I.

Overview of the Conglomerate

Key People

BOARD OF DIRECTORS

Oscar M. Lopez
Chairman Emeritus | Executive Director Salvador G. Tirona
Executive Director | President | COO and CFO
Amb. Manuel M. Lopez
Chairman and Chief Executive Officer
Cesar E.A. Virata
Eugenio L. Lopez, III Independent Director
Vice Chairman | Executive Director
Monico V. Jacob
Washington Z. Sycip Independent Director
Independent Director

MANAGEMENT

Oscar M. Lopez Federico R. Lopez

Chairman Emeritus Treasurer

Manuel M. Lopez Miguel L. Lopez

Chairman and Chief Executive Officer Senior Vice Presidet, Human Resources

Eugenio L. Lopez III Enrique I. Quiason

Vice Chairman Corporate Secretary

Salvador G. Tirona Maria Amina O. Amado

President, Chief Operating Officer and Chief Assitant Corporate Secretary, Compliance Officer
Finance Officer and Vice-President, Legal

II. Macroeconomic Assessment

Robust economy of the Philippines sustains growth of industries in the country. And this robustness is
largely driven by sound macroeconomic fundamentals, the growing knowledge process outsourcing
industry, aggressive infrastructure spending by the incumbent Duterte administration, and the sustained
private sector confidence. Macroeconomic factors are included in one of the bread-and-butter techniques
of all business analysis. These drivers play a large part in deciding how a company makes its decision.

Consumer Confidence
It measures overall consumer optimism about the state of the economy. Confident consumers tend to be
more willing to spend money than consumers with low confidence, which means businesses are more
likely to prosper when consumer confidence is high.
Consumer confidence in the Philippines posted its record-high index of 13.1 percent in the second quarter
of 2017, which respondents of the central bank survey attributed partly to improved peace and order
situation.
 20.0%
13.1%
15.0%
9.2% 8.7%
10.0%
5.0% 2.5%

0.0%
1
-5.0%
-10.0% -5.7% -6.4%
-8.1%
-15.0% -10.0%
-11.6%
-20.0% -16.2%
-25.0% -21.8%
-30.0% -26.3%

Source: tradingeconomics.com

Respondents of the survey cited additional family income due to higher salary and stronger business
activity as well as the availability of more jobs and increase in the number of employed family members.
They also mentioned the expected increase in remittances from overseas Filipinos as well as the
anticipated good harvest.
Meanwhile, the millennials continue to dictate retail spending in the country since they have high
disposable incomes and have overtaken the baby boomers in terms of demographic size.
Since Lopez Holdings Inc. is a property developer, this may be a good time to tap the opportunities
presented by a periods of high consumer confidence and strong local economy.
Forecast:
Periods of high consumer confidence can present opportunities for new businesses to enter the market,
while period of low confidence may force companies to cut costs to maintain profits.
Consumer Confidence in Philippines is expected to be 6.10 by the end of this quarter, according to
Trading Economics global macro models and analysts expectations. Looking forward, Consumer
Confidence in Philippines is estimated to stand at 6.70 in 12 months-time. In the long-term, the
Philippines Consumer Confidence is projected to trend around 7.00 in 2020.

14.0%
13.1%
12.0%
10.0%
8.0% 8.2%
7.5% 7.0%
6.0% 6.1% 6.7%
4.0%
2.0%
0.0%
Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 2020

Source: tradingeconomics.com

But with continued OFW remittances and millennials dominating the population, theres no doubt real
estate and construction industry will sustain for the next 5 years.

http://www.philstar.com/business/2017/06/10/1708424/consumer-confidence-all-time-high-q2
http://www.pna.gov.ph/articles/994558
https://tradingeconomics.com/philippines/consumer-confidence

Interest Rates and Inflation Rate (Fiscal Policy)

It is the amount that a lender charges an individual or business to borrow money. The Monetary Board
decided to maintain the interest rate on the BSPs overnight reverse repurchase (RRP) facility at 3.0
percent.
Steady interest rates are good for the private sector like Lopez Holdings Inc. Accordingly, higher interest
rates result in higher total business expenses for companies with debt. High interest rates can also reduce
consumer spending, because high rates make it more expensive for consumers to take out loans to buy
things like cars and homes.
Forecast:
Interest Rate in Philippines is expected to be 3.25 percent by the end of this quarter, according to Trading
Economics global macro models and analysts expectations. Looking forward, we estimate Interest Rate in
Philippines to stand at 3.50 in 12 months time. In the long-term, the Philippines Interest Rate is projected
to trend around 5.00 percent in 2020

6.0%
5.0% 5.0%
4.0%
3.3% 3.5% 3.5% 3.5%
3.0% 3.0%
2.0%
1.0%
0.0%
Last Q3/17 Q4/17 Q1/18 Q2/18 2020

Source: tradingeconomics.com

Taking advantage of lower interest rates and anticipation of rising demand due to government spending
on infrastructure seem a plausible combination. However, economy may overheat if the government fails
to match public spending with an appropriate rate hike.

https://tradingeconomics.com/philippines/interest-rate
http://business.inquirer.net/224315/bsp-raises-inflation-forecasts-2017-2018
https://www.rappler.com/business/173703-bangko-sentral-pilipinas-maintains-interest-rates-monetary-
policy-tetangco
http://www.bworldonline.com/content.php?section=TopStory&title=interest-rates-could-rise-in-early-
2017----analysts&id=133891
http://www.philstar.com/business/2017/03/06/1678261/banks-prepare-higher-interest-rates
https://www.bloomberg.com/news/articles/2017-08-10/espenilla-holds-philippine-interest-rate-in-debut-
policy-meeting
https://www.focus-economics.com/country-indicator/philippines/interest-rate
 Monetary Policy
The governments thrust to intensify infrastructure development bodes well for the long-term growth of
the economy and this should trickle down to various sectors including real estate. As of November 2016
one of the largest projects of Build Build Build program of the administration included the P17.5bn
($370m) Mactan-Cebu International Airport passenger terminal building which will boost tourism in
Cebu where Lopez Holdings Inc. through Rockwell Land Corp. operates.

On the back of strong private real estate development activity, the construction sector remains a top
growth contributor. Lopez Holdings Inc. is a player in both industries.

Another monetary policy is the reduction/increase of national taxes. The recent tax reform program seeks
to shift the source of economic growth to investments from consumption, as the proposed tax reform
program envisions massive investments in infrastructures and human resources.
Tax liabilities pose two issues for a business like Lopez Holdings Inc. First each and every tax required of
a business is just another business expense. All businesses, after all, are there to make a profit.
Forecast:
Foremost of these developments would be the Duterte administrations thrust to aggressively ramp up
infrastructure spending up to 2022. Other factorssuch as the ongoing manufacturing resurgence and
tourism growthare also coming into play at what seems to be a most opportune time for the property
sector.
Meanwhile, Corporate Tax Rate in Philippines is expected to be 30.00 percent by the end of this quarter,
according to Trading Economics global macro models and analysts expectations. In the long-term, the
Philippines Corporate Tax Rate is projected to trend around 30.00 percent in 2020
No movement of corporate tax rate is expected therefore the same strategies employed by business to
reduce tax expenses while earning profits are expected to continue for the next five years.
https://tradingeconomics.com/philippines/corporate-tax-rate
https://www.oxfordbusinessgroup.com/overview/high-rise-economic-growth-spurs-building-large-cities-
well-infrastructure-development-more-remote
http://www.businessmirror.com.ph/property-sector-sustain-growth-momentum-2017

Gross Domestic Product

The growth of the economy drives the demand for electricity. As the countrys population and economy
grow, an increase in demand for energy follows. The energy-to-GDP elasticity is estimated to vary from
0.8 for the transport sector to 1.0 for the industrial sector. This means that an economy with an annual rate
of GDP growth of 6% will drive energy demand from 4.8% to 6%.
Lopez with power industry investments will definitely gain (holding all else equal) from this increasing
demand for energy.
SWOT ANALYSIS

Media and Telecommunication

Strengths:
Quick move towards digital space
Pioneering innovation in digital television
Employees, Talents, and Key people
High Viewership Ratings

Weaknesses:
Funding the development of technology with industry

Opportunities
Large Customer Base

Threats
Here today, gone tomorrow
Competition
Piracy

Real Estate and Construction

Strengths:
Abiding international standards in environment, safety and health, as well as in quality management
Green architecture

Weaknesses:
Cross-ownership provision - This provision opens the possibility for a distribution company to
enter into supply contracts with its generation subsidiaries and create hidden profits for the owners of the
power conglomerate
Falling Natural Gas Reserves

Opportunities:
Growth of BPO Industry and OFW Remittances
Millennials dominating the population

Threats:
Competition
Tourism threatened by War on Drugs, terrorism, and territorial disputes.

Power Generation and Distribution

Strengths:
Use of renewable sources
Empowering communities by providing manpower to its endeavors
Good conditions of natural resources
Weaknesses:
Falling Natural Gas Reserves
High investment costs
Public lack of awareness and education

Opportunities:
Technological progress increasing efficiency of power generation
Funding support, including government subsidies

Threats:
Renewable sources of energy tend to be intermittent because they are subject to the vagaries of the
weathersun, wind and rainwater.
Promotion of Competition by the government
Increasing subsidy requirement of government

Lopez Holdings Inc. have chosen natural gas for its plants because it is the most environment-friendly
bridge fuel. FGENs natural gas-fired power plants are capable of serving baseload, mid-merit or peaking
requirements of electricity consumers, with lower carbon dioxide emissions compared to power plants
that use other kinds of fossil fuels.

TRIPPLE BOTTOM LINE ANALYSIS

Profit and Loss (Economy)

Effective management of risks:
(1) Customer (Stakeholder) wants/ satisfaction risk
Requirements of Lopez Holdings stakeholders vary and the company may be unable to meet all
requirements in a timely manner. Regulators require compliance with rules and regulations; creditors
require the settlement of all obligations; shareholders require a fair return on their investment; associated
companies require financial and other forms of support; senior management requires current and accurate
information on group-wide operations; employees require compensation and benefits.
(2) Business interruption risk
Prolonged interruption in operations may stem from disasters such as earthquake or fire that may damage
office premises. As part of safety measures, employees regularly train in disaster risk reduction and
emergency response (see section on Employee Wellness and Safety). Off-site information systems are in
place to ensure continuous operations from remote or mobile locations, should the situation require.
(3) Capital availability or cash flow (liquidity) risk
This refers to the companys exposure to the risk of lower returns on its investments or the necessity to
borrow due to shortfalls in cash or expected cash flows, or variances in their timing. There is risk that
cash flows from dividends and asset sales may not come in as expected. The level of outstanding
obligations of Lopez Holdings is deemed manageable with respect to required interest payments.
(4) Foreign currency exchange risk and foreign currency revaluation risk
Volatility in foreign currency exchange rates may expose Lopez Holdings to economic and accounting
losses related to direct and indirect obligations. Extraordinary fluctuations in foreign currency exchange
rates may affect reported operational profits and deficit, potentially reducing the ability of associated
companies to declare dividends. The companys restructured foreign currency denominated debt of US$5
million is deemed manageable. It is also monitoring the mitigation plans of associated companies in
relation to foreign currency exchange and foreign currency revaluation risk.
(5) Interest rate risk
Fluctuations in interest rates may affect the companys capital availability or cash flow risk as they
expose the company to variable cash requirements in relation to debt with floating interest rates. This risk
was considered less significant in 2016 given the manageable level of company debt, as well as the fixed
rate on long-term debt.
(6)Credit risk
Lopez Holdings has advances in associated companies but these comprise less than 5% of assets. Trade
receivables refer to accounts under ABS-CBN, which are managed at the ABS-CBN level. Lopez
Holdings does not offer credit terms for the provision of services as a holding company.

People Account (Employees)

Employee Wellness and Safety Lopez Holdings treats employees as partners in the success of the
company. Their health and well-being are of prime importance in sustaining productivity and company
growth. Health benefits, including a generous hospitalization plan, constitute a significant component of
the companys employment package. Regular employees undergo annual medical examinations and flu
vaccinations, as well as seminars on physical, emotional, financial and spiritual wellness.
The company also enrolled them in an emergency assistance program provided by a third party. It
cosponsored a Walk-the-Talk activity and encouraged a sustainable lifestyle for employees. The rate of
absences on account of sickness has been almost nil in 2016, 2015 and 2014.
Employee safety is also important to the company. The company ensures that employees are regularly
trained in maintaining safety in the workplace and in preparing for and dealing with emergencies. They
undergo building exit drills at least once a year. An ESH (environment, safety and health) committee
leads the enforcement of emergency protocols and provides regular ESH updates. To-date, the company
has had no incidents of injuries in the workplace.

Planet Account (Ecology)

Lopez Holdings Inc. investee FPH is continually exploring ways to meet our countrys energy
requirements in a manner that will have the least impact on, or best conserve our natural resources, as
well as empower the communities that provide manpower to its endeavors.
BANTAY KALIKASAN
Launched in 1998, Bantay Kalikasan (BK), ABS-CBN Lingkod Kapamilya Foundations Incorpateds
environment advocacy arm, has propelled massive changes towards the protection and sustainability of
the countrys natural environment. Bantay Kalikasan paved the way for rehabilitating the sole watershed
in Metro Manila the La Mesa Watershed. To date, from 9 species, the watershed now houses 100
endemic species. More than a hundred thousand seedlings are nurtured and cultivated. From only 20,
there are now a total of 125 species of birds in the forest. More than 400,000 visitors from 27 companies
have shown and expressed their support to restore the splendor of La Mesa.