New Beginnings

ANNUAL REPORT 2009 The Lopez Credo

We, the Lopez Group of Companies, believe that our primary reason for being is to serve the Filipino people. Thus we shall do business and in all ways act in a manner that will result in the long-term mutual benefit of the Lopez Group and the various publics and communities that we serve. We will be responsible stewards of all our resources, ever mindful of our obligation to present and future generations of Filipinos.

In our service to the Filipino people, we will be guided by the following distinct Lopez Values—a pioneering entrepreneurial spirit, business excellence, nationalism, team work, strong work ethic, integrity, social justice, and concern for employee welfare and wellness. We know from generations of experience that it is by living according to these values that a company can be built to last.

Since 1928, and in the years and generations to follow, our commitment to the Lopez way of service and the distinctive Lopez values will not change. We will remain committed to serve the Filipino.

ABOUT OUR COVER First Holdings experienced ‘New Beginnings’ in 2009 primary of which was the decision to reduce exposure in power distribution,

NEW BEGINNINGS and substantially support power generation. Today, First Holdings is taking off from a higher plane—financially stable, organizationally strong, and strategically positioned to benefit from a world of opportunities

The Group continues its advocacy for green energy and is making significant investments in clean and renewable energy initiatives, including solar power systems manufacturing. As global competition intensifies, the summit of success is ever rising; but First Holdings has kept pace and responded with even greater vigor to the ANNUAL REPORT 2009 challenges of the moment, embracing the sun and sky daily and determined to see ‘New Beginnings’ to their intended ends. 2 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

Lopez Credo IFC At A Glance 2 Financial Highlights 4 Investment Summary 5 Message of the Chairman 6 Message of the President 16 Message of the Chief Finance Officer 22 Board of Directors 30 Senior Management 34 Corporate Governance 36 Board Committees 42 Business Excellence 44 Corporate Social Responsibility 48 Operations Review Power Generation First Gen Corporation (First Gen) 50 Energy Development Corporation (EDC) 54 Power Distribution Manila Electric Company (Meralco) 56 Panay Electric Company (PECO) 60 Manufacturing First Philippine Electric Corporation (First Philec) 62 First Philippine Solar Corporation (First Philec Solar) 66 Property Rockwell Land Corporation (Rockwell Land) 68 First Philippine Industrial Park (FPIP) 73 Infrastructure and Others First Balfour, Inc. (First Balfour) 74 First Philippine Industrial Corporation (FPIC) 76 Securities Transfer Services, Inc. (STSI) 78 Asian Eye Institute (AEI) 78 Corporate Directory 80 Business Mission, Credo and Commitments and Acknowledgements IBC

 At A Glance

POWER GENERATION POWER DISTRIBUTION MANUFACTURING PROPERTY INFRASTRUCTURE AND OTHERS Business Profile First Gen is the country’s Meralco is the country’s largest vertically-integrated largest power distribution power generation company company with the largest today with a capacity of franchise area comprising 2,887 MW. 4.7 million customers. PECO is the only private electricity distributor in the island of Panay.

Operating Companies • First Gen Corporation • Manila Electric Company (First Gen) (Meralco) • Energy Development • Panay Electric Company Corporation (EDC) (PECO) • First Gas Power Corporation (FGPC) • FGP Corp. • Bauang Private Power Corporation (BPPC) • First Gen Hydro Power Corporation (FGHPC) • First Gen Renewables Inc. (FGRI)

2009 Operational Highlights • First Gen’s net income • Meralco’s consolidated attributable to Parent net income attributable increased by 16% year- to Parent was 114% on-year primarily due to better than in 2008. higher contribution of • Systems loss recorded at EDC 8.61% is below 9.5% cap and lowest since 1981.

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POWER GENERATION POWER DISTRIBUTION MANUFACTURING PROPERTY INFRASTRUCTURE AND OTHERS First Philec is the Rockwell Land is a premiere First Balfour is a triple holding company for all mixed use inner city A construction and manufacturing businesses of developer. FPIP is the engineering company with First Holdings. country’s leading industrial 40 years experience. park. FPIC is the country’s largest pipeline operation.

• First Philippine Electric • Rockwell Land Corporation • First Balfour, Inc. (First Corporation (First Philec) (Rockwell Land) Balfour) • Philippine Electric • First Philippine Industrial • First Philippine Industrial Corporation (Philec) Park (FPIP) Corporation (FPIC) • First Electro Dynamics • Securities and Transfer Corporation (FEDCOR) Services, Inc. (STSI) • First Sumiden Circuits, Inc. • Asian Eye Institute (AEI) (FSCI) • First Philec Solar Corporation (First Philec Solar) • First Philec Manufacturing Technologies Corporation (FPMTC) • First Philippine Power Systems, Inc. (FPPS) • First Philec’s net income • Rockwell’s net income • First Balfour registered increased 71% year-on- grew by 5%. record revenues of P25 year. • FPIP received Hall billion arising from the • FPSC registered of Fame Award completion of St. Luke’s revenues of US$52 for Environment Medical Center in Taguig. • FPIC is the first company in million in its first full year Performance from the Asia to achieve gold status of operations. Philippine Economic in Investors in People. Zone Authority (PEZA).

 Financial Highlights

December 31 2009 2008 OPERATING RESULTS (In million Php)1 Revenues 58,873 60,248 Sale of electricity 48,243 53,293 Sale of merchandise 4 ,341 2,455 Share in project revenue of joint ventures 1 ,979 1,527 Equity in net earnings of associates 1 ,876 1,405 Contracts and services 1 ,390 1,302 Sale of real estate 1 ,044 266 Finance costs (6,897) (7,286) Foreign exchange loss (442) (314) Provision for income tax 2,027 2,378 Gain on sale of investment in shares of stock 8,957 - Gain on sale of a subsidiary - 2,762 Net income for the year 12,853 5,454 Net income attributable to equity holders of the parent 8,510 1,192 FINANCIAL POSITION (In million Php)2 Total assets 148,806 227,007 Investments and deposits in associates 63,308 27,394 Total debt 86,236 147,154 Total long-term debt 54,852 87,651 Total liabilities 88,920 157,860 Total equity attributable to equity holders of the parent 38,470 27,851 Total equity attributable to equity holders of the parent - adjusted3 53,642 45,328 Total equity 59,886 69,147 Total equity - adjusted3 75,058 86,624 FINANCIAL RATIOS Return on equity4 17.20% 2.77% Dividend payout ratio5 49.86% 0.00% Current Ratio (times)6 1.41 0.86 Debt to equity (times)7 1.15 1.70 PER SHARE DATA (In Php) Earnings per share8 Basic 13.46 1.86 Diluted 13.41 1.84 Book value per share9 83.58 69.60 Price earnings ratio10 3.57 8.20 Market price 48.00 15.25 Cash dividend per share11 1.00 - Number of shares issued and subscribed 594,326,513 590,340,305 Weighted average number of shares Basic 590,355,623 589,482,417 Diluted 592,805,699 596,217,753 Number of stockholders 13,019 13,131

1 The results for the years ended December 31, 2009 and 2008 are set out on the consolidated financial statements. 2 The statement of financial position as of December 31, 2009 and 2008 is set out on the consolidated financial statements. 3 Equity - adjusted excludes cumulative translation adjustments (CTA) and share in CTA of an associate, share in other comprehensive income of associates, and equity reserve pertaining to effect of dilution of a subsidiary and effect of acquisition of minority interests 4 Return on equity = net income for the year attributable to equity holders of the parent / ave. total equity attributable to equity holders of the parent - adjusted 5 Dividend payout ratio = dividends paid to common shareholders by parent / last year’s net income attributable to equity holders of the parent 6 Current ratio = current assets / current liabilities 7 Debt to equity ratio = total debt / total equity - adjusted. The details of the total debt are set out on the notes to consolidated financial statements (note 35). 8 The EPS computation for the years ended December 31, 2009 and 2008 is set out on the notes to the consolidated financial statements (note 32). 9 Book value per share = (total equity attributable to equity holders of the parent - adjusted less preferred equity) / no. of shares issued and subscribed 10 Price-Earnings ratio = market value per share / basic earnings per share 11 Cash dividend per share = cash dividends declared to common shareholders / no. of common shares issued and subscribed  2009 ANNUAL REPORT

Investment Summary FIRST PHILIPPINE HOLDINGS CORPORATION

2009 Investment Summary (In Thousand Php)

% Ownership5 Revenues Net Income Total Assets Total Liabilities Total (loss)6 Equity6

POWER GENERATION AND POWER RELATED1 First Gas Power Corporation 4 39.74 32,203,185 3,400,771 38,745,953 29,709,834 9,036,119 Energy Development Corporation 17.88 22,066,880 3,322,662 84,774,938 54,443,076 28,802,101 FGP Corp. 4 39.74 15,999,653 2,495,978 17,588,802 9,531,522 8,057,280 First Gen Hydro Power Corporation 37.22 1,247,178 114,069 7,617,847 3,793,444 3,824,403 Bauang Private Power Corporation 4 24.70 972,989 600,878 4,892,981 2,415,537 2,477,444 FG Bukidnon Power Corp. 66.23 39,959 13,424 149,490 19,634 129,856

POWER DISTRIBUTION Manila Electric Company2 13.23 184,872,000 6,005,000 172,129,000 110,983,000 57,369,000 Total assets 148,806 227,007 Panay Electric Company 30.00 3,200,102 307,510 2,009,974 1,090,044 919,930 Investments and deposits in associates 63,308 27,394 Total debt 86,236 147,154 MANUFACTURING3 Total long-term debt 54,852 87,651 First Sumiden Circuits, Inc. 4 40.00 3,890,618 115,970 1,796,760 1,205,183 591,578 Total liabilities 88,920 157,860 First Philec Solar Corporation 4 66.82 2,475,520 16,056 2,775,405 1,436,155 1,339,250 Total equity attributable to equity holders of the parent 38,470 27,851 Philippine Electric Corporation 99.15 1,459,518 48,600 1,229,568 840,668 388,900 Total equity attributable to equity holders of the parent - adjusted3 53,642 45,328 First Philec Manufacturing Technologies Corporation 100.00 403,106 16,907 249,024 143,117 105,907 Total equity 59,886 69,147 First Philippine Power Systems, Inc. 100.00 159,229 16,330 118,077 22,309 95,768 Total equity - adjusted3 75,058 86,624 First Electro Dynamics Corporation 100.00 118,972 (16,075) 154,901 98,748 56,154

Return on equity4 17.20% 2.77% Real Estate Development Dividend payout ratio5 49.86% 0.00% Rockwell Land Corporation 49.00 4,082,840 633,513 12,027,152 4,611,479 7,415,673 Current Ratio (times)6 1.41 0.86 First Philippine Industrial Park, Inc. 70.00 1,182,994 726,463 3,213,462 283,406 2,930,056 Debt to equity (times)7 1.15 1.70 First Philippine Realty Corporation 100.00 87,195 (15,548) 1,599,921 21,149 1,578,771 First Sumiden Realty, Inc.3, 4 60.00 16,509 7,544 129,174 4,284 124,891 Earnings per share8 Infrastructure Basic 13.46 1.86 First Balfour, Inc. 100.00 2,486,593 138,219 1,798,250 1,255,731 542,519 Diluted 13.41 1.84 First Philippine Industrial Corporation 60.00 662,549 228,601 1,856,212 511,540 1,344,672 Book value per share9 83.58 69.60 Price earnings ratio10 3.57 8.20 Market price 48.00 15.25 1 through First Gen 11 Cash dividend per share 1.00 - 2 direct and through FPUC Number of shares issued and subscribed 594,326,513 590,340,305 3 through First Philec Weighted average number of shares 4 dollar-denominated results of operations and financial conditions were converted to Php using the conversion rate of USD1:Php47.769 and USD1:Php46.2, Basic 590,355,623 589,482,417 respectively Diluted 592,805,699 596,217,753 5 effective voting interest Number of stockholders 13,019 13,131 6 Meralco and EDC’s net income and equity pertain to attributable to equity holders of the parent

1 The results for the years ended December 31, 2009 and 2008 are set out on the consolidated financial statements. 2 The statement of financial position as of December 31, 2009 and 2008 is set out on the consolidated financial statements. 3 Equity - adjusted excludes cumulative translation adjustments (CTA) and share in CTA of an associate, share in other comprehensive income of associates, and equity reserve pertaining to effect of dilution of a subsidiary and effect of acquisition of minority interests 4 Return on equity = net income for the year attributable to equity holders of the parent / ave. total equity attributable to equity holders of the parent - adjusted 5 Dividend payout ratio = dividends paid to common shareholders by parent / last year’s net income attributable to equity holders of the parent 6 Current ratio = current assets / current liabilities 7 Debt to equity ratio = total debt / total equity - adjusted. The details of the total debt are set out on the notes to consolidated financial statements (note 35). 8 The EPS computation for the years ended December 31, 2009 and 2008 is set out on the notes to the consolidated financial statements (note 32). 9 Book value per share = (total equity attributable to equity holders of the parent - adjusted less preferred equity) / no. of shares issued and subscribed 10 Price-Earnings ratio = market value per share / basic earnings per share 11 Cash dividend per share = cash dividends declared to common shareholders / no. of common shares issued and subscribed  Message of the Chairman

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“2009 was clearly going to be a story of how successfully we would be able to address our debt issue. Looking back, I can report to you with great pride and pleasure that First Holdings has met and successfully overcome all the challenges it had to confront.“

Fellow Stockholders:

In my letter to you a year ago, I spoke of a fearful start largest privatization on record, and we are now to 2009. The global financial meltdown had come well on our way to making EDC not just one of the upon us with frightening suddenness in late 2008 and leading geothermal producers in the world, but the the world’s leading economies were struggling to largest one. By hitching ourselves to the wagon of understand the extent and longer term consequences SunPower, a world leader in solar power technology of the crisis even as they quickly slipped into recession. and products, we are also on our way to becoming a It was not at all clear how the Philippines would be major global producer of solar panel components in affected by it. our own right.

For us at First Holdings, the financial crisis could But I look to the future with a far greater sense of not have come at a worse time. We had to urgently optimism than that gained from what we were able to address the high levels of indebtedness that we had achieve in 2009. By the time you read this letter and been forced to incur, not only to defend our ownership the annual report of which it is a part, the Philippines position in Meralco against hostile takeover, but also will have concluded the democratic process of to acquire a controlling interest in one of the world’s choosing its new leaders. A change in leadership leading geothermal companies, Energy Development typically awakens hopes for a change for the better. Corporation (EDC). 2009 was clearly going to be a But in this particular case, it heralds a long-overdue story of how successfully we would be able to address awakening from the tired and insipid leadership of an our debt issue. administration that has stayed in power too long.

Looking back, I can report to you with great pride and Some pessimists have opined that the next pleasure that First Holdings has met and successfully administration will have great difficulty effecting any overcome all the challenges it had to confront. As I change, burdened as it will be by the fiscal and policy will report in greater detail within this letter, we were problems left behind by the departing administration. finally able to resolve the impasse that Meralco had I take the opposite view. Precisely because it is become for us, in a way that has enhanced value handicapped by the fiscal issues it will be inheriting, to the Corporation and to its stockholders. We the new government will have to rely on a bold and completed the privatization of EDC, the country’s innovative approach to tackling the many needs of our

 Message of the Chairman

“Assuming the role of a significant minority shareholder in Meralco heralds new beginnings for First Holdings. With the strategic partnership with PLDT, we are confident that Meralco will continuously remain responsive to customer needs, and become the distribution utility of choice in the era of open access. Meanwhile, First Holdings can focus more resources toward other value-adding projects intended to build our nation and help our fellow Filipinos in a sustainable manner.“

country, among them, reform of the agricultural sector, foremost utility to 33.4% in 2008. Yet, while this gave the provision of essential infrastructure, revitalization us the protection of veto power in decision-making of the manufacturing industry, and the creation of by the Meralco board, it was not enough to ensure reliable, economic, and clean sources of electric power that we would remain in control of the management and water. In order to generate resources and support of Meralco against another stockholder who could for these vital programs, the new government will acquire a larger stake in the utility, which was precisely have to rely on public-private sectoral partnerships what GSIS had set out to do. Unfortunately, we had that will enable companies like First Holdings to once reached the limit of our financial resources. We did again participate eagerly and meaningfully in the not have the means to acquire more Meralco shares. task of nation-building. We have the track record for conducting our business in the service of the Filipino. For First Holdings, and particularly for the Lopez We have the experience and the know-how. Now, we family, loss of the controlling interest in Meralco also have the resources, the “war chest,” to respond was something we were loath to consider. After all, to this clarion call. since the historic Filipinization of Meralco initiated by my father, Eugenio Lopez Sr. in 1961, Meralco had A Denouement To Our Defense Of Meralco been at the center of our investments in industry. From a largely debt-free position, First Holdings had, Although our involvement in Meralco had been over 2007 and 2008, raised its level of debt to P23.0 interrupted by martial law, we had returned after the billion, almost entirely in the effort to defend its collapse of the Marcos dictatorship and had rebuilt controlling stake in Meralco against a hostile takeover a stronger and more efficient utility. With great attempt by the Government Service Insurance System effort and perseverance on the part of everyone in (GSIS). From an initial equity interest of 17.7%, we had its organization, Meralco had reduced its systems virtually doubled our ownership stake in the country’s loss rate to 8.6%, from higher than 20% when we

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FIRST PHILIPPINE HOLDINGS CORPORATION

regained control of the utility after martial law. Given interest in Meralco to the PLDT Group, GSIS, having its spread and complexity, this was about as efficient failed to seize outright control of Meralco, divested as Meralco could reasonably expect it to be. Any the Meralco shares that it had accumulated to the further increases in efficiency could only come at much San Miguel Corporation (SMC) Group. What ensued greater cost, or at much higher levels of investment was a battle of control of Meralco between the PLDT in low-loss equipment. The present regime of high Group with whom we are allied, and the SMC Group, world fuel prices, with the expectation that fuel prices a battle that drove the share price of Meralco to the will rise even further in the future, meant that rate- unprecedented heights of P300 per share before setting of electricity would always be a politically settling down at the P160-P180 per share level where sensitive issue, particularly in a franchise area where it is today. Prior to the hostile takeover attempt by the incidence of poverty is high. GSIS, Meralco’s shares had traded at or below the P80 mark. It was not surprising, therefore, that despite the implementation of the EPIRA Law and its legislated Subsequent to our initial divestment of Meralco shift to a performance-based rate setting system from shares to the PLDT Group, the opportunity arose the old return-on-rate-base method, and despite to divest a further 6.7% block of shares, half of our the fact that Meralco had complied with all required remaining 13.4% stake in Meralco, also to the PLDT submittals under the new system, approval of its rate Group, but at a price of P300 per share. This was an adjustments was indefinitely being withheld on one opportunity too attractive to forego, and we agreed pretext or other. to the sale, one that was completed last month. This transaction raises the average price received by First Under threat of losing the ability to influence the value Holdings for the 26.7% stake in Meralco that it has of our investment in Meralco, we opted to divest a sold to P143 per share. 20% interest in Meralco, out of our 33.4% stake, to the PLDT Group. While this meant ceding control of Assuming the role of a significant minority shareholder Meralco to the PLDT Group, as I noted in my letter last in Meralco heralds new beginnings for First Holdings. year, we were forging a strategic alliance that would With the strategic partnership with PLDT, we are enable us to continue to participate, both as owners confident that Meralco will continuously remain and business partners, in a Meralco whose potential responsive to customer needs, and become the value would be greatly enhanced by the synergies it distribution utility of choice in the era of open access. shares with PLDT in the broadband world of tomorrow. Meanwhile, First Holdings can focus more resources toward other value-adding projects intended to Part of our expectations was realized much sooner build our nation and help our fellow Filipinos in a than we had dared to hope, albeit for reasons that we sustainable manner. had not foreseen. In the wake of our selling a 20%

 Message of the Chairman

Towards A Greener Energy Future something rare among local companies—the ability to Through First Gen, we own a controlling 66% ownership take a Filipino enterprise and become a global leader. interest in our power-generating businesses. Today, that EDC, with its 34 years of experience, is the world leader represents an investment that has trebled in size from in geothermal technology with a reputation for technical what it was in 2007. We already are the largest clean and excellence and pioneering innovation. As the world turns green power producer in the country. With the transfer to renewable sources of energy and becomes increasingly of the Build-Operate-Transfer (BOT) Bauang diesel plant hostile towards carbon, EDC’s know-how and skills are back to government in July 2010, we will be the largest as recognized and are in great demand in areas where well as the cleanest and greenest power producer in the geothermal resources can be found, particularly in the country. Pacific “ring of fire.” In fact, EDC has begun to explore the most promising opportunities overseas as we have This has been a deliberate act on our part. In discussions received expressions of interest from various companies with our existing, as well as potential, customers, it in countries with geothermal resources requesting us to became clear that they had three priorities: reliability, either provide geothermal expertise, and/or to partner in affordability, and price stability. In addressing the the development of new geothermal fields. concerns of our customers on price affordability and stability, it is imperative to have control over our fuel The global geothermal industry dynamics are very destiny and to be independent from direct indexation favorable to EDC. Many players who are interested in of our fuel prices to global energy indices. This was entering into the geothermal industry, or even those validated in the case of our recently-acquired Palinpinon who already possess attractive concession areas, either and Tongonan power plants, where we have seen a lack financial capital or the technical expertise or both. willingness by customers to sign long-term supply Specific countries seeking to develop geothermal contracts as long as the power is reliable, and the price is resources are also offering attractive incentives and competitive and stable. government support to promote and fast track the development of their geothermal industry. We have We saw a rare opportunity in EDC—a perfect intersection also seen increasing interest from the debt and equity of reliable, affordable, price stable, and clean energy market to provide funding to renewables, including that also possessed an impressive slate of growth geothermal projects. The right opportunities will come opportunities in the Philippines, and a solid platform from in their proper time and place, but we are actively which to take Filipino talent and know-how overseas to planting the seeds today so that we will be able to dominate a global industry. create and capitalize on the global opportunities as they arise. Armed with a formidable comparative Taking an international perspective, we saw in EDC advantage, we are building, from a solid Filipino talent base, a true global leader.

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FIRST PHILIPPINE HOLDINGS CORPORATION

“We saw a rare opportunity in EDC—a perfect intersection of reliable, affordable, price stable, and clean energy that also possessed an impressive slate of growth opportunities in the Philippines, and a solid platform from which to take Filipino talent and know-how overseas to dominate a global industry.”

However, in the medium term, EDC’s operations in the frontier geothermal areas in 2009 and we expect to Philippines will continue to be our core operations. execute the geothermal resource service contracts for Last year, we took over the 106-megawatt (MW) the five sites this year. EDC will develop and expand Mindanao 1 and 2 geothermal power plants adjacent its geothermal portfolio domestically and eventually to Mt. Apo. In September 2009, we acquired the abroad. 112.5 MW Tongonan and 192.5 MW Palinpinon power plants. As this letter is being finalized, the We are absolutely convinced that integrating our breaking news is that we have submitted the winning steamfields and the power plants will enhance our US$28.25 million bid for the privatization of the 150 competitive position. The Renewable Energy Law MW Bacon Manito, or “BacMan” power plants. Across provides various fiscal incentives not only to the EDC’s entire portfolio of geothermal fields, we are steamfield component, but also the power plant. implementing long-overdue measures to raise the We also look forward to the day when large users efficiency of our extraction and use of steam and, at of power are made to pay for the amount of carbon the same time, protect the geothermal reservoirs in dioxide and other greenhouse gases that they release order that they can continue to produce steam for a into the atmosphere, which will benefit our clean long, long time to come. energy portfolio. And as we enter a new era of open access, we are determined to place ourselves in the We intend to expand power-generation capacity best position to meet consumer needs with the most within our existing steamfield by up to 260 MW from competitive value offerings from a diverse portfolio seven potential projects which we target to achieve of power plants running on clean fuels. commercial operations between 2013 and 2017. We also plan to pursue development of new geothermal For this reason, EDC is also diversifying into wind sites in the Philippines as the Department of Energy projects. Once the mechanism for the Feed-In Tariffs (DOE) awarded service contracts for Mt. Labo and is finalized, we are set to start construction on an Mainit. Also, DOE approved EDC’s application for five 86-megawatt wind-generating plant in Burgos, Ilocos

11 Message of the Chairman

“The decision to invest heavily into the solar power space was for us, not solely a manufacturing decision, what has made the decision all the more compelling is that it provides us a window of opportunity, with strong technology and market partners, to enter meaningfully into the global solar cell market and to be able to ride the solar power wave if, indeed, it becomes the technology of choice as the world progressively shifts to clean and renewable sources of energy. “

Norte. EDC intends to replicate the Burgos model to the grid. Clearly, the performance records of our as it has obtained Wind Energy Service Contracts for portfolio of clean, reliable, and affordable plants speak five other potential wind sites. We will also explore for themselves. opportunities in other emerging renewables such as solar and biomass. Exploring The Solar Power Space We continue to maintain our portfolio of With the impending turnover of the Bauang plant manufacturing investments, in utility and industrial to NPC, steps are underway to replace the capacity transformers and in flexible printed circuits for the that we are giving up. We have rehabilitated and electronics industry; they remained profitable in 2009, uprated our Pantabangan-Masiway hydroelectric plant despite the challenging market conditions, as the from 112 MW to 122 MW (to 132 MW by the end of contents of this annual report will show. Through 2009 2010). Pantabangan and Masiway have the highest and into 2010, however, our largest investments in load factor of any hydroelectric plant, owing to the 3 manufacturing are for the strategic collaboration that billion cubic meters of water stored in its reservoirs. we have developed with SunPower Corporation, one While EDC accounts for only 8% of installed national of the world’s leading producers of cutting-edge solar capacity, it generates 12% of all the energy on the cell assemblies. grid, owing to its affordability and reliability. Our 1,000-MW Sta. Rita and 500-MW San Lorenzo plants To date, we have invested close to US$40 million in also continue to have an enviable combined dispatch First Philec Solar (First Philec Solar), a joint venture record of 82%. All told, First Gen accounts for 19% of company in which First Holdings holds a majority installed capacity and 29% of energy actually delivered stake and our partner and customer, SunPower,

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FIRST PHILIPPINE HOLDINGS CORPORATION

holds a 15% minority interest. Located at our First that it provides us a window of opportunity, with Philippine Industrial Park in Sto. Tomas and Tanauan, strong technology and market partners, to enter Batangas, First Philec Solar performs the wafer-slicing meaningfully into the global solar cell market and operations that supply precision-cut silicon wafers to to be able to ride the solar power wave if, indeed, SunPower’s solar cell plant at the same location, and it becomes the technology of choice as the world to another plant in Cavite. Thus far, 55 of a total of progressively shifts to clean and renewable sources 88 machines are in operation; a new plant structure of energy. This again presents new beginnings to to house the balance of the machines is nearing First Holdings as we intend to nurture and grow this completion. For 2010, we will be delivering 150 segment of our business to become a significant million silicon wafers to SunPower, rising to 240 million contributor to our portfolio. We have long sought wafers at full operation. manufacturing opportunities where we can meet the global market on competitive terms. We At our entry point of silicon wafer slicing, we are have found that niche in the solar space, and it permitted to supply wafers to other manufacturers is one that represents, not only the potential for of solar panels once we have met our volume significant export earnings, but the opportunity commitments to SunPower. We have received to build manufacturing capacity overseas and to expressions of interest from a number of hedge our exposure to the ups and downs of our manufacturers and we have begun qualifying our own local economy. products with them, in anticipation of one day supplying their requirements. Looking up the supply Other Businesses chain, we are seriously studying the possibility of We are looking forward to First Holdings’ ownership expanding to the manufacture of the silicon ingots participation in Rockwell Land rising to a controlling for slicing, and are now in discussion with a number interest of slightly over 73%, from the 49% that we of potential technology partners. Looking down hold at present. In view of the fact that Rockwell the supply chain, we have also started evaluating Land has, over the past few years, generated annual a possible expansion into the design, supply, and profits in the P500 million range, I expect that it will installation of solar power facilities of various sizes be a substantial contributor to our earnings over the and capacities. near to medium term. In 2009, Rockwell Land and our industrial park sales combined to make a significant The decision to invest heavily into the solar power contribution to our bottom line. In the next two to space was for us, not solely a manufacturing three years, we look forward to similarly significant decision, although the projected returns from contributions from Rockwell Land’s the Grove and the business are extremely attractive. What has Edades Tower and Garden Villas projects, as well as made the decision all the more compelling is from its Rockwell Business Center project.

13 Message of the Chairman

For our manufacturing sector, we defined core prelude to handing over stewardship of the businesses business status to mean an annual revenue potential to a successor. All those conditions, I am happy to say, of at least P15 billion and an annual net income have been met. potential of at least P1 billion. With our investments in solar, we expect to achieve these aggregates by In April 2010, I celebrated my 80th birthday. At a 2012-2013. We will have to similarly determine what dinner reception hosted by our companies to mark my core business parameters we will set for our property birthday, I announced that come June of this year, I sector, which, along with Rockwell Land, also covers would be stepping down as Chief Executive Officer of the industrial park joint venture with Sumitomo the Lopez Group, and that between now and June, we Corporation located in the municipalities of Sto. would determine and announce the specific changes Tomas and Tanauan, Batangas that we know as First and personnel movements that this decision will entail, Philippine Industrial Park. given all the legal and procedural aspects that would have to be observed. Nevertheless, I will continue Transitions to be active, in order to contribute meaningfully in When I returned to First Holdings as its Chief the advocacy and pursuit of business excellence and Executive Officer in 1986, shortly after the EDSA corporate social responsibility, and in the aggressive Revolution, I returned to a company that was promotion of a leadership role for our companies in teetering on the edge of bankruptcy, as much a environmental friendliness and protection. victim to the martial law era as the entire country was. It took the better part of 10 years to bring First As I contemplate a gradual reduction of my day to Holdings back to the prominence that it had once day activities, I feel immensely proud and grateful that enjoyed when it still carried the name of Meralco I can regard a First Philippine Holdings Corporation Securities Corporation. that has become the corporate flagship that it is today, poised to aggressively launch itself into a bright and During the late 1990s however, beginning with the green future, as ever, in the service of the Filipino Asian financial crisis, we again found ourselves under people. I do welcome this opportunity to face my own threat, this time at the level of the wider Lopez new beginnings as an individual. And for the support Group. My elder brother Geny’s untimely passing and encouragement that you have so generously given forced me to assume headship of the Lopez Group to me all these years, I thank you from the bottom of in 1999, and this proved to be the start of another my heart. 10-year recovery period during which a number of businesses had to be nursed back into financial After being an independent director for six years, health. When I celebrated my 75th birthday five Senator Vicente Paterno resigned from the board in years ago, I set several conditions that, I felt, I 2009. He was Meralco’s first Filipino treasurer and would have to meet in order to restore the Lopez has served the country in several capacities. After businesses to financial and operating stability as a his retirement from public office, Senator Paterno

14 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

“As I contemplate a gradual reduction of my day to day activities, I feel immensely proud and grateful that I can regard a First Philippine Holdings Corporation that has become the corporate flagship that it is today, poised to aggressively launch itself into a bright and green future, as ever, in the service of the Filipino people.“

once again offered us his wisdom and acumen Chan retired from First Holdings. Mr. Chan had begun as a director of a number of our companies, First as a cadet engineer at Philec in 1971 and rose through Holdings in particular. Unfortunately, he feels that the ranks to become President of Philec in 1995. At it is about time that he devotes himself to more the time of his retirement from First Holdings, Mr. pastoral pursuits, and has therefore asked to be Chan held concurrent positions as Managing Director relieved of his duties as one of our directors. We of the Electrical Sector of First Philippine Electric cannot but honor such a request, but we do so with Corporation and President of Philec. a wistful heart. Replacing him is Mr. Juan Santos, former Chairman and President of Nestlé Philippines Inc. and Secretary of Trade and Industry. We are pleased to have someone of Mr. Santos’ expertise in our board.

Following our divestment of Tollways Management Corporation along with the North Luzon Expressway last year, Mr. Anthony M. Mabasa, former President of Tollways Management Corporation and a Vice President of your Corporation, was recalled to head office for several months, after which he took on his new posting as Senior Vice President of Energy Development Corporation.

After 38 years of service at both Philippine Electric Corporation (Philec) and First Holdings, Mr. Robert C. OSCAR M. LOPEZ Chairman and Chief Executive Officer

15 Message of the President

16 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

“We are further pleased to report First Holdings’ results for the year ended December 31, 2009. Net income amounted to P12.9 billion, of which, net income attributable to Parent amounted to P8.5 billion, the second highest level we have ever posted.“

Fellow Shareholders:

Last year, we assured you that for 2009 we will devote In 2009, we returned close to P1.0 billion in dividends our efforts on: to our common and preferred shareholders. We intend to continue this in 2010. 1. Paring down debt and restoring our financial strength and flexibility. We managed to trim down Report on Results of Operations Parent debt to P11.7 billion from a high of P23.0 We are further pleased to report First Holdings’ results billion in 2007. for the year ended December 31, 2009. Net income 2. Growing our investment in First Gen. amounted to P12.9 billion, of which, net income We purchased additional shares, by way of First attributable to Parent amounted to P8.5 billion, the Gen’s Rights offer, at P7 per share for a total second highest level we have ever posted. Back in amount of P9.9 billion. The shares are currently 2006, we generated P8.7 billion in net income on trading at around P10 per share. The transaction account of our gain from dilution in First Gen and the will be reflected in 2010. And, reversal of some of Meralco’s losses. 3. Building our portfolio of assets for the long-

term. We acquired the 24.5% stake of Benpres This year’s income is significantly better than theP 1.2 in Rockwell Land for a total consideration of P1.5 billion registered last year due to the P7.2 billion net billion. Our additional stake will increase the gain from the sale of a 20% interest in Meralco. This earnings contributed by our property businesses. transaction was completed on July 14, 2009. Sales We have also infused additional equity ($4.7 million proceeds amounted to P20.07 billion. The sale in 2009 and $10.1 million in 2010) in First Philec for reduced the Group’s ownership interest in Meralco the expansion of its solar wafer-slicing facility. to 13.2%.

17 Message of the President

Furthermore, our equity in net earnings grew 125% out maturing obligations. It successfully completed to P2.9 billion due mainly to higher earnings posted its major debt refinancing program amidst the difficult by Meralco, from P2.8 billion in 2008 to P6.0 billion in market conditions. 2009. First Gen ended 2009 with the announcement of a (In Php Millions) 2009 2008 Variance Rights Offer slated for the first quarter of 2010. The Net gain on sale P15.0 billion raised will cover debt maturing in 2010 of investment P7,224 P2,762 P4,462 162% Equity in and lessen the need to sell down a portion of the net earnings* 2,910 1,294 1,616 125% company’s stake in Red Vulcan. The company plans Finance and to raise an additional P14 billion in the near term to other costs (net) (836) (1,928) 1,092 -57% further refinance debt, fund projects, and redeem General, admin outstanding bonds. & other exp (788) (936) 148 -16% P8,510 P1,192 P7,318 614% First Gen continues to actively participate in the public * Includes income from the toll road business in 2008. auction of power assets being privatized by PSALM. Last September 2009, EDC, through its wholly-owned Let me now report on the progress made by our major subsidiary Green Core Geothermal, submitted the subsidiaries and associates. highest bid for the 193 MW Palinpinon and 113 MW Tongonan geothermal power plants. Investment Performance

First Gen plans to spend $1.5 billion for expansion Power Generation in the next three to five years to enhance its First Gen derived a net income of $16.8 million position as a leading IPP in the country. It also from revenues of $1 billion in 2009. This was an continues to evaluate business opportunities improvement of 16% from that of 2008, but still below outside of the Philippines. the levels of prior years. Recall that in November 2007, First Gen through Red Vulcan won the bid for Power Distribution the Energy Development Corporation (EDC) at a Manila Electric Company (Meralco) was finally purchase price of P58.5 billion. The acquisition was allowed to implement the Performance Based Rate- funded by bridge loans at the First Gen and Red setting (PBR) as approved by the Energy Regulatory Vulcan levels. These were eventually refinanced by Commission (ERC). This resulted in a rate adjustment various facilities. of P1.2227 per kwh effective for billing periods starting May 2009. Thus, income attributable to Throughout 2008-09, First Gen took several steps equity holders of the parent more than doubled to consistent with its plan to reduce its debt and term P6.0 billion versus the previous year. This was despite

18 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

“With the rapid developments in photovoltaic (PV) technology, solar power is becoming more cost competitive. We believe solar power will be part of the future of the global energy industry.“ the P6.9 billion or 4% revenue drop to P184.9 billion (coal) energy supply, improved reliability with the driven by the reduction in average generation and new substation and sub-transmission line and transmission charges. increased demand from new commercial real estate developments in Iloilo City. ERC approved, as well, Meralco’s Maximum Average Price (MAP) and rate translation for the year 2010, Manufacturing which was to be implemented in January 2010. First Philec subsidiaries and affiliates registered total However, due to the Motion for Reconsideration filed revenues of P8.5 billion and total net income of by an intervenor, Meralco manifested to ERC that it P199 million in 2009. These resulted in First Philec’s would voluntarily suspend the adjustment effective consolidated revenues of P4.4 billion and net income January 26, 2010. attributable to Parent of P52 million.

Meralco’s systems loss of 8.61% for the year was the The Electrical Sector posted total revenues of P2.1 lowest since 1981. Thus, there was no unrecoverable billion and total net income of P65.8 million in 2009. cost of purchased power in 2009. The net income increase was due to the reduction by P38 million of the provision for income tax of Philec. Likewise, Panay Electric Company (PECO), our other The applicable tax was reconciled with the tax rates of power distribution investment, posted a turnaround 30% in 2009 and 35% in 2008. This more than offset in its financial results. Its 2009 net income ofP 307.5 the higher administrative expenses and finance costs. million on revenues of P3.2 billion is a reversal from the net loss of P101.7 million in 2008. This is mainly The Electronic Sector generated total revenues of P3.9 due to the P411.8 million fair value adjustment of its billion and total net income of P124 million in 2009. financial assets. The net income increased, despite lower sales, due to the $0.6 million decrease in general and administrative The Company is still awaiting the ERC decision on expenses of First Sumiden. its last Return on Rate Base (RORB) rate increase application before moving to PBR. For 2010, PECO The Solar Sector had total revenues of P2.5 billion and is looking forward to a good mix of renewables total net income of P10 million in 2009. The revenue (geothermal and rice husk) and cost-effective growth was due to the full-year operations of First

19 Message of the President

“Indeed, as the theme of this year’s annual report suggests it is a time for new beginnings. Guided by our past, including our successful transition to the role of minority shareholder in Meralco, we forge into the future confident of our place in the sun—responsive to the needs of the nation, preferred by our stakeholders, relevant to those we serve.”

Solar. However, net income remained low due to the The growth in revenues has been driven by various continuing development costs of projects that have new developments. Manansala, Joya, One Rockwell not yet started commercial operations. and Edades Tower and Garden Villas, the latest project, are in the original Makati site. The Grove and We are closely monitoring developments in the solar the Rockwell Business Center are the new ventures in industry. The perils of climate change have started the Ortigas business district. the shift to clean and renewable energy. Industry experts believe that solar energy has a huge potential Our other property firm, First Philippine Industrial to be a viable alternative to fossil fuels. With the rapid Park (FPIP), ended the year with a significant sale of developments in photovoltaic (PV) technology, solar land with a ready-built factory (RBF). FPIP was able power is becoming more cost competitive. We believe to re-purchase a major property and re-sell part of solar power will be a part of the future of the global the property with its improvements in September. energy industry. Thus, the Company registered revenues of P1.2 billion, a jump from the P405 million in the previous Property Development year. Net income soared to P726 million from P62 We acquired the 24.5% stake of Benpres in Rockwell million in 2008. Land. This is a manifestation of our confidence in the Rockwell brand, developed by its good track record as Infrastructure a prime inner-city developer. Rockwell has performed Our construction subsidiary, First Balfour, did well, contributing more to First Holdings’ bottom line. exceptionally well this year. The company delivered Revenues increased by 16% to P4.0 billion. The brisk on two major projects. The St. Luke’s Medical Center sales of condominium units comprised 70% of total was completed and turned over in October 2009, revenues. Net income, likewise, increased by 5% to while the LRT-1 North Extension project is expected P634 million. to be completed and commence operations soon.

20 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

First Balfour had revenues of P2.5 billion, up 21% other opportunities to create value, such as in from P2.1 billion last year. Net income was at an all- our core business of power and in our expanding time high of P138.2 million, up 15% from last year’s manufacturing and property development P120.2 million. investments.

First Balfour had a yearend backlog of about P1 billion Indeed, as the theme of this year’s annual report worth of projects, which should provide revenues for suggests it is a time for new beginnings. Guided by 2010. However, the challenge for the coming year is our past, including our successful transition to the to replenish this backlog by aggressively pursuing new role of minority shareholder in Meralco, we forge projects in the pipeline. into the future confident of our place in the sun— responsive to the needs of the nation, preferred by First Philippine Industrial Corporation (FPIC), our our stakeholders, relevant to those we serve. pipeline service company, had a strong year as well. FPIC registered revenues of P663 million, up 8% from As we move forward, again, we would like to thank all last year’s P615.7 million. Net income also increased of you for your continued trust and support. by 13% from P202.7 million to P229 million. The rise in revenues can be attributed to the rise in both white line volume and transport rate. Volume increased by 5%, while the rate went up by 4.5%. FPIC continues to explore other business opportunities, while maintaining its standards in providing world-class pipeline fuel transport services.

Outlook Subsequent to the balance sheet date, we further reduced our ownership in Meralco to 6.6% via a sale of an additional 74.7 million shares. The Company received a payment of P300 per share or a total purchase price of P22.4 billion. The transaction will be recorded in 2010. ELPIDIO L. IBAÑEZ The much improved liquidity will allow us to pursue President and Chief Operating Officer

21 CFO Report

22 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

“In 2009, our team at First Holdings continued pursuing the programs that we set in motion starting in 2008. Our major financial objective for the year was to complete the stabilization of our finances at both the Parent level and at First Gen, our power-generation subsidiary.“

In 2009, our team at First Holdings continued pursuing our portfolio realignment plans that de-emphasized the programs that we set in motion starting in 2008. the highly regulated power distribution business in Our major financial objective for the year was to favor of our unregulated power-generation business. complete the stabilization of our finances at both the More importantly, the decision completely reversed parent level and at First Gen, our power-generation our dwindling cash position and provided immediate subsidiary. Our program was geared to ensure that financial stability at a time of continuing difficulties we had sufficient liquidity to service the loans that we brought about by a volatile financial market. contracted in 2007 and 2008 to cover for the doubling of our stake in Meralco to 33.4% and that the financial Subsequently, the Company increased its ownership performance of each of our key portfolio investments in Rockwell Land and supported First Gen’s increase would benefit from a parent with a more solid financial in authorized capital stock. It also made investments base. The debt that we incurred to increase our in First Philec Solar for the expansion of its wafer- ownership in Meralco was dependent on its ability to slicing project. finally obtain its long delayed but much needed rate increase as a critical element of its transition to the Addressing its debt overhang had to be completed Performance Based Rate Setting mechanism (PBR). not only at First Holdings, but also at First Gen, whose successful bid of P58.5 billion for a controlling stake The difficult decision to sell a 20% stake in Meralco to in EDC positioned the Company at the forefront the PLDT/MPIC Group at a price of P90.0 per share of renewable energy. It was unfortunate, however, resulted in the reduction of our ownership in Meralco that First Gen’s bidding partner withdrew from the to 13.4%. Unfortunately, the mounting financial consortium after the bid, thus leaving First Gen with pressures could no longer wait for the approval of the sole burden of funding the winning bid price the tariff increase of Meralco with PBR. The P20.07 with additional short-term indebtedness. Largely as billion sales proceeds were partly used to pay down a consequence of this, First Gen’s debt at the end the existing Dual-Currency Floating Rate Corporate of 2008 ballooned to $2.1 billion (approximately Notes Facility from P13.6 billion to P6.7 billion and P102.4 billion). A significant component of this debt, partly to reinvest in existing businesses consistent with amounting to some $453.0 million consisted of

23 CFO Report

short-term bridging loans that had to be refinanced First Holdings’ remarkable achievements at a time when the global financial markets were for the year 2009 include: experiencing its worst meltdown in recent memory.

The completion of the debt refinancing program which 1) Improved profitability (gains from sale of will be further described required that First Gen’s Meralco shares) capital structure had to be reinforced with new equity. 2) Strengthened liquidity position (significant cash reserve) And so, towards the end of 2009, First Gen undertook 3) Lower debt level (decrease debt/equity ratio a successful P15.0 billion rights issue that was and improve risk profile) completed in January 2010 and taken up practically to 4) Strong capital base (cash dividend declared the extent of 99.5% by the existing shareholders. First for both preferred and common) Holdings maintained its 66% economic interest in First Gen by subscribing up to its pro-rata share of about P10.0 billion. Improved Profitability The Company’s net income attributable to the Parent Part of the proceeds from the sale of the Meralco increased to P8.5 billion due mainly to recognition shares was also used to invest in First Gen’s of gains from sale of Meralco shares and the Convertible Bond (CB) which was then trading at improvement in First Gen’s income on account of attractive discounts. A total of $24.5 million First Gen its lower debt level and the improved performance CB was acquired in the market at a discounted value of its associate EDC. In addition, higher cash and of $20.7 million. This CB has a 2.5% coupon and a put lower debt levels of the Company positively affected option at a price of 115.6% in February 2011 which its bottom line. These higher earnings resulted to would result in positive gains for First Holdings. a significant increase in the Company’s return on average equity from 2.8% in 2008 to 17.2%. On November 5, 2009, First Holdings agreed to enter into a call option for 74,700,000 common shares of Strengthened Liquidity Position and Meralco at a price of P300.0 per share with MPIC. On Lower Debt Level November 20, 2009, MPIC granted First Philippine First Holdings priorities in 2009 were to manage risks Utilities Corp. (FPUC) a short-term loan of P11.2 and to preserve liquidity in order to mitigate any billion with an interest of 5.0% per annum, secured adverse impact of market uncertainty or economic by Meralco and First Gen shares owned by FPUC and slowdown. Simultaneously, we had to position FGHC International, respectively. The loan proceeds ourselves for the eventual market upturn and be enabled us to end the year with a healthy consolidated able to seize important opportunities that may be cash position of P25.8 billion. presented to the Company.

24 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

Parent Debt, in Php Millions

Parent (FRCN Peso Tranche) 2008 Parent (FXCN-Various) Parent (FRCN $ Tranche) FGHC Int’l. (AIMCF) 2009 FPHC Fund (SBAL) FPHC Fund (FRN-CSFB) 00 5 ,0005,000 10,000 10,000 15,000 15,000 20,000 20,000 25,000 25,000

The sale of the 20.0% stake in Meralco has improved The full settlement of First Gen’s bridge loans and the company’s liquidity position and compensated the deconsolidation of EDC resulted to a notable for the significant drop in cash dividends from its improvement in the Company’s consolidated current subsidiaries and associates. In addition, First Holdings ratio from 0.86x in 2008 to 1.41x in 2009. was able to prepay a substantial amount of debt. Its debt was reduced from P21.5 billion in 2008 to P11.7 First Gen continued pursuing its goal of stabilizing billion at the end of 2009, thereby improving the its financials. The successful refinancing of the Santa Parent company’s debt-to-equity ratio to 0.23x. Rita loans in 2008 pushed down and termed out the debt from the Parent company level to its operating The ratio of consolidated long-term debt to total subsidiary. First Gen continued to replicate this equity likewise improved to 1.02x from 1.93x in 2008. formula in 2009. The reduction in long-term debt was due to loan repayments, the sale of the tollways business, the • In March 2009, Unified Holdings Corporation deconsolidation of EDC, as well as the reclassification raised a total P5.4 billion to refinance the First Gen to current liabilities of First Gen’s bonds payable due Bridge Loan Facility granted on 28 November 2007. in July 2010. First Holdings’ long-term debt, including The three-year loan was priced at 9.4% per annum current portion decreased by 52.0% or P50.7 billion with 90.0% of principal due upon maturity. The loan to P46.2 billion. was provided by the following lenders: Banco de Oro Unibank, Inc., Philippine National Bank, Rizal

25 CFO Report

Commercial Banking Corporation, BDO Trust and fixed rate notes, andP 12.0 billion 5-1/2 and 7-year Investment Group, and Robinsons Savings Bank. retail bonds. Funds have been or will be utilized for the JPY12.0 billion Miyazawa-1 loan repayment, the • In May 2009, Red Vulcan Holdings Corporation (Red $220.0 million Palinpinon/Tongonan acquisition bid Vulcan) paid down to P13.9 billion its P29.2 billion and the JPY22.0 billion Miyazawa-2 loan servicing. loan which was used to purchase EDC through a loan extended by Banco de Oro Unibank, Inc. and its Trust The currency mix of EDC’s loan portfolio has been and Investments Group. To date, this loan was further shifted from being JPY heavy to predominantly Pesos paid down to P8.3 billion using the proceeds from the starting in the second half of 2010. EDC refinanced rights offer of First Gen. its maturing loans to enable it to stretch out its lumpy maturities and veer away from third currency exposure. First Gen has been able to rationalize the short-term borrowings it took on to support its growth plans. On June 5, 2009, First Philec Solar availed of a P200.0 This was done through a balanced mix of refinancing million secured three-year Term Loan facility from of short-term loans with longer term debt, dividends Trade and Investment Development Corporation from subsidiaries and partial disposition of its interest of the Philippines (PHILEXIM) with First Philec as in FG Hydro. First Gen’s liquidity position has been Guarantor. The Term Loan is payable in 12 equal further enhanced by the proceeds of the P15.0 billion quarterly amortization starting September 5, 2009. stock rights offering completed last January 2010. Strong Capital Base and Cash Dividend EDC also raised a total of P25.1 billion in fresh loans In May 2009, Lopez Inc. Retirement Fund (LIRF) consisting of: a P4.1 billion 15-year International and Quialex Realty Corporation (QRC) invested in Finance Corporation loan, P9.0 billion 5- and 7-year voting preferred shares of Prime Terracota Holdings

26 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

Corporation (Prime Terracota). Prime Terracota is the 30.0%. The proceeds have been and will be used for company that fully owns Red Vulcan, the company the repayment of First Gen’s debt and will enhance the that owns the controlling interest in EDC. As a result Company’s balance sheet. of this transaction, First Gen’s voting interest in Prime Terracota was reduced to 45.0% from 100.0%. This First Gen did not pay any cash dividend in 2009 as allowed the deconsolidation of the Prime Terracota it continued the efforts of stabilizing its financials. group from First Gen. The Prime Terracota group In 2009, First Holdings received cash dividends of is composed of Prime Terracota, Red Vulcan, EDC, about P845.0 million representing a decline of 33% and FG Hydro. With the reduced voting interest in from the dividend earnings of around P1.3 billion in Prime Terracota, First Gen’s effective 40.0% economic 2008. Meralco paid a total of P2.50 per share of cash interest in EDC is now appropriately reflected. The dividend in 2009. First Holdings distributed a total structure still allows First Gen to receive all the of P8.7231 per share cash dividends on its perpetual dividends due to Red Vulcan from EDC. preferred shares in 2009.

To strengthen its equity position, First Gen completed First Holdings restarted payment of P1.0 per semester a P15.0 billion Rights Offer in January 2010. A total cash dividend to common shareholders in December of 2,142,472,791 common shares of First Gen was 2009. The Company believes that to be able to meet offered to and taken up by existing shareholders at its existing obligations and growth aspirations, a P2.0 a price of P7.0 per share. The transaction was 99.5% per annum cash dividend is sustainable. Its major taken up and 11.1% oversubscribed. First Holdings subsidiaries’ ability to pay cash dividends may still be participated in the Rights Offer and increased its stake affected by substantial financing costs in the short-term. in First Gen by 8.3 million common shares. The Rights Offer improved First Gen’s market capitalization by

27 CFO Report

Looking Forward to 2010 were released from the pledge. After the sale, First The Company’s achievements in 2009 mark a new Holdings still retains 74,475,706 shares or a 6.6% beginning as it revitalizes its portfolio focused on clean, stake in Meralco and is entitled to nominate one renewable, and indigenous sources of energy. In the director, among other rights. near term, we are expecting First Gen to benefit from the tight power supply situation in the country and the First Holdings will also be entitled to about 24.0% improved performance of EDC following the acquisition of Rockwell Land shares that may be declared and of the 304 MW Palinpinon-Tongonan generating plants distributed by Meralco as property dividends. Part of and the enactment of the Renewable Energy Law. the agreement with the MPIC Group requires that to the extent that Meralco’s board approves the On March 30, 2010, we sold to the MPIC Group distribution of its 51.0% direct ownership in Rockwell another 6.6% or 74.7 million shares in Meralco at P300 Land in the form of a property dividend to its per share for an aggregate proceed of P22.4 billion. shareholders, MPIC will then assign to First Holdings The attractive price took into account the upswing in the Rockwell Land shares that it is entitled to. This Meralco’s share price following the final approval of entitlement is applicable to the 386,602,961 Meralco a long-delayed rate increase starting May 2009. This shares owned by the MPIC Group. Meanwhile, transaction also increased the average selling price of the right on the Rockwell Land shares that may be our Meralco shares to P143.0 per share. FPUC’s loan declared and distributed by Meralco as property of P11.2 billion extended by MPIC on November 20, dividends with respect to the 6.6% or 74.7 million 2009 was paid in full following First Holdings’ receipt shares sold in March 2010 belongs to First Holdings. of the sale proceeds. The shares pledged to secure The approval of the property dividend will effectively the FPUC loan consisting of 30,093,270 Meralco increase the stake of First Holdings in Rockwell common shares owned by FPUC and 138,357,600 Land from the 49.0% it currently owns to a 73.0% First Gen shares owned by FGHC International Limited controlling stake.

28 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

“We are currently reviewing various options to find ways to create more value for First Holdings, including the rationale deployment of its healthy cash balance.“

By the second quarter of 2010, the remaining 6.6% With a manageable debt level of P11.7 billion investment in Meralco will be booked under Non- combined with the Company’s positive cash position, current Available For Sale (AFS) financial assets. The fair we are sufficiently equipped to seize opportunities value of this investment will be determined by reference that may come our way to further enhance to published price quotations in an active market. shareholder value.

We continue to see the value in our existing portfolio. We thank all our stakeholders, especially our Our view is that the market prices do not truly reflect lenders, for their continued cooperation and the real value of our Company’s shares, as well as that support to First Holdings. of First Gen and EDC. Part of the undervaluation can be attributed to the menu of investment choices that investors can invest in and the fact that First Gen was still in the midst of completing its refinancing program. We are currently reviewing various options to find ways to create more value for First Holdings, including the rationale deployment of its healthy cash balance. Francis Giles B. Puno Senior Vice President/ Treasurer and Chief Finance Officer

29 Board of Directors

Oscar M. Lopez Augusto Almeda Lopez Cesar B. Bautista Thelmo Y. Cunanan Chairman and Chief Vice Chairman Independent Director Director Executive Officer

Mr. Lopez is the Chairman Atty. Lopez is Vice Mr. Bautista was Mr. Cunanan is currently and Chief Executive Chairman of both Ambassador the Chairman of Officer of the First First Philippine Holdings Extraordinary and the Social Security Philippine Holdings Corporation and Plenipotentiary to the Commission, the top Corporation. He is also ABS-CBN Broadcasting United Kingdom of Great policy-making body Chairman of Lopez, Inc. Corporation. Britain and Northern of the Social Security and Benpres Holdings Ireland, Republic of Ireland System. He was also Corporation. and Republic of Iceland. He President of the Philippine is likewise an independent National Oil Company. director of Asian Terminals, He was an Ambassador Inc. He is a member of Extraordinary and the Risk Management Plenipotentiary to the Royal Committee. Kingdom of Cambodia.

30 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

Peter D. Garrucho, Jr. Oscar J. Hilado Elpidio L. Ibañez Jose P. De Jesus Director Independent Director President Director

Mr. Garrucho was the Mr. Hilado is Chairman of Mr. Ibañez is President Mr. De Jesus is President Managing Director for the Philippine Investment and Chief Operating of Meralco. He was the Energy of First Philippine Management, Inc. Officer of First Philippine President and Chief Holdings Corp.He is also (PHINMA). and Holcim Holdings Corporation. Executive Officer of the Board Member of First Phils. Inc. He is the He is Chairman of First Manila North Tollways Gen and EDC. He was Chairman of FPHC’s Batangas Hotel Corp., Corporation. He also also a former Executive Audit Committee Vice Chairman of First served as Secretary of Secretary and Secretary of and a member of the Phil. Electric Corp. and the Department of Public the Departments of Trade Nomination and Election President of First Phil. Works and Highways. and Industry and Tourism. Committee. Utilities Corporation. He is a member of the Finance and Investment Committee.

31 Board of Directors

Eugenio L. Lopez III Federico R. Lopez Manuel M. Lopez Artemio V. Panganiban Director Director Director Independent Director

Mr. Lopez is the Chairman Mr. Lopez is currently the Mr. Lopez is Chairman Hon. Panganiban was and Chief Executive Managing Director for and Chief Executive the Chief Justice of the Officer of ABS-CBN Energy for First Philippine Officer of Meralco. He Philippines from 2005- Broadcasting Corporation. Holdings Corp. He is also is also the Chairman 2006. He was a Justice of He is a member of the President and Chief of Rockwell Land and the Supreme Court from Finance and Investment Executive Officer of First Soluziona Phils., Inc. 1995 to 2005. He is also Committee. Gen. He is a member He is a member of the an independent director of the Finance and Nomination and Election of GMA Network, Inc. and Investment Committee. Committee. Meralco. Chief Justice Panganiban is the Chairman of the Risk Management Committee.

32 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

Vicente T. Paterno Ernesto B. Rufino, Jr. Juan B. Santos Washington Z. Sycip Independent Director Director Independent Director Independent Director

Mr. Paterno is a former Mr. Rufino is President Mr. Juan B. Santos was Mr. Sycip is founder Senator of the Republic, of Securities Transfer former Chairman and of the SGV Group and Chairman of the Board Services, Inc. He is also President of Nestlé Chairman and President of Investments and the Chairman and Chief Philippines, Inc. and of the Board of Trustees Minister of Public Executive Officer Secretary of Trade and and Board of Governors Works and Highways. of Health Maintenance, Industry. He is a member of the Asian Institute Mr. Paterno is the Inc. He is a member of of the Audit Committee of Management. He is founding Chairman the Risk Management and the Nomination and a member of the Audit of Philippine Seven Committee. Election Committee. Committee and the Corporation. Nomination and Election Elected on June 4, 2009 Committee. Resigned on June 4, 2009

33 Senior Management

Oscar M. Lopez Elpidio L. Ibañez Francis Giles B. Puno Federico R. Lopez Chairman and Chief President and Chief Senior Vice President/ Managing Director for Executive Officer Operating Officer Treasurer and Chief Energy Finance Officer

Ricardo B. Yatco Oscar R. Lopez, Jr. Benjamin R. Lopez Ramon T. Pagdagdagan Vice President Vice President Vice President Vice President/ Internal Auditor

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FIRST PHILIPPINE HOLDINGS CORPORATION

Arthur A. De Guia Perla R. Catahan Anthony M. Mabasa Managing Director for Vice President and Vice President Manufacturing and Comptroller Investments Group

Elizabeth M. Canlas Enrique I. Quiason Rodolfo R. Waga, Jr. Vice President Compliance Officer Vice President and and Corporate Assistant Compliance Secretary Officer

35 Corporate Governance

First Holdings Chairman and CEO Oscar M. Lopez speaks on behalf of the Philippine private sector during the 10th Organization for Economic Development Asia Roundtable on September 9, 2009. Joining Mr. Lopez on the Philippine panel were: Dr. Jesus Estanislao, chairman of the Institute of Corporate Directors; Amando Tetangco Jr., governor of Bangko Sentral ng Pilipinas; Francisco Lim, president of the Philippines Stock Exchange; Fe Barin, chairperson of the Securities and Exchange Commission; and Jeremias Paul Jr., undersecretary of the Department of Finance.

36 2009 ANNUAL REPORT

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First Holdings charted new beginnings in its pursuit gross negligence or bad faith committed as a director of excellence in corporate governance beyond in any other company; and (iv) a new provision to compliance. After receiving the Gold Award in provide that, pursuant to good corporate governance, the Corporate Governance Scorecard (CG-Sc) the Board is governed by the Manual, which shall be administered by the Institute of Corporate Directors suppletory to the By-Laws. for the first time in 2008, First Holdings has initiated programs to help it exceed the standards First Holdings also adopted a Manual on Anti-Money of compliance and stay in league with global Laundering and instituted a Corporate Code of benchmarks. It maintained its CG-Sc ranking in Conduct in August 2005. The Corporate Code of 2009 and received its second Gold Award for this Conduct reiterates the values and principles instilled achievement in May 2010. by its founder and carried on by the company, namely: nationalism, integrity, entrepreneurship and Governance Initiatives innovation, teamwork and a strong work ethic. First Holdings adopted its Manual on Corporate The Code embodies the principles and guidelines for Governance (the “Manual”) on January 1, 2003. This the conduct of the business of the company and in was enhanced and amended on April 15, 2008. In dealing with its shareholders, customers, joint venture addition, its By-Laws were amended on February partners, suppliers/service providers, the government, 5, 2009 to provide for the following: (i) the period creditors and employees. It also affirms the company’s for submission of proxies; (ii) a new provision on commitment to pursue civic, charitable, and social the general responsibility of the Board of Directors; projects and undertakings. The Corporate Code of (iii) additional qualifications/disqualifications are Conduct, the Business Mission, the Company Credo prescribed for directors covering items such as and its Commitments were made part of the Manual disqualification for violations of the SRC (Securities of Corporate Governance. Regulation Code), Corporation Code and rules administered by the BSP (Bangko Sentral ng Pilipinas) First Holdings has articulated that corporate and SEC (Securities and Exchange Commission), governance is an indispensable component of insolvency, analogous acts in another jurisdiction, “sound strategic business management to improve other acts prejudicial, inimical or causing undue injury the economic and commercial prosperity of the to the corporation, its subsidiaries or affiliates, and corporation and enhance shareholder value.”

37 Corporate Governance

DIRECTORS JAN JAN FEB MAR MAR APR MAY MAY MAY JUN JUL AUG SEP OCT NOV DEC 151 192 17 5 133 2 7 254 255 4 9 6 3 1 5 3

O.M. Lopez P P P P P P P P P P P P P P P P A.A. Lopez P A P A A P P P P P P P P A P P C.B. Bautista P P P P P P P P P P P A P P P P T.Y. Cunanan A A P P P P P P P P P P P P P A J.P. De Jesus P P P P P P P P P A P P P P P P P.D.Garrucho Jr P A P P P P P P P P P P A P P P O.J. Hilado P A P P P P A P P P P P P P A P E.L. Ibañez P P P P P P P P P P P P P P P P E.L. Lopez III A A P A A A A A A A P P A P P A F.R. Lopez P P P P P P P P P P P P P P P P M.M. Lopez P P P P A A P A A P A P P P A P A.V. Panganiban P P P P P P P P P A P P P P P P E.B. Rufino Jr. P P P P P P A P P A A P P P P P V.T. Paterno P P P A A A P A A ** ** ** ** ** ** ** J.B. Santos * * * * * * * * * P P P A A P P W.Z. Sycip A A P P P P P A A A A P A A A P

Legend: P -Present A –Absent * - Not a Board Member Yet **-No Longer a Board Member

1 - Special Stockholders’ Meeting 2 - Special Board Meeting 3 - Special Board Meeting 4 - Annual Stockholders’ Meeting 5 - Organizational Board Meeting

38 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

As part of its compliance with legal requirements, Standing Committees it filed the Certificate of Attendance of Directors The Board constituted standing committees to in board meetings with the SEC and with the PSE exercise the duties and functions as provided in the (Philippine Stock Exchange) on January 8, 2010 and Manual for Corporate Governance. January 11, 2010, respectively. It likewise submitted its Certificate of Compliance with the Manual of The Nomination and Election Committee passes Corporate Governance with the SEC and PSE on upon the nomination and election of directors and January 20, 2010 and January 22, 2010, respectively. recommends the qualified nominees to the Board for the latter’s approval of nomination. The members On March 4, 2010, First Holdings secured board of the Nomination and Election Committee are as approval for the amended Manual based on the new follows: Messrs. Oscar M. Lopez as Chair, with Oscar requirements under SEC Memorandum Circular No. J. Hilado, Juan B. Santos, Manuel M. Lopez and 6, series of 2009 as well as for the individual charters Washington Z. Sycip, as members. This committee of the board committees. Board Self-Assessment performs a crucial function, as it selects the directors Forms were given to the directors and are set to be and passes upon their qualifications, seeking to completed. entrust management to those who can “bring prudent judgment to bear on the decision-making process.” The Board First Holdings board is composed of individuals The Compensation and Remuneration Committee with proven competence, probity, and integrity. oversees the appropriate corporate rewards system. They are provided with systems and structures to It is composed of the following: Messrs. Oscar M. help them fulfill their duties. Lopez (Chairman), Washington Z. Sycip, and Cesar B. Bautista. It seeks to promote a culture that supports First Holdings Board of Directors are: Messrs. Oscar enterprise and innovation, with suitable performance- M. Lopez (Chairman), Augusto Almeda-Lopez (Vice related rewards that help motivate management and Chairman), Elpidio L. Ibañez (President), Thelmo Y. the employees to be effective and productive. Cunanan, Peter D. Garrucho, Jr., Oscar J. Hilado, Jose P. De Jesus, Eugenio Lopez III, Manuel M. Lopez, A separate committee composed of Messrs. Juan B. Santos, Washington Z. Sycip, Federico R. Augusto Almeda-Lopez (Chairman), Washington Z. Lopez, Ernesto B. Rufino, Jr., Cesar B. Bautista, and Sycip, and Cesar B. Bautista reviews the Chairman’s Artemio V. Panganiban. compensation and remuneration.

39 Corporate Governance

The Audit Committee evaluates corporate On December 13, 2007, the company constituted a performance, including financial and accounting Risk Management Committee headed by Chief Justice matters, and is composed of the following: Messrs. Artemio V. Panganiban as Chairman with Mr. Ernesto Oscar J. Hilado (Chairman), Peter D. Garrucho, Jr. B. Rufino, Jr. and Ambassador Cesar B. Bautista, as and Washington Z. Sycip, Augusto Almeda Lopez, members. This committee is tasked to: (a) oversee the and Juan B. Santos. This committee, among other formulation and establishment of an enterprise-wide things, has the duty to ensure transparency and risk management system; (b) review, analyze, and integrity in the financial management system. Both recommend the policy, framework, strategy, method external and internal auditors are available to assist and/or system of or used by the company to manage the Audit Committee. risks, threats, or liabilities; (c) review with management the corporate performance in the areas of legal risks First Holdings has an Internal Audit Group (IAG) and crisis management; and (d) review and assess the composed of Certified Public Accountants and most of likelihood and magnitude of the impact of material whom are Certified Internal Auditors. The IAG reports events on the company and/or to recommend to the Board through the Audit Committee. The IAG measures, responses, or solutions to avoid or reduce provides assurance and consulting functions for First risks or exposure. Holdings and its subsidiaries in the areas of internal control, corporate governance and risk management. Transparency and Compliance Complete, prompt, and timely disclosures of material To ensure that it makes sound financing and investment information are made by the company to the PSE and decisions, First Holdings has an Investment and Finance to the SEC for the benefit of the investing public. Committee composed of Messrs. Oscar M. Lopez (Chairman), Thelmo Y. Cunanan, Peter D. Garrucho, The law only requires two independent directors Jr., Federico R. Lopez, Eugenio Lopez III, and Jose P. for covered companies. First Holdings has five such De Jesus. This committee reviews the investments and directors. The requirement for independent directors financing efforts of the company, investment objectives is likewise enshrined in its by-laws to show its firm and strategies, fund raising, major capital expenditures, commitment to sound corporate governance. The investment opportunities as well as divestments, among independent directors are also members of their other things. respective Board committees.

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Atty. Enrique I. Quiason has been designated as Other Offices Compliance Officer and Atty. Rodolfo R. Waga, The Board of Trustees of the FPHC Retirement Jr. as Assistant Compliance Officer, specifically for Fund which administers the retirement fund of corporate governance. Both are First Holdings the company is composed of Mr. Elpidio L. Ibañez Corporate Secretary and Assistant Corporate as Chairman and Mr. Francis Giles B. Puno, Ms. Secretary, respectively. Elizabeth M. Canlas, Mr. Arthur A. De Guia, and Ms. Perla R. Catahan as members. First Holdings likewise implements corporate excellence initiatives both at the parent and subsidiary The Employee Stock Purchase Plan Board of levels such as ISO certification, Environment, Safety Administrators which administers the company’s stock and Health programs, Risk Management, Six Sigma option plan is composed of Mr. Elpidio L. Ibañez as and Knowledge Management, the Oscar M. Lopez Chairman and Mr. Francis Giles B. Puno, and Ms. Perla Award for Performance Excellence and the Lopez R. Catahan as members. Achievement Award, among others. On February 9, 2009, the company obtained certifications that its integrated management system (IMS), consisting of its quality management system, environmental management system as well as its health and safety management system, conform to the standards of ISO 9001:2000, ISO 14001:2004 and ISO 18001:2007, respectively. It passed the first stage of its IMS audit relating to ESH for the current year on February 24.

41 Board Committees

Board Of Directors Independent Directors Augusto Almeda-Lopez Cesar B. Bautista Cesar B. Bautista Oscar J. Hilado Thelmo Y. Cunanan Artemio V. Panganiban Jose P. De Jesus Juan B. Santos Peter D. Garrucho, Jr. Washington Z. SyCip Oscar J. Hilado Elpidio L. Ibañez Directors and executive/corporate officers hold office Eugenio L. Lopez III for a period of one (1) year and until such time when Federico R. Lopez their successors are elected and have qualified. Manuel M. Lopez Oscar M. Lopez Artemio V. Panganiban Ernesto B. Rufino, Jr. Juan B. Santos Washington Z. Sycip

Executive/Corporate Officers Oscar M. Lopez - Chairman of the Board and Chief Executive Officer Augusto Almeda-Lopez - Vice Chairman of the Board Elpidio L. Ibañez - President and Chief Operating Officer Francis Giles B. Puno - Chief Finance Officer, Treasurer and Senior Vice President Federico R. Lopez - Managing Director for Energy Arthur A. De Guia - Managing Director for Manufacturing and Portfolio Investments Group Fiorello R. Estuar - Head of Infrastructure Business Development Danilo C. Lachica - Senior Vice President Richard B. Tantoco - Senior Vice President Perla R. Catahan - Vice President and Comptroller Ramon T. Pagdagdagan - Vice President and Internal Auditor Anthony M. Mabasa - Vice President Leonides U. Garde - Vice President Ricardo B. Yatco - Vice President Hector Y. Dimacali - Vice President Victor Emmanuel B. Santos, Jr. - Vice President Oscar R. Lopez, Jr. - Vice President Benjamin R. Lopez - Vice President Ariel C. Ong - Vice President Elizabeth M. Canlas - Vice President Enrique I. Quiason - Corporate Secretary and Compliance Officer Rodolfo R. Waga, Jr. - Vice President, Asst. Corp. Secretary and Asst. Compliance Officer

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Executive Committee Nomination and Election Committee Oscar M. Lopez Chairman Oscar M. Lopez Chairman Augusto Almeda-Lopez Member Washington Z. Sycip Member Elpidio L. Ibañez Member Oscar J. Hilado Member Juan B. Santos Member Audit Committee Manuel M. Lopez Member Oscar J. Hilado Chairman Washington Z. Sycip Member Risk Management Committee Peter D. Garrucho, Jr. Member Artemio V. Panganiban Chairman Augusto Almeda-Lopez Member Cesar B. Bautista Member Juan B. Santos Member Ernesto B. Rufino, Jr. Member

Finance and Investment Committee Oscar M. Lopez Chairman Peter D. Garrucho, Jr. Member Eugenio L. Lopez III Member Thelmo Y. Cunanan Member Jose P. De Jesus Member Federico R. Lopez Member

Compensation and Remuneration Committee Oscar M. Lopez Chairman Washington Z. Sycip Member Cesar B. Bautista Member

Chairman’s Compensation and Remuneration Committee Augusto Almeda-Lopez Chairman Washington Z. Sycip Member Cesar B. Bautista Member

43 Business Excellence

PERFORMANCE AWARDS Lopez Achievement Award Oscar M. Lopez Award for Performance Excellence While the Oscars looks at the overall performance The Oscar M. Lopez Award for Performance of the organization, the Lopez Achievement Award Excellence or the “Oscars” is the Lopez Group’s (LAA) recognizes and rewards outstanding team and highest level of recognition for organizations individual achievements that have contributed in possessing a stable and entrenched culture of one or more of the following areas: Customer Focus, excellence and continuous improvement. Awardees Business Management, Operations Management, must have demonstrated an outstanding level of Human Resource, Public Responsibility and Corporate performance, deserving to be a group-wide and Image-building. These categories reflect the national role model. The Oscars is patterned over the categories of the Baldrige framework. U.S. Malcolm Baldrige National Quality Award. During the Business Excellence Awards held in The value of the Baldrige criteria goes beyond the September 2009 at Rockwell Tent, four teams were confines of the Oscars. The Baldrige system involves conferred the LAA, as follows: all facets of an organization: leadership, strategic planning, customer and market focus, measurement, - MK Buffer Zone Communications Team of the analysis and knowledge management, workforce Energy Development Corporation for the project focus, process management and results. It focuses “Harmonizing Environment and Technology to Win on results and the existence of working systems the Mt. Kanlaon Buffer Zone Crisis” that ensure continuous improvement in the delivery of products and services and take into account the - Management Coordinating Council of FPIC for “A requirements of all stakeholders. Sustained Business Turnaround”

It is this encompassing nature of the Baldrige that - Business Development and Human Resource Lopez Group regards it as a framework for business Teams of the Asian Eye Institute for “Successful excellence. In 2009, First Philec, First Philec Solar, Transition from Start-up to Growth Company Philec, First Philec Manufacturing Technologies and through Strategic Expansion” and “Organizational First Philippine Power Systems—companies under Transformation,” respectively the Manufacturing sector—completed their internal assessments based on the Baldrige criteria with the Out of 46 LAA recipients since 2002, 25 teams and help of the Oscars examiners. Each company received two individuals came from First Holdings. a Feedback Report, a baseline of their strengths and opportunities for improvement (OFIs) that serves as INTEGRATED MANAGEMENT SYSTEM valuable input for their strategic plan. By addressing First Holdings was awarded its Integrated their OFIs, companies follow a roadmap leading to Management System (IMS) certificate on February business excellence. 9, 2009. This system puts together the Quality

44 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

Management System (QMS) under ISO 9001, the measures are reassessed by peers at midyear review Environmental Management System (EMS) under ISO sessions. Implementation of risk mitigation strategies 14001 and the Occupational Health and Safety System is tackled during the monthly board meetings by the (OHSS) under OHSAS 18001. The company passed the companies’ respective boards. IMS audit conducted by Certification International on January 21, 2009. To enhance corporate governance, the Board of Directors formed a Risk Management Committee First Holdings supported various initiatives toward (RMC) in late 2007 composed of three (3) independent business excellence. On August 30-31, 2009, an directors, namely, former Chief Justice Artemio V. Internal Quality Audit was conducted to gauge Panganiban, Ambassador Cesar B. Bautista, and Mr. compliance with the IMS and also to identify areas Ernesto B. Rufino, Jr. The RMC exercises oversight for improvement. The IMS team also went through functions vis-à-vis risk management activities of the a QMS transition seminar on September 10, 2009 corporation. The committee is supported by the to familiarize itself with the requirements of the ISO Executive Risk Management Unit (ERMU), composed 9001:2008 series. First Holdings intends to upgrade of the president and other senior level officers. ERMU its QMS to the new standards by November 2010. members, being the ultimate owners of the risks, regularly review the risk profile of the group and First Holdings launched its Enterprise-wide Risk craft, monitor and implement the risk management Management (ERM) Program to strengthen its strategies of the company. A risk management strategic planning process. It is preparing to adopt champion and risk coordinator provide staff support the Balanced Scorecard for performance management to the RMC. to further support its IMS and meet the continuing challenge for business excellence. One of the initial actions of the committee was to institutionalize one-on-one sessions with the various ENTERPRISE RISK MANAGEMENT First Holdings holding sectors and subsidiaries. Among Adopted five years ago by the Lopez Group of them are the Distribution Sector (Meralco), Power Companies, the Enterprise Risk Management (ERM) Generation Sector (First Gen, First Gas, First Philippine framework facilitates attempts at the operating and Industrial Corporation), and the Manufacturing Sector holding company levels to manage business and (Philec, First Sumiden Circuits Inc., First Philippine operating risks. It also tries to exploit opportunities Solar, First Electro Dynamics Corporation). The one- derived from managing risks well. A staple activity on-one sessions allow sector and subsidiary risk in planning and review sessions, sector holding management champions to solicit feedback on their companies and operating subsidiaries report their adopted mitigation strategies from RMC members top 10 risks and corresponding mitigating strategies who have extensive knowledge from their experiences during the annual budget conference and one-on-one in both the government and private sectors. The sessions with top management. Risks and mitigation output of this exercise is a risk map of the First

45 Business Excellence

Holdings portfolio with corresponding risk definitions corporate brand) became as important as managing and mitigation strategies. tangible assets, if not more so.

For the holding company, strategic discussions of Shining above the uncertainty created by the failure of the company’s key result areas are done regularly global institutional giants, First Holdings received the by management with the Board of Directors as the Gold Award from the Institute of Corporate Directors, annual and five-year plans are taken up. Inputs of for its achievements and practices in corporate Board members are then integrated in the plans governance. Years of improving and integrating before cascading them to the rest of the organization. A business processes began paying off. separate forum for the discussion of the top risks and risk strategies with the RMC and chairman is also conducted. As a holding company with significant investments in various industries, First Holdings early on recognized The risk management practices of the corporation that its products (i.e., portfolio of investments and the also extend to its Environment, Safety and Health Company’s accumulated value) were highly dependent Management Systems certified under ISO 14000 on knowledge and intangible assets. Hence, a and 18000. In 2009, the corporation acted knowledge management (KM) program was critical to proactively toward safety and health-related risk creating greater value. events like the AH1N1 pandemic alert and the devastating effects brought about by Typhoon In 2009, First Holdings continued its organizational KM Ondoy. Response and relief operations helped 20 approach. This approach focused on the integration employees and their respective families affected of people, processes, and database and information by the typhoon. First Holdings obtained its IMS technology (IT). The Company enhanced the common Certificate for its Quality, Environment, Safety and technical competencies of its knowledge workers. Health (QESH) System early 2009. It used the Integrated Management System (IMS) as a tool for documenting critical processes and In pursuit of continual improvement toward corporate information. It continued the digitization of records resiliency, the corporation is exploring the alignment while enhancing its KM portal. of its ERM approach to ISO 31000, a newly developed international standard for risk management, as well as to other globally accepted standards and systems on TALENT MANAGEMENT business continuity and crisis management. First Holdings has identified talent management as a critical process to sustain its growth and KNOWLEDGE MANAGEMENT respond to business challenges. Through its Human The 2009 global financial crisis led to revisiting, Resources (HR) Management Group, the Company scrutinizing, and questioning global business models has strengthened its recruitment, development, and best practices. Perception became very critical promotion, and retention of talents in line with its in determining corporate value. Managing intangible strategic directions. assets (e.g., tacit knowledge, networks, processes and

46 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

In partnership with Watson Wyatt Philippines Inc., a In an effort to accelerate the development of its Towers Watson company, First Holdings transitioned high potentials, the Company offers wide-ranging into competency-based HR systems to ensure their human resource training and development programs alignment with the strategic goals of the Company. for employees covering Management/Leadership, It developed the HR roadmap to include critical Organizational, Functional, Initiatives and Programs. HR systems such as Performance Management, These include the Executive Masters in Business Succession Management, Career Development, and Administration (EMBA) through the Asian Institute Rewards Management. of Management (AIM), as well as key functional programs such as the Certified Financial Analyst The project started with a study clarifying the role of (CFA), Certified Management Accountant (CMA), First Holdings as a parent company and delineating Certified Internal Auditor (CIA), Certified Information its role vis-à-vis the sector holding companies in the Systems Auditor (CISA), Certificate in Human Resource group. A Core Competency Framework for a more Management, Mandatory Continuing Legal Education integrated approach in enhancing organizational (MCLE), Financial Modeling Program and others. The capabilities and capacities was also developed, Company likewise provides learning sessions and fora defining the core competencies and competency on Performance Management System (PMS), Investors profile for each job in the organization. The Company in People (IiP), Integrated Management System (IMS), likewise revisited and updated job profiles and Risk Management, and Corporate Wellness. established a new Job Classification System to serve as one of the primary references for the review, A major HR program—Employee Wellness—is now establishment and alignment of the salary structure. on its 12th year. First Holdings employees were categorized into three types: healthy, moderately at Still in partnership with Watson Wyatt, the company risk, and high risk. Each employee is assessed and firmed up the Succession Planning Program strategy profiled based on established health assessment and framework, identifying key and critical roles in the parameters for blood chemistry tests, body mass process. The program provides the organization with index (BMI), body fat composition, cardio-respiratory the needed flexibility and efficiency. The management endurance, flexibility, and family medical history. profiles of those in the succession/acceleration The intent is to provide an individualized wellness pool were also updated. The profile serves as a key program to include nutrition, fitness activities, and reference for the development of successors. stress management interventions appropriate to the employee’s health status and lifestyle. As part of its learning mix and continuous effort to build its leadership pipeline, the Company developed These and other HR programs fulfill the strategic a talent deployment program called First Holdings mandate to enhance organizational capacity in Developmental Assignment Program (FDAP) where response to the evolving challenges and requirements high potentials are deployed and assigned to a of the business. subsidiary company. The program aims to provide work exposure and opportunities to develop their leadership and management competencies particularly in the area of people management. 47 Corporate Social Responsibility

First Holdings’ corporate social responsibility (CSR) Inc. (LGFI), ABS-CBN Foundation Inc. (AFI), and First activities are linked to poverty alleviation, education, Holdings’ subsidiaries, the company supported the environment, and health. rehabilitation of an elementary school at the BayaniJuan site in Calauan (named Oscar M. Lopez Dayap Elementary In 2009, the Lopez Group CSR Magna Carta, initiated School in May 2010). The school has three two-story by the Lopez Group Foundation, Inc., was signed by the buildings with 24 classrooms, four instructional rooms chief executive officers of First Holdings Group and Lopez including a science laboratory and multimedia room, Family members. This document provides the philosophy library, and bakery. and guiding principles for philanthropy, NGO work and corporate social responsibility of the companies for the First Holdings also donated funds for the construction of future. the school’s basketball center and two livelihood centers for the community. To date, more than 4,000 families from Through the Magna Carta, CSR becomes an integral Estero de Paco have been relocated to Bayanijuan site part of the business models of Lopez Group companies. in Southville 7. Another 10,000 families are expected to Innovative ways would continually be explored to be moved from the Pasig River and other major tributary integrate and deliver programs aligned with strategic rivers. objectives of the various businesses, while being in the service of the Filipino community. As part of its volunteerism program, the company’s employees participated in programs to help victims Disaster Relief and Rehabilitation of typhoon Ondoy. With the Philippine Business for The onslaught of typhoon Ondoy, which affected 18% Social Progress, employee volunteers conducted relief of First Holdings employees, marked new beginnings in operations for the affected families in Pinagbuhatan, the company’s approach to corporate social responsibility Pasig. First Holdings also supported Tulong Balik Eskwela, (CSR). While First Holdings has always prioritized school supplies drive of Knowledge Channel, LGFI, and employee welfare and wellness in its CSR portfolio, the AFI for public school students affected by typhoons far-reaching, life-threatening effects of the typhoon pulled Ondoy and Pepeng. everyone together toward an even more responsive implementation of disaster relief and rehabilitation, as Education well as proactive emergency preparedness. First Holdings believes that high-quality education is significant and fundamental in empowering Filipinos Mirroring this internal response externally, First Holdings achieve social and economic growth. By supporting the increased participation in the clearing of Pasig River Knowledge Channel, the country’s first and only all- tributaries through active support for BayaniJuan educational cable television channel, it contributes in sa Calauan where informal settlers are relocated to making education accessible to public school students. reduce the overall risk posed by future typhoons in the metropolis. The company also advocates nationalism and culture through the Eugenio Lopez Foundation, Inc. (ELFI) which In cooperation with the Lopez Group Foundation manages and operates the Lopez Memorial Museum

48 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

(LMM). LMM houses an outstanding collection of city within the Marine Law Enforcement Network Filipiniana archival materials encompassing almost 600 of Batangas Province in Verde Island Passage with years of Philippine arts, history, and culture. Its library a radio communication system, and two fully- features over 17,000 titles of Filipiniana books, antique equipped patrol. Under this project, a book entitled maps. It houses rare works of renowned Filipino painters, Red List Status of Marine Endemic Teleosts (Bony and rare Philippine imprints dating from early 17th Fishes) of the Philippines was completed. It contains century. In celebration of its 50th year, LMM produced information on the conservation status of some 29 “Unfolding: Half a Century of the Lopez Memorial endemic marine species, many of which were last Museum and Library”. Unfolding chronicles the history of recorded 30 to 100 years ago. the museum and expounds on its prized collections. • Global Marine Species Assessment (GMSA). FPCI First Holdings, in partnership with LGFI supported developed GMSA as a stand-alone program in the publishing of “Cory Magic” book, as part of its 2009. It is a world-wide initiative to increase the commitment to chronicling history, democracy, and number of marine species in the International Union freedom of the press. Complementary copies were for the Conservation of Nature (IUCN) Red List. The distributed to colleges, universities, and foreign Red List classifies species according to the level of embassies. threat they are facing.

Environment • Coral Triangle Initiative (CTI). CTI is a multi-lateral Environmental sustainability is integral to business cooperation among the Philippines, Indonesia, development. First Holdings, through First Philippine Malaysia, and Papua New Guinea, Timor Leste, and Conservation Inc. (FPCI), is a staunch advocate of Solomon Islands (referred to as the CT6) toward the managing and developing resources responsibly. FPCI’s conservation of coral reefs, fighting poverty, and environmental programs include forest restoration and ensuring food security. coastal resources conservation. In collaboration with the Department of Environment and Natural Resources and Health Conservation International, FPCI soft launched Restoring First Holdings actively participates in LGFI’s Lopez our Forests as One Nation (REFO1) Program, a program Lifelong Wellness (LLW) events for a healthier that intends to restore forests using indigenous species in workplace. LLW continues to implement programs critical area in the country based on sound science. which help employees and their families develop a healthy lifestyle that, through voluntary behavioral Part of its coastal resource conservation programs are as changes, reduces health risks and maximizes the follows: employee’s potential. These programs include monthly walkathons dubbed “Walk the Talk”, periodic wellness • Strengthening the Capacity of Resource Managers courses tailored for employees’ individual health needs, to Protect and Conserve Marine Biodiversity. wellness forums, stress management activities, and Supported by the German Technical Cooperation sports tournaments. (GTZ), FPCI equipped seven municipalities and one

49 POWER GENERATION First Gen showed its resilience and strength as it turned the crisis of the previous year into opportunities for stability, growth, and expansion.

EDC’s 232-MW Malitbog power plant in Leyte, the world’s largest geothermal power plant under one roof. 50 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

FIRST GEN CORPORATION (First Gen) In 2009, First Gen showed its resilience and strength as it turned the crisis of the previous year into opportunities for stability, growth, and expansion.

First Gen reported higher profits in 2009 with net income attributable to Parent of US$16.8 million in 2009, up by 16% from US$14.5 million in 2008. This was due primarily to the higher contribution of one of its affiliates, geothermal leader—Energy Development Corporation (EDC).

The higher income in 2009 can likewise be traced to the effectiveness of the debt reduction program that First Gen implemented in 2008. The improving economic conditions also worked to the Company’s advantage.

US$16.8M Net Income attributable to Parent, up by 16%

51 Review of Operations: POWER GENERATION

Consolidated revenues in 2009, on the other hand, went down to US$1.0 billion from US$1.3 billion in 2008. This was mainly due to lower fuel costs as oil prices in the world market declined during the year, on which the gas prices are pegged. The fuel costs are merely pass-through charges to the Manila Electric Federico R. Lopez Company. President and Chief Executive Officer In June 2009, the 52-MW Mindanao 1 and the 54- FIRST GEN MW Mindanao 2 geothermal power plants in North “As we shape First Gen in the coming years, we Cotabato were turned over to EDC with the expiration are constantly mindful of the fact that we forge of the plants’ build-operate-transfer contract held by a portfolio of assets that will withstand intense the consortium of Oxbow Power Corporation and competition and can operate sustainably in a Marubeni Corporation. carbon-constrained world. Today, I believe we have a platform that is not only diverse, competitive, Last September 2009, First Gen affiliate EDC, through and possibly the largest in the country but which its indirect wholly owned subsidiary—Green Core also has the lowest carbon intensity among sizable Geothermal Inc. (“Green Core”)—won the Power power companies in the Philippines.” Sector Assets and Liabilities Management Corp. (PSALM) bidding for the 192.5-MW Palinpinon and 112.5-MW Tongonan geothermal power plants for US$220 million. On October 23, 2009, Green Core formally acquired these two plants. Green Core paid US$88 million or 40% of the purchase price, upon turnover of the plants. The remaining US$132 million plus interest was paid on December 15, 2009.

After raising more than US$900 million in 2008 at the height of the global financial crisis, First Gen completed in 2009 two crucial refinancing deals. In March 2009, First Gen’s wholly owned subsidiary Francis Giles B. Puno Executive Vice President Unified Holdings Corporation also signed with a and Chief Finance Officer FIRST GEN

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consortium of local banks an agreement for a three- year Corporate Note Facility worth up to P5.6 billion. In May 2009, First Gen affiliate Red Vulcan Holdings Corp. succeeded in extending for another five years— or until May 2014—the maturity of P13.9 billion in bank loans. Victor Emmanuel B. Santos, Jr. Senior Vice President To further strengthen First Gen’s cash and equity First Gen positions, First Gen pooled from the equities market P15 billion in fresh capital by successfully completing a 1.756:1.00 stock rights offering last January 2010. Proceeds from the rights offer have been and will be used to pay down further the debts of First Gen and its affiliates.

Gross Revenues Nestor H. Vasay EBITDA Senior Vice President First Gen 1,400 1,217.1 1,200 1,015.2

1,000 991.4

800

600

400 297.7 287.0 272.3 200

0 2007 2008 2009

Emmanuel Antonio P. Singson Senior Vice President First GEN

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79 6.25M Bird species that call First Trees to be planted in 10,000 Gas their home hectares over 10 years

First Gen has embraced sustainability and To ensure enough seedlings for the rare endemic environmental protection as an integral part of its species that will be planted under the program, day-to-day operations. In 2009, First Gen’s efforts in nurseries are being established to provide seedlings this area started to have a significant impact on its for the rare endemic species that will be replanted in environment and surrounding communities. the thousands of hectares within EDC’s concession areas. The First Gas compound in Batangas serves as one site of First Gen’s environmental projects. After nine In 2009, no less than 842,767 seedlings were planted years of nurturing its adjacent areas, the First Gas in 1,018 hectares scattered in the different geothermal compound has become home to 79 bird species sites of EDC. These seedlings come on top of the 7.5 as well as a destination site for migratory birds, 28 million trees in 9,915 hectares that EDC has planted mangrove species and, recently, a nesting place for over the past 18-20 years. Olive Ridley turtles. EDC is currently preparing a master plan for the The tree density in the First Gas compound almost different modules of the project based on the data doubled to 31 trees per 100 square meters in 2009 culled and experiences during the initial stage of from 14 in 2000. According to a report by the the Binhi progam. This master plan will serve as the SYNERGIA Environmental Training and Research blueprint for the rest of the duration of the project. Co., the significant increase in the number of trees and mangroves in the area resulted in the increased Overall, First Gen’s carbon intensity has gone down sequestration of carbon dioxide. From 119.88 tons in through the years. From 0.37 ton/megawatt-hour 2007, carbon absorbed has gone up to 121.19 tons (MWh) in 2003, it is now at 0.25 ton/MWh. Much of per hectare in the adjacent and surrounding areas this can be traced to First Gen’s commitment to using where the First Gas plants are located. clean, indigenous fuels that are not only a boon to the environment but a means for the country to attain The Binhi Greening Legacy, which EDC launched in energy self-sufficiency. December 2007 as the company’s main reforestation project, aims to plant 6.25 million trees in 10,000 hectares over 10 years.

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Paul Aquino Richard B. Tantoco Vice Chairman President and Chief Executive Officer and Chief Operating Officer EDC EDC *As of July 20, 2009 *As of July 20, 2009

Ernesto B. Pantangco Anthony M. Mabasa Executive Vice President Senior Vice President EDC EDC

Jonathan Russell Senior Consultant FIRST GEN Director EDC 55 POWER DISTRIBUTION Notwithstanding challenges and developments in its business and the industry, power distributor Meralco recorded significant gains in its financial results and achieved excellent performance in its operations.

Meralco linemen at work 56 2009 ANNUAL REPORT

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MANILA ELECTRIC COMPANY (MERALCO) Notwithstanding challenges and developments in its business and the industry, power distributor Meralco recorded significant gains in its financial results and achieved excellent performance in its operations.

Consolidated core net income for 2009, which excludes one-time, exceptional charges was at P7.0 billion, rising 169% from the P2.6 billion realized in 2008. Core earnings per share likewise rose at P6.33, 168% higher than in 2008. The slightly higher volume of energy sold and an adjustment in distribution rates effective May 2009 were the main reasons for the improvement.

57 Review of Operations: POWER DISTRIBUTION

8.61% System loss performance which is below the 9.5% cap imposed by the ERC.

The consolidated reported net income attributable In October 2009, Standard & Poor’s Ratings Services to Parent was P6.0 billion, 114% better than in 2008. (S&P) raised Meralco’s long-term foreign and local Basic earnings per share on reported net income currency corporate credit rating from B- (B minus) amounted to P5.4 or 113% higher than in 2008. to B with a positive outlook. In granting a positive outlook, S&P said that Meralco’s financial risk profile Consolidated revenues, where electricity accounted is improving, supported by favorable regulatory for 97% of the total, slightly dipped by 4% due to a developments. P0.69 per kilowatt-hour (kWh) decrease in average generation and transmission charges, as well as Along with these significant financial results, Meralco adjustment to the estimated amount of electricity showed excellent performance in its operations. distributed but unbilled after scheduled meter readings of the various bill groups. Exceptional was its system loss performance recorded at 8.61% which, for the second consecutive year, is Other financial highlights include: below the 9.5% cap imposed by the Energy Regulatory • Consolidated costs and expenses at P175.9 billion, Commission (ERC). It was also the lowest since 1981 6% lower than in 2008 due to lower generation and and as a result of this unprecedented achievement, transmission costs. Meralco had no unrecoverable purchased power in • Consolidated EBITDA (earnings before interest, 2009. taxes, depreciation and amortization) of P13.4 billion, up 24% from 2008. System reliability as measured by Interruption • Consolidated free cash flow improved toP 18.8 Frequency Rate (IFR), or the average number of billion from P0.5B in 2008. interruptions experienced by a Meralco customer, was at 8.4 times at yearend 2009, a 16% improvement from the 9.9 times in 2008.

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24% Increase in EBITDA

However, Cumulative Interruption Time (CIT), a Following approval by the ERC, Meralco implemented measure of the average duration of an interruption, its first rate adjustment under Performance Based was at 9.5 hours, a deterioration of 27% from the 2008 Regulation (PBR) in 2009 at P1.2227 per kWh, with performance of 7.5 hours. This was mainly due to the a zero reduction for Corporate Income Tax (CIT) manual load dropping (MLD) or rotating brownouts component. The company’s last rate adjustment was in implemented in October 2009 as a result of a fire June 2003. incident at the National Grid Corporation of the Philippines (NGCP) Dolores substation. Other factors In December 2009, the ERC approved Meralco’s were the various government projects like LRT and C5 Maximum Average Price (MAP) and rate translation extension projects, road widening and construction of for Regulatory Year 2010, which was implemented in overpasses and underpasses. Excluding these major January 2010. However, on January 26, 2010, Meralco CIT contributors, Meralco would have posted a 13% manifested that it was voluntarily suspending the improvement in the CIT. adjustment effective immediately, until the regulator has resolved a Motion for Reconsideration filed by an Total energy sales for the year rose 2% to 27,516 intervenor and until all other issues raised by other gigawatt-hours (GWh) over the same period in 2008. intervenors have been addressed. The growth in residential consumption, the robust performance of the service sector, and the return of In recognition of its excellent performance, Meralco self-generating customers to the grid were major earned distinctions from international entities. In factors in the energy sales growth. Total number of July, New York-based management consultancy customers increased to 4.7 million in 2009, 3.1% more company, Stern Stewart & Company hailed Meralco than the 4.6 million in 2008.

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as among the top 11 Philippine companies in the In 2009, the company posted a net income of P307.5 Asean 100 Relative Wealth Added (RWA) Index List, million on revenues of P3.2 billion. This is a reversal a benchmarking system measuring a company’s from the net loss of P101.7 million in 2008 and was actual performance and comparing it against industry primarily driven by the P411.8 million fair value peers and its cost of equity. In August, Meralco was adjustments of its assets including its Investment the first and only Philippine corporation to be given Management Account (IMA). the Best Corporate/Financial Institution of the Year (2008-2009) in Southeast Asia by Hong Kong-based While its P3.2 billion revenue on sale of energy is Alpha Southeast Asia Magazine. In June, Meralco lower by 8.5% compared to last year, cost of sales of was cited for having one of the best CSR (corporate P2.9 billion is favorable by 11.2%. Efficiency increased social responsibility) practices in Asia by FinanceAsia by 2.53% in 2009, bringing sales efficiency to 92.16%, magazine. the highest since 2006.

Meralco remains steadfast in its commitment to deliver PECO is still waiting for the Energy Regulatory excellent service to its customers and value to all Commission (ERC)’s decision on its last Return on Rate stakeholders. Base (RORB) rate increase application before moving to Performance Based Regulation (PBR). PANAY ELECTRIC COMPANY (PECO) PECO is one of the oldest private electricity In the years to come, PECO is looking forward for distribution utilities in the Philippines and remains to sources of energy which are renewable and cost- be the only private electricity distributor in the island effective. With a new substation, sub-transmission line, of Panay. and commercial real estate development in Iloilo City, the company is set to deliver its commitment with increased reliability.

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Manuel M. Lopez Chairman and Chief Executive Officer MERALCO “We are committed to keep those lights on, even more committed to explore and create more values in synergistic and related businesses to ensure continuous energy supply and to reduce the price of electricity to our customers. We have started focusing some of our attention to the businesses outside the core distribution business, as dictated and enabled by the new regulation, new technology, and new opportunities.”

Jose P. De Jesus President and Chief Operating Officer MERALCO “The future sees a more vibrant Meralco. Opportunities for further growth surfaced in 2009 as we explored other businesses leveraging on the inherent strengths of the electric utility and that of our new partners, PLDT and San Miguel Corp.

“We will venture into other areas outside of our core business of electric distribution. We are looking at power generation, of becoming a Retail Electricity Supplier (RES) and of expanding our franchise area. We will engage in power generation through partnerships for privatized plants, or through outright acquisition.

“Through all these, one objective remains—Meralco will always aim for continuous improvement in the delivery of service to its customers.”

61 MANUFACTURING Despite the global economic downturn that severely challenged a number of industries in general and the manufacturing sector in particular in 2009, First Philec managed to buck the trend, posting a 31% growth in total managed revenues to P8.5 billion in 2009 from P6.5 billion in 2008.

Production of pole-mounted transformers of Philec’s plant in Taytay, Rizal 62 2009 ANNUAL REPORT

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FIRST PHILIPPINE ELECTRIC CORPORATION (First Philec) Despite the global economic downturn that severely challenged a number of industries in general and the manufacturing sector in particular in 2009, First Philec managed to buck the trend, posting a 31% growth in total managed revenues to P8.5 billion in 2009 from P6.5 billion in 2008. Net income attributable to the Parent likewise increased by 71% to P52 million in 2009 from P31 million in 2008.

First Philec is the intermediate holding company for the manufacturing businesses of First Holdings. It has steadily evolved its business model to focus on growth niches that complement the overall thrusts of First Holdings.

In mid-2008, First Philec expanded its portfolio with its foray into the solar/photovoltaic (PV) industry through First Philec Solar Corporation (First Philec Solar), a joint venture with SunPower Corporation (SunPower), an established global technology leader in the solar industry. In its facility in Batangas, First Philec Solar produces silicon wafers that form the core in the production of high-efficiency solar cells and panels for solar energy generation. First Philec Solar is currently the first and only large-scale silicon wafer-slicing operations in the Philippines and is regarded as SunPower’s top wafer provider from a quality standpoint. Despite an aggressive start-up commitment consisting of high yield targets and tight delivery schedules, First Philec Solar exceeded its business case, registering revenues of US$52 million and generating a profit of US$336 thousand in only its first full year of operations in 2009.

First Philec Solar forms part of First Philec’s Electronics Sector and capitalizes on the latter’s deep experience in the electronics industry. First Philec’s entry into the electronics business began with the establishment in 1996 of First Sumiden Circuits, Inc. (FSCI), a joint venture

63 Review of Operations: MANUFACTURING

31% with Sumitomo Corporation of Japan that is engaged Growth in total managed in the production of flexible printed circuits for the revenues to P8.5 billion from electronics industry. With a mandate to mitigate P6.5 billion the impact of the expected market contraction in the electronics consumer market in 2009, First Philec Solar surpassed expectations by generating With a mandate to grow manufacturing into a core revenues of US$81 million, almost on par with its 2008 business of First Holdings in the medium term, First performance, despite a substantial 22% contraction of Philec has since initiated a three-pronged strategy the Philippine semiconductor market during the year. geared towards growing its revenue base, enhancing the profitability of its businesses and establishing a The remaining businesses that comprise the current culture of excellence across its organization. manufacturing portfolio of First Philec are engaged in the manufacture and repair of transformers for Strategic initiatives to bolster continued revenue the electrical transmission and distribution industry. growth are mostly hinged on the fast-growing Collectively, these companies form part of First Philec’s renewable energy space. In anticipation of the Electrical Utilities Sector. rising global demand for solar and other forms of renewable energy, First Philec Solar plans to ramp Philippine Electric Corporation (Philec), the largest in up its operations to full build over the medium term. the sector, has been manufacturing distribution and Likewise, to complement the wafering business of power transformers since 1969. It is recognized as First Philec Solar, First Philec hopes to further expand an industry leader, commanding a market share of its presence in the solar value chain via a combination over 60% of the Philippine distribution transformer of strategic alliances that are in the process of being market. First Electro Dynamics Corporation (FEDCOR) explored or developed. complements the operations of Philec through the production of distribution transformers. Another In the case of its transformer businesses, First company, First Philippine Power Systems, Inc. (FPPS) Philec is in the process of exploring opportunities supplies dry-type transformers for uninterrupted power where it can leverage the competitive advantages supply units of American Power Conversion, a major of its portfolio or otherwise develop the global original equipment manufacturer. First Philec necessary strengths to enable it to tap both the Manufacturing Technologies Corporation (FPMTC) renewables and other growth markets. In support Danilo C. Lachica currently serves as an incubation company that of the foregoing, initiatives to further enhance Managing Director constantly develops new products and product lines profitability are also being undertaken, including for Electronics Division for the sector. It is currently the only local producer evaluating the establishment of a regional central FIRST PHILEC of amorphous core transformers in the country. sourcing operation. First Philec has also initiated Amorphous core transformers were developed in complementary initiatives to build a lasting response to the search by electric utilities for solutions organization through organizational excellence, to reduce their operating costs and improving energy hinged on establishing good corporate governance savings throughout their systems. and a corporate culture aligned with the goals of all its stakeholders. 64 2009 ANNUAL REPORT

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Arthur A. De Guia President FIRST PHILEC

“Despite the enormous challenges in 2009, the year turned out positive for First Philec. First Philec Solar Corporation, our initial venture into the photovoltaic solar industry, generated positive profits in its first full year of commercial operations. Similarly, First Sumiden Circuits, Inc. posted significant profits even as the global semiconductor industry contracted substantially. We also commenced efforts to enhance the performance of our transformer manufacturing sector through organizational renewal and working capital optimization initiatives.”

Danilo C. Lachica Ariel C. Ong Managing Director Managing Director for Electronics Division for Electrical Division FIRST PHILEC FIRST PHILEC

65 SPECIAL FEATURE

A photovoltaic (PV) plant of SunPower Corporation. In the PV power system, solar energy is converted to electricity through the solar cells laid out in huge arrays.

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FIRST PHILEC SOLAR CORPORATION Applying best practices from the beginning, (FIRST PHILEC SOLAR) First Philec Solar established integrated quality First Philec Solar is a joint venture between First management systems and instilled a culture of Philippine Electric Corporation (First Philec) and excellence, discipline, and accountability. As a result, SunPower Philippines Manufacturing Ltd. (SPML). First Philec Solar was evaluated as among the top suppliers of silicon wafers to SunPower in terms of First Philec is the intermediate holding company for volume and quality when it completed its first full year the manufacturing investments of First Philippine of operations in 2009. These include three Chinese Holdings Corporation. Its mandate is to expand and three Japanese suppliers. the manufacturing businesses organized under an Electricals Division that supports electric utilities and First Philec Solar will increase its wafer-slicing capacity an Electronics Division, which includes First Philec in 2010, in anticipation of rising global demand for Solar. Meanwhile, SPML is the Philippine subsidiary of solar and other renewable forms of energy. While California-based SunPower Corporation, the global demand for semiconductors and electronics products leader in silicon technology conversion efficiency. is projected to decline globally, the growth for the SunPower is the world’s fifth largest manufacturer of solar industry is estimated at 30%. solar power systems, and is credited with the design and manufacture of the world’s highest-efficiency At full build, First Philec Solar will churn out 240 solar panels. million silicon wafers a year for two SunPower plants and other customers using 100 highly automated In 2007, as First Philec was looking for opportunities wafer-slicing machines to support approximately 720 to grow its business; SunPower was looking for a wafer megawatts of solar energy. Total investments in First -slicing service provider. First Philec won over more Philec Solar will amount to about US$100 million. established competitors and on October 1 of that year, First Philec formalized the joint venture with SPML. First Philec Solar is scouting the market for new First Philec Solar, 80%-owned by First Philec, would customers as it explores a third site. It is also gearing operate the country’s first large-scale silicon wafer- for an overseas venture, where customers are slicing facility to serve the global requirements of expected to increase demand for silicon wafers for a SunPower, and to be located in the 315-hectare First one-gigawatt facility. Philippine Industrial Park in Sto. Tomas, Batangas. Leveraging on its partnership with SunPower, First First Philec Solar broke ground on January 21, 2008 Philec has the potential to create the first and biggest and was running qualification wafers for SunPower by Filipino solar company. First PV Ventures Corp., First May, even if its contract required operations to begin Philec’s pure play for the solar businesses, is exploring only in July. Start-up was achieved one month ahead integration in the solar value chain, upward to ingot- of schedule and less than budget, with the plant growing, and downward to solar panel assembly and inaugurated on June 18. systems installation.

67 PROPERTY As a whole, Rockwell Land’s performance in 2009 was better than expected as revenues grew and net income increased. The year 2009 was a period of contrasts for the First Philippine Industrial Park (FPIP) that turned out to be the Company’s best in its 13-year history.

Model unit of Edades Tower and Garden Villas in Rockwell Center

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FIRST PHILIPPINE HOLDINGS CORPORATION

ROCKWELL LAND CORPORATION (ROCKWELL LAND) As a whole, Rockwell Land’s performance in 2009 was better than expected as revenues grew by 16% to over P4 billion and net income increased by 5% to P634 million. Sale of condominium units continued to account for 70% of total revenues, with the remaining balance coming from retail operations.

As of end 2009, The Grove, Rockwell Land’s first residential project in Ortigas, sold 241 units in its first two towers, representing more than 55% sales take up. The bored piling for both towers was completed in October. In December, it inaugurated its Community Center with a Sales Office, a two-bedroom model unit, and two retail pavilions.

The Grove’s sales momentum was temporarily affected by the flooding caused by Typhoon Ondoy. This, however, recovered in late 2009 as the company emphasized its expertise as a riverfront developer— proven earlier at Rockwell Center in Makati where flooding has never occurred. 69 Review of Operations: PROPERTY

55% P4B Sales take-up or 241 units Revenues, 16% increase sold as of end 2009

Despite its proximity to the Pasig River, Rockwell This pioneering project introduces the Garden Villas and Center stays flood-free during typhoons by channeling Lofts. The Garden Villas are an extension of the tower floodwater where it can do the least damage. Open- and will be composed of an exclusive and limited number gated manholes were designed to avoid flooding as of landscaped bi-level units. The Garden Loft units are these provide the entryway of the backflow floodwater located within the residential tower and spills out to a and prevents water pressure from rising. generous garden deck.

At the same time, the company commissioned a Edades will have six floors dedicated to serviced consultant to undertake a 100-year cycle flood study apartments. Likewise, the project features typical flats, for The Grove. Within that period, floodwater from the lofts, and z-lofts—offering two different views of the river is expected to rise at a maximum of 7.61 meters cityscape from one’s unit, which Rockwell introduced to above mean sea level. As a result, the riverfront of The the local market. As of end 2009, sales take-up was at Grove is designed with an elevation of 5.96 meters 19% out of its more than 500 units. The three-bedroom above mean sea level from its current riverside level of Edades model unit was inaugurated in February 2010 at 4.46 meters. A new riverside street will be built, with the Power Plant Mall. the internal driveway at 7.66 meters above mean sea level. This design prepared The Grove for the onslaught Number One Rockwell, the company’s biggest residential of Typhoon Ondoy as flood level reached 5.16 above project, topped off the East Tower in November. mean sea level in the area. Construction progress is at 53% as of end 2009. Architectural fit out works have started and progressive Edades Tower and Garden Villas is the newest residential handover of some floors in the East Tower will start in project at Rockwell Center. The tower is named after December 2010. The West Tower was topped off in Victorio Edades, the father of modern and unconventional February 2010. Filipino art. This iconic 50-storey residential tower will rise across the Power Plant Mall and Amorsolo Square. The project was launched in the latter part of 2009.

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The Power Plant Mall continues to perform well, with Nestor J. Padilla an occupancy rate of 98%. Revenues increased by 9.6% President and sales grew by 7%, attributable to renewed consumer ROCKWELL LAND confidence in the fourth quarter. “Rockwell Land is already living its ‘new beginnings.’ We have evolved from a one project, The Rockwell Business Center (RBC), the company’s single location company to a multi-product, multi- first venture into office leasing and a joint venture with location company with The Grove and Rockwell Business Center in Ortigas and Edades Tower and Meralco, was completed in June 2009. Located within Garden Villas in Rockwell Center.” the Meralco compound, RBC introduces a new workplace concept, a campus-type environment that integrates work, leisure, and dining in a single destination. It is a place where business goes beyond the four walls of the conventional office.

As of end 2009, take-up for RBC Towers 1 and 2 was 82% and 29%, respectively. New signed up tenants are Aegis PeopleSupport, Capital IQ, Texicon Agri Ventures Corporation, Questnet Philippines, Inc., and Republic Surety Insurance Corporation.

The RBC retail section opened in September 2009 with Banco de Oro, Kimono Ken, 7-Eleven, Café Mediterranean and Coffee Bean and Tea Leaf.

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FPIP is home to major multinational companies in the manufacturing, solar energy, semiconductors, steel, and plastics engineering business.

FIRST PHILIPPINE INDUSTRIAL PARK (FPIP) Fortunately, the global economic recovery, albeit slow, led The year 2009 was a period of contrasts for FPIP that to unprecedented opportunities and accomplishments turned out to be the Company’s best in its 13-year history. during the second half of the year. In stark contrast to The momentum of the global financial crisis carried the first semester, FPIP leapfrogged the global economic itself towards the first half of the year pushing actual recovery in first half of 2009. FPIP started to develop performance lower than budget. Revenue performance several big name prospects almost simultaneously. The of FPIP’s three major revenue sources at the time was breakthrough opportunity was to invest in a previously below targets as there was a dearth of significant land sold property which matched the requirements of some sale or ready-built factory (RBF) lease prospects. The of the newly identified prospects. Existing RBF lessees tight financial markets and lower consumer demand also needed extra space thus pushing up RBF revenues slowed down any new investments in new manufacturing and reducing available spaces for lease. Water revenues facilities. Water revenue performance was also below also started to pick up although still below original target as its major customers turned in lower production forecasts. By the end of the year, FPIP was able to close outputs arising from the soft demand in the world market. the deal on its biggest land and property sale combined with several major prospects still in the pipeline. 72 2009 ANNUAL REPORT

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P1.2B P726M 2009 total revenues, almost Net income 200% increase

As FPIP quickly took advantage of presenting opportunities, it generated 2009 total revenues of P1.2 billion versus the total of P405 million in 2008. The Company’s net income reached P726 million compared to P62 million in 2008.

Hector Y. Dimacali With the second half recovery of the global economy President and and FPIP, employee locator and employee population General Manager rose. Water capacity expansion continued to keep FPIP pace with the recovery. FPIP pursued the development “FPIP started the year 2009 cautiously in light of the of non-traditional and revenue recurring businesses dampened business climate due to the global economic crisis. complementary to its core offerings—land, RBF lease, The first half of the year was expectedly slow. and water. Establishing stable revenue sources form part However, the second half of the year was a different story. Major opportunities and big name customers started coming. of the continuing strategy to balance the cyclical nature of the land business. “We had to be agile to convert those opportunities to our favor especially because they came with proportionate obstacles. FPIP made major strides in organization development in 2009. These accomplishments primed the organization “Years of focus on and build up of excellent facilities and to take advantage of improved market opportunities services, hard work, and team effort allowed us to maximize those opportunities. It turned out that 2009’s new beginnings and successfully manage economic downturns. The for FPIP was a year of many firsts for the company. All in one Company was able to retain its Integrated Management year, FPIP had its best ever revenue performance in its history, System (IMS) certifications (ISO 9001, ISO 14001, and it received a Hall of Fame Award for Environment Performance OHSAS 18001) which are quality marks of organizational from the Philippine Economic Zone Authority (PEZA), and excellence specifically, for processes that deliver quality became the first Investor in People-certified industrial park in services. The company also achieved Investor in People the country.” (IiP) certification, which is a testament to the company’s people management practices and part of its thrust to be an employer of choice. Having both certifications is unique to the industrial property sector in the Philippines and reinforces FPIP’s stature as best in class.

73 INFRASTRUCTURE AND OTHERS As it celebrated its 40th anniversary in 2009, First Balfour posted revenues higher than last year matching its previous revenue record.

St. Luke’s Medical Center in Taguig City 74 2009 ANNUAL REPORT

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FIRST BALFOUR, INC. (FIRST BALFOUR) As it celebrated its 40th anniversary in 2009, First Balfour posted revenues of P2.5 billion, higher than last year by 21% and matching its previous revenue record. Its net income of P138 million was a new record for the Company, topping the previous high of P120 million set in 2008. The impressive results were mainly driven by the solid performance in two major projects, namely: (1) the St. Luke’s Medical Center in Bonifacio Global City under a joint venture with the Makati Development Corporation, and (2) the six-kilometer Light Rail Transit (LRT) 1 North Extension project under a joint venture with DMCI.

The St. Luke’s Medical Center project was completed and handed over within schedule on October 30, 2009. On the other hand, the LRT 1 North Extension Project is now more than 86% complete. The three packages of the LRT1-NEP are expected to be completed and made operational in various stages from March 15, 2010.

First Balfour continued to perform well in the water and power infrastructure sectors. During the year, the Company completed the Steam Augmentation project for Energy Development Corporation’s Leyte Geothermal Production Field with a final contract amount of P375 million. The Company also finished the 25 ML Balara Reservoir for Manila Water amounting to P136 million, as well as a pipe-laying project on Taft Avenue, Manila, for Maynilad Water worth P160 million.

Total orders generated in 2009 amounted to P731 million, majority of which are in water infrastructure projects for Manila Water and Maynilad. Moreover, the bid success rate during the year remained competitive and was above industry standards. Order backlog carried over from 2009 stands close to P1 billion.

While exceeding its financial and operational goals, First Balfour continued its involvement in Corporate

75 Review of Operations: INFRASTRUCTURE AND OTHERS

Social Responsibility initiatives. In particular, the Company provided technical and planning services for ABS-CBN Foundation’s Kapit-Bisig sa Ilog Pasig and helped in the rehabilitation of Relocation Facility Buildings and structures in Calauan, Laguna for the said foundation’s Pasig River resettlers. During Dr. Fiorello R. Estuar the devastating floodwaters of Typhoon Ondoy in Vice Chairman and Chief Executive Officer September 2009, First Balfour adopted a severely FIRST BALFOUR flooded public school in Kabaritan, Laguna, by allowing the school to hold classes in the Company’s Bay, Laguna “Over the last two years, First Balfour has achieved new Plant. Subsequently, First Balfour helped rebuild the heights in its project revenues, income, and business school from floodwater damages. excellence. The challenge is to sustain our achievements and growth pattern, given ‘feast or famine’ cycle in the construction industry. The Company maintained its strong adherence to business excellence and its people, as well as to quality, “It means we have to be in tune with the industry’s health, environment, and safety standards. In 2009, directions and open up new markets where we would have First Balfour’s Environmental Management Systems was built-in advantage. re-certified under ISO 14001:2004. Its ISO 9001:2000 Quality Management System was also upgraded to “First Balfour envisages new business opportunities in the development of medium cost residential condominiums with 9001:2008, while its Occupational Safety and Health particular focus on the conversion of existing structures with System was further upgraded to OHSAS 18001:2007. good potentials. Indications show that there is substantial demand in this market niche. With innovative financial Most recently, First Balfour added yet another engineering, we can design an affordable and attractive milestone by being awarded with an Investors in People product that can be very responsive to this market. certification—the first company in the Philippine “We foresee a great need for the improvement of the construction industry to do so. The certification country’s infrastructure assets to catalyze and support validates First Balfour’s recognition of its people as economic growth. We will tap this market by partnering with the most important resource of the Company, and our parent company, First Holdings and other construction will further help First Balfour attain its goals through companies, where our expertise in technology and project continuous improvement of its people management management can be complementary with theirs.” and development processes.

Moving forward in 2010, First Balfour will continue to improve on its market leadership in infrastructure construction, especially in the areas of water, power, and energy. At the same time, it will continue to mine for opportunities in mass transport and building projects. Anthony L. Fernandez President FIRST BALFOUR 76 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

FIRST PHILIPPINE INDUSTRIAL CORPORATION international testing companies based in the United (FPIC) States, Europe, and Asia were initiated for the in-line First Philippine Industrial Corporation achieved record pipeline inspection scheduled every five years, with the revenues of P663 million in 2009, or 8% higher than the next one due in 2010. previous year, primarily due to higher volumes of white oil. This resulted in a net income of P229 million which was better than 2008 by 13%.

During the year, the Company was conferred the Investors in People (IiP) Gold Level status during re- certification assessment. FPIC became the first company in Asia and the 43rd company among 60,000 IiP-certified companies in the world to achieve this status. It has leap- frogged from Standard to Gold level, skipping the Bronze and Silver levels.

The Company has maintained the certification of its management systems to five other international standards: ISO 9001 (quality management), ISO 14001 (environmental management), ISO 27001 (information Leonides U. Garde security), OHSAS 18001 (occupational health and safety) President and and SA 8000 (social accountability). Chief Operating Officer FPIC FPIC was among the five finalists of the Employer of the Year program of the People Management Association “Every year is marked with New Beginnings, a never ending quest for business excellence. That’s how FPIC sustains of the Philippines (PMAP) together with prominent service superiority over competitors, at a lower price, to companies much larger in size. The Company shared its benefit all stakeholders. In 2009, FPIC became first in Asia best practices in more than a dozen conferences hosted to achieve the Gold Level of Investors in People.” by academic, professional, and business organizations in 2009 in line with its commitment as a recipient of the Recognition for Proficiency in Quality Management by the Philippine Quality Award in 2008.

Also in 2009, FPIC redefined its broad fuel industry market and the Company’s aspiration to be a world- class provider of transport and storage services focused on the downstream petroleum industry. Talks with five

77 Review of Operations: INFRASTRUCTURE AND OTHERS

P14.2M 145 Revenues, 9% higher than Free or subsidized cataract and previous year other surgeries for their CSR

SECURITIES TRANSFER SERVICES, INC. (STSI) restore near, intermediate, and distance vision of cataract Securities Transfer Services, Inc. posted revenues of patients, reducing their dependence on reading glasses. P14.2 million in 2009, 9% higher than the previous Asian Eye also introduced Phakic IOL, a refractive lens year’s P13.1 million. The increase in revenues is product that provides clear, sharp vision for patients who attributed to the increase in fees for printing services, have high nearsightedness but are not qualified for LASIK dividends processing, retainer fees, and transfer fees. surgery. The requirements of expanding services, however, increased operating expenses such that net loss In partnership with Ophthalmological Foundation of the increased to P5.4 million from the previous year’s net Philippines (OFPHIL), pharmaceutical companies and local loss of P1.6 million. government units, Asian Eye performed a total of 145 free or subsidized cataract and other surgeries as part of STSI began working with PASTRANET for an its corporate social responsibility to provide the indigent electronic data registry system which would recognize access to quality eye care. shareholders up to their beneficial owners. PASTRANET is a shared network integrating the databases of all Asian Eye, through its pioneering medical team, won stock transfer agents. recognition for research work from the American Society for Cataract and Refractive Surgery, Bausch STSI successfully moved its shareholders’ database and Lomb, Philippine Academy of Ophthalmology, and to a new system, in compliance with the Securities Philippine College of Surgeons. Asian Eye also achieved and Exchange Commission-mandated uniform back- accreditation of its Glaucoma Fellowship Program by end system for all transfer agents. It also maintained the Philippine Glaucoma Society (PGS), one of three its ISO 9001:2000 certification by passing the institutions in the country so accredited. annual surveillance audit conducted by Certification International. Asian Eye was recognized for the second time as an Investor in People (IiP), a leading people management ASIAN EYE INSTITUTE (AEI) business improvement standard from the United Asian Eye Institute marked its eight year in operation Kingdom. Asian Eye’s Rockwell, TriNoma, and Mall of as a specialist ambulatory clinic in 2009. It is committed Asia clinics were also certified to the ISO 9001:2000, ISO to deliver quality eye care by offering new solutions to 14001:2004, and OHSAS 18001:2007. Asian Eye is the respond to patients’ varying needs. first ambulatory clinic in the Philippines to be certified to these international quality standards. Consistent with this commitment, Asian Eye launched Crystalens, an accommodating intraocular lens that can

78 2009 ANNUAL REPORT

FIRST PHILIPPINE HOLDINGS CORPORATION

Ernesto B. Rufino Jr. President STSI

“Innovation in systems development and continuing emphasis on strengthening our business processes are the principal ingredients necessary to compete in a highly undifferentiated industry sector.

“To provide better, cost effective delivery of services to our customers and as part of keeping trends in countries like the United States and Australia, STSI had to invest in the Electronic Direct Registry System. This new system will allow our customers to query their shareholdings electronically not only in STSI but across transfer agents.

“More importantly, it will also allow STSI and other transfer agents to link up electronically with other players in the stock market to automate trade and finally deliver true script less trading, allowing for a more transparent and efficient stock market.”

Benjamin K. Liboro President AEI

“In pursuing its mission to make world-class eye care accessible to all Filipinos, the Asian Eye Institute continues a tradition of introducing new technology and products to the market. In 2009, Asian Eye launched Crystalens and Phakic IOL. Asian Eye also continued to participate in clinical trials, among them to prove our new technologies in the treatment of presbyopia (requiring the use of reading glasses), age-related macular degeneration and retinal detachments. To accommodate its growing clientele, Asian Eye has expanded its Rockwell Center clinic at another floor, to complement the satellite clinics at Trinoma and Mall of Asia.”

79 Corporate Directory

INVESTOR RELATIONS STOCKHOLDER SERVICES First Philippine Holdings Corporation AND ASSISTANCE 4th Floor Benpres Building Securities Transfer Services, Inc. Exchange Road corner Meralco Avenue Mr. Antonio R. Galvez Ortigas Center, Pasig City, 1605 Philippines General Manager Tel. Nos. (632) 631-8024, Ground Floor Benpres Building Fax No. (632) 631-4089 Exchange Road corner Meralco Avenue Website: www.fphc.com Ortigas Center, Pasig City, 1605 Philippines Email: [email protected] P.O. Box 13951 Tel. Nos. (632) 490-0060 local 101 or 631-7152 LEGAL COUNSEL Quiason, Makalintal, Barot, Torres, CORPORATE OFFICE Ibarra & Sison Law Firm First Philippine Holdings Corporation 21st Floor Robinsons Equitable-PCI Tower 4th Floor Benpres Building ADB Avenue corner Poveda Road Exchange Road corner Meralco Avenue Ortigas Center, Pasig City, Philippines Ortigas Center, Pasig City, 1605 Philippines Tel. Nos. (632) 631-0981 to 85 Tel. No. (632) 631-8024 Fax No. (632) 631-3847 Fax No. (632) 631-4089 Website: www.fphc.com Puno & Puno Law Offices Email: [email protected] 12th Floor East Tower Philippine Stock Exchange Center Schedule of Annual Stockholders’ Meeting - Exchange Road, Pasig City, Philippines Every Last Monday of May Tel. Nos. (632) 631-1261 to 64 Fax No. (632) 631-2517

EXTERNAL AUDITOR Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati City, Philippines Tel. No. (632) 891-0307 Fax No. (632) 819-0872

Concept + Design by k2 Interactive (Asia) Inc. Cover Photography by Oscar R. Lopez, Jr. Portraitures by Erik Liongoren Operational photos courtesy of First Gen, EDC, Meralco Corporate Marketing and Communications, First Philec Solar, SunPower, Rockwell Land, First Philippine Industrial Park, First Balfour

80 BUSINESS MISSION 2009 Our basic purpose is to create new wealth for our stakeholders. ANNUAL REPORT

Our businesses will focus on vital needs for national development in the areas of energy, infrastructure, manufacturing and supporting industries. FIRST PHILIPPINE HOLDINGS In pursuing our objective, we will be guided by the following fundamental and CORPORATION imperishable values and principles: nationalism, entrepreneurship and innovation, a strong work ethic, and corporate social responsibility.

CREDO

We believe in the Filipino’s ability to innovate, to seize developmental opportunities borne from the real needs of domestic and overseas markets.

We affirm our partnership with the Filipino in their endeavor of ever pushing the social development frontiers beyond currently known limits.

We share the Filipino’s vision of spreading gainful employment to all who are willing to put their talents in the total betterment of the Filipino.

THE FPHC COMMITMENTS

We at the First Philippine Holdings Corporation commit to the Filipino nation: − Our continuing search for innovative ventures and technology that optimize human and natural resources bringing out the best from the Filipino mind and skills; and − Our thrust towards the development of communities and persons we influence in our work.

We commit to our suppliers of goods and services: − Our adherence to conducting business transactions with integrity, fairness, and professionalism; − Our willingness to assist in their development; and − Our continuous assistance in improving the quality of such services.

We commit to our stockholders: − Our untiring efforts to give competitive returns on their investments while exercising prudence in our decisions.

We commit to our customers: − Our unceasing quest to meet their needs; and − Our uncompromising struggle for excellence in meeting their expectations.

We commit to all members of the FPHC family: − Our institution of better and more comprehensive programs that allow for total personal development; and − Our constant search for more effective ways to foster teamwork and employee participation to attain higher levels of productivity and quality.

This First Philippine Holdings Corporation 2009 Annual Report cover is printed on FSC®-certified Mohawk Options 100% PC, which is made of 100% process chlorine-free post-consumer recycled fiber with the balance comprised of elemental chlorine-free virgin fiber. This paper is made carbon neutral with Mohawk’s production processes by offsetting thermal manufacturing emissions with Verified Emission Reduction Credits (VERs), and by purchasing enough Green-e certified Renewable Energy Certificates (RECs) to match 100% of the electricity used in our operations. This paper is certified by Green Seal.

81 4th Floor Benpres Building Exchange Road corner Meralco Avenue Ortigas Center, Pasig City, 1605 Philippines Tel. Nos. (632) 631-8024, 910-7102 and 910-7103 Fax No. (632) 631-4089 Website: www.fphc.com Email: [email protected]