ANNUAL REPORT 2017 TRANSFORMATION “OUR COMMITMENT TO SERVICE IS AT THE CORE OF OUR CONSTANT TRANSFORMATION.” Eugenio Lopez III Chairman of the Board TABLE OF CONTENTS 6 Corporate Information 8 Financial Highlights 10 Message of the Chairman 14 Message of the President & CEO 18 Operational Highlights 32 Sustainability and Corporate Social Responsibility 48 Corporate Governance MESSAGE OF THE CHAIRMAN “... any transformation 10 must always begin where it matters – in ourselves.” MESSAGE OF THE PRESIDENT & CEO ... ABS-CBN will not only 14 adapt to change – we will transform and actively shape the future... OPERATIONAL HIGHLIGHTS OPERATIONAL HIGHLIGHTS Our history as a company Our 7.2 million followers on 18 is regularly marked with 29 YouTube almost doubled our transformative initiatives. revenues from this platform Today is no different. from the preceding year. Constant transformation is the new normal. 63 Board of Directors 68 Board of Directors and Advisors 70 Financial Review SUSTAINABILITY AND SOCIAL RESPONSIBILITY 74 Statement of Management’s Responsibility for Their accomplishments Financial Statements 47 are not the results of 75 Report of the Audit Committee grand gestures but of 76 Independent Auditor’s Report small acts of selflessness done consistently and 80 Consolidated Financial Statements wholeheartedly. 164 Supplementary Corporate Information 164 2017-2018 Management Team 165 Awards and Recognition 176 Additional Information 178 Credits 6 Corporate Information Corporate INFORMATION ABOUT OUR COMPANY ABS-CBN Corporation (ABS-CBN) is the Philippines’ leading media and entertainment organization. The Company is primarily involved in content creation and production for various media including television, online and over-the-top platforms, cable, satellite, cinema, live events and radio for domestic and international markets. ABS-CBN also operates various platforms including domestic television and radio ABS-CBN’s goal is to serve 110 million Filipinos through networks and worldwide OTT and online platforms. ABS- its various content-led initiatives, products and CBN also has interests in cable, satellite and broadband platforms by 2028. systems in the Philippines. CORPORATE STRATEGY In addition, ABS-CBN has business interests in music and music publishing, consumer products and licensing, multi- Transforming lives by changing the media landscape is media services, magazine and book publishing, production both ABS-CBN’s vision and passion. The key thrusts of our and post-production services, telecommunication services, business strategy are: money remittance, cargo forwarding, TV shopping services, theme park development and management, property ANYTIME, ANYWHERE, ON ANY DEVICE OR MEDIUM management and food and restaurant services. These com- As our audiences demand greater control over how and plement and enhance the Company’s strength in content when they will consume our content, we will ensure our con- production and distribution. tinued relevance by distributing our content on the widest array of platforms that technology will allow. Digital Terrestrial Television (DTT) penetration Our audiences will be able to reach us anytime, in any place % Metro Manila and in any medium and device. 39.8 BUILDING ON OUR CORE STRENGTH IN CONTENT CREATION % Mega Manila While everything around us changes – the technology, the 35.8 production process, the medium used to access our content – our core ability to create quality content that touch, inspire Source: Kantar Media (Jan-Dec 2017) and empower our viewers must remain constant. We will continue to build on our core strength of content creation. Annual Report 2017 7 CORPORATE VALUES In achieving our corporate vision, our values guide us through the journey. EXCELLENCE Judgment and Drive for Results We use best judgment to balance speed, quality and cost to attain best returns. Innovation & Embracing Change We continuously explore new ways of doing things. We challenge even our past successes to achieve breakthroughs and to ensure our continuous improvement. We champion breakthrough ideas and initiatives. Risk-Taking In a constantly changing competitive environment, we take action based on a careful assessment that opportunities and rewards are worth the risks. We ensure that everything possible is done to mitigate those risks. TEAMWORK Company Interest & Transparency We place the good of the team over our own personal interests. Ownership We take personal accountability for our role, output and decision. Confronting Conflict MAINTAIN A STRONG FINANCIAL POSITION AND We believe in the constructive resolution of any conflict. We also believe in BRING VALUE TO OUR STAKEHOLDERS taking accountability for any conflicts caused. We will derive the most synergies possible between our content and distribution businesses. We will consciously TEACHING & LEARNING operate more efficiently and cost-effectively, as we Our work relies on constant teaching and learning. deliver greater value to our audience, customers, clients, We train our people to better themselves. We define areas for development partners and shareholders. and take deliberate action to fill our skill gaps. CORPORATE MISSION HONESTY, INTEGRITY & RESPECT We deliver on our commitments. We speak out and we speak true. Our values We exist to serve the Filipino. are non-negotiable. We consistently treat others respectfully and fairly. We exist to inform, educate and entertain through cre- ative content for any distribution platform. MERITOCRACY We believe in caring for our people. We believe in granting commensurate We innovate, diversify and expand into enterprises rewards at the right time for good performance. where our expertise in content creation opens new business and service opportunities. SERVICE ORIENTATION We treat Filipinos, our stakeholders and customers, as our Kapamilya, We promote the best in Filipino talent, and reflect the putting their interests above all because they are the primary reason for our true sentiment of the Filipino. existence. We serve them with joyfulness while we create and nurture personal connections and authentic relationships built on trust. 8 Financial Highlights Financial HIGHLIGHTS Net Revenues (in Million Pesos) Advertising Revenues (in Million Pesos) 45000 26000 42000 40,698 40,698 23500 23,650 41,631 39000 38,278 21,098 21000 36000 19,332 18,880 21,265 33,378 33,544 18500 33000 30000 16000 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17 Consumer Sales (in Million Pesos) EBITDA (in Million Pesos) Net Income (in Million Pesos) 11000 4000 22000 19,600 19,600 10000 3500 9,626 9,626 19000 9000 9,853 3000 3,525 3,164 16000 8000 2500 14,046 14,664 17,013 17,980 7,195 7,476 7,940 2,028 2,030 2,545 13000 7000 2000 6000 1500 10000 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17 Annual Report 2017 9 Cash and Cash Equivalents (in Million Pesos) Interest-bearing Debt (in Million Pesos) Book Value Per Share (in Pesos) 14000 24000 43 13,238 38.66 13000 20,387 20000 37 36.34 20,325 20,530 20,472 12000 12,347 16000 31 29.49 30.82 32.93 11000 14,680 10,617 11,538 10,965 10000 12000 25 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17 Total Assets (in Million Pesos) Total Liabilities (in Million Pesos) Stockholder’s Equity (in Million Pesos) 80000 45000 35000 33,711 33,711 75,125 75,125 41,709 41,414 41,414 75000 42000 33000 70000 39000 31000 40,362 41,042 67,237 70,424 72,734 31,692 31,692 65000 36000 29000 32,407 27000 60000 33000 58,330 25,923 26,875 28,715 55000 30000 25000 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17 '13 '14 '15 '16 '17 Earnings Per Share (in Pesos) 5.5 4.8 4.05 4.05 4.1 4.72 4.72 3.4 2.68 2.87 3.56 2.7 2.0 '13 '14 '15 '16 '17 10 Message of the Chairman ... any transformation must always begin where it matters – in ourselves. MESSAGE of the Chairman Annual Report 2017 11 In recent years, ABS- CBN has worked to bring the best content to the Filipino, when they want it, where they want it. formation are constants in life and business. There are no breaks in this journey. This is why your company is focused on the next iteration of ABS-CBN. MGA KAPAMILYA, You will hear management report about the many accom- plishments of our kapamilyas over the course of 2017. We A 13th-century Persian poet called Rumi delivered our highest post-election year net income in 2017: once wrote, “Yesterday I was clever, so I ₱3.2 billion. We kept a keen eye on expenses while continu- wanted to change the world. Today I am ing to invest in various initiatives that we believe will support wise, so I am changing myself.” the digital transformation of our business. We continued to invest in new platforms like TV Plus and Sky Direct, in new Said in various ways and forms, any digital-only content, in international expansion and online transformation must always begin where it expertise, in expanding our young theme parks and inte- matters – in ourselves. In what seems like grated events businesses and in people – be it via our public a challenging world that is changing even service efforts as well as our internal training programs. faster, this transformation takes on an ur- gency that can sometimes be overpowering. The ABS-CBN I have known all my life has always managed to not only grow with the The real accomplishments times but to continually re-invent itself – from the ABS-CBN of 1986 to the various milestones that dot our corporate history, go beyond the numbers ... we have not only adapted to and adopted new ways, but have grown beyond what we had thought imaginable. Change and trans- 12 Message of the Chairman Ideas, plans, and dreams from years ago There is more to be done.