Shakey's Pizza Asia Ventures, Inc. Annual Report 2017

SHAKEY’S PIZZA ASIA VENTURES, INC. ANNUAL REPORT 2017 ABOUT THE COVER

e rst time “WOW” was ever used as an expression of surprise was in Scotland in the 1500’s. Maybe some hungry Scotsman was served the most incredible haggis and, fumbling for words, muttered the rst thing he could think of: “WOW!”

e expression spread like wildre, eventually crossing the Atlantic and into American lives to describe everything from excitement (“Wow, I’m so ready for dinner!”) to amazement (“Wow, this food is delicious!”) to delight (“Wow, I’m denitely coming back to this restaurant!”)

Today, WOW is so much more than an expression of positive amazement. It has evolved into an action word. To WOW someone means to give them an extraordinary experience, to move them in a deep and delightful way.

Which is how it is at Shakey's, where WOW is our guiding light and philosophy of service as we purposefully create great times and lasting memories for all our guests.

From our welcoming door persons to our excellent chefs, attentive waiters, imaginative marketers, brainy accountants and reliable riders - we live, feel, and breathe the WOW philosophy. It truly is our way of life.

And our goal? Deliver the best dining experience, weather any challenge, build shareholder condence, and boost our iconic brand both today and for many years to come. FUN.FAMILY.PIZZA.CHICKEN.PASTA.MILKSHAKE.MOJOS.FUN.FAMILY.PIZZA.CHI ZZA.CHICKEN.PASTA.MILKSHAKE.MOJOS.FUN.FAMILY.PIZZA.CHICKEN.PASTA.MIL MILKSHAKE.MOJOS.FUN.FAMILY.PIZZA.CHICKEN.PASTA.MILKSHAKE.MOJOS.FUN

TABLE OF 04 Vision, Mission, and Core Values 07 2017 at a Glance

CONTENTS 08 Recipe for Success

10 Letter from the Chairman

12 President’s Message

16 Investment Toppings

22 Financial Highlights

24 How We WOW

30 Innovations and Initiatives

32 Tots. Teens. Titas.

34 Purpose in Pizza

36 Corporate Governance

44 Board of Directors

50 Senior Management Team

52 Code of Business Conduct and Ethics

54 Risk Management

56 Investor Relations Program

58 Stock Highlights

60 Management’s Discussion and Analysis

62 Statement of Management’s Responsibility for Financial Statements

63 Independent Auditor’s Report

67 Consolidated Statements of Financial Position

68 Consolidated Statements of Comprehensive Income

69 Consolidated Statements of Changes in Equity

70 Consolidated Statements of Cash Flows

72 Contact Information

FUN.FAMILY.PIZZA.CHICKEN.PASTA.MILKSHAKE.MOJOS.FUN.FAMILY.PIZZA.CHI ZA.CHICKEN.PASTA.MILKSHAKE.MOJOS.FUN.FAMILY.PIZZA.CHICKEN.PASTA.MIL MILKSHAKE.MOJOS.FUN.FAMILY.PIZZA.CHICKEN.PASTA.MILKSHAKE.MOJOS.FUN 04 SHAKEY’S 2017 ANNUAL REPORT VISION We desire to be the preferred and dominant Family Casual Dining Restaurant in the Philippines and overseas, serving pizza as our core product.

MISSION CORE

TO OUR GUESTS VALUES We were established to provide great times and great memories to our Guests. GUEST CENTRICITY TO OUR EMPLOYEES We always put our Guests at the core of everything we do. We seek to know their needs and wants so that we We strive to create a nurturing environment for the can consistently exceed their expectations. We also holistic growth of our employees. We want them to provide them high-quality food products and services have a sense of accomplishment and pride in service at great value for money. of the Company.

PASSION FOR EXCELLENCE TO OUR SHAREHOLDERS We are delighted to be able to WOW our Guests. is We are committed to grow the Company in size and concept echoes throughout the entire organization. As in value through achieving industry-leading nancial one team, we aim for service excellence, working returns. together towards a delightful guest experience.

TO OUR BUSINESS PARTNERS CRITICAL THINKING We promise to be fair and professional in business We prepare our people to exercise good judgment. dealings. We are detail-oriented and disciplined in our thought processes. TO OUR COMMUNITY We contribute in community building through job ENTREPRENEURIAL SPIRIT creation and providing for the needs of our Guests. We are bold, daring, and actively seeking opportunities for the benet of the Company. SHAKEY’S 2017 ANNUAL REPORT 05 06 SHAKEY’S 2017 ANNUAL REPORT SHAKEY’S 2017 ANNUAL REPORT 07

PASTA MILKSHAKE MOJOS

PIZZA CHICKEN SALADS AT A GLANCE 24 NEW RESTAURANTS ST IN THE PHILIPPINES INTERNATIONAL — the highest ever in a STORE single year! 1OPENED!

ST ANNIVERSARY OF TOTAL 5.3M LISTING ON THE 208 PHILIPPINE STOCK STORES IN THE PHILIPPINES PIZZAS SOLD EXCHANGE (PSE)

PHP762M Philippines’ net income in 2017 Others Shakey’s SINGLE-LARGEST 31% 26% BRAND of Chained 14% INCREASE Full-Service Player 6 versus recurring net income Restaurants 3%

Source: Euromonitor 2017 Player 5 Player 2 5% 16% Player 4 Player 3 7% 12% 8.3B Php 7.3B STORE NETWORK Php SSSG FOR 2017: (SAME-STORE SALES GROWTH) GROWTH FOR 2017: 14% INCREASE SYSTEM-WIDE SALES 5% 12% 2016 2017 08 SHAKEY’S 2017 ANNUAL REPORT RECIPE FOR SUCCESS WHAT GOES INTO BUILDING A LEADING PIZZA BUSINESS?

The ﬁrst Shakey's Pizza Parlor opened in The Shakey’s brand for the Philippines and all The brand established its own food commissary Sacramento, California. Located in a remodeled relevant trademark rights were acquired outright to provide consistent and quality raw materials grocery store, the original Shakey's Pizza by the Company in perpetuity. This meant no to the growing number of Shakey’s stores in the restaurant was known as “Ye Public House” for royalty payments and the freedom to execute Philippines. pizza and beer. and "localize" the concept moving forward. 1954 1999 2006

1975 2003 Shakey’s ﬁrst planted its feet in the Philippines The Company began repositioning and re-engineering with a store located in Metro Manila offering Shakey’s towards a more family-oriented American fast live music and beer. casual dining experience with FUN, FAMILY, and PIZZA as its core. 1ST SHAKEY’S 2017 ANNUAL REPORT 09

200TH

PIZZA continues to operate nationwide and maintain market WOW CENTER leadership in the pizza full-service and full-service chain restaurant spaces. It opened its 200th store in the Philippines, ending 2017 with a local store count of 208. The Company also moved into its new head ofﬁce which it called the "Shakey’s WOW Center" – a testament to its strong guest-centric The Company obtained the Shakey’s rights in and WOWING culture. It also perpetuity for the Middle East, Asia (excluding doubled its commissary’s capacity Japan and Malaysia), China, Australia, and in preparation for continued New Zealand, offering an opportunity to bring growth in demand from the trademark Shakey’s experience to the many company-owned and franchised Filipinos located outside the Philippines. stores. 2014 2017

2009 2016 Shakey’s reached an important milestone with the Century Paciﬁc Group, Inc. (CPGI), led by the Po family, alongside the opening of its 100th store in the Philippines. sovereign wealth fund of Singapore, acquired majority control of the Company from the Prieto family. The corporate name "Shakey’s Pizza Asia Ventures, Inc." (PIZZA) was born, and a well-received initial public offering was conducted later in the year.

100TH 10 SHAKEY’S 2017 ANNUAL REPORT

strengthen. Debt levels from acquisition-related cities. We see opportunities to strengthen our oerings leverage continue to improve due to strong business during certain parts of the day and to create more LETTER FROM THE CHAIRMAN performance and healthy cash ows since 2016. As of value-for-money promotions. We will also leverage all end 2017, our net interest-bearing debt to earnings our assets — physical and digital — to be more before interest, tax, depreciation and amortization ratio top-of-mind with our guests, as well as understand and is at an undemanding 2.62x, with a net gearing ratio at a build stronger relationships with our loyal patrons. manageable 0.93x. Furthermore, the long-term and xed Finally, the team commits to delivering all these plans e year 2017, Shakey’s rst full year as a publicly listed company, nature of our debt agreement insulates us from increases with superior execution. in interest rates. Our current position allows us to fund has been a year lled with important milestones. our organic growth plans with reserve capacity in our Indeed, a lot needs to be done. At the same time, I have a balance sheet to spare. lot of faith in the ability of our Shakey’s team to meet the challenges. ey love the brand, are passionate about WOWING our guests, and have pizza sauce running Last October, we opened our rst overseas store in through their veins. I am grateful and proud of all the Kuwait to be followed by another one in Dubai this achievements the team has delivered and have no doubt coming Q2. Our international team is setting up the that the milestones will keep coming. processes to support country franchisee-partners and is developing an interesting pipeline of potential new I am also grateful to our franchisee-partners for country franchise partnerships with some exciting believing in the Shakey’s story and for being caretakers of announcements that are forthcoming. our brand, especially in the far-ung provincial areas of the Philippines; and of course, to our shareholders and We recently moved our corporate oces to the WOW the investing public, for the trust and the support. Center, giving our team members better-quality oce space, more extensive training facilities, and lots of extra I would like to also applaud another project — one that I room for future expansion. We successfully migrated our am particularly proud that the team has broken ground in-house commissary to our new Taguig location with on in the area of social responsibility. Aer years of more than double the previous capacity. promoting sports, having been an early supporter of volleyball which has become one of the country’s most e team also launched a number of innovative products popular spectator sports, Shakey’s has decided to pivot such as the Cali Kani Pizza and the Scallop Primo Pizza. and support persons with down syndrome. In a project e latter was so warmly received that it was moved from called “#Shakeitup4Downs,” Shakey’s recently partnered a limited time oer to a permanent menu item. All the above were achieved with a fair amount of hustle with the Down Syndrome Association of the Philippines Continuing with this successful formula of WOWING and hard work. While the country’s middle class to employ people with down syndrome to undertake our guests with products using premium ingredients, the continues to grow, discretionary spending and the real-life guest engagement activities. We are currently on team launched Louisiana Shrimp Pizza just this demand for aordable luxuries like casual dining pilot stage at just a few stores, but the vision would be to February, in time for the start of the Lenten season. increase. However, competition is intensifying even scale up this project of inclusion to bring awareness to more. We are nding that new as well as existing the issue and make a dierence in the lives of those who On the Shakey’s brand’s long-term health, in a recent Christopher T. Po competitors from both within and outside of the pizza enroll. Campaign Asia survey undertaken in cooperation with category have upped their level with aggressive pricing Nielsen, Shakey’s was voted among the top 3 Philippine We opened our 200th store last August and nished and promotions, menu innovations, and improved As we look forward to a new year ahead of us, I am restaurant brands. It’s an honor to be this loved by the the year with 208 establishments, opening 24 new stores. Moreover, we are seeing new types of formats and excited by the opportunities; we are well-aware and market, especially given that the other two brands in the stores — the most opened in a year in the Company’s platforms such as food parks and even food delivery apps prepared to meet the challenges. I would like to top 3 have far more stores. No doubt this has to do with history. Some of these stores were in second or third challenge incumbents for foot trac and share of personally invite you to come and visit us at one of our Shakey’s aspirational positioning and our long tradition tier cities such as Iligan, Puerto Princesa, Antique, stomach. stores so you can enjoy the Shakey’s brand of FUN, Gapan, and Palo in Leyte, and we were quite pleased at of delivering GREAT TIMES and GREAT MEMORIES. FAMILY, PIZZA. is motivates the team even more to be passionate how warmly we were received in those communities. In this environment of keen competition, our strategy is stewards and ambassadors of the brand. to carry on investing in the brand, investing in the stores, is demonstrates that the Philippine economy is indeed and investing in our people. We believe these are e foregoing achievements translate to a 14% growth on the ascendancy and that economic development is fundamental to better serving our guests. We combine in system-wide sales, a 14% growth in recurring net moving out of the traditional urban centers. If the this overarching strategy with plans like opening more income with industry-leading margins, and a return on Christopher T. Po Philippine economy continues on this trajectory, we stores in virgin markets where there is pent up demand Chairman equity of 21%. think that our Philippine store network can grow to 300 for the brand and where some of our competitors are less in ve years or so, with most new branches in provincial likely to open. We will continue to improve our service February 2018 In the almost two years since Century Pacic Group, Inc. areas while still locating some even in crowded metros to performance in delivery — a market that is growing but invested in Shakey’s, the balance sheet continues to improve our delivery service. challenging to serve given the formidable trac in our SHAKEY’S 2017 ANNUAL REPORT 11

strengthen. Debt levels from acquisition-related cities. We see opportunities to strengthen our oerings leverage continue to improve due to strong business during certain parts of the day and to create more performance and healthy cash ows since 2016. As of value-for-money promotions. We will also leverage all end 2017, our net interest-bearing debt to earnings our assets — physical and digital — to be more before interest, tax, depreciation and amortization ratio top-of-mind with our guests, as well as understand and is at an undemanding 2.62x, with a net gearing ratio at a build stronger relationships with our loyal patrons. manageable 0.93x. Furthermore, the long-term and xed Finally, the team commits to delivering all these plans nature of our debt agreement insulates us from increases with superior execution. in interest rates. Our current position allows us to fund our organic growth plans with reserve capacity in our Indeed, a lot needs to be done. At the same time, I have a balance sheet to spare. lot of faith in the ability of our Shakey’s team to meet the challenges. ey love the brand, are passionate about WOWING our guests, and have pizza sauce running Last October, we opened our rst overseas store in through their veins. I am grateful and proud of all the Kuwait to be followed by another one in Dubai this “I have a lot of faith in achievements the team has delivered and have no doubt coming Q2. Our international team is setting up the that the milestones will keep coming. processes to support country franchisee-partners and is the ability of our Shakey’s developing an interesting pipeline of potential new team to meet the I am also grateful to our franchisee-partners for country franchise partnerships with some exciting believing in the Shakey’s story and for being caretakers of announcements that are forthcoming. challenges. They love the our brand, especially in the far-ung provincial areas of the Philippines; and of course, to our shareholders and We recently moved our corporate oces to the WOW brand, are passionate the investing public, for the trust and the support. Center, giving our team members better-quality oce about WOWING our space, more extensive training facilities, and lots of extra I would like to also applaud another project — one that I room for future expansion. We successfully migrated our guests, and have pizza am particularly proud that the team has broken ground in-house commissary to our new Taguig location with on in the area of social responsibility. Aer years of more than double the previous capacity. sauce running through promoting sports, having been an early supporter of volleyball which has become one of the country’s most e team also launched a number of innovative products their veins.” popular spectator sports, Shakey’s has decided to pivot such as the Cali Kani Pizza and the Scallop Primo Pizza. and support persons with down syndrome. In a project e latter was so warmly received that it was moved from called “#Shakeitup4Downs,” Shakey’s recently partnered a limited time oer to a permanent menu item. All the above were achieved with a fair amount of hustle with the Down Syndrome Association of the Philippines Continuing with this successful formula of WOWING and hard work. While the country’s middle class to employ people with down syndrome to undertake our guests with products using premium ingredients, the continues to grow, discretionary spending and the real-life guest engagement activities. We are currently on team launched Louisiana Shrimp Pizza just this demand for aordable luxuries like casual dining pilot stage at just a few stores, but the vision would be to February, in time for the start of the Lenten season. increase. However, competition is intensifying even scale up this project of inclusion to bring awareness to more. We are nding that new as well as existing the issue and make a dierence in the lives of those who On the Shakey’s brand’s long-term health, in a recent competitors from both within and outside of the pizza enroll. Campaign Asia survey undertaken in cooperation with category have upped their level with aggressive pricing Nielsen, Shakey’s was voted among the top 3 Philippine We opened our 200th store last August and nished and promotions, menu innovations, and improved As we look forward to a new year ahead of us, I am restaurant brands. It’s an honor to be this loved by the the year with 208 establishments, opening 24 new stores. Moreover, we are seeing new types of formats and excited by the opportunities; we are well-aware and market, especially given that the other two brands in the stores — the most opened in a year in the Company’s platforms such as food parks and even food delivery apps prepared to meet the challenges. I would like to top 3 have far more stores. No doubt this has to do with history. Some of these stores were in second or third challenge incumbents for foot trac and share of personally invite you to come and visit us at one of our Shakey’s aspirational positioning and our long tradition tier cities such as Iligan, Puerto Princesa, Antique, stomach. stores so you can enjoy the Shakey’s brand of FUN, Gapan, and Palo in Leyte, and we were quite pleased at of delivering GREAT TIMES and GREAT MEMORIES. FAMILY, PIZZA. is motivates the team even more to be passionate how warmly we were received in those communities. In this environment of keen competition, our strategy is stewards and ambassadors of the brand. to carry on investing in the brand, investing in the stores, is demonstrates that the Philippine economy is indeed and investing in our people. We believe these are e foregoing achievements translate to a 14% growth on the ascendancy and that economic development is fundamental to better serving our guests. We combine in system-wide sales, a 14% growth in recurring net moving out of the traditional urban centers. If the this overarching strategy with plans like opening more income with industry-leading margins, and a return on Christopher T. Po Philippine economy continues on this trajectory, we stores in virgin markets where there is pent up demand Chairman equity of 21%. think that our Philippine store network can grow to 300 for the brand and where some of our competitors are less in ve years or so, with most new branches in provincial likely to open. We will continue to improve our service February 2018 In the almost two years since Century Pacic Group, Inc. areas while still locating some even in crowded metros to performance in delivery — a market that is growing but invested in Shakey’s, the balance sheet continues to improve our delivery service. challenging to serve given the formidable trac in our 12 SHAKEY’S 2017 ANNUAL REPORT

No company in this industry has ever achieved this kind PRESIDENT’S MESSAGE of feat; and this, I believe, is a testament to the power of the Shakey’s brand, the gallant eorts and high competence of our management team, and the passion and dedication of every single person working on our stores’ oors. With 2017 being our maiden year as a publicly listed company, we made it OUR 2017 STRATEGIC MINDSET our goal to ensure that the Company In 2017, we implemented several game-changing delivers on its commitments to its programs and initiatives. ese were centered around the new investors. key priorities of (1) increasing the loyalty of our existing guests, (2) kick-starting our delivery and digital We believe that the trust and con dence bestowed on businesses, and (3) further expanding our stores in e goal here was simple - to make our value proposition our company and management during the successful underpenetrated areas. superior to that of our competitors in all aspects relevant initial public oering late 2016 can only be sustained to the consumer. and strengthened if we can prove our ability to deliver ese three key result areas were identied as the main and execute on promises. drivers to achieve not only the year’s revenue and is also included elevating our dining environment in earnings goals but to also give the Company a better order to strengthen the experience guests receive for While 2017 was no doubt a year of big adjustments for foundation to deliver future and sustainable growth. their money. e new store design launched in the everyone in the team, we all had a strong sense of middle of 2017 alongside the opening of our 200th store mission and desire to show that we could meet and was very much well-received. e changes revolved surpass all the challenges the year had in store for us. around updating the interiors, putting on new crew uniforms, and revising product presentation in order to In this light, I am now pleased to present you our 2017 provide a more modern and youthful feel, while still results. From my viewpoint, 2017 turned out to be a very staying true to the iconic and trademark Shakey’s good year for our company. Despite the competitive and ambiance. volatile business environment, we achieved total system-wide sales of PHP8.3 billion, a growth of 14% DELIVERY AND DIGITAL from the year before. is was driven by opening a total of 24 net new stores — the highest ever recorded in We took considerable actions to streamline our delivery Shakey’s history — and robust same-store systems with the goal of laying the foundation for further sales growth of 5%. improving the delivery experience.

ese translated to revenues of PHP7.0 billion, 16% More and more, this segment will play a major role in higher than revenues in 2016. INCREASING GUESTS’ LOYALTY revenue generation, particularly in highly urbanized areas like Metro Manila and Metro Cebu. We will build We released several new products this year with the goal Despite some input cost pressures towards the latter part this on the back of our brand strength and core expertise of keeping even our most loyal guests excited to come of the year, prot margins remain the healthiest in the of creating memorable dining experiences — then take it and try out our new oerings. One of our biggest hits industry with gross and earnings before interest, tax, a step further by bringing these to the doorsteps of our was the Scallop Primo Pizza – mouth-watering baby depreciation and amortization margins at 30% and 20% many loyal guests. scallops on our signature thin crust. Today, this is a respectively. permanent item on our menu, a rare feat for the many Organizational and technological changes were limited time oer products that we regularly release. In total, we were able to deliver to our shareholders a net introduced in support of this goal; and with the income of PHP762 million, posting a growth of 14% continuing eorts of our team, we are now in a much We also launched dierent variations of our famous versus the recurring core income number last year, and better position to take advantage of the growth potential “group meal deals,” continuing to deliver value for our earnings before interest, tax, depreciation and of this delivery market. guests, especially those that come in larger group sizes. amortization of PHP1.4 billion, a growth of 19%. With Again, another big success came very early in the year — ocial results for 2017 nally out, I am very proud to say In 2017, we also overhauled and outlined a new digital January 1, to be precise — when we launched our now that we have again achieved double-digit growth on both strategy, fully aware that the digital space is an emerging famous “2017 MEAL DEAL” – good for ten to twelve revenues and prots, enabling us to extend our battle ground. We re-organized our marketing team and people at an aordable (and hard to forget) price of double-digit growth record to an unprecedented fourteen created a new group composed of experienced digital Vicente L. Gregorio PHP2,017. consecutive years. natives that focus on nothing else but these digital initiatives. We foresee this channel to grow exponentially

Aware of the ongoing market fragmentation and cost pressures, SUPERIOR EXECUTION of the right plans and strategies is now more important than ever.

We continue to see growth in market consumption, and the as more and more people switch to and become more is heightened focus was aimed at improving their macroeconomic forecasts remain comfortable with the idea of going online and mobile. eectiveness and helping them become the best that they positive. is early into 2018, we can be. We are currently upgrading our have already opened a number of organizational capabilities to ensure that we can new stores giving us a head start for continuously HIRE, TRAIN, and KEEP great the year. people! Furthermore, our improvements in the area of delivery ough we have adjusted to the demands of and digital are expected to allow these parts of our being a public company, we are also challenged business to gain stronger traction this year. to ensure that we keep our very entrepreneurial way of thinking, maintain a strong sense of We will also exert more eorts to improve eciencies ownership in our business, and heighten the and capitalize on our growing scale in order to maintain sense of urgency that we are most well-known our healthy protability margins. for. Indeed, the quality and speed of our execution remain a benchmark in the industry. e goals are clear - ensure market leadership, secure above-industry margins, and continue to be an attractive Leadership and people development are areas I company to work for. strongly believe in, without which medium to EXPANSION OF STORES long-term success will be dicult to attain. SUPERIOR EXECUTION of all these plans is now crucial! We also recently applied organizational changes aimed at perfecting our business and store development systems. MOVING FORWARD! Over the long term, the focus is on increasing our leadership and organizational capability coupled with We set up a Franchise and Business Development team, Since we were coming o from a high base in 2017, some our guest-centric philosophy and strong brand heritage. taking from operations the role of nding and opening may doubt if we can sustain this double-digit growth new store locations. is has allowed us this year to open pace into 2018. e challenge does not scare our team Yes, we have more to do; but I am condent that we are a total of 24 net new stores — again, the highest in but, on the contrary, gives us the strength, courage, and progressing in the right direction. Shakey’s history thanks to the dedication and diligence of excitement to have another chance to WOW! our people in Business Development. Undoubtedly, there will be headwinds in terms of input Finally, I would like to thank you, our shareholders, our guests, our partners, and employees for your continuous As of end 2017, our total store network stands at 208 in costs and operating expenses as ination starts to pick engagement and trust. Without your support for our the Philippines with denitely much more to come. up. Competition also remains with new entrants and existing players continuing to expand as well. management team, the success we enjoy today and the success we plan to achieve in the future would not be Our foray outside the country also started last year with possible. the opening of our rst international franchise store. A second one is set to open very soon in Dubai, and we God bless and mabuhay kayong lahat! continue to entertain numerous inquiries to bring Shakey’s to various other international markets in our domain.

Vicente L. Gregorio OUR PEOPLE President & CEO

March 2018 Alongside the identied 2017 priorities, we also put more focus on our PEOPLE and the guest-centric philosophy that binds us all together. SHAKEY’S 2017 ANNUAL REPORT 13

No company in this industry has ever achieved this kind of feat; and this, I believe, is a testament to the power of the Shakey’s brand, the gallant eorts and high competence of our management team, and the passion and dedication of every single person working on our stores’ oors.

OUR 2017 STRATEGIC MINDSET

In 2017, we implemented several game-changing programs and initiatives. ese were centered around the key priorities of (1) increasing the loyalty of our existing guests, (2) kick-starting our delivery and digital We believe that the trust and con dence bestowed on businesses, and (3) further expanding our stores in e goal here was simple - to make our value proposition our company and management during the successful underpenetrated areas. superior to that of our competitors in all aspects relevant initial public oering late 2016 can only be sustained to the consumer. and strengthened if we can prove our ability to deliver ese three key result areas were identied as the main and execute on promises. drivers to achieve not only the year’s revenue and is also included elevating our dining environment in earnings goals but to also give the Company a better order to strengthen the experience guests receive for While 2017 was no doubt a year of big adjustments for foundation to deliver future and sustainable growth. their money. e new store design launched in the everyone in the team, we all had a strong sense of middle of 2017 alongside the opening of our 200th store mission and desire to show that we could meet and was very much well-received. e changes revolved surpass all the challenges the year had in store for us. around updating the interiors, putting on new crew “No company in this uniforms, and revising product presentation in order to In this light, I am now pleased to present you our 2017 industry has ever provide a more modern and youthful feel, while still results. From my viewpoint, 2017 turned out to be a very staying true to the iconic and trademark Shakey’s good year for our company. Despite the competitive and achieved this kind of feat; ambiance. volatile business environment, we achieved total system-wide sales of PHP8.3 billion, a growth of 14% and this, I believe, is a DELIVERY AND DIGITAL from the year before. is was driven by opening a total testament to the power of of 24 net new stores — the highest ever recorded in We took considerable actions to streamline our delivery Shakey’s history — and robust same-store the Shakey’s brand.” systems with the goal of laying the foundation for further sales growth of 5%. improving the delivery experience.

ese translated to revenues of PHP7.0 billion, 16% More and more, this segment will play a major role in higher than revenues in 2016. INCREASING GUESTS’ LOYALTY revenue generation, particularly in highly urbanized areas like Metro Manila and Metro Cebu. We will build We released several new products this year with the goal Despite some input cost pressures towards the latter part this on the back of our brand strength and core expertise of keeping even our most loyal guests excited to come of the year, prot margins remain the healthiest in the of creating memorable dining experiences — then take it and try out our new oerings. One of our biggest hits industry with gross and earnings before interest, tax, a step further by bringing these to the doorsteps of our was the Scallop Primo Pizza – mouth-watering baby depreciation and amortization margins at 30% and 20% many loyal guests. scallops on our signature thin crust. Today, this is a respectively. permanent item on our menu, a rare feat for the many Organizational and technological changes were limited time oer products that we regularly release. In total, we were able to deliver to our shareholders a net introduced in support of this goal; and with the income of PHP762 million, posting a growth of 14% continuing eorts of our team, we are now in a much We also launched dierent variations of our famous versus the recurring core income number last year, and better position to take advantage of the growth potential “group meal deals,” continuing to deliver value for our earnings before interest, tax, depreciation and of this delivery market. guests, especially those that come in larger group sizes. amortization of PHP1.4 billion, a growth of 19%. With Again, another big success came very early in the year — ocial results for 2017 nally out, I am very proud to say In 2017, we also overhauled and outlined a new digital January 1, to be precise — when we launched our now that we have again achieved double-digit growth on both strategy, fully aware that the digital space is an emerging famous “2017 MEAL DEAL” – good for ten to twelve revenues and prots, enabling us to extend our battle ground. We re-organized our marketing team and people at an aordable (and hard to forget) price of double-digit growth record to an unprecedented fourteen created a new group composed of experienced digital PHP2,017. consecutive years. natives that focus on nothing else but these digital initiatives. We foresee this channel to grow exponentially

Aware of the ongoing market fragmentation and cost pressures, SUPERIOR EXECUTION of the right plans and strategies is now more important than ever.

Vicente L. Gregorio OUR PEOPLE President & CEO

March 2018 Alongside the identied 2017 priorities, we also put more focus on our PEOPLE and the guest-centric philosophy that binds us all together. No company in this industry has ever achieved this kind of feat; and this, I believe, is a testament to the power of the Shakey’s brand, the gallant eorts and high competence of our management team, and the passion and dedication of every single person working on our stores’ oors.

OUR 2017 STRATEGIC MINDSET

In 2017, we implemented several game-changing programs and initiatives. ese were centered around the key priorities of (1) increasing the loyalty of our existing guests, (2) kick-starting our delivery and digital We believe that the trust and con dence bestowed on businesses, and (3) further expanding our stores in e goal here was simple - to make our value proposition our company and management during the successful underpenetrated areas. superior to that of our competitors in all aspects relevant initial public oering late 2016 can only be sustained to the consumer. and strengthened if we can prove our ability to deliver ese three key result areas were identied as the main and execute on promises. drivers to achieve not only the year’s revenue and is also included elevating our dining environment in earnings goals but to also give the Company a better order to strengthen the experience guests receive for While 2017 was no doubt a year of big adjustments for foundation to deliver future and sustainable growth. their money. e new store design launched in the everyone in the team, we all had a strong sense of middle of 2017 alongside the opening of our 200th store mission and desire to show that we could meet and was very much well-received. e changes revolved surpass all the challenges the year had in store for us. around updating the interiors, putting on new crew uniforms, and revising product presentation in order to In this light, I am now pleased to present you our 2017 provide a more modern and youthful feel, while still results. From my viewpoint, 2017 turned out to be a very staying true to the iconic and trademark Shakey’s good year for our company. Despite the competitive and ambiance. volatile business environment, we achieved total system-wide sales of PHP8.3 billion, a growth of 14% DELIVERY AND DIGITAL from the year before. is was driven by opening a total of 24 net new stores — the highest ever recorded in We took considerable actions to streamline our delivery Shakey’s history — and robust same-store systems with the goal of laying the foundation for further sales growth of 5%. improving the delivery experience.

ese translated to revenues of PHP7.0 billion, 16% More and more, this segment will play a major role in higher than revenues in 2016. INCREASING GUESTS’ LOYALTY revenue generation, particularly in highly urbanized areas like Metro Manila and Metro Cebu. We will build We released several new products this year with the goal Despite some input cost pressures towards the latter part this on the back of our brand strength and core expertise of keeping even our most loyal guests excited to come of the year, prot margins remain the healthiest in the of creating memorable dining experiences — then take it and try out our new oerings. One of our biggest hits industry with gross and earnings before interest, tax, a step further by bringing these to the doorsteps of our was the Scallop Primo Pizza – mouth-watering baby depreciation and amortization margins at 30% and 20% many loyal guests. scallops on our signature thin crust. Today, this is a respectively. permanent item on our menu, a rare feat for the many Organizational and technological changes were limited time oer products that we regularly release. In total, we were able to deliver to our shareholders a net introduced in support of this goal; and with the income of PHP762 million, posting a growth of 14% continuing eorts of our team, we are now in a much We also launched dierent variations of our famous versus the recurring core income number last year, and better position to take advantage of the growth potential “group meal deals,” continuing to deliver value for our earnings before interest, tax, depreciation and of this delivery market. guests, especially those that come in larger group sizes. amortization of PHP1.4 billion, a growth of 19%. With Again, another big success came very early in the year — ocial results for 2017 nally out, I am very proud to say In 2017, we also overhauled and outlined a new digital January 1, to be precise — when we launched our now that we have again achieved double-digit growth on both strategy, fully aware that the digital space is an emerging famous “2017 MEAL DEAL” – good for ten to twelve revenues and prots, enabling us to extend our battle ground. We re-organized our marketing team and people at an aordable (and hard to forget) price of double-digit growth record to an unprecedented fourteen created a new group composed of experienced digital PHP2,017. consecutive years. natives that focus on nothing else but these digital initiatives. We foresee this channel to grow exponentially

14 SHAKEY’S 2017 ANNUAL REPORT

Aware of the ongoing market “ As of end 2017, our total store network stands at fragmentation and cost pressures, SUPERIOR EXECUTION of the 208 in the Philippines with denitely much more to come. ” right plans and strategies is now more important than ever.

We continue to see growth in market consumption, and the as more and more people switch to and become more is heightened focus was aimed at improving their macroeconomic forecasts remain comfortable with the idea of going online and mobile. eectiveness and helping them become the best that they positive. is early into 2018, we can be. We are currently upgrading our have already opened a number of organizational capabilities to ensure that we can new stores giving us a head start for continuously HIRE, TRAIN, and KEEP great the year. people! Furthermore, our improvements in the area of delivery ough we have adjusted to the demands of and digital are expected to allow these parts of our being a public company, we are also challenged business to gain stronger traction this year. to ensure that we keep our very entrepreneurial way of thinking, maintain a strong sense of We will also exert more eorts to improve eciencies ownership in our business, and heighten the and capitalize on our growing scale in order to maintain sense of urgency that we are most well-known our healthy protability margins. for. Indeed, the quality and speed of our execution remain a benchmark in the industry. e goals are clear - ensure market leadership, secure above-industry margins, and continue to be an attractive Leadership and people development are areas I company to work for. strongly believe in, without which medium to EXPANSION OF STORES long-term success will be dicult to attain. SUPERIOR EXECUTION of all these plans is now crucial! We also recently applied organizational changes aimed at perfecting our business and store development systems. MOVING FORWARD! Over the long term, the focus is on increasing our leadership and organizational capability coupled with We set up a Franchise and Business Development team, Since we were coming o from a high base in 2017, some our guest-centric philosophy and strong brand heritage. taking from operations the role of nding and opening may doubt if we can sustain this double-digit growth new store locations. is has allowed us this year to open pace into 2018. e challenge does not scare our team Yes, we have more to do; but I am condent that we are a total of 24 net new stores — again, the highest in but, on the contrary, gives us the strength, courage, and progressing in the right direction. Shakey’s history thanks to the dedication and diligence of excitement to have another chance to WOW! our people in Business Development. Undoubtedly, there will be headwinds in terms of input Finally, I would like to thank you, our shareholders, our guests, our partners, and employees for your continuous As of end 2017, our total store network stands at 208 in costs and operating expenses as ination starts to pick engagement and trust. Without your support for our the Philippines with denitely much more to come. up. Competition also remains with new entrants and existing players continuing to expand as well. management team, the success we enjoy today and the success we plan to achieve in the future would not be Our foray outside the country also started last year with possible. the opening of our rst international franchise store. A second one is set to open very soon in Dubai, and we “The goals are clear — God bless and mabuhay kayong lahat! continue to entertain numerous inquiries to bring Shakey’s to various other international markets in our ensure market leadership, domain. secure above-industry Vicente L. Gregorio OUR PEOPLE margins, and continue to President & CEO be an attractive company March 2018 Alongside the identied 2017 priorities, we also put more focus on our PEOPLE and the guest-centric philosophy to work for.” that binds us all together. No company in this industry has ever achieved this kind of feat; and this, I believe, is a testament to the power of the Shakey’s brand, the gallant eorts and high competence of our management team, and the passion and dedication of every single person working on our stores’ oors.

OUR 2017 STRATEGIC MINDSET

In 2017, we implemented several game-changing programs and initiatives. ese were centered around the key priorities of (1) increasing the loyalty of our existing guests, (2) kick-starting our delivery and digital We believe that the trust and con dence bestowed on businesses, and (3) further expanding our stores in e goal here was simple - to make our value proposition our company and management during the successful underpenetrated areas. superior to that of our competitors in all aspects relevant initial public oering late 2016 can only be sustained to the consumer. and strengthened if we can prove our ability to deliver ese three key result areas were identied as the main and execute on promises. drivers to achieve not only the year’s revenue and is also included elevating our dining environment in earnings goals but to also give the Company a better order to strengthen the experience guests receive for While 2017 was no doubt a year of big adjustments for foundation to deliver future and sustainable growth. their money. e new store design launched in the everyone in the team, we all had a strong sense of middle of 2017 alongside the opening of our 200th store mission and desire to show that we could meet and was very much well-received. e changes revolved surpass all the challenges the year had in store for us. around updating the interiors, putting on new crew uniforms, and revising product presentation in order to In this light, I am now pleased to present you our 2017 provide a more modern and youthful feel, while still results. From my viewpoint, 2017 turned out to be a very staying true to the iconic and trademark Shakey’s good year for our company. Despite the competitive and ambiance. volatile business environment, we achieved total system-wide sales of PHP8.3 billion, a growth of 14% DELIVERY AND DIGITAL from the year before. is was driven by opening a total of 24 net new stores — the highest ever recorded in We took considerable actions to streamline our delivery Shakey’s history — and robust same-store systems with the goal of laying the foundation for further sales growth of 5%. improving the delivery experience.

ese translated to revenues of PHP7.0 billion, 16% More and more, this segment will play a major role in higher than revenues in 2016. INCREASING GUESTS’ LOYALTY revenue generation, particularly in highly urbanized areas like Metro Manila and Metro Cebu. We will build We released several new products this year with the goal Despite some input cost pressures towards the latter part this on the back of our brand strength and core expertise of keeping even our most loyal guests excited to come of the year, prot margins remain the healthiest in the of creating memorable dining experiences — then take it and try out our new oerings. One of our biggest hits industry with gross and earnings before interest, tax, a step further by bringing these to the doorsteps of our was the Scallop Primo Pizza – mouth-watering baby depreciation and amortization margins at 30% and 20% many loyal guests. scallops on our signature thin crust. Today, this is a respectively. permanent item on our menu, a rare feat for the many Organizational and technological changes were limited time oer products that we regularly release. In total, we were able to deliver to our shareholders a net introduced in support of this goal; and with the income of PHP762 million, posting a growth of 14% continuing eorts of our team, we are now in a much We also launched dierent variations of our famous versus the recurring core income number last year, and better position to take advantage of the growth potential “group meal deals,” continuing to deliver value for our earnings before interest, tax, depreciation and of this delivery market. guests, especially those that come in larger group sizes. amortization of PHP1.4 billion, a growth of 19%. With Again, another big success came very early in the year — ocial results for 2017 nally out, I am very proud to say In 2017, we also overhauled and outlined a new digital January 1, to be precise — when we launched our now that we have again achieved double-digit growth on both strategy, fully aware that the digital space is an emerging famous “2017 MEAL DEAL” – good for ten to twelve revenues and prots, enabling us to extend our battle ground. We re-organized our marketing team and people at an aordable (and hard to forget) price of double-digit growth record to an unprecedented fourteen created a new group composed of experienced digital PHP2,017. consecutive years. natives that focus on nothing else but these digital initiatives. We foresee this channel to grow exponentially

SHAKEY’S 2017 ANNUAL REPORT 15

Aware of the ongoing market fragmentation and cost pressures, “Over the long term, the focus is SUPERIOR EXECUTION of the right plans and strategies is now on increasing our leadership and more important than ever. organizational capability coupled We continue to see growth in market consumption, and the with our guest-centric philosophy as more and more people switch to and become more is heightened focus was aimed at improving their macroeconomic forecasts remain and strong brand heritage.” comfortable with the idea of going online and mobile. eectiveness and helping them become the best that they positive. is early into 2018, we can be. We are currently upgrading our have already opened a number of organizational capabilities to ensure that we can new stores giving us a head start for continuously HIRE, TRAIN, and KEEP great the year. people! Furthermore, our improvements in the area of delivery ough we have adjusted to the demands of and digital are expected to allow these parts of our being a public company, we are also challenged business to gain stronger traction this year. to ensure that we keep our very entrepreneurial way of thinking, maintain a strong sense of We will also exert more eorts to improve eciencies ownership in our business, and heighten the and capitalize on our growing scale in order to maintain sense of urgency that we are most well-known our healthy protability margins. for. Indeed, the quality and speed of our execution remain a benchmark in the industry. e goals are clear - ensure market leadership, secure above-industry margins, and continue to be an attractive Leadership and people development are areas I company to work for. strongly believe in, without which medium to EXPANSION OF STORES long-term success will be dicult to attain. SUPERIOR EXECUTION of all these plans is now crucial! We also recently applied organizational changes aimed at perfecting our business and store development systems. MOVING FORWARD! Over the long term, the focus is on increasing our leadership and organizational capability coupled with We set up a Franchise and Business Development team, Since we were coming o from a high base in 2017, some our guest-centric philosophy and strong brand heritage. taking from operations the role of nding and opening may doubt if we can sustain this double-digit growth new store locations. is has allowed us this year to open pace into 2018. e challenge does not scare our team Yes, we have more to do; but I am condent that we are a total of 24 net new stores — again, the highest in but, on the contrary, gives us the strength, courage, and progressing in the right direction. Shakey’s history thanks to the dedication and diligence of excitement to have another chance to WOW! our people in Business Development. Undoubtedly, there will be headwinds in terms of input Finally, I would like to thank you, our shareholders, our guests, our partners, and employees for your continuous As of end 2017, our total store network stands at 208 in costs and operating expenses as ination starts to pick engagement and trust. Without your support for our the Philippines with denitely much more to come. up. Competition also remains with new entrants and existing players continuing to expand as well. management team, the success we enjoy today and the success we plan to achieve in the future would not be Our foray outside the country also started last year with possible. the opening of our rst international franchise store. A second one is set to open very soon in Dubai, and we God bless and mabuhay kayong lahat! continue to entertain numerous inquiries to bring Shakey’s to various other international markets in our domain.

Vicente L. Gregorio OUR PEOPLE President & CEO

March 2018 Alongside the identied 2017 priorities, we also put more focus on our PEOPLE and the guest-centric philosophy that binds us all together. 16 SHAKEY’S 2017 ANNUAL REPORT INVESTMENT TOPPINGS

Market Leadership in Full-Service Restaurants in the Philippines

Others Player 3 4% 2%

Player 2 29% Others Shakey’s 31% 26%

Player 6 Shakey’s 3% 65%

Player 2 16% Player 5 5% Player 4 Player 3 7% 12%

Full-Service Chain Full-Service Chain - All Formats - Pizza Alone

Latest Euromonitor report states that Shakey’s leads the 2017 data shows that Shakey’s dominates the full-service Philippine chained full-service restaurant industry with 26% pizza chain market by sales since 2011 until present market share as of 2017.

Brand in Top Restaurant Full-Service #3 Brand Overall #1 Restaurants IN THE PHILIPPINES IN 2017 SOURCE: ASIA’S TOP 1000 BRANDS SURVEY BY CAMPAIGN ASIA IN PARTNERSHIP WITH NIELSEN SHAKEY’S 2017 ANNUAL REPORT 17 What Does Brand Ownership Mean?

No royalty payments, leading to shorter store payback period and sustainably higher margins versus peers

Ability to receive revenue from licensing fees and royalties from franchisees

Freedom to execute and react faster to market changes Though originally from the U.S., the Company has owned the Shakey’s brand for the Philippines Ability to localize products and adapt to the taste of since 1999. local markets

With its over 40-year history Opportunity for expansion into international markets in the Philippines, Shakey’s is one of the most recognizable brands in the local food service industry.

Shakey’s SuperCard

Our very popular paid loyalty card paid upfront and renewed annually. 18 SHAKEY’S 2017 ANNUAL REPORT A FULL AND HEARTY TABLE! The food below is just a sampling of what we offer - visit a Shakey’s restaurant to experience the full breadth of our amazing menu!

PIZZA STARTERS MANAGER’S BASKET OF CHOICE MOJOS Our No. 1 flavor, loaded with ham, Our iconic thinly sliced potatoes beef, Italian sausage, green bell coated with a secret breading and pepper and onions. fried to a golden perfection. Get your fill with a basketful of your favorite snack or share them with PEPPERONI friends. CRRRUNCH Spicy Pepperoni slices covered with SOUP crunchy crackling US potato strings. CREAMY MUSHROOM ANGUS SOUP STEAKHOUSE Home-style soups loaded with Premium pizza made from specially flavor and goodness. blended Angus Beef with roasted onions and sliced mushrooms topped with our crunchy potato strings. A GRAND steak out! SALAD CHICKEN TUNA CAESAR SALAD FAMILY PACK Crisp lettuce and refreshing Comes with 7 pieces of chicken and cucumber slices served with smooth mojos - the perfect combination Shakey's Caesar dressing all alongside your favorite pizza. generously topped with grated Parmesan cheese and tasty bacon bits.

PASTA DESSERTS CARBONARA BANANA SUPREME SPLIT A rich combination of creamy white Classic dessert with banana and three sauce with ﬂavorful bacon, ham and scoops of ice cream - chocolate, vanilla, button mushrooms topped with grated and strawberry, drizzled with strawberry premium parmesan cheese. syrup. Topped with whipped cream, cherries, and generously sprinkled with chopped peanuts. GROUP MEALS

MONSTER MEAL DEAL

2 Large Thin Crust Pizzas 2 Platters of pasta: Classic Spaghetti & Carbonara Supreme Party Pack Chicken ‘n’ Mojos (12 pcs) 3 1.5L Coke

For those with a MONSTER appetite! SHAKEY’S 2017 ANNUAL REPORT 19 OUR 208 STORES IN THE PHILIPPINES SHAKEY’S EAT MAP! 42% LUZON EX-NCR 47% NATIONAL CAPITAL REGION (NCR) Company-owned 59% 7% VISAYAS

Franchised 4% 41% MINDANAO

BY STORE OWNERSHIP BY STORE LOCATION

BY STORE FORMAT

52% 43% 5% MALL FREE STANDING OTHERS STORES STORES Typical Store Footprint: Typical Store Footprint: Typical Store Footprint: 120 - 250 sqm 300 - 400 sqm 120 - 180 sqm 20 SHAKEY’S 2017 ANNUAL REPORT

MULTIPLE SALES CHANNELS PROVIDE CONVENIENCE

Dine-in Functions Delivery Carryout Most popular sales channel Legacy and free-standing Delivery available Convenient and fast due to unique family and stores have function rooms nationwide method of sales friends experience for events such as parties and company gatherings Single delivery hotline Aim to “WOW” the guest number (#77-777) can be used

Active online and mobile presence with own website and mobile app (www.shakeyspizza.ph)

VERTICALVERTICAL INTEGRATIONINTEGRATION VIAOF FOOD COMMISSARY

The Company has its Philippine Food and Drug Administration own commissary for Registered Company proprietary raw Accredited with Good Manufacturing Practice Certiﬁcation by SGS Philippines materials, protecting its key supply chain and Accredited with Hazard Analysis and Critical Control Points (HACCP) by SGS maintaining Philippines consistency and control Accredited with Halal Certiﬁcation for over quality. Bakery by the Halal Development Institute of the Philippines (HDIP) SHAKEY’S 2017 ANNUAL REPORT 21 22 SHAKEY’S 2017 ANNUAL REPORT FINANCIAL HIGHLIGHTS

INDUSTRY-LEADING PROFITABILITY

REVENUES GROSS PROFIT

16% 12%

7,004M 2,066M 2016 30.8% 6,014M 1,850M

-1.3PPS

2017 29.5%

2016 2017 2016 2017 IN PHP IN PHP MARGINS

EBITDA NET INCOME

19% 14%

1,407M 762M 2016 11.1% 1,186M 669M 2016 19.7% -0.2PPS +0.4PPS 2017 10.9% 2017 20.1% 2016 2017 2016 2017

IN PHP MARGINS IN PHP MARGINS

CHANGE YOY

Note: FY 2016 represents pro forma numbers, adjusted for one-off items. SHAKEY’S 2017 ANNUAL REPORT 23

HEALTHY CASH GENERATION

OPERATING CAPITAL FREE CASH CASH FLOW EXPENDITURE CASH FLOW CONVERSION CYCLE

934M 972M 768M 516M 418M 204M

-18 2016 2017 2016 2017 2016 2017 -26

IN PHP IN PHP IN PHP DAYS

OTHER HIGHLIGHTS

0.50PHP 2.60PHP 21%

EARNINGS PER BOOK VALUE RETURN ON SHARE PER SHARE EQUITY

2.62X 0.93X NET INTEREST-BEARING NET GEARING DEBT TO EBITDA RATIO RATIO

9,109M 5,135M 3,974M PHP PHP PHP TOTAL ASSETS TOTAL LIABILITIES TOTAL EQUITY 24 SHAKEY’S 2017 ANNUAL REPORT

HOW WE

WOW is PIZZA in a nutshell.

e concept of WOW is having guest centricity as a core value. PIZZA embodies this " ink Guest" spirit not just by thinking like a guest but also by deciding and acting on their needs and wants - manifesting what it means to be a guest in one’s own store. is, along with its Passion for Excellence when it comes to service, is what allows PIZZA to give guests that trademark WOW experience. SHAKEY’S 2017 ANNUAL REPORT 25

The WOW Principle has three imperatives: WOW Principle Better than BEFORE The WOW Principle is the core concept of the WOW culture that is embedded as a mindset in every Shakey’s employee. It is a philosophy, not a policy, in that the organization lives to WOW. Better than OTHERS

What makes something WOW? Better than EXPECTED

WOW Grid WOWING Truly extraordinary! Consistently exceeds all goals. The WOW Grid serves as a WOW performance metric that measures how well the WOW Principle is executed. Desired Above average. Meets goals and sometimes exceeds them. There are four levels of execution on the grid: WOWING, Desired, Nothing special. Often meets Basic, and Criminal - each pertaining to how many of the three Basic principle imperatives have been fulﬁlled. most goals. Totally unacceptable. Failed to Through this test, the Company is able to objectively measure Criminal meet any goal. how each activity, action, and performance metric fares on the WOW scale.

WOW the Guest

At Shakey’s, guests are always at the top of mind. Hence, they are not commendations or suggestions on their dining experience, while treated as customers but as friends. out-of-store guests can send over their feedback via e-mail. These reviews are taken very seriously, with the Guest Engagement As such, WOW the Guest is the key application of the WOW culture, Department (GED) immediately forwarding this feedback to the known by all employees as... concerned employees or departments. The GED also sends WOW Weekly Digests containing numerous positive guest experiences to all CONSISTENTLY EXCEEDING GUESTS’ EXPECTATIONS. company employees to inspire them with stories of how much the Shakey's WOW Culture is able to leave smiles on many faces. The process of WOWING guests begins all the way from the selecting, hiring, and training of employees. The concept of WOW is introduced These WOWING efforts are also recognized during company-wide to all employees through the Shakey's WOW Culture wheel as early as events such as "Lunch with the President" and the "Cup of Excellence" the onboarding period. Given the importance of providing excellent where the best stores and best staff, both company-owned and service, store-based employees undergo further training that teaches franchised, are rewarded for their commitment to WOW. them the basics of guest service and ways on how to delight guests by understanding and delivering what they need and want. Lastly, the Shakey's WOW Culture is not only applied in service but also in other areas such as business development and employee work ethic. Since WOWING is a continuous process, guests are provided avenues All together, this is how PIZZA is able to deliver results and keep guests for their feedback on how the Company can WOW better. Each store coming back for more. has its own Book of WOWING Stories where guests can give their 26 SHAKEY’S 2017 ANNUAL REPORT

Core Concept of the WOW Culture

PRIN W CIPL WO E

W THE

O SHAKEY’S

D OW W I T H CULTURE R E G

G U W E O ST W

Application of the WOW Performance WOW Culture Metric towards Guests SHAKEY’S 2017 ANNUAL REPORT 27

THE T GUESTS WOW! SAY IT BEST!

Shakey’s unceasing dedication to WOW has delighted numerous guests, as evidenced by the many positive testimonies that come our way. Here are a handful of stories that highlight a basic truth: even the simplest acts, in-store and out, can WOW a long way.

Normally, people who visit Shakey’s are looking for good THE food; rarely do they visit looking for their runaway son. But that’s exactly what happened late one night at OF THE Shakey’s Southwoods, just as Captain Elwood Torres and his team were closing shop. A pair of worried parents were searching for their boy and wondering if he had dropped by the restaurant. Torres invited them in and ordered a search of the immediate area.

“To say the staff were accommodating is an understatement. They let us sit inside to rest and even gave us food and a toy for our daughter. They asked one of the riders to do a quick check of the surrounding area to see if he could spot our boy. When we found our child the next morning, we celebrated in the same Shakey’s, and the staff were so relieved to learn of the good news.” 28 SHAKEY’S 2017 ANNUAL REPORT IIFF WEWE LONG ANCE DIDDID DIST WELLWELL AFFAIR PLEASEPLEASE RINGRING WOW THE BELL! WOW THE BELL! ON It’s not unusual for guests to accidentally leave their phones GUEST But what if you’re serving at Shakey’s NAIA 3 and your guest

of miles away? You accept the SERVICE AT ITS BEST manager Charlie Gonzales did by contacting the guest and making arrangements to reunite the phone with its owner.

Shakey’s employees are known for their We’re used to delivering pizza; our riders excellent in-store service. But greeting guests and waiting on tables isn’t the only sometimes, they like to take things to the next level. Like Rex Sequite, a store delivery of attention, especially if there’s an rider at Shakey’s Kapitolyo, who decided to emergency. So when a middle-aged lady help someone by purchasing medicine on fainted during a visit to Shakey’s Robinsons her behalf and delivering it to her. It wasn’t Tejero, Red Cabasag and Ruth Ulanimo his scope of work and she wasn’t a paying guest. But he was in the right place at the right time and chose to follow his guest assisted the guest and escorted her and her service instincts. family to the nearest hospital for treatment.

“A text from Charlie to “We can’t say thank you “Nakakatuwang isipin my other number came enough for what your na may mga katulad informing me that my employees did. The niyang tao na phone is in his custody. restaurant manager even nagbibigay ng He provided me options called us the following day magandang serbisyo on how I will get my to ask how my mom was ng walang hinihinging phone and even doing after the accident. It’s kapalit. I salute your genuinely went to LBC the best example of what delivery boy for giving should I decide it to be true customer service good deeds to other sent through a courier. I should be.” people and not only to hope you could give your guests!” him and his team the rightful honor and recognition as he models your vision of providing your customers with good times and great memories.” SHAKEY’S 2017 ANNUAL REPORT 29 for the love of AN

How do you support a brand you dearly

Cauayan restaurant manager Vener Unite LY did, by freely helping the Shakey’s Talent FAMI Management team scout potential employees for new stores. A Twist FUN and PIZZA are synonymous with Shakey’s. But did you know that we represent FAMILY too? As one shy young girl discovered by hanging out with the Shakey’s España team, we put a premium on good relationships – going beyond the food and festivities to truly be there for the guest when they need it the most. OF FATE

Balloon twisting is a big part of Shakey’s in-store birthday parties; our kiddie guests love it. But when store delivery rider Gerlit Sartagoda found himself delivering food to a

out his balloon-twisting skills and turned the celebration into a WOWED-UP impromptu birthday surprise!

“Good day! I would “This is to commend your “As a girl who is not like to commend Mr. driver Gerlit for we were used to interacting with Vener, RM of Shakey’s surprised kanina as we others right away, it was Cauayan, Isabela for were celebrating my a complete struggle for me knowing when times helping me out in daughter’s birthday bash. sourcing candidates for get rough, I can hardly We ordered from count on anyone. Good our stores in the Shakey’s and upon his thing I got the Shakey’s province. Since last arrival, he treated her España night crew. It year, he voluntarily with balloon hearts and took me a while, but sends CVs to me. Just animals. Though then Shakey’s is no now, he sent CVs for napakasimple ng effort, longer just my second our soon to open store sobrang natuwa ang home but my family as in Solano, Nueva aking daughter! Kay well. Often times they Vizcaya. Truly, his love Shakey’s na lang kami would ask me how I am for the company is mag-o-order from now and would even encourage me to strive evident as he on.” encourages others to harder. Small talks that they usually do to their join here!” guests made a great impact in my life.” 30 SHAKEY’S 2017 ANNUAL REPORT INNOVATIONS AND INITIATIVES

KEEPING THE EXCITEMENT ALIVE UCC Brewed Coee and rough its many years of innovation, Shakey’s has never Panna Cotta Dessert failed to surprise guests with new products and avors while staying true to its core value of FUN, FAMILY, and PIZZA.

Among 2017’s most successful new products were new seafood pizza avors, namely the Cali Kani Pizza and the Scallop Primo Pizza.

Cali Kani Pizza - loaded with kani, peaches, and cucumber with nori strips and sh roe drizzled with Japanese sesame dressing

Scallop Primo Pizza - packed with mouth-watering baby scallops, crab kani, basil strips, and dashes of parsley and chili akes

New pizza avors such as these are usually available for a limited time only, but the latter was remarkably in demand and we just had to give it a permanent spot on the menu!

Another unique innovation was our Hickory Quorn Pops, launched as little bite-sized nuggets best served as an appetizer to your favorite pizza.

As its name suggests, these nuggets are not your ordinary breaded chicken. Rather, they are made from “Quorn” which contains a natural dough called Mycoprotein.

Hickory Quorn Pops - a popular meat-free source of protein, perfect for those watching their diet but still wanting that delicious taste of real meat

Various drinks and desserts were also on the list of new products such as the Pineapple Guyabano Drink, UCC Hot and Iced Coee Drinks, Panna Cotta Dessert, and cakes. SHAKEY’S 2017 ANNUAL REPORT 31

VALUE-FOR-MONEY

Apart from innovations, initiatives were also launched to create greater value for our guests.

At the beginning of 2017, Shakey’s launched the “2017 Meal Deal” promotion containing a set of Shakey’s classics good for a group of eight to ten for only PHP2,017. Additionally, availing this meal deal would qualify guests to avail of a free loyalty SuperCard.

Shakey’s was o to a good start as the “2017 Meal Deal” was a huge success, signicantly contributing to growth and performance in 2017.

Shakey’s holiday-themed “Ber Bundles” were released to kick-start the Christmas season with the arrival of the “-ber” ending months. ese were meant for groups of ve to een depending on which meal deal was availed, giving guests free upsizes on their favorite chicken and pizza meal deals. Cali Kani Pizza Other holidays were also opportunities for us to celebrate simple joys with our guests and their families. We gave away free Shakey’s pouches for the special women in our lives during Mother’s Day and a protein-rich angus beef steakhouse pizza, on us, as a Father’s Day treat.

In addition to Shakey’s group bundles and holiday oers, we continued our program of providing special promotions exclusive to SuperCard holders which include discounts, extended promotion periods, and special bundles.

GROWING AND GOING ONLINE

As early as 2013, Shakey’s already introduced online ordering via website and mobile application - one of the rst in the industry to do so.

With the continuing emergence of “digitalization,” there are boundless opportunities to further improve our online platforms and how we conduct our digital business.

As of end 2017, various initiatives have yielded good returns with close to 50% increase in digital transactions and online sales year-on-year.

Continuous eorts like these are what keep Shakey’s at the top of the game, and it can be expected that there will be more creative innovations and initiatives in the coming years.

Scallop Primo Pizza 32 SHAKEY’S 2017 ANNUAL REPORT TOTS. TEENS. TITAS. How Shakey's captures the hearts of people from all generations.

Leading pizza chain Shakey’s is leveraging its appeal to Gregorio said Shakey’s has been investing in becoming generations of Filipinos to attract a new crop of more digitally adept. customers — the always online, tech-savvy millennials. “Traditional avenues and channels have to be “We continue to evolve and upgrade the brand so that it strengthened by adding new channels where the new also becomes relevant to a growing base of millennials,” market prefers to be engaged with,” he said. said Shakey’s president Vicente Gregorio. Shakey’s has also been redesigning its stores “to give Shakey’s opened its rst store in the Philippines in 1975. them a younger feel so that they will not feel dated, but It now has 208 stores across the country. rough the relevant, without alienating our loyal customers.” years, its thin crust pizzas and iconic chicken and mojos have been a staple among “Every channel and every Filipinos as they celebrate experience with the brand their birthdays as children, “I want it to become a has to be designed and go out on dates as teenagers, executed in a way that will and hang out as adults. magical place allow us to become more — a WOWING place — and more relevant with a “ e brand has been able to younger base,” said stay relevant. It has gone whether you’re there to Gregorio. through a lot of changes in response to the changing hang out or to bond with Shakey’s is evolving to more times, and our ability to family and friends.” than just a place to hang touch lives has formed the out, keeping what has base of our ercely loyal worked in years – great customers,” said Gregorio. food and music and nice seating – and introducing new features that will allow for special bonding moments He said that with the new generation of millennials, among families and friends. Shakey’s is focusing on customer experience. “I want it to become a magical place — a WOWING “We realised that younger generations have a dierent place — whether you’re there to hang out or to bond with mindset. ey won’t just do what older folks do,” he said. family and friends,” said Gregorio.

e key, he said, is to “understand and tailor-t the brand “What we are really trying to do is to be guest-focused to meet the expectations of a newer base — even exceed and guest-centric so that our customers will have an their expectations — so they’d be WOWED”. awesome time,” he added. SHAKEY’S 2017 ANNUAL REPORT 33 34 SHAKEY’S 2017 ANNUAL REPORT PURPOSE IN PIZZA

Learn and Earn

e Special Program for Employment of Students (SPES) is a partnership with the Department of Labor and Employment that began in 2015. e objective is to provide temporary jobs to less fortunate but deserving youths to give them the opportunity to learn and earn. e beneciaries of this program are either enrolled students or out-of-school youths who have the intent of enrolling next semester. In 2017, PIZZA was able to employ 17 participants in dierent stores during the summer as part of this program.

Summer Smiles

e Special Movers Into Livelihood Empowerment (SMILE) Program started in 2016 with the goal of aiding people with special conditions or disabilities. e Company oers seasonal employment and gives support to develop them as individuals with high condence and morale. For the summer of 2017, PIZZA’s recruits included a participant with Global Develop- ment Delay, giving him target tasks like that of a regular employee.

Down With is

In February 2018, a memorandum of understanding was signed by PIZZA and the Down Syndrome Association of the Philippines for the pilot stage of the #Shakeitup4Downs Program. e purpose is to place association members in an environment that will give them a fun learning experience. As of date, two stores have accepted participants and there are plans to expand its scale over the next few months.

Reaching Out

Shakey’s aims to share Fun, Family, Pizza to everyone every- where. e Company partnered with First Metro Securities for its "Reach First" charity event. Originally present to provide and serve enjoyable meals, the Shakey’s team WOWED everyone by going above and beyond their call of duty by helping feed 70 children alongside First Metro’s own volun- teers. e lunch treat of Shakey’s classic pizza and chicken le the kids wanting more. Providing great food coupled with excellent service, the Company succeeded in bringing smiles to the Chosen Children Village Foundation. SHAKEY’S 2017 ANNUAL REPORT 35

Hope in a Bottle WOW for the Road

PIZZA has recently partnered with Friends of e Shakey's WOW culture is not just applicable Hope, a social enterprise that aims to create within the Company but in other organizations sustainable social impact. e enterprise as well. In 2017, PIZZA conducted a two-day endeavors to address the classroom shortage in Excellent Guest Service Seminar for the National the Philippines through the sale of its popular Capital Region's Land Transportation Oce puried drinking water product called "Hope in (LTO-NCR). e Company was requested by a Bottle." All prots coming from this product LTO-NCR Regional Director Atty. Clarence proceed to the building of public school Guinto to hold a training session on guest classrooms, slowly narrowing the classroom service for their oce. A total of 49 LTO employ- decit around the country. ees and 9 district chiefs attended the event and actively participated as PIZZA President Vicente "Hope in a Bottle" products are available in both Gregorio, together with the Company's Guest company-owned and franchised stores, with Experience Management Department and PIZZA selling an average of 14,000 bottles per Learning and Development Department, shared month. e Company has targeted a more various behavioral and technical modules. WOWING number - around 21,000 bottles a month given its increasing store network and e seminar received positive feedback and strong demand during peak seasons. Since the inspired the government participants so much beginning of the partnership early this 2018, that just a few days aer the seminar, the LTO PIZZA has sold about 53,000 bottles of Hope as decided to commit to completing backlogs. With of June. Prots from these bottles are already the success of the event, PIZZA looks forward to going to the construction of one classroom in spreading its WOW culture to even more organi- the Archbishop Cinense Elementary School in zations and inspiring them with its excellent Pampanga, which will be turned over to the guest service. school some time this September. is is the rst classroom being built from PIZZA's committed sales volume, and it looks forward to continue contributing to nation building through this partnership.

e Onion Factor

PIZZA has partnered with Bonena, a farmer cooperative located in Nueva Ecija that has been supplying local onions - about one third of the Company's total onion requirements - since 2017.

Given PIZZA's aggressive store roll-out, there are plans of increasing the amount of onions the cooperative supplies to accommodate more existing stores and new stores alike. In addition to this, the goods supplied may expand to include other vegetables such as romaine, bell pepper, and tomatoes, among others. rough these eorts, the Company hopes to further support Bonena and provide a steady stream of income to its member farmers. 36 SHAKEY’S 2017 ANNUAL REPORT CORPORATE GOVERNANCE

The Company recognizes the importance of good governance in business practices and value-based decision making, is vital in fulﬁlling creating sustainable value for shareholders in order to achieve long-term the Company’s multiple economic, moral, legal, and social obligations success. It believes that good corporate governance, along with the best towards stakeholders.

SHAREHOLDERS

Elect / Dismiss Ratify / Dismiss

BOARD OF DIRECTORS

Assists Appoints Report

- Elect - Determine Report Remuneration Parameters - Supervise and Review Report Review

Executive Committee & Management Committees

Appoints Audit - Elect Report - Determine Remuneration Parameters Audit - Supervise and Review Ensures compliance

Management Teams & Rest of Organization SHAKEY’S 2017 ANNUAL REPORT 37

Shareholders are encouraged to actively participate by exercising their rights. SHAREHOLDERS Such rights include the following among others:

Participating and voting during Voting and being voted as director Inspecting records of all the stockholders’ meetings or ofﬁcer of the Company Company’s business transactions and minutes of any meeting

Exercising the appraisal right on Receiving dividends declared by Sharing in the distribution of the instances stated in Section 81 of the Board of Directors Company’s remaining assets the Corporation Code after its dissolution and liquidation

Shareholder rights can be found in the Company’s Manual on Corporate Governance available on the PIZZA website.

The Board of Directors (the Board) is to act in the best interest of the BOARD OF DIRECTORS Company and all its shareholders.

The following are some of the roles and responsibilities of the Board. Further details regarding the Board may be found in the Board Charter available on the Company website.

TO THE COMPANY

Oversee the development of Approve the selection and Ensure an effective Assure the Company has an and approve business assess the performance of performance management appropriate internal control objectives and strategies and Senior Management and framework is in place to system, including a monitor their implementation other control functions certify Management and mechanism for managing personnel performance are at potential conﬂicts of interest par with set standards of the Board, Management, and shareholders

Make certain there is a sound Supervise the proper Attend and actively enterprise risk management implementation of and participate in all meetings of framework for key business compliance to the Code of the Board and its respective risks Business Conduct and Ethics, committees including standards for professional and ethical behavior for internal and external dealings

TO SHAREHOLDERS

Encourage active shareholder participation and minimize costs and administrative impediments to said participation

Be transparent about and fairly promote shareholder rights, and provide processes and procedures for them to follow

Establish corporate disclosure policies and procedures to ensure the comprehensive, accurate, reliable, and timely report of relevant and material information, including non-ﬁnancial information

Attend and actively participate in all shareholders’ meetings

Have a formal and transparent board nomination and election policy 38 SHAKEY’S 2017 ANNUAL REPORT

COMPOSITION OF THE QUALIFICATIONS BOARD OF DIRECTORS e Board ensures that it has an appropriate mix of e Board of Directors is to have a collective working expertise competence and expertise. Its members should also that is relevant to the Company’s industry or sector. remain qualied for their positions individually and collectively in order to fulll its roles and responsibilities Majority of the Board should consist of non-executive and respond to the needs of the organization based on the directors in order to secure objective, independent judgment evolving business environment and strategic direction. on corporate aairs and to substantiate proper checks and balances. e qualications of directors, among others, include: Additionally, at least three or one-third of the Board, whichever is higher, must be independent directors. College education or equivalent academic degree

is ensures that no director or group of directors can Practical understanding of the business dominate the decision making process, protecting the Company’s interest over the interest of individual shareholders. of the Company

A lead independent director is designated should the Good standing in the relevant industry, business, Chairman of the Board not be independent and is authorized or professional organization to lead the Board in cases where management has clear conicts of interest. Relevant previous business experience

In addition to the above, non-executive directors can CURRENT COMPOSITION only concurrently serve as directors in a maximum of ve publicly listed companies to ensure he or she can allot sucient time for Company matters. Executive Director Non-Executive Director

TRAINING

e Company has set guidelines and procedures concerning the orientation program for rst time DIRECTORS INDEPENDENT directors. DIRECTORS

Its directors attended corporate governance seminars conducted by the Institute of Corporate Directors (ICD) in 2016. e Company has sought the services of the ICD to conduct a series of trainings in August 2018. 9 BOARD MEMBERS

SUCCESSION PLAN

e Board ensures that an eective succession 49 2 planning program for directors and key ocers are AVERAGE AVE NO. OF BOARD in place. is is to help secure the continuous AGE SEATS HELD IN growth of the Company. PUBLICLY LISTED COMPANIES SHAKEY’S 2017 ANNUAL REPORT 39

COMMITTEES OF THE BOARD OF DIRECTORS

e Board Committees are to support the eective performance of the Board’s functions. eir purpose, memberships, structures, and responsibilities are further discussed in the Committee Charters available on the Company website.

1AUDIT COMMITTEE

e Audit Committee is tasked to oversee Senior Management in maintaining Additionally, the Audit Committee periodically meets with the Chief Audit an eective internal control framework which is able to provide assurance in Executive, whose appointment is recommended by the Committee. areas including reporting, monitoring compliance with laws, regulations, and internal policies, and the eciency and eectiveness of operations. Darel G. Pallesco was appointed as the Company’s Chief Audit Executive and has 8 years of experience in auditing, compliance, and risk management roles It ensures that both internal and independent auditors are to have unrestricted in various companies prior to joining PIZZA in 2014. access to all records, properties, and personnel to enable them to perform their audit functions independently from one another. Internal Audit is to render an annual report on its responsibilities, activities, and performance relative to the audit plans and strategies approved by the It is composed of at least three non-executive directors, majority of whom, Audit Committee. including the Chairman (who should not be Chairman of the Board or of any other committee), should be independent. All must be experienced in the It is also to provide a statement declaring whether it is compliant with the areas of accounting, auditing, and nance. International Standards for the Professional Practice of Internal Auditing.

e Audit Committee meets with the Board at least every quarter without the presence of the Chief Executive Ocer or any other member of the Internal Audit assists the Audit Committee to ensure management team. Reliability and integrity of nancial and operating information

CURRENT COMPOSITION Compliance with policies, plans, procedures, laws, and regulations

Safeguard of assets Non-Executive Director Resources are economically and eciently used

Results of operations and programs are consistent with established objectives, goals, and plans

INDEPENDENT INDEPENDENT AUDITOR DIRECTORS

e Audit Committee has a robust process for approving and recommending INTERNAL AUDIT the appointment, reappointment, removal, and fees of the independent auditor. It should be alerted for any situation that may potentially rise due to conicts of interest which could impair the independent auditor’s objectivity. e Audit Committee has an independent Internal Audit function that provides objective assurance and consulting services, monitoring and guiding SyCip Gorres Velayo & Co. was re-appointed as the Company’s independent the implementation of company policies and bringing a systematic approach to auditor for 2017 during the Annual Stockholders’ Meeting last July 20, 2017, evaluating and improving the eectiveness of the Company’s governance, risk with Maria Pilar B. Hernandez as the engagement partner. It is to assess the management, and control functions. Company’s audited nancial statements and provide its judgment on the compliance of said statements with the Philippine Financial Reporting e Committee oversees Internal Audit, recommending the approval of the Standards. Internal Audit Charter which contains the function’s responsibilities and plans. e Audit Committee met with the Independent Auditor in 2017 without the It ensures the independence of the Internal Auditor and reviews and monitors presence of anyone from the Management team. Management’s responsiveness to Internal Audit. In 2017, SyCip Gorres Velayo & Co. was paid PHP2.20 million for their audit services. SyCip Gorres Velayo & Co. is a member rm of Ernst & Young. 40 SHAKEY’S 2017 ANNUAL REPORT

2BOARD RISK OVERSIGHT COMMITTEE

e Board Risk Oversight Committee is to oversee the Company’s enterprise risk management system to ensure its functionality and eectiveness. Its CURRENT COMPOSITION responsibility is to supervise Management’s activities in managing credit, market liquidity, and operational, legal, and other risk exposures. Non-Executive Director

It comprises of at least three members, of whom majority are independent, including the Chairman (who should not be Chairman of the Board or of any other committee). At least one member should be knowledgeable in risk and risk management.

e Committee should always have clear communication with the Chief Risk Ocer. Manuel T. Del Barrio, the Company’s Chief Financial Ocer, was INDEPENDENT appointed as Chief Risk Ocer. DIRECTORS

CORPORATE GOVERNANCE 3COMMITTEE

e Corporate Governance Committee is responsible for ensuring the CURRENT COMPOSITION Company’s compliance with corporate governance principles and practices. It periodically reviews the Company’s corporate governance framework to Non-Executive Director ensure it remains appropriate given material changes in the corporation’s size, complexity, strategy, and business and regulatory environments.

e Committee is also to function as a Nomination and Remuneration Committee, determining the nomination and election process and establishing a formal and transparent procedure in developing a policy for determining remuneration.

It composes of at least three members, all of whom should be independent, INDEPENDENT DIRECTORS including the Chairman.

RELATED PARTY TRANSACTIONS 4COMMITTEE CURRENT COMPOSITION

e Related Party Transactions Committee is tasked to review all material Non-Executive Director related party transactions of the Company. It also informs regulating and supervising authorities relating to the Company’s related party transaction exposures and ensure appropriate disclosures are accomplished.

e Committee is comprised of at least three non-executive directors, two of whom should be independent, including the Chairman.

INDEPENDENT DIRECTORS SHAKEY’S 2017 ANNUAL REPORT 41

CORPORATE SECRETARY COMPLIANCE OFFICER

e Corporate Secretary is to keep abreast of relevant e Compliance Ocer is responsible for determining laws, regulations, governance issuances, industry and measuring the Company’s adherence with its developments, and operations of the Company and Manual on Corporate Governance, relevant laws, the advise the Board on all relevant issues as they arise. Code of Corporate Governance for publicly listed companies, SEC rules and regulations, and all Atty. Maria Rosario L. Ybanez was appointed as the governance issuances of regulatory agencies. Company’s new Corporate Secretary on May 23, 2018, and has been involved in the practice of corporate, civil, Manuel T. Del Barrio, the Company’s Chief Financial criminal, labor, and intellectual property law since 2001. Ocer, was appointed as Compliance Ocer. He is She is scheduled to attend her training on corporate scheduled to attend his training on corporate governance governance conducted by the ICD in August 2018. conducted by the ICD in August 2018.

EXECUTIVE TEAM

e Executive Team, along with the rest of the Management team, answers to the Board of Directors and is responsible for the operations and performance of the Company. It concretizes the Company’s objectives and targets by executing its strategies and attaining set targets. e Team is spearheaded by the Chief Executive Ocer (CEO).

e positions of CEO and Chairman of the Board are held by separate individuals. eir roles in the organization are distinguished below:

CHIEF EXECUTIVE OFFICER CHAIRMAN OF THE BOARD

Supervise, monitor, and control operational Maintain qualitative and timely lines of activities and performance communication and information between the Board and Management Oversee operational alignment and operating structures Preside Board meetings and ensure its focus on the Company’s overall risk appetite, key Determine the Company’s strategic direction governance concerns, and contentious issues and implement its short and long-term that will signiﬁcantly affect operations strategic plans Focus on long-term goals and important Oversee operations and all day-to-day strategic moves management decisions of the Company Evaluate performance of high-level executives Manage the Company’s resources prudently

Serve as the link between internal and external stakeholders and provide stockholders with a balanced and comprehensible assessment of the Company’s performance, position, and prospects 42 SHAKEY’S 2017 ANNUAL REPORT

REST OF ORGANIZATION

e rest of the organization completes the Company and supports its strategies in order to achieve its ever-growing targets. With competent professionals who embody the core values, PIZZA is able to fulll its purpose of being the leading and preferred Family Casual Dining Restaurant, serving pizza as its core product. As such, attracting, developing, and retaining talent across the organization is of key importance.

PIZZA sets high standards for itself with its WOW philosophy and performance goal of being better than before, better than others, and better than expected. It is an organization with a culture anchored on guest centricity, unquestioned integrity, passion for excellence, accountability, and entrepreneurial spirit. As such, PIZZA sees the importance of investing in its people.

PIZZA continuously strives to boost the entrepreneurial spirit of its people through its ink Guest Program. Its rewards philosophy is to “Pay for Performance” and ensure that high performers are recognized and dierentiated from the rest. e Company wants its expansion program to spur the career growth of its people, making sure it retains those who share the same passion for excellence and demonstrate grit in order to sustain PIZZA’s edge in the industry.

e Company’s policies also promote compliance with government regulations on health and safety, while employee welfare policies are designed to help employees achieve work-life balance. It also believes in providing opportunities to people with disabilities and working hand-in-hand with local communities through special recruitment projects. SHAKEY’S 2017 ANNUAL REPORT 43 44 SHAKEY’S 2017 ANNUAL REPORT

NOT IN PHOTO: LISA G. CHENG, Independent Director

FERNAN VICTOR ENRIQUE A. CHRISTOPHER T. LEO PRIETO, JR. LEONARDO P. LUKBAN GOMEZ, JR. PO Advisor to the Board ARTHUR T. PO Lead Independent Director Chairman Director & Treasurer Director SHAKEY’S 2017 ANNUAL REPORT 45

BOARD OF DIRECTORS

VICENTE L. MA. PILAR P. PAULO L. TEODORO RICARDO GREGORIO LORENZO CAMPOS III ALEXANDER T. PO GABRIEL T. PO Director, President & Advisor to the Board Independent Director Vice Chairman Vice Chairman CEO 46 SHAKEY’S 2017 ANNUAL REPORT

BOARD OF DIRECTORS

CHRISTOPHER T. PO Chairman

Christopher T. Po was re-elected as the Company’s Chairman on July 20, 2017. He concurrently serves as the Executive Chairman of Century Pacific Food, Inc. (CNPF) and as a Director of Arthaland Corporation (ALCO), a property developer listed on the PSE. Prior to those roles, he was Managing Director for Guggenheim Partners, a U.S. financial services firm, where he was in charge of the firm’s Hong Kong office. Previously, he was a Management Consultant at McKinsey and Company working with companies in the Asian region. He also worked as the Head of Corporate Planning for JG Summit Holdings, a Philippine-based conglomerate with interests in food, real estate, telecom, airlines, and retail. He graduated summa cum laude from Wharton School and College of Engineering of the University of Pennsylvania with dual degrees in Economics (finance concentration) and applied science (system engineering) in 1991. He holds a Master degree in Business Administration from the Harvard University Graduate School of Business Administration. Mr. Christopher Po is a member of the Board of Trustees of WWF-Philippines as well as the Wharton Penn Alumni Club of the Philippines. He is also the President of the CPG-RSPo Foundation, the socio-civic arm of CNPF.

RICARDO GABRIEL T. PO Vice Chairman

Ricardo Gabriel T. Po was re-elected as the Company’s Vice Chairman on July 20, 2017. He concurrently serves as a Vice Chairman of CNPF and as a Vice Chairman of ALCO. He was the Executive Vice President and Chief Operating Ofﬁcer of CNPF from 1990 to 2006 and became the Vice Chairman of its Board of Directors in 2006. He graduated magna cum laude from Boston University with a Bachelor of Science degree in Business Management in 1990. He also completed the Executive Program (Owner-President Management Program) at Harvard Business School in 2000.

AUDIT COMMITTEE MEMBER BOARD RISK OVERSIGHT COMMITTEE MEMBER RELATED PARTY TRANSACTIONS COMMITTEE MEMBER

TEODORO ALEXANDER T. PO Vice Chairman

Teodoro Alexander T. Po was re-elected as the Company’s Vice Chairman on July 20, 2017. He concurrently serves as the Vice Chairman, President, and CEO of CNPF. Since 1990, Mr. Teodoro Po has held various positions in CNPF. He graduated summa cum laude from Boston University with a Bachelor of Science degree in Manufacturing Engineering in 1990. He also completed the Executive Education Program (Owner-President Management Program) at Harvard Business School. SHAKEY’S 2017 ANNUAL REPORT 47

LEONARDO ARTHUR T. PO Director & Treasurer

Leonardo Arthur T. Po was re-elected as the Company’s Director and Treasurer on July 20, 2017. He concurrently serves as the Director and Treasurer of CNPF and as the Director, Executive Vice President, and Treasurer of ALCO. Mr. Leonardo Po graduated magna cum laude from Boston University with a degree in Business Administration and has extensive and solid business development experience in the consumer marketing, ﬁnance and operations of fast-moving consumer goods (FMCG), food service, quick-serve restaurants, and real estate development.

VICENTE L. GREGORIO Director, President & CEO

Vicente L. Gregorio was re-elected as the Company’s Director, President, and CEO on July 20, 2017. He concurrently serves as a member of the Board of the Philippine Franchise Association, Cavallino, Inc., Don Bosco Technical College, Bosconian International Chamber of Commerce, and Plan Master Insurance and Financial Services, Inc. Mr. Vicente Gregorio has been the Company’s President and CEO since March 2013. He has more than thirty years of experience in the food business, previously serving as Operations Director in various food service companies prior to assuming the position of Executive Vice President and Chief Operations Ofﬁcer of the Company in February 2003. Mr. Vicente Gregorio graduated from Central Colleges of the Philippines with a Bachelor of Science degree in Electrical Engineering and has earned units from the Business Administration Master’s program of the Graduate School of Business at the Ateneo de Manila University.

ENRIQUE A. GOMEZ, JR. Director

Enrique A. Gomez, Jr. was ﬁrst elected as the Company’s Director on July 20, 2017. He concurrently serves as a Director of CNPF and as Chairman of IdeaForma Asia Paciﬁc Group, Inc., a management consultancy company. He was President of San Miguel Food and Beverage International, Inc. from 2004 to 2005. From 2001 to 2004, he was President of San Miguel Purefoods Company and Chairman/Director of all food group subsidiaries. He was President of La Tondena Distillers, Inc. (now Ginebra San Miguel, Inc.) from March 2000 to April 2001 and also served as San Miguel Packaging Products President and Chairman of all packaging group subsidiaries from June 1998 to February 2000. 48 SHAKEY’S 2017 ANNUAL REPORT

FERNAN VICTOR P. LUKBAN Lead Independent Director

Fernan Victor P. Lukban was re-elected as the Company’s Independent Director on July 20, 2017. He now serves as the Lead Independent Director effective May 23, 2018. He concurrently serves as the Lead Independent Director of CNPF and as a Director of PSE-listed company Central Azucarera de Tarlac, Inc. He is a well-recognized consultant in family business, strategy, entrepreneurship, and governance. Mr. Fernan Lukban holds undergraduate degrees in Engineering (Mechanical and Industrial from De La Salle University, Manila) and graduate degrees in economics (MSc in Industrial Economics from the Center for Research & Communication, now University of Asia & the Paciﬁc) and in business (MBA from IESE Barcelona, Spain). He spent much of his early professional years in academia, helping establish the University of Asia & the Paciﬁc where he currently participates as a consultant, mentor, and guest lecturer. He is a founding fellow of the Institute of Corporate Directors. He also served as an Independent Director of ALCO from 2011 to 2016.

AUDIT COMMITTEE CHAIRPERSON BOARD RISK OVERSIGHT COMMITTEE MEMBER CORPORATE GOVERNANCE COMMITTEE MEMBER RELATED PARTY TRANSACTIONS COMMITTEE MEMBER

PAULO L. CAMPOS III Independent Director

Paulo L. Campos III was re-elected as the Company’s Independent Director on July 20, 2017. He concurrently serves as the Co-Founder and Chief Executive Ofﬁcer of ZALORA Philippines, having founded the company in late 2011. Prior to ZALORA, he was a management consultant with the Boston Consulting Group in Singapore where he worked with companies across the region on issues related to business development, organizational development, investor communications, and strategy. Mr. Paulo Campos holds a Master in Business Administration from Harvard Business School and graduated magna cum laude from Princeton University with a degree from its Woodrow Wilson School of Public and International Affairs. After university, he was employed with Ayala Land, Inc. as a Special Assistant to the President until 2008.

AUDIT COMMITTEE MEMBER CORPORATE GOVERNANCE COMMITTEE CHAIRPERSON RELATED PARTY TRANSACTIONS COMMITTEE CHAIRPERSON

LISA G. CHENG Independent Director

Lisa Gokongwei-Cheng was ﬁrst elected as the Company’s Independent Director on July 20, 2017. She concurrently serves as the Founder and President of Summit Media, a leading digital media and outside-of-home company. She is also Head of JG Summit’s Digital Transformation Ofﬁce. She holds a Masters in Journalism from Columbia University.

BOARD RISK OVERSIGHT COMMITTEE CHAIRPERSON CORPORATE GOVERNANCE COMMITTEE MEMBER

Ms. Lisa Gokongwei-Cheng has expressed her intent to step down as Independent Director due to other responsibilities. In this light, Ms. Frances J. Yu has been nominated to assume a seat on PIZZA’s Board of Directors as an Independent Director. SHAKEY’S 2017 ANNUAL REPORT 49

ADVISORS TO THE BOARD

MA. PILAR P. LORENZO

Ma. Pilar Prieto-Lorenzo is a graduate of Marymount College, New York with a Bachelor of Science degree in Business Administration major in Finance. She served as Vice Chairman of International Family Food Services, Inc. (IFFSI) - now Shakey’s Pizza Asia Ventures, Inc. (PIZZA) - until the sale to Century Paciﬁc Group. She currently serves as Chairman of Panda Development Corporation (Dunkin' Donuts franchisee) and is a Director of Cavallino, Inc. (Racks) and Tencav Corporation (Tenya). She is also a member of the Board of Trustees of The Beacon School.

LEO PRIETO, JR.

Leo Prieto, Jr. graduated from Georgetown University College of Arts and Sciences with a Bachelor of Arts degree in Economics and International Finance in 1971. He was the Chairman of IFFSI until the sale to Century Paciﬁc Group. He is currently the Chairman of Cavallino, Inc. and Tencav Corporation and is a member of the Board of LLP Enterprises, Inc. 50 SHAKEY’S 2017 ANNUAL REPORT SENIOR MANAGEMENT TEAM

MANUEL T. DEL JORGE MARIA Q. CARLOS S. GILBERT L. BARRIO CONCEPCION ROBLES III TOLENTINO Vice President & Chief Financial SPAVI General Manager North Business Unit South Business Unit Officer, Chief Risk Officer, General Manager General Manager Chief Information Officer & Jorge Maria Q. Concepcion was Compliance Officer re-appointed as the Company’s Carlos S. Robles III has been the Gilbert L. Tolentino has been the General Manager on July 20, Company’s North Business Unit Company’s South Business Unit Manuel T. Del Barrio was 2017. He has been General General Manager since 2014. General Manager since 2015. re-appointed as the Company’s Manager of the Company since He previously served as Director He previously served as head of Vice President and Chief Financial his repatriation from the U.S. in of Operations of the Company. various Company departments Officer on July 20, 2017. He 2014. He previously served as the He was an Operations Manager such as Organization concurrently serves as the Chief Executive Vice President and at McDonald's Philippines, Development, Technical Services, Risk Officer, Chief Information General Manager at Gallo Giro holding various positions such as Franchise Operations, and Officer, and Compliance Officer (a Mexican restaurant chain in training consultant, franchise Business Development. Before his of the Company. He was California), Red Ribbon business consultant, and assignment as South Business Unit previously the Assistant Vice Bakeshop, Inc. (U.S. and the Equipment Department Head prior General Manager, he was the President for Finance of CNPF Philippines), and Goldilocks to this. He has a Bachelor of Arts Operations and Business and The Pacific Meat Company, Corporation of California. Before degree in Economics from the Development Director of Project Inc. Prior to this, he worked as an entering the food service retail University of the Philippines, Pie. He has been in the food Industrial Accounting Manager at industry, Mr. Jorge Concepcion Diliman. business for thirty years and was Temic Telefunken Semiconductors, started in the branded foods the Group Training Manager of Inc. and held accounting positions FMCG business where he worked the Pancake House Group before in Hooven Philippines and for various Unilever Asia affiliates joining the Company. He has a Sanara, Inc. He has a Bachelor of in the Philippines, Malaysia, and Bachelor’s degree in Engineering Science degree in Business Singapore in different capacities from the University of the East. Administration from the University in marketing, sales, corporate of the East and holds a Master in planning, and general Business Administration (Regis management. He first repatriated Program) from the School of to the Philippines in 1996 with the Business of the Ateneo de Manila Conagra joint-venture company University. He is a Certified Public Hunt’s-URC. He then subsequently Accountant and a Certified and concurrently headed URC’s Management Accountant. Dairy Product Division and Food Service Division before eventually migrating to the U.S. in 2006. He has a Bachelor of Arts (Honors) degree in Mathematics from De La Salle University and has a Master of Science in Industrial Engineering and Operations Research from the University of the Philippines. SHAKEY’S 2017 ANNUAL REPORT 51

JOSE ARNOLD T. ALOIS MARVIN Q. JENNIFER V. ALVERO BRIELBECK DA SILVA LAPA Franchise, Business In-House Commissary Vice President - Chief Human Resource Officer Development, and Corporate General Manager International Operations Planning Director Jennifer V. Lapa was re-appointed Alois Brielbeck was re-appointed Marvin Q. Da Silva recently as the Company’s Chief Human Jose Arnold T. Alvero has been the as the Company’s In-House joined as the Company’s Vice Resource Officer on July 20, Company’s Franchise, Business Commissary General Manager on President for International 2017. She has been Chief Development, and Corporate July 20, 2017. He has been Operations in 2018. He Human Resource Officer since Planning Director since 2017. He General Manager of the In-House previously served as General August 2013. She previously previously served as Corporate Manager of Potato Corner’s Commissary since October 2005. served as the Vice President for Franchising and New Channel International Division from 2015 Human Resources for The He moved to the Philippines in Development Director of One to 2017. Prior to this, he was Expressions Company and was Food Group (KFC, Tokyo Tokyo, February 2000 as the Chief Associate Director for Business President of Enthos, Inc. from Mister Donut). Prior to that, he Operating Officer for Culinary Development and Operations of 2002 to 2008. She was based in was RBU General Manager of Systems Specialists Inc., a FPD Asia Property Services, Inc. Hong Kong as the Vice President Mister Donut and RBU Head and company involved in the from 2009 to 2014. He was also for Human Resources of the AVP of Red Ribbon Bakeshop, production of bakery products to a former franchisee of Mister greater China business of the San Philippines. He also held various both local and export markets. He Donut and Greenwich Pizza. He Miguel Brewing Group franchising and operations has held key positions in pastry has been in the real estate and International, Ltd. from 1995 to managerial positions at Red kitchens in Hong Kong and Tokyo, food business industries for thirty 1998. She was Assistant Vice Ribbon Bakeshop, Inc. and years. His first job was at Japan before moving to the President of Organization and McDonald’s Philippines. He Shakey’s Loyola as a Service Management Development from Philippines. Mr. Alois Brielbeck is served as Duty Manager at The Crew member, and he became 1991 to 1995 and Manager of Palace Hotel, Beijing and as a fully-qualified Baker with a Restaurant Supervisor from 1987 Compensation Systems and Guest Services Manager at the Baker Master Diploma from the to 1990. He has a Bachelor of Programs of the San Miguel Beer Mandarin Oriental, Manila. He Master School of Lochham in Science degree in Psychology Group from 1988 to 1991. She is graduated cum laude from the Munich, Germany. from the University of Santo a graduate of St. Theresa's University of the Philippines with a Tomas, and he completed his College, Quezon City, obtaining Bachelor of Science degree in Master in Business Administration a Bachelor of Arts degree in Hotel and Restaurant degree from the Ateneo de Foreign Service in 1974. She Administration and is currently Manila University Graduate attended a month-long Executive working on his Certified Franchise School of Business in 2001. Program in National University - Executive certification from the Stanford, Singapore in 1991. She International Franchise obtained her Cognate in Association. He is a Trustee of the Organization Development, major San Beda University Alumni in Enterprise Leadership and her Association and an Administrator Ph.D. in Organization of the Don Luis Go Sy Charitable Development from the Southeast Foundation, Inc. Asia Interdisciplinary Institute - School of Organization Development, Antipolo. She was President of the Organization Development Professionals Network, Philippines from 2011 to 2012 and from 2014 to 2016. 52 SHAKEY’S 2017 ANNUAL REPORT CODE OF BUSINESS CONDUCT AND ETHICS

e Company’s policies on Receipt of Gifts Use of the following business conduct and ethics aecting from Third Company the directors, senior Parties Funds, Assets, management, and employees are discussed All employees are prohibited from and below: accepting gis based on the no gi policy of the Company. Information All employees are required to act as Conﬂict of responsible custodians of all Compliance company funds, assets, and Interest information. As such, all are required with Laws and to protect and preserve company assets. All employees, irrespective of rank, Regulations should always act for the best interest of the Company. All conict of All employees, in the conduct of interest shall be avoided and business, are obliged to comply with Employment prohibited. In the event that such will all relevant laws and regulations. occur, disclosure must be done to the and Labor immediate supervisor or human resources head. Laws and Respect for Policies Trade Secrets Conduct of e Company complies with all and Use of existing employment and labor laws Business and Non-Public and policies. Fair Dealings Information Business is dictated by free Disciplinary competition - no monopoly and no All employees are required to sign price manipulation. Price is dictated and adhere to a condentiality Action by supply and demand. Employees agreement. All employees are are required to comply with fair trade prohibited from disclosing or using Disciplinary actions are meted only practices. to their own advantage any aer due process. e Company has non-public information. a Code of Conduct that serves as a guide for the employees’ behavior. SHAKEY’S 2017 ANNUAL REPORT 53

Whistle Blower Reporting of

e Company has a whistle blower Personal policy that provides an avenue for employees to report misconduct of Transactions fellow employees, including their superiors, while protecting the All controlling shareholders, employee’s identity and welfare. directors, and executive ocers must report any of their dealings in the Company’s shares as well as changes in their benecial shareholdings in Conﬂict the Company to the Compliance Ocer. Resolution Said persons are required to report these transactions within three e Company provides a work business days from the transaction environment that is conducive to date, aer which the Compliance friendly resolution of disagreement. Ocer will promptly disclose Superiors should promote amicable according to relevant rules and settlement of conicts. regulations the buy or sell details to the Philippine Stock Exchange and Securities and Exchange Insider Trading Commission.

e Company’s insider trading policy states that all managers and up are strictly prohibited from buying or selling PIZZA shares for ve trading days prior to the release of and up to three trading days aer the disclosure of reports containing material information.

Notices of said trading blackouts are issued to covered persons by e-mail. 54 SHAKEY’S 2017 ANNUAL REPORT RISK MANAGEMENT

other food service providers or stores, both company-owned and Our ability to open new stores and RISKS IN others across the food industry franchised, maintaining our maintain our existing store SAME-STORE SALES supply chain. Finally, there has existing network of stores network also depends on using been a marked increase in the (including successfully relocating our brand strength and proven GROWTH use of social media platforms these stores when necessary), track record to negotiate new and similar devices, making the and operating those stores on a leases or renew existing leases at We operate in highly availability of information protable basis. We may not be acceptable or favorable terms. competitive markets. virtually immediate as is its able to open stores as quickly as impact. planned. In the past, we have We also ensure that we have e Philippine food service experienced delays in opening identied, hired, and trained industry in general is highly Our growth is dependent, in part, some stores due to construction qualied employees for each site competitive with relatively low upon our ability to maintain and delays and delays in obtaining from the development of the store barriers to entry. As such, many enhance the value of our brand, local permits which could to construction and to the well-established food service consumers’ connection to our happen again in future store eventual opening and operational businesses compete directly and brand, and positive relationships openings. Delays or failure in execution. indirectly with us. We generally with our franchisees. We believe opening stores could materially compete with national, regional, we have built our reputation on and adversely aect our growth In particularly competitive and locally-owned full-service the high quality of our food, strategy and our business, markets, managing construction and casual dining stores that service, and sta as well as on our nancial condition, and results of and development costs of stores is oer dine-in, carry-out, delivery, culture and the ambience in our operations. key. ere are instances where and catering services. ese stores thanks to tried and tested unavoidable delays and overruns segments are highly competitive operational systems that cover all In addition, one of our biggest will occur due to delays by with respect to, among other aspects of food safety and quality challenges is locating and landlords in delivering leased things, location, managing and as well as guest service and securing an adequate supply of premises to us, unforeseen meeting human resources hospitality. suitable store sites in our target engineering or environmental requirements, taste, price, raw markets. Competition for those problems, trouble securing materials, food quality and We must protect, invest, and grow sites is intense among other store required government approvals presentation, service, brand the value of our brand to continue and retail operators, and there is and licenses, inclement weather, awareness and loyalty, and the building barriers to entry in this no guarantee that a sucient natural disasters, and other ambience and condition of each highly competitive industry. Our number of suitable sites will be calamities. In these cases, we store. ability to successfully compete in available in desirable areas or on manage the overall system growth our markets depends as well on terms that are acceptable to us in rate by ensuring we have a Damage to our reputation our ability to maintain low-cost order to achieve our growth plan. number of backup sites and and the Shakey’s brand, operations, allowing us to provide sucient funds from operations to value-for-money options to our nance any incremental costs. and negative publicity to Opening new stores in guests and further enhance their existing markets may our stores, could loyalty via promotions, meal Our primary business strategy negatively impact our bundles, and loyalty programs, negatively aect sales at does not entail opening new stores business. among others. our existing stores. that we believe may materially a ect the sales at our existing e opening of a new store in or Any incident that erodes RISKS IN stores, a large portion of our stores near markets in which we consumer anity for our brand is still concentrated in the greater INCREASING already have stores could could signicantly reduce its Metro Manila area. ere are still adversely aect sales at these value and damage our business. STORE NETWORK many opportunities to expand existing stores. Existing stores We may be adversely aected by beyond the usual rst-tier cities. could also make it more dicult news reports or other negative Our growth is highly Moreover, we may selectively open to build our guest base for a new publicity regardless of their new stores in or around areas of dependent on our ability store in the same market. Sales accuracy regarding food quality existing stores operating at or near to open new stores, cannibalization between stores, issues, public health concerns, capacity to e ectively serve our maintain our existing which could aect our sales illness, safety, injury, customer guests and create a better dining growth as we continue to expand complaints or litigation, health store network, and select and delivery experience. is, in our operations, could adversely inspection scores, integrity of strategically located sites the long run, is benecial to the aect our business, nancial ours or our suppliers’ food brand and to the continued for our store branches. condition, and results of processing, employee increase in sales. operations. relationships or government or One of the key means of industry ndings concerning our achieving our growth strategy stores, or stores operated by will be through opening new SHAKEY’S 2017 ANNUAL REPORT 55

distribution channels, may result the future. Accordingly, we are e strength of our brand and the RISKS IN in signicant cost increases and reliant on the performance of our industry-leading economics of our MAINTAINING reduce store sales. franchise owners in successfully stores a ord us a wide array of opening and operating their interested franchisees. Moreover, PROFITABILITY Our protability and operating stores and paying royalties to us many of our franchise owners margins are dependent, in part, on a timely basis. operate more than one store; so Changes in food and on our ability to anticipate and our growth strategy includes supply costs and react to changes in food and If we fail to identify, tapping the signicant number of availability could beverage costs, particularly the recruit, and contract with existing franchise owners who are adversely aect our costs of key ingredients such as interested in increasing their own cheese, chicken, and potatoes. We a sucient number of network. results of operations. religiously monitor prices as well qualied franchise as the supply and demand owners, our ability to In selecting our franchisees, we Our food distributors and situation of the raw material to open new franchised ensure that they have the business suppliers may be aected by ensure we are adequately covered acumen and nancial resources higher costs to produce and at reasonable prices. We also stores and increase our necessary to operate successful transport commodities used in maintain a network of alternative revenues could be franchises in their franchise areas our stores, higher minimum distributors or suppliers who can materially adversely in a manner consistent with our wage and benet costs, and other provide contingent supply on a aected. standards and requirements and expenses that they pass through timely basis. Moreover, we work that they will hire and train to their customers which could closely with key third-party e opening of additional qualied managers and other result in higher costs for goods service providers to monitor their franchised stores depends, in store personnel. Our franchise and services supplied to us. We adherence to and performance of part, upon the availability of agreement also adequately covers may not be able to anticipate and contractual obligations. prospective franchise owners situations wherein franchisees do react to changing food costs who meet our criteria. We may not meet our standards and through our purchasing practices In addition, we may choose to not be able to identify, recruit, or requirements and any other and menu price adjustments in pass along commodity price contract with suitable franchise disputes when they may arise. the future. As a result, any increases to our guests as long as owners in our target markets on increase in the prices charged by we continue to provide them value a timely basis or at all. In suppliers would increase the food for their money and a high-level addition, our franchise owners costs for our company-owned dining experience relative to peers may not have access to the stores and for our franchise at the same price point. nancial or management owners and could adversely resources that they need to open impact protability. RISKS IN the stores contemplated by their FRANCHISING agreements with us; or they may We rely on key suppliers elect to cease store development for certain raw materials for other reasons. If we are and the failure of those Our results of operations unable to recruit suitable suppliers to adhere to and and growth strategy franchise owners or if franchise owners are unable or unwilling perform contractual depend, in part, on the success of our franchisees, to open new stores as planned, obligations may adversely our growth may be slower than and we are subject to aect our business. anticipated which could various additional risks materially adversely aect our We rely on key suppliers for associated with our ability to increase our revenues, certain raw materials. Any franchise owners. our business, nancial condition, material interruptions in our and results of operations. supply chain, including failure or Franchisees are independent delays in delivery, such as a contractors and are not our We provide training and support material interruption of employees, and we do not to franchisees and oversee the ingredient supply due to the exercise control over their quality of franchised store failure of third-party distributors day-to-day operations. A portion operations via a network of area or suppliers or interruptions in of our revenues comes from business managers whose service by common carriers that royalties and sales of raw performance metrics are also tied ship goods within our materials and supplies and to the performance of franchisees equipment to our franchisees within their scope. which we expect to continue in 56 SHAKEY’S 2017 ANNUAL REPORT

e Investor Relations (IR) team is the nancial market’s main point of INVESTOR contact. We provide the appropriate information to investors and analysts in a manner that is timely and easy to understand. Said communication program is meant to be clear and consistent, focusing on the key metrics that drive business performance. We also facilitate all required disclosures RELATIONS to the regulatory authorities, primarily the Philippine Stock Exchange and the Securities and Exchange Commission.

As a trusted source of information, we pride ourselves in freeing up PROGRAM C-suite time, allowing them greater exibility to focus on operating and building the business.

e primary subject of IR communication is our companies’ ability to create shareholder value.

We focus primarily on conveying managements’ long-term vision and the WHY WE ENGAGE many interim key milestones necessary to achieve these goals.

rough this exercise, we hope to build the trust and condence of to build a full and fair valuation of the long-term shareholders whose objectives most closely align with that of securities’ price of publicly listed our companies.

companies under the group in order Analysts and investors are also a valuable source of feedback on both the to reduce cost of capital and create IR program and the broader corporate strategy. value for shareholders. We actively engage third parties to comment on the quality of our work and for their views and expectations of our companies. to ensure the companies’ continued access to capital markets in order to Building these productive relationships with nancial market participants provide the necessary support for provides valuable insights that may help support the companies’ fundamentals. We use this information ow as an opportunity to obtain long-term growth. new ideas and identify global practices, analyzing them then sharing these with the management team when appropriate.

ONE-ON-ONE MEETINGS HOW WE ENGAGE WITH INVESTORS

facilitating eective two-way communication between our companies and the nancial community. ONSHORE AND OFFSHORE INVESTOR CONFERENCES building condence in our companies’ strategic plans and

INVESTOR gaining trust in management teams’ CALL 3% ability to execute them. CONFERENCE 72% LONDON COMPANY 9% MANILA VISIT 25% HONG 29% KONG 9%

CONTACT INFORMATION KUALA LUMPUR 12% Giovanna M. Vera Head of Investor Relations [email protected] SINGAPORE 41% SHAKEY’S 2017 ANNUAL REPORT 57

COMMISSARY VISITS PRESS RELEASES NON-DEAL ROADSHOW

USE OF USE OF A GLOSSY CORPORATE WEBSITE ANNUAL REPORT

The official corporate website, PIZZA produces a glossy annual report containing a comprehensive overview and performance of the www.shakeyspizza.ph Company for the year. Highlights include company milestones, business infographics, feature articles, is easily accessible across different platforms financial statements, and other useful information and devices. It contains all pertinent and to shareholders, potential investors, customers, and updated company information such as press the general public. releases, disclosures, financial calendar, and more.

WELCOMING ANNUAL SEMESTRAL CONFERENCE CALLS GENERAL MEETING ON FINANCIAL RESULTS

DATE PERIOD (2017) PRESENTERS

AUGUST 15, FIRST HALF CEO, CFO, GM 2017 EARNINGS CALL IR HEAD

Date: July 20, 2017 Venue: Marco Polo Ortigas, Manila

ACHIEVEMENT AWARDS

2 018

NOMINATED BEST IPO LOCAL AWARDED PHILIPPINES’ SMALL INVESTOR PROGRAM BEST SMALL CAP COMPANY BY THE PSE BELL AWARDS FOR EXCELLENCE BY FINANCE ASIA IN 2018 IN CORPORATE GOVERNANCE IN 2017 58 SHAKEY’S 2017 ANNUAL REPORT

STOCK HIGHLIGHTS

STOCK EXCHANGE

Shakey’s Pizza Asia Ventures, Inc. is listed on the Philippine Stock Exchange (PSE) with “PIZZA” as its ticker symbol. The stock has a minimum board lot of 100 shares and has no foreign ownership restriction. It had its Initial Public Offering (IPO) on December 15, 2016.

STOCK PERFORMANCE (in PHP)

20.6B

17.2B 17.6B

13.46 11.50 17.0% 11.26 Growth Year-on-Year 19.5% Increase since IPO

STOCK PRICE MARKET CAPITALIZATION

IPO END 2016 END 2017

DIVIDEND HISTORY

On May 8, 2017, PIZZA declared regular cash dividends amounting to PHP0.10 per share. The total payout represented 23% of the previous year’s net income.

Prior to this, as a private company, PIZZA paid out quarterly cash dividends to its shareholders. On December 31, 2015, and June 30, 2016, PIZZA’s Board of Directors approved the quarterly and special cash dividend declaration of PHP150.4 million and PHP986.9 million respectively. SHAKEY’S 2017 ANNUAL REPORT 59

SHAREHOLDERS

Others 20% Century Paciﬁc Group, Inc. (CPGI) 53% Owner 5 1% Wholly owned by the Philippines’ Po family and majority shareholder of CNPF PM and ALCO PM Owner 4 2%

Owner 3 6%

PUBLIC FLOAT Owner 2 29% 18%

ANNUAL STOCKHOLDERS’ SHARE CAPITAL JUNE MEETING As of end 2017, PIZZA’s authorized capital 20 was PHP2 billion composed of 2 billion PIZZA’s Annual Stockholders’ Meeting is to common shares with a PHP1.00 par value. be held every June 20th beginning 2019. There were 1,531,321,053 listed, issued, and outstanding shares as of the same period. The meetings in 2017 and 2018 were held on July 20 and August 16 respectively. The Company ended the year with a market capitalization of PHP20,611,581,373.38 based on the PHP13.46 closing price as of December 31, 2017.

INFORMATION DISCLOSURES

PIZZA strictly abides by the requirements set forth by the Philippine Securities and Exchange Commission 45,000 and the PSE with regards to the disclosure and ﬁling of information. All required information is promptly disclosed to the investing public through the Company’s corporate website and its ofﬁcial page on the PSE online portal as follows:

www.shakeyspizza.ph

http://edge.pse.com.ph/companyInformation/form.do?cmpy_id=664 60 SHAKEY’S 2017 ANNUAL REPORT

MANAGEMENT’S DISCUSSION AND ANALYSIS

Consolidated Statements of Consolidated Statements of Financial Position Comprehensive Income

PIZZA’s consolidated total assets stood at PHP9.11 System-wide sales, which comprises sales from both Consolidated operating income reached PHP1.16 billion billion as of December 31, 2017, a decrease compared to company-owned and franchised stores, increased by 14% in 2017, rising by 34% from the pro forma amount of the total assets as of end 2016. is is primarily from PHP7.34 billion to PHP8.34 billion for the full-year PHP865 million in 2016. e growth is attributed to attributable to the signicant reduction in the Company’s 2017. is was driven by healthy same-store sales growth operational eciencies brought about by synergies available-for-sale investments. Net property, plant, and of 5% and successful store network expansion of 24 net between the Company and its majority shareholder equipment registered at PHP1.54 billion with capital new stores in 2017. Same-store sales refer to sales CPGI such as economies of scale in purchasing common expenditures for the year reaching PHP768 million. is generated from stores that have operated for at least 15 materials, media buying, and logistics costs. was mainly invested in the building of new stores, an months and exclude sales from new stores. upsized commissary, and the new corporate oce. Interest expense of PHP177 million was recorded for the Consolidated net revenues, composed of sales from twelve months ending December 31, 2017. is amount Total equity increased to PHP3.97 billion from PHP3.36 company-owned stores, franchise and royalty fees from pertains to interest on the PHP3.9 billion remaining of billion at the end of 2016 driven primarily by the franchisees, and revenues from wholly-owned the acquisition loan used to acquire the wholly-owned Company’s generated net income during the year. Book subsidiaries, reached PHP7.00 billion. is translates to a subsidiaries. value per share (BVPS) increased by 18% to PHP2.60 16% increase in pro forma revenues of PHP6.01 billion compared to PHP2.19 as of end 2016. for the twelve months ending December 31, 2016, and All in all, consolidated net income reached PHP762 18% from reported revenues of PHP5.95 billion during million, yielding a net income margin of 11%. is is a Meanwhile, total liabilities declined to PHP5.13 billion the same period. Likewise, this brings the Company’s decrease of 3% versus the 2016 pro forma net income of from PHP6.03 billion following the PHP1.0 billion two-year compounded annual revenue growth rate to PHP785 million. Considering the recurring nancials prepayment of the Company’s acquisition loan. e loan 16% since 2015. only, consolidated net income for 2017 would present a originally amounted to PHP5.0 billion prior to the 14% growth from the PHP669 million recurring prots Company’s initial public oering (IPO) in 2016. is was For the year ending 2017, consolidated cost of sales grew in 2016. e Company has sustained a two-year lodged into the Company as part of the acquisition by 19% to PHP4.94 billion from the pro forma amount of compounded annual net income growth rate of 26% strategy of Century Pacic Group, Inc. (CPGI) and the PHP4.16 billion in 2016. is increase was faster than since 2015. sovereign wealth fund of Singapore to acquire the the 16% growth in consolidated net revenues. Cost of in-house commissary and trademark companies holding sales is mainly composed of raw material and packaging Pro forma nancials have been adjusted to assume the the rights and trademarks of the Shakey’s brand. costs, direct labor costs, and store-related costs including acquisition of subsidiaries Bakemasters, Inc. (BMI), rent, utilities, etc. e accelerated increase in cost of Shakey’s International Ltd. (SIL), and Golden Gourmet e Company’s return on equity for the full-year 2017 goods was due to elevated commodity prices and raw Ltd. (GGL) had taken place on January 1, 2016. remained robust at 20.8%. Net debt-to-equity ratio stood material costs relative to the previous year. Recurring nancials have been adjusted to exclude the at 1.23x as of end 2017. is is lower versus the 1.70x as impact of one-o income and expenses relating to the of the year before, mainly due to the lower acquisition As a result, consolidated gross prot amounted to Company’s corporate restructuring and subsequent IPO leverage brought about by the partial loan prepayment PHP2.07 billion for the full-year 2017, surging by 12% in 2016. made in the early part of January 2017. Considering only from the pro forma amount of PHP1.85 billion in 2016. interest-bearing liabilities, net gearing ratio is at 0.93x as is yielded a gross prot margin of 30% as the of end 2017. Company realized purchasing synergies with its majority shareholder CPGI, executed inventory-buying strategies, and implemented price increases to oset the impact of higher raw material prices. SHAKEY’S 2017 ANNUAL REPORT 61

Consolidated Statements of Cash Flows

System-wide sales, which comprises sales from both Consolidated operating income reached PHP1.16 billion Consolidated net cash provided by operating activities company-owned and franchised stores, increased by 14% in 2017, rising by 34% from the pro forma amount of amounted to PHP972 million, higher than the previous from PHP7.34 billion to PHP8.34 billion for the full-year PHP865 million in 2016. e growth is attributed to year’s PHP934 million. e increase is primarily attribut- 2017. is was driven by healthy same-store sales growth operational eciencies brought about by synergies able to the improvement in consolidated net income of 5% and successful store network expansion of 24 net between the Company and its majority shareholder compared to 2016. Net cash generated by investing new stores in 2017. Same-store sales refer to sales CPGI such as economies of scale in purchasing common activities was PHP322 million, while net cash used by generated from stores that have operated for at least 15 materials, media buying, and logistics costs. nancial activities was PHP1.38 billion due to the loan months and exclude sales from new stores. prepayment. is brought total net cash used for the year Interest expense of PHP177 million was recorded for the to PHP84 million, leading to cash and cash equivalents Consolidated net revenues, composed of sales from twelve months ending December 31, 2017. is amount balance of PHP245 million at year-end 2017. company-owned stores, franchise and royalty fees from pertains to interest on the PHP3.9 billion remaining of franchisees, and revenues from wholly-owned the acquisition loan used to acquire the wholly-owned e Company maintained a negative cash conversion subsidiaries, reached PHP7.00 billion. is translates to a subsidiaries. cycle of 18 days, a contraction compared to the previous 16% increase in pro forma revenues of PHP6.01 billion year’s 28 days but nonetheless within the reasonable for the twelve months ending December 31, 2016, and All in all, consolidated net income reached PHP762 range. is decline was mainly due to the increase in 18% from reported revenues of PHP5.95 billion during million, yielding a net income margin of 11%. is is a inventory days to 27. Meanwhile, receivable and payable the same period. Likewise, this brings the Company’s decrease of 3% versus the 2016 pro forma net income of days stood at 30 days and 75 days respectively. two-year compounded annual revenue growth rate to PHP785 million. Considering the recurring nancials 16% since 2015. only, consolidated net income for 2017 would present a 14% growth from the PHP669 million recurring prots For the year ending 2017, consolidated cost of sales grew in 2016. e Company has sustained a two-year by 19% to PHP4.94 billion from the pro forma amount of compounded annual net income growth rate of 26% PHP4.16 billion in 2016. is increase was faster than since 2015. the 16% growth in consolidated net revenues. Cost of sales is mainly composed of raw material and packaging Pro forma nancials have been adjusted to assume the costs, direct labor costs, and store-related costs including acquisition of subsidiaries Bakemasters, Inc. (BMI), rent, utilities, etc. e accelerated increase in cost of Shakey’s International Ltd. (SIL), and Golden Gourmet goods was due to elevated commodity prices and raw Ltd. (GGL) had taken place on January 1, 2016. material costs relative to the previous year. Recurring nancials have been adjusted to exclude the impact of one-o income and expenses relating to the As a result, consolidated gross prot amounted to Company’s corporate restructuring and subsequent IPO PHP2.07 billion for the full-year 2017, surging by 12% in 2016. from the pro forma amount of PHP1.85 billion in 2016. is yielded a gross prot margin of 30% as the Company realized purchasing synergies with its majority shareholder CPGI, executed inventory-buying strategies, and implemented price increases to oset the impact of higher raw material prices. 62 SHAKEY’S 2017 ANNUAL REPORT

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR

FINANCIAL STATEMENTS e Stockholders and the Board of Directors Shakey’s Pizza Asia Ventures Inc. e Management of Shakey’s Pizza Asia Ventures, Inc. (the “Company”) is responsible for the preparation and fair 15Km East Service Road corner Marian Road 2 presentation of the consolidated nancial statements, including the schedules attached therein, as at December 31, Barangay San Martin de Porres, Parañaque City 1700 2017, and 2016, in accordance with the Philippine Financial Reporting Standards, and for such internal control as Management determines is necessary to enable the preparation of consolidated nancial statements that are free from material misstatement whether due to fraud or error. Opinion

In preparing the consolidated nancial statements, Management is responsible for assessing the Company’s ability We have audited the consolidated nancial statements of Shakey’s Pizza Asia Ventures Inc. and its subsidiaries (the to continue as a going concern, disclosing, as applicable matters related to going concern and using the going Group), which comprise the consolidated statements of nancial position as at December 31, 2017 and 2016, and the concern basis of accounting unless Management either intends to liquidate the Company or to cease operations, or consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated has no realistic alternative but to do so. statements of cash ows for each of the three years in the period ended December 31, 2017, and notes to the consolidated nancial statements, including a summary of signicant accounting policies. e Board of Directors is responsible for overseeing the Company’s nancial reporting process. e Board reviews and approves the consolidated nancial statements, including the schedules attached therein, and submits the same In our opinion, the accompanying consolidated nancial statements present fairly, in all material respects, the to the stockholders or members. consolidated nancial position of the Group as at December 31, 2017 and 2016, and its consolidated nancial performance and its consolidated cash ows for each of the three years in the period ended December 31, 2017 in SyCip Gorres Velayo & Co., the independent auditor appointed by the stockholders, has audited the consolidated accordance with Philippine Financial Reporting Standards (PFRSs). nancial statements of the Company in accordance with the Philippine Standards of Auditing and, in its report to the stockholders or members, has expressed its opinion on the fairness of presentation upon completion of such Basis for Opinion audit. 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 Group 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 nancial statements in the Philippines, and we have fullled our other ethical Christopher T. Po responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we Chairman of the Board have obtained is sucient 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 signicance in our audit of the Vicente L. Gregorio consolidated nancial statements of the current period. ese matters were addressed in the context of our audit of the President & Chief Executive Ocer consolidated nancial 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.

We have fullled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Consolidated Manuel T. Del Barrio Financial Statements section of our report, including in relation to these matters. Accordingly, our audit included the Vice President & Chief Financial Ocer performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated nancial statements. e results of our audit procedures, including the procedures performed to address Signed this 10th day of April 2018. the matters below, provide the basis for our audit opinion on the accompanying consolidated nancial statements.

Our opinion on the consolidated nancial 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 nancial statements, our responsibility is to read the other information identied above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the consolidated nancial statements or our knowledge obtained in the audits, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and signicant audit ndings, including any signicant deciencies 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 signicance in the audit of the consolidated nancial 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 benets of such communication.

e engagement partner on the audit resulting in this independent auditor’s report is Maria Pilar B. Hernandez.

SYCIP GORRES VELAYO & CO.

Maria Pilar B. Hernandez Partner CPA Certicate No. 105007 SEC Accreditation No. 1558-A (Group A), April 14, 2016, valid until April 14, 2019 Tax Identication No. 214-318-972 BIR Accreditation No. 08-001998-116-2016, February 15, 2016, valid until February 14, 2019 PTR No. 6621269, January 9, 2018, Makati City

April 10, 2018 SHAKEY’S 2017 ANNUAL REPORT 63

INDEPENDENT AUDITOR’S REPORT

e Stockholders and the Board of Directors Shakey’s Pizza Asia Ventures Inc. 15Km East Service Road corner Marian Road 2 Barangay San Martin de Porres, Parañaque City 1700

Opinion

We have audited the consolidated nancial statements of Shakey’s Pizza Asia Ventures Inc. and its subsidiaries (the Group), which comprise the consolidated statements of nancial position as at December 31, 2017 and 2016, and the consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash ows for each of the three years in the period ended December 31, 2017, and notes to the consolidated nancial statements, including a summary of signicant accounting policies.

In our opinion, the accompanying consolidated nancial statements present fairly, in all material respects, the consolidated nancial position of the Group as at December 31, 2017 and 2016, and its consolidated nancial performance and its consolidated cash ows for each of the three years in the period ended December 31, 2017 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 Group 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 nancial statements in the Philippines, and we have fullled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sucient 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 signicance in our audit of the consolidated nancial statements of the current period. ese matters were addressed in the context of our audit of the consolidated nancial 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.

We have fullled 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 nancial statements. e 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 nancial statements.

Our opinion on the consolidated nancial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

e engagement partner on the audit resulting in this independent auditor’s report is Maria Pilar B. Hernandez.

SYCIP GORRES VELAYO & CO.

April 10, 2018 e Stockholders and the Board of Directors Shakey’s Pizza Asia Ventures Inc. 15Km East Service Road corner Marian Road 2 Barangay San Martin de Porres, Parañaque City 1700

Opinion

Basis for Opinion

Key Audit Matters

64 SHAKEY’S 2017 ANNUAL REPORT

Our opinion on the consolidated nancial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

e engagement partner on the audit resulting in this independent auditor’s report is Maria Pilar B. Hernandez.

SYCIP GORRES VELAYO & CO.

April 10, 2018 e Stockholders and the Board of Directors Shakey’s Pizza Asia Ventures Inc. 15Km East Service Road corner Marian Road 2 Barangay San Martin de Porres, Parañaque City 1700

Opinion

Basis for Opinion

Key Audit Matters

SHAKEY’S 2017 ANNUAL REPORT 65

Impairment Assessment of Goodwill and Trademarks Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Under PFRS, the Group is required to annually test the amount of goodwill and trademarks for impairment. As at December 31, 2017, the Group’s goodwill, mainly arising from its acquisition of the dough manufacturing business in Management is responsible for the preparation and fair presentation of the consolidated nancial statements in accor- the Philippines, amounting to P1,078.6 million and trademarks amounting to P4,987.1 million, are considered signi- dance with PFRSs, and for such internal control as management determines is necessary to enable the preparation of cant to the consolidated nancial statements since these account for 66.6% of the Group’s total assets. In addition, consolidated nancial statements that are free from material misstatement, whether due to fraud or error. management’s assessment requires signicant judgment and is based on assumptions, specically forecasted long-term revenue growth rate, operating expenses, gross margin and discount rate, which are aected by expected future market In preparing the consolidated nancial statements, management is responsible for assessing the Group’s ability to or economic conditions. e Group’s disclosures about goodwill and trademarks are included in Notes 5 and 6 to the continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern consolidated nancial statements. basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Audit response ose charged with governance are responsible for overseeing the Group’s nancial reporting process. We obtained an understanding of the Group’s impairment assessment process and related controls. We involved our internal specialist in evaluating the methodologies and the assumptions used. ese assumptions include forecasted Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements long-term revenue growth rate, operating expenses, gross margin and discount rate. We compared the key assumptions used, such as forecasted long-term revenue growth rate, operating expenses and gross margin against the histori- Our objectives are to obtain reasonable assurance about whether the consolidated nancial statements as a whole are cal performance of the cash generating units (CGU) and other relevant external data. We tested the parameters used in free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our the determination of the discount rate against market data. We also reviewed the Group’s disclosure about those opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accor- assumptions to which the outcome of the impairment test is most sensitive, specically those that have the most dance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error signicant eect on the determination of the recoverable amount of goodwill and trademarks with indenite life. and are considered material if, individually or in the aggregate, they could reasonably be expected to inuence the economic decisions of users taken on the basis of these consolidated nancial statements. Other Information As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism Management is responsible for the other information. e other information comprises the information included in throughout the audit. We also: the SEC Form 17-A for the year ended December 31, 2017, but does not include the consolidated nancial statements and our auditor’s report thereon, which we obtained prior to date of this auditor’s report, and the SEC Form 20 IS Identify and assess the risks of material misstatement of the consolidated nancial statements, whether due to (Denitive Information Statement) and Annual Report for the year ended December 31, 2017 which are expected to be fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is made available to us aer that date. sucient and appropriate to provide a basis for our opinion. e risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, Our opinion on the consolidated nancial statements does not cover the other information and we will not express any intentional omissions, misrepresentations, or the override of internal control. form of assurance conclusion thereon. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are In connection with our audits of the consolidated nancial statements, our responsibility is to read the other informa- appropriate in the circumstances, but not for the purpose of expressing an opinion on the eectiveness of the tion identied above when it becomes available and, in doing so, consider whether the other information is materially Group’s internal control. inconsistent with the consolidated nancial statements or our knowledge obtained in the audits, or otherwise appears to be materially misstated. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on We have nothing to report in this regard. the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast signicant doubt on the Group’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 nancial 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 Group to cease to continue as a going concern

e engagement partner on the audit resulting in this independent auditor’s report is Maria Pilar B. Hernandez.

SYCIP GORRES VELAYO & CO.

April 10, 2018 e Stockholders and the Board of Directors Shakey’s Pizza Asia Ventures Inc. 15Km East Service Road corner Marian Road 2 Barangay San Martin de Porres, Parañaque City 1700

Opinion

Basis for Opinion

Key Audit Matters

Our opinion on the consolidated nancial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

66 SHAKEY’S 2017 ANNUAL REPORT

Evaluate the overall presentation, structure and content of the consolidated nancial statements, including the disclosures, and whether the consolidated nancial statements represent the underlying transactions and events in a manner that achieves fair presentation.

Obtain sucient appropriate audit evidence regarding the nancial information of the entities or business activities within the Group to express an opinion on the consolidated nancial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

e engagement partner on the audit resulting in this independent auditor’s report is Maria Pilar B. Hernandez.

SYCIP GORRES VELAYO & CO.

April 10, 2018 SHAKEY’S 2017 ANNUAL REPORT 67

SHAKEY’S PIZZA ASIA VENTURES, INC. AND SUBSIDIARIES (A Subsidiary of Century Paciﬁc Group, Inc.) (Formerly International Fam ily Food Services, Inc.)

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

December 31 2017 2016 ASSETS Current Assets Cash and cash equivalents (Notes 8 and 25) 244,994,340 328,531,651 Available-for-sale (AFS) investments (Notes 12, 25 and 26) – 1,125,173,721 Trade and other receivables (Notes 9, 16 and 25) 586,496,825 420,824,917 Inventories (Note 10) 362,206,579 256,285,224 Prepaid expenses and other current assets (Notes 11 and 14) 61,438,393 13,309,956 Total Current Assets 1,255,136,137 2,144,125,469 Noncurrent Assets Property and equipment (Note 13) 1,538,385,394 999,005,919 Goodwill (Note 6) 1,078,606,020 1,078,606,020 Trademarks (Note 6) 4,987,109,602 4,987,109,602 Deferred input value-added tax 95,666,175 40,257,683 Deferred tax assets - net (Note 24) 25,100,727 29,905,937 Rental and other noncurrent assets (Notes 12, 14, 25 and 26) 128,843,614 105,448,858 Total Noncurrent Assets 7,853,711,532 7,240,334,019 TOTAL ASSETS 9,108,847,669 9,384,459,488

LIABILITIES AND EQUITY Current Liabilities Accounts payable and other current liabilities (Notes 15, 16 and 25) 1,005,167,485 864,310,981 Current portion of loans payable (Note 17) 48,411,689 1,048,365,917 Income tax payable 59,139,697 64,438,143 Total Current Liabilities 1,112,718,871 1,977,115,041 Noncurrent Liabilities Loans payable - net of current portion (Note 17) 3,885,420,461 3,933,241,406 Accrued pension costs (Note 22) 25,134,979 34,334,511 Accrued rent (Note 27) 76,181,330 64,171,062 Dealers' deposits and other noncurrent liabilities 35,150,922 16,520,343 Total Noncurrent Liabilities 4,021,887,692 4,048,267,322 Total Liabilities 5,134,606,563 6,025,382,363 Equity Capital stock (Note 18) 1,531,321,053 1,531,321,053 Additional paid-in capital (Note 18) 1,353,554,797 1,353,554,797 Retained earnings (Note 18) 1,095,525,015 486,513,796 Other components of equity (Notes 12 and 22) (6,159,759) (12,312,521) Total Equity 3,974,241,106 3,359,077,125 TOTAL LIABILITIES AND EQUITY 9,108,847,669 9,384,459,488

68 SHAKEY’S 2017 ANNUAL REPORT

SHAKEY’S PIZZA ASIA VENTURES, INC. AND SUBSIDIARIES (A Subsidiary of Century Paciﬁc Group, Inc.) (Formerly International Fam ily Food Services, Inc.)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31 2017 2016 2015

REVENUES Net sales (Notes 1 6 and 19) P=6,750,949,174 P=5,738,977,478 P=5,075,991,280 Royalty and franchise fees 252,863,907 206,631,050 168,348,361 7,003,813,081 5,945,608,528 5,244,339,641

COSTS OF SALES (Notes 16 and 20) (4,937,716,670) (4,158,600,507) (4,048,378,689)

GROSS INCOME 2,066,096,411 1,787,008,021 1,195,960,952

GENERAL AND ADMINISTRATIVE EXPENSES (Note 21) (905,415,529) (984,652,184) (582,626,599)

INTEREST EXPENSE (Note 17) (177,304,646) (128,490,292) –

OTHER INCOME - Net (Note 23) 38,807,186 262,353,688 45,610,763

INCOME BEFORE INCOME TAX 1,022,183,422 936,219 ,233 658,945,116

PROVISION FOR (BENEFIT FROM) INCOME TAX (Note 24) Current 258,100,841 184,883,829 179,988,193 Deferred 1,939,257 (7,849,801) (635,481) 260,040,098 177,034,028 179,352,712

NET INCOME 762,143,324 759,185,205 479,592,404

OTHER COMPREHENSIVE INCOME (LOSS) Other comprehensive income (loss) to be reclassi ed to pro t or loss in subsequent periods: Disposal of AFS (Not e 12) (534,464) 2,888,071 2,756,485 Unrealized gain (loss) on changes in fair value of AFS investments (Note 12) – 534,464 (3,466,255) (534,464) 3,422,535 (709,770) Other comprehensive income (loss) not to be reclassi ed to pro t or loss in subsequent periods (net of tax) - Actuarial gain (loss) on de ned bene t obligation (Note 22) 9,553,179 4,878,542 (21,584,101) Tax eect (2,865,953) (996,977) 6,475,230 6,687,226 3,881,565 (15,108,871) TOTAL OTHER COMPREHENSIVE INCOME (LOSS) 6,152,762 7,304,100 (15,818,641)

TOTAL COMPREHENSIVE INCOME P=768,296,086 P=766,489,305 P=463,773,763 Basic/Diluted Earnings Per Share (Note 29) P=0.50 P=0.88 P=0.62

SHAKEY’S PIZZA ASIA VENTURES, INC. AND SUBSIDIARIES (A Subsidiary of Century Paciﬁc Group, Inc.) (Formerly International Family Food Services, Inc.)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS E NDED DECEMBER 31 , 2017, 2016 AND 2015

2017 ANNUAL REPORT 2017 SHAKEY’S Other Components of Equity Unrealized Gain (Loss) on Cumulative Changes in Fair Actuarial Additional Retained Value of AFS Loss - Capital Stock Paid -in Capital Earnings Investments Net of Tax (Note 18) (Note 18) (Note 18) (Note 12) (Note 22) Total

Balances at January 1, 2017 P=1,531,321,053 P=1,353,554,797 P=486,513,796 P=534,464 (P=12,846,985) P=3,359,077,125 Total comprehensive income – – 762,143,324 (534,464) 6,687,226 768,296,086 Cash dividends (Note 18) – – (153,132,105) – – (153,132,105) Balances at December 31 , 2017 P=1,531,321,053 P=1,353,554,797 P=1,095,525, 015 P=– (P=6,159,759) P=3,974,241,106

Balances at January 1, 2016 P=768,614,050 P=– P=829,245,434 (P=2,888,071) (P=16,728,550) P=1,578,242,863 Proceeds from issuance of capital stock (Note 1 8) 762,707,003 1,353,554,797 – – – 2,116,261,800 Total comprehensive income – – 759,185,205 3,422,535 3,881,565 766,489,305 Cash dividends (Note 18) – – (1,101,916,843) – – (1,101,916,843) Balances at December 31, 2016 P=1,531,321,053 P=1,353,554,797 P=486,513,796 P=534,464 (P=12,846,985) P=3,359,077,125

Balances at January 1, 2015 P=368,614,050 P= P=900,047,563 (P=2,178,301) (P=1,619,679) P=1,264,863,633 Issuance of stock dividends (Note 18) 400,000,000 – (400,000,000) – – – Total comprehensive income (loss) – – 479,592,404 (709,770) (15,108,871) 463,773,763 Cash dividends (Note 18) – – (150,394,533) – – (150,394,533) Balances at December 31, 2015 P=768,614,050 P=– P=829,245,434 (P=2,888,071) (P=16,728,550) P=1,578,242,863

70 SHAKEY’S 2017 ANNUAL REPORT

SHAKEY’S PIZZA ASIA VENTURES, INC. AND SUBSIDIARIES (A Subsidiary of Century Paciﬁc Group, Inc.) (Formerly International Family Food Services, Inc.)

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31 2017 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=1,022,183,422 P=936,219,233 P=658,945,116 Adjustments for: Gain on reversal of advances (Note 2 3) – (222,502,148) – Depreciation and amortization (Notes 13, 20 and 21) 208,930,640 137,985,368 209,946,662 Interest expense 177,304,646 128,490,292 – Movements in: Accrued rent 12,010,268 21,452,132 2,220,035 Accrued pension costs 353,647 (1,642,783) (14,649,237) Accretion income (Notes 14 and 23) (2,731,459) (4,149,485) (2,774,254) Gain on disposal of property and equipment (Note 23) (1,734,824) (238,591) (418,432) Loss (gain) on disposal of AFS (Note 23) (1,436,223) 4,056,548 2,756,485 Interest income (Note 23) (1,186,755) (3,291,346) (3,878,652) Unrealized foreign exchange gain (Note 2 3) (97,122) (194,819) (71,189) Dividend income – (486,897) (1,160,729) Unrealized loss on change in fair value of nancial assets at FPVL – – 3,847,972 Income before working capital changes 1,413,596,240 995,697,504 854,763,777 Decrease (increase) in: Trade and other receivables (165,671,908) 167,663,201 (142,990,519) Inventories (105,921,355) 855,740 16,534,4 08 Prepaid expenses and other current assets (48,128,437) (3,758,892) 251,547 Increase (decrease) in accounts payable and other current liabilities 140,713,580 (51,211,514) (98,564,246) Net cash generated from operations 1,234,588,120 1,109,246,039 629,994,967 Income taxes paid (263,399,287) (178,442,725) (171,719,361) Interest received 1,186,755 3,291,346 3,878,652 Net cash provided by operating activities 972,375,588 934,094,660 462,154,258 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of: Property and equipment (Note 13) (768,164,192) (417,637,547) (349,503,801) Subsidiaries - net of cash acquired – (6,010,636,947) – AFS inves tments (Note 12) – (1,124,639,257) (469,958,439) Financial assets at FVPL – – (6,553,754) Disposal of AFS investments (Note 1 2) 1,126,609,944 681,365,595 476,782,556 Sale of financial assets at FVPL – 36,084,300 – Increase (decrease) in dealers’ depos its and other noncurrent liabilities 21,362,038 (25,623,290) 9,340,860 Increase in deferred input value added tax (55,408,492) (8,082,285) (6,142,348) Increase in rental and other deposits (23,394,756) (5,572,608) (11,725,183) Proceeds from disposals of property and equipment 21,588,901 5,264,498 3,202,547 Dividends received – 486,897 1,160,729 Collection of intercompany loans – – 24,138,889 Net cash provided by (used in) investing activities 322,593,443 (6,868,990, 644) (329,257,944)

(Forward)

SHAKEY’S 2017 ANNUAL REPORT 71

Years Ended December 31 2017 2016 2015 CASH FLOWS FROM FINANCING ACTIVITIES Payments of: Dividends (Note 18) (P=153,132,105) (P=1,101,916,843) (P=150,394,533) Loan (1,050,000,000) – – Interest (175,813,487) (114,984,533) – Proceeds from: Loan – 4,975,000,000 – Issuance of capital stock (Note1 8) – 2,116,261,800 – Net cash provided by (used in) nancing activities (1,378,945,592) 5,874,360,424 (150,394,533) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 439,251 194,819 71,189 NET DECREASE IN CASH AND CASH EQUIVALENTS (83,537,312) (60,340,741) (17,427,030) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (Note 8) 328,531,651 388,872,392 406,299,422 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 8) P=244,994,339 P=328,531,651 P=388,872,392

Disclaimer: e complete set of the consolidated nancial statements, including the notes, are covered by the independent auditor’s report and are made available to all shareholders through the de nitive information statement for the annual stockholders’ meeting on August 16, 2018. e consolidated nancial statements should be read in conjunction with the notes. A copy of the full set of the consolidated nancial statements may be downloaded through the Company’s website (www.shakeyspizza.ph). 72 SHAKEY’S 2017 ANNUAL REPORT

CONTACT INFORMATION

SHAKEY’S WOW CENTER (CORPORATE OFFICE)

KM 15 East Service Road corner Marian Road 2 Barangay San Martin de Porres Paranaque City, Metro Manila Philippines 1700 Tel: + (632) 867 7677 www.shakeyspizza.ph

IN-HOUSE COMMISSARY 32A Arturo Drive Bagumbayan, Taguig City Philippines 1630 Tel: + (632) 838 2128

STOCK TRANSFER AGENT BDO - Trust and Investments Group Securities Services and Corporate Agencies Department BDO Corporate Center 15F South Tower, 7899 Makati Avenue Makati City, Philippines Tel: + (632) 878 4963 [email protected] SHAKEY’S PIZZA ASIA VENTURES, INC. A Subsidiary of Century Paciﬁc Group, Inc.

Annual Report 2017

Shakey’s WOW Center KM 15 East Service Road corner Marian Road 2 Barangay San Martin de Porres Paranaque City, Metro Manila Philippines 1700 Tel: + (632) 867 7677 www.shakeyspizza.ph