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A Strategic Management Paper for the First Philippine Holdings Corporation (FPH)

Karlo Jennuel R. Antonio

IBE 18 | BLM | 4thYear

March 6, 2014


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Brief Introduction of the Company

First Philippine Holdings Corporation(FPH) is a management and investment companywhose major business is clean power generation and distribution, with strategic initiatives in

manufacturing and property development. In its 50 years, it has pioneered and managed some ofthe country's best companies, who are market leaders in their key industries. FPH is a member oftheLopez Group of Companies.

Its power generation subsidiary, First Gen Corporation (First Gen), is a renewable energyproducer, with power plants that use geothermal, hydro, and natural gas for fuel. Today, it has atotal installed capacity of 2,832.6 MW, or 18.2% of the countrys to tal installed capacity. FirstGen manages the world's second largest geothermal power producer, Energy DevelopmentCorporation, which searchws for indigenous, low-carbon energy alternatives.

FPH's manufacturing subsidiary, First Philippine Electric Corporation (First Philec), operates the

country's first large-scale silicon wafer-slicing facility called First Philec Solar Corporation(FPSC), which supplies some of the world's leading photovoltaic companies. FPSC is a jointventure of First Philec and SunPower Corporation, an established global technology leader in thesolar industry.

In property development, FPH expands its reach through Rockwell Land Corporation (RockwellLand) and First Philippine Industrial Park (FPIP). Rockwell Land has raised the bar forresidential and commercial development in the country, by developing brands unparalleled inluxury and innovation. FPIP is the countrys market leader in industrial parks, hosting prominent

multinational companies in the consumer, electronics, and technology industries.

FPH maintains its corporate headquarters at the 4th floor of the Benpres Building in OrtigasCenter atPasig City,Philippines. The firm is currently headed by the following key executives:

Chairman Federico R. Lopez

Co-chairman Oscar M. Lopez

Vice Chairman Augusto Almeda Lopez

Chief Executive Officer Federico R. Lopez

Managing Director Arthur A. Guia
http://en.wikipedia.org/wiki/Lopez_Group_of_Companieshttp://en.wikipedia.org/wiki/Ortigas_Centerhttp://en.wikipedia.org/wiki/Ortigas_Centerhttp://en.wikipedia.org/wiki/Pasig_Cityhttp://en.wikipedia.org/wiki/Pasig_Cityhttp://en.wikipedia.org/wiki/Ortigas_Centerhttp://en.wikipedia.org/wiki/Ortigas_Centerhttp://en.wikipedia.org/wiki/Lopez_Group_of_Companies


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Mission Statement Analysis

1. Mission Statement of FPHWe will leverage our competencies and experience from energy, infrastructure, realestate, and industry to drive business strategies and solutions for the benefit of ourcustomers and other stakeholders.

2. AnalysisComponent Remark/Comment

Customers It is understandable that FPH refers theircustomers in a generic sense. This is toprovide flexibility for the firm to diversifyand cater to other sectors

Product/Services Since FPH is a holding/managing firm,leverage our competencies already speak

of their offering to the marketthat is tomuster everything and anything they havein their machineries to generate profit.

Markets Again, FPH intentionally made it in ageneric since, so that they may diversify inthe future.

Technology There was no mention as to the level ofacquired technologies, or whether or norare these at par.

Concern for Survival, Growth, &Profitability

No mention as to their financial goals.

Philosophy FPHs values were not mentioned.

Self-concept FPH has the most technologically advancedfacilities in the utilities sectors, and yetsuch advantaged was not mentioned.

Concern for Public Image FPH corporate social responsibility was notmentioned.

Concern for Employees No mention as well with regards to FPHsemployees welfare.


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Proposed Adequate-Appropriate Mission Statement

Guided with the values of unity, integrity, and excellence, we aim to leverage our

competencies and experience from the energy, industrial, infrastructure, and real estateindustries, equipped with the most advanced and up-to-date technologies, to drivebusiness strategies and solutions for the continued and sustained increase of ourshareholders value; for the benefit of our customers, community stakeholders, as well asfor the wellness and welfare of our employees.


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PEST Analysis

Political Economic

Political Stability of the Government

Taxing Policies and Incentives onengaged sectors

Governments view on renewableenergy

Government Regulations Public Pressure on the Government to

address environmental issues Implementation of Feed-in Tariffs on

Renewable Energy

Countrys Gross Domestic Product

(GDP) growth Global Economy Reduced Interest Rates Inflation and Exchange Rates of

Foreign Currencies Strength and Performance of the Stock

Market Urbanization = Increased Demand for

Energy Expanding Middle Class

Social Technology

Societys Growing Trend to a

Greener Future Lifestyle Changes (leaning to a

Consumerist Lifestyle) Increased consumption of electricity-

dependent items

Level of Research & Development

Speed of Technology Transfers

Caption:The political climate that FPH operates in is in its favor, as well as the economic andsocial factors are also in complement to the firms operations.


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Porters 5 Forces Analysis

Caption: As the leader in the renewable energy sector and as an owner of huge chunks of the

market in other industries, FPH faces little to no competition and pressure, both from other firms

and consumers. Threat of entry is relatively low. However, there is a high pressure coming from

the suppliers, since the government has the sole discretion to allow a firm to harness and

distribute energy. Materials for photovoltaic are rare and produced by few firms. Land,

especially in the urban areas, is becoming scarcer.

Threat of Substitute

Products: Low Pressure

-Few firms offer the same

services/products of FPH.Moreover, switching costcan be really taxing in termsof amount and corporatetime.

Bargaining Powers of

Suppliers: High Pressure

-The government is thesole supplier of therenewable source of energyharnessed by FPH, throughauthorizations to conductbusiness.

-Also, materials needed tomanufacture photovoltaicare only supplied by fewfirms in the world.-Land acquisition effortsare also affected by priceand scarcity of availableland spaces for business,whether in real estate orenergy.

Rivalry Among Existing

Firms: Low to Median

Pressure-Currently, FPH is facingonly a handful ofcompetitors. This is due tothe fact that it requiresmassive economies of scale

to be able to engage in theutilities and real estatesectors. However, thesecompetitors are inferior interms of financial,technological, and corporatemachinery compared to FPH.(FPH has been absorbingfinancially-downcompetitors).

Bargaining Power of

Buyers: Low Pressure

-Individual buyers haveno pressure on FPH.- Switching cost is highand only few firms overthe sameproducts/services.

-Society, in fact,applauds and supportefforts to increase theproductions of renewableenergy

Threat of New

Entrants/Potential

Competitors: Low Pressure

-Entry barriers are relativelyhigh. A firm will have toundergo an intricate processof acquiring a license toharness renewable energyand to distribute it.-The energy, industrial,infrastructure, and real estateindustries require massiveamount of capital andeconomies of scale.


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Industry Analysis: EFE Matrix

External Factor Evaluation (EFE) Matrix

Opportunities Weight Rating Weighted Score

1. Societys growing trend to agreener future

0.1 3 0.3

2. Upward energy demand 0.25 3 0.75

3. Unexploited sources ofrenewable energy

0.09 4 0.36

4.Increasing purchasing power ofconsumers and an expandingmiddle class

0.15 3 0.45

5. Increasing global demand forphotovoltaic technology

0.08 4 0.32

Threats Weight Rating Weighted Score1. Gas and oil are still relatively

more affordable thanrenewable energy

0.141 2 0.282

2. Fluctuations in foreigncurrency trade

0.025 3 0.075

3. Increasing competition 0.039 4 0.156

4. Increasing acquisition price of

materials for operations

0.025 3 0.075

TOTALS 1 2.768

Caption:FPH has been efficient in capitalizing on opportunities that have appeared in its years

of operation, as well as in averting, and in some instances, mitigating the effects of various

threats that it faces.


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Competitive Profile Matrix (CPM)

Aboitiz

Power

Corporation

Alsons

Consolidated

Resources, Inc.

SPC Power

Corporation

Ayala Land,

Inc.

Critical Success

Factor

Weight Rating Score Rating Score Rating Score Rating Score

Market Share 0.2 2 0.4 2 0.4 2 0.4 3 0.6

FinancialPosition

0.15 3 0.45 2 0.3 2 0.3 4 0.6

Product/ServiceQuality

0.15 3 0.45 2 0.3 2 0.3 4 0.6

ProductionCapacity

0.05 3 0.15 3 0.15 3 0.15 3 0.15

PriceCompetitiveness

0.09 3 0.27 3 0.27 3 0.27 4 0.36

ConsumerLoyalty

0.05 2 0.1 1 0.05 1 0.05 3 0.15

CustomerService

0.09 3 0.27 2 0.18 2 0.18 3 0.27

OrganizationStructure

0.09 3 0.27 3 0.27 3 0.27 4 0.36

ManagementExperience

0.07 3 0.21 2 0.14 2 0.14 4 0.28

GlobalExpansion

0.06 1 0.06 1 0.06 1 0.06 1 0.06

TOTALS 1 2.63 2.12 2.12 3.43

Caption:FPH has been marginally outperforming its competitors, except for Ayala Landtheindustry leader in real estate. But still, the firm is still able to own a relatively large market share

and generates more than enough profit from real estate.


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McKinsey 7S Analysis

Caption: FPH has been able to institutionalize its corporate values in the various areas and

operations of the business. Hence, consistency is maintained across the firm.

Structure: A holding firm ofother firms engaged invarious industries, FPH has avertical chain of command,from the Board of Directorsdown to specific Board ofDirectors of the respectivesubsidiary firms. Eachsubsidiary is independentfrom each other, in terms ofoperations.

Strategy: With a strongfinancial position, FPH has

been acquiring distressedcompetitors, so as to closein on the market.Moreover, FPH has beenengaged in explorationprojects in Latin Americaand Indonesia. This is partof their global expansionstrategies.

Shared Values: Basically,FPH was created out of thegoal of securing asustainable future. With thevalues of unity, integrity, andexcellence, Through itscompetencies and experiencein the various industries it isengaged in, FPH seeks toincrease their shareholdersvalue, delivery qualityservice to their customers,and create benefits for thecommunity stakeholders aswell as their employees.

Systems: There is

nothing unique with

FPHs day-to-dayoperations. The same is

comparable to any other

firm. However, the

difference lies on the

execution of even the

simplest task. FPH

committed to excellence.

Skills: FPH hires only themost experienced andacademically excellent

employees. Even afterhiring, FPH still requirestheir employees to undergoa continuous series oftrainings.

Style: The management

of FPH has adopted a

clairvoyant style in

leadership. They make

sure that they see first the

trends and other

movements in the market

before their competitors

do.

Staff: FPH employees andstaffs have been carefullychosen to deliver the value ofexcellent, which the firm hasadopted as its core values.


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Summary of Financial Ratios

1. Liquidity Ratio

a.

Current = 2.4b. Quick = 1.7

2. Leverage Ratio

a. Debt to Total Assets = 59.5

b. Debt to Equity = 115.7

3. Activity Ratio

a. Inventory Turnover = 3.7

b. Fixed Assets Turnover = 1.2

c. Total Assets Turnover = 0.3

d. Accounts Receivable Turnover = 4.5

e. Average Collection Period = 62.3 days4. Profitability

a. Gross Profit Margin = -37.26%

b. Operating Profit Margin = -82.69%

c. Net Profit Margin = -25.53%

d. Return on Total Assets (ROA) = 3.20%

e. Return on Stockholder Equity (ROE) = 2.01%

5. Year over year, First Philippine Holdings Corporation has been able to grow revenues

from Php 69.8B to Php 72.6B. Most impressively, the company has been able to reduce

the percentage of sales devoted to cost of goods sold from 82.16% to 80.63%. This was a

driver that led to a bottom line growth from Php 2.1B to Php 9.6B.

Although debt as a percent of total capital increased at First Philippine Holdings

Corporation over the last fiscal year to 39.13%, it is still in-line with the Electric Utilities

industry's norm. Additionally, there are enough liquid assets to satisfy current

obligations. Cash Collection is a strong suit as the company is more effective than most

in the industry. As of the end of 2012, its uncollected receivables totaled $14.2B PHP,

which, at the current sales rate provides a Days Receivables Outstanding of 62.52. Last,

First Philippine Holdings Corporation is among the most efficient in its industry atmanaging inventories, with only 48.44 days of its Cost of Goods Sold tied up in

inventory.


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SWOT Analysis

Strengths:

Diversified Business Operation

Quality Standards

Power Generation Capability

Financial Resources

Economies of Scale

Newly Acquired Technologies

First Mover Advantage: Experienceand Knowledge of the Industry

Strong Brand

Reputation

Weaknesses:

Increasing Non-Cash Component

Dependent on Large Sale Volume

Dependent on Constant CostReduction

Long Project Lead Time

Geographically Constrained

Opportunities: Societys Growing Trend to a

Greener Future

Upward Energy Demand

Unexploited Sources of RenewableEnergy

Increasing Purchasing Power of theConsumers

Expanding Middle Class

Increasing Global Demand forPhotovoltaic Technology

Threats: Gas and Oil are still relatively more

affordable than renewable energy

Fluctuation in Foreign CurrencyTrade

Increasing Competition

Increasing Acquisition Price ofMaterials for Operations

Caption: The weaknesses and the potential threats to FPH are only incidental to trends

that the economy is experiencing in status quo. More so, such were not direct causes of

the firms incompetence or unstrategicbusiness moves. However, the current strengths

and opportunities outweigh the weaknesses and threats, and the formers can neutralize

the latters with proper strategy and execution.


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Internal Factor Analysis (IFE)

Internal Strengths Weight Rating Score

1. Diversified Business Operations 10% 4 0.42. Quality Standards 10% 4 0.4

3. Power Generation Capability 12% 4 0.48

4. Economies of Scale 10% 4 0.4

5. Newly Acquired Technologies 10% 3 0.3

6. First Mover Advantage: Experience andKnowledge of the Industry

13% 4 0.52

7. Strong Brand 10% 3 0.3

8. Reputation 10% 3 0.3

Internal Weaknesses Weight Rating Score

1. Increasing Non-Cash Component 5% 2 0.12. Dependent on Large Sale Volume 2% 2 0.04

3. Dependent on Constant Cost Reduction 2% 2 0.04

4. Long Project Time Lead 3% 1 0.03

5. Geographically Constrained 3% 1 0.03

TOTALS 100% 3.34

Caption: As already enunciated in the earlier observations, the weaknesses of FPH are

but mere incidents of the industries, i.e. factors that can be mitigated but cannot averted.

However, the existing strengths of FPH can marginally outweigh and neutralize its

weaknesses.


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TOWS Analysis

External Opportunities (O)

1. Societys Growing Trendto a Greener Future

2. Upward Energy Demand3. Unexploited Sources of

Renewable Energy4. Increasing Purchasing

Power of the Consumers5. Expanding Middle Class6. Increasing Global

Demand for PhotovoltaicTechnology

External Threats (T)

1. Gas and Oil are stillrelatively moreaffordable thanrenewable energy

2. Fluctuation in ForeignCurrency Trade

3. Increasing Competition4. Increasing Acquisition

Price of Materials forOperations

Internal Strengths (S)

1. Diversified Business

Operation2. Quality Standards3. Power Generation

Capability4. Financial Resources5. Economies of Scale6. Newly Acquired

Technologies7. First Mover Advantage:

Experience andKnowledge of the Industry

8. Strong Brand9. Reputation

SO

Maxi-Maxi Strategy

1.

Increased Research &Development efforts2. Increased marketing

efforts3. Engage in more activities

in promotingenvironmentalism

4. Start distribution effortsin soon-to-be urbanizedareas

5. Invest on explorationprojects in newlyindustrializing countries.

ST

Maxi-Mini Strategy

1.

Cut-down on unnecessaryexpenditures so as todecrease price passed onconsumers.

2. Acquire locally producedmaterials instead ofimporting

3. Acquire distressedcompetitors

4. Implement innovativeservices/products

Internal Weaknesses (W)1. Increasing Non-CashComponent

2. Dependent on Large SaleVolume

3. Dependent on ConstantCost Reduction

4. Long Project Lead Time5. Geographically

Constrained

WOMini-Max Strategy

1. Offer sale discounts onlarge volume purchases

2. Find alternative sourcesof renewable energy inother geographicallocations

WTMini-Mini Strategy

1. Create a strategicmanagement paper

every year, so as to assesevery move of the firm.

2. Avoid engaging in over-diversification, so as notto be exposed to toomany risks.

Caption: The current strengths and opportunities, if harnessed properly, can directly

neutralized or, at least, mitigate the harms of the lingering threats and weaknesses.


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SPACE Matrix

Conservative Aggressive

Defensive Competitive

Caption: (+3, +6) FPH is a financially strong firm that has achieved major competitive

advantages in the growing and somehow stable industries of energy, industrial, infrastructure,

and real estate. Moreover, FPHs financial position has been a dominating factor in the industry.

7

6

5

4

3

2

1

6 5 4 3 2 1 1 2 3 4 5 6

1

2

3

4

5

6

7


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Boston Consulting Group (BCG Growth Share) Matrix

Question Marks1. Expanding Middle Class

2. Increasing Purchasing Power of the Consumers

Stars1. Unexploited Sources of Renewable Energy

2. Increasing Global Demand for PhotovoltaicTechnology

Dogs Cash Cows1. Societys Growing Trend to a Greener Future2. Upward Energy Demand

Caption: None of the opportunities FPH are classified as dogs. This is due to the fact that FPH

is an industry leader with a huge market share, massive financial machinery, and well-equipped

with the latest technologies


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Internal-External (IE) Matrix

IFE TOTAL WEIGHTED SCORES

EFE TOTAL

WEIGHTED

SCORES

STRONG

3.0 TO 4.0

AVERAGE

2.0 TO 2.99

WEAK

1.0 TO 1.99

HIGH

3.0 TO 4.0

1 2 3

MEDIUM

2.00 TO 2.99

4 5 6

LOW

1.0 TO 1.99

7 8 9

Caption: EFE falls under average/medium, while IFE shows strong/high impact on the firm.


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Grand Strategy Matrix

Rapid Market Growth

Quadrant 2 Quadrant 1

(3,6)

Weak Competitive Position Strong Competitive Position

Quadrant 3 Quadrant 4

Slow Market Growth

Caption: For FPH, continued concentration on current markets and product is but wise for a

strategy. It can be taxing on the firm if it will suddenly shift from its current competitive

advantages.


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Quantitative Strategic Planning Matrix

Caption: The option of expanding the firm domestically is seen to be more lucrative given its

0.74 margin against international expansion.

Key Factors Alternative 1

Expand Domesticall y

Alternative 2

Expand InternationallyStrengths Weight Attractiveness Score Weight Attractiveness Score

Diversified Business Operations 0.10 4 0.4 0.10 1 0.1

Quality Standards 0.10 4 0.4 0.10 4 0.4

Power Generation Capability 0.12 4 0.48 0.12 2 0.24

Economies of Scale 0.10 4 0.4 0.10 3 0.3

Newly Acquired Technologies 0.10 3 0.3 0.10 3 0.3

First Mover Advantage: Experience andKnowledge of the Industry

0.13 4 0.52 0.13 4 0.52

Strong Brand 0.10 3 0.3 0.10 2 0.2

Reputation 0.10 3 0.3 0.10 3 0.3

Weaknesses Weight Attractiveness Score Weight Attractiveness Score

Increasing Non-Cash Component 0.05 2 0.1 0.05 2 0.1

Dependent on Large Sale Volume 0.02 2 0.04 0.02 2 0.04

Dependent on Constant Cost Reduction 0.02 2 0.04 0.02 2 0.04Long Project Time Lead 0.03 1 0.03 0.03 1 0.03

Geographically Constrained 0.03 1 0.03 0.03 1 0.03

Sum Weights 1.00 1.00

Opportunities Weight Attractiveness Score Weight Attractiveness Score

Societys growing trend to a greenerfuture

0.1 3 0.3 0.1 3 0.3

Upward energy demand 0.25 3 0.75 0.25 3 0.75

Unexploited sources of renewable energy 0.09 4 0.36 0.09 4 0.36

Increasing purchasing power ofconsumers and an expanding middle class

0.15 3 0.45 0.15 3 0.45

Increasing global demand forphotovoltaic technology

0.08 4 0.32 0.08 4 0.32

Threats Weight Attractiveness Score Weight Attractiveness Score

Gas and oil are still relatively moreaffordable than renewable energy

0.141 2 0.282 0.141 2 0.282

Fluctuations in foreign currency trade 0.025 3 0.075 0.025 3 0.075

Increasing competition 0.039 4 0.156 0.039 4 0.156

Increasing acquisition price of materialsfor operations

0.025 3 0.075 0.025 3 0.075

Sum Weights 1.00 1.00

Sum Total Attractiveness Score 6.108 > 5.368


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Balanced Scorecard

Objectives Measures Targets

(1 Yr.)

Initiatives

Financial Maximize returnsProfitable growthLeverage asset base

Manage operating costs

Return of Capital EmployedRevenue growthAsset utilization rate

Operating costs

14%6%80%P150

Reduction of unnecessary

Customer Industry leading customerloyalty

Customer Satisfaction Rating 80% Customer loyaltyprogram

Internal

Processes

Business Growth

Capitalize on deregulationopportunitiesOptimize trading opportunitiesDevelop innovative servicesUse alliances and jointventures

Leverage cross-group R&D

% revenue from deregulatedproducts/services% trading revenueRevenue frombrand new services% customers serviced throughalliances/joint venturesNPV product/service pipeline

% R&D projects meeting protocol gates

5%10%P500M10%P500M90%

Telecom infrastructuredevelopmentTrading risk assessmentResearch alliance

program

Continued Public Support

Proactively managerelationshipsEnsure reliable servicesCommunicate/educatecustomersEffective customer service

Customer/partner satisfactionReliability index% communication/education coverage% communication/education plansexecuted

4.090/100100%80%

Telecom infrastructuredevelopmentTrading risk assessmentResearch alliance

program

Customer Service Excellence

Seamless cross-group deliveryUnderstand customer driversEffective customer services

Promise delivery %

New product uptake rateOn-time market projectsCustomer satisfaction rating C.S.D.Problem resolution cycle time C.S.D.

90%20%90%85%6hr

Cross-selling marketingprogramService dispatchautomationCIS upgradeCall center software

integration

Optimize Core Business

Optimize asset utilizationMax return on resourceallocationContinued cost managementEnterprise-wide riskmanagement

% rate capacity attainedEmployee productivity improvement% cost reductionCost of disruption vs. planTime to recovery

80%2%4%+/-15%8hr

Fossil maintenancebenchmarkShared service

benchmark/outsourcinginitiativeERP Implementation

Learning &

Growth

Ensure market-driven skillLeading employee satisfactionWorld Class Leadership

Strategic skill coverage ratioHours in strategic skills trainingEmployee satisfaction ratingLeadership effectiveness ratio

65%103.04.0

Competency profilingPerformancecompensation linkLeadership training

program

Caption: The following have been carefully chosen to compliment the earlier SWOT, PEST,

TOWS, IFE and EFE analyses.


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Strategy Map

Caption: An outline of the overall approach of the firm on how to achieve its goals.

Customer

InternalProcesses

Learning &Growth

Financial

Improve Cost

StructureIncrease Asset

UtilisationEnhance

Customer ValueExpand

Revenue

Price Quality Availability Selection Function Service Partnershi

Brand

Productivity Strategy Revenue Growth Strategy

Production Service Attributes Relationship Image

Optimize Core Businesses

Processes that produce anddeliver products and

services

Customer Service

Excellence

Processes that enhance

customer value

Business Growth

Processes that create new

products and services

Continued Public Support

Processes that improvecommunities and the

environment

Human Capital

SkillsTraining

Knowled e

Information Capital

SystemsDatabasesNetworks

Organisational Capital

Skills / TrainingKnowledgeTeamwork

Sustained Shareholder Value

+ +

Customer ValueProposition

Vision: Uplifting lives by creating value in key industries and infrastructure that advance national development.


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Projected Income Statement

Current Year 1 Year 2 Year 3

Sales 59,997.0 61,508.0 69.753.0

Cost of Goods Sold 42.907.0 48.632.0 57,311.0

Operating Expenses -6,161.0 -4,389.0 -2,933.0

Net Income 8,731.0 24,850.0 2,117.0

Caption: Given the proposed strategies for FPH, the firm will be expecting a steady increase of

income for the next 3 years.

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