YOUR WORLD MADE BETTER 02 MESSAGE TO STOCKHOLDERS 07 YOUR WORLD MADE BETTER Ramil Sobledia & Angelica Garcia Scholars 16 MANAGEMENT’S DISCUSSION & ANALYSIS Twelve-year-old Ramil Sobledia, who appears on the cover, is a Grade 6 student at the Andres 24 FINANCIAL POSITION Bonifacio Elementary School in Mandaluyong City. Araling Panlipunan is his favorite subject. Like many CORPORATE GOVERNANCE kids his age, Ramil likes to play computer games. 25 He has been a Petron scholar since Grade 1. 32 CORPORATE SOCIAL RESPONSIBILITY Angelica Garcia, who appears on the back cover, is in Grade 7 at the same school. A Petron scholar since BOARD OF DIRECTORS Grade 1, Angelica enjoys English and Science. In her 38 free time, she likes to bake and play badminton. 39 KEY EXECUTIVES San Miguel Corporation envisions a future where more Filipinos are able to participate in, and contribute to the country’s economic growth. By giving children 40 FINANCIAL STATEMENTS from less-fortunate families an opportunity to study and better themselves, we hope to enable the next generation to carry forward our vision of a better Philippines. 2 YOUR WORLD MADE BETTER 2014 ANNUAL REPORT 3 Message to Stockholders NOW IS OUR TIME Fellow stockholders, This year we reach a milestone of more than usual significance to our company’s history. In September, we celebrate the 125th founding anniversary of La Fabrica de Cerveza de San Miguel, the country’s first brewery. Today, San Miguel Brewery Inc. is the cornerstone business of San Miguel Corporation. elying on the values that and consolidated EBITDA of P88.1 billion, Petron, to the extent possible, protected have sustained us for well up 14% from the previous year. its margins and despite falling world Rover a century, we once again crude prices, registered strong revenue delivered growth to our shareholders, Our flagship Beer business, though growth and continued to expand EDUARDO M. COJUANGCO, JR. employees and business partners in weighed down by the rise in excise taxes, both its domestic and Malaysian Chairman and Chief Executive Officer 2014. Our performance, along with the proved its resilience, strengthening distribution networks. operational goals we attained, proves that further its hold on the domestic we are primed to sustain our growth— market and expanding its reach in the Infrastructure delivered major leveraging our scale, our reach and our international market. The Food business, accomplishments: the Tarlac-Pangasinan- broad-based capabilities. a leader in the fast-moving consumer La Union Expressway (TPLEX), the we’ll complete the Skyway Stage 3 Early this year, San Miguel Brewery free flow of goods that the phased goods industry, continued to lead key Skyway Stage 3 and NAIA Expressway connector road project, the Boracay Inc. acquired the non-alcoholic beverage economic integration of Southeast As we continue to grow our core segments where it competes and set out projects, improvements on the Southern Airport and our greenfield power plants in business of Ginebra San Miguel. This will Asia offers. Our power, fuel and oil, businesses and expand into industries programs for further expansion. Tagalog Arterial Road (STAR) and Bataan and Davao. enable SMB to pursue a multi-beverage and infrastructure businesses should vital to our country’s future, we draw expansion of the Boracay Airport. strategy and allow the latter to focus on also benefit unreservedly from inspiration from our corporate history— Our Liquor business continued its Even as we focus these next couple its core liquor market. broad-based growth enhanced by greater of how San Miguel has been an industry recovery, delivering a turnaround OUR EXPANSION PROGRAM of years on completing these projects, regional trade. trailblazer and growth-driver for performance. Packaging, a steady We are entering the final stretch of we are also looking to add scale to our Related to these efforts, we see the Philippine business. We recognize how performer in our portfolio, is starting the largest, most ambitious expansion power, infrastructure and oil-refining implementation late this year of the Building a strong financial position our company has always aspired for great to ramp up exports to make up for program in our corporate history. businesses. Our core businesses will also ASEAN Economic Community as opening remains key to carrying out our things and met head-on every challenge a downturn in domestic demand. pursue expansion, since we see many up opportunities to bring our beverage, expansion program. In 2014, of the times. This year we expect to start full opportunities for growth. In particular, food, packaging and petrochemical we paid down some of our liabilities, Among our new businesses, Power commercial operations of the upgraded we are investing in new facilities products to regional markets. including the remaining balance of PERFORMANCE IN 2014 delivered an excellent performance Petron Bataan Refinery and substantially that will increase capacities for our the exchangeable bonds. We also Total revenues for the year grew 5% in 2014. Higher off-take volumes and complete the NAIA Expressway project. flour, feeds, poultry and value-added Our scale and reach should give us refinanced some of our obligations to P782 billion, and we ended the better efficiencies pushed up revenues, We also bring on-stream the last segment meats businesses. a strong, natural advantage over so as to access lower interest rates. year with a recurring net income of consolidating SMC Global Power’s place of TPLEX. Within the next two years, regional players entering our home These have enabled us to bring down P27.9 billion, 244% higher than in 2013, as a major contributor to total revenues. market—even as we benefit from the our cost of money, spread out the 4 YOUR WORLD MADE BETTER 2014 ANNUAL REPORT 5 We have spent the last few years refining our strategy, which is based on diversifying our portfolio and growing our core businesses. Today, all its major components are in place. RAMON S. ANG President and Chief Operating Officer schedule of our debt maturities and We have spent the last few years partners ultimately chose to chart a ultimately reduce our net debt to EBITDA refining this strategy, which is based different course, our divestment in PAL to 2.36x. on diversifying our portfolio and showed that we have the best interests of growing our core businesses. While we the organization in mind. and capable of carrying our company into down from one generation of San Miguel San Miguel—determined as ever to lead, Our strategy of matching the completion continue to be constantly on the lookout the future. employees to the next. Passion for success, to contribute, and to generate the greatest dates of our major projects with our for opportunities to add scale to our The PAL episode speaks volumes of how teamwork, respect for our people, benefit for the greatest number. debt-servicing schedule further enhances businesses, all the major components we, as an organization, have always PART OF A 125-YEAR TRADITION customer focus, innovativeness, integrity, our financial position. Over and above of our long-term strategy are already viewed ourselves and our role in the As we celebrate our 125th anniversary, social responsibility—all these values At 125 years, now is our time. this, our diversified portfolio of businesses in place. industries in which we compete. we acknowledge the contributions of the remain relevant across the San Miguel has truly worked to our competitive thousands of employees who came before Group and are best summed up by one advantage. In large part, this is why Our experience with Philippine Airlines In all our endeavors and acquisitions— us. In paying tribute to these successive word: malasakit—a sincere desire to do despite external pressures and cyclical best illustrates how determined we are, even in those we later chose to exit—our SMC generations—every one just as good and to do well by our company, domestic and global downturns, our not just to pursue opportunities for underlying goal has always been to passionate as we are about our business our people and our country. bottom-line remains healthy. growth, but to be in industries that we add value. and as steeped in the values vital to the feel will benefit Filipinos. success of San Miguel—we recognize that Today we’re a company transformed. OUR PURPOSE AND OUR MISSION By working to enhance businesses we are part of a long tradition of hard But while our business is larger, more At this juncture in our history, we believe In just two years, we proved that vision through our corporate store of knowledge work and dedication; that we are here diverse than it has ever been; while our purpose and our mission have at and discipline, when matched with strong and experience; by investing the time, to serve a greater purpose. the landscape in which we function last crystallized: our strategic vision has management and operational expertise, resources and effort needed to see a vision and thrive is more complex; while become clear to all who work with us. would improve PAL’s operations through, we ensure that each business is We have inherited a company built on the goals and challenges we’ve set for decisively. And although our majority strong, able to realize its full potential, trust and values that have been passed ourselves seem bigger; we are the same 6 YOUR WORLD MADE BETTER 2014 ANNUAL REPORT 7 YOUR WORLD MADE BETTER For 125 years, our company has been an enabler of growth in the Philippines. Wherever we’ve chosen to build our facilities and locate our production centers, development has closely followed, creating strong “second-tier cities,” rebalancing the national economy and generating the jobs and growth that our local economies and the country need.