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A renewed sense of purpose

Not very long ago, we set out on an ambitious diversification program that we believed would prepare our company for the challenges of the future, enable us to become a true catalyst for national development, and further enhance shareholder value. To fully realize this vision, we had to acquire and develop new businesses that would provide us sharper focus on emerging growth industries. Critical to the strategy too, was the continued success of our core businesses.

We understand how social problems—
inequality, lack of opportunity, scarce
resources and climate change—can affect
business sustainability, even as they make the
world increasingly small, volatile and fragile.

Eduardo M. Cojuangco, Jr.
Chairman and Chief Executive Officer

Ramon S. Ang
President and Chief Operating Officer

Eight years on, with our transformation into a highly diversified conglomerate complete, we are again looking to the future and executing on the next phase of growth strategy.

Our food, beverage and packaging businesses continue to be market leaders. They aggressively pursue growth through expansion, even as they tighten their hold on—and increase—market share.

We have also overcome the challenges of integrating and managing our complex portfolio.

Our power, fuel and oil, and infrastructure businesses continue to expand, generating the bulk of our revenues. Just as significantly, we have already started reaping the benefits of some of the large-scale projects we initially set out to undertake.

In 2015, we reported better-than-expected results. Consolidated net income, excluding the effects of foreign exchange translation, amounted to P38.2 billion, 26% higher than in 2014. Operating income also grew 41% to P78.7 billion. Consolidated sales revenues amounted to P673.9 billion, and EBITDA reached P108.6 billion, 23% higher than in 2014.

These top-line numbers offer a snapshot of how our company did last year. They, however, do not reflect the level of achievement we have attained in terms of priming our company for long-term growth.

Our performance in 2015 illustrates how our company is better built to derive income from multiple revenue streams and make structural adjustments to maximize opportunities offered by the business environment.

Of course, our transformation has not been without its share of setbacks. In 2015, for instance, Petron Corporation was subjected to a steep drop in oil prices and bursts of market volatility. Separately, adverse currency movements—principally the strengthening of the dollar against the peso and other Asian currencies—resulted in unrealized foreign exchange losses.

These contingencies were largely external and beyond our control. But the distinct advantages of our diversification and our experiences over the past couple of years have made us more resilient and agile in responding to cyclical strains and extraordinary challenges.

Confronted by the volatility in crude oil prices. Petron’s hedging strategy allowed it to better manage inventories and protect margins. Early this year, the upgraded Petron Bataan Refinery commenced full commercial operations, providing additional volumes. This also paves the way for the full utilization of the refinery and gives it capability to use cheaper medium and heavy crudes to enhance profitability.

To further improve management of our foreign exchange exposure, we tapped domestic liquidity through the issuance of retail investment securities such as bonds and preferred shares to refinance part of our dollar obligations and fund new projects. At the same time, this approach provided investors the opportunity to benefit from long-term investments with fixed returns.

Likewise, faced with higher excise taxes, San Miguel Brewery Inc. ultimately decided to defer price increases and worked on further improving operating efficiencies and sales and distribution efforts to maintain margins.

These are just a few examples of how we manage in hard times and deal with critical issues that affect our businesses. We accept that we operate in a fluid environment and our diversified portfolio gives us stability and continuity as the environment shifts.

If 2015 taught us anything, it’s that we Filipinos can no longer escape the effects of global issues. As an organization, we have to do our part in addressing them. We’ve seen and felt how growing political and social unrest in key regions worldwide can impact on both big and small economies and, in turn, our businesses. We understand how social problems—inequality, lack of opportunity, scarce resources and climate change—can affect business sustainability, even as they make the world increasingly small, volatile and fragile. Throughout our company’s history, we’ve always faced up to the defining challenges of the times. This is why the value of malasakit figures so strongly in our organization’s culture.

In 2015, we began to look beyond our community-focused social development initiatives and sought to directly participate in addressing critical global problems. By involving ourselves in major economic meetings such as the Asia-Pacific Economic Cooperation (APEC) 2015 CEO Summit, we’ve gained valuable insights on how companies are responding, with ever-increasing urgency, to the call of social responsibility. As we chart our company’s way forward, these insights have fortified our resolve to make our businesses more sustainable and more transformative of the communities they serve

As we chart our company’s way forward, these insights have fortified our resolve to make our businesses more sustainable and more transformative of the communities they serve.

In many ways, 2015 was the springboard for this way of thinking. Apart from meeting our strategic goals, one of the more significant developments of our 125th year was defining what the San Miguel Corporation brand should stand for from this point onwards.

The launch of our new corporate slogan, “Your World Made Better,” is the culmination and articulation of all our efforts in the past decade to build a company whose growth strategies are aligned with a commitment to address the immediate needs of our countrymen—whether it’s affordable, “good-for-you” choices in nutrition; sufficient electricity nationwide or relief from the ordeals of commuting everyday.

By investing purposefully in practical, sustainable and long-term solutions, we believe we harness the transformative potential of our businesses to the national interest. In this sense, “Your World Made Better” is not much as slogan as it is a business philosophy, anchored on today’s realities.

Certainly, our individual businesses have taken to heart the challenge of satisfying unmet needs. Intensifying similar efforts in the past, they’re incorporating this new mindset into their growth strategies. San Miguel Pure Foods Company, Inc. for instance, is investing significantly in increasing capacities and developing categories that focus on convenience and wellness. At the same time, more effort is being made by our Beverage and Packaging businesses in developing new processes that improve operations while reducing our environmental footprint.

We highlight examples of such initiatives in succeeding pages of this report.

Similarly, our next generation of large-scale projects affirm how determined we are to be a leader in both high-growth and emerging industries, and catalyst for national development.

San Miguel Holdings Corp. is laying the groundwork for its new projects. Among these is MRT7, a 44-kilometer rail and road project that will link to MRT3 and have a provision to connect to LRT1, and extend all the way to San Jose Del Monte in Bulacan. Once complete, it will provide commuters to and from the North a faster, more convenient and comfortable daily commute and help decongest roads in Metro Manila.

In pipeline too, is SLEX-TR4, a 57.59-kilometer, four-lane toll road that will extend the South Luzon Expressway (SLEX) from Sto. Tomas, Batangas to Lucena City in Quezon province, making travel to the South faster, safer and more convenient than ever.

Also in the early stages of development is Skyway Stage 4, a 58.09-kilometer at-grade and elevated expressway that will start at Skyway-FTI and traverse C5 Road; provide access to Lower Bicutan over C6 Road and connect Ortigas Avenue Extensions all the way to San Jose Del Monte, Bulacan.

These new projects, taken together with our existing SLEX, Skyway, STAR Tollway, Tarlac-Pangasinan-La Union Expressway and soon-to-be-completed NAIA Expressway, Skyway Stage 3 and the Boracay Airport, go a long way in interconnecting key growth areas of our country and hastening development in regions that lag behind. Moreover, these infrastructure assets afford us a dominant position in this important, high-growth industry.

Even as we complete our power plants in Davao and Bataan, we’ve entered into a joint venture partnership with Kore Water Resources Corporation for Angat Hydropower Corporation, raising our capacity to generate hydroelectric power. This project also puts us in charge of rehabilitating the Angat Dam. By undertaking this project, we ensure that Angat will continue to serve as a source of irrigation, potable water and hydropower for generations to come.

Our investment in the Bulacan Bulk Water Supply project holds great strategic and social significance. Undertaking our first bulk water supply project should give us experience in water utilities distribution, while addressing the perennial water shortage in this key province of Central Luzon.

SMC, through subsidiaries, also holds a significant stake in Manila North Harbour Port, Inc.

Our investment has transformed Manila North Harbour into one of the most modern ports in the Philippines today. We will continue to invest in its modernization and expansion, and by doing so, significantly improve the flow of goods and people to and from the nation’s capital.

This report provides a glimpse of some of the things that your company will be focusing on over the immediate future. Already, we feel a sense of accomplishment at having come this far. Our core businesses continue to grow, even as our new power, fuel and oil, and infrastructure projects are beginning to contribute to our bottom line.

By any measure, every single one of these projects is game-changing for the sectors we aim to participate in and lead, and more importantly, for the people whose lives they will impact. And yet we recognize that there is still much that we can do.

With a renewed sense of purpose, we, together with our employees, stand ready as ever to do the work we’re so passionate about: engineering growth and creating opportunities where they are most needed, enabling people by investing in industries that will make the biggest difference in their lives, and always—in everything we do—leading by example.