CHAPTER I

CORPORATE GOVERNANCE ANALYSIS

Company Background

` ABS-CBN Corporation (“ABS-CBN” or the “Company”) traces its

roots from Bolinao Electronics Corporation (BEC), established in 1946 as
an assembler of radio transmitting equipment. In 1952, BEC adopted the
business name Alto Broadcasting System (ABS) and began setting up the
country’s first television broadcast by 1953. On September 24, 1956,
Chronicle Broadcasting Network (CBN), owned by Don Eugenio Lopez Sr.
of the Lopez family, was organized primarily for radio broadcasting. In
1957, Don Eugenio Lopez Sr. acquired ABS and on February 1, 1967,
the operations of ABS and CBN were integrated and BEC changed its
corporate name to ABS-CBN Broadcasting Corporation. In August 16,
2010, the Philippine Securities and Exchange Commission approved the
change of Company’s corporate name to ABS-CBN Corporation. This
change is a reflection of the Company’s diversified businesses in existing
and new industries.

ABS-CBN achieved many firsts since it started the television

industry in the country in 1953. However, with the imposition of martial
law in September 1972, ABS-CBN ceased operations as the government
forcibly took control of the Company. ABS-CBN resumed commercial
operations in 1986 after the People Power or EDSA revolution.

Recovery after 14 years of absence was difficult as resources were

scarce. Nevertheless, through relentless effort, ABS-CBN recaptured
leadership in the Philippine television and radio industries by 1988.
During the 1990s and the early part of the new millennium, the
Company expanded and ventured into complementary businesses in
cable TV, international distribution, mobile services, and magazine
publishing among others.

Lines of Business

ABS-CBN is the Philippines’ leading media and entertainment company.

The Company presents its operations into the following reportable
businesses:

a. TV and Studio Entertainment

b. Pay TV Networks
c. New Businesses

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TV and STUDIO ENTERTAINMENT

TV and studio entertainment segment is comprised of broadcast, global

operations, film and music production, cable channels, and publishing.
This consists of local and global content creation and distribution
through television and radio broadcasting.

Broadcast segment covers content creation and distribution mainly

through free TV and radio with Channel 2 and DZMM as its flagship
platforms. The content created is predominantly in Filipino and is aimed
at the mass Filipino audience. The Company’s leading position in the
Philippine television broadcasting industry is largely due to the
popularity of its entertainment programs, including teleseryes , drama
anthologies, situation comedies, variety, reality and game shows. On the
other hand, news and public affairs programs have developed a
reputation for the quality of news coverage that includes national, local
and international events.

Global segment, through ABS-CBN International, North America (NA),

pioneered the international content distribution through Direct to Home
(DTH), cable, internet protocol TV, mobile and online through The
Filipino Channel (TFC). It is available in all territories where there is a
significant market of overseas Filipinos such as the Unites States, Middle
East, Europe, Australia, Canada and Asia Pacific. Other activities
include international film distribution, remittance, retail, sponsorships
and events.ABS-CBN Corporation.

Films and Music segment of the Company is composed of movie

production, film distribution, audio recording and distribution and
video/audio post production. Films are generally produced through its
subsidiary ABS-CBN Film Productions (AFPI) or more popularly known
as Star Cinema. Other movies are co-produced with other local or
international producers or are simply distributed by AFPI. Music needs
are managed by Star Recording, Inc. and Star Songs, Inc. to complement
the recording needs of the Company’s multi-talented artists and handle
music publishing and composing requirements, respectively.

Narrowcast

The Narrowcast business caters to the needs of specific or targeted

audiences or markets not normally addressed by the Broadcast
business. Included in this line of business are cable programming and

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channel offerings such as Filipino movie channel, music channel, animé,
upscale male sports content and upscale female lifestyle content. It also
covers print, sports, and other niched programming via its UHF (Ultra
High Frequency) channel. Narrowcast includes the following
subsidiaries: Creative Programs, Inc., ABS-CBN Publishing, Inc. and
Studio 23, Inc.. As part of the Company’s goal to elevate boxing as a
sport in the country, it entered into a joint venture agreement with ALA
Promotions, Inc., a world class boxing organization and promotional
company.

PAY TV NETWORK

Pay TV networks include cable television services of Sky Cable and its
subsidiaries in Metro Manila and in certain provincial areas in the
Philippines. It offers postpaid and prepaid packages as well as a la carte
programming, broadband, internet phone, among others. Consumers
are given various options that can be tailor fitted to suit their specific
requirements including the ability to have a real triple-play service in the
market that combines cable TV, broadband and internet phone. Catch
up feature on missed programming via iWantv were provided as an
option to the customers for a total pay tv entertainment package. With
Sky Cable’s acquisition of Destiny Cable in 2012, Sky Cable accounts for
nearly half of the total local pay TV market.

NEW BUSINESSES

New businesses and initiatives pertain to wireless telecommunications

business, digital terrestrial TV and theme parks. Wireless
Telecommunications business was established on May 28, 2013 through
ABS-CBN mobile’s network sharing agreement with Globe Telecom. This
partnership enables ABS-CBN to deliver ABS-CBN content in addition to
traditional telecommunication services on mobile devices. Through the
network-sharing agreement, Globe will provide capacity and coverage on
its existing cellular mobile telephony network to ABS-CBN Convergence
on a nationwide basis. The parties may also share assets such as
servers, towers, and switches. On November 16, 2013, ABS-CBN Mobile’s
pre-paid service was launched. Digital Terrestrial TV The Company
continues to invest in Digital Terrestrial TV equipment to improve clarity
of signal in certain areas of Mega Manila and Central Luzon. The
company believes that the transition from analogue to digital will result
in an increase in its audience share. The Company will be ready to
launch as soon as the implementing rules and regulations is released.

Theme Parks

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The Company has also invested in a theme park more popularly known
as Kidzania Manila. KidZania provides children and their parents a safe,
unique, and very realistic educational environment that allows kids
between the ages of four to twelve to do what comes naturally to them:
role-playing by mimicking traditionally adult activities. As in the real
world, children perform "jobs" and are either paid for their work (as a
fireman, doctor, police officer, journalist, shopkeeper, etc.) or pay to shop
or to be entertained. The indoor theme park is a city built to scale for
children, complete with buildings, paved streets, vehicles, a functioning
economy, and ABS-CBN Corporation recognizable destinations in the
form of "establishments" sponsored and branded by leading multi-
national and local brands

Home Shopping

A CJ O Shopping Corporation is a joint venture between ABS-CBN and

CJ O Shopping Corporation of Korea to provide TV home shopping in the
Philippines. The TV home shopping channel was launched in October
2013.

Subsidiaries
The following is a list of the Company’s active subsidiaries which ABS-
CBN controls as of December 31, 2013:

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SIGNIFICANT PHILIPPINE ASSOCIATE AND AFFILIATES

Patents, Trademarks, Licenses, Franchises, Concessions, Royalty

Republic Act No. 7966, approved on March 30, 1995, granted the
Company the franchise to operate TV and radio broadcasting stations in
the Philippines through microwave, satellite or whatever means including
the use of new technologies in television and radio systems. The
franchise is for a term of 25 years. ABS-CBN is required to secure from
the National Telecommunications Commission (NTC) appropriate permits
and licenses for its stations and any frequency in the TV or radio
spectrum.

ABS-CBN’s intellectual property includes content that the

Company has produced. ABS-CBN owns various trademarks and
copyright over most programs it produced. ABS-CBN has also acquired
the rights over content of a number of third party production entities.

Third Party-Owned foreign and local film and programs aired

through the networks

ABS-CBN and its subsidiaries have licenses from foreign and local
program and feature film owners to distribute the same through its
networks. The licenses to distribute the foreign programs and foreign and
local feature films grant ABS-CBN and its subsidiaries the right to
distribute said programs and films on free TV, cable, and satellite in the
Philippines and in territories wherein TFC is distributed.These licenses
for TV rights have an average term of 2 to 3 years. Such programs
comprise approximately 15% of the programming of Channel 2,
approximately 65% of the content of Studio 23, and close to 90% for all
CPI cable channels collectively.

ABS-CBN and its wholly-owned subsidiary, Sky Films, Inc. (which

was merged into ABS-CBN Film Productions Inc. in November 2007),

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also have the license to distribute local and foreign feature films in the
Philippines for theatrical, TV, and video distribution, with limited
ancillary rights. The licenses for foreign films have an average term of 10
to 15 years.

Aside from licenses, programs or events produced by third parties

are aired through the networks of ABS-CBN and its subsidiaries under
blocktime agreements or coverage and broadcast agreements entered
into with such third party-producers.

Music Licenses

ABS-CBN and its subsidiaries enter into agreements for the

synchronization and use of music in its films and programs with the
composers, publishers and recording companies. ABS-CBN also has
agreements with the Filipino Society of Composers, Authors and
Publishers, Inc. (FILSCAP) and the Music and Video Performance, Inc.
(MVP), the collecting societies in the Philippines, for the public
performance rights of music contained in such films or programs
produced by ABS-CBN. The existing agreements with FILSCAP and MVP
include the subsidiaries of ABS-CBN. Fees for public performance rights
of the music in films and programs outside the Philippines are paid to
the relevant collecting societies in the territories where the films and
programs are exhibited.

Star Records has various licensing, mechanical and distribution

rights agreements with composers, publishers and recording companies,
as the case may be, for the songs and albums it produces, manufactures,
distributes or sells in the local market. ABS-CBN also has such similar
agreements for its musical products, such as ring-tones, digital music,
that is downloaded on mobile and online applications.

Corporate Purpose:

It is our reason for existence. And ABS-CBN, for all the years to
come, will continue to work towards the vision of serving the Filipino.

Corporate Core Values

 Excellence
 Teamwork
 Teaching & Learning
 Honesty & Integrity Meritocracy
 Service Orientation.

Key Strategies and Objectives

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 As an organization, ABS-CBN affirms its mission of being in the
service of the Filipino.The Company is driven to pioneer and innovate
because it knows that it helps more Filipinos discover themselves and
connect to one another. The Company opens pathways to opportunities
and brings people a step closer to their dreams. ABS-CBN is firmly
committed to pursuing excellence. The key elements to its business
strategy are:

Building on our core strength in content creation. While the

technology, the production
process, and the medium used to access content evolve, ABS-CBN’s core
ability to createquality
content that touches, inspires and empowers its viewers must remain
constant. The Company will continue building on its core strength in
content creation.

Anytime, anywhere, in any device or medium. As ABS-CBN’s

audience demand greater control
over how and when they will consume content, the Company will ensure
its continued relevance by distributing its content in the widest array of
platforms that technology will allow. The Company’s audience will be
able to reach ABS-CBN anytime at any place in any medium.

Maintain a strong fiscal position and bring value to our

stakeholders. The Company will
derive the most synergies possible between its content and distribution
businesses. The Company will ensure that it is able to optimize its
strength of content creation by being present in all platforms possible.
In addition, the Company will consciously operate more efficiently and
cost-effectively, as it delivers greater value to its customers, clients,
partners, and shareholders.

Board of Directors

There are 11 board of directors of the Company, namely:

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The following directors have held their current positions in their
respective companies for more than 5 years unless otherwise indicated.
Below is a summary of their qualifications:

Eugenio L. Lopez III, Filipino, age 61

Chairman of the Board of Directors

Eugenio “Gabby” Lopez III is the Chairman of the Board of ABS-

CBN Corporation. He was elected Chairman in 1997. Aside from leading
ABS-CBN, Mr. Lopez III also serves as Vice Chairman of Lopez Holdings
Corporation. He is also a Director of First Gen Corporation, First
Philippine Holdings and Sky Vision Corporation. He earned a Bachelor of
Arts degree in Political Science from Bowdoin College in 1974 in

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Brunswick, Maine and a Masters degree in Business Administration from
the Harvard Business School in 1980 in Boston, Massachusetts.
Augusto Almeda-Lopez, Filipino, age 85
Vice-Chairman

Mr. Almeda- has served as Vice Chairman of the Company since

1989. Mr. Almeda-Lopez is also the Vice-Chairman of First Philippine
Holdings Corporation. He also serves as the Chairman of ACRIS
Corporation and ADTEL, Inc. while he serves as a Director of various
companies in the telecommunications, manufacturing, and service
industries, namely First Philippine Industrial Corporation, First Gen
Renewables Inc., First Electro Dynamics Corporation, Philippine Electric
Corporation, Bayan Telecommunications Inc., and Sky Vision
Corporation. He is an alumnus of De La Salle College and Ateneo de
Manila, is a graduate of the University of the Philippines College of Law
class 1952 and he finished an Advanced Management Program course at
Harvard University in 1969.

Ma. Rosario Santos-Concio, Filipino, age 58

Board Member, President and Chief Executive Officer

Ms. Santos-Concio was appointed Chief Executive Officer in

January 2013. Prior to this, she was ABSCBN’s President and Chief
Operating Officer in 2008. She was previously the Head of Channel 2
Mega Manila Management. Onscreen, Ms. Santos-Concio hosts ABS-
CBN Channel 2’s longest-running drama anthology Maalaala Mo Kaya.
Ms. Santos-Concio began her career in the Company as a Television
Production Consultant in 1987 after working as a line producer for
BanCom, Audiovision, Vanguard Films, Regal Films and Vision
Exponents. She also worked as a Film Production Manager for the
Experimental Cinema of the Philippines. Ms. Santos-Concio is the
recipient of many cinema and broadcast industry-related awards over the
years. She graduated cum laude from St. Paul’s College in Manila with a
Communications Arts degree. Ms. Santos-Concio also completed the
Advanced Management Program at Harvard Business School in 2007.

Oscar M. Lopez, Filipino, age 83

Board Member

Mr. Oscar M. Lopez also serves as Chairman Emeritus and Chief

Strategic Officer of the First Philippine Holdings Corporation (FPHC), and
Chairman Emeritus of Lopez Holdings Corporation, First Gen and Energy
Development Corporation. He is Chairman of First Philippine Industrial
Park and First Sumiden Circuits, Inc. He is also Vice Chairman of
Rockwell Land. Mr. Lopez has led FPHC’s efforts in other businesses

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aside from energy and power, including toll road construction, industrial
park and real estate development, and electronics manufacturing. Mr.
Lopez has a Master’s degree in Public Administration from the Littauer
School of Public Administration in Harvard University (1955), the
institution where he also earned his Bachelor of Arts degree, cum laude
in 1951.

Presentacion L. Psinakis, Filipino, age 78

Board Member

Ms. Psinakis is the founder and President of Griffin Sierra Travel,

Inc. She is a member of the Board of Trustees of the Eugenio Lopez
Foundation, Inc. and also serves as director of the following companies:
Lopez Inc., Benpres Insurance Agency, ADTEL Inc., and Philippine
Commercial Capital Inc. She took a Bachelor of Arts course in St.
Scholastica's College.

Federico R. Lopez, Filipino, age 52

Board Member

Mr. Lopez is the Chairman and Chief Executive Officer of First

Philippine Holdings Corporation. He is also the Chairman and Chief
Executive Officer of First Gen and Energy Development Corporation.
Mr. Lopez is the Chairman of First Philec, First Balflour, First Philippine
Solar Corporation, and First Philippine Industrial Corporation. He is a
member of the boards of First Philippine Holdings Corporation, Energy
Development Corporation, First Private Power Corporation, and Bauang
Private Power Corporation. He also serves as director, President and
Chief Executive Officer of FG Luzon, FG Bukidnon Power Corporation,
First Gen Hydro Power Corporation, First Gen Geothermal Power
Corporation, First Gen Visayas Hydro Power Corporation, First Gen
Mindanao Hydro Power Corporation, First Gen Energy Solutions Inc.,
First Gen Northern Energy Corporation, First Gen Premiere Energy
Corporation, Red Vulcan, Prime Terracota, First Gen Visayas Energy
Inc., First Gen Prime Energy Corporation, FGHC, FGPC, FGP, AlliedGen,
Unified Holdings Corporation, FNPC, FGLand,and FGPipeline. He is also
the President of First Philippine Conservation Inc. Mr. Lopez graduated
from ABS-CBN Corporation 32the University of Pennsylvania with a
Bachelor of Arts degree in Economics and International Relations, cum
laude in 1983.

Manuel M. Lopez, Filipino, age 70

Board Member

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 Mr. Lopez is the Chairman and Chief Executive Officer of Lopez
Holdings Corporation. He is a holder of a Bachelor of Science degree in
Business Administration and attended the Program for Management
Development at the Harvard Business School. He is the chairman of
Rockwell Land, the Vice Chairman of FPHC and is a director of Meralco.
He was Chief Executive Officer of Meralco from July 2001 to June 2010.
Mr. Lopez is the Philippine Ambassador to Japan.

Salvador G. Tirona, Filipino, age 58

Board Member

Mr. Tirona is the President and Chief Operating Officer of Lopez

Holdings Corporation. He initially joined Lopez Holdings Corporation as
its Chief Finance Officer (CFO) in September 2005 and held this position
until his appointment to his current position in 2010. He was formerly a
director and the CFO of Bayan. In 2003, he was the CFO of Maynilad
Water Services, Inc. He holds a Bachelor degree in Economics from the
Ateneo de Manila University and a Master of Business Administration
from the same university.

Federico M. Garcia, Filipino, age 68

Board Member

Mr. Garcia was the President of ABS-CBN from 1998 to 2003. Prior
to his appointment as President, Mr. Garcia was Executive Vice President
and General Manager of ABS-CBN. He also worked as a TV Sales
Executive with ABS-CBN in 1966 until Martial Law. Before rejoining the
Company in 1987, he was Executive Vice President of GMA Network,
managing its marketing and programming activities. He attended the
College of Business Administration at the University of the Philippines.
Mr. Garcia is a recipient of various Philippine broadcasting industry
awards.

Antonio Jose U. Periquet, Filipino, age 52

Board Member, Independent Director

Mr. Periquet is Chairman of the Board of Pacific Main Holdings,

Inc. (since 1999), Campden Hill Group (since 2012) and Regis Financial
Advisers (since 2012). He is a director of Ayala Corporation (since 2010),
Bank of the Philippine Islands (since 2012), BPI Capital Corporation
(since 2010), BPI Family Bank (since 2012), DMCI Holdings, Inc. (since
2010) and Philippine Seven Corporation (since 2010). He is an
independent director of ABS-CBN Holdings, Inc. since 2012. He is a
member of the Board of Advisers of the Corporation since 2011 and a
member of the Global Advisory Council, Darden School of Business,

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University of Virginia. He was a director of the Development Bank of the
Philippines (2010 to 2012), Chairman and Managing Director and Head
of Research of Deutsche Regis Partners,Inc. (1999-2010). He received
his AB Economics degree from Ateneo de Manila University in 1982, a
MSC Economics degree from Oxford University in 1988 and a Masters in
Business Administration from the University of Virginia in 1990.

Emmanuel S. de Dios, Filipino, age 59

Board Member, Independent Director

Mr. de Dios is a Professor of Economics at the University of the

Philippines School of Economics since 1989. He is also the President of
Human Development Network (Philippines) since July 2012. He was the
Dean of the University of the Philippines School of Economics from 2007
to 2010. He was a member of the Board of Advisers to the Board of
Directors of the Corporation since 2011. He is a member of the Board of
Trustees of Pulse Asia (Phils.), Inc. since 2008. He received his AB
Economics degree from the Ateneo de Manila University cum laude in
1978 and his Ph.D. in Economics from the University of the Philippines
in 1987. He pursued post-doctoral studies in the Univeritat Konstanz in
Germany from 1987 to 1988. He is the author of various books,
monographs, articles and reviews in the field of economics.

Executive / Corporate Officers

Ma. Rosario Santos-Concio, Filipino, age 58

President and Chief Executive Officer

Ms. Santos-Concio was appointed Chief Executive Officer in

January 2013. Prior to this, she was ABSCBN’s President and Chief
Operating Officer in 2008. She was previously the Head of Channel 2
Mega Manila Management. Onscreen, Ms. Santos-Concio hosts ABS-
CBN Channel 2’s longest-running dramaanthology Maalaala Mo Kaya.
Ms. Santos-Concio began her career in the Company as a Television
Production Consultant in 1987 after working as a line producer for
BanCom, Audiovision, Vanguard Films, Regal Films and Vision
Exponents. She also worked as a Film Production Manager for the
Experimental Cinema of the Philippines. Ms. Santos-Concio is the
recipient of many cinema and broadcast industry-related awards over the
years. She graduated cum laude from St. Paul’s College in Manila with a
Communications Arts degree. Ms. Santos-Concio also completed the
Advanced Management Program at Harvard Business School in 2007.

Ma. Socorro V. Vidanes, Filipino, age 51

Head, Broadcast

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 Prior to her appointment as Head of Broadcast, Ms. Vidanes was
the Head of Channel 2 Mega Manila in 2009. Prior to that, she held the
position of Managing Director for ABS-CBN TV Production from 2001 to
2008. She was responsible for the conceptualization, production and
management of all TV Entertainment programs on ABS-CBN Channel 2.
She has been with ABS-CBN since 1986, starting as an Associate
Producer and has since then been involved in the production of all types
of programs –talk shows, variety, reality, game, comedy and drama. Ms.
Vidanes obtained her degree of Bachelor of Arts in Communication Arts
from the Ateneo de Manila University.

Carlo L. Katigbak, Filipino, age 43

Head, Access and President/Chief Executive Officer, SkyCable

Mr. Katigbak is the President and CEO of SkyCable. He began his

career as a financial analyst with First Pacific Capital Corp. in 1992. He
joined SkyCable in 1994 as Corporate Finance Manager and has held
various positions in Corporate Planning, Provincial Operations and
Finance. In 1998, he served as the first Managing Director of Pilipino
Cable Corporation. He was then assigned to ABS-CBN Interactive as
Managing Director in 1999 where he led the company pioneer various
digitals services such as mobile downloads, interactive TV, online
advertising and online video-on-demand. He returned to SkyCable as
Managing Director in 2005. Mr. Katigbak has a Bachelor of Science in
Management Engineering from the Ateneo de Manila University. Mr
Katigbak also completed the Advanced Management Program at Harvard
Business School in 2009.

Rafael L. Lopez, Filipino, age 56

Head, Global

Mr. Lopez assumed the position of Senior Vice President and Chief
Operating Officer of ABS-CBN Global Limited in 2004. He concurrently
serves as the Managing Director of ABS-CBN International in North
America and has held this position since 1998. He started as the
Information Technology Head of ABS-CBN International in North America
in 1994. Prior to this, he spent 12 years working as a systems analyst
for Bell Atlantic. He graduated from the San Francisco State University
with a Bachelor of Arts degree in Music. He also obtained a degree in
computer programming from Control Data Institute and completed the
Stanford Business Executive Program for Executives in 2002.

Ma. Lourdes N. Santos, Filipino, age 56

Head, Star Creatives

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 Ms. Santos holds more than 2 decades of experience in the local
film industry having started as a production assistant for Vanguard
Films in 1982. She went on to become head of the movie division of
Gryk Ortaleza, Inc., an entertainment company, then a line producer for
Regal Films in 1986 and the general manager of Vision Films in 1989.
She joined the company as executive producer for its drama programs. In
1995, she became the Managing Director of ABS-CBN Film Productions,
Inc. Ms. Santos was appointed Senior Vice-President of the Television
Drama Division for the Company’s Entertainment Group in 2003. In
2006, she was likewise assigned to handle Star Records, Inc. Ms. Santos
graduated cum laude in BS Hotel and Restaurant Management at the
University of Santo Tomas.

Ma. Regina “Ging” E. Reyes, Filipino ,age 50

Head, Integrated News and Current Affairs

Ms. Reyes is responsible for all newsgathering, content and

strategic direction of the News and Current Affairs Division of ABS-CBN
Corporation. She has over 20 years of solid experience as a broadcast
journalist. She joined ABS-CBN in 1986 as a Production Assistant, rose
from the ranks to become Executive Producer and Head Writer of the
award-winning "The World Tonight" and other special events, and
eventually, Director for News Production. Prior to her appointment as
Head of News and Current Affairs, Ms. Reyes was ABS-CBN’S North
America News Bureau Chief from 2002 to 2010. In 2007, she was
named by the Filipina Women’s Network as one of the 100 Most
Influential Filipino Women in the U.S.

Antonio S. Ventosa, Filipino, age 51

Head, Narrowcast

Mr. Ventosa joined the Company in 2006 as Head of Corporate

Marketing. He was appointed in 2009 as Managing Director of ABS-
CBN’s Cable Channels and Print Media Group. He brings with him
several years of experience in marketing that build leadership brands.
He was an account director at Dentsu Young and Rubicam Malaysia for
Colgate Palmolive Singapore and Malaysia, and regional account director
at Leo Burnett in Singapore for McDonald’s Asia before returning to the
Philippines in 1994. He was, at one time, the chairman and the
president of the Association of Accredited Advertising Agencies of the
Philippines or 4A’s, and a board director of AdBoard. Prior to joining the
Company, he was managing director of Leo Burnett Manila. Mr. Ventosa

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graduated with a marketing degree from De La Salle University and was
honored in 2004 by his alma mater as one of its alumni achievers for
having made a significant contribution in the field of advertising.

Mario Carlo P. Nepomuceno, Filipino, age 54

Head, Corporate Services Group 1

Mr. Nepomuceno’s career spans close to 30 years in the field of

human resources and organizational development with stints in brand
management and sales. Mr. Nepomuceno has worked in a broad range of
industries with both local and global organizations, either as a
consultant or employee. He has had exposure to the banking, fast
moving consumer goods, transportation, data, telecoms, cable, and BPO
industries, among others. Outside the private sector, he has serviced
clients in the government and non-government sectors as well. Mr.
Nepomuceno is a graduate of the Ateneo de Manila University with a
bachelor’s degree in Psychology.

Rolando P. Valdueza, Filipino, age 53

Head, Corporate Services Group 2 and Group Chief Finance Officer

Mr. Valdueza was appointed Chief Finance Officer in 2008. Prior to

his appointment as CFO, he was Head of the Regional Network Group
(RNG) of ABS-CBN since 2001. Before joining the Company in 1988 as
Budget Officer, he was an auditor with SGV & Co. and was Finance
Manager at the National Marine Corporation. He also served as Sky
Cable Regional Director for Visayas and Mindanao and later became
Managing Director of Pilipino Cable Corporation. Mr. Valdueza took up
BS Accounting at University of the East and graduated magna cum laude
in 1981.

Jose Agustin C. Benitez, Jr., Filipino, age 54

Head, Integrated Sales

Mr. Benitez joined the Company in 2006 as the Company’s Head of

Channel 2 Sales. He is tasked with establishing strategic long-term
partnerships with agencies and advertiser clients. He was formerly Sales
Head of ABC Channel 5 and of GMA Channel 7, and was instrumental in
developing the Sales Units of both companies. Before becoming involved
in Broadcast Sales, Mr. Benitez was formerly Media Director and Vice
President of Ace Saatchi and Saatchi, where he provided leadership to a
media department that handled diverse clients. He was also formerly

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President and CEO of Zenith Optimedia, Nestle’s independent media
agency, and President and CEO of Optimum Media.

Ma. Rosario S. Bartolome, Filipino, age 42

Head, Integrated Marketing

Ms. Bartolome provides overall leadership in marketing the

Company’s channels, programs and campaigns to advertisers and media
agencies. Ms. Bartolome brings with her more than 17 years of
experience in integrated communications planning and media marketing.
She is recognized locally and internationally for her innovative and
cutting edge media solutions that have shaped the Philippine media
landscape. Prior to joining ABS-CBN, she was the Managing Director of
Carat Philippines and was Vice President of Universal McCann
Philippines. Ms. Bartolome graduated from the Ateneo de Manila
University with a degree in Communication Arts.

Robert G. Labayen, Filipino, age 52

Head, Integrated Creative Communication Management

Mr. Labayen spent 22 years in advertising prior to joining ABS-

CBN in 2004. He started as a copywriter and rose to the rank of
Managing Partner and Executive Creative Director. He also served the
advertising industry as President of the Creative Guild of the Philippines.
Today, his Division articulates the ABS-CBN vision of service to the
Filipino through their work in promoting our company image and our
entertainment, news, sports and advocacy programs.

Vivian Y. Tin, Filipino, age 51

Head, Integrated Customer Business Development

Ms. Tin heads the Integrated Customer Business Development group of

ABS-CBN. Her division
provides consumer and market insights and information to support
strategic and tactical business decisions for ABS-CBN and all its
subsidiaries. Ms. Tin has had extensive experience in market research,
particularly in media measurement and customized research. She began
her career at Trends-MBL, where she rose to become Associate Research
Director in 1992. After her stint in TrendsMBL, she moved on to
ACNielsen Philippines where she became Director of Customized
Research that handled top local and multinational companies in home
care, personal care, pharmaceutical, food, dining and financial services.
Prior to joining ABS-CBN, Ms. Tin was formerly Executive Director of
Nielsen Media Research, the media research division of ACNielsen
Philippines. She was a director of AdBoard in 2005 and 2006 and was

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the President of the Marketing & Opinion Research Society of the
Philippines (MORES) in 2004 and 2005. She graduated magna cum
laude with a Bachelor of Arts degree in Political Science and had her
graduate studies on Applied Statistics, both at the University of the
Philippines. Ms. Tin also completed the Advanced Management Program
at Harvard Business School in 2010.

Ramon R. Osorio, Filipino, age 60

Head, Integrated Corporate Communications

Mr. Osorio is an active advertising and PR practitioner, advocacy

stalwart, marketing communications educator and journalist. He has
worked with J. Walter Thompson, Ace Saatchi, DYR Alcantara and
Campaigns, Inc. Prior to joining ABS-CBN, he has spent 18 years in
Campaigns Advocacy & PR, Inc. (CAPRI), the social marketing and below-
the-line arm of Campaigns and Grey, as its President. Mr. Osorio
chaired the communication arts department of the University of Santo
Tomas for 17 years and was the 2002 Agora Awardee for Outstanding
Achievement in Marketing Education and The Outstanding Tomasian
Alumni (TOTAL) Awardee for media. Mr. Osorio got his academic
grounding at the University of Santo Tomas and the MBA program of the
Ateneo de Manila Graduate School ofBusiness. He likewise observed and
trained at Johns Hopkins University in Maryland; Center for Advertising
Services in New York City; Academy for Educational Development (AED),
George Washington University, APCO and Porter Novelli, all in
Washington DC.

Aldrin M. Cerrado, Filipino, age 44

Chief Finance Officer

Prior to his appointment as Head of Finance, Mr. Cerrado was

Head of Finance Operations. As Head of Finance Operations, he led the
group that is a key business partner of the different lines of business of
the Company. The Finance Operations Group provides financial
leadership for the various operations, high level financial analysis to
support the long term change agenda within the operations business
units, and critiques and reviews functional plans, budgets and forecast
ensuring accuracy and robustness. Before his appointment as Head of
Finance Operations of ABS-CBN Corporation, he was a Partner in SyCip
Gorres Velayo & Co., where he was a member of the Management
Committee and concurrently served as the Oil & Gas Industry Leader
and the Japan Business Services Country Leader. He is a certified
public accountant with close to 21 years of experience in providing
independent assurance on financial and non-financial information of
companies in various industries, including media and entertainment. He

20
also has experience in providing assistance in deal structuring,
commercial and financial due diligence, and working capital and related
financing analysis. He obtained his Bachelor's in Commerce, major in
Accounting, from the University of Santo Tomas and completed his
Master of Business Management degree, with distinction, from the Asian
Institute of Management.

Martin L. Lopez, Filipino, age 40

Chief Information Officer

As Chief Information Officer, Mr. Lopez heads and exercises

governance on all IT functions and activities which includes IT
infrastructure and media systems management, IT standards and
strategies, long-term technology and strategic technical services. Before
his appointment, he was Vice President and Chief Information Officer of
Manila Electric Company (Meralco), where he managed all ICT related
assets of the Company covering all its computer, information system and
telecommunication related resources. He was also the President and
CEO of e-Meralco Ventures, Inc. (eMVI), a wholly owned subsidiary of
Meralco engaged in the Telecommunications and Broadband business.
He is a graduate of Menlo College in California with a degree in Business
Administration. He completed the Executive MBA Program from the
Asian Institute of Management.

Raymund Martin T. Miranda, Filipino, age 50

Chief Strategy Officer and Chief Risk Management Officer

Mr. Miranda has been an Asia-Pacific media executive and

strategist for more than 29 years. Mr. Miranda was appointed Chief
Strategy Officer in August 2012. He was also appointed Chief Risk Officer
in a concurrent capacity in November 2012. As CSO, Mr. Miranda is
tasked with designing, driving and managing the strategic planning
process across the organization. As CRMO, he is also tasked with
leading, developing and managing the risk management strategies,
processes and policy reviews of the organization. Prior to his
appointment with ABS-CBN, he was a consultant for the company for
various projects. Mr. Miranda served as the Managing Director, Global
Networks AsiaPacific of NBCUniversal from 2007 to 2011, heading the
entertainment channels division of NBCUniversal across 33 countries.
Before that, he spent a year in Manila as the President/CEO of Nation
Broadcasting Corporation (92.3xFM) and Head of Strategy and Content
for Mediaquest Holdings, Inc. From 1998 to 2006, he was with The Walt
Disney Company in Singapore and Manila as Managing Director South
East Asia for Walt Disney International, Managing Director for South
East Asia/Korea for Walt Disney Television International and the Head of

21
Radio Disney Asia. He started his career in FM radio before joining the
GMA Network group in 1987. He was named Vice-President, Creative
Services of GMA Network, Inc. in 1992.

Higino Dungo, Filipino, age 52

Head, Internal Audit

Mr. Dungo joined ABS-CBN in July 2008. As head of Internal

Audit, he leads the Division in providing an independent and objective
assessment and appraisal of the effectiveness of the Internal Control
System throughout the organization through risk based operational,
financial, compliance and consulting audit services. Prior to joining the
Company, he worked with Meralco for 20 years. Mr. Dungo is a Certified
Public Accountant, an Accredited Quality Assurance Reviewer and a
Certified Internal Auditor, a global designation for internal auditors.

Luis Paolo M. Pineda, Filipino, age 41

Head, Business Development

Mr. Pineda was appointed Head of Business Development in 2009.

He joined ABS-CBN Interactive in 2000 as Business Development
Manager for www.pinoycentral.com where he was able to establish strong
partnerships and identified potential joint ventures with companies in
the same industry. His work eventually included coordination with all
ABS-CBN media platforms, conceptualization, execution,
and evaluation of mobile applications. In 2005, he took on the role of
overall head for the company’s mobile and online business while
practically co-managing its video-streaming operations. His ABS-CBN
Corporation 40 appointment to oversee the gaming business followed in
August of 2005 and in December 2005, he was officially designated as
Managing Director for ABS-CBN Interactive. Mr. Pineda is an alumnus
of the Ateneo de Manila University and completed an executive
management course in Kellogg University.

Mario Luza Bautista, Filipino, age 59

General Counsel

As General Counsel, Atty. Bautista supervises the Company's Legal

Services Department and advises Senior Management and the Board of
Directors on legal matters. He sits as a member in the Company
Executive Committee, the Stratcom, the News and Current Affairs
Management Committee and the Corporate Services Group Executive

22
Committee. He likewise provides assistance to the Company's Office of
the Ombudsman. He is a Founding Partner of the Poblador Bautista and
Reyes Law Office and has been its Managing Partner since 1999 until the
present. Atty. Bautista graduated with a Bachelor of Arts Degree in
Communication Arts from the Ateneo de Manila University in 1975. He
obtained his Bachelor of Laws Degree from the University of the
Philippines in 1979 and ranked no. 6 in the Bar Examinations of that
year. He was a Professor of Criminal Law at the Ateneo de Manila School
of Law. Atty. Bautista has been consistently cited as a "leading lawyer"
by several international publications in the fields of dispute resolution,
banking and finance, insurance, capital markets, telecoms and media,
mergers and acquisitions, employment, corporate
reorganizations/insolvency and real estate.

Maximilian T. Uy, Filipino, age 49

Chief Legal Counsel

Atty. Uy earned his Bachelor of Laws degree from the University of

the Philippines, after having graduated from the College of Business
Administration from the same university. He practiced law after passing
the 1990 Bar Exams and eventually specialized in litigation and
intellectual property law. He joined ABS-CBN in February 2000 and has
held his present position since July 2006.

Manuel L.M. Torres, Filipino, age 68

Corporate Secretary

Mr. Torres has served as the Corporate Secretary of ABS-CBN

since 1993. He is a senior partner at the law firm of Quiason Makalintal
Barot Torres Ibarra and Sison, where he has actively been engaged in the
practice of law since its inception in 1974. Mr. Torres graduated cum
laude from San Beda College in 1966, with a Bachelor of Science degree
in Commercial Science. He obtained his Bachelor of Laws degree from
San Beda College of Law in 1973 and placed 5thin the bar examinations
of that year. He is also a Certified Public Accountant.

Enrique I. Quiason, Filipino, age 53

Assistant Corporate Secretary

Mr. Enrique I. Quiason, received a Bachelor of Science degree in

Business Economics and a Bachelor of Laws degree from the University
of the Philippines, and a Master of Laws degree in Securities Regulation
from Georgetown University. He is a senior partner of the Quiason
Makalintal Barrot Torres & Ibarra Law Office. He is the corporate
secretary of FPHC, L H C, Lopez, Inc. Rockwell, Bayan

23
Telecommunications, Inc., and Sky Cable Corporation. He is also
assistant corporate secretary of ABS-CBN.

CHAPTER II
STOCKHOLDER’S ANALYSIS

AUTHORIZED CAPITAL
STOCK
AMOUNT (Php)
TYPE OF NUMBER OF
PAR/STATED VALUE No. of shares X
SHARES SHARES
Par/Stated Value
Common 1,300,000,000 1.00 1,300,000,000.00
Preferred 1,000,000,000 0.20 200,000,000.00
TOTAL: 2,300,000,000 TOTAL: 1,500,000,000.00

SUBSCRIBED CAPITAL
AMOUNT (Php)
TYPE OF NUMBER OF
PAR/STATED VALUE No. of shares X
SHARES SHARES
Par/Stated Value
Common 872,123,642 1.00 872,123,642.00
Preferred 1,000,000,000 0.20 200,000,000.00
TOTAL: 1,872,123,642 TOTAL: 1,072,123,642.00

PAID-UP CAPITAL
AMOUNT (Php)
TYPE OF NUMBER OF
PAR/STATED VALUE No. of shares X
SHARES SHARES
Par/Stated Value
Common 872,123,642 1.00 872,123,642.00
Preferred 1,000,000,000 0.20 200,000,000.00
TOTAL: 1,872,123,642 TOTAL: 1,072,123,642.00

TOP STOCKHOLDER’S FOR THE YEAR 2019

24
 NAME, SHARES SUBSCRIBED
NATIONALITY AND
% OF AMOUNT
CURRENT AMOUNT
TYPE NUMBER OWNER PAID (Php)
RESIDENTIAL (Php)
ADDRESS SHIP
1. LOPEZ, INC.
FILIPINO
5/F Benpres
Building, Meralco    
Avenue cor.  
Exchange Road,   446,231,60 446,231,607.   446,231,607
Ortigas Center, Common 7 00 53.29% .00
Pasig City          
2. PCD NOMINEE
CORPORATION          
313,385,57 313,385,579. 313,385,579
FILIPINO Common 9 00 37.42% .00
37/F Enterprise
Bldg., Ayala
Avenue, Makati
City          
3. ABS-CBN
HOLDINGS
CORPORATION          

57,836,900.0 57,836,900.
FILIPINO Common 57,836,900 0 6.91% 00
4th Flr., Benpres
Bldg., Meralco
Avenue, Pasig City          
4. CHING TIONG
KENG          

FILIPINO Common 859,500 859,500.00 0.10% 859,500.00

c/o La Suerte Cigar
& Cigarette, Rm.
14 South Super
Highway,
Paranaque          
5. ABS-CBN
FOUNDATION,
INC.          

FILIPINO Common 780,995 780,995.00 0.09% 780,995.00

Mother Ignacia          
Avenue cor. Sgt. E.
A. Esguerra
Avenue, Quezon

25
City
6. EUGENIO
LOPEZ III          

FILIPINO Common 651,190 651,190.00 0.08% 651,190.00

c/o ABS_CBN
Broadcasting
Corp., Mother
Ignacia Avenue,
Quezon City          
7. CRÈME
INVESTMENT
CORPORATION          

FILIPINO Common 417,486 417,486.00 0.05% 417,486.00

c/o Eugenio Lopez,
Jr. 5/F Benpres
Bldg., Exchange
Road, Pasig City          
8. FG HOLDINGS          

FILIPINO Common 386,270 386,270.00 0.05% 386,270.00

115 Mango Drive,
Ayala
AlabangMuntinlup
a City          
9. CHARLOTTE C.
CHENG          

FILIPINO Common 340,000 340,000.00 0.04% 340,000.00

#1760 Dra. Paz
Guazon St., Paco
Manila          
10. CYNTHIA D.
CHING          

FILIPINO Common 337,500 337,500.00 0.04% 337,500.00

c/o La Suerte Cigar
& Cigarette Factory
Km. 14 South
Superhighway,
Brgy., Merville,
Paranaque City          

SUB-TOTAL AMOUNT OF SUBSCRIBED 821,227,027.

CAPITAL 00    

821,227,027
SUB-TOTAL AMOUNT OF PAID-UP CAPITAL .00

26
RESULTS: Based from the data above, LOPEZ, Inc. holds the highest
number of shares owned, amount paid and percentage of ownership;
thus they also have the highest control in the management making them
rule over the creation and approval of company policies and other issues.

Chapter III
RISK AND RETURN

RISK AND RETURN VALUES

Broadcasting
Media ABS-CBN
Industry 2012 2013
Average Beta 1.64 1.17
Unlevered Beta .72
Unlevered Beta Corrected for
Cash .92
123.71
Market D/E Ratio 62% 164.62% %
Tax Rate 30% 20% 25%
Cost of Equity 10.17% 16.31% 17.05%
Cost of Debt 6.10% 4.09% 4.39%
Cost of Capital 8.04% 8.71% 10.05%

Beta
The Average Beta for Broadcasting Media Industry of 1.64 is
greater than the Company Beta of 1.17 only, which means that there is
less risk in investing in this company. It will take 72% risk to purchase a
firm’s stock as implied by the unlevered beta.

Cost of Equity

In the computation of Cost of Equity, the formula below is used:

Cost of Equity=Risk free rate+ beta(Risk

Premium)

The cost of equity is the appropriate hurdle rate, when returns are
measured to equity investors in the company. Thus, a new store has to
earn a return on equity of more than 17.05% for the year 2013, and
16.31% for the year 2012 to be considered a good investment. These

27
percentages are higher than the cost of equity for broadcasting media
industry of 10.17%.

Cost of Debt

In the computation of Cost of Debt for the Company, a 4.09% and

4.39% pre-tax cost of debt is computed for 2012 and 2013 respectively.
The formula to determine the cost of debt is as follows:

Cost of Debt= (Interest Payment/ Amount Borrowed) x (1-

Tax Rate)

Cost of Capital

The formula of Cost of Capital = Cost of Equity (Equity Ratio) +

Cost of Debt (Debt Ratio) is used. The cost of capital is the appropriate
hurdle rate, when returns are measured to all investors in the company.
Thus, a new store has to earn a return on all capital invested greater
than 10.05% for the year 2013, and 8.71% for the year 2012 to be
considered a good investment. These percentages are higher than the
cost of capital for broadcasting media industry of 8.04%.

28
 Chapter IV
Measuring Investment Returns

Lines of Business

ABS-CBN is the Philippines’ leading media and entertainment company.

The Company presents its
Operation into the following reportable businesses:

a. TV and Studio Entertainment

b. Pay TV Networks
c. New Businesses

TV and STUDIO ENTERTAINMENT

TV and studio entertainment segment is comprised of broadcast, global

operations, film and music production, cable channels, and publishing.
This consists of local and global content creation and distribution
through television and radio broadcasting.

Broadcast segment covers content creation and distribution mainly

through free TV and radio with Channel 2 and DZMM as its flagship
platforms. The content created is predominantly in Filipino and is
aimed at the mass Filipino audience. The Company’s leading position in
the Philippine television broadcasting industry is largely due to the
popularity of its entertainment programs, including teleseryes, drama
anthologies, situation comedies, variety, reality and game shows. On the
other hand, news and public affairs programs have developed a
reputation for the quality of news coverage that includes national, local
and international events.

Global segment, through ABS-CBN International, North America (NA),

pioneered the international content distribution through Direct to Home
(DTH), cable, internet protocol TV, mobile and online through The
Filipino Channel (TFC). It is available in all territories where there is a
significant market of overseas Filipinos such as the Unites States, Middle

29
East, Europe, Australia, Canada and Asia Pacific. Other activities
include international film distribution, remittance, retail, sponsorships
and events.

Films and Music segment of the Company is composed of movie

production, film distribution, audio recording and distribution and
video/audio post production. Films are generally produced through its
subsidiary ABS-CBN Film Productions (AFPI) or more popularly known
as Star Cinema. Other movies are co-produced with other local or
international producers or are simply distributed by AFPI. Music needs
are managed by Star Recording, Inc. and Star Songs, Inc. to complement
the recording needs of the Company’s multi-talented artists and handle
music publishing and composing requirements, respectively.

Narrowcast
The Narrowcast business caters to the needs of specific or targeted
audiences or markets not normally addressed by the Broadcast
business. Included in this line of business are cable programming and
channel offerings such as Filipino movie channel, music channel, animé,
upscale male sports content and upscale female lifestyle content. It also
covers print, sports, and other niched programming via its UHF (Ultra
High Frequency) channel. Narrowcast includes the following
subsidiaries: Creative Programs, Inc., ABS-CBN Publishing, Inc. and
Studio 23, Inc.. As part of the Company’s goal to elevate boxing as a
sport in the country, it entered into a joint venture agreement with ALA
Promotions, Inc., a world class boxing organization and promotional
company.

PAY TV NETWORK

Pay TV networks include cable television services of Sky Cable and its
subsidiaries in Metro Manila and in certain provincial areas in the
Philippines. It offers both postpaid and prepaid packages as well as a la
carte programming, broadband, internet phone, among others.
Consumers are given various options that can be tailor fitted to suit their
specific requirements including the ability to have a real triple-play
service in the market that combines cable TV, broadband and internet
phone. Catch up feature on missed programming via iWantv were
provided as an option to the customers for a total pay tv entertainment
package. With Sky Cable’s acquisition of Destiny Cable in 2012, Sky
Cable accounts for nearly half of the total local pay TV market.

NEW BUSINESSES

30
New businesses and initiatives pertain to wireless telecommunications
business, digital terrestrial TV and theme parks. Wireless
Telecommunications business was established on May 28, 2013 through
ABS-CBN mobile’s network sharing agreement with Globe Telecom. This
partnership enables ABS-CBN to deliver ABS-CBN content in addition to
traditional telecommunication services on mobile devices. Through the
network-sharing agreement, Globe will provide capacity and coverage on
its existing cellular mobile telephony network to ABS-CBN Convergence
on a nationwide basis. The parties may also share assets such as
servers, towers, and switches. On November 16, 2013, ABS-CBN Mobile’s
pre-paid service was launched.

Digital Terrestrial TV

The Company continues to invest in Digital Terrestrial TV equipment to

improve clarity of signal in certain areas of Mega Manila and Central
Luzon. The company believes that the transition from analogue to digital
will result in an increase in its audience share. The Company will be
ready to launch as soon as the implementing rules and regulations is
released.

Theme Parks

The Company has also invested in a theme park more popularly known
as Kidzania Manila. KidZania provides children and their parents a safe,
unique, and very realistic educational environment that allows kids
between the ages of four to twelve to do what comes naturally to them:
role-playing by mimicking traditionally adult activities. As in the real
world, children perform "jobs" and are either paid for their work (as a
fireman, doctor, police officer, journalist, shopkeeper, etc.) or pay to shop
or to be entertained. The indoor theme park is a city built to scale for
children, complete with buildings, paved streets, vehicles, a functioning
economy, etc.

RETURN ON EQUITY

Broadcasting GMA NETWORK, INC.

Media Industry 2012 2013
Net Income 1,617,899,000 2,028,347,000
Shareholder's
Equity 19,421,831,000 25,922,757,000
Return on Equity 19.61% 8.33% 7.82%

31
 With the Broadcasting Media Industry reflecting an average ROE of
19.61%, ABS-CBN demonstrated an average of 7.82% for 2013 and 8.33% for
2012, a decrease of 0.51% from year 2013 is observed. At this metric, ABS-CBN
shows a lower return versus the industry average.

RETURN ON CAPITAL

Broadcasting GMA NETWORK, INC.

  Media Industry 2012 2013
Net Income 1,617,899,000 2,028,347,000
Adjusted Tax 413,950,000 684,311,000
Book Value of
Debt 31,972,310,000 32,069,324,000
Book Value of
Equity 19,421,831,000 25,922,757,000
Cash 6,394,938,000 10,616,855,000
Return on
Capital 16.18%  3.15% 3.50%

With the Broadcasting Media Industry reflecting an average ROC of

16.18%, ABS-CBN, demonstrated an average of 3.50% for 2013 and 3.15% for
2012, where a decrease of 0.35% is observed. At this metric, ABS-CBN shows a
lower return versus the industry average in both years of comparison (2012-
2013).

Chapter V
CAPITAL STRUCTURE CHOICES

CAPITAL STRUCTURE
  2012 2013
62.21 55.30
DEBT RATIO % %
EQUITY 37.79 44.70
RATIO % %

2012 2013

Book Value of Debt 31,972,310,000 32,069,324,000

Book Value of Equity 19,421,831,000 25,922,757,000

Book Value of Assets 51,394,141,000 57,992,081,000

32
Bank Loans.

This represents unsecured short-term peso-denominated loans

obtained from local banks which bear an average annual interest rates of
2.89% and 3.5% in 2013 and 2012, respectively.

In October and November 2013, the Parent Company prepaid a

total amount of P=1 billion.

Loan Agreement.

On October 29, 2010, the Parent Company signed a syndicated

loan for P=10 billion with Allied Banking Corporation, Allied Savings
Bank, Banco de Oro Unibank, Inc., Banco de Oro Unibank, Inc. - Trust
and Investment Group, Bank of the Philippine Islands (BPI), Insular Life
Assurance Company Ltd., Philippine National Bank, PNB Life Insurance,
Inc., Security Bank Corporation (Security Bank) (collectively, the
“Lenders”), BPI Capital Corporation (the “Lead Arranger”), Banco de Oro
(BDO) Capital & Investment Corporation and Security Bank (collectively,
the “Arrangers”) and PNB Capital & Investment Corporation and Insular
Life Assurance Company Ltd. (collectively the “Co-Arranger”). BPI - Asset
Management and Trust Group shall serve as the loan’s facility agent.
The loan is intended to refinance existing indebtedness and fund working
capital requirements.

The loan is unsecured and unsubordinated with interest at 3-

month PDST-F plus 0.65% per annum for the floating rate portion and 7-
year PDST-F plus 0.65% per annum for the fixed rate portion. The loan
is payable annually with a lump sum payment of the remaining balance
on November 9, 2017. The loan is pre-payable subject to a break cost.
On November 9, 2010, the Parent Company availed the amount of
P=6,906 million from the Loan Agreement to prepay existing debt
facilities, namely, the Senior Credit Agreement (SCA) facility, the BDO
facility, the P=800 million Syndicated Loan facility and the Combined
facility agreements.

On March 11, 2011, the Parent Company availed the remaining

amount of P=3,094 million fromthe Loan Agreement for working capital
purposes.

The loan agreement contains provision regarding the maintenance

of certain financial ratios and limiting, among others, the payment of
dividends, making investments, the issuing or selling of the Parent
Company’s capital stock or some of its subsidiaries, the selling or
exchange of assets, the creation of liens and the effecting of mergers.
33
 On June 29, 2012, the Company signed a Supplemental
Agreement between and among the lenders of the P=10 billion syndicated
loan agreement to amend the financial ratios as follows:

a. Deletion of Maximum Total Debt-to-Annualized EBITDA;

b. Increase in threshold of the Debt Service Coverage Ratio (DSCR) from

1.1:1 to 1.2:1 in the years 2012, 2013 and 2014 and to 1.5:1 from
2015 until its final maturity in year in 2017; and

c. Utilization of the amount of projected capital expenditure and program

rights based on approved capital expenditure and program rights
acquisition budget in calculating the cash available for debt service
instead of using the actual amount of capital expenditure and program
rights actually paid in cash during the period.

On December 5, 2012, the Company signed a Second

Supplemental Agreement between and among the lenders of the P=10
billion syndicated loan to amend the definition of “Business.” The
amendment expanded the definition to include “entertainment and
amusement center development and management services and product
sales and distribution services.” The expansion of the definition allows
the Company to invest in ABS-CBN Theme Parks, Play Innovations
and/or Play Innovations, Inc.

Under the same agreement, the majority lenders, likewise,

permitted to extend a guarantee in favor of Play Innovations and/or Play
Innovations, Inc. As of December 31, 2013 and 2012, the Parent
Company is in compliance with the provisions of this facility.

Syndicated Loans.

On September 18, 2007, ABS-CBN signed a syndicated loan for

P=854 million with the previous lenders of Sky Cable, namely, United
Coconut Planters Bank, BPI, Mega International Commercial Bank Co.,
Ltd., Olga Vendivel and Wise Capital Investment & Trust Company, Inc.,
with BDO - EPCI, Inc. acting as the facility agent. The loan is unsecured
and unsubordinated with a fixed coupon of 2.11% with final maturity on
September 18, 2014.

On February 21, 2008, ABS-CBN and the remaining third party

creditors of Sky Cable approved the second amendment of this Sky Cable
Debt under a Facility Agreement. The amendment included the
rescheduling of the principal amortization to commence in December
2011 with final maturity in September 2016. The P=854 million
34
syndicated loan facility contain provisions regarding the maintenance of
certain financial ratios and limiting, among others, the incurrence of
additional debt, the payment of dividends, making investments, the
issuing or selling of the Company’s capital stock or some of its
subsidiaries, the selling or exchange of assets, creation of liens and
effecting mergers.- 70 –
*SGVFS003042*

On June 29, 2012, the Company signed a Supplemental

Agreement between and among the lenders of the P=854 million
syndicated loan agreement to amend the financial ratios as follows:

a. Inclusion of Total Debt-to-Annualized EBITDA ratio of 2.5:1;

b. Replacement of the minimum EBIT-to-financing costs ratio with a

minimum DSCR of 1.2:1 as at each Quarter Date in 2012, 2013 and
2014; and

c. Inclusion of Sky Cable in the combined group when computing the

financial ratios.

On December 5, 2012, the Company signed a Second

Supplemental Agreement between and among the lenders of the P=854
million syndicated loan to amend the definition of “Business”. The
amendment expanded the definition to include “entertainment and
amusement center development and management services and product
sales and distribution services.” The expansion of the definition allows
the Company to invest in ABS-CBN Theme Parks, Play Innovations
and/or Play Innovations, Inc. As of December 31, 2013 and 2012, the
Company is in compliance with the provisions of the P=854 million
syndicated loan facility.

The Parent Company’s obligation under these facilities is jointly and

severally guaranteed by its principal subsidiaries. Debt discount which
represents the difference between the nominal value and fair value of the
debt issued related to the syndicated loan amounted to P=298 million.
Chapter VI
Optimal Capital Structure

FINANCING MIX

To estimate for the best optimal capital structure of, the estimated
after-tax cost of debt and cost of equity were estimated.

% OF DEBT AFTER-TAX % OF EQUITY COST OF WACC

COST OF EQUITY

35
 DEBT
0% 3.00% 100% 7.00% 7.00%
10% 3.00% 90% 7.30% 6.84%
20% 3.10% 80% 7.60% 6.70%
30% 3.30% 70% 8.00% 6.61%
40% 3.50% 60% 8.60% 6.55%
50% 3.70% 50% 9.40% 6.56%
60% 4.10% 40% 10.60% 6.69%
70% 4.50% 30% 12.60% 6.93%
80% 5.10% 20% 16.60% 7.40%
90% 6.00% 10% 16.60% 8.26%
100% 9.60% 0% 28.60% 9.60%

WACC= (.1705)(.4470)+(.0439)(.5530)
= 10.05%

Given the projected cost of capital at each level of debt and equity,
we can see that the WACC is minimized and the firm value is maximized
at 40% /60% Debt/Equity Mix. Below this mix, the company is not
utilizing enough of the cheaper debt. Above this level, the increased
costs of both debt and equity cause WACC to increase as the company
adds more debt to the mix. Thus, the company having a 55.30%/44.70%
Debt/Equity Mix with 4.39%/17.05% cost of debt/ cost of equity in
comparison to the projected data , is not considered as the optimum level
that maximizes the firm value.

Chapter VII
Mechanics of Moving to the Optimal

LINES OF BUSINESS PROJECT CASH FLOW TYPE OF FINANCING

CHARACTERISTICS
TV AND Project Cash flows are Debts should be in the
ENTERTAINMENT mixture of long-term and form of both short and
short-term long-term.

36
 PAY TV NETWORKS Project Cash flows are Debts should be in the
mixture of long-term and form of both short and
short-term long-term.
NEW BUSINESS Project Cash flows are Debts should be in the
mixture of long-term and form of both short and
short-term long-term.

ASSUMPTIONS:
 Optimal Debt Ratio in 2012 and 2013 is 40%.
COMPARISONS:
 In 2012, Actual debt ratio is 62.21% is higher than the optimal
debt ratio which is 40% is over levered.
 In 2013, Actual debt ratio is 55.30 % higher than the optimal debt
ratio which is 40% is over levered.
RESULTS:
 The optimal route for maximizing the firm value since under the
framework, the actual debt ratio for 2012 and 2013 are over
levered and the firm is not subject the threat of bankruptcy and
the firm have good projects where it shows that the ROE of the
company which are 7.82% and 8.33% for 2013 and 2012
respectively are lower than the cost of equity which are 17.05%
and 16.31%; as well as the ROC which are 3.50% and 3.15% are
lower than the cost of capital which are 10.05% and 8.71%, the
company should do the following: Pay off debt with retained
earnings; reduce or eliminate dividends or issue new equity and
pay off debts.
Chapter VIII
Dividend Policy

MEASURES OF DIVIDEND POLICY

37
 The declaration and payment of dividends are subject to certain
conditions under the Company’s existing long term loan agreements with
various banks and other. Under said loan agreements, the company may
declare and pay dividends provided: (a) all payments (including pre-
payments) due on said loan and premiums on insurance of assets are
current and updated; (b) all financial covenants set forth therein are
satisfied; (c) certain financial ratios are met and such payment will not
result in the violation of the required financial ratios under the loan
agreements; (d) no event of default as provided in the loan agreements
shall exist or occur as a result of such payment; and (e) the total
amount of the cash dividends does not exceed 50% of the Company’s net
income after taxes for the fiscal year preceding the declaration.

Dividend Pay-Out

Dividend Payout measures the percentage of earnings that the company

pays in dividends.

YEARS DIVIDENDS NET INCOME DIVIDEND PAY-

OUT
2012 519,989,000 1,617,899,000 32.14%
2013 298,066,000 2,028,347,000 14.70%

Dividend Yield

Dividend Yield measures the return that an investor can make from
dividends alone.

YEARS DIVIDENDS PER STOCK PRICE DIVIDEND YIELD

SHARE
2012 .80 29.95 2.67%
2013 .40 30.30 1.32%

Chapter IX
A Framework for Analyzing Dividends

38
HOW MUCH COULD GMA NETWORK INC. HAVE PAID AS DIVIDENDS
BETWEEN 2012 AND 2013?

YEAR NET (CAPITAL (1- CHANGE IN (1- FCFE

INCOME EXPENDITUR DEB WORKING DEBT
E- T CAPITAL RATIO)
DEPRECIATIO RATI
N) O)
2012 1,617,899,0 1,636,804,000 . - .3779 2,876,058,098
00 3779 4,966,148,0
00
2013 2,028,347,0 2,188,801,000 . 6,019,266,0 .4470 -
00 4470 00 1,640,658,9
49
AVERA 1,823,123,0 1,912,802,500 . 526,559,000 .4125 617,699,574.5
GE 00 4125 0

Based on this analysis, ABS-CBN could have returned Php

617,699,574.50 in cash to its stockholders, either in the form of cash
dividends or equity buybacks during the period.

HOW MUCH DID GMA NETWORK INC. ACTUALLY PAY IN DIVIDENDS

BETWEEN 2012 AND 2013?

YEAR FCFE DIVIDENDS

2012 2,876,058,098 519,989,000
2013 - 298,066,000
1,640,658,94
9
AVERAG 617,699,574.5 409,027,500
E 0

On average, ABS-CBN, returned Php409,027,500 in the form of cash

dividends each year between 2012 and 2013, about Php 208,672,074.50
less each year they could have afforded to payout.

39
Firms Pays out too little dividends
 2012: FCFE of 2,876,058,098 is greater than the dividends of
519,989,000.
 2013: FCFE of -1,640,658,949 is lesser than the dividends of
298,066,000.

Comparisons:
 2012: ROE of 8.33% is lesser than the cost of equity of 16.31%
ROC of 3.15% is lesser than the cost of capital of 8.71%.
 2013: ROE of 7.82% is lesser than the cost of equity of 17.05%.
ROC of 3.50% is lesser than the cost of capital of 10.05%.

Results:
ABS-CBN has history of good project choice and good projects in
the future, therefore, give managers the flexibility to keep cash and
set dividends.

40
 Chapter X
Valuation

A. Dividend Discount Model

In its most general form, the value of a stock in the dividend

discount model is the Present Value (PV) of the expected dividends on the
stock in perpetuity.

Value per share of stock= Expected dividends

in period
(1+ Cost of
Equity)
Since
dividends in perpetuity cannot be estimated, a stable growth rate is
assumed at some point in the future

Value= E(Dividends)t + Terminal Value

(1+r)n (1+r)n

Where:
Terminal Value = E(Dividends)n+1
(rn+gn)

r= cost of equity
g= is the expected growth rate in dividends in perpetuity after year

41
n.

Growth in Earnings Per Share

In 2013, GMA Inc. reported a net income of Php2,028,347,000 on

a book value of equity of Php25,922,757,000 at the end of the year. The
resulting ROE for the firm is

ROE = Net Income

BV of Equity
= 2,028,347,000
25,922,757,000
= 7.82%

This is lower than the cost of equity for the firm which is 17.05%
and the average return on equity for broadcasting mass media which is
19.61%. The company paid out dividends per share of Php.40 on
earnings per share of P2.33. The resulting retention ratio is

Retention ratio = 1-(dividends per share/earnings per share)

=1-(.40/2.33)
= 82.83%

EPS= Net Income/ Outstanding Common Shares

= 2,028,347,000/ 872,123,642
= 2.33

If ABS-CBN maintains existing ROE and Retention Ratio for long term,
its expected growth will be:

Expected Growth= Retention Ratio X ROE

= 82.83% x 7.82%
= 6.48%

For the next five years, it will be assumed that ROE will improve to 12%
while retention ratio will stay unchanged at 82.83%. The expected growth
rate in earnings per share is

Expected Growth= 82.83% X 12%

= 9.94%

VALUING EQUITY USING THE DIVIDEND DISCOUNT MODEL

42
In the previous computation, it is estimated that the annual growth rate
for the next 5 years is at 9.94%, based upon an estimated ROE of 12%
and a retention ratio of 82.83%. In 2013, the EPS at ABS-CBN were Php
2.33 and the dividend per share is Php.40. Earlier analysis of the risk at
ABS-CBN provided an estimate of 1.17 beta , which is used in
conjunction with an assumed risk free rate of 4% and assumed risk
premium rate of 11.15% yielded cost of equity of 17.05%.

PV of High Growth Dividends= .40 x 1.0994 x[1-[(1.0994)5/ (1.1705)5]

.1705-.0994
= Php1.66

Assuming that at the end of year 5, ABS-CBN earnings growth will drop
to 8% and stay at the level of perpetuity. In keeping with the assumption
of stable growth it will also be assumed that:
 The beta will decrease marginally to 1.07, resulting in slightly
lower COE of 15.93% based on the following computations:

COE= Risk free rate + Beta x Risk Premium

= 4% + 1.07 (15.15%-4%)
= .04 +1.07 (.1115)
= 15.93 %

 The ROE will drop to the COE of 15.93%, thus preventing excess
return from being earned in perpetuity.
 The pay-out ratio will adjust to reflect the stable growth period rate
and ROE

Stable Period Payout Ratio= 1-(g/ROE)

= 1-(.0994/.1593)
= 37.60%
The expected dividends in year 6 is calculated using the payout ratio

Expected Dividends in Year 6= Expected EPS6 x Stable period payment

ratio
= .40(1.0994) X .3760
= Php .17

The value per share at the end of the 5 th year can be estimated using
these inputs

Terminal Value per share=Expected Dividends in year 6/(COE-g)

43
Terminal Value= .17/ (.1593-.0994)
Terminal Value= Php 2.84

The Present Value of the terminal value is computed using the high
growth period cost of equity

PV of Terminal Value=Terminal Value/ (1+r)n

PV of Terminal Value= 2.84/ (1.1593)5
PV of Terminal Value= Php 1.36

The total value per share is the sum of this value and the present value
of the expected dividends in high growth period.

Value Per Share= PV of Expected Dividends in High Growth + PV of

Terminal Value
= 1.66 +1.36
= Php 3.02

B.Free Cash Flow to Equity Model

The FCFE is the residual cash flow left over after meeting interest and
principal payments and providing for capital expenditures to maintain
existing assets to create new assets for future growth

Equity Reinvestment Rate= (Capital expenditure-Depreciation+ Δ

Working Capital)(1-ợ)
Net
Income
FCFE= Net Income(1-Equity Reinvestment Rate)

Once we estimate the FCFE, the general version model resembles

the dividend discount model, with FCFE replacing dividends in the
equation

44
Value of the stock= PV of FCFE during high growth + Pv of terminal price

Value= E(FCFE)t + Terminal Value

(1+r)n (1+r)n

Where:
Terminal Value = E(Dividends)n+1
(rn+gn)
r= cost of equity
g= is the expected growth rate in dividends in perpetuity after year
n.

To value ABS-CBN, the expected growth net income will be computed

first using the following formulas:

ABS-CBN has a net income of 2,028,347,000 for 2013, interest income

before taxes of 94,438,000 and faced a tax rate of 25%. The book value
of equity at the end of 2013 was 25,922,757,000, of which cash was
represented 10,616,855,000.

Non-Cash ROE= Net Income- After Tax Interest on Cash

Book Value of Equity-Cash
= 2,028,347,000-(94,438,000(1-25%))
25,922,757,000-10,616,855,000
= 12.79%

The expected growth in net income can be computed as the product of

non-cash ROE and equity reinvestment rate

Equity Reinvestment Rate= (4,903,000,000-2,714,199,000)(1-.5530)

2,028,347,000
= 48.23%

Expected Growth in Net Income= Equity Reinvestment Rate x Non-Cash

ROE
= 48.23% x 12.79%
=6.17%

Based upon the above computations, it is expected that ABS-CBN to

grow at 6.17% a year.

45
 The average equity reinvestment rate of 48.23% will be used for the next
5 years. In conjunction, with the non-cash return on equity of 12.79%
that was computed previously, expected growth rate of 6.17% is also
estimated for the next 5 years.

Assuming that a beta for equity of 1.07, risk free rate of 4%, and equity
risk premium is 11.15%, the cost of equity will be computed as follows

COE= .04 + 1.07(.1115)

= 15.93%

Assuming that after year 5, the beta will remain 1.07, risk free rate of 4%
and equity risk premium will decline to 10%, the resulting cost of equity
is

COE in stable growth = 4% + 1.07 (.10)

= 14.70%

After year 5, it is also be assumed that the growth in net income will
drop to 8% and the ROE will rise to 14.70%. The equity reinvestment
ratio in stable growth can then be estimated as follows

Equity Reinvestment ratestable growth= 8%/ 14.70%= 54.42%

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

NET INCOME 2,497,909,33 2,153,496,01 2,286,366,7 2,427,435,5 2,577,208,3
1 0 14 40 13
EQUITY 43.23% 43.23% 43.23% 43.23% 43.23%
REINVESTM
ENTRATE
FCFE 1,418,063,12 1,222,539,68 1,297,970,3 1,378,055,1 1,463,081,1
7 5 84 56 59
PRESENT 1,236,323,56 929,257,617. 860,150,665 796,183,052 736,972,577
VALUE AT 3 60 .10 .10 .40
14.70%
TOTAL: 4,558,887,4
75

To estimate the terminal value of equity, the free cash flow to equity is
first computed as follows:

FCFE = 2,577,208,313(1.08)(1-.5442)
in year 6
= 1,268,666,873

46
The terminal value is then computed using the stable period cost of
equity of 14.70%.

Terminal Value of Equity= 1,268,666,873

(.1470-.080)
=18,935,326,460

The current value of equity is the sum of PV of the expected cash flows
computed as follows

PV of FCFE’s 4,558,887,475
Add: PV of terminal value 9,537,964,630
VALUE OF EQUITY IN OPERATING 14,096,852,105
ASSETS
VALUE OF CASH AND MARKETABLE 10,616,855,000
SECURITIES
VALUE OF EQUITY IN FIRM Php
24,713,707,105

CHAPTER I
CORPORATE GOVERNANCE ANALYSIS

Company Background

47
 GMA Network, Inc. is a free-to-air broadcasting company
principally engaged in television and radio broadcasting, the production
of programs for domestic and international audiences, and other related
businesses. The Company derives the majority of its revenues from
advertising related to television broadcasting.

The Company’s Congressional television broadcasting franchise

was renewed on March 20, 1992 through Republic Act 7252, which
allows it to operate radio and television facilities in the Philippines for 25
years. GMA Network has 47 VHF and 32 UHF TV stations throughout
the
Philippines with its signal reaching approximately 99% of the country’s
Urban TV Households (Source: 2013 AGB Nielsen Total Philippines
Establishment Survey; Claimed reception among TV homes).

In 2013, GMA Network, Inc. maintained leadership in TV Ratings

in the viewer-rich areas of Urban Luzon and Mega Manila. The Company
posted increases in its gross revenues and net income for 2013 versus
2012.

GMA Network’s international operations continued to expand

during the year. The Company’s international syndication and
distribution business likewise grew in 2013.

Corporate Purpose

We enrich the lives of Filipinos everywhere with superior Entertainment

and the responsible delivery of News and Information.

Corporate Vision

We are the most respected, undisputed leader in the Philippine broadcast

industry and the recognized media innovator and pacesetter in Asia.
We are the Filipinos' favorite network.
We are the advertisers' preferred partner.
We are the employer of choice in our industry.
We provide the best returns to our shareholders.
We are a key partner in promoting the best in the Filipino.

Corporate Values

We place God above all.

48
We believe that the Viewer is Boss.
We value our People as our Best Assets.
We uphold Integrity and Transparency.
We are driven by our Passion for Excellence.
We strive for Efficiency in everything we do.
We pursue Creativity and Innovation.

GMA SUBSIDIARIES, JOINT VENTURE AND AFFILIATES

The Company’s subsidiaries and affiliates are involved in media-related

services such as movie making, sets and props construction, film
syndication, music and video recording, new media, online gaming, post
production services, and marketing, which complement the Company’s
core television and radio broadcasting business.

The following table shows the Company’s holdings in its principal

subsidiaries, joint ventures and affiliates as of December 31, 2013:

49
Lines of Business

INTERNATIONAL DISTRIBUTION

The Company’s television programs are distributed outside the

Philippines in two ways. One is through its subscription-based
international channels – GMA Pinoy TV, GMA Life TV, and GMA News TV
International – and the other is through GMA Worldwide (Philippines),
Inc. (GWI), a wholly-owned subsidiary of the Company. GWI distributes
GMA’s locally produced programs on all platforms through worldwide
syndication sales to broadcasters/companies in China, Southeast Asia,
Africa, and Europe.

GMA PINOY TV
The Company operates GMA Pinoy TV through which it offers
subscription-based programs internationally. Launched in 2005, GMA
Pinoy TV delivers to an international audience the Company’s most
popular news and public affairs and general entertainment programs.

GMA Pinoy TV is currently available in 50 states in the U.S.

including Alaska and Hawaii, plus Puerto Rico and Washington DC;
Canada; Japan; Guam; 49 countries in Europe; Saipan; Hong Kong;
Singapore; Papua New Guinea; Australia; New Zealand; the British
Indian Territory of Diego Garcia; Madagascar; Malaysia; 16 countries in
the Middle East including the key territories of the Kingdom of Saudi
Arabia, United Arab Emirates, Qatar, Bahrain, and Kuwait; and 11
countries in North Africa. GMA Pinoy TV aims to establish global
exposure and presence for the Network that will bring the company’s
programs to Filipino communities around the world.

Under the carriage and licensing agreements with international

cable carriers, the Company generally receives a portion of the

50
subscription fees and is also allocated a certain number of advertising
minutes through which the Company may sell advertising spots, which it
does, through its subsidiary, GMA Marketing and Productions, Inc.
(GMPI). GMPI also participates in joint promotions with various carriers
for the marketing of GMA Pinoy TV.

As of December 2012, GMA Pinoy TV’s subscriber base closed at 329,108

– a 13 % increase over the 2011 closing subscriber number of 291,309.

GMA LIFE TV

Three years after the success of GMA Pinoy TV, GMA Life TV, GMA
Network’s second international channel, was launched. More than just
offering mainstream entertainment, GMA Life TV engages more viewers
with its exciting line-up of heart-warming and innovative programs that
feature the Filipinos' lifestyle and interests.

GMA Life TV is available in the United States, Canada, Guam,

Hong Kong, Japan, Australia, New Zealand, Papua New Guinea,
Madagascar, 16 countries in the Middle East, 11 countries in North
Africa, and 49 countries in Europe. As of December 2012, GMA Life TV’s
subscriber base closed at 124,884.

GMA NEWS TV INTERNATIONAL

In September 2011, GMA Network began distributing GMA News

TV International in order to provide overseas Filipinos with the latest,
most comprehensive, and most credible news coverage from the
Philippines. It offers internationally acclaimed and award-winning news
and public affairs programs with 7 to 8 hours of original content daily.

It is now available in Canada, Guam, Japan, Malaysia, Australia,

New Zealand, the UAE, and Madagascar.

CONVERGING TECHNOLOGY

GMA New Media, Inc. (NMI) is the digital media arm of GMA Network,
Inc. Since its inception in July 2000, it has launched category-breaking
projects in multiple platforms, including internet, mobile, broadcast, and
digital TV.

WEB

51
 Online Publishing NMI initiated the collaboration among some of
the Philippines’ leading media companies for the adoption of global
standards and best practices in online publishing, beginning with the
appointment of a common provider for their third-party audience
measurement system. The group has chosen Effective Measure (EM), an
Australian company, as its preferred audience measurement solutions
provider.

In 2011, NMI deepened its partnership with YouTube, Google’s

online video-sharing portal. Initially sealed in 2009, the deal to create an
official GMA Channel on YouTube was the first of its kind in Asia. This
partnership was recently expanded to include long-form catch-up
content and secure live streaming.

NMI launched GMA’s official entertainment website, iGMA.tv, and

its official news website, GMANews.tv, both of which have won local and
international acclaim as well as loyal patronage among Filipinos here
and abroad.

In collaboration with GMA Network’s Program Support

Department, News and Public Affairs, Entertainment, GMA International,
GMA Radio, Kapuso Foundation, GMA Films, GMA Records, GMA Artist
Center, GMA Corporate (Investor Relations), NMI launched in late 2011
www.gmanetwork.com, the umbrella site for all things GMA. This move
further enhances GMA’s connection with its audience online by providing
news, entertainment, information, community, and public service at their
fingertips, anytime, anywhere. The portal also allows users to get quick
and easy access to all of the Network’s web properties.

NMI entered into a joint venture with Summit Media and launched
Pep.ph, the no. 1 showbiz news portal in the Philippines.

NMI entered into a joint venture with E-Games, the leading online
games publisher in the Philippines.

NMI provided alternative means for viewers who have no access to

TV to witness historic events such as Cory Aquino’s funeral and several
State of the Nation Addresses (SONAs) using live streaming online.

MOBILE

NMI pioneered interactive TV in the Philippines with the launch of

SMS-TV services in Debate and Startalk and Eat Bulaga’s Cool Dudes
segment. This laid the foundations for succeeding SMS-TV initiatives,
which carried NMI through several years of growth and profit.

52
 NMI launched Fanatxt, a mobile-based celebrity portal for Kapuso
stars, which is one of the most successful mobile VAS services launched
locally.

NMI broke new ground with the launch of Teledrama Text Saya,
the first ever mobile point of purchase promo for GMA’s primetime shows
done in partnership with GMPI.

NMI continues to work closely with GMPI in the launch of

groundbreaking convergent media campaigns such as Win Mo Kapuso
and Win Mo Pamasko. The combination of TV plus new media has
become a valuable strategic offering for clients in terms of ensuring the
widest
possible reach for both online and offline audiences.

NMI unveiled in late 2012 version 2 of GMA News Online’s Android

and iOS applications designed for easy viewing on mobile phones, as a
growing number of Filipinos access the website while on-the-go. GMA
News Online applications are now available for Android smartphones and
tablets and for iPhone users as well. This makes GMA News Online the
only local news website to have its own applications for both Android and
iPhone operating systems.

BROADCAST

NMI introduced the first fully interactive show on Philippine TV

called Txtube, which was
eventually followed by a slew of copycats in other channels.

NMI ensured the fast and accurate delivery of poll results in the
2004 national elections and provided creative support in the form of
world-class motion graphics. Every election coverage thereafter, NMI
carried on as GMA News and Public Affairs’ technology partner. It
developed (in some cases, reverse-engineered) state-of-the-art
broadcasting tools such as the RTX and Telewriter to deliver unparalleled
TV coverage without the prohibitive cost of buying off-the-shelf solutions.

NMI similarly enabled the Entertainment Group with dynamic and

interactive broadcast displays for its licensed game shows such as
Whammy Push Your Luck and Family Feud. It also developed broadcast
applications for shows such as Pinoy Idol, Celebrity Duets and Are You
The Next Big Star?, among others. These displays and applications had
to pass through a rigorous process of testing to meet standards set by
international licensors.

53
 On the broadcast side, NMI produces breakthrough real-time
special effects for GMA. In collaboration with the Office of the President
and GMA Engineering, NMI is involved in the development of GMA’s
Digital TV strategy. Efforts are underway to conduct testing for the
service soon.

MOVIE PRODUCTION

GMA Network Films, Inc. was established in August 1995 to

produce movies that cater to both the local and international markets.
Its movie productions have reaped both critical acclaim and commercial
success. In 2012, GMA Films produced My Kontrabida Girl, The Witness
(coproduction with Indonesian producer, Skylar Pictures), Just One
Summer, Boy Pick-up (with Regal Films), Of All The Things (with Viva
Films) and Tiktik: The Aswang Chronicles (with Reality Pictures). The
Road had its theatrical release in U.S. cinemas on May 11, 2012. GMA
Films’ Metro Manila Film Festival movie entries in 2012 were Si Enteng,
Si Agimat at Si Ako(with Imus and MZet, APT and OctoArts) and Sosy
Problems.

MUSIC AND VIDEO RECORDING

RGMA Marketing and Productions, Inc. (GMA Records) was

incorporated in September 1997 and became operational in 2004 after
the Company decided to reactivate its musical recording business
through the "GMA Records" label. Since resuming operations, GMA
Records has leveraged the Company's talent and media resources,
releasing albums of various artists. It also partnered with sister
company GMA Films and other major film production outfits to release
their films on DVD. Likewise, it has introduced the network's top rating
programs and blockbuster TV series into the home video market
worldwide through GWI.

GMA Records works with GMA New Media and other local-based
content providers and aggregators to take advantage of new revenue
streams, particularly in the emerging market of digital music downloads.
The company also secured non-exclusive mobile, web and kiosk based
deals with different content providers worldwide to continuously exploit
the potentials of its music and video assets.

GMA Records publishes music and administers copyrights on

behalf of composers. GMA Records is also actively pursuing publishing
deals, building on its current catalog of original compositions. GMA
Records serves as a clearing house and a source of music for the

54
Company's television and film productions. It is also a member of
FILSCAP, the Filipino Society of Composers, Authors and Publishers.

STAGE DESIGN

Scenarios, Inc. was incorporated in July 1996 and is engaged in

transportation and warehousing services.

Script2010, Inc. was formally established in early 2010 as a

subsidiary of Citynet Network Marketing and Productions, Inc. It engages
in conceptual design and design execution through fabrication,
construction, set-up and dismantling of sets, and creation of props. It
also provides other related services such as live performances and events
management, sales activation and promotion, and tradeshow exhibits.

Script2010, Inc. is also engaged in transportation, hauling and

trucking services to further fulfill the needs of its clients. Other business
units of Script2010, Inc are band/audio equipment rental, and facility
support services to various GMA departments.

POST PRODUCTION

Alta Productions Group, Inc. was established in 1988 as a

production house primarily to provide production services for the
Network. Until the late 1990s, it operated a satellite studio in Makati,
producing award-winning News and Public Affairs Programs for GMA
Channel 7.

Today, Alta Productions Group's core business is audio dubbing

and mixing for broadcast. Its fully digital audio recording and mixing
studios is in sync with the Network's production requirements and
broadcast standards. Aside from dubbing foreign content into the local
vernacular for airing on the Network, Alta Productions Group also dubs
station-produced content into English for international consumption.

In addition, Alta Productions Group's shoot and video post-

production department produces TVCs, broadcast content, and
documentaries for both local and international clients. Its creative group
also provides concept development, staging, and activation services for
various clients' on ground activities.

Alta Productions Group is proud to be one of the few production

houses capable of servicing the complete spectrum of shoot and post-
production requirements all under one roof. From conceptualization,
creatives, shoot, post-production, all the way to execution.

55
MARKETING AND SALES OF COMMERCIAL AIRTIME AND EVENTS

GMA Marketing and Productions, Inc. (GMPI) was established in

August 1980 and is the exclusive marketing and sales arm for the
Company’s commercial television and radio airtime and events. GMPI, a
wholly owned subsidiary of the Company, provides the link between the
Network and the advertisers and advertising agencies.

GMPI provides the Company’s clients with services such as multi-

media local and global media packages, promotional programs and
materials, creative products, digital executions, and events. Part of
GMPI’s sales and marketing strategies is the integrated multi-platform
packages, customized on-air, on-ground and online media solutions,
branded entertainment, and other advertising and media-led promotional
campaigns.

Directors and Executive Officers of the Issuer

56
Board of Directors, Officers and Senior Management

Under the Articles of Incorporation of the Company, the Board of

Directors of the Company comprises nine directors, two of whom are
independent. The Board is responsible for the overall management and
direction of the Company and meets regularly every quarter and other
times as necessary, to be provided with updates on the business of the
Company and consulted on the Company’s material decisions. The
directors have a term of one year and are elected annually at the
Company’s stockholders meeting. A director who was elected to fill a
vacancy holds the office only for the unexpired term of his predecessor.
As of March 31, 2014, the Company’s Board of Directors and Senior
Management are composed of the following:

57
The following are descriptions of the business experiences of the
Company’s directors, officers
and senior management:

Felipe L. Gozon, Filipino, 74 years old, is the Chairman of the Board

of Directors and Chief Executive Officer of the Network.

AttyGozon is a Senior Partner at the Law Firm of Belo Gozon Elma

Parel Asuncion &Lucila. Aside from GMA Network, Inc., he is also
Chairman and CEO of GMA Marketing and Productions, Inc. and GMA
New Media, Inc.; Chairman and President of FLG Management and
Development Corp.; Chairman of Alta Productions Group, Inc.,Citynet
Network Marketing and Productions, Inc., Mont-Aire Realty and
Development Corp., Philippine Entertainment Portal, Inc., and RGMA
Network, Inc.; Vice Chairman of Malayan Savings and Mortgage Bank;
Director of, among other companies, Gozon Development Corp., Justitia

58
Realty and Management Corp.,Antipolo Agri-Business and Land
Development Corp., Capitalex Holdings, Inc., BGE Holdings, Inc.,
Philippine Chamber of Commerce and Industry, Chamber of Commerce
of the Philippine Islands and President of Lex Realty, Inc. He serves as
Chairman of the Board of Trustees of GMA Kapuso Foundation, Inc.,
KapwaKo Mahal Ko Foundation, Inc., and The Potter and Clay Christian
School Foundation, Inc.; Chairman and President of Gozon Foundation;
and Trustee of Bantayog ng mgaBayani Foundation. Gozon is also an
Advisory Board Member of the Asian Television Awards.

Atty. Gozon is a recipient of several awards for his achievement in

law, media, public service, and business, including the prestigious Chief
Justice Special Award given by the Chief Justice of the Philippines
(1991), Presidential Award of Merit given by the Philippine Bar
Association (1990 & 1993), CEO of the Year given by Uno Magazine
(2004), Master Entrepreneur – Philippines (2004) by Ernst and Young,
Outstanding Citizen of Malabon Award for Legal and Business
Management by the Kalipunan ng SamahansaMalabon (KASAMA) (2005),
People of the Year by People Asia Magazine (2005), Outstanding Manilan
Award in the field of Social Responsibility and Broadcasting given by the
City Government of Manila (2011), Quezon City GawadParangal Most
Outstanding Citizen for 2011 given by the City Government of Quezon
(2011), Tycoon of the Decade Award given by BizNews Asia (2011),
Lifetime Achievement Award given by the UP Alumni Association (2012),
Certificate of Recognition given by the Civil Aeronautics Board (2012),
Personality of the Year for Broadcast Media given by SKAL International
Makati (2013), Outstanding Member-Achiever given by Phi Kappa Phi UP
Chapter (International Honor Society) (2013) and Visionary Management
CEO Award given by BizNews Asia (2013). He is also listed among Biz
News Asia’s Power 100 (2003 to 2010).

Atty. Gozon earned his Bachelor of Laws degree from the

University of the Philippines (among the first 10 of his class) and his
Master of Laws degree from Yale University Law School. He was admitted
to the Bar in 1962, placing 13th in the Bar examinations.

Gilberto R. Duavit, Jr., Filipino, 50 years old, is the President and

Chief Operating Officer of the Network.

He has been a Director of the Company since 1999 and is

currently the Chairman of the Network’s Executive Committee. Aside
from GMA Network, Inc., he is the Chairman of the Board of GMA
Network Films, Inc. and GMA Worldwide, Inc. and a member of the
Board of GMA Marketing and Productions, Inc. He also serves as
President and CEO of GMA Holdings, Inc., Scenarios, Inc., RGMA

59
Marketing and Productions, Inc., Film Experts, Inc., and Dual
Management and Investments, Inc. He is the President and a Director of
Group Management and Development, Inc.; President and Director of
MediaMerge Corp., Citynet Network Marketing and Productions, Inc.;
Director of RGMA Network, Inc., GMA New Media, Inc., Alta Productions
Group, Inc., Optima Digital, Inc., and Monte-Aire Realty and
Development Corp. He also serves as the President and a Trustee of GMA
Kapuso Foundation, Inc., President of Guronasyon Foundation, Inc. and
is a Trustee of the HERO Foundation.
Mr. Duavit holds a Bachelor’s Degree in Philosophy from the University
of the Philippines.

Joel Marcelo G. Jimenez, Filipino, 50 years old, has been a Director

of the Company since 2002. He is currently the Chief Executive
Officer of Alta Productions, Inc.

He is a Director of RGMA Network, Inc., GMA New Media, Inc., Scenarios,

Inc., and GMA Worldwide, Inc., besides also being a member of the
Board of Directors of Malayan Savings and Mortgage Bank, and
Unicapital Securities, Inc. He is also a Director of Nuvoland Philippines,
a real-estate development company. He is a Trustee of GMA Kapuso
Foundation, Inc.

He was educated in Los Angeles, California where he obtained a

Bachelor’s Degree in Business Administration from Loyola Marymount
University. He also obtained a Master’s Degree in Management from the
Asian Institute of Management.

Felipe S. Yalong, Filipino, 57 years old, is the Executive Vice

President and Chief Financial Officer of GMA Network, Inc.

He is also the Head of the Corporate Services Group of the

Network. He has been a Director of the Company since 2002. Aside from
GMA Network, Inc., he also serves as Director and Corporate Treasurer
of GMA Holdings, Inc., Scenarios, Inc., and GMA Network Films, Inc.;
Director of Unicapital, Inc., Majalco Finance and Investments, Inc., and
GMA Marketing and Productions, Inc.; Corporate Treasurer of RGMA
Network, Inc., MediaMerge Corp.; Executive Vice President of RGMA
Marketing and Productions, Inc.; and Corporate Treasurer of the Board
of Trustees of GMA Kapuso Foundation, Inc.

Yalong was named CFO of the Year by ING FINEX in 2013.

He obtained a Bachelor of Science degree in Business

Administration Major in Accounting from the Philippine School of

60
Business Administration and completed the Management Development
Program at the Asian Institute of Management. He is a Certified Public
Accountant.

Atty. Anna Teresa G. Abrogar, Filipino, 42 years old, has been a

Director of the Company since 2000.

Atty. Anna Teresa G. Abrogar graduated valedictorian from grade

school and high school at Colegio San Agustin. She graduated cum
laude, BS Management Engineering from Ateneo de Manila University
and obtained her Bachelor of Laws degree from the University of the
Philippines where she graduated valedictorian, cum laude. She later
obtained her Master of Laws from Harvard University.

She is a junior partner in Belo Gozon Elma Parel Asuncion &Lucila

and was an Associate Professor in the University of the Philippines,
College of Law where she taught taxation.

She is currently Programming Consultant to the Chairman/CEO of

GMA Network, Inc. and the President of GMA Films, Inc. and GMA
Worldwide, Inc. She is a trustee of GMA Kapuso
Foundation.

Judith D. Vazquez, Filipino, 51 years old, has been a Director of the

Company since 1988.

She is a member of the following special committees: Audit & Risk

Committee and Compensation & Remuneration Committee. Moreover,
she sits on the boards of the following GMA7 subsidiaries: RGMA, Inc.,
GMA New Media, Inc., GMA Worldwide, Inc., and GMA Films, Inc. She is
a member of the Board of Trustees of the GMA Kapuso Foundation, Inc.

Judith is an acknowledged visionary and industry mover in

Philippine Information and Communication Technology space. In 1995,
she laid the nation’s first fiber in the Central Business District of Makati
and developed the country's first ICT ready intelligent skyscraper - the
45-storey Peak Tower, which boasts the largest neutral
telecommunications tower in the city.

Judith is the founder and chairman of PHCOLO, Inc. - the premier

interconnection site of telecommunications and Internet Service Provider
companies on four platforms: fixed-line fiber, cable, wireless and
satellite.

61
 Her successful and visionary efforts in the field of Information and
Communications Technology, have earned her the moniker “Godmother
of the Philippine Internet,” a position in
Computerworld's list of "Philippines' Most Powerful in ICT" and in 2011
“IT Executive of the Year” by the Philippine Cyber Press.

Her philanthropic endeavors include Asian Institute of

Management's first Professorial Chair for Entrepreneurship and support
to the University of the Philippines' School of Economics, among others.
International organization memberships include the Asia Pacific Network
Information Center, Pacific Telecommunications Council, IEEE, Clinton
Global Initiatives Foundation, Young Presidents'/World Presidents'
Organization and other local business organizations. She has served the
Management Association of the Philippines as a member of the Board of
Governors, and is a Senior Lecturer for Entrepreneurship at the College
of Business Administration, University of the Philippines.

Judith holds a Bachelor of Science degree in Business Economics

from the University of the Philippines and is an alumna of Harvard
Business School, University of Michigan (Ann Arbor) and Asian Institute
of Management.

In October 2011, she was elected to the Board of Directors of

ICANN – the Internet Corporation for Assigned Names and Numbers -
governing body of the Global Internet. ICANN coordinates the 3 unique
identifiers, which permit the Internet to function as a single
infrastructure: Domain names, IP addresses and Port Assignments.
Judith is the First Asian Female elected to this august and powerful
international body. She is a member of the following ICANN board
committees: Audit, Risk, and Structural Improvements. Eligible to serve
ICANN for 3 terms, Judith’s first term as a voting board member ends in
2014.

Laura J. Westfall, Filipino, 46 years old, has been a Director of the

Company since 2000.

She held the following positions in the Company — Senior Vice

President of Corporate and Strategic Planning and Senior Vice President
for Finance. In addition, she has served as Chairperson and President of
GMA New Media. Prior to joining the Company, she worked for BDO
Seidman – Los Angeles, an international audit and management
consulting firm. She currently holds various positions in the Majent
Group of Companies and serves as Board Member of Coffee Bean and
Tea Leaf Philippines, Bronzeoak Clean Energy, Inc., and Malayan Bank.

62
 She holds a Masters Degree in Public and Private Management
from Yale University and a Bachelor of Science degree in Accounting
from the University of Southern California. She is a
Certified Public Accountant (CPA) in the State of California.

Chief Justice Artemio V. Panganiban, Filipino, 77 years old, has

been an Independent
Director of the Company since 2007

In 1995, he was named a Justice of the Supreme Court and in

2005, he was appointed Chief Justice of the Philippines — a position he
held until December 2006. At present, he is also an Independent Director
of these listed firms: First Philippine Holdings Corp., Metro Pacific
Investments Corp., Manila Electric Company, Robinsons Land Corp.,
GMA Holdings, Inc., Philippine Long Distance Telephone Co., Petron
Corporation, Bank of the Philippine Islands, Asian Terminals, and a
regular Director of Jollibee Foods Corporation. He is also a Senior
Adviser of Metropolitan Bank, Chairman, Board of Advisers of Metrobank
Foundation, Chairman of the Board of the Foundation for Liberty and
Prosperity, President of the Manila Cathedral Basilica Foundation,
Chairman Emeritus of Philippine Dispute Resolution Center, Inc., and
Member, Advisory Board of the World Bank (Philippines) and of the Asian
Institute of Management Corporate Governance Council. He also is a
column writer of The Philippine Daily Inquirer.

Upon his retirement, he was unanimously conferred a Plaque of

Acclamation by the Associate Justices of the Supreme Court as the
“Renaissance Jurist of the 21st Century;” and an Award of Honor by the
Philippine Bar Association. In recognition of his role as a jurist, lawyer,
civic leader, Catholic lay worker, business entrepreneur and youth
leader, he had been the recipient of over 250 other awards from various
governments, civic clubs, consumer associations, bar groups, religious
movements and other non-government organizations, both local and
international.

He obtained his Associate in Arts, “With Highest Honors” and later

his Bachelor of Laws, with cum laude and “Most Outstanding Student”
honors from the Far Eastern University. He placed sixth among more
than 4,200 candidates who took the 1960 Bar examinations. He is
likewise the recipient of several honorary doctoral degrees from various
universities.

Dr. Jaime C. Laya, Filipino, 75 years old, has been an independent

Director of GMA Network, Inc. since 2007.

63
 He is the Chairman and President of Philippine Trust Company
(Philtrust Bank), Director of Ayala Land, Inc., Philippine AXA Life
Insurance Company, Inc., Philippine Ratings Services Corporation, and
Bankers Association of the Philippines. He also serves as Chairman of
Don Norberto Ty Foundation, Inc. and Escuela Taller de Filipinas
Foundation, Inc.; Trustee of St. Paul University - Quezon City, Cultural
Center of the Philippines, Metropolitan Museum of Manila, Yuchengco
Museum, Fundación Santiago, Inc., Ayala Foundation, Inc., and other
foundations. He writes a weekly column for the Manila Bulletin.

He was Minister of Budget, 1975-1981; Minister of Education,

Culture and Sports, 1984-86; Chairman of the Monetary Board and
Governor, Central Bank of the Philippines, 1981-1984;
Chairman, National Commission for Culture and the Arts, 1996-2001.
He was faculty member of the University of the Philippines, 1957-1978
and Dean of the College of Business Administration, 1969-1974. In
1986, he founded J.C. Laya& Co., Ltd. (Certified Public Accountants and
Management Consultants) later the Philippine member firm of KPMG
International; he served as the firm's Chairman until his retirement in
2004.He earned his BSBA, magna cum laude, University of the
Philippines, 1957; M.S. in Industrial Management, Georgia Institute of
Technology, 1960; Ph.D. in Financial Management, Stanford University,
1966. He is a Certified Public Accountant.

Atty. Roberto O. Parel, Filipino, 58 years old, has been the

Corporate Secretary of the
Company since 1993.

He is a Partner at the Law Firm of Belo Gozon Elma Parel Asuncion

&Lucila. His practice areas include labor relations, natural resources
and intellectual property. He is a Director of Time-Life International
Philippines, Capitalex Holdings Philippines, Ipilan Nickel Corporation,
Nickel Laterite Resources, Inc., Berong Nickel Corporation, Ulugan Nickel
Corporation, Ulugan Resources Holdings, Inc., Nickeline Resources
Holdings, Inc., TMM Management Inc., and Assetvalues Holding
Company, Inc.; Director and Corporate Treasurer of Selenga Mining
Corporation; Corporate Secretary of Alta Productions Group, Inc.,
Scenarios, Inc., Citynet Network Marketing and Productions, Inc., GMA
Kapuso Foundation, Inc., and Hinoba Holdings (Philippines), Inc.

He graduated from the University of the Philippines with a

Bachelor of Arts degree in Philosophy and a Bachelor of Laws degree. He
was admitted to the Philippine Bar in 1981. Atty. Parel further pursued
64
legal studies through short programs at the Center of American and
International Law and the Southwestern Legal Foundation in Dallas,
Texas. Later, he attended a training program on Industrial Property
Rights held by the Japan Institute of Invention and Innovation and the
Association for Overseas Technical Scholarship in Tokyo, Japan.

Marissa L. Flores, Filipino, 50 years old, is the Senior Vice President

for News and Public Affairs since 2004.

She joined the Company in 1987 as a researcher for public affairs

documentaries and special reports and held the positions of Assistant
Vice President for Public Affairs, Vice President for Production – News
and Public Affairs before her appointment to her current position.

The Rotary Club of Manila recognized her as Television News

Producer of the Year in 1996. In 2004, she was awarded the prestigious
TOYM (The Outstanding Young Men) for Broadcast Management. In
2012, she received the CEO Excel Award from the International
Association of Business Communicators (IABC) Philippines.

The News and Public Affairs group under Ms. Flores continues to
be the recipient of international awards, notably the New York Festivals,
US International Film and Video Festival Awards, Asian TV Awards.
GMA News and Public Affairs remains as the only Philippine broadcast
network which has won the highly-coveted Peabody Award (four Peabody
awards as of 2014) — widely considered as broadcasting and cable’s
equivalent of the Pulitzer Prize.

Besides overseeing news and public affairs programs in GMA

Channel 7, it is also under Ms. Flores’ leadership that GMA News Online
was put up in 2007, and GMA News TV (GMA
Network’s news and public affairs channel on free TV) was launched in
February 2011.

She earned her Bachelor’s degree at the University of the

Philippines, where she studied
Journalism.

Ronaldo P. Mastrili, Filipino, 48 years old, is the Senior Vice

President of GMA’s Finance and ICT departments.

He obtained a Bachelor of Science in Business and Economics

degree, major in Accounting from De La Salle University. He attended
the Master in Business Administration Program from the same university
and completed the Executive Development Program of the Asian Institute

65
of Management. He is a Certified Public Accountant with expertise in the
fields of accounting, auditing, finance, taxation and general
management. He was formerly the Assistant Vice President of
Controllership of ABS-CBN and also served as its Group Internal Auditor
before joining GMA Network in March 2001. He also worked with SGV
and Co. in the early part of his career. Mr. Mastrili concurrently holds
key positions in GMA Subsidiaries namely: Comptroller/Chief
Accounting Officer of GMA Holdings, Treasurer of Alta Productions,
Director of Script2010, and Comptroller of GMA Films, GMA Kapuso
Foundation and GMA Worldwide.

Lilybeth G. Rasonable, Filipino, 50 years old, is the Senior Vice

President of the Entertainment
TV Group of GMA Network, Inc.

She is mainly responsible for the production of all entertainment

programs of the Network. After earning her degree in Broadcast
Communication from the University of the Philippines, Ms. Rasonable
immediately worked in the broadcasting industry, starting out as a
Production Assistant and later on, an Associate Producer of the
Intercontinental Broadcasting Company. She likewise worked as
Production Coordinator and Executive producer of GMA Network, Inc.

Ms. Rasonable’s work experience also included a post as Technical

Consultant for Local Production with the Associated Broadcasting
Company (ABC-5) and freelance Executive Producer for film and
television. After a few years, she rejoined GMA as a Production Manager
under its Sales and Marketing Group.

From Program Manager, Ms. Rasonable was promoted to Assistant

Vice President for Drama in 2004. As AVP, she was a key figure in the
creation of groundbreaking and phenomenal hits such as Mulawin,
Encantadia and Darna, which made the primetime block of GMA
invincible and contributed to the unprecedented success of GMA in its
quest for leadership in the Philippine broadcasting industry. It was also
during her time as AVP for Drama when GMA produced programs that
created superstars for the Network and afternoon dramas dramatically
rose and established strong presence in their timeslots with
breakthrough innovations.

In 2010, Ms. Rasonable was promoted to the position of Vice

President, Drama Productions and tasked with the supervision of non-
primetime and primetime drama programs of GMA. By February 2012,
she took the helm as Officer-in-Charge of the Entertainment TV (ETV)

66
 Group. And in December 2013, she received her promotion and
appointment as ETV’s Senior Vice President.

CHAPTER II
STOCKHOLDER’S ANALYSIS

CAPITAL STRUCTURE
AUTHORIZED CAPITAL
STOCK

TYPE OF NUMBER OF PAR/STATED AMOUNT (Php)

67
 No. of shares X
SHARES SHARES VALUE Par/Stated
Value

5,000,000,000.0
Common 5,000,000,000 1.00 0

1,500,000,000.0
Preferred 7,500,000,000 0.20 0

12,500,000,00 6,500,000,000.0
TOTAL: 0 TOTAL: 0

SUBSCRIBED CAPITAL
AMOUNT (Php)
TYPE OF NUMBER OF PAR/STATED No. of shares X
SHARES SHARES VALUE Par/Stated
Value

3,381,047,000.0
Common 3,381,047,000 1.00 0

1,499,901,436.8
Preferred 7,499,507,184 0.20 0

10,880,554,18 4,880,948,436.8
TOTAL: 4 TOTAL: 0

PAID-UP CAPITAL
AMOUNT (Php)
TYPE OF NUMBER OF PAR/STATED No. of shares X
SHARES SHARES VALUE Par/Stated
Value

3,381,047,000.0
Common 3,381,047,000 1.00 0

1,499,901,436.8
Preferred 7,499,507,184 0.20 0

10,880,554,18 4,880,948,436.8
TOTAL: 4 TOTAL: 0

68
 NAME, SHARES SUBSCRIBED
NATIONALITY AND
% OF AMOUNT
CURRENT AMOUNT
TYPE NUMBER OWNERS PAID (Php)
RESIDENTIAL (Php)
ADDRESS HIP
1. GMA HOLDINGS,
INC          

Comm 857,509,80 857,509,800. 857,509,800.

FILIPINO on 0 00 25.49% 00
Unit 5D Tower One,
One McKinley Piace,
New Global City,
Taguig City          
2. GROUP
MANAGEMENT &
DEV. Inc.          

Comm 789,813,38 789,813,389. 789,813,389.

FILIPINO on 9 00 23.47% 00
No. 5 Wilson St.,
Greenhills, S.J.
Metro Manila          
3. FLG
MANAGEMENT &
DEV. CORP          

Comm 663,929,02 663,929,027. 663,929,027.

FILIPINO on 7 00 19.73% 00
15/F Sagittarius
Cond., HV Dela
Costa St., Makati
City          
4. M.A. JIMENEZ
ENTERPRISES, INC          

Comm 453,882,09 453,882,095. 453,882,095.

FILIPINO on 5 00 13.49% 00
2/F Sagittarius
Cond., HV Dela
Costa St., Makati
City          
5. TELEVISION
INTERNATIONAL
CORP.          
FILIPINO Comm 334,378,03 9.94%

69
 334,378,037. 334,378,037.
on 7 00 00
2/F Sagittarius
Cond., HV Dela
Costa St., Makati
City          
6. PCD NOMINEE
(FILIPINO)          

Comm 221,087,74 221,087,746. 221,087,746.

FILIPINO on 6 00 6.57% 00
37/F Enterprise
Center, Ayala
Avenue, Makati City          
7. GOZON
DEVELOPMENT
CORP.          

Comm 14,033,954.0 14,033,954.0

FILIPINO on 14,033,954 0 0.42% 0
15/F Sagittarius
Cond., HV Dela
Costa St., Makati
City          
8. GOZON
FOUNDATION, INC.          
Comm
FILIPINO on 4,514,361 4,514,361.00 0.13% 4,514,361.00
15/F Sagittarius
Cond., HV Dela
Costa St., Makati
City          
9. GILBERTO R.
DUAVIT, JR.          
Comm
FILIPINO on 4,007,006 4,007,006.00 0.12% 4,007,006.00
60 Greenmeadows
Ave., cor. Sparro
St., Greenmeadows,
Q.C.          
10. ALEGRIA R.
SIBAL          
Comm
FILIPINO on 1,093,252 1,093,252.00 0.03% 1,093,252.00
           

SUB-TOTAL AMOUNT OF SUBSCRIBED 3,344,248,66

CAPITAL 7.00    
SUB-TOTAL AMOUNT OF PAID-UP CAPITAL

70
 3,344,248,66
7.00

RESULTS: Based from the data above, GMA HOLDINGS, INC holds the
highest number of shares owned, amount paid and percentage of
ownership; thus they also have the highest control in the management
making them rule over the creation and approval of company policies
and other issues.

Chapter III
RISK AND RETURN

RISK AND RETURN VALUES

GMA NETWORK,
Broadcasting INC.
Media Industry 2012 2013
Average Beta 1.64 0.59
Unlevered Beta .72
Unlevered Beta
Corrected for Cash .92
Market D/E Ratio 62% 56% 48%
Tax Rate 30% 29.92% 29.85%
Cost of Equity 10.17% 10.21% 10.58%
Cost of Debt 6.10% 4.63% 4.28%
Cost of Capital 8.04% 8.20% 8.50%

Beta
The Average Beta for Broadcasting Media Industry of 1.64 is greater than
the Company Beta of .59 only, which means that there is less risk in investing
in this company. It will take 72% risk to purchase a firm’s stock as implied by
the unlevered beta.

Cost of Equity

71
 In the computation of Cost of Equity, the formula below is used:

Cost of Equity=Risk free rate+ beta(Risk

Premium)

The cost of equity is the appropriate hurdle rate, when returns are
measured to equity investors in the company. Thus, a new store has to earn a
return on equity of more than 10.58% for the year 2013, and 10.21% for the
year 2012 to be considered a good investment. These percentages are a little
higher than the cost of equity for broadcasting media industry of 10.17%.

Cost of Debt

In the computation of Cost of Debt for the Company, a 4.63% and 4.28%
pre-tax cost of debt is computed for 2012 and 2013 respectively. The formula to
determine the cost of debt is as follows:

Cost of Debt= (Interest Payment/ Amount Borrowed) x

(1-Tax Rate)

Cost of Capital

The formula of Cost of Capital = Cost of Equity (Equity Ratio) + Cost

of Debt (Debt Ratio) is used. The cost of capital is the appropriate hurdle rate,
when returns are measured to all investors in the company. Thus, a new store
has to earn a return on all capital invested greater than 8.50% for the year
2013, and 8.20% for the year 2012 to be considered a good investment. These
percentages are higher than the cost of capital for broadcasting media industry
of 8.04%.

72
 Chapter IV
Measuring Investment Returns

GMA SUBSIDIARIES, JOINT VENTURE AND AFFILIATES:

The Company’s subsidiaries and affiliates are involved in media-related services

such as movie making, sets and props construction, film syndication, music
and video recording, new media, online gaming, post production services, and
marketing, which complement the Company’s core television and radio
broadcasting business.

The following table shows the Company’s holdings in its principal subsidiaries,
joint ventures and affiliates as of December 31, 2013:

73
RETURN ON EQUITY

Broadcasting GMA NETWORK, INC.

Media Industry 2012 2013
1,616,888,635.0 1,674,975,012.0
Net Income 0 0
Shareholder's 8,270,056,885.0 8,825,073,181.0
Equity 0 0
Return on Equity 19.61% 19.55% 18.98%

74
 With the Broadcasting Media Industry reflecting an average ROE of
17.61%, GMA Network, Inc. demonstrated an average of 18.98% for 2013 and
19.55% for 2012, a decrease of 0.57% from year 2012 is observed. At this
metric, GMA Network, Inc. shows a lower return versus the industry average.

RETURN ON CAPITAL

Broadcasting GMA NETWORK, INC.

  Media Industry 2012 2013
Net Income 1,616,888,635.00 1,674,975,012.00
Adjusted Tax 690,319,189.00 712,331,041.00
Book Value of
Debt 813,499,599.00 944,526,254.00
Book Value of
Equity 8,270,056,885.00 8,825,073,181.00
Cash 1,266,209,138.00 1,749,631,196.00
Return on
Capital 16.18%  17.80% 17.14%

With the Broadcasting Media Industry reflecting an average ROC of

16.31%, GMA Network Inc. , demonstrated an average of 17.14% for 2013 and
17.80% for 2012, where a decrease of 0.66% is observed. At this metric, GMA
Network, Inc. shows a higher return versus the industry average in both years
of comparison (2012-2013).
Chapter V
CAPITAL STRUCTURE CHOICES

CAPITAL STRUCTURE
201 201
  2 3
DEBT RATIO 36% 33%
EQUITY RATIO 64% 67%

75
76
77
78
 The Company obtained unsecured short-term peso and USD
denominated loans from various local banks. The interest rate of the short-term
loan ranges from 1.73% to 5.00% in 2013 and a fixed rate of 4.00% in 2012.
Other long-term obligations for program and other rights represent liabilities to
foreign and local film suppliers for program and other rights purchased by the
Company and are payable with 4.30%-10%.

79
 Chapter VI
Optimal Capital Structure

FINANCING MIX

To estimate for the best optimal capital structure of, the estimated after-
tax cost of debt and cost of equity were estimated.

% OF DEBT AFTER-TAX % OF EQUITY COST OF WACC

COST OF EQUITY
DEBT
0% 3.00% 100% 7.00% 7.00%
10% 3.00% 90% 7.30% 6.84%
20% 3.10% 80% 7.60% 6.70%
30% 3.30% 70% 8.00% 6.61%
40% 3.50% 60% 8.60% 6.55%
50% 3.70% 50% 9.40% 6.56%
60% 4.10% 40% 10.60% 6.69%
70% 4.50% 30% 12.60% 6.93%
80% 5.10% 20% 16.60% 7.40%
90% 6.00% 10% 16.60% 8.26%
100% 9.60% 0% 28.60% 9.60%

WACC= (.1058)(.67)+(.0428)(.33)
= 8.50%

Given the projected cost of capital at each level of debt and equity, we
can see that the WACC is minimized and the firm value is maximized at 40%
/60% Debt/Equity Mix. Below this mix, the company is not utilizing enough of
the cheaper debt. Above this level, the increased costs of both debt and equity
cause WACC to increase as the company adds more debt to the mix. Thus, the
company having a 33%/67% Debt/Equity Mix with 4.28%/10.58% cost of
debt/ cost of equity in comparison to the projected data , is not considered as
the optimum level that maximizes the firm value.

80
 Chapter VII
Mechanics of Moving to the Optimal

BUSINESS PROJECT CASH FLOW TYPE OF FINANCING

CHARACTERISTICS
ENTERTAINMENT Project Cash flows are Debts should be in the
BUSINESS mixture of long-term and form of both short and
short-term long-term.
ADVERTISING Project Cash flows are Debts should be in the
BUSINESS mixture of long-term and form of both short and
short-term long-term.

ASSUMPTIONS:
 Optimal Debt Ratio in 2012 and 2013 is 40%.

COMPARISONS:
 In 2012, Actual debt ratio is 36% is lower than the optimal debt ratio
which is 40% is under levered.
 In 2013, Actual debt ratio is lower than the optimal debt ratio which is
40% is under levered.

RESULTS:
 The optimal route for maximizing the firm value since under the
framework, the actual debt ratio for 2012 and 2013 are under levered
and the firm is not subject or target for takeover and the firm have good
projects where it shows that the ROE of the company which are 19.55%
and 18.98% for 2013 and 2012 respectively are greater than the cost of
equity which are 10.21% and 10.58%; as well as the ROC which are

81
 17.80% and 17.14% are greater than the cost of capital which are 8.20%
and 8.50%, the company should take good projects with debt.
Chapter VIII
Dividend Policy

MEASURES OF DIVIDEND POLICY

Dividend Pay-Out
Dividend Payout measures the percentage of earnings that the company
pays in dividends.

YEARS DIVIDENDS NET INCOME DIVIDEND PAY-

OUT
2012 1,264,794,293 1,616,888,635 78.22%
2013 1,215,049,609 1,674,975,012 72.54%

Dividend Yield
Dividend Yield measures the return that an investor can make from
dividends alone.

YEARS DIVIDENDS PER STOCK PRICE DIVIDEND YIELD

SHARE
2012 .26 8.20 3.17%
2013 .25 7.20 3.47%

82
 Chapter IX
A Framework for Analyzing Dividends

HOW MUCH COULD GMA NETWORK INC. HAVE PAID AS DIVIDENDS

BETWEEN 2012 AND 2013?

YEAR NET (CAPITAL (1- CHANGE IN (1- FCFE

INCOME EXPENDITUR DEBT WORKING DEBT
E- RATIO) CAPITAL RATI
DEPRECIATI O)
ON)
2012 1,616,888,6 69,444,968 .64 1,616,807,9 .64 537,686,74
35 93 0
2013 1,674,975,0 294,959,115 .67 469,145,43 .67 1,791,679,8
12 5 46
AVERA 182,202,042 .66 1,042,976,7 .66 1,164,683,2
GE 14 93

The GMA Network, Inc.’s debt ratios of .36 and .63 for years 2012 and 2013
respectively were used to compute the FCFE each during the period. Based on
this analysis, GMA Networks could have returned Php 1,164,683,293 in cash to
its stockholders, either in the form of cash dividends or equity buybacks during
the period.

HOW MUCH DID GMA NETWORK INC. ACTUALLY PAY IN DIVIDENDS

BETWEEN 2012 AND 2013?

YEAR FCFE DIVIDENDS

2012 537,686,740 1,264,794,293
2013 1,791,679,846 1,215,049,609
AVERAG 1,164,683,293 1,239,921,951
E

On average, GMA Network Inc., returned Php 1,293,921,951 in the form of cash
dividends each year between 2012 and 2013, about 75,238,658 more each year
than they could have afforded to payout.

83
Firms Pays out too little dividends
 2012: FCFE of 537,686,740 is less than the dividends of 1,264,794,293.
 2013: FCFE of 1,791,679,846 is greater than the dividends of
1,215,049,609.
Comparisons:
 2012: ROE of 19.55% is greater than the cost of equity of 10.21%
ROC of 17.80% is greater than the cost of capital of 8.20%.
 2013: ROE of 18.98% is greater than the cost of equity of 10.58%.
ROC of 17.14% is greater than the cost of capital of 8.50%.
Results:
GMA Network, Inc. has history of good project choice and good projects
in the future, therefore, give managers the flexibility to keep cash and set
dividends.

84
 Chapter X
Valuation

A. Dividend Discount Model

In its most general form, the value of a stock in the dividend discount
model is the Present Value (PV) of the expected dividends on the stock in
perpetuity.

Value per share of stock= Expected dividends in

period
(1+ Cost of
Equity)
Since dividends in perpetuity cannot be estimated, a stable growth rate is
assumed at some point in the future

Value= E(Dividends)t + Terminal Value

(1+r)n (1+r)n

Where:
Terminal Value = = E(Dividends) n+1
(rn+gn)

r= cost of equity
g= is the expected growth rate in dividends in perpetuity after year n.

85
Growth in Earnings Per Share

In 2013, GMA Inc. reported a net income of Php1,674,975,012 on a book

value of equity of Php8,825,073,181 at the end of the year. The resulting ROE
for the firm is

ROE = Net Income

BV of Equity
= 1,674,975,012
8,825,073,181
= 18.98%

This is higher than the cost of equity for the firm which is 10.58% and
the average return on equity for broadcasting mass media which is 19.61%. The
company paid out dividends per share of Php.25 on earnings per share of P.50.
The resulting retention ratio is

Retention ratio = 1-(dividends per share/earnings per share)

=1(.25/.50)
= 50%

EPS= Net Income/ Outstanding Common Shares

= 1,674,975,012/ 3,361,047,000

If GMA Inc. maintains existing ROE and Retention Ratio for long term, its
expected growth will be:

Expected Growth= Retention Ratio X ROE

= 50% x 18.98%
= 9.49%

For the next five years, it will be assumed that ROE will improve to 20% while
retention ratio will stay unchanged at 50%. The expected growth rate in
earnings per share is

Expected Growth= 50% X 20%

VALUING EQUITY USING THE DIVIDEND DISCOUNT MODEL

In the previous computation, it is estimated that the annual growth rate for the
next 5 years is at 10%, based upon an estimated ROE of 20% and a retention
ratio of 50%. In 2013, the EPS at GMA Inc. were Php .50 and the dividend per
share is Php.25. Earlier analysis of the risk at GMA Inc. provided an estimate of
beta .59, which is used in conjunction with an assumed risk free rate of 4% and
assumed risk premium rate of 11.15% yielded cost of equity of 10.58%.

86
PV of High Growth Dividends= .25 x 1.10 x[1-[(1.10) 5/ (1.1058)5]
.1058-.10
= Php1.23
Assuming that at the end of year 5, GMA Inc. earnings growth will drop to 8%
and stay at the level of perpetuity. In keeping with the assumption of stable
growth it will also be assumed that:

 The beta will decrease marginally to .56, resulting in slightly lower COE
of 10.24% based on the following computations:

COE= Risk free rate + Beta x Risk Premium

= 4% + .56 (15.15%-4%)
= .04 +.56(.1115)
= 10.24%

 The ROE will drop to the COE of 10.24%, thus preventing excess return
from being earned in perpetuity.
 The pay-out ratio will adjust to reflect the stable growth period rate and
ROE

Stable Period Payout Ratio= 1-(g/ROE)

= 1-(.0949/.1024)
= 7.32%
The expected dividends in year 6 is calculated using the payout ratio

Expected Dividends in Year 6= Expected EPS6 x Stable period payment ratio

= .25(1.0949) X .0732
= Php .02

The value per share at the end of the 5th year can be estimated using these
inputs

Terminal Value per share=Expected Dividends in year 6/(COE-g)

Terminal Value= .02/ (.1024-.0949)
Terminal Value= Php 2.67

The Present Value of the terminal value is computed using the high growth
period cost of equity

PV of Terminal Value=Terminal Value/ (1+r)n

PV of Terminal Value= 2.67/ (1.1024)5
PV of Terminal Value= Php 1.64

The total value per share is the sum of this value and the present value of the
expected dividends in high growth period.

Value Per Share= PV of Expected Dividends in High Growth + PV of Terminal

Value
= 1.23 +1.64
= Php 2.87

87
B. Free Cash Flow to Equity Model

The FCFE is the residual cash flow left over after meeting interest and principal
payments and providing for capital expenditures to maintain existing assets to
create new assets for future growth

Equity Reinvestment Rate= (Capital expenditure-Depreciation+ Δ Working

Capital)(1-ợ)
Net Income
FCFE= Net Income(1-Equity Reinvestment Rate)

Once we estimate the FCFE, the general version model resembles the
dividend discount model, with FCFE replacing dividends in the equation

Value of the stock= PV of FCFE during high growth + Pv of terminal price

Value= E(FCFE)t + Terminal Value

(1+r)n (1+r)n
Where:
Terminal Value = = E(Dividends) n+1
(rn+gn)
r= cost of equity
g= is the expected growth rate in dividends in perpetuity after year n.

To value GMA Inc., the expected growth net income will be computed first using
the following formulas:

GMA Inc. has a net income of 1,674,975,012 for 2013, interest income before
taxes of 23,990,805 and faced a tax rate of 29.22%. The book value of equity at
the end of 2013 was 8,825,073,181, of which cash was represented
1,749,631,196.

Non-Cash ROE= Net Income- After Tax Interest on Cash

Book Value of Equity-Cash
= 1,674,975,012-(23,990,805(1-29.22%))
8,825,073,181-1,749,631,196
= 23.43%

The expected growth in net income can be computed as the product of non-cash
ROE and equity reinvestment rate

Equity Reinvestment Rate= (1,004,000,000-705,440,885+469,145,435)(1-.33)

1,674,975,012
= 30.71%

Expected Growth in Net Income= Equity Reinvestment Rate x Non-Cash ROE

= 30.71% x 23.43%
=7.20%

88
Based upon the above computations, it is expected that GMA Network to grow
at 5.89% a year.

The average equity reinvestment rate of 30.71% will be used for the next 5
years. In conjunction, with the non-cash return on equity of 23.43% that was
computed previously, expected growth rate of 7.20% is also estimated for the
next 5 years.

Assuming that a beta for equity of .56, risk free rate of 4%, and equity risk
premium is 11.15%, the cost of equity will be computed as follows

COE= .04 + .56(.1115)

= 10.24%

Assuming that after year 5, the beta will remain .56, risk free rate of 4% and
equity risk premium will decline to 10%, the resulting cost of equity is

COE in stable growth = 4% + .56 (.10)

= 9.6%
After year 5, it is also be assumed that the growth in net income will drop to
8% and the ROE will rise to 9.6%. The equity reinvestment ratio in stable
growth can then be estimated as follows

Equity Reinvestment ratestable growth= 8%/ 9.6%= 83.33%

YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5

NET INCOME 1,795,573,2 1,924,854, 2,063,444,0 2,212,011,97 2,371,276,
13 484 07 6 838
EQUITY 30.71% 30.71% 30.71% 30.71% 30.71%
REINVESTME
NT RATE
FCFE 1,244,152,6 1,333,731, 1,429,760,3 1,532,703,09 1,643,057,
79 672 52 8 721
PRESENT 1,135,175,8 1,110,317, 1,086,004,4 1,062,223,28 1,038,962,
VALUE AT 02 938 06 8 924
9.6%
TOTAL: 5,432,684,
358

To estimate the terminal value of equity, the free cash flow to equity is first
computed as follows:

FCFE in year 6 = 2,371,276,838(1.08)(1-83.33)

= 426,915,197

89
The terminal value is then computed using the stable period cost of equity of
9.6%.
Terminal Value of Equity= 426,915,197
(.096-.080)
=26,682,199,810
The current value of equity is the sum of PV of the expected cash flows
computed as follows

PV of FCFE’s 5,432,684,358
Add: PV of terminal value 16,872,089,150
VALUE OF EQUITY IN OPERATING 22,304,772,508
ASSETS
VALUE OF CASH AND 1,757,505,198
MARKETABLE SECURITIES
VALUE OF EQUITY IN FIRM Php24,062,277,706

CHAPTER I
CORPORATE GOVERNANCE ANALYSIS

Company Background

Universal Robina Corporation (URC) traces its beginnings all the

way back to 1954. John Gokongwei was doing very well then as a
trader/importer. He had learned the trade when his father died before
the war, and had worked hard through the war and postwar years to
prosper. However, while he thrived, he took a long hard look at his
company, and correctly predicted that trading would remain a low-
margin business.

On the other hand, a successful manufacturer controlling its own

production and distribution would command more profitable margins.
Mr. John decided to construct a corn milling plant to produce glucose
and cornstarch,  Universal Corn Products (UCP), the first linchpin of
the company that would become the URC we know today.

90
 For a time, business was good. However, Mr. John was still looking
ahead, working with an eye towards the future. While the business was
doing very well, it was producing essentially a commodity, which a
customer could easily access elsewhere. To stay ahead in the game, Mr.
John  had to diversify by producing and marketing his own branded
consumer foods, similar to the multinational companies in the country
like Nestle and Procter & Gamble. In a sense, he wanted to put up the
first ‘local’ MNC, borne out of their best practices.

Thus, in 1961, Consolidated Food Corporation was born. Their

first ‘home run’ product was Blend 45, the first locally-manufactured
coffee blend, dubbed as the  “Pinoy coffee”. This became the largest-
selling coffee brand in the market, even beating market leaders Café Puro
and Nescafe. After coffee came chocolates. Nips,a panned chocolate was
a staple of Filipino childhood.

In 1963, Robina Farms started operations, beginning with poultry

products. This was also the beginning of the vertical integration of the
Gokongwei businesses, as the farms would be able to purchase feeds
from UCP in the future.  Later that decade, Robichem
Laboratories would be put up, to cater to the veterinary needs of the
farms businesses. Robina Farms expanded as it entered the hogs
business in the latter part of the 70s.1966 saw the establishment
of Universal Robina Corporation, which pioneered the salty snacks
industry through Chiz Curls, Chippy, and Potato Chips, under the “Jack
‘n Jill” brand. Other snack products would follow over the years, as the
company successfully introduced market leaders like Pretzels, Piattos,
and Maxx.

The coming decades saw more acquisitions and expansion. In the

early 1970s, the family entered the commodities business through the
formation of Continental Milling Corporation, for flour milling and
production. The late 1980s brought the acquisition of three sugar mills
and refineries, under URC Sugar. These two businesses provided stable
cash flows, and allowed for further vertical integration in the supply
chain, to help URC weather any volatility in the cyclical commodities
markets. In line with this strategy, the late 1990s saw the entry of URC
into the plastics business, through URC Packaging.

Universal Robina Corporation (URC) was founded in 1954 when

Mr. John Gokongwei, Jr. established Universal Corn Products, Inc., a
cornstarch manufacturing plant in Pasig. The Company is involved in a
wide range of food-related businesses, including the manufacture and
distribution of branded consumer foods, production of hogs and day-old
chicks, manufacture of animal and fish feeds, glucose and veterinary

91
compounds, flour milling, and sugar milling and refining. 

URC operates its food business through operating divisions and

wholly-owned or majority-owned subsidiaries that are organized into
three core business segments, namely, branded consumer foods, agro-
industrial products and commodity food products. The Company is also
engaged in consumer product-related packaging business through its
packaging division, which is included in the branded consumer food
segment, and through its subsidiary, CFC Clubhouse Property, Inc.

The Company sells its branded food products primarily to

supermarkets, as well as directly to top wholesalers, large convenience
stores, large scale trading companies and regional distributors, which in
turn sell its products to other small retailers and down line markets.
Moreover, the products are distributed to approximately 120,000 outlets
in the Philippines and sold through URC's direct sales force and regional
distributors. 

Business Lines

Universal Robina Corporation has three main business lines:

1. The Branded Consumer Foods Group is the largest business and

the key driver of growth and profitability. It is composed of the
Philippine, international and packaging businesses. In the
Philippine BCFG, our main divisions are Snack Foods, Beverages,
Grocery (which include the joint ventures Nissin-URC and Hunts
URC), Exports, and Packaging. Our international investments are
in Thailand, Indonesia, Malaysia/Singapore, China/HK, and
Vietnam.
2. The Agro-Industrial Group is composed of hog and poultry farms,
branded feeds, and animal health products.
3. The Commodity Foods Group has both flour and sugar.

The latter two groups provide URC with consistent cashflows and, in the
case of commodities, consistent supply of raw materials for the Branded
Consumer Foods Group.

92
Branded Consumer Foods Group - Domestic

Universal Robina Corporation (URC) is the leading branded

convenience food and beverage company in the Philippines. Touted as
the country’s first “Philippine multinational” as it has the widest
geographical footprint among local food manufacturers, URC has blazed
the trail for the branded foods industry. The company has shaped the
competitive landscape of local consumer brands through its innovative
products, wide distribution, and high-impact marketing. URC is best
known for manufacturing and distributing high-performing products
such as Chippy, Nova and other snack foods under the Jack ‘n Jill mega
brand, Nissin and Payless instant noodles, as well as Hunt’s tomato-
based products.

URC is also a trendsetter in the beverage industry with its coffee

and ready-to-drink products. It grew the local non-carbonated beverage
market with the successful launch and continuing promotion of C2 Cool
& Clean Green Tea. Building on the global trend towards health and
wellness, C2 spearheaded the expansion of a new and high-growth
segment in the Philippine beverage industry: the green tea segment. URC
built on that success with forays into other areas of the non-carbonated
beverage market, such as juices, energy drinks, and ready-to-drink
coffee, among others.

93
Branded Consumer Foods Group – International

Looking ahead to “a world without borders,” URC has expanded steadily outside the
country. At present, URC maintains manufacturing facilities in China, Thailand, Malaysia,
Vietnam and Indonesia and has a strong foothold in the countries it presently operates in.   URC
products, under the “Jack ’n Jill” megabrand, are widely available in most trade channels in
Thailand, Malaysia, Singapore, Indonesia, Vietnam, China, and Hong Kong.
The most established international operations of URC are in Thailand, Indonesia and Malaysia.
Leading market share positions are attained in these countries in several niche product
categories. 

“ACES,” a brand bought by URC from Acesfood Network Pte Ltd in 2005, continues to be
a leader in the instant cereal beverage and oatmeal markets in China. The purchase of the brand
is a strategic move for URC as it allows improved distribution in key geographic markets and
provides a strong, well-regarded brand that will be a platform for future growth in China.

In April 2006, URC started manufacturing and selling C2 Green Tea in Vietnam, making
URC Vietnam the first subsidiary outside the Philippines to manufacture and market C2. C2 is
now one of the two market leaders in Vietnam and manufacturing is being expanded to meet
strong market demands.  In August 2007, URC Vietnam started manufacturing biscuits in order
to strengthen its foothold in the fast growing snackfoods market in Vietnam. 

URC Packaging Division

URC Packaging Division produces and sells a wide range of Bi-

axially Oriented Polypropylene (BOPP) films, primarily used for packaging
of various consumer products.The BOPP plant, located in Simlong,
Batangas, is equipped with Bruckner technology and has a rated
capacity of 33,000 metric tons per annum.

94
 This business unit holds the distinction of being the only
Integrated Management System ISO certified BOPP plant in the country
today with its Quality ISO 9001:2000 and Environmental ISO
14001:2004 Standards.

Agro-Industrial Group

URC’s Agro-Industrial and Commodity Food Groups are engaged in a

wide range of industries including the production and distribution of
animal feeds, glucose and soya products, hogs and poultry farming,
production and distribution of animal health products, as well as flour
and sugar milling and distribution.
Universal Corn Products
Universal Corn Products (UCP) is one of the leaders in the
Philippine animal feed industry with combined milling capacities of
1,200MT per day from its plants in Manila and Cebu.

Its line of nutritionally balanced and cost effective hogs, poultry,

fish and game fowl feeds, marketed under the brand name
RobinaStarfeeds, is formulated by a top-caliber nutrition team and have
gained wide acceptance among animal raisers in the country. They come
in pellet, crumbled and mash form.

UCP likewise, produces and sells liquid glucose and quality soya
products, which are used in the production of confectionery products
and animal feeds, respectively.

Robichem

Robichem manufactures, distributes and sells a wide range of high-

quality and well-known animal health products such as vaccines, water
solubles, injectables, feeds supplements and disinfectants, which are both
marketed commercially and used by Robina Farms because of its proven
effectiveness and cost-efficiency.

Robichem is the exclusive distributor of multinational companies

namely, Janssen Animal Health and Malaysian Vaccines
Pharmaceuticals.

Robina Farms-Hogs

Robina Farms (RF) Hogs breeds and sells prime finisher hogs,
piglets and breeder stocks such as its own Grandeur Boar and Grand
Dame gilt.RF- hog production facilities, located in Rizal, Novaliches,

95
Bulacan and Batangas maintain 15,500 sows at any given time; and are
reputed to be one of the most modern swine facilities in the country.

Robina Farms-Poultry

RF also produces superior day-old broiler and layer chicks from

the world-class breeds such as Hubbard, Shaver and Hyline.
RF poultry production facilities are located in Cebu, Rizal and Bulacan,
with a total farm capacity of 500,000 breeders.

RF is a formidable player in both the Layer and Broiler industries;

and is the number one day-old chick supplier in the country.

Commodity
Foods Group

URC’s Commodity Foods Group is engaged in flour and sugar milling and
distribution, and sells its products to commercial and institutional
accounts.

URC Flour Division

URC Flour produces and sells Hard and Soft Wheat Flour to both
commercial and institutional accounts. The division also supplies the
local and export flour requirements of the URC Branded Consumer Food
Group and URC International respectively. Other product offerings are
flour-milling by-products such as wheat germ, bran and pollard.

The company also manufactures and sells spaghetti and macaroni

products under the brand name EL REAL and toll manufactures for

96
other food companies.URC Flour has a total flour milling capacity of
1,550 metric tons per day.

URC Sugar Division

URC Sugar operates 4 sugar mills and 3 refineries in Luzon and

Visayas, and is among the largest sugar millers/refiners in the
country.URSUMCO (Negros Oriental), SONEDCO (Negros Occidental),
and CARSUMCO (Cagayan Valley) provide sugar cane milling and
refining services, trades raw sugar and sells refined sugar and molasses.
PASSI (Iloilo) provides sugar cane milling services and trades raw sugar
and molasses.URC Sugar has a total sugar milling capacity of
approximately 29,000 tons of cane per day. It also has a sugar refining
capacity of approximately 32,000 50-kg bags of sugar per day.

Corporate Vision

97
Corporate Values

98
Board of Directors

John L. Gokongwei, Jr. founded URC in 1954 and has been the

Chairman Emeritus of URC effective January 1, 2002. He had been

99
Chairman of the Board of Directors until his retirement and resignation
from this position effective December 31, 2001. He continues to be a
member of URC's Board and is the Chairman Emeritus of JG Summit
Holdings, Inc. and certain of its subsidiaries. He also continues to be a
member of the Executive Committee of JG Summit Holdings, Inc. He is
currently the Chairman of the Gokongwei Brothers Foundation, Inc.,
Deputy Chairman and Director of United Industrial Corporation Limited
and Singapore Land Limited, and a director of Cebu Air, Inc., JG Summit
Capital Markets Corporation and Oriental Petroleum and Minerals
Corporation. He is also a non-executive director of A. Soriano
Corporation. Mr. Gokongwei received a Masters degree in Business
Administration from the De La Salle University and attended the
Advanced Management Program at Harvard Business School.

James L. Go is the Chairman of the Board of Directors of URC. He had

been Chairman and Chief Executive Officer since January 1, 2002. He is
the Chairman and Chief Executive Officer of JG Summit Holdings, Inc.
and as such, he heads the Executive Committee of JG Summit Holdings,
Inc. He is currently the Chairman of Robinsons Land Corporation and
JG Summit Petrochemical Corporation. He is the Chairman and Chief
Executive Officer of Robinsons, Inc. and Oriental Petroleum and Minerals
Corporation. He is also the President and a Trustee of the Gokongwei
Brothers Foundation, Inc. He was elected a director of the Philippine
Long Distance Telephone Company (PLDT) on November 3, 2011 and was
also appointed as a member of PLDT's Technology Strategy Committee.
He is also a director of Cebu Air, Inc., United Industrial Corporation
Limited, Singapore Land Limited, Marina Center Holdings, Inc., Hotel
Marina City Private Limited and JG Summit Capital Markets
Corporation. He received a Bachelor of Science degree and a Master of
Science degree in Chemical Engineering from the Massachusetts
Institute of Technology. Mr. James L. Go is a brother of Mr. John L.
Gokongwei, Jr. and joined URC in 1964.

Lance Y. Gokongwei is the President and Chief Executive Officer of

URC. He had been President and Chief Operating Officer since January
1, 2002. He is the President and Chief Operating Officer of JG Summit
Holdings, Inc. He is also the Vice Chairman and Chief Executive Officer
of Robinsons Land Corporation. He is the President and Chief Executive
Officer of Cebu Air, Inc. and JG Summit Petrochemical Corporation. He
is the Chairman of Robinsons Bank, Chairman and President of JG
Summit Capital Markets Corporation, and a director of Oriental
Petroleum and Minerals Corporation, United Industrial Corporation
Limited, and Singapore Land Limited. He is also trustee, secretary and
treasurer of the Gokongwei Brothers Foundation, Inc. He received a
Bachelor of Science degree in Finance and a Bachelor of Science degree

100
in Applied Science from the University of Pennsylvania. Mr. Lance Y.
Gokongwei is the son of Mr. John L. Gokongwei, Jr. and joined URC in
1988.

Patrick Henry C. Go has been a director of URC since 2000. He is also a

Vice President of URC and is the Executive Vice President and Managing
Director of JG Summit Petrochemical Corporation, URC Packaging
Division, CFC Flexible Packaging Division and JG Summit Olefins
Corporation. He is also a director of JG Summit Holdings, Inc.,
Robinsons Land Corporation, and Robinsons Bank. He is a trustee of the
Gokongwei Brothers Foundation, Inc. He received a Bachelor of Science
degree in Management from the Ateneo de Manila University and
attended the General Manager Program at Harvard Business School. Mr.
Patrick Henry C. Go is a nephew of Mr. John L. Gokongwei, Jr.

Frederick D. Go has been a director of URC since June 2001. He is the

President and Chief Operating Officer of Robinsons Land Corporation
and Robinsons Recreation Corporation. He is the Group General
Manager of Shanghai Ding Feng Real Estate Development Company
Limited, Xiamen Pacific Estate Investment Company Limited, Chengdu
Ding Feng Real Estate Development Company Limited, and Taicang Ding
Feng Real Estate Development Company Limited. He also serves as a
director of Cebu Air, Inc., JG Summit Petrochemical Corporation,
Robinsons Bank, Secret Recipes Corporation, Ho Tsai Dimsum
Incorporated, and Cebu Light Industrial Park. He is also the President of
the Philippine Retailers Association. He received a Bachelor of Science
degree in Management Engineering from the Ateneo de Manila
University. Mr. Frederick D. Go is a nephew of Mr. John L. Gokongwei,
Jr.
Johnson Robert G. Go, Jr. was elected director of URC on May 5, 2005.
He is also a director of JG Summit Holdings, Inc. Robinsons Land
Corporation, and Robinsons Bank. He is also a trustee of the Gokongwei
Brothers Foundation, Inc. He received a Bachelor of Arts degree in
Interdisciplinary Studies (Liberal Arts) from the Ateneo de Manila
University. He is a nephew of Mr. John L. Gokongwei, Jr.

Robert G. Coyiuto, Jr.has been a director of URC since 2002. He is the

Chairman of the Board and Chief Executive Officer of Prudential
Guarantee & Assurance, Inc. and of PGA Sompo Japan Insurance, Inc.
He is also Chairman of the Board of PGA Automobile, Inc./Sole Importer
Principal of Lamborghini, PGA Cars, Inc./Sole Importer Principal of
Porsche and Audi, Hyundai North Edsa, and Pioneer Tours Corporation.
He is also the Chairman of Coyiuto Foundation. He is the Chairman and
President of Calaca High Power Corporation and Pacifica 21 Holdings,
Inc. He is Vice-Chairman of First Life Financial Co., Inc. He is also the

101
President, Chief Operating Officer and Director of Oriental Petroleum and
Minerals Corporation. He is a director of Petrogen Insurance Corporation,
Canon (Philippines) Inc., Destiny Financial Plans, Inc. and National Grid
Corporation of the Philippines. He is a Nominee of R. Coyiuto Securities,
Inc. and a Trustee of San Beda College.

Independent Directors

Wilfrido E. Sanchez has been an independent director of URC since

1995. He is a Tax Counsel in QuiasonMakalintalBarot Torres & Ibarra
Law Offices. He is also a director of Adventure International Tours, Inc.,
Amon Trading Corporation, Center for Leadership & Change, Inc., EEI
Corporation, Eton Properties Philippines, Inc., House of Investments,
EMCOR, Inc., J-DEL Investment and Management Corporation, JVR
Foundation, Inc., Jubilee Shipping Corporation, Kawasaki Motor Corp.,
K Servico, Inc., Magellan Capital Holdings Corporation, PETNET, Inc.,
PETPLANS, Inc., Philippine Pacific Ocean Lines, Inc., Rizal Commercial
Banking Corporation, LT Group, Inc., Transnational Diversified
Corporation, Transnational Diversified Group, Inc., and Transnational
Financial Services, Inc. (formerly Transnational Securities, Inc.). Mr.
Sanchez received a Bachelor of Arts degree and a Bachelor of Laws
degree from the Ateneo de Manila University and a Masters of Law degree
from the Yale Law School.
PascualGuerzon was elected independent director of URC on September
20, 2007. He is currently the Principal of Dean Guerzon& Associates
(Business Development). He is the Founding Dean of De La Salle
Graduate School of Business. He was also the former President of the
Management Association of the Philippines Agribusiness and
Countryside Development Foundation and the Management Association
of the Philippines Foundation, MBA Director of the Ateneo de Manila
Graduate School of Business, Director of Leverage International
Consultants, Dep. Director of Asean Chambers of Commerce and
Industry and Section Chief of the Board of Investments.Mr. Guerzon is a
holder of an MBA in Finance from the University of the Philippines and a
Ph.D. (N.D) in Management from the University of Santo Tomas.

Corporate Officers

Name of Officer Position

James L. Go Chairman
Lance Y. President and Chief Executive Officer
Gokongwei

102
Patrick Henry C. Vice President
Go
Cornelio S. Mapa Executive Vice President and Managing
Director, URC Branded Consumer Foods
Group Philippines
Patrick O. Ng Executive Vice President and Managing
Director, URC Branded Consumer Foods
Group International
Constante T. Senior Vice President
Santos
BJ M. Sebastian Senior Vice President

Name of Officer Position

Geraldo N. First Vice President

Florencio
Chona R. Ferrer First Vice President
Ester T. Ang Vice President — Treasurer
Patricia C. Go Vice President
Alan D. Surposa Vice President
Ma. Victoria M. Vice President
Reyes-Beltran
Michael P. Liwanag Vice President
Socorro ML. Assistant Vice President
Banting
Rosalinda F. Rivera Corporate Secretary

103
 CHAPTER II
STOCKHOLDER’S ANALYSIS

CAPITAL STRUCTURE

AUTHORIZED CAPITAL STOCK

AMOUNT (Php)
TYPE OF NUMBER OF PAR/STATED
SHARES SHARES VALUE No. of shares X
Par/Stated Value

2,998,000,000.0
Common 2,998,000,000 1.00 0

Preferred 2,000,000 1.00 2,000,000.00

3,000,000,000.0
TOTAL: 3,000,000,000 TOTAL: 0

SUBSCRIBED CAPITAL

TYPE AMOUNT (Php)

OF NUMBER OF PAR/STATED No. of shares X
FILIPINO
SHARE SHARES VALUE Par/Stated
S Value
Commo 1,474,724,744.0
  1,474,724,744 1
n 0
       
-
1,474,724,744.0
  TOTAL: 1,474,724,744 TOTAL:
0
 

104
 SUBSCRIBED CAPITAL
TYPE AMOUNT (Php)
FOREIGN
OF NUMBER OF PAR/STATED No. of shares X
(INDICATE BY
SHARE SHARES VALUE Par/Stated
NATIONALITY)
S Value
Commo
BRITISH 5,474 1 5,474.00
n
Commo
CHINESE 1,150 1 1,150.00
n
Commo
INDIAN 7,796 1 7,796.00
n
Commo
JAPANESE 5,000 1 5,000.00
n
Commo
NON-FILIPINO 706,757,769 1 706,757,769.00
n
TOTAL: TOTAL: 706,777,189 TOTAL: 706,777,189.00

 
  PAID-UP CAPITAL    
  TYPE AMOUNT (Php)
OF NUMBER OF PAR/STATED No. of shares X
FILIPINO SHARE SHARES VALUE Par/Stated
S Value
Commo 1,474,724,744.0
  1,474,724,744 1
n 0
       
-
1,474,724,744.0
  TOTAL: 1,474,724,744 TOTAL:
0
 
PAID-UP CAPITAL
TYPE AMOUNT (Php)
FOREIGN
OF NUMBER OF PAR/STATED No. of shares X
(INDICATE BY
SHARE SHARES VALUE Par/Stated
NATIONALITY)
S Value
Commo
BRITISH 5,474 1 5,474.00
n
Commo
CHINESE 1,150 1 1,150.00
n
Commo
INDIAN 7,796 1 7,796.00
n
Commo
JAPANESE 5,000 1 5,000.00
n
Commo
NON-FILIPINO 706,757,769 1 706,757,769.00
n

105
 TOTAL: TOTAL: 706,777,189 TOTAL: 706,777,189.00

TOP STOCKHOLDER’S FOR THE YEAR 2013

NAME, AMOUNT PAID

SHARES SUBSCRIBED
NATIONALITY (Php)
AND CURRENT % OF
RESIDENTIAL TYPE NUMBER AMOUNT (Php) OWNERS
ADDRESS HIP
1. JG SUMMIT
HOLDINGS,
INC.          
Commo 1,215,223,0 1,215,223,061. 1,215,223,061.
FILIPINO n 61 00 55.71% 00
43/F Robinsons
Equitable Tower
ADB Ave. cor.,
Poveda St.,
Ortigas Center,
Pasig
2. PCD
NOMINEE
CORPORATION
(Non Filipino)
Commo 665,106,38 665,106,386.0
NON-FILIPINO n 6 0 30.49% 665,106,386.00
37/F Tower 1,
The Enterprise
Center Ayala
Avenue, cor.
Paseo de
Roxas, Makati
City
3. PCD
NOMINEE
CORPORATION
(FILIPINO)          
Commo 288,456,12
FILIPINO n 2 288,456,122 13.22% 288,456,122.00
37/F Tower 1,
The Enterprise
Center Ayala
Avenue, cor.
Paseo de
Roxas, Makati
City
4. ELIZABETH
Y.
GOKONGWEI

106
&/OR JOHN
GOKONGWEI,
JR.
Commo
FILIPINO n 2,479,400 2,479,400.00 0.11% 2,479,400.00
43/F
Robinsons
Equitable
Tower ADB
Ave. cor.,
Poveda St.,
Ortigas Center,
Pasig
5. LITTON
MILLS, INC.
Commo
FILIPINO n 2,237,434 2,237,434.00 0.10% 2,237,434.00
URC Corporate
Tower !
Robinson
Galleria,
Ortigas Ave.,
Pasig City
6. FAITH
GOKONGWEI
ONG &/
ELIZABETH
GOKONGWEI
Commo
FILIPINO n 575,000 575,000 0.03% 575,000.00
43/F
Robinsons
Equitable
Tower ADB
Ave. cor.,
Poveda St.,
Ortigas Center,
Pasig
6. ROBINA
GOKONGWEI-
PE &/
ELIZABETH
GOKONGWEI
Commo
FILIPINO n 575,000 575,000 0.03% 575,000.00
43/F
Robinsons
Equitable
Tower ADB

107
Ave. cor.,
Poveda St.,
Ortigas Center,
Pasig
6. LISA YU
GOKONGWEI
&/OR
ELIZABETH
GOKONGWEI
Commo
FILIPINO n 575,000 575,000 0.03% 575,000.00
43/F
Robinsons
Equitable
Tower ADB
Ave. cor.,
Poveda St.,
Ortigas Center,
Pasig
6. MARCIA
GOKONGWEI
SY &/OR
ELIZABETH
GOKONGWEI
Commo
FILIPINO n 575,000 575,000 0.03% 575,000.00
43/F
Robinsons
Equitable
Tower ADB
Ave. cor.,
Poveda St.,
Ortigas Center,
Pasig
6.HOPE
GOKONGWEI
TANG &/ OR
ELIZABETH
GOKONGWEI
Commo
FILIPINO n 575,000 575,000 0.03% 575,000.00
43/F
Robinsons
Equitable
Tower ADB
Ave. cor.,
Poveda St.,
Ortigas Center,
Pasig

108
7. QUALITY
INVESTMENTS
& SEC CORP
Commo
FILIPINO n 400,143 400,143.00 0.02% 400,143.00
Suite 1602
Tytana Plaza
Bldg. Oriente
St., Binondo,
Manila
8. FLORA NG
SIU KHENG
Commo
FILIPINO n 379,500 379,500.00 0.02% 379,500.00
#23 Cambridge
Circle, North
Forbes Park,
Makati City
9.CONSOLIDA
TED ROBINA
CAPITAL
CORPORATION
Commo
FILIPINO n 253,000 253,000.00 0.01% 253,000.00
29/F Galleria
Tower, EDSA
Mandaluyong
City
10. GILBERT
U. DU
AND/OR FE
SOCORRO R.
DU
Commo
FILIPINO n 188,485 188,485.00 0.01% 188,485.00
11th St., cor.
29th St.
Nazareth,
Cagayan de
Oro City 9000

SUB-TOTAL AMOUNT OF SUBSCRIBED 2,177,598,531.

CAPITAL 00    

2,177,598,531.
SUB-TOTAL AMOUNT OF PAID-UP CAPITAL 00

RESULTS: Based from the data above, JG SUMMIT HOLDINGS, INC.holds

the highest number of shares owned, amount paid and percentage of

109
ownership; thus they also have the highest control in the management
making them rule over the creation and approval of company policies
and other issues.

Chapter III
RISK AND RETURN

RISK AND RETURN VALUES

Food, Beverage
& Tobacco URC
Industry 2010 2011
Average Beta .97 .91
Unlevered Beta .80
Unlevered Beta
Corrected for Cash .84
Market D/E Ratio 47% 56% 63%
Tax Rate 30% 10.92% 8.76%
Cost of Equity 12.93% 16.02% 15.80%
Cost of Debt 6.96% 6.10% 8.39%
Cost of Capital 10.80% 12.45% 12.91%

Beta
The Average Beta for Food, Beverage & Tobacco Industryof .97 is
greater than the Company Beta of .91 only, which means that there is less risk
in investing in this company. It will take 80% risk to purchase a firm’s stock as
implied by the unlevered beta.

Cost of Equity

110
 In the computation of Cost of Equity, the formula below is used:

Cost of Equity=Risk free rate+ beta(Risk

Premium)

The cost of equity is the appropriate hurdle rate, when returns are
measured to equity investors in the company. Thus, a new store has to earn a
return on equity of more than 15.80% for the year 2011, and 16.02% for the
year 2010 to be considered a good investment. These percentages are higher
than the cost of equity for Food, Beverage & Tobacco Industryof 12.39%.

Cost of Debt

In the computation of Cost of Debt for the Company, a 6.10% and 8.39%
pre-tax cost of debt is computed for 2010 and 2011 respectively. The formula to
determine the cost of debt is as follows:

Cost of Debt= (Interest Payment/ Amount Borrowed) x

(1-Tax Rate)

Cost of Capital

The formula of Cost of Capital = Cost of Equity (Equity Ratio) + Cost

of Debt (Debt Ratio) is used. The cost of capital is the appropriate hurdle rate,
when returns are measured to all investors in the company. Thus, a new store
has to earn a return on all capital invested greater than 12.91% for the year
2011, and 12.45% for the year 2010 to be considered a good investment. These
percentages are higher than the cost of capital for broadcasting media industry
of 10.80%.

111
 Chapter IV
Measuring Investment Returns

LINES OF BUSINESS:

Business Segment Information

For management purposes, the Group’s operating segments are

organized and managed separately according to the nature of the products and
services provided, with each segment representing a strategic business unit
that offers different products and serves different markets. The Group has four
reportable operating segments as follows:

1. The branded consumer food products segment manufactures and

distributes a diverse mix of snack foods, instant coffee products,
instant noodles, chocolates, soft and hard candies, biscuits, tomato-
based products and ready-to-drink beverages. This segment also
includes the packaging division which manufactures BOPP films
primarily used in packaging. In 2006, the Group, through its wholly
owned subsidiary CCPI, began operations of its PET bottle
manufacturing and flexible packaging plants to supply the packaging
requirements in PET bottle and various branded food products. Its
revenues are in their peak during the opening of classes in June and
Christmas season.

2. Theagro-industrial products segment engages in hog and poultry

farming, manufactures and distributes animal and fish feeds and
soya products and manufactures and distributes animal health
products. Its peak season is during summer and before Christmas
season.

112
 3. The commodity food products segment engages in sugar milling
and refining, and flour milling and pasta manufacturing and
marketing. The peak season for sugar is during its crop season,
which normally starts in November and ends in April while flour and
pasta’s peak season is before and during the Christmas season.

4. The corporate business segment engages in bonds and securities

investment and fund sourcing activities.

No operating segments have been aggregated to form the above

reportable operating business segments. Management monitors the operating
results of business segments separately for the purpose of making decisions
about resource allocation and performance assessment. The measure
presented to manage segment performance is the segment operating income
(loss). Segment operating income (loss) is based on the same accounting policies
as consolidated operating income (loss) except that intersegment revenues are
eliminated only at the consolidation level. Group financing (including finance
costs and revenues), market valuation gain and loss, foreign exchange losses,
other revenues and expenses and income taxes are managed on a group basis
and are not allocated to operating segments. Transfer prices between operating
segments are on an arm’s length basis in a manner similar to transactions with
third parties.

113
114
RETURN ON EQUITY

Broadcasting URC
Media Industry 2010 2011
Net Income 16.69% 8,138,249,594 5,007,553,857
Shareholder's 41,838,241,009 42,026,511,494
Equity

115
 Return on Equity 19.45% 11.92%

With the Food, Beverage & Tobacco Industryreflecting an average

ROE of 16.69%, URCdemonstrated an average of 11.92% for 2011 and 19.45%
for 2010, a decrease of 7.53% from year 2010 is observed. At this metric, URC
shows a higher return versus the industry average for year 2010,but lower for
2011.

RETURN ON CAPITAL

Broadcasting URC
  Media Industry 2010 2011
Net Income 8,138,249,594 5,007,553,857
Adjusted Tax 780,999,818 613,894,698
Book Value of
Debt 23,521,059,737 26,347,172,407
Book Value of
Equity 41,838,241,009 42,026,511,494
Cash 4,459,254,984 4,546,881,527
Return on
Capital 11.31%  12.45% 7.32%

With the Food, Beverage & Tobacco Industry reflecting an average

ROC of 11.31%, URC, demonstrated an average of 7.32% for 2011 and 12.45%
for 2010, where a decrease of 5.13% is observed. At this metric, URC shows a
lower return versus the industry average in 2011, but higher for 2010.

116
 Chapter V
CAPITAL STRUCTURE CHOICES

CAPITAL STRUCTURE
201 201
  0 1
DEBT RATIO 36% 39%
EQUITY RATIO 64% 61%

2010 2011

Book Value of Debt 23,521,059,737 26,347,172,407

Book Value of Equity 41,838,241,009 42,026,511,494

Book Value of Assets 65,359,300,746 68,373,683,901

Borrowing Costs

Interest and other finance costs incurred during the construction period
on borrowings used to finance property development are capitalized to the
appropriate asset accounts. Capitalization of borrowing costs commences when
the activities to prepare the asset are in progress, and expenditures and
borrowing costs are being incurred. The capitalization of these borrowing costs
ceases when substantially all the activities necessary to prepare the asset for
sale or its intended use are complete. If the carrying amount of the asset
exceeds its recoverable amount, an impairment loss is recorded. Capitalized
borrowing cost is based on the applicable weighted average borrowing rate.
Borrowing costs which do not qualify for capitalization are expensed as
incurred. Interest expense on loans is recognized using the effective interest
rate method over the term of the loans.

117
118
 Chapter VI
Optimal Capital Structure

FINANCING MIX

To estimate for the best optimal capital structure of, the estimated after-
tax cost of debt and cost of equity were estimated.

% OF DEBT AFTER-TAX % OF EQUITY COST OF WACC

COST OF EQUITY
DEBT
0% 3.00% 100% 7.00% 7.00%
10% 3.00% 90% 7.30% 6.84%
20% 3.10% 80% 7.60% 6.70%
30% 3.30% 70% 8.00% 6.61%
40% 3.50% 60% 8.60% 6.55%
50% 3.70% 50% 9.40% 6.56%
60% 4.10% 40% 10.60% 6.69%
70% 4.50% 30% 12.60% 6.93%
80% 5.10% 20% 16.60% 7.40%
90% 6.00% 10% 16.60% 8.26%
100% 9.60% 0% 28.60% 9.60%

WACC= (.1580)(.61)+(.0839)(.39)
= 12.91%

Given the projected cost of capital at each level of debt and equity, we
can see that the WACC is minimized and the firm value is maximized at 40%
/60% Debt/Equity Mix. Below this mix, the company is not utilizing enough of
the cheaper debt. Above this level, the increased costs of both debt and equity
cause WACC to increase as the company adds more debt to the mix. Thus, the
company having a 39%/61% Debt/Equity Mix with 8.39%/15.80% cost of
debt/ cost of equity in comparison to the projected data , is not considered as
the optimum level that maximizes the firm value.

119
 Chapter VII
Mechanics of Moving to the Optimal

LINES OF BUSINESS PROJECT CASH FLOW TYPE OF FINANCING

CHARACTERISTICS
Branded Consumer Project Cash flows are mixture of
Food Products long-term and short-term
Project Cash flows are mixture of
Agro-industrial long-term and short-term
Products
Commodity Food Project Cash flows are mixture of
Products long-term and short-term
Project Cash flows are mixture of
Corporate Business long-term and short-term
Debts should be in the
form of both short and
long-term.
Debts should be in the
form of both short and
long-term.
Debts should be in the
form of both short and
long-term.
Debts should be in the
form of both short and
long-term.

ASSUMPTIONS:
 Optimal Debt Ratio in 2010 and 2011 is 40%.
COMPARISONS:
 In 2010, Actual debt ratio is 36% is lower than the optimal debt ratio
which is 40% is under levered.
 In 2011, Actual debt ratio is 39% lower than the optimal debt ratio which
is 40% is under levered.
RESULTS:
 The optimal route for maximizing the firm value since under the
framework, the actual debt ratio for 2010 and 2011 are under levered
and the firm is not subject for take over the firm have good projects
where it shows that the ROE of the company which are 11.92% and
19.45% for 2011 and 2010 respectively are lower than the cost of equity
which are 15.80% and 16.02%; as well as the ROC which are 7.32% and
12.45% are lower than the cost of capital which are 12.91% and 12.45%,

120
 the company should consider the desires of their shareholders whether
they want to be compensated for additional dividends or allow the
management to use funds to buy shares back to the company for
reinvestmen
Chapter VIII
Dividend Policy

MEASURES OF DIVIDEND POLICY

Dividends
The Company paid dividends as follows:

For fiscal year 2011, a regular cash dividend of =P1.50 per share and a special
dividend of =P0.40 per share were declared to all stockholders of record as of
May 31, 2011 and paid on June 27, 2011.

For fiscal year 2010, cash dividend of =P0.94 per share was declared to all
stockholders of record as of May 5, 2010 and paid on May 20, 2010.

On January 12, 2011, the Group’s BOD approved the extension of the
Group’s share buy-back program, allotting up to another =P2.5 billion to
reacquire a portion of the Parent Company’s issued and outstanding common
shares. The extension of the share buyback program shall have the same terms
and conditions as the share buyback program approved by the BOD on
November 13, 2007

Dividend Pay-Out

Dividend Payout measures the percentage of earnings that the company

pays in dividends.

YEARS DIVIDENDS NET INCOME DIVIDEND PAY-

OUT
2010 1,946,133,167 8,138,249,594 24%
2011 3,917,043,673 5,007,553,857 78%

Dividend Yield

Dividend Yield measures the return that an investor can make from
dividends alone.

YEARS DIVIDENDS PER STOCK PRICE DIVIDEND YIELD

SHARE
2010 .94 Php42 2.24%
2011 1.50 Php49.60 3.02%

121
 Chapter IX
A Framework for Analyzing Dividends

HOW MUCH COULD GMA NETWORK INC. HAVE PAID AS DIVIDENDS

BETWEEN 2012 AND 2013?

YEAR NET (CAPITAL (1- CHANGE IN (1- FCFE

INCOME EXPENDITUR DEBT WORKING DEBT
E- RATIO) CAPITAL RATIO)
DEPRECIATIO
N)
2010 8,138,249, 2,116,818,709 .64 1,149,112,000 .64 6,048,053,9
594 40
2011 5,007,553, 2,250,430,074 .61 - .61 11,612,859,
857 13,078,799,30 085
0
AVERA 6,572,901,7 2,183,624,392 .625 -5,964,843,650 .625 8,830,456,5
GE 26 10

Based on this analysis, URC could have returned Php 8,830,456,510in cash to
its stockholders, either in the form of cash dividends or equity buybacks during
the period.

HOW MUCH DID GMA NETWORK INC. ACTUALLY PAY IN DIVIDENDS

BETWEEN 2012 AND 2013?

YEAR FCFE DIVIDENDS STOCK DIVIDENDS+

BUYBACKS STOCK BUYBACKS
2010 6,048,053,940 1,946,133,167 0 1,946,133,167
2011 11,612,859,0 3,917,043,673 2,500,000,000 6,41,7043,673
85
AVERAGE 8,830,456,510 2,931,588,420 1,250,000,000 4,181,588,420

On average, URC, returned Php 4,181,588,420in the form of cash dividends

and stock buybacks each year between 2010 and 2011, about Php
4,648,868,090 less each year they could have afforded to payout.

122
Firms Pays out too little dividends
 2010: FCFE of 6,048,053,940 is greater than the dividends of
1,946,133,167.
 2011: FCFE of 11,612,859,085 is greater than the dividends of
3,917,043,673.

Comparisons:
 2010: ROE of 19.45% is greater than the cost of equity of 16.02%
ROC of 12.45% is equal to the cost of capital of 12.45%.
 2011: ROE of 11.92% is lesserthan the cost of equity of 15.80%.
ROC of 7.32% is lesser than the cost of capital of 12.91%.
Results:
Universal Robina Corporation has history of good project choice and good
projects in the future, therefore, give managers the flexibility to keep
cash and set dividends.

123
 Chapter X
Valuation

A. Dividend Discount Model

In its most general form, the value of a stock in the dividend discount
model is the Present Value (PV) of the expected dividends on the stock in
perpetuity.

Value per share of stock= Expected dividends in

period
(1+ Cost of
Equity)
Since dividends in perpetuity cannot be estimated, a stable growth rate is
assumed at some point in the future

Value= E(Dividends)t + Terminal Value

(1+r)n (1+r)n

Where:
Terminal Value = = E(Dividends) n+1
(rn+gn)

124
 r= cost of equity
g= is the expected growth rate in dividends in perpetuity after year n.

Growth in Earnings Per Share

In 2013, GMA Inc. reported a net income of Php2,028,347,000 on a book

value of equity of Php25,922,757,000 at the end of the year. The resulting ROE
for the firm is

ROE = Net Income

BV of Equity
= 5,007,553,857
42,026,511,494
= 11.92%

This is lower than the cost of equity for the firm which is 15.80% and the
average return on equity for broadcasting mass media which is 16.69%. The
company paid out dividends per share of Php1.50 on earnings per share of
P2.43. The resulting retention ratio is

Retention ratio = 1-(dividends per share/earnings per share)

=1-(1.50/2.43)
= 38%

EPS= Net Income/ Outstanding Common Shares

= 5,007,553,857/ 2,061,501,093
= 2.43

If URC maintains existing ROE and Retention Ratio for long term, its expected
growth will be:

Expected Growth= Retention Ratio X ROE

= 38% x 11.92%
= 4.53%

For the next five years, it will be assumed that ROE will improve to 14% while
retention ratio will stay unchanged at 38%. The expected growth rate in
earnings per share is

Expected Growth= 38% X 14%

= 5.32%

VALUING EQUITY USING THE DIVIDEND DISCOUNT MODEL

In the previous computation, it is estimated that the annual growth rate for the
next 5 years is at 5.32%, based upon an estimated ROE of 14% and a retention

125
ratio of 38%. In 2011, the EPS at URC were Php 2.43 and the dividend per
share is Php1.50. Earlier analysis of the risk at URC provided an estimate of .
91 beta , which is used in conjunction with an assumed risk free rate of 4% and
assumed risk premium rate of 12.97% yielded cost of equity of 15.80%.

PV of High Growth Dividends= 1.50x 1.0532 x[1-[(1.0532) 5/ (1.1580)5]

.1580-.0532
= Php5.69

Assuming that at the end of year 5, URC earnings growth will drop to 8% and
stay at the level of perpetuity. In keeping with the assumption of stable growth
it will also be assumed that:

 The beta will decrease marginally to .81, resulting in slightly lower COE
of 14.51% based on the following computations:

COE= Risk free rate + Beta x Risk Premium

= 4% + .81 (16.97%-4%)
= .04 +.81 (.1297)
= 14.51%

 The ROE will drop to the COE of 14.51%, thus preventing excess return
from being earned in perpetuity.
 The pay-out ratio will adjust to reflect the stable growth period rate and
ROE

Stable Period Payout Ratio= 1-(g/ROE)

= 1-(.0532/.1451)
= 63.34%
The expected dividends in year 6 is calculated using the payout ratio

Expected Dividends in Year 6= Expected EPS6 x Stable period payment ratio

= 1.50(1.0532) X .6334
= Php1

The value per share at the end of the 5th year can be estimated using these
inputs

Terminal Value per share=Expected Dividends in year 6/(COE-g)

Terminal Value= 1/ (.1451-.0532)
Terminal Value= Php 10.88

The Present Value of the terminal value is computed using the high growth
period cost of equity

PV of Terminal Value=Terminal Value/ (1+r)n

PV of Terminal Value= 10.88/ (1.1451)5
PV of Terminal Value= Php 5.53

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The total value per share is the sum of this value and the present value of the
expected dividends in high growth period.

Value Per Share= PV of Expected Dividends in High Growth + PV of Terminal

Value
= 5.69 +5.53
= Php 11.22

B. Free Cash Flow to Equity Model

The FCFE is the residual cash flow left over after meeting interest and principal
payments and providing for capital expenditures to maintain existing assets to
create new assets for future growth

Equity Reinvestment Rate= (Capital expenditure-Depreciation+ Δ Working

Capital)(1-ợ)
Net Income
FCFE= Net Income(1-Equity Reinvestment Rate)

Once we estimate the FCFE, the general version model resembles the
dividend discount model, with FCFE replacing dividends in the equation

Value of the stock= PV of FCFE during high growth + Pv of terminal price

Value= E(FCFE)t + Terminal Value

(1+r)n (1+r)n

Where:
Terminal Value = = E(Dividends) n+1
(rn+gn)
r= cost of equity
g= is the expected growth rate in dividends in perpetuity after year n.

To value ABS-CBN, the expected growth net income will be computed first using
the following formulas:

ABS-CBN has a net income of 2,028,347,000 for 2013, interest income before
taxes of 94,438,000 and faced a tax rate of 25%. The book value of equity at
the end of 2013 was 25,922,757,000, of which cash was represented
10,616,855,000.

Non-Cash ROE= Net Income- After Tax Interest on Cash

Book Value of Equity-Cash

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 = (5,007,553,857-4,546,881,527)(1-10.92%))
42,026,511,494-4,546,881,527
= 2.55%

The expected growth in net income can be computed as the product of non-cash
ROE and equity reinvestment rate

Equity Reinvestment Rate = (2,250,450,074)(1-.61)

2,028,347,000
= 17.53 %

Expected Growth in Net Income= Equity Reinvestment Ratex Non-Cash ROE

= 17.53% x 2.55%
=.45%

Based upon the above computations, it is expected that URC to grow at .45% a
year.

The average equity reinvestment rate of 17.53% will be used for the next 5
years. In conjunction, with the non-cash return on equity of 2.55% that was
computed previously, expected growth rate of .45% is also estimated for the
next 5 years.

Assuming that a beta for equity of .81, risk free rate of 4%, and equity risk
premium is 12.97%, the cost of equity will be computed as follows

COE= .04 + .81(.1297)

= 14.51%

Assuming that after year 5, the beta will remain .81, risk free rate of 4% and
equity risk premium will decline to 10%, the resulting cost of equity is

COE in stable growth = 4% + .81 (.10)

= 12.10%

After year 5, it is also be assumed that the growth in net income will drop to
8% and the ROE will rise to 12.10%. The equity reinvestment ratio in stable
growth can then be estimated as follows

Equity Reinvestment ratestable growth= 8%/ 12.10%= 66.12%

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 YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5
NET INCOME 5,030,08 5,052,723,2 5,075,460,4 5,098,300,0 5,121,242,42
7,849 45 99 72 2
EQUITY 17.53% 17.53% 17.53% 17.53% 17.53%
REINVESTMENT
RATE
FCFE 4,148,31 4,166,980,8 4,185,732,2 4,204,568,0 4,223,488,62
3,449 60 74 69 5
PRESENT VALUE 3,700,54 3,315,967,6 2,971,355,4 2,662,557,1 2,385,850,71
AT 12.10% 7,234 15 59 44 5
TOTAL: 15,036,278,1
70

To estimate the terminal value of equity, the free cash flow to equity is first
computed as follows:

FCFE in year 6 = 5,121,242,422 (1.08)(1-.6612)

= 1,873,883,087

The terminal value is then computed using the stable period cost of equity of
12.10%.
Terminal Value of Equity= 1,873,883,087
(.1210-.080)
=45,704,465,540
The current value of equity is the sum of PV of the expected cash flows
computed as follows

PV of FCFE’s 15,036,278,170
Add: PV of terminal value 25,818,474,120
VALUE OF EQUITY IN OPERATING 40,854,752,290
ASSETS
VALUE OF CASH AND MARKETABLE 4,546,881,527
SECURITIES
VALUE OF EQUITY IN FIRM Php45,401,633,817

129