CELEBRATING SUCCESS

2019 ANNUAL REPORT 2 EMPERADOR INC. 2019 ANNUAL REPORT 3

Realizing success as a global player committed to the premiumization of our products and innovation of our processes

2019 ANNUAL REPORT 2 EMPERADOR INC. 2019 ANNUAL REPORT 3

TABLE OF CONTENTS FINANCIAL HIGHLIGHTS

REVENUE EBITDA

51.6 BN +10% YOY 11.1 BN +7% YOY

3 Financial Highlights 4 Chairman’s Message 51.6 11.1 11.1 47.1

8 Brandy 10.3 42.7 42.7 9.6 9.6 12 Whisky 16 Gin 18 Rum 20 Sustainability 38 Corporate Governance 39 Risk Management 2017 2018 2019 2017 2018 2019* 42 Board of Directors 46 Financial Statements 164 Corporate Information GROSS PROFIT NET INCOME*

16.9 BN +6% YOY 7.0 BN +5% YOY 16.9 16.9 16.0 14.9 14.9 6.7 6.7 7.0

ABOUT THE COVER 6.3

For decades now, Emperador has been enriching the celebration of special occasions of people across the globe. In every milestone, every festivity, and every moment, our products keep people company, making millions of celebrations more flavorful and memorable. What if our positions were reversed? This 2019, we at Emperador invite you to join us as we toast to our performance highlights—from international recognitions to strong earnings growth—and embark on a journey to achieve more. Let’s celebrate success together! 2017 2018 2019 2017 2018 2019*

*Figures exclude nonrecurring gain. Net Income is attributable to parent only. 4 EMPERADOR INC. 2019 ANNUAL REPORT 5

CHAIRMAN’S MESSAGE

Emperador remains steadfast and resilient in these unprecedented times. 2020 is a watershed year. As a well-managed company, Emperador will emerge stronger and pave the avenue for future growth.

DR. ANDREW L. TAN Chairman

2019 marks our 40th anniversary. From humble Meanwhile, the year 2020 sees a liquor tax hike in beginnings 40 years ago, we have now become a the Philippines. The new taxation is a headwind global company. The company is well-placed to for the domestic alcoholic beverage industry. And, continue and improve its international presence again in early summer, the COVID-19 pandemic and competitive positioning. Today, Emperador caught the world by surprise. Countries responded products can be found in more than 100 countries by imposing strict stay home quarantine. In the encompassing six continents around the world. I Philippines, the liquor ban was imposed by the am very grateful and I am extending my deepest local government units during the period of the gratitude to our stakeholders, employees and partners Enhanced Community Quarantine. Our global for four decades of growth, expansion and success. presence continued to generate revenues and profit during the hard lockdown in the Philippines. It is fitting that last year’s revenues reached an all- time high of P51.6 billion, rising 10% year-on-year During this time, your company has responded as both the Brandy and Scotch Whisky segments by looking after the welfare of its employees and registered positive performances. Excluding a non- the needs of communities, here in the Philippines recurring charge, net profit jumped 4.0% to P7.1 and abroad. billion and the portion attributable to owners rose 5.1% to P7 billion. Emperador remains steadfast and resilient in these unprecedented times. 2020 is a watershed year. As Your company continues to strive for product a well-managed company, Emperador will emerge excellence and giving greater satisfaction to stronger and pave the avenue for future growth. consumers’ experience. Whyte and Mackay was named Scotch Whisky Producer of the Year and Fundador Supremo 18 won the Worldwide Brandy Trophy Award at the International Wine and Spirits Competition in 2019. These are testaments to our DR. ANDREW L. TAN continued pursuit of innovation, quality and excellence. Chairman 6 EMPERADOR INC. 2019 ANNUAL REPORT 7

EMP AT FORTY

1979 1990 2010 2013 2014 2016 - 2017 2019

Dr Andew L Tan at age 27 Emperador Brandy, the first Emperador Light is launched Emperador lists on the EMP acquires Whyte and EMP acquires Beam EMP acquires the Domecq 40 years of liquor goes into liquor, his first brandy label is launched in in response to a growing Philippine Stock Exchange. Mackay Group Limited Suntory’s Spain-based brandy and wine trademarks passion. the Philippines. market for alcoholic of UK, enters the Scotch brandy and sherry business. and related assets from beverages with lower alcohol whisky business. Iconic Fundador, Terry, Tres Pernod Ricard, SA, giving it content and targeted at Cepas, and Harveys become access to brandy market in younger alcoholic beverage EMP brands. Mexico. consumers.

ASIA PACIFIC MIDDLE EAST AND AFRICA THE AMERICAS AND CANADA EUROPE TRAVEL RETAIL

To successful ends and wonderful beginnings, WORLDWIDE REACH let’s all raise our glasses. 8 EMPERADOR INC. 2019 ANNUAL REPORT 9

BRANDY FUNDADOR SUPREMO 18

T H E WORLD’S

BEST From its distinguished aroma to its notes of fruits and nuts, the Fundador Brandy never fails to give an exquisite drinking experience.

Conquering the World, The Supremo taste is described to have aromatic, warm and round notes of dried fruits and roasted Winning New Markets nuts combined with smooth, strong and intensive “The best in the world” INTERNATIONAL 2019 was a year of victories for Bodegas hints of vanilla and walnuts. The notes of wood is the highest acclaim AWARDS WON IN 2019 Fundador as it reaped worldwide distinction. stand out and give a very elegant and lingering Fundador Supremo – the 18 YO prestige finish. It is part of the Sherry Cask Collection one can ever ask for. expression of the “Sherry Cast Collection” – was having three expressions of a Fundador Solera DOUBLE GOLD MEDALS hailed the Best Brandy in the World at the 2019 Gran Reserva, drawing from flavors of exquisite 6 International Wine and Spirits Competition. sherry wines aged 12, 15 and 18 years. The sherry Harveys Oloroso VORS was also recognized as cask is made from oak and it balances the GOLD MEDALS the world´s Best Sherry. For these esteemed spirit. This and its notes of creamy vanilla, dried 10 titles, it is no wonder why Bodegas Fundador also fruits, and toasted nuts are what make this the received the top credit of being the “Fortified champion brandy. 21 SILVER MEDALS Wine Producer of the Year”. 2 BRONZE MEDALS 10 EMPERADOR INC. 2019 ANNUAL REPORT 11

TERRY WHITE

That hip and vibrant packaging probably says it all.

Let creativity flow with every drop of Terry White. With its versatility, your own concoctions are sure to be thrilling!

Loud and proud: Fundador’s award-winning product line

Supremo went on a Travel Retail campaign all Harveys was introduced with a new look, as part of Terry White Brandy is a unique expression that has a smooth refreshing over key locations in Spain to engage and educate its strategy to communicate the brand design. flavor while brimming with a balanced and aromatic taste. Created new markets of the revolutionary and award– to be a versatile drink that can be combined with any type of soft winning category. All over the world, more and Terry Centenario has its share of approval, drink, juice or tonic, it dares to conquer new generations, particularly more drinkers are experiencing the premier–tasting maintaining a clear leadership in its category in the millennial set, who finally have a brandy with which the boldest Fundador Brandy as it continues to enter new and Spain. Terry White Brandy launched a very dynamic mixtures can be concocted. Whether alone watching the sunset and promising markets in the United Kingdom and Asia. communication plan to increase brand awareness partying with friends, Terry White is enjoyed as the perfect cocktail Meanwhile, we also clinched new alliances to reach and attention among the millennial generation. It companion. new markets in Italy and Canada and to elevate also continues to expand and actively increase the awareness of its premium brands. numeric distribution bringing up visibility in these Beginning 2020, brandy and sherry will see exciting developments as marketing channels. In Mexico, we strengthened we have new projects already lined up. One is the new designs being Harveys continued to be the market leader in the our presence with new partners such as Casa readied for Triple Wood for Fundador. We are also excited for new United Kingdom. During this time, it went on trial Pedro Domecq. With a huge market filled with Harveys variants to be concocted for sherry consumers coming from a at the aperitifs retail space where demand is strong big opportunities for white spirits, we successfully younger crop. in Spain. In other markets in the US and Canada, launched the vividly bottled Terry White Brandy. 12 EMPERADOR INC. 2019 ANNUAL REPORT 13

WHISKY WHYTE AND MACKAY LIGHT

The spirit drink is E X P E R T L Y expertly crafted with the same younger, lighter CRAFTED consumer in mind.

Make hanging out more fun by pairing your long bonding with a light drink that still gives that intensive flavor.

Whyte and Mackay at 175: Strong, The Dalmore continued to deliver stellar performance as it once again reached the apex healthy and still growing of the single malt category. It stood out in Seeing the rising number of Whyte and Mackay once again delivered an 2019 when rare releases broke into the market, young consumers who are Celebrating outstanding performance in 2019. Our business driving demand up and giving consumers more continued to expand in every major region around opportunities to experience the exceptional quality conscious of their alcohol the world. Growth was mainly driven by strong of the liquids and the core range. The Dalmore intake, Whyte and Mackay years business in Asia, followed by very satisfactory brand continues to receive support with the developed a lighter spirit 175 results across Europe and North America. No company investing in a new “Brand Home” at the in the whisky-making wonder it won the award for “Scotch Whisky distillery. with 21.5% ABV—compared to industry Producer of the Year” at the prestigious 2019 other whiskeys which have at International Wine and Spirits Competition. Very promising consumer momentum across UK least 40% ABV. This triumph is a perfect tribute to 175 years of and Europe is driving growth in Jura, the second whisky–making for the makers of world–renowned largest profit contributor. We introduced the new scotch whisky brands such as The Dalmore. Jura Journey entry level malt, which together with 14 EMPERADOR INC. 2019 ANNUAL REPORT 15

Whyte & Mackay Light is the new lighter spirit drink crafted by the expert distillers at Whyte and Mackay.

This spirit drink is a blend of malt and grain Whyte & Mackay Light, the new premium, low-ABV spirit drink. whiskies, then enriched in sweet Sherry casks and freshly emptied Bourbon barrels resulting in a smooth and subtly smoky flavor. As a lighter spirit drink bottled at 21.5% ABV, this delivers an attractive option for the growing number of consumers — especially younger alcohol drinkers — Whyte & Mackay Light, the latest One full year after its launch in 2018, our final who may be looking to keep an eye on their alcohol Proud as we are all these successes, we see that innovation by W&M. single malt brand, Fettercairn, has enjoyed intake. The product, which can either be mixed as a the best is yet to come. We have the foundations widespread acclaim. With its new packaging long drink or enjoyed neat or over ice, is expectedly for expansion and continue to invest across the with its standout iconic unicorn symbol, the smooth and surprisingly intensive in flavor. business for future growth. Our strength lies the aged 10– and 12–year olds, have consistently exceptionally refined whisky, the rare range (28 not only on our reach and accomplishments shown strong positioning in the very competitive YO, 40 YO and 50 YO) and the core 12-year-old In the meantime, John Barr was launched in a but deeply in the strong level of Strategic mainstream category. This bodes well for future all have enjoyed strong initial sales in all listings, targeted consumer campaign in the East Coast of Marketing support that we maintain across our successes across other regions. indicating a huge global potential. the US as well at a step change distribution drive growing brand portfolio and in the increasing in France. The brand was well received in all these commercial resources we have in key disciplines Our third single malt brand, Tamnavaulin, is Beyond the scotch whisky performance, the year occasions, showing that this brand can effectively and geographies. Our investments in the assets performing as exceptionally. The excellent sherry– was packed with significant mileposts. Whyte and challenge others in this highly competitive market. of the business are aligned with strategies that finished Speyside single malt is enjoyed and Mackay witnessed a remarkable year in the UK will improve efficiency and flexibility, while our gaining a good share across all regions of the world with the launch of a new bottle design and the Our customer–centric Private Label business investments in barrels will continue to ensure that where it has been launched. In UK and Europe, introduction of Whyte & Mackay Light, bringing performed no less than our main brands. Our our spirit quality are always at the highest levels. its new products and listings have been launched fresh and energetic momentum to the brand. efficient and effective service offering of quality successfully. The Global Travel Retail range has Launched in 2018, Whyte & Mackay Light is the spirits is very well regarded and has allowed us Whyte and Mackay at 175 years old is in very good likewise experienced significant success, a main key new lighter spirit drink crafted by the expert to make material gains across a number of major health and looks forward to many, many more to support the long–term growth of the brand. distillers at Whyte & Mackay. international retailers. years of growth. 16 EMPERADOR INC. 2019 ANNUAL REPORT 17

GIN THE BAR

After the great launch NEWEST of a new series of gin products in 2018, Emperador moved on in 2019 to drum up more A N D attention for the newest and hippest alcoholic HIPPEST beverage in town.

Refreshingly fabulous and delightful, The BaR perfectly captures the flavors of youth.

Aimed at the young and social media-loving set, The BaR initially When aesthetic and flavor VARIANTS FOR gained popularity in Europe and is unite, you’ll get The BaR. 3 THE NEW GINERATION now increasingly gaining ground in Influenced by European the local scene. trends, it is specifically Pink Gin Emperador capitalized on the attraction of the tailored for millennials and color pink of its The BaR Pink Gin variant and used it in its marketing campaigns such as its “Pink - In their love for parties and Lime Gin Love” Valentine’s Day campaign. Other sought- social media. after variants of the citrusy-lime colored Green Gin Premium Dry Gin and Premium Dry Gin were also pushed through its “Colors of Summer” campaign.

All variants of The BaR are widely available in leading supermarkets, groceries, convenience stores and even in sari-sari stores in many neighborhoods. 18 EMPERADOR INC. 2019 ANNUAL REPORT 19

RUM ZABANA RUM

Proudly local, Zabana Rum R E A L conquers new heights in PHILIPPINE the international spotlight.

R U M T O If Filipino pride had a taste, it would be Zabana Rum. Its distinctive tropical notes THE WORLD are definitely a reflection of its roots.

Zabana takes pride in being the Rum, one if its variants, has won four awards since it was launched in 2018. This outstanding rum has Real Rum of the Philippines as it is a unique blend of anise and citrus with tropical The award winning Zabana crafted from the finest sugarcane notes, making simple cocktails, extraordinary. Sherry Oak Cask is rum aged grown by Filipino farmers and aged Zabana recently introduced three new variants in sherry casks from Jerez de Real rum crafted in extraordinary barrels. under the Small Batch collection: Zabana 1997, la Frontera, Spain. with the Philippines’ The country’s rich volcanic soil supplies the exact Sherry Oak Cask, and Tropical Spiced Rum. This finest sugarcane essential nutrients to grow sugarcane, while the line is handcrafted and produced in limited tropical climate provides the right temperature and quantities. The Zabana 1997 is from a solera humidity to age rum. system built—true to its name—in 1997. On the other hand, the Zabana Sherry Oak Cask is rum Emperador has truly created an exceptional rum aged in sherry casks from Jerez de la Frontera, collection with the Zabana Rum variants garnering Spain, while the Zabana Tropical Spiced Rum has multiple awards, including two gold medals from notes of warm spices and tropical fruits of the the prestigious Monde Selection. The Zabana White Philippines. 20 EMPERADOR INC. 2019 ANNUAL REPORT 21

SUSTAINABILITY

HIGH-IMPACT ACTIVITIES IN THE SERVICE OF THE BIGGER COMMUNITY

Emperador’s three-fold corporate Environment Economic Emperador’s environmental and social programs cover a range of areas that support the United philosophy—sipag, tiyaga at Nations Sustainable Development Goals (UN responsibilidad (diligence, SDGs), especially seven that have been identified forbearance, and responsibility)— to be the most material to its operations. is the anchor of the company’s As an alcoholic beverages company, Emperador strong sense of sustainability and “We believe that the road to true success entails “We envision our success as a company to be identifies Responsible Consumption and stewardship of the resources it uses responsibility to the preservation and sustainability contributory to national and global economic Production, or SDG 12, as the topic most material of our surroundings. Our business makes us growth while espousing the true spirit of prudence to the company both financially and in terms for its business. Moreover, through inherently cognizant of our responsibility to and transparency in dealing with our stakeholders.” of the UN SDGs. Apart from SDG 12, the most the hard work and patience of minimize and reduce carbon footprint, use water material topics pertain to SDG 3, Good Health its people, Emperador takes efficiently, recycle materials, and improve waste and Well-Being; SDG 5, Gender Equality; SDG 6 Clean Water and Sanitation; SDG 7, Affordable and management.” Thus, Emperador measures its success as a responsibility for the impact of Clean Energy; SDG 8, Decent Work and Economic company on the preservation and sustainability Growth; SDG 13, Climate Action; and SDG No. 14, its activities and products on the Social of the environment and on the prosperity of the Life Below Water. bigger community. communities where it operates. On one hand, Emperador continuously improves its processes to “Our purpose is to participate and enrich the use energy and water efficiently in its production celebration of life’s special occasions while we make and operations and reduce its carbon footprint. On viable efforts at contributing to the protection of the other, it undertakes a number of community- the environment, deepening of social interactions, based programs that contribute to the success and “We bring people and communities together while and betterment of prudence in governance,” reads welfare of the people and households it touches. fostering responsible consumption and enjoyment the Emperador Sustainability Statement. of our products. We deeply value the contribution It takes to heart its commitment to bring people This statement stands on three pillars—social, of our consumers, employees, partners, and and communities together while fostering environment, and economic—articulating the shareholders and it is our utmost desire that our responsible consumption and enjoyment of its company’s management approach to the stakeholders imbibe the value of TRUE SUCCESS products. company’s sustainability performance. driven by determination, perseverance, and positive outlook in life.” 22 EMPERADOR INC. 2019 ANNUAL REPORT 23

RESPONDING TO THE UN SUSTAINABLE DEVELOPMENT GOALS Through its business units in the Philippines, Spain, Mexico, and the United Kingdom, Emperador responds to the UN Sustainable Development Goals while staying true to its mission of celebrating life’s special occasions while protecting the environment, deepening social interactions, and exercising prudent governance.

The matrix below shows some of the activities undertaken by Emperador in relation to SDGs identified to be of high financial materiality and high SDG exposure.

Priority given to workplace safety Safety Officer in all facilities Employee training Sufficient Respect for workers’ Promotion of work-at- and development compensation and right to organize home plans programs rewards

Equal opportunity employment Workforce diversity Utilization of recycled bottles Facilities built for proper segregation and recycling of waste

Wastewater management Protection of bodies of water Energy- Controlled Rainwater Adoption of Segregation of Building of clean efficient deficit recovery spray-sprinkler waste generated in areas for materials facilities irrigation systems systems cullet washing segregation and recycling

Adoption of Conversion of Creation of Utilization of Enhanced Adopt-a-river programs Coastal cleanups Wastewater treatment renewable byproducts into photovoltaic LED lighting cooling/chilling energy sources biogas parks and use of systems solar panels 24 EMPERADOR INC. 2019 ANNUAL REPORT 25

ENVIRONMENTAL ENVIRONMENTAL PERFORMANCE PERFORMANCE

In 2019, as part of a groupwide initiative of Alliance Global Group, Inc. (AGI), Emperador identified the sustainability topics most material to the company. The exercise led to the establishment of baseline data on the impact of the company’s businesses in terms of topics identified following the ESG—environmental, social, and governance—framework. With this information, the company aims to develop a clearer roadmap to future sustainability goals.

GREENHOUSE GAS EMISSIONS

104,753 tCO2e The following areas showcase Emperador’s Progreen was issued with an environmental sustainability efforts and programs for the welfare compliance certificate from the Department of of employees and the communities hosting its Environment and Natural Resources (DENR) for its SCOPE 1 EMISSIONS 72,837 tCO2e facilities. application of distillery waste as fertilizer.

SCOPE 2 EMISSIONS 30,410 tCO2e RENEWABLE ENERGY In Mexico, there is an ongoing shift to the use of solar panels in the Pedro Domecq winery, which is expected to generate 53.4 kWh to power the SCOPE 3 EMISSIONS 1,506 tCO2e Emperador promotes the use of renewable energy, internal and external lighting of winery’s production particularly biomass and solar power. and perimeter areas. The photovoltaic park is also expected to reduce the winery’s carbon emissions In its exercise of stewardship of the resources it uses for its business, Emperador Its distilleries in the Batangas towns of Nasugbu and by 63 tonnes. measured its operational greenhouse emissions, water consumption, and waste Balayan operated by subsidiary Progreen Agricorp generation to further mitigate its impact on the environment. Inc. (Progreen) utilizes Anaerobic Biomethanation The biogas produced through the anaerobic System. This treatment system converts the organic treatment of wastewater in Bodegas Fundador’s OPERATIONAL GREENHOUSE GAS EMISSIONS matter in the spent wash into useful energy in the distillery in Tomelloso, Spain, and used for its form of biogas. The biogas that is generated from boilers effectively reduces approximately 40% of the bioreactor is then used as fuel in the boiler. Its the plant’s annual energy consumption. In 2019, Emperador accounted for 104,753 tCO2e in operational GHG, divided between wastewater treatment process produces significant Scope 1 emissions at 72,837 tCO2e; Scope 2 (location-based), 30,410 tCO2e; and Scope 3 quantities of renewable energy. In fact, 60% of the ENERGY-EFFICIENT FACILITIES (location-based), 1,506 tCO2e. plant’s energy requirements come from the naturally produced biogas. For both its plants in Batangas, Scope 1, or direct, GHG emissions refer to emissions of company-owned vehicles and Progreen had invested in in-house co-generation Emperador’s offices and production facilities have company facilities. Scope 2 emissions are from electricity purchased and used by the facility, enabling the plants to produce electricity long implemented natural and LED lighting locally company. Scope 3 emissions come from activities of the company occurring in sources it to supply their own power requirement thereby and globally. It has also adopted natural ventilation does not own or control. enhancing their energy efficiency and reducing their in the design of its facilities, reducing the group’s Scope 1 emissions from both stationary (70,419 tCO2e) and mobile emissions (2,418 dependence on fossil fuels. GHG emissions and energy consumption. tCO2e) accounted for most of the total volume. Scope 2 emissions came from electricity Progreen also reuses its treated wastewater as In Mexico, in the Ensenada, Baja California plant, consumed in-location (30,410 tCO2), while Scope 3 came from waste generated during organic fertilizer. Slops, or the spent wash resulting the chiller system equipment has been modified to operations (456 tCO2e) and from business travel (1,051 tCO2e). Assessor showed that from the distillation process, is usually considered use a more energy-efficient compound, replacing in 2019, the company’s absolute water use was 5,472,306.1 million cu. meters, of which as waste but it has all the essential fertilizer ammonia, realizing 229 MWh in energy savings and 4.8 million were directly abstracted (87.72%) and 671,809 (12.28%) supplied water by elements needed for the growth of plants. 106.5 tonnes in carbon reduction. utilities. A total of 61,539.5 cu meters (1.12%) were reused. 26 EMPERADOR INC. 2019 ANNUAL REPORT 27

ENVIRONMENTAL ENVIRONMENTAL PERFORMANCE PERFORMANCE

EFFICIENT WATER USE PROTECTION OF BODIES OF WATER ABSOLUTE WATER USE

Emperador strives to efficiently use water, the Ensuring clean sources of water is paramount primary ingredient of its products. to the business of Emperador. Apart from continuously improving its production processes 5,472,306.1 million cu.meters Its vineyards in Toledo, Spain have implemented to conserve water resources, the company has controlled deficit irrigation on a massive scale. undertaken various community projects focused on Controlled deficit irrigation is a water management cleaning rivers and beaches. DIRECTLY ABSTRACTED 4.8 million 87.72% strategy that concentrates the application of limited seasonal water supplies on critical crop Through Progreen, Emperador has adopted the SUPPLIED 671,809 12.28% growth stages. This allows the collection and Langgangan River in Balayan to protect the body reutilization of water in all the planting processes, of water from upstream waste coming from without sacrificing the quantity and quality of the households and plant litter. The company has also yield. planted trees in the area to improve the ecological WATER USE health of the river system and the safety of the In Mexico, rainwater recovery systems have community. Another subsidiary, Anglo Watsons reduced water consumption by 19% during the Glass Inc. (AWGI), has participated in river clean- Water is a primary ingredient of all Emperador products; thus, harvest season and 38% for the rest of the year. ups by the Calamba, Laguna office of the DENR. the company endeavors to use this resource efficiently in its Also in Mexico, Pedro Domecq has installed a manufacturing processes. Baseline data gathered by the third-party spray sprinkler system that has cut the monthly In 2019, Progreen also conducted a clean-up assessor showed that in 2019, the company’s absolute water use consumption of water used for the hydration of activity along the coast of Balayan Bay covering was 5,472,306.1 million cu. meters, of which 4.8 million were directly barrels used in the aging of brandy by 45%. the coastal area of the company and of the host abstracted (87.72%) and 671,809 (12.28%) supplied water. barangay, Gimalas. The activity yielded 80 sacks of waste—mostly household and organic waste, plastic bottles, and plastic bags—weighing 30 to 40 kgs each. Emperador also initiated a coastal clean- up drive in Paraw Beach Resort Iloilo and in General Luna, a municipality of Siargao. 28 EMPERADOR INC. 2019 ANNUAL REPORT 29

ENVIRONMENTAL ENVIRONMENTAL PERFORMANCE PERFORMANCE

Intensity of Emperador’s operational GHG emissions, water consumption, and waste generation*

Per sq. meter Per employee Per million PHP

GHG Intensity (in tCO2e) 4.09 30.3 2.03

Water Use Intensity 213.76 1,582.96 106.12 (in cu. meters)

Waste Generated 0.88 6.53 0.44 (in tonnes)

*According to total floor area of premises and facilities (25,600 sq. meters), number of employees (3,457), and revenue generated (PHP 51,565 million) in 2019.

WASTE SEGREGATION AND WASTE GENERATION AND ENVIRONMENTAL STANDARDS RECYCLING RECYCLING Emperador’s operations in all its locations— In the Philippines, Emperador recycles the bottles Absolute waste generated was 22,587.94 tonnes, Philippines, Spain, Mexico, and Scotland— it uses for its brandy products, with 50% of its 85% of which was recycled and 15% sent to landfill. comply with applicable environmental laws and production utilizing recycled bottles. Major types of waste that contributed to the total regulations. It has environmental management mass were solid waste, food waste, textile, glass, and waste management programs for effective In Laguna, AWGI’s cullet washing facility enables and paper. contamination management and preservation of proper segregation of aluminum caps, plastic and ecosystem services. paper labels, ferrous caps/crowns, and other waste To further promote responsible plastic use, all materials from the recovered bottles and broken or of Emperador’s products are packaged mostly The Environment Management Program sets refuse glass. AWGI’s new internal warehouse also in 100% recyclable materials like glass, fiber guidelines for the management of hazardous eliminates the need to transport goods to external boxes, and paper labels. It intends to increase its wastes, non-hazardous solid wastes, and air warehouses. glass bottle recycling with the construction of emissions; and energy and water conservation its own bottle washing facility in Laguna, due for efforts. On the other hand, the Waste In Spain, the company built a “clean area” in its completion in the next three years. Management Program sets guidelines for waste bottling plant to properly store and segregate classification into hazardous and non-hazardous; glass, cardboard, wood, and solid rubbish for monitoring, handling, storage, treatment, and recycling. disposal of hazardous wastes; and preventing any risk to public health and environment in waste management.

In its production facilities in Spain, Bodegas Fundador maintains ISO 9001:2015 on quality management system and complies with ISO 14001:2015 on environmental management systems. ISO 14001: 2015 requires an organization to consider all environmental issues relevant to its operations, such as air pollution, water and sewage issues, waste management, soil contamination, climate change mitigation and adaptation, and resource use and efficiency. 30 EMPERADOR INC. 2019 ANNUAL REPORT 31

SOCIAL ENGAGEMENT SOCIAL ENGAGEMENT

EMPLOYEE WELFARE Emperador considers customers and employees as primary stakeholders and, as such, has sought to address their In Spain, the company has launched a “work-at- concerns adequately and maintain healthy and satisfactory home” plan, promoting teleworking and the use of technology-driven tools to drive productivity. In relations with them at all times. The topics considered the United Kingdom, Whyte and Mackay promotes under social engagement include customer management, the use of Microsoft Teams to limit travel, without workforce diversity, workplace safety, employee training sacrificing collaboration and teamwork. and development, compensation and rewards, and In all its locations, the company has undertaken employee relations. various initiatives related to health in the workplace, i.e. health and safety plans.

COMMUNITY WELFARE CUSTOMER MANAGEMENT WORKFORCE DIVERSITY

As a responsible corporate citizen, Emperador The company prioritizes feedback from customers. Emperador is an equal-opportunity employer, and undertakes various local programs aimed at It is committed to resolving issues raised by does not discriminate based on age, gender, race, improving the conditions of the communities where customers through its credit and collections and color, religion, and other factors. It gives full and fair they operate. customer relations departments. In addition, its consideration to the employment of disabled persons commercial services team and quality assurance and women for suitable jobs, as well as their training, A number of initiatives were undertaken to promote department address customer complaints and career development, and promotion within the group. responsible drinking. In the UK, the Whyte & grievances expediently. Mackay Light was launched to meet the growing As of 2019, the company employed a total of 3,457 demand for lower ABV (alcohol by volume) drinks. workers worldwide, 76% (2,632) of whom are male And recognizing the problems that may arise from and 24% (825) female. alcohol misuse, Whyte & Mackay has supported the Portman Group and the Drinkaware Trust in Female representation in the executive ranks is their goal of promoting and providing advice on notable in the Philippines and Mexico operations, at around the world—walking, running, rowing, and packaging, advertising, and safe drinking behavior. about 54% and 74%, respectively. In non-executive cycling—to raise for mental health charities across In the Philippines, Emperador launched the ranks, female representation in the UK workforce is the globe. This challenge was inspired by the heroic Emperador Double Light, a lower ABV variant of the highest among the company’s locations, at 67%. feats of Captain Sir Thomas Moore, former British Emperador Light and Original. Army officer and centenarian, who raised money Non- Total Non- Total Executive Executive Whyte and Mackay identifies and supports employee- for charity in the run-up to his 100th birthday in PHILIPPINES Executive Employees SPAIN Executive Employees April 2020, in the midst of the COVID-19 pandemic. recommended causes. A different charity is identified Male 22 2045 Male 20 127 on a monthly basis and provided with a range of In the UK, the company is supporting the Scottish Gender Gender financial and material assistance. As part of this Association of Mental Health. Other charities being Female 12 518 Female 3 34 supported by this initiative are the Canadian Mental initiative, Whyte and Mackay has supported the UK’s Under 30 0 984 2597 Under 30 0 3 184 Mental Health Foundation, participating in programs Health Association, Mental Health America (USA), Age Age The Syin-Lu Social Welfare Foundation (Taiwan), 30-50 19 1411 30-50 17 89 specifically aimed at recognizing individuals who have Group Group The Mental Health Association of Hong Kong, Al made a positive impact on the community. Over 50 15 168 Over 50 6 69 Jalila Foundation (UAE), and the South African Still in line with promoting mental health, Whyte Federation of Mental Health. As of end-July 2020, and Mackay employees in its various locations have an impressive 17,000 miles have been recorded and Non- Total Non- Total Executive Executive taken on the challenge of covering 29,000 miles £28,000 raised of the £50,000 target. MEXICO Executive Employees UK Executive Employees Male 74 7 Male 78 259 Gender Gender Female 55 0 Female 29 174

Under 30 27 0 136 Under 30 4 66 540 Age Age 30-50 93 4 30-50 78 203 Group Group Over 50 9 3 Over 50 25 164 32 EMPERADOR INC. 2019 ANNUAL REPORT 33

SOCIAL ENGAGEMENT SOCIAL ENGAGEMENT

EMPLOYEE TRAINING AND DEVELOPMENT

Emperador believes that employee training is an essential part of skills and career development. It conducts bi-annual employee performance and career development reviews to support career development, promotion, and merit enhancement.

In 2019, training completed for all employees reached 169,393 hours, with the company spending a total of P18.08-million for employee training programs. All its employees underwent regular performance and career development reviews.

WORKPLACE SAFETY COMPENSATION AND REWARDS

At Emperador, the health and safety of Emperador provides its employees with the employees is a top priority. In 2019, for compensation and benefits mandated by national permanent employees, the company’s total labor laws and its own rewards program, such recordable incident rate (TRIR) was 40.94 and as leaves, salary loans, employee stock options, In the Philippines, community programs have the near-miss frequency rate (NMFR) was retirement benefits, medical benefits, and other been numerous and diverse. These programs 34.97. For seasonal employees, TRIR was nil and benefits. include, among others, the annual blood-letting NMFR was less than one (0.73). program held at the AWGI campus in Calamba in coordination with the Philippine Red Cross and Emperador has a Safety Officer that EMPLOYEE RELATIONS participation in the Brigada Eskwela program periodically organizes training programs and of the Department of Education (DepEd). seminars to improve employee awareness Emperador recognizes employees’ right to organize Brigada Eskwela is DepEd’s annual clean-up and and knowledge of health and safety at the as an important component of healthy employee rehabilitation of school buildings and classrooms workplace. In strategic locations in all its relations. prior to the start of the schoolyear. sites across the world, safety reminders are prominently displayed to inculcate In the Philippines, AWGI has a collective bargaining In early 2020, in response to calls for monetary health awareness and promotion among agreement with its production employees effective donations for those affected by the eruption of Taal all employees. The company also provides until 2025. AWGI employees have agreed to follow Volcano, Emperador employees held a silent auction personnel protective equipment (PPE) to all established grievance procedures and to refrain from of used clothing and bags donated by employees. employees who need it for their work. strikes during the term of the agreement. Proceeds of the auction were given to 13 Emperador employees affected by the calamity. In addition, the After every health and safety incident, the In Spain, Bodegas Fundador has a collective wage company distributed 450 bags of relief goods to Safety Officer conducts a root-cause analysis agreement with their trade unions and employees. three barangays in the Batangas town of Talisay, of the incident and draws up an investigation Fresh negotiations for a new collective wage which was badly hit by the eruption. report for further study and action. After agreement will be undertaken in 2020 when the identifying the cause, the Safety Officer current one expires. In Scotland, Whyte & Mackay has debriefs the employee involved upon her wage agreements with both UNITE and GMB trade return to work. In addition, the Safety Officer unions. conducts a safety re-orientation session for all employees focused on the recent incident to Emperador has not, in any of its locations, experienced prevent its recurrence. any disruptive labor dispute, strike, or threat of strike. 34 EMPERADOR INC. 2019 ANNUAL REPORT 35

GOVERNANCE

Emperador implements the range DATA PRIVACY AND SECURITY SUPPLIER RELATIONSHIP BUSINESS ETHICS of AGI’s groupwide governance MANAGEMENT practices covering employees, Emperador collects client and customer data Emperador ensures that all transactions are executed following a privacy policy and applicable data A security policy for the health, quality, and fairly following the company’s codes of conduct. customers, suppliers, and privacy regulations. It maintains secondary data environmental and social considerations of It expects each employee to observe the highest other stakeholders. The topics for all its companies as part of disaster recovery production facilities promotes adherence to standards of business ethics. identified in this area specifically measures. In 2019, regulators did not make any social and environmental standards by suppliers. data request from Emperador. There was no Emperador has a quality control manual and Whistleblowing policy. Emperador values all for Emperador include data substantiated complaint on customer privacy. sanitation policy to identify risks of contamination information received from whistle blowers and privacy and security, handling of Likewise, there was no data security breach and contain or resolve the same. Suppliers must also anonymous sources. It encourages all stakeholders electronic waste, environmental recorded for the period. comply with a code of conduct and have the relevant to communicate, confidentially and without the risk of reprisal, legitimate concerns about and contamination management, permits and environmental compliance licenses to ELECTRONIC WASTE do business with Emperador. illegal, unethical or questionable practices and supplier relationship transactions entered by any of its employees management, responsible The company’s procurement policy references and officers. Such reports may be brought Computer equipment, such as servers, PCs, mobile various standards, including ISO9001, FSSC 22000, directly to the Chairman or President of the labelling, and business ethics. phones at end-of-life, and storage media, are BRC, IFS, and PRO-003 (for the evaluation of concerned subsidiary or affiliate, ensuring the disposed of using degaussers, erasers, and physical suppliers). In addition, Emperador has established a proper disposition of the report, confidentiality of destruction devices, among others. purchase and provisioning procedure to ensure food information, and protection of the identity of the safety and security in procurement practice. whistle blower. Upon the expiration of identified lawful business purposes or withdrawal of consent, Emperador RESPONSIBLE LABELLING Anti-corruption policy. No employee can engage takes reasonable steps to securely destroy or in any activity that would create conflict or permanently anonymize personal information. interfere with the performance of responsibilities. When deemed appropriate, data may be The company takes every precaution so that its Receiving gifts from third parties is not allowed. anonymized to prevent unique identification of the products are marketed only for their intended use The company’s risk management team periodically data owner. and are labeled accordingly. All of its advertising reviews project progress and compliance to various impression is targeted only at consumer segments government agencies. The company’s units in the at or above the legal drinking age. Advertising Philippines operate in compliance with the Anti- on digital platforms go through age-verification Graft and Corrupt Practices Act (R.A. No. 3019), controls. All marketing campaigns, on-trade and off- while offshore subsidiaries have their own anti- trade presentations, and product catalogues strictly corruption policies. adhere to legal drinking norms. Anti-money laundering policy. The Philippine In 2019, there was no incident of non-compliance companies operate in compliance with the with industry or regulatory labelling and marketing implementing rules and regulations of the R.A. codes. In addition, there was no monetary loss No. 9160, or the Money Laundering Act of 2001. In resulting from legal proceedings associated with 2019, there were no monetary losses recorded as a marketing and labelling practices. result of legal proceedings associated with money laundering. 36 EMPERADOR INC. 2019 ANNUAL REPORT 37

COVID-19 RESPONSE REPORTING TO WORK IN THE TIME OF COVID-19

Philippines. Emperador has implemented a Visitors are given only restricted access to company number of re-entry protocols including rapid premises. The distillery shops are shut, and distillery testing of all employees before returning to tours have been cancelled. work, and random and scheduled rapid testing at work. It has also made daily health declarations, Spain. During the lockdown, Bodegas Fundador temperature checks, and physical distancing closed the head office and visitors center. mandatory. A strict contact tracing policy is in Production facilities continued operations but place. observed a number of measures including, among others, 50% of employees working on site at a Employees are given a monthly supply of time to practice physical distancing, mandatory disinfectant alcohol, vitamin supplements, face wearing of masks and gloves, minimum distance of masks, and face shields. Virtual and telephone two meters between individuals, and disinfection meetings have become the norm; physical of common areas. Other employees worked from meetings are prohibited. home, using company-provided equipment and In the first half of 2020, Emperador took an active tools for videoconferencing. part in AGI’s groupwide response to combat A limited work-from-home policy was rolled out COVID-19. for immunocompromised employees and those in Head office employees returned to work in the last the marketing and legal departments. Employees week of June, but at-risk employees, e.g. pregnant Emperador donated one million liters of are provided with virtual health consultations with women, continue to work from home. Only 50% of disinfectant alcohol worth around P250-million to the company physician. employees work on site at a time. Employees must various local government units as well as frontline wear face masks and observe mandatory health workers—medical personnel, policemen, soldiers, Visitors have restricted access to company and safe measures at all times. The offices have and other community marshals. Emperador also premises. Cleaning and sanitation activities been installed with acrylic partitions to separate sponsored three mobile kitchens of the Armed of offices and production areas have been workspaces. Forces of the Philippines (AFP) as part of the intensified. There are constant reminders of latter’s massive feeding program initiative. Through frequent handwashing and other safety practices Bodegas Fundador also leads the spirits industry the partnership with Emperador and other donors, and protocols. in Spain in adopting preventive measures against the AFP Mobile Kitchen was able to put together the spread of COVID-19. It recently obtained the 9,000 hot meals for poor families in Pasig City, United Kingdom. Head office employees of Whyte “Global Safe Site” certification from Bureau Veritas particularly in the areas of Caliwag and Villa & Mackay are working from home until September. for complying with international standards in Monique in Barangay Pinagbuhatan, Sandoval, The company’s production facilities implemented cleanliness, hygiene, and safety in all its facilities, Rodrigo, Villa Aurora, Riverside, Floodway Westbank the following protocols: temperature checks, two- including the vineyards, distillery, maturing and in Baranggay Maybunga, and various areas in meter physical distancing, additional cleaning, blending cellars, bottling lines, laboratories, Visitor Barangay Manggahan. additional acrylic partitions, staggered start and Center, and the central headquarters. finish times, hand sanitizers located in multiple Information on how the company prepared their locations, additional hand washing, and regular workplaces and facilities for returning employees reminders to staff. and workers during the pandemic may be found on Employee morale remains strong with the the next page. Additional locker rooms and toilet facilities have confidence that the company prioritizes their safety also been installed, specifically for use of lorry and welfare. They embraced the “bayanihan” spirit drivers so they don’t need to enter the main in coping with the pandemic as they all strive to premises when coming on site. emerge stronger together. 38 EMPERADOR INC. 2019 ANNUAL REPORT 39

CORPORATE GOVERNANCE ENTERPRISE RISK MANAGEMENT

1. RISK MANAGEMENT SYSTEM and monitors significant risks, and submits appropriate recommendations, the Board a. Overall risk management philosophy of the approves formal policies for overall risk company management, as well as written policies The Company’s risk management focuses on covering specific areas, such as foreign safeguarding shareholder value to manage exchange risks, credit risk, and liquidity risk. unpredictability of risks and minimize potential c. Frequency of review of risk management adverse impact on its operating performance system and the directors’ criteria for and financial condition. assessing its effectiveness b. A statement that the directors have reviewed The Risk Committee annually reviews the the effectiveness of the risk management Company’s approaches to risk management system and commenting on the adequacy and recommends to the Board the changes or thereof improvements to key elements of its processes The Company’s Board of Directors is directly and procedures. After submission of the responsible for risk management and the Committee’s recommendation, the Board then Management carries our risk management reviews the risk management system. policies approved by the Board. After the Management identifies, evaluates reports

2. Risk Policy a. Company

Risk Exposure Risk Management Policy Objective

1. Financial Risks The Company’s policy is to ensure that the scheduled The Company’s objective is to protect investment in The Company remains focused on ensuring the The Company’s By-laws require it to have two principal and interest payments are well within its the event there would be significant fluctuations in adoption of systems and practices of good corporate independent directors in its Board of Directors while ability to generate cash from its business operations. the exchange rate. On the other hand, the Company’s It is likewise committed to maintain adequate capital objectives to manage its liquidity are: governance in enhancing value for its shareholders. the Manual requires that there must be at least one at all times to meet shareholders’ expectations, a. to ensure that adequate funding is available at all In compliance with the initiative of the Securities independent director voting in the Audit Committee, withstand adverse business conditions and take times; and Exchange Commission under Memorandum Nomination Committee, and Compensation and advantage of business opportunities. b. to meet commitments as they arise without Circular No. 2, Series of 2002, a Manual of Corporate Remuneration Committee. To date, the Company incurring unnecessary costs; and c. to be able to access funding when needed at the Governance was approved by the Board of Directors has elected two independent directors, Miguel B. least possible cost. The long term strategy is to in February 2012. Varela and Alejo L. Villanueva, Jr. sustain a healthy debt-to-equity ratio. The Audit Committee is composed of three members, To measure the level of compliance with its Manual 2. Operational risks It is the policy of the Company to be prepared for any The Company’s objective is to protect investment at least one of whom must be an independent of Corporate Governance, the Company has event which triggers a material business impact or in the event there would be significant events that modifies the existing risk profile. would result in material impact to the Company’s director, and is tasked to oversee and review financial established an evaluation system consisting of a operations. and accounting matters. self-rating assessment and performance system by management and submission of certifications on The Nomination Committee is composed of b. Group system. Criteria used for review are compliance the Company’s compliance with the provisions of three members, at least one of whom must be an with established guidelines and controls and the Manual. Furthermore, to ensure adherence to The Board, through the Audit Committee, independent director, and is responsible for the the appropriateness of risk management and the adopted leading practices on good corporate reviews the effectiveness of the Company’s, selection and evaluation of qualifications of directors risk mitigation measures taken. governance, the Company has designated a including its subsidiaries and affiliates, risk and officers. Compliance Officer reporting directly to the management system with emphasis on The Compensation and Remuneration Committee is Chairman of the Board. monitoring of existing and emerging risks composed of three members, at least one of whom as well as risk mitigation measures and on There are no material deviations to date from the must be an independent director, and determines an identifying risks before these cause significant Corporation’s Manual of Corporate Governance. appropriate remuneration system for directors and trouble for the business. Based on the set The Board has no immediate plans to adopt new officers. guidelines, directors are assigned specific policies for corporate governance. The Risk Management Committee is composed of subsidiaries, affiliates or business where they three members, at least one of whom must be an monitor compliance of the risk management independent director, and oversees the management of the Company’s risk policy and activities. 40 EMPERADOR INC. 2019 ANNUAL REPORT 41

ENTERPRISE RISK MANAGEMENT

b. Group Risk Assessment (Monitoring and Risk Management and Control Risk Exposure Measurement Process) (Structures, Procedures, Actions Taken) Risk Assessment (Monitoring and Risk Management and Control Risk Exposure 1. Hazards and natural or other Have an emergency response plan/action Allow the different business segments to Measurement Process) (Structures, Procedures, Actions Taken) catastrophes continue operations even during natural disaster or calamity 1. Hazards and natural or other Have an emergency response plan/action Allow the different business segments to catastrophes continue operations even during natural 2. Regulatory developments Review of new laws and regulations Ensure the different business segments are disaster or calamity compliant with all laws and regulations 2. Regulatory developments Review of new laws and regulations Ensure the different business segments are 3. Money laundering and cheating at Constant security check and monitoring, Minimize situations when these activities compliant with all laws and regulations gaming areas check and balance system can happen 3. Money laundering and cheating at Constant security check and monitoring, Minimize situations when these activities 4. Supply of raw materials and packaging Maintain diverse group of suppliers, get at Prevent overdependence on a single gaming areas check and balance system can happen materials least 3 quotations from suppliers supplier, ensure the best price possible 4. Supply of raw materials and packaging Maintain diverse group of suppliers, get at Prevent overdependence on a single 5. Consumer taste, trends and preferences Market study and analysis Be aware of trends and preferences to materials least 3 quotations from suppliers supplier, ensure the best price possible develop new products or adapt existing strategy 5. Consumer taste, trends and preferences Market study and analysis Be aware of trends and preferences to develop new products or adapt existing 6. Competition Market study and analysis; Maintain a Be aware of trends and preferences strategy diversified earnings base; Constant product to develop new products or adapt innovation. existing strategy; Revenue and property 6. Competition Market study and analysis; Maintain a Be aware of trends and preferences diversification diversified earnings base; Constant product to develop new products or adapt innovation. existing strategy; Revenue and property 7. Philippine economic / political conditions Review of business / political situation Ensure the different business segments diversification can immediately adapt to changes in economic/political conditions and can 7. Philippine economic / political conditions Review of business / political situation Ensure the different business segments devise strategies to meet these changes can immediately adapt to changes in economic/political conditions and can devise strategies to meet these changes • Minority Shareholders c. Committee Risk to Minority Shareholders

The majority shareholder’s voting power in the Company may affect the ability of minority shareholders to influence and determine Committee/Unit Control Mechanism Details of its Functions corporate strategy. Board Audit Committee Provides oversight over the Company’s Provides oversight over the Company’s and its subsidiaries, affiliates and business and its subsidiaries, affiliates and business segments risk management process, segments risk management process, 3. Control System Set Up financial reporting process and internal financial reporting process and internal audit. audit. a. Company

Risk Assessment (Monitoring and Measurement Risk Management and Control (Structures, Risk Exposure Process) Procedures, Actions Taken)

1. Financial Risk It monitors potential sources of risk through The Company regularly monitors financial trends. monitoring of investments and assets, and projected The Company regularly keeps track of its capital cash flows from operations. The Company also position and assesses business conditions to ensure maintains a financial strategy that the scheduled early detection and determination of risks, and its principal and interest payments are well within the consequent adverse impact. It adopts measures, Company’s ability to generate cash from its business as may be deemed necessary and appropriate, to operations. mitigate risks. 2. Operational Risks Review of new laws and regulations Any operational risks monitored are brought to the attention of the Risk Committee and addressed therein, together with inputs from corporate officers. The findings and recommendations are then brought to the Board for approval. There has been no significant operational risk determined by the Company in its operations in the past year. 3. Philippine economic / Review of business / political situation Ensure the Company can immediately adapt to political conditions changes in economic / political conditions and can devise strategies to meet these changes 4. Liquidity Minimize exposure to financial markets Actively secure short-to medium-term cash flow 42 EMPERADOR INC. 2019 ANNUAL REPORT 43

BOARD OF DIRECTORS

DR. ANDREW L. TAN WINSTON S. CO KATHERINE L. TAN Chairman of the Board Director and President Director and Treasurer

Dr. Andrew L. Tan was first elected as Director and He is also the Chairman of Alliance Global Group Mr. Winston S. Co was first elected as Director and Ms. Katherine L. Tan was first elected as Director Chairman on August 28, 2013 and concurrently Cayman Islands, Inc., Alliance Global Brands, Inc., President of Emperador Inc. on 28 August 2013. and Treasurer on 28 August 2013. She is the the Chairman of Emperador Distillers, Inc. He is Suntrust Properties, Inc., Adams Properties, Inc., He has been Director and President of Emperador Director and Treasurer of Alliance Global Group, also the Chairman of Alliance Global Group, Inc., Consolidated Distillers of the Far East, Inc., and Distillers, Inc. since 2003 and currently a Director Inc., and Director of Megaworld Corporation. the parent company of Emperador Inc. He is the Townsquare Development, Inc. He is the Chairman of Alliance Global Group, Inc., the parent company Chairman and President of Megaworld Corporation and Treasurer of The Andresons Group, Inc. and of Emperador Inc. Mr. Co’s field of expertise is in She is a Director and Treasurer of Emperador and concurrently the Chairman of subsidiaries sits in the boards of Infracorp Development, Inc., finance and marketing of consumer products. He Distillers, Inc. since 2003, and of Alliance Global of Megaworld – Global-Estate Resorts, Inc. and Eastwood Cyber One Corporation, Megaworld is concurrently Chairman and President of New Brands, Inc., Yorkshire Holdings, Inc., and New Town Empire East Land Holdings, Inc. Cayman Islands, Inc., Forbes Town Properties Town Land Partners, Inc.; Chairman of Anglo Land Partners, Inc. She is concurrently Chairman & Holdings, Inc., Gilmore Property Marketing Watsons Glass, Inc.; a Director of Alliance Global and President of Andresons Global, Inc. and Choice He pioneered the live-work-play-learn model in the Associates, Inc., Megaworld Central Properties, Brands, Inc., Forbes Town Properties & Holdings, Gourmet Banquet, Inc.; Director and President of real estate development through the Megaworld Inc., and Raffles & Company, Inc. He is also the Inc., McKester Pik-Nik International Limited, Raffles The Andresons Group, Inc., Consolidated Distillers Corporation’s integrated township communities, Vice-Chairman and Treasurer of Golden Arches & Company, Incorporated, and The BaR Beverage, of the Far East, Inc., and Raffles & Company, Inc.; fueling the growth of the business process Development Corporation and Golden Arches Inc.; and Senior Vice President of The Andresons and Director and Corporate Secretary of The outsourcing (“BPO”) industry, food and beverage, Realty Corporation and a Director and Treasurer of Group, Inc. BaR Beverage, Inc. Ms. Tan graduated from St. and quick service restaurants industries. Dr. Tan Andresons Global, Inc. Scholastica’s College with a degree in Nutrition. is concurrently the Chairman of the Board and Mr. Co is a Magna Cum Laude graduate of President of Megaworld Land, Inc., Megaworld Dr. Tan graduated Magna Cum Laude from the Jose Rizal College with a Bachelor of Science in Globus Asia, Inc., Megaworld Newport Property University of the East with a degree of Bachelor of Commerce. Holdings, Inc., Mactan Oceanview Properties Science in Business Administration. and Holdings, Inc., Richmonde Hotel Group International Limited, The BaR Beverage, Inc. and Yorkshire Holdings, Inc. 44 EMPERADOR INC. 2019 ANNUAL REPORT 45

BOARD OF DIRECTORS

KENDRICK ANDREW L. TAN KEVIN ANDREW L. TAN ALEJO L. VILLANUEVA JR. ENRIQUE M. SORIANO III Director Director Independent Director Independent Director

Mr. Kendrick Andrew L. Tan was first elected as Mr. Kevin Andrew L. Tan was first elected as Mr. Alejo L. Villanueva, Jr. was first elected as Mr. Enrique M. Soriano III was first elected as Director of Emperador Inc. on 28 August 2013. He Director on 04 October 2017. He was appointed as Independent Director on 28 August 2013. He is Independent Director of the Company on 16 has served as Corporate Secretary and Executive the Chief Executive Officer of Alliance Global Group, also an Independent Director of Alliance Global May 2016. He is also an Independent Director of Director of Emperador Distillers, Inc. since 2007. Inc. in September 2018. He is also a Director of Group, Inc., Empire East Land Holdings, Inc. and Travellers International Hotel Group, Inc. He heads the Research & Development Division Global-Estate Resorts, Inc. and Empire East Land Suntrust Home Developers, Inc. Mr. Villanueva of Emperador Distillers, Inc. He is concurrently a Holdings, Inc. Mr. Tan has over 11 years of experience is a Director of First Capital Condominium Mr. Soriano is the Executive Director of the Wong & Director of Anglo Watsons Glass, Inc., Consolidated in retail leasing, marketing and operations. He Corporation, a non-stock non-profit corporation. Bernstein Strategic Advisory Group and a member Distillers of the Far East, Inc. Emperador Brandy, is currently the Senior Vice President and Chief He is also the Chairman of Ruru Courier Systems, of the Philippine Marketing Association. He is the Inc., The BaR Beverage, Inc., The Andresons Group, Strategy Officer of Megaworld Corporation where Inc. and Vice Chairman of Public Relations Chief Advocacy Office r of Asia America Policy Inc., and Yorkshire Holdings, Inc. he is in-charge of developing corporate strategies, Counselors Foundations of the Philippines, Inc. Institute and Consultant of International Finance expansion and new opportunities, as well as investor He is a professional consultant with more than Corporation/World Bank Group. He is a Family Mr. Tan graduated from Southern New Hampshire and stakeholder relations. He was formerly head of 30 years experience in the fields of training and Business Coach, Book Author, Professor of Global University with a degree in Bachelor of Science in the Commercial Division of Megaworld Corporation, development, public relations, community relations, Marketing, Program Director for Real Estate and Accountancy. which markets and operates the Megaworld institutional communication, and policy advocacy. former Chairman of the Marketing Cluster of the Lifestyle Malls, including Eastwood Mall and The Ateneo Graduate School of Business. He is also Clubhouse at Corinthian Hills in Quezon City, Venice Mr. Villanueva obtained his bachelor’s degree in the Past President of Association of Marketing Piazza at McKinley Hill, Burgos Circle at Forbestown Philosophy from San Beda College, summa cum Educators. Center, and Uptown Mall, all in Fort Bonifacio, laude. He has a master’s degree in Philosophy Mr. Soriano holds a B.A. in History from the Newport Mall at Resorts World Manila in Pasay City, from the University of Hawaii under an East- University of the Philippines, an MBA from De La and Lucky Chinatown Mall in Binondo, Manila. He West Center Fellowship. He also took up special Salle University, and Doctorate Units at the UP is the Chairman of Infracorp Development, Inc. and studies in the Humanities at Harvard University. National College of Public Administration. He Director of Emperador Distillers, Inc., Alliance Global He studied Organizational Behavior at INSEAD in also pursued Executive Education at the National Brands, Inc., Anglo Watsons Glass, Inc., Yorkshire Fontainebleau, France. He taught at the Ateneo University of Singapore Business School. Holdings, Inc., The BaR Beverage, Inc., Emperador Graduate School of Business, the UST Graduate Brandy, Inc., New Town Land Partners, Inc., and School, and the Asian Institute of Journalism. Consolidated Distillers of the Far East, Inc.

He holds a degree in Business Administration Major in Management from the University of Asia and the Pacific. 46 EMPERADOR INC. 2019 ANNUAL REPORT 47 FINANCIAL STATEMENTS MANAGEMENT’S DISCUSSION AND ANALYSIS

KEY PERFORMANCE INDICATORS

% change yoy In Million Pesos 2019 2018 2017 2019 2018 Revenues P51,565 P47,050 P42,655 9.6 10.3 5L[WYVÄ[ P6,832 P6,829 P6,332 0.05 7.8 5L[WYVÄ[[VV^ULYZ P6,725 P6,658 P6,322 1.0 5.3 Total assets P125,986 P117,818 P111,536 6.9 5.6 47 Management’s Discussion and Analysis Total current assets P63,845 P56,000 P 51,017 14.0 9.2 Total current liabilities P28,445 P20,217 P 16,837 40.7 20.1 .YVZZWYVÄ[THYNPU 33.7 34.6 35.4 57 Statement of Management’s Responsibility for 5L[WYVÄ[YH[L 13.2 14.5 14.8 Consolidated Financial Statements 5L[WYVÄ[YH[L[VV^ULYZ 13.0 14.2 14.8 Return on assets % 5.4 5.8 5.7 Current ratio 2.2x 2.8x 3.0x 58 Report of Independent Auditors Quick ratio 1.1x 1.3x 1.5x

V 9L]LU\LNYV^[O¶TLHZ\YLZ[OLWLYJLU[HNLJOHUNLPUYL]LU\LZV]LYHKLZPNUH[LKWLYPVKVM 66 Consolidated Statements of Financial Position [PTL V 5L[WYVÄ[NYV^[O¶TLHZ\YLZ[OLWLYJLU[HNLJOHUNLPUUL[WYVÄ[V]LYHKLZPNUH[LKWLYPVKVM 67 Consolidated Statements of Comprehensive Income [PTL V .YVZZWYVÄ[THYNPU¶JVTW\[LKHZWLYJLU[HNLVMNYVZZWYVÄ[B^OPJOPZZHSLZSLZZJVZ[VM ZHSLZD[VZHSLZ¶NP]LZPUKPJH[PVUVMWYPJPUNJVZ[Z[Y\J[\YLHUKWYVK\J[PVULɉJPLUJ` 68 Consolidated Statements of Changes in Equity V 5L[WYVÄ[YH[L¶JVTW\[LKHZWLYJLU[HNLVMUL[WYVÄ[[VYL]LU\LZTLHZ\YLZ[OLVWLYH[PUN LɉJPLUJ`HUKZ\JJLZZVMTHPU[HPUPUNZH[PZMHJ[VY`JVU[YVSVMJVZ[Z V 9L[\YUVUHZL[ZBVYJHWP[HSLTWSV`LKD¶[OLYH[PVVMUL[WYVÄ[[V[V[HSHZZL[ZTLHZ\YLZ[OL 70 Consolidated Statements of Cash Flows KLNYLLVMLɉJPLUJ`PU[OL\ZLVMYLZV\YJLZ[VNLULYH[LUL[PUJVTL V *\YYLU[YH[PV¶JVTW\[LKHZJ\YYLU[HZZL[ZKP]PKLKI`J\YYLU[SPHIPSP[PLZ¶TLHZ\YLZ[OLHIPSP[` VM[OLI\ZPULZZ[VTLL[P[ZJ\YYLU[VISPNH[PVUZ;VTLHZ\YLPTTLKPH[LSPX\PKP[`X\PJRHZZL[Z 71 Notes to Consolidated Financial Statements BJHZOTHYRL[HISLZLJ\YP[PLZHJJV\U[ZYLJLP]HISLZDPZKP]PKLKI`J\YYLU[SPHIPSP[PLZ

RESULTS OF OPERATIONS ;OL.YV\WPZWYLZLU[LKPU[V[^VZLNTLU[Z!:JV[JO>OPZR`YLWYLZLU[PUN[OL<2VWLYH[PVUZHUK )YHUK`YLWYLZLU[PUN[OL7OPSPWWPULHUK:WHUPZOVWLYH[PVUZPUJS\KPUN[OL-\UKHKVYHUK+VTLJX VWLYH[PVUZZ[HY[PUN4HYJOHUK:LW[LTILYYLZWLJ[P]LS`)3*PZHQVPU[]LU[\YL^OPJOPZ HJJV\U[LKMVY\UKLY[OLLX\P[`TL[OVKHUKYLWVY[LK\UKLY[OL)YHUK`:LNTLU[

0U [OL.YV\WYLJVYKLKHUVUYLJ\YYPUNSVZZMYVTPTWHPYTLU[VMJLY[HPU:WHUPZO[YHKLTHYRZ

% change yoy In Million Pesos 2019 2018 2017 2019 2018 Revenues P51,565 P47,050 P42,655 9.6 10.3 )YHUK` 37,627 33,681 30,391 11.7 10.8 :JV[JO>OPZR` 13,938 13,369 12,264 4.3 9.0 5L[7YVÄ[ 6,832 6,829 6,332 0.0 7.8 5L[7YVÄ[[VV^ULYZ 6,725 6,658 6,322 1.0 5.3 5VUYLJ\YYPUNSVZZ 272 57¶YLJ\YYPUN 7,105 6,829 6,332 4.0 7.8 )YHUK` 5,138 5,017 5,012 2.4 0.1 :JV[JO>OPZR` 1,967 1,812 1,320 8.6 37.3 57[VV^ULYZYLJ\YYPUN 6,998 6,658 6,322 5.1 5.3 )YHUK` 5,031 4,846 5,002 3.8  :JV[JO>OPZR` 1,967 1,812 1,320 8.6 37.3 48 EMPERADOR INC. 2019 ANNUAL REPORT 49

MANAGEMENT’S DISCUSSION AND ANALYSIS

Year Ended December 31, 2019 Compared With Year Ended December 31, 2018

The Group continued to deliver positive growths in 2019. The Group reported P51.56 billion revenues, up 9.6% year-on-year. Excluding a one-time loss in 2019, which is due to impairment of certain trademarks, net SUR¿WUHDFKHG3ELOOLRQRIZKLFK3ELOOLRQZDVDWWULEXWDEOHWRRZQHUVXSDQG\HDURQ- year, respectively.

TOTAL REVENUES GROSS PROFIT (in millions) 10% GPR B10% B 35% 35% 34%

33% 40% 40% B11% B12% B7% B6% 35% 32% 30%

?1% B6% B9% B4% B30% B5% 4,090 14,942 16,041 16,926 10,852 10,730 11,339 5,311 5,587 42,655 ,050 47 51,565 30,391 33,681 37,627 12,264 13,369 13,938

Group Brandy Whisky Group Brandy Whisky 2017 2018 2019 2017 2018 2019

NET PROFIT* TOTAL REVENUES (in millions) NPR 15% 14% 14%

B8% B4% 16% 14% 13% 10% 13% 14% 29% 28% 27% B0% B2%

B37% B9% 71% 72% 73% 1,320 1,812 1,967 6,332 6,829 7,105 5,012 5,017 5,138

Group Brandy Whisky 20172018 2019 2017 2018 2019 Brandy Whisky

*Excluding one-time loss in 2019 50 EMPERADOR INC. 2019 ANNUAL REPORT 51

MANAGEMENT’S DISCUSSION AND ANALYSIS

Revenues Profit before Tax As a result of the foregoing, profit before tax inched 0.5% to P8,480 million from P8,436 million in 7RWDOUHYHQXHVUHDFKHG3PLOOLRQLQDVFRPSDUHGWR3PLOOLRQLQULVLQJ 2019. 9.6% year-on-year as both the Brandy and Scotch Whisky segments registered growths. Tax Expense 7KH%UDQG\VHJPHQWWXUQHGRYHUUHYHQXHVIURPH[WHUQDOFXVWRPHUVKLJKHUE\\HDURQ \HDUWKHUHE\LQFUHDVLQJLWVVKDUHLQ(03UHYHQXHSLHWR(PSHUDGRU)XQGDGRUDQG Tax expense increased 2.5% to P1,648 million from P1,607 million a year ago due to higher final tax Presidente remained to be the segment’s top-selling Philippine, Spanish and Mexican brandy on interest income. brands, respectively, followed by Spain’s Terry and Tres Cepas and Mexico’s Don Pedro. On Net Profit the local front, Emperador Brandy remains the nationwide leader, particularly in key metro FLWLHVDPLG¿HUFHFRPSHWLWLRQDPRQJORFDOEUDQGV(PSHUDGRULQWURGXFHGDOLJKWHUEUDQG\ As a result of the foregoing, net profit remained stable at P6,832 million from P6,829 million a year Emperador Double Light in July 2019 and a bundle pairing ‘Apple of My Light’ in August 2019. The ago. Excluding the one-time loss, net profit jumped 4.0% to P7,105 million and the portion attributable ‘Apple of My Light’ is the second pairing of Emperador Light with Club Mix, this time with the Apple to owners rose 5.1% to P6,998 million. 7HD&RUGLDOYDULDQW7KH¿UVWSDLULQJEXQGOHFDOOHGµ/LPH/LJKW¶SDLUV(PSHUDGRU/LJKWZLWK&OXE0L[ /LPH&RUGLDOZKLFKFDPHRXWLQ$XJXVWLVVWLOOEHLQJRIIHUHGDWSUHVHQW7KHRIIVKRUHEUDQGLHV EBITDA were seen growing in the Philippines, Spain, Mexico, Guinea and USA. EBITDA, which is computed as profit before interest expense, tax, depreciation and amortization and non- recurring gains/losses, amounted to P11,080 million and P10,332 million for 2019 and 2018, respectively, 7KH6FRWFK:KLVN\VHJPHQWWXUQHGRYHUUHYHQXHVWRH[WHUQDOFXVWRPHUVKLJKHUE\\HDU showing margins of 21.5% and 22.0% in respective years. on-year. The business is growing not only in UK but also in other parts of the world, especially LQ$VLD*UHDWHU(XURSH86$&DQDGD)UDQFH*HUPDQ\/DWLQ$PHULFDDQG$IULFD0RVWRI Year Ended December 31, 2018 Compared With Year Ended December 31, 2017

these territories showed double-digit growths which all together accounted for a big chunk of Revenues the segment’s revenues. The single malts continued to attract sales. The blended malts further boosted sales. Total revenues climbed P47,050 million in 2018, up 10.3% from P42,655 million a year ago attributed to continuing sales growth from both the Brandy and Scotch Whisky segments. Other incomeZHQWXSWR3PLOOLRQIURP3PLOOLRQD\HDUDJRGXHWRKLJKHULQWHUHVW income, scrap sales, gain on sale of securities, unrealized foreign exchange gains, and share in net The Scotch Whisky segment turned over revenues to external customers higher by 9.0% year- on-year. The business was growing not only in UK but also in other parts of the world, SUR¿WRI%/&UHFRUGHGIRUWKLV\HDU especially in Asia where revenues had more than doubled as brands enjoyed success across a number of markets. The Dalmore, the flagship malt whisky product, was again the major driver Costs and Expenses of growth for the year as it continued to attract new consumers at the apex of the single malt 7RWDOFRVWVDQGH[SHQVHVDPRXQWHGWR3PLOOLRQWKLV\HDUIURP3D\HDUDJRXS category through both the Core Range and the Rare Expressions. The new The Dalmore Port year-on-year primarily from the Brandy business which, including intersegment purchases, increased Wood Reserve was added to the Core Range with further limited releases of 35YO, 40YO, \HDURQ\HDUZKLOHWKH6FRWFK:KLVN\EXVLQHVVH[SDQGHG 45YO, and Vintage Expressions. Jura with its redesigned range and exclusive Global Travel Retail range continued to attract sales. The re-launch of Fettercairn in a new packaging, and the Cost of Goods Sold launch of Tamnavulin Vintage Collection in the single malt category in 2018 and the new Costs increased 10.0%, which was at almost same pace as sales. The slight difference was attributed contemporary blended malt brand Shackleton in 2017 further boost revenues during the year. WRSURGXFWPL[DQGSDFNDJLQJIRUWKHQHZDQGUHSDFNDJHGSURGXFWVWKLV\HDU The Brandy segment on the other hand, reported revenues to external customers higher by 10.8% year-on-year. The Spanish business was growing in Spain, Philippines, UK and USA, .YVZZ7YVÄ[ which all together accounted for three-quarters of its revenues. The Spanish brands continued *URVVSUR¿WPDUJLQV *30 RQFRQVROLGDWHGOHYHOUHPDLQHGKHDOWK\DWLQDQGLQ to collect awards and recognitions in international competitions this year – a total of ten gold The slight swing was attributed to product mix and promotional bundling, especially towards the last medals for Fundador, and Terry brandies, highlighting a Trophy for Fundador Supremo 18YO quarter of the year in time for the Christmas season. The GPMs of the Brandy and Scotch Whisky as the Best Grape Brandy at the Hong Kong International Wine & Spirit Competition; and VHJPHQWVZHUHUHVSHFWLYHO\SRVWHGDWDQGLQDVFRPSDUHGWRDQGLQ seventeen gold medals and three trophies for Harveys Sherries. Fundador Supremo 18YO, a Other operating expenses 2WKHURSHUDWLQJH[SHQVHVZHQWXSWR3PLOOLRQIURP3PLOOLRQPDLQO\GXHWR advertising and promotions as brand and marketing support; depreciation and amortization, due to QHZFDSLWDODGGLWLRQVDQGULJKWRIXVHDVVHWVSURIHVVLRQDOIHHVODUJHO\UHODWLQJWRORDQUH¿QDQFLQJ and contracted services; and the impairment loss on certain Spanish trademarks.

Interest Expense and Other charges ,QWHUHVWH[SHQVHVKUDQNWR3PLOOLRQIURP3PLOOLRQGXHWRORZHULQWHUHVWUDWHRIWKH UH¿QDQFHGORDQLQZKLFKZDVRIIVHWSDUWLDOO\E\WKH¿QDQFHFRVWXQGHU3)56WKLV\HDU2WKHU FKDUJHVDOPRVWGRXEOHGWR3PLOOLRQIURP3PLOOLRQD\HDUDJRPDLQO\IURPORVVRQGLVSRVDORI property. 52 EMPERADOR INC. 2019 ANNUAL REPORT 53

MANAGEMENT’S DISCUSSION AND ANALYSIS

super-premium Brandy de Jerez, is available in Travel Retail across Europe and Asia, and in FINANCIAL CONDITION the Philippines. On the local front, Emperador Brandy remains the nationwide leader, particularly in key metro cities, amid fierce competition among local brands. Emperador created December 31, 2019 and 2018 a new offering for Emperador Light drinkers by pairing Emperador Light with Club Mix Lime Cordial, dubbed as ‘LimeLight’ and ‘GreenLight’; and, in mid-September, ‘the gin for the new generation’ Total assets amounted to P125,986 million as at December 31, 2019, a 6.9% jump from P117,818 The BaR Premium Gin was launched, infused with flavors and botanicals from the gardens of million as of December 31, 2018. The Group is strongly liquid with current assets exceeding current Andalusia, Spain, in Pink, Lime and Premium Dry variants. liabilities 2.2 times by the end of the current year.

Other income went up 56.9% to P705 million from P449 million a year ago due to higher interest Cash and cash equivalents swelled 24.3% or by P1,512 million mainly from operations. income and dividends, scrap sales and higher net results from BLC which resulted in higher share in net profit recorded for this year. Trade and other receivables increased by 25.7% or P4,845 million, primarily due to higher sales in the

lead up to Christmas holidays and advances to suppliers and related party. Costs and Expenses

Total costs and expenses amounted to P38,614 million this year from P34,820 million a year ago, up Financial assets at fair value through profit or loss of P1,209 million at beginning of the year were 10.9% year-on-year primarily from the Brandy business which, including intersegment purchases, disposed of in the second quarter at a gain of P16.4 million. increased 13.6% year-on-year while the Scotch Whisky business expanded 2.4%. Inventories expanded 7.4% or P2,113 million, from continued fillings of Scotch whisky and Spanish Cost of Goods Sold brandy and cased stocks of new products. Costs increased 11.2% primarily due to higher costs in the Brandy segment, which grew faster than sales, while Scotch Whisky segment’s costs saved 4.3% from a year ago. Such increase in the Prepayments and other current assets surged 45.2% or P583 million due to general prepayments, Brandy Segment is attributed to high cost of wine, new bottles and packaging for the new and input vat and prepaid excise tax. These are mostly due to timing of prepayments. re/packaged products this year. Investments in a joint venture decreased 7.8% or P254 million from dividend return and translation Gross Profit adjustment. Gross profit margins (GPM) on consolidated level remained healthy at 35% in 2018 and 2017. The GPMs of the Brandy and Scotch Whisky segments were respectively posted at 32% and 40% in 2018 Property, plant and equipment expanded 6.4% or P1,739 million primarily from set-up of right of use as compared to 35% and 33% in 2017. assets which has net carrying value of P1,603 million at year-end [see Notes 9.2 and 2.2(a)(iv) to the Consolidated Financial Statements], and capital additions during the year. Other operating expenses Other operating expenses went up 22.0% to P7,478 million from P6,131 million, mainly due to Retirement benefit obligations reversed 298% or P330 million, from actuarial gains booked in the advertising and promotions which included strategic marketing spends (new and repackaged products interim period by UK resulting in retirement benefit assets of P220 million at year-end from liability of launched this year by both segments), salaries and employee benefits (due to more employees and P110.7 million at last year-end. new positions created) and travel and transportation (for international sales promotions). The current interest-bearing loans increased 16.5% or P941 million while non-current portion Interest Expense and Other charges decreased 10.6% or P3,016 million, for combined net decrease of P2,075 million, from net repayment Interest expense went down 18.0% to P819 million from P998 million because there was no more of bank loans and translation adjustment.
fixed interest on ELS this year. Other charges decreased to P12 million from P426 million due to recovery from foreign exchange losses recorded in previous year. Trade and other payables went up 28.5% or P3,778 million, mainly from trade payables representing obligations to various suppliers of raw materials such as alcohol, molasses, flavorings and other Profit before Tax supplies; and accruals incurred by the group.

As a result of the foregoing, profit before tax climbed 7.7% to P8,436 million from P7,835 million in Equity-linked debt securities totaled P5,280 million at year-end, split into its current and non-current 2017. portions of P1,836 million and P3,444 million. The current portion was subsequently converted into common shares in February 2020. Tax Expense Tax expense increased 6.9% to P1,607 million from P1,503 million a year ago due to higher taxable Current and non-current lease liabilities were accounts brought about by the adoption of PFRS 16- income, especially in the Scotch Whisky segment. Leases beginning January 1, 2019. These amounted to P305 million and P1,717 million, respectively, at end of the year. [See Notes 9.3 and 2.2(a)(iv) to the Consolidated Financial Statements] Net Profit Dividends payable pertained to unpaid dividends at year-end, presented net of final withholding tax, As a result of the foregoing, net profit went up 7.8% to P6,829 million from P6,332 million a year ago. which were subsequently paid on January 20, 2020.

54 EMPERADOR INC. 2019 ANNUAL REPORT 55

MANAGEMENT’S DISCUSSION AND ANALYSIS

Financial liabilities at fair value through profit or loss went down 79.1% or P34 million due to maturities Trade and other receivables went up 28.4% or P4,181 million, primarily due to higher sales in the lead at various points. up to Christmas holidays and advances to suppliers and related party.

Income tax payable escalated 50.3% or P623 million primarily from higher unpaid income taxes by the Financial assets at fair value through profit or loss went up by P1,189 million from end-2017 due to Group at current year-end which is further attributed to higher taxable profit. the acquisition of financial instruments which are classified as such during the year.

Provisions refer to the amounts provided by WMG for leased properties located in Scotland. Inventories expanded 12.7% or P3,209 million, primarily due to additional cased stocks from the new Provisions went down by 68.6% or P360 million mainly due the fall in onerous lease provision upon products and the fillings of Scotch whisky due to high product demand. adoption of accounting change under IFRS 16 starting January 1, 2019. [See Notes 16 and 2.2(a)(iv) to the Consolidated Financial Statements] Prepayments and other current assets rose 35.4% or P338 million due to general prepayments and input vat. These are mostly due to timing of prepayments. Deferred tax liabilities are attributed to the UK group. These are net of deferred tax assets of EDI and AWGI. The current interest-bearing loans increased 37.0% or P1,539 million while non-current portion decreased 1.6% or P446 million, for P1,092 net increase, from new loans drawn locally (for inventory Equity attributable to owners of the parent company increased by 5.5% or P3,346 million mainly from purchases) and in UK (for purchase of fillings of Scotch whisky), net of repayments made during the net profit realized during the year as reduced by accumulated translation adjustments and treasury year.
shares during the year. Trade and other payables went up 9.6% or P1,159 million, mainly from trade payables representing Accumulated translation adjustments refer to the difference resulting in the translation of the foreign obligations to various suppliers of raw materials such as alcohol, molasses, flavorings and other subsidiaries’ financial statements to Philippine pesos. Monetary assets and liabilities are translated at supplies and accruals incurred by the group. the closing rate and income and expenses at average exchange rates. The accumulated balance of the account is reflective of the depreciation in the value of Philippine peso and/or foreign currencies. Income tax payable escalated 106.5% or P639 million primarily from higher unpaid income taxes by the Group at current year-end which is further attributed to higher taxable profit. Treasury shares pertain to the acquisition cost of the shares that have been brought back from the market pursuant to the Company’s ongoing buyback program. Acquisitions during the year totaled Provisions refer to the amount provided by WMG for leased properties located in Scotland. P1,638 million. Provisions went up by 18.4% or P82 million due additional provisions made during the year.

Share options pertain to the options granted to qualified employees of the Group pursuant to an Deferred tax liabilities are attributed to the UK group. These are net of deferred tax assets of EDI and approved employee share option plan. The increment of 31.7% or P27 million was a result of AWGI. recognition of additional share options for the year with a corresponding debit to Investments in EDI account. Accumulated translation adjustments refer to the difference resulting in the translation of the foreign subsidiaries’ financial statements to Philippine pesos. Monetary assets and liabilities are translated at Revaluation reserves shoot up by P90 million due to actuarial gain on retirement benefit obligations the closing rate and income and expenses at average exchange rates. The accumulated balance of booked by WMG. the account is reflective of the depreciation in the value of Philippine peso and/or foreign currencies.

Other reserves include legal reserves that represent the statutory requirements in Luxembourg which Treasury shares pertain to the acquisition cost of the shares that have been brought back from the comprise of net wealth tax reserve and capital reserve at year-end. In 2019 and 2018, grant received market pursuant to the Company’s ongoing buyback program. by GES in Spain were added as part of this account. Share options pertain to the options granted to qualified employees of the Group pursuant to an Non-controlling interest pertains to the minority interest in DBLC, a subsidiary consolidated by end- approved employee share option plan. The increment of 46.5% or P27 million was a result of 2017 and in Boozylife Inc., a local company consolidated starting in 2018. recognition of additional share options for the year with a corresponding debit to Investments in EDI account. December 31, 2018 and 2017 Revaluation reserves shoot up by P157 million due to actuarial gain on retirement benefit obligations Total assets amounted to P117,818 million as of December 31, 2018, a 5.6% increase from P111,536 booked by WMG. million as of December 31, 2017. The Group is strongly liquid with current assets exceeding current liabilities 2.8 times by the end of the current year. Other reserves included legal reserves that represent the statutory requirements in Luxembourg which comprise of net wealth tax reserve and capital reserve at year-end. In 2018, grant received by Cash and cash equivalents were depleted 38.7% or P3,934 million mainly from the parent’s dividend GES in Spain were added as part of this account. payment (P2,399 million) and purchase of treasury shares (P1,529 million) during the year. Non-controlling interest pertains to the minority interest in DBLC, a newly-incorporated subsidiary consolidated by end-2017 and in Boozylife Inc., a 51% newly-acquired local company. 56 EMPERADOR INC. 2019 ANNUAL REPORT 57

MANAGEMENT’S DISCUSSION AND ANALYSIS STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

LIQUIDITY AND CAPITAL RESOURCES

The Group sourced funds from operations and loans and borrowings. The Company expects to meet its working capital requirements for the e n s u i n g y e a r primarily from available funds at year- end plus cash flows from operations. It may also from time to time seek other sources of funding, if necessary, which may include debt or equity financings, depending on its financing needs and market conditions.

PROSPECTS FOR THE FUTURE

The Group’s renowned brandy and whisky products sold all over the world are the catalyst for continued growth and put the Group in best position, with its high-quality aged inventory, for premiumization and innovation opportunities.

OTHER MATTERS

Except for what have been noted:

There were no other known material events subsequent to the end of the year that would have a material impact in the current year being reported.

There are no other known trends or demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the Group’s liquidity increasing or decreasing in any material way. The Group does not have nor anticipate having any cash flow or liquidity problems. The Group is not in default or breach of any note, lease or other indebtedness or financing arrangement requiring it to make payments.

There are no other known events that will trigger direct or contingent financial obligation that is currently considered material to the Group, including any default or acceleration of an obligation. There are no other material off-balance sheet transactions, arrangements, obligations, and other relationships with unconsolidated entities or other persons created during the reporting period.

There are no other known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations. There are also no known events that will cause material change in the relationship between costs and revenues.

There are no other significant elements of income or loss that did not arise from continuing operations.

There were no other material issuances, repurchases or repayments of debt and equity securities.

The business has no seasonal aspects that had a material effect on the financial condition and results of operations of the Group. 58 EMPERADOR INC. 2019 ANNUAL REPORT 59

REPORT OF INDEPENDENT AUDITORS

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REPORT OF INDEPENDENT AUDITORS

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CONSOLIDATED STATEMENTS OF CONSOLIDATED STATEMENTS OF FINANCIAL POSITION COMPREHENSIVE INCOME DECEMBER 31, 2019 AND 2018 FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Amounts In Philippine Pesos) (Amounts in Philippine Pesos)

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6HH1RWHVWR&RQVROLGDWHG)LQDQFLDO6WDWHPHQWV 68 EMPERADOR INC. 2019 ANNUAL REPORT 69

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Amounts in Philippine Pesos)

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See Notes to Consolidated Financial Statements. 70 EMPERADOR INC. 2019 ANNUAL REPORT 71

CONSOLIDATED STATEMENTS 0F CASH FLOWS NOTES TO CONSOLIDATED FOR THE YEARS ENDED DECEMBER 31, 2019, 2018 AND 2017 (Amounts in Philippine Pesos) FINANCIAL STATEMENTS DECEMBER 31, 2019, 2018 AND 2017 (Amounts in Philippine Pesos)

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  106 EMPERADOR INC. 2019 ANNUAL REPORT 107

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  122 EMPERADOR INC. 2019 ANNUAL REPORT 123

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  126 EMPERADOR INC. 2019 ANNUAL REPORT 127

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  128 EMPERADOR INC. 2019 ANNUAL REPORT 129

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  132 EMPERADOR INC. 2019 ANNUAL REPORT 133

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  134 EMPERADOR INC. 2019 ANNUAL REPORT 135

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  138 EMPERADOR INC. 2019 ANNUAL REPORT 139

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  142 EMPERADOR INC. 2019 ANNUAL REPORT 143

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  144 EMPERADOR INC. 2019 ANNUAL REPORT 145

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  146 EMPERADOR INC. 2019 ANNUAL REPORT 147

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 150 EMPERADOR INC. 2019 ANNUAL REPORT 151

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  152 EMPERADOR INC. 2019 ANNUAL REPORT 153

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  158 EMPERADOR INC. 2019 ANNUAL REPORT 159

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  160 EMPERADOR INC. 2019 ANNUAL REPORT 161

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  164 EMPERADOR INC. CORPORATE INFORMATION

EMPERADOR, INC.

7/F 1880 Eastwood Avenue Date of Incorporation Eastwood City CyberPark November 26, 2001 188 E. Rodriguez Jr. Avenue Bagumbayan, Quezon City Date of Public Listing Tel. No. 8-709-2038 to 41 December 19, 2011 Fax No. 8-709-1966

PRINCIPAL AUDITORS

Punongbayan & Araullo Philippine Member Firm of Grant Thornton International Ltd. 19th and 20th Floors, Tower 1, The Enterprise Center 6766 Ayala Avenue, Makati City Tel. No. 8-988-2288

STOCK TRANSFER AGENT

BDO Stock Transfer Banco De Oro Unibank, Inc. 15th Floor South Tower, BDO Corporate Center 7899 Makati Avenue, Makati City Tel. No. 8-878-4053

OFFICERS

Winston S. Co President and CEO

Katherine L. Tan Treasurer

Kendrick Andrew L. Tan Executive Director

Dina D.R. Inting Chief Financial Officer Corporate Information Officer Compliance Officer

Atty. Anna Michelle T. Llovido Corporate Secretary Data Protection Officer

INVESTOR RELATIONS

Kenneth V. Nerecina Tel. No.: 8-709-2222 Email: [email protected] Website: www.emperadorbrandy.com 7th Floor, 1880 Eastwood Avenue Eastwood City CyberPark 188 E. Rodriguez Jr. Avenue Bagumbayan, Quezon City

www.emperadorbrandy.com