Table of Contents i About PSE 37 Connecting with Stakeholders 1 Financial Highlights 41 Advocating Good Corporate Governance 2 Message from the Chairman 42 Report of Subsidiaries 4 Message from the President 46 Sustainability Report Statement of Management’s Corporate Governance at the PSE 6 56 Responsibility for Financial Statements 22 Stock Market Highlights 57 Financial Statements 32 Operational Highlights 120 Listed Companies and Issues Accelerating Product Offerings and Corporate Information 34 Technological Developments 128 ABOUT THE COVER Converging roads heading towards one direction is the central metaphor for the PSE annual report this year. The cover uses infrastructure and dynamic motion to symbolize the advances that PSE achieved through the years in reference to innovations in products and services, improvements in regulations, upgrades in technology, and enrichment of partnerships. These undertakings have geared the Exchange for growth. PSE is guided by its core values and commitment to its stakeholders as it lives out its mission and works toward the realization of its vision. Inside back of the cover: The triangular edge of the PSE Tower’s glass canopy creates the illusion of a second tower rising. This panoramic vertical shot is suggestive of PSE’s innovations and dynamism. About PSE The Philippine Stock Exchange, Inc. (PSE) is one of the fastest growing markets in the region. Among the pioneer exchanges in Asia, it traces its origins from the country’s two former stock exchanges, the Manila Stock Exchange (MSE), which was established in 1927, and the Makati Stock Exchange (MkSE), which was established in 1963. Although both the MSE and the MkSE traded the same stocks of the same companies, the bourses were separate stock exchanges for nearly 30 years until December 23, 1992, when both exchanges were unified to become the present-day Philippine Stock Exchange. In June 1998, the Securities and Exchange Commission (SEC) granted the PSE a self-regulatory organization status, which meant that the bourse can implement its own rules and impose penalties on erring trading participants and listed companies. In 2001, one year after the enactment of the Securities Regulation Code, the PSE was transformed from a non-profit, non- stock, member-governed organization into a shareholder-based, revenue-earning stock corporation. The PSE eventually listed its own shares on the Exchange (traded under the ticker symbol “PSE”) by way of introduction on December 15, 2003. From having two trading floors, one at the PSE Centre (Tektite), Ortigas Center in Pasig City, and one at its former principal office at the Ayala Tower One & Exchange Plaza in Makati City’s Central Business District, PSE now holds office and maintains a unified trading floor in PSE Tower, Bonifacio Global City, Taguig City. As of end December 2018, there were 267 companies traded at the PSE, including an exchange traded fund. The PSE is a member of the World Federation of Exchanges and the Asian and Oceanian Stock Exchanges Federation. VISION A premier exchange with world-class standards for trading securities and raising capital that serves as a strong engine for a robust economy. MISSION CORPORATE VALUES • Offer products and services responsive to the needs of • Professionalism in delivering quality service and in investors and other stakeholders meeting the highest standards of excellence • Provide a facility for fair, accurate, complete and timely • Integrity, transparency and accountability in implementing information about listed companies, while extending business programs and enforcing decisions market education and awareness programs to investors • Teamwork in working towards a common and favorable • Be a preferred venue for raising capital goal for the market • Practice and promote good governance within the • Mutual respect in relating with fellow employees Exchange and among listed companies and trading • Inner strength in prioritizing the common good of the participants market instead of individual interest • Operate efficiently to optimize shareholder value • Corporate responsibility in promoting market growth hand • Adopt world-class systems and global best practices for in hand with community welfare an efficient, fair and orderly market • Develop a highly motivated and professional workforce, committed to serve and excel i | THE PHILIPPINE STOCK EXCHANGE, INC. Financial Highlights The Philippine Stock Exchange, Inc. and Subsidiaries Table 1 AMOUNT PERCENTAGE RESULTS OF OPERATIONS 2018 2017 in thousand pesos CHANGE CHANGE (in %) OPERATING REVENUES 1,596,207 1,225,519 370,688 30.25 Listing Fees, Maintenance & Processing Fees 838,299 494,946 343,353 69.37 Trading Fees, Date Feed & Subscription 397,376 335,337 62,039 18.50 Service Fees 310,147 349,708 (39,561) (11.31) Others 50,385 45,528 4,857 10.67 COST AND EXPENSES 762,033 592,859 169,174 28.54 Cost of Services 304,314 246,512 57,802 23.45 General and Administrative 457,719 346,347 111,372 32.16 OTHER INCOME 148,339 405,932 (257,593) (63.46) INCOME BEFORE INCOME TAX 982,513 1,038,592 (56,079) (5.40) NET INCOME AFTER TAX 727,106 828,085 (100,979) (12.19) Table 2 AMOUNT PERCENTAGE YEAR-END FINANCIAL CONDITION 2018 2017 in thousand pesos CHANGE CHANGE (in %) TOTAL ASSETS 6,623,493 3,701,274 2,922,219 78.95 Cash and Cash Equivalents 3,868,150 811,661 3,056,489 376.57 Financial Assets at Fair Value 259,809 319,001 (59,192) (18.56) through Profit or Loss (FVTPL) Financial Assets at Fair Value through Other 476,201 - 476,201 Comprehensive Income (FVOCI) Available-for-sale Investments - 513,916 (513,916) (100.00) Property and Equipment 1,497,375 1,454,334 43,041 2.96 TOTAL LIABILITIES 416,124 369,502 46,622 12.62 Current Liabilities 401,133 355,860 45,273 12.72 Noncurrent Liabilities 14,991 13,642 1,349 9.89 EQUITY 6,207,369 3,331,771 2,875,598 86.31 GEARED FOR GROWTH | ANNUAL REPORT 2018 | 1 Message from the Chairman Dear Shareholders, When you lead a bourse that aspires to be more competitive in Rest assured, we will continue to leverage on technology to amplify the global market, you realize there are many things to do but with our message about the advantages of saving and investing. very little time to accomplish them. Every year, you hope to do better than the year before. And when headwinds threaten your Geared for Growth resolve, you simply persevere and strive to achieve what you have set to do. As our investor base grows, we hope to have more product offerings for them. We have started the ground work in 2018 and we Resilience despite a challenging environment hope that by 2019, we will be launching our short selling facility and hopefully have Real Estate Investment Trust listings. We will also The year started with the PSE index (PSEi) reaching a new all-time continue to come up with services that will help our kababayans high of 9,058.62 on January 29. The euphoria started talks of the access the stock market through technology-driven platforms. market’s potential climb to the 10,000 level. The momentum was For one, we have created an online portal for our Local Small short lived as volatility in global markets due to a brewing trade Investor (LSI) program, which we hope will boost the participation war between the United States and China spooked investors. of LSIs in IPOs. The enhanced PSETradex online site and mobile This was later exacerbated by domestic inflation concerns and application have been made available to our TP subscribers and is worries of interest rate hikes both by the US Federal Reserve and now utilized by their clients. We will also continue to nurture our the Bangko Sentral. This backdrop caused anxiety among foreign relationships with our various stakeholders – from potential IPO investors bringing the stock market’s net foreign selling for 2018 applicants to listed firms, to investors, partner institutions, and to Php61.01 billion. In terms of overall trading activity, average our regulators. daily value turnover came in at Php7.15 billion, a decline of over 11 percent from the turnover in 2017. The reaction was similar among New SEC Chairman companies that considered holding their initial public offerings (IPO) within the year. The risk of not being able to sell shares at the The Securities and Exchange Commission (SEC) is a very high-end of their IPO price range as well as the possibility of not important and crucial partner of the PSE in achieving its goals for generating enough interest among investors prompted most IPO the company and the stock market. We welcome the appointment applicants to postpone their market debut. Despite this, several of SEC Chairman Emilio B. Aquino who brings with him a wealth listed companies, mostly banks, still raised capital through the of experience as a lawyer and public servant. We are optimistic stock market. Capital raised for the year rose 14.0 percent year-on- that the working relationship between the PSE and SEC, through year to Php187.84 billion, which is the highest fund raising level in Chairman Aquino will generate positive results for the Philippine five (5) years. capital markets. The PSEi eventually closed the year at 7,466.02, a 12.8 percent The outputs and learnings from 2018 geared the Exchange for decline year-on-year. Despite this slump, domestic market growth in the coming years. Every accomplishment, big or small, capitalization only went down by 6.5 percent to Php13.54 trillion is a key that will unlock our full potential in the future. As we from 2017’s Php14.49 trillion. While the market disruptions merited fondly recall what we have achieved for the year, we also look the dips, we felt that the slump was influenced more by overall ahead with anticipation knowing that 2019 will be even more market sentiments and less by macroeconomic fundamentals.