Obligations, the failure of the Existing System to meet the Existing System Requirement on the Effective Date d) Any other cause in respect of which the LRT-1 Concession Agreement provides for the provision of Grantors compensation

Under Section 20.6 of the LRT-1 Concession Agreement, all these claims are expressed to be paid through the quarterly “Balancing Payments” (see Note 30).

IC for the Concession. In September 2015, DOTr and LRMC have engaged Egis Rail – Egis International – Getinsa Ingenieria SL – Infra Consultants of the Philippines – Heldig Teknik Inc. Joint Venture as IC to carry out the duties and obligations ascribed in the Concession Agreement. This includes, but not limited to, monitor, inspect and keep informed the state and progress of remedial works, issue certification of compliance with the existing system requirements, and conduct annual audit of the quality control documentation. The fees and expenses of the IC shall be paid 50% by the Grantors and 50% by the LRMC.

LRMC Non-Rail Activities. In November 2015, LRMC granted PHAR Singapore Pte. Ltd the exclusive right to generate ancillary revenue from all agreed commercial activities (i.e., advertising, partnerships, and sponsorships) within the existing LRT 1 system. The effectivity of granted rights commenced on February 1, 2016 and will be in effect for a period of ten (10) years. LRMC earns a profit share from these revenues in exchange for the rights granted.

LRMC also has operating lease agreements as a lessor with various companies for retail space rental and interconnection services. These agreements cover periods ranging from 1 to 26 years.

Rent income, interconnection and advertising fees earned relevant to these agreements amounted to P=163 million, =154P million and P=97 million in 2019, 2018 and 2017, respectively, and are included under “Others” in the consolidated statements of comprehensive income (see Note 24).

Escrow Agreement. On October 20, 2014, pursuant to the requirements of the LRT-1 Concession Agreement, DOTr, LRTA, LRMC, the initial shareholders of LRMC (namely AC Infra, MPLRC and MIHPL) and Security Bank as Escrow Agent entered into a Share Escrow Agreement.

Under the Share Escrow Agreement, each of the initial shareholders delivers to the Share Escrow Agent original stock certificates representing all of their respective equity interests in LRMC. Such shares would be held in escrow until the third anniversary of the Extension Completion Date as defined under the LRT-1 Concession Agreement.

Consultancy and Advisory Fees. In October 2014, LRMC entered into offshore and onshore technical advisory service agreements with RATP Developpement SA and RATP Dev Manila, Inc. in relation to the LRT-1 Project. Scope of work includes providing regular reviews of the operation and maintenance of the LRT 1 with respect to the overall performance of the system, operations and maintenance budget, ridership data and Baseline System Plan.

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Rehabilitation of Existing System. On March 21, 2017, LRMC entered into a two-year agreement with First Balfour, Inc. for its Structural Restoration Project which includes the parapets, faulty concrete and repair of river bridges of the LRT-1 Existing System. The notice to proceed was signed and issued on March 17, 2017. In line with this project, LRMC also signed an Independent Contractor Agreement with ESCA Incorporated for the expertise and services necessary in managing the Structural Restoration Project with First Balfour, Inc. The structural restoration project was completed on June 28, 2019.

On January 12, 2018, LRMC entered into an agreement with Voith Digital Solutions Austria GmBH and Co KG for the rehabilitation and upgrade of propulsion, train control and management systems of the LRT-1 generation 2 (Adtranz) trains. The re-engineering project is 93.3% complete as at December 31, 2019.

On October 24, 2018, LRMC entered into an agreement with First Balfour, Inc. and Mrail, Inc. for the rehabilitation of eleven rectifier sub-stations (RSS) of LRT-1 line. On the same date, LRMC signed a contract with Commsec Inc. for the design, supply, and installation of CCTV, access control, and security network systems of the LRT-1 line. As at December 31, 2019, the RSS rehabilitation and security network systems projects are 73.4% and 80.1% complete, respectively.

LRMC also has contracts with various suppliers for the purchase of spare parts used in restoration of LRVs and with contractors for refurbishments, installations and improvements in the structure of the stations.

Construction of the LRT-1 Cavite Extension. On February 11, 2016, LRMC signed an engineering, procurement, and construction (EPC) Agreement for the construction of LRT-1 Cavite Extension with Bouygues Travaux Publics Philippines Inc., Alstom Transport S.A. and Alstom Transport Construction Philippines Inc. which commenced upon the Grantors’ issuance of the Permit to Enter certificate. As at December 31, 2019, the Existing System Works and Cavite Extension Works (ROW 1) are 55.4% and 33.9% complete, respectively.

Logistics

On June 14, 2018, MMI signed an agreement with The Property Company of Friends, Inc. (Seller) for the acquisition of parcels of land with an aggregate size of 202 thousand square meters. The property, with a total cost of =1.015P billion (exclusive of applicable input and withholding taxes), shall be used by MMI to develop and manage distribution centers for its existing and potential clients in the fast moving consumer goods, consumer durables, automotive and e-commerce spaces. On July 13, 2018, the parties entered into a deed of absolute sale with MMI paying P=556 million (inclusive of VAT net of EWT) of the acquisition cost. As of December 31, 2019, MMI has already paid the Seller an aggregate amount of P=586.95 million (inclusive of VAT and net of EWT). The remaining balance amounting to P=499.74 million shall be settled upon Seller’s full compliance with the conditions set, including but not limited to, the execution of the corresponding Deed of Absolute Sale. As of December 31, 2019, these conditions are yet to be fully complied with by the Seller. *SGVFSM000023* - 100 -

On December 19, 2018, MMI signed an agreement with various individual sellers (Sellers) for the acquisition of parcels of land with an aggregate size of 219 thousand square meters. The property, with a total cost of P=204 million (exclusive of applicable input and withholding taxes), shall be used by MMI to develop and manage distribution centers for its existing and potential clients in the fast moving consumer goods, consumer durables, automotive and e-commerce spaces. The parties also entered into a contract to sell agreement with MMI paying P=206 million (inclusive of VAT net of EWT) of the acquisition cost. The remaining outstanding portion shall be settled upon completion of the transfer documents. As of December 31, 2019, MMI has already paid the Sellers an aggregate amount of P=163.17 million pursuant to the CTS. The remaining balance amounting to P=41.62 million shall be settled upon the Sellers’ full compliance with the conditions set, including but not limited to, the execution of the corresponding deeds of absolute sale. As of December 31, 2019, these conditions are yet to be fully complied with by the Sellers.

Others

Substrate Conversion Agreements (SCA). On November 19, 2018, MetPower Ventures Partners Holdings, Inc. (MVPHI), through Surallah Biogas Ventures Corp., finalized and signed the SCA with Dole Philippines, Inc. (DPI) to design, construct, and operate biogas facilities specifically for DPI (the Project). MPIC has earmarked about =1.0P billion for this project. This project involves establishing integrated waste-to-energy (WTE) facilities to primarily address the waste disposal concerns of DPI and to use the derived biogas from the processing of the fruit waste to supply a portion of the diesel and power requirements of the canneries of DPI in Surallah and Polomok, both located in South Cotabato. The integrated WTE facility, consisting of a biogas plant and an embedded power generation facility shall be established, owned and operated by a special purpose company within the facilities of the end-user. On October 4, 2019, ITOCHU Corporation (ITOCHU; the parent company of ITOCHU Singapore Pte Ltd.) filed an application with the Japanese Ministry of Environment (“MOE”) under the JCM Program, using the Project. ITOCHU Singapore Pte Ltd. (ITOCHU Singapore) as at January 30, 2020 is a shareholder in SBVC at 10% equity ownership. The JCM Program encourages projects to use low carbon technologies and infrastructure that contribute to sustainable development in developing countries such as the Philippines. The Japanese Government provides grants in the form of cash with no interest or repayment terms, to finance facilities and equipment that will reduce carbon dioxide from the environment. As a condition of the grant, the MOE takes portion of the JCM Carbon Reduction Credits and delivers this to the Japanese Government to help Japan achieve its overall emissions reduction targets.

Because the application needs to be completed and submitted by a Japanese entity, ITOCHU is the main Project Participant with MVPHI and SBVC as Partner Participants.

ITOCHU, ITOCHU Singapore and ITOCHU Corp. Manila Branch (collectively, the “ITOCHU Parties”), MVPHI and SBVC entered into an “Agreement on JCM Model Project” which provisions included among others: (i) internal procedure and mechanism to allocate certain responsibilities in order to effectively apply for and implement the JCM Model Project; (ii) allocation of the subsidy between MVPHI (60% of the subsidy) and ITOCHU Parties (40%); and (iii) in case the MOE requires return of the subsidy, each party is responsible for the return of the subsidy in proportion to their stipulated allocation ratio.

On October 29, 2019, the Grant Decision Notice was received by ITOCHU with an approved gross and net subsidy amounting to JPY1,517,419,852 and JPY758,709,000, respectively. The subsidy is expected to be received by the Project Participant within first quarter of 2020 and 2021.

As at February 26, 2020, the Project is expected to commence operations by 2020.

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Integrated Solid Waste Management Facility Project (ISWM Project). In March 2017, the consortium consisting of MPIC, Covanta Energy, LLC and Macquarie Group, Ltd. was granted Original Proponent Status (OPS) by The Quezon City Government to design, construct, finance, and operate an ISWM Project. The ISWM facility will be capable of processing and converting up to 3,000 metric tons per day of Quezon City’s municipal solid waste into 42MWe of renewable energy, enough to power between 60,000 to 90,000 homes. The ISWM Project will be undertaken through a Joint Venture between QC LGU and the consortium in accordance with QC LGU Ordinance: No. SP-2336, s. 2014 (QC PPP Code).

As the original proponent of the ISWM Project, the consortium will have the exclusive rights to enter into detailed negotiations with the QC LGU. Upon successful completion of negotiations, the ISWM Project will be subjected to a competitive challenge consistent with government regulations. If and when the consortium is awarded the ISWM Project, development and construction would take approximately three (3) to four (4) years. It is expected that this project will be funded through a combination of debt and equity.

As at February 26, 2020, the Company is waiting for the issuance of the Notice of Award from the Quezon City Government.

30. Contingencies

Water

Rate Rebasing: 2013-2017

§ 2013-2017 Rate Rebasing - Domestic Arbitration. Metropolitan Waterworks and Sewerage (MWSS) released Board of Trustees Resolution No. 2013-100-RO dated September 12, 2013 and Regulatory Office (RO) Resolution No. 13-010-CA dated September 10, 2013 on the rate rebasing adjustment for the rate rebasing period 2013 to 2017 (Fourth Rate Rebasing Period) reducing Maynilad’s 2012 average all-in basic water charge by 4.82% or =1.46P per cubic meter (cu.m.) or =0.29/cu.m.P over the next five years.

On October 4, 2013, Maynilad filed its Dispute Notice before the Appeals Panel. This Dispute Notice is a referral to the Appeals Panel for Major Disputes of the dispute between Maynilad, on the one hand, and MWSS and the RO, on the other. The Dispute relates to the determination by the RO, in accordance with Section 9.4.2 of the Concession Agreement, of the Rebasing Adjustment as embodied in Resolution No. 13-010-CA.

On December 17, 2013, the RO released Resolution No. 13-011-CA regarding the implementation of a status quo for Maynilad’s Standard Rates and Foreign Currency Differential Adjustments (FCDA) for any and all its scheduled adjustments until such time that the Appeals Panel has issued its arbitral award.

On January 5, 2015, Maynilad officially received the Appeals Panel’s award dated December 29, 2014 upholding Maynilad’s alternative Rebasing Adjustment for the Fourth Rate Rebasing Period of 13.41% or its equivalent of P=4.06 per cu.m. (the “First Award”). This increase has effectively been reduced to =3.06P per cu.m., following the integration of the P=1.00 Currency Exchange Rate Adjustment (CERA) into the basic water charge. To mitigate the impact of the tariff increase on its customers, Maynilad offered to stagger its implementation over a three-year period.

*SGVFSM000023* - 102 -

The First Award, being final and binding on the parties, Maynilad asked the MWSS to cause its Board of Trustees to approve the 2015 Tariffs Table so that the same can be published and implemented 15 days after its publication.

However, the MWSS and the RO have chosen, over Maynilad’s repeated objections, to defer the implementation of the First Award despite it being final and binding on the parties. In its letter dated February 9, 2015, the MWSS and RO, who received their copy of the First Award on January 7, 2015, informed Maynilad that they have decided to await the final outcome of their arbitration with the other concessionaire, Manila Water Company, Inc. (“Manila Water”), before making any official pronouncements on the applicable resulting water rates for the two (2) concessionaires.

§ 2013-2017 Rate Rebasing - International Arbitration. On February 20, 2015, Maynilad wrote the Philippine Government, through the Department of Finance (DOF), to call on the Undertaking Letters which the Republic of the Philippines (ROP) issued in favor of Maynilad on July 31, 1997 and March 17, 2010. On March 9, 2015, Maynilad again wrote the ROP, through the DOF, to reiterate its demand against the Undertaking Letters. The letters dated February 20 and March 9, 2015 are collectively referred to as the “Demand Letters”.

Maynilad demanded that it be paid, immediately and without further delay, the =3.4P billion in revenue losses that it had sustained as a direct result of the MWSS’s and the RO’s refusal to implement its correct Rebasing Adjustment from January 1, 2013 (the commencement of the Fourth Rate Rebasing Period) to February 28, 2015.

On March 27, 2015, Maynilad served a Notice of Arbitration and Statement of Claim upon the ROP, through the DOF. Maynilad gave notice and demanded that the ROP’s failure or refusal to pay the amounts required under the Demand Letters be, pursuant to the terms of the Undertaking Letters, referred to arbitration before a three-member panel and conduct proceedings in Singapore in accordance with the 1976 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.

On April 21, 2015, the MWSS Board of Trustees, in its Resolution No. 2015-004-CA dated March 25, 2015 approved to partially implement the First Award of a tariff adjustment of P=0.64/ cu.m. which, net of the P=1.00 CERA, actually translates to a tariff adjustment of negative P=0.36/cu.m. as opposed to the First Award of P=3.06/cu.m. tariff adjustment, net of CERA. For being contrary to the First Award as well as the provisions of the Concession Agreement, Maynilad did not implement this tariff adjustment.

On May 14, 2015, the MWSS Board of Trustees in its Resolution No. 2015-060-RO approved a 7.52% increase in the prevailing average basic charge of =31.25/cu.m.P or an upward adjustment of P=2.35/cu.m. as CPI adjustment. With the discontinuance of CERA, the net adjustment in average water charge is 4.32% or =1.35/cu.m.P

In the fourth quarter of 2015, the Arbitral Tribunal was constituted. On February 17, 2016, Maynilad again wrote the ROP, through the DOF, to reiterate its demand against the Undertaking Letters and to update its claim. Evidentiary hearings were completed in December 2016.

On July 24, 2017, the Arbitral Tribunal unanimously upheld the validity of Maynilad’s claim against the Undertaking Letter issued by the ROP, through the DOF, and ordered the ROP to compensate Maynilad for the delayed implementation of its relevant tariffs for the Fourth Rate Rebasing Period (the “Second Award”). The Tribunal ordered the ROP to reimburse Maynilad the amount of =3.4P billion for losses from March 11, 2015 to August 31, 2016, without prejudice *SGVFSM000023* - 103 - to any rights that Maynilad may have to seek recourse against MWSS for losses incurred from January 1, 2013 to March 10, 2015. Further, the Tribunal ruled that Maynilad is entitled to recover from the Republic its losses from September 1, 2016 onwards. In case a disagreement on the amount of such losses arises, Maynilad may revert to the Tribunal for further determination.

Subsequently, Maynilad agreed with the ROP’s corrected computation of Maynilad’s revenue losses from March 11, 2015 to August 31, 2016 in the amount of =3.18P billion (with cost of money as of August 31, 2016). As at December 31, 2017 and 2016, Maynilad’s accumulated revenue losses due to the delayed implementation of the First Award are estimated at P=11.4 billion and =8.2P billion, respectively.

Starting April 22, 2017, adjusted water rates which included increase in the FCDA, as well as an adjustment to cover the 1.9% CPI were implemented.

On February 13, 2018, Maynilad received an email from the ROP’s Singapore counsel advising that the ROP had filed an application with the High Court of Singapore to set aside the Second Award dated July 24, 2017 (the “Setting Aside Application”).

The ROP also filed an interlocutory application for sealing which required, among others, that the proceedings be heard in-camera or otherwise than in open court, that there to be no publication of the identities of the parties to the proceedings or of any matter that would reasonably enable the public to deduce the identities of the parties.

On September 4, 2018, immediately following the conclusion of the hearings before the Singapore High Court, the presiding Justice dismissed the Republic’s Setting Aside Application and awarded Singaporean Dollar, S$40,000 in favor of Maynilad by way of costs. The Republic did not appeal the decision to the Singapore Court of Appeal within the prescribed 30-day period and so, the dismissal of the Setting Aside Application became final on October 4, 2018.

As at December 31, 2018, Maynilad has an outstanding claim against the Republic of the Philippines (ROP), through the Department of Finance (DOF), in relation to the decision of the Arbitral Tribunal to compensate Maynilad for the delayed implementation of its relevant tariffs for the Fourth Rebasing period (2013 to 2017) in the amount of P=3.18 billion and cost of litigation amounting to S$40,000. The =3.18P billion refers to Maynilad’s aggregate foregone revenues from March 11, 2015 to August 31, 2016, with cost of money as of August 31, 2016.

As at December 31, 2017, Maynilad’s aggregate foregone revenues, with cost of money as of the same date is =11.4P billion.

Maynilad computed a rebasing adjustment for the Fifth Rate Rebasing Period (2018 to 2022) based on an Opening Cash Position as of December 31, 2017, which included the foregone revenues from the Fourth Rate Rebasing Period. Hence, as of December 31, 2018, the aggregate foregone revenues remain at P=11.4 billion.

On February 11, 2019, Maynilad wrote the DOF about the amount of its updated claim for compensation by the ROP, with a request that the DOF order the MWSS and the MWSS- Regulatory Office to meet with Maynilad to agree and discuss a proposed settlement of the updated claim.

On October 1, 2019, the ROP paid Maynilad approximately P=2.7 million (equivalent of S$71,900) pursuant to the September 4, 2018 order of the High Court to pay Maynilad for its costs and disbursements in respect of OS 188 and SUM 749. *SGVFSM000023* - 104 -

As of February 26, 2020, the DOF has yet to respond to Maynilad’s letter.

§ 2013-2017 Rate Rebasing - Domestic Court Actions. In a decision dated August 30, 2017, the Regional Trial Court, Branch 93 of Quezon City (“RTC”) granted the Petition for Confirmation and Enforcement of the First Award which petitioner, Maynilad, filed in July 2015 (the “RTC Decision”) following the refusal of MWSS and the MWSS Regulatory Office to implement the First Award. As stated above, the First Award upheld the 13.41% Rebasing Adjustment that Maynilad proposed for the Fourth Rate Rebasing Period.

The MWSS filed a Motion for Reconsideration of the RTC Decision which the RTC denied in an Order dated November 23, 2017 (“RTC Order”). The MWSS filed a Petition for Review with the Court of Appeals (“CA”) on December 27, 2017 asking for a reversal of the RTC Decision and Order. In its Comment to the Petition for Review, Maynilad prayed for the Petition for Review’s dismissal and for the immediate enforcement of the RTC Decision and the First Award.

As a consequence of the issuance of the RTC Decision, Maynilad filed, on October 18, 2017, a Motion for Execution of the First Award (“MotEx”). However, the RTC, on February 6, 2018, denied the MotEx.

In its decision dated May 30, 2018, the CA denied MWSS’s Petition for Review, and affirmed the RTC Decision and Order confirming the Final Award (“CA Decision”).

On June 14, 2018, Maynilad filed with the CA a Motion for Clarification (on the CA Decision) for the CA to confirm that the RTC and CA Decisions are immediately executory, and that MWSS should therefore implement the Final Award without any further delay (“Motion for Clarification”).

In the meantime, on July 11, 2018, Maynilad received MWSS’s Petition for Review on Certiorari with the SC (under Rule 19.37 of the Special Rules of Court on Alternative Dispute Resolution) with Manifestation dated July 4, 2018 (the “Petition”). MWSS prayed that the SC (i) reverse and set aside the CA Decision, and (ii) grant MWSS’s counter-petition and declare MWSS as legally released or excused from implementing or enforcing the Final Award or, in the alternative, declare the Final Award as unenforceable.

On July 30, 2018, the CA issued a Resolution noting, without action, the Motion for Clarification that Maynilad filed “in view of the pending Petition for Review” which the MWSS filed with the SC.

On November 19, 2018, the SC’s Second Division ordered the consolidation of the Petition with the (five) consolidated petitions pending before the SC En Banc (“Consolidated Cases”), which seek to, among other things, have the Concession Agreement nullified. On January 11, 2019, Maynilad filed a Motion to De-Consolidate the Petition from the Consolidated Cases.

On April 5, 2019, Maynilad filed a Reiterative Motion to De-Consolidate and a Reiterative Motion to Set the Consolidated Cases for Oral Arguments. *SGVFSM000023* - 105 -

On June 18, 2019, the Supreme Court issued a Notice which, among other things, denied, for lack of merit (with no explanation whatsoever), Maynilad Motion to De-Consolidate. Maynilad, through counsel, received the Notice on October 11, 2019. The Consolidated Petitions remain pending before SC.

As at February 26, 2020, the SC has yet to decide on MWSS’s Petition for Review on Certiorari and Maynilad’s Motion to De-consolidate the Petition from the Consolidated Cases.

Rate Rebasing: 2018-2022. On March 31, 2017, Maynilad submitted a five-year business plan to the RO for the new rate rebasing covering the years from 2018 to 2022 with its proposed rate adjustments.

On September 13, 2018, the MWSS issued Resolution No. 2018-136-RO adopting RO Resolution No. 2018-09-CA dated September 7, 2018 granting Maynilad a partial rate adjustment of =5.73/cu.m.P for the Fifth Rate Rebasing Period (2018 to 2022), to be implemented on an uneven staggered basis of (i) P=0.90/cu.m. effective October 1, 2018; (ii) P=1.95/cu.m. effective January 1, 2020, (iii) =1.95/cu.m.P effective January 1, 2021, and (iv) =0.93/cu.m.P effective January 1, 2022. The approved rate adjustment still does not include the corporate income tax (“CIT”) component to which Maynilad is entitled by virtue of the First Award. In their Resolutions, the MWSS and RO stated that the inclusion of the CIT in Maynilad’s tariff is subject to the SC’s resolution of MWSS’s Petition for Review.

The rate adjustment for January 1, 2020 was not implemented.

Concession Agreement Review and Amendment. With the onset of El Niňo in June 2019, southern portions of Maynilad’s concession area (West Service Area) began experiencing intermittent water interruptions brought about by the diminishing raw water allocation from Angat Dam, aggravated by a protracted algal bloom that affected Laguna Lake which has served as Maynilad’s raw water source to augment its supply from Angat Dam.

As the water crisis and the concomitant water interruptions stretched throughout the summer months, Congress initiated hearings in aid of legislation to determine and address the cause of the water crisis.

The water Concession Agreements were brought into sharp focus when news broke out on November 2019 of the Other Operator’s award in an arbitration against the ROP (ordering the Government to compensate the Other Operator for unimplemented rates beginning 2015).

Subsequently, MWSS issued Resolution No. 2019-201-CO on December 11, 2019, revoking Resolution No.2009-180 dated September 10, 2009 pertaining to the Extension of the Concession Agreement of Maynilad from May 7, 2022 to May 6, 2037.

Matters quickly escalated when the Government identified supposedly “onerous provisions” in the Concession Agreement and ordered its review and amendment. On December 9, 2019, Maynilad received a letter from MWSS informing Maynilad that the MWSS was directed to perform a review of the Concession Agreement. The amendments to the provisions of the Concession Agreement may affect, among others, future tariff increases and service commitments, and the concession period. *SGVFSM000023* - 106 -

Any future amendments to the provisions of the Concession Agreement will be reflected in the financial statements as these are determined.

On December 20, 2019, MWSS released a press statement clarifying Resolution No. 2019-201-CO and confirming that the action of the MWSS BOT did not result in the rescission or outright cancellation of the Concession Agreement.

On December 23, 2019, Maynilad received a letter from MWSS RO confirming that the 25-year CA from 1997 to 2022 and the Memorandum of Agreement (MOA) between Maynilad and the MWSS providing the 15-year extension from 2022 to 2037 have not yet been cancelled.

As of February 26, 2020, the review of the Concession Agreement is still ongoing and Maynilad has not been advised of any amendments to the provisions of the Concession Agreement.

Disputes with MWSS. In prior years, Maynilad has been contesting certain charges billed by MWSS relating to: (a) the basis of the computation of interest; (b) MWSS cost of borrowings; and (c) additional penalties. Consequently, Maynilad has not provided for these additional charges. These disputed charges were effectively reflected and recognized by Maynilad as Tranche B Concession Fees amounting to US$30.1 million by virtue of the Debt and Capital Restructuring Agreement (DCRA) entered into in 2005. Maynilad also paid US$6.8 million in 2005 as an additional amount of Tranche B Concession Fees determined by the Receiver.

Maynilad reconciled its liability to MWSS with the confirmation and billings of MWSS. The difference between the amount confirmed by MWSS and the amount recognized by the Maynilad amounted to =5.6P billion and P=5.1 billion as at December 31, 2019 and 2018, respectively. The difference mainly pertains to disputed claims of MWSS consisting of additional Tranche B Concession Fees, borrowing cost and interest penalty under the Concession Agreement (prior to the DCRA). Maynilad’s position on these charges is consistent with the Receiver’s recommendation which was upheld by the Rehabilitation Court.

Following the issuance of the Rehabilitation Court’s Order on December 19, 2007 disallowing the MWSS’ disputed claims and the termination of Maynilad’s rehabilitation proceedings, Maynilad and MWSS sought to resolve the matter in accordance with the dispute resolution requirements of the Transitional and Clarificatory Agreement (TCA).

Prior to the DCRA, Maynilad has accrued interest on its payable to MWSS based on the terms of the Concession Agreement, which was disputed by MWSS before the Rehabilitation Court. These already amounted to P=985 million as at December 31, 2011 and have been charged to interest expense in prior years. Maynilad maintains that the accrued interest on its payable to MWSS has been adequately replaced by the Tranche B Concession Fees discussed above. Maynilad’s position is consistent with the Receiver’s recommendation which was upheld by the Rehabilitation Court. With the prescription of the TCA and in light of Maynilad’s outstanding offer of US$14 million to fully settle the claim of MWSS, Maynilad reversed the amount of accrued interest in excess of the US$14.0 million settlement offer amounting to P=378 milllion in 2012. The remaining balance of P=607 million as at December 31, 2019 and December 31, 2018, which pertains to the disputed interest penalty under the Concession Agreement prior to DCRA, has remained in the books pending resolution of the remaining disputed claims of MWSS.

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Real Property Taxes Assessment on Common Purpose Facilities. On October 13, 2005, Maynilad and Manila Water (the Concessionaires) were jointly assessed by the Municipality of Norzagaray, Bulacan for real property taxes on certain common purpose facilities purportedly due from 1998 to 2005 amounting to P=357 million. It is the position of the Concessionaires that these properties are owned by the ROP and therefore, exempt from taxation.

The supposed joint liability of the Concessionaires for real property tax, including interests, as at December 31, 2019 and December 31, 2018 amounted to =1.0P billion.

After the Local Board of Assessment Appeals (LBAA) ruled in favor of the Municipality of Norzagaray, Bulacan, the Concessionaires elevated the ruling of the LBAA to the Central Board of Assessment Appeals (CBAA) by filing separate appeals.

During the presentation of evidence before the CBAA, the LBAA moved for the presentation of additional witnesses, which was denied by the CBAA on February 12, 2016.

The LBAA filed a Motion for Reconsideration, which was again denied by the CBAA on June 20, 2016.

As a result, the LBAA filed a Petition for Certiorari before the Court of Tax Appeals (“CTA”).

On September 21, 2016, pursuant to the order of the CTA, the CBAA transmitted the complete records of the case to the CTA, and held in abeyance all proceedings of the case until the Petition for Certiorari is resolved.

On May 23, 2018, Court of Tax Appeals’ (CTA) Notice of Decision dated May 11, 2018 was received, denying Petitioner’s Petition for Certiorari (for an interlocutory order) (“CTA Decision”). Thus, the CTA ordered that the case be remanded to CBAA and for the proceedings to continue.

On September 3, 2018, Maynilad received the CTA’s Resolution dated June 4, 2018 noting the compliance of Maynilad and MWSS informing the CTA of their respective dates of receipt of the CTA Decision.

On February 7, 2019, Maynilad received an Entry of Judgment certifying that the CTA Decision became final and executory on June 20, 2018.

The Concessionaires’ respective appeals remain pending before the CBAA.

Supreme Court Decision on the Philippine Clean Water Act. On September 17, 2019, Maynilad, through its external counsel, received a copy of the Supreme Court En Banc decision, dated August 6, 2019, in the case of Maynilad vs The Secretary of the Department of Environment and Natural Resources, et al (the “Decision”).

The Supreme Court affirmed, with modifications, the decisions of the Court of Appeals finding the Concessionaires and MWSS guilty of violating Section 8.

For violating Section 8, the Supreme Court held each of the Concessionaires jointly and severally liable with the MWSS for =921.5P million for the period May 7, 2009 (the day following the lapse of the five-year period provided in Section 8) to August 6, 2019, the date of the Decision’s promulgation. The fine is to be paid within 15 days from the time the Decision becomes final. In addition, MWSS and the Concessionaires will be liable for the initial amount of =322,102.00P a day, subject to a further 10% increase every two years, pursuant to Section 28 of the CWA, until full *SGVFSM000023* - 108 - compliance with the mandate of Section 8. A 6% interest will be imposed on the total amount of the fines should there be a delay in its payment.

On October 2, 2019, Maynilad filed a Motion for Reconsideration of the Decision with the Supreme Court. As at February 26, 2020, the Supreme Court has yet to decide on Maynilad’s Motion for Reconsideration.

Others. Maynilad is a party to various civil and labor cases relating to breach of contracts with damages, illegal dismissal of employees, and nonpayment of backwages, benefits and performance bonus, among others. Other disclosures required by PAS 37 were not provided as it may prejudice Maynilad’s position in on–going claims, litigations and assessments.

Toll Operations

Toll Rate Adjustments – NLEX Corp. NLEX Corp, as petitioner-applicant, filed the following Petitions for Approval of Periodic Toll Rate Adjustment with the Toll Regulatory Board (TRB) praying for the adjustment of the toll rates for the NLEX: Petition Date Filed Effectivity 2012 Petition June 2012 January 1, 2013 2014 Petition September 2014 January 1, 2015 2016 Petition September 2016 January 1, 2017 2018 Petition September 2018 January 1, 2019

On October 27, 2015, NLEX Corp was granted the right and obligation to manage, operate, and maintain the SCTEX under the terms of the Business Agreement between NLEX Corp and BCDA. Under the agreements covering the SCTEX, toll rate adjustment petitions shall be filed with the TRB yearly. Prior to October 27, 2015, the BCDA filed petitions for toll rate adjustment effective in 2012, 2013, 2014, and 2016. Thereafter, on September 29, 2016, NLEX Corp, as petitioner-applicant, filed a petition for toll rate adjustment effective January 1, 2017.

On June 14, 2019, NLEX Corp implemented the Petition for Periodic Toll Rate Adjustment effective 2012 in the SCTEX. Apart from this Petition, all the remaining toll rate adjustments for SCTEX remain pending with the TRB.

2012 and 2014 Petitions. On February 15, 2019, NLEX Corp received a Consolidated Resolution dated October 2018 issued by the TRB which approved and allowed NLEX Corp to implement the toll rate adjustment indicated therein on a staggered basis in 2018, 2020, 2021, and 2023. Likewise, on February 15, 2019, the TRB issued a letter to NLEX Corp. instructing the latter to publish the Toll Fee Matrix, which is attached to the said letter in accordance with the 2013 Revised Rules of Procedure of the Toll Regulatory Board (TRB Rules). In full compliance with the letter, NLEX Corp. caused the publication of the Toll Fee Matrix in a newspaper of general circulation, once a week for three consecutive weeks in March 2019. On March 20, 2019, the TRB issued a Notice to Start Collection effective March 21, 2019.

Segment 10 Add-on Toll Rate Petition. On January 22, 2019, NLEX Corp as petitioner-applicant, filed a Petition for Implementation of Approved Adjustment to Authorized Toll Rates with Application for Provisional Relief with the TRB praying for the adjustment of the toll rate for the NLEX Open System effective February 15, 2019 upon completion of the NLEX Harbor Link Project (NLEX Segments 9 and 10) (Segment 10 Add-on Toll Rate Petition).

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On February 15, 2019, the TRB issued an Order finding NLEX Corp’s subject Petition to be sufficient in form and directed NLEX Corp to publish in full the contents of the Petition in a newspaper of general circulation, in accordance with applicable rules and laws, with a notice that all interested tollway users may file a petition for review of the proposed adjusted toll rates. In full compliance with the Order and TRB Rules, NLEX Corp caused the publication of the Petition in a newspaper of general circulation, once a week for three consecutive weeks in February and March 2019. On March 5, 2019, the TRB issued a letter to NLEX Corp stating that the TRB (a) conditionally approved the subject Petition and granted NLEX Corp. provisional authority to collect the add-on tolls for the Open System of the NLEX and (b) allowing the implementation of the new authorized toll price for the NLEX (Integrated Toll Fee Matrix) which is attached to the said letter. The Integrated Toll Fee Matrix includes both: (a) the first tranche of the approved adjusted toll rates in the 2012 and 2014 Petitions stated in the TRB’s Consolidated Resolution dated October 2018; and (b) the provisionally approved add-on toll rates in the Segment 10 Add-on Toll Rate Petition. In the same letter, the TRB instructed NLEX Corp to: (a) cause the publication of the Integrated Toll Fee Matrix in accordance with the provisions of the TRB Rules and (b) post the required bond amounting to =530.0P million or the equivalent of one (1) year collection of add-on rate. In full and complete compliance with the instructions of the TRB, NLEX Corp (a) submitted the original of the Surety Bond issued by the Prudential Guarantee and Insurance Inc. in favor of the Republic of the Philippines, acting by and through the TRB, and (b) caused the publication of the Integrated Toll Fee Matrix in a newspaper of general circulation once a week for three (3) consecutive weeks in March 2019. On March 20, 2019, the TRB issued a Notice to Start Collection effective March 21, 2019.

NLEX Corp agreed to implement a P=1.00 reduction in the Open system approved toll fees across all vehicle classes to cushion the impact of toll adjustments to motorists.

Arbitration. In August 2015, NLEX Corp wrote the ROP, acting by and through the TRB, a Final Demand for Compensation based on overdue 2013 and 2015 Toll Rate Adjustments (Final Demand). In the letter, NLEX Corp. stated that the ROP’s/TRB’s inexcusable refusal to act on the 2012 Petition and 2014 Petition is in total disregard and a culpable violation of applicable laws and contractual provisions on the matter, to the great prejudice of NLEX Corp., which has continuously relied in good faith on such contractual provisions as well as on the timely and proper performance of the ROP’s/TRB’s legal and contractual duties.

In view of the failure of the ROP/TRB to heed the Final Demand, NLEX Corp sent a Notice of Dispute to the ROP/TRB dated September 11, 2015 invoking STOA Clause 19 (Settlement of Disputes). STOA Clause 19.1 states that the parties shall endeavor to amicably settle the dispute within sixty (60) calendar days. The TRB sent several letters to NLEX Corp requesting the extension of the amicable settlement period. However, NLEX Corp has not received any feasible settlement offer from the ROP/TRB.

Accordingly, on April 4, 2016, NLEX Corp. was compelled to issue a Notice of Arbitration and Statement of Claim (Notice of Arbitration) to the ROP, acting by and through the TRB, consistent with STOA Clause 19 in order to preserve its rights under the STOA. In the Notice of Arbitration, NLEX Corp appointed retired SC Justice Jose C. Vitug as its nominee to the arbitral tribunal. In a letter dated May 3, 2016, the ROP, acting by and through the Office of the Solicitor General (OSG), notified NLEX Corp of its appointment of retired SC Chief Justice Reynato S. Puno as its nominee to the arbitral tribunal.

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In a letter dated June 1, 2016, NLEX Corp. proposed that the arbitration be held in Singapore which is the seat of arbitration that the ROP has chosen for its various PPP projects, and proposed the Singapore International Arbitration Center as the Appointing Authority. The proposal was accepted by the ROP, acting by and through the OSG in a letter dated July 13, 2016 but reiterated its previous proposal that a Philippine-based institution/person be the Appointing Authority.

On June 27, 2017, the initial case management conference was held in Singapore.

On December 11, 2017, NLEX Corp. submitted its Updated Statement of Claim.

On December 27, 2017, Respondent ROP/TRB filed its request for bifurcation, which was accordingly granted, i.e., the proceedings were divided into two parts: first, the issue on whether or not the tribunal has jurisdiction over NLEX Corp.’s claim, and second, the main merits of the claim as set forth in the Updated Statement of Claim.

In January 2018, the ROP/TRB and NLEX Corp submitted their respective statements on the matter of jurisdiction. In July 2018, the Arbitral Tribunal issued Procedural Order No. 2 whereby the Arbitral Tribunal declined to dismiss the claim on the basis of the ROP/TRB’s objections to jurisdiction and ordered the ROP/TRB to submit its Statement of Defense. In September 2018, the ROP/TRB submitted its Statement of Defense. In October to November 2018, NLEX Corp and the ROP/TRB submitted their respective Requests for Production of Documents, Objections to the Request for Production of Documents, and Reply to the Objections to the Request for Production of Documents. In December 2018 and January 2019, the Arbitral Tribunal resolved NLEX Corp’s and the ROP/TRB’s Request for Production of Documents.

On June 24 to 27, 2019 the arbitration hearings were held in Singapore. In August 2019, NLEX Corp and the ROP/TRB submitted their respective Post-Hearing Briefs. On December 13, 2019, NLEX Corp sought from the Arbitral Tribunal a 60-day suspension of the proceedings for the parties to discuss the matter. On December 19, 2019, the Arbitral Tribunal granted the requested 60-day suspension. The arbitration is still pending as at February 26, 2020. Total amount of compensation for TRB’s inaction on lawful toll rate adjustments, covering the toll rate petitions of the NLEX (2012, 2014, 2016 and 2018 petitions), and of the SCTEX is approximately at P=13.0 billion (net of VAT and net of Government’s share) as at December 31, 2019.

Toll Rate Adjustments - CIC. CIC has a pending claim for compensation against the ROP, acting by and through the TRB, in the amount of P=2.7 billion and P=1.9 billion (VAT-exclusive, and net of PRA’s share) as of December 31, 2019 and 2018, respectively. The Company’s claim is based on TRB’s inaction on lawful toll rate adjustments which were due in January 1, 2012, 2014, 2015 and 2016. CIC sent a demand letter in August 2015 to TRB seeking payment of the said amount. TRB disputed the demand letter and claimed that no compensation is due to CIC as the toll rate adjustment petitions have not yet been resolved. Subsequently, CIC sent a Notice of Dispute to the TRB in September 2015 pursuant to the dispute resolution provisions of the TOA. CIC filed a Petition for Periodic Toll Rate Adjustment on September 20, 2016. TRB replied, stating that they are studying the petition based on their Rule of Procedure.

On November 16, 2016, CIC filed a Motion for Provisional Approval of Toll Rates under petition filed in 2014. There has been no action on the 2014 petition on the Motion for Provisional Approval.

On February 7, 2017, the CIC received a notice from the Permanent Court of Arbitration that Chelva Retnam Rajah has been designated the appointing authority who will appoint the chairperson of the Arbitration Panel.

*SGVFSM000023* - 111 -

On September 30, 2017, the CIC filed another Petition for the next cycle, covering both R-1 and R-1 expressway extension. The Petition has been published in a newspaper of general circulation and the Company is awaiting TRB’s action thereon as of February 26, 2020.

In December 2017, Claimants CIC and PRA submitted their updated statement of claim with the Arbitration Tribunal. On December 29, 2017, the Arbitration Tribunal issued a ruling bifurcating the proceedings, i.e., separating the issue on its jurisdiction from the merits of the main claim for arbitration.

On January 12, 2018, TRB has filed with the Arbitration Tribunal its jurisdictional objections, essentially alleging arguments in support of its intention to immediately have the arbitration case dismissed for lack of jurisdiction on the part of the Tribunal. The Respondent has ﬁled its jurisdictional objections and CIC and PRA ﬁled their opposition to those objections on January 26, 2018. The Procedural order no. 2 issued by TRB on July 9, 2018: (a) Denied the request for dismissal of the claims; (b) reserved the decision on the objections to jurisdiction and admissibility to the merit phase of the proceedings; ( c) instructed the filing in the Statement of Defense from the respondent, to which the claimant may file a reply brief ; and (d) instructed the parties to confer and agree on an updated timetable to file pleadings, which must be reported to the Tribunal not later than August 6, 2018. On August 28, 2018, CIC filed its Compliance Ad Cautelam to TRB's Order stating that: (a) Under the Toll Operation Agreement, PRA and/or CIC each have distinct and separate right to a periodic adjustment of the Agreed Toll Rate. Petitions for toll adjustments can be filed by either PRA or CIC, (b) CIC filed its petition within the prescribed period and the subsequent filing of a similar petition by PRA is a mere superfluity. On October 12, 2018, CIC filed its petition for approval of add-on agreed toll rate with application for provisional relief for Phase 1 of Segment project, requesting the TRB to approve and allow the implementation of an add-on toll of P=0.20 per km.

On January 12, 2019, Atty. Ernesto B. Francisco, Jr. filed his Petition for Review Ad Cautelam. On March 2, 2019, CIC filed its Comment/Opposition to the Petition for Review Ad Cautelam. On July 31, 2019, CIC filed its Urgent Motion to Resolve the 2017 Petition.

R1 Enhancement Phase 1. On July 15, 2019, TRB issued a Resolution (a copy of which was received by CIC on October 14, 2019) allowing the implementation of the Add-On Toll Rate of P=1.00, P=2.00 and P=3.00 (VAT-inclusive) for vehicle classes 1, 2 and 3, respectively, subject to the continuing review and validation by TRB to determine the reasonableness of its imposition and the issuance by COA of its recommendation once it has completed its audit, effective October 24, 2019.

C5 South Link Expressway Segment 3A-1. On July 4, 2019, CIC filed its Petition for Approval of Initial Toll for C5 South Link Expressway and Provisional or Interim Initial Toll for Segment 3A-1 requesting TRB to approve and allow the implementation of the initial toll fees.

On July 10, 2019, TRB issued an Order requiring CIC to publish in full the contents of the Petition in a newspaper of general circulation with a notice that all interested tollway users may file a petition for review. On July 13, 18, and 22, 2019, CIC completed the publication requirements of TRB.

On August 15, 2019, TRB issued a Resolution (a copy of which was received by CIC on October 10, 2019) approving and allowing the implementation of the provisional initial toll rate of P=22.00, P=44.00 and P=66.00 (VAT-inclusive) for vehicle classes 1, 2 and 3, respectively, subject to the review by the Commission on Audit and to the continuing authority of the TRB to review its reasonableness, effective October 24, 2019.

*SGVFSM000023* - 112 -

The authority to collect the above-mentioned provisional initial toll is valid only for a period of six (6) months counted from the start of actual toll collection. Within that period, CIC must submit to TRB an updated investment recovery scheme for the entire CAVITEX, including the C5 South Link Expressway.

Value-Added Tax (VAT) Assessments. On various dates, NLEX Corp received VAT assessments from the BIR covering taxable years 2006 to 2009 totalling =3,066P million including penalties. The assessments are at various stages On June 11, 2010, NLEX Corp filed its Position Paper with the BIR reiterating its claim that it is not subject to VAT on toll fees.

On April 3, 2014, the BIR accepted and approved NLEX Corp’s application for abatement and issued a Certificate of Approval for the cancellation of the basic output tax, interest and compromise penalty amounting to P=1,010.5 million and P=584.6 million for taxable years 2006 and 2007, respectively.

Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any event, the STOA amongst NLEX Corp, ROP, acting by and through the TRB, and PNCC, provides NLEX Corp with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by NLEX Corp of its obligations materially more expensive.

Real Property Tax (RPT) Asessments. NLEX Corp and MPT North are also parties to certain claims and assessments relating to real property taxes (RPT) as follows:

§ In 2004, MPT North received RPT assessments covering Segment 7 located in the province of Bataan for the period from 1997 to June 2005 amounting to P=98.5 million for alleged delinquency property tax. MPT North appealed before the Local Board of Assessment Appeals (LBAA) of Bataan and prayed for the cancellation of the assessment. In the said appeal, MPT North invoked that the property is owned by the ROP, hence, exempt from RPT. The case is still pending before the LBAA of Bataan.

§ In July 2008 and April 2013, NLEX Corp filed Petitions for Review under Section 226 of the Local Government Code with the Local Board of Assessment Appeals (LBAA) of the Province of Bulacan seeking to declare as null and void tax declarations issued by the Provincial Assessor of the Province of Bulacan. The said tax declarations were issued in the name of NLEX Corp. as owner/administrator/beneficial user of the NLEX and categorized the NLEX as a commercial property subject to RPT. The LBAA has yet to conduct an ocular inspection to determine whether the properties, subject of the tax declarations, form part of the NLEX, which NLEX Corp argues is property of the public dominion and exempt from RPT.

§ In September 2013, NLEX Corp received notices of realty tax delinquencies for the years 2006 to 2012 and 2013 issued by the Provincial Treasurer of Bulacan stating that if NLEX Corp fails to pay or remit the alleged delinquent taxes, the remedies provided for under the law for the collection of delinquent taxes shall be applied to enforce collection. In September 27, 2013, the Bureau of Local Government Finance of the Department of Finance (DOF-BLGF) wrote a letter to the Province of Bulacan advising it to hold in abeyance any further course of action pertaining to the alleged real property tax delinquency. In October 2013, the Provincial Treasurer of Bulacan has respected the directive from the DOF-BLGF to hold the enforcement of any collection remedies in abeyance. In January 2017, the Provincial Treasurer of Bulacan issued a notice of realty tax delinquencies for the years 2006 to 2017 stating that it could apply the remedies provided under the law for the collection of delinquent taxes.

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The outcome of the claims on RPT cannot be presently determined. Management believes that these claims will not have a significant impact on the Company’s consolidated financial statements. Management and its legal counsel also believes that the STOA also provides NLEX Corp with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by NLEX Corp of its obligations materially more expensive.

Others. The companies in the toll operations segment are also parties to other cases and claims arising from the ordinary course of business filed by third parties, which are either pending decisions by the courts or are subject to settlement agreements. The outcome of these claims cannot be presently determined. In the opinion of management and its legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on the Company’s consolidated financial statements.

Power

Performance-Based Regulations (“PBR”). MERALCO is among the Group A entrants to the PBR, together with two (2) other private DUs.

Rate-setting under PBR is governed by the RDWR. The PBR scheme sets tariffs once every Regulatory Period (“RP”) based on the regulated asset base (“RAB”) of each DU, and the required operating and capital expenditures (“OPEX” and “CAPEX”, respectively) to meet operational performance and service level requirements responsive to the need for adequate, reliable and quality power, efficient service, and growth of all customer classes in the franchise area as approved by the ERC. PBR also employs a mechanism that penalizes or rewards a DU depending on its network and service performance.

Rate filings and settings are done on a RP basis. One (1) RP consists of four (4) Regulatory Years (“RYs”). A RY for MERALCO begins on July 1 and ends on June 30 of the following year. The 5th RP for Group A DUs began on July 1, 2019 and shall end on June 30, 2023.

Maximum Average Price (“MAP”) for MERALCO’s 3rd RP. After rate setting process for a RP, MERALCO goes through a rate verification process for each RY within the RP. In each of RYs 2012, 2013, 2014 and 2015, MERALCO filed for the respective MAP with the ERC on the following dates:

Date rate translation was MERALCO’s ERC provisional approval implemented and reflected in RY application date date customer bills 2012 June 21, 2011 October 3, 2011 October 2011 2013 March 30, 2012 June 11, 2012 July 2012 2014 April 1, 2013 June 10, 2013 July 2013 2015 March 31, 2014 May 5, 2014 July 2014

The ERC has provisionally approved the foregoing distribution MAPs for each of the RY. However, as at February 26, 2020, MERALCO continues to await the final approval of the ERC.

MERALCO’s Interim Average Rate beginning RY 2016. On June 11, 2015, MERALCO filed its application for the approval of a proposed interim average rate of P=1.3939 per kWh and translation thereof into rate tariffs by customer category. On July 10, 2015, the ERC provisionally approved an interim average rate of P=1.3810 per kWh (excluding efficiency adjustment) and the rate translation per customer class, which was reflected in the customer bills starting July 2015. MERALCO has completed the presentation of its evidence and is set to file its Formal Offer of Evidence (“FOE”)

*SGVFSM000023* - 114 - after the ERC rules on pending motions. As at February 26, 2020, the ERC’s ruling on these motions is pending.

In a letter dated June 14, 2019, MERALCO advised the ERC that it shall continue implementing the existing ERC-approved interim average rate pending the regulatory reset process. In a letter dated July 4, 2019, the ERC authorized the continued implementation of the interim average rate but directed MERALCO, as well as other distribution utilities, to refund any remaining amount pertaining to regulatory reset cost for the previous RPs.

While MERALCO complied with the directive to refund the total amount of =263.9P million, equivalent to =0.0731P per kWh in its July 2019 billing, it wrote a letter seeking clarification or reconsideration on the basis for the refund of the regulatory reset cost, including the imposition of and basis for the interest computed therein. The refund was included as a separate line item in MERALCO’s July 2019 billing to its customers. As at February 26, 2020, the ERC has yet to reply to MERALCO’s letter.

MERALCO’s CAPEX for 4th RP and RY 2020. Absent the release by the ERC of the final rules to govern the filing of its 4th and 5th RP reset, MERALCO filed its applications for approval of authority to implement its CAPEX program pursuant to Section 20(b) of Commonwealth Act No. 146, as amended, otherwise known as the Public Service Act.

Proposed MERALCO’s CAPEX RY applicationdate amount Status of applications 2016 February 9, 2015 P=17.7 billion On June 15, 2016, MERALCO received a copy of the ERC Decision dated April 12, 2016 which partially approved MERALCO’s CAPEX program for RY 2016 amounting to P=15.5 billion out of the total proposed RY 2016 CAPEX of P=17.7 billion, subject to certain conditions. An intervenor filed a Motion for Reconsideration (“MR”) on the Decision which is pending before the ERC. On July 25, 2016, MERALCO filed its opposition to the MR. As at February 26, 2020, the ERC ruling on the MR is pending. 2017 March 8, 2016 P=15.4 billion On July 26, 2016, MERALCO received an Order dated May 5, 2016, which partially approved MERALCO’s CAPEX program for RY 2017 amounting to P=8.8 billion, subject to certain conditions. On September 14, 2016, MERALCO filed an MR. Subsequently, on April 25, 2017, MERALCO filed a Very Urgent Motion for Resolution of the application. Thereafter, on October 18, 2017, MERALCO filed a Manifestation and Urgent Motion for Resolution. On November 9, 2017, MERALCO filed a Manifestation with Third Urgent Motion to Resolve the Application. As at February 26, 2020, MERALCO is awaiting the final decision of the ERC.

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Proposed MERALCO’s CAPEX RY applicationdate amount Status of applications 2018 April 3, 2017 P=18.8 billion On May 26, 2017, MERALCO received an Order dated May 15, 2017, which sets the case for initial hearing. Hearings were conducted on June 22, 2017, August 1, 2017, August 25, 2017 and September 22, 2017. On November 9, 2017, MERALCO filed its FOE. MERALCO also filed Manifestations on November 9, 2017 and March 28, 2018, informing the ERC that it was constrained to implement several projects in order to avert service interruptions to its customers and maintain a robust distribution infrastructure. As at February 26, 2020, the case has been submitted for decision. 2019 April 30, 2018 P=21.0 billion On July 9, 2018, MERALCO filed a Very Urgent Motion for issuance of provisional authority and to set the case for initial hearing. As at February 26, 2020, hearings on this case are ongoing. 2020 July 1, 2019 P=15.5 billion On July 1, 2019, MERALCO filed the application for approval of its very urgent/emergency CAPEX projects for RY 2020. As at February 26, 2020, hearings on this case are ongoing.

MERALCO’s 4th and 5th RP Reset Application. MERALCO’s 4th RP ended on June 30, 2019 and is currently operating in the 5th RP. Under ERC Resolution No. 25, Series of 2016 dated July 12, 2016, the ERC promulgated a Resolution modifying the RDWR for privately-owned DUs entering the PBR. The ERC has directed MERALCO and Private Electric Power Operators Association (“PEPOA”) to publish the Resolution. However, MERALCO sought clarification from the ERC on certain issues in the Resolution, including the need to await the final decision of the ERC on the Petition for the Rule Making filed by a consumer group to amend the PBR.

In a Notice dated November 16, 2016, the ERC approved the draft “Regulatory Asset Base Roll Forward Handbook for Privately Owned Electricity Distribution Utilities” (“RAB Handbook”) for posting in its website. All interested parties were asked to submit their respective comments on the draft RAB Handbook. In an Omnibus Motion filed on February 9, 2017, MERALCO submitted its initial comments to the draft RAB Handbook but moved for the deferment of the proceedings until the consumer group’s Petition as referred in the preceding paragraph has been resolved. As at February 26, 2020, the ERC has yet to resolve MERALCO’s Omnibus Motion.

On December 21, 2018, MERALCO filed a Petition for the Adoption of the Proposed Issues Paper and Revised RDWR for the 5th RP of the First Entry Group Under PBR. As at February 26, 2020, the ERC has yet to act on MERALCO’s Petition.

On June 13, 2019, the ERC posted the working drafts of the RDWR and “Regulatory Reset for the Fourth and Fifth Regulatory Period for the First Entry Group of Privately Owned Distribution Utilities subject to Performance Based Regulations” Issues Paper. The Draft Rules and Issues Paper were works in progress by the technical staff that will be presented to the ERC together with the *SGVFSM000023* - 116 - consolidated inputs from stakeholders. Interested parties were given until July 1, 2019 to submit their comments to the drafts. The public consultation was originally scheduled on July 5, 2019. MERALCO and other stakeholders have submitted their respective comments.

In a Notice dated July 4, 2019, the ERC cancelled the public consultation and gave the stakeholders until July 15, 2019 to submit their additional comments. Public consultations were scheduled in Cebu, Davao and Manila on July 24, 26 and 29, 2019, respectively.

MERALCO submitted additional comments on July 15, 2019 and August 2, 2019 and attended public consultations. MERALCO is awaiting further action of the ERC on the matter.

On December 9, 2013, the ERC gave clearance to the request of MERALCO to implement a staggered collection over three (3) months covering the December 2013 billing month for the increase in generation charge and other bill components such as VAT, LFT, transmission charge, and SL charge. The generation costs for the November 2013 supply month increased significantly because of the aberrant spike in the WESM charges on account of the non-compliance with WESM Rules by certain plants resulting in significant power generation capacities not being offered and dispatched, and the scheduled and extended shutdowns, and the forced outages, of several base load power plants, and the use of the more expensive liquid fuel or bio-diesel by the natural gas-fired power plants that were affected by the Malampaya Gas Field shutdown from November 11 to December 10, 2013.

On December 19, 2013, several party-list representatives of the House of Representatives filed a Petition against MERALCO, ERC and DOE before the SC, questioning the ERC clearance granted to MERALCO to charge the resulting price increase, alleging the lack of hearing and due process. It also sought for the declaration of the unconstitutionality of the EPIRA, which essentially declared the generation and supply sectors competitive and open, and not considered public utilities. A similar petition was filed by a consumer group and several private homeowners’ associations challenging also the legality of the AGRA that the ERC had promulgated. Both petitions prayed for the issuance of TRO, and a Writ of Preliminary Injunction.

On December 23, 2013, the SC consolidated the two (2) Petitions and granted the application for TRO effective immediately and for a period of 60 days, which effectively enjoined the ERC and MERALCO from implementing the price increase. The SC also ordered MERALCO, ERC and DOE to file their respective comments to the Petitions. Oral Arguments were conducted on January 21, 2014, February 4, 2014 and February 11, 2014. Thereafter, the SC ordered all the Parties to the consolidated Petitions to file their respective Memorandum on or before February 26, 2014 after which the Petitions will be deemed submitted for resolution of the SC. MERALCO complied with said directive and filed its Memorandum on said date.

On February 18, 2014, acting on the motion filed by the Petitioners, the SC extended for another 60 days or until April 22, 2014, the TRO that it originally issued against MERALCO and ERC on December 23, 2013. The TRO was also similarly applied to the generating companies, specifically MPPCL, SMEC, SPPC, FGPC, and the NGCP, and the PEMC (the administrator of WESM and market operator at that time) who were all enjoined from collecting from MERALCO the deferred amounts representing the =4.15P per kWh price increase for the November 2013 supply month.

*SGVFSM000023* - 117 -

In the meantime, on January 30, 2014, MERALCO filed an Omnibus Motion with Manifestation with the ERC for the latter to direct PEMC to conduct a re-run or re-calculation of the WESM prices for the supply months of November to December 2013. Subsequently, on February 17, 2014, MERALCO filed with the ERC an Application for the recovery of deferred generation costs for the December 2013 supply month praying that it be allowed to recover the same over a six (6)-month period.

On March 3, 2014, the ERC issued an Order voiding the Luzon WESM prices during the November and December 2013 supply months on the basis of the preliminary findings of its Investigating Unit (“IU”) that these are not reasonable, rational and competitive, and imposing the use of regulated rates for the said period. PEMC was given seven (7) days upon receipt of the Order to calculate these regulated prices and implement the same in the revised WESM bills of the concerned DUs in Luzon. PEMC’s recalculated power bills for the supply month of December 2013 resulted in a net reduction of the December 2013 supply month bill of the WESM by P=9.3 billion. Due to the pendency of the TRO, no adjustment was made to the WESM bill of MERALCO for the November 2013 supply month. The timing of amounts to be credited to MERALCO is dependent on the reimbursement of PEMC from associated generator companies. However, several generating companies, including MPPCL, SN Aboitiz Power, Inc., TeaM (Philippines) Energy Corporation, PanAsia Energy, Inc. (“PanAsia”), and SMEC, have filed MRs questioning the Order dated March 3, 2014. MERALCO has filed a consolidated comment to these MRs. In an Order dated October 15, 2014, the ERC denied the MRs. The generating companies have appealed the Orders with the CA. MERALCO has filed a motion to intervene and a comment in intervention. The CA consolidated the cases filed by the generation companies. In a Decision dated November 7, 2017, the CA set aside ERC Orders dated March 3, 2014, March 27, 2014, May 9, 2014 and October 15, 2014 and declared the orders null and void. The Decision then reinstated and declared valid WESM prices for the November and December 2013 supply months. MERALCO and the ERC have filed their respective motions for reconsideration. Several consumers also intervened in the case and filed their respective motions for reconsideration.

In a Resolution dated March 29, 2019, the CA denied the motions for reconsideration and upheld its Decision dated November 7, 2017.

MERALCO and several consumers have elevated the CA Decision and Order to the SC where the case is pending.

In view of the pendency of the various submissions before the ERC and mindful of the complexities in the implementation of the ERC’s Order dated March 3, 2014, the ERC directed PEMC to provide the market participants additional 45 days to comply with the settlement of their respective adjusted WESM bills. In an Order dated May 9, 2014, the parties were then given an additional non-extendible period of 30 days from receipt of the Order within which to settle their WESM bills. However, in an Order dated June 6, 2014 and acting on an intervention filed by Angeles Electric Corporation, the ERC deemed it appropriate to hold in abeyance the settlement of PEMC’s adjusted WESM bills by the market participants.

On April 22, 2014, the SC extended indefinitely the TRO issued on December 23, 2013 and February 18, 2014 and directed generating companies, NGCP and PEMC not to collect from MERALCO. As at February 26, 2020, the SC has yet to resolve the various petitions filed against MERALCO, ERC, and DOE.

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ERC and DOE Resolutions on Retail Competition and Open Access Prohibiting the Operations of the Local Retail Electricity Supply business segment. The transition period for RCOA commenced on December 26, 2012 in accordance with the joint statement released by the ERC and the DOE on September 27, 2012 and the Transitory Rules for the Implementation of RCOA (ERC Resolution No. 16, Series of 2012). The commercial operations of RCOA started on June 26, 2013.

On March 31, 2014, the ERC issued a Resolution on the Withdrawal of the Rules on Customer Switching and the Retention of the Code of Conduct for Competitive Retail Market Participants. On the same date, ERC also issued a Resolution adopting the Rules on the Establishment of Customer Information by the Central Registration Body (“CRB”) and Reportorial Requirements, mandating all DUs to submit to the ERC and CRB information on end-users with (i) monthly average peak demand of at least one (1) MW for the preceding 12 months; and (ii) monthly average peak demand of 750 kW but not greater than 999 kW. The ERC will use these information in issuing the certificates of contestability.

On October 22, 2014, the ERC issued a resolution suspending the issuance of RES licenses. Under the resolution, the ERC resolves to hold in abeyance the evaluation of RES license applications and suspend the issuance of such licenses until such time that the amendments to the Rules for the issuance of RES licenses have been made by the ERC.

On July 1, 2015, the DOE published a Department Circular “Providing Policies to Facilitate the Full Implementation of RCOA in the Philippine Electric Power Industry”. The Circular essentially provided for mandatory contestability.

On March 8, 2016, the ERC promulgated Resolution No. 05 Series of 2016 entitled “A Resolution Adopting the 2016 Rules Governing the Issuance of Licenses to Retail Electricity Suppliers (RES) and Prescribing the Requirements and Conditions Therefor”. The Resolution removed the term local RES as one of the entities that may engage in the business of supplying electricity to the contestable market without need of obtaining a license therefor from the ERC. Moreover, while an affiliate of a DU is allowed to become a RES, the allowance is “subject to restrictions imposed by the ERC on market share limits and the conduct of business activities”.

On May 12, 2016, the ERC issued Resolutions No. 10 and 11, Series of 2016, which:

· Provided for mandatory contestability. Failure of a contestable customer to switch to RES upon date of mandatory contestability (December 26, 2016 for those with average demand of at least one (1) MW and June 26, 2017 for at least 750 MW) shall result in the physical disconnection from the DU system unless it is served by the supplier of last resort (“SOLR”), or, if applicable, procures power from the WESM;

· Prohibits DUs from engaging in the supply of electricity to the contestable market except in its capacity as a SOLR;

· Mandates Local RESs to wind down their supply businesses within a period of three (3) years;

· Imposes upon all RESs, including DU-affiliate RESs, a market-share cap of 30% of the total average monthly peak demand of all contestable customers in the competitive retail electricity market; and,

· Prohibits RESs from transacting more than 50% of the total energy transactions of its supply business, with its affiliate contestable customers. *SGVFSM000023* - 119 -

On May 27, 2016, MERALCO filed a Petition before RTC-Pasig, praying that: (a) a TRO and subsequently a Writ of Preliminary Injunction (“WPI”) enjoining the DOE and ERC from implementing the assailed rules be issued; and the assailed rules be declared null and void for being contrary to the EPIRA and its IRR. In an Order dated June 13, 2016, RTC-Pasig granted a 20-day TRO, which became effective on June 16, 2016. In an Order dated July 13, 2016, RTC-Pasig granted a WPI, which became effective on July 14, 2016, and shall be effective for the duration of the pendency of the Petition.

Meanwhile, the ERC filed a Petition for Certiorari and Prohibition with prayer for TRO and/or WPI before the SC, which asserted that RTC-Pasig has no jurisdiction to take cognizance of MERALCO’s Petition, citing Sec. 78 of the EPIRA. A similar petition was subsequently filed by the DOE before the SC.

On October 10, 2016, the SC, in relation to the Petition filed by the DOE, issued a TRO that restrained, MERALCO, the RTC-Pasig, their representatives, agents or other persons acting on their behalf from continuing the proceedings before the RTC-Pasig, and from enforcing all orders, resolutions and decisions rendered in Special Civil Action No. 4149 until the petition before the SC is finally resolved. In a Resolution dated November 9, 2016, the SC denied MERALCO’s MR.

On November 2, 2016, in relation to the Petition filed by the ERC, the SC issued a Resolution dated September 26, 2016, which partially granted the Petition of the ERC. While the SC allowed the RTC-Pasig to proceed with the principal case of declaratory relief, it nonetheless issued a Preliminary Mandatory Injunction (“PMI”) against RTC-Pasig to vacate the preliminary injunction it previously issued, and Preliminary Injunction (“PI”) ordering the RTC-Pasig to refrain issuing further orders and resolutions tending to enjoin the implementation of EPIRA. On November 14, 2016, MERALCO filed a Motion for Partial Reconsideration with Very Urgent Motion to lift PMI/PI.

On November 24, 2016, the ERC promulgated a resolution moving the contestability date of end users with an average monthly peak demand of at least one (1) MW from December 31, 2016 to February 26, 2017. On January 17, 2017, MERALCO, through its counsel, received an SC Resolution dated December 5, 2016, which consolidated the SC DOE Petition with the SC ERC Petition. The same resolution also denied the Motion for Partial Reconsideration filed by MERALCO.

In relation to the ERC and DOE Petitions, a separate Petition for Certiorari, Prohibition and Injunction was filed by several institutional customers. In said Petition, said customers sought to declare as null and void, as well as to enjoin the DOE and ERC from implementing DOE Circular No. 2015-06-0010 and ERC Resolution Nos. 5, 10, 11 and 28, Series of 2016. Acting on the Petition, the SC en banc through a Resolution dated February 21, 2017, issued a TRO enjoining the DOE and the ERC from implementing DOE Circular No. 2015-06-0010 and ERC Resolution Nos. 5, 10, 11 and 28, Series of 2016. Pursuant to the foregoing, PEMC has taken the position that the TRO enjoined the voluntary contestability of 750 kW to 999 kW customers and has not allowed them to switch to the contestable market. The DOE, in a press release, has advised that it is in the process, together with PEMC and ERC, of drafting a general advisory for the guidance of RCOA stakeholders. The PCCI petition was consolidated with two (2) other separate petitions filed by an educational institution and several DUs. The DOE and ERC have also filed a consolidated comment on these petitions.

*SGVFSM000023* - 120 -

On November 29, 2017, the DOE issued two (2) DOE Circulars, namely: DC 2017-12-0013, entitled, Providing Policies on the Implementation of RCOA for Contestable Customers in the Philippines Electric Power Industry and DC 2017-12-0014, entitled Providing Policies on the Implementation of RCOA for RES in the Philippine Electric Power Industry. The DOE Circulars became effective on December 24, 2017.

Under the DOE Circular No. DC 2017-12-0013, it is provided that voluntary participation for contestable customers under RCOA-Phase 2 shall now be allowed upon effectivity of said Circular, while voluntary participation of contestable customers with a monthly average peak demand of 500 kW to 749 kW for the preceding 12 months and demand aggregation for electricity end users within a contiguous area with an aggregate average peak demand of not less than 500 kW for the preceding 12-month period, will also be allowed by June 26, 2018 and December 26, 2018, respectively.

On December 22, 2017, MERALCO wrote ERC and DOE to seek guidance on the impact of the DOE Circulars in the light of the TRO issued by the SC. On January 17, 2018, the DOE responded that there is no legal impediment to the implementation of the DOE Circulars but it defers to the OSG for guidance on the legal aspect of the issuances. As at February 26, 2020, the ERC has yet to respond to MERALCO’s letter.

Others. MERALCO and its subsidiaries are subject to various pending or threatened legal actions in the ordinary course of business which, if the conclusion is unfavorable to MERALCO and subsidiaries, may result in the payout of substantial claims and/or the adjustment of electricity distribution rates. These contingencies substantially represent the amounts of claims related to a commercial contract which remains unresolved and local taxes being contested. Other disclosures required by PAS 37 were not provided as it may prejudice MERALCO’s position in on–going claims, litigations and assessments.

Competitive Selection Process (CSP) on all PSAs. On November 15, 2016, Alyansa Para sa Bagong Pilipinas, Inc. (ABP) filed a Petition for Certiorari and Prohibition against the Energy Regulatory Commission (ERC) entitled ABP vs. ERC, et al (GR No. 227670). The Petition asked the Supreme Court to disapprove certain MERALCO power supply agreements (PSAs) for failure of MERALCO to conduct a competitive selection process (CSP) in the procurement of its PSAs. This Petition stemmed from DOE Department Circular No. DC 2015-06-008 which mandated all distribution utilities to undergo CSP in the procurement of its PSAs. The requirement applied to all PSAs that have not been submitted to the ERC for approval before June 30, 2015. The ERC subsequently extended the applicability date of the CSP requirement to April 30, 2016.

Panay Energy Development Corporation (PEDC) and Global Luzon Energy Development Corporation (GLEDC) were impleaded in this case because they had PSAs with MERALCO that were submitted to ERC after June 30, 2015 but before the April 30, 2016 applicability date. Other generation companies with similar PSAs with MERALCO were impleaded as well.

On May 17, 2019, the Supreme Court issued a decision (the “SC Decision”) in the above case requiring all PSAs submitted to the ERC for approval on or after June 30, 2015 to undergo a CSP in accordance with the DOE Department Circular DC 2018-02-0003 (the “2018 DOE CSP Rules”). This is a source of confusion amongst industry participants because a number of affected PSAs actually underwent CSP in accordance with laws and regulations then existing at the time. However, if the SC Decision were to be strictly implemented, these CSP activities would not be fully compliant with the 2018 DOE CSP Rules because, for obvious reasons, those rules were inexistent at that time.

*SGVFSM000023* - 121 -

ERC and PEDC filed their respective Motions for Reconsideration (MR) to the SC Decision. However, in a Resolution dated July 23, 2019, the Supreme Court denied with finality both the ERC’s and PEDC’s MRs and fully upheld the SC Decision.

The SC Decision affects PEDC’s PSAs with MERALCO and Panay-Guimaras Power Supply Consortium, GLEDC’s PSA with MERALCO, and PPC’s PSA with NOCECO.

The ERC called an industry meeting on August 20, 2019 where it mentioned that the ERC plans to file a Motion for Clarification with the Supreme Court. The ERC did not elaborate on what this Motion for Clarification will contain. For the meantime, the ERC has instructed the affected industry participants to observe the status quo.

In a Memorandum advisory dated August 16, 2019, the DOE advised distribution utilities affected by the SC Decision that they may enter into a negotiated procurement for emergency power supply without undergoing CSP pursuant to the 2018 DOE CSP Rules. The emergency power supply shall be for a period not exceeding one (1) year and shall be for a rate not higher than the latest ERC-approved generation tariff for the same or similar technology in the area. Submission of the request for Certificate of Exemption shall be made not later than August 20, 2019.

In a letter to the DOE dated August 20, 2019, MERALCO filed an application to be granted a Certificate of Exemption from the conduct of CSP to allow continued implementation of the PSA with PEDC. The supporting documents to the request for a Certificate of Exemption were submitted by MERALCO to the DOE on September 30, 2019.

For its part, the Panay-Guimaras Power Supply Consortium (the “Consortium”) wrote the DOE that they previously conducted a CSP when they procured their power supply agreements from PEDC and that it is their position that such CSP substantially complies with the requirements of the 2018 DOE CSP Rules. Accordingly, they sought confirmation from DOE that they no longer need to procure anew a power supply agreement. In response, the DOE sent a response letter which directed the members of the Consortium to clarify the matter with the ERC and stated that “the DOE deems that ERC has the jurisdiction to determine the validity and compliance of the PSA with the SC decision”. In a separate matter, in an Order dated September 11, 2019, the ERC directed MERALCO and each of the electric cooperatives comprising the Panay-Guimaras Power Supply Consortium to submit, within 90 days, a DOE Certification attesting their compliance with the 2018 DOE CSP Rules. The members of the Consortium each filed before the ERC a Joint Compliance with PEDC, attaching an affidavit attesting to the Consortium’s compliance with the 2018 DOE CSP Rules, together with the response letter from the DOE. The parties are currently awaiting further action from the ERC.

Claim for terminated Coal Supply Agreement. Due to non-conforming coal quality deliveries, PEDC terminated its Coal Supply Agreement with Lucent Aminto, Inc. (“LAI”) in 2017. On October 16, 2018, LAI filed a Notice of Arbitration before the Singapore International Arbitration Centre (“SIAC”), claiming a total amount of US$608 thousand which it later increased to a total amount of US$1.1 million plus unquantified damages in its Statement of Claim. In its Statement of Defence and Counterclaim, PEDC filed a total counterclaim of US$437 thousand against LAI. The arbitration proceedings are still ongoing before the SIAC.

Rail

Claims with Grantors. On various dates in 2015 through 2019, LRMC submitted to the DOTr and LRTA (collectively known as “Grantors”) letters representing its claim for costs incurred and estimated in relation to Existing System Requirements (ESR) and Light Rail Vehicle (LRV) shortfall on the premise of the Grantors’ obligation in relation to the condition of the Existing System as at the *SGVFSM000023* - 122 -

Effective Date (September 12, 2015), Fare Deficit, Structural Defect Restoration (SDR) costs, and contractor and other additional costs incurred less Key Performance Indicator (KPI) charges. As at February 26, 2020, LRMC has submitted eighteen (18) letters (first to eighteenth Balancing Payments) to the Grantors representing its claims. Total claims up to the eighteenth Balancing Payment amounted to =6,498P million with a revised total amount P=5,257 million after Grantor’s comments. All claims are still undergoing discussion as at February 26, 2020.

Others

Donor’s Tax. NOHI received on January 14, 2011 a Final Assessment Notice (FAN) demanding the payment of approximately =170.2P million as deficiency donor’s tax (comprising of the basic tax due and 25% surcharge) on the excess of the book value over the selling price of several shares of stock in Bonifacio Land Corporation (BLC) which NOHI sold to a third party. The assessment was based on the finding of the Bureau of Internal Revenue–Large Taxpayer Service (BIR–LTS) that the transaction is subject to donor’s tax as a “deemed gift” transaction under Section 100 of the 1997 National Internal Revenue Tax Code (the Tax Code).

On February 14, 2011, NOHI filed its formal protest to the FAN raising several factual and legal arguments. However, this was denied by the BIR through the letter it has delivered to NOHI stating its Final Decision on Disputed Assessment (FDDA). NOHI then filed a Petition for Review with the Second Division of the Court of Tax Appeals (CTA) to challenge the FDDA.

On May 4, 2016, the CTA En Banc promulgated its decision, which was received on May 13, 2016, denying the company’s Petition for Review dated October 21, 2014 and affirming the adverse decision of the Second Division of the Court dated June 11, 2014 and Resolution of the Second Division dated September 16, 2014 which denied NOHI's Motion for Reconsideration. On October 28, 2016, NOHI received a copy of the Resolution of the CTA En Banc dated October 18, 2016 denying NOHI’s Motion for Reconsideration.

On December 12, 2016, NOHI filed with the SC the required Petition for Review as appeal from the decision and resolution of the CTA En Banc. On March 14, 2017, NOHI received a copy of the Resolution dated January 23, 2017 of the Supreme Court denying NOHI’s Petition for Review on the decision of the Court of Tax Appeals en banc which affirmed the decision of the CTA Second Division ordering NOHI to pay donor’s tax. On March 28, 2017, NOHI filed a Motion for Reconsideration on the aforesaid Resolution of the Supreme Court. On October 3, 2017, NOHI received the Resolution dated July 26, 2017 of the SC denying the Motion for Reconsideration.

As at December 31, 2019, NOHI partially settled amount due to BIR of =397P million. As at February 26, 2020, NOHI is awaiting BIR’s decision on NOHI’s request for abatement of delinquency interest given that NOHI is no longer operating and already undergoing liquidation.

31. Assets Held in Trust

Materials and Supplies Maynilad has the right to use any item of inventory owned by MWSS in carrying out its responsibility under the Maynilad Concession Agreement (see Note 29), subject to the obligation to return the same at the end of the concession period, in kind or in value at its current rate, subject to CPI adjustments.

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Facilities Maynilad had been granted the right to operate, maintain in good working order, repair, decommission and refurbish the movable properties required to provide the water and sewerage services under the Maynilad Concession Agreement (see Note 29). MWSS shall retain legal title to all movable properties in existence at the commencement date on August 1, 1997. However, upon expiration of the useful life of any such movable property as may be determined by Maynilad, such movable properties shall be returned to MWSS in its then–current condition at no charge to MWSS or Maynilad (see Note 13).

The concession agreement also provides Maynilad and Manila Water to have equal access to MWSS facilities involved in the provision of water supply and sewerage services in both West and East Service Areas including, but not limited to, the MWSS management information system, billing system, telemetry system, central control room and central records.

The net book value of the facilities transferred to Maynilad on commencement date based on MWSS’ closing audit report amounted to =7.3P billion with a sound value of P=13.8 billion.

MWSS’ corporate headquarters are made available for lease to Maynilad and East Concessionaire, subject to renewal with the consent of the parties concerned. The current lease covers up to a period of December 31, 2019 with a new lease still under negotiation. Lease payments amounted to P=44 million, =43P million and =41P million in 2019, 2018 and 2017, respectively. The lease agreement was scoped-in for purposes of adoption of PFRS 16 (see Note 38) with the ROU asset recognized in the ‘’property, plant and equipment” account (see Note 13).

32. Deconsolidation of a Subsidiary

Issuance of Exchangeable Bond to GIC Private Limited (GIC). On July 2, 2014, GIC, through Arran Investment Private Limited (“Arran”), invested =3.7P billion for a 14.4% stake in MPHHI and paid P=6.5 billion as consideration for an Exchangeable Bond issued by MPIC which can be exchanged, in the future, into 158,137,590 shares of P=10.0 par value Class A common shares of MPHHI representing 25.51% ownership interest, subject to certain conditions (the “Arran Exchangeable Bonds”). The Exchangeable Bond is subject to a fixed interest rate applicable per annum which, for the first year shall be equivalent to 0.27% and shall be repriced annually thereafter at a rate to be mutually agreed by MPIC and GIC. Final maturity date of the Exchangeable Bond is on December 31, 2019. With the Exchangeable Bond, GIC is entitled to 39.89% effective ownership interest in MPHHI on a fully diluted absis.

The Exchangeable Bond was accounted for as an equity instrument with the interest accruing on the Exchangeable Bond recorded at its present value. The proceeds from the Exchangeable Bond together with the share subscription of GIC in MPHHI, were considered as equity transactions with a noncontrolling shareholder and accounted for as such in MPIC’s consolidated financial statements for the year ended December 31, 2014. As an equity transaction, a total of =5,726P million was charged to the equity reserve account in 2014 representing the dilution gain. Interest payable was also recognized, representing the present value of the interest due on the Arran Exchangeable Bond was also recognized. Interest payable as at December 31, 2018 amounted to P=120 million.

In 2019, GIC agreed to restructure its current investment in MPHHI and re-invest alongside the said KKR subsidiary. The transaction involves the acquisition by KKR of the Exchangeble Bond and Arran’s directly owned shares in MPHHI. Hence, part of the MPHHI deconsolidation is the reclassification of dilution gain recognized in equity reserve of P=5,726 million to retained earnings

*SGVFSM000023* - 124 - and the derecognition of interest interest payable on the Arran Exchangeable Bond amounting to P=122 million (see discussion below).

KKR’s investment in MPHHI. On October 14, 2019 (the “Signing Date”), MPIC, together with MPHHI, entered into a series of transactions for the investment and entry of global investment firm KKR, alongside Arran, in and to, MPHHI, to wit:

§ MPHHI and Buhay (SG) Investments Pte. Ltd (“Buhay SG”), a subsidiary of KKR, entered into a Share Subscription Agreement (SS Agreement) pursuant to which the parties agreed that on the Completion Date (as defined in the SS Agreement) and subject to the terms and upon the fulfillment of the conditions specified therein, MPHHI shall issue to Buhay SG, and Buhay SG shall subscribe to, 41,366,178 common shares to be issued out of the existing authorized and unissued capital stock of MPHHI (“Subject Shares”), at the aggregate price of P=5.2 billion. The Subject Shares shall, immediately after their issuance, represent approximately 2.74% of the resulting outstanding capital stock of MPHHI, entitled to vote, and approximately 6.25% of the aggregate par value of MPHHI.

§ MetroPac Apollo Holdings, Inc. (“Apollo”), a Philippine registered company (in which MPIC has 60% ownership prior to the deconsolidation) which owns and holds all the outstanding voting preferred shares issued by MPHHI, entered into an agreement with Buhay SG for the issuance by Apollo of new common shares to the Buhay SG (“Apollo Shares”), subject to the terms and upon the fulfillment of the conditions specified therein. Upon their issuance, the Apollo Shares are expected to represent less than 35% of the resulting outstanding capital stock shares of Apollo. MPIC, on the other hand, shall own 65% of the outstanding capital stock of Apollo upon completion of this transaction.

§ Related to this and as part of MPIC’s wider financing arrangements, MPIC and Buhay SG entered into an Exchangeable Bond Subscription Agreement (“EBSA”) under the provisions of which MPIC agreed to create and issue to Buhay SG, and Buhay SG agreed to subscribe to, a mandatorily exchangeable bond, at the principal issue value of =30.1P billion (the “Buhay Exchangeable Bond”). The Exchangeable Bond relates to 239,932,962 common shares of MPHHI owned and held by MPIC (“Underlying Shares”), which Underlying Shares represent approximately 15.88% of the issued and outstanding capital stock of MPHHI, entitled to vote, on a fully-diluted basis.

By virtue of such Exchangeable Bond, Buhay SG shall be entitled, among others, to exchange the Exchangeable Bond for all of the Underlying Shares on the earlier of (i) thirty (30) days after the date the common shares of MPHHI, including the Underlying Shares, are first listed on the PSE following its initial public offering of shares and (ii) the date that is 10 years from the issue date of the Exchangeable Bond (“Mandatory Exchange Date”). Interest applicable to the Buhay Exchangeable Bond shall be equivalent to the actual dividend yield of the Underlying Shares.

The Exchangeable Bond’s subscription price shall be settled: (i) P=26,091 million on Completion date; (ii) P=1,602 million one hundred eighty (180) days after the completion date; and (iii) =2,404P million on the first anniversary of the completion date. As at December 31, 2019, receivable from Buhay SG for portion of the subscription price amounted to =3,872.5P million and is included under the “Receivables” account in the statement of financial position.

As part of KKR’s investment in MPHHI, MPIC shall grant in favor of KKR the following options (“Call Options”): (i) an irrevocable option, exercisable after the completion of this transaction, to require MPIC to sell to the Investor (and/or one or more of its designees) all or a portion of MPIC’s shares in Apollo; and (ii) an irrevocable option, exercisable after Signing date, to require *SGVFSM000023* - 125 -

MPIC to sell to one or more newly established Philippine domestic companies or investment vehicles, each of which is wholly and beneficially owned by Filipino citizens who have relevant expertise and experience beneficial to the business of MPHHI.

§ Separately, GIC, has agreed to restructure its current investment in MPHHI and re-invest alongside the said KKR subsidiary.

§ On a fully-diluted basis, MPIC will hold 132,592,496 common shares of MPHHI representing 20% of the resulting outstanding common capital stock of MPHHI.

On November 21, 2019, Buhay SG assigned all its rights in the abovementioned agreements, to its wholly owned subsidiary, Buhay Ventures Holdings (PH) Inc. (Buhay), a corporation organized and existing under the laws of the Republic of the Philippines. The above described transactions were completed on December 9, 2019 (the “Completion Date”).

As discussed in Note 3, the abovementioned series of transactions provided Buhay an economic interest of approximately 80%, on fully diluted basis post conversion of the Exchangeable Bonds. These transactions were accounted for as an equity transactions which, for purposes of PFRS 10, is considered as resulting to MPIC losing control. The Exchangeable Bond is an instrument that, at a certain time in the future, converts into a fixed number of shares of MPHHI. Moreover, the principal of Exchangeable Bond is in Philippine Peso, the same currency as the functional currency of MPIC as the issuing entity. Thus, the Exchangeable Bonds qualify as equity instruments such that the proceeds from the Exchangeable Bond together with the share subscriptions in MPHHI, were accounted for as equity transactions.

Gain on deconsolidation computed as follows:

(In Millions) Consideration received or receivable: Gross proceeds from the Exchangeble Bond P=30,097 Less: Provisions (2,568) Transaction costs (2,217) Discount on deferred settlement (134) 25,178 Add: Fair value of retained investment in MPHHI (20% on a fully diluted basis) 16,688 Derecognition of the interest payable under the Arran Exchangeable Bond 122 Less: Carrying amount of net assets deconsolidated (9,918) Option liability (43) Gain on sale before deferred taxes and reclassification of the other comprehensive income/expense 32,027 Reclassification of other comprehensive income 4 Deferred tax expense (6,123) Gain on deconsolidation P=25,908

The provisions included estimated tax warranties and indemnities.

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While the gain on deconsolidation of MPHHI was recognized for accounting purposes for the year ended December 31, 2019, the taxable gain shall be recognized upon actual conversion of the Arran Exchangeable Bonds and Buhay Exchangeable Bonds, hence the recognition of the deferred tax expense.

The fair value of the call options was estimated at the Call Option Agreement date using a binomial pricing model, taking into account the terms and conditions on which the options were granted. The exercise price is calculated based on the formula set forth in the Call Option Agreement. The Call Options can be exercised anytime up to ten years. As at Signing Date, the Call Options are deemed in the money, with estimated fair value of P=43.0 million. As at December 31, 2019, fair value of the Call Options estimated at =46.0P million.

The carrying amounts of the net assets of MPHHI as at date of deconsolidation were:

(In Millions) Assets Cash and cash equivalents P=2,174 Receivables 2,194 Other current assets 1,283 Property, plant and equipment 15,086 Other noncurrent assets 6,572 27,309 Liabilities Accounts payable and other current liabilities 4,854 Long-term debt (current and noncurrent portions) 1,277 Other long-term liabilities 1,639 Deferred tax liabilities 514 8,284 Noncontrolling interest (9,107) P=9,918

As a result of the deconsolidation, the Healthcare segment was classified as a discontinued operations and comparative years were re-presented.

The financial information and cash flow information presented for 2019 covers period immediately prior to deconsolidation while full year for the years ended December 31, 2018 and 2017.

2019 2018 2017 (In Millions) Operating Revenues P=14,658 P=12,950 P=10,737 Cost of Sales and Services (8,895) (7,512) (6,185) Gross profit 5,763 5,438 4,552 General and administrative expenses (3,776) (3,820) (3,134) Interest expense (194) (158) (145) Share in net earnings of equity method investees 230 282 250 Interest income 47 45 50 Gain on deconsolidation, gross of tax 32,031 – – Others 327 563 296 Income before income tax 34,428 2,350 1,869

(Forward)

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2019 2018 2017 (In Millions) Provision for income tax Current P=797 P=656 P=561 Deferred 6,071 (43) (26) 6,868 613 535 Net Income from Discontinued Operations 27,560 1,737 1,334 Other comprehensive income - net Not to be reclassified to profit or loss in subsequent periods (68) 60 5 Total comprehensive income from Discontinued Operations P=27,492 P=1,797 P=1,339

Basic earnings per share P=0.8466 P=0.0288 P=0.0219

Diluted earnings per share P=0.8466 P=0.0288 P=0.0218

2019 2018 2017 Net cash inflow (outflow) from Operating activities P=2,643 P=2,560 P=2,243 Investing activities (3,118) (3,149) (1,753) Financing activities 2,628 3 (555) P=2,153 (P=586) (P=65)

Hospital operations. MPHHI and its subsidiaries, operates the following full service hospitals:

§ In Metro Manila: Cardinal Santos Medical Center (CSMC), Our Lady of Lourdes Hospital (OLLH), Asian Hospital (AHI), De Los Santos Medical Center (DLSMC), Marikina Valley Medical Center (MVMC) and Dr. Jesus C. Delgado Memorial Hospital (JDMH); and

§ In other parts of the Philippines: Riverside Medical Center (RMCI) in Bacolod, Central Luzon Doctors Hospital (CLDH) in Tarlac, West Metro Medical Center (WMMC) in Zamboanga, Sacred Heart Hospital of Malolos Inc. (SHHM) in Bulacan, Saint Elizabeth Hospital Inc. (SEHI) in General Santos City, Davao Doctors Hospital in Davao and and Manuel J. Santos Hospital in Butuan City. In February 2020, MPHHI completed the Investment Agreement for a 51% equity interest in Los Baños Doctors Hospital and Medical Center, Incorporated in Laguna. § MPHHI also has equity stake in the following hospitals: Makati Medical Center (MMC) and Manila Doctors Hospital (MDH) (see Note 10).

Lease agreements. The following companies entered into the following lease agreements, which were accounted for as acquisition of a business in accordance with PFRS 3 (see Notes 11 and 15):

§ In 2009, CVHMC with the Roman Catholic Archbishop of Manila (RCAM) for the hospital assets (consisting of land, building, improvements, machineries, equipment and trademark) of Cardinal Santos Medical Center (CSMC);

§ In 2010, EMHMC with Our Lady of Lourdes Hospital, Inc. (OLLHI) and Servants of the Holy Spirit, Inc. (SSpS) covering Our Lady of Lourdes Hospital (OLLH) properties and improvements and the operations and management of OLLH; and

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§ In 2015, MPZHC with Western Mindanao Medical Center, Inc. covering the land and hospital building. The lease of MPZHC, for a period of 20 years, may be renewed under terms and conditions mutually acceptable. However, as discussed in Notes 4 and 11, MPHHI acquired 63.94% of the outstanding voting capital stock of WMMCI. The transaction resulted to the derecognition of the property use rights and the related accumulated amortization.

The leases of EMHMC and CVHMC are for periods of 20 years, renewable for successive periods of ten (10) years upon the mutual consent of both parties.

As consideration for the lease agreement, EMHMC and CVHMC pay fixed and variable monthly rates, where the variable rate is based on the prior year’s net revenues.

Lease payments under the arrangements disclosed above are as follows:

2019 2018 Fixed Variable Total Fixed Variable Total (In Millions) Not later than one year P=58 P=105 P=163 P=58 P=78 P=136 More than one year and not later than five years 244 373 617 255 354 609 More than five years 370 778 1,148 502 879 1,381 Total lease payments 672 1,256 1,928 815 1,311 2,126 Less amount representing interest (999) 1,026 Present value of lease obligation P=929 P=1,100

The lease agreement with OLLHI included a Capital Expenditure (CAPEX) program, wherein EMHMC commits to invest, by way of capital expenditures of at least =350P million to improve and develop OLLH, no later than November 1, 2015. As at June 2015, the EMHMC has complied with its commitment of P=350 million capital expenditures.

CVHMC has a commitment to make a Capital Expenditure in CSMC amounting to at least P=750 million (CAPEX Commitment) no later than the 10th anniversary of the Agreement, with at least =250P million of which shall be spent over a period of three (3) years, and with majority spent as CAPEX for Expansion and Development no later than the 10th anniversary of the closing date of the agreement. In the event that CVHMC fails to make or infuse the commitment in the amounts and within the period stated, CVHMC shall deposit in escrow such deficiency in an account to be determined by both parties. CVHMC has infused P=2,236 million to the CAPEX program as at December 31, 2018.

33. Financial Risk Management Objectives and Policies

The Company’s principal financial instruments consist mainly of borrowings from related parties and third party creditors, proceeds of which were used for the acquisition of investments and in financing operations. The Company has other financial assets and financial liabilities such as cash and cash equivalents, short-term deposits, receivables, accounts payable and other current liabilities, service concession fees payable and other related party transactions which arise directly from the Company’s operations. The Company also holds financial assets at FVPL and FVOCI.

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The main risks arising from the Company’s financial instruments are credit risk, liquidity risk, interest rate risk and foreign currency risk. The BOD reviews and approves policies of managing each of these risks and they are summarized below.

Credit Risk

Risk Management

The Company manages and controls credit risk by setting limits on the amount of risk that the Company is willing to accept for individual counterparties and by monitoring exposures in relation to such limits. Specific risks are as follows:

§ Power. GBPC has established controls and procedures on its credit policy to determine and monitor the credit worthiness of customers and counterparties. The power supply contracts with customers include inherent protection clauses, i.e., provisions for interest on unpaid billings, and change in laws/circumstances, among others. GBPC group’s maximum credit risk is equal to the carrying value of the GBPC’s financial assets. The credit quality of financial assets is being managed by GBPC using internal credit ratings.

§ Toll Operations. Receivables arose mainly from electronic toll card service providers of PT Nusantara motorists ply on its toll roads. Trade receivables also come from energy sales and treated water sales from the respective customers of RPSL and DCC which are instrumentalities of the government of Indonesia.

Receivables also included non-toll revenues in the form of advertising services particularly from SMART (see Note 19) and service fees collected from business locators, generally called TSF (toll service facilities), along the stretch of the NLEX. The arrangements are backed by a service facility contract between NLEX Corp and the various locators. The credit risk on these arrangements is minimal because the fees are collected on a monthly basis mostly from well-established companies. The exposure is also limited given that the recurring amounts are not significant and there are adequate safeguards in the contracts against payment delinquency.

NLEX Corp also has advances made to DPWH, a Philippine government entity, which is covered by a Reimbursement Agreement. Advances to DPWH is pursuant to the Reimbursement Agreement entered into by NLEX Corp. with DPWH in 2013 where DPWH requested these advances in order to fast track the acquisition of right-of-way for the construction of Segments 9 and 10, portions of Phase II of NLEX. The balance also includes direct advances to certain Segment 9 landowners as consideration for the grant of immediate right-of-way possession to NLEX Corp ahead of the expropriation proceedings. Under a Deed of Assignment with Special Power of Attorney agreement, these landowners agreed to assign their receivables from DPWH to NLEX Corp in consideration for the direct advances received from NLEX Corp. NLEX Corp’s advances to DPWH amounting to P=161 million and =193P million as of December 31, 2019 and 2018, respectively are included in the nontrade receivable account (see Note 8).

§ Water. Because of the basic need service that Maynilad provides, historical collections of Maynilad are relatively high. Credit risk exposure is widely dispersed. Maynilad billings are payable on the due date, which is normally 14 days from the billing date. However, customers are given 60 days to settle any unpaid bills before disconnection. Receivable balances are monitored on an ongoing basis with the result that the Maynilad’s exposure to bad debts is not significant.

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§ Healthcare. The hospitals of the Company manage risk by setting credit limits for all customers and by monitoring credit exposures and the creditworthiness of counterparties. Credit limits are set and a regular review of these limits is being done by management. Credit is extended only to reputable entities such as HMO and insurance companies.

§ Rail. Receivables included non-rail revenues from lease of commercial spaces located within LRT-1 stations, on interconnection fees and advertising contracts. The arrangements are mostly with well-established companies backed by contracts with provisions for payment delinquency. The exposure is also limited given that the recurring amounts are collected on a monthly basis and are not significant.

§ Logistics. Customers are subject to credit verification procedures and approval to ensure creditworthiness. The logistics group has policies that limit the amount of credit exposure to any particular customers. The logistics group does not have any significant credit risk exposure to any single counterparty.

With the exception of cash and cash equivalents, the maximum exposure to credit risk (both pre and post consideration of collateral and credit enhancements) at the reporting date is the carrying value of each class of financial assets disclosed in Note 34.

The maximum exposure to credit risk on cash and cash equivalents without considering the effects of collaterals, credit enhancements and other credit risk mitigation techniques is the carrying value of this financial asset. After considering the credit enhancement pertaining to insured deposits in banks as prescribed by Philippine Deposit Insurance Corporation, net maximum exposure as at December 31, 2019 and 2018 amounted to P=72,713 million and P=46,246 million, respectively.

Impairment of Financial Assets

The Company has the following financial assets that are subject to the expected credit loss model: (i) receivables; and (ii) debt investments carried at FVOCI. While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

The Company applies the PFRS 9 simplified approach in measuring expected credit losses which uses a lifetime expected loss allowance for receivables. To measure the expected credit losses, receivables have been grouped based on shared credit risk characteristics and the days past due. The expected loss rates are based on the payment profiles of revenues/sales over a period of at least 24 months before the relevant reporting date and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers/counterparties to settle the receivables. The Company has identified the Gross Domestic Product (GDP), CPI and unemployment rate in the locations in which it sells its goods and services to be the most relevant factors, and accordingly adjusts the historical loss rates based on expected changes in these factors. Generally, receivables are written-off if past due for more than one year and are not subject to enforcement activity.

Impairment losses on receivables are presented as net of impairment losses in the consolidated statement of comprehensive income. Subsequent recoveries of amounts previously written off are credited against the same line item.

There are no significant concentrations of credit risk, whether through exposure to individual customers, specific industry sectors and/or regions.

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The table below shows the gross carrying amount of financial assets and the loss allowances:

Not Credit-impaired Credit-impaired Total Gross Gross Gross Carrying Allowance Carrying Allowance Carrying Allowance on Amount on ECL Amount on ECL Amount ECL (In Millions) December 31, 2019 Investment in UITF (a) P=812 P=– P=– P=– P=812 P=– Receivables 15,898 – 1,752 1,752 17,650 1,752 Other current assets: Due from related parties 273 – – – 273 – Miscellaneous deposits and others 424 – – – 424 – Other noncurrent assets: Investment in bonds and treasury notes 163 – – – 163 – Quoted equity shares 219 – – – 219 – Unquoted equity shares 924 – – – 924 – Quoted club shares 31 – – – 31 – Other receivables 1,634 – – – 1,634 – Long term cash and miscellaneous deposits 581 – – – 581 – P=20,959 P=– P=1,752 P=1,752 P=22,711 P=1,752

December 31, 2018 Investment in UITF (a) P=827 P=– P=– P=– P=827 P=– Receivables 12,807 – 1,601 1,601 14,408 1,601 Other current assets: Deposit for LTIP 542 – – – 542 – Due from related parties 24 – 31 31 55 31 Miscellaneous deposits and others 386 – – – 386 – Other noncurrent assets: Investment in bonds and treasury notes 1,057 – – – 1,057 – Quoted equity shares 206 – – – 206 Unquoted equity shares 979 – – – 979 – Quoted club shares 29 – – – 29 – Other receivables 404 – – – 404 – Long term cash and miscellaneous deposits 519 – – – 519 – P=17,780 P=– P=1,632 P=1,632 P=19,412 P=1,632 (a)Included under ‘Cash and cash equivalents and short-term deposits’.

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Set out below is the information about the credit risk exposure on the Company’s receivables and due from related parties:

Days past due Current <30 31-60 61-90 91-180 >180 Total (In Millions except for expected loss rates) December 31, 2019: Expected loss rate 1% 2% 8% 9% 22% 59% 10% Gross carrying amount P=11,640 P=2,210 P=541 P=300 P=479 P=2,480 P=17,650 Loss allowance 78 42 45 28 103 1,456 1,752

December 31, 2018: Expected loss rate – 6% 8% 13% 26% 28% 11% Gross carrying amount P=6,195 P=2,108 P=720 P=336 P=1,832 P=3,272 P=14,463 Loss allowance – 118 56 43 450 965 1,632

The closing loss allowance for receivables and due from related parties as at December 31 reconcile to the opening loss allowances as follows:

2019 2018 (In Millions) Opening loss allowance as at beginning of year (a) P=1,632 P=989 Increase in loss allowance recognized in profit or loss during the year (see Note 22) 397 734 Written off/reversal (277) (91) Balance as at December 31 P=1,752 P=1,632

Debt investments at FVOCI include quoted corporate bonds, treasury bonds and notes issued by the Republic of the Philippines, and quoted long-term negotiable certificate of deposits (LTNCD) of various banks. The Company only invests in government securities and instruments that are graded in the top investment category (AAA) by credit rating agencies and, therefore, are considered to be low credit risk investments. The Company did not recognize provision for expected credit losses on its debt instruments at FVOCI as at December 31, 2019 and December 31, 2018. Liquidity Risk The Company manages its liquidity profile to be able to finance its capital expenditures and service its maturing debts by maintaining sufficient cash and cash equivalents, and the availability of funding through an adequate amount of committed credit facilities (see Note 18). The Company monitors its cash position using a cash forecasting system. All expected collections, check disbursements and other cash payments are determined daily to arrive at the projected cash position to cover its obligations and to ensure that obligations are met as they fall due. The Company monitors its cash flow position, particularly the collections from receivables, receipts of dividends and the funding requirements of operations, to ensure an adequate balance of inflows and outflows. The Company also has online facilities with its depository banks wherein bank balances are monitored daily to determine the Company’s actual cash balances at any time. The Company’s liquidity and funding management process include the following: § Managing the concentration and profile of debt maturities; § Maintaining debt financing plans; and § Monitoring liquidity ratios against internal and regulatory requirements.

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The table below summarises the maturity profile of the Company’s financial liabilities based on contractual undiscounted payments, including future interest payments:

More than More than 1 year 2 years Not but not but not exceeding exceeding exceeding More than 1 year 2 years 5 year 5 Years Total (In Millions) December 31, 2019 Accounts payable and other current liabilities(a) P=30,087 P=– P=– P=– P=30,087 Due to related parties: Due to PCEV 5,646 2,450 – – 8,096 Due to related parties - others 87 – – – 87 Customers’ guaranty deposits(b) – – – 1,191 1,191 Service concession fees payable 4,933 4,586 14,707 19,952 44,178 Long–term debts (Principal and interest) 29,404 29,747 77,502 162,559 299,212 P=70,157 P=36,783 P=92,209 P=183,702 P=382,851

December 31, 2018 Accounts payable and other current liabilities(a) P=25,063 P=– P=– P=– P=25,063 Due to related parties: Due to PCEV 4,451 5,646 2,450 – 12,547 Due to related parties - others 87 – – – 87 Customers’ guaranty deposits(b) – – – 1,102 1,102 Service concession fees payable 1,423 5,963 16,405 29,884 53,675 Financial liability 120 – – – 120 Long–term debts (Principal and interest) 19,056 21,452 76,578 144,817 261,903 P=50,200 P=33,061 P=95,433 P=175,803 P=354,497 (a)Excludes statutory payable. (b)Included under “Other long–term liabilities”.

Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is subject to fair value and cash flow interest rate risks. Fixed rate financial instruments measured at fair value are subject to fair value interest rate risk while floating rate financial instruments are subject to cash flow interest rate risk. At December 31, 2019 and 2018, the Company’s borrowings were substantially at fixed rates (see Note 18).

Certain of the Company’s loans that bear a fixed rate for the first five (5) years are subject to an interest rate repricing after the fifth year. Should the interest rate on the repricing date be significantly higher than the current fixed rate, the Company has an option to prepay or refinance the loan.

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The following table demonstrates the sensitivity of income before income tax arising from changes in interest cash flows of floating rate loans and fair values of financial assets at FVPL, respectively, due to changes in interest rates with all other variables held constant. The estimates in the movement of interest rates were based on the management’s annual financial forecast. There is no other impact on equity other than those already affecting the consolidated statements of comprehensive income.

Increase in Basis Points Decrease in Basis Points Effect on Effect on Income Income Basis Before Basis Before Points Income Tax Points Income Tax (In Millions) (In Millions) December 31, 2019 Philippine Peso +50 (P=26) –50 P=26 Indonesian Rupiah +50 (22) –50 22 US Dollar +50 (34) –50 34 Thai Baht +50 (8) –50 8 Vietnamese Dong +50 (4) –50 4 December 31, 2018 Philippine Peso +50 (=P2) –50 P=2 Indonesian Rupiah +50 (19) –50 19 US Dollar +50 (31) –50 31 Thai Baht +50 (10) –50 10

Foreign Currency Risk To manage the Company’s foreign exchange risk arising from future commercial transactions, recognized assets and liabilities, and to improve investment and cash flow planning, in addition to natural hedges, the Company enters into and engages in foreign exchange contracts for the purpose of managing its foreign exchange rate exposures emanating from business, transaction specific, as well as currency translation risks and reducing and/or managing the adverse impact of changes in foreign exchange rates on the Company’s operating results and cash flows.

Exposure to foreign currency risk primarily results from the following foreign currency transactions:

§ Power. While an insignificant percentage of the GBPC’s assets and liabilities is denominated in US Dollars, a substantial portion of the capital expenditure and operating expenses, mostly fuel and coal purchases, is denominated in foreign currencies, primarily in US Dollars. GBPC follows a policy to manage its currency risk by closely monitoring its cash flow position and by providing forecast on all other exposures in non-Philippine peso currencies. Moreover, the majority of the power sales of the GBPC’s operating subsidiaries are through long-term Electric Power Purchase Agreements which have provisions for passing on fuel costs, including foreign exchange fluctuations.

§ Water. The servicing of foreign currency-denominated loans of MWSS is among the requirements of Maynilad’s concession agreement. While majority of the revenues are generated in Philippine Peso, there is a mechanism in place as part of the concession agreement wherein Maynilad (or the end consumers) can recover foreign currency fluctuations through the FCDA that is approved by the RO.

§ Toll Operations. Payment for AIF’s loan which is denominated in Thai Baht is to be sourced from the dividends, also denominated in Thai Baht, to be declared by DMT (see Notes 10 and 18). *SGVFSM000023* - 135 -

§ Rail. LRMC’s exposure to foreign currency risk is minimal and only limited to transactional currency exposures arising from payments to suppliers and contractors. To reduce to foreign currency risk exposure, LRMC entered into series of derivative transactions, in particular, forward contracts. These are accounted for as derivatives not designated as accounting hedges with fair value of =5.9P million and =14.2P million as at December 31, 2019 and 2018.

The Company’s foreign currency-denominated financial assets and liabilities as at December 31:

December 31, 2019 Original Currency Total Peso US Dollar JPY Euro Equivalent (in Millions) Assets: Cash and cash equivalents $4 ¥879 €1 P=655 Restricted cash 6 – – 302 10 879 1 957 Liabilities: Accounts payable and other current liabilities – – – – Service concession fees payable (60) (62) – (3,067) Long–term debts (133) – – (6,734) (193) (62) – (9,801) Net foreign currency - denominated liabilities ($183) ¥817 €1 (P=8,844)

December 31, 2018 Original Currency Total Peso US Dollar JPY Equivalent (in Millions) Assets: Cash and cash equivalents $13 ¥2 P=698 Restricted cash 8 – 399 21 2 1,097 Liabilities: Accounts payable and other current liabilities (2) – (105) Service concession fees payable (65) (175) (3,502) Long–term debts (116) – (6,099) (183) (175) (9,706) Net foreign currency - denominated liabilities ($162) (¥173) (P=8,609)

The exchange rates used to determine the peso value are as follows:

US Dollar JPY Euro December 31, 2019 P=50.64 P=0.46 P=56.41 December 31, 2018 P=52.58 P=0.48 P=60.31

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The following table demonstrates sensitivity of cash flows due to changes in foreign exchange rates with all variables held constant. The estimates in the movement of the foreign exchange rates were based on the management’s annual financial forecast.

December 31, 2019 December 31, 2018 Increase/ Increase/ Decrease in Effect on Decrease in Effect on Foreign Income Foreign Income Exchange Before Exchange Before Rates Income Tax Rates Income Tax (In Millions) (In Millions) US Dollar +5% (P=464) +5% (P=426) Japanese Yen +5% 19 +5% (4) Euro +5% 3 +5% – US Dollar –5% 464 –5% 426 Japanese Yen –5% (19) –5% 4 Euro –5% (3) –5% –

Capital Management Capital includes preferred shares and equity attributable to the equity holders of the Parent Company. The primary objective of the Company’s capital management policies is to ensure that the Company maintains a strong statement of financial position and healthy capital ratios in order to support its business and maximize shareholder value. The Company ensures that it is compliant with all debt covenants not only at the consolidated level but also at the level of Parent Company and each of its subsidiaries.

In general, the Company closely monitors its debt covenants and maintains a capital expenditure program and dividend declaration policy that keeps the compliance of these covenants into consideration (see Note 18).

The following debt covenants are being complied with by the Company as part of maintaining a strong credit rating with its creditors:

§ MPIC. MPIC’s loan agreements require achievement of certain financial ratios. Moreover, under the loan agreements, MPIC needs to achieve a required DSCR per loan agreements to be able to declare dividends.

§ Power. GBPC’s subsidiaries (CEDC, PEDC and TPC) aim to maintain debt-to-equity ratio not exceeding 70:30 at all times until full payment of its loans. Certain subsidiaries shall likewise ensure that core capital must at least be 30% of the total project cost at project completion date and shall at all times be equivalent to at least 30% of the sum of the aggregate indebtedness for borrowed money and the sum of its equity as of any date of determination.

§ Toll Operations. The loan agreements require maintenance of debt-to-equity ratio and DSCR as indicated in the agreements to be able to incur new loans or declare dividends.

§ Water. Maynilad closely manages its capital structure vis–a–vis a certain target gearing ratio, which is net debt divided by total capital plus net debt. Maynilad’s target gearing ratio is 75%. This target is to be maintained over the next five (5) years by managing the level of borrowings and dividend payments to shareholders.

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The Company manages its capital structure and adjust it in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may obtain additional advances from shareholders, return capital to shareholders, issue new shares or issue new debt or redemption of existing debt. No changes were made in the objectives, policies or processes during the years ended December 31, 2019 and 2018. The Company monitors capital on the basis of debt-to-equity ratio.

Debt-to-equity ratio is calculated as long-term debt over equity. The Company’s goal is to maintain a sustainable debt-to-equity ratio. The debt-to-equity ratios as at December 31, 2019 and 2018 are:

2019 2018 (In Millions) Long–term debt (a) P=249,909 P=215,093 Equity (b) 246,045 239,003 Debt–to–equity ratio (a/b) 102% 90%

34. Financial Instruments – Categories and Derivatives

Categories of Financial Instruments The categories of the Company’s financial assets and financial liabilities, other than cash and cash equivalents, short-term deposits and restricted cash are:

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December 31, 2019 Financial Assets Financial Liabilities Equity Debt instruments Instruments Amortized Cost FVPL at FVOCI at FVOCI Amortized Cost FVPL Total (In Millions) ASSETS Investment in UITF (a) P=– P=812 P=– P=– P=– P=– P=812 Receivables - net 15,898 – – – – – 15,898 Other current assets: Due from related parties 273 – – – – – 273 Miscellaneous deposits and others 424 – – – – – 424 Other noncurrent assets: Treasury bonds and notes – – 69 – – – 69 LTNCD – – 94 – – – 94 Quoted equity shares – – – 219 – – 219 Unquoted equity shares – – – 924 – – 924 Quoted club shares – – – 31 – – 31 Other receivables 360 – – – – – 360 Long term cash and miscellaneous deposits 581 – – – – – 581 P=17,536 P=812 P=163 P=1,174 P=– P=– P=19,685

LIABILITIES Accounts payable and other current liabilities (b) P=– P=– P=– P=– P=32,484 P=46 P=32,530 Provisions – – – – – 2,568 2,568 Due to related parties – – – – 7,878 – 7,878 Service concession fees payable – – – – 32,898 – 32,898 Long-term debt – – – – 249,909 – 249,909 Other long-term liabilities – – – – 1,191 – 1,191 P=– P=– P=– P=– P=324,360 P=2,614 P=326,974 (a)Included under ‘Cash and cash equivalents and short-term deposits’. (b)Excludes statutory payables

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December 31, 2018 Financial Assets Financial Liabilities Equity Debt instruments Instruments Amortized Cost FVPL at FVOCI at FVOCI Amortized Cost FVPL Total (In Millions) ASSETS Investment in UITF (a) P=– P=827 P=– P=– P=– P=– P=827 Receivables - net 12,807 – – – – – 12,807 Other current assets: Deposit for LTIP 542 – – – – – 542 Due from related parties 24 – – – – – 24 Miscellaneous deposits and others 386 – – – – – 386 Other noncurrent assets: Treasury bonds and notes – – 528 – – – 528 Corporate bonds – – 434 – – – 434 LTNCD – – 95 – – – 95 Quoted equity shares – – – 206 – – 206 Unquoted equity shares – – – 979 – – 979 Quoted club shares – – – 29 – – 29 Other receivables 360 – – – – – 360 Long term cash and miscellaneous deposits 519 – – – – – 519 P=14,638 P=827 P=1,057 P=1,214 P=– P=– P=17,736

LIABILITIES Accounts payable and other current liabilities (b) P=– P=– P=– P=– P=27,341 P=– P=27,341 Due to related parties – – – – 11,854 – 11,854 Service concession fees payable – – – – 30,639 – 30,639 Long-term debt – – – – 215,093 – 215,093 Other long-term liabilities – – – – 1,138 – 1,138 P=– P=– P=– P=– P=286,065 P=– P=286,065 (a)Included under ‘Cash and cash equivalents and short-term deposits’. (b)Excludes statutory payables

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Derivative Financial Instruments Except for “Derivative liability” included under “Accounts payable and other current liabilities” account in the consolidated statements of financial position, the Company has no freestanding derivatives and no derivatives accounted for as cash flow hedges as at December 31, 2019 and 2018.

35. Fair Value Measurement The fair value of the assets and liabilities is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. The following tables summarize the carrying amounts and fair values of the assets and liabilities, analyzed among those whose fair value is based on:

· Level 1 – Quoted market prices in active markets for identical assets or liabilities · Level 2 – Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and · Level 3 – Those with inputs for the asset or liability that are not based on observable market data (unobservable input).

December 31, 2019 Carrying Total Fair Value Level 1 Level 2 Level 3 Value (In Millions) Assets measured at fair value Financial assets through profit or loss UITF P=812 P=– P=812 P=– P=812 Financial assets through OCI Treasury bonds and notes 69 20 49 – 69 Corporate bonds – – – – – LTNCD 94 94 – – 94 Quoted equity shares 219 219 – – 219 Unquoted equity shares 924 – – 924 924 Quoted club shares 31 – 31 – 31 P=2,149 P=333 P=892 P=924 P=2,149

Liabilities measured at fair value Financial Liabilities at FVPL Option liability P=46 P=– P=– P=46 P=46 Provisions 2,568 – P=– 2,568 2,568 P=2,614 P=– P=– P=2,614 P=2,614

Assets for which fair values are disclosed Amortized cost Miscellaneous deposits P=1,005 P=– P=– P=953 P=953 P=1,005 P=– P=– P=953 P=953

Liabilities for which fair values are disclosed Other financial liabilities Service concession fees payable P=32,898 P=– P=– P=37,691 P=37,691 (current and noncurrent) Long-term debt (current and noncurrent) 249,909 – – 260,441 260,441 Customer guaranty deposit 1,191 – – 1,297 1,297 Due to related parties 7,878 – – 7,884 7,884 P=291,876 P=– P=– P=307,313 P=307,313

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December 31, 2018 Carrying Total Fair Value Level 1 Level 2 Level 3 Value (In Millions) Assets measured at fair value Financial assets through profit or loss UITF P=827 P=– P=827 P=– P=827 Financial assets through OCI Treasury bonds and notes 528 35 493 – 528 Corporate bonds 434 434 – – 434 LTNCD 95 95 – – 95 Quoted equity shares 206 206 – – 206 Unquoted equity shares 979 – – 979 979 Quoted club shares 29 – 29 – 29 P=3,098 P=770 P=1,349 P=979 P=3,098

Assets for which fair values are disclosed Amortized cost Miscellaneous deposits P=905 P=– P=– P=844 P=844 P=905 P=– P=– P=844 P=844

Liabilities for which fair values are disclosed Other financial liabilities Service concession fees payable P=30,639 P=– P=– P=29,425 P=29,425 (current and noncurrent) Long-term debt (current and noncurrent) 215,093 – – 202,899 202,899 Customer guaranty deposit 1,102 – – 1,097 1,097 Due to related parties 11,854 – – 11,396 11,396 P=258,688 P=– P=– P=244,817 P=244,817

The following methods and assumptions were used to measure the fair value of each class of assets and liabilities for which it is practicable to estimate such value:

Cash and Cash Equivalents. Due to the short-term nature of transactions, the fair value of cash and cash equivalents approximate the carrying amounts at the end of the reporting period.

Restricted Cash, Cash Deposits, and Accounts Payable and Other Current Liabilities. Carrying values approximate the fair values at the reporting date due to the short-term nature of the transactions.

Investments in UITF. UITFs are ready-made investments that allow the pooling of funds from different investors with similar investment objectives. These UITFs are managed by professional fund managers and may be invested in various financial instruments such as money market securities, bonds and equities, which are normally available to large investors only. A UITF uses the mark-to-market method in valuing the fund’s securities. A UITF uses the mark-to-market method in valuing the fund’s securities. It is a valuation method which calculates the Net Asset Value (NAV) based on the estimated fair market value of the assets of the fund based on prices supplied by independent sources.

Investments in Unquoted Equity Securities. Investment in unquoted equity securities included interests in unlisted shares of stocks of a local toll road company (2% equity interest), one local sewerage services company (10% equity interest), three local logistics company (each at 12% equity interest) and two local waste management companies (each at 12% equity interest). To estimate the fair value of the unquoted equity securities, the Company uses the guideline public company method. This valuation model is based on published data regarding comparable companies’ quoted prices, earnings, revenues and EBITDA expressed as a multiple, adjusted for the effect of the non-marketability of the equity securities. The estimate is adjusted for the net debt of the investee, if *SGVFSM000023* - 142 -

applicable. Adjusted market multiple ranges from 6 to 13 for the toll road company; 4 to 6 for the logistics companies; and 3 to 12 for the waste management companies and discount for lack of marketability of up to 30%.

Due from Related Parties. In 2019 and 2018, fair value of due from related parties approximates their carrying amounts as these are expected to be settled within a year from the reporting date.

Miscellaneous Deposits. The fair value of the refundable occupancy deposits is determined by discounting the deposit using the prevailing market rate of interest.

Due to Related Parties, Service Concession Fees Payable and Customers’ Guaranty Deposits. Estimated fair value is based on the discounted value of future cash flows using the applicable rates for similar types of financial instruments.

Notes Receivable and Miscellaneous Deposits. Estimated fair value is based on the present value of future cash flows discounted using the prevailing rates that are specific to the tenor of the instruments’ cash flows at the end of each reporting period with credit spread adjustment.

Derivative Liability. The fair value of the call options was estimated using a binomial pricing model (see Note 32).

Long-term Debt. For both fixed rate and floating rate (repriceable every six months) US dollar-denominated debts and Philippine Peso-denominated fixed rate corporate notes, estimated fair value is based on the discounted value of future cash flows using the prevailing credit adjusted US risk-free rates and Philippine risk free rates that are adjusted for credit spread ranging from 3.1% to 8.6% and 4.9% to 9.2% in 2019 and 2018, respectively.

Provisions. Estimated fair value is based on the discounted value of future cash flows using the applicable rates for similar types of financial instruments.

36. Supplemental Cash Flow Information

Non-cash investing activities The following table shows the Company’s significant non-cash investing activities and corresponding transaction amounts:

2019 2018 2017 (In Millions) Additions to service concession assets pertaining to additions to capitalized interest accretion from service concession fees, Maynilad rate-rebasing and others (see Notes 12 and 17) P=5,011 P=2,178 P=4,169 Acquisition of Beacon Electric preferred and common shares on a deferred payment basis (unpaid portion as at year of acquisition; see Notes 4 and 19) – – 8,629 Changes to decommissioning decommissioning liability as adjustments to property, plant, and equipment 144 39 –

Adoption of PFRS 16 also resulted to recognition of ROU asset as at January 1, 2019 (see Note 38) amounting to P=1,518 million.

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Changes in liabilities arising from financing activities: The following table shows significant changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes:

Service concession Due to related fee payable Long-term debt parties Lease Liability Dividends Payable Interest Payable (see Note 17) (see Note 18) (see Note 19) (see Note 38) (see Note 15) (see Note 15) (In Millions) Balance as at January 1, 2018 P=29,744 P=189,083 P=15,646 P=− P=2,509 P=1,688 Cash flow (see statements of cash flows) Proceeds − 70,327 − − − − Payments (1,007) (46,751) (4,458) − (8,890) (9,534) Transaction cost − (789) − − − − (1,007) 22,787 (4,458) − (8,890) (9,534) Non-cash: Acquisition of subsidiary − 3,492 − − − − Derecognized unamortized PFRS 3 fair value increment − (1,059) − − − − Dividends declared − − − − 8,894 − Interest expense − − − − − 10,230 Derecognized unamortized debt issue cost − (186) − − − − Foreign exchange movements 23 1,630 − − − − Interest accretion 1,879 (736) 666 − − − Amortization of debt issue costs − 82 − − − − Others − − − − − (106) 1,902 3,223 666 − 8,894 10,124 Balance as at December 31, 2018 30,639 215,093 11,854 − 2,513 2,278 Cash flow (see statements of cash flows) Proceeds − 58,633 − − − − Payments (1,673) (22,307) (4,451) (597) (9,140) (9,502) Transaction cost − (592) − − − − (1,673) 35,734 (4,451) (597) (9,140) (9,502)

(Forward)

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Service concession Due to related fee payable Long-term debt parties Lease Liability Dividends Payable Interest Payable (see Note 17) (see Note 18) (see Note 19) (see Note 38) (see Note 15) (see Note 15) (In Millions) Non-cash: Adoption of PFRS 16 P=– P=– P=− P=1,499 P=– P=– Leases entered during the period – – – 314 − – Dividends declared – – – – 9,527 – Interest expense – – – – – 11,800 Acquisition of subsidiary – 826 – – – Additions 2,132 − – – – Interest accretion 2,003 (361) 475 104 – – Foreign exchange movements (136) (294) – (3) – – Balancing payment mechanism (67) – – – – Derecognized unamortized debt issue cost – 20 – – – Deconsolidation of a subsidiary – (1,277) – (317) – – Amortization of debt issue costs – 168 – – – Others – − – – – (2,133) 3,932 (918) 475 1,597 9,527 9,667 Balance as at December 31, 2019 P=32,898 P=249,909 P=7,878 P=1,000 P=2,900 P=2,443

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37. Events after the Reporting Period

Aside from those disclosed in Note 30 (status of certain contingencies), Note 29 (status of certain significant contracts, agreements and commitments) and Note 20 (MPIC’s dividend declaration on February 26, 2020), events occurring after the reporting period include:

MERALCO’s Dividend Declaration. On February 24, 2020, the BOD of MERALCO approved the declaration of cash dividends of P=10.395 a share to all shareholders of record as at March 20, 2020, payable on April 15, 2020. This consists of a final regular cash dividend of =5.108P per share and a special cash dividend of =5.287P per share. The total dividends attributable to the Company (MPIC and Beacon Electric) is P=5,326 million.

MPIC’s Share Buy-Back Transaction. On February 26, 2020, the MPIC BOD also approved the implementation of a Share Buyback Program. Said program shall run for a period of three (3) months from the date of the approval by the BOD or until May 26, 2020, with the amount of up to P=5 billion being allocated to effect share buybacks under the program. The purpose for the Share Buyback Program is to enhance and improve shareholder value and to manifest confidence in the Company’s value and prospects through the repurchase of its common shares. Consequently, the Parent Company's buyback transactions will be triggered in the cases where: (i) MPIC’s stock is deemed to be substantially undervalued, (ii) when there is high volatility in share prices, or (iii) in any other instance where a buyback would serve to enhance or improve shareholder value, in each as may be reasonably determined by a special committee of the BOD established for this purpose.

Investment Agreement with Dusit International of Thailand (“Dusit”). On February 19, 2020, MPIC announced the signing of a =1.6P billion investment agreement with Dusit to develop and manage jointly hospitality and residential properties in the Philippines. The investment agreement is subject to certain specific performance conditions precedent, including the approval of the Philippine Competition Commission.

38. Significant Accounting Policies

This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements to the extent they have not already been disclosed in the other notes above. These policies have been consistently applied to all the years presented, unless otherwise stated.

a. Changes in Accounting Policies and Disclosures

The Company applied the following new PFRSs and amendments to existing standards effective January 1, 2019. Except for the adoption of PFRS 16, Leases, adoption of the following standards did not have any material impact on the Company’s consolidated financial statements:

§ PFRS 16, Leases

PFRS 16 supersedes PAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.

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Lessor accounting under PFRS 16 is substantially unchanged from PAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in PAS 17. Therefore, PFRS 16 did not have an impact for leases where the Company is the lessor.

The Company, as lessee, has adopted PFRS 16 retrospectively from January 1, 2019, but has not restated comparatives for the 2018 and 2017 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on January 1, 2019 (see Effect of adoption of PFRS 16).

§ IFRIC Interpretation 23, Uncertainty over Income Tax Treatments

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of PAS 12, Income Taxes. It does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

· Whether an entity considers uncertain tax treatments separately · The assumptions an entity makes about the examination of tax treatments by taxation authorities · How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates · How an entity considers changes in facts and circumstances

An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed.

§ Amendments to PFRS 9, Prepayment Features with Negative Compensation

Under PFRS 9, a debt instrument can be measured at amortized cost or at fair value through other comprehensive income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to PFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract.

§ Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to determine the current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event. An entity is also required to determine the net interest for the remainder of the period after the plan amendment, curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event, and the discount rate used to remeasure that net defined benefit liability (asset).

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§ Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in PFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognized as adjustments to the net investment in the associate or joint venture that arise from applying PAS 28, Investments in Associates and Joint Ventures.

Annual Improvements 2015-2017 Cycle

§ PFRS 3, Business Combination

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

§ PFRS 11, Joint Arrangements

A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in PFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured.

§ Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments Classified as Equity

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally recognized those past transactions or events.

§ PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.

The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective (see Note 39).

*SGVFSM000023* - 148 - b. Impact of Adoption of PFRS 16

Adjustments recognized on adoption of PFRS 16.

The Company adopted PFRS 16 using the modified retrospective approach and did not restate comparative amounts for the year prior to first adoption. The Company recognized lease liabilities in relation to leases which had previously been recognized as ‘operating leases’ under PAS 17. These liabilities were measured at present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The Company used a single discount rate to a portfolio of leases with reasonably similar characteristics. The weighted average incremental borrowing rates applied to the lease liabilities on January 1, 2019 ranged from 5.50% to 10.25%.

Right-of-use assets (ROU assets) were measured at the amount of the lease liability and adjusted by the amount of any prepaid or accrued rentals relating to that lease recognized as at December 31, 2018. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low- value assets’).

Below provides the reconciliation between the operating lease commitments disclosed applying PAS 17 as at December 31, 2018 and the lease liability and ROU assets recognized in the consolidated statement of financial position at the date of initial application of PFRS 16:

(in Millions) Operating lease commitments disclosed as at December 31, 2018 P=2,100 Less: short-term and low value assets recognized on a straight-line basis as expense (199) Operating lease commitments covered under PFRS 16 1,901 Less: Present value discount using lessee’s incremental borrowing rate (402) Lease liability recognized as at January 1, 2019 1,499 Net prepaid and accrued rentals as at December 31, 2018 19 ROU assets recognized as at January 1, 2019 P=1,518

ROU assets are presented under ‘Property, plant and equipment’ and lease liabilities are reported under ‘Accounts payable and other current liabilities’ (current portion) and ‘Other noncurrent liabilities’ (noncurrent portion) in the Company’s consolidated statements of financial position.

For the year ended December 31, 2019, depreciation charge relating to ROU assets recognized under ‘costs of sales and services’ and ‘general and administrative expenses’ amounted to =258P million (see Note 21) and =271P million (see Note 22), respectively. Interest accretion on lease liability amounted to P=83 million (see Note 24). Rental expenses relating to short-term and low value assets amounted to P=85 million recognized under ‘costs of sales and services’ (see Note 21) and =51P million recognized under ‘general and administrative expenses’ (see Note 22). There is no material impact on other comprehensive income and the basic and diluted EPS.

*SGVFSM000023* - 149 - c. Principal Accounting and Financial Reporting Policies

The principal accounting and financial reporting policies adopted in preparing the Company’s consolidated financial statements are as follows:

Business Combinations and Goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date fair value, and the amount of any NCI in the acquiree. For each business combination, the Company elects whether to measure the NCIs in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in general and administrative expenses.

When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as of the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

If the business combination is achieved in stages, any previously held equity interest is re-measured at its acquisition date fair value and any resulting gain or loss is recognized in profit or loss. It is then considered in the determination of goodwill.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as equity is not remeasured and its subsequent settlement is accounted for within equity. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of PFRS 9, is measured at fair value with the changes in fair value recognized in the consolidated statement of comprehensive income in accordance with PFRS 9. Other contingent consideration that is not within the scope of PFRS 9 is measured at fair value at each reporting date with changes in fair value recognized in profit or loss.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for NCI, and any previous interest held, over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Company reassesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized immediately in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Company’s cash-generating units (CGUs) that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units.

Where goodwill has been allocated to a CGU and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained.

*SGVFSM000023* - 150 -

If the initial accounting for business combination can be determined only provisionally by the end of the period by which the combination is effected because the fair values to be assigned to the acquiree’s identifiable assets and liabilities can be determined only provisionally, the Company accounts for the combination using provisional values. Adjustments to those provisional values as a result of completing the initial accounting shall be made within twelve (12) months from the acquisition date. The carrying amount of an identifiable asset, liability or contingent liability that is recognized as a result of completing the initial accounting shall be calculated as if its fair value at the acquisition date had been recognized from that date. Goodwill or any gain recognized shall be adjusted from the acquisition date by an amount equal to the adjustment to the fair value at the acquisition date of the identifiable asset, liability or contingent liability being recognized or adjusted.

Equity Method Investees Equity method investees consist of the Company’s investments in associates and joint ventures.

An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries.

The Company’s investments in its associate and joint ventures are accounted for using the equity method.

Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Company’s share of net assets of the associate or joint venture since the acquisition date. If the Company’s share of losses of an associate or a joint venture equals or exceeds its interest in the associate or joint venture, the Company discontinues recognizing its share of further losses. After the entity’s interest is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. If the associate or joint venture subsequently reports profits, the Company resumes recognizing its share of those profits only after its share of the profits equals the share of losses not recognized.

Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortized nor individually tested for impairment.

The Company’s share of the results of operations of the associate or joint venture is included in profit or loss. Any change in OCI of those investees is presented as part of the Company’s OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Company recognizes its share of any changes, when applicable, in the consolidated statement of changes in equity. Unrealized gains and losses resulting from transactions between the Company and the associate or joint venture are eliminated to the extent of the Company’s interest in the associate or joint venture.

*SGVFSM000023* - 151 -

The aggregate of the Company’s share of profit or loss of an associate and a joint venture is shown on the face of the consolidated statement of comprehensive income outside operating profit and represents profit or loss after tax and NCI in the subsidiaries of the associate or joint venture.

The financial statements of the associate or joint venture are prepared for the same reporting period as the Company. When necessary, adjustments are made to bring the accounting policies in line with those of the Company.

After application of the equity method, the Company determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Company determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Company calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, then recognizes the impairment loss as part of ‘Share in net earnings of equity method investees’ in the consolidated statement of comprehensive income.

Upon loss of significant influence over the associate or joint control over the joint venture, the Company measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss.

For purposes of disclosures required under PFRS 12, Disclosure of Interests in Other Entities, in determining whether an equity method investee is material to the Company, management employs both quantitative and qualitative factors to evaluate the nature of, and risks associated with, the Company’s interests in these entities; and the effects of those interest on the Company’s financial position. Factors considered include, but not limited to, carrying value of the investee relative to the total equity method investments recognized in the Company’s consolidated financial statements, the equity investee’s contribution to the Company’s consolidated net income, and other relevant qualitative risks associated with the equity investee’s nature, purpose and size of activities.

Current Versus Non-current Classification The Company presents assets and liabilities in the consolidated statements of financial position based on current/non-current classification.

An asset is current when it is: § Expected to be realized or intended to be sold or consumed in the normal operating cycle;

§ Held primarily for the purpose of trading;

§ Expected to be realized within twelve months after the reporting period; or

§ Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when: § It is expected to be settled in the normal operating cycle;

§ It is held primarily for the purpose of trading;

§ It is due to be settled within twelve months after the reporting period; or *SGVFSM000023* - 152 -

§ There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period.

The Company classifies all other liabilities as non-current.

Deferred tax assets and liabilities are classified as non-current assets and liabilities, respectively.

Fair Value Measurement The Company measures financial instruments such as derivatives at fair value at each reporting date and, for purposes of impairment testing, uses fair value less costs of disposal or value in use to determine the recoverable amount of some of its non-financial assets. Also, fair values of financial instruments measured at amortized cost are disclosed in Note 34.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:

§ In the principal market for the asset or liability; or § In the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible by the Company.

The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest-level input that is significant to the fair value measurement as a whole:

§ Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities § Level 2 – Valuation techniques for which the lowest-level input that is significant to the fair value measurement is directly or indirectly observable § Level 3 – Valuation techniques for which the lowest-level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest-level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

*SGVFSM000023* - 153 -

The Company determines the policies and procedures for both recurring fair value measurement, such as derivatives, and non-recurring measurement, such as impairment tests. At each reporting date, the finance team, with the assistance of the respective finance teams of the Parent Company’s subsidiaries, analyzes the movements in the values of assets and liabilities which are required to be remeasured or reassessed as per the Company’s accounting policies. For this analysis, the finance team verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts, counterparty assessment and other relevant documents. The finance team also compares the changes in the fair value of each asset and liability with relevant external sources to determine whether the change is reasonable. On an interim basis, the finance team presents the valuation results to the Company’s top management for review. This includes a discussion of the major assumptions used in the valuations. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities based on the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above (see Note 35). Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less from acquisition date and that are subject to an insignificant risk of changes in value.

Short-term Deposits Short-term deposits, other than those classified as financial assets at FVPL, are highly liquid money market placements with maturities of more than three months but less than one year from dates of acquisition.

Restricted Cash Restricted cash represents cash in banks earmarked for long-term debt principal and interest repayment maintained in compliance with loan agreements or placed in an escrow account pursuant to a construction agreement.

Accounting policy applied for financial instruments beginning January 1, 2018

Financial Instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.

Financial Instruments: Financial Assets Initial Recognition and measurement. Financial assets are classified, at initial recognition, as subsequently measured at amortized cost, fair value through other comprehensive income (FVOCI), and FVPL. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at FVPL, transaction costs. Trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient are measured at the transaction price determined under PFRS 15. Refer to the accounting policies in section “Revenue from contracts with customers.”

*SGVFSM000023* - 154 -

In order for a financial asset to be classified and measured at amortized cost or FVOCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.

Subsequent measurement. For purposes of subsequent measurement, financial assets are classified in four categories:

§ Financial assets at amortized cost (debt instruments) § Financial assets at FVOCI with recycling of cumulative gains and losses (debt instruments) § Financial assets designated at FVOCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) § Financial assets at FVPL Financial assets at amortized cost (debt instruments). The Company measures financial assets at amortized cost if both of the following conditions are met:

§ the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and § the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized, modified or impaired.

The Company’s financial assets at amortized cost includes receivables, other current assets and other noncurrent assets (see Note 34).

Financial assets at FVOCI (debt instruments). The Company measures debt instruments at FVOCI if both of the following conditions are met:

§ The financial asset is held within a business model with the objective of both holding to collect contractual cash flows and selling; and § The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

For debt instruments at FVOCI, interest income, foreign exchange revaluation and impairment losses or reversals are recognized in the consolidated statement of comprehensive income and computed in the same manner as for financial assets measured at amortized cost. The remaining fair value changes are recognized in OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled to profit or loss.

The Company’s debt instruments at FVOCI includes investments in quoted debt instruments included under other non-current financial assets. *SGVFSM000023* - 155 -

Financial assets designated at FVOCI (equity instruments). Upon initial recognition, the Company can elect to classify irrevocably its equity investments as equity instruments designated at FVOCI when they meet the definition of equity under PAS 32, Financial Instruments: Presentation, and are not held for trading. The classification is determined on an instrument-by-instrument basis.

Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as other income in the consolidated statement of comprehensive income when the right of payment has been established, except when the Company benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments designated at FVOCI are not subject to impairment assessment.

The Company elected to classify irrevocably its investments in unquoted equity securities under this category.

Financial assets at FVPL. Financial assets at FVPL include financial assets held for trading, financial assets designated upon initial recognition at FVPL, or financial assets mandatorily required to be measured at fair value. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded derivatives, are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are classified and measured at FVPL, irrespective of the business model. Notwithstanding the criteria for debt instruments to be classified at amortized cost or at FVOCI, as described above, debt instruments may be designated at FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting mismatch.

Financial assets at FVPL are carried in the consolidated statement of financial position at fair value with net changes in fair value recognized in the consolidated statement of comprehensive income.

This category includes derivative instruments and UITF. Income earned on UITF is also recognized in the consolidated statement of comprehensive income when the right of payment has been established.

A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and the hybrid contract is not measured at FVPL. Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss. Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the cash flows that would otherwise be required or a reclassification of a financial asset out of the FVPL category.

A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately. The financial asset host together with the embedded derivative is required to be classified in its entirety as a financial asset at FVPL.

Derecognition. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e., removed from the Company’s consolidated statement of financial position) when:

§ the rights to receive cash flows from the asset have expired; or

*SGVFSM000023* - 156 -

§ the Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of its continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Impairment of financial assets. The Company recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at FVPL. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.

ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).

For receivables, the Company applies a simplified approach in calculating ECLs. Therefore, the Company does not track changes in credit risk, but instead recognizes a loss allowance based on lifetime ECLs at each reporting date. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment.

For debt instruments at FVOCI, the Company applies the low credit risk simplification. At every reporting date, the Company evaluates whether the debt instrument is considered to have low credit risk using all reasonable and supportable information that is available without undue cost or effort. In making that evaluation, the Company reassesses the internal credit rating of the debt instrument. In addition, the Company considers that there has been a significant increase in credit risk when contractual payments are more than 30 days past due.

The Company’s debt instruments at FVOCI comprise of government securities and quoted corporate bonds that are graded in the top investment category (AAA) by credit rating agencies and, therefore, are considered to be low credit risk investments. It is the Company’s policy to measure ECLs on such instruments on a 12-month basis. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. The Company uses the ratings from reputable credit rating firms both to determine whether the debt instrument has significantly increased in credit risk and to estimate ECLs. *SGVFSM000023* - 157 -

The Company considers a financial asset in default when contractual payments are more than 180 days past due. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.

Financial Instruments: Financial Liabilities Initial recognition and measurement. Financial liabilities are classified, at initial recognition, as financial liabilities at FVPL, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.

The Company’s financial liabilities include trade and other current payables (excluding statutory payables), loans and borrowings, and derivative financial instruments.

Subsequent measurement - Financial liabilities at FVPL. Financial liabilities at FVPL include financial liabilities held for trading and financial liabilities designated upon initial recognition as at FVPL.

Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by PFRS 9. Separated embedded derivatives are also classified as held for trading unless they are designated as effective hedging instruments.

Gains or losses on liabilities held for trading are recognized in the consolidated statement of comprehensive income.

Financial liabilities designated upon initial recognition at FVPL are designated at the initial date of recognition, and only if the criteria in PFRS 9 are satisfied. The Company has not designated any financial liability as at FVPL.

Subsequent measurement - Loans and borrowings. This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs under the “Interest expense” in the consolidated statement of comprehensive income.

This category generally applies to interest-bearing loans and borrowings (see Notes 18, 32, and 33).

Derecognition. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the consolidated statement of comprehensive income. *SGVFSM000023* - 158 -

Financial Instruments: Offsetting Financial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.

Derivative Financial Instruments and Hedge Accounting Initial recognition and subsequent measurement. The Company uses derivative financial instruments, particularly foreign currency forward contracts, to hedge its foreign currency risks. Such derivative financial instruments are initially recognized at fair value on the date in which a derivative contract is entered into or bifurcated, and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

For the purpose of hedge accounting, hedges are classified as:

§ Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment; § Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment; and § Hedges of a net investment in a foreign operation.

Before January 1, 2018, the documentation includes identifying the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the Company will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

Beginning January 1, 2018, the documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the Company will assess whether the hedging relationship meets the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following effectiveness requirements:

§ there is ‘an economic relationship’ between the hedged item and the hedging instrument; § the effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship; and § the hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged item that the Company actually hedges and the quantity of the hedging instrument that the Company actually uses to hedge that quantity of hedged item.

Hedges that meet all the qualifying criteria for hedge accounting are accounted for, as described below:

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Fair value hedges. The change in the fair value of a hedging instrument is recognized in the consolidated statement of comprehensive income as other expense. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the consolidated statement of comprehensive income as other expense.

For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the EIR method. The EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged.

If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss.

When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit or loss.

Cash flow hedges. The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the profit or loss. The cash flow hedge reserve is adjusted to the lower of the cumulative gain or loss on the hedging instrument and the cumulative change in fair value of the hedged item.

The Company uses foreign currency forward contracts as hedges of its exposure to foreign currency risk in forecast transactions and firm commitments. The ineffective portion relating to foreign currency contracts is recognized as other expense and the ineffective portion relating to commodity contracts is recognized in other operating income or expenses.

Before January 1, 2018, the Company designated all of the forward contracts as hedging instrument. Any gains or losses arising from changes in the fair value of derivatives were taken directly to profit or loss, except for the effective portion of cash flow hedges, which were recognized in OCI and later reclassified to profit or loss when the hedge item affects profit or loss.

Beginning January 1, 2018, the Company designates only the spot element of forward contracts as a hedging instrument. The forward element is recognized in OCI and accumulated in a separate component of equity under cost of hedging reserve.

The amounts accumulated in OCI are accounted for, depending on the nature of the underlying hedged transaction. If the hedged transaction subsequently results in the recognition of a nonfinancial item, the amount accumulated in equity is removed from the separate component of equity and included in the initial cost or other carrying amount of the hedged asset or liability. This is not a reclassification adjustment and will not be recognized in OCI for the period. This also applies where the hedged forecast transaction of a non-financial asset or non-financial liability subsequently becomes a firm commitment for which fair value hedge accounting is applied.

For any other cash flow hedges, the amount accumulated in OCI is reclassified to profit or loss as a reclassification adjustment in the same period or periods during which the hedged cash flows affect profit or loss.

If cash flow hedge accounting is discontinued, the amount that has been accumulated in OCI must remain in accumulated OCI if the hedged future cash flows are still expected to occur. Otherwise, the amount will be immediately reclassified to profit or loss as a reclassification adjustment. After discontinuation, once the hedged cash flow occurs, any amount remaining in accumulated OCI must be accounted for depending on the nature of the underlying transaction as described above.

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Hedges of a net investment. Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized as OCI while any gains or losses relating to the ineffective portion are recognized in the profit or loss. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the profit or loss.

The Company has no hedges of a net investment in a foreign operation.

Current Versus Noncurrent Classification of Derivatives Derivative instruments that are not designated and considered as effective hedging instruments are classified as current or noncurrent or separated into a current and noncurrent portion based on an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).

§ If the Company holds a derivative for trading purposes, irrespective of the timing of future cash flows, it is classified as current. § Where the Company holds a derivative as an economic hedge (and does not apply hedge accounting), for period beyond 12 months after the end of reporting period, the derivative is classified as noncurrent (or separated into current and noncurrent portions) consistent with the classification of the underlying item. § Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the host contract.

Derivative instruments that are designated as, and are considered effective hedging instruments, are classified consistent with the classification of the underlying hedged item. The derivative instrument is separated into a current portion and noncurrent portion only if a reliable allocation can be made.

Classification of Financial Instruments Between Liability and Equity A financial instrument is classified as a liability if it provides for a contractual obligation to:

§ Deliver cash or another financial asset to another entity; § Exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or § Satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole the amount separately determined as the fair value of the liability component on the date of issue.

Accounting policy applied for financial instruments until December 31, 2017

Financial Instruments The Company recognizes a financial asset or a financial liability in the consolidated statement of financial position when it becomes a party to the contractual provisions of the instrument. All regular way purchases and sales of financial assets are recognized on the settlement date. Regular way purchases and sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. Derivatives are recognized on a trade date basis.

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Initial Recognition. Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market interest rates for similar instruments with similar maturities. The initial measurement of financial instruments, except for financial instruments at FVPL, includes transaction costs.

The Company classifies its financial instruments in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, loans and receivables, AFS financial assets, financial liabilities at FVPL and other financial liabilities.

The classification depends on the purpose for which the financial instruments were acquired or liabilities were incurred and whether they are quoted in an active market. Management determines the classification of its instruments at initial recognition and, where allowed and appropriate, re-evaluates such classification at every reporting date.

Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividend, gains and losses relating to a financial liability or a component that is a financial liability, are reported as expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity, net of related income tax benefits.

‘Day 1’ Profit or Loss Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in profit or loss unless it qualifies for recognition as some other type of asset or liability. In cases where the data is not observable, the difference between the transaction price and model value is only recognized in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the ‘Day 1’ profit or loss amount.

Amortized Cost Amortized cost is computed using the effective interest method less any allowance for impairment and principal repayment or reduction. The calculation takes into account any premium or discount on acquisition and includes transaction costs and fees that are integral part of the effective interest rate.

Subsequent Measurement. The subsequent measurement of financial assets and financial liabilities depends on their classification discussed as follows:

Financial Assets and Liabilities at FVPL. Financial assets and liabilities at FVPL include financial assets and liabilities held for trading and those designated upon initial recognition as at FVPL. Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets and liabilities classified as at FPVL are carried at fair value in the consolidated statement of financial position, with any gains or losses being recognized in the profit or loss. Interests earned on holding financial assets at FVPL are reported as interest income using the effective interest rate. Dividends earned on holding financial assets at FVPL are recognized in profit or loss when the right to payment had been established.

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Financial assets and liabilities may be designated at initial recognition as at FVPL if any of the following criteria are met:

§ The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the financial assets or liabilities or recognizing gains or losses on them on different bases; or

§ The assets are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

§ The financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

The Company accounts for its derivatives (including embedded derivatives) under this category with fair value changes being reported directly in profit or loss, except when the derivative is designated in an effective hedging relationship. In that case, the fair value change is either reported in profit or loss with the corresponding adjustment to the hedged item (fair value hedge) or deferred in equity (cash flow hedge) presented as “Fair value changes on cash flow hedges” under “Other comprehensive income reserve” account.

The Company has no financial assets and liabilities at FVPL as at December 31, 2017.

Loans and Receivables. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are not entered into with the intention of immediate or short-term resale and are not classified as financial assets at FVPL, HTM investments or AFS financial assets. After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest rate method, less any impairment. The amortization is included as part of interest income in profit or loss. Losses arising from impairment are recognized in profit or loss. Loans and receivables are included in current assets if maturity is within 12 months after the end of reporting period, otherwise these are classified as noncurrent assets.

Loans and receivables include cash and cash equivalents, short-term deposits (excluding UITF presented as short-term deposits but classified as AFS financial assets) and receivables, restricted cash, and due from related parties (see Note 34).

HTM Investments. HTM investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Company’s management has the positive intention and ability to hold to maturity. Investments intended to be held for an undefined period are not included in this classification. When the Company sells or reclassifies other than an insignificant amount of HTM investments, the entire category would be tainted for 2 years and reclassified as AFS financial assets.

After initial measurement, these investments are subsequently measured at amortized cost. The amortization is included as part of interest income in profit or loss. Gains and losses are recognized in profit or loss when the HTM investments are derecognized and impaired, as well as through the amortization process. The losses arising from impairment of such investments and the effects of restatement on foreign currency denominated HTM investments are also recognized in profit or loss. Assets under this category are classified as current assets if maturity is within 12 months from the reporting date and as noncurrent assets if maturity is more than a year from the reporting date. *SGVFSM000023* - 163 -

The Company has no HTM investments as at December 31, 2017.

AFS Financial Assets. AFS financial assets are non-derivative financial assets that are designated as such or not classified in any of the other categories. AFS financial assets include equity and debt securities. They are purchased and held indefinitely and may be sold in response to liquidity requirements or changes in market conditions.

After initial measurement, AFS financial assets that are quoted are subsequently measured at fair value. The unrealized gains and losses arising from the change in fair value of AFS financial assets are recognized and included in the “Fair value changes on AFS financial assets” under “Other comprehensive income reserve” account until the investment is derecognized or determined to be impaired, at which time the cumulative gains or losses are reclassified to profit or loss. When the Company holds more than one investment in the same security, these are deemed to be disposed of on an average cost method basis. Interest earned on holding AFS debt financial assets are reported as interest income using the effective interest rate method. Dividends earned on holding AFS equity financial assets are recognized in profit or loss when the right of payment has been established. AFS equity financial assets that are unquoted and for which fair values cannot be reliably determined are carried at cost less any impairment in value. This category includes investments in quoted and unquoted common shares and preferred shares, UITF, investments in golf club shares and investments in bonds (see Note 34). Other Financial Liabilities. This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations and borrowings. Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction cost. Any effect of restatement of foreign currency-denominated liabilities are recognized in profit or loss.

All of the Company’s financial liabilities, except for derivative liabilities, are classified as other financial liabilities which include loans and borrowings.

All loans and borrowings are initially recognized at fair value of the consideration received less directly attributable transaction costs (referred to as “debt issue costs”). Debt issue costs are amortized over the life of the debt instrument using the effective interest method. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the effective interest rate method. Gains and losses are recognized in profit or loss when the liabilities are derecognized, as well as through the amortization process. This category generally includes short-term and long-term debts.

Derivatives and Hedge Accounting Freestanding and separated embedded derivatives are classified as financial assets or financial liabilities at FVPL unless they are designated as effective hedging instruments. The Company uses derivative financial instruments, such as cross-currency swaps and interest rate swaps, to hedge its foreign currency risks and interest rate risks, respectively. Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently remeasured at fair value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Consequently, gains and losses from changes in fair value of derivatives not designated as effective accounting hedges are recognized immediately in profit or loss. *SGVFSM000023* - 164 -

For the purpose of hedge accounting, hedges are classified primarily as: (a) a hedge of the fair value of a recognized asset or liability or an unrecognized firm commitment except for foreign currency risk (fair value hedge); or (b) a hedge of the exposure to variability in cash flows attributable to a recognized asset or liability or a highly probable forecasted transaction or foreign currency risk in an unrecognized firm commitment (cash flow hedge); or (c) hedge of a net investment in a foreign operation. The Company has no derivatives in 2017 designated as fair value hedges or hedges of a net investment in a foreign operation.

At the inception of a hedge relationship, the Company formally designates and documents the hedge relationship to which the Company wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The documentation includes identifying the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument’s effectiveness in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.

In cash flow hedges, changes in the fair value of a hedging instrument that qualifies as a highly effective cash flow hedge are included in equity, net of related deferred tax, and presented as “Fair value changes on cash flow hedges” under “Other comprehensive income reserve” account in the consolidated statement of financial position. The ineffective portion is immediately recognized in profit or loss.

If the hedged cash flow results in the recognition of an asset or a liability, gains and losses initially recognized in equity are transferred from equity to net income in the same period during which the hedged forecasted transaction or recognized asset or liability affects profit or loss.

When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that had been recognized in OCI reserve is retained as such until the forecasted transaction occurs. When the forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in OCI reserve is credited or charged immediately to profit or loss.

For derivatives that are not designated as effective accounting hedges, any gains or losses arising from changes in fair value are recognized directly in profit or loss.

Embedded Derivatives. An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met:

§ The economic characteristics and risks of the embedded derivative are not clearly and closely related to the economic characteristics of the host contract; § A separate instrument with the same terms as the embedded derivative would meet the definition of the derivative; and § The hybrid or combined instrument is not recognized as at FVPL.

Embedded derivatives that are bifurcated from the host contracts are accounted for as financial assets or liabilities at FVPL. Changes in fair values are recognized in profit or loss. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

The Company assesses whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which *SGVFSM000023* - 165 - case reassessment is required. The Company determines whether a modification to cash flows is significant by considering the extent to which the expected future cash flows associated with the embedded derivative, the host contract or both have changed and whether the change is significant relative to the previously expected cash flows on the contract.

Classification of Financial Instruments Between Liability and Equity A financial instrument is classified as a liability if it provides for a contractual obligation to:

§ Deliver cash or another financial asset to another entity; or § Exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavorable to the Company; or § Satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

Impairment of Financial Assets The Company assesses at each end of reporting period whether a financial asset or group of financial assets is impaired. If any such evidence exists, the Company applies the relevant impairment policies by measurement type of financial asset to determine the amount of any impairment loss. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an incurred “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Objective evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization, and where observable data indicate that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

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Assets Carried at Amortized Cost. The Company first assesses whether objective evidence (such as the probability of insolvency or significant financial difficulties of the debtor) of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss on assets carried at amortized cost had been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. The assets and the associated allowance are written off when there is no realistic prospect of future recovery, and all collateral had been realized or had been transferred to the Company. If a write-off is later recovered, the recovery is credited to profit or loss.

If, in a subsequent year, the amount of the impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying value of the asset does not exceed what the amortized cost would have been had the impairment not been recognized at the date impairment is reversed. The amount of the reversal shall be recognized in profit or loss.

Assets Carried at Cost. If there is objective evidence that an impairment loss had been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in profit or loss. The asset together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral had been realized or had been transferred to the Company.

AFS Financial Assets. For AFS financial assets, the Company assesses at each end of reporting period whether there is objective evidence that a financial asset or group of financial assets is impaired.

In the case of equity investments classified as AFS financial assets, this would include a significant or prolonged decline in the fair value of the investments below their cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in profit or loss – is removed from “Other comprehensive income reserve” account and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss. Increases in fair value after impairment are recognized directly in “Other comprehensive income reserve” account.

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In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount future cash flows for the purpose of measuring the impairment loss. Such accrual is recorded as part of “Interest income” in profit or loss. If, in subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss.

Derecognition of Financial Instruments

Financial Asset. A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when:

§ The Company’s rights to receive cash flows from the asset have expired; § The Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a “pass-through” arrangement; or § The Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts and any costs or fees incurred are recognized in the profit or loss.

Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable right to offset the recognized amounts and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. The Company assesses that it has a currently enforceable right of offset if the right is not contingent on a future event, and is legally enforceable in the normal course of business, event of default, and event of insolvency or bankruptcy of the Company and all of the counterparties.

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Inventories Inventories, which are included as part of “Other current assets” in the consolidated statement of financial position, are valued at the lower of cost and net realizable value (NRV).

Cost includes purchase price and import duties incurred in bringing each item of inventory to its present location and condition. Cost is determined using the moving average method for the healthcare segment and weighted average method for the power, tollways and the water segment. Depending on the nature of the inventory, NRV is based either on current replacement cost or estimated selling price less estimated cost to sell.

Advances to Contractors and Consultants Advances to contractors and consultants, represent advance payments for mobilization of the contractors and consultants. These are stated at costs less any impairment in value. These amounts are reduced upon receipt of the equivalent amount of services rendered by the contractors and consultants. These are recognized as current or noncurrent depending on the classification of its underlying asset.

Service Concession Arrangements The Company, as operator, accounts for a public-to-private service concession arrangement in accordance with Philippine Interpretation IFRIC 12 where the grantor controls the infrastructure. The grantor controls the infrastructure where the following conditions are met: § the grantor controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and § the grantor controls – through ownership, beneficial entitlement or otherwise – any significant residual interest in the infrastructure at the end of the arrangement’s term.

The Company recognizes an asset for the consideration that it receives from the grantor in exchange for providing construction or upgrade services. The consideration received can take a variety of forms. The consideration given by the grantor to the operator might be rights to: (a) an intangible asset (see accounting policy section ‘Service Concession Arrangements – Intangible Asset Model’); or (b) a financial asset (see accounting policy section ‘Service Concession Arrangements – Financial Asset Model’)

Service Concession Arrangements – Intangible Asset Model Where the operator receives right (license) to charge users of public service, the Company accounts for such arrangement under the intangible asset model (see Notes 12 and 29).

Construction and Upgrade Services: Revenue and Cost Recognition. Prior to adoption of PFRS 15, the Company recognizes and measures revenue and cost in accordance with PAS 11 and PAS 18 for the services it performs. In 2018, the Company recognizes revenue and costs for construction and upgrade services in accordance with PFRS 15, Revenue from Contracts with Customers. The Company, as operator, receives non-cash consideration in the form of an intangible asset (a license to charge users of the public service) in exchange for construction and upgrade services. The operator measures the intangible asset initially at cost, being the amount of the contract asset recognized during the construction or upgrade phase in accordance with PFRS 15. The operator recognizes revenue and a contract asset (that represents the right to receive an intangible asset, as ‘Service Concession Asset’) as it performs the construction performance obligation.

Operations Revenues. An operator that recognizes an intangible asset also recognizes revenue for the consideration received from users of the public service during the operation phase (see accounting policies in section ‘Revenue from contracts with customers – Recognized Over Time’).

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Contractual Obligations. The Company recognizes its contractual obligations to restore the toll roads to a specified level of serviceability in accordance with PAS 37, Provisions, Contingent Liabilities and Contingent Assets, as the obligation arises which is as a consequence of the use of the toll roads and is proportional to the number of vehicles using the toll roads and increasing in measurable annual increments (see Note 16).

Service Concession Assets. The service concession assets acquired through business combinations are recognized initially at the fair value of the concession agreement using multi-period excess earnings method. Additions subsequent to business combinations are initially measured at present value of any additional estimated future concession fee payments pursuant to the concession agreement (see Notes 12 and 17) and/or the costs of rehabilitation works incurred or additional constructions.

Service concession assets acquired other than through business combinations include capitalized upfront payments and expenditures directly attributable to the acquisition of the service concession. Payments to the Grantor/s over the concession period are capitalized at their present value using the incremental borrowing rate determined at inception date and is included as part of the initial recognition of the service concession asset with a corresponding liability recognized as “Service concession fees payable”. Borrowing cost in relation to service concession assets that are considered as qualifying assets forms part of the cost of the service concession asset.

Following initial recognition, the service concession assets are carried at cost less accumulated amortization and any impairment losses.

Following are the methods used to amortize the service concession assets:

Methods Company Unit of Production (UOP) Maynilad, CIC, NLEX Corp and PT Nusantara Straight-line PHI, MIBWS, MPIWI and PNW

The amortization period and method for an intangible asset with a finite useful life is reviewed at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the service concession asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense is recognized under the “Cost of sales and services” account in the consolidated statement of comprehensive income.

The service concession assets will be derecognized upon turnover to the Grantor. There will be no gain or loss upon derecognition as the service concession assets, which are expected to be fully amortized by then, will be handed over to the Grantor for no consideration.

Service Concession Arrangements – Financial Asset Model Where the operator has an unconditional contractual right to receive cash or another financial asset from, or at the direction of, the grantor, the Company accounts for such arrangement under the financial asset model (see Notes 8 and 29).

In accordance with PFRS 15, the Company determines each performance obligation and the corresponding transaction price. The transaction price is determined as the fair value of the consideration received or receivable in exchange for the services delivered. Where the Company does not receive remuneration separately for the services provided (i.e., construction, maintenance and operational services in a single contract), the Company allocates the transaction price between the

*SGVFSM000023* - 170 - construction and operation services by reference to the stand-alone selling prices of the services delivered.

During the construction phase, the Company recognizes revenue and costs by reference to the stage of completion as the contract activity progresses over the construction period. The Company measures progress using a method that depicts the entity’s progress towards satisfying its performance obligation. As the Company recognizes revenue for the construction service performance obligation, it recognizes a financial asset (as ‘Concession financial receivable’). The financial asset is subsequently measured in accordance with PFRS 9 (see accounting policy section ‘Financial Instruments: Financial Assets’).

During the operating phase, the Company allocates a proportion of the cash receipts to settle part of the financial asset. It allocates the remaining receipts between revenue for providing maintenance and operation services and finance income.

Property, Plant and Equipment Property, plant and equipment, except land, are carried at cost, excluding day-to-day servicing, less accumulated depreciation and any impairment loss. The initial cost of property, plant and equipment comprises its purchase price, including import duties and non-refundable purchase taxes and any directly attributable costs of bringing the property, plant and equipment to its working condition and location for its intended use. Such cost includes the cost of replacing part of such property, plant and equipment and borrowing costs for long-term construction projects when the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Company recognizes such parts as individual assets with specific useful lives and depreciation. Likewise, when major repairs are performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied. Land is stated at cost less any impairment loss.

Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally recognized as expense in the period such costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property, plant and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost of the property, plant and equipment.

Depreciation commences once the property, plant and equipment are available for use and is computed on a straight-line basis over the estimated useful lives of the assets:

Leasehold improvements 2–5 years or lease term whichever is shorter Land improvements 5 years Building and building improvements 5–30 years Generating assets 9–25 years Office and other equipment, furniture and fixtures 2–5 years Transportation equipment 2–8 years Instruments, tools and other equipment 2–5 years Library books 3–5 years

The residual values, useful lives and depreciation method are reviewed, and adjusted prospectively if appropriate, at each reporting date.

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An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the year the asset is derecognized.

Construction in progress is stated at cost less any impairment in value. This includes cost of construction and other direct costs. Construction in progress is not depreciated until such time that the relevant assets are completed and available for its intended use.

Intangible Assets Intangible assets, other than service concession assets, acquired separately are measured on initial recognition at cost. The costs of intangible assets acquired in a business combination are their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in profit or loss in the year in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortized over their estimated useful lives on a straight line basis and assessed for impairment whenever there is an indication that an intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. The amortization expense on intangible assets with finite lives is recognized in profit or loss in the expense category consistent with the function of the intangible assets.

Estimated useful lives of the intangible assets with finite lives:

Customer contracts and relationships 5–20 years Property use rights 10–20 years Licenses and technology 20 years Software 5 years

Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level (see Notes 11 and 14). The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If no longer supportable, the change in useful life from indefinite to finite is made on a prospective basis.

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the intangible asset and are recognized in profit or loss when the intangible asset is derecognized.

Impairment of Nonfinancial Assets The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use (VIU) and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds *SGVFSM000023* - 172 - its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account, if available. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators. Impairment losses are recognized in profit or loss.

The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five (5) years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year.

Impairment losses, including impairment on inventories, are recognized in profit or loss in those expense categories consistent with the function of the impaired asset.

For nonfinancial assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. After such a reversal, the depreciation (in case of property, plant and equipment) and amortization (in case of property use rights, service concession assets and software cost) charges are adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value, on a systematic basis over their remaining useful lives.

Goodwill. Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of the CGU, or group of CGUs, to which the goodwill relates. Where the recoverable amount of the CGU, or group of CGUs, is less than the carrying amount of the CGU or group of CGUs, to which goodwill had been allocated, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods.

Service Concession Assets not yet Available for Use. Service concession assets not yet available for use are tested for impairment annually. Impairment is determined by comparing the carrying value of the asset with its recoverable value. Where the recoverable value of the service concession assets not yet available for use is less than the carrying value, an impairment is recognized.

Assets Held For Sale and Discontinued Operations Assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is considered highly probable. Sale is determined to be highly probable, if management is committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan have been initiated. Further, the asset (or disposal group) is actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale is expected to qualify for recognition as a completed sale within one year from the date of classification, except as when the delay is caused by events or circumstances beyond

*SGVFSM000023* - 173 - the Company’s control and there is sufficient evidence that the Company remains committed to its plan to sell the asset (or disposal group).

Property, plant and equipment and intangible assets are not depreciated or amortized once classified as held for sale.

Assets held for sale are stated at the lower of carrying amount and fair value less costs to sell and are presented as current assets in the consolidated statement of financial position.

A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale, and:

§ Represents a separate major line of business or geographical area of operations; § Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations; or § Is a subsidiary acquired exclusively with a view to resale.

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or loss after tax from discontinued operations in the consolidated statement of comprehensive income. The consolidated statements of comprehensive income are re-presented in the comparative period for all operations that are discontinued by the end of the reporting period.

Assets Held in Trust Assets that are owned by Metropolitan Waterworks and Sewerage System (MWSS) but are used in the operations of Maynilad under the Concession Agreement, are not reflected in the consolidated statement of financial position but treated as Assets Held in Trust, except for certain assets transferred to Maynilad as mentioned in Note 31.

Claims from the Grantors

Structural Defect Restoration (SDR) costs and Existing System Requirement (ESR) costs. LRMC’s claims from the Grantors of the LRT-1 Concession, based on the actual costs incurred, are initially recorded as deferred charges lodged under “Other noncurrent assets” pending approval from the Grantors. Subsequently, once the claims have been verified by the Independent Consultant and agreed to by the Grantors, they will be reclassified to claims receivable under “Receivables”. Claims that are not approved shall be reclassified to the “Service concession assets” account.

Light Rail Vehicle (LRV) Shortfall, Fare Deficits and Grantors Compensation Payment. LRMC shall recognize these claims as revenue only when it is probable that the economic benefit associated with these transactions will flow to LRMC; that is until the consideration is received or until an uncertainty is removed. The uncertainty is removed when the claim is acknowledged or approved by the Grantors, whichever is earlier.

Equity Attributable to Owners of the Parent Company

Common Stocks. Common stocks are classified as equity and are measured at par value for all shares issued. Proceeds and/or fair value of consideration received in excess of par value are recognized as additional paid-in capital. Incremental costs directly attributable to the issue of ordinary shares and share options are recognized as a deduction from equity, net of any tax effects.

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Preferred Shares. Preferred share is classified as equity if it is non-redeemable, or redeemable only at the Company’s option, and any dividends are discretionary. Dividends thereon are recognized as distributions within equity upon approval by the Parent Company’s BOD.

Preferred share is classified as a liability if it is redeemable on a specific date or at the option of the shareholders, or if dividend payments are not discretionary. Dividends thereon are recognized as interest expense in profit or loss as accrued.

Retained Earnings. Retained earnings represent accumulated earnings net of cumulative dividends declared, adjusted for the effects of equity restructuring and transactions with NCI and the effects of changes in accounting policies as may be required by the standards’ transitional provisions.

Cash Dividend. The Company recognizes a liability to distribute cash to equity holders of the Parent Company when the distribution is authorized and the distribution is no longer at the discretion of the Company. As per the corporate laws in the Philippines, a distribution is authorized when it is approved by the BODs. A corresponding amount is charged directly against retained earnings.

Equity Reserves. Equity reserves are made up of equity transactions other than capital contributions such as equity component of a convertible financial instrument, transactions with NCI and share-based payment transactions or ESOP.

Other Comprehensive Income Reserve. OCI reserve comprises items of income and expenses that are recognized directly in equity. OCI items are either reclassified to profit or loss or directly to equity in subsequent periods.

Borrowing Costs

Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a qualifying asset. To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset shall be determined as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. To the extent that funds are borrowed generally, the amount of borrowing costs eligible for capitalization shall be determined by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period shall not exceed the actual amount of borrowing costs incurred during that period.

Capitalization of borrowing costs commences when the activities necessary to prepare the asset for intended use are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are capitalized until the asset is available for its intended use. If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is recognized. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to finance these projects, to the extent that they are regarded as an adjustment to interest costs.

All other borrowing costs are expensed as incurred.

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Provisions and Contingencies Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Company expects some or all of the provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. The expense relating to any provision is presented in profit or loss, net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as an interest expense.

§ Warranties and Guarantees. Provision relates to estimated expenses of concluded and ongoing debt settlement negotiations and certain warranties extended in relation to debt for asset swap arrangements entered in prior years. The amount of provision is recognized upon entering into such arrangement and is based on historical experience or best estimate as a result of ongoing negotiations.

§ Provision for Heavy Maintenance. Provision for heavy maintenance pertains to the present value of the estimated contractual obligations of the Company to restore the service concession assets or toll roads to a specified level of serviceability during the service concession term and to maintain the same assets in good condition prior to turnover of the assets to the Philippine Government. The amount of provision is accrued every year and recognized in profit or loss and is reduced by the actual obligations paid for heavy maintenance of the service concession.

§ Decommissioning Liability. The decommissioning liability arising from generation companies’ obligations, under their Environmental Compliance Certificate, to decommission or dismantle their power plant complex at the end of its useful life. A corresponding asset is recognized as part of property, plant and equipment. Decommissioning costs are provided at the present value of expected costs to settle the obligation using estimated cash flows. The cash flows are discounted at a current pre-tax rate that reflects the risks specific to the decommissioning liability. The unwinding of the discount is expensed as incurred and recognized in the consolidated statement of comprehensive income as an accretion of decommissioning liability under the “Interest expense” account. The estimated future costs of decommissioning are reviewed annually and adjusted prospectively. Changes in the estimated future costs or in the discount rate applied are added or deducted from the cost of the power plant complex. The amount deducted from the cost of the power plant complex shall not exceed its carrying amount.

If the decrease in the liability exceeds the carrying amount of the power plant complex, the excess shall be recognized immediately in the consolidated statements of comprehensive income.

Contingent Liabilities. Contingent liabilities are not recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial statements unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognized in the consolidated financial statements but are disclosed in the notes to consolidated financial statements when an inflow of economic benefits is probable.

Contingent Liabilities Recognized in a Business Combination. A contingent liability recognized in a business combination is initially measured at its fair value. Subsequently, it is measured at the higher of the amount that would be recognized in accordance with the requirements for provisions above or the amount initially recognized less, when appropriate, cumulative amortization recognized in accordance with the requirements for revenue recognition. This account is included in “Other long-term liabilities” in the consolidated statements of financial position. *SGVFSM000023* - 176 -

Related Parties Enterprises and individuals that directly, or indirectly through one or more intermediaries, control or are controlled by or under common control with the Company, including holding companies, subsidiaries and fellow subsidiaries, are related parties of the Company. Associates, joint ventures and individuals owning, directly or indirectly, an interest in the voting power of the Company that gives them significant influence over the enterprise, key management personnel, including directors and officers of the Company and close members of the family of these individuals, and companies associated with these individuals also constitute related parties. In considering each possible related entity relationship, attention is directed to the substance of the relationship and not merely the legal form.

Operating Revenues Recognized Over Time (beginning January 1, 2018)

Revenue from contracts with customers is recognized when services are transferred to the customer at the amount that amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company has generally concluded that it is the principal in its revenue arrangements because it typically controls the services before transferring them to the customer.

Water and Sewerage Services Revenue. Revenues from water and sewerage services are recognized upon supply of water to the customers. Billings to customers consist of water, environmental and sewerage charges.

Maynilad also charges its customers with one-time connection and installation fees upon initial set-up of its service connection. The connection and installation fee is payable upfront and is non-refundable. The connection and installation fees are not separate performance obligation from the water services and hence, initially recorded as a contract liability (under ‘Accounts payable and other current liabilities’ for the current portion and ‘Other long-term liabilities’ for the non-current portion). The contract liability is subsequently recognized as revenue over the contract term.

Toll Fees. Revenue from toll fees is recognized upon sale of toll tickets. Toll fees received in advance, through transponders or magnetic cards, is recognized as income upon the holders’ availment of the toll road services, net of sales discounts. Power Sales. ‘Power revenue’ consist of energy fees for the energy and services supplied by the generation companies as provided for in their respective EPPAs with customers, after transmission and ancillary charges. Energy fee is recognized based on actual delivery of energy generated and made available to customers multiplied by the applicable tariff rate, net of adjustments, as agreed upon between the parties. These adjustments consist of discounts which depend on the provisions in the respective EPPAs. Discounts may pertain to prompt payment discount which is given upon payment within a specified period of time, volume discount which is computed based on the delivery of energy generated and made available to the customers multiplied by a specific rate agreed with the customer, or load factor discount computed based on the difference of the adjusted tariff rate agreed with the customer for the purpose of the discount. Energy fees derived from trading operations and recognized based on actual delivery of such electricity at relevant trading prices.

Patient Services included in Hospital Revenue. Hospital revenue includes revenue from patient services which is recognized when services are rendered (see Note 32).

Rail Revenue. Rail revenue is generally recognized in profit or loss when the journey is completed or provided.

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Logistics Revenue. Revenue from logistics services is recognized as services are rendered.

Operating Revenues Satisfied at a Point in Time Revenues from the following are recognized at the point in time when control of the asset is transferred to the customer, generally on delivery of the goods:

Coal Sales. Coal sales are recognized at point in time when the coal is delivered, the legal title has passed to the customer.

Pharma sales included in Hospital Revenues. Revenue from pharmacy sales is recognized when medicines are charged to patients (see Note 32).

Other Income The Company applies guidance in the revenue standard related to the transfer of control and measurement of the transaction price, including the constraint on variable consideration, to evaluate the timing and amount of the gain or loss recognized. Included in “Other income” are interest income (see accounting policy on Financial Instruments), dividend income (see accounting policy on Financial Instruments), rental income (see accounting policy section on Leases), sale of investments and other incidental gain/income.

Cost and Expenses Recognition Cost and expenses are recognized in profit or loss when a decrease in future economic benefit related to a decrease of an asset or an increase of a liability has arisen that can be measured reliably. Cost and expenses are recognized in profit or loss on the basis of systematic and rational allocation procedures when economic benefits are expected to arise over several accounting periods and the association with income can only be broadly or indirectly determined; or immediately when expenditure produces no future economic benefits or when, and to the extent that, future economic benefits do not qualify or cease to qualify, for recognition in the Company’s consolidated statement of financial position as an asset.

Accounting policy applied for Leases beginning January 1, 2019

Leases

Right-of-use assets. The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). ROU assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of ROU assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized ROU assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. ROU assets are subject to impairment.

Lease liabilities. At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

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In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets. The Company applies the short-term lease recognition exemption (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the low-value assets recognition exemption. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term. Beginning January 1, 2019, ‘Rentals’ under the ‘Costs of sales and services’ and ‘General and administrative expenses’ accounts include only those leases that are short-term and of low-value (see Notes 21 and 22).

Significant judgement in determining the lease term of contracts with renewal options. The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Company has the option, under some of its leases to lease the assets for additional terms. The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

Accounting policy applied for Leases until December 31, 2018

Leases The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset (or assets) and the arrangement conveys a right to use the asset (or assets), even if that asset is (or those assets are) not explicitly specified in an arrangement. A reassessment is made after inception of the lease only if one of the following applies: a. There is a change in contractual terms, other than a renewal or extension of the agreement; b. A renewal option is exercised or extension granted, unless the term of the renewal or extension was initially included in the lease term; c. There is a change in the determination of whether the fulfillment is dependent on a specified asset; or d. There is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) and the date of renewal or extension period for scenario (b).

Leases where the lessor retains substantially all the risks and benefits of ownership of the assets are classified as operating leases. Rental income under operating leases is accounted for in accordance with the terms of the leases and generally on a straight-line basis and is included under “Other income” in the consolidated statement of comprehensive income. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognized over *SGVFSM000023* - 179 - the lease term on the same basis as rental income. Contingent rents are recognized as income in the period in which they are earned.

Operating lease payments, net of aggregate of benefit of lease incentives, are recognized as income in profit or loss on a straight-line basis over the lease term.

Retirement and Other Benefits

Defined Contribution Plan. Certain subsidiaries of the group each maintain a defined contribution plan that covers all regular full-time employees. Under the defined contribution plan, fixed contributions by the employer are based on the employees’ monthly salaries. However, entities operating in the Philippines, are covered under RA 7641 which provides for qualified employees a defined benefit minimum guarantee. The defined benefit minimum guarantee is equivalent to a certain percentage of the monthly salary payable to an employee at normal retirement age with the required credited years of service based on the provisions of RA 7641.

Accordingly, these entities account for the retirement obligation under the higher of the defined benefit obligation relating to the minimum guarantee and the obligation arising from the defined contribution plan.

For the defined benefit minimum guarantee plan, the liability is determined based on the present value of the excess of the projected defined benefit obligation over the projected defined contribution plan obligation at the end of the reporting period. The defined benefit obligation is calculated annually by a qualified independent actuary using the projected unit credit method. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense (income) and other expenses (income) related to the defined benefit plan are recognized in profit or loss.

The defined contribution liability, on the other hand, is measured at the fair value of the defined contribution assets upon which the defined contribution benefits depend, with an adjustment for margin on asset returns, if any, where this is reflected in the defined contribution benefits.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in OCI.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognized immediately in profit or loss. The Company recognizes gains or losses on the settlement of a defined benefit plan when the settlement occurs.

Defined Benefit Plan. Certain subsidiaries have funded, noncontributory retirement benefit plans covering all their eligible regular employees. The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

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The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method.

Defined benefit costs comprise the following: (a) service cost; (b) net interest on the net defined benefit liability or asset; and (c) remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss.

Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in OCI in the period in which they arise. These remeasurements are not reclassified to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance policies. Plan assets are not available to the creditors of the Company, nor can they be paid directly to the Company. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

The Company’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually certain.

Termination benefit. Termination benefits are employee benefits provided in exchange for the termination of an employee’s employment as a result of either an entity’s decision to terminate an employee’s employment before the normal retirement date or an employee’s decision to accept an offer of benefits in exchange for the termination of employment.

A liability and expense for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of those benefits and when the entity recognizes related restructuring costs. Initial recognition and subsequent changes to termination benefits are measured in accordance with the nature of the employee benefit, as either post-employment benefits, short-term employee benefits, or other long-term employee benefits.

Employee leave entitlement. Employee entitlements to annual leave are recognized as a liability when they are accrued to the employees. This is measured based on undiscounted amount of liability for leave expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees rendered the related services.

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ESOP The Company has an ESOP for eligible executives to receive remuneration in the form of share-based payment transactions, whereby executives render services in exchange for the share option.

The cost of equity-settled transactions with employees is measured by reference to the fair value of the stock options at the date at which they are granted. Fair value is determined using an option-pricing model, further details of which are set forth in Note 28. In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the share price of the Parent Company (“market conditions”).

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative expense recognized for equity-settled transactions at each end of reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate at that date of the number of awards that will ultimately vest. The profit or loss credit or expense for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized as employee benefits.

No expense is recognized for awards that do not ultimately vest, except for awards where vesting is conditional upon a market condition, which are treated as vesting irrespective of whether or not the market condition is satisfied, provided that all other performance and/or service conditions are satisfied.

When the terms of an equity-settled award are modified, the minimum expense recognized is the expense as if the terms had not been modified, if the original terms of the award are met. If the modification increases the fair value of the equity instruments granted, as measured immediately before and after the modification, the entity shall include the incremental fair value granted in the measurement of the amount recognized for services received as consideration for the equity instruments granted. The incremental fair value granted is the difference between the fair value of the modified equity instrument and that of the original equity instrument, both estimated as at the date of the modification. If the modification occurs during the vesting period, the incremental fair value granted is included in the measurement of the amount recognized for services received over the period from the modification date until the date when the modified equity instruments vest, in addition to the amount based on the grant date fair value of the original equity instruments, which is recognized over the remainder of the original vesting period. If the modification occurs after vesting date, the incremental fair value granted is recognized immediately, or over the vesting period if the employee is required to complete an additional period of service before becoming unconditionally entitled to those modified equity instruments.

Where an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognized for the award is recognized immediately. This includes any award where non-vesting conditions within the control of either the entity or the counterparty are not met. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were modifications of the original award, as described in the previous paragraph.

The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share.

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RSUP The Company has an RSUP for eligible executives of the Company and subsidiaries to receive remuneration in the form of share-based payment transactions, whereby executives render services in exchange for the share awards.

The cost of equity-settled transactions (cost of RSUP) with employees is measured by reference to the fair value of the shares at the date at which they are granted. Fair value is determined based on the prevailing closing market price of the shares, further details of which are set forth in Note 31.

The cost of equity-settled transactions is recognized, together with a corresponding increase in equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (“vesting date”). The cumulative cost of RSUP recognized for equity-settled transactions at each end of reporting period until the vesting date reflects the extent to which the vesting period has expired and the Company’s best estimate at that date of the number of awards that will ultimately vest. The profit or loss credit or expense for a period represents the movement in cumulative expense recognized as at the beginning and end of that period and is recognized as employee benefits.

No expense is recognized for awards that do not ultimately vest. The dilutive effect of outstanding options is reflected as additional share dilution in the computation of earnings per share (see Note 27).

Long-term Employee Benefits The Company’s LTIP grants cash incentives to eligible key executives of the Parent Company and certain subsidiaries. Liability under the LTIP is determined using the projected unit credit method. Employee benefit costs include current service costs, interest cost, actuarial gains and losses, and past service costs. Past service costs and actuarial gains and losses are recognized immediately in profit or loss.

Foreign Currency-Denominated Transactions and Translations The consolidated financial statements are presented in Philippine Peso, which is the Parent Company’s functional and presentation currency. All subsidiaries and associates evaluate their primary economic and operating environment and determine their functional currency. Items included in the consolidated financial statements of each entity are initially measured using that functional currency.

Transactions and balances. Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange ruling at the end of reporting period. All differences are taken to profit or loss except when qualified as adjustment to borrowing costs, and as discussed below for Maynilad.

Foreign exchange differentials relating to the restatement of concession fees payable are deferred in view of the automatic reimbursement mechanism as approved by the MWSS Board of Trustees under Amendment No. 1 of the Concession Agreement of Maynilad. Net foreign exchange losses are recognized as deferred FCDA and net foreign exchange gains are recognized as “Deferred FCDA charges” under “Other noncurrent assets” in the consolidated statements of financial position. The write-off of the deferred FCDA or reversal of deferred credits will be made upon determination of the new base foreign exchange rate as approved by the Regulatory Office (RO) during every Rate Rebasing exercise, unless indication of impairment of the deferred FCDA would be evident at an earlier date.

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Foreign exchange differentials arising from other foreign currency-denominated transactions are credited or charged to operations.

Group companies. On consolidation, the assets and liabilities of foreign operations are translated into Philippine Peso at the rate of exchange prevailing at the reporting date and their statements of comprehensive income are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in profit or loss.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date.

Income Taxes

Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the tax authority. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date where the Company operates and generates taxable income.

Current income tax relating to items recognized directly in equity is recognized in equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred Tax. Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.

Deferred tax liabilities are recognized for all taxable temporary differences, except (a) where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income; and (b) in respect of taxable temporary differences associated with investments in subsidiaries, associates and joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carryforward benefits of unused tax credits from excess minimum corporate income tax (MCIT) over the regular corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that it is probable that taxable income will be available against which the deductible temporary differences and carryforward benefits of unused tax credits from MCIT and NOLCO can be utilized. Deferred tax, however, is not recognized when (a) it arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss; and (b) in respect of deductible temporary differences associated with investments in subsidiaries, associates and interest in joint ventures, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable income will be available against which the temporary differences can be utilized.

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The carrying amount of deferred tax assets is reviewed at each end of reporting period and reduced to the extent that it is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each end of the reporting period and are recognized to the extent that it has become probable that future taxable income will allow the deferred tax assets to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date.

Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority.

Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in profit or loss.

Sales Tax Revenues, expenses and assets are recognized net of the amount of sales tax (commonly referred to as value-added tax), except:

§ When the sales tax incurred on a purchase of assets or services is not recoverable from the tax authority, in which case the sales tax is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable § When receivables and payables are stated with the amount of sales tax included

The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of “Other current assets” or “Accounts payable and other current liabilities” in the consolidated statement of financial position.

Earnings Per Share Basic earnings per share is calculated by dividing the net income for the year attributable to the owners of the Parent Company by the weighted average number of common shares outstanding during the year, after considering the retroactive effect of stock dividend declaration, if any.

Diluted earnings per share attributable to owners of the Parent Company is calculated in the same manner assuming that, the weighted average number of common shares outstanding is adjusted for potential common shares from the assumed exercise of ESOP and other dilutive instruments.

Events after the Reporting Period Post year-end events that provide additional information about the Company’s financial position at the reporting date (adjusting events), if any, are reflected in the consolidated financial statements. Post year-end events that are not adjusting events are disclosed in the notes to consolidated financial statements when material.

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39. Future Changes in Accounting Policies Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Company does not expect that the future adoption of the said pronouncements will have a significant impact on its consolidated financial statements. The Company intends to adopt the following pronouncements when they become effective.

Effective beginning on or after January 1, 2020

§ Amendments to PAS 1, Presentation of Financial Statements and PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors, Definition of Material

The amendments clarify when information is material and incorporate some of the guidance in PAS 1 about immaterial information. In particular, the amendments clarify: (i) that the reference to obscuring information addresses situations in which the effect is similar to omitting or misstating that information, and that an entity assesses materiality in the context of the financial statements as a whole, and (ii) the meaning of ‘primary users of general purpose financial statements’ to whom those financial statements are directed, by defining them as ‘existing and potential investors, lenders and other creditors’ that must rely on general purpose financial statements for much of the financial information they need.

§ Amendments to PFRS 3, Business Combinations

The amendment revises the definition of a business. The amended definition of a business requires an acquisition to include an input and a substantive process that together significantly contribute to the ability to create outputs. The definition of the term ‘outputs’ is amended to focus on goods and services provided to customers, generating investment income and other income, and it excludes returns in the form of lower costs and other economic benefits. The amendments will likely result in more acquisitions being accounted for as asset acquisitions.

§ Revised Conceptual Framework for Financial Reporting

The issued revised Conceptual Framework will be used in standard-setting decisions with immediate effect. Key changes include: (i) increasing the prominence of stewardship in the objective of financial reporting; (ii) reinstating prudence as a component of neutrality; (iii) defining a reporting entity, which may be a legal entity, or a portion of an entity; (iv) revising the definitions of an asset and a liability; (v) removing the probability threshold for recognition and adding guidance on derecognition; (vi) adding guidance on different measurement basis, and (vii) stating that profit or loss is the primary performance indicator and that, in principle, income and expenses in other comprehensive income should be recycled where this enhances the relevance or faithful representation of the financial statements.

No changes will be made to any of the current accounting standards. However, entities that rely on the Framework in determining their accounting policies for transactions, events or conditions that are not otherwise dealt with under the accounting standards will need to apply the revised Framework from January 1, 2020. These entities will need to consider whether their accounting policies are still appropriate under the revised Framework.

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Deferred effectivity

§ Amendments to PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as defined in PFRS 3. Any gain or loss resulting from the sale or contribution of assets that does not constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the associate or joint venture.

On January 13, 2016, the Financial Reporting Standards Council deferred the original effective date of January 1, 2016 of the said amendments until the International Accounting Standards Board (IASB) completes its broader review of the research project on equity accounting that may result in the simplification of accounting for such transactions and of other aspects of accounting for associates and joint ventures.

§ PFRS 17, Insurance Contracts

PFRS 17 was issued as replacement for PFRS 4, Insurance Contracts. It requires a current measurement model where estimates are re-measured in each reporting period. Contracts are measured using the building blocks of: (i) discounted probability-weighted cash flows; (ii) an explicit risk adjustment; and (iii) a contractual service margin (CSM) representing the unearned profit of the contract which is recognised as revenue over the coverage period.

The standard allows a choice between recognising changes in discount rates either in the statement of profit or loss or directly in other comprehensive income. The choice is likely to reflect how insurers account for their financial assets under PFRS 9. An optional, simplified premium allocation approach is permitted for the liability for the remaining coverage for short duration contracts, which are often written by non-life insurers. There is a modification of the general measurement model called the ‘variable fee approach’ for certain contracts written by life insurers where policyholders share in the returns from underlying items. When applying the variable fee approach, the entity’s share of the fair value changes of the underlying items is included in the CSM. The results of insurers using this model are therefore likely to be less volatile than under the general model. The new rules will affect the financial statements and key performance indicators of all entities that issue insurance contracts or investment contracts with discretionary participation features.

The new standard was to take effect starting January 1, 2021 but was deferred to January 1, 2022.

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40. Consolidated Subsidiaries The consolidated subsidiaries of MPIC are as follows:

Maynilad Water Holding Company, Inc. Philippines 51.3 – 51.3 51.3 – 51.3 Investment holding (MWHC) MetroPac Water Investments Corporation Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding (MPW) Metro Pacific Hospital Holdings, Inc. Philippines – – – 85.6 – 85.6 Investment holding; Represents effective (MPHHI) economic interest in MPHHI; With the Exchangeable Bond, the non-controlling shareholder is entitled to 39.89% effective ownership interest in MPHHI (see Note 24). Metro Pacific Light Rail Corp. (MPLRC) Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding MetroPac Logistics Company, Inc. (MPLC) Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding

Metro Pacific Resource Recovery Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding; formerly MetroPac Clean Corporation (MPRRC) Energy Holdings Corporation

MetPower Ventures Partners Holdings, Inc. Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding (MVPHI) Fragrant Cedar Holdings, Inc. (FCHI) Philippines 100.0 – 100.0 100.0 – 100.0 Property Lessor

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Neo Oracle Holdings, Inc (NOHI) Philippines 96.6 – 96.6 96.6 – 96.6 Investment holding and Real estate; Formerly Metro Pacific Corporation (MPC). NOHI’s corporate life ended December 31, 2013 and is currently under the process of liquidation.

MPIC-JGS Airport Holdings, Inc. Philippines 58.8 – 58.8 58.8 – 58.8 Investment holding; BOD of MPIC-JGS (MPIC-JGS) approved the shortening of the company’s corporate life to until February 15, 2016.

Metro Global Green Waste, Inc. (MGGW) Philippines 70.0 – 70.0 70.0 – 70.0 Investment holding; BOD of MGGW approved the shortening of the company’s corporate life to until December 31, 2017.

MPIC Infrastructure Holdings Limited BVI 100.0 – 100.0 100.0 – 100.0 Investment holding (MIHL) Metro Vantage Properties, Inc. (MVPI) Philippines 100.0 – 100.0 100.0 – 100.0 Real estate

Beacon Electric Subsidiary Beacon PowerGen Holdings, Inc. (BPHI) Philippines – 100.0 100.0 – 100.0 100.0 Investment holding

BPHI Subsidiary Global Business Power Corporation (GBPC) Philippines – 56.0 62.4 – 56.0 62.4 Investment Holding

GBPC Subsidiaries ARB Power Ventures, Inc. (APVI) Philippines – 100.0 62.4 – 100.0 62.4 Investment holding GBH Power Resources, Inc. (GPRI) Philippines – 100.0 62.4 – 100.0 62.4 Power Generation Global Energy Supply Corporation (GESC) Philippines – 100.0 62.4 – 100.0 62.4 Power Distribution Global Hydro Power Corporation (GHPC) Philippines – 100.0 62.4 – 100.0 62.4 Power Generation Global Renewables Power Holdings Philippines – 100.0 62.4 – 100.0 62.4 Power Generation Corporation (GRPC) Mindanao Energy Development Corporation Philippines – 100.0 62.4 – 100.0 62.4 Power Generation (MEDC) *SGVFSM000023* - 189 -

GFPHI Subsidiary Cebu Energy Development Corporation Philippines – 56.0 32.6 – 56.0 32.6 Power Generation (CEDC)

LPCI Subsidiary Global Luzon Energy Development Philippines – 100.0 35.9 – 100.0 35.9 Power Generation Corporation (GLEDC)

PPHC Subsidiaries Panay Power Corporation (PPC) Philippines – 100.0 55.7 – 100.0 55.7 Power Generation Panay Energy Development Corporation Philippines – 100.0 55.7 – 100.0 55.7 Power Generation (PEDC)

GRPC Subsidiary CACI Power Corporation (CACI) Philippines – 100.0 62.4 – 100.0 62.4 Power Generation

MVPHI Subsidiary Waste-to-Energy (see Note 24); On January 30, 2020, the SEC approved SBVC’s application for increase in authorized capital stock with equity infusion in 2019 of the other noncontrolling shareholders issued their corresponding capital stocks in SBVC. MVPHI’s interest in SBVC decreased from Surallah Biogas Ventures Corp. Philippines – 80.0 80.0 – 100.0 100.0 100% to 80%.

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Metro Strategic Infrastructure Philippines – 97.0 96.9 – 97.0 96.9 Investment holding Holdings, Inc. (MSIHI) MPT Asia, Corporation BVI – 100.0 99.9 – 100.0 99.9 Investment holding Metro Pacific Tollways Management Philippines – 100.0 99.9 – 100.0 99.9 Formerly M+ Corporation. Incorporated on Services, Inc. (MPTMSI) August 24, 2016 with the primary purpose to carry on the toll collection function of CAVITEX and CALAEX. Metro Pacific Tollways South Corporation Philippines – 100.0 99.9 – 100.0 99.9 Investment holding Metro Pacific Tollways Philippines – 100.0 99.9 – 100.0 99.9 Investment holding Vizmin Corporation (MPT Vizmin) Easytrip Services Corporation (ESC) Philippines – 66.0 65.9 – 66.0 65.9 Electronic toll collection services Metro Pacific Tollways Asia, Corporation Singapore – 100.0 99.9 – 100.0 99.9 Investment holding Pte. Ltd.

MPT North Subsidiaries NLEX Corporation Philippines – 75.1 75.0 – 75.1 75.0 Tollway operations (see Note 1); Change in the corporate name from Manila North Tollways Corporation was approved by the SEC on February 13, 2017. 4.3% is owned through 42.8% ownership in Egis Investment Partners Philippines Inc. Collared Wren Holdings, Inc. (CWHI) Philippines – 100.0 99.9 – 100.0 99.9 Investment holding Larkwing Holdings, Inc. (LHI) Philippines – 100.0 99.9 – 100.0 99.9 Investment holding

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NLEX Corp Subsidiary NLEX Ventures Corporation Philippines – 100.0 75.0 – 100.0 75.0 Service facilities management

MPT Asia Subsidiaries MPT Thailand, Corporation BVI – 100.0 99.9 – 100.0 99.9 Investment holding

MPT Vietnam, Corporation BVI – 100.0 99.9 – 100.0 99.9 Investment holding; Holds the investment in CII B&R (see Note 8) PT Metro Pacific Tollways Indonesia Indonesia – 100.0 99.9 – 100.0 99.9 Investment holding; Holds the investment in PT Nusantara. Metro Pacific Tollways South Corporation Metro Pacific Tollways South Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations Management Corporation MPT Vizmin Subsidiary Cebu Cordova Link Expressway Corporation Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations; CCLEC holds the (CCLEC) concession agreement for the CCLEX

MPTMSI Subsidiary Southbend Express Services. Inc. Philippines – 100.0 99.9 – – – Manpower services (see Note 4)

MPT Thailand Corp Subsidiaries FPM Tollway (Thailand) Limited Hong Kong – 100.0 99.9 – 100.0 99.9 Investment holding

AIF Toll Road Holdings (Thailand) Limited Thailand – 100.0 99.9 – 100.0 99.9 Investment holding; Holds the investment on (AIF) DMT (see Note 8).

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PT Metro Pacific Tollways Indonesia Subsidiary PT Nusantara Infrastructure Tbk (Indonesia) Indonesia – 76.3 76.2 – 75.9 75.8 Infrastructure company

PT Nusantara Subsidiaries PT Margautama Nusantara (MUN) Indonesia – 75.0 82.1 – 75.0 56.9 Construction, trading and services – Toll; (see Note 4) CAIF III and CIIF holds an aggregate 24.98% in MUN (see Note 4) PT Potum Mundi Infranusantara (Potum) Indonesia – 99.9 76.1 – 99.9 75.8 Water and waste management services PT Energi Infranusantara (EI) Indonesia – 99.9 76.1 – 99.9 75.8 Construction, trading and services - Power PT Portco Infranusantara (Portco) Indonesia – 99.9 76.1 – 99.9 75.8 Port management PT Telekom Infranusantara (Telekom) Indonesia – 100.0 76.2 – 100.0 75.8 Trading, supplies and other telecommunications PT Marga Metro Nusantara Indonesia – 70.0 53.4 – – – Construction, trading and services

MUN Subsidiaries PT Bintaro Serpong Damai Indonesia – 88.9 73.0 – 88.9 50.5 Toll road operator PT Bosowa Marga Nusantara (BMN) Indonesia – 99.5 81.7 – 98.5 56.0 Toll road operator

BMN Subsidiary PT Jalan Tol Seksi Empat (JTSE) Indonesia – 99.4 81.2 – 99.4 55.7 Toll road operator

JTSE Subsidiary PT Metro Jakarta Ekspresway Indonesia – 85.0 69.0 − − − Trade, development, and business management consulting services

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SCTK Subsidiaries PT Sarana Tirta Rezeki Indonesia – 90.0 47.2 – 90.0 47.0 Water management services; PT Sarana Tirta Rezeki is owned by SCTK at 80% while 10% is owned by Potum. PT Jasa Sarana Nusa Makmur Indonesia – 100.0 49.5 – 100.0 49.3 Water management services

EI Subsidiaries PT Inpola Meka Energi Indonesia – 56.2 42.8 – 54.6 41.4 Power supply services PT Rezeki Perkasa Sejahtera Lestari Indonesia – 80.0 60.9 – 80.0 60.7 Power supply services

MWHC Subsidiary Maynilad Water Services, Inc. (Maynilad) Philippines 5.2 92.9 52.8 5.2 92.9 52.8 Water and sewerage services; Holds the concession agreement for the water distribution in the West Concession Area. Maynilad Subsidiaries Amayi Water Solutions, Inc. (AWSI) Philippines – 100.0 52.8 – 100.0 52.8 Water and sewerage services Philippine Hydro, Inc. (PHI) Philippines – 100.0 52.8 – 100.0 52.8 Water and sewerage services MPW Subsidiaries MetroPac Cagayan De Oro, Inc. (MCDO) Philippines – 100.0 100.0 – 100.0 100.0 Water services MetroPac Iloilo Holdings Corp. (MILO) Philippines – 100.0 100.0 – 100.0 100.0 Investment holding/ Water services Metro Iloilo Bulk Water Supply Corp. Philippines – 80.0 80.0 – 80.0 80.0 Bulk water services; Holds the joint venture agreement for the bulk water supply in MIWD. Eco-System Technologies International, Inc. Philippines – 65.0 65.0 – 65.0 65.0 EPC and O&M contractor (ESTII) MetroPac Cagayan de Oro Holdings, Inc. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding Cagayan De Oro Bulk Water, Inc. Philippines – 95.0 95.0 – 95.0 95.0 Bulk water services; Holds the joint venture agreement for the bulk water supply in COWD.

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December 31, 2019 December 31, 2018 MPIC Direct MPIC MPIC Direct MPIC Direct Interest of Effective Direct Interest of Effective Name of Subsidiary Place of Incorporation Interest Subsidiary Interest Interest Subsidiary Interest Principal Activity (In %) (In %) MetroPac Baguio Holdings Inc. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding Metro Iloilo Concession Holdings Corp. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding MetroPac Dumaguete Holdings Corp. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding Metro Pacific Dumaguete Water Philippines – 80.0 80.0 – – – Water services; Incorporated on Services Inc. October 22, 2019 Metro Pacific Iloilo Water Inc. Philippines – 80.0 80.0 – – – Water services; Incorporated on January 17, 2019 Metro Pacific Water International Limited BVI – 100.0 100.0 – 100.0 100.0 Investment holding (MPWIL) Metro Pacific TL Water International BVI – 100.0 100.0 – 100.0 100.0 Investment holding Limited

MPWIL Subsidiary B.O.O. Phu Ninh Water Treatment Plant Joint Stock Company Vietnam – 52.5 52.5 – – – Water services

MPHHI Subsidiaries Riverside Medical Center, Inc (RMCI) Philippines – – – – 78.0 66.7 Hospital operations East Manila Hospital Managers Corp. Philippines – – – – 100.0 85.6 Hospital operations; Doing business under the (EMHMC) name and style of Our Lady of Lourdes Hospital Asian Hospital Inc. (AHI) Philippines – – – – 85.6 73.3 Hospital operations Colinas Verdes Hospital Managers Corp. Philippines – – – – 100.0 85.6 Hospital operations; Doing business under the (CVHMC) name and style of Cardinal Santos Medical Center AHI Hospital Holdings Corp. Philippines – – – – 100.0 85.6 Investment holding, Formerly Bumrungrad International Philippines Inc. De Los Santos Medical Center Inc. Philippines – – – – 58.0 49.6 Hospital operations (DLSMC)

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December 31, 2019 December 31, 2018 MPIC Direct MPIC MPIC Direct MPIC Direct Interest of Effective Direct Interest of Effective Name of Subsidiary Place of Incorporation Interest Subsidiary Interest Interest Subsidiary Interest Principal Activity (In %) (In %) Central Luzon Doctors’ Hospital, Inc. Philippines – – – – 51.0 43.7 Hospital operations (CLDH) Metro Pacific Zamboanga Hospital Corp. Philippines – – – – 100.0 85.6 Hospital operations; Doing business under the (MPZHC) name and style of West Metro Medical Center. Metro Radlinks Network Inc. Philippines – – – – 100.0 85.6 Telehealth operations; Formerly Medigo Corporation Sacred Heart Hospital of Malolos Inc. Philippines – – – – 51.0 43.7 Hospital operations (SHHM) Marikina Valley Medical Center, Inc. Philippines – – – – 93.1 79.7 Hospital operations (MVMC) Delgado Clinic Inc. (DCI) Philippines – – – – 65.0 55.6 Hospital operations St. Elizabeth Hospital, Inc. (SEHI) Philippines – – – – 80.0 68.5 Hospital operations – – – Leasing; Acquired on March 11, 2018 Western Mindanao Medical Center, Inc. Philippines – 63.9 54.7 (see Note 4). Davao Doctors Hospital (Clinica Hilario), Philippines – – – – 49.9 42.7 Hospital operations Inc.

RMCI Subsidiary Riverside College, Inc. (RCI) Philippines – – – – 100.0 66.7 School operations

CVHMC Subsidiary Colinas Healthcare, Inc. Philippines – – – – 100.0 85.6 Hospital operations

CLDH Subsidiary Metro CLDH Cancer Center Corporation Philippines – – – – 100.0 43.7 Clinic management DCI Subsidiary Caretech Medical Services, Inc. Philippines – – – – 73.7 41.0 Medical services

SEHI Subsidiary Metro SEHI Cancer Center Corporation Philippines – – – – 100.0 68.5 Clinic management

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Metro Radlinks Network Inc. Subsidiaries West Metro Cancer Center Corporation Philippines – – – – – – Clinic management; Incorporated on March 18, 2019 Metro RMCI Cancer Center Corporation Philippines – – – – 89.2 76.4 Hospital operations

MPLRC Subsidiaries Light Rail Manila Holdings Inc. (LRMH) Philippines – 50.0 50.0 – 50.0 50.0 Investment holding Light Rail Manila Corporation (LRMC) Philippines – 55.0 55.0 – 55.0 55.0 Rail operations; Holds the concession agreement for the LRT-1. Light Rail Manila Holdings 2, Inc. Philippines – 50.0 50.0 – 50.0 50.0 Investment holding Light Rail Manila Holdings 6, Inc. Philippines – 50.0 50.0 – 50.0 50.0 Investment holding

MPLC Subsidiaries MetroPac Movers, Inc (MMI) Philippines – 99.1 99.1 – 99.1 99.1 Logistics LogisticsPro, Inc. Philippines – 100.0 100.0 – 100.0 100.0 Logistics

MMI Subsidiaries MetroPac Trucking Company, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics TruckingPro, Inc Philippines – 100.0 99.1 – 100.0 99.1 Logistics PremierLogistics, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics PremierTrucking, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics OneLogistics, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics

MVPI Subsidiary MetroPac Property Holdings, Inc. Philippines – 100.0 100.0 – – – Investment holding; Incorporated on January 10, 2019 Millenial Resorts Corporation Philippines – 100.0 100.0 – – – Rental or leasing services of residential properties; Incorporated on October 7, 2019 SCENIQ Lifestyle Corporation Philippines – 100.0 100.0 – – – Real estate activities; Incorporated on October 14, 2019

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NOHI Subsidiaries First Pacific Bancshares Philippines, Inc. (FP Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; BOD of FP Bancshares Bancshares) approved the shortening of the company’s corporate life to until October 31, 2019. Metro Pacific Management Services, Inc. Philippines – 100.0 96.6 – 100.0 96.6 Management services First Pacific Realty Partners Corporation Philippines – 50.0 48.3 – 50.0 48.3 Investment holding; BOD of FPRPC approved (FPRPC) the shortening of the company’s corporate life to until May 31, 2018. Metro Tagaytay Land Co., Inc. Philippines – 100.0 96.6 – 100.0 96.6 Real estate; Pre-operating. Pacific Plaza Towers Management Services, Philippines – 100.0 96.6 – 100.0 96.6 Management services; Dormant. Inc. Philippine International Paper Corporation Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; Dormant. Pollux Realty Development Corporation Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; Dormant. Metro Asia Link Holdings, Inc. Philippines – 60.0 58.0 – 60.0 58.0 Investment holding; Dormant.

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EXHIBIT II

SUPPLEMENTARY SCHEDULES

SEC Form 17- A 2019 Index to Financial Statements and Supplementary Schedules

SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001, 6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021 1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A), Philippines November 6, 2018, valid until November 5, 2021

INDEPENDENT AUDITOR’S REPORT ON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of Directors Metro Pacific Investments Corporation 10th Floor, MGO Building Legaspi corner Dela Rosa Streets Legaspi Village, Makati City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial statements of Metro Pacific Investments Corporation and Subsidiaries as at December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019, included in this Form 17-A, and have issued our report thereon dated February 26, 2020. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedules listed in the Index to Consolidated Financial Statements and Supplementary Schedules are the responsibility of the Company’s management. These schedules are presented for purposes of complying with Revised Securities Regulation Code Rule 68 and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in all material respects, the information required to be set forth therein in relation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

February 26, 2020

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A member firm of Ernst & Young Global Limited SyCip Gorres Velayo & Co. Tel: (632) 891 0307 BOA/PRC Reg. No. 0001, 6760 Ayala Avenue Fax: (632) 819 0872 October 4, 2018, valid until August 24, 2021 1226 Makati City ey.com/ph SEC Accreditation No. 0012-FR-5 (Group A), Philippines November 6, 2018, valid until November 5, 2021

INDEPENDENT AUDITOR’S REPORT COMPONENTS OF FINANCIAL SOUNDNESS INDICATORS

The Stockholders and the Board of Directors Metro Pacific Investments Corporation 10th Floor, MGO Building Legaspi corner Dela Rosa Streets Legaspi Village, Makati City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial statements of Metro Pacific Investments Corporation and Subsidiaries as at December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019, and have issued our report thereon dated February 26, 2020. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The Supplementary Schedule on Financial Soundness Indicators, including their definitions, formulas, calculation, and their appropriateness or usefulness to the intended users, are the responsibility of the Company’s management. These financial soundness indicators are not measures of operating performance defined by Philippine Financial Reporting Standards (PFRS) and may not be comparable to similarly titled measures presented by other companies. This schedule is presented for purposes of complying with Revised Securities Regulation Code Rule 68 issued by the Securities and Exchange Commission, and is not a required part of the basic financial statements prepared in accordance with PFRS. The components of these financial soundness indicators have been traced to the Company’s consolidated financial statements as at December 31, 2019 and 2018 and for each of the three years in the period ended December 31, 2019 and no material exceptions were noted.

SYCIP GORRES VELAYO & CO.

February 26, 2020

*SGVFSM000023*

A member firm of Ernst & Young Global Limited

SCHEDULE I

METRO PACIFIC INVESTMENTS CORPORATION SUPPLEMENTARY SCHEDULE REQUIRED UNDER REVISED SRC RULE 68

Financial Soundness Indicators

December 31, December 31, Financial Ratios Formula 2019 2018

a) Current Ratio Total Current Assets 1.40 1.41 Total Current Liabilities

Net Profit After Tax (NPAT) + b) Solvency Ratio Depreciation and Amortization 0.11 0.10 Total Liabilities

c) Total Liabilities-to-Equity Ratio Total Liabilities 1.49 1.33 Total Stockholders' Equity

d) Long-term Debt-to-Equity Ratio Long-term Debt 1.02 0.90 Total Stockholders' Equity

e) Asset to Equity Ratio Total Assets 2.49 2.33 Total Stockholders' Equity

f) Interest Rate Coverage Ratio Earnings before Interest and Taxes 5.07 4.28 Net Interest Expense

g) Net Profit Margin NPAT 31.56% 26.71% Net Revenues

h) Return on Asset NPAT + Interest expense (net of tax) 6.41% 5.74% Average Total Assets

i) Return on Equity NPAT 11.47% 9.75% Average Total Stockholders’ Equity

SCHEDULE II

RECONCILIATION OF RETAINED EARNINGS AVAILABLE FOR DIVIDEND DECLARATION As at December 31, 2019

Metro Pacific Investments Corporation 10th Floor, MGO Building Legaspi corner Dela Rosa Streets Legaspi Village, Makati City

Amount (In Million)

Unappropriated retained earnings, beginning P=23,518 Adjustments: Add: Net income closed to retained earnings during the year 18,656 Expiration of ESOP 45 Expiration of RSUP 9 Less: Unrealized gain as a result of transaction accounted for under PFRS, net (20,512) of final tax (gain from accounting dilution on interest in a subsidiary) Dividend declarations during the year (3,493) Treasury shares (4) Total unappropriated retained earnings available for dividend declaration, ending P=18,219

SCHEDULE III

METRO PACIFIC INVESTMENTS CORPORATION (MPIC) AND SUBSIDIARIES Supplementary Schedules Required by Paragraph 6D, Part II Under Revised SRC Rule 68

Schedule A. Financial Assets

Number of shares Amount shown Income Name of issuing entity and association of each or principal in the statement received and issue amount of bonds of financial accrued and notes position (Amounts in Millions)

Cash and cash equivalents and short-term deposits P=74,697 P=2,005 Restricted cash 5,011 − Receivables 17,650 − Other current assets Due from related parties 273 − Miscellaneous deposits and others 705 − Investments in shares of stock: Citra Metro Manila Tollways Corporation 1,379,674 shares 693 66 Bonifacio Land Corporation 35,448 shares 5 − Pacific Global One Aviation Company, Inc. 25,000,000 shares − − Subic Water Sewerage Co., Inc. 915,580 shares 125 − AF2100, Inc. 16,749,846 shares 32 − Air2100, Inc. 57,955 shares 10 − Go21, Inc. 27,273 shares 23 − Integrated Waste Management, Inc. 104,831 shares 19 − Waste and Resource Management, Inc. 588 shares 17 − Manila Polo Club 1 share 23 − Pico de Loro Club 1 share 8 − Investments in quoted treasury bonds and notes 170 164 29 P=99,455 P=2,100

SCHEDULE III

Schedule B. Amounts Receivable from Directors, Officers, Employees, Related Parties, and Principal Stockholders (Other than Related Parties)

Balance at Balance Name and Designation of Amounts beginning Additions Reversal Current Noncurrent at end of debtor collected of period period (In Millions) Receivables: Advances to officers and employees P=162 P=135 (P=162) P=– P=135 P=– P=135 Due from related parties: Metro Pacific Hospital Holding, Inc. – 97* – – 97 – 97 PT Intisentosa Alam Bahtera – 122 – – 122 – 122 PT Tirta Kencana Cahaya Mandiri – 22 – – 22 – 22 Landco Pacific Corporation 13 2 – – 15 – 15 First Pacific Company, Ltd. 1 1 (1) – 1 – 1 Lucena Land Corporation 7 – – – 7 – 7 Others 3 9 (3) – 9 – 9 P=186 P=389 (P=167) P=– P=408 P=– P=408 *Pertains to amount transferred from Schedule C. Amounts receivable from Related Parties which are eliminated during the consolidation of financial statements

Schedule C. Amounts Receivable from Related Parties which are eliminated during the consolidation of financial statements

Balance at Balance at Name and Designation of Amounts Amounts beginning Additions Current Noncurrent end of debtor collected written off of period period (In Millions) Metro Pacific Investments Corporation (MPIC): Metro Pacific Hospital Holding, Inc. P=7 P=102 (P=109*) P=– P=– P=– P=– MetroPac Movers, Inc. – 4 (4) – – – – Metro Pacific Tollways Corporation 1 – (1) – – – – MetroPac Water Investmens Corporation – 3 (3) – – – – Maynilad Water Services, Inc. – 1 – – 1 – 1

Neo Oracle Holdings, Inc.: Metro Pacific Tollways Corporation 2 – – – 2 – 2

Porrovia Corporation: MPIC 10 – – – 10 – 10

P=20 P=110 (P=117) P=– P=13 P=– P=13 *Includes =P97 million transferred to Schedule B. Amounts Receivable from Related Parties SCHEDULE III

Schedule D. Intangible Assets – Other Assets

Charged to Charged Other charges Beginning Additions Ending Description cost and to other additions balance at cost balance expenses accounts (deductions)

(In Millions) Service Concession Assets: Cost P=239,614 P=51,038 P=– P=– P=384 P=291,036 Accumulated Amortization (33,622) – (16,937) – 12 (50,547) Carrying Value 205,992 51,038 (16,937) – 396 240,489

Property Use Rights: Cost 748 – – – (748) – Accumulated Amortization (307) – (37) – 344 – Carrying Value 441 – (37) – (404) –

Customer Contracts: Cost 3,850 – – – – 3,850 Accumulated Amortization (866) – (200) – – (1,066) Carrying Value 2,984 – (200) – – 2,784

Others: Cost 904 166 – – (211) 859 Accumulated Amortization (432) – (93) – 160 (365) Carrying Value 472 109 (93) – (51) 494

Goodwill 27,856 338 (9,825) – (2,693) 15,676 P=237,745 P=51,542 (P=27,092) P=– (P=2,752) P=259,443

See relevant Note 11 - Goodwill and Intangible Assets and Note 12 - Service Concession Assets to the 2019 Audited Consolidated Financial Statements:

SCHEDULE III

Schedule E. Long Term Debt Amount Number of Amount shown Amount shown Final Title of issue and type of obligation authorized by Total Interest rates periodic as Current as Noncurrent Maturity indenture installments Parent Company Peso denominated Bank loans - Fixed 89,380 6,667 78,531 85,198 4.93% to 9.15% Amortized 2023 to 2033

Philippine subsidiaries Loans from banks and other institutions: Local currency denominated - Fixed MPTC 45,060 5,067 43,392 48,459 2.06% to 7.70% Bullet/Amortized 2020 to 2034 MWSI 32,611 344 28,963 29,307 5.50% to 6.84% Amortized 2025 to 2035 MPW 670 8 649 657 6.85% and 7.46% Amortized 2028 and 2029 BPHI 12,000 480 8,598 9,078 5.50% Amortized 2026 GBPC 54,000 3,606 28,841 32,447 5.16% to 10.89% Amortized 2021 to 2029 LRMC 24,000 0 11,779 11,779 7.00% and 7.46% Amortized 2031 MMI 2,700 512 543 1,055 4.85% - 7.30% Amortized 2020 to 2023

Foreign currency - denominated USD 137.5 385 6,389 6,774 World Bank Lending Amortized 2037 MWSI - Variable Rate + Margin MWSI - Fixed JPY 20,949 488 4,513 5,001 0.90% to 1.23% Amortized 2027 and 2034

Bonds: MPTC - Fixed 32,000 12,869 12,869 5.07% to 6.9% Bullet 2021 and 2028

Foreign subsidiaries Loans from banks and other institutions: Local currency denominated MPTC - Variable THB 1,700 610 901 1,511 BIBOR + Margin Amortized 2022 MPTC - Fixed IDR 4,132 287 4,562 4,849 5.25% to 12.50% Amortized 2023 to 2030 MPW - Variable VND 787,000 5 797 802 VNIBOR + Margin Amortized 2022

Foregin currency - denominated MPTC - Variable EUR 2 0 123 123 EUROBOR + Margin Amortized 2023 TOTAL 18,459 231,450 249,909

SCHEDULE III

Schedule F. Indebtedness to Related Parties (Long term loans from Related Companies)

Name of related party Balance at beginning of period Balance at end of period (In Millions) PLDT Communications and Energy Ventures P=11,767 P=7,791

Schedule G. Guarantees of Securities of Other Issuers

Name of issuing entity of Amount owned Total amount securities guaranteed by Title of issue of each class of by person for Nature of guaranteed and the Company for which securities guaranteed which statement guarantee outstanding this statement is filed is files

Not Applicable. There are no guarantees made by the Company as at December 31, 2019.

Schedule H. Capital Stock

Number of Number of shares issued shares and reserved for Number of Number of Directors, outstanding as options, Title of Issue shares shares held by officers and shown under warrants, Others authorized related parties employees related conversion balance sheet and other caption rights

Common 38,500,000,000 31,569,338,752 − 13,222,948,170 114,398,335 18,231,992,247 Preferred Class A - =P0.01 par value 20,000,000,000 9,128,105,319 − 9,128,105,319 Class B - =P1.00 par value 1,350,000,000 − − − − −

SCHEDULE IV

MPIC GROUP STRUCTURE

as of December 31, 2019

SEC Form 17- A 2019 Index to Financial Statements and Supplementary Schedules

December 31, 2019 WATER

METRO PACIFIC 41.9% INVESTMENTS CORPORATION TOLLROADS Enterprise 60.0% Investments Holding, Inc. (1) Metro Pacific POWER 100.0% Infrastructure Corporation First Pacific 13.3% Metro Pacific International Holdings, Inc. HOSPITAL Limited

60.0% Metro Pacific Resource, Inc. RAIL 26.7% Intalink B.V.

60.0% Two Rivers LOGISTICS Holdings Corp.

OTHERS

(1) First Pacific Company Limited holds 40% equity interest in EIH 100.0% Philippine Hydro, Inc.

WATER 51.3% Maynilad Water 92.9% Maynilad Water Holding Company, Inc. Services, Inc.

5.2% 100.0% Amayi Water Solutions Inc.

MetroPac Water 100.0% Investments Corp.

MetroPac Cagayan Metro Pacific Water Equipacific Holdco Inc. METRO PACIFIC 100.0% De Oro, Inc. 30.0% 100.0% International Limited INVESTMENTS MetroPac Iloilo Laguna Water District B.O.O Phu Ninh Water Treatment 90.0% Aquatech Resources Corp. 52.5% Plant Joint Stock Company CORPORATION 100.0% Holdings Corp. Metro Iloilo Bulk Water Metropac Baguio Metro Pacific TL Water 80.0% Supply Corp. 100.0% Holdings Inc. 100.0% International Limited Tuan Loc Water Resources Watergy Business Metropac Cagayan De 49.0% Investment Joint Stock 49.0% Solutions, Inc. 100.0% Oro Holdings, Inc. Company Cavite Business Resources Cagayan De Oro Bulk Water Song Lam Water Supply 100.0% Inc. 95.0% Inc. 100.0% Company Limited

Metro Iloilo Concession 100.0% Cau Moi Lake Water Supply Manila Water Joint Stock Company 100.0% Holdings Corp. 39.0% Consortium Inc. Nhon Trach 6A Services Cebu Manila Water Metro Pacific Iloilo Water 100.0% Industrial Zone Company 51.0% Development, Inc. 80.0% Inc. Limited

Karayan Diliman MetroPac Dumaguete Subsidiary 40.0% Management, Inc. 100.0% Holdings Corp. Associate/ Metro Pacific Dumaguete Joint Venture Eco-System Technologies 80.0% Water Services Inc. 65.0% International, Inc. Southbend Express Cavitex Infrastructure 100.0% Services, Inc. 100.0% Corporation(1) (2) 75.1% NLEX Corporation 100.0% NLEX Ventures TOLLROADS Metro Pacific Tollways (formerly Manila North Corporation Tollways Corp) Management 100.0% Services, Inc. 100.0% Collared (formerly M+ Corporation) Wren Holdings, Inc. 24.5% 51.0% METRO PACIFIC Metro Pacific Tollways MPCALA Holdings, Inc North Corporation INVESTMENTS 100.0% 24.5% 100.0% (formerly Metro Pacific Larkwing Holdings, Inc. CORPORATION Tollways Development Corp.) 100.0% Luzon Tollways 99.9% Metro Strategic Infra Corporation 97.0% Holdings Inc. Metro Pacific 100.0% Metro Pacific Tollways Tollways Metro Pacific Tollways South Management Corporation Corporation 100.0% South Corporation 100.0% Cebu Cordova Metro Pacific Tollways Link Expressway 100.0% Vizmin Corporation Corporation

CII Bridges and Roads Investment Joint Stock 44.9% Co. (Vietnam)

Easytrip Services 66.0% Corporation

MPT Asia Corporation (formerly FPM Infrastructure A 100.0% Holdings Limited) Subsidiary Metro Pacific Tollways Associate/ Asia, Corporation Joint Venture 100.0% B PTE. LTD.

(1) By virtue of the Management Letter-Agreement, MPTC acquired control over CIC effective Jan 2, 2013. (2) 4.3% is owned through 42.8% ownership in Egis Investment Partners Philippines Inc. TOLLROADS

PT Nusantara 100.0% 76.3% PT Metro Pacific Tollways Infrastructure Tbk Indonesia (Indonesia) (Indonesia) METRO PACIFIC 100.0% MPT Asia Corporation 100.0% MPT Vietnam Corporation INVESTMENTS (formerly FPM Infrastructure (BVI) CORPORATION Holdings Limited) A 100.0% MPT Thailand Corp 100.0% FPM Tollway (Thailand) (formerly FPM Tollway Limited 99.9% Holdings Limited) Metro Pacific 100.0% AIF Toll Roads Holdings Tollways (Thailand) Limited Corporation 100.0% Metro Pacific Tollways Vietnam Company Limited 29.5% (Vietnam) Don Muang Tollway 100.0% Public Company Ltd Metro Pacific Tollways 100.0% CAIF III Infrastructure Asia, Corporation Holdings Sdn Bhd (Thailand) PTE. LTD. (Singapore) (Malaysia) B 100.0% CIIF Infrastructure Holdings Sdn Bhd (Malaysia)

Subsidiary Associate/ Joint Venture Metro Pacific Tollways TOLLROADS Corporation 100.0%

PT Metro Pacific Tollways Indonesia

76.3%

PT Nusantara Infrastructure Tbk Metro Pacific Tollways 100.0% Asia, Corporation (Indonesia) PTE. LTD. Tollroads Water Others

74.98% 99.99% 99.99% 100.0% CIIF Infrastructure 20.0% PT Energi Holdings Sdn Bhd Infranusantara (Malaysia) PT Margautama PT Potum Mundi Nusantara Infranusantara 56.2% PT Inpola Meka Energi 100.0% CAIF III Infrastructure 4.98% Holdings Sdn Bhd 80.0% PT Rezeki Perkasa (Malaysia) 88.9% PT Bintaro Serpong 100.0% PT Tirta Bangun Sejahtera Lestari Damai Nusantara 99.99% PT Portco 99.5% PT Bosowa Marga PT Tirta Kencana Infranusantara Nusantara 28.0% Cahaya Mandiri PT Intisentosa Alam PT Jalan Tol Seksi 74.5% PT Dain Celicani 39.0% Bahtera 99.4% Empat Cemerlang 100.0% PT Telekom 85.0% 65.0% PT Sarana Catur Tirta Infranusantara Subsidiary PT Metro Jakarta Kelola Associate/ Ekspresway 70.0% PT Marga Metro Joint Venture PT Sarana Tirta Rezeki Nusantara 35.0% PT Jakarta Lingkar 80.0% 10.0% Baratsatu PT Jasa Sarana Nusa 100.0% Makmur 100.0% Beacon Electric 100.0% Beacon PowerGen Asset Holdings Inc. Holdings Inc.

POWER 35.0% 56.0%

10.5% Global Business Manila Electric Co. 14.0%(3) Power Corporation

100.0% Toledo Holdings 100.0% Global Hydro Power 89.3% Panay Power Corp.(1) Corp. Holdings Corp.

100.0% Panay Power Corp. 100.0% Global Trade Energy 100.0% ARB Power Resources Corp. Ventures, Inc. 100.0% Panay Energy METRO PACIFIC Development Corp. 93.2% Global Formosa 13.9% INVESTMENTS Toledo Power Co. Power Holdings, Inc. 86.1% 50.0% Alsons Thermal CORPORATION Cebu Energy Energy Corporation Development Corp. 100.0% Global Energy 56.0% Sarangani Energy Supply Corp. 75.0% Corporation 57.5% Lunar Power Core, (2) ACES Technical Services Inc. 100.0% Mindanao Energy 100.0% Corporation Global Luzon Development Corp. Energy Development 100.0% San Ramon Power Inc. 100.0% Corporation 100.0% Global Renewables Power Holdings 100.0% GBH Power Corp. Resources, Inc. Subsidiary CACI Power Corporation 100.0% Associate/ Joint Venture

(1) Includes 16% shares owned by GBH Cebu Limited Duration Company which was assigned to GPBC but pending issuance of BIR Certificate Authorizing Registration. (2) GBPC owns 56.5% of common (voting) shares, and thus exercises 56.5% voting rights. (3) MERALCO owns 14% effective interest in GBPC through a wholly owned subsidiary Meralco PowerGen Corporation. Metro Pacific Hospital Holdings, Inc. (1) Metro Sanitas AHI Hospital Holdings 50.0% HOSPITAL Corporation (4) Corp. (formerly Bumrungrad 100.0% International Phils. Inc.) East Manila Hospital The Megaclinic, Inc. 79.1% 100.0% Managers Corp. (Our Lady of Lourdes Hospital) Lasik Surgery, Inc. Asian Hospital Inc. 50.0% 27.5% 58.1% Megacorrrs, Inc. Manila Medical 50.0% Central Luzon 20.0% Services, Inc. Tophealth Medical Clinics Inc. 51.0% Doctors' Hospital 80.0% Metro CLDH Cancer Marikina Valley Keralty Manila, Inc. 100.0% Center Corporation 93.1% Medical Center, Inc. 100.0% METRO Sacred Heart Hospital Colinas Verdes Medical Doctors, Inc. 51.0% of Malolos Inc. PACIFIC Hospital Managers 33.8% 100.0% Corp. (Cardinal Santos Computerized Imaging INVESTMENTS 60.0% Medical Center) Institute, Inc. St. Elizabeth Hospital, CORPORATION 80.0% Inc. 100.0% Colinas Healthcare, Inc. (3) Metro SEHI Cancer Center 65.1% Medi Linx Laboratory 100.0% Corporation 40.0% Inc. METRO PAC Davao Doctors Hospital 49.9% (Clinica Hilario) Inc. 63.9% APOLLO 100.0% Metro Radlinks Western Mindanao Davao Doctors Oncology HOLDING, INC. 30.0% Network Inc. Medical Center, Inc. Center Inc. (formerly Medigo Corporation) Allied Professional 35.1%(1) 100.0% West Metro Cancer Center 100.0% Metro Pacific Development Corp. 100.0% Corporation Zamboanga Hospital Metro Pacific 100.0% Davao Doctors College, Inc. Metro RMCI Cancer Center 49.0% Corp. 51.0% Corp Hospital Metro Cebu 56.2(2) Lipa Medix Cancer Center 100.0% De Los Santos 50.0% Holdings, Inc. Corporation Community Hospital, 61.0% Medical Center, Inc. Inc. Calamba Cancer Center Subsidiary Delgado Clinic Inc. 20.0% Corporation (Dr. Jesus Delgado Memorial 77.1% Santos Clinic 65.0% Associate/ Hospital) 78.0% Riverside Medical Incorporated Joint Venture Caretech Medical Center Inc. 96.0% Services, Inc. Riverside College Inc. 100.0% (1) Represents voting rights of common shares issued by MPHHI. Subject of an Exchangeable Bond covering 398,070,552 MPHHI common shares (refer to 2019 Audited Consolidated Financial Statements). (2) Represents voting rights of preferred shares issued by MPHHI (refer to 2019 Audited Consolidated Financial Statements). (3) Subject to a Call Option agreement granting the holder of the Option an irrevocable right to require MPIC to sell all or a portion of MPIC’s shares in Apollo (refer to 2019 Audited Consolidated Financial Statements). (4) Met Live Clinic, Festival Mall Clinic and Gateway Clinic are operated as branches of MSC. RAIL

Light Rail 50.0% Manila Holdings (1) Inc. 70.0% Light Rail Manila 20.0% Corporation

METRO PACIFIC Light Rail 100.0% Metro Pacific INVESTMENTS Light Rail Manila Holdings 50.0% 2 Inc. (1) CORPORATION Corporation Light Rail 50.0% Manila Holdings 6 Inc. (1)

50.0% Porrovia Corporation (2) 50.0%

(1) Controlling interest in LRMHI, LRMH2 and LRMH6. Equity interest of 50% plus one share. (2) Corporate life has been shortened to until March 31, 2019. LOGISTICS & SYSTEMS

MetroPac 100.0% LogisticsPro, 100.0% Trucking Inc. Company, Inc.

100.0% TruckingPro, Inc.

METRO PACIFIC MetroPac 100.0% 99.1% MetroPac 100.0% Logistics PremierLogistics, INVESTMENTS Movers Inc. Inc. CORPORATION Company, Inc.

100.0% PremierTrucking, Inc.

20.0% AF Payments, 100.0% Inc. OneLogistics, Inc.

25.0% Indra Philippines, Inc. Subsidiary Associate/ Joint Venture Metro Pacific Pollux Realty Management Services, Neo Oracle 100.0% Development Corporation 100.0% (1) Inc. 96.6% Holdings, Inc. OTHERS Metro Tagaytay Land Co., Costa de Madera Fragrant Cedar 100.0% Inc Corporation 62.0% 100.0% Holdings Inc. Pacific Plaza Towers Metro Asia Link Holdings, Management Services, Inc. Metro Pacific 100.0% Inc. 60.0% Resource Recovery (2) 100.0% Corp. First Pacific Bancshares First Pacific Realty (7) 100.0% Philippines, Inc. 20.0% Partners Corporation (5) 30.7% MPIC Infrastructure Holdings Limited 100.0% Philippine International Metro Pacific Land 100.0% Paper Corporation (8) Holdings, Inc. (6) 49.0% MPIC-JGS Airport (1) 58.8% Holdings, Inc. QC Integrated Waste METRO PACIFIC Management Metro Global Green 100.0% (3) Holdings Inc, INVESTMENTS 70.0% Waste, Inc. CORPORATION 100.0% Metro Vantage MetroPac Property Properties, Inc. Holdings, Inc. 100.0% 100.0% Millenial Resorts MetPower Ventures Corporation Partners Holdings, 100.0% 100.0% Inc. SCENIQ Lifestyle Corporation First Gen Northern (4) 33.3% Energy Corp Surallah Biogas Landco Pacific 80.0% Ventures Corp. (9) 38.1% Corporation (1) End of corporate life (under liquidation). (2) Formerly MetroPac Clean Energy Holdings Corporation. (3) Corporate life has been shortened to until December 31, 2017. (4) Corporate life has been shortened to until December 31, 2016. Subsidiary (5) Corporate life has been shortened to until May 31, 2018. (6) Corporate life has been shortened to until July 31, 2019. Associate/ (7) Corporate life has been shortened to until October 31, 2019. Joint Venture (8) Corporate life has been shortened to until February 28, 2020. (9) Pending SEC approval of the increase in authorized capital stock.