17Q June 2019

C O V E R S H E E T for SEC FORM 17-Q

SEC Registration Number C S 2 0 0 6 0 4 4 9 4

C O M P A N Y N A M E M E T R O P A C I F I C I N V E S T M E N T S C O R P

O R A T I O N A N D S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province ) 1 0 t h F l o o r , M G O B u i l d i n g , L e g a

s p i c o r n e r D e l a R o s a S t r e e t s ,

L e g a s p i V i l l a g e , M a k a t i C i t y

Form Type Department requiring the report Secondary License Type, If Applicable 1 7 - Q

C O M P A N Y I N F O R M A T I O N Company’s Email Address Company’s Telephone Number Mobile Number [email protected] +632-888-0888 –

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day) 1,302 as of June 30, 2019 Last Friday of May December 31

CONTACT PERSON INFORMATION The designated contact person MUST be an Officer of the Corporation Name of Contact Person Email Address Telephone Number/s Mobile Number Mr. David J. Nicol [email protected] +632-888-0888 –

CONTACT PERSON’s ADDRESS

10/F MGO Building, Legaspi corner Dela Rosa Streets Legaspi Village, Makati 0721 Philippines NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated. 2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its deficiencies.

SEC Number CS200604494 File Number______

Metro Pacific Investments Corporation (Company’s Full Name)

10/F MGO Bldg., Legaspi cor. Dela Rosa Sts. Legaspi Village, 0721 Makati City (Company’s Address)

(632) 888-0888 Telephone Number

______N/A______(Fiscal Year Ending) (month & day)

Form 17-Q Form Type

______N/A______Designation (If applicable)

30 June 2019 Period Date Ended

______N/A______(Secondary License Type and File Number)

SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-Q

QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION CODE AND SRC RULE 17(2)(b) THEREUNDER

1. For the quarterly period ended June 30, 2019

2. SEC identification number CS200604494

3. BIR Tax Identification No. 244-520-457-000

4. Exact name of issuer as specified in its charter METRO PACIFIC INVESTMENTS CORPORATION

5. Province, country or other jurisdiction of incorporation or organization Makati City, Philippines

6. Industry Classification Code: (SEC Use Only)

7. Address of issuer's principal office Postal Code 10/F MGO Bldg., Legaspi cor. Dela Rosa Sts., Legaspi Village, 0721 Makati City

8. Issuer's telephone number, including area code (632) 888 0888

9. Former name, former address and former fiscal year, if changed since last report N/A

10. Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the RSA

Title of each Class Number of shares of common stock outstanding

Common Shares 31,546,548,752

*Reported by the stock transfer agent as at July 31, 2019 and excluded the shares held by the Company

11. Are any or all of the securities listed on a Stock Exchange?

Yes [ X ] No [ ]

If yes, state the name of such Stock Exchange and the class/es of securities listed therein: The common shares are listed on the Philippines Stock Exchange.

12. Indicate by check mark whether the registrant:

(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17 thereunder or Sections 11 of the RSA and RSA Rule 11(a)-1 thereunder, and Sections 26 and 141 of the Corporation Code of the Philippines, during the preceding twelve (12) months (or for such shorter period the registrant was required to file such reports)

Yes [ x ] No [ ]

(b) has been subject to such filing requirements for the past ninety (90) days.

Yes [ x ] No [ ]

TABLE OF CONTENTS

Exhibit I Unaudited Interim Consolidated Financial Statements 8 Exhibit II Notes to Unaudited Interim Condensed Consolidated Financial Statements 14 Exhibit III Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Highlights and Key Performance Indicators 77 Operational Review MPIC Consolidated (1st Half 2019 vs 1st Half 2018) 78 Operating Segments of the Group (1st Half 2019 vs 1st Half 2018) 80 MPIC Consolidated (2Q 2019 vs 2Q 2018) 87 Discussion of Financial Position 89 Liquidity & Capital Resources 93 Financial Soundness Indicators 95 Risk Factors 97 Key Variable and Other Qualitative and Quantitative Factors 101

Item 1

FINANCIAL STATEMENTS

Exhibit I

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (Amounts in Millions except Per Share Amounts) Six Months ended Three Months ended June 30 June 30 2019 2018 2019 2018

OPERATING REVENUES Power and coal sales P=12,797 P=13,288 P=6,879 P=6,953 Water and sewerage services revenue 12,576 11,155 6,688 5,814 Toll fees (Notes 3, 4, and 8) 8,923 7,389 4,680 3,802 Hospital revenue (Note 8) 7,646 5,800 3,665 2,890 Rail revenue 1,579 1,594 747 791 Logistics and other revenue 1,099 842 589 431 44,620 40,068 23,248 20,681 COST OF SALES AND SERVICES (Note 18) (21,604) (20,194) (11,232) (10,556) GROSS PROFIT 23,016 19,874 12,016 10,125 General and administrative expenses (Note 19) (8,218) (6,070) (3,967) (2,762) Interest expense (Note 20) (5,750) (4,619) (2,565) (2,170) Share in net earnings of equity method investees (Note 8) 5,911 6,210 3,085 3,613 Interest income (Note 20) 1,157 528 325 263 Construction revenue 18,654 11,043 11,134 5,888 Construction costs (18,654) (11,043) (11,134) (5,888) Others (Note 20) 600 689 417 316 INCOME BEFORE INCOME TAX 16,716 16,612 9,311 9,385 PROVISION FOR INCOME TAX Current 3,578 3,103 1,910 1,512 Deferred 339 250 262 118 3,917 3,353 2,172 1,630 NET INCOME P=12,799 P=13,259 P=7,139 P=7,755 OTHER COMPREHENSIVE INCOME (LOSS) – NET (Note 17) To be reclassified to profit or loss in subsequent periods 72 796 (332) 807 Not to be reclassified to profit or loss in subsequent periods (93) (715) (97) (718) (21) 81 (429) 89 TOTAL COMPREHENSIVE INCOME P=12,778 P=13,340 P=6,710 P=7,844

Net Income Attributable to: Owners of the Parent Company P=8,108 P=8,941 P=4,566 P=5,123 Non-controlling interest 4,691 4,318 2,573 2,632 P=12,799 13,259 P=7,139 P=7,755

Total Comprehensive Income Attributable to: Owners of the Parent Company P=8,107 P=9,030 P=4,146 P=5,219 Non-controlling interest 4,671 4,310 2,564 2,625 P=12,778 P=13,340 P=6,710 P=7,844

EARNINGS PER SHARE (Note 21) Basic Earnings Per Common Share, Attributable to Owners of the Parent Company (In Centavos) P=25.71 P=28.36 P=14.48 P=16.25 Diluted Earnings Per Common Share, Attributable to Owners of the Parent Company (In Centavos) P=25.71 P=28.33 P=14.48 P=16.24 See accompanying notes to the Unaudited Interim Condensed Consolidated Financial Statements and Management Discussion and Analysis

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Millions) Unaudited Audited June 30, December 31, 2019 2018 ASSETS Current Assets Cash and cash equivalents and short-term deposits (Note 5) P=43,972 P=47,521 Restricted cash (Note 5) 6,970 5,421 Receivables (Note 6) 13,756 12,495 Other current assets (Note 7) 10,540 12,892 75,238 78,329 Assets held for sale (Note 24) 1,250 1,250 Total Current Assets 76,488 79,579

Noncurrent Assets Investments and advances (Note 8) 155,073 152,993 Service concession assets (Note 9) 224,139 205,992 Property, plant and equipment (Note 2) 73,382 71,926 Goodwill (Notes 4 and 10) 27,171 27,856 Intangible assets (Note 10) 3,819 3,897 Deferred tax assets 1,466 1,270 Other noncurrent assets (Note 7) 17,537 14,433 Total Noncurrent Assets 502,587 478,367 P=579,075 P=557,946 See accompanying notes to the Unaudited Interim Condensed Consolidated Financial Statements and Management Discussion and Analysis

(Forward)

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Amounts in Millions)

Unaudited Audited June 30, December 31, 2019 2018 LIABILITIES AND EQUITY

Current Liabilities Accounts payable and other current liabilities (Note 11) P=32,252 P=31,951 Income tax payable 1,595 1,533 Due to related parties (Note 15) 5,515 4,462 Current portion of: Provisions (Note 12) 6,039 6,004 Long-term debt (Note 13) 12,920 11,619 Service concession fees payable (Note 14) 557 693 Total Current Liabilities 58,878 56,262

Noncurrent Liabilities Noncurrent portion of: Provisions (Note 12) 2,720 2,528 Service concession fees payable (Note 14) 30,649 29,946 Long-term debt (Note 13) 213,912 203,474 Due to related parties (Note 15) 2,172 7,392 Deferred tax liabilities 10,798 9,930 Other long-term liabilities (Note 11) 10,804 9,411 Total Noncurrent Liabilities 271,055 262,681 Total Liabilities 329,933 318,943

Equity Owners of the Parent Company (Note 16): Capital stock 31,638 31,633 Additional paid-in capital 68,529 68,494 Treasury shares (4) (178) Equity reserves 5,686 6,968 Retained earnings 70,241 64,533 Other comprehensive income reserve 1,860 1,861 Total equity attributable to owners of the Parent Company 177,950 173,311 Non-controlling interest 71,192 65,692 Total Equity 249,142 239,003 P=579,075 P=557,946 See accompanying notes to the Unaudited Interim Condensed Consolidated Financial Statements and Management Discussion and Analysis

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in Millions) Six Months Ended June 30 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax P=16,716 P=16,612 Adjustments for: Interest expense (Note 20) 5,750 4,619 Amortization of service concession assets (Notes 9 and 18) 2,560 2,054 Depreciation and amortization (Notes 18 and 19) 3,023 2,259 Unrealized foreign exchange loss (gain) – net 671 347 Share in net earnings of equity method investees (Note 8) (5,911) (6,210) Dividend income (Note 20) – (66) Interest income (Note 20) (1,157) (528) Others 7 (412) Operating income before working capital changes 21,659 18,675 Decrease (increase) in: Restricted cash (1,549) 819 Receivables (1,329) (1,394) Due from related parties and other current assets 773 (1,504) Decrease in accounts payable, provisions and other current liabilities 2,668 1,468 Net cash generated from operations 22,222 18,064 Income tax paid (3,516) (3,049) Interest received 1,157 571 Net cash provided by operating activities 19,863 15,586 CASH FLOWS FROM INVESTING ACTIVITIES Decrease (increase) in: Short-term deposits (Note 5) (166) 1,820 Other noncurrent assets (1,082) 4,660 Dividends received from equity method investees 5,637 4,615 Acquisition of/Additions to: Service concession assets (Notes 9 and 26) (20,419) (12,509) Property, plant and equipment (Note 26) (2,314) (2,362) Investments and advances (Note 8) (444) (3,015) Acquisition of a subsidiary, net of cash acquired (90) – Net cash used in investing activities (18,878) (6,791)

(Forward)

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (Amounts in Millions) Six Months Ended June 30 2019 2018 CASH FLOWS FROM FINANCING ACTIVITIES Receipt or proceeds from: Long-term debt (Note 13) P=19,513 P=42,148 Issuance of shares (Note 16) 23 7 Contributions from non-controlling stockholders 1,767 1,353 Payments of/for: Interest and other financing charges (5,200) (3,936) Long-term debt (Notes 13 and 26) (7,754) (38,416) Due to related party (Note 26) (4,451) (4,458) Service concession fees payable (Notes 14 and 26) (783) (700) Acquisition of treasury shares (3) – Acquisition of noncontrolling interest (18) (737) Lease liability (Note 26) (296) – Transaction costs on long-term debt (Notes 13 and 26) (217) (379) Dividends paid to owners of the Parent Company (2,400) (2,400) Dividends paid to non-controlling stockholders (5,021) (3,858) Net cash used in financing activities (4,840) (11,376) NET DECREASE IN CASH AND CASH EQUIVALENTS (3,855) (2,581) CASH AND CASH EQUIVALENTS AT JANUARY 1 46,607 40,835 CASH AND CASH EQUIVALENTS AT JUNE 30 (Note 5) P=42,752 P=38,254

See accompanying notes to the Unaudited Interim Condensed Consolidated Financial Statements and Management Discussion and Analysis

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES INTERIM CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018 (Amounts in Millions) Six Months Ended June 30, 2019 Attributable to Owners of the Parent Company Other Additional Comprehensive Non- Capital Paid-in Treasury Equity Retained Income Reserve controlling Total Stock Capital Shares Reserves Earnings (Note 17) Total Interest (NCI) Equity At January 1, 2019 P=31,633 P=68,494 (P=178) P=6,968 P=64,533 P=1,861 P=173,311 P=65,692 P=239,003 Total comprehensive income for the period: Net income – – – – 8,108 – 8,108 4,691 12,799 Other comprehensive income – – – – – (1) (1) (20) (21) Executive stock option plan (ESOP) (Note 22) Exercise of stock option 5 25 – (7) – – 23 – 23 Issuance from Restricted Stock Unit Plan (RSUP) (Note 22) – 10 177 (187) – – – – – Treasury shares – – (3) – – – (3) – (3) Cash dividends declared (Note 16) – – – – (2,400) – (2,400) – (2,400) Acquisition of NCI interest and others (Notes 4 and 16) – – – (1,088) – – (1,088) 3,367 2,279 Dividends declared to non-controlling stockholders (Note 11) – – – – – – – (2,538) (2,538) At June 30, 2019 P=31,638 P=68,529 (P=4) P=5,686 P=70,241 P=1,860 P=177,950 P=71,192 P=249,142

Six Months Ended June 30, 2018 Attributable to Owners of the Parent Company Other Additional Comprehensive Capital Paid-in Treasury Equity Retained Income Reserve Total Stock Capital Shares Reserves Earnings (Note 17) Total NCI Equity At January 1, 2018 P=31,626 P=68,465 (P=167) P=5,742 P=53,894 P=1,684 P=161,244 P=54,435 P=215,679 Total comprehensive income for the period: Net income – – – – 8,941 – 8,941 4,318 13,259 Other comprehensive income – – – – – 89 89 (8) 81 ESOP (Note 22) 2 8 – (3) – – 7 – 7 RSUP (Note 22) – – – 33 – – 33 – 33 Cash dividends declared (Note 16) – – – – (2,400) – (2,400) – (2,400) Acquisition of NCI and others (Note 4) – – – (89) – – (89) 800 711 Dividends declared to non-controlling stockholders (Note 11) – – – – – – – (1,489) (1,489) At June 30, 2018 P=31,628 P=68,473 (P=167) P=5,683 P=60,435 P=1,773 P=167,825 P=58,056 P=225,881

See accompanying notes to the Unaudited Interim Condensed Consolidated Financial Statements and Management Discussion and Analysis

Exhibit II

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Corporate Information

Metro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in the Philippines and registered with the Philippines Securities and Exchange Commission (SEC) on March 20, 2006 as an investment holding company. MPIC’s common shares of stock are listed in and traded through the Philippine Stock Exchange (PSE). On August 6, 2012, MPIC launched Sponsored Level 1 American Depositary Receipt (ADR) Program with Deutsche Bank as the appointed depositary bank in line with the Parent Company’s thrust to widen the availability of its shares to investors in the United States.

The principal activities of the Parent Company’s subsidiaries and equity method investees are described in Notes 28 and 8, respectively.

Metro Pacific Holdings, Inc. (MPHI) owns 41.9% of the total issued and outstanding common shares of MPIC as at June 30, 2019 and 41.9% of the total issued shares (or 42.0% of the total outstanding common shares) as at December 31, 2018. As sole holder of the voting Class A Preferred Shares, MPHI’s combined voting interest as a result of all of its shareholdings is estimated at 55.0% as at June 30, 2019 and December 31, 2018.

MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc. (EIH; 60.0% interest), Intalink B.V. (26.7% interest) and First Pacific International Limited (FPIL; 13.3% interest). First Pacific Company Limited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through its subsidiaries, Intalink B.V. and FPIL, holds 40.0% equity interest in EIH and investment financing which under Hong Kong Generally Accepted Accounting Principles, require FPC to account for the results and assets and liabilities of EIH and its subsidiaries as part of FPC group of companies in Hong Kong.

The registered office address of the Parent Company is 10th Floor, MGO Building, Legaspi corner Dela Rosa Streets, Legaspi Village, Makati City.

The accompanying unaudited interim condensed consolidated financial statements as at June 30, 2019 and for the six months ended June 30, 2019 and 2018 were approved and authorized for issuance by the Board of Directors (BOD) on August 1, 2019.

2. Summary of Significant Accounting Policies

Basis of Preparation The interim condensed consolidated financial statements have been prepared in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting. The interim condensed consolidated financial statements are presented in Philippine Peso, which is MPIC’s functional and presentation currency, and all values are rounded to the nearest million peso (P=000,000), except when otherwise indicated.

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements and should be read in conjunction with the Company’s annual consolidated financial statements as at and for the year ended December 31, 2018.

Changes in Accounting Policies and Disclosures Our accounting policies are consistent with those followed in the preparation of the Company’s annual consolidated financial statements for the year ended December 31, 2018, except for the following adoption of new and amended Philippine Financial Reporting Standards (PFRS) effective January 1, 2019.

Except as otherwise disclosed, adoption of the following standards did not have any material impact on the Company’s financial position or performance:

▪ PFRS 16, Leases

PFRS 16 supersedes PAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for most leases under a single on-balance sheet model.

Lessor accounting under PFRS 16 is substantially unchanged from PAS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in PAS 17. Therefore, PFRS 16 did not have an impact for leases where the Company is the lessor.

The Company, as lessee, has adopted PFRS 16 retrospectively from January 1, 2019, but has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard. The reclassifications and the adjustments arising from the new leasing rules are therefore recognized in the opening balance sheet on January 1, 2019 (see Effect of adoption of PFRS 16).

▪ IFRIC Interpretation 23, Uncertainty over Income Tax Treatments

The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of PAS 12, Income Taxes. It does not apply to taxes or levies outside the scope of PAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:

• Whether an entity considers uncertain tax treatments separately • The assumptions an entity makes about the examination of tax treatments by taxation authorities • How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates • How an entity considers changes in facts and circumstances

An entity has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty needs to be followed.

Adoption of the Interpretation did not have any material impact on the Company’s financial position or performance.

▪ Amendments to PFRS 9, Prepayment Features with Negative Compensation

Under PFRS 9, a debt instrument can be measured at amortized cost or at fair value through other comprehensive income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to PFRS 9 clarify that a financial asset passes the SPPI criterion regardless of an event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract.

▪ Amendments to PAS 19, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to determine the current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event. An entity is also required to determine the net interest for the remainder of the period after the plan amendment, curtailment or settlement using the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event, and the discount rate used to remeasure that net defined benefit liability (asset).

▪ Amendments to PAS 28, Long-term interests in associates and joint ventures

The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in PFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognized as adjustments to the net investment in the associate or joint venture that arise from applying PAS 28, Investments in Associates and Joint Ventures.

Annual Improvements 2015-2017 Cycle

▪ PFRS 3, Business Combination

The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation.

▪ PFRS 11, Joint Arrangements

A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in PFRS 3. The amendments clarify that the previously held interests in that joint operation are not remeasured.

▪ PAS 12, Income Taxes

The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where it originally recognized those past transactions or events.

▪ PAS 23, Borrowing Costs

The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete.

The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Basis of Consolidation The interim condensed consolidated financial statements include the accounts of the Parent Company and its subsidiaries as at June 30, 2019 (see Note 28).

Effect of adoption of PFRS 16 Adjustments recognized on adoption of PFRS 16. The Company adopted PFRS 16 using the modified retrospective approach and did not restate comparative amounts for the year prior to first adoption. The Company recognized lease liabilities in relation to leases which had previously been recognized as ‘operating leases’ under PAS 17. These liabilities were measured at present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The Company used a single discount rate to a portfolio of leases with reasonably similar characteristics. The weighted average incremental borrowing rates applied to the lease liabilities on January 1, 2019 ranged from 5.50% to 10.25%.

Right-of-use assets (ROU assets) were measured at the amount of the lease liability and adjusted by the amount of any prepaid or accrued rentals relating to that lease recognized as at December 31, 2018. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of low value (‘low-value assets’).

Below provides the reconciliation between the operating lease commitments disclosed applying PAS 17 as at December 31, 2018 and the lease liability and ROU assets recognized in the consolidated statement of financial position at the date of initial application of PFRS 16:

(in Millions) Operating lease commitments disclosed as at December 31, 2018 P=2,092 Less: short-term and low value assets recognized on a straight-line basis as expense (199) Operating lease commitments covered under PFRS 16 1,893 Less: Present value discount using lessee’s incremental borrowing rate (402) Lease liability recognized as at January 1, 2019 1,491 Net prepaid and accrued rentals as at December 31, 2018 6 ROU assets recognized as at January 1, 2019 P=1,497

The recognized right-of-use (ROU) assets relate to the following types of assets:

June 30, January 1, 2019 2019 (in Millions) Building and building improvements P=1,019 P=1,234 Transportation equipment 170 211 Land 51 52 Total ROU assets P=1,240 P=1,497

ROU assets are presented under ‘Property, plant and equipment’ and lease liabilities are reported under ‘Accounts payable and other current liabilities’ (current portion) and ‘Other noncurrent liabilities’ (noncurrent portion) in the Company’s interim consolidated statements of financial position.

For the six-month period ended June 30, 2019, depreciation charge relating to ROU assets recognized under ‘costs of sales and services’ and ‘general and administrative expenses’ amounted to P=128 million (see Note 18) and P=142 million (see Note 19), respectively. Interest accretion on lease liability amounted to P=48 million (see Note 20). Rental expenses relating to short-term and low value assets amounted to P=67 million recognized under ‘costs of sales and services’ (see Note 18) and P=33 million recognized under ‘general and administrative expenses’ (see Note 19). There is no material impact on other comprehensive income and the basic and diluted EPS.

For the six-month period ended June 30, 2019, PFRS 16 expenses (net of tax) versus PAS 17 expenses (net of tax) is higher only by P=10 million. Adjusted EBITDA used to measure segment results increased by P=283 million, as the operating lease payments (PAS 17) were included in EBITDA, but the amortization of the ROU assets and interest on the lease liability are excluded from this measure.

Summary of new accounting policies. Set out below are the new accounting policies of the Company upon adoption of PFRS 16:

▪ Right-of-use assets. The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). ROU assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of ROU assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Unless the Company is reasonably certain to obtain ownership of the leased asset at the end of the lease term, the recognized ROU assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term. ROU assets are subject to impairment.

▪ Lease liabilities. At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating a lease, if the lease term reflects the Company exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognized as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Company uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

▪ Short-term leases and leases of low-value assets. The Company applies the short-term lease recognition exemption (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the low-value assets recognition exemption. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term. Beginning January 1, 2019, ‘Rentals’ under the ‘costs of sales and services’ and ‘general and administrative expenses’ accounts include only those leases that are short-term and of low-value (see Notes 18 and 19).

▪ Significant judgement in determining the lease term of contracts with renewal options. The Company determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Company has the option, under some of its leases to lease the assets for additional terms. The Company applies judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Company reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

3. Operating Segment Information

Operating Segment For management purposes, the Company is organized into the following segments based on services and products:

Power, which primarily relates to the operations of Manila Electric Company (MERALCO) in relation to the distribution, supply and generation of electricity and Global Business Power Corporation (GBPC) in relation to power generation. The investment in MERALCO is held both directly and indirectly through Beacon Electric Asset Holdings, Inc. (Beacon Electric) while the investment in GBPC is held through Beacon Electric’s wholly-owned entity, Beacon PowerGen Holdings Inc. (BPHI).

Toll Operations, which primarily relate to operations and maintenance of toll facilities by Metro Pacific Tollways Corporation (MPTC) and its subsidiaries NLEX Corporation (NLEX Corp), Cavitex Infrastructure Corporation (CIC) and foreign investees, CII Bridges and Roads Investment Joint Stock Company (CII B&R), Don Muang Tollway Public Ltd (DMT) and PT Nusantara Infrastructure Tbk (PT Nusantara; a subsidiary beginning July 2018) (see Note 8). Certain toll projects are either under pre- construction or on-going construction as at June 30, 2019 (see Note 9).

Water, which relates to the provision of water and sewerage services by Maynilad Water Holding Company, Inc. (MWHC) and its subsidiaries, Maynilad Water Services, Inc. (Maynilad) and Philippine Hydro, Inc. (PHI), and other water-related services by MetroPac Water Investments Corporation (MPW).

Healthcare, which primarily relates to operations and management of hospitals and nursing colleges and such other enterprises that have similar undertakings by Metro Pacific Hospital Holdings, Inc. (MPHHI) and subsidiaries.

Rail, which primarily relates to Metro Pacific Light Rail Corporation (MPLRC) and its subsidiary, Light Rail Manila Corporation (LRMC), the concessionaire for the operations and maintenance of the Light Rail Transit – Line 1 (LRT-1) and construction of the LRT-1 south extension.

Logistics, which primarily relates to the Company’s logistics business through MetroPac Logistics Company, Inc. (MPLC) and its subsidiaries. However, given that the logistics business does not yet meet

the quantitative thresholds to qualify as an operating segment, the results of the logistics operations are included in the ‘other businesses’ column.

Others, which represent holding companies and operations of subsidiaries and other investees involved in real estate and provision of services.

The Company’s chief operating decision maker continues to be comprised of the BOD.

Seasonality

Power. For MERALCO, electricity sales exhibit a degree of quarterly seasonality with the first quarter having lower than the average electricity sales as this period is characterized by cooler temperature and softer consumer demand following heightened consumer spending in the last quarter of the year. The second quarter is marked by higher than average electricity sales. The fourth quarter performance is about the average of the year.

For GBPC, electricity sales exhibit a degree of quarterly seasonality with the first quarter having lower than the average electricity sales. This period is characterized by cooler temperature, resulting to softer consumer demand. Higher than average electricity consumption is marked during the second quarter as temperature rises during the summer months. This increase in demand, however, is coupled with higher generation from solar plants in Negros thereby tempering market prices. The fourth quarter sees an increase in electric power consumption due to heightened consumer spending during the holiday season.

Toll Operations. The Company’s toll road operations are a seasonal business. Based on historical traffic on the North Luzon Expressway (NLEX), Subic-Clark-Tarlac Expressway (SCTEX) and Manila - Cavite Expressway (CAVITEX), the month of January is slightly below the normal average due to the end of the Christmas holidays. From February to May, traffic is above the normal average due to the summer holiday, which is traditionally a peak season for travel. The months of June to August remain to have the lowest seasonal factors due to the rainy season. Traffic is expected to improve from September until November, while the month of December has the highest seasonal factor due to the Christmas holidays.

For PT Nusantara, based on historical traffic for its toll roads, the months of January and February are usually below the normal average traffic due to end of holidays and peak of rainy season. Traffic is then expected to improve in the months of March to April due to the summer season. For the months May to July, traffic is likely to decrease as a result of the long holidays (Ramadan and Lebaran holidays) but is expected to stabilize in the months August to November. Traffic will improve again in December due to the Christmas season.

Water. The Company’s water utilities business is also seasonal, with comparatively lower revenues during the rainy season in the Philippines.

Rail. The Company’s rail business is seasonal, with lower ridership during the second quarter of the year due to summer holiday in schools. In addition to this, LRT-1 is also closed from Holy Thursday to Easter Sunday, and this typically occurs in April or March.

Segment Performance Segment performance continues to be evaluated based on: consolidated net income for the period; earnings before interest, taxes and depreciation and amortization (EBITDA), or Core EBITDA; Core EBITDA margin; and core income. Net income for the period is measured consistent with consolidated net income in the consolidated financial statements.

There are no revenue transactions with a single customer that accounted for 10% or more of the Company’s consolidated revenues and no material inter-segment revenue transactions for the six-month periods ended June 30, 2019 and 2018. The Company’s revenue substantially comprises of services

which revenue recognition is over time.

The following table shows the reconciliations of the Company’s consolidated core income to consolidated net income for the six-month periods ended June 30, 2019 and 2018.

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions) Consolidated core income attributable to owners of Parent Company P=8,668 P=8,600 Non-recurring income (expenses) - net (560) 341 Consolidated net income attributable to owners of Parent Company 8,108 8,941 Consolidated net income attributable to Non-controlling interest 4,691 4,318 Consolidated net income P=12,799 P=13,259

By Principal Business Activity

The following table presents revenue and profit information of operating segments for the six-month period ended June 30, 2019 and 2018:

June 30, 2019 (Unaudited; in Millions) Toll Power Operations Water Healthcare Rail Others Consolidated Total revenue from external sales P=12,797 P=8,923 P=12,746 P=7,646 P=1,579 P=930 P=44,621 Core EBITDA 4,821 5,912 8,963 1,835 343 (430) 21,444 Core EBITDA Margin 38% 66% 70% 24% 22% − 48% Core income (loss) attributable to MPIC 6,130 2,321 2,342 400 169 (2,694) 8,668 Non-recurring income (expense) (144) (245) (64) - (6) (101) (560) Reported net income (loss) attributable to MPIC P=5,986 P=2,076 P=2,278 P=400 P=163 (P=2,795) P=8,108

June 30, 2018 (Unaudited; in Millions) Toll Power Operations Water Healthcare Rail Others Consolidated Total revenue from external sales P=13,287 P=7,389 P=11,311 P=5,800 P=1,594 P=686 P=40,067 Core EBITDA 4,848 5,181 7,918 1,294 456 (575) 19,122 Core EBITDA Margin 36% 70% 70% 22% 29% − 48% Core income (loss) attributable to MPIC 5,822 2,281 2,115 338 205 (2,161) 8,600 Non-recurring income (expense) 518 (52) (198) (1) 3 71 341 Reported net income (loss) attributable to MPIC P=6,340 P=2,229 P=1,917 P=337 P=208 (P=2,090) P=8,941

The following table presents segment assets and segment liabilities of the Company’s operating segments (amounts in millions):

Toll Adjustments/ Power Operations Water Healthcare Rail Others Eliminations Consolidated Segment assets P=82,738 P=119,012 P=127,807 P=20,137 P=27,954 P=17,718 P=28,637 P=424,003 Investments and Advances 131,501 15,658 3,014 2,869 − 2,030 − 155,072 Consolidated Total Assets as at June 30, 2019 (Unaudited) P=214,239 P=134,670 P=130,821 P=23,006 P=27,954 P=19,748 P=28,637 P=579,075 Segment assets P=83,428 P=107,777 P=126,789 P=19,686 P=21,372 P=16,775 P=29,126 P=404,953 Investments and Advances 131,444 14,125 3,110 2,734 – 1,580 – 152,993 Consolidated Total Assets as at December 31, 2018 (Audited) P=214,872 P=121,902 P=129,899 P=22,420 P=21,372 P=18,355 P=29,126 P=557,946 Segment liabilities: As at June 30, 2019 (Unaudited) P=63,005 P=85,654 P=62,813 P=7,059 P=14,698 P=85,907 P=10,797 P=329,933 As at December 31, 2018 (Audited) P=67,167 P=77,877 P=61,608 P=7,099 P=12,125 P=83,137 P=9,930 P=318,943

By Geographical Market While the Company’s geographic focus is still predominantly the Philippines, MPIC has started increasing its presence in Southeast Asia with its investments in Indonesia (PT Nusantara), Thailand (DMT; see Note 8) and Vietnam (CII B&R, Tuan Loc Water Resources Investment Joint Stock Company and BOO Phu Ninh Water Treatment Plant Joint Stock Company; see Note 8).

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions)

Revenue: Philippines P=43,893 P=40,068 Indonesia 727 – P=44,620 P=40,068

Share in net earnings (loss) of equity method investees (see Note 8): Philippines P=5,635 P=5,922 Indonesia 114 (7) Thailand 232 290 Vietnam (70) 5 P=5,911 P=6,210

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions)

Non-current assets (other than financial instruments and deferred tax assets): Philippines P=463,339 P=440,608 Indonesia 22,369 21,172 Thailand 7,069 6,852 Vietnam 5,538 5,542 P=498,315 P=474,174

4. Business Combinations and Transactions with Non-controlling Stockholders

Transaction during the six-month period ended June 30, 2019

Acquisition of Southbend Express Services Inc. (SESI). On February 26, 2019, Metro Pacific Tollways Management Services Inc. (MPTMSI), a wholly-owned subsidiary of MPTC, acquired 100% of SESI for a purchase price of P=93 million. SESI is engaged in providing manpower services to public and private offices, industrial, commercial and other establishments. The transaction was accounted for using the acquisition method under PFRS 3.

The final fair values of the identifiable assets and liabilities as at the date of acquisition:

Fair Values (in Millions) Assets Cash and cash equivalents P=3 Receivables 36 Other current assets 3 Property, plant and equipment 6 Other noncurrent assets 16 64 Liabilities Accounts payable and other current liabilities 21 Long-term debt 3 Other long-term liabilities 21 45 Total identifiable net assets at fair value 19 Goodwill arising on acquisition 42 Consideration transferred 61 Intercompany account settled 32 Total consideration on acquisition P=93

The fair value and gross amount of the receivables amounted to P=36 million. None of the receivables have been impaired and it is expected that the full contractual amounts can be collected.

The goodwill of P=42 million that arose on the acquisition can be attributed to the expected synergies arising from the acquisition. None of the goodwill recognized is expected to be deductible for income tax purposes.

From the date of acquisition, SESI contributed consolidated revenue of P=28 million after elimination. SESI derives most of its revenues from its services to NLEX Corp., CIC and MPT MSI and therefore eliminated at consolidated level. Meanwhile, the contribution to the consolidated net income amounted to P=33 million net loss for the six months period ended June 30, 2019. If the combination had taken place at the beginning of the year, contributions to the consolidated revenue and consolidated net income would have been P=40 million of revenue and P=56 million of net loss for SESI for the six months period ended June 30, 2019. Total transaction cost amounting to P=0.2 million, has been expensed and is included in the “General and administrative expenses” in the consolidated statement of comprehensive income and is part of operating cash flows for the six months period ended June 30, 2019.

Increases in ownership interest. The Company increased its ownership interest in the following entities: • In February 2019, MPHHI acquired an additional 35,674 common shares of DLSMC which increased its ownership interest from 58% to 61%. Total consideration for the acquisition of NCI amounted to P=18 million. • In May 2019, PT Energi Infranusantara acquired an additional 228,000 shares of PT Inpola Meka Energi which increased its ownership interest from 54.6% to 56.2%. Total consideration for the transaction amounted to IDR22.8 billion (P=84 million). • In June 2019, PT Potum Mundi Infranusantara agreed to purchase 24,000 shares of PT Dain Celicani Cemerlang (DCC) at a purchase price of IDR3.7 billion (P=14 million). The acquisition of NCI resulted to increase in ownership in DCC from 51.0% to 74.5%.

Transactions during the six-month period ended June 30, 2018

Subscription to common shares of Western Mindanao Medical Center, Inc. (WMMCI). In 2015, Metro Pacific Zamboanga Hospital Corp. (MPZHC), a wholly-owned subsidiary of MPHHI, signed a long-term lease of the land, buildings and equipment of WMMCI. The lease agreement qualified as business

combination where the identifiable assets consist of property use rights for the use of existing land and building over the term of the lease of twenty (20) years.

On March 11, 2018, MPHHI subscribed to 393,641 Class B common shares representing 63.94% of the outstanding voting capital stock of WMMCI. Total subscription price per share is approximately P=435 per share or an aggregate value of P=171 million. The assets and liabilities of WMMCI as at date of subscription (and prior to the proceeds of the subscription) included property plant and equipment (P=494 million), accounts payable and accrued expenses (P=247 million) and long-term debt (P=126 million).

The abovementioned subscription was accounted for as an equity transaction. The amount recognized in equity reserves represents the difference between the carrying value of the interest acquired and the total consideration paid and the derecognition of the carrying values of the property use rights and lease liability (see Note 11) arising from the 2015 lease agreement:

(In Millions) Total subscription price P=171 Carrying value of derecognized property use rights 25 Less: MPHHI’s share in the net assets of WMMCI (182) Carrying value of derecognized lease liability (31) Difference recognized in equity reserves (P=17)

Acquisition of NCI in MMI. On February 28, 2018, MLCI, MMI and Yellowbear Holdings, Inc. (YHI) entered into a Memorandum of Agreement for MLCI’s acquisition of the 24% shareholding of YHI in MMI. Total acquisition cost amounted to P=739 million. The increase in effective ownership in MMI is accounted for as an equity transaction with the difference between the carrying value of the additional interest acquired and the total consideration recognized in equity:

(In Millions) Cash consideration paid to NCI P=739 MMI’s net assets acquired (24%) (634) Difference recognized in equity reserves P=105

The abovementioned transaction also involved the net settlement of MMI’s various claims against YHI amounting to P=217 million (net of indirect taxes of P=22 million) recognized in “Others” accounts in the interim consolidated statement of comprehensive income (see Note 20).

Final Purchase Price Allocation for Acquisitions in 2018

Step acquisition of PT Nusantara. On November 3, 2017, MPTC, through its Indonesian subsidiary, PT Metro Pacific Tollways Indonesia (PT MPTI), acquired a total of 6,600,000,000 shares of PT Nusantara at a consideration of P=1.05 (Indonesian Rupiah; IDR 270) per share. The acquired shares represented approximately 42.3% of the total issued capital stock of PT Nusantara on a fully-diluted basis. Together with PT MPTI’s earlier acquisitions, PT MPTI held a total of 48.3% of the total issued capital stock of PT Nusantara on a fully-diluted basis. The transaction was executed by way of a cross sale on the Indonesian Stock Exchange pursuant to definitive transaction documents entered into with PT Matahari and other related parties. This initial investment in PT Nusantara was accounted for as an investment in an associate.

On July 2, 2018, PT MPTI acquired an additional 760,000,000 PT Nusantara shares, representing 5.0% of the issued share capital of the company, for an aggregate consideration of IDR 160.36 billion (equivalent to approximately P=597.3 million), which is IDR 211 (equivalent to approximately P=0.79) per share. These shares were acquired by way of a cross sale on the Indonesian Stock Exchange. PT MPTI fully paid the consideration for the acquisition in cash on completion of this transaction. Immediately following this acquisition, PT MPTI held 8,114,495,300 PT Nusantara shares, representing 53.3% of the issued share capital of PT Nusantara. As a result, PT MPTI was required to make a mandatory tender offer (MTO) to

purchase all of the PT Nusantara shares which it did not already own. A total of 3,760,231,769 PT Nusantara shares, equivalent to 24.7% of the issued capital of PT Nusantara, were tendered at an approved price of IDR 211 per share. The total cost is IDR 802,109 million, equivalent to P=2.9 billion. PT MPTI after the MTO owns a total of 77.9%, issued capital stock of PT Nusantara (80.0% on the basis of issued and outstanding shares). The Settlement Date for the mandatory tender offer was on September 10, 2018.

PT Nusantara is a publicly listed limited liability company duly established and existing under the laws of the Republic of Indonesia. Its infrastructure portfolio in Indonesia includes toll roads, ports, energy and water although approximately 80% of its core income is attributable to the toll roads.

With MPTC acquiring control over PT Nusantara, this transaction was accounted for using the acquisition method under PFRS 3, Business Combinations. In accordance with PFRS 3:

▪ remeasurement gain of P=493 million was recognized in “Others” account in the 2018 consolidated statement of comprehensive income in relation with the previously held interest in PT Nusantara; and

▪ PT Nusantara and its subsidiaries were fully consolidated from July 2, 2018.

The final fair values of the identifiable assets and liabilities as at the date of step acquisition:

Final Values (In Millions) Assets Cash and cash equivalents P=2,418 Receivables 549 Other current assets 509 Property, plant and equipment 728 Service concession assets 12,535 Investment in associates 4,155 Other noncurrent assets 2,000 22,894 Liabilities Accounts payable and other current liabilities 885 Long-term debt (current and noncurrent portions) 3,315 Deferred tax liabilities 2,263 Other long-term liabilities 258 6,721 Noncontrolling interest at PT Nusantara level 3,833

Total identifiable net assets at fair value 12,340 Noncontrolling interest (20.04%) (2,472) Fair value of previously held interest (7,248) Goodwill arising on acquisition 858 Cash transferred P=3,478

The non-controlling interest representing the minority shareholders who did not participate in the tender offer, was measured at the corresponding proportionate share in PT Nusantara’s net asset measured as at acquisition date. Cash transferred represents the sum of the purchase price of the shares acquired on July 2, 2018 and settlement price of the shares acquired as a result of the MTO.

Net cash outflow on acquisition is as follows:

Cash acquired with the subsidiary(a) P=2,418 Total cash transferred (3,478) Net cash outflow (P=1,060) (a) Cash acquired with the subsidiary is included in cash flows from investing activities.

The net assets recognized in the December 31, 2018 consolidated financial statements were based on a provisional assessment of fair value while MPTC sought an independent valuation for the assets of the acquired businesses. The valuation had not been completed by the date the 2018 consolidated financial statements were approved for issue by the BOD.

In 2019, the valuation was completed. Based on the final valuation, there were changes in the fair values of the following accounts from their provisional fair values: (i) service concession assets, originally at P=12,404 million; (ii) investment in associates at P=2,992 million; (iii) other noncurrent assets at P=1,680 million; (iv) accounts payable and other current liabilities at P=487 million; (v) deferred tax liabilities at P=2,259 million; and noncontrolling interest at PT Nusantara level at P=3,542 million. The change in the net assets’ fair value in turn increased noncontrolling interest from P=2,288 million to P=2,472 million and decreased goodwill from P=1,594 million to P=858 million (see Note 10).

The fair value and gross amount of the receivables amounted to P=549 million. Based on current assessment, none of the receivables have been impaired, and it is expected that the full contractual amounts can be collected.

The goodwill is attributable to the synergies and other benefits from combining the assets and activities of PT Nusantara to the Company. None of the goodwill recognized is expected to be deductible for income tax purposes.

If the acquisition had taken place at the beginning of 2018, revenue contribution would have been P=2,566 million for the year ended December 31, 2018. Since this is a step acquisition, the incremental contribution to the net income attributable to MPIC (pertaining to the additional 30.44% effective ownership interest in PT Nusantara) for the year ended December 31, 2018 amounted to P=68 million from date of acquisition and P=223 million had the transaction taken place at the beginning of 2018.

Acquisition of PT Rezeki Perkasa Sejahtera Lestari (RPSL). On August 16, 2018, PT Energi Infranusantara, a wholly-owned subsidiary of PT Nusantara, acquired a total of 84,000,000 shares of RPSL, a biomass power plant company, representing 80% of RPSL’s capital stock for a total consideration of IDR 115.0 billion (equivalent to P=420 million). The acquisition was accounted for using the acquisition method.

The final fair values of the identifiable assets and liabilities as at the date of acquisition:

Final Values (In Millions)

Assets Cash and cash equivalents P=5 Receivables 38 Other current assets 19 Service concession receivable 785 Property, plant and equipment 7 Deferred tax asset 17 871

Final Values (In Millions)

Liabilities Accounts payable and other current liabilities 150 Other noncurrent liabilities 401 551 Total identifiable net assets at fair value 320 Noncontrolling interest (64) Goodwill arising on acquisition 164 Cash transferred P=420

Net cash outflow on acquisition is as follows:

Cash acquired with the subsidiary(a) P=5 Total cash paid on acquisition (420) Net cash outflow (P=415) (a) Cash acquired with the subsidiary shall be included in cash flows from investing activities for the next reporting period.

In 2019, the valuation was completed. Based on the final valuation, there were no material changes in the fair values from their provisional fair values except that the concession is now accounted for under IFRIC 12, Service Concession Arrangements, financial asset model. In the provisional valuation, it was accounted for under the intangible asset model.

The goodwill arising from the acquisition is attributable to synergies and other benefits from combining the assets and activities of RPSL to the Company. None of the goodwill recognized is expected to be deductible for income tax purposes.

From the date of acquisition, RPSL has contributed P=204 million to the consolidated finance income from concession financial receivable and P=6 million to the consolidated net income. If the combination had taken place at the beginning of 2018, contributions to the consolidated finance income from concession financial receivable and consolidated net income would have been P=287 million of revenue and P=8 million of net income for the year ended December 31, 2018.

5. Cash and Cash Equivalents, Short-term Deposits and Restricted Cash

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Cash and cash equivalents P=42,752 P=46,607 Short-term deposits 1,220 914 P=43,972 P=47,521

For the purpose of the interim consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, details of cash and cash equivalents are as follows:

June 30, June 30, 2019 2018 (Unaudited) (In Millions) Cash on hand and in banks P=8,225 P=8,410 Short-term deposits that qualify as cash equivalents 34,527 29,844 P=42,752 P=38,254

Restricted Cash. Restricted cash classified under current assets pertains to sinking fund or debt service account (DSA) representing amounts set aside for principal and interest payments of certain long-term debt. This DSA is maintained and replenished in accordance with the provision of the loan agreements.

In April 2014, NLEX Corp signed a target cost construction contract with Leighton Contractors (Asia) Ltd. (LCAL) for the construction of NLEX Segment 10. Pursuant to the contract, NLEX Corp placed a reserve amount in an escrow account on July 28, 2014 to cover payment default leading to suspension of works. The balance of the reserve account as at December 31, 2018 amounted to P=321 million. Construction of Segment 10 was completed with the road accessible to the public in February 2019. The reserve amount was released on June 14, 2019.

6. Receivables

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Trade: Power P=5,497 P=4,127 Water 2,437 3,387 Healthcare 1,791 1,805 Others 2,105 1,473 Contract assets/unbilled receivables 1,437 1,185 Dividend receivable (see Note 8) – 74 Concession financial receivable (a) 1,112 269 Notes (b) 150 150 Nontrade (c) 2,187 1,938 16,716 14,408 Less allowance (b) 1,805 1,601 14,911 12,807 Less current portion 13,756 12,495 Noncurrent portion P=1,155 P=312

a. On April 24, 2012, PT Dain Celicani Cemerlang (DCC), a subsidiary of PT Nusantara entered into a Cooperation Agreement for the supply of treated water to PT Kawasan Industri Medan (Persero) (KIM) for a period of 20 years (excluding construction phase). The concession financial receivable pertains to the guaranteed minimum payment that will be received by DCC from KIM under the water supply agreement.

In August 2018, PT Energi Infranusantara, a wholly-owned subsidiary of PT Nusantara, acquired 80% of the capital stock of RPSL, a biomass power plant operator. The acquisition was accounted for

using the acquisition method under PFRS 3 (see Note 4). RPSL entered into an Electrical Power Purchase Agreement with PT Perusahaan Listrik Negara (Persero) (PLN) for the construction and operation of a Biomass Power Plant for a period of twenty (20) years from the start of operations. Under the agreement, RPSL will supply a portion of the generated power from the power plant to PLN in accordance with the terms and conditions of the agreement. The concession financial receivable pertains to the guaranteed minimum payment that will be received by RPSL from PLN under the electrical power purchase agreement.

Finance income amounting to P=36 million was recognized in the interim consolidated statement of comprehensive income in relation to these concession arrangements (see Note 20). b. Notes receivable aggregating P=150 million comprising of defaulted loans are fully provided with allowance as at June 30, 2019 and December 31, 2018. c. Included in the nontrade receivables are (i) advances to Department of Public Works and Highways (DPWH) covered by a Reimbursement Agreement, (ii) advances to customers, affiliates and officers and employees that are generally collectible within a year and (iii) advances to former subsidiaries and related parties. Portion of advances to former subsidiaries and affiliates of the Company are fully provided with allowance. Advances to DPWH amounting to P=177 million as at June 30, 2019 and P=193 million as at December 31, 2018, is pursuant to the Reimbursement Agreement entered into by NLEX Corp with DPWH in 2013 where DPWH requested these advances in order to fast track the acquisition of right- of-way for the construction of Segments 9 and 10, portions of Phase II of NLEX. The balance also includes direct advances to certain Segment 9 landowners as consideration for the grant of immediate right-of-way possession to NLEX Corp ahead of the expropriation proceedings. Under a Deed of Assignment with Special Power of Attorney agreement, these landowners agreed to assign their receivables from DPWH to NLEX Corp in consideration for the direct advances received from NLEX Corp. The noncurrent portion of the receivables are included under the “Other noncurrent assets” account in the consolidated statements of financial position.

7. Other Current Assets

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Inventories - at cost Power plant spare parts and consumables P=1,660 P=1,551 Hospital supplies 788 860 Power plant coal and fuel 612 1,143 Rail engineering supplies 451 455 Others 263 242 Input value-added tax (VAT) (a) 3,777 3,647 Prepaid expenses 1,042 675 Creditable withholding taxes (b) 1,015 930 Advances to contractors and consultants (c) 448 2,287 Deposits for LTIP (see Note 11) − 542 Due from related parties (see Note 15) 24 24 Miscellaneous deposits and others 791 867 10,871 13,223 Less allowance for decline in value 331 331 P=10,540 P=12,892

a. Input VAT pertains to VAT imposed on purchases of goods and services. These are expected to be offset against output VAT (see Note 11) arising from the Company’s revenue/income subject to VAT in the future. Noncurrent portion as at June 30, 2019 and December 31, 2018 amounted to P=182 million and P=236 million, respectively, and is included under “Other noncurrent assets”. The noncurrent portion pertains to input VAT that can be offset against output VAT beyond one year and those that can be claimed as tax credits. b. This represents amount withheld by counterparty for services rendered by the Company which can be claimed as tax credits. Management provided allowance for decline in value representing creditable withholding taxes recognized in prior years that the Company may no longer be able to utilize. c. Noncurrent portion of the advances to contractors and consultants included under “Other noncurrent assets” as at June 30, 2019 and December 31, 2018 amounted to P=9,249 million and P=7,328 million, respectively.

8. Investments and Advances

Material Associates. The Company’s investments in material associates substantially comprise of investments in:

Ownership Interest in % Principal Place of June 30, December 31, Business Principal Activities 2019 2018 Associates: MERALCO – Direct Philippines Power 10.5 10.5 MERALCO – Indirect* Philippines Power 35.0 35.0 Alsons Thermal Energy Corporation (ATEC) Philippines Power 50.0 50.0 DMT Thailand Tollways 29.4 29.4 CII B&R Vietnam Tollways 44.9 44.9 PT Jakarta Lingkar Baratsatu (JLB) Indonesia Tollways 35.0 35.0

* Held through Beacon Electric

Individually immaterial investees. The Company has interests in the following individually immaterial investments in associates and joint ventures:

Ownership Interest in % Principal Place of June 30, December 31, Business Principal Activities 2019 2018 Associates: Manila Water Consortium Inc. Philippines Investment holding/ Water 39.0 39.0 EquiPacific HoldCo Inc. Philippines Investment holding/ Water 30.0 30.0 Watergy Business Solutions, Inc. Philippines Investment holding/ Water 49.0 49.0 Karayan Diliman Management, Inc. Philippines Engineering consultancy 40.0 40.0 Medical Doctors Inc. Philippines Hospital operations 33.3 33.3 Manila Medical Services, Inc. Philippines Hospital operations 20.0 20.0 Medi Linx Laboratory Inc. Philippines Clinical laboratory services 40.0 40.0 Radiation and oncology Davao Doctors Oncology Center Inc. Philippines center 30.0 30.0 Operator of contactless AF Payments Inc. Philippines payment system 20.0 20.0 Management and IT Indra Philippines, Inc. Philippines consultancy 25.0 25.0 Under liquidation (corporate life ended December First Gen Northern Energy Corp. Philippines 31, 2016) 33.3 33.3 Costa De Madera Philippines Real estate 62.0 62.0

Ownership Interest in % Principal Place of June 30, December 31, Business Principal Activities 2019 2018 Real estate; Under Metro Pacific Land Holdings, Inc. liquidation (corporate life (MPLHI) Philippines shortened to July 31, 2019) 49.0 49.0 BOO Phu Ninh Water Treatment Plant Joint Stock Company (PNW) Vietnam Water 45.0 45.0 Tuan Loc Water Resources Investment Joint Stock Company (TLW) Vietnam Water 49.0 49.0 PT Intisentosa Alam Bahtera (IAB) Indonesia Port services 39.0 39.0 PT Tirta Kencana Cahaya Mandiri (TKC) Indonesia Water installation 28.0 28.0 Joint Ventures: Land Pacific Corporation (Landco) Philippines Real estate 38.1 38.1 Metro Sanitas Corporation Philippines Clinical management 50.0 50.0 Lipa Medix Cancer Center Corporation Philippines Oncology treatment center 50.0 50.0

The account “Investments and advances” consists of the following components:

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Equity method investees: Associates Material MERALCO P=126,786 P=126,936 DMT 7,069 6,852 CII B&R 3,205 3,095 ATEC 2,835 2,628 JLB 5,384 4,178 Others 6,613 6,555 Joint ventures 305 223 152,197 150,467 Advances to equity method investees 2,876 2,526 P=155,073 P=152,993

For the purpose of the interim consolidated statements of comprehensive income and cash flows for the six months period ended June 30, 2019 and 2018, movements in the “Equity method investees” are as follows:

June 30, June 30, 2019 2018 (Unaudited) (In Millions) Acquisition costs Balance at beginning of the period P=145,934 P=147,060 Acquisitions − 2,622 Equity infusion into existing investees 1,257 213 Balance at end of the period 147,191 149,895 Accumulated equity in net earnings Balance at beginning of the period 3,205 426 Share in net earnings for the period 5,911 6,210 Dividends (5,562) (4,779) Balance at end of the period 3,554 1,857 Accumulated share in the investees’ OCI Balance at beginning of the period 2,650 2,101

June 30, June 30, 2019 2018 Share in investees’ OCI during the period 125 (267) Total 2,775 1,834 Less allowance for impairment loss 1,323 1,323 P=152,197 P=152,263

MERALCO MERALCO is a Philippine corporation with its shares listed in the PSE. It is the largest distributor of electricity in the Philippines with its franchise valid until June 2028. The fair value of the Company’s effective investment in MERALCO at 45.5% amounted to P=197 billion as at June 30, 2019 and December 31, 2018 based on the quoted price of MERALCO as at those dates. A pledge on Beacon Electric’s investments in MERALCO shares secures Beacon Electric’s loan facilities with a syndicate of various financial institutions (see Note 13).

On July 29, 2019, the BOD of MERALCO approved the declaration of regular dividend of P=5.464 per share in favor of MERALCO’s shareholders as of record date of August 28, 2019 with payment date of September 20, 2019. MPIC’s allocable share of the dividends (direct investment and through Beacon Electric) amounted to P=2,800 million.

ATEC ATEC has ownership in the following companies: (i) 75% in Sarangani Energy Corporation which owns a 105 MW baseload coal-fired plant already in operation and another 105 MW under construction in Maasim, Sarangani Province; (ii) 100% in San Ramon Power, Inc. (SRPI) which is developing a 105 MW baseload coal-fired plant in Zamboanga City; and (iii) 100% in ACES Technical Services Corporation. The second 105 MW unit under construction in Sarangani Province is expected to commence operations within the second half of 2019.

Termination of SRPI Power Supply Agreement. In a letter dated March 26, 2019, Zamboanga City Electric Cooperative (ZAMCELCO) sent a Notice of Termination for the Power Sales Agreement (PSA) with San Ramon Power, Inc. (SRPI). SRPI is a wholly owned subsidiary of ATEC.

ZAMCELCO’s basis for terminating the PSA was the failure of the parties to achieve the Effective Date under the PSA. Under the PSA, specific conditions needed to be achieved in order to trigger the Effective Date of the PSA. However, in an agreement dated October 25, 2018 – a full 5 months prior to the issuance of the termination letter – ZAMCELCO and SRPI entered into an agreement whereby the parties declared that the remaining conditions precedent for Effective Date shall be waived. Accordingly, in the same agreement, the parties agreed that the Effective Date of the PSA shall be set on October 5, 2018. Under the PSA, SRPI has 36 months from Effective Date, or until October 2021, to start delivering power to ZAMCELCO. SRPI may supply the power from its plant, or it may source the power from third parties.

In a letter dated 14 May 2019, SRPI responded to ZAMCELCO’s termination letter to repudiate the termination. SRPI essentially argued that the Effective Date has been achieved and there is no basis to terminate the PSA.

The parties are still in the process of discussing the issue.

DMT DMT is a major toll road operator in Bangkok, Thailand. The concession for DMT runs until 2034 for the operation of a 21.9-kilometer six-lane elevated toll road from central Bangkok to Don Muang International Airport and further to the National Monument, north of Bangkok.

CII B&R CII B&R and its subsidiaries are primarily engaged in the construction, development and operation in urban infrastructure sector under the BOT contracts and Built-Transfer contracts. CII B&R is incorporated in Vietnam and listed in Ho Chi Minh City Stock Exchange.

The fair value of CII B&R shares held by the Company (including the equivalent shares of the potential voting rights) based on quoted market price amounted to VND2,955 billion (P=6.5 billion) and VND3,059.3 billion (P=6.9 billion) as at June 30, 2019 and December 31, 2018, respectively.

JLB JLB is a toll road company in Indonesia that operates a 9.7 km length toll road that connects Kebon Jeruk (West Jakarta) with Penjaringan (Soekarno- Hatta International Airport area, Cengkareng).

9. Service Concession Assets

This account consists of the following:

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Water: Maynilad P=103,204 P=99,399 Metro Iloilo Bulk Water Supply Corp. (MIBWS) 1,006 938 PHI 574 581 PT Nusantara 479 416 105,263 101,334 Toll Operations: NLEX Corp 42,390 38,063 MPCALA Holdings, Inc. (MPCALA) 29,300 27,058 PT Nusantara 11,621 12,081 CIC 10,400 10,037 Cebu Cordova Link Expressway Corporation (CCLEC) 4,100 1,215 97,811 88,454 Rail: LRMC (LRT-1) 21,065 16,204 P=224,139 P=205,992

The movements in the service concession assets follow:

As at June 30, 2019 (Unaudited) Toll Water operations Rail Total (In Millions)

Cost: Balances at January 1, 2019 P=127,001 P=96,409 P=16,204 P=239,614 Additions 5,678 9,195 4,354 19,227 Capitalized borrowing cost ‒ 1,037 507 1,544 Exchange differences (4) (65) ‒ (69) Balances at June 30, 2019 132,675 106,576 21,065 260,316 Accumulated amortization: Balances at January 1, 2019 25,667 7,955 – 33,622 Additions 1,745 815 ‒ 2,560

As at June 30, 2019 (Unaudited) Toll Water operations Rail Total Exchange differences ‒ (5) ‒ (5) Balances at June 30, 2019 27,412 8,765 ‒ 36,177 P=105,263 P=97,811 P=21,065 P=224,139

Service concession assets that are not yet available for use are subjected to impairment testing under PAS 36. As there were no indicators for impairment, management has not updated any of the impairment calculations relating to service concession assets not yet available for use. Service concession assets still under on-going construction and rehabilitation amounting to P=62,507 million and P=49,762 million as at June 30, 2019 and December 31, 2018, respectively, are considered as contract asset under PFRS 15. Additions to the service concession assets during the first half of 2019 included the following:

Service Concession Assets – Water: (i) the cost of rehabilitation works and additional construction; (ii) concession fee drawdown for Angat Water Transmission Improvement Project (AWTIP) and various local component costs amounting to P=379 million; and (iii) capitalized borrowing cost amounting to P=332 million.

Service Concession Assets – Toll Operations: (i) the ongoing construction of CALAX (P=2,029 million); (ii) NLEX Connector Road Project (P=128 million), Segment 10 & R10 section projects (P=2,781 million and P=1,633 million, respectively), NLEX interchange expansion and toll plaza and other enhancements (P=168 million), and the ongoing pavement rehabilitation and toll plaza enhancements of the SCTEX (P=121 million); (iii) CIC’s CAVITEX R1 Enhancement (P=11 million), C5 South Link (P=338 million), Segment 4 extension and Segment 5 projects (P=5 million and P=1 million, respectively); (iv) CCLEC’s ongoing construction of Cebu Cordova Link Expressway (P=2,705 million); and (v) remaining additions pertain to construction costs on various concession projects particularly by PT Nusantara (P=794 million).

Service Concession Assets – Rail: On-going rehabilitation of the LRT-1 existing line and the pre-construction activities for the Cavite Extension.

10. Goodwill and Intangible Assets

Goodwill. The carrying amount of goodwill allocated to each of the cash generating unit:

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Power: RPSL P=164 P=164 Toll Operations: MPTC/TMC 8,859 8,859 CIC 4,966 4,966 PT Nusantara 909 1,636 Easytrip Services Corporation (ESC) 388 388 SESI (Note 4) 42 − Water: MWHC/Maynilad 6,803 6,803 ESTII 1,227 1,227 PHI 245 245 Healthcare:

June 30, December 31, 2019 2018 (Unaudited) (Audited) DDH 703 703 Marikina Valley Medical Center, Inc. 662 662 Colinas Verdes Hospital Managers Corp. (CVHMC) 234 234 Asian Hospital Inc. 192 192 Saint Elizabeth Hospital Inc. 96 96 Riverside Medical Center, Inc. 69 69 De Los Santos Medical Center Inc. (DLSMC) 7 7 Logistics: MMI 1,366 1,366 Premier 239 239 P=27,171 P=27,856

Goodwill acquired from certain acquisitions in 2018, which included acquisitions of PT Nusantara, RPSL, and DDH, are based on provisional values. The purchase price allocation for the acquisition of PT Nusantara and RPSL was finalized in 2019 (see Note 4). Goodwill based on final PPA for PT Nusantara amounted to P=858 million. The increase in goodwill to P=909 million is attributable to translation adjustment.

Goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying amount may be impaired. During the current interim period, no impairment of goodwill was noted.

Intangible Assets. Movements in the intangible assets follow:

As at June 30, 2019 (Unaudited) Customer Property Use Contracts Rights Others Total (In Millions) Cost: Balance at January 1, 2019 P=3,850 P=748 P=904 P=5,502 Additions − − 76 76 Adjustments − − 12 12 Balance at June 30, 2019 3,850 748 992 5,590 Accumulated amortization: Balance at January 1, 2019 866 307 432 1,605 Additions (see Note 18) 90 25 51 166 Balance at June 30, 2019 956 332 483 1,771 P=2,894 P=416 P=509 P=3,819

11. Accounts Payable and Other Current Liabilities

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Accrued construction costs P=8,301 P=7,135 Trade and accounts payable 7,005 6,931 Retention payable 3,393 2,743 Output taxes payable 2,493 2,332 Interest and other financing charges 2,470 2,278

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Accrued personnel costs 2,199 1,878 Accrued expenses 1,917 1,362 Accrued outside services 1,118 1,235 Withholding taxes payable 852 555 Accrued PNCC and BCDA fees 538 179 Lease liabilities (a) 461 − Unearned revenues P=294 P=227 Deposit from NGCP 159 159 LTIP payable (b) − 1,430 PFRS 3 lease liability - current portion (c) 53 53 Dividends payable 31 2,513 Contract liabilities/unearned connection and installation fees 20 13 Others 948 928 P=32,252 P=31,951

a. The noncurrent portion of lease liabilities amounted to P=964 million and included under “Other long- term liabilities” (see Note 2).

b. Certain of the Company’s employees are eligible for long-term employee benefits under a long-term incentive plan (LTIP). The current liability on the LTIP as at December 31, 2018 comprises of MPIC, Maynilad and MPHHI’s LTIP performance cycle covering 2016 to 2018 which was substantially paid out in March 2019.

c. PFRS 3 lease liability represents present value of future minimum lease payments relating to the lease agreements entered into by certain subsidiaries involved in hospital management, which lease agreements qualify as business combinations. The lease payable and the related property use rights (see Note 10) were initially determined at acquisition date. The ‘PFRS 3 lease liability’ account is subsequently adjusted for payments and accretion.

The noncurrent portion of the lease payable amounting to P=936 million and P=991 million as at June 30, 2019 and December 31, 2018, respectively, is included in the “Other long-term liabilities”.

12. Provisions

Movements in this account are as follow:

June 30, 2019 (Unaudited) Heavy Decommissioning Other Maintenance Liability Provisions Total (In Millions) Balance at January 1, 2019 P=445 P=548 P=7,539 P=8,532 Additions and accretion 245 51 295 591 Payments (204) − (160) (364) 486 599 7,674 8,759 Less current portion 170 − 5,869 6,039 P=316 P=599 P=1,805 P=2,720

Other provisions consist of estimated liabilities for losses on claims by third parties. The information usually required by PAS 37, Provisions, Contingent Liabilities and Contingent Assets, is not disclosed as it may prejudice the Company’s negotiation with third parties.

13. Long-term Debt

This account consists of:

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Current portion P=12,920 P=11,619 Noncurrent portion 213,912 203,474 P=226,832 P=215,093

Details of the long-term debt per company/segment as follows:

June 30, December 31, 2019 2018 (Unaudited) (Audited) Long-term Loans Bonds Total Total (In Millions) MPIC P=72,518 P=− P=72,518 P=67,360 Power 50,988 − 50,988 53,602 Toll Operations 42,828 12,957 55,785 49,670 Water 35,925 − 35,925 35,233 Rail 10,320 − 10,320 8,073 Logistics 1,552 − 1,552 1,366 Healthcare 1,083 − 1,083 990 215,214 12,957 228,171 216,294 Less unamortized debt issue cost (1,242) (97) (1,339) 1,201 P=213,972 P=12,860 P=226,832 P=215,093

An analysis of the carrying amounts of borrowings into fixed and variable interest rates per company/segment as follows:

Fixed Variable Total June 30, December 31, June 30, December 31, June 30, December 31, 2019 2018 2019 2018 2019 2018 (Unaudited) (Audited) (Unaudited) (Audited) (Unaudited) (Audited) (In Millions) MPIC P=72,105 P=67,001 P=– P=– P=72,105 P=67,001 Power 50,969 53,582 – – 50,969 53,582 Toll Operations 49,963 43,511 5,418 5,815 55,381 49,326 Water 29,262 28,760 6,341 6,138 35,603 34,898 Rail 10,140 7,930 – – 10,140 7,930 Healthcare 1,082 990 – – 1,082 990 Logistics 1,552 1,066 – 300 1,552 1,366 P=215,073 P=202,840 P=11,759 P=12,253 P=226,832 P=215,093

The carrying amounts of the borrowings are denominated in the following currencies:

June 30, 2019 (Unaudited) Philippine Indonesian U.S. Thai Japanese Peso Rupiah Dollars Baht Yen Total (In Millions) MPIC P=72,105 P=– P=– P=– P=– P=72,105 Power 50,969 – – – – 50,969 Toll Operations 49,963 3,655 – 1,763 – 55,381 Water 25,008 – 6,341 – 4,254 35,603 Rail 10,140 – – – – 10,140 Healthcare 1,082 – – – – 1,082 Logistics 1,552 – – – – 1,552 P=210,819 P=3,655 P=6,341 P=1,763 P=4,254 P=226,832

Other relevant information on the Company’s long-term borrowings are provided below:

▪ Loan Drawdowns from Existing Facilities. During the first half of 2019, MPCALA and CCLEC drew P=2.77 billion and P=2.95 billion, respectively, from their existing loan agreements with various banks. The proceeds shall be used to finance construction of the toll road projects. CIC drew P=652 million from its existing loan facility to finance the ongoing construction of the C5 Southlink 3A-1 and R1 Enhancement project.

During the first half of 2019, Maynilad made its first availment from the Japan International Cooperation Agency (JICA) Japanese yen-denominated Facility Loan Facility amounting to JPY 1,163.8 million (approximately equivalent to P=551 million). Maynilad made another withdrawal from Metro Manila Wastewater Management Project (MWMP) Loan amounting to US$ 7.5 million (approximately equivalent to P=390 million).

LRMC made loan drawdowns, during the first half of 2019, amounting to a total of P=2,247 million in connection with the rehabilitation of the existing LRT-1.

During the first half of 2019, MMI made loan drawdowns amounting to a total of P=620 million for working capital requirements.

In June 2019, MPIC made loan drawdowns amounting to a total of P=6 billion to finance existing projects.

▪ New Loan Facilities/Borrowings. In March 2019, MPTC entered into a 10-year semi-annual term loan facility with a local bank for a loan amounting to P=2.8 billion which was fully drawn during the same month. The proceeds of the loan were used to finance the pre-termination of an outstanding debt at MPT North (see below).

On March 28, 2019 NLEX Corporation obtained P=500 million in short-term financing from PNB with a tenor of 180 days. The proceeds of the drawdown were used to partially fund NLEX Corporation’s capital expenditure projects.

In June 2019, MPTC obtained P=400 million in short-term financing from MBTC with a tenor of 180 days.

In January 2019, MMI was granted an increase in line with Mizuho Bank for P=100 million.

In July 2019, Cagayan De Oro Bulk Water, Inc. (COBI) signed a P=200.0 million unsecured Term Loan Agreement with Security Bank Corporation to finance the construction of water transmission lines and rehabilitation of the Camaman-an Reservoir. COBI shall pay principal and interest quarterly over ten

(10) years based on the amortization schedule indicated in the Term Loan Agreement. The loan has an availability period of eight (8) months from signing and remains undrawn as of August 1, 2019.

DLSMC and Metro RMCI Cancer Center availed loan facilities amounting to P=140 million and P=80 million, respectively, to finance capital expenditures and working capital requirements.

▪ Loan Prepayment. In March 2019, MPT North pre-terminated its =P3.2 billion term loan facility with a local bank (with outstanding carrying amount of P=2.8 billion prior to prepayment). Unamortized debt issue cost on loans and related unamortized PFRS 3 fair value increment were derecognized on the abovementioned prepaid loans. Prepayment penalties and other related costs totaling P=39 million was recognized in the interim consolidated statement of comprehensive income (see Note 20).

▪ The credit agreements provide for certain restrictions with respect to, among others, availing other loans or advances to any of the Company’s affiliates, subsidiaries, stockholders, directors and officers except in compliance with formally established and existing fringe benefit program of the Company. These restrictions were complied with by the Company.

▪ The loan agreements contain among others, covenants regarding the maintenance of certain financial ratios such as debt-to-equity ratio, debt service coverage ratio and maintenance of debt service reserve account. As at June 30, 2019, MPIC and its subsidiaries are in compliance with their respective debt covenants.

14. Service Concession Fees Payable

The movements in the service concession fees payable follow:

As at June 30, 2019 (Unaudited) Toll Operations Water Rail Total (In Millions)

Balance at January 1, 2019 P=20,784 P=6,459 P=3,396 P=30,639 Interest accretion (see Note 20) – 268 – 268 Interest accretion – capitalized 585 – 105 690 Foreign exchange differential – 392 – 392 Payment – (783) – (783) 21,369 6,336 3,501 31,206 Less current portion – 366 191 557 P=21,369 P=5,970 P=3,310 P=30,649

Toll Operations. Concession fees relate to the CALAEX and the Connector Project: ▪ CALAEX. In consideration for granting the concession, MPCALA shall pay DPWH a concession fee amounting to P=27.3 billion, 20% or P=5.5 billion of which was settled upon signing of the concession agreement (July 10, 2015). The balance of the concession fee (nominal amount of P=21.8 billion) is payable in equal annual instalments beginning on the 5th year (2020) over a period of 9 years from the signing of the concession agreement. ▪ Connector Project. Under the concession agreement, NLEX Corp shall pay periodic payments to DPWH representing the consideration for granting the concession and basic right of way in the Connector Road Project. Total payments to be made to DPWH amount to P=8.5 billion, payable at P=243.2 million per annum. The payment shall commence on the first anniversary of the construction completion deadline, as

extended, until the expiry of the concession period and shall be subject to an agreed escalation every two years based on the prevailing CPI for the two-year period immediately preceding the adjustment or escalation. Water. Concession fees relating to Maynilad’s service concession agreement are denominated in various currencies and are non-interest bearing. These are payable monthly following an amortization table up to the end of the concession period.

Rail. Under LRMC’s concession agreement for the LRT-1 Project, LRMC is required to pay the bid premium of P=9.35 billion (inclusive of VAT) as concession fee, 20% or P=1.87 billion of which was settled as at Effective Date in accordance with the LRT-1 Concession Agreement. The balance of the concession fee (nominal amount of P=7.5 billion, inclusive of VAT) is payable in equal quarterly installments over the concession period with the first payment on the fifth anniversary of the Effective Date. Settlement of the concession fee is through the quarterly balancing payment mechanism reflecting netting of payments due to Grantors against receivable from Grantors.

Interest accretion on concession fees in relation to the CALAEX, Connector Project and LRT-1 are capitalized as part of the “Service concession assets” account (see Note 9).

15. Due to and from Related Parties

The Company, in the normal course of business, has transactions with related parties which consist mainly of availment of noninterest-bearing cash advances which are due and demandable anytime.

Composition of amounts due to/from related parties follows:

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Due from related parties: Landco P=44 P=44 FPC 1 1 Others 10 10 55 55 Less allowance for impairment 31 31 P=24 P=24

Due to related parties: PCEV P=7,600 P=11,767 Smart 72 72 Others 15 15 7,687 11,854 Less current portion 5,515 4,462 Noncurrent portion P=2,172 P=7,392

Due to PCEV represents the present value of the outstanding amount for the purchase price of Beacon Electric shares acquired in May 2016 and June 2017:

▪ On May 30, 2016, MPIC acquired from PCEV 645,756,250 common shares and 458,370,086 preferred shares of Beacon Electric for the total consideration of P=26.2 billion. Of the total consideration of P=26.2 billion, P=17.0 billion was settled immediately while the remaining payable to PCEV shall be paid as follows: (a) P=2.0 billion in June 2017, (b) P=2.0 billion in June 2018,

(c) P=2.0 billion in June 2019, and (d) P=3.2 billion in June 2020. The outstanding balance as at June 30, 2019 and December 31, 2018 amounted to P=3.2 billion and P=5.2 billion (at nominal amount), respectively. PCEV shall retain the voting rights over these shares until full payment of the total consideration.

▪ On June 13, 2017, MPIC entered into a Share Purchase Agreement with PCEV for the purchase of PCEV’s 25% remaining interest in Beacon Electric for a total purchase price of P=21.8 billion, P=12.0 billion was settled immediately while the remaining payable to PCEV shall be settled equally over the next four years beginning June 30, 2018. The outstanding balance as at June 30, 2019 and December 31, 2018 amounted to P=4.9 billion and P=7.4 billion (at nominal amount), respectively. PCEV shall retain the voting rights over these shares until full payment of the total consideration.

16. Equity

On February 8, 2019, MPIC’s Board of Directors approved the proposed amendments in the Articles of Incorporation of the Parent Company to update its primary purpose consistent with the current business operations. Amendments were approved by the stockholders on May 27, 2019.

Details of authorized and issued capital stock follow:

June 30, 2019 December 31, 2018 (Unaudited) (Audited) No. of Shares Amount No. of Shares Amount (In Millions except for number of shares)

Authorized common shares - P=1.00 par value 38,500,000,000 P=38,500 38,500,000,000 P=38,500 Authorized preferred shares: Class A - =P0.01 par value 20,000,000,000 200 20,000,000,000 200 Class B - =P1.00 par value 1,350,000,000 1,350 1,350,000,000 1,350 Balance at end of the period 59,850,000,000 P=40,050 59,850,000,000 P=40,050

Issued and Outstanding - common shares: Balance at beginning of year 31,541,548,752 P=31,542 31,534,548,752 P=31,535 Exercise of stock option plan (see Note 22) 5,000,000 5 7,000,000 7 Issued - common shares 31,546,548,752 31,547 31,541,548,752 31,542 Less: Treasury Shares (see Note 22) (600,000) (1) (26,100,000) (26) Balance at end of the period 31,545,948,752 P=31,546 31,515,448,752 P=31,516

Treasury shares - common shares: Balance at beginning of year P=26,100,000 P=178 23,970,000 P=167 Share buy-back (see Note 22) 600,000 2 2,130,000 11 Share grant issuance (see Note 22) (26,100,000) (176) − − Balance at end of the period (see Note 22) 600,000 P=4 26,100,000 P=178

Issued - preferred shares - Class A: Balance at beginning of year 9,128,105,319 P=91 9,128,105,319 P=91 Issuance of shares − − − − Balance at end of the period 9,128,105,319 P=91 9,128,105,319 P=91

Total number of stockholders 1,302 − 1,303 −

In June 2019, MPIC’s eligible past and present directors and senior officers were granted MPIC shares totaling 26,100,000 common shares pursuant to MPIC’s LTIP (see Note 22).

The common shares issued to the MPIC’s eligible directors and senior officers came from MPIC’s treasury shares which were previously acquired through MPIC’s buy-back program pursuant to the LTIP. The transaction is not a sale of treasury shares to investors but a grant and transfer of MPIC common

shares sourced from treasury shares to the eligible directors and senior officers of the Company; hence, the change in the number of issued and outstanding shares.

Cash Dividends

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions) Final dividend in respect of the previous financial year declared during the following interim period: Common shareholder (=P0.076 and P=0.076 per share as final dividend for the calendar years 2018 and 2017, respectively) P=2,395.1 P=2,395.0 Class A preferred shareholders* 4.6 4.6 P=2,399.7 P=2,399.6 Interim dividend: Common shareholder (=P0.0345 per share in 2019 and 2018, respectively) 1,088.4 P=1,087.2 Class A preferred shareholders* 4.6 4.6 1,093.0 P=1,091.8 *MPHI is the sole holder of Class A preferred shares

On March 5, 2019, the BOD approved the declaration of the cash dividends of P=0.076 per common share in favor of the Company’s shareholders of record as of the record date at March 20, 2019 with payment date of April 3, 2019. On the same date, the BOD also approved the declaration of cash dividends amounting to a total of P=4.6 million in favor of MPHI as the sole holder of Class A Preferred shares.

On August 1, 2019, the BOD approved the declaration of the cash dividends of P=0.0345 per common share in favor of the MPIC’s shareholders of record as at August 19, 2019 with payment date of August 30, 2019. On the same date, the BOD approved the declaration of cash dividends amounting to P=4.6 million in favor of MPHI as the sole holder of Class A Preferred shares. The interim dividends on both common and Class A preferred shares were declared after end of reporting date and as such, are not recognized as liability as at June 30, 2019.

Non-controlling Interest (NCI)

Aside from the changes in NCI arising from transactions disclosed in Note 4 (business combinations and transactions with NCI), movements in the NCI for the six-month period ended June 30, 2019 included equity infusion of the other shareholders of LRMH and LRMC into the LRT-1 Project amounting to P=1,618 million.

Other comprehensive income reserve Other comprehensive income reserve consists of the following, net of applicable income taxes:

June 30, December 31, 2019 2018 (Unaudited) (Audited) (In Millions) Share in the OCI of equity method investees (see Note 8) P=2,775 P=2,650 Fair value changes on financial assets at FVOCI (see Note 25) 90 65 Actuarial losses (51) (24) Cumulative translation adjustment (954) (830) Total P=1,860 =P1,861

Refer to Note 17 for the movements and analysis of the other comprehensive income.

17. Other Comprehensive Income (Loss)

Six Months Ended Three Months Ended June 30 June 30 2019 2018 2019 2018 (Unaudited) (In Millions)

Items to be reclassified to profit or loss in subsequent periods: Share in OCI of equity method investees from (see Note 8): Exchange differences on translation of foreign operation P=131 P=529 (P=133) P=334 Net gain (loss) on change in fair value of debt instruments at FVOCI − (78) − (78) Net gain (loss) on change in fair value of debt and equity instruments at FVOCI 91 428 139 455 Exchange difference on translation of foreign operation (177) (139) (441) 118 Income tax 27 56 103 (22) P=72 P=796 (P=332) P=807 Items not to be reclassified to profit or loss in subsequent periods: Share in OCI of equity method investees from (see Note 8): Actuarial reserve (P=6) (P=718) (P=6) (P=718) Actuarial reserve (97) 3 (104) − Net gain (loss) on change in fair value of financial assets at FVOCI (22) − (21) − Income tax 32 − 34 − (P=93) (P=715) (P=97) (P=718) (P=21) P=81 (P=429) P=89

18. Costs of Sales and Services

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions)

Fuel costs (a) P=4,929 P=5,212 Personnel costs and employee benefits 2,902 2,640 Cost of inventories (b) 2,716 2,277 Amortization of service concession assets (see Note 9) 2,560 2,054 Depreciation and amortization (see Note 2) 2,107 1,674 Repairs and maintenance 1,138 1,219 Contracted services and professional fees 1,064 1,068 PNCC and BCDA fees 988 878 Utilities 953 921 Purchased power and transmission charges (a) 933 1,260 Provision for heavy maintenance 225 136 Insurance 180 176 Trucking costs 95 22 Operator’s fee 93 32 Rentals (see Note 2) 67 122 Others 654 503 P=21,604 P=20,194

a. Fuel costs relates to consumption of coal and other fuel related costs for the generation of electricity. Purchased power represents cost of replacement power from the Wholesale Electricity Spot Market (WESM). Transmission charges pertains to distribution and wheeling service billings related to resale of electricity to the contestable customers.

b. Includes cost of medical services, materials and supplies.

19. General and Administrative Expenses

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions) Personnel costs P=2,739 P=2,308 Taxes and licenses 917 498 Depreciation and amortization (see Note 2) 916 585 Outside services 754 628 Professional fees 536 406 Utilities 226 157 Entertainment, amusement and representation 210 110 Provision for doubtful accounts 204 137 Repairs and maintenance 199 129 Advertising and promotion 145 173 Transportation and travel 141 122 Administrative supplies 110 87 Public relation 91 82 Collection charges 87 111 Insurance 76 73 Rentals (see Note 2) 33 155 Miscellaneous 834 309 P=8,218 P=6,070

20. Interest Income, Interest Expense and Others

The following are the sources of the Company’s interest income:

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions) Cash and cash equivalents, short-term deposits and restricted cash P=1,119 P=526 Finance income from concession financial receivable (see Note 6) 36 − Others 2 2 P=1,157 P=528

The following are the sources of the Company’s interest expense:

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions) Long-term debt P=4,972 P=3,838 Accretion on financial liabilities 367 456 Accretion on service concession fees payable (see Note 14) 268 275 Amortization of debt issue costs 59 40 Accretion on lease liabilities (see Note 2) 48 − Others 36 10 P=5,750 P=4,619

“Others” recognized in the consolidated statements of comprehensive income consists of the following:

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions)

Advertising, marketing, and toll services P=209 159 Rental income 124 89 Foreign currency differential adjustments and foreign exchange gains - net (39) 102 Net gain (loss) on prepayment of loan (see Note 13): Penalties and other prepayment charges (32) (854) Derecognized unamortized debt issue cost (7) (186) Derecognized unamortized PFRS 3 fair value increment − 1,059 Indemnity claim (see Note 4) − 217 Dividend income − 66 Provisions (187) (209) Others 532 246 P=600 689

21. Earnings per Share

The calculation of earnings per share follows:

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions, except for Per Share amounts) Net income attributable to equity holders of the Parent Company P=8,108 P=8,941 Dividends on preference equity holders of the Parent Company (5) (5) Net income attributable to ordinary equity holders of the Parent Company (a) P=8,103 P=8,936

Six Months Ended June 30 2019 2018 (Unaudited) (In Millions, except for Per Share amounts)

Outstanding common shares at January 1 31,515 31,511 Effect of issuance of common shares during the period 7 2 Effect of share buy-back (1) − Weighted average number of common shares for basic earnings per share (b) 31,521 31,513 ESOP and effect of share award 2 33 Weighted average number of common shares adjusted for the effects of potential dilution (c) 31,523 31,546

Basic earnings per share (in centavos) (a/b) P=25.71 P=28.36

Diluted earnings per share (in centavos) (a/c) P=25.71 P=28.33

22. Share-based Payments

As at June 30, 2019, there are no outstanding and exercisable share options for the First, Second and Third Grants.

The following table illustrates the number of, exercise prices of, and movements in share options during the period for the Tranche B of the Fourth Grant:

Number Exercise of shares Price Outstanding at December 31, 2018 54,825,000 P=4.60 Exercised during the period 5,000,000 4.60 Expired during the period – – Outstanding at June 30, 2019 49,825,000 P=4.60 Exercisable at: December 31, 2018 54,825,000 P=4.60 June 30, 2019 49,825,000 4.60

Carrying value of MPIC’s ESOP included under “Equity reserves” in the equity section of the interim consolidated statement of financial position amounted to P=72 million as at June 30, 2019.

On October 9, 2018, the deadline for the exercise of stock options from the Fourth Grant, originally on October 14, 2018, was extended by the Company’s Compensation Committee to October 14, 2019.

Restricted Stock Unit Plan (RSUP) On July 14, 2016, the Compensation Committee of MPIC approved the RSUP as part of MPIC’s LTIP. The RSUP, which has a validity period of ten (10) years, replaced the Parent Company’s ESOP which will expire in 2019.

A cumulative total of 26.7 million MPIC common shares had been acquired to cover the total shares expected to be granted to the directors and key officers of the Company under MPIC’s LTIP program,

which included the RSUP. The cash portion of the LTIP was paid out in March 2019 while the shares in relation to the RSUP were issued to the grantees in June 2019 (see Note 16).

Total Share Award expense under the RSUP for the six-month periods ended June 30, 2019 and 2018 amounted to nil and P=33 million, respectively and included in “Personnel costs” under “General and administrative expenses” account in the interim consolidated statements of comprehensive income.

23. Contingencies

The information provided in this report must be read in conjunction with the 2018 audited consolidated financial statements of the Company.

Updates to the contingencies disclosed in the annual consolidated financial statements as at December 31, 2018 are provided below. The ultimate outcome of these matters cannot be presently determined.

Water

Rate Rebasing: 2013-2017

▪ 2013-2017 Rate Rebasing - Domestic Arbitration. Metropolitan Waterworks and Sewerage (MWSS) released Board of Trustees Resolution No. 2013-100-RO dated September 12, 2013 and Regulatory Office (RO) Resolution No. 13-010-CA dated September 10, 2013 on the rate rebasing adjustment for the rate rebasing period 2013 to 2017 (Fourth Rate Rebasing Period) reducing Maynilad’s 2012 average all-in basic water charge by 4.82% or P=1.46 per cubic meter (cu.m.) or P=0.29/cu.m. over the next five years.

On October 4, 2013, Maynilad filed its Dispute Notice before the Appeals Panel. This Dispute Notice is a referral to the Appeals Panel for Major Disputes of the dispute between Maynilad, on the one hand, and MWSS and the RO, on the other. The Dispute relates to the determination by the RO, in accordance with Section 9.4.2 of the Concession Agreement, of the Rebasing Adjustment as embodied in Resolution No. 13-010-CA.

On December 17, 2013, the RO released Resolution No. 13-011-CA regarding the implementation of a status quo for Maynilad’s Standard Rates and Foreign Currency Differential Adjustments (FCDA) for any and all its scheduled adjustments until such time that the Appeals Panel has issued its arbitral award.

On January 5, 2015, Maynilad officially received the Appeals Panel’s award dated December 29, 2014 upholding Maynilad’s alternative Rebasing Adjustment for the Fourth Rate Rebasing Period of 13.41% or its equivalent of P=4.06 per cu.m. (the “First Award”). This increase has effectively been reduced to P=3.06 per cu.m., following the integration of the P=1.00 Currency Exchange Rate Adjustment (CERA) into the basic water charge. To mitigate the impact of the tariff increase on its customers, Maynilad offered to stagger its implementation over a three-year period.

The First Award, being final and binding on the parties, Maynilad asked the MWSS to cause its Board of Trustees to approve the 2015 Tariffs Table so that the same can be published and implemented 15 days after its publication.

However, the MWSS and the RO have chosen, over Maynilad’s repeated objections, to defer the implementation of the First Award despite it being final and binding on the parties. In its letter dated February 9, 2015, the MWSS and RO, who received their copy of the First Award on January 7, 2015, informed Maynilad that they have decided to await the final outcome of their arbitration with the

other concessionaire, Manila Water Company, Inc. (“Manila Water”), before making any official pronouncements on the applicable resulting water rates for the two (2) concessionaires.

▪ 2013-2017 Rate Rebasing - International Arbitration. On February 20, 2015, Maynilad wrote the Philippine Government, through the Department of Finance (DOF), to call on the Undertaking Letters which the Republic of the Philippines (ROP) issued in favor of Maynilad on July 31, 1997 and March 17, 2010. On March 9, 2015, Maynilad again wrote the ROP, through the DOF, to reiterate its demand against the Undertaking Letters. The letters dated February 20 and March 9, 2015 are collectively referred to as the “Demand Letters”.

Maynilad demanded that it be paid, immediately and without further delay, the P=3.4 billion in revenue losses that it had sustained as a direct result of the MWSS’s and the RO’s refusal to implement its correct Rebasing Adjustment from January 1, 2013 (the commencement of the Fourth Rate Rebasing Period) to February 28, 2015.

On March 27, 2015, Maynilad served a Notice of Arbitration and Statement of Claim upon the ROP, through the DOF. Maynilad gave notice and demanded that the ROP’s failure or refusal to pay the amounts required under the Demand Letters be, pursuant to the terms of the Undertaking Letters, referred to arbitration before a three-member panel and conduct proceedings in Singapore in accordance with the 1976 United Nations Commission on International Trade Law (UNCITRAL) Arbitration Rules.

On April 21, 2015, the MWSS Board of Trustees, in its Resolution No. 2015-004-CA dated March 25, 2015 approved to partially implement the First Award of a tariff adjustment of P=0.64/ cu.m. which, net of the P=1.00 CERA, actually translates to a tariff adjustment of negative P=0.36/cu.m. as opposed to the First Award of P=3.06/cu.m. tariff adjustment, net of CERA. For being contrary to the First Award as well as the provisions of the Concession Agreement, Maynilad did not implement this tariff adjustment.

On May 14, 2015, the MWSS Board of Trustees in its Resolution No. 2015-060-RO approved a 7.52% increase in the prevailing average basic charge of P=31.25/cu.m. or an upward adjustment of P=2.35/cu.m. as CPI adjustment. With the discontinuance of CERA, the net adjustment in average water charge is 4.32% or P=1.35/cu.m.

In the fourth quarter of 2015, the Arbitral Tribunal was constituted. On February 17, 2016, Maynilad again wrote the ROP, through the DOF, to reiterate its demand against the Undertaking Letters and to update its claim. Evidentiary hearings were completed in December 2016.

On July 24, 2017, the Arbitral Tribunal unanimously upheld the validity of Maynilad’s claim against the Undertaking Letter issued by the ROP, through the DOF, and ordered the ROP to compensate Maynilad for the delayed implementation of its relevant tariffs for the Fourth Rate Rebasing Period (the “Second Award”). The Tribunal ordered the ROP to reimburse Maynilad the amount of P=3.4 billion for losses from March 11, 2015 to August 31, 2016, without prejudice to any rights that Maynilad may have to seek recourse against MWSS for losses incurred from January 1, 2013 to March 10, 2015. Further, the Tribunal ruled that Maynilad is entitled to recover from the Republic its losses from September 1, 2016 onwards. In case a disagreement on the amount of such losses arises, Maynilad may revert to the Tribunal for further determination.

Subsequently, Maynilad agreed with the ROP’s corrected computation of Maynilad’s revenue losses from March 11, 2015 to August 31, 2016 in the amount of P=3.18 billion (with cost of money as of August 31, 2016). As at December 31, 2017 and 2016, Maynilad’s accumulated revenue losses due to the delayed implementation of the First Award are estimated at P=11.4 billion and P=8.2 billion, respectively.

Starting April 22, 2017, adjusted water rates which included increase in the FCDA, as well as an adjustment to cover the 1.9% CPI were implemented.

On February 13, 2018, Maynilad received an email from the ROP’s Singapore counsel advising that the ROP had filed an application with the High Court of Singapore to set aside the Second Award dated July 24, 2017 (the “Setting Aside Application”).

The ROP also filed an interlocutory application for sealing which required, among others, that the proceedings be heard in-camera or otherwise than in open court, that there to be no publication of the identities of the parties to the proceedings or of any matter that would reasonably enable the public to deduce the identities of the parties

On September 4, 2018, immediately following the conclusion of the hearings before the Singapore High Court, the presiding Justice dismissed the Republic’s Setting Aside Application and awarded Singaporean Dollar, S$40,000.00 in favor of Maynilad by way of costs. The Republic did not appeal the decision to the Singapore Court of Appeal within the prescribed 30-day period and so, the dismissal of the Setting Aside Application became final on October 4, 2018.

As at December 31, 2018, Maynilad has an outstanding claim against the Republic of the Philippines (ROP), through the Department of Finance (DOF), in relation to the decision of the Arbitral Tribunal to compensate Maynilad for the delayed implementation of its relevant tariffs for the rebasing period 2013 to 2017 in the amount of P=3.18 billion and cost of litigation amounting to S$40,000.

Total claim from the DOF at P=6.7 billion comprising of the P=3.18 billion fixed award and the remaining as variable award still to be resolved.

On February 11, 2019, Maynilad wrote the DOF about the amount of its updated claim for compensation by the ROP, with a request that the DOF order the MWSS and the MWSS-Regulatory Office to meet with Maynilad to agree and discuss a proposed settlement of the updated claim.

As at August 1, 2019, the DOF has yet to respond to Maynilad’s letter.

▪ 2013-2017 Rate Rebasing - Domestic Court Actions. In a decision dated August 30, 2017, the Regional Trial Court, Branch 93 of Quezon City (“RTC”) granted the Petition for Confirmation and Enforcement of the First Award which petitioner, Maynilad, filed in July 2015 (the “RTC Decision”) following the refusal of MWSS and the MWSS Regulatory Office to implement the First Award. As stated above, the First Award upheld the 13.41% Rebasing Adjustment that Maynilad proposed for the Fourth Rate Rebasing Period.

The MWSS filed a Motion for Reconsideration of the RTC Decision which the RTC denied in an Order dated November 23, 2017 (“RTC Order”). The MWSS filed a Petition for Review with the Court of Appeals (“CA”) on December 27, 2017 asking for a reversal of the RTC Decision and Order. In its Comment to the Petition for Review, Maynilad prayed for the Petition for Review’s dismissal and for the immediate enforcement of the RTC Decision and the First Award.

As a consequence of the issuance of the RTC Decision, Maynilad filed, on October 18, 2017, a Motion for Execution of the First Award (“MotEx”). However, the RTC, on February 6, 2018, denied the MotEx.

In its decision dated May 30, 2018, the CA denied MWSS’s Petition for Review, and affirmed the RTC Decision and Order confirming the Final Award (“CA Decision”).

On June 14, 2018, Maynilad filed with the CA a Motion for Clarification (on the CA Decision) for the CA to confirm that the RTC and CA Decisions are immediately executory, and that MWSS should therefore implement the Final Award without any further delay (“Motion for Clarification”).

In the meantime, on July 11, 2018, Maynilad received MWSS’s Petition for Review on Certiorari with the SC (under Rule 19.37 of the Special Rules of Court on Alternative Dispute Resolution) with Manifestation dated July 4, 2018 (the “Petition”). MWSS prayed that the SC (i) reverse and set aside the CA Decision, and (ii) grant MWSS’s counter-petition and declare MWSS as legally released or excused from implementing or enforcing the Final Award or, in the alternative, declare the Final Award as unenforceable.

On July 30, 2018, the CA issued a Resolution noting, without action, the Motion for Clarification that Maynilad filed “in view of the pending Petition for Review” which the MWSS filed with the SC.

On November 19, 2018, the SC’s Second Division ordered the consolidation of the Petition with the (five) consolidated petitions pending before the SC En Banc (“Consolidated Cases”), which seek to, among other things, have the Concession Agreement nullified. On January 11, 2019, Maynilad filed a Motion to De-Consolidate the Petition from the Consolidated Cases.

On April 5, 2019, Maynilad filed a Reiterative Motion to De-Consolidate and a Reiterative Motion to Set the Consolidated Cases for Oral Arguments.

As at August 1, 2019, the SC has yet to decide on MWSS’s Petition for Review on Certiorari and Maynilad’s Motion to De-consolidate the Petition from the Consolidated Cases.

Rate Rebasing: 2018-2022. On September 13, 2018, the MWSS issued Resolution No. 2018-136-RO adopting RO Resolution No. 2018-09-CA dated September 7, 2018 granting Maynilad a partial rate adjustment of P=5.73/cu.m. for the Fifth Rate Rebasing Period (2018 to 2022), to be implemented on an uneven staggered basis of (i) P=0.90/cu.m. effective October 1, 2018; (ii) P=1.95/cu.m. effective January 1, 2020, (iii) P=1.95/cu.m. effective January 1, 2021, and (iv) P=0.93/cu.m. effective January 1, 2022. The approved rate adjustment still does not include the corporate income tax (“CIT”) component to which Maynilad is entitled by virtue of the First Award. In their Resolutions, the MWSS and RO stated that the inclusion of the CIT in Maynilad’s tariff is subject to the SC’s resolution of MWSS’s Petition for Review.

To preserve its right to the CIT which has already been adjudged in its favor in the First Award, and pursuant to Article 12 of the Concession Agreement, Maynilad, on October 12, 2018, filed a Dispute Notice, signaling the start of another arbitration.

As at August 1, 2019, Maynilad cannot determine with reasonable certainty the probable outcome of the discussions with the Government with respect to the implementation of the Second Award. As such, the consolidated financial statements do not include any adjustments that might result from arbitration proceeding.

Disputes with MWSS. In prior years, Maynilad has been contesting certain charges billed by MWSS relating to: (a) the basis of the computation of interest; (b) MWSS cost of borrowings; and (c) additional penalties. Consequently, Maynilad has not provided for these additional charges. These disputed charges were effectively reflected and recognized by Maynilad as Tranche B Concession Fees amounting to US$30.1 million by virtue of the Debt and Capital Restructuring Agreement (DCRA) entered into in 2005. Maynilad also paid US$6.8 million in 2005 as an additional amount of Tranche B Concession Fees determined by the Receiver. As at December 31, 2015 and 2014, Maynilad had recognized Tranche B Concession Fees of US$36.9 million.

Maynilad reconciled its liability to MWSS with the confirmation and billings of MWSS. The difference between the amount confirmed by MWSS and the amount recognized by the Maynilad amounted to P=5.1 billion as at December 31, 2018 and 2017. The difference mainly pertains to disputed claims of MWSS consisting of additional Tranche B Concession Fees, borrowing cost and interest penalty under the Concession Agreement (prior to the DCRA). Maynilad’s position on these charges is consistent with the Receiver’s recommendation which was upheld by the Rehabilitation Court.

Following the issuance of the Rehabilitation Court’s Order on December 19, 2007 disallowing the MWSS’ disputed claims and the termination of Maynilad’s rehabilitation proceedings, Maynilad and MWSS sought to resolve the matter in accordance with the dispute resolution requirements of the Transitional and Clarificatory Agreement (TCA).

Prior to the DCRA, Maynilad has accrued interest on its payable to MWSS based on the terms of the Concession Agreement, which was disputed by MWSS before the Rehabilitation Court. These already amounted to P=985 million as at December 31, 2011 and have been charged to interest expense in prior years. Maynilad maintains that the accrued interest on its payable to MWSS has been adequately replaced by the Tranche B Concession Fees discussed above. Maynilad’s position is consistent with the Receiver’s recommendation which was upheld by the Rehabilitation Court. With the prescription of the TCA and in light of Maynilad’s outstanding offer of US$14 million to fully settle the claim of MWSS, Maynilad reversed the amount of accrued interest in excess of the US$14.0 million settlement offer. The remaining balance of P=607 million as at June 30, 2019 and December 31, 2018, which pertains to the disputed interest penalty under the Concession Agreement prior to DCRA, has remained in the books pending resolution of the remaining disputed claims of MWSS.

On June 28, 2019, Maynilad received a letter MWSS assessing Maynilad a penalty in the amount of P= 2,500/connection relating to the severely affected customers in Barangay Captain Albert Aguilar, Las Piñas City. Maynilad is currently reviewing the aforementioned letter and is expected to discuss and clarify the same with the MWSS the soonest possible time.

Real Property Taxes Assessment. On October 13, 2005, Maynilad and Manila Water (the Concessionaires) were jointly assessed by the Municipality of Norzagaray, Bulacan for real property taxes on certain common purpose facilities purportedly due from 1998 to 2005 amounting to P=357 million. It is the position of the Concessionaires that these properties are owned by the ROP and therefore, exempt from taxation. The supposed joint liability of the Concessionaires for real property tax, including interests, as at June 30, 2019 and December 31, 2018 amounted to P=1.0 billion.

After the Local Board of Assessment Appeals (LBAA) ruled in favor of the Municipality of Norzagaray, Bulacan, the Concessionaires elevated the ruling of the LBAA to the Central Board of Assessment Appeals (CBAA) by filing separate appeals.

On May 23, 2018, Court of Tax Appeals’ (CTA) Notice of Decision dated May 11, 2018 was received, denying Petitioner’s Petition for Certiorari (for an interlocutory order) (“CTA Decision”). Thus, the CTA ordered that the case be remanded to CBAA and for the proceedings to continue.

On September 3, 2018, Maynilad received the CTA’s Resolution dated June 4, 2018 noting the compliance of Maynilad and MWSS informing the CTA of their respective dates of receipt of the CTA Decision.

MWSS JBIC Loan (Concession Fee). The Loan Agreement between the Government and JBIC (formerly OECF) was signed on February 9, 1990. The proceeds of the Loan were used to fund the implementation of the Angat Water Supply Optimization Project (AWSOP), with MWSS as the implementing agency. Prior to privatization, actual drawdowns from the Loan were recorded by MWSS as equity from the Government while the draws during privatization were assumed and paid by the Concessionaires. The sharing is 61.83% and 38.17% for Maynilad and Manila Water, respectively.

On June 6, 2019, Maynilad received a letter from the MWSS requesting to pay P=821 million (“Invoiced Amount”). Accordingly, Maynilad learned that the drawdowns made on the JBIC Loan prior to the privatization of MWSS’s operations are considered loans and not equity as formerly advised. MWSS’s request for the Concessionaires to pay was triggered by an instruction from the DOF to the Bureau of

Treasury, to have the Concessionaires reimburse the Government for the latter’s payments on the JBIC Loan.

Maynilad replied to MWSS on July 1, 2019 and clarified the Invoiced Amount. Maynilad’s position is to pay only P=677 million because (ii) Maynilad remitted to the MWSS P=113 million representing Guarantee Fees based on MWSS’s invoice. However, the JBIC Loan makes no reference to and does not include the payment of Guarantee Fees, the borrower being the Government itself. This being the case, the Guarantee Fees that Maynilad remitted to MWSS must be set off or applied against the Invoiced Amount; and (2) while Maynilad always pays the foreign exchange shortfall in the debt servicing of MWSS-contracted loans, there is no need for Maynilad to pay the Forex Shortfall of P=31 million in the JBIC Loan catch-up payment. The difference in the foreign exchange rate (from Japanese Yen to Philippine Peso) has already been captured and reflected in the total peso amount billed by the Bureau of Treasury.

Further, Maynilad also requested to pay P=677 million in eight monthly instalments of P=84.6 million to commence in July 2019 until February 2020, to coincide with the full payment/ maturity of the JBIC Loan.

As communicated by MWSS-Finance on July 17, 2019, Maynilad can pay based on the requested amount and schedule while waiting for the response of the Bureau of Treasury concerning the guarantee fee and shortfall. Maynilad paid the first installment on July 30, 2019.

Compliance with Clean Water Act. Maynilad is subject to laws and regulations relating to the protection of human health and the environment. Water extraction, water potability, and environmental compliance relating to water and wastewater treatment and disposal in the Philippines are subject to regulation and supervision by certain Government agencies, such as the National Water Resources Board, the Department of Health and the Department of Environment and Natural Resources (DENR).

Republic Act No. 9275, otherwise known as the ‘‘Philippine Clean Water Act of 2004’’ (CWA), took effect on May 6, 2004 and was enacted to address the abatement and control of pollution from land-based sources. The CWA directs the establishment of a National Sewerage and Septage Management Program within 12 months from the effectivity of the CWA. In support thereof, Section 8 of the CWA directs the water supply and sewerage concessionaires in Metro Manila and other highly urbanized cities to ‘‘connect the existing sewerage line found in all subdivisions, condominiums, commercial centers, hotels, sports and recreational facilities, hospitals, market places, public buildings, industrial complex and other similar establishments including households to available sewerage systems’’ within five years from effectivity of the CWA. Moreover, though the CWA itself does not require mandatory connection of households and businesses to an available sewerage line, the Implementing Rules and Regulations of the CWA, citing provisions of Presidential Decree No. 198, allow the imposition of punitive measures against a household or business that refuses to connect to a sewerage line.

The CWA also establishes a wastewater charge system in all management areas through the collection of wastewater charges and fees. Envisioned as an inducement for polluters to modify their production or management processes, or to invest in pollution control devices, a wastewater discharge fee is imposed on all sources of wastewater discharges, including effluent from wastewater treatment plants. Sewage Treatment Plant (STP) operators are required to pay wastewater charges for effluents from their treatment facilities, but may claim contributions or sewerage fees from residences, establishments or industries that use the facilities. In addition, the CWA requires owners or operators of facilities that discharge regulated effluents to secure a permit to discharge from the DENR. A failure to meet the standards set out in the CWA may result in the application of both financial penalties and criminal sanctions.

Maynilad has sewerage and sanitation plans and programs to ensure full compliance with the requirements of the CWA. For 2019 alone, Maynilad is investing P=16.8 billion in capital expenditure (Capex) projects for the continued enhancement and expansion of its water and wastewater services. About P11.4 billion— or almost 70% of Maynilad’s Capex budget for 2019—will be spent on wastewater management projects, to comply with the new and more stringent effluent standards of the DENR, and to maintain network

reliability. This amount will be used for the construction of a new sewage treatment plant (STP) in Central Manila, installation of about 30 kilometers of sewer lines in Las Piñas City, upgrade of existing STPs to include nutrient-removal processes, lot acquisitions for new STPs and pump stations, installation of new sewer service connections, and maintenance of the existing sewer network.

Since 1997, Maynilad has already spent over P=41 billion in wastewater investments to expand sewerage coverage in the West Zone. This investment went to the construction of new treatment facilities, acquisition of new vacuum trucks for septic tank cleaning, and installation of new sewer lines, among others. Currently, Maynilad operates 22 wastewater facilities, with a combined treatment capacity of an estimated 664,000 cubic meters of wastewater per day.

Before Maynilad was re-privatized in 2007, there were only two operating STPs, and sewerage coverage in the West Zone was only at 6% of the then 523,930 water-served population. The company has since built new STPs, expanding coverage to 20.32% of the now 1,959,572 water-served population as of June 2019. Based on the approved business plan, Maynilad will invest P186.5 billion more until 2037 to attain full sewerage coverage.

Maynilad has a roadmap toward the attainment of 100% coverage by the end of the concession period, and it is working with its government partners to facilitate completion of sewerage projects despite right- of-way conflicts, permit issuance delays, and lot acquisition issues.

Currently under construction are additional Maynilad STPs in Valenzuela, Cavite City, and Tunasan and Cupang in Muntinlupa. Once completed in 2020, Maynilad will be able to increase sewerage coverage in the West Zone to 26%.

Meanwhile, areas that are not connected to Maynilad’s sewer network are being provided septic tank cleaning services.

Implementation of these wastewater projects has to be done in phases to manage the impact not only on traffic owing to pipe diggings, but also on the water tariff as consumers will ultimately have to pay for the services.

Others. Maynilad is a party to various civil and labor cases relating to breach of contracts with damages, illegal dismissal of employees, and nonpayment of backwages, benefits and performance bonus, among others. Other disclosures required by PAS 37 were not provided as it may prejudice Maynilad’s position in on–going claims, litigations and assessments.

Toll Operations

Toll Rate Adjustments - NLEX Corp. NLEX Corp, as petitioner-applicant, filed the following petitions for the approval of Periodic Toll Rate Adjustment (PTRA) with the Toll Regulatory Board (TRB) praying for the adjustments of the toll rates:

▪ In June 2012, for the NLEX PTRA effective January 1, 2013 (2012 Petition); ▪ In September 2014, for NLEX PTRA effective January 1, 2015 (2014 Petition); and ▪ In September 2016, for the PTRA for the NLEX and SCTEX effective January 1, 2017 (2016 Petition) ▪ In September 2018, for the PTRA for the NLEX effective January 1, 2019 (2018 Petition) ▪ In January 2019, for the PTRA covering the adjustment in the toll rate of the NLEX Open System effective February 15, 2019 upon completion of the NLEX Segments 9 and 10 (Segment 10 Add-on Toll Rate Petition)

Under the SCTEX Toll Operations Agreement, toll rate adjustment petitions shall be filed with the TRB yearly. Prior to NLEX Corp’s take-over of the SCTEX operations, the Bases Conversion and Development Authority (BCDA) filed petitions for toll rate adjustment that should have been effective in

2012, 2013, 2014, and 2016. Thereafter, in September 2016, NLEX Corp, as petitioner-applicant, filed a petition for toll rate adjustment effective January 1, 2017.

NLEX 2012 and 2014 Petitions and Segment 10 Add-on Toll Rate Petition. In August 2015, NLEX Corp wrote the ROP, acting by and through the TRB, a Final Demand for Compensation based on overdue toll rate adjustments that should have been effective January 1, 2013 and January 1, 2015 (Final Demand). However, the ROP/TRB failed to heed on the Final Demand and as such, NLEX Corp sent a Notice of Dispute to the ROP/TRB dated September 11, 2015 invoking Supplemental Toll Operation Agreement (STOA) Clause 19 (Settlement of Disputes). STOA Clause 19.1 states that the parties shall endeavor to amicably settle the dispute within sixty (60) calendar days. The TRB sent several letters to NLEX Corp requesting the extension of the amicable settlement period. However, NLEX Corp has not received any feasible settlement offer from the ROP/TRB.

Accordingly, on April 4, 2016, NLEX Corp was compelled to issue a Notice of Arbitration and Statement of Claim (Notice of Arbitration) to the ROP, acting by and through the TRB, consistent with STOA Clause 19 in order to preserve its rights under the STOA.

In May 2016, TRB through Office of the Solicitor General (OSG) nominated their arbitrator for NLEX and their preferred venue for arbitration. In a letter dated June 1, 2016, NLEX Corp proposed that the arbitration be held in Singapore which is the seat of arbitration that the ROP has chosen for its various Public-Private Partnership (PPP) projects, and proposed the Singapore International Arbitration Center as the Appointing Authority. In a letter dated July 13, 2016, the ROP, acting by and through the OSG, stated that it accepts Singapore as the venue of arbitration, but reiterated its previous proposal that a Philippine- based institution/person be the Appointing Authority.

On June 27, 2017, the initial case management conference was held in Singapore. On December 11, 2017, NLEX Corp submitted its Updated Statement of Claim. On December 27, 2017, the ROP/TRB filed request for bifurcation, which was accordingly granted, i.e., the proceedings were divided into two parts: first, the issue on whether or not the tribunal has jurisdiction over NLEX Corp’s claim, and second, the main merits of the claim as set forth in the Updated Statement of Claim. In January 2018, the ROP/TRB and NLEX Corp. have submitted their respective statements on the matter of jurisdiction. In July 2018, the Arbitral Tribunal issued Procedural Order No. 2 whereby the Arbitral Tribunal declined to dismiss the claim on the basis of the ROP/TRB’s objections to jurisdiction and ordered the ROP/TRB to submit its Statement of Defense. In September 2018, the ROP/TRB submitted its Statement of Defense. In October to November 2018, NLEX Corp and the ROP/TRB submitted their respective Requests for Production of Documents, Objections to the Request for Production of Documents, and Reply to the Objections to the Request for Production of Documents. In December 2018 and January 2019, the Arbitral Tribunal resolved NLEX Corp’s and the ROP/TRB’s Request for Production of Documents.

On February 15, 2019, NLEX Corp received a Consolidated Resolution dated October 2018 issued by the TRB which approved and allowed NLEX Corp to implement the toll rate adjustment indicated therein on a staggered basis. On the same date, the TRB issued an Order finding NLEX Corp’s subject Petition to be sufficient in form and directed NLEX Corp to publish in full the contents of the Petition in a newspaper of general circulation, in accordance with applicable rules and laws, with a notice that all interested tollway users may file a petition for review of the proposed adjusted toll rates. In full compliance with the Order and TRB Rules, NLEX Corp caused the publication of the Petition in a newspaper of general circulation, once a week for three consecutive weeks in February and March 2019. On March 5, 2019, the TRB issued a letter to NLEX Corp stating that the TRB (a) conditionally approved the subject Petition and granted NLEX Corp provisional authority to collect the add-on tolls for the Open System of the NLEX and (b) allowing the implementation of the new authorized toll price for the NLEX (Integrated Toll Fee Matrix) which is attached to the said letter. The Integrated Toll Fee Matrix includes both: (a) the first tranche of the approved adjusted toll rates in the 2012 and 2014 Petitions stated in the TRB’s Consolidated Resolution dated October 2018; and (b) the provisionally approved add-on toll rates in the Segment 10 Add-on Toll Rate Petition. In the same letter, the TRB instructed NLEX Corp to: (a) cause the publication of the Integrated Toll Fee Matrix in accordance with the provisions of the TRB Rules and (b) post the

required bond amounting to P=530.0 million or the equivalent of one (1) year collection of add-on rate. In full and complete compliance with the instructions of the TRB, NLEX Corp. (a) submitted the original of the Surety Bond issued by the Prudential Guarantee and Insurance Inc. in favor of the Republic of the Philippines, acting by and through the TRB, and (b) caused the publication of the Integrated Toll Fee Matrix in a newspaper of general circulation once a week for three (3) consecutive weeks in March 2019. Start of collection is expected before end of the March 2019.

In February 2019, the ROP/TRB informed the Arbitral Tribunal that it has released a Consolidated Resolution on NLEX Corp’s pending 2012 and 2014 petitions for toll rate adjustment. In the Consolidated Resolution, the TRB approved and allowed the implementation of toll rates on a staggered basis in 2018, 2020, 2021, and 2023. In February to March 2019, NLEX Corp. filed its Reply, Supplemental Reply, and Addendum to the Supplemental Reply while the ROP/TRB filed its Rejoinder.

On March 6, 2019, NLEX Corp received the TRB’s order to publish the adjusted toll rates for the NLEX System (the “Order”). The Order contains the adjusted authorized final period adjustments for the whole NLEX system due in 2013 (2012 Petition) and 2015 (2014 Petition) constituting 50% of the approved adjustment (with the remaining adjustments to be implemented in subsequent years), and the provisional add-on toll rate for the NLEX open system due to the opening of the NLEX Harbor Link Project. The TRB issued the Notice to Collect on March 20, 2019. NLEX Corp implemented the toll rate adjustments effective March 21, 2019.

As of June 30, 2019, total amount of past due revenues for TRB’s inaction on lawful toll rate adjustments for NLEX is approximately at P=9.8 billion (net of both VAT and Government share). The estimated amount of past due revenues for NLEX covers the remaining portion of the 2012 and 2014 Petitions and the 2016 and 2018 Petitions.

NLEX Corp has yet to receive regulatory approval for the 2016 Petition and 2018 Petition.

SCTEX 2011 Petition. On March 29, 2019, the TRB granted the toll increase petition for the SCTEX (2011 Petition). The new toll increase was effective starting June 14, 2019.

As of June 30, 2019, total amount of past due revenues for TRB’s inaction on lawful toll rate adjustments for the SCTEX is approximately at P=1.8 billion (net of both VAT and Government share). The estimated amount of past due revenues for SCTEX covers the remaining portion of the 2012, 2013, 2015, and 2016 SCTEX toll rate petitions.

Toll Rate Adjustments - CIC. CIC filed the following petitions for the approval of the PTRA with the TRB:

▪ On the R-1 Expressway: o In September 2011, for the PTRA effective January 1, 2012 (2011 Petition); o In September 2014, for the PTRA with an Application for Provisional Relief with toll rates effective January 1, 2015 (2014 Petition); and o In November 2016, for the PTRA effective January 1, 2017 (2016 Petition).

▪ On R-1 Extension: o In September 2013, for the PTRA effective January 1, 2014 (2013 Petition); o In September 2016, for the PTRA effective January 1, 2017 (2016 Petition).

In August 2015, for failure to implement toll rate adjustments, CIC filed notices with the TRB demanding settlement of the past due tariff increases amounting to P=719.0 million based on the overdue toll rate adjustments as at July 31, 2015 for the CAVITEX.

In April 2016, CIC issued a Notice of Arbitration and Statement of Claim to the ROP, acting by and through the TRB, consistent with the dispute resolution procedures under its Toll Operation Agreement (TOA) to obtain compensation in the amount of P=877 million (as of March 27, 2016) for TRB’s inaction

on lawful toll rate adjustments which were due January 1, 2012, January 1, 2014, and January 1, 2015. Singapore shall be the venue of arbitration. In February 2017, CIC received notice from the Permanent Court of Arbitration that the authority who will appoint the chairperson of the Arbitration Panel has been designated.

On June 24 to 27, 2019 the evidentiary hearings for the arbitration case was held before the Permanent Court of Arbitration in Singapore.

As at August 1, 2019, CIC has yet to receive regulatory approval for all the petitions filed on the PTRA. CIC, however, is in constructive discussions with Government to resolve this.

As at June 30, 2019 and December 31, 2018, total amount of compensation for TRB’s inaction on lawful toll rate adjustments which were due since January 1, 2012 for both R1 and R1-Extension is approximately at P=2.3 billion and P=1.9 billion (VAT-exclusive and net of Philippine Reclamation Authority’s share), respectively.

Value-Added Tax (VAT). NLEX Corp received the following VAT assessments from the BIR:

▪ The BIR issued a Formal Letter of Demand on March 16, 2009 requesting NLEX Corp to pay deficiency VAT plus penalties amounting to P=1,011 million for taxable year 2006.

▪ A Final Assessment Notice was received from the BIR dated November 15, 2009 assessing NLEX Corp deficiency VAT plus penalties amounting to P=558 million for taxable year 2007.

▪ The BIR issued a Notice of Informal Conference dated October 5, 2009 assessing NLEX Corp for deficiency VAT plus penalties amounting to P=471 million for taxable year 2008. On May 21, 2010, the BIR issued another notice increasing the deficiency VAT for taxable year 2008 to P=1,209 million (including penalties). On June 11, 2010, NLEX Corp. filed its Position Paper with the BIR reiterating its claim that it is not subject to VAT on toll fees.

▪ The BIR issued a Notice of Informal Conference on May 21, 2010 assessing NLEX Corp deficiency VAT plus penalties amounting to P=1,027 million for taxable year 2009. On June 11, 2010, NLEX Corp. filed its Position Paper with the BIR reiterating its claim that it is not subject to VAT on toll fees.

On April 3, 2014, the BIR accepted and approved the NLEX Corp’s application for abatement and issued a Certificate of Approval for the cancellation of the basic output tax, interest and compromise penalty amounting to P=1,011 million and P=585 million for taxable years 2006 and 2007, respectively.

Notwithstanding the foregoing, management believes, in consultation with its legal counsel, that in any event, the STOA among NLEX Corp, ROP, acting by and through the TRB, and Philippine National Construction Corporation (PNCC), provides NLEX Corp with legal recourse in order to protect its lawful interests in case there is a change in existing laws, which makes the performance by NLEX Corp of its obligations materially more expensive.

Real Property Tax (RPT). In July 2008 and April 2013, NLEX Corp filed Petitions for Review under Section 226 of the Local Government Code with the Local Board of Assessment Appeals (LBAA) of the Province of Bulacan seeking to declare as null and void tax declarations issued by the Provincial Assessor of the Province of Bulacan. The said tax declarations were issued in the name of NLEX Corp as owner/administrator/beneficial user of the NLEX and categorized the NLEX as a commercial property subject to RPT. The LBAA has yet to conduct an ocular inspection to determine whether the properties, subject of the tax declarations, form part of the NLEX, which NLEX Corp. argues is property of the public dominion and exempt from RPT.

In September 2013, NLEX Corp. received notices of realty tax delinquencies for the years 2006 to 2012 and 2013 issued by the Provincial Treasurer of Bulacan stating that if NLEX Corp fails to pay or remit the alleged delinquent taxes, the remedies provided for under the law for the collection of delinquent taxes shall be applied to enforce collection. In September 27, 2013, the Bureau of Local Government Finance of the Department of Finance (DOF-BLGF) wrote a letter to the Province of Bulacan advising it to hold in abeyance any further course of action pertaining to the alleged real property tax delinquency. In October 2013, the Provincial Treasurer of Bulacan has respected the directive from the DOF-BLGF to hold the enforcement of any collection remedies in abeyance. In January 2017, the Provincial Treasurer of Bulacan issued a notice of realty tax delinquencies for the years 2006 to 2017 stating that it could apply the remedies provided under the law for the collection of delinquent taxes.

The outcome of the claims on real property tax cannot be presently determined. The management of NLEX Corp believes that these claims will not have a significant impact on the Company’s consolidated financial statements and believes that the STOA also provides NLEX Corp with legal recourse in order to protect its lawful interests in case there is a change in existing laws which makes the performance by NLEX Corp of its obligations materially more expensive.

Others. The companies in the toll operations segment are also parties to other cases and claims arising from the ordinary course of business filed by third parties, which are either pending decisions by the courts or are subject to settlement agreements. The outcome of these claims cannot be presently determined. In the opinion of management and its legal counsel, the eventual liability from these lawsuits or claims, if any, will not have a material adverse effect on the Company’s consolidated financial statements.

Power

Competitive Selection Process (CSP) on all PSAs. On November 15, 2016, a Petition for Certiorari and Prohibition was filed by Alyansa Para sa Bagong Pilipinas, Inc. which asked the Supreme Court to disapprove all the PSAs entered into by MERALCO for failure to comply with the requirements of a competitive selection process (CSP). PEDC and GLEDC were impleaded in this case, together with the other generation companies with PSAs with MERALCO. On May 17, 2019, the Supreme Court issued a decision on the Petition which required all PSAs entered into after June 30, 2015 to undergo a CSP (the SC Decision). PEDC, which has been implementing its PSA and supplying power to MERALCO since January 2017, filed its Motion for Reconsideration (MR) to the SC Decision on June 4, 2019. GLEDC, on the other hand, being a greenfield project deemed that simply participating in the Meralco CSP or finding a viable market solution would be a quicker alternative than waiting for the SC to resolve a motion for reconsideration which would take years to resolve and, in the meantime, GLEDC would be prejudiced.

Rail

Claims with Grantors. On various dates in 2015 through 2019, LRMC submitted letters to the DOTr representing its claim for costs incurred and estimated in relation to Existing System Requirement (ESR) and Light Rail Vehicle (LRV) shortfall on the premise of the Grantors’ obligation in relation to the condition of the Existing System as at the Effective Date (September 12, 2015) fare deficit, Structural Defect Restoration (SDR) costs, and contractor and other additional costs incurred less Key Performance Indicator (KPI) charges. As at August 1, 2019, LRMC has submitted 16 letters (first to sixteenth Balancing Payments) to the DOTr representing its claims. Total claims up to the sixteenth Balancing Payment amounted to P=6,195 million.

All claims are still undergoing discussion as at August 1, 2019.

Others

Donor’s Tax. NOHI received on January 14, 2011 a Final Assessment Notice (FAN) demanding the payment of approximately P=170.2 million as deficiency donor’s tax (comprising of the basic tax due and 25% surcharge) on the excess of the book value over the selling price of several shares of stock in Bonifacio Land Corporation (BLC) which NOHI sold to a third party. The assessment was based on the finding of the Bureau of Internal Revenue–Large Taxpayer Service (BIR–LTS) that the transaction is subject to donor’s tax as a “deemed gift” transaction under Section 100 of the 1997 National Internal Revenue Tax Code (the Tax Code). NOHI filed its formal protest to the FAN raising several factual and legal arguments. The case became final as per Supreme Court's Resolution dated July 26, 2017 denying NOHI’s Motion for Reconsideration. In 2018, NOHI partially settled amount due to BIR of P=397 million. As at August 1, 2019, NOHI is awaiting BIR’s decision on NOHI’s request for abatement of delinquency interest given that NOHI is no longer operating and already undergoing liquidation.

24. Contracts, Agreements and Commitments

The information provided in this report must be read in conjunction with the 2018 audited consolidated financial statements of the Company.

Updates to certain contracts and commitments disclosed in the annual consolidated financial statements as at December 31, 2018 and new contracts entered during the first half of 2019 are provided below:

MPIC

Issuance of Exchangeable Bond to GIC Private Limited (GIC). On July 2, 2014, GIC, through Arran Investment Private Limited, invested P=3.7 billion for a 14.4% stake in MPHHI and paid P=6.5 billion as consideration for an Exchangeable Bond which can be exchanged into a 25.5% stake in MPHHI in the future. The Exchangeable Bond was accounted for as an equity instrument with the interest accruing on the Exchangeable Bond recorded at its present value.

Interest payable as at June 30, 2019 and December 31, 2018 amounted to P=122 million and P=120 million, respectively. Deferred tax liability with respect to the future conversion of the Exchangeable Bond to MPHHI shares, amounting to P=725 million as at June 30, 2019 and December 31, 2018 was recognized against equity.

Substrate Conversion Agreements (SCA). On November 19, 2018, MetPower Ventures Partners Holdings, Inc. (MVPHI), through Surallah Biogas Ventures Corp., finalized and signed the SCA with Dole Philippines, Inc. (DPI) to design, construct, and operate biogas facilities specifically for DPI. MPIC has earmarked about P=1.0 billion for this project. This project involves establishing integrated waste-to- energy (WTE) facilities to primarily address the waste disposal concerns of DPI and to use the derived biogas from the processing of the fruit waste to supply a portion of the diesel and power requirements of the canneries of DPI in Surallah and Polomok, both located in South Cotabato. The integrated WTE facility, consisting of a biogas plant and an embedded power generation facility shall be established, owned and operated by a special purpose company within the facilities of the end-user.

As at August 1, 2019, the Project is expected to commence operations by 2020.

Project for the Rehabilitation, Operations, and Maintenance of the Ninoy Aquino International Airport (“NAIA”). On December 21, 2017, MPIC agreed to form a consortium with Aboitiz InfraCapital Inc., AC Infrastructure Holdings Corporation, Alliance Global Group Inc., AEDC, Filinvest Development Corporation and JG Summit Holdings Inc. for the rehabilitation, operations, and maintenance of the NAIA through an unsolicited proposal which was submitted to the Department of Transportation on February 12, 2018.

The project is estimated to cost up to P=350 billion over the life of its concession. The project is divided into two phases – Phase 1 includes improvements and expansion of terminals in the current NAIA land area, while Phase 2 involves the development of an additional runway, taxiways, passenger terminals and associated support infrastructure.

In September 2018, the NAIA Consortium was granted Original Proponent Status from the Department of Transportation and the Manila International Airport Authority for its unsolicited proposal. Following the grant of Original Proponent Status, the NAIA Consortium’s proposal shall be subject to review and approval by the NEDA Board and to a Swiss Challenge in accordance with the requirements of RA 7718 or the Build-Operate-Transfer Law.

As at August 1, 2019, the Project is still awaiting approval from the NEDA Board.

Power

Transfer of transmission facilities to the National Grid Corporation of the Philippines (NGCP). In 2016, the Energy Regulatory Commission (ERC) issued Resolution No. 23, Series of 2016 “A Resolution Adopting Amended Rules on the Definition and Boundaries of Connection Assets for Customers of Transmission Providers”. Section 7 (Transitory Provision) of the ERC Resolution No. 23-2016 mandates the Generation Companies to start the disposal or transfer of their assets with transmission functions in favor of NGCP, Transmission Provider before the generation company’s Renewal of its Certificate of Compliance.

To comply with the Resolution, GBPC’s generation subsidiaries, namely PEDC, TPC and CEDC entered into an agreement with the NGCP for the transfer of the generation companies’ transmission facilities which ownership was expected to be transferred to NGCP in 2018. NGCP made a deposit amounting to P=159 million which is included in the Company’s ‘Accounts payable and accrued expenses’ as at June 30, 2019 and December 31, 2018.

While the expected disposal did not happen in 2018 due to delays outside of GBPC’s control, GBPC is nonetheless committed to comply with Resolution requiring the transfer of such transmission facilities. The carrying value of the assets to be transferred to NGCP was presented as “Assets held for sale” in the consolidated statements of financial position as at June 30, 2019 and December 31, 2018.

Negotiations for Power Supply Contract with More Electric and Power Corporation (MORE). Two years prior to the end of Panay Electric Company, Inc.’s (PECO) franchise on January 19, 2019, a bill was filed for its renewal, but was not acted upon by the House. PEDC and PPC have existing power supply agreements with PECO.

In the meantime, in February 2019, RA No. 11212 was enacted into law. It granted a legislative franchise to MORE to own and operate an electric distribution utility in Iloilo City. RA No. 11212 granted PECO an interim authority to operate the existing distribution system in Iloilo City until MORE establishes or acquires its own distribution system and completes the transition towards full operation. Such interim authority shall not exceed two (2) years from the grant of MORE’s legislative franchise. RA No. 11212 also directed the ERC to grant PECO a Certificate of Public Convenience and Necessity (CPCN) covering such interim period.

In an Order dated May 21, 2019, the ERC granted PECO a Provisional CPCN to replace its previous CPCN which expired on May 25, 2019. The Provisional CPCN is valid only for the aforesaid 2-year interim period and shall be automatically revoked once MORE is able to take over the distribution of electricity in Iloilo City pursuant to RA No. 11212. MORE has filed a CPCN application with the ERC. The said application is still pending with the ERC. In the meantime, PECO continues to operate the electric distribution utility in Iloilo City. PEDC and PPC continue to supply power to PECO under their respective power supply agreements.

Under RA No. 11212, as well as applicable Department of Energy (DOE) regulations, MORE is authorized to procure emergency power on a negotiated basis provided such supply shall not exceed one (1) year and the rates therefore shall not be higher than the latest ERC-approved rates in the area. Pursuant to such authority, PEDC and PPC are currently in negotiations with MORE for the possible supply of emergency power to Iloilo City.

Integrated Solid Waste Management Facility Project (ISWM Project). In March 2017, the consortium consisting of MPIC, Covanta Energy, LLC and Macquarie Group, Ltd. was granted Original Proponent Status (OPS) by The Quezon City Government to design, construct, finance, and operate an ISWM Project. The ISWM facility will be capable of processing and converting up to 3,000 metric tons per day of Quezon City’s municipal solid waste into 42MWe of renewable energy, enough to power between 60,000 to 90,000 homes. The ISWM Project will be undertaken through a Joint Venture between QC LGU and the consortium in accordance with QC LGU Ordinance: No. SP-2336, s. 2014 (QC PPP Code).

As the original proponent of the ISWM Project, the consortium will have the exclusive rights to enter into detailed negotiations with the QC LGU. Upon successful completion of negotiations, the ISWM Project will be subjected to a competitive challenge consistent with government regulations. If and when the consortium is awarded the ISWM Project, development and construction would take approximately three (3) to four (4) years. It is expected that this project will be funded through a combination of debt and equity.

With no comparable proposals, the MPIC-led consortium expects to receive the Notice of Award within 2019.

Toll Operations

Grant of Original Proponent Status to MPTC and Metro Pacific Tollways South Corp. (MPT South) for Cavite Tagaytay Batangas Expressway (CTBEx) Project. On July 26, 2018, MPTC and MPT South was granted Original Proponent Status by the DPWH in relation to its unsolicited proposal for the CTBEx Project.

The CTBEx Project, a 50.43 kilometer toll facility, is intended to connect seamlessly with the CALAEX and CAVITEX of MPTC and is expected to provide congestion relief to Aguinaldo Highway and Tagaytay- Nasugbu road. It is currently configured to have eight (8) main interchanges and two (2) spur roads, and is estimated to cost approximately P=25 billion and if awarded, will be funded through a combination of internally-generated funds and debt.

The final award of the CTBEx Project to MPT South will be subject to completion of all regulatory approvals and the Swiss Challenge under existing laws. The final award of the CTBEx Project will be subject to a Swiss Challenge expected before the end of 2019.

Water

Dumaguete City Water District (DCWD) Water Concession Joint Venture Project. On May 16, 2018, MPW officially received from DCWD the Notice of Award for the rehabilitation, operation, maintenance, and expansion of DCWD’s existing water distribution system and development of wastewater facilities.

MPW and DCWD shall enter into a joint venture agreement upon completion of the post award activities. A joint venture corporation shall be organized pursuant to the provisions set in the JVA. The joint venture corporation, 80%-owned by the private sector partner and 20%-owned by DCWD, shall be organized pursuant to the provisions set in the JVA. The joint venture corporation shall implement the project and will have the right to bill and collect for the supply of water and wastewater services provided to customers in the service area of DCWD.

The project cost for the duration of the 25-year concession is estimated at P=1.62 billion, with an initial equity investment of P=700 million, of which MPW’s share is at P=364 million.

DCWD serves Dumaguete City and portion of the Municipalities of Valencia, Sibulan and Bacong. As at August 1, 2019, the completion of conditions for the execution of the Project Agreements are ongoing.

Pampanga Bulk Water Supply Project. On August 31, 2017, MPW officially received the Certificate of Acceptance, and the conferment of the Original Proponent Status for the Pampanga Bulk Water Supply Project from the Office of the Governor of Pampanga. MPW is currently in detailed negotiations with the Province for the Project. Upon successful completion of negotiations, the project will be subjected to competitive challenge consistent with the Local Government Code of the Philippines 1991 (the Code).

Amayi Water Concession Agreement. On February 19, 2019, Amayi Water Solutions, Inc., a wholly owned subsidiary of Maynilad, entered into a concession agreement with the Municipality of Boac, Marinduque. The concession agreement shall be effective for a period of twenty-five (25) years beginning on the commencement date with the option to renew for another maximum of 25 years at the sole discretion of the concessionaire. As at August 1, 2019, the completion of the conditions for the execution of the Concession Agreement is still ongoing.

Iloilo Concession Project. On November 13, 2018, MPW entered into a Joint Venture Agreement with Metro Iloilo Water District (MIWD) for the rehabilitation, operation, maintenance, and expansion of MIWD’s existing water distribution system and construction of wastewater facilities.

On January 17, 2019, Metro Pacific Iloilo Water Inc. (MIW), the JV Corporation 80%-owned by Metro Iloilo Concession Holdings Corp. (a wholly owned company of MPW) and 20%-owned by MIWD, was incorporated pursuant to the provisions of the Joint Venture Agreement. MIW shall implement the Project and will have the right to bill and collect for the supply of water and wastewater services to customers in the service area of MIWD. MIW started commercial operations in July 2019.

Rail

Structural Restoration Project. LRMC entered into a two-year agreement with First Balfour, Inc. for its Structural Restoration Project which includes the parapets, faulty concrete and repair of river bridges of the LRT-1 line. The notice to proceed was signed and issued on March 17, 2017. In line with this project, LRMC also signed an Independent Contractor Agreement with ESCA Incorporated for the expertise and services necessary in managing the Structural Restoration Project with First Balfour, Inc. The structural restoration project was completed on June 28, 2019.

Hospitals

Voluntary Tender Offer. MPHHI made a general offer to acquire up to 563,000 outstanding common shares of Medical Doctors Inc. (MDI) which will increase its ownership interest from 33.3% to 49.9%. The tender offer will last up to August 9, 2019.

25. Financial Instruments

Categories of Financial Instruments The categories of the Company’s financial assets and financial liabilities, other than cash and cash equivalents, short-term deposits and restricted cash are:

June 30, 2019 Financial Assets Financial Liabilities Equity Debt instruments Instruments Amortized Cost FVPL at FVOCI at FVOCI Amortized Cost FVPL Total ASSETS Investment in UITF (a) P=– P=967 P=– P=– P=– P=– P=967 Receivables - net 13,756 – – – – – 13,756 Other current assets: Due from related parties 24 – – – – – 24 Miscellaneous deposits and others 222 – – – – – 222 Other noncurrent assets: Treasury bonds and notes – – 909 – – – 909 Quoted equity shares – – – 235 – – 235 Unquoted equity shares – – – 957 – – 957 Quoted club shares – – – 39 – – 39 Other receivables 404 – – – – – 404 Deposit for LTIP – – – – – – – Long term cash and miscellaneous deposits 570 – – – – – 570 P=14,976 P=967 P=909 P=1,231 P=– P=– P=18,083

LIABILITIES Accounts payable and other current liabilities (b) P=– P=– P=– P=– P=28,560 P=– P=28,560 Due to related parties – – – – 7,687 – 7,687 Service concession fees payable – – – – 31,206 – 31,206 Long-term debt – – – – 226,832 – 226,832 Other long-term liabilities – – – – 1,179 – 1,179 P=– P=– P=– P=– P=295,464 P=– P=295,464 (a)Included under ‘Cash and cash equivalents and short-term deposits’. (b)Excludes statutory payables.

\Fair Values The fair value of the assets and liabilities is determined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between participants at the measurement date. The following tables summarize the carrying amounts and fair values of the assets and liabilities, analyzed among those whose fair value is based on:

• Level 1 – Quoted market prices in active markets for identical assets or liabilities • Level 2 – Those involving inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); and • Level 3 – Those with inputs for the asset or liability that are not based on observable market data (unobservable input).

June 30, 2019 Total Fair Carrying Value Level 1 Level 2 Level 3 Value (In Millions) Assets measured at fair value Financial assets through profit or loss UITF P=967 P=– P=967 P=– P=967 Financial assets through OCI Treasury bonds and notes 909 847 62 – 909 Quoted equity shares 235 235 – – 235 Unquoted equity shares 957 – 957 957 Quoted club shares 39 39 – – 39 P=3,107 P=600 P=1,029 P=979 P=3,107

Assets for which fair values are disclosed Amortized cost Miscellaneous deposits P=792 P=– P=– P=742 P=742 P=792 P=– P=– P=742 P=742

Liabilities for which fair values are disclosed Other financial liabilities Service concession fees payable P=31,206 P=– P=– P=32,797 P=32,797 (current and noncurrent) Long-term debt (current and noncurrent) 226,832 – – 233,161 233,161 Customer guaranty deposit 1,143 – – 1,229 1,229 Due to related parties 7,687 – – 7,559 7,559 P=266,868 P=– P=– P=274,746 P=274,746

The following methods and assumptions were used to measure the fair value of each class of assets and liabilities for which it is practicable to estimate such value:

Cash and Cash Equivalents. Due to the short-term nature of transactions, the fair value of cash and cash equivalents approximate the carrying amounts at the end of the reporting period.

Restricted Cash, Cash Deposits, and Accounts Payable and Other Current Liabilities. Carrying values approximate the fair values at the reporting date due to the short-term nature of the transactions.

Investments in UITF. UITFs are ready-made investments that allow the pooling of funds from different investors with similar investment objectives. These UITFs are managed by professional fund managers and may be invested in various financial instruments such as money market securities, bonds and equities, which are normally available to large investors only. A UITF uses the mark-to-market method in valuing the fund’s securities. A UITF uses the mark-to-market method in valuing the fund’s securities. It is a valuation method which calculates the Net Asset Value (NAV) based on the estimated fair market value of the assets of the fund based on prices supplied by independent sources.

Investments in Unquoted Equity Securities. Investment in unquoted equity securities included interests in unlisted shares of stocks of a local toll road company (2% equity interest), one local sewerage services

company (10% equity interest), three local logistics company (each at 12% equity interest) and two local waste management companies (each at 12% equity interest). To estimate the fair value of the unquoted equity securities, the Company uses the guideline public company method. This valuation model is based on published data regarding comparable companies’ quoted prices, earnings, revenues and EBITDA expressed as a multiple, adjusted for the effect of the non-marketability of the equity securities. The estimate is adjusted for the net debt of the investee, if applicable.

Due from Related Parties. The fair value of due from related parties approximates their carrying amounts as these are expected to be settled within a year from the reporting date.

Miscellaneous Deposits. The fair value of the refundable occupancy deposits is determined by discounting the deposit using the prevailing market rate of interest.

Due to Related Parties, Service Concession Fees Payable and Customers’ Guaranty Deposits. Estimated fair value is based on the discounted value of future cash flows using the applicable rates for similar types of financial instruments.

Notes Receivable and Miscellaneous Deposits. Estimated fair value is based on the present value of future cash flows discounted using the prevailing rates that are specific to the tenor of the instruments’ cash flows at the end of each reporting period with credit spread adjustment.

Long-term Debt. For both fixed rate and floating rate (repriceable every six months) US dollar- denominated debts and Philippine Peso-denominated fixed rate corporate notes, estimated fair value is based on the discounted value of future cash flows using the prevailing credit adjusted US risk-free rates and Philippine risk-free rates that are adjusted for credit spread.

26. Supplemental Cash Flow Information

Non-cash investing activities During the current interim period, the Company had a non-cash investing activity which was not reflected in the interim consolidated statement of cash flows. A total of P=343 million and P=345 million of interest accretion arising from service concession fee payable has been capitalized to service concession assets for the six-month periods ended June 30, 2019 and 2018, respectively (see Note 14). Adoption of PFRS 16 also resulted to recognition of ROU asset as at January 1, 2019 (see Note 2) amounting to P=1,481 million.

Changes in liabilities arising from financing activities The following table shows significant changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes:

Service concession fee Due to Related Lease payable Long-term debt Parties Liabilities (see Note 14) (see Note 13) (see Note 15) (see Note 2) (In Millions) Balance as at December 31, 2018 (Audited) P=30,639 P=215,093 P=11,854 P=−

Cash flow Proceeds − 19,513 − − Payments (783) (7,754) (4,451) (296) Transaction cost − (217) − − (783) 11,542 (4,451) (296)

Service concession fee Due to Related Lease payable Long-term debt Parties Liabilities (see Note 14) (see Note 13) (see Note 15) (see Note 2) (In Millions) Non-cash Adoption of PFRS 16 − − − 1,491 Leases entered during the period − − − 183 Foreign exchange movements 392 306 − − Derecognized unamortized debt issue cost − 7 − − Interest accretion 958 (190) 284 48 Amortization of debt issue costs − 71 − − Acquisition of subsidiary 3 1,350 197 284 1,722 Balance as at June 30, 2019 (Unaudited) P=31,206 P=226,832 P=7,687 P=1,426

27. Events after the Reporting Period

Aside from those disclosed in Note 8 (MERALCO dividend declaration), Note 23 (status of certain contingencies) and Note 24 (status of contracts, agreements and commitments), events occurring after the reporting period include:

Loan drawdowns. The Company made the following drawdowns to its existing and/or new facilities:

▪ Water. On July 1, 2019, Maynilad made another withdrawal from MWMP Loan amounting to US$ 3.931 million (approximately P=201 million). Maynilad submitted additional request for MWMP Loan withdrawal on July 5, 2019 amounting to US$ 2.983 million (approximately P=153 million) which was received on July 26, 2019. The request for one-year loan validity extension (from June 30, 2019 to June 30, 2020) of MWMP Loan was approved. The 3rd Amendment to the Subsidiary Loan Agreement was notarized on July 3, 2019.

▪ Rail. On July 10, 2019, LRMC made its 26th loan drawdown amounting to P=89 million to finance various rehabilitation works for the Existing System.

28. Consolidated Subsidiaries

The consolidated subsidiaries of MPIC are as follows:

Maynilad Water Holding Company, Inc. Philippines 51.3 – 51.3 51.3 – 51.3 Investment holding (MWHC) MetroPac Water Investments Corporation Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding (MPW) Metro Pacific Hospital Holdings, Inc. Philippines 85.6 – 85.6 85.6 – 85.6 Investment holding; With the Exchangeable (MPHHI) Bond, the non-controlling shareholder is entitled to 39.89% effective ownership interest in MPHHI (see Note 24). Metro Pacific Light Rail Corp. (MPLRC) Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding MetroPac Logistics Company, Inc. (MPLC) Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding

Metro Pacific Resource Recovery Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding; formerly MetroPac Clean Corporation (MPRRC) Energy Holdings Corporation

MetPower Ventures Partners Holdings, Inc. Philippines 100.0 – 100.0 100.0 – 100.0 Investment holding (MVPHI) Fragrant Cedar Holdings, Inc. (FCHI) Philippines 100.0 – 100.0 100.0 – 100.0 Property Lessor Porrovia Corporation Philippines 50.0 50.0 100.0 50.0 50.0 100.0 Investment holding; BOD of Porrovia approved the shortening of the company’s corporate life to until March 31, 2019.

June 30, 2019 December 31, 2018 MPIC Direct MPIC MPIC Direct MPIC Direct Interest of Effective Direct Interest of Effective Name of Subsidiary Place of Incorporation Interest Subsidiary Interest Interest Subsidiary Interest Principal Activity (In %) (In %) Neo Oracle Holdings, Inc (NOHI) Philippines 96.6 – 96.6 96.6 – 96.6 Investment holding and Real estate; Formerly Metro Pacific Corporation (MPC). NOHI’s corporate life ended December 31, 2013 and is currently under the process of liquidation.

MPIC-JGS Airport Holdings, Inc. Philippines 58.8 – 58.8 58.8 – 58.8 Investment holding; BOD of MPIC-JGS (MPIC-JGS) approved the shortening of the company’s corporate life to until February 15, 2016.

Metro Global Green Waste, Inc. (MGGW) Philippines 70.0 – 70.0 70.0 – 70.0 Investment holding; BOD of MGGW approved the shortening of the company’s corporate life to until December 31, 2017.

MPIC Infrastructure Holdings Limited BVI 100.0 – 100.0 100.0 – 100.0 Investment holding (MIHL) Metro Vantage Properties, Inc. (MVPI) Philippines 100.0 – 100.0 100.0 – 100.0 Real estate

Beacon Electric Subsidiary Beacon PowerGen Holdings, Inc. (BPHI) Philippines – 100.0 100.0 – 100.0 100.0 Investment holding

BPHI Subsidiary Global Business Power Corporation (GBPC) Philippines – 56.0 62.4 – 56.0 62.4 Investment Holding

GBPC Subsidiaries ARB Power Ventures, Inc. (APVI) Philippines – 100.0 62.4 – 100.0 62.4 Investment holding GBH Power Resources, Inc. (GPRI) Philippines – 100.0 62.4 – 100.0 62.4 Power Generation Global Energy Supply Corporation (GESC) Philippines – 100.0 62.4 – 100.0 62.4 Power Distribution Global Hydro Power Corporation (GHPC) Philippines – 100.0 62.4 – 100.0 62.4 Power Generation Global Renewables Power Holdings Philippines – 100.0 62.4 – 100.0 62.4 Power Generation Corporation (GRPC) Mindanao Energy Development Corporation Philippines – 100.0 62.4 – 100.0 62.4 Power Generation (MEDC) Global Trade Energy Resources Philippines – 100.0 62.4 – 100.0 62.4 Trading business Corp. Toledo Holdings Corp. (THC) Philippines – 100.0 62.4 – 100.0 62.4 Investment holding Toledo Power Co. (TPC) Philippines – 100.0 62.4 – 100.0 62.4 Power Generation Global Formosa Power Holdings, Inc. Philippines – 93.2 58.2 – 93.2 58.2 Investment holding (GFPHI) Panay Power Holdings Corporation (PPHC) Philippines – 89.3 55.7 – 89.3 55.7 Investment holding Lunar Power Core, Inc. (LPCI) Philippines – 57.5 35.9 – 57.5 35.9 Investment holding

GFPHI Subsidiary Cebu Energy Development Corporation Philippines – 56.0 32.6 – 56.0 32.6 Power Generation (CEDC) 68

LPCI Subsidiary Global Luzon Energy Development Philippines – 100.0 35.9 – 100.0 35.9 Power Generation Corporation (GLEDC)

PPHC Subsidiaries Panay Power Corporation (PPC) Philippines – 100.0 55.7 – 100.0 55.7 Power Generation Panay Energy Development Corporation Philippines – 100.0 55.7 – 100.0 55.7 Power Generation (PEDC)

GRPC Subsidiary CACI Power Corporation (CACI) Philippines – 100.0 62.4 – 100.0 62.4 Power Generation

MVPHI Subsidiary Surallah Biogas Ventures Corp. Philippines – 100.0 100.0 – 100.0 100.0 Waste-to-Energy (see Note 24)

MPTC Subsidiaries Metro Pacific Tollways North Corporation Philippines – 100.0 99.9 – 100.0 99.9 Investment holding (MPT North; formerly Metro Pacific Tollways Development Corporation) Cavitex Infrastructure Corp. (CIC) Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations; Interest in CIC is held through a Management Letter Agreement. CIC holds the concession agreement for the CAVITEX.

Metro Strategic Infrastructure Philippines – 97.0 96.9 – 97.0 96.9 Investment holding Holdings, Inc. (MSIHI) MPT Asia, Corporation BVI – 100.0 99.9 – 100.0 99.9 Investment holding Metro Pacific Tollways Management Philippines – 100.0 99.9 – 100.0 99.9 Formerly M+ Corporation. Incorporated on Services, Inc. (MPTMSI) August 24, 2016 with the primary purpose to carry on the toll collection function of CAVITEX and CALAEX. Metro Pacific Tollways South Corporation Philippines – 100.0 99.9 – 100.0 99.9 Investment holding Metro Pacific Tollways Philippines – 100.0 99.9 – 100.0 99.9 Investment holding Vizmin Corporation (MPT Vizmin) Easytrip Services Corporation (ESC) Philippines – 66.0 65.9 – 66.0 65.9 Electronic toll collection services Metro Pacific Tollways Asia, Corporation Singapore – 100.0 99.9 – 100.0 99.9 Investment holding Pte. Ltd.

MPT North Subsidiaries

Collared Wren Holdings, Inc. (CWHI) Philippines – 100.0 99.9 – 100.0 99.9 Investment holding Larkwing Holdings, Inc. (LHI) Philippines – 100.0 99.9 – 100.0 99.9 Investment holding

MPCALA Holdings, Inc. (MPCALA) Philippines – 51.0 99.9 – 51.0 99.9 Tollway operations (see Note 1); MPCALA is owned by MPT North at 51% and the remaining 49% owned equally by CWHI and LHI.; holds the concession agreement for the CALAEX. Luzon Tollways Corporation (LTC) Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations; Dormant

NLEX Corp Subsidiary NLEX Ventures Corporation Philippines – 100.0 75.0 – 100.0 75.0 Service facilities management

MPT Asia Subsidiaries MPT Thailand, Corporation BVI – 100.0 99.9 – 100.0 99.9 Investment holding

MPT Vietnam, Corporation BVI – 100.0 99.9 – 100.0 99.9 Investment holding; Holds the investment in CII B&R (see Note 8) PT Metro Pacific Tollways Indonesia Indonesia – 100.0 99.9 – 100.0 99.9 Investment holding; Holds the investment in PT Nusantara. Metro Pacific Tollways South Corporation Metro Pacific Tollways South Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations Management Corporation MPT Vizmin Subsidiary Cebu Cordova Link Expressway Corporation Philippines – 100.0 99.9 – 100.0 99.9 Tollway operations; CCLEC holds the (CCLEC) concession agreement for the CCLEX

MPTMSI Subsidiary Southbend Express Services. Inc. Philippines – 100.0 99.9 – – – Manpower services (see Note 4)

MPT Thailand Corp Subsidiaries FPM Tollway (Thailand) Limited Hong Kong – 100.0 99.9 – 100.0 99.9 Investment holding

AIF Toll Road Holdings (Thailand) Limited Thailand – 100.0 99.9 – 100.0 99.9 Investment holding; Holds the investment on (AIF) DMT (see Note 8).

PT Metro Pacific Tollways Indonesia Subsidiary PT Nusantara Infrastructure Tbk (Indonesia) Indonesia – 75.9 75.8 – 75.9 75.8 Infrastructure company

PT Nusantara Subsidiaries PT Margautama Nusantara (MUN) Indonesia – 75.0 56.9 – 75.0 56.9 Construction, trading and services - Toll PT Potum Mundi Infranusantara (Potum) Indonesia – 99.9 75.8 – 99.9 75.8 Water and waste management services PT Energi Infranusantara (EI) Indonesia – 99.9 75.8 – 99.9 75.8 Construction, trading and services - Power PT Portco Infranusantara (Portco) Indonesia – 99.9 75.8 – 99.9 75.8 Port management PT Telekom Infranusantara (Telekom) Indonesia – 100.0 75.8 – 100.0 75.8 Trading, supplies and other telecommunications PT Marga Metro Nusantara Indonesia – 70.0 53.1 – – – Construction, trading and services

MUN Subsidiaries PT Bintaro Serpong Damai Indonesia – 88.9 50.5 – 88.9 50.5 Toll road operator PT Bosowa Marga Nusantara (BMN) Indonesia – 98.5 56.0 – 98.5 56.0 Toll road operator

BMN Subsidiary PT Jalan Tol Seksi Empat Indonesia – 99.4 55.7 – 99.4 55.7 Toll road operator

Potum Subsidiaries PT Tirta Bangun Nusantara Indonesia – 100.0 75.8 – 100.0 75.8 Water and waste management services PT Dain Celicani Cemerlang Indonesia – 74.5 56.5 – 51.0 38.7 Water and waste management services PT Sarana Catur Tirta Kelola (SCTK) Indonesia – 65.0 49.3 – 65.0 49.3 Water management services

SCTK Subsidiaries PT Sarana Tirta Rezeki Indonesia – 90.0 47.0 – 90.0 47.0 Water management services; PT Sarana Tirta Rezeki is owned by SCTK at 80% while 10% is owned by Potum. PT Jasa Sarana Nusa Makmur Indonesia – 100.0 49.3 – 100.0 49.3 Water management services

EI Subsidiaries PT Inpola Meka Energi Indonesia – 56.2 42.6 – 54.6 41.4 Power supply services PT Rezeki Perkasa Sejahtera Lestari Indonesia – 80.0 60.7 – 80.0 60.7 Power supply services

June 30, 2019 December 31, 2018 MPIC Direct MPIC MPIC Direct MPIC Direct Interest of Effective Direct Interest of Effective Name of Subsidiary Place of Incorporation Interest Subsidiary Interest Interest Subsidiary Interest Principal Activity (In %) (In %) MWHC Subsidiary Maynilad Water Services, Inc. (Maynilad) Philippines 5.2 92.9 52.8 5.2 92.9 52.8 Water and sewerage services; Holds the concession agreement for the water distribution in the West Concession Area. Maynilad Subsidiaries Amayi Water Solutions, Inc. (AWSI) Philippines – 100.0 52.8 – 100.0 52.8 Water and sewerage services Philippine Hydro, Inc. (PHI) Philippines – 100.0 52.8 – 100.0 52.8 Water and sewerage services MPW Subsidiaries MetroPac Cagayan De Oro, Inc. (MCDO) Philippines – 100.0 100.0 – 100.0 100.0 Water services MetroPac Iloilo Holdings Corp. (MILO) Philippines – 100.0 100.0 – 100.0 100.0 Investment holding/ Water services Metro Iloilo Bulk Water Supply Corp. Philippines – 80.0 80.0 – 80.0 80.0 Bulk water services; Holds the joint venture agreement for the bulk water supply in MIWD.

Eco-System Technologies International, Inc. Philippines – 65.0 65.0 – 65.0 65.0 EPC and O&M contractor (ESTII) MetroPac Cagayan de Oro Holdings, Inc. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding Cagayan De Oro Bulk Water, Inc. – 95.0 95.0 – 95.0 95.0 Bulk water services; Holds the joint venture agreement for the bulk water supply in COWD.

MetroPac Baguio Holdings Inc. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding Metro Iloilo Concession Holdings Corp. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding MetroPac Dumaguete Holdings Corp. Philippines – 100.0 100.0 – 100.0 100.0 Investment holding Metro Pacific Iloilo Water Inc. Philippines – 80.0 80.0 – – – Water services; Incorporated on January 17, 2019 Metro Pacific Water International Limited BVI – 100.0 100.0 – 100.0 100.0 Investment holding Metro Pacific TL Water International BVI – 100.0 100.0 – 100.0 100.0 Investment holding Limited

MPHHI Subsidiaries Riverside Medical Center, Inc (RMCI) Philippines – 78.0 66.7 – 78.0 66.7 Hospital operations East Manila Hospital Managers Corp. Philippines – 100.0 85.6 – 100.0 85.6 Hospital operations; Doing business under the (EMHMC) name and style of Our Lady of Lourdes Hospital

Asian Hospital Inc. (AHI) Philippines – 85.6 73.3 – 85.6 73.3 Hospital operations

AHI Hospital Holdings Corp. Philippines – 100.0 85.6 – 100.0 85.6 Investment holding, Formerly Bumrungrad International Philippines Inc.

De Los Santos Medical Center Inc. Philippines – 61.0 52.2 – 58.0 49.6 Hospital operations (DLSMC) Central Luzon Doctors’ Hospital, Inc. Philippines – 51.0 43.7 – 51.0 43.7 Hospital operations (CLDH) Metro Pacific Zamboanga Hospital Corp. Philippines – 100.0 85.6 – 100.0 85.6 Hospital operations; Doing business under the (MPZHC) name and style of West Metro Medical Center.

Metro Radlinks Network Inc. Philippines – 100.0 85.6 – 100.0 85.6 Telehealth operations; Formerly Medigo Corporation

Sacred Heart Hospital of Malolos Inc. Philippines – 51.0 43.7 – 51.0 43.7 Hospital operations (SHHM) Marikina Valley Medical Center, Inc. Philippines – 93.1 79.7 – 93.1 79.7 Hospital operations (MVMC) Delgado Clinic Inc. (DCI) Philippines – 65.0 55.6 – 65.0 55.6 Hospital operations St. Elizabeth Hospital, Inc. (SEHI) Philippines – 80.0 68.5 – 80.0 68.5 Hospital operations Leasing; Acquired on March 11, 2018 (see Western Mindanao Medical Center, Inc. Philippines – 63.9 54.7 – 63.9 54.7 Note 4). Davao Doctors Hospital (Clinica Hilario), Philippines – 49.9 42.7 – 49.9 42.7 Hospital operations Inc.

RMCI Subsidiary Riverside College, Inc. (RCI) Philippines – 100.0 66.7 – 100.0 66.7 School operations CVHMC Subsidiary Colinas Healthcare, Inc. Philippines – 100.0 85.6 – 100.0 85.6 Hospital operations CLDH Subsidiary Metro CLDH Cancer Center Corporation Philippines – 100.0 43.7 – 100.0 43.7 Clinic management DCI Subsidiary Caretech Medical Services, Inc. Philippines – 96.0 53.4 – 73.7 41.0 Medical services

SEHI Subsidiary Metro SEHI Cancer Center Corporation Philippines – 100.0 68.5 – 100.0 68.5 Clinic management

Metro Radlinks Network Inc. Subsidiaries West Metro Cancer Center Corporation Philippines – 100.0 85.6 – – – Clinic management; Incorporated on March 18, 2019 Metro RMCI Cancer Center Corporation Philippines – 89.2 76.4 – 89.2 76.4 Hospital operations

MPLRC Subsidiaries Light Rail Manila Holdings Inc. (LRMH) Philippines – 50.0 50.0 – 50.0 50.0 Investment holding Light Rail Manila Corporation (LRMC) Philippines – 55.0 55.0 – 55.0 55.0 Rail operations; Holds the concession agreement for the LRT-1. Light Rail Manila Holdings 2, Inc. Philippines – 50.0 50.0 – 50.0 50.0 Investment holding Light Rail Manila Holdings 6, Inc. Philippines – 50.0 50.0 – 50.0 50.0 Investment holding

MPLC Subsidiaries MetroPac Movers, Inc (MMI) Philippines – 99.1 99.1 – 99.1 99.1 Logistics LogisticsPro, Inc. Philippines – 100.0 100.0 – 100.0 100.0 Logistics

MMI Subsidiaries MetroPac Trucking Company, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics TruckingPro, Inc Philippines – 100.0 99.1 – 100.0 99.1 Logistics PremierLogistics, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics PremierTrucking, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics OneLogistics, Inc. Philippines – 100.0 99.1 – 100.0 99.1 Logistics

MVPI Subsidiary MetroPac Property Holdings, Inc. Philippines – 100.0 100.0 – – – Investment holding; Incorporated on January 10, 2019 MPRRC Subsidiary QC Integrated Waste Management Holdings, Inc. Philippines – 100.0 100.0 – – – Energy from waste

NOHI Subsidiaries First Pacific Bancshares Philippines, Inc. (FP Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; BOD of FP Bancshares Bancshares) approved the shortening of the company’s corporate life to until October 31, 2019. Metro Pacific Management Services, Inc. Philippines – 100.0 96.6 – 100.0 96.6 Management services First Pacific Realty Partners Corporation Philippines – 50.0 48.3 – 50.0 48.3 Investment holding; BOD of FPRPC approved (FPRPC) the shortening of the company’s corporate life to until May 31, 2018.

June 30, 2019 December 31, 2018 MPIC Direct MPIC MPIC Direct MPIC Direct Interest of Effective Direct Interest of Effective Name of Subsidiary Place of Incorporation Interest Subsidiary Interest Interest Subsidiary Interest Principal Activity (In %) (In %) Metro Tagaytay Land Co., Inc. Philippines – 100.0 96.6 – 100.0 96.6 Real estate; Pre-operating. Pacific Plaza Towers Management Services, Philippines – 100.0 96.6 – 100.0 96.6 Management services; Dormant. Inc. Philippine International Paper Corporation Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; Dormant. Pollux Realty Development Corporation Philippines – 100.0 96.6 – 100.0 96.6 Investment holding; Dormant. Metro Asia Link Holdings, Inc. Philippines – 60.0 58.0 – 60.0 58.0 Investment holding; Dormant.

Item 2

Management's Discussion and Analysis of Financial Condition and Results of Operations

Exhibit III

Financial Highlights and Key Performance Indicators

The summary financial information presented below as at June 30, 2019 and for the six-month periods ended June 30, 2019 and 2018 was derived from the Company’s unaudited interim consolidated financial statements, prepared in accordance with Philippine Accounting Standard 34, Interim Financial Reporting. The information below is not necessarily indicative of the results of future operations.

In this Report, Core EBITDA, Core EBITDA margin, and Core Income are not measures of performance under Philippine Financial Reporting Standards (PFRS), and users of this Report should not consider Core EBITDA, Core EBITDA margin and Core Income in isolation or as alternatives to net income as an indicator of the Company’s operating performance or to cash flow from operating, investing and financing activities as a measure of liquidity, or any other measures of performance under PFRS. There are various Core EBITDA, Core EBITDA margin and Core income calculation methods, accordingly, the Company’s presentation of these measures may not be comparable to similarly titled measures used by other companies.

The following discussion and analysis of the Group’s financial condition and results of operations should be read in conjunction with the accompanying unaudited interim condensed consolidated financial statements and the related notes as at June 30, 2019 and for the six-month periods ended June 30, 2019 and 2018 (“June 30, 2019 Interim Consolidated Financial Statements”) included in this Report.

Operating Segments of the Group

Operational Review

I - MPIC CONSOLIDATED

As discussed in Note 3 - Operating Segment Information to the June 30, 2019 Interim Consolidated Financial Statements, the Company is organized into the following segments based on services and products: Power, Toll operations, Water, Healthcare, Rail, Logistics and Others.

Segment performance is evaluated based on: consolidated net income for the period; earnings before interest, taxes and depreciation and amortization, or Core EBITDA; Core EBITDA margin; and core income. Net income for the period is measured consistent with consolidated net income in the consolidated financial statements.

Core EBITDA is measured as net income excluding depreciation and amortization of property and equipment and intangible assets, asset impairment on noncurrent assets, financing costs, interest income, equity in net earnings (losses) of associates and joint ventures, net foreign exchange gains (losses), net gains (losses) on derivative financial instruments, provision for (benefit from) income tax and other non- recurring income (expenses). Core EBITDA margin pertains to Core EBITDA divided by service revenues.

Performance of the operating segments are also assessed based on a measure of recurring profit or core income. Core income is measured as net income attributable to owners of the Parent Company excluding the effects of foreign exchange and derivative gains or losses and non-recurring items (NRI), net of tax effect of aforementioned. NRI represent gains or losses that, based on occurrence or size, are not considered usual operating items.

1H 2019 versus 1H 2018

MPIC Consolidated Statements of Comprehensive Income

Increase 1H 2019 1H 2018 (Decrease) Unaudited Amount % (in Php Millions) Operating revenues 44,620 40,068 4,552 11 Cost of sales and services 21,604 20,194 1,410 7 General and administrative expenses 8,218 6,070 2,148 35 Interest expense 5,750 4,619 1,131 24 Share in net earnings of associates and 5,911 6,210 (299) (5) joint ventures Interest income 1,157 528 629 119 Construction revenue 18,654 11,043 7,611 69 Construction costs (18,654) (11,043) (7,611) 69 Others 600 689 (89) (13) Provision for income tax 3,917 3,353 564 17 Net income attributable to owners of the Parent 8,108 8,941 (833) (9) Company Other comprehensive income (loss) (21) 81 (102) (>100) Total comprehensive income attributable to owners of the Parent Company 8,107 9,030 (923) (10) Core income 8,668 8,600 68 1 Non-recurring income (expense) (560) 341 (901) (>100) Core EBITDA 21,444 19,122 2,322 12 Core EBITDA margin 48% 48% 0% 0

Revenues The Company’s revenues increased by 11% to P=44,620 million reflecting improved performances from the following operating segments:

▪ Water utilities posted a 13% increase in revenues on the strength of Maynilad’s 3% billed volume growth together with inflation-linked and basic increases in tariff at 5.7% and 2.7% effective January 2019 and October 2018, respectively; and (ii) MPW’s Bulk water and Sewage Treatment Plant services contribution. ▪ Toll revenues are higher by 21% with average daily entries for the first half of 2019 up by 5% on the NLEX, 12% on the SCTEX and 11% on the CAVITEX compared with the same period in 2018, and consolidation of PT Nusantara beginning July 2018. Revenue contribution of PT Nusantara for the first half of 2019 of P=727 million. ▪ Hospital revenues increased by 32% to P=7,646 million driven by (i) consolidation of DDH (beginning September 2018) with revenue contribution for the period amounting to P=1,089 million; and (ii) increased number of patients served across all hospitals. ▪ Logistics and other revenues during the first half of 2019 at P=1,099 million which includes election related logistics services.

The above improvements in revenues were partially offset by the decline in GBPC’s power sales and LRMC’s slight decline in farebox revenue. GBPC’s revenues decreased by 7% due to the end of various bilateral and RES contracts and timing of preventive maintenance. Rail revenues decreased by 1% driven by decrease in ridership due to some schools adjusted the start of the class from June to August.

See the relevant segment information under section II - OPERATING SEGMENTS OF THE GROUP.

Cost of Sales and Services Cost of sales and services increased by 7% to P=21,604 million. Mainly driven by a 26% increase in amortization of concession asset with the consolidation of PT Nusantara and the increase in the volume sold in Maynilad and traffic across MPTC domestically for which service concession assets are amortized using the Unit-of-Production method. Depreciation and amortization expense also increased in line with the increased capital expenditure and consolidation of DDH and PT Nusantara, increased hospital expenses from increased first half sales and the increase in personnel costs (see Note 18 - Costs of Sales and Services to the June 30, 2019 Interim Consolidated Financial Statements).

General and administrative expenses General and administrative expenses increased by 35% to P=8,218 million. Drivers for the increase included higher personnel costs, depreciation from fixed assets and consolidation of DDH and PT Nusantara (see Note 19 – General and Administrative Expenses to the June 30, 2019 Interim Consolidated Financial Statements).

Interest expense The Company’s consolidated interest expense increased by 24% to P=5,750 million with the new bank loans drawn for capital expenditure (net of the capitalized interest) (see Note 13 - Long-term Debt to the June 30, 2019 Interim Consolidated Financial Statements).

Share in net earnings of equity method investees Share in net earnings of equity method investees decreased by 5% to P=5,911 million mainly due to consolidation of DDH and lower contribution from the Vietnam and Thailand associates. (see discussion under section II - OPERATING SEGMENTS OF THE GROUP).

Consolidated net income attributable to equity holders of the Parent Company The increase in this account is mainly attributable to (i) substantial Core Net Income growth from MERALCO; (ii) continuing volume growth coupled with inflation-linked and basic tariff increases at Maynilad; (iii) continued traffic growth on our domestic toll roads; and (iv) strong patient census at our hospitals, all of which combined to offset higher interest costs.

Core Income attributable to equity holders of the Parent Company MPIC’s consolidated core income of P=8,668 million for the first half of 2019 is on par with the first half of 2018 reflecting the following: ▪ Power (distribution and generation) accounted for P=6.1 billion or 54% of the aggregate contribution; ▪ Toll operations contributed P=2.4 billion or 22% of the total; ▪ Water (distribution, production and sewerage treatment) contributed P=2.3 billion or 21% of the total; ▪ Hospital group contributed P=400 million or 3% of the total; and ▪ the growth in share in overall operating core income was offset by higher interest costs and share in net loss from the Logistics segment.

The figures referred to above represent MPIC’s share in the stand-alone core income of the operating companies, net of consolidation adjustments. See the relevant segment information under section II - OPERATING SEGMENTS OF THE GROUP.

Non-recurring income (expenses) Non-recurring expense amounting to P=560 million for the first half of 2019 compared with a P=341 million gain in 2018; P=745 million of this swing was due to foreign exchange translation losses in 2019 versus gains in 2018.

II - OPERATING SEGMENTS OF THE GROUP

Power

MPIC’s power business contributed P=6.1 billion to Core Net Income in the first half of 2019, an increase of 4% driven by strong results at MERALCO which more than offset the decline in contribution of GBPC.

MERALCO

Increase 1H 2019 1H 2018 (Decrease) Manila Electric Company Unaudited Amount % (in Php Millions) Revenues 164,953 150,544 14,409 10 Expenses 149,613 136,861 12,752 9 Core income 12,317 10,851 1,466 14 Reported net income attributable to equity holders of MERALCO 12,007 11,973 34 0 Capital Expenditure 10,706 6,600 4,106 62

Increase Key Performance Indicators (Decrease) 1H 2019 1H 2018 Amount % Volume Sold (in mln kwh) 22,823 21,665 1,158 5 System Loss (12-month moving average) 5.85% 5.71% 0.14% 2

MERALCO’s Core Net Income for the first half of 2019 rose 14% to P=12.3 billion, driven by a 5% increase in energy sales, lower interest expense from lower debt balance and higher yield from investments.

Energy sales rose across all customer classes. Residential sector growth accelerated in the second quarter of 2019 due to organic growth from higher temperature and contributions from new connections. Commercial sector sales grew on continued expansion of real estate, hotels & restaurants, and storage, while growth in the industrial sector was rooted in the healthy performance of the non-metallic, rubber, plastics, and food & beverage industries.

Total revenues rose 10% to P=165.0 billion on higher energy sales together with increased pass-through generation charges driven by higher WESM cost rooted in supply constraints and higher fuel prices.

MERALCO spent P=10.7 billion on capital expenditures in the first half of 2019 to address critical loading of existing facilities and to support growth in demand and customer connections.

MERALCO’s power generation projects are being developed through MERALCO PowerGen Corporation (MGen) with the aim of building a diversified powerplant portfolio of assets ranging from coal-fired plants to renewable energy sources. San Buenaventura Power Limited, a joint venture between MGen and a subsidiary of Thailand’s EGCO Group, is developing a 455 MW (net) supercritical coal- fired powerplant in Mauban, Quezon. Construction is proceeding as scheduled, with commercial operation due in the third quarter of this year. The plant capacity is contracted under an ERC-approved Power Supply Agreement (PSA) with MERALCO.

GBPC

Increase 1H 2019 1H 2018 (Decrease) GBPC Unaudited Amount % (in Php Millions) Revenue 12,520 13,288 (768) (6) Expenses 9,377 10,123 (746) (7) Core EBITDA 4,592 4,384 208 5 Core Income 1,242 1,259 (17) (1) Reported Net Income attributable to equity holders of GBPC 1,130 1,276 (146) (11) Capital Expenditure 557 404 153 38

Increase Key Performance Indicators (Decrease) 1H 2019 1H 2018 Amount % Electricity Sold (consolidated; GWh) 2,306 2,460 (154) (6) Bilateral – Generation 1,900 1,829 71 4 Bilateral – WESM 108 307 (199) (65) WESM – Spot Sales 298 324 (26) (8)

Global Power recorded Core Net Income of P=1.2 billion in the first half of 2019 versus P=1.3 billion in the previous period.

Volume sold fell 6% with the end of various short-term power supply agreements. However, higher margins on increased WESM prices and ancillary service agreements with NGCP largely offset rising depreciation and interest expenses.

Contribution from 50%-owned Alsons Thermal Energy Corporation (ATEC) rose 29% to P=156 million. ATEC’s second 105 MW (80 MW contracted) expansion plant is expected to start commercial operations by September 2019. The expansion plant, located in Maasim, Sarangani Province, is currently in the commissioning stage and is set to benefit an additional 3 million people in Mindanao when it begins producing electricity later this year.

Global Power plans to invest in renewable energy projects to complement its current fossil fuel capacity.

Toll Operations

Increase 1H 2019 1H 2018 (Decrease) Metro Pacific Tollways Corporation Unaudited Amount % (in Php Millions) Consolidated Statements of Income Net toll revenues 8,923 7,389 1,534 21 Costs and expenses 4,514 3,318 1,196 36 Core EBITDA 6,258 5,181 1,077 21 Core Income 2,440 2,296 144 6 Reported net income attributable to equity holders of MPTC 2,195 2,245 (50) (2) Capital Expenditure 10,858 3,048 7,810 >100

Increase Key Performance Indicators (Decrease) 1H 2019 1H 2018 Amount % Average Daily Vehicle Entries: NLEX 268,275 254,791 13,485 5 SCTEX 70,826 63,118 7,708 12 CAVITEX 162,093 146,084 16,009 11 DMT 94,548 99,730 (5,183) (5) CII B&R 41,040 33,184 7,857 24 PT Nusantara 269,303 306,419 (37,116) (12)

MPTC recorded Core Net Income of P=2.4 billion in the first six months of 2019, a 6% increase from P=2.3 billion a year earlier with higher traffic on domestic roads and lower traffic on our regional roads, and higher financing cost from borrowings used to partially finance our increased investment in PT Nusantara in 2018. Overall, MPTC’s system-wide vehicle entries, including both our domestic and regional road networks, averaged 923,569 a day in the first half of 2019 versus 920,126 during the same period last year.

Tollroads in the Philippines:

Average daily vehicle entries for all three of our domestic tollways system (NLEX, CAVITEX and SCTEX) rose 8% to 518,678 compared with 480,793 in the first six months of 2018.

On 23rd July 2019, MPTC opened the first section of the CAVITEX C5 Southlink, the 2.2-kilometer flyover crossing South Luzon Expressway (SLEX) traversing Taguig and Pasay City. This is MPTC’s second road development to open this year following the successful completion of the NLEX Harbor Link Segment 10 in February 2019.

Meanwhile, construction continues on the NLEX Radial Road 10, CAVITEX C5 South Link, Cebu Cordova Link Expressway, and the Laguna section of the Cavite-Laguna Expressway. Right-of-way acquisition is underway for other projects in our pipeline, with construction due to begin thereafter.

Targeted completion of our toll road projects currently stands as follows:

Construction Length Target Right of Way Cost (In Km) Completion Progress (In Billions) Expansions to existing roads NLEX Harbour Link (Radial Road 10) 2.6 P=6.7 2019 92% NLEX Lane Widening Phase 2 N/A 2.1 2020 N/A CAVITEX Segment 4 Extension 1.2 1.5 2021 85% CAVITEX - C5 South Link 7.7 12.7 2022 100% NLEX Citi Link 11.5 18.8 2024 0%

Stand-alone road projects NLEX-SLEX Connector Road 8.0 23.3 2021 Section 1 – 63% Section 2 – 74% Cebu Cordova Link Expressway 8.5 26.6 2021 100% Cavite-Laguna Expressway 44.7 17.0 2022 49% TOTAL 84.2 P=108.7

MPTC expects to spend an additional P=25 billion on road construction if it secures the Cavite-Tagaytay- Batangas Expressway (CTBEx) for which it was recently awarded Original Proponent status. The final award of the CTBEx Project will be subject to a Swiss Challenge expected before the end of 2019.

Recent progress on resolving long-running differences with regulators over tariffs has been encouraging. Notice to Collect on the new toll rates for the NLEX was issued by the TRB on March 20, 2019. The new toll rate matrix addresses our 2012 and 2014 pending applications, albeit on a staggered basis. The adjustment also includes recovery of our investment in the newly-opened NLEX Harbor Link Segment 10.

The TRB also approved the SCTEX toll fare matrix which addresses our 2011 petition. The new toll rates were effective June 2019. CAVITEX, on the other hand, is still awaiting TRB’s approval of its new toll rates.

Tollroads outside the Philippines:

Average daily vehicle entries for the toll investments outside the Philippines declined 8% to 404,891 in the first half of 2019 compared with 439,333 in the first half of 2018. Lower traffic volumes in DMT (Bangkok) and PT Nusantara (Indonesia) were due to construction and road integration within their concession areas.

Water

Increase Unaudited (Decrease) Maynilad Water Services, Inc. 1H 2019 1H 2018 Amount % (in Php Millions) Consolidated Statements of Income Revenues 12,172 10,961 1,211 11 Costs and Expenses 5,039 4,527 512 11 Core EBITDA 8,825 7,915 910 11 Core Income 4,599 4,226 373 9 Reported Net Income 4,557 3,957 600 15 Capital Expenditure 5,405 6,298 (893) (14)

Increase Key Performance Indicators (Decrease) 1H 2019 1H 2018 Amount % Volume of water supplied (MCM) 365.5 378.8 (13.3) (4) Volume of water billed (MCM) - Maynilad 267.7 261.0 6.7 3 Volume of water billed (MCM) - Consolidated 277.6 270.3 7.2 3 Non revenue water % DMA (average) 26.7% 31.1% -4.4% (14) Non revenue water % DMA (period end) 24.6% 28.9% -4.3% (15) Billed customers (period end) 1,434,544 1,386,504 48,040 3 Customer mix (% based on billed volume) Domestic (residential and semi-business) 79.9% 80.8% -0.9% (1) Non-domestic (commercial and industrial) 19.6% 19.2% 0.3% 2

Maynilad’s revenues in the first half of 2019 rose 11% to P=12.2 billion from P=11.0 billion in the first half of 2018, lifted by a 3% increase in volume sold and a combination of basic and inflation-linked tariff increases of 2.7% in October 2018 and 5.7% in January 2019. The number of water connections (or billed customers) rose 3% to 1,434,544 at the end of June 2019.

Core Net Income for the first half of 2019 rose 9% to P=4.6 billion, driven by revenue growth partially offset by increased concession amortization and provision for taxes.

In the face of threats to water supply posed by climate change and population growth in our concession area, Maynilad continues to invest heavily in a comprehensive Non-Revenue Water (NRW) Reduction Program and other water security programs to minimize its dependence on the Angat Dam.

Average NRW measured at the District Metered Area level fell to 26.7% in the first half of 2019 from 31.1% for the same period in 2018 while average total NRW is now down to 38.7%.

Capital expenditure stood at P=5.4 billion in the first six months of 2019, much of it directed to upgrading and building reservoirs and pumping stations, laying primary pipelines, and constructing wastewater facilities to improve public health. Maynilad’s total pipes laid is now at 7,697 kilometers and sewerage coverage at 20% of its population.

A combination of rising service level to an increased population, the El Niño drought this year, and the failure of previous administrations to develop new water sources or allow us to develop sufficient water sources ourselves, has led to a shortfall in supplies from the Angat Dam. The consequent reduction in raw water releases from Angat, outside our control, has led to a decline in 24-hour water supply to 75% and average water pressure of 7 psi and over to 53%.

Following a constructive and professional rate rebasing, Maynilad was awarded a 16.2% tariff increase – excluding inflation – to be implemented on a staggered basis. The Metropolitan Waterworks and Sewerage System (MWSS) also approved a 5.7% inflation-linked tariff increase in January 2019. Unfortunately, this rebasing did not address our corporate income tax recovery issue inherited from the previous Administration which continues to work its way through the court system.

Since MPIC first invested in Maynilad in 2006, population coverage has grown by 3.1 million people to 9.6 million and Maynilad has laid 3,121 kilometers of pipes to expand its network. NRW at the DMA level has been reduced to 24.6% as at end of June 2019 from 68% saving more than 900 million liters of water every day, almost twice the amount that a city like San Francisco consumes every day.

Healthcare

Increase 1H 2019 1H 2018 (Decrease) Healthcare Group* Unaudited Amount % (in Php Millions) Goss Revenues 13,838 12,188 1,650 14 Expenses 10,915 9,758 1,157 12 Core EBITDA 3,076 2,562 514 20 Core Income 1,266 1,046 220 21 Reported Net Income 1,266 1,050 216 21

Increase Key Performance Indicators (Decrease) 1H 2019 1H 2018 Amount % Occupancy rate (%) - Standard Beds 70% 65% 5% 7 Total beds available 3,218 3,197 21 1 No. of Patients - In patient 96,697 91,295 5,402 6 No. of Patients - Out patient 1,810,972 1,640,482 170,490 10 No. of Accredited Doctors 8,441 8,243 198 2 No. of Enrollees (schools) - average YTD 6,815 5,416 1,399 26 *Combined financial results of entities under the healthcare group (e.g. subsidiaries and associates).

Metro Pacific Hospital Holdings, Inc. (MPHHI) reported a 14% rise in aggregate revenues in the first half of 2019 on the strength of a 10% increase in outpatient visits to 1,810,972 and 6% growth in inpatient admissions to 96,697. Core income grew 21%.

MPHHI continues to roll out improved patient care across its network of hospitals and is establishing new service centers in the communities it serves. To continue funding growth, MPHHI is looking into

raising capital either through a public offering or a private placement. MPIC is also looking to crystallize some gains from the increased value of its hospital portfolio and using the proceeds to reduce MPIC debt and fund other projects.

Rail

Increase 1H 2019 1H 2018 (Decrease) Rail Unaudited Amount % (in Php Millions) Farebox revenues 1,579 1,594 (15) (1) Expenses 1,367 1,267 100 8 Core EBITDA 344 456 (112) (25) Core Income 306 373 (67) (18) Reported Net Income 296 389 (93) (24)

Increase Key Performance Indicators (Decrease) 1H 2019 1H 2018 Amount % Average daily ridership 446,571 447,432 (861) (0) Available LRV (period end) 114 112 2 2

As at June 30, 2019, LRMC had successfully restored 37 Light Rail Vehicles (LRVs), bringing the total available LRVs to 114 from the 77 it inherited in 2015. The resulting surge in available capacity has reduced passenger waiting time to 3.47 minutes during peak hours from more than five minutes when LRMC took over. LRMC has allocated capital expenditure of P=7.5 billion for the rehabilitation of the train system, structural repairs and improvements, and an extension of the line to Cavite for 2019.

The majority of the P=750 million Station Improvement Project has been substantially completed with remaining work expected to be finished by mid-2020. LRMC has also started expansion work on the EDSA Station, the line’s second busiest station. The expansion involves the widening of the passenger concourse area to more than 335 square meters (sqm), almost five times the current floor area of 70 sqm, and will significantly improve the overall passenger experience of commuting on LRT 1.

Construction work for the LRT-1 Cavite Extension covering the five stations from Pasay City to Paranaque City has already started. However, long-overdue tariff increases must be resolved to make this financeable and LRMC is in discussion with Department of Transportation about this.

LRMC served an average daily ridership of 446,571 in the first half of 2019 peaking at 596,500 riders. While LRMC contributed ₱168 million to MPIC’s Core Income for the first half of 2019, the earnings are fully reinvested in improving train operations and passenger experience.

Logistics

Metropac Movers, Inc. (MMI) is now an established force in the Philippine logistics sector.

The focus of this business is to provide our clients with first-class distribution centers. Optimum locations are currently being evaluated to better implement our growth strategy.

MMI is not yet contributing to MPIC’s Core Net Income as our focus has been on getting established and building a best-in-class customer service platform and culture.

2Q 2019 versus 2Q 2018

MPIC Consolidated Statements of Comprehensive Income

Increase 2Q 2019 2Q 2018 (Decrease) Unaudited Amount % (in Php Millions) Operating Revenues 23,248 20,681 2,567 12 Cost of Sales and Services 11,232 10,556 676 6 General and administrative expenses 3,967 2,762 1,205 44 Interest expense 2,565 2,170 395 18 Share in net earnings of associates and a joint venture 3,085 3,613 (528) (15) Interest income 325 263 62 24 Construction revenue 11,134 5,888 5,246 89 Construction costs (11,134) (5,888) (5,246) 89 Other income (expense) - net 417 316 101 32 Provision for income tax 2,172 1,630 542 33 Net income attributable to owners of the Parent Company 4,566 5,123 (557) (11) Other comprehensive income (loss) (429) 89 (518) (>100) Total comprehensive income attributable to owners of the Parent Company 4,146 5,219 (1,073) (21) Core income 5,008 4,954 54 1 Non-recurring income (expense) (442) 169 611 >100

Revenues The Company’s revenues increased by 12% to P=23,248 million reflecting improved performances from the following operating segments: ▪ Water utilities posted a 15% increase in revenues on the strength of (i) Maynilad’s 3% billed volume growth together with inflation-linked and basic increases in tariff at 5.7% and 2.7% effective January 2019 and October 2018, respectively. ▪ Toll revenues are higher by 23% mainly due to higher traffic across all local toll roads compared with the same period in 2018 and consolidation of PT Nusantara beginning July 2018. ▪ Hospital revenues increased by 27% to P=2,890 million driven by (i) consolidation of DDH (beginning September 2018); and (ii) increased number of patients served. ▪ Logistics revenues during the second quarter of 2019 at P=589 million.

The above improvements in revenues were partially offset by the decline in GBPC and LRMC’s earnings. GBPC’s revenues decreased by 1% due to the end of various bilateral contracts partially offset the higher margins from WESM sales. Rail revenues decreased by 6% driven by decrease in ridership due to some schools adjusted the start of the class from June to August.

Cost of Sales and Services Cost of sales and services increased by 6% to P=11,232 million. Mainly driven by the increase in depreciation and amortization expense in line with the increased capital expenditure and consolidation of DDH and PT Nusantara and increase in amortization of service concession asset with the consolidation of PT Nusantara and increase in the volume sold in Maynilad and traffic at the NLEX and CAVITEX.

General and administrative expenses General and administrative expenses increased by 44% to P=3,967 million. Drivers for the increase included higher personnel costs, depreciation from fixed assets and consolidation of DDH and PT Nusantara.

Interest expense The Company’s consolidated interest expense increased by 18% to P=2,565 million with the new bank loans drawn for capital expenditure.

Share in net earnings of equity method investees Share in net earnings of equity method investees decreased by 15% to P=3,085 million mainly due to the consolidation of DDH and lower contributions from the Vietnam and Thailand associates.

Consolidated net income attributable to equity holders of the Parent Company The consolidated net income attributable to equity holders of the Parent Company declined by 11% to P=4,566 million which is mainly attributable to the swing in foreign exchange translation losses in 2019 as compared with gain in 2018 and increase in interest expense.

Core Income attributable to equity holders of the Parent Company MPIC’s share in the consolidated core income increased by 1% at P=5.0 billion in 2Q 2019 primarily reflecting the following: ▪ Power (distribution and generation) accounted for P=3.4 billion or 54% of the aggregate contribution; ▪ Water (distribution, production and sewerage treatment) contributed P=1.4 billion or 22% of the total; ▪ Toll operations contributed P=1.3 billion or 21% of the total; ▪ Hospital group contributed P=158 million or 3% of the total; and, ▪ the growth in share in overall operating core income was offset by higher interest costs and share in net loss from the Logistic segment.

The figures referred to above represent MPIC’s share in the stand-alone core income of the operating companies, net of consolidation adjustments.

Non-recurring income (expenses) Non-recurring expense amounting to P=442 million for 2Q 2019 comprise mainly of foreign exchange losses and project costs while 2Q 2018 non-recurring income is attributable to foreign exchange gains.

Discussion on Financial Position as at June 30, 2019 and December 31, 2018

Assets

The following table summarizes the individual increases (decreases) of consolidated asset accounts.

June 30, December 31, Increase 2019 2018 (Decrease) Unaudited % Audited % Amount % (in Php Millions) ASSETS Current assets Cash and cash equivalents and short-term deposits 43,972 57 47,521 59 (3,549) (7) Restricted cash 6,970 9 5,421 7 1,549 29 Receivables 13,756 18 12,495 16 1,261 10 Other current assets 10,540 14 12,892 16 (2,352) (18) 75,238 98 78,329 98 (3,091) (4) Asset held for sale 1,250 2 1,250 2 0 0 76,488 100 79,579 100 (3,091) (4)

Noncurrent Assets Investments and advances 155,073 31 152,993 32 2,080 1 Service concession assets 224,139 45 205,992 43 18,147 9 Property, plant and equipment 73,382 15 71,926 15 1,456 2 Goodwill 27,171 5 27,856 6 (685) (2) Intangible assets 3,819 1 3,897 1 (78) (2) Deferred tax assets 1,466 0 1,270 0 196 15 Other noncurrent assets 17,537 3 14,433 3 3,104 22 502,587 100 478,367 100 24,220 5

• Cash and cash equivalents and short-term deposits – (Decrease) Mainly due to scheduled payment of loans and interest, payable to PCEV and additional capital expenditures and dividends paid to minority interests (see section Liquidity and Capital Resources for the summary of the Group’s statement of cash flows for the three-month period ended June 30, 2019).

• Restricted Cash – (Increase) Restricted cash is mainly the sinking fund or debt service account (DSA) representing amounts set aside for principal and interest payments of certain long-term debt. This DSA is maintained and replenished in accordance with the provision of the loan agreements. Decrease in restricted cash is a consequence of the scheduled repayment of loans (see Note 5 - Cash and Cash Equivalents, Short-term Deposits and Restricted Cash to the June 30, 2019 Interim Consolidated Financial Statements).

• Receivables – (Increase) Mainly driven by the increase in trade receivable in relation to the improvement in revenues (see Note 6 - Receivables to the June 30, 2019 Interim Consolidated Financial Statements).

• Other current assets – (Decrease) Mainly driven by the application of the advances to contractors the relevant asset accounts (see Note 7 – Other Current Assets to the June 30, 2019 Interim Consolidated Financial Statements).

• Investments and advances – (Increase) Mainly due to share in net earnings of associates net of dividends received. (see Note 8 - Investments and Advances to the June 30, 2019 Interim Consolidated Financial Statements).

• Service concession assets – (Increase) Mainly due to the additional capital expenditures, net of amortization. See Note 9 - Service Concession Assets to the June 30, 2019 Interim Consolidated Financial Statements for the nature of the additions to the service concession assets.

• Property, plant and equipment – (Increase) Mainly driven by the recognition of Right-of-use Assets from the adoption of PFRS 16 – Leases. See Note 2 – Summary of Significant Accounting Policies to the June 30, 2019 Interim Consolidated Financial Statements for details of the effect of the adoption of the new accounting standards.

• Other noncurrent assets – (Increase) Mainly driven by the increase in advances made to contractors for the ongoing construction of MPTC’s toll road, LRMC’s LRT-1 rehabilitation and extension projects and Maynilad’s water network improvements.

Liabilities and Equity

The following table summarizes the individual increases (decreases) of consolidated liabilities and equity accounts.

June 30, December 31, Increase 2019 2018 (Decrease) Unaudited % Audited % Amount % (in Php millions) Current Liabilities Accounts payable and other current liabilities 32,252 55 31,951 56 301 1 Income tax payable 1,595 3 1,533 3 62 4 Due to related parties 5,515 9 4,462 8 1,053 24 Current portion of: Provisions 6,039 10 6,004 11 35 1 Service concession fees payable 557 1 693 1 (136) (20) Long-term debt 12,920 22 11,619 21 1,301 11 58,878 100 56,262 100 2,616 5

Noncurrent Liabilities Noncurrent portion of: Provisions 2,720 1 2,528 1 192 8 Service concession fees payable 30,649 11 29,946 11 703 2 Long-term debts 213,912 79 203,474 77 10,438 5 Due to related parties 2,172 1 7,392 3 (5,220) (71) Deferred tax liabilities 10,798 4 9,930 4 868 9 Other long-term liabilities 10,804 4 9,411 4 1,393 15 271,055 100 262,681 100 8,374 3

Equity Capital stock 31,638 18 31,633 18 5 0 Additional paid-in capital 68,529 39 68,494 40 35 0 Treasury shares (4) 0 (178) 0 174 (98) Equity reserves 5,686 3 6,968 4 (1,282) (18) Retained earnings 70,241 39 64,533 37 5,708 9 Other comprehensive income reserve 1,860 1 1,861 1 (1) (0) Total equity attributable to owners of the Parent Company 177,950 100 173,311 100 4,639 3

Non-controlling interest 71,192 65,692 5,500 8

• Due to related parties – current and noncurrent portions – (Decrease) Scheduled payment of the amount payable to PCEV for shares in Beacon.

• Service concession fees payable – current and noncurrent portions – (Increase) Represents movement in foreign exchange and interest accretion net of actual payment of concession fees (see Note 14 – Service Concession Fees Payable and Note 26 - Supplemental Cash Flow Information to the June 30, 2019 Interim Consolidated Financial Statements).

• Long-term debt – current and noncurrent portions – (Increase) See Note 13 - Long-term Debt to the June 30, 2019 Interim Consolidated Financial Statements for details of the Company’s new loan facilities and borrowings.

• Other long-term liabilities – (Increase) Mainly driven by the recognition of lease liability from the adoption of PFRS 16 – Leases. See Note 2 – Summary of Significant Accounting Policies to the June 30, 2019 Interim Consolidated Financial Statements for details of the effect of the adoption of the new accounting standards.

• Non-controlling interest – (Increase) Aside from the NCI’s share in Net Income, additions to NCI included infusion of the other shareholders of LRMH and LRMC into the LRT-1 project (see Note 16 - Equity to the June 30, 2019 Interim Consolidated Financial Statements). Refer to the Statements of Changes in Equity for the other movements in the NCI account.

Liquidity and Capital Resources

The following table shows a summary of the Group’s unaudited statements of cash flows for the first half of 2019 and 2018 as well as the Company’s consolidated capitalization as of June 30, 2019, and December 31, 2018:

Increase Unaudited (Decrease) 1H 2019 1H 2018 Amount % (in Php Millions) Cash Flows Net cash provided by operating activities 19,863 15,586 4,277 27 Net cash (used in) provided by investing activities (18,878) (6,791) 12,087 >100 Net cash used in financing activities (4,840) (11,376) 6,536 57 Net increase (decrease) in cash and cash equivalents (3,855) (2,581) (1,274) 49 Capital expenditures 22,917 14,871 8,046 54

Unaudited Audited Increase June 30, December 31, (Decrease) 2019 2018 Amount % (in Php Millions)

Capitalization Long-term debt net of current portion 213,912 203,474 10,438 5 Current portion of long-term debt 12,920 11,619 1,301 11 Total short and long-term debt 226,832 215,093 11,739 5 Non-controlling interest 71,192 65,692 5,500 8 Total equity attributable to owners of the Parent Company 177,950 173,311 4,639 3

Cash and cash equivalents 42,752 46,607 (3,855) (8) Short-term deposits 1,220 914 306 33

As at June 30, 2019, MPIC’s consolidated cash and cash equivalents and short-term deposits totaled P=43,972 million, a decrease of P=3,549 million from P=47,521 million as at December 31, 2018. This decrease mainly resulted from increased CAPEX spending, scheduled payment of amount owed to PCEV, bank loans and interest and dividends paid. Refer to the Exhibit I - Unaudited Interim Consolidated Financial Statements for the Company’s Consolidated Statements of Cash Flows for the details of the cash inflow and outflows during the current period.

Operating Activities

MPIC’s consolidated net operating cash flow in the first half of 2019 posted a 21% increase from P=15,586 million to P=19,863 largely attributable to the improvement in the operating results. Total revenues for the six-month period ended June 30, 2019 increased by P=4,552 million to P=44,620 million due to improved operating performance.

Investing activities

Net cash used in investing activities amounted to P=18,878 million during the first half of 2019. Cash outflows included CAPEX spending comprising of additions to service concession and hospital and logistics assets. Note 9 - Service Concession Assets to the June 30, 2019 Interim Consolidated Financial Statements for the nature of the additions to the service concession assets.

Financing Activities

The Company’s consolidated net cash used in financing activities amounted to P=4,840 million in the first half of 2019. Significant outflows included: (i) debt servicing and scheduled payment of Maynilad’s service concession fees; (ii) dividends paid to both owners of the parent company and non-controlling shareholders.

FINANCIAL SOUNDNESS INDICATORS

June 30, December Financial Ratios Formula 2019 31, 2018

a) Current Ratio Total Current Assets 1.30 1.41 Total Current Liabilities

b) Solvency Ratio * NPAT + Depreciation and amortization 0.11 0.10 Total Liabilities

c) Debt-to-Equity Ratio Total Debt 0.91 0.90 Total Stockholders' Equity

d) Asset to Equity Ratio Total Assets 2.32 2.33 Total Stockholders' Equity

June 30, June 30, Financial Ratios Formula 2019 2018

e) Interest Rate Coverage Ratio EBIT 4.64 5.06 Net Interest Expense

f) Net Profit margin Net Profit after tax 28.7% 33.1% Net Revenues

June 30, December Financial Ratios Formula 2019 31, 2018

g) Return on assets* NPAT + Interest Expense (net of tax) 6.1% 5.7% Average Total Assets

h) Return on Equity* Net Profit after tax 10.5% 9.8% Average Total Stockholders' Equity

*Annualized

METRO PACIFIC INVESTMENTS CORPORATION AND SUBSIDIARIES AGING OF ACCOUNTS RECEIVABLES As at June 30, 2019 (Unaudited) (Amounts in Millions)

Trade receivables P=11,830 Notes receivable 150 Contract assets/unbilled receivables 1,437 Concession financial receivable 1,112 Nontrade 2,187 Due from related parties 55 16,771 Less allowance for doubtful accounts (1,836) 14,935 Less current portion (13,780) Noncurrent portion P=1,155

The aging analysis of receivables follows:

Neither past due nor impaired P=9,261 Past due but not impaired: 0–30 days 2,250 31–60 days 582 61–90 days 393 Over 90 days 2,449 Impaired 1,836 P=16,771

RISK FACTORS

As an investment and management company, MPIC undertakes risk management at a number of distinct levels:

1. On entering new investments

Prior to making a new investment, any business to be acquired is subject to an extensive due diligence including financial, operational, regulatory, environmental, social, governance risk assessments. Risks to investment returns are then calibrated and specific measures to manage these risks are determined. The Company is highly selective in the investment opportunities it examines. Due diligence is conducted on a phased basis to minimize costs of evaluating opportunities that may ultimately not be pursued.

MPIC’s investments involve to varying degrees, a partnership approach with MPIC co-investing with partners that provide operational and technological input, thereby mitigating risks associated with new business areas.

Financing for new investments is through a combination of debt and/or equity by reference to the underlying strength of the cash flow of the target business and the overall financing position of MPIC itself.

MPIC’s geographic focus is predominantly the Philippines but with some additional assets in Indonesia, Thailand, and Vietnam. MPIC is mitigating its foreign investment risk through partnerships with reputable and influential local firms in these countries and engaging strong and reputable advisers.

2. On ongoing Management of the Financial Stability of the Holding Company

MPIC does not guarantee the borrowings of its investee companies and there are no cross-default provisions from one investee operating company to another. Financial stability of the holding company, including its dividend commitment to shareholders, is managed by reference to the ability of the investee companies to remit dividends to MPIC to cover operating costs and service borrowings. MPIC avoids currency and investment cycle mismatches by borrowing mostly in Pesos using primarily long-term instruments with fixed rates.

MPIC sets the level of debt on the Parent Company’s balance sheet so as to withstand variability of dividend receipts from its operating companies associated with regulatory and other risks described below.

3. Risk Management within the Operating Companies

Each of the operating companies has a management team which is responsible for having their own plan to manage risk. These are reviewed semi-annually by their respective Risk Management Committees and periodically by MPIC.

o Political and Regulatory risks. The majority of MPIC’s invested capital is deployed into businesses which are directly regulated by arms of the state: electricity distribution; water supply and distribution along with sewage treatment; tollroads; and light rail. Each of these businesses has concession or franchise agreements which involve a degree of operating performance obligation in order to retain our rights and earn our expected returns. In some cases, these

agreements provide for retrospective assessment of the extent of our overall operational and financial performance sometimes over a period of years.

Risks arising from these types of businesses include the potential for differences with regulators involving interpretation of the relevant agreements – either during the period in question or in retrospect. To manage these risks, the operating companies have dedicated regulatory management groups with experienced personnel. Their duty is to manage the relationship with regulators, keep management up-to-date on the status of the relationship and ensure companies are well prepared for any forthcoming regulatory changes or challenges.

The Group has a sizeable amount of pending past due revenue claims accumulated for its water, toll and rail businesses (see Note 29 – Contingencies to the December 31, 2018 Audited Consolidated Financial Statements and Note 23 – Contingencies to the June 30, 2019 Interim Consolidated Financial Statements). The risk of being unable to collect these claims is being mitigated by continuing to deliver its obligations under its concession and franchise agreements and maintaining open communication lines with the various responsible government agencies. Recently, there have been positive developments in partially settling these claims as discussed elsewhere in this report. o Competition and Market. There is strong competition in bidding for Public-Private Partnership (PPP) projects offered by the Philippine Government, and this may reduce forecast equity returns for winning bids. MPIC’s preferred approach is to provide unsolicited proposals to government in order to receive Original Proponent Status on its ideas. In this way it seeks to increase the prospect of winning projects and avoid plain vanilla ‘lowest return on capital’ bidding.

Competition risks in MPIC’s relevant operating companies are discussed in each operating company’s writeup on this report (see also Item 1 - Description of Business to the 2018 SEC Form 17-A). o Supply risk. MPIC’s water company, Maynilad, has some supply side risk in that: (i) it secures almost all of its supply from a single source – the Angat dam; and (ii) this water source is shared by another water concessionaire, a hydroelectric plant, and the needs of farmers for irrigation. A water usage protocol is in place to ensure all users receive water as expected within the constraints of available supply. Following significant water supply disruptions in the past, the business has experienced periods of lower water supply than allowed for in its concession. We have worked to moderate our reliance on Angat by tapping raw water from Laguna Lake. Currently, we have operationalized Putatan Water Treatment Plants to 250 MLD with an additional 50 MLD to augment water supply in preparation for the 2020 summer. Other projects in the pipeline include Laguna Lake Water Treatment Plant (100 MLD, scalable to 150 MLD) in Tunasan and Teresa Water Treatment Plant (150MLD) in congruence with the planned Kaliwa Dam project. The Government-initiated 188 MLD Sumag Diversion Project to be undertaken by Maynilad and Manila Water has, however, been suspended by DENR, pending compliance with a quarrying permit.

The power generation companies in the MPIC portfolio depend on varying grades of coal for their fuel. Primary supply sources are backed up by alternative supply sources and carrying appropriate inventories.

o Safety and Security risk. The operation of LRMC has significant operational safety and security risks. These risks have been exacerbated by the poor condition and inadequate maintenance of the system prior to the September 12, 2015 takeover by LRMC. LRMC is mitigating these risks by establishing a Safety Management System driven from the top, appointing a strong senior management team with extensive light rail operating experience and using a combination of engineering and administrative controls in the operations and maintenance of LRT-1. The risk of terrorism in the trains and stations, which is assessed as a key risk of LRMC, is also mitigated through strict inspection of incoming passengers, x-ray screening in high density stations, banning of wrapped packages as well as potentially harmful tools and chemicals and use of dogs trained in bomb detection in each station.

For GBPC, possible hazards facing its employees include fires, electrical shocks and burns, boiler fires and pressure vessel explosions, contact with hazardous chemicals, moving objects and heavy equipment, fall, confined space works, and marine operations such as off-loading of coal which are common risks in power plant facilities. GBPC is implementing safety programs and policies aimed at reducing and/or eliminating accidents. In addition, GBPC is investing in manpower safety training, machine safety design, fire protection systems, emergency response equipment and regular fire-drills, provision of personal protective equipment, site inspections, regular equipment maintenance and 3rd party certifications, and monitoring systems for emergency and security purposes. All GBPC power plants are ISO-certified.

For Maynilad, possible common safety-related incidents include potential slips, trips and falls into a confined space such as in waste water treatment plants. These incidents become more acute with the presence of dangerous gases in the air throughout the facility. Specifically, the main gases of concern in wastewater treatment plants are methane, hydrogen sulfide and too much or the lack of oxygen. Beyond these gas hazards are the dangers that can be brought by chlorine, a purifying chemical that is used by Maynilad in the decontamination of the waste and effluent water. Maynilad is mitigating these risks through closely monitoring employees who are at higher risk for hazard exposure and providing preventive measures to ensure safety.

Any incident of poor water quality distributed by Maynilad can severely impact on the health and safety of its customers. Maynilad mitigates this risk by performing both quality assurance and quality control checks to ensure that the water distributed to the customers is compliant with the Philippine National Standard for Drinking Water 2017. At the plant level, the process control laboratories of its La Mesa and Putatan plants conduct quality assurance at every stage of the treatment process. Likewise, at the water distribution level, Maynilad’s Central Laboratory performs quality control activities through daily testing of the water quality of water samples collected from the tap of the customers at a ratio of 1 sample per 10,000 population.

For MERALCO, their safety risks are those attendant to operating an above ground power distribution system serving approximately 28 million people. The primary risks are death or injury through fall, burn or electrocution. Extensive training is made on using safety equipment and operating protocols to minimize safety incidents.

MPTC’s operational safety risks concern accidents through possible driver error or a combination of poor road design and/or signage. These risks are mitigated by road user safety campaigns, careful traffic management and optimized design and construction.

MPTC is also exposed to all safety risks inherent in construction as well as natural disasters.

The Group has institutionalized monitoring and reporting of work-related fatalities and serious injuries for review by the MPIC Risk Management Committee.

o Climate change risk and related issues. • Extreme or unusual weather patterns associated with climate change is one of the Group’s key risks. MPIC’s principal operating companies’ risk mitigation measures include: weather hardening for above ground power distribution; increasing water processing capacity for highly turbid water; and improved drainage and flood protection for toll roads. The principal operating companies have also formalized and are continuously improving their Business Continuity Plans including coordination with government and private organizations such as the Philippine Institute of Volcanology and Seismology (PHIVOLCS), National Disaster Risk Reduction and Management Council (NDRRMC) and Philippine Disaster Resilience Foundation (PDRF) together with the operating companies’ respective regulators.

• Climate change is resulting in variable rainfall patterns leading to a combination of reduced water supply (see supply risk) and increased turbidity of water sources including an increase in algae bloom making it harder for Maynilad to sustain service levels. This risk is mitigated through increased investment in water treatment capabilities and working with the Government to explore new water sources.

• The Group is also trying to mitigate this risk through carbon offsetting initiatives such as tree planting and other greening initiatives, use of clean and efficient technology in our coal operations and exploring renewable energy sources (e.g. biogas and energy from waste) to complement our existing coal investments.

o Cybersecurity risk including increasing data privacy protection needs. Any disruption due to cyber attacks may result in service interruption, especially damaging for our utilities, lost revenue, increased costs for protection, remediation costs, reputational damage and regulatory fines. The Group is continuously enhancing its cybersecurity skills and processes and is reviewing appropriate insurance coverage. The Boards and managements of some of our operating companies have also increased oversight responsibility for Cybersecurity processes.

o Other operational risks In LRMC, there are risks to projected financial returns through late delivery of Government procured items such as Rights of Way, additional Light Rail Vehicles (LRVs), and the Common Station. Plans to mitigate these risks include consistently engaging the regulators on the status of the projects’ milestones and joint regular performance reviews by both parties – the Concessionaire (LRMC) and the Grantors (the DOTC and the Light Rail Transit Authority or LRTA).

Other risk associated with the Group’s operations, specifically on its Environmental, Social and Governance aspects were discussed in the Company’s 2016, 2017, and 2018 Sustainability Reports (SR) which can be downloaded on MPIC website.

4. Financial Risk Management

The financial risks of MPIC’s operating companies are primarily: interest rate risk, foreign currency risk, liquidity risk, credit risk and equity price risk (see Note 32 - Financial Risk Management Objectives and Policies to the 2018 Audited Consolidated Financial Statements for more details on these risks).

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Equity Price Risk. MPIC’s operating companies are generally not faced with equity price risk beyond that normal for any listed company, where relevant. MPIC’s investment in MERALCO, through Beacon Electric, is partly financed by borrowings which require a certain security cover based on the price of MERALCO’s shares on the Philippine Stock Exchange (PSE) on a volume weighted 30 trading day average calculation. MERALCO’s share price would have to decline by 92.36% from its price as at June 30, 2019 before Beacon Electric would be required to top-up collateral with cash or pay-down debt.

The regulatory returns for MERALCO and Maynilad are benchmarked in part to the changing cost of equity (and debt) in the Philippines with a positive correlation between rising equity risk premiums and nominal returns. For more details on MERALCO’s risk factors, please see MERALCO’s June 2019 17-Q as also uploaded on the edge website of the PSE.

Key Variable and Other Qualitative and Quantitative Factors

i. Events that will trigger direct or contingent financial obligation that is material to the company, including any default or acceleration of an obligation

There are various outstanding contingent liabilities which are not reflected in the accompanying consolidated financial statements. Refer to Note 23 – Contingencies and Note 24 – Contracts, Agreements and Commitments to the June 30, 2019 Interim Consolidated Financial Statements for the updates on the Company’s financial obligations.

ii. All material off-balance sheet transactions, arrangements, obligations (including contingent obligations), and other relationships of the company with unconsolidated entities or other persons created during the reporting periods

There are various outstanding contingent liabilities which are not reflected in the accompanying consolidated financial statements. Refer to Note 24 – Contracts, Agreements and Commitments to the June 30, 2019 Interim Consolidated Financial Statements for the updates on the Company’s financial obligations.

iii. Description of any material commitments for capital expenditures, general purpose of such commitments, expected sources of funds for such expenditures

Refer to Note 9 - Service Concession Assets and Note 24 – Contracts, Agreements and Commitments to the June 30, 2019 Interim Consolidated Financial Statements for the updates on the Company’s commitments.

iv. Any known trends, events or uncertainties that have had or that are reasonably expected to have a material favorable or unfavorable impact on net sales or revenues or income from continuing operations

The Company’s results of operations are highly dependent on its ability to set and collect adequate tariffs under its concession agreements with the Philippine Government. Please refer to Note 23 – Contingencies to the June 30, 2019 Interim Consolidated Financial Statements.

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v. Any seasonal aspects that had a material effect on the financial condition or results of operations

Please refer to Note 3 – Operating Segment Information to the June 30, 2019 Interim Consolidated Financial Statements.

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