My fellow stockholders of Benpres Holdings Corporation, a good morning to all.
I appreciate it very much that you have all come here this early to attend our annual ritual of listening to how our corporation has done the past year. I can sum it all up in a few words: we have done well. Let me now explain.
In the mid-90s, the observation was made by some financial analysts that the Benpres Group is a good proxy for the Philippines. The economy at that time was on the rise and so was optimism about the nation’s future. Benpres had just had a successful initial public offering and the stock was a top favorite in the local market. More importantly, Benpres was heavily invested in basic industries such as power, media, telecommunications, that were also considered sunrise industries. In a sense, one can look at Benpres in those times, and get a good feel of the state of the country’s economy.
Then it happened. The Asian financial crisis starting in 1997 devastated the country’s finances and Benpres’ as well. When we declared a standstill in 2002, the burden of a US0 million-debt seemed insurmountable. The following year, Meralco began a P28-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 P3 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 doctors advised me in 2004 against climbing it. I had wanted to climb Mount Pulag, the highest peak in Luzon, because I had blockages in my heart arteries and that what I needed was a heart by-pass operation instead. As a nature lover and fitness advocate, this did not sit well with me and I challenged myself to prove to my doctors that I could overcome my heart problem without necessity of surgery.
It didn’t happen overnight. Like all things worthwhile, I had to work at it. I exercised daily on my treadmill machine, ate a healthy dish, climbed six flights of steps to my office every morning, and in the summer of 2006, I climbed 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 9,700 ft. high. I was told that at 76, I am probably the oldest person officially 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. We also looked for the right people and placed them in the right places within our group of companies. 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 P9.1 billion from the equity market. Meralco was able to refinance some P12.0 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 P14.25 per share as of end-2005 to P54 per share as of end-2006) that can be owned only by Filipinos, and 153% YoY for the B shares (from P21.75 per share as of end-2005 to P55 per share as of end-2006) which can be owned by both Filipinos and foreigners. This spectacular stock price performance continues this year (yesterday, Meralco was quoted at P95 for the A shares and P96 for the B shares), 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.
Let us now review briefly our 2006 highlights and 2007 strategic imperatives:
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 Gen’s successful IPO meant a one-time gain of P2.65 billion which then allowed First Holdings to report in its annual stockholders meeting last May 21, its highest ever net income aggregate of P8.7 billion for 2006. 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 under the new leadership of Carlo Katigbak reaping major improvements in its financial condition as it posted positive bottom-line 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 be the expansion of revenues and a return to profit through the higher conversion of illegal subscribers, better churn management and better take-up of new products; and equally important, completing its loan restructuring.
For BayanTel, the principal highlights of 2006 were a return to positive net income and successfully positioning for new products. Strategic imperatives for 2007 will comprise acceleration of the SPAN roll-out, its wireless local loop service, as a primary growth strategy; maintaining the existing base of landline subscribers, maximizing broadband penetration; and developing a business model for excess backbone capacity. BayanTel will once again be relying on its effective use of disruptive technologies, a strategy that competition has likewise adopted.
While traffic volumes did not appreciably increase in 2006 due mainly to higher petroleum prices, MNTC successfully refinanced its loans and commenced paying dividends. For 2007, its strategic imperatives will include traffic growth, to be boosted partly by a reduction in toll rates; the repair and rehabilitation of substandard defective portions of road work turned in by the project prime contractor; and the completion of project studies and planning for Phase 2 of the overall concession. Thus far, the indicators are positive: decreasing world fuel prices, an upbeat economy and a mid-year national election should all contribute to higher traffic.
2006 was another record year for Rockwell Land. Condominium sales were at an all time high as the company completely sold out Joya Towers and Lofts. One Rockwell’s East & West Towers were successfully launched and achieved a 55% take-up by year-end. Revenues of the Power Plant Mall continued to grow and dividend payments have resumed. For 2007, its strategic imperatives include the commencement of construction of One Rockwell, meeting its progress completion targets for Joya; further growth in mall revenues; and finalizing new project developments outside of Rockwell Center.
The Parent Company/Excellence Initiatives
As for Benpres, your company has been able to maintain status quo with its creditors, partly because of the untiring efforts of our negotiators, Benpres President Angel S. Ong and Chief Finance Officer Salvador G. Tirona. Note also that the stock market has taken notice of the slow but steady progress we have made. The stock price of Benpres doubled YoY from P1.08 of end-2005 to P2.16 as of end-2006. As of yesterday, only 6 months into 2007, Benpres was quoted at P5.30 or more than double what it was at the end of 2006. I can attribute this positive perception mainly to two events: our withdrawal or exit from Maynilad, and the favorable High Court decision on Meralco’s unbundling case. But the excellent performance of all our companies this year have also contributed to this positive result.
But it is now imperative for us to resolve Benpres’ debt issue. We cannot properly set our vision and strategy for the future with that debt hanging like a Damocles sword over our heads. We must set a clear vision of what we want to be in the longer term and how we intend to get there. With what present and future core businesses. In what geography and technologies. With what organizational and ownership structure. And we must communicate all of these clearly, cohesively and convincingly, in a way that enables us to be valued favorably by the market. But to do all of these, we have to rid ourselves of the shackles and uncertainty currently represented by that debt. Our President, Mr. Angel Ong, will discuss our debt restructuring program after my talk.
I would like to end by sharing with you our statement of intent on our performance excellence objectives.
To perform and to last the course requires that we stay fit. But to perform at a consistently high and globally competitive level requires more than just being fit. It requires excellence and a commitment to the unrelenting pursuit of excellence.
I would like to assure you, our shareholders, that your officers and representatives in the board of Benpres are committed to continually improving ourselves and our competitiveness, and that we are demonstrating that improvement by subjecting ourselves to periodic measurement.
In 2007, I am determined to press on with our Malcolm Baldrige framework-based program, to which our various excellence initiatives are now being aligned and integrated. I realize that even under the Baldrige framework, there is no “one size fits all” approach that will be applicable to all our diverse businesses. This is why the program administrators are working closely with the executives at each of our operating units to recognize the unique parameters of each business and to design a journey to excellence that is the right one for each particular unit.
We began this journey across all companies over a decade ago by first having our respective operations certified against the standards of the International Organization for Standardization or ISO. In December 2006, Benpres was re-certified against ISO 9001:2000 for the provision of management services in Finance and Accounting, Public Relations, Legal Services, and Human Resources as a holding company. It was first ISO-certified in 2003 and has continuously improved its quality management system since.
Benpres and country
Thus, as we pointed out at the beginning of this report, Benpres today remains as it was ten years ago, a good proxy of the nation. Sure, there are still weighty problems that need to be addressed and there are still things that could go wrong along the way. But today, for Benpres and the Philippines, we have reason to look at the future with hope and optimism. I dare say that the tide has turned. Because we have worked hard and sacrificed greatly, investor sentiment is once more on our side. As I cited earlier, the stock market has quoted our stock yesterday at P5.30, compared to just 8 and a quarter centavos in December 2002. As late as 52 weeks ago, it was quoted at just 97 centavos.
And because our country’s economy is also on an upsurge, our various businesses can only grow even more with our macro economy. This fact has been affirmed by no less than the prestigious Financial Times, which observed that sentiment has improved on several fronts and the economy expected to grow faster than it ever had. With increased investments pouring into job creating businesses in the country, we can expect increased demand for power, more travel via our expressway, more condominium sales for our property unit and a robust consumer retail market which will in turn push advertising sales for our broadcast business.
We are almost there. Our patience and hard work will soon be rewarded.
On my 75th birthday in 2005, I had set five conditions or goals I want to accomplish before letting go of the many responsibilities I am fulfilling for the group: First was the closure of the Maynilad issue. Second was the completion of Benpres's financial restructuring. Third was a favorable Supreme Court decision for Meralco and for it to be on the road to growth once more. Fourth was ABS-CBN's recovery of the number one position in terms of TV ratings. And last was for all major Lopez Group companies to adopt the global standards of business excellence, efficiency, and productivity especially the Malcolm Baldrige system.
I had hoped then that these conditions would be met in three yeas and certainly by my 80th birthday. Today, at 77 years of age, I am happy to see that some of these goals have been accomplished. We have exited Maynilad, Meralco finally obtained a favorable Supreme Court decision last year, and ABS-CBN is well on its way to securing its top place in Mega Manila TV ratings once again. In fact, ABS-CBN’s leadership in audience share nationwide, with an advantage of about 10% over the nearest competitor in March and April, is actually more meaningful because Mega Manila represents only about 4.3 million out of 13.6 million households nationwide. With your continued support, I have no doubt that we will be able to put closure to the Benpres financial restructuring, hopefully by the end of this year, and to securely place Benpres and all its operating units on the road to viability and excellence, and give me the justification to finally retire as chairman of Benpres.
I sincerely thank you all for your faith in your board and in your management team. A pleasant day to all of you.