Good afternoon to all of you and welcome to our 48th Annual Stockholders’ Meeting. Since my return to the management of First Holdings shortly after the EDSA Revolution in 1986, this will also be the 25th annual stockholders’ meeting that I will be presiding over as chief executive officer of the Corporation. There are reasons why, years from now, I may look back on this day and meeting with nostalgic attachment, for reasons I will tell you about in a short while.
There are many things we have to cover this afternoon and, should you have questions about aspects of our businesses and financial results, we will do our best to provide you satisfactory answers. So let’s proceed to the business at hand.
This year I would like to do something a little different from the manner by which I have rendered my report in past years. I would like to start by announcing a decision that I have reached, and let things flow from there.
A few weeks ago, during a celebratory dinner hosted by various companies that I head to help me celebrate my 80th birthday, I announced to the officers, staff members and guests that I intended to step down, or aside, if you will, as Chief Executive Officer of First Philippine Holdings Corporation on June 12, 2010. Apart from being our National Day, June 12 will mark the 82nd anniversary of the establishment of E & F Lopez Inc. by my father Eugenio Sr. and his brother, Fernando, E & F was the forerunner of our Lopez Group of Companies today. For us, therefore, it has always been an auspicious date.
I have submitted my letter to the Board of Directors, through the Vice-Chairman, expressing my desire to relinquish my position as Chairman and CEO. I have recommended that Federico R. Lopez be elected as the next Chairman and CEO of First Holdings. Federico, or Piki, has been with the company for the past 22 years and was appointed as Managing Director for Energy in 2008 when Peter Garrucho opted to retire.
To be sure, I do not want to step completely out of the picture. I would like to remain active as your Chairman Emeritus so that I will still be in a position to contribute to the Corporation, especially with regard to the long term strategy of this Company. How we determine and give rise to that will also have to be done in accordance with established protocols in our organizational meeting of our new Board of Directors following our stockholders meeting this afternoon.
Therefore, this will probably be the last time that I address you as your Corporation’s regular Chairman and Chief Executive Officer and I hope you will indulge me if my remarks sound a bit like a valedictory address.
My career as a corporate executive has spanned 50 years since I returned from schooling in the United States in 1960. The first six years, I was with the Manila Chronicle as its publisher. Then, in 1966, I joined Meralco Securities Corporation, as First Holdings was originally called, to head the newly formed Department of Economic Research and Development. Initially, we were a two-man office. There was me. And there was another of our current Directors, then a very young Ernesto B. Rufino who was a recent graduate of Harvard Business School. We were Corplan and business development all rolled into one and our assignment was to strategically position Meralco for what then appeared like a very bright, limitless future.
What followed was a heady, exciting, grand few years that even now, we old-timers look back on as Meralco’s “Golden Age”. Even though there were a few storm clouds in the Philippine economic sky – I don’t know how many of you remember the series of devaluation of the peso from P2.00 to .00 – the Sixties were an exciting time for the country. We were industrializing and we were among the darling economies of Asia. Meralco was building and commissioning a new power plant virtually every 18 months to keep pace with a 12% annual increase in the demand for power.. It charged its customers the lowest prices for electricity in Asia and operated to one of the lowest system-loss rates in the region. Meralco symbolized excellence and great potential, and attracted the best and the brightest graduates in the country as the employer of choice. At the Department of Economic Research and Development, we were doing our bit to feed Meralco’s appetite for synergy and diversification.
In March 1967, we created First Philippine Industrial Corporation to construct and operate the first major oil pipeline in the country. Today, more than 43 years later, FPIC remains the only major oil pipeline operator in the country linking the Shell Refinery in Batangas to the Pandacan oil depot in Manila. In February 1969, we started Philippine Electric Corporation as the country’s pioneer manufacturer of utility and industrial electrical transformers. Today, it continues to prosper as the country’s only manufacturer of transformers and related products. In September 1969, we founded Philippine Petroleum Corporation, the country’s first lubricating oil basestock refiner, whose petroleum by-products would also serve to fuel our power plant in Pililla, now called the Malaya power plant. In November 1969, the construction division of Meralco was spun off as Philippine Engineering and Construction Corporation, or “PECCO”, with my brother Manolo as its first President. Today, that company is called First Balfour, Inc. and it remains as the construction subsidiary of First Philippine Holdings Corp.
But, like most good things, those heady days eventually came to an end. First, there was the world oil price shock following the 1967 Israel-Arab War and the establishment of OPEC. All over the world, the cost of power began to rise and the relative competitiveness of non-oil producing economies began to suffer. Then came the declaration of Martial Law and the systematic dispossession by the Marcos dictatorship of the Lopez Family of its businesses. First Holdings was forced to sell its most valuable asset, Meralco, to a newly-established and Kokoy Romualdez-controlled Meralco Foundation, Inc. under duress. The darkness had set in, and this darkness would stay for fourteen years. We relinquished our positions in our companies, thinking that it would be the last time we would ever be involved in them.
But those dark days, did eventually pass away. Almost fourteen years later, shortly after the EDSA Revolution, the precise date was April 15, 1986, I re-entered the offices of Meralco Securities Corporation, now called First Philippine Holdings Corporation, with instructions from the Government of Cory Aquino to take over headship of the Corporation. What I found was a company that was a pathetic shadow of the company I had been forced to leave, virtually bankrupt and unable to meet even its payroll obligations, manned by 22 remaining loyal, but demoralized, staffmembers. Against liabilities of P1.2 Billion, many of which were overdue and in default, the company had only P26.0 Million of liquid assets left in its till. Operating cash flow was barely sufficient to meet the monthly payroll. Some P15.0 Million was owed to the families of contract workers who had been mobilized for an ill-fated project in the Middle East, and more than 200 relatives were lining up outside First Holdings’ offices every day trying to collect the moneys owed to them.
As I think back to that day, even now, I feel that the natural reaction of a reasonable man would have been to decline the appointment on the grounds that to save First Holdings was an impossible task. But something moved me to do otherwise. I still remember it was Jake Almeda-Lopez, who is still with us as a Board Director of this Company, who reminded me then that this was a company, a business, that my father had created, had fought for and had died for. To honor him, I could do no less than give my utmost, win or lose, to try to save the company.
And so we did, little by little. First, we borrowed where we could, relying principally on the Lopez family reputation, to meet day to day requirements. We sold one of First Holdings’ remaining good assets, its 25% ownership interest in Pilipinas Shell for P507 million, and used the proceeds to pay back half of the company’s debt and to restructure the other half. We went to the Middle East and got our bonds back, eliminating a major threat to the company. Simultaneously, we undertook similar rehabilitations at Philippine Electric Corporation and Ecco-Asia, our manufacturing and construction subsidiaries, so that they could once again contribute to revenues. And then, in 1991, after a long and arduous legal battle to recover the ownership of Meralco, ownership that had been coercively taken from us at the outset of martial law, we finally gained the Supreme Court decision that we had sought. We were able to recover a 15% ownership interest in Meralco in a transaction that also enabled us to settle the balance of our debt. Only 15% from the close to 100% that had been taken from us, but it was enough to enable us to rebuild the Corporation.
The nineties were good years for First Holdings. We rebuilt power generation as a core business, starting with the 225-megawatt Bauang diesel fired power plant, a build-operate-transfer contract with National Power Corporation that will reach the end of its 15-year contract life this coming July. Then came the Panay Power generating plant that we have since sold, followed by the 1,500-megawatt natural gas-fired plants in Batangas, San Lorenzo and Santa Rita with the natural gas emanating from the newly discovered Malampaya gas field off Palawan.
We also entered into the property development business, first with our 350-hectare industrial park straddling the municipalities of Sto. Tomas and Tanauan, Batangas, then through our participation in the redevelopment of the mothballed Rockwell power plant site in Makati into a very successful commercial complex. And we entered into large-scale infrastructure, with our investment in the rehabilitation and redevelopment of the North Luzon Expressway.
The first decade of the 21st century has been a story of two parts. The first is the continued growth of our power business. Through First Gen Corporation and its subsidiaries, we are, today, the country’s foremost Filipino-owned and controlled power generating company with a total 3,047 MW capacity to its name. Winning the bid for EDC, the country’s geothermal company and today, the second largest such company in the world, and winning a number of privatization bids for hydroelectric plants mainly in Pantabangan, Nueva Ecija we have also become the country’s foremost proponent of clean and renewable power.
The second part of our story has been the struggle to realize value from our long-term investment in Meralco. This struggle has placed us constantly at loggerheads with government and with the rate regulators whose tendency is to do what is popular, keeping power rates as low as possible, and forcing the distribution utilities to subsidize those rates. To a certain extent, Meralco was able to compensate for this by becoming more efficient, reducing its systems and pilferage losses from the high teens down to 8.5% where they are today.
But that loss rate is now at a level comparable with the best utilities in the world and any further reduction in loss rates will require significant new investments in low-loss equipment. As reported, however, in the Annual Report, the opportunity arose for us to divest a major part of our ownership in Meralco at an average price that is greatly advantageous to us and we took advantage of that opportunity. In the process, we were able to resolve a number of debt issues that had arisen over the past several years because of our ownership of Meralco shares. And so, fellow stockholders, entering my third childhood at a nice mellow age of 80, I think that the time is right to step down from the CEO-ship of our company. My first career here lasted six years. My second has just passed the 24-year mark. When I came back into First Holdings, it was close to bankruptcy. At the time I presided over the 1986 annual stockholders’ meeting a few months later, things were still very iffy for the company. The audited financials for the year ended June 30, 1986 indicated total assets of P1.42 Billion, of which approximately P1.1 Billion consisted of investments and advances that could not be up-streamed or liquidated. The company’s cash balance was reported at P412,004. Against these, the company had loans and accounts payable of some P750.0 Million. Today, as I speak to you, our audited financial statements for the year ended December 31, 2009 list our total assets at P148.8 Billion and total liabilities at approximately P90.0 Billion. Our cash reserves are at P25.8 Billion. It is the dream and aspiration of every professional manager, of every business leader, to leave the business in better condition than when he or she first assumes responsibility for it. This is in accord with the law of stewardship. Modesty aside, I think that I have earned the right to make that claim, and within the pantheon of Lopez business leaders, I am certain that my father and my brother are smiling down on me for a job well done. But this much I will share with you. People who know me, know of my passion for climbing mountains, a passion that I indulge in even today. The higher the better.
But none of the mountains I have climbed have had steeper ascents, or more treacherous descents, than those that I have had to traverse in my career at First Holdings. I thank all of our directors, officers and staff members for making the climb with me. I thank all of you, fellow stockholders, for the trust, confidence and support you have always given me. And I thank my wife and my children for being with me every step of the way. And now, I’d like to say just a few words about our future as a business. Throughout its close to 49-year history, First Holdings has always delighted in achieving what others have said were impossible undertakings. The very acquisition of Meralco in the early 1960’s, then the country’s largest company and one that had, at the time, always been under American management, was something that the Filipino business community did not even dare to contemplate. Until my father and his associates dared. When we diversified into unexplored waters, first with the pipeline, then with transformer manufacture and later with the lube oil refinery, everyone said we couldn’t do it by ourselves. Until we did. In the early nineties, in the midst of the power crisis, no Filipino company responded to the urgent calls to build new capacity. But we did, and we showed that new power could be brought in faster and cheaper than the Hopewells and Enrons could.
Today, the country again faces the challenge of having to ensure that there is adequate and economically-priced power to drive its industrial and social aspirations. But this time, the challenge is different. It is much more difficult and complex. And it requires the exercise of conscience, something that the business sector is not often known for. The tendency, of course, is to build the cheapest possible capacity, burning the cheapest fuel in order to generate the cheapest power. That would probably be coal, followed by heavy fuel oil. Unfortunately, these are also the technologies most damaging to the environment. They produce the greatest amount of carbon. Neither are predominantly indigenous fuel sources, although the Philippines produces a little of both. Therefore, they act as a drain on our foreign currency reserves and are tied into the wild gyrations of international oil prices. No doubt, the country needs cheap and reliable power. This need, however, has to be balanced against the immediate and future costs of not taking proper care of our environment. The harm that we inflict upon ourselves through neglect of our environment has been demonstrated to us time and again, each time more severely than before.
Global warming, from the interaction of greenhouse gasses on our atmosphere, has exacerbated the severity of weather disturbances all over the world, and the devastation wrought last year by “Ondoy” and “Pepeng” is a stark demonstration of this. As I see it, it is our responsibility, not only to do our part to provide the cheap and reliable power needed by the country, but to do so in a way that will not further damage our environment. This view is reflected in the choice of projects that we have undertaken and the technologies we are investing in. It is reflected in the deliberate choice we have taken to restrict ourselves only to the cleanest fuels and it is reflected in the decision we have made to actively explore renewable energy sources. Geothermal power, hydro, solar power, wind power – these are the spaces that we intend to exploit. It will be more difficult and perhaps more expensive. We will have to be innovative and imaginative in the way we search for solutions. It may mean that we are initially disadvantaged relative to competitors who are not as particular about their choice of technology. But I am absolutely convinced that this is the right road to take and that we will one day emerge as a preeminent leader in clean power, not just in our markets, but globally. This leads me to the final part of my valedictory. No doubt, I take great pride and pleasure in what we have achieved by way of business results during my watch as chief executive of First Holdings.
But no business can be successful in the long run unless it protects and nurtures the environment in which it operates. Some of the things that have given me the greatest pleasure over the years are things we have done, to the extent that we could afford them, to contribute to the welfare of the environment and of the society that we serve. It warms my heart that these initiatives are today being continued in our companies, in ways bigger and better than I could ever have imagined.
Let me mention just a few of them. In July 1987, even though we had little in the way of resources, the opportunity arose to enter into a reforestation contract for the Department of Environment and Natural Resources, funded by the US AID, for a 1,000-hectare tract in Bamban and Sacobia, Tarlac. During the years that we were fighting to recover our Meralco shares and to rehabilitate Philec and Ecco-Asia, this project gave us something different to direct our energies to, and to celebrate small victories. The project reached the end of its term successfully, and a couple of years after, following the eruption of Mr. Pinatubo, I visited the site, half expecting to see all the trees that we had planted flattened by the eruption.
To my great surprise, many of the trees survived and the trees were growing even more quickly than we had anticipated because the ash fall provided the trees with fertilizer. Through the years since then, we have always exploited every excuse to plant more trees. It thrills me to know, however, that in its Binhi Greening Legacy project, in which 6.25 million trees are to be planted in 10,000 hectares over ten years, our newly acquired subsidiary EDC is carrying this passion and commitment to the greening of the Philippines to new heights. In the nineties, I started devoting time and attention to biodiversity as a director of Conservation International. This included treks through some of our last remaining virgin forests in the Sierra Madre range near Palanan, Isabela. The Philippines is considered one of the top 25 biodiversity hotspots in the world, that is, the world’s most biologically richest and most threatened ecosystems. Today, First Gen, along with First Philippine Conservation, Inc., are spearheading the protection of the Verde Island Passage off the coastal waters of Batangas, Mindoro, Marinduque and Romblon.
The Verde Island Passage hosts a fragile ecosystem that is so significant that it has been called the “Center of the Center” in marine biodiversity. Over the past ten years, we have also turned our attention to the challenges of education and poverty alleviation, within the context of a much wider set of initiatives being undertaken by Lopez Group-related companies and foundations such as Bantay Bata, Bantay Kalikasan and the Knowledge Channel. Our particular efforts have centered around providing essential facilities and funding to the Paliparan squatter resettlement site in Dasmariñas, Cavite, a project brought to us by the late Sister Christine Tan, and more recently, the Cauayan, Laguna resettlement project for informal settlers being relocated from along the banks of the Pasig River, as well as for those victimized by Ondoy. These projects receive sustained support as part of our Corporate Social Responsibility program and budget. Within First Holdings, its subsidiaries and across the wider Lopez Group of companies, I have also been the principal advocate, the Pied Piper, if you will, of business excellence practices and initiatives. This started with ISO 9000 and its adjuncts, ISO 14000 and OHSAS 18000 in the mid 1990’s, followed by Environment, Safety and Health in the late 1990’s, the Malcolm Baldrige quality framework and Six Sigma in 2001 and, more recently, Investors in People, world-class governance and the Balanced Scorecard.
My underlying philosophy behind these advocacies is very simple – in today’s global economy, to remain competitive in any market, you must be as good and as committed to excellence as your global competitors. Nothing less will suffice. Corporate Governance has, as of late, been the new mantra in which investors have been asking of all companies. I am happy to share with you that your company has for the second year in a row been bestowed the “Gold Award” in the Corporate Governance Scorecard project of The Institute of Corporate Directors and the country’s corporate regulators.
In fact, there are five, Lopez Companies that were awarded during the ceremonies held last May 27th. First Gen and EDC were likewise recognized in the “Gold Category” with scores above 95 percent. While Benpres Holdings and ABS-CBN received the “Silver Award”. Finally, I have also actively been promoting lifetime wellness for all our employees and the members of their families. A company’s greatest and most expensive resource are its people, and it simply makes good business sense to do what is necessary to protect that resource. Of course, it helps that I love climbing mountains and I practice for those climbs by going up and down six floors every day to get to my office. And it therefore helps to be able to challenge all our employees that if an 80-year old can do it, then so should they.
As I mentioned at the start of my remarks, I have decided to step down as your Chairman and CEO, but I would like to remain active as a Chairman Emeritus in order to continue serving First Holdings in its “NEW BEGINNINGS”. That, perhaps, will take the form of remaining as a guiding light for our core values, our business excellence and CSR activities, in order to ensure that we are at all times competitively honed to take on the challenge of competing in the global marketplace, and in order to ensure that we always have our feet on the ground in appreciating the realities and needs of the publics whom we serve in our country. Again, I thank you for what you have bestowed upon me all these years – your trust, your support, your friendship and your affection. I hope that I have reciprocated properly by serving you well. I
also hope to try to be in the tradition of the two Lopezes who preceded me, namely my father and elder brother, Geny, who died with their boots on in the service of their companies. I also hope to continue seeing some if not all of you once in a while in the coming years. If not, I’ll definitely see all of you in the next life.
Thank you and have a good afternoon.