2006 Annual Report - Lopez Holdings Corporation

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MessAge oF the chAiRMAn And chieF executiVe oFFiceR
Fellow shareholders,
Over the last several years that your company, Benpres
Holdings Corporation (Benpres), has been working on
financial restructuring, we have faced adversity after
adversity.
When we declared a standstill in 2002, the burden
of a US$400 million-debt seemed insurmountable. The
following year, Meralco began a ∏28-billion refund
ordered by the Supreme Court. Almost simultaneously,
we had to return our water concession that eventually
led to our withdrawal from Maynilad Water Services in
2005 at a loss of at least ∏3 billion.
Adversity, however, is just another word for challenge.
This is very much like climbing a mountain. It looks
daunting and in my case, mission impossible when my
doctor advised me against climbing it. I had wanted to
climb Mount Pulag, the highest peak in Luzon but I was
told that the air was so thin at the altitude of 9,700 feet
and my aging heart would be too stressed by the climb.
As a nature lover and fitness advocate, this did not sit
well with me and I challenged myself to prove to my
doctor that I was in perfect shape to try for Pulag.
It didn’t happen overnight. Like all things worthwhile,
I had to work at it. I walked daily, ate moderately,
climbed six flights of steps to my office every morning,
and in the summer of 2006, went to Mount Santo Tomas
in Baguio, which is 7,500 feet high. After that feat, my
doctor yielded and early this year, on February 17, 2007,
I finally made it to the top of Mount Pulag. I was told
that at 76, I am probably the oldest person to have scaled
that mountain.
This brings me to what we have had to do at Benpres in
order to return to financial health. Because some of our
earlier investee companies had great difficulty recovering
from the Asian financial crisis, Benpres has had to do a
lot more with so much less. Through its representation in
the boards of our investee companies, we have taken an
active role in setting policy and in supporting our operating
units in their quest to get back in financial shape and
thereafter, for excellence. The business environment had
not always been favorable but we worked at it, knowing
that perseverance eventually pays out.
In 2006, we can say that things finally began to turn our
way. First Gen Corporation (First Gen) had a successful
initial public offering (IPO), raising approximately
∏9.1 billion from the equity market. Meralco was able
to refinance some ∏12.0 billion worth of debt. And in
December, Meralco finally won a favorable decision from
the Supreme Court on the unbundling of its rates.
As a result, Meralco’s stock price soared 279% year-on-
year (YoY) for the A shares (from ∏14.25 per share as of end-
2005 to ∏54 per share as of end-2006) that can be owned only
by Filipinos, and 153% YoY for the B shares (from ∏21.75
per share as of end-2005 to ∏55 per share as of end-2006)
which can be owned by both Filipinos and foreigners. This
spectacular stock price performance continues this year,
with investors expressing enthusiasm for and confidence
in the long-term prospects of the electric utility.
It seems like we now have that chance to start over. This
year, hopefully, Benpres will find more good news from its
investee companies.
2006 highlights and 2007
strategic imperatives
In 2006, First Philippine Holdings Corporation (First
Holdings) benefited from solid performances turned in by
its power generation and toll road businesses. Of course,
it also received a yearend boost in share price from the
favorable Supreme Court decision on Meralco. Looking to
2007, First Holdings must continue to rely on the organic
growth of First Gen even as it pursues growth in its toll
road business through increased investment in Manila
North Tollways Corporation (MNTC) or through new
projects, as well as growth in its manufacturing portfolio
through new investments.
In 2007, First Holdings will continue to seek new
markets for its manufacturing investments. It is eyeing
local and export businesses in both electrical and
electronic categories of manufacturing. We have already
created the organizational structure for this purpose,
called First Philippine Electric Corporation.
The income effect of dilution as a result of First
Hopefully, Benpres will find more good news from its investee companies.
—Oscar M. Lopez
Gen’s successful IPO means that First Holdings will be
reporting its highest ever net income aggregate. 2007 will
not provide the same non-recurring income, but Meralco’s
higher anticipated earnings will partly make up for that.
For ABS-CBN, the principal highlights of 2006 were
getting its organization stabilized, the continued growth
of ABS-CBN Global and a more robust profit result. The
strategic imperatives for 2007 will consist of taking
back the business leadership position, including content
leadership, for all segments of the market; building a more
competitive distribution infrastructure; and leveraging
its portfolio of platforms.
After successfully implementing its three-point
cost reduction plan which focused on programming,
manpower and key overhead items, 2006 saw SkyCable
reaping major improvements in its financial condition as
it posted positive bottomline figures in the fourth quarter
for the first time since 2000. The cable service provider
managed to trim its loss in 2006 to less than half of what
was originally forecast even as it introduced its encryption
“box” in certain areas and more aggressively went after
illegal subscribers. The principal challenges for 2007 will
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