PLDT
Annual Report 2010

Plain-text annual report

PLDT AR 2010 COVER.pdf 1 4/27/11 6:05 PM CONTENTS 2 Comparative Highlights 3 4 Consolidated Financial Performance Highlights A Message from the Chairman 8 A Letter from the President and CEO 12 17 PLDT Group 2010 Milestones: Everyday Game Changers The PLDT Group CSR Report 22 Corporate Governance Report 30 The Board of Directors 34 Key Officers and Advisors 36 Officers 37 Financial Review 84 85 Audit Committee Report Statement of Management’s Responsibility for Consolidated Financial Statements 86 87 Independent Auditors’ Report Consolidated Statements of Financial Position 89 Consolidated Income Statements 90 91 Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity 92 94 Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Contact Information PLDT 10 AR main NEW.indd 2 4/30/11 10:47 PM Comparative Highlights Consolidated Financial Performance Highlights A Message from the Chairman A Letter from the President and CEO PLDT Group 2010 Milestones: Everyday Game Changers The PLDT Group CSR Report Corporate Governance Report The Board of Directors Key Officers and Advisors Officers Financial Review Audit Committee Report Statement of Management’s Responsibility for Consolidated Financial Statements Independent Auditors’ Report Consolidated Statements of Financial Position Consolidated Income Statements Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Contact Information PLDT is the leading telecommunications service provider in the Philippines. Through its three principal business segments—wireless, fixed line, and information and communications technology—PLDT offers the largest and most diversified range of telecommunications services across the Philippines’ most extensive fiber optic backbone and wireless, fixed line, broadband and satellite networks. PLDT is listed on the Philippine Stock Exchange (PSE:TEL) and its American Depositary Shares are listed on the New York Stock Exchange (NYSE:PHI). In 2010, PLDT was one of the largest Philippine-listed companies in terms of market capitalization. SUBSIDIARIES Smart Communications, Inc. and Subsidiaries Smart Broadband, Inc. and Subsidiaries Connectivity Unlimited Resource Enterprise, Inc. Chikka Holdings Limited and Subsidiaries PLDT Communications and Energy Ventures, Inc. (formerly Pilipino Telephone Corporation) ACeS Philippines Cellular Satellite Corporation Mabuhay Satellite Corporation PLDT Clark Telecom, Inc. PLDT Subic Telecom, Inc. PLDT Global Corporation and Subsidiaries PLDT-Philcom, Inc. and Subsidiaries PLDT-Maratel, Inc. Bonifacio Communications Corporation Smart-NTT Multimedia, Inc. ePLDT, Inc. and Subsidiaries SPi Technologies, Inc. and Subsidiaries SPi CRM, Inc. (formerly ePLDT Ventus, Inc.) Infocom Technologies, Inc. BayanTrade, Inc. and Subsidiaries Level Up!, Inc. netGames, Inc. WIRELESS FIXED LINE INFORMATION & COMMUNICATIONS TECHNOLOGY (ICT) MISSION/VISION PLDT will be the preferred full service provider of voice, video and data at the most attractive levels of price, service quality, content and coverage, thereby bringing maximum benefit to the Company’s stakeholders. VALUES Accountability We take full responsibility for our actions and decisions. Integrity We do the right thing. Fairness We uphold justice and fair play. Transparency We disclose accurate and prompt information. ABOUT THE COVER The PLDT 2010 Annual Report’s cover is literally a statement – borne by the rapidly changing and increasingly difficult environment. It may also serve as a battlecry to help strengthen and ensure PLDT’s undisputed the telecommunications industry. leadership in PLDT 10 AR main NEW.indd 1 4/30/11 10:47 PM COMPARATIVE HIGHLIGHTS FINANCIAL INFORMATION (in millions, except cash dividends declared per common share) Revenues Service Revenues Non-Service Revenues Expenses Depreciation and Amortization Compensation and Employee Benefits Repairs and Maintenance Selling and Promotions Professional and Other Contracted Services Cost of Sales Others Net Income Attributable to Equity Holders of PLDT EBITDA Core Income Php124,976 2,967 127,943 Php135,478 2,480 137,958 Php142,873 2,709 145,582 Php145,567 2,426 147,993 Php142,242 2,217 144,459 31,869 18,359 6,886 4,907 3,149 5,625 11,260 Php82,055 Php35,138 Php79,765 Php31,564 28,613 20,470 7,310 5,541 5,588 5,127 11,807 Php84,456 Php36,004 Php83,162 Php35,151 24,709 20,709 8,569 5,695 4,591 5,252 16,261 Php85,786 Php34,635 Php87,741 Php38,079 25,607 23,100 8,631 5,749 4,361 5,432 17,231 Php90,111 Php39,781 Php86,194 Php41,138 26,277 24,070 9,434 5,284 4,853 4,771 14,214 Php88,903 Php40,217 Php83,717 Php42,028 Property, Plant and Equipment Accumulated Depreciation, Impairment and Amortization Carrying Value Capital Expenditures Short and Long-Term Debts Net Debt Equity Attributable to Equity Holders of PLDT Cash Dividends Declared Per Common Share Out of the Earnings for the Year Php347,407 183,217 Php164,190 Php20,674 Php80,154 Php54,957 Php102,521 Php364,972 205,558 Php159,414 Php24,824 Php60,640 Php29,778 Php111,113 Php377,220 216,894 Php160,326 Php25,203 Php73,911 Php 33,557 Php105,531 Php390,692 229,436 Php161,256 Php28,069 Php98,729 Php56,586 Php98,575 Php416,390 253,206 Php163,184 Php28,766 Php89,646 Php52,299 Php97,069 Php140 Php184 Php200 Php218 Php222 24,175,384 1,776,647 264,649 131,490 133,159 2,189,374 30,041,030 1,724,702 579,095 314,804 264,291 2,185,395 35,224,604 1,782,356 995,916 563,333 432,583 2,183,666 41,328,641 1,816,541 1,614,407 1,054,743 559,664 2,183,194 45,636,008 1,822,105 2,021,004 1,377,956 643,048 2,182,391 28,225 5,358 8,711 14,156 30,255 5,415 8,080 16,760 29,904 5,602 7,813 16,489 29,035 5,507 7,947 15,581 28,770 5,165 7,395 16,210 OPERATING INFORMATION Number of Cellular Subscribers Number of Fixed Line Subscribers Number of Broadband Subscribers Wireless Fixed Line Number of Stockholders Number of Employees Wireless Fixed Line ICT 2 COMPARATIVE HIGHLIGHTS PLDT 10 AR main NEW.indd 2 4/30/11 9:38 AM CONSOLIDATED FINANCIAL PERFORMANCE HIGHLIGHTS Service Revenues (in billion pesos) EBITDA (in billion pesos) Core Income (in billion pesos) 125.0 135.5 142.9 145.7 142.2 9.5 9.7 9.4 9.6 39.8 40.3 41.1 39.8 5.9 41.3 77.8 86.1 93.1 94.9 93.0 90 80 70 60 50 40 30 20 10 0 83.2 79.8 87.7 86.2 83.7 41.1 42.0 38.1 35.2 31.6 50 40 30 20 10 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Wireless Fixed Line ICT Subscriber Base (in millions) Cash Flows from Operations (in billion pesos) Market Capitalization (Year-end, in billion pesos) 26.3 32.3 38.0 44.7 49.4 1.8 2.0 1.8 1.6 1.8 1.0 1.7 0.6 1.8 0.3 24.2 30.0 35.2 41.3 45.6 80 70 60 50 40 30 20 10 0 77.4 78.3 74.4 77.3 69.2 599.3 480.5 489.4 477.0 396.5 600 500 400 300 200 100 0 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 Wireless Broadband Fixed Line 150 120 90 60 30 0 50 40 30 20 10 0 PLDT 10 AR main NEW.indd 3 4/30/11 10:47 PM CONSOLIDATED FINANCIAL PERFORMANCE HIGHLIGHTS 3 CHANGE A Message from THE CHAIRMAN The winds of change blew strong in 2010. Filipinos installed a new president through a maiden automated electoral process which delivered nationwide results with surprising speed. The Philippine economy bounced back from a slow 2009, buoyed by the global recovery and continued strong overseas remittances. In telecommunications, the forces of change that had been gathering momentum for years began to impact more palpably the bottomlines of industry players as these continued to reshape the market and disrupt legacy business models. Despite this challenging environment, your Company delivered solid financial results, maximizing its existing businesses whilst innovating for a new future. Group Core Income totaled Php42.0 billion in 2010, a 2% increase from the year before. We continued to set the pace for the country in terms of overall profitability, posting a 1% increase in Reported Income of Php40.2 billion despite a 2% decline in consolidated service revenues to Php142.2 billion. Free cash flow in 2010 remained robust at Php43.7 billion, enabling your Company to declare a 100% cash dividend for the fourth year running. Dividends per share amounted to Php222, while the total dividend payments for 2010 added up to Php41.4 billion – yet again the highest corporate dividend payout in business. Fundamental Shift Despite the Group’s strong performance, the 2010 results indicate that a fundamental market transformation has indeed started. The impact of the evolving industry dynamics that we observed in 2009 became even more pronounced in 2010. Continued strong data revenues combined with a surge in cellular voice to boost service revenues. This was accompanied, however, by marked revenue reduction in cellular text despite a significant increase in volume, and in fixed national and international long distance voice revenues – our traditional bread-and-butter services. Across the legacy voice and texting businesses, usage rose but at lower prices – thus depressing yield per usage some more in the course of the year. This pressure on revenues has come largely from the continued consumer shift to bucket and unlimited pricing plans for voice, short messaging system (SMS) and, increasingly, for broadband internet services as well. It has also come from the rising popularity of online services such as social networking and voice over internet protocol (VoIP) services as mainstream means of communications. Both these trends have tended to “de-couple” traffic from revenues. This profound disconnect becomes even more pronounced as the internet is increasingly fused with telecommunications. In this emerging industry landscape, the competitive arena has become multi-dimensional. Aside from contending with various threats emanating onshore, telecoms carriers must reckon with “over the top” service providers offshore which offer various social media, VoIP and other online services directly to their customers. In our view, these trends indicate that the telecom industry has reached an inflection point. We are bumping against the limits of the old ways of doing business. To put your Company, and indeed the entire industry, on the path of continued growth, we cannot just move forward, doing more of the same. We need to change the game. Pursuing Convergence It is worth pointing out that PLDT had undertaken a strategic redirection before. When growth shifted from landlines to mobile in the late 1990s and early 2000s, PLDT seized the opportunity and invested considerable resources to ensure that Smart Communications, Inc. (Smart), which it had by then acquired, would maintain, if not enhance its industry leadership position. Similarly, we have embraced the new broadband services that are now reshaping the industry. The challenge here is precisely to generate sustainable value in these new businesses for both the industry and its customers. In setting PLDT’s new direction for the next few years, your Board of Directors and Management have taken into account the large, rapid and often unpredictable shifts in technologies, consumer tastes and market conditions that altogether drive the telecoms industry. 4 A MESSAGE FROM THE CHAIRMAN PLDT 10 AR main NEW.indd 4 4/30/11 10:47 PM CHANGE In our view, the way forward is to pursue convergence aggressively and with focus, within the PLDT Group. Over the past fi ve years, many aspects of the organizati on and operati ons of the Group have already been placed on a convergent platf orm. But in the face of the industry’s new challenges, we need to raise convergence to its fullest potenti al. Focus on the Customer This new phase of convergence shall be driven by a single- minded focus on serving our customers in the best possible way, by off ering compelling, high-quality products and services at att racti ve price points. This customer-centric approach will guide us through the many strategic choices that have to be made in the coming years. As the fi rst step in this directi on, we have organized a new business unit within the Group dedicated to serving the Home market, alongside three other Verti cals: the Enterprise, Internati onal, and Individual Consumer markets. The members of these four Verti cals have been drawn from both the fi xed and mobile businesses and are concentrated on serving customers and developing new products for each of these markets. To support our broad convergence initi ati ve, we are undertaking a massive modernizati on program of our mobile and fi xed networks. For the next two years, we have committ ed a total of Php67 billion to expand and upgrade the core, access and backroom support elements of our cellular network to handle the rapidly rising levels of voice, SMS and broadband traffi c at superior service quality levels. This signifi cant capex commitment also supports the conti nuing shift of our fi xed lines to a Next Generati on Network, all-IP platf orm. These new fi xed and mobile networks will be able to support a more diversifi ed and fl exible portf olio of services addressing the diff erent market segments. This includes new internally-developed mobile internet devices such as Smart’s Netphone and PLDT’s TelPad, which open up opportuniti es for the development of new and rich content and service applicati ons. PLDT 10 AR main NEW.indd 5 4/30/11 9:38 AM A MESSAGE FROM THE CHAIRMAN 5 CHANGERS CHANGERS 6 A MESSAGE FROM THE CHAIRMAN PLDT 10 AR main NEW.indd 6 4/30/11 9:39 AM CHANGERS The new networks will also serve as platf orms for what we call new “synergy services “ (such as prepaid electricity services and smart meters) being developed for the Manila Electric Company (Meralco), in which PLDT has invested, as well as for Maynilad Water Services, Inc. (Maynilad), the Metro Pacifi c Tollways Corporati on and the various hospitals of the Metro Pacifi c Investments Corporati on (MPIC). Convergence is thus acquiring a business footprint far beyond the PLDT Group. To support all these initi ati ves, we shall further transform our organizati on to make it more fl exible, responsive and customer-focused. Our people and organizati on will acquire new skills and competencies needed to off er the more complex products and services valued by our customers. Organizati onal structures will have to be made more adaptable to the changing requirements of the business. Our Awards PLDT conti nued to win major awards and recogniti on in 2010. Most grati fying are the awards for corporate governance and transparency and for our commitment to a strong dividend policy given to us by presti gious internati onal magazines like FinanceAsia, Asiamoney and Alpha Southeast Asia. Euromoney also ranked PLDT No. 1 in its listi ng of 18 best- managed Philippine companies and cited your Company for having the “most convincing and coherent strategy” in the Philippines. PLDT and Smart also won 14 awards for its communicati ons and community service programs from the Public Relati ons Society of the Philippines. PLDT’s business process outsourcing (BPO) subsidiary, SPi Global, was named for the sixth straight year to the 2011 Global Outsourcing 100 List by the Internati onal Associati on of Outsourcing Professionals. These awards provide fresh validati on of PLDT’s commitment to excellence and integrity. Our Social Commitment PLDT and Smart played a signifi cant though largely low- key role in the successful conduct of the Philippines’ fi rst nati onwide automated presidenti al electi ons in May 2010. Smart’s mobile phone network carried the major share of the electi on-return reports transmitt ed wirelessly from the polling precincts while PLDT’s high-capacity transmission fi ber opti c network channeled these reports to the three data centers ran by the Commission on Electi ons. Aside from supporti ng the Comelec, PLDT and Smart also partnered with the Parish Pastoral Council for Responsible Voti ng (PPCRV) to conduct a voters’ educati on campaign and to monitor the conduct of the automated polls. In 2010, PLDT, Smart and PLDT–Smart Foundati on, Inc. (PSF) added public health to its roster of social concerns that include educati on, livelihood, community-building, sports and youth development (please see details on pages 17 to 21 of this Annual Report). Working with various partners, Smart has rolled out pioneering tele-health initi ati ves that promise to raise the effi ciencies of public health care, parti cularly in remote areas in the provinces of Tarlac and Misamis Oriental. Together with PLDT, it is now developing an electronic referral system that will be initi ally installed in Iloilo province. We have also broadened our sports program to include football, to which Smart has pledged Php80 million in fi nancial support to the Azkals, our nati onal team, for the next 10 years. In cooperati on with affi liated companies in the Metro Pacifi c Investments Group, PLDT and Smart helped set up the MVP Sports Foundati on to provide sustained support to selected sports where we have a reasonable chance to win medals in internati onal competi ti on. The Group has conti nued to assist in promoti ng disaster preparedness through the Philippine Disaster Recovery Foundati on (PDRF) where I serve as Chairman of the Board of Trustees. Working with diff erent Government agencies, private companies and non-governmental organizati ons, the PDRF has pursued projects to improve the country’s early warning system for typhoons, develop a master plan for fl ood control and to reforest the Marikina Watershed. It has also established working ti es with an alliance of seven fl ood- prone citi es and towns in Metro Manila and Rizal province (Anti polo, Rodriguez, San Mateo, Marikina, Cainta, Pasig, and Quezon City). Outlook The focus of our eff orts in the next few years is to build yet again a new future for PLDT within a rapidly changing and increasingly diffi cult environment. We shall spare no eff ort to maintain and strengthen PLDT’s undisputed leadership in terms of fi nancial performance, innovati on, service quality, customer focus and corporate citi zenship. It is this commitment that gives us opti mism that our results in the longer-term would prove to be bett er. In closing, I wish to thank most sincerely the Board of Directors for their insight and counsel, and our shareholders for their unrelenti ng support. I wish to express my grati tude as well to our Management and Staff for their dedicati on and their excellent performance in the year past. Together, we shall create a bett er tomorrow for PLDT, and for our country. MANUEL V. PANGILINAN Chairman of the Board A MESSAGE FROM THE CHAIRMAN 7 PLDT 10 AR main NEW.indd 7 4/30/11 10:47 PM A Letter from the PRESIDENT AND CEO Dear Fellow Shareholders: I am happy to report that PLDT has turned in another strong year in 2010 despite a very demanding operating environment. Consolidated service revenues for the group declined by 2% to Php142.2 billion in 2010 compared with the year before. Impacting our revenues were the new revenue streams such as broadband contributing to the decrease in our traditional revenue sources, such as international long distance and SMS revenues. In addition, the stronger peso also resulted in reduced service revenues for the year. EBITDA declined by 3% to Php83.7 billion year-on-year as a consequence of lower service revenues and higher cash operating costs that include a significant one-time cost of Php2.2 billion relating to the manpower reduction program that involved close to 1,100 regular employees of both PLDT and Smart. Notwithstanding this, EBITDA margin for 2010 was stable at 59%. Reported net income for 2010 was higher by 1% year-on-year to Php40.2 billion. Core income grew by Php900 million, or 2%, to Php42.0 billion in 2010 compared with the previous year. The higher core income resulted from higher earnings contribution from Meralco, ePLDT/ SPi, and a lower tax charge. Free cash flow for 2010 remained strong at Php43.7 billion, albeit slightly lower than the Php44.4 billion in 2009, with increased capex and net interest payments having offset the higher level of cash from operations of Php2.9 billion. Consistent with our dividend policy, the Board approved the payment of a final dividend for 2010 of Php78 per share, in addition to the interim dividend of Php78 per share paid in September, bringing total regular dividends per share to Php156, or a 70% dividend payout. The Board also approved the payment of a special dividend of Php66 per share, representing another 30% dividend payout, in line with our “look back” approach. This brings total dividend payment payout to 100%, equivalent to a total dividend payout of Php222 per share, the fourth consecutive year that PLDT paid out 100% of its core earnings as dividends. The peso closed at Php43.81 vis-à-vis the U. S. dollar at the end of 2010 compared with Php46.43 in 2009. The average peso- dollar exchange rate for the year was Php45.12 compared with Php47.64 for the previous year, an appreciation of 5%. Broadband: Continuing to Climb Our broadband business continued its growth momentum in 2010 with PLDT maintaining its market leadership in this segment. 8 A LETTER FROM THE PRESIDENT AND CEO S R E G N A H C PLDT’s combined broadband subscriber base crossed the 2 million mark, reflecting a 25% increase from 1.6 million in 2009. At the end of 2010, our DSL subscriber base grew 15% from the end of 2009 to over 643,000, while our wireless subscriber base registered a strong 31% increase year-on-year to nearly 1.4 million. Broadband service revenues for 2010 improved by 16% year- on-year to Php16.9 billion, and now accounts for 12% of consolidated service revenues compared with 9% in the year before. The strong performance of our broadband business and PLDT’s leadership position in this space are expected to continue given the combined strength of our fixed and wireless networks. Wireless: Managing the Transformation Despite the high level of penetration in the cellular market, Smart was able to register a 10% subscribers’ growth for the year. Smart added 4.3 million subscribers in 2010, bringing Smart’s combined subscriber base to 45.6 million. Wireless service revenues declined by 2% to Php93.8 billion in 2010. Excluding the impact of the peso appreciation and our satellite operations which have been sold, wireless service revenues would have been stable year-on-year. Although revenues from SMS at Php41.5 billion were lower by 12% compared with the previous year, revenues from voice and wireless broadband registered strong year-on-year growth of 9% and 17%, respectively. As mentioned last year, the revenue mix of our wireless business has begun to change, with increasing contribution from voice and broadband and declining contribution from text/SMS. With the lower price of voice services, voice traffic has grown dramatically. On the other hand, though volumes of text messages continue to grow, the continuing popularity of bucket plans has resulted in lower yields and consequently, lower text revenues. EBITDA was slightly lower by 1%, or Php500 million, to Php58.9 billion due to softer revenues, offset by lower cash operating expenses such as rental expenses, taxes and licenses, and selling and promotion expenses. As a result of a greater focus on managing costs, EBITDA margin for our wireless business improved to 63% for 2010 despite the lower revenues. Fixed Line: Declining Traditional Revenues Muting Growth Our fixed line business recorded a 5% year-on-year decline in service revenues to Php48.6 billion. With 25% of our fixed line service revenues being dollar-denominated or dollar-linked, the peso’s strength negatively impacted our revenues. Had the peso remained stable, our service revenues would have been higher by Php700 million. PLDT 10 AR main NEW.indd 8 4/30/11 9:39 AM Our data and DSL service revenues of Php21.6 billion in 2010, accounti ng for 45% of our total fi xed line revenues, were stable year-on-year, with non-group data and DSL revenues higher by 11%. However, these improvements were muted by the declines registered by our traditi onal fi xed line revenue sources, namely: local exchange carrier (LEC), nati onal long distance (NLD) and internati onal long distance (ILD). EBITDA for the fi xed line decreased by 10% due to lower revenues and higher cash operati ng expenses, which included Php1.1 billion to cover the costs arising from our manpower reducti on program. The fi xed line business conti nues to give greater focus on serving the needs of the corporate and SME customers, parti cularly their requirements for data connecti vity. ICT: Pushing Forward Service revenues from our ICT business amounted to Php10.7 billion in 2010, now accounti ng for about 7% of total group service revenues. 70% of ICT revenues are denominated in U. S. dollars. Had the peso remained stable, ICT revenues would have been 2% higher year-on-year, instead of being 2% lower. ePLDT’s data center operati ons conti nued to grow strongly with revenues higher by 25% year-on-year. Although our BPO revenues grew 8% in dollar-terms, they improved by only 1% in peso terms. In contrast, our customer relati onship management (CRM) business registered a 15% decline largely due to lower domesti c sales and internati onal revenues, and the impact of the peso appreciati on. Our moves to rati onalize and streamline our ICT business have begun to show results. EBITDA for 2010 grew by 30% to Php1.7 billion compared to the previous year, with margin having improved to 16% compared with 12% in 2009. Prospects for our ICT business, parti cularly our BPO and customer relati onship management (CRM) verti cals, should be able to ride on the sustained dramati c growth of the off shoring-and- outsourcing industry in the Philippines. We remain opti misti c about the potenti als of our reorganized BPO business under SPi Global as it conti nues to show promise given the growth in the number of new clients and expansions of existi ng accounts, as well as greater contributi on expected from the higher margin verti cals such as healthcare and content soluti ons. Meralco: Registering Strong Results As a result of our shares in Meralco held directly by PLDT Communicati ons and Energy Ventures (PCEV, formerly Piltel) and indirectly by PCEV through Beacon Electric Asset Holdings, Inc., PLDT’s fi nancial results refl ect the equity accounti ng of Meralco’s fi nancial results. PLDT 10 AR main NEW.indd 9 4/30/11 10:47 PM A LETTER FROM THE PRESIDENT AND CEO 9 I T ’ S N O T J U S T A B O U T M O V I N G F O R W A R D . I T ’ S N O T J U S T A B O U T M O V I N G F O R W A R D . 10 A LETTER FROM THE PRESIDENT AND CEO PLDT 10 AR main NEW.indd 10 4/30/11 6:58 PM I T ’ S N O T J U S T A B O U T M O V I N G F O R W A R D Following its strong performance in 2009, Meralco sustained its growth momentum as refl ected in its 2010 full year results. Higher energy sales, an increase in customer count, the higher average cost of purchased power and transmission pass-through costs, distributi on rate adjustments, as well as greater operati ng effi ciencies, all contributed to Meralco’s core income of Php12.2 billion in 2010, a 74% improvement year-on-year. The Meralco Board approved a Php2.65 dividend in its February 28, 2011 meeti ng. This brought total dividends for 2010 to Php6.45, or a payout rati o of 60% of core earnings. improvements We are confi dent that the in Meralco’s performance will be sustained, to be complemented by Meralco’s interest to invest in power generati on. In additi on, initi ati ves to identi fy areas of mutual cooperati on conti nue to be pursued by both PLDT and Meralco. Financial Positi on PLDT’s consolidated statement of fi nancial positi on remained solid in 2010. Consolidated gross debt declined to US$2.1 billion, with net debt stable year-on-year at US$1.3 billion. Net debt to EBITDA also remained steady at 0.7 ti mes, staying comfortably below opti mum gearing levels. PLDT’s debt profi le remains healthy with maturiti es well spread out. PLDT conti nued to invest in the business with capital expenditures for 2010 amounti ng to Php28.8 billion, or equivalent to about 20% of our service revenues. Our capex for the year included investments for increased capacity and coverage in support of higher broadband and voice usage, which included the build out of our second network for low-cost voice delivery. We also began investi ng in the modernizati on of our access and core networks to improve operati ng and cost-effi ciencies. Undisputed Market Leadership Our outlook for 2011 and beyond is that we expect competi ti ve intensity in the market to be sustained, and that we are anti cipati ng an explosion in the demand for broadband. We foresee the conti nued popularity of bucket plans and unlimited off erings resulti ng in higher SMS volumes and voice traffi c but with lower yields. Although revenues from SMS and voice would remain a signifi cant porti on of our revenues, we envision growth shift ing to the broadband arena. Unlike SMS and voice to some extent, broadband requires more network resources given the subscriber’s requirement for speed, reliability, greater customer service, and a low tolerance for poor quality of service. Given this, a superior integrated fi xed and wireless network, such as PLDT’s, would be a signifi cant competi ti ve advantage in the delivery of broadband service. Thus, in response to the demands of these changing business dynamics, PLDT will forti fy its positi on of being the undisputed market leader in terms of network quality, capacity and coverage, but without losing sight of maintaining margins and profi tability. through proacti ve customer management such as enhanced customer service and retenti on initi ati ves. We will also develop and implement a clear and segmented device strategy. In additi on, we will reinforce our number one positi on in network quality. In this connecti on, we are planning to invest Php67 billion for capital expenditures in 2011 and 2012. Included in these investments, among others, are projects that will modernize and upgrade our wireless networks that would result in further cost effi ciencies; projects that would expand our capacity in order to serve a greater number of subscribers and off er a more varied suite of services; projects that would strengthen our network by providing additi onal resiliency and redundancy; and investments in business intelligence, and in Operati ng and Business Support Systems projects. This higher level of capital expenditure is not being pursued to prepare ourselves to do batt le in the unlimited arena, which we think is unsustainable. Rather, our investments will reinforce our positi on of strength and establish our clear lead vis-à-vis competi ti on, especially in broadband. As a result of the higher level of investments planned for 2011 and 2012, we expect higher depreciati on and interest charges to reduce our core income to Php40.5 billion in each of these years. However, we expect to return to our growth path by 2013, stronger, and bett er positi oned to harness the opportuniti es in the new batt lefi eld of broadband, even as we manage our traditi onal businesses of SMS and ILD. We also foresee greater contributi on from ICT and Meralco, as well as possibly registering modest gains from cooperati on initi ati ves with companies in the broader group such as investments of our Benefi cial Trust Fund in media, and those of MPIC in roads, tollways, the water uti lity, and the hospitals. 2011 and Beyond: The Journey Ahead In my message to you last year, I compared 2010 to the point in ti me where a mountain climber reaches base camp in preparati on for scaling greater heights. 2011 will not be any easier for PLDT. Though sti ll at base camp, we are now intensifying the preparati ons as the ti me to start the climb approaches. Like the mountain climber, we need to be strong, lean, and clear about where we want to go. Armed with a strong and integrated fi xed and wireless network, with conti nued focus on streamlining costs to ensure cost-effi cient operati ons, and with a clear path to leadership with focus on the customer, we will be in the best positi on for the upward journey. On behalf of your team at PLDT, let me assure you that we are committ ed to bringing your Company to greater heights, and that we will conti nue to do our best to overcome the challenges we will encounter on this arduous journey. This will involve adjustments in our operati onal model, which include adopti ng an integrated approach to the customer via the delivery of a superior and integrated customer experience NAPOLEON L. NAZARENO President and CEO A LETTER FROM THE PRESIDENT AND CEO 11 PLDT 10 AR main NEW.indd 11 4/30/11 11:52 AM PLDT GROUP 2010 MILESTONES EVERYDAY GAME CHANGERS its business transformation program in Pursuing 2010 under an increasingly price-competitive and market-share sensitive environment, PLDT submitted a satisfactory year-end performance report card strongly indicating that in order to survive and prosper, it must be prepared to make changes. The need for change is quite apparent in the Company’s revenue mix for the year that showed the ongoing transition of revenue streams – with the growth of new revenue streams replacing the lower traditional sources. Combined fixed and wireless broadband and internet revenues increased. Cellular voice revenues likewise increased; and so did revenues from fixed data and other network services to third parties. On the other hand, cellular text revenues dipped while national long distance revenues and fixed line international long distance revenues also declined. To achieve its target revenues for the year, PLDT posted operational milestones in its wireless, fixed line and ICT business highlighted by the launch of innovative products and services all aimed at serving customers in the best possible way. Photos on this spread and the next pages depict some highlights of PLDT’s accomplishments in 2010. 12 PLDT GROUP 2010 MILESTONES PLDT 10 AR main NEW.indd 12 4/30/11 9:39 AM PLDT Telpad bundles a landline service with a touch-screen tablet and high-speed myDSL facility all under one service plan. PLDT Telepresence is a collaborative high-definition video and audio communication and immersive room solution for a face-to-face, in-person conferencing experience that offers enhanced business productivity and enables quick-to-market opportunities, with rapid decision-making and reduced travel costs. The reorganized BPO business under SPi Global continues to show promise given the growth in the number of new clients and expansion of existing accounts. Smart unveiled the Meralco SIM and Meralco Mobile services that allow Talk ‘N Text subscribers to receive Meralco information and service updates with just a few clicks on their mobile phones any time, anywhere. PLDT GROUP 2010 MILESTONES 13 PLDT 10 AR main NEW.indd 13 4/30/11 10:47 PM Bossing Ako pays tribute to small and medium entrepreneurs who continuously support and choose PLDT as their partner in technology. The 3-day Ultra Broadband Blowout was a hit with customers as it offered big discounts on laptops or free subscription periods on PLDT myDSL, among others, with all applications processed on the same day. Smart Bro started commercially offering WiMAX in strategic areas in the country to complement Smart’s portfolio of broadband access technologies and to cover unserved areas and provide internet connectivity to places that were once inaccessible. PLDT Unified Communications (UNO) promises to change the game of communications – seamless convergence of voice and data applications for improved organizational responsiveness supporting real-time business processes and operations. PLDT UNO manages VoIP applications across a centrally- converged network, allowing traditional call processing features and business communication applications to run on the IP network. 14 PLDT GROUP 2010 MILESTONES PLDT 10 AR main NEW.indd 14 4/30/11 10:47 PM PLDT’s KaAsenso program has created a community of Mini Gosyantes to uplift the entrepreneurs’ standard of living and building the Philippine economy one micro business at a time by offering various products and services customized for their business and provide supplementary income for their families. PLDT myDSL Biz Macbook Bundle promo caters to the high-end SME market that wish to avail of fast broadband internet connection together with reliable Apple desktops and laptops. Open to all Smart Buddy and Talk ‘N Text subscribers nationwide, Tutok Sabay Txt (TST), Smart’s biggest ever text promo, in cooperation with ABC Development Corporation (TV5) gave away as much as Php5 million to weekly winners like the lucky 19-year-old Gina Mariano (center) of Libmanan, Camarines Sur. PLDT AppFarm offers best-of-breed cloud computing solutions to the enterprise market with a rich online platform where users can securely log on to use a whole host of helpful applications. It enables businesses to run the enterprise applications they need, minus the costly IT investments. ePLDT’s data center operations continued to grow strongly with revenues higher by 25%. PLDT GROUP 2010 MILESTONES 15 PLDT 10 AR main NEW.indd 15 4/30/11 9:39 AM PLDT Negosyo Boost Connect, a new variant of the Negosyo Boost family, aims to address the demand of small and medium enterprises (SMEs) for business-grade DSL and voice bundle with branches and multi ple outlets. PLDT’s Shops.Work Unplugged (SWUP) Card All-Access off ering extended its applicati on beyond just card payment processing to include ti cketi ng, cashiering and loyalty applicati ons targeti ng the transport and retail industry. MasterCard Worldwide and Smart subsidiary Smart Hub Inc., announced a joint venture to accelerate delivery of mobile payment soluti ons that will enable fi nancial insti tuti ons and cellular phone networks around the world to deliver end-to-end mobile p a y m e nt s e r v i c e s t h r o u g h t h e MasterCard worldwide network. PLDT Telerewards aims to help win the loyalty of subscribers and gain new ones by rewarding each customer depending on their usage, payment habit, and tenure. Through its numerous innovati ons, Smart helps “change the game” or make life “extraordinary” for millions of Filipinos as shown in one of its corporate adverti sements. 16 PLDT GROUP 2010 MILESTONES PLDT 10 AR main NEW.indd 16 4/30/11 10:48 PM THE PLDT GROUP CSR REPORT In 2010, the PLDT Group played a key role in several pioneering initiatives that had a tremendous impact not only in Filipinos’ lives, but also in helping push the country towards technological advancement. Collaborations likewise contributed to the further expansion of community service initiatives. The country’s first nationwide automated Presidential Elections was successfully held in 2010. PLDT and Smart’s telecommunications networks supported the electronic and wireless transmission of ballots, enabling fast and efficient canvassing of votes across the country. PLDT-Smart Foundation (PSF) and Smart also partnered with the Parish Pastoral Council for Responsible Voting (PPCRV) and donated Php1 million to help fund “Botong-Boto Ka Na Ba?”, a Voters’ Education campaign that aimed to educate voters and poll watchers on automated election. HEALTH Health became a major service initiative in 2010 for the PLDT Group, even as new programs under Education, Environment, Livelihood, and Sports continued to roll out for the rest of the year. PLDT Group CSR Statement At the PLDT Group of Companies, Corporate Social Responsibility (CSR) is grounded in our belief that an integral part of our business is the imperative to help improve the overall well-being of the Filipino people. To achieve this goal, we will address proactively the interests of our various stakeholders. We believe that as we seek to enhance value for our shareholders, we have a responsibility to: • Provide quality products and services for our customers • Develop our employees By harnessing its wireless technologies and extensive network that reached even remote communities, Filipinos in far-flung areas had access to doctors and specialists – some for the first time in their lives – via cellphones and the internet. • Work with our suppliers and business partners in an ethical and mutually beneficial manner In 2010, the healthcare sector witnessed one of the first remote wireless medical consultations in the countryside, an innovation pioneered by Smart together with private and public sector partners. • • Care for the environment Improve our communities Several programs were rolled out: the Mobile Surgery Services Project with the Provincial Government of Misamis Oriental; and the Amputee Screening via CEllphone NeTworking (ASCENT) with the Physicians for Peace (PfP) volunteers. Developed in support of PfP-Philippines’ Walking Free Program, ASCENT is a mobile and web application provided by Smart to help improve amputee screening in the country to benefit patients, health workers and doctors. Under the Mobile Surgery Services Project, Smart is providing free one-year internet connectivity to all seven provincial hospitals of Misamis Oriental. Pilot hospitals include those in Gingoog, Talisayan, Balingasag, and Manticao towns. PLDT’s “PiLa na, may Doktor Tayo” medical and dental missions, meanwhile, provided free consultations, medicines, and dental services to victims of calamities and mishaps, to impoverished constituents of various municipalities, and to indigenous minorities. In 2010, PLDT served 1,534 patients in Taytay, Rizal and Barobaybay, Northern Samar. Since 2007, the Company has served 16,009 patients. With the Philippine Health Insurance Corporation (PhilHealth) serving as Filipinos’ basic health insurance, Smart supported its efforts to boost membership especially among the informal sector by providing some 200 Smart Bro Plug-It units to PhilHealth’s registration centers for the nationwide PhilHealth Registration Day on October 2, 2010. Aside from providing internet connectivity to PhilHealth, Smart is also helping the agency enhance its We are conscious about the proper management of our finite and fragile environment and are taking tangible measures to lessen our carbon footprint. We will continue to invest in technical business solutions that both cut our costs and help save the environment. By succeeding as a corporation, we create wider opportunities for employment, entrepreneurship and the greater well- being of all Filipinos. We believe that as we help raise the overall economic welfare of the Filipino, we expand the market of our products and services. The creed of our Company’s business strategy is the desire to Change Lives for the better. THE PLDT GROUP CSR REPORT 17 PLDT 10 AR main NEW.indd 17 4/30/11 10:48 PM PLDT and Smart supported the wireless transmission of ballots during the country’s first nationwide automated presidential elections successfully held in May 2010. Teachers actively partici- pate in the “Live and Loud” concert, Gabay Guro’s tribute to the country’s mentors. collection efficiency via the PhilHealth Remittance-by-Air service. Exclusive to Smart subscribers, this allows PhilHealth members to pay their monthly contributions via SMS. PLDT, Smart, and ePLDT likewise continued to support the Philippine National Red Cross’ (PNRC) nationwide blood donation activities to help ensure adequate blood supply for patients in need of blood transfusions. Smart was cited by the Philippine Red Cross (PRC) Mindanao Regional Blood Center as the “Bloodiest Telecommunications Company” for its efforts to promote voluntary blood donation. PLDT continued its partnership with PNRC and Philippine Children’s Medical Center (PCMC) by conducting blood donation activities for the hospital’s cancer patients mostly in Manila. PCMC has always been the first to respond to PLDT and Smart employees’ and their immediate families’ urgent requests for blood donations. ENVIRONMENT The PLDT Group’s environment-related initiatives in 2010 focused on reforestation efforts and disaster preparedness. Over 451,000 seedlings and mangrove propagules were planted in about 23 municipalities by employees, partner schools, local governments and civic organizations under PLDT’s TELEpuno project, Smart and NTT Docomo’s joint SMARTrees program, and PSF, ePLDT, Makati Medical Center, and partner communities’ tree planting activities. PLDT’s TELEpuno is a five-year program in partnership with Department of Environment and Natural Resources (DENR), Philippine Business for Social Progress (PBSP), the Multi-sectoral Watershed Management Council, Inc. and the local governments of Real and Infanta, Quezon. Under the program, 80,000 seedlings will be planted in the 80-hectare Real-Infanta Watershed Forest Reserve. Some 16,000 were planted in 2010. To date, 32,000 seedlings have been planted. PSF supported the Philippine Disaster Recovery Foundation’s (PDRF) Marikina Watershed Initiative program, which aims to reforest the watershed to prevent massive flooding in Metro Manila. PSF supported the project with Jollibee Foundation, Accenture, DB Schenker Philippines, and Millward Brown, among others. 18 THE PLDT GROUP CSR REPORT In 2010, Smart together with private and public sector partners, facilitated one of the first remote wireless medical consultations in the countryside – allowing a 12-year-old patient diagnosed at the Misamis Oriental Provincial Hospital-Balingasag with meningo encephalocele to consult a neurosurgeon assigned at the Provincial Health Office in Cagayan de Oro City. PLDT and the Philippine Eagle Foundation, Inc. (PEF) signed an agreement to restore the denuded lands within the Arakan Valley Conservation Area into viable habitats for the Philippine Eagle and other wildlife. PLDT is the first private institution to help PEF reforest Arakan Valley in North Cotabato, also home to the Manobo, Matigsalog, and Bagobo tribes. PLDT adopted one hectare of the forest corridor and planted 1,000 seedlings. PLDT received a plaque of appreciation from PEF for its role in protecting the forest during the 12th Philippine Eagle Week in Davao City. PLDT employee-volunteers planted 2,700 seedlings in Tabunan, Cebu City, in 2010 under the Cebu Hillylands Reforestation Caravan in partnership with the PBSP. To date, a total of 74,017 trees have been planted in 14 municipalities under the program. PSF likewise donated to ABS-CBN Foundation’s “Kapit Bisig para sa Ilog Pasig” project and conducted disaster relief missions in Isabela for victims of typhoon Juan. PLDT’s other environment programs include the PLDT-Motolite- PBSP Balik Baterya Program which aims to protect the environment through proper disposal and recycling of used lead acid batteries (ULABs). The ULABs donated by PLDT were bought by Oriental and Motolite Marketing Corp. at a higher price. The proceeds were used to fund the establishment of 22 Learning Resource Centers (LRCs) or mini-libraries in eight remote towns in Cebu, six in Bohol, three in Iloilo, and five in Samar. In 2010, seven LRCs were set up in Cebu. The remaining 15 LRCs will be turned over in 2011. PLDT remains to be the program’s biggest donor. PLDT also supported the Highway Clean-up Drive for Tirona Highway in Bacoor, Cavite in partnership with the municipality and the Municipal Environment and Natural Resources Office (MENRO); the Earth Day Celebration in partnership with Philippine Business for the Environment (PBE); and the Run for Pasig River 10.10.10 which raised funds for the Pasig River clean up and also made it to the Guinness world record. PLDT likewise donated a potable water system for the community in Sitio Enamong in Barangay Datu Ladayon, Arakan Valley, North Cotabato. The Company’s employee-volunteers helped in the installation of the water system. PLDT 10 AR main NEW.indd 18 4/30/11 10:48 PM For its part, Smart sponsored the development of the 10 Million Movement campaign website, which was launched as part of the Earth Day 2010 celebration led by the Earth Day Network Philippines, Inc. and the DENR. The website, accessible via www.10mm.ph is part of a campaign to gather 10 million commitments for the environment from all over the country. It is designed to encourage every Filipino to commit to an environment-friendly act, which can be as simple as walking to the nearby grocery instead of riding the car or taking the tricycle. Smart, in partnership with the Makati Medical Center, installed the country’s first hybrid wind-solar power system that uses vertical- axis wind turbines in 2010. To date, Smart has more than 100 wind- and solar-powered cell sites nationwide. Smart also hosted Global System Mobile (GSM) Association’s 7th Green Power for Mobile Working Group meeting. The Green Power for Mobile Working Group gathered some 40 representatives from 10 mobile network operators around the world, two tower companies and some 10 vendors to discuss innovations and developments in the use of alternative energy sources in the global telecom industry. In 2010, Smart focused on developing partnerships and mobile solutions to help reduce disaster risks, develop a flood forecasting system, and respond more quickly to calamities. PBSP, Smart, and the disaster coordinating councils of the Province launched a World Bank-funded project, of Southern Leyte “Strengthening Disaster Preparedness of Southern Leyte through SMS Technology”, which won a US$200,000 grant during the 2009 Development Marketplace Competition organized by the World Bank. Under the two-year project, PBSP and Smart will set up a system that will enable an effective exchange of information between pilot communities in 10 towns in Southern Leyte that have been identified as vulnerable to natural calamities and the Southern Leyte Provincial Disaster Management Office (PDMO). In collaboration with the country’s two other major telcos, Smart strengthened its partnership with the government weather bureau, the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA). The initiative is part of a program of the PDRF to help upgrade the country’s flood forecasting system. The installation of PAGASA flood forecasting and weather instruments in strategic cell sites is expected to help PAGASA issue flood forecasts and warnings more accurately. Lastly, Smart also partnered with the Ateneo de Davao University (AdDU) to develop a weather monitoring and disaster alert system for Davao City; the Davao City Government for its world-class Public Safety Command Center; PAGASA for the set up of a high-grade automatic rain gauge in a cell site in Montalban, Rizal and the training of seven schools and six barangays in Antipolo, Rizal and the members of the Provincial Disaster Coordinating Council; the Typhoon Committee Foundation, Inc. (TCFI) and PAGASA for the first Rain Watchers Awards, a contest for all public elementary and high schools that are participating in Smart’s Project Rain Gauge for being the most creative and consistent in terms of collecting and reporting rainfall data. The Monkayo National High School in Monkayo, Compostela Valley won first prize, followed by San Miguel National High School (SMNHS) in Bulacan then Aurora National Science High School (ANSHS) in Baler, Aurora. EDUCATION PSF’s programs for education benefited more students in 2010. Its numerous programs include Gabay Guro, MVP Academic Excellence Awards for employees’ qualified children, PSF Employees Educational Grant, and the PSF-Philippine National Police (PNP) Educational Grant Assistance Program. Gabay Guro has one dream: to improve education in the country in a sustainable way. And in pursuing that dream, Gabay Guro harnessed innovative partnerships and the creative use of the PLDT Group’s resources to uplift the lives of the teachers through its six core pillars: (1) educational grants, (2) training, (3) teachers’ tribute cards, (4) livelihood, (5) broadbanding and computerization of public schools, and (6) housing. Based on the idea of a multiplier effect, where one good and well- motivated teacher can influence hundreds or even thousands of students, Gabay Guro has benefitted teachers and would-be teachers since 2007. From only 15 scholars in 2007, it now has 268 scholars and 23 partner-schools nationwide for school year 2010-2011. Last year, from the initial batch of scholars from the Philippine Normal University, five have graduated cum laude and one has received a leadership service award. Under training, teachers from public schools were given AmSpeak instruction by our SPi Technologies trainors to help them become better English speakers. Teachers also learned out-of-the-box teaching methods and e-Learning modules to help them teach better. PLDT donated a potable water system to residents of Arakan Valley in North Cotabato. Smart sponsored the development of the 10 Million Movement campaign website which was launched as part of the 2010 Earth Day celebration. THE PLDT GROUP CSR REPORT 19 PLDT 10 AR main NEW.indd 19 4/30/11 9:39 AM A total of 794 students from 80 schools all over the country completed the Infoteach Computer Advanced Course. PSF extended support to the Angono Regional Pilot School for the Arts by helping renovate its music room and donating musical instruments. In September 2010, Gabay Guro, the Government of Daet headed by City Mayor Tito Sarion, and Education Secretary Brother Armin A. Luistro, FSC, inked an agreement for a pioneering housing project for teachers. PSF likewise partnered with PDRF for the installation of container van schools in Guitnang Bayan Elementary School and Gov. Isidro Rodriguez Memorial High School. The Foundation also extended support to the Angono Regional Pilot School for the Arts by helping renovate its music room and donating musical instruments; to the Philippine Red Cross-Rizal Chapter for the orphans under its care; to Pastolan Elementary School, where students from the Aeta indigenous tribe were given notebooks; to the Passerelles Numeriques for a one-year DSL connection and cash package; and to the local government unit in Iloilo for the use of 10 personal computers. PLDT’s Infoteach Outreach Program, in partnership with Netopia (Digital Paradise Inc.), Department of Education (DepEd) and Microsoft, aims to empower public high school students and public school teachers by upgrading their cyber-technology skills through internet use and basic IT education. In 2010, graduates of the Infoteach Computer Advanced Course totaled 794, spread out from 80 schools in NCR, Luzon, Visayas and Mindanao. To date, 7,157 public school students and teachers have benefitted from the PLDT Infoteach Outreach Program. The PLDT myDSL Broadband Quiz was also held during which student-graduates of the PLDT Infoteach Outreach Program from the National Capital Region, Luzon, Visayas and Mindanao competed for cyber supremacy, significant rewards and immense pride for their respective schools. PLDT also partnered with the University of the Philippines Open University (UPOU), Online Teachers’ Development Program. PLDT will enroll eight qualified top teacher graduates of the PLDT Infoteach Outreach Program in a computer science course. and Commission on Information and Communications Technology (CICT) to connect all public schools to the internet. Smart launched CommuniTeach with Silid Aralan, Inc. and the PBSP. CommuniTeach actively involves communities in helping Grades 1 to 3 public school kids identified to be the lowest performers in their respective batches to improve their academic performance via after-school learning sessions. CommuniTeach also assists in other areas through funding, school supplies donation, classroom cleaning, and even cooking and serving snacks for the beneficiaries. Smart highlighted its co-branding, co-financing model for its flagship Smart Schools Program (SSP) and CommuniTeach via a partnership with Deutsche Regis Partners, Inc. and the PBSP. Deutsche Regis funded the provision of internet access, content and training for 10 SSP partner schools, and the inclusion of five public elementary schools in CommuniTeach. SSP promotes the use of ICT in basic education through partnerships with public schools officials, its teachers, and parents-teachers-community associations. Smart also tied up with the Naga City Government, the Ateneo de Naga University, PBSP, DepEd Naga City, Triangulo Elementary School and Pacol Elementary School to implement CommuniTeach in the two schools. Smart likewise partnered with SM Investments Corporation, which donated Php1 million, and the PBSP to enable nine public high schools to join the SSP. Through its “Doon Po Sa Amin” (DPSA) Project, Smart launched two new online content generation contests. “Ano ang Kwento Mo?” (What’s your story?) asks high school students nationwide to create video blogs that feature a distinct characteristic, place, or culture in their communities. The DPSA Quest engages teacher-student teams from SSP partner elementary schools and Online Associates to research unique stories about their respective communities and narrate them at their blog sites. Continuing its thrust of sharing state-of-the-art technologies to the academe, Smart launched its Worldwide Interoperability for Microwave Access (WiMAX) for Public Schools program with a simple Switch-On ceremony at the Dr. Arcadio Santos National High School (DASNHS) in Parañaque City. The event highlighted Smart’s deployment of WiMAX in support of the goal of the DepEd For its partner colleges and universities, Smart conducted the 6th SWEEP Innovation and Excellence Awards, its annual search for the most innovative wireless applications developed by 38 partner schools under the Smart Wireless Engineering Education Program (SWEEP). Holy Name University won the grand prize for its wireless application that enables residents of Calape, Bohol to monitor 20 THE PLDT GROUP CSR REPORT PLDT 10 AR main NEW.indd 20 4/30/11 10:48 PM the condition of their water pipes and detect leakages. Other winners included Bulacan State University’s Wilmir Nicanor for the PalaECEpan quiz bee and Surigao del Sur’s Barobo National High School’s entry “Sumbada” for the 2nd DPSA Learning Challenge. Smart also conducted On-the-Job training to partner schools Systems Plus College Foundation, Wesleyan University-Philippines, and the University of Baguio. Under the Smart Mentors Program, 16 public school teachers earned their Master of Arts degree in Instructional Media and Design at the University of Makati. Smart likewise sponsored 32 officials from SWEEP and the Application Developers’ Intro School elective program at the 3rd Leadership Conference Series, which featured former U.S. Vice President and environmental advocate Al Gore. Other activities included: the participation of over 500 employee volunteers in DepEd’s Brigada Eskwela Plus by doing repairs and maintenance work in at least 16 public schools across the country before the school opening; partnership with DepEd for a poetry and essay-writing contest held during the Teachers Month; Treebute, a tree-planting activity supporting the PDRF’s Marikina Watershed Initiative, where 1,250 trees were planted in Sitio San Joseph, Barangay San Jose in Antipolo City; Project Connect: Linking Environment, Education and Technology, a project with World Wide Fund for Nature-Philippines which aims to educate students on energy efficiency and conservation and renewable energy technologies; and a Blog Site contest with Sun Star Daily for Cebu’s campus publications during the Cebu Press Freedom Week. Benedicto College Gazette, the Cebu Normal University’s “Ang Suga” and University of San Carlos’ “The Carolinian” were given awards. The SPi Technologies Foundation, Inc., through the SPi Global’s Scholarship Program, has 16 scholars since 2008. The program assists qualified students to complete their college education and gain employment from SPi after graduating. The first batch of scholars from Silliman University in Dumaguete, Negros Oriental is expected to join the SPi office in the province. SPi Foundation also conducted the Successful Job Applicant workshop to 270 students in partnership with aSPire University, SPi Global’s leadership and management training vehicle. Adobe Acrobat and Photoshop workshops were also conducted for students in the Laguna and Batangas areas. The Company continuously hires Adobe-trained specialists to support the growing volume of client requirements needing Adobe skills. COMMUNITY DEVELOPMENT AND LIVELIHOOD PSF, PLDT, and Smart turned over a Php2.5-million check to Gawad Kalinga (GK) Foundation for the building of homes in adopted GK villages in Southern Leyte and Sulu. PSF, PLDT, and Smart have adopted eight PLDT-Smart Amazing GK Villages nationwide. SPi Foundation’s SPi Springer Sunshine GK Village at St. Mary’s Compound, Moonwalk, Parañaque City now has 50 families. In late 2010, two of SPi’s major clients – Springer and TNT, have committed to build another 50 houses for a total of 100. The Foundation will likewise look at another GK program in Negros Oriental where SPi Global is currently expanding its operations. In 2010, SPi Foundation’s Employee Volunteer Program spent 12,000 hours for various programs in the Philippines, India, Vietnam and the U.S. These programs include the house builds, medical missions, feeding programs, computer training lessons, business training programs, and participation in partner organizations’ CSR programs such as Operation Smile, Gabay Guro, Dream in A Shoebox, Health Run for a Cause, Walk the World, Cribs Philippines, and Smart Gilas, among others. For livelihood, PLDT established seedling nurseries in Quezon in line with the five-year tree planting program in the area. Other initiatives include: ePLDT’s Christmas donation to Food for the Hungry Philippines; iPlus/Infocom’s CSO Modelo fundraiser for children cancer patients at the Philippine General Hospital; and BayanTrade’s support to the Black Pencil Movement. SPORTS AND ATHLETIC DEVELOPMENT Advocacy for sports came in the form of donation to three major institutions, namely: the Samahang Basketbol ng Pilipinas, Amateur Boxing Association of the Philippines, and the Philippine Taekwondo Association. Smart conducted the 6th SWEEP Innovation and Excellence Awards, its annual search for the most innovative wireless applications developed by 38 partner schools under SWEEP. The Company continued to support sports by sponsoring events and giving donations to sports organizations like the Amateur Boxing Association of the Philippines. THE PLDT GROUP CSR REPORT 21 PLDT 10 AR main NEW.indd 21 4/30/11 10:48 PM CORPORATE GOVERNANCE REPORT PLDT’s Board of Directors ensures principled business conduct in pursuit of promoting and protecting the interest of the Company, its stockholders, and all other stakeholders. PLDT recognizes that corporate governance is a key element in its strategy to accomplish the Company’s mission, create value for its shareholders and stakeholders, and sustain its long-term viability. The Company’s approach is to continuously improve its governance structures and processes on three levels: (1) compliance with the standards and requirements of laws and regulatory issuances and guidelines; (2) benchmarking against recognized international best practices and monitoring developments in corporate governance; and (3) fostering an ethical corporate culture guided by the principles of accountability, integrity, fairness, and transparency. PLDT conforms with the corporate governance laws, issuances, guidelines and standards of three jurisdictions. PLDT is subject to Philippine corporate governance laws, issuances, guidelines and standards as established by the Philippine Securities and Exchange Commission (Philippine SEC) and the PSE. The Company is also subject to the standards set forth in U.S. Securities Exchange Act, the Sarbanes-Oxley Act of 2002 and the NYSE Listed Company Manual. As an investee company of various Philippine and other affiliates of First Pacific Company Limited (First Pacific), PLDT likewise endeavours to conform with certain corporate governance guidelines of First Pacific which are based on the rules of the Hong Kong Stock Exchange in which First Pacific’s shares are listed. The demanding regulatory regime under which PLDT operates has provided the impetus for PLDT to impose upon itself high standards of corporate governance and business conduct. Our GOvernance StructureS Board of Directors It is the Board of Directors which has the primary responsibility for ensuring principled business conduct in pursuit of promoting 22 CORPORATE GOVERNANCE REPORT and protecting the interest of the Company, its stockholders, and all other stakeholders. The Board of Directors functions within the scope of its powers and authorities provided in applicable laws and the Company’s By-Laws, and conducts itself in accordance with Company policies such as the PLDT Manual on Corporate Governance (CG Manual) and the PLDT Code of Business Conduct and Ethics (Code of Ethics). The PLDT Board of Directors is composed of 13 members whose diverse skills and experiences serve to create the appropriate balance and mix of expertise matched by a commitment to the highest standards of corporate governance and business conduct. This commitment is manifested in the Board’s independence from Management, as well as its undertaking to observe and adopt, whenever applicable, proven best practices, and to continuously improve the Board’s and individual Directors’ performance. The positions of Chairman and Chief Executive Officer (CEO) are held separately by two individuals, Mr. Manuel V. Pangilinan and Mr. Napoleon L. Nazareno, respectively. Each position has been given distinct and separate duties and responsibilities under PLDT’s By-Laws and CG Manual. Independent oversight by the PLDT Board over Management is enhanced through PLDT’s independent directors and non- executive Directors. PLDT has four duly-screened and qualified independent directors, namely: Rev. Fr. Bienvenido F. Nebres, S.J., Oscar S. Reyes1, Mr. Pedro E. Roxas, and Mr. Alfred V. Ty. The number of PLDT’s independent directors surpasses that required under local regulations of at least two independent directors or 20% of the entire board membership, whichever is lower. With the 1 Mr. Reyes’ status as an independent director ceased as of August 3, 2010 due to his appointment as Chief Operating Officer of Meralco, an affiliate and investee company of the PLDT Group. PLDT 10 AR main NEW.indd 22 4/30/11 12:06 PM exception of Mr. Napoleon L. Nazareno and Atty. Ray C. Espinosa, all the members of the Board are non-executive Directors. vital concern on more solid footing with the creation of the PLDT Group Enterprise Risk Management Department. The Board commits itself to a process of self-improvement. In the past year, the Board continued its pioneering practice in the Philippines of conducting a periodic performance self– assessment. It is a process whereby the Board, through its individual members, assesses its collective performance as well as that of the individuals that comprise it and its committees. The Board utilizes a self-assessment tool developed with reference to the Philippine SEC’s Revised Code of Corporate Governance and Self-Rating Form, PLDT’s CG Manual and Code of Ethics, Sarbanes- Oxley Act, NYSE Listed Company Manual, the survey questions of the Institute of Corporate Directors (ICD), and established global best-practices. The assessment instrument includes an evaluation of the Board’s structure, processes and responsibilities, as well as the performance of the Chief Executive Officer. Results of the assessment are used to develop strategies to strengthen and enhance, among others, PLDT’s governance practices. The Board undergoes training on corporate governance through annual corporate governance enhancement sessions. These sessions provide the Directors with an opportunity to interact with experts and stay abreast with key developments in corporate governance and business ethics that are of particular significance to the PLDT Group. All of the current Directors have undergone corporate governance training or have attended at least one enhancement session out of the four enhancement sessions conducted since 2007. Aside from its regular meetings to review the Company’s financial results and operating performance, in 2010, the Board also went through a technology briefing in order to be fully updated on the latest trends and developments that have an impact on the Company’s strategy and competitiveness. The Board also led and actively participated in the review of the PLDT Group’s business strategy and in the assessment of new business opportunities and sources of growth, to ensure that the PLDT Group maintains its market leadership in the intensely competitive telecommunications industry. The Board also focused on strengthening enterprise risk management (ERM), placing this BOARD OF DIRECTORS 2010 MEETINGS ATTENDANCE PERFORMANCE The Board also sees to it that all other aspects of corporate governance and responsibility are given proper emphasis and attention. It provides overall guidance to Management with respect to CSR programs and directs efforts to devise and implement meaningful and authentic approaches to our corporate sharing, as well as ways and means to act responsibly in relation to the world’s finite resources and fragile environment.2 The Board had a total of 12 meetings in 2010. The Chairman and five other Directors attended all of the meetings and the remaining seven Directors attended at least 75% of the said meetings. The table below provides a summary of the attendance performance of the Directors. In 2010, the total amount of per diem provided for the Board of Directors (and the five members of the Advisory Committee) was Php41.8 million. Each Director and member of the Advisory Committee is entitled to receive a per diem of Php0.2 million for each board meeting attended. Except for the per diem, Directors are not entitled to any other compensation from the Company. Board Committees The Board has an Advisory Committee which provides guidance and suggestions, as necessary, on matters deliberated upon during Board meetings. To assist in the performance of the Board’s responsibilities and aid in ensuring compliance with the principles of good corporate governance, the Board has established four committees namely, the Audit Committee, the Governance and Nomination Committee, the Executive Compensation Committee and the Technology Strategy Committee (collectively, the Board Committees). The Board Committees have their respective charters that have been approved by the Board. The charters establish the composition, define the functions, set the general objectives and outline the procedures of the said Committees. In 2010, the Board approved the revisions, as recommended by the Board Manuel V. Pangilinan Napoleon L. Nazareno Donald G. Dee* Helen Y. Dee Albert F. del Rosario Ray C. Espinosa Tatsu Kono Bienvenido F. Nebres Takashi Ooi Oscar S. Reyes Pedro E. Roxas Tony Tan Caktiong Alfred V. Ty Jan 26 Mar 2 Mar 26 May 13 Jun 8 ** Jul 7 Aug 3 Aug 31 Sept 28 Nov 4 Dec 7                    –                               –     –       –  –            –          –                    –                          – –          Dec 8 ***   – –          * Mr. Dee resigned as a PLDT Director effective December 6, 2010. ** The meeting on June 8, 2010 was also the date of the Annual Stockholders Meeting and the Organizational Meeting. *** The meeting on December 8, 2010 was the only special meeting of the Board of Directors in 2010. 2 Please see separate report on PLDT Group CSR Activities. CORPORATE GOVERNANCE REPORT 23 PLDT 10 AR main NEW.indd 23 4/30/11 9:39 AM Committees, to their respective charters. Key amendments to these charters pertain to aligning each Board Committee’s purposes to those set forth in the CG Manual. Furthermore, sections in the CG Manual pertaining to the independence criteria for independent directors, qualifications for directorship, and grounds for disqualification from directorship, were incorporated as Annexes to the revised charters. Audit Committee The Audit Committee (AC) is composed of three independent directors, and three advisors. Each of the members of the AC is financially literate and one of the advisors is a certified public accountant with financial management expertise. The primary purpose of the AC is to assist the Board in fulfilling its oversight responsibilities for: the integrity of the Company’s accounting and financial reporting principles and policies, and system of internal controls, including the integrity of the Company’s financial statements and the independent audit thereof; the Company’s compliance with legal and regulatory requirements; the Company’s assessment and management of enterprise risks including credit, market, liquidity, operational and legal risks; and the Company’s audit process and the performance of the Company’s internal audit organization and external auditor, including the external auditor’s qualifications and independence. In addition to the general amendments stated earlier, the AC Charter was also updated with respect to references to applicable Independence Standards and Auditing Standards relating to the external auditor, including reports and communications required to be submitted by the latter. The revised charter of the AC may be viewed and downloaded from the PLDT website through the following link: http:// www.pldt.com.ph/about/management/Documents/Audit%20 Committee%20Charter.pdf. For the year 2010, the AC held six regular meetings, four special meetings and one joint meeting with the audit committees of major subsidiaries, Smart and ePLDT during which it also performed the activities described below. With respect to the external auditor, SGV&Co.: • Discussed the results of their integrated audit of PLDT’s 2009 financial statements prepared in accordance with Philippine Financial Reporting Standards (PFRS) and International Financial Reporting Standards (IFRS); Evaluated internal controls over financial reporting; Received the required communications from the external auditor including a statement as to its independence as required by prevailing applicable auditing and independence standards; Reviewed the external auditor’s integrated plan for the audit of the 2010 financial statements and review of internal controls over financial reporting; and Evaluated the performance of SGV&Co. for the year 2009 and resolved to re-appoint SGV&Co. as the external auditor for the year 2010. • • • • With respect to the internal audit organization: • Reviewed and/or approved the internal auditor’s charter, reports and plans such as the Internal Audit and Fraud Risk Management Group’s accomplishment report for 2009, the internal audit plan and updated internal audit plan for 2010, and periodic status reports regarding the PLDT Group’s Sarbanes-Oxley Section 404 readiness and compliance as of year end 2010; and 24 CORPORATE GOVERNANCE REPORT • Discussed with auditing firm Punongbayan & Araullo the results of its external quality assessment review for the PLDT internal audit organization, which was given the highest rating of “General Conformance” with the International Standards for the Professional Practice of Internal Auditing (ISPPIA). With respect to the integrity of financial reporting: • Reviewed with the PLDT finance officers, internal auditors, and SGV&Co., the financial results and reports for the first quarter of 2010, the six months ended June 30, 2010 and the nine months ended September 30, 2010. With respect to governance, general internal controls, and risk management: • Reviewed and discussed the status of the Company’s compliance with applicable laws and significant legal matters, the status of whistleblowing complaints and updates on the PLDT Group’s ERM processes and activities, including results of internal risk assessments and various ERM initiatives. The table shows the number of meetings held by the AC and the individual attendance record of each member for the year 2010. For each AC meeting attended, a member/advisor is entitled to a per diem of Php0.075 million. A total of Php4.4 million was paid as per diem to the members and advisors of the AC for the year 2010. Voting Members Bienvenido F. Nebres (Chairman)* Pedro E. Roxas* Oscar S. Reyes3 Alfred V. Ty4 Advisors Corazon S. De la Paz-Bernardo Tatsu Kono Roberto R. Romulo Number of Meetings Attended 11/11 11/11 8/8 2/2 11/11 9/11 11/11 * Independent Director 3 Member and independent director until August 3, 2010. 4 Member beginning September 28, 2010. Governance and Nomination Committee The Governance and Nomination Committee (GNC) is composed of five voting members, three of whom are independent directors and the other two are non-executive directors. The GNC also has three non-voting members composed of an independent member of the Advisory Committee, the Human Resources Group Head and the Chief Governance Officer of the Company. The primary purposes of the GNC are to: oversee the development and implementation of corporate governance principles and policies; review and evaluate the qualifications of the persons nominated to the Board as well as those nominated to other positions requiring appointment by the Board; identify persons believed to be qualified to become members of the Board and/or the Board Committees; assist the Board in making an assessment of the Board’s effectiveness in the process of replacing or appointing new members of the Board and/or Board Committees; and assist the Board in developing and implementing the Board’s performance evaluation process. The revised charter of the GNC may be accessed and downloaded from the PLDT website through the following link: http://www. pldt.com.ph/about/management/Documents/Governance%20 and%20Nomination%20Committee%20Charter.pdf. PLDT 10 AR main NEW.indd 24 4/30/11 9:39 AM Below are the GNC’s activities for 2010 in the performance of its governance function: • Reviewed and assessed PLDT’s CG Manual in light of the issuance of the Philippine SEC’s Revised Code of Corporate Governance; Passed upon and approved the interpretation guidelines on the terms used in the independence criteria for independent directors in the said CG Manual; Conducted a mandatory periodic review of the Conflict of Interest Policy and the Code of Ethics (GNC determined that both policies remain to be adequate and compliant and required no amendments); Provided guidance or directives with respect to proposed corporate governance related rules and guidelines issued by regulators and reports of corporate governance rating agencies and other organizations interested in corporate governance; Provided input in the development and implementation of the PLDT corporate governance education and communication activities; and Evaluated and submitted to the Board of Directors the consolidated results of the Board Performance Assessment for 2009 and provided assistance to the Board in initiating the Board performance assessment for 2010. • • • • • As regards its nomination function, the GNC performed the following: • Screened persons nominated as directors or independent directors and determined, identified and recommended the final list of director/independent director nominees for election in the 2010 annual meeting of stockholders; Reviewed the composition of Board Committees and made the appropriate recommendations to ensure that the same are in conformity with applicable laws, rules and regulations; Reviewed the list and qualifications of officers and recommended the re-appointment of said officers at the organizational meeting of the Board of Directors; and Reviewed and endorsed the recommendation of the Management Committee regarding the promotion of certain executives with the rank of Assistant Vice President to Vice President. • • • Summarized in the table are the number of meetings held by the GNC and the individual attendance record of each member. For each GNC meeting attended, each member is entitled to a per diem of Php0.075 million. A total of Php2.4 million was paid as per diem to the members of the GNC in 2010. Voting Members Manuel V. Pangilinan (Chairman) Tatsu Kono Bienvenido F. Nebres* Oscar S. Reyes5 Alfred V. Ty* Non-Voting Members Artemio V. Panganiban Ma. Lourdes C. Rausa-Chan Victorico P. Vargas6 Menardo G. Jimenez, Jr.7 * Independent Director 5 Independent Director until August 3, 2010. 6 Member until September 28, 2010. 7 Member beginning November 8, 2010. Number of Meetings Attended 4/4 4/4 4/4 4/4 4/4 4/4 4/4 3/3 1/1 Executive Compensation Committee The Executive Compensation Committee (ECC) is composed of five voting members, three of whom are independent directors, and the other two are non-executive Directors. The ECC also has one non-voting member, who is the Human Resources Group Head of the Company. The primary purposes of the ECC are to: provide guidance to and assist the Board in developing a compensation philosophy or policy consistent with the culture, strategy and control environment of the Company; oversee the development and administration of the Company’s executive compensation programs, including long term incentive plans and equity based plans for officers and executives; and assist the Board in the performance evaluation of and succession planning for officers, including the CEO, and in overseeing the development and implementation of professional development programs for officers. The revised charter of the ECC may be viewed and downloaded from the PLDT website through the following link: http://www. pldt.com.ph/about/management/Documents/Executive%20 Compensation%20Committee%20Charter.pdf. In 2010, the ECC had the following activities: • Discussed and approved the merit increases for officers and executives; Passed upon the 2009 variable pay payout and the targets for the 2010 variable pay; Reviewed the PLDT Long-Term Incentive Plan (LTIP) payout for the 2007-2009 performance cycle and discussed and recommended for Board approval the LTIP for the 2010-2012 performance cycle; and Discussed and approved the subsidiaries and affiliates 2010- 2012 LTIP sharing scheme. • • • Summarized in the table are the number of meetings held by the ECC and the individual attendance record of each member. For each meeting attended, an ECC member is entitled to a per diem of Php0.075 million. A total of Php2.5 million was paid as per diem to the members of the ECC in 2010. Number of Meetings Attended 6/6 5/6 6/6 6/6 4/6 5/5 1/1 Voting Members Albert F. del Rosario (Chairman) Tatsu Kono Oscar S. Reyes8 Pedro E. Roxas* Alfred V. Ty* Non-Voting Members Victorico P. Vargas9 Menardo G. Jimenez, Jr.10 * Independent Director 8 Independent Director until August 3, 2010. 9 Member until August 1, 2010. 10 Member beginning December 7, 2010. Technology Strategy Committee The Technology Strategy Committee (TSC) is composed of five voting members, one of whom is an independent director, and two non-voting members. Under the revised TSC Charter, at least one member of the TSC must have at least a general knowledge or understanding any of the technologies relevant to the Company’s line of business. CORPORATE GOVERNANCE REPORT 25 PLDT 10 AR main NEW.indd 25 4/30/11 9:39 AM The primary purposes of the TSC are to assist and enable the Board to: review and approve the strategic vision for the role of technology in the Company’s overall business strategy, including the technology strategy and roadmap of the Company; fulfill its oversight responsibilities for the Company’s effective execution of its technology-related strategies; and ensure the optimized use and contribution of technology to the Company’s business and strategic objectives and growth targets. A copy of the revised charter of the TSC may be viewed and downloaded from the PLDT website through the following link: http://www.pldt.com.ph/about/management/Documents/ Technology%20Strategy%20Committee%20Charter.pdf. In 2010, the TSC had the following activities: • Discussed updates on the PLDT Technology Roadmap and proof of concept of the latest technologies; Arranged a presentation to the PLDT Board about the technology initiatives being undertaken for both the fixed and wireless networks and developments in the Asia Pacific region with respect to telecommunications and technology evolution; and Engaged Delta partners to look at the PLDT Group’s technological future as part of the comprehensive review of the Company’s business. • • Summarized in the table are the number of meetings held by the TSC and the individual attendance record of each member. For each meeting attended, a TSC member is entitled to a per diem of Php0.075 million. A total of Php0.45 million was given as per diem to the members of the TSC in 2010. Voting Members Manuel V. Pangilinan (Chairman) Ray C. Espinosa Tatsu Kono Napoleon L. Nazareno Oscar S. Reyes11 Non-Voting Members Manuel M. Lopez12 Orlando B. Vea 11 Independent Director until August 3, 2010. 12 Resigned as member on July 26, 2010. Number of Meetings Attended 1/1 1/1 1/1 0/1 1/1 1/1 1/1 Chief Executive Officer Under the overall guidance and oversight of the Board of Directors, the CEO is charged with the general care, management and administration of the business operations of the Company. He provides leadership for Management in developing and implementing business strategies, plans and budgets. More importantly, he ensures that the business and affairs of the Company are managed in a sound and prudent manner and internal controls are adequate operational, financial and and effective to ensure reliability and integrity of financial and operational information, effectiveness and efficiency of operations, safeguarding of assets and compliance with laws, rules, regulations and contracts. The CEO also has the responsibility to provide the Board with a balanced and understandable account of the Company’s performance, financial condition, results of operations and prospects, on a regular basis. Independent Audit The Company has an internal audit system which provides a systematic and disciplined approach in the evaluation and improvement of the effectiveness of risk management, control, and governance processes. 26 CORPORATE GOVERNANCE REPORT The internal audit organization is led by the Chief Audit Officer/ Internal Audit Head who functionally reports to the Audit Committee. It is responsible for conducting, in accordance with the International Standards for the Practice of Internal Auditing, internal audit activities which includes, among others, the evaluation of the adequacy and effectiveness of controls covering the Company’s financial reporting, governance, operations and enforcement systems, and the reliability and integrity of financial and operational information. The Company also has an independent external auditor duly accredited by the SEC. Its duty is to undertake an independent audit and provide objective assurance on the manner by which the Company’s financial statements have been prepared and presented. The Audit Committee selects and appoints the external auditor and reviews and approves all audit and non-audit services to be performed by the external auditor and all fees to be paid for such services. lead audit partner, primarily The external auditor or the responsible for the audit of the Company’s financial statements, is rotated at least once every five years or such shorter or longer period provided under applicable laws and regulations.13 In addition, PLDT’s Personnel Manual generally prohibits the hiring of former employees of the Company’s independent auditing firm or members of the audit team assigned to perform audit services for the Company.14 Chief Governance Officer The corporate governance compliance system established in the CG Manual includes the designation by the Board of a Chief Governance Officer who reports to the Chairman of the Board and the Governance and Nomination Committee. The primary responsibilities of the Chief Governance Officer include monitoring compliance with the provisions and requirements of corporate governance laws, rules and regulations, reporting violations and recommending the imposition of disciplinary actions, and adopting measures to prevent the repetition of such violations. In addition, the Chief Governance Officer assists the Board and the Governance and Nomination Committee in the performance of their governance functions, including their duties to oversee the formulation or review and implementation of the corporate governance structure and policies of the Company, the establishment of an evaluation system to verify and measure compliance with the CG Manual in relation to related laws, rules and regulations, and to oversee the conduct of a self-assessment of the performance and effectiveness of the Board, the Board Committees, and individual Board members in carrying out their functions. Corporate Governance Office The Chief Governance Officer is supported by a Corporate Governance Office (CGO). The CGO personnel are entrusted with overseeing PLDT’s three E’s of Corporate Governance: Engineering, Enforcement and Education. Engineering involves the continuing development, drafting, issuance and review of appropriate corporate governance-related policies to guide company personnel. Enforcement ensures compliance by company personnel with the corporate governance policies so issued and enacted. Education rounds off the process by ensuring the development of the proper knowledge, skills, attitudes and habits that would promote voluntary observance of corporate governance policies and, more importantly, PLDT’s four core values of accountability, integrity, fairness and transparency. 13 Per Item 2.7.1(C), PLDT CG Manual, and Item 1.7, Schedule, Audit Committee Charter 14 Part 2 Hiring and Placement D(6). Hiring of such persons, if ever, is allowed by the application of various “lookback” periods, depending on the nature of the service performed and the position for which the employee will be hired. Approval of the Chief Financial Officer is also required in certain instances. PLDT 10 AR main NEW.indd 26 4/30/11 9:39 AM The Corporate Governance Office performed the following tasks in compliance with Philippine regulatory requirements: • Submitted to the Philippine SEC and the PSE the Company’s annual certification confirming that PLDT’s CG Manual, as revised and adopted on March 26, 2010, conforms with the provisions of the Revised Code of Corporate Governance of the Philippine SEC; Submitted the 2010 Corporate Governance Scorecard for Publicly-listed Companies to the ICD and the Philippine SEC on November 22, 2010. The fact of such submission was disclosed to the PSE on the same date; and Submitted the PSE Corporate Governance Disclosure in compliance with PSE Memorandum No. 2010-0574 dated November 26, 2010. • • Implementing Structure The diagram below presents the implementing structure for corporate governance in PLDT. Policies and Implementation PLDT’s corporate governance principles, structures and processes are established and articulated in two fundamental policies: The CG Manual and the Code of Ethics. These policies are benchmarked against global best practices in corporate governance, yet are applicable and responsive to PLDT’s particular context. CG Manual The PLDT Manual on Corporate Governance (CG Manual) was approved and adopted by the Board of Directors on March 26, 2010 pursuant to SEC Memorandum Circular No. 6 Series of 2009 or the Revised Code of Corporate Governance. It supersedes the CG Manual approved and adopted on September 24, 2002, as amended on March 30, 2004 and January 30, 2007. The structures and processes set forth in the CG Manual, as well as the Articles of Incorporation and By-Laws, combined with the Company’s commitment to the principles of transparency, accountability, fairness and integrity, form PLDT’s basic framework of governance by which our Board of Directors, officers, executives and employees strive to achieve the Company’s strategic objectives, create value for all its stakeholders, and sustain its long term viability. In compliance with the Revised Code of Corporate Governance of the Philippine SEC and consistent with the relevant provisions of the Securities Regulation Code and Corporation Code of the Philippines, our CG Manual covers the following key areas: • The composition of our Board of Directors as well as the qualifications and grounds for disqualification for directorship; The requirement that at least 20% of the membership of the Board of Directors, and in no case less than two members, must be independent directors, and the standards/criteria for the determination of independent directors; • • • • • • • • • The duties and responsibilities of our board of directors and the individual directors; The manner of conduct of Board meetings including the requirement to have an independent director present in every meeting to promote transparency and the need to have an executive session for non-executive and independent directors; The establishment of Board Committees, specifically, the Audit Committee, Executive Compensation Committee, and Governance and Nomination Committee, including the composition and the principal duties and responsibilities of such committees, as well as the requirement for each board committee to have its own charter; The role of the Chairman as the leader of the Board and as the prime mover in ensuring compliance with, and the performance of, corporate governance policies and practices; The duty of the Board of Directors to promote and uphold stockholders’ rights, such as the right to vote, pre-emptive right, the right to inspect corporate books and records, the right to timely receive relevant information, the right to dividends, and the appraisal right; The requirement for the Board to explore and implement steps to reduce excessive or unnecessary costs that impede stockholders’ participation and to act with transparency and fairness at the annual and special stockholders’ meetings; The Company’s undertaking to disclose material information promptly and accurately as well as the imposition of reasonable rules regarding the treatment and handling of material non-public information; and The establishment of an appropriate evaluation system for purposes of monitoring and assessing compliance with the CG Manual and other applicable laws and administrative issuances. Code of Ethics The Company’s Code of Business Conduct and Ethics, or Code of Ethics, was adopted to strengthen the implementation of the CG Manual. Approved by the Board on March 30, 2004 and subsequently updated on July 11, 2006, the Code of Ethics sets out the Company’s business principles and values, which aim to promote a culture of good corporate governance. It provides standards that govern and guide all business relationships of PLDT, its directors, officers and employees, especially with respect to the following: • • Compliance with applicable laws, rules and regulations; Ethical handling of conflicts of opportunities and confidential information; Protection and proper use of company assets; Fair dealing with employees, customers, service providers, suppliers and competitors; Compliance with reporting and disclosure obligations to the relevant regulators and to investors; Compliance with disclosure and financial reporting controls and procedures; Assessment and management of risks involved in business endeavors; and Adoption of international best practices of good corporate governance in the conduct of the Company’s business. • • • • • • interest, corporate The Code of Ethics undergoes a mandatory review process every two years. The latest review was in October 2010. The GNC approved the results of the review which found that the Code is appropriate for the Company and compliant with the applicable laws, regulations and listing standards and that no revision was needed at that time. 15 Please see separate report on ERM. CORPORATE GOVERNANCE REPORT 27 PLDT 10 AR main NEW.indd 27 4/30/11 10:48 PM Other Policies The Company also has enabling policies adopted by the Board to provide specific guidelines on the provisions of the Code of Ethics: PLDT is progressively institutionalizing the practice of timely and transparent disclosures down to the level of rank-and-file employees. (a) Conflict of Interest Policy approved on October 24, 2005 – This Policy aims to ensure that work-related actions of our directors, officers, employees and consultants are based on sound business principles and judgment devoid of bias or partiality. It enjoins all employees to be aware of the possibility of such bias and partiality in dealings with various entities or individuals in the course of or in relation to their work. (b) Policy on Gifts, Entertainment and Sponsored Travel approved on January 31, 2006 – This Policy provides safeguards so that the custom of giving gifts is handled in accordance with the principles of integrity, accountability, fairness and transparency. (c) Supplier/Contractor Relations Policy approved on January 31, 2006 – This Policy seeks to ensure that the Company upholds the highest professional standards in business practices and ethics in its dealings with suppliers and contractors in the procurement of goods and services. (d) Policy on Employee Disclosure on Violations of the Corporate Governance Rules, Questionable Accounting or Auditing Matters, and Offenses covered by PLDT’s Table of Penalties (or the Expanded Whistleblowing Policy) approved on May 9, 2006 – This Policy provides guidelines on handling employee disclosure or complaint of violation of rules pertaining to the aforestated matters, protects whistleblowers from retaliation and ensures confidentiality and fairness in the handling of a disclosure or complaint. Detailed implementing guidelines are likewise issued for the said policies to ensure their wide observance. All these policies and rules (collectively, the Corporate Governance or CG Rules) are periodically reviewed to ensure that they are appropriate for PLDT, keep pace with comparable and applicable global best practices, and are compliant with the requirements of the Philippine and U.S. SEC, NYSE and Hong Kong Stock Exchange corporate governance rules, as may be appropriate and applicable. To access the Code of Ethics, CG Manual or information on how our corporate governance practices and those required of U.S. listed companies under NYSE Section 303A.11 differ, please refer to: http://www.pldt.com.ph/governance/about/Documents/27623c20 007849698da4df57179ec70dPLDT_Code_of_Business_Conduct_ and_Ethics.pdf http://www.pldt.com.ph/governance/about/Documents/22336f71 c88c495793d15575c2addffcpldtcorpgov_manual.pdf http://www.pldt.com.ph/governance/about/Documents/f7933d17 962d4b2c942e50ba4980f21bpldtdisclosure.pdf Our subsidiaries and their respective subsidiaries have also adopted corporate governance rules and policies similar in substance and form to PLDT’s CG Rules, as well as appointed their respective corporate governance officers. As part of the embedding of corporate governance standards in performance evaluation of personnel, the Company includes corporate governance policy violations as a cause for disqualification in incentives and rewards in its Policy on Employee Qualification for Incentives and Rewards. PLDT officers and executives have also been required to submit Conflict of Interest Disclosures in order to maintain strict observance of the PLDT Conflict of Interest Policy. • • 28 CORPORATE GOVERNANCE REPORT Pursuant to the Expanded Whistleblowing Policy, PLDT maintains an Expanded Whistleblowing Hotline and other reporting facilities, such as a dedicated electronic mailbox, post office box, and facsimile transmission system. Any employee may submit a complaint or disclosure of violation of the rules referred to in the said Policy to the Chief Governance Officer or to the CGO, verbally or in writing. The system is open to all employees who come forward in good faith, regardless of rank or status to report violations of CG Rules or any act that may be considered as contrary to the Company’s values of accountability, integrity, fairness and transparency. Finally, the CGO also addresses queries and requests for opinions from operating units to provide guidance and ensure adherence to CG rules and values. Education and Enhancements PLDT recognizes the need for providing the appropriate environment for encouraging ethical behavior as a means of developing the desired corporate culture. PLDT’s corporate governance education and communication activities aim to reach out to all PLDT personnel through face-to-face and on-line trainings and workshops, and the production and dissemination of relevant corporate governance materials. The trainings and communication activities conducted in 2010 are: • Corporate governance enhancement session for the PLDT Board on December 14, 2010. Mr. Marc Ronez, Managing Director of the Singapore-based Asia Risk Management Institute spoke about Board of Directors Fiduciary Duties and Role in Relation to ERM: Best Practices in Dealing with the Agency Dilemma and Setting a Company’s Risk Appetite; Corporate governance enhancement session for PLDT’s senior management on December 14, 2010 by Mr. Marc Ronez on Enterprise Risk Management in Relation to Transformation and Change Efforts of an Organization; • • Workshops on Ethical Decision Making for newly-promoted • • • or newly-hired executives; Development and release of e-Learning modules on the PLDT Conflict of Interest Policy (for supervisory and rank-and-file employees) and on the Expanded Whistleblowing Policy (for PLDT managers, senior managers and assistant vice presidents; Refresher Course for selected units; Corporate Governance Orientation employees in the supervisory and rank-and-file levels; for newly-hired • On-line issuance of a monthly e-newsletter featuring stories, news and developments on corporate governance; • Weekly release of Corporate Governance Newsbriefs which • are summaries of news articles from global on-line sources; Periodic advisories on PLDT corporate governance policies to all its employees. In order to learn from others and benchmark against proven best practices in corporate governance, PLDT engages in networking activities with like-minded companies. These activities include: • Continued active membership in the Ethics and Compliance Officer Association (ECOA), the largest association of ethics and compliance professionals in the world; Taking a lead role in the formation of the Good Governance Advocates and Practitioners of the Philippines (GGAPP), which is composed of corporate governance and ethics and compliance officers from various companies in the Philippines; and Active involvement in activities organized by the ICD. PLDT 10 AR main NEW.indd 28 4/30/11 9:39 AM These awards and recognition serve to inspire PLDT to move on and move further with its corporate governance initiatives. Whether or not PLDT garners awards and recognition, it aims to show, in its own way, that good governance is essential in achieving sustained growth and profitability, and trusts in the inherent worth of the principles of accountability, integrity, fairness and transparency to serve as the foundation by which it will strive to create value for its shareholders, serve its customers, and conduct itself responsibly for the good of all its other stakeholders. Recognition and Awards PLDT believes that there is a positive relationship between ethical business conduct and good corporate governance on one hand, and excellent business performance and results, on the other. In 2010, PLDT was once again listed among the Gold Awardees in the Corporate Governance Scorecard of the ICD. Only 11 publicly- listed companies in the Philippines were given the distinction of being a Gold Awardee. PLDT has consistently been one of the top five companies in the ICD Corporate Governance Scorecard since it started in 2005. Asiamoney Magazine also cited PLDT as the best company in the Philippines in corporate governance for 2010. In addition, it also recognized PLDT as the best in disclosure and transparency, best for responsibilities of senior management and the board of directors, and best in investor relations in the Philippines. Likewise, Euromoney Magazine gave the following awards to PLDT: best in corporate governance in the Philippines and most convincing and coherent strategy in the Philippines. Finally, Finance Asia Magazine cited PLDT’s investor relations as the best in the country and also recognized PLDT as the company that is most committed to a strong dividend policy in the Philippines. ENTERPRISE RISK MANAGEMENT In early 2010, the Group Enterprise Risk Management Department (GRMD) was created to serve as the working team supporting the Enterprise Risk Management Committee (ERMC) in implementing its mandate to employ an integrated risk management framework across the PLDT Group. During the past year, the GRMD has successfully initiated in several critical operational units within the Group the application of a standard risk management process based on the ISO 31000 international standard on risk management. The result of the said process validated the outcome of a separate exercise conducted with senior management of the PLDT Group to identify the most important risk areas facing the Group. The top 10 identified risk areas were as follows: 1. Market dynamics 2. Fast pace of technological change 3. Operational “single point of failure” 4. Regulatory challenges 5. People 6. Network quality and reliability 7. Corporate/Capital structure 8. Information security and privacy 9. Hazards 10. New investments The succeeding steps in the risk management process will ensure that these risks are addressed and monitored by the operational units affected by these risks: • Complete risk assessment and mitigation exercises across the PLDT Group. • Complete and present risk maps to all relevant groups to create awareness of priority risks and required mitigation measures. • Finalize and circulate Group-wide Risk Manual. Also in 2010, the PLDT Group Risk Management Philosophy Statement was drafted and approved to embody the Group’s commitment to managing risk in a proactive and effective manner. The PLDT Group operates in a complex and dynamic The PLDT Group operates in a complex and dynamic business business environment which gives rise to a variety of risks environment which gives rise to a variety of risks that can be that can be both threat and opportunity. Recognizing that both threat and opportunity. Recognizing that these risks are these risks are an integral part of its business, the PLDT an integral part of its business, the PLDT Group is committed Group is committed to managing its overall risk exposure to managing its overall risk exposure in a systematic way and in a systematic way and in such a manner that supports in such a manner that supports its strategic decision-making its strategic decision-making process. Accordingly, the process. Accordingly, the PLDT Group employs a comprehensive, PLDT Group employs a comprehensive, integrated risk integrated risk management program, effected across all levels management program, effected across all levels of the of the organization, with the goal of identifying, analyzing organization, with the goal of identifying, analyzing and managing the Group’s risks to an acceptable level, so as and managing the Group’s risks to an acceptable level, to enhance opportunities, reduce threats, and thus sustain so as to enhance opportunities, reduce threats, and competitive advantage. The PLDT Group believes that an effective thus sustain competitive advantage. The PLDT Group risk management program will contribute to the attainment of believes that an effective risk management program will objectives by PLDT and its subsidiaries, thus creating value for the contribute to the attainment of objectives by PLDT and business and its stakeholders. its subsidiaries, thus creating value for the business and its stakeholders. Towards the end of 2010, the GRMD formally assumed the functions of the ERMC, which, after acting as an ad hoc committee since 2006 to administer the Group’s risk management efforts, was abolished to streamline functional responsibilities and reporting lines. The GRMD now serves as the dedicated team focused on developing, implementing and enhancing risk management approaches and practices within the PLDT Group. PLDT 10 AR main NEW.indd 29 4/30/11 9:39 AM CORPORATE GOVERNANCE REPORT 29 THE BOARD OF DIRECTORS 1 1 Manuel V. Pangilinan 64, Filipino Director of the Company since November 24, 1998. He conti nues to serve as Chairman of the Board since February 2004, aft er serving as President and CEO for fi ve years from November 1998. He is the Chairman of the Governance and Nominati on and the Technology Strategy Committ ees of the PLDT Board. He also serves as Chairman of Smart, PCEV, ePLDT, SPi, SPi CRM, Inc. (SPi CRM), MPIC, Landco Pacifi c Corporati on, Maynilad, Philex Mining Corporation, Manila North Tollways Corporati on, Medical Doctors, Inc. (Makati Medical Center), Colinas Verdes, Inc. (Cardinal Santos Medical Center), Davao Doctors, Inc., and Our Lady of Lourdes Hospital. He is also a director and the President and CEO of Meralco. He is the CEO and Managing Director of First Pacifi c Company Limited in Hong Kong, and President Commissioner of P.T. Indofood Sukses Makmur Tbk, the largest food company in Indonesia. 2 2 Napoleon L. Nazareno 61, Filipino Director of the Company since November 24, 1998. He has served as President and CEO since his appointment on February 19, 2004, and is concurrently the President and CEO of Smart, PCEV and Connecti vity Unlimited Resources Enterprise, Inc., positi ons he has held since January 2000, November 2004 and April 2008, respecti vely. He is a member of the Technology Strategy Committ ee of the PLDT Board. He also serves as Chairman of Smart subsidiaries including Wolfpac Mobile, Inc., and i-CONTACTS Corporati on. His other directorships include Mabuhay Satellite Corporati on, where he is Chairman; ACeS Philippines Cellular Satellite Corporati on, where he is the President; PLDT Global Corporati on; ePLDT; SPi; SPi CRM; and Meralco. He is a non-executi ve director of First Pacifi c. Inc., Smart Broadband, 3 3 Helen Y. Dee 67, Filipino Director of the Company since June 18, 1986. She is the Chairman or a director of several companies engaged in the banking, insurance and real property businesses and the President and/or Chief Executi ve Offi cer of GPL Holdings, Inc., House of Investments, Inc., Grepalife Asset Management Corporati on, Grepalife Fixed Income Fund Corporati on and Chairperson of Rizal Commercial Banking Corporati on, RCBC Savings Bank and Malayan Insurance Company. 4 Att y. Ray C. Espinosa 55, Filipino Director of the Company since November 24, 1998 and Head of PLDT Regulatory Aff airs and Policies since March 2008. He is the President and Chief Executi ve Offi cer of Mediaquest Holdings, Inc., TV5, Mediascape, Inc. (Cignal TV), Nati on Broadcasti ng Corporati on, and other subsidiaries of Mediaquest. He is also the Vice Chairman of the Board of Trustees of the PLDT Benefi cial Trust Fund and Philweb Corporati on. He is also a director of several companies engaged in electricity, mining, other public uti lity and media businesses. 30 THE BOARD OF DIRECTORS PLDT 10 AR main NEW.indd 30 4/30/11 10:48 PM 4 7 5 6 55 88 Tatsu Kono 58, Japanese Director of the Company since March 28, 2006. He is a member of the Governance and Nominati on, Executi ve Compensati on and Technology Strategy Committ ees and advisor to the Audit Committ ee of the Board of Directors of PLDT. He is the Chief Operati ng Advisor of PLDT. He has been a Managing Director of Corporate Sales Department, Corporate Marketi ng Division of NTT DoCoMo since 2003. Rev. Fr. Bienvenido F. Nebres, S.J. 71, Filipino Independent Director Director of the Company since November 24, 1998. He is the Chairman of the Audit Committ ee and a member of the Governance and Nominati on and Executi ve Compensati on Committ ees of the Board of Directors of PLDT. He is the President and a member of the Board of Trustees of the Ateneo de Manila University, the Chairman of the Board of Trustees of the Center for Leadership and Change, Inc., the Vice Chairman of the Board of Trustees of the Asian Insti tute of Management and a member of the Board of Trustees of several private educati onal insti tuti ons including Loyola School of Theology, and Sacred Heart School – Jesuit Cebu City. He is also a member of the Board of Trustees of 7 8 Manila Observatory and Philippine Insti tute of Pure and Applied Chemistry. Takashi Ooi 49, Japanese Director of the Company since November 6, 2007. He is presently the Senior Vice President for Global Business of NTT Communicati ons, in charge of product/service development and global network design/engineering and proposal/installati on/delivery of global network and soluti ons for global multi nati onal companies. Oscar S. Reyes 65, Filipino Independent director of the Company since April 5, 2005. Eff ecti ve August 2010, his status changed to a regular director in view of his appointment as Senior Executi ve Vice President and Chief Operati ng Offi cer of Meralco. He serves as a member of the Technology Strategy Committ ee of the Board of Directors of PLDT. He is the Chairman of Link Edge, Inc. and MRL Gold Phils., Inc. and a director/independent director of various public companies and private fi rms engaged in electricity, banking, energy, fi nancial and business advisory services, manufacturing, mining, shipping, real estate and related acti viti es. 6 9 9 Albert F. del Rosario1 71, Filipino Director of the Company since November 24, 1998. He serves as Chairman of the Executi ve Compensati on Committ ee of the Board of Directors of PLDT. He is the President of Gotuaco, del Rosario Insurance Brokers, Inc. and of the Philippine Telecommunicati ons Investment Corporati on. He is the Chairman of the Philippine Stratbase Consultancy, Inc., the Vice Chairman of Asia Insurance (Philippines) Corporati on and is a director of several companies engaged in infrastructure, property development, media, public uti lity and mining businesses. He also sits in the board of First Pacifi c Company Limited and is the Chairman of the Remunerati on Committ ee, and is a Commissioner of P.T. Indofood Sukses Makmur Tbk. He served as the Ambassador Plenipotenti ary and Extraordinary of the Philippines to the United States of America from 2001 to 2006. the Republic of 1 Resigned eff ecti ve March 25, 2011. Att y. Ma. Lourdes C. Rausa-Chan was elected director eff ecti ve March 29, 2011 and for the unexpired term of her predecessor in offi ce, Mr. Albert F. del Rosario. THE BOARD OF DIRECTORS 31 PLDT 10 AR main NEW.indd 31 4/30/11 10:41 PM 10 11 12 13 10 Pedro E. Roxas 55, Filipino Independent Director Director of the Company since March 1, 2001. He serves as a member of the Governance and Nominati on, Audit and Executi ve Compensati on Committ ees of the Board of Directors of PLDT. He is the Chairman and/or CEO/President of various business organizati ons in the fi elds of agri- business, sugar manufacturing and real estate development including Roxas Holdings Inc., Roxas and Company, Inc., Roxaco Land Corporati on, Central Azucarera Don Pedro, Inc., Central Azucarera de la Carlota, Inc., Roxol Bioenergy Corporati on, Fuego Land Corporati on and Hawaiian Philippine Sugar Company, an independent director of Meralco and BDO Private Bank, and a director of Brightnote Assets Corporati on. 2 Elected eff ecti ve January 25, 2011 and for the unexpired term of his predecessor in offi ce, Mr. Donald G. Dee 11 Juan B. Santos2 73, Filipino Director of the Company since January 25, 2011. He is the Chairman of Social Security Commission, a member of the Board of Directors of Alaska Milk Corporati on, First Philippine Holdings Corporati on, Grepalife Financials, Inc., Philex Mining Corporati on and Zuellig Group, Inc., a member of the Board of Advisors of Coca Cola Bott lers Phils., Inc. and East-West Seeds Co., Inc., a trustee of St. Lukes Medical Center, and a consultant of the Marsman-Drysdale Group of Companies. 12 Tony Tan Cakti ong 58, Filipino Director of the Company since July 8, 2008. He is the Chairman and Chief Executi ve Offi cer of Jollibee Foods Corporati on and the Chairman of Jollibee Foundati on. He is also an independent director of First Gen Corporati on and a director of Temasek Foundati on and member, Board of Trustees, of St. Luke’s Medical Center. 32 THE BOARD OF DIRECTORS PLDT 10 AR main NEW.indd 32 4/30/11 9:40 AM 14 15 16 17 18 19 13 Alfred V. Ty 43, Filipino Independent Director Director of the Company since June 13, 2006. He serves as a member of the Audit, Governance and Nominati on and Executi ve Compensati on Committ ees of the Board of Directors of PLDT. He is the Vice Chairman of Toyota Motors Philippines Corporati on, the Chairman of Lexus Manila, Inc. and Asia Pacifi c Top Management Internati onal Resources, Corp. (Marco Polo Plaza Cebu), the President of Federal Land, Inc., the Corporate Secretary of Metropolitan Bank and Trust Company and Metrobank Foundati on, Inc., and a director of Global Business Power Corp. ADVISORY BOARD Artemio V. Panganiban 14 15 Robert R. Romulo 16 Benny S. Santoso 17 Washington Z. SyCip* 18 Orlando B. Vea 19 Christopher H. Young * Eff ecti ve January 25, 2011. PLDT 10 AR main NEW.indd 33 4/30/11 10:49 PM THE BOARD OF DIRECTORS 33 KEY OFFICERS AND ADVISORS PLDTPLDT From left : Napoleon L. Nazareno, Ernesto R. Alberto, Anabelle L. Chua, Christopher H. Young, René G. Bañez PLDT From left : Jun R. Florencio, Menardo G. Jimenez, Jr., June Cheryl A. Cabal, George N. Lim, Ma. Lourdes C. Rausa-Chan Ernesto R. Alberto 50, Filipino Customer Sales and Marketi ng Group (CSMG) Head, leads all revenue generati on relati onship including product/market initi ati ves of PLDT development, product management, marketi ng, sales and distributi on, and customer relati onship management. He is the Chairman, director and/or President of PLDT Subic Telecom, Inc. (Subictel), PLDT Clark Telecom, Inc. (Clarktel), PLDT-Philcom, Inc. (Philcom and Subsidiaries), PLDT-Maratel, Inc., Telesat, Inc., SBI-Cruztelco, Bonifacio Communicati ons Corporati on, Mabuhay Satellite Corporati on, Smart NTT Multi media, Inc. and NTT Communicati ons Phils. He has over 20 years of work experience in the areas of corporate banking, relati onship management and business development and, prior to joining PLDT in 2003, was a Vice President and Head of the Nati onal Corporate Group of Citi bank N.A., Manila from 1996 to May 2003. He previously served as Vice President and Head of the Relati onship Management Group of Citytrust Banking Corporati on. René G. Bañez 56, Filipino Administrati on and Materials Management Group Head, was the Chief Governance Offi cer of PLDT from October 2004 to March 3, 2008 and the Support Services and Tax Management Group Head of PLDT from January 1999 to January 2001. He is a director of Clarktel and Subictel. He served as Commissioner of the Philippine Bureau of Internal Revenue from February 2001 to August 2002. Prior to joining PLDT, he was the Group Vice President for Tax Aff airs of Metro Pacifi c Corporati on for 3 years unti l December 1998. He holds directorships in some subsidiaries of PLDT. June Cheryl A. Cabal 37, Filipino Controller and Financial Reporti ng and Controllership Head, is also a director and the chief fi nancial offi cer/treasurer of certain subsidiaries of PLDT including Clarktel, Subictel, Smart-NTT Multi media, Inc. and the PSF. She is also the director and chief fi nancial offi cer of Philcom and Subsidiaries, as well as Mabuhay Satellite Corporati on and Telesat, Inc. She is also the Chief Finance Offi cer of the Philippine Disaster Recovery Foundati on and the President of Tahanan Mutual Building and Loan Associati on. Prior to joining PLDT in June 2000 as an executi ve trainee in the Finance Group, she was a senior associate in the business audit and advisory group of Sycip Gorres Velayo & Co. She was the 2008 Young Achievers Awardee for Commerce and Industry conferred by the Philippine Insti tute of Certi fi ed Public Accountants. In March 2010, she was appointed as a member of the Financial Reporti ng Standards Council of the Philippines. Anabelle L. Chua 50, Filipino Treasurer and Corporate Finance and Treasury Head, concurrently holds the positi on of Chief Financial Offi cer of Smart since 2006. She holds directorships in Smart and several subsidiaries of PLDT and Smart including ePLDT, SPi Technologies, SPi CRM, PCEV, Wolfpac Mobile, Inc., Smart Broadband, Inc., Connecti vity Unlimited Resources, Inc., Airborne Access Corporati on, Smart Hub, Inc., and Chikka Holdings Limited. She is a member of the Board of Trustees of the PLDT Benefi cial Trust Fund. She has over 20 years of experience in the areas of corporate fi nance, treasury, fi nancial control and credit risk management and was a Vice President at Citi bank, N.A. where she worked for 10 years prior to joining PLDT in 1998. 34 KEY OFFICERS AND ADVISORS PLDT 10 AR main NEW.indd 34 5/1/11 12:11 AM SMART From left : Napoleon L. Nazareno, Anabelle L. Chua, René G. Bañez, Danilo J. Mojica, Mario G. Tamayo, Rolando G. Peña, Orlando B. Vea, Alejandro O. Caeg ICT From left : ePLDT: Beth G. Lui, Danny Y. Yu, Sonny T. Valdez SPi Global: Maulik Parekh, Ian Wilson, Isabel R. Bales Jun R. Florencio 55, Filipino Internal Audit and Fraud Risk Management Head, has over 25 years of work experience in the areas of external and internal audit, revenue assurance, credit management, informati on technology, fi nancial management, and controllership. He was the Financial Controller of Smart for four years before he joined the Company in April 1999. He held various positi ons in the fi nance organizati on of another telecommunicati ons company prior to joining Smart. Menardo G. Jimenez, Jr. 48, Filipino Human Resources Group Head and concurrently Business Transformati on Offi ce Head, was Revenue Team Head of the Business Transformati on Offi ce from January 2008 to July 2010, the Retail Business Head of PLDT from June 2004 to December 31, 2007 and, prior to that, the Corporate Communicati ons and Public Aff airs Head. He had a sti nt at GMA Network, Inc., where he served as head of creati ve services and network promoti ons. He won the fi rst CEO Excel Awards (Communicati ons Excellence in Organizati ons) given by the Internati onal Associati on of Business Communicators mainly for eff ecti vely using communicati ons strategies in managing the PLDT retail business team to meet its targets and achieve new heights in the landline business. In 2006, his further achievements in handling the retail business of PLDT and his sti nt in Smart as offi cer-in-charge for marketi ng were recognized by the Agora Awards which chose him as its Marketi ng Man of the Year. George N. Lim 58, Filipino Network Service Assurance Head and concurrently Network Team Head of Business Transformati on Offi ce, has over 30 years of work experience in telecommunicati ons management. He was the Network Services Head from February 2003 to December 2007, Network Development and Provisioning Head from February 1999 to January 2003 and Marketi ng Head from December 1993 to February 1999. Mr. Lim holds directorships in some subsidiaries of PLDT. Att y. Ma. Lourdes C. Rausa-Chan 57, Filipino Director of the Company since March 29, 2011. She has been serving as Corporate Secretary, Corporate Aff airs and Legal Services Head and Chief Governance Offi cer of PLDT since November 1998, January 1999 and March 2008, respecti vely. She also serves as Corporate Secretary of PCEV and several subsidiaries of PLDT. Prior to joining PLDT, she was the Group Vice President for Legal Aff airs of Metro Pacifi c Corporati on and the Corporate Secretary of some of its subsidiaries. Christopher H. Young 53, Briti sh PLDT’s Chief Financial Advisor. He worked in PricewaterhouseCoopers in London and Hong Kong from 1979 unti l 1987, at which ti me he joined First Pacifi c in Hong Kong as Group Financial Controller. He joined Metro Pacifi c Corporati on in 1995 as Finance Director, a positi on he held unti l he joined PLDT in November 1998. KEY OFFICERS AND ADVISORS 35 PLDT 10 AR main NEW.indd 35 4/30/11 10:51 PM OFFICERS Manuel V. Pangilinan Chairman of the Board Miguela F. Villanueva FVP, Cost and Valuation Napoleon L. Nazareno President and Chief Executive Officer Danny Y. Yu FVP, ePLDT Group Chief Financial Officer Ernesto R. Alberto SVP, CSMG Head Corporate Business Head René G. Bañez SVP, Supply Chain, Asset Protection and Management Group Head Chief Governance Officer Anabelle L. Chua SVP, Corporate Finance and Treasury Corporate Treasurer Jun R. Florencio SVP, Internal Audit and Fraud Risk Management Menardo G. Jimenez, Jr. SVP, Human Resources/ Business Transformation Office Head George N. Lim SVP, Network Service Assurance/ Business Transformation Office Network Team Claro Carmelo P. Ramirez SVP, Office of the CEO Ma. Lourdes C. Rausa-Chan SVP, Corporate Affairs and Legal Services/ Chief Governance Officer Corporate Secretary June Cheryl A. Cabal FVP, Financial Reporting and Controllership Alejandro O. Caeg1 FVP, Carrier Business Katrina L. Abelarde VP, Small and Medium Enterprises Jose A. Apelo VP, Outside Plant Network Services Rafael M. Bejar VP, Medical Services Marco Alejandro T. Borlongan VP, Customer Service Management Renato L. Castañeda VP, Corporate Relationship Management C Arnel S. Crisostomo VP, Simple Services Provisioning and Restoration Amihan E. Crooc VP, IS-Application Development and Management/Officer-in-Charge, Information Systems Alona S. Dingle VP, Financial Reporting Margarito G. Dujali, Jr. VP, Retail Data Acquisition Mario C. Encarnacion VP, Customer Services Team Business Transformation Office Alejandro C. Fabian VP, Industrial and Employee Relations Alfredo B. Carrera FVP, Regulatory Strategy and Support Gil Samson D. Garcia VP, Revenue Management and Cash Assurance Cesar M. Enriquez FVP, CSMG Revenue and Operations Support Florentino D. Mabasa, Jr. FVP, Legal Services Leo I. Posadas FVP, Treasury Ricardo M. Sison FVP, Consumer Credit and Business System Management Emiliano R. Tanchico, Jr. FVP, Human Resources Management and Development Elisa B. Gesalta VP, Network Services Project Management Ma. Josefina T. Gorres VP, Corporate Billing and Credit Management Ma. Criselda B. Guhit VP, Tax Management Emeraldo L. Hernandez VP, Network Migration Office Juan Victor I. Hernandez VP, Corporate Business 36 OFFICERS Marven S. Jardiel VP, Corporate Process Review and Information Management Alexander S. Kibanoff VP, Training, Development and Career Management Joseph Nelson M. Ladaban VP, Consumer Credit and Collection Management Javier C. Lagdameo VP, Corporate Relationship Management A Luis Ignacio A. Lopa VP, Corporate Marketing Services Joseph Homer A. Macapagal VP, Property and Facilities Management Oliver Carlos G. Odulio VP, Asset Protection Center Lilibeth F. Pasa VP, Retail Market Development Jose Lauro G. Pelayo VP, GMM South/West Customer Service District Ricardo C. Rodriguez VP, Compensation and Rewards Planning and Management Genaro C. Sanchez2 VP, Network Planning Ana Maria A. Sotto VP, Business Transformation Office (Project Manager) Julieta S. Tañeca VP, Consumer Business System Support Management Jesus M. Tañedo VP, Visayas-Mindanao Customer Service District Patrick S. Tang VP, Retail Voice Acquisition-Postpaid Victor Y. Tria VP, Corporate Business Solutions Melissa V. Vergel De Dios VP, Investor Relations Fe M. Vidar VP, Organization, Policies and Procedures Development 1 Appointed President and CEO of PLDT Global Corporation effective September 23, 2010. 2 Concurrent Coordinator, International Network Operations effective June 16, 2010. Rebecca Jeanine R. De Guzman VP, Retail Sales and Distribution Gerardo C. Peña VP, GMM North/East Customer Service District PLDT 10 AR main NEW.indd 36 4/30/11 10:51 PM 

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