mpic: annual report

8/9/2019 MPIC: Annual report

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COVER SHEET

for

SEC FORM 17-A

SEC Registration Number

C S 2 0 0 6 0 4 4 9 4

Company Name

M E T R O P A C I F I C I N V E S T M E N T S C O R P

O R A T I O N A N D S U B S I D I A R I E S

Principal Office (No./Street/Barangay/City/Town/Province)

1 0 t h F l o o r , M G O B u i l d i n g , L e g a

s p i c o r n e r D e l a R o s a S t r e e t s ,

L e g a s p i V i l l a g e , M a k a t i C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

A C F S

COMPANY INFORMATION

Company’s Email Address Company’s Telephone Number/s Mobile Number

[email protected] +632-888-0888 -

No. of Stockholders Annual Meeting

Month/DayFiscal YearMonth/Day

1,334 as at 12.31.2014 Last Friday of May December 31


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12. Check whether the registrant:

a) has filed all reports to be filed by Section 17 of the SRC and SRC Rule 17 thereunder orSection 11 of the RSA and RSA Rule 11 (1)-1 thereunder and Sections 26 and 141 of theCorporation Code of the Philippines during the preceding 12 months (or for such shorter period that the registrant was required to file such reports);

Yes [ x ] No [ ]

b) has been subject to such filing requirements for the past 90 days.

Yes [ x ] No [ ]

13. State the aggregate market value of the voting stock held by non-affiliates of the registrant. Theaggregate market value shall be computed by reference to the price at which the stock was sold; orthe average bid and asked price of such stock, as of a specified date within sixty (60) days prior tothe date of filing. If a determination as to whether a particular person or entity is an affiliate cannot be made without involving unreasonable effort and expense, the aggregate market value of thecommon stock held by non-affiliates may be calculated on the basis of assumptions reasonableunder the circumstances, provided the assumptions are set forth in the Form.

The aggregate market value of voting stocks held by non-affiliates representing 44.0% of

outstanding common shares is P=61,942 million, computed on the basis of the closing price as atFebruary 28, 2015 of P=5.40 per share.


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METRO PACIFIC

INVESTMENTS

CORPORATION

SEC FORM 17-A

December 31 2014


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TABLE OF CONTENTS

PART I – BUSINESS AND GENERAL INFORMATION

Item 1. Description of Business ........................................................................................ 1

Item 2. Description of Properties .................................................................................... 15

Item 3. Legal Proceedings............................................................................................... 16

Item 4. Submission of Matters to a Vote of Security Holders ........................................ 16

PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters ...... 17

Item 6. Management’s Discussion and Analysis of Financial Condition and Results of

Operations (MD & A)

Financial Highlights and Key Performance Indicators ....................................... 20

Operational Review ............................................................................................ 22

I - MPIC Consolidated .................................................................................. 22

II - Operating Segments of the Group........................................................... 26

MPIC Consolidated Statement of Financial Position ......................................... 35

Liquidity and Capital Resources ......................................................................... 39

Comparison of Other Financial Years ................................................................ 42

Item 7. Consolidated Financial Statements ..................................................................... 52

Item 8. Changes in and Disagreements with Accountants on Accounting and FinancialDisclosures ...................................................................................................................... 52

PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers of the Issuer ................................................... 53

Item 10. Executive Compensation ................................................................................. 64

Item 11. Security Ownership of Certain Record and Beneficial Owners and

Management .................................................................................................................... 67

Item 12. Certain Relationships and Related Party Transactions ..................................... 69

PART IV – CORPORATE GOVERNANCE

Item 13. Part IV - Corporate Governance portion of the Annual Report ....................... 69


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PART I – BUSINESS AND GENERAL INFORMATION

Item 1. Description of Business

(A) Business Development

Metro Pacific Investments Corporation (the Parent Company or MPIC) was incorporated in thePhilippines and registered with the Philippine Securities and Exchange Commission (SEC) onMarch 20, 2006 as an investment holding company. MPIC’s common shares of stock are listed in

and traded through the Philippine Stock Exchange (PSE). On August 6, 2012, MPIC launchedSponsored Level 1 American Depositary Receipt (ADR) Program with Deutsche Bank as theappointed depositary bank in line with the Parent Company’s thrust to widen the availability of itsshares to investors in the United States.

MPIC is 55.8% owned by Metro Pacific Holdings, Inc. (MPHI) as at December 31, 2014 and2013. MPHI’s economic interest in MPIC is reduced from 55.8% to 52.1% as atFebruary 26, 2015 as a result of the overnight placement on February 9, 2015 (see Note 39 of the

attached 2014 Audited Consolidated Financial Statements).

MPHI is a Philippine corporation whose stockholders are Enterprise Investment Holdings, Inc.(EIH), Intalink B.V. and First Pacific International Limited (FPIL). First Pacific CompanyLimited (FPC), a company incorporated in Bermuda and listed in Hong Kong, through itssubsidiaries Intalink B.V, and FPIL, holds 40.0% equity interest in EIH and investment financingwhich under Hong Kong Generally Accepted Accounting Principles, require FPC to account forthe results and assets and liabilities of EIH and its subsidiaries as part of FPC group of companiesin Hong Kong.

MPIC is a leading infrastructure holding company in the Philippines. MPIC’s intention is tomaintain and continue to develop a diverse set of infrastructure assets through its investments inwater utilities, toll roads, electricity distribution, healthcare services and light rail. MPIC istherefore committed to investing through acquisitions and strategic partnerships in primeinfrastructure assets with the potential to provide synergies with its existing operations.

The list of MPIC’s subsidiaries is contained in Note 2 of the attached 2014 Audited Consolidated

Financial Statements.

(B) Business of the Issuer

For management purposes, the Company is organized into the following segments based onservices and products:


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Power distribution, which primarily relates to the operations of Manila Electric Company

(MERALCO) in relation to the distribution and supply of electricity. The investment inMERALCO is held primarily through a joint venture, Beacon Electric Holdings, Inc. (BeaconElectric).

Healthcare, which primarily relates to operations and management of hospitals, nursing andmedical schools and such other enterprises that have similar undertakings.

Rail , which primarily relates to operations and maintenance of the Light Rail Transit (LRT)

and construction of the extension by Light Rail Manila Corporation (LRMC) and ticketingservices by Automated Fare Collection Services, Inc (AFCSI).

Others, which represent holding companies and operations of subsidiaries involved in realestate and provision of services.

The following table shows the breakdown of the Group’s revenues, core income and reported netincome by major segment:

Year Ended December 31, 2014 (in Php Millions)

Water

Utilities

Toll

Operations

Healthcare Power

Distribution Rail Total

HO Expense

and Interest Consolidated

Total revenue from external sales 18,363 8,641 6,828 - - 33,832 - 33,832

MPIC's share in the Core Income 4,376 2,239 465 3,027 (28) 10,079 (1,571) 8,508

Operating companies contribution (%) 43% 22% 5% 30% 0% 100% - -

Non-recurring income (charges) (278) (92) (33) (55) (52) (510) (58) (568)

Segment Income (Loss) 4,098 2,147 432 2,972 (80) 9,570 (1,629) 7,940

The revenues of the Group were primarily derived from sales within the Philippines.

In 2013, MPIC made its first offshore investment, through its wholly owned subsidiary MPICInfrastructure Holdings Limited (MIHL), by acquiring a 25% ownership in FPM InfrastructureHoldings Limited (FPM Infra) which holds a 29.45% stake in a Thai toll road operator, DMT. In2014, MPIC acquired, through MIHL, from FPC the remaining 75% ownership in FPM Infra.

Accumulated equity in net earnings in DMT amounted to₱83.9 million as at December 31, 2014.

Except as stated in the succeeding paragraphs and in the discussion for each of the MPIC’ssignificant subsidiaries, there has been no other business development such as bankruptcy,receivership or similar proceeding not in the ordinary course of business that affected theregistrant for the past three years.


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MWHCI. MCNK is 90.0% owned by Marubeni Corporation, a company incorporated in Japan

and 10% owned by MAPL Holdings B.V., a company incorporated in the Netherlands.

Maynilad’s subsidiaries are PHI and Amayi Water Solutions, Inc. (Amayi). PHI, which wasacquired by Maynilad on August 3, 2012 through a Share Purchase Agreement (SPA) with a third party, is engaged in waterworks construction, engineering and engineering consulting services.PHI has 25-year Bulk Water Supply Agreements with various provincial municipalities outsidethe West Service Area and a Memorandum of Agreement with certain provincial municipality forthe construction and operation of water treatment facilities for water distribution services. Amayi,

incorporated on July 18, 2012, was established for the purpose of operating, managing,maintaining and rehabilitating waterworks, sewerage and sanitation system and services outsidethe Concession Area.

MPIC’s bulk water supply services are operated through its wholly owned subsidiary, MPWIC.MPWIC has an effective interest of 20% in Cebu Manila Water Development, Inc. (CMWD)through its direct ownership of 39% in Manila Water Consortium Inc. (MWCI). In 2013, CMWDsigned a 20-year Water Purchase Agreement (WPA) for the supply of 18 million liters per day for

the first year and 35 million liters per day of water for the second to 20th year. CMWD made itsinitial delivery of water in January 2015.

Patents, Trademarks, Li censes, Franchises, Concessions or Labor Contract

In February 1997, Maynilad entered into a concession agreement with MWSS, with respect to theMWSS West Service Area. Under the concession agreement, MWSS grants Maynilad, the soleright to manage, operate, repair, decommission and refurbish all fixed and movable assetsrequired to provide water and sewerage services in the West Service Area for 25 years ending in2022. In September 2009, MWSS approved an extension of its concession agreement withMaynilad for another 15 years to 2037.

Maynilad’s subsidiary, PHI, is granted the sole right to distribute water in certain part of Bulacanunder concession agreements granted by the Philippine government for 25 years to 2035.

Dependence on Licenses and Government Approval

Necessary government approvals in relation to the operation of the water business have beensecured and documented in the related concession agreements.

Under Maynilad’s concession agreement with the Philippine Government (see Note 13 of the2014 Audited Consolidated Financial Statements), Maynilad may request tariff rate adjustments based on movements in the Philippine consumer price index, foreign exchange currencydifferentials, a rate rebasing process scheduled to be conducted every five years (Rate Rebasing)and certain extraordinary events. Any rate adjustment requires approval by MWSS and the


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rebasing adjustment - Maynilad is willing to implement the increase on a staggered basis in order

to mitigate the impact of the Award on its customers in the West Zone of Metro Manila subject toapproval of the MWSS.

The MWSS has not yet acted on the arbitration award and Maynilad has formally reminded themof the indemnity undertaking of the Republic of the Philippines regarding delays in tariffimplementation.

Customers

The water business of the Company enjoys a sole concession of Metro Manila’s West ServiceArea. This segment is mass-based such that the loss of a few customers would not have amaterial adverse effect on MPIC and its subsidiaries taken as a whole. There is also no singlecustomer that accounts for twenty percent (20%) or more of the segment’s sales.

Distribution

Water is distributed through Maynilad’s network of pipelines, pumping stations and mini- boosters. As at December 31, 2014, Maynilad's network consisted of around 7,458 kms of total

pipeline.

Competition

Maynilad has no direct competition given that it has sole right to provide water and sewerageservices to the West Service Area under its concession agreement with the PhilippineGovernment.

Under Maynilad’s Concession Agreement, MWSS grants Maynilad (as contractor to performcertain functions and as agent for the exercise of certain rights and powers under the Charter), thesole right to manage, operate, repair, decommission and refurbish all fixed and movable assetsrequired (except certain retained assets of MWSS) to provide water and sewerage services in theWest Service Area up to 2037.

Source and availabili ty of raw materi als

Under Maynilad’s Concession Agreement, MWSS supplies raw water to Maynilad’s distribution

system and is required to supply a minimum quantity of raw water. Maynilad currently receivessubstantially all of its water from MWSS.

Maynilad has some supply side risk in that: (i) it secures most of its supply from a single source – the Angat dam; and (ii) this water source is shared by another water concessionaire, ahydroelectric plant, and the needs of farmers for irrigation. A water usage protocol is in place toensure all users receive water as expected within the constraints of available supply. Followingsignificant water supply disruption in late 2009 arising indirectly from typhoons, the business


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Costs and effects of compli ance with envir onmental l aws

Maynilad’s wastewater facilities are required to be maintained in compliance with environmentalstandards set primarily by the Department of Environment and Natural Resources (DENR)regarding effluent quality. All projects are assessed for their environmental impacts, and, whereapplicable, must obtain an Environmental Compliance Certificate from the DENR prior toconstruction or expansion. Subsequent to construction, effluents from facilities, such as sewageand septage treatment plants, are routinely sampled and tested against DENR standards usinginternational quality sampling and testing procedures.

Maynilad has made efforts to meet and exceed all statutory and regulatory standards. TheCompany’s regular maintenance procedures involve regular disinfection of service reservoirs andmains and replacement of corroded pipes. The Company believes all wastewater treatment processes and effluents meet the current standards of the DENR.

Maynilad’s Dagat-Dagatan Sewage and Septage Treatment Plant in Caloocan is the first facilityof its kind in the Asia-Pacific Region to attain triple international standard accreditations onQuality Management (ISO 9001:2008) and Environmental Management (ISO 14001:2004) in

January 2007, and Occupational Safety and Health Management (OHSAS 18001:2007).

(B.2) Toll Operations

Business Development

The Company holds the majority of its toll road assets through MPTC. MPTC holds a 75.60%effective interest in MNTC, which holds the concession rights to construct, operate and maintainthe North Luzon Expressway (NLEX). Beginning 2013, MPTC also consolidates CavitexInfrastructure Corporation (CIC), which holds the concession rights for the operation andmaintenance of the Manila-Cavite Toll Expressway (CAVITEX). MPTC consolidates CIC byvirtue of a Management Letter-Agreement dated December 27, 2012, for the management of CIC by MPTC. Under the Management Letter-Agreement, management of CIC by MPTC commencedon January 2, 2013 and will continue until the issuance of the New CIC Shares in favor of MPTC.


MNTC and CIC’s concession comprise of the rights, interests and privileges to finance, design,

construct, operate and maintain toll roads, toll facilities and other facilities generating toll-relatedand non-toll related income (see Note 13 to the 2014 Audited Consolidated Financial Statements).

MNTC holds the concession for the largest toll road in the Philippines, the NLEX Project. The NLEX currently spans approximately 84 kilometers and services an average of 185,000 vehicles per day. The NLEX is the main infrastructure backbone that connects Metro Manila to 15 million


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Necessary government approvals in relation to the operation of the toll roads have been securedand documented in the related concession agreements. However, the following toll projects arestill in the process of obtaining necessary Philippine Government approvals:

Subic-Clark-Tarlac Expressway (SCTEX) Concession Agreement. On February 9, 2015,MNTC, received the Notice of Award from the Bases Conversion and DevelopmentAuthority (BCDA) for the management, operation and maintenance of the SCTEX subject tocompliance with specific conditions. The Notice of Award was issued by BCDA following

the results of the Price Challenge held last January 30, 2015. On February 26, 2015, MNTCand BCDA signed the Business Agreement (BA), marking the culmination of BCDA’s effortto privatize the management, operation and maintenance of the SCTEX. The BA bindsMNTC and BCDA to a contract for the management, operation and maintenance of SCTEXuntil the end of the SCTEX concession period (October 30, 2043). The privatization providesthe opportunity to realize MNTC’s vision of integrating the operation of NLEX with SCTEX,thereby offering seamless expressway travel to motorists. The effectivity of the BA is subjectto conditions precedent, among which is the TRB approval and signing of the Supplemental

Toll Operation Agreement (STOA). On February 26, 2015, the Business OperatingAgreement was signed with full takeover of the SCTEX operation expected by second quarterof 2015.

NLEX-SLEX Connector Road Project. The Connector Road Project was approved by the National Economic and Development Authority (NEDA) Board on February 20, 2015 as anunsolicited proposal under the Build-Operate-Transfer Law. This is expected to trigger thecommencement of the Swiss Challenge within 2nd quarter of 2015. MPTDC is still awaitingPhilippine Government information on the implementation mode of the Connector RoadProject..

Ef fect of Existing or Probable Governmental Regulati ons on the Business

There are no anticipated changes to government regulations that will significantly affect the toll business of the Group. However, the main variable affecting the extent or likelihood of earningsgrowth at MPIC is the ability of the toll road businesses to secure the tariff adjustments under theconcession agreements that govern their concessions.

The concession agreements establish a toll rate formula and adjustment procedure for setting theappropriate toll rate. Subject to the Toll Regulatory Board validating the calculation of the tollrate adjustment in accordance with the formula, toll rate adjustment is scheduled every twocalendar years for the NLEX and every three calendar years for the CAVITEX.

As at February 26, 2015, MPTC continues to await approval by the Government of toll rate


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Competition

While MNTC and CIC were granted sole right to operate and maintain toll roads under theirrespective concession agreements with the Philippine Government (see Note 13 to the 2013Audited Consolidated Financial Statements for further information on the concessionagreements), alternative routes and roads are the toll roads’ competitors:

NLEX. A viable alternative road to North Luzon is the MacArthur Highway, a road extending

from Manila to Pangasinan that passes through small towns. The NLEX has historicallyserved as the main artery between Metro Manila and Central and Northern Luzon and as such,it has a long and stable track record of traffic volume. Further, the NLEX has a stable servicearea, which is characterized by the lack of comparable competing traffic routes and theresilience of the user profile.

CAVITEX. The free alternative routes to the R1 Expressway and R1 Extension are QuirinoAvenue, Aguinaldo Highway, Tirona Highway and Evangelista Road. While these roads are

complementary to the R1 Expressway and R1 Extension, they do not offer the same directand contiguous route from northern Cavite to Metro Manila and vice-versa. The roads havelimited capacity and narrow lanes. They are controlled by traffic lights and stop signs and areheavily congested at peak times.

Traffic volumes on the tollroads are likewise affected by competition from alternative modes oftransportation and there can be no assurance that existing modes of transport will not significantlyimprove their services.

The Company continues to promote traffic growth on these tollroads by providing more entry andexit points along the expressway. Likewise, the Company continues to boost the value proposition of the NLEX and CAVITEX by implementing measures to enhance customersatisfaction, safety, and convenience.

Transactions with related part ies

The Operation & Maintenance (O&M) of the NLEX and Segment 7 is undertaken by TMC pursuant to the O&M Agreement between MNTC and TMC. This agreement shall be effective

for the entire concession period. TMC, of which MPTC owns 46%, oversees the day-to-dayoperations of the NLEX, including securing toll collection, depositing of funds to MNTC’saccounts, facilitating smooth and uninterrupted flow of traffic, carrying out of routinemaintenance, ensuring effective and safe responses to emergency situations. In exchange for performing its duties, TMC receives an O&M fee based on a base fee plus a variable fee.


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project, (2) mitigation of the effects of the toll road project on the natural environment,

(3) environmental monitoring, and (4) public information and education regarding the toll road project. In addition, the ECC typically requires the grantee to submit a quarterly report of itsenvironmental monitoring activities.

MNTC has a dedicated team that regularly monitors compliance with its ECCs and ensuresmeasurement of significant environmental metrics for purposes of compliance with the reportingrequirements under its loan agreements. Quarterly air quality sampling is conducted to measurethe level of pollutants and harmful particulates along the toll roads. A solid and hazardous waste

management system is also in place to ensure proper waste disposal and compliance with theEcological Solid Waste Management Act of 2001 and Toxic Substances and Hazardous WastesControl Act of 1990. All required areas for reclamation and re-vegetation are regularly monitoredand maintained to prevent soil erosion and scouring along river banks and slope areas. MNTCsubmits an annual safety and health report to its creditors detailing the activities and monitoringresults, as well as other significant related, undertaken throughout each year in relation toMNTC’s compliance with legal and statutory environmental requirements.

Status of any publi cly announced product or servi cesConstruction continues on the first stage of the 8-km NLEX Harbour Link connecting the NLEXto the North Manila Port in two segments (Segments 9 and 10) and is expected to have its firststage open in first quarter of 2015.

The NLEX Harbour Link and Citilink projects, together with expansion of the CAVITEX, wouldsee MPTC invest approximately ₱31 billion over the next few years to complete construction ofthis vital road infrastructure. MPTC and MPIC would fund this sum using internal resources andexternal debt.

In January 2015, MPTC, procured original proponent status for the proposed Cebu-CordovaBridge Project from Cebu City and the Municipality of Cordova. Negotiations with both CebuCity and the Municipality of Cordova are on-going and once done, a Swiss Challenge will have to be conducted before awarding of the contract. This project spanning 8.3 kilometers will link theisland of Mactan to mainland Cebu through the Municipality of Cordova. The total constructioncost of the Cebu-Cordova Bridge Project is estimated at ₱17.0 billion with completion date by2020 assuming that awards and approvals are secured during the first half of 2015.

Thailand:On July 31, 2014, First Pacific transferred its 75% shareholding in FPM Infra to MPIC for aconsideration of approximately US$101.25 million. FPM Infra became wholly-owned subsidiaryof MPIC and its sole asset is a 29.45% interest in DMT. DMT is a major toll road operator inBangkok, Thailand. The concession for DMT runs until 2034 for the operation of a 21.9-


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(B.3) Power Distribution


Investment in MERALCO is primarily held through Beacon Electric, a special purpose company jointly owned with MPIC and PLDT Communications and Energy Ventures, Inc. As atDecember 31, 2013, Beacon Electric owns approximately 49.96% of MERALCO. However, inJune 2014, MPIC entered into a Share Purchase Agreement with Beacon Electric for the sale ofthe latter’s 56.35 million shares, comprising approximately 5%, in MERALCO for an aggregateconsideration of ₱13.24 billion. Thus, the Company’s aggregate effective interest in MERALCO

after this transaction increased from 24.98% to 27.48%.


MERALCO holds a congressional franchise under Republic Act (RA) No. 9209 effectiveJune 28, 2003. RA No. 9209 grants MERALCO a 25-year franchise valid through June 28, 2028to construct, operate, and maintain the electric distribution system in the cities and municipalitiesof Bulacan, Cavite, Metro Manila, and Rizal and certain cities, municipalities, and barangays inthe provinces of Batangas, Laguna, Pampanga, and Quezon. On October 20, 2008, the ERC,

granted MERALCO a consolidated Certificate of Public Convenience and Necessity for theoperation of electric service within its franchise coverage, effective until the expiration ofMERALCO’s congressional franchise. MERALCO has a unit for its participation in retailelectricity supply or RES. The MERALCO local Retail Electricity Supplier, otherwise known asMPower, is a business unit within Meralco.


MERALCO was among the first entrants to the Performance-Based Regulation (PBR). Rate-setting under PBR is governed by the Rules for Setting Distribution Wheeling Rates (RDWR).The PBR scheme sets tariffs based on the regulated asset base of the Distribution Utility (DU),and the required operating and capital expenditures once every regulatory period (RP), to meetoperational performance and service level requirements responsive to the need for adequate,reliable and quality power, efficient service, growth of all customer classes in the in the franchisearea as approved by the Energy Regulatory Commission (ERC). PBR also employs a mechanismthat penalizes or rewards a DU depending on its network and service performance. Rate filingsand setting are done every regulatory period (RP) where one RP consists of four regulatory years.A regulatory year (RY) begins on July 1 and ends on June 30 of the following year. The third RP

is from July 1, 2011 to June 30, 2015.

MERALCO also files with the ERC its applications for recoveries of advances for pass-throughcosts. These advances consist mainly of unrecovered or differential generation and transmissioncharges technically referred to as under-recoveries, which are recoverable from the customers, asallowed by law.


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the significant investment involved in the setting-up of a distribution network, MERALCO and

CEDC have no significant competition in their franchise areas.

As MERALCO broadens the scope of its activities to encompass power generation and retailelectricity sales it will become increasingly exposed to market competition.

Distribution

Power is distributed through network facilities which consists of substations, circuits anddistribution transformers.

Source and availabili ty of raw materi als

The principal sources of power (in MWh) of Meralco and CEDC and their relative contribution in2014 are as follows:

First Gas Power Corporation (Sta. Rita) and FGPCorp.(San Lorenzo) – Natural Gas

28.47%

South Premiere Power Corporation (Ilijan) – Natural Gas 22.79%

San Miguel Energy Corporation (Sual) – Coal 9.19% AES Philippines (Masinloc) – Coal 9.19% Quezon Power Philippines Limited Co. – Coal 8.88% SEM-Calaca Power Corporation (Calaca) – Coal 8.71% Therma Luzon, Inc. (Pagbilao) – Coal 7.02% Philippine Electricity Market Corporation 2.81% Others – Various 2.94% Total 100.00%

(B.4) Healthcare


MPIC’s Hospital group comprises eight full-service hospitals and is the largest private provider of premier hospital services in the Philippines. It delivers medical services including diagnostic,therapeutic and preventive medicine services in all three major island groupings in the country.

This division comprises five hospitals in Metro Manila, and one in each of Central Luzon,Bacolod City and Davao City.

In addition to the traditional hospital services, MPIC in 2013 made its first investment in a non-hospital-based diagnostic center, Megaclinic at SM Megamall in Metro Manila.

AHI received on December 9 2013 the Joint Commission International (JCI) accreditation


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to certain conditions. The proceeds from the bond will be used by MPIC for continuing

investments in infrastructure projects.

Customers

The Hospital Group currently consists of eight (8) full-service hospitals with approximately 2,150 beds in total – Makati Medical Center, Cardinal Santos Medical Center, Our Lady of LourdesHospital, Asian Hospital & Medical Center and De Los Santos Medical Center in Metro Manila;Central Luzon Doctors' Hospital in Tarlac; Riverside Medical Center in the Visayas; and DavaoDoctors Hospital in Mindanao – MegaClinic, its first mall-based diagnostic and ambulatory care

center located in Metro Manila.

This segment is mass-based such that the loss of a few customers would not have a materialadverse effect on MPIC and its subsidiaries taken as a whole. There is also no single customerthat accounts for twenty percent (20%) or more of the segment’s sales.

Competition

Major competitors in the healthcare business include tertiary hospitals located in major cities and

regions where the hospitals operate: (a) MMC in Makati, Metro Manila; (b) CSMC in San Juan,Metro Manila; (c) OLLH in Sta. Mesa, Manila; (d) AHI in Southern Manila; (e) DLSMC inQuezon City, Metro Manila; (f) CLDH in Tarlac Central Luzon; (g) RMCI in Bacolod City; and(h) DDH in Mindanao. However, increasing health awareness creates unsatisfied demand in theindustry.

The Company uses its skill as a corporate manager to enhance operating efficiency and streamlinethe business models of its hospitals. Additionally, the Company continues to realize economies ofscale through group purchasing and the sharing of technical and human resources.

Transactions with related parties

On April 13, 2012, Colinas Verdes Hospital Managers Corp. (CVHMC) entered into aMemorandum of Agreement (MOA) with Meralco for the operation and management of theMeralco Corporate Wellness Center (Wellness Center), an outpatient diagnostic and consultationcenter for its employees and their dependents. In accord of the contract, CVHMC agreed to takesteps to improve healthcare services, expand diagnostic services, enhance customer serviceslevels, increase operational efficiencies, rationalize equipment upgrade and renovate and improve

infrastructure. Income recognized for this arrangement in 2014 and 2013 amounted to a total of₱42.7 million and ₱41.1 million included under the hospital revenue account. The total revenuecomprises a retainer’s fee, pharmacy handling and manpower and administrative reimbursement plus margin.


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similar to the Octopus card in Hong Kong or the EZ link system in Singapore. The payment

system has the potential to move into toll roads and parking facilities, creating an integratedsolution for Metro Manila’s commuters and eventually an electronic payments ecosystem for thecountry. AFCS targets to deliver the new electronic payment system initially for LRT Lines 1, 2and the MRT Line 3 by the second half of 2015.

On October 2, 2014, LRMC, in which MPIC effectively has a 55% shareholding, signed togetherwith the DOTC and the Light Rail Transit Authority (LRTA) the 32-year Concession Agreementfor the ₱65-billion Light Rail Transit Line 1 Cavite Extension and Operations & Maintenance

Project. LRMC was formally awarded the project by the DOTC and LRTA following thesubmission of a lone bid with a premium of ₱9.35 billion.


The concession agreement for the LRT Line 1 Project sets out the terms and conditions on howthe Grantor will regulate the operations and maintenance activities of the Concessionairethroughout the concession period. Likewise, the fare to be charged to the users of the LRT 1 Linemust be approved by the Grantors (or other Government Authority having jurisdiction over farelevels).

Ef fect of Existing or Probable Governmental Regulati ons on the Business

The tariff increase announced by Government in January 2015 is insufficient to reach the openingfare in the LRT Line 1 Concession Agreement. This increases risks to achieving financial closeand hence formal handover.

(B.6) Others

Neo Oracle Holdings, Inc. (NOHI) and its subsidiaries are engaged in the business of real estateinvestments and property development, investment holding and management services.

On July 18, 2012, the stockholders and BOD of NOHI resolved to amend its Article ofIncorporation to reflect the change in name from Metro Pacific Corporation to Neo OracleHoldings, Inc., shortened corporate life until December 31, 2013 and reduce its BOD members

from 11 to 5. Hence, NOHI is deemed dissolved as at December 31, 2013 and can no longerconduct business except with respect to transactions in furtherance of its liquidation. With theshortening of the corporate life, NOHI is not currently active but holds investments in lands and properties. NOHI continues to implement measures geared towards generating liquidity to meetmaturing obligations which include settlement of the remaining third party debts via debt-for-asset swap arrangements, negotiation for discounts on principal and waiver of interests and


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(D) Registrant’s Major risks

As an investment and management company, MPIC undertakes risk management at a number ofdistinct levels:

(D.1) On entering new investments

MPIC has taken steps to increase its presence in Southeast Asia through its equity investments inThailand's DMT and Vietnam's CII B&R, while remaining committed to its core busienss in the

Philippines. MPIC’s geographic focus remains to be predominantly the Philippines within whichits management team has extensive experience.

Prior to making a new investment, any business to be acquired is subject to an extensive duediligence including financial, operational, regulatory and risk management. Risks to investmentreturns are then calibrated and specific measures to manage these risks are determined. TheCompany is highly selective in the investment opportunities it examines. Due diligence isconducted on a phased basis to minimize costs of evaluating opportunities that may ultimately not be pursued.

MPIC’s investments involve - to varying degrees - a partnership approach with MPIC taking acontrolling position and key operating partners providing operational and technological input andthereby mitigating risks associated with investing in new business areas. These partners are equity partners - and having co-invested with the Company in a particular opportunity, they will participate in the risks and rewards of the business alongside MPIC.

Financing for new investments is through a combination of debt and/or equity by reference to the

underlying strength of the cash flow of the target business and the overall financing position ofMPIC itself.

(D.2) On ongoing Management of the Financial Stability of the Holding Company

MPIC does not guarantee the borrowings of its investee companies and there are no cross default provisions from one investee company to another. Financial stability of the holding company,including its dividend commitment to shareholders, is managed by reference to the ability of the

investee companies to remit dividends to MPIC to cover operating costs and service borrowings.We avoid currency and investment cycle mismatches by borrowing only in Pesos using primarilylong term instruments with fixed rates.

The Company sets the level of debt on its own Statement of Financial Position so as to withstandvariability of dividend receipts from its operating companies associated with regulatory and other


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retain our rights and earn our expected returns. In some cases, these agreements provide for

retrospective assessment of the extent of our overall operational and financial performancesometimes over a period of years.

o Risks arising from these types of businesses include the potential for differences with

regulators involving interpretation of the relevant agreements – either during the period inquestion or in retrospect. To manage these risks, the investee companies have establisheddedicated regulatory management groups with experienced personnel. Their duty is tomanage the relationship with regulators, keep management up-to-date on the status of the

relationship and ensure companies are well prepared for any forthcoming regulatory changesor challenges.

o Competition and Market. Competitive and market-driven demand risks are most pronouncedin Meralco, MPTC and the Healthcare group.

o Meralco carries a degree of market risk and its returns in the short term may beimpacted by consumers who elect to self-generate and disconnect from thedistribution grid. MPIC is mitigating that risk by improving efficiencies to the pointthat makes it largely uneconomic to self-generate. With the move to Open Accessfrom June 2013, Meralco will take on risks associated with buying and selling poweron its own account instead of on a pass through basis. Meralco has long prepared forthis and has an experienced management team already in place to lead this new business. Meralco is now also invested in power generation with attendant demandvolume and price risks and fuel source price and supply risks. The primary mitigantsare contracting to match demand and supply side volumes where possible andemploying highly experienced power market professionals to manage any open

positions by trading in the market.

o At MPTC, MPIC sets tariff on new road projects based on traffic projections agreedwith the regulator. Rising fuel prices, alternative means of transport and existing or prospective alternative routes are all factors that can affect the number of vehiclesthat use our roads.

MPIC alleviate this risk by choosing our projects carefully. Existing high traffic

density, difficulty in securing competing routes, a high potential for growth givendemographic changes and conservative growth estimates, even with the prior factorsincluded in the assessment, are the important variables we consider when committingto traffic projections with the regulator.

o For the Hospitals group, investment is taking place to enable more qualified


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protocol is in place to ensure all users receive water as expected within the constraints of

available supply. Following significant water supply disruptions in the past arising indirectlyfrom typhoons, the business has experienced periods of lower water supply than allowed forin its concession. MPIC have worked to moderate our reliance on Angat by developing thePutatan Water Treatment Plant. However, our regulator does not now wish us to invest furtherin alternative water sources and this means the logical way to mitigate our supply side risk isnow largely prohibited to us.

(D.4) Financial Risk Management

MPIC’s investee companies’ financial risks are primarily: interest rate risk, f oreign currency risk,liquidity risk, credit risk and equity price risk (see Note 35 to the 2014 Audited ConsolidatedFinancial Statements). The Board of Directors of each company reviews and approves policies formanaging each of these risks as follows:

Interest Rate Risk. Interest rate exposure is managed by using a mix of fixed and variable ratedebt.

Foreign Currency Risk. In general the investee companies will place some degree of relianceon their regulated return mechanisms to pass through foreign currency risk. The currentliquidity and depth of the Philippine credit market is such that there should be little need forraising new borrowings in foreign currency.

Maynilad has some foreign currency borrowing but there is a mechanism in place wherein itcan recover currency fluctuations as approved by its Regulator.

Liquidity Risk. Each business monitors its cash position using a cash forecasting systemwherein all expected collections, disbursements and other payments are determined in detail.

Credit Risk. Credit risk is managed by setting limits on the amount of risk a business iswilling to accept for individual counterparties and by monitoring exposures in relation to suchlimits.

Equity Price Risk. The Company's investee companies are generally not faced with equity

price risk beyond that normal for any listed company, where relevant. MPIC’s investment inMeralco, through Beacon Electric, is partly financed by borrowings which require a certainsecurity cover based on the price of Meralco’s shares on the PSE on a volume weighted 30trading day average calculation. Meralco’s share price would have to decline by 54.35% fromits price as at December 31, 2014 before Beacon Electric would be required to top-upcollateral with cash or pay-down debt.


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system by Maynilad during the concession period remains with Maynilad until the expiration date (or

on early termination date) at which time, all rights, titles and interest in such assets will automaticallyvest to MWSS.

Maynilad leases the office space and branches where service outlets are located, equipments andservice vehicles, renewable under certain terms and conditions to be agreed upon by the parties.Refer to Note 33 to the 2014 Audited Consolidated Financial Statements.

Healthcare Segment. The Company is developing the Philippines’ first nationwide chain of leading

hospitals to deliver comprehensive in-patient and out-patient hospital services, including medical andsurgical services, diagnostic, therapeutic intensive care, research and training facilities in strategiclocations in the Philippines:

Makati Medical Center is a multi-specialty tertiary medical centre situated in the central business district of Makati, Metro Manila.

Asian Hospital and Medical Center is a hospital located in Alabang, Muntinlupa in SouthernMetro Manila.

De Los Santos Medical Center is a mid-market teaching and training hospital in Quezon City,

the largest city in Metro Manila. Davao Doctors Hospital is considered to be the largest and one of the best medical facilities

offering modern diagnostic, therapeutic and intensive care services in Southern Philippines.

Riverside Medical Center, also known as Dr Pablo O. Torre Memorial Hospital, is the largestand a leading medical facility in Bacolod in the island of Negros, Western Visayas.

Central Luzon Doctors Hospital is the largest tertiary hospital in Tarlac.

MegaClinic is a mall-based diagnostic and ambulatory care center located in Metro Manila.

Lease Arrangements. East Manila Hospital Managers Corp. (EMHMC) and CVHMC entered intolease agreements with Servants of the Holy Spirit, Inc. and Roman Catholic Archbishop of Manila forthe management and operation of OLLH and CSMC, respectively. Each of these lease agreements isfor a period of 20 years, renewable for successive periods of 10 years upon the mutual consent of both parties. As consideration for the lease agreement, EMHMC and CVHMC pay fixed and variablemonthly rates, where the variable rate is based on the prior year’s net revenues. The schedule of fixedand variable monthly rent is provided for in Note 33 to the 2013 Audited Consolidated FinancialStatements.

Please refer to Note 14 in the accompanying 2014 Audited Consolidated Financial Statements for thecarrying values of the property and equipment of the Group.

Item 3. Legal Proceedings


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PART II – OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters

Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder

Matters

(1) Market information

The Registrant’s common shares are listed on the PSE. The high and low sales prices of suchshares for the last quarter of the year 2012, 2013, 2014 and the 1st quarter of 2015 are set out below. The share price as at the close of business on February 28, 2015 was P=5.40.

Quarter Low High

2012

1st 3.48 4.34

2nd 3.85 4.603rd 4.06 4.32

4th 4.00 4.58

2013

1st 4.43 5.64

2nd 4.60 6.33

3rd 4.40 5.69

4th 4.24 4.95

2014

1st 4.06 4.77

2nd 4.70 5.40

3rd 4.77 5.32

4th 4.22 5.24

20151st 4.59 5.53


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(2) Holders

The total number of stockholders as at February 28, 2015 is 1,333

Top 20 Stockholders as at February 28, 2015

Rank Stockholder Name Number of

Shares Percent

1 Metro Pacific Holdings, Inc. 14,522,948,170 52.13%

2 PCD Nominee Corporation (Non-Filipino) 9,431,034,166 33.85%

3 PCD Nominee Corporation (Filipino) 3,868,205,726 13.88%

4 Albert F. Del Rosario and/or MargaretGretchen V. Del Rosario

6,500,000 0.02%

5 Albert F. Del Rosario 5,016,624 0.02%

6 Victorico Paredes Vargas 3,500,001 0.01%

7 Lucio W. Yan and/or Clara Y. Yan 2,850,000 0.01%

8 Amado R. Santiago III 2,500,001 0.01%

9 Alberto B. Carlos 1,000,000 0.00%

10 Raul L. Ignacio 1,000,000 0.00%

11 Ferdinand G. Inacay 1,000,000 0.00%

12 Tessa G. Acosta 1,000,000 0.00%

13 Baby Lea M. Wong 1,000,000 0.00%

14 First Life Financial Co., Inc. 830,000 0.00%

15 Berck Y. Cheng 650,000 0.00%

16 J. Luigi L. Bautista 650,000 0.00%

17 Edwin U. Lim 600,000 0.00%


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(3)

Dividends

Apart from cash restrictions and retained deficit position of the Parent Company, it may notdeclare or pay cash dividends to its stockholders or retain, retire, purchase or otherwiseacquire any claims of its capital stock or make any other capital or asset distribution to itsstockholders if, at the time of such declaration: (i) its Debt-to-Equity Ratio exceeds 70:30;(ii) its Debt Service Coverage Ratio is below 1.5x; and (iii) the funds in deposit in the DebtService Account do not meet the required Debt Service Account balance.

Following are the cash dividends declared by MPIC’s board of directors in favor of MPICcommon and preferred shares for the past three years ended December 2012, 2013 and 2014:

Year Rate per

Common Share PreferredDividends

Record Date Payable Date

2012 P=0.015 P=0.012

P=1.8 million P=2.5 million

3/16/2012 8/28/2012

4/16/2012 9/21/2012

2013 P=0.020 P=0.015

P=2.5 million P=2.5 million

3/18/2013 8/28/2013

4/16/2013 9/20/2013

2014 P=0.022 P=0.026 P=0.040*

P=2.5 million P=2.5 million P=1.3 million

4/8/2014 8/29/2014 12/2/2014

4/30/2014 9/24/2014

12/18/2014*Special one-off dividend

On February 26, 2015, the BOD approved the declaration of the cash dividends of P=0.037 per

common share in favor of the Parent Company’s shareholders of record as at March 25, 2015with payment date of April 17, 2015. On the same date, the BOD approved the declaration ofcash dividends amounting to P=1.25 million in favor of the preferred shareholders.

(4) Recent Sales of Unregistered or exempt Securities

During the last three years, MPIC issued the following shares (either via private placements

and/or conversion of debt to equity) for which exemptions from registration were claimed andnotices of exempt transactions were accordingly filed with the Philippine SEC:

1. MPIC, together with its principal shareholder, MPHI entered into a placement agreementwith UBS AG, Hong Kong Branch on February 9, 2015, in respect of the offer and sale(the “Offer”) by MPHI of 1,812,000,000 common shares of MPIC at the Offer Price of


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The abovementioned notices of exempt transactions were made on the basis of:

1. Section 10.1(e) of the Securities Regulation Code (SRC) – The sale of capital stock of acorporation to its own stockholders exclusively, where no commission or otherremuneration is paid or given directly or indirectly in connection with the sale of suchcapital stock.

The abovementioned issuances were issued by MPIC to MPHI, its majority stockholder,exclusively and no commission or other remuneration was paid or given directly or

indirectly in connection with such issuances.

2. Section 10.1 (k) of the SRC – The sale of securities by an issuer to fewer than twenty (20) persons in the Philippines during any twelve-month period.

MPIC issued securities to fewer than twenty (20) persons in the Philippines during anytwelve-month period.

The above described request for exemption from registration was made on the basis ofSection 10.1 of the SRC. MPIC averred that by reason of the relative small amount andlimited character of the aforesaid issuance, registration is not necessary for the publicinterest and for the protection of prospective investors who are employees of MPICand/or its subsidiaries and affiliates and are in the position to know the present affairs ofMPIC and the risks of investing therein.

Item 6. Management’s Discussion and Analysis of Financial Condition and Results of

Operations (MD & A)

Financial Highlights and Key Performance Indicators

The following discussion and analysis of the Group’s financial condition and results of operationsshould be read in conjunction with the accompanying audited consolidated financial statements andthe related notes and as at December 31, 2014 and 2013 and for the years ended December 31, 2014,2013, and 2012 included in this Report. Key performance indicators of the Group are as follows:

2014 2013 Increase

(Decrease)

Audited Amount %

(in Php Millions)

Operating Revenues 33 832 30 877 2 955 10


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Overview

Highlights for 2014 which had significant impact on the financial results of the Group are as follows:

Benefit from new/increase in investments. The Company benefitted from the followingacquisitions and increase in ownership interest:

o Increase in equity ownership in MNTC. On January 10, 2014, MPTDC acquired 3.9% ofMNTC from Egis Projects, SA (Egis) for P=1.5 billion; and on July 18, 2014, entered into an

agreement to acquire an additional economic interest of 4.6% from Egis and Egis InvestmentPartners Philippines Inc. (EIP) for P=1.7 billion. MPIC’s effective economic interest in MNTCis now 75.65% from 67.00%.

o Increase in effective ownership interest in Meralco. On June 24, 2014, MPIC entered into aShare Purchase Agreement with Beacon Electric for the sale of the latter’s 56.35 millionshares, comprising approximately 5%, in Meralco for an aggregate consideration of P=13.24 billion. This transaction resulted to an effective increase in ownership in Meralco of 2.5%.

o

Acquisition of FPM Infrastructure. On July 31, 2014, MPIC acquired its 75% shareholding inFPM Infra from FPC for a consideration of approximately US$101.25 million. FPM Infra became a wholly-owned subsidiary of MPIC and its sole asset is a 29.45% interest in DMT, amajor toll road operator in Bangkok, Thailand. Prior to the acquisition , MPIC’s equityeffective ownership interest in DMT was at 7.36%. Share in equity in net earnings in DMTamounted to P=210.0 million for the year ended December 31, 2014.

Impact of change in accounting policy. Beginning January 1, 2014, the service concession asset

of MNTC is amortized on a units of production (UOP) basis. MPTC determined that it is moreappropriate to use the UOP basis for amortizing the service concession asset as the economic benefit of this asset is more closely aligned with the traffic volume and kilometers travelled forthe segments of the toll road using an “open toll collection system” and “closed toll collectionsystem”, respectively. The change in the method of amortization is also consistent with the tollsegments’ move to unify the accounting policies of its subsidiaries. This change in accounting

policy resulted in a decrease in amortization expense by P=131.0 million of the service concessionasset for the period ended December 31, 2014.

Maynilad’s Redundancy and Right Sizing Program. In line with its strategic goal to improveoperational efficiency, Maynilad offered a Special Opportunity Program (SOP), a redundancy andright-sizing program in 2014. This program offered a separation package based on the number ofyears, or fractions thereof, on a pro-rated basis, of service with Maynilad plus monetaryequivalent of some benefits. Total estimated severance for the separated employees amounted to


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Adoption of New Standards and Interpretations

The Company's accounting policies are consistent with those followed in the preparation of theCompany’s most recent annual consolidated financial statements, taking into account the changes inaccounting policies and the adoption of the new and amended Philippine Accounting Standards(PAS), Philippine Financial Reporting Standards (PFRS) and Philippine Interpretations of theInternational Financial Reporting Interpretations Committee (IFRIC), which became effective onJanuary 1, 2014. Adoption of new standards did not have a material impact on the Company’sfinancial results. Please refer to Note 2 to the 2014 Audited Consolidated Financial Statements.

Description of Operating Segments of the Group

As discussed under Item 1 – B. Business of Issuer , the Group is organized into six major businesssegments based on services and products namely water utilities, toll operations, power distribution,healthcare, rail and others.

Operational Review

I - MPIC Consolidated

The Company’s chief operating decision maker is the BOD. The BOD monitors the operating resultsof each business unit separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on: consolidated net income forthe year; earnings before interest, taxes and depreciation and amortization, or Core EBITDA; CoreEBITDA margin; and core income. Net income for the year is measured consistent with consolidatednet income in the consolidated financial statements.

Core EBITDA is measured as net income excluding depreciation and amortization of property andequipment and intangible assets, asset impairment on noncurrent assets, financing costs, interestincome, equity in net earnings (losses) of associates and joint ventures, net foreign exchange gains(losses), net gains (losses) on derivative financial instruments, provision for (benefit from) income taxand other non-recurring gains (losses). Core EBITDA margin pertains to Core EBITDA divided byservice revenues.

Performance of the operating segments is also assessed based on a measure of recurring profit or coreincome. Core income is measured as net income attributable to owners of the Company excluding theeffects of foreign exchange and derivative gains or losses and non-recurring items (NRI), net of taxeffect of aforementioned. NRI represent gains or losses that, through occurrence or size, are notconsidered usual operating items.


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2014 versus 2013

MPIC Consolidated Statements of Income

2014 2013 Increase

(Decrease)

Audited Amount %

(in Php Millions)

Operating Revenues 33,832 30,877 2,955 10

Cost of Sales and Services 13,082 11,845 1,237 10

General and administrative expenses 6,823 6,261 562 9

Interest expense 4,301 4,001 300 7

Share in net earnings of associates and a jointventure

3,167 2,286 881 39

Interest income 385 462 (77) (17)

Other income (expense) - net 604 554 50 9

Provision for income tax 1,208 593 615 >100 Net income attributable to owners of the Parent

Company7,940 7,209 731 10

Other comprehensive income (loss) (76) 384 (460) (>100)

Total comprehensive income attributable toowners of the Parent Company

7,849 7,550 299 4

Core income 8,508 7,229 1,279 18

Non-recurring income (expense) (568) (20) (548) >100

Revenues

The Company’s revenues increased by 10% to P=33,832 million in 2014, reflecting improved performance of the Company’s major operating subsidiaries, Maynilad and MPTC. Maynilad posteda 9% increase in revenues brought about by 4% billed volume growth coupled with 4% inflationaryincrease in average effective tariff as a result of improved cash collections. MPTC likewise posted 6%

higher revenues mainly due to 7% and 8% higher average daily vehicle entries in NLEX andCAVITEX, respectively. Hospital revenues also increased by 17% mainly driven by increasingnumber of patients served at CVHMC and AHI and consolidation of full year results of DLSMC andCLDH which were acquired during the 2nd half of 2013.

Cost of Sales and Services


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in personnel cost while continuing capital expenditure program caused the increase in depreciation

and amortization cost. Increase in professional fees is due to expenses incurred by Maynilad inrelation to the arbitration proceedings.

I nterest expense

Interest expense increased by 7% to P=4,301 million in 2014 mainly due to additional loans – (a) debt in AIF of THB2.1 billion which was used to partially fund the acquisition of additionaleffective interest in DMT and (b) P=3.3 billion in MPTC which was used to finance acquisition of the

additional 8.5% effective ownership in MNTC.

Share in net earn ings of associates and a joint venture

Increase in MPIC’s share in the cumulative net earnings of associates and joint venture in 2014 due tothe increase ownership in Meralco and DMT and increases in operational performance at Meralco,TMC, MDI and DDH.

I nterest income

Interest income decreased by 17% to P=385 million in 2014 mainly due to lower average level of placements in 2014 as compared with 2013.

Other income and expenses

Other income (net of other expenses) increased by 9% to P=604 million mainly due to the realized gainon sale of AFS investment on February 28, 2014.

Provision for income tax

Provision for income tax increased by 104% to P=1,208 million from prior year’s provision ofP=593 million. The increase in provision for income tax resulted from the decline in the deferred tax benefit recognized by CIC and Maynilad. In 2013, CIC recognized P=201.1 million of deferred tax benefit from its previously unrecognized benefit from NOLCO of P=670.3 million. Maynilad alsorecognized consolidated deferred tax benefit of P=409.5 million in 2013 as compared with current

year’s benefit of only P=30.7 million, resulting from the reversal of deferred tax asset arising fromapplication of IFRIC 12 accounting.

Consoli dated net income attri butable to equi ty holders of the Parent Company

The 10% increase from P=7,209 million to P=7,940 million for the period is attributable mainly to the


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method investees at an aggregate of P=506 million in 2013 as compared with current year’s aggregate

actuarial loss of P=53 million in 2014.

Core Income attr ibutable to equi ty holders of the Parent Company

MPIC’s share in the consolidated core income increased by 18% from P=7,229 million in 2013 toP=8,508 million in 2014 mainly reflecting the following:

15% increase in contribution from Maynilad from P=3,789 million in 2013 to P=4,376 million in

2014 due to all-in effective tariff increase of 4% and increase in billed volume of 4%.

19% increase in contribution from Toll Roads segment from P=1,874 million in 2013 toP=2,239 million in 2014 due to strong traffic growth, increase in effective interest in MNTCand contribution from DMT.

30% increase in contribution from Beacon Electric/Meralco from P=2,333 million in 2013 toP=3,027 million in 2014 mainly due to the 2.5% increase in effective ownership in Meralcocoupled with improvement in Meralco’s operating performance with higher volume sold.

A 20% decrease in contribution from Healthcare group from P=581 million in 2013 toP=465 million in 2014 mainly due to lower effective ownership with the entry of GIC in July2014.

These represent MPIC’s share in the stand-alone core income of the operating companies, net ofconsolidation adjustments.

Maynilad, Beacon Electric/Meralco, MPTC/DMT and Healthcare accounted for 43%, 30%, 22% and5%, respectively of MPIC’s share of operating income.

Non-recur r ing expenses

Non-recurring expenses amounted to P=568 million and P=20 million in 2014 and 2013, respectively. Non-recurring expenses recognized in 2014 comprise of project expenses, taxes incurred on thereorganization of the hospital group and one-time separation expenses and arbitration costs at

Maynilad.


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II - Operating Segments of the Group

Water utilities

Maynilad Water Services, Inc. 2014 2013 Increase

(Decrease)

Audited Amount %

(in Php Millions)

Consolidated Statements of IncomeRevenues 18,363 16,895 1,468 9

Costs and Expenses 7,414 7,147 267 4

Interest income (expense) - net (2,082) (2,480) (398) (16)

Other income (expense) - net (640) (739) (99) (13)

Benefit from (Provision for) income tax 28 407 (379) (93)

Core Income 8,777 7,530 1,247 17

Non-recurring income (expense) (522) (594) (72) (12) Reported Net Income 8,255 6,936 1,319 19

Core EBITDA 12,857 11,083 1,774 16

Core EBITDA margin 70% 66% 4% 6

Capital Expenditure 4,345 5,558 (1,213) (22)

Key Performance Indicators

Increase

(Decrease)

2014 2013 Amount %

Volume of water supplied (MCM) 701.0 724.2 (23.2) (3)

Volume of water billed (MCM) 463.2 443.8 19.4 4

Volume of water billed (MCM) - Consolidated 473.4 453.3 20.1 4

Non revenue water % (average) 33.9% 38.7% (4.8%) (12)

Non revenue water % (period end) 32.9%

35.4% (2.5%) (7)

Billed customers (period end) 1,190,062 1,129,497 60,565 5

Customer mix (% based on billed volume)

Domestic (residential and semi-business) 80.1% 79.7% 0.3% 0

Non-domestic (commercial and industrial) 19.9% 20.3% (0.3%) (2)


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replacement program, which saw 36,967 leaks repaired in 2014. It will be recalled that when MPIC

invested in Maynilad in 2007, NRW stood at 68%.

Maynilad now delivers 24-hour water supply to 99.89% of its customers, while 99.97% of customersalso receive water pressure of seven pounds per square inch - the minimum pressure necessary to pump water upstairs from the ground floor. The year earlier percentages were 97.79% and 99.90%,respectively.

Maynilad’s capital spending during 2014 stood at P=4.3 billion, down from P=5.6 billion a year earlierdue to delays in the acquisition of land for building sewage treatment plants and delays in other planned projects involving the rehabilitation or accelerated replacement of pipes affected byDepartment of Public Works and Highways projects.

Maynilad committed rather than expended P=16.2 billion in new CAPEX projects in 2014. Thisincludes the construction of several sewage and septage treatment plants and conveyance systems inMuntinlupa, Paranaque, Pasay, and Valenzuela:

In line with Maynilad’s commitment to improving public health in the West Zone,P=10.0 billion was allocated in setting up and rehabilitation of waste water system.

Maynilad is accelerating its wastewater projects to protect the health of its customers andthe environment and to meet its service obligations under the Concession Agreement termextension plan.

Around P=4.2 billion was allocated for service expansion programs which includes pipelaying of primary lines in Bacoor and Imus, Cavite and in Las Piñas, Muntinlupa andPasay and construction; automation of boosters and reservoirs; and rehabiliation ofMaynilad's water network facilities, offices and warehouses.

P=2.0 billion was spent in NRW reduction program through pipe replacement projects,

metered management projects, establishment of smaller District Metered Areas, leakrepairs and diagnostic activities. This resulted in the recovery of over 117.4 million liters per day of water.

The decision of the Appeals panel to settle Maynilad’s tariff dispute with the MWSS datedDecember 29, 2014, upheld the alternative rebasing adjustment of Maynilad. This would, ifimplemented immediately, result in a 9.8% increase in the 2013 average basic water charge ofP=31.28/cu.m., inclusive of the P=1.00 Currency Exchange Rate Adjustment which the MWSS has now

incorporated into the basic charge (the “Award”). The Award translates to an average increase ofP=3.06/cu.m. While there has been a two (2)-year delay in implementing an adjustment in the average basic water charge - the Concession Agreement between MWSS and Maynilad expressly provides fora one-time implementation of a positive rebasing adjustment - Maynilad is willing to implement theincrease on a staggered basis in order to mitigate the impact of the Award on its customers in the WestZone of Metro Manila subject to approval of the MWSS.


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Revenues

2014 2013 Increase

(Decrease)

Audited Amount %

(in Php Millions)

Water Services 14,645 13,587 1,058 8

Sewer Services 3,294 2,909 385 13

Other Contract & Services 424 399 25 6Total Revenues 18,363 16,895 1,468 9

Total revenues for the year rose 9% to P=18,363 million from P=16,895 million in 2013 due to thecombined effect of the increase in billed volume and reduced provisioning for regularly unpaid bills,reflecting better collections. Consolidated billed volume for Maynilad and its subsidiary PHI was up by 4% to 473.4 MCM. Percentage increases in the components of Maynilad’s revenues are set out

above.

Costs and Expenses

Increased by 4% from P=7,147 million to P=7,414 million attributable to increases in amortizationexpense with the increase in volume sold using UOP method, utilities and repairs and maintenancedue to increased network pumping activities in order to deliver water to new customers in the southand operation of new sewage treatment plants (STPs) and outside services related to arbitration costexpense. The increase was offset by lower provisions for doubtful accounts driven by improved

collection.

Core income

Maynilad’s core income increased by 17% to P=8,777 million in 2014 from P=7,530 million last yeardue to increased billed volume and higher average tariff as discussed above.

Non-recur r ing income (expense)

Non-recurring items in 2014 includes one-time separation expenses and arbitration costs whichtogether were lower than the refinancing costs incurred in 2013.

Reported Net I ncome


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Toll Roads

2014 2013 Increase

(Decrease)

Metro Pacific Tollways Corporation Audited Amount %

(in Php Millions)

Consolidated Statements of Income

Net toll revenues 8,641 8,154 487 6

Cost of Services 3,533 3,305 228 7

Operating expenses 819 730 89 12

Interest income (expense) - net (1,114) (944) 170 18

Share in earnings of an associate 290 247 43 17

Other income (expense) - net 270 198 72 36

Provision for income tax 952 731 221 30

Core Income 2,154 1,963 191 10

Non-recurring income (expense) (92) 38 (130) (>100)

Reported net income 2,779 2,784 (5) (0)

Reported net income attributable to equity holdersof MPTC

2,062 2,001 61 3

Core EBITDA 5,788 5,540 248 4

Core EBITDA margin 67% 68% (1%) (1)

Capital Expenditure 2,592 401 2,191 >100

Key Performance IndicatorsIncrease

(Decrease)

2014 2013 Amount %

Average Daily Vehicle Entries - NLEX 185,297 173,067 12,230 7

Average Daily Vehicle Entries - CAVITEX 110,393 102,280 8,113 8

Average Kilometers Travelled - NLEX 3,505,833 3,272,638 233,195 7

Average Daily Vehicle Entries - DMT 80,698 76,842 3,856 5

Operational highl ights

MPTC’s Core Net Income of P=2.2 billion for the period was 10% higher than a year earlier as a resultof strong traffic growth and increased shareholding in the NLEX Average daily entries rose 7% on


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additional issues surrounding the tariff regime for the Harbour Link are constraining continued and

needed expenditure on our road construction.

The NLEX Harbour Link and Citilink projects, together with expansion of the CAVITEX, would seeMPTC invest approximately P=31 billion over the next few years to complete construction of this vitalroad infrastructure. It is therefore important that overdue tariff increases be implemented. MPTC andMPIC would fund this sum using internal resources and external debt.

With regard to MNTC's proposal to build an elevated expressway to connect the Northern andSouthern toll road systems (the "Connector" project), at the recommendation of the NationalEconomic and Development Authority, MNTC and Philippine National Construction Corporationcreated a joint venture to build the Connector which would serve the public well by shortening journey times and significantly decongesting the city. However, in July 2014, the Department ofJustice opined that the joint venture approach did not meet the relevant legal tests, and ordered the project to undergo a competitive challenge. On December 22, 2014, the Investment CoordinationCommittee - Cabinet Committee reapproved the Connector back to Department of Public Works andHighways as an unsolicited proposal subject to NEDA Board confirmation.

In a separate matter, on February 9, 2015, MNTC received the Notice of Award from the BCDA forthe management, operation and maintenance of the 94-kilometer SCTEX subject to compliance withspecific conditions. The Notice of Award was issued by BCDA following the results of the PriceChallenge held last January 30, 2015. MNTC plans to invest P=400 million to integrate SCTEX with NLEX to facilitate seamless travel between the two expressways.

In January 2015, MPTC, procured original proponent status for the proposed Cebu-Cordova BridgeProject from Cebu City and the Municipality of Cordova. Negotiations with both Cebu City and the

Municipality of Cordova are on-going and once done, a Swiss Challenge will have to be conducted before awarding of the contract. This project spanning 8.3 kilometers will link the island of Mactan tomainland Cebu through the Municipality of Cordova. The total construction cost of the Cebu-Cordova Bridge Project is estimated at P=17.0 billion with completion date by 2020 assuming thatawards and approvals are secured during the first half of 2015.

Thailand:

On July 31, 2014, MPIC acquired its 75% shareholding in FPM Infra from First Pacific for aconsideration of approximately US$101.25 million. FPM Infra became a wholly-owned subsidiary ofMPIC and its sole asset is a 29.45% interest in DMT. DMT is a major toll road operator in Bangkok,Thailand. The concession for DMT runs until 2034 for the operation of a 21.9-kilometer six-laneelevated toll road from central Bangkok to Don Muang International Airport and further to the National Monument in the north of Bangkok. On December 22, 2014 DMT secured tollrate increases


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Net Tol l Revenues

Net toll revenues amounted to P=8,641 million, 6% higher year-on-year, mainly due to traffic volumegrowth in 2014. Average daily traffic grew by 7% and 8% along NLEX and CAVITEX, respectively.

Costs of services and Operating expenses

Total cost and expenses increased by 8% to P=4,352 million from P=4,035 million mainly due to higherOperator ’s fee driven by the increase in base rate in accordance with the Operations and MaintenanceAgreement between MNTC and TMC. Toll operation and maintenance costs increased byP=338 million in 2014. The increase in toll O&M costs is partially offset by the decrease inamortization of service concession assets from P=757 million in 2013 to P=646 million in 2014. Thedecrease in amortization expense resulted from MNTC’s change in the method of amortizing theservice concession asset from straight-line to UOP method. This change in accounting policy resultedin a decrease in amortization expense of P=121 million at MPTC's level, for the period endedDecember 31, 2014.

I nterest expense - net

Financing cost increased by 18% or P=170 million mainly due to the P=3.3 billion debt drawdown byMPTDC which was used to finance acquisition of additional 8.5% effective interest in MNTC.

Core income

Core income increased by 10% to P=2,154 million mainly due to the 8.5% increased shareholding inMNTC and lower amortization of Concession asset from change in amortization method to units-of-

production dampened by increase in interest expense as discussed above.

Non-recur r ing income (expense)

Non-recurring expense in 2014 mainly includes project expenses while 2013 non-recurring incomeincludes forex gain from CIC's dollar loans.

Reported Net income attr ibutable to equi ty holders of MPTC

Reported Net income increased by 3% in 2014 mainly due to increase in toll revenues from highertraffic.


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Power

2014 2013 Increase

(Decrease)

Manila Electric Company Audited Amount %

(in Php Millions)

Revenues 266,336 298,636 (32,300) (11)

Expenses 240,190 274,846 (34,656) (13)

Core Income 18,128 17,023 1,105 6Reported net income attributable to equity holders

of MERALCO 18,053 17,211 842 5

Capital Expenditure 12,350 10,187 2,163 21

Key Performance Indicators

Increase

(Decrease)

2014 2013 Amount %

Volume Sold (in mln kwh) 35,160 34,084 1,076 3

System Loss (12-month moving average) 6.49% 6.92% (0.43%) (6)

Average Distribution Revenue per kWh YTD 1.60 1.65 (0.05) (3)

Operational highl ights

MERALCO’s Core Net Income for 2014 rose 6% to P=18.1 billion compared with 2013. This wasdriven mainly by a 3% increase in energy sales to 35,160 gigawatt hours (GWh) due to higherdemand from the commercial and industrial segments, which both grew by 4%. Revenues also reflectthe lower distribution tariff commencing July 2014 with the implementation of the 4th RegulatoryYear Maximum Average Price of P=1.5562 per kilowatt hour.

Capital expenditures for 2014, including those for new load requirements and system reliability,amounted to P=12.4 billion up from P=10.2 billion in 2013.

MERALCO’s capex commitment continues to deliver strong returns. The 12-month moving averagesystem loss fell to just 6.5% at the end of December 2014. This level is 2 percentage points lower thanthe regulatory cap of 8.5% which translates to savings for MERALCO's customers of P=4.6 billion in2014.


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San Buenaventura Power Limited (“SBPL”), in which MGen has a 49% interest with a right to

nominate a preferred investor for an additional 2%, is in advanced stages in developing a new455 MW (net) supercritical coal-fired power plant in Mauban, Quezon. SBPL, a joint venture withElectricity Generating Public Company Limited of Thailand, has filed the Power Sales Agreementwith the Electricity Regulatory Commission and is currently awaiting decision to proceed. The plantis scheduled to begin commercial operation in the second half of 2018.

Following the Supreme Court’s clearance to proceed with the project, MGen’s Redondo PeninsulaEnergy, Inc. joint venture aims to complete the 2x300 MW coal-fired powered power plant withinfour years.

Global Business Power Corporation, in which MERALCO has a 22% interest, commenced operationsof subsidiary Toledo Power Company's 82 MW coal-fired power plant in December 2014. Another150 MW coal-fired power plant is being built in Iloilo City through Panay Energy DevelopmentCorporation. Equity in this project has been fully funded and commercial operation is expected tostart in the third quarter of 2016.

With the increase in effective ownership in MERALCO from 24.98% to 27.48% beginning

June 26, 2014 and the benefit of lower interest costs reflecting debt refinancing undertaken last year,the segment’s contribution to MPIC for the period rose 30% to ₱3.0 billion.

Healthcare

2014 2013 Increase

(Decrease)

Healthcare Group Audited Amount %

(in Php Millions)

Gross Revenues 14,096 12,493 1,603 13

Expenses 11,382 10,144 1,238 12

Core EBITDA 2,946 2,656 290 11

Core Income 1,007 879 128 15

Reported Net Income 1,011 886 125 14

Key Performance IndicatorsIncrease

(Decrease)

2014 2013 Amount %

Occupancy rate (%) - Standard Beds 67% 72% (5%) (7)

Total beds available 2 134 2 021 113 6


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to P=465 million this year reflecting dilution in the effective ownership in the hospitals with the entry

of GIC as described below.

On May 16, 2014, MPIC and GIC entered into a partnership agreement to facilitate the furtherexpansion of the hospital group of MPIC. GIC, through its affiliates, invested P=3.7 billion for a 14.4%stake in MPIC’s hospital holding company MPHHI. The partnership with GIC will help the Companygrow not only in hospitals but also in other health-related fields, in the Philippines and possiblyabroad. GIC also advanced to MPIC P=6.5 billion by way of an Exchangeable Bond which will beexchanged into a 25.5% stake in MPHHI in the future, subject to certain conditions.

The Hospital Group currently consists of eight (8) full-service hospitals with approximately 2,150 beds in total – Makati Medical Center, Cardinal Santos Medical Center, Our Lady of LourdesHospital, Asian Hospital & Medical Center and De Los Santos Medical Center in Metro Manila;Central Luzon Doctors' Hospital in Tarlac; Riverside Medical Center in the Visayas; and DavaoDoctors Hospital in Mindanao – MegaClinic, its first mall-based diagnostic and ambulatory carecenter located in SM Megamall and 2 healthcare colleges, Riverside College Inc. in the Visayas andDavao Doctors College in Mindanao. MPIC operates the largest private hospital group in the country,with hospitals in all three major island groupings of the Philippines.


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MPIC Consolidated Statement of Financial Position

Assets

The following table summarizes the individual increase (decrease) of consolidated asset accounts.

Audited Audited

Increase

(Decrease)

2014 % 2013 % Amount %

(in Php Millions) ASSETS

Current assets Cash and cash equivalents and short-term

deposits 25,758 72 15,263 61 10,495 69

Restricted cash 2,367 7 1,827 7 540 30

Receivables 3,676 10 3,749 15 (73) (2)

Due from related parties 140 - 229 1 (89) (39)

Other current assets 2,458 7 3,821 16 (1,363) (36)

34,399 96 24,889 100 9,510 38

Asset held for sale 1,370 4 - - - -

35,769 100 24,889 100 9,510 38

Noncurrent Assets

Restricted cash 889 - - - 889 100 Receivables 263 - 593 - (330) (56)

Due from related parties - - 65 - (65) (100)

Available for sale financial assets 2,162 1 2,770 2 (608) (22)

Investments and advances 65,175 33 48,854 29 16,321 33

Goodwill 18,308 9 18,308 9 - -

Service concession assets 98,260 50 94,540 54 3,720 4

Property use rights 608 - 649 - (41) (6) Property and equipment 7,368 4 6,859 4 509 7

Other noncurrent assets 5,210 3 3,057 2 2,153 70

198,243 100 175,695 100 22,548 13


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Held for Sale. Interests in Landco comprise of common shares in Landco, receivable from

Landco and ABHC and preferred shares (previously classified as Receivables) that wereconverted to Landco’s common shares in 2014 (see Note 33 to the 2014 Audited ConsolidatedFinancial Statements).

Due from related parties – current portion and non-current portions – (Decrease) Settlement ofintercompany advances for the period.

Other current assets – (Decrease) The decrease is mainly due to the reclassification ofinvestments in UITF from Available-for-sale financial assets to short-term deposits account. Asat December 31, 2014, the fund comprises of extremely short-term money market securities, timeand special deposit accounts with average maturity of less than 30 days.

Available-for-sale financial assets – (Decrease) Mainly due to the sale of AFS financial asset(NEPSCC) in January 2014 and reclassification of the 19% Landco investment to Assets held forsale.

Restricted Cash (Noncurrent) – (Increase) Restricted cash classified as part of noncurrent assets

pertains to cash held in escrow account in relation with the construction contract for the NLEXSegment 10 (see Note 33 to the 2014 Audited Consolidated Financial Statements).

Investments and advances – (Increase) Increase substantially relates to the acquisition ofadditional interests in Meralco and DMT. MPIC acquired 5% of direct interest in Meralco fromBeacon Electric for a gross consideration of P=13.2 billion. MPIC also increased its effectiveownership interest in DMT from 7.36% to 29.45% by acquiring 75% interest in FPM Infra for atotal purchase cost of approximately P=4.3 billion.

Service concession assets – (Increase) Mainly due to the additional capital expenditure for theyear, net of amortization. Additions to toll service concession asset included civil worksconstruction on MNTC’s Segments 9 and 10 and CAVITEX’s Modified Zapote Interchange andfixed operating equipment design, supply and installation for the toll collection system migration.Additions in 2014 also include pre-construction costs of Segment 8.2 of Phase II of the NLEXand capitalized borrowing costs amounting to P=335.9 million. Additions to the water serviceconcession assets for substantially relate cost of rehabilitation, additional constructions and to the

additional concession fees pertaining to the drawn portion of the MWSS loans relating to new projects.

Property use rights – (Decrease) Represents the intangible asset of CVHMC and EMHMCacquired through business combinations where the legal forms of the arrangements are leases.Decrease pertains to amortization for 2014


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Liabilities and Equity

The following table summarizes the individual increase (decrease) of consolidated liability and equityaccounts.

Audited Audited

Increase

(

mpic: annual report

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