2017 Annual Report

THE COVER ADAPTING FOR SUSTAINABILITY Lopez Holdings Corporation is constantly adapting to the demands of the times to sustain its businesses, and hence, its contribution to nation building. Through initiatives at the level of its investees, First Philippine Holdings Corporation (FPH) and ABS-CBN Corporation (ABS-CBN), Lopez Holdings makes its way toward a sustainable future. FPH unit First Gen Corporation leads in clean energy solutions with its choice of natural gas as bridge fuel on the road to a renewable, earth-friendly electricity grid. Rockwell Land Corporation, also under FPH, innovates in urban lifestyle development to build nature-loving communities. ABS-CBN adds to its ever growing library of digitized content made available on more digital platforms to inform, entertain and inspire even more audiences worldwide. As our investees serve their chosen markets in sustainable ways, we can hand down to the next generation the thriving planet, nurturing society, and just governance that they need to chart their own path to the future. TABLE OF CONTENTS TABLE OF CONTENTS The Lopez Credo 2 About Lopez Holdings Corporation 3 Financial Highlights 4 Chairman’s Message 6 Report of the President, Chief Operating Officer and Chief Finance Officer 10 Review of Operations 14 Sustainability Report 28 Corporate Governance 36 Board of Directors 38 In Memoriam: Washington Z. SyCip 42 Executive and Corporate Officers 43 Risk Management 46 Market for Registrant’s Common Equity and Related Stockholder Matters 50 Control and Compensation Information 51 Management’s Discussion and Analysis of Results of Operations 54 Report of the Audit Committee 58 Statement of Management’s Responsibility for Financial Statements 59 Independent Auditors’ Report 60 Consolidated Financial Statements 67 Map of Relationships of the Companies within the Group 254 Corporate Directory 261 Shareholder Assistance 262 THE LOPEZ CREDO Lopez Holdings officers and staff members in 2010 joined the adoption of the Lopez Credo, a statement of purpose that puts the Lopez Group businesses in the service of God and the Filipino people. It articulates seven values that guide corporate decisions and operations. We, as employees of the Lopez Group of companies, believe that our primary reason for being is to serve God and the Filipino people. Thus, we shall always conduct ourselves in a manner that is mindful of the long-term mutual benefit of the Lopez Group, and the various publics we serve. We will be responsible stewards of all our resources, and conscious of our obligation to present and future generations. Since 1928, and in the years and generations to follow, our commitment to the distinctive Lopez values will not change as we remain committed to serve our stakeholders. In our service to the Filipino people, we will be guided by the following distinct Lopez values: • A pioneering entrepreneurial spirit • Business excellence • Unity • Nationalism • Social justice • Integrity • 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. 2 2017 ANNUAL REPORT Lopez Holdings Corporation (PSE stock symbol: LPZ) is the controlling shareholder of leading publicly listed companies First Philippine Holdings Corporation (PSE: FPH) and ABS-CBN Corporation (PSE: ABS). It derives its character from the Lopez family (originally from Jaro, Iloilo, Philippines), that for nearly 200 years has espoused the values of business excellence, nationalism, and social responsibility, among others. CORPORATE HISTORY Lopez Holdings was incorporated in 1993 by the Lopez family to serve as the holding company for investments in major development sectors. Its current interests are in multimedia communications, including broadcast, cable and telecom; and in power generation, especially in the development of clean, indigenous and/or renewable energy sources. Vision A world class conglomerate committed to investments that improve the lives of Filipinos Mission Lopez Holdings will: (1) invest in industries vital to nation-building; (2) build on its strengths and competencies in its core power and media businesses; (3) conduct business in a manner that is mindful of the long-term mutual benefit of the Lopez Group, and the various publics it serves by living the Lopez Credo and its attendant values of a pioneering spirit, business excellence, unity, nationalism, social justice, integrity, and employee welfare and wellness; and (4) provide the highest standard of service and value to its shareholders, affiliates, regulators, creditors, employees and communities in which it operates. Values In fulfilling its mission to serve all Filipinos, Lopez Holdings adheres to the Lopez Values: a pioneering entrepreneurial spirit, business excellence, unity, nationalism, social justice, integrity, and employee welfare and wellness. 3 FINANCIAL HIGHLIGHTS AT A GLANCE Lopez Holdings Corporation The flagship holding company of the Lopez family with core investments in energy pioneer First Philippine Holdings Corporation and multimedia leader ABS-CBN Corporation • Net income attributable to holders of the Parent at P4.225 billion, lower by 36% year-on-year • Received a total of P1.020 billion in cash dividends from major investees • Paid out P463 million in cash dividends to shareholders For the year ended December 31 (Audited) 2017 2016 2015 (Amounts in Millions, except per share amounts) EARNINGS PER SHARE* Basic P0.91 P1.42 P1.35 Diluted 0.91 1.41 1.34 CONSOLIDATED REVENUES 104,890 91,910 96,510 CONSOLIDATED NET INCOME 14,538 20,744 16,126 Attributable to: Equity Holders of the Parent Company 4,225 6,557 6,191 Minority Interest 10,313 14,187 9,935 TOTAL CONSOLIDATED ASSETS 388,050 366,250 358,584 TOTAL EQUITY 187,259 159,525 144,169 MARKET VALUE Per share 5.60 7.80 6.60 Total Value** 25,910 36,002 30,338 *attributable to equity holders of Parent Company **based on average shares outstanding 4 2017 ANNUAL REPORT First Philippine Holdings Corporation The leading private sector holding company with core investments in clean power generation and renewable energy development, a minority stake in power distribution and strategic investments in manufacturing and property development. • Net income attributable to holders of the REVENUES NET INCOME* Parent at P5.854 billion, lower by 41% 104,890 • Consolidated revenues at P104.890 billion, higher by 14% year-on-year 9,933 96,510 91,910 5,854 5,406 2015 2016 2017 2015 2016 2017 *Net income attributable to holders of the Parent ABS-CBN Corporation The largest news and entertainment content provider in the Philippines that produces multimedia programming for domestic and international audiences • Net income attributable to holders of the REVENUES NET INCOME* Parent at P3.334 billion, lower by 14% year-on-year 41,631 • Consolidated revenues of P40.698 billion, lower by 2% 40,698 3,885 3,334 2,932 38,278 2015 2016 2017 2015 2016 2017 *Net income attributable to holders of the Parent 5 6 2017 ANNUAL REPORT chairman’s message Fellow shareholders: In 2017, Lopez Holdings Corporation moved forward in adapting for sustainability through concrete initiatives of its investees, First Philippine Holdings Corporation (FPH) and ABS-CBN Corporation. After the pioneering work done by Energy clean energy portfolio that we have chosen, one Development Corporation (EDC) in corporate that is consistent with our values. sustainability, the rest of the Lopez Group followed suit with the rollout of practices and Indeed, we can grow the business and at the metrics that will help our stakeholders “meet same time protect the environment and uplift the needs of the present without compromising local communities as best as we can. We only the ability of future generations to meet their need to be determined to create a better home own needs.” for all of us. EDC, which is part of the FPH energy sector, is Speaking of a better home, Lopez Holdings and the first company in the Philippines to achieve its parent, Lopez, Inc. have chosen to move to carbon-neutral status, or one that absorbs more Rockwell Business Center (RBC) on Sheridan Street carbon dioxide than it emits to the environment. in Mandaluyong. RBC Sheridan, as it is called to In 2017, EDC generated 8,531.5 gigawatt hours differentiate it from RBC Ortigas where the FPH that helped the country avoid 7.5 million tons offices are located, was proclaimed late last year of carbon dioxide, because of its portfolio of as an Information Technology Center under the geothermal, wind, solar and hydropower assets. Philippine Economic Zone Authority (PEZA). RBC Ortigas in Pasig and 8 Rockwell in Makati are also Meanwhile, First Gen Corporation (FGEN), EDC’s registered as IT Centers with PEZA. parent company, entered into an agreement with Philippine Renewable Energy Holdings What will happen to Benpres Building, which Corporation (PREHC) for the latter to become served as our headquarters for almost 25 years? a 31.7% owner of EDC. This brought about It will give way to a high rise that is envisioned US$240 million of cash into FGEN, which was to be energy-efficient and environment-friendly. used to reduce its debt. More important, the This will be a four- or five-year re-development partnership gives international credibility to the under FPH. 7 Rockwell Business Center Sheridan 8 2017 ANNUAL REPORT “ MEET THE NEEDS OF THE PRESENT WITHOUT COMPROMISING THE ABILITY OF FUTURE GENERATIONS TO “ MEET THEIR OWN NEEDS. FPH and ABS-CBN continue to act strategically to deploy resources where they can best serve our stakeholders. FGEN’s clean energy portfolio gives it what is probably the lowest carbon footprint among large power producers. FPH continues to expand its units in property development and in manufacturing, which serve important niches in our country’s long-term growth trajectory. ABS-CBN has the largest digital library among all Filipino content providers, capable of serving customers throughout the country, and almost anywhere in the world—anywhere there is internet or cable or satellite.

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