More Than Just Housing

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3 MESSAGE TO OUR SHAREHOLDERS More Than Just Housing JANUARIO JESUS GREGORIO B. ATENCIO III PRESIDENT AND CEO Since our inception in 2003, 8990 Holdings DECA HOMES has spread across the country as the Philippines only nationwide mass housing homebuilder. But more than building houses in Luzon, Visayas, and Mindanao, we realized the transformative character of mass housing in changing people s lives for the better because of our fast construction pre-cast technology, our innovative in-house financing program we call CTS-Gold, to our comprehensive credit and collection platform that emphasizes education and behavioral economics and not just collection. We have started a journey of changing the game based on our deep understanding of the social realities of the ordinary working class Filipino people. It s more than just housing really, it s about making housing a vehicle to add value to society and change people s lives. And when we are successful in our mission, our corporate performance is merely a by-product of this success. In 2014, our net income jumped 51% to P3.3 billion from P2.2 billion the previous year. Revenue increased by 43% while operating expense only rose by 36%. Net margin of 43% exceeded the benchmark of 40%. GROWTH DRIVERS External factors that contributed to our stellar performance in 2014 were the continuous growth of the Philippines gross national product; increased remittances from overseas Filipino workers; the housing backlog of 4.0 million; and the growing business process outsourcing and information technology sector. Internally, we increased average prices by 18%; negotiated lower prices for materials; innovated our construction method through double-casting to produce more panels; added land development contractors; and provided more sales bonuses to our sellers. Our CTS income grew heftily by 69% to P901 million, with the migration of our CTS accounts to PAG-IBIG Fund amounting to P2.1 billion Holdings, Inc. Annual Report

4 MESSAGE TO OUR SHAREHOLDERS 2014 made us realize that, more than sales velocity, our capacity to build more and more units is the main determining factor to our long-term sustainability. TARGET DEMOGRAPHIC The unserved mass housing demand pegged at 3 million is growing at 5% per year, fuelled by the young, working class Filipinos who can well afford DECA HOMES residential units priced between P450,000 to P1.25 million per unit. Our demographic consists of college graduates with stable, gainful employment earning at least P35,000 a month. They are renters and not asset owners with little or no savings who are deeply aspirational, have a practical value for money, and are optimistic about the future. MARKET PERFORMANCE After our listing debut in the Philippine Stock Exchange (PSE) in 2013 under the stock market symbol HOUSE, we conducted a successful follow-on offering in May By the start of 2015, HOUSE had become one of PSE s top five gainers, significantly outperforming its peers among the listed residential-focused developers posted a 19% gain in earnings per share (EPS) from 0.52 times in 2013 to 0.62 times in The company s book value per share notably grew by 90% over the year-ago level. Valuation-wise, the price/earnings (PE) ratio of HOUSE is lower than those of developers with recurring income from both residential and commercial developments. This is underpinned by a strong earnings growth outlook reflected in a low P/E to growth or PEG ratio of 0.47 times, computed using the estimated 2015 P/E divided by growth estimates. NEW PROJECTS Since 2012, 8990 has been delivering a robust set of operational results while adding to our land bank inventory. In 2014, we maintained this momentum with the launch of nine new projects comprising 96.9 hectares and 10,855 housing units. The projects are located in Cebu, Iloilo, Cavite, Davao, Pampanga, and along EDSA in Metro Manila where our first Urban DECA Tower is rising. At yearend-2014, 49% of these new projects had already been sold, contributing 53% of total year sales. FOREIGN PARTNERS We welcomed two cornerstone investors in 2014, Khazanah Nasional Berhad and TPG Capital. Khazanah is the sovereign investment fund of Malaysia, while TPG is an institutional investor based in California, USA with regional headquarters in Singapore. Khazanah and TPG have invested a combined $132 million worth of shares in 8990 Holdings. Together with my management team and corporate workforce, we would like to thank our shareholders and Board of Directors for the continued support and confidence. We look forward to sharing with you more innovations in fulfilling our mission of MORE THAN JUST HOUSING for the Filipino people. JANUARIO JESUS GREGORIO B. ATENCIO III President and CEO Holdings, Inc. Annual Report 2014

5 BUSINESS PORTFOLIO 8990 By The Numbers 11 years of corporate existence 39 completed projects 35,229 PHP 15B constructed housing units outstanding receivables 19 ongoing projects No. 1 employees branches mass housing developer in the Philippines

6 BUSINESS PORTFOLIO Our Completed Projects NO. OF LOCATION UNITS SOLD % North Luzon 1,392 19% South Luzon 1,464 20% Cebu 1,465 20% Iloilo 659 9% Davao 2,344 32% TOTAL 7, % TOTAL NUMBER OF UNITS SOLD AS OF , Holdings, Inc. Annual Report 2014

7 BUSINESS PORTFOLIO Our Brands and Real Estate Offerings 8990 Infinity. Prosperity. Continuity DECA Homes Horizontal subdivision housing developments Urban DECA Homes Medium-rise building developments Urban DECA Towers High-rise condominium projects DECA Homes Resort Residences Resort complex/wakeboard park projects Azalea Residences Hotel and timeshare leisure developments 8990 Holdings, Inc. Annual Report

8 OUR PARTNERS Khazanah Nasional Berhad Khazanah Nasional Berhad is the strategic investment fund of the Government of Malaysia entrusted to hold and manage the Government s commercial assets. Khazanah has investments in over 50 major companies, both in Malaysia and abroad, in a broad spectrum of industries, such as power, telecommunications, financial institutions, healthcare, aviation, infrastructure, leisure & tourism, property, creative & media, education, and innovation & technology. In 2014, Khazanah became a cornerstone investor in the Philippines mass housing developer, 8990 Holdings Inc. The investment represents Khazanah s first foray into the Philippines, which will allow it to gain exposure to the country s unique growth story and provides a potential avenue to foster know-how sharing that could benefit affordable housing development in Malaysia and more broadly in the region Holdings, Inc. Annual Report 2014

9 OUR PARTNERS TPG TPG is a leading global private investment firm founded in 1992 with over USD66 billion of assets under management and offices in San Francisco, Fort Worth, Austin, Houston, Beijing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Sao Paulo, Shanghai, Singapore and Tokyo. TPG has extensive experience with global public and private investments executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings Holdings, Inc. Annual Report

10 CORPORATE CITIZENSHIP Our Corporate Governance Practices To fully comply with the leading practices in good governance, our Board of Directors establishes the vision, strategic objectives, key policies, processes and procedures for the Management of 8990 Holdings Inc., as well as the mechanism for monitoring and evaluation of Management s performance. The Company submitted its Manual on Corporate Governance to the Philippine Securities and Exchange Commission (SEC) on October 18, 2010 in compliance with SEC Memorandum Circular No. 6, series of The Company s directors, officers, and employees have complied with the best practices and principles on good corporate governance as embodied in its Corporate Governance Manual, which requires the Company to have at least two independent directors in the Board of Directors. As part of its system for monitoring and assessing compliance with the Manual and the SEC Code of Corporate Governance, each committee is required to report regularly to the Board of Directors, and the Manual is subject to quarterly review. The Compliance Officer, who is appointed by the Board and reports directly to the Chairman of the Board, is responsible for determining and measuring compliance with the Manual and the SEC Code of Corporate Governance. In its belief that the essence of corporate governance is transparency, the Company ensures that all material information which could adversely affect its viability or the interests of its shareholders be publicly and timely disclosed. In addition to the compliance with periodic and structural reportorial requirements, the Company ensures that all material information such as earnings results, acquisition or disposition of assets, off-balance sheet transactions, related party transactions, and direct and indirect remuneration of members of the Board and Management are timely disclosed to the SEC as well as to the Philippine Stock Exchange (PSE) and the public through appropriate PSE mechanism and submissions to the SEC. The Company likewise updates the public through its Website which is updated on a regular basis. At least one of the independent directors serves on the Governance Committee, the Nomination Committee, and the Audit and Risk Management Committee. The Board created and appointed Board members to each of the committees set forth below. Each member of the respective committees named below holds office as of the date of this report and will serve until his or her successor is elected and qualified. AUDIT AND RISK MANAGEMENT COMMITTEE Composed of at least three members of the Board who have accounting and finance backgrounds, the Audit and Risk Management Committee has at least one independent director and another with audit experience. The committee chair should be an independent director. As of the date of this report, the Audit and Risk Management Committee is chaired by Arlene C. Keh, while Luis N. Yu Jr., Mariano D. Martinez Jr., Ben Chan Wei Beng, and Dominic J. Picone serve as its members. NOMINATION COMMITTEE Composed of at least three members of the Board, including one independent director, the Nomination Committee reviews and evaluates the qualifications of all persons nominated to the Board and other appointments that require Board approval. As of this writing, the Nomination Committee is chaired by Willibaldo J. Uy, while Dominic J. Picone and Januario Jesus B. Atencio III serve as its members. GOVERNANCE COMMITTEE Composed of at least three members of the Board, including one independent director, the Governance Committee is chaired by Willibaldo J. Uy, with Januario Jesus B. Atencio III and Ben Chan Wei Beng as members Holdings, Inc. Annual Report 2014

11 CORPORATE CITIZENSHIP Our Corporate Social Responsibility Initiatives One of 8990 s core beliefs is our CSR or corporate social responsibility where we make sure our actions speak louder than words. To date, we have fed hundreds of primary school children for 120 days and distributed school bags to numerous grade schoolers. We have also renovated classrooms, beautified school grounds, donated brand-new and refurbished multi-purpose halls, and even built a police outpost inside a campus to make the neighbourhood safer. In 2014, we partnered with Kythe Foundation to help children who are hospitalized with cancer and other chronic illnesses. We have planted more than 13,000 seedlings of various tree species to preserve our countryside and coastal areas. We just don t build homes, we establish communities.

12 OUR TEAM Luzon and Metro Manila NCR OFFICES NORTH LUZON BRANCH SOUTH LUZON BRANCH

13 OUR TEAM Visayas and Mindanao CEBU BRANCH ILOILO BRANCH DAVAO BRANCH

14 OUR TEAM Board of Directors Standing (L-R): Lowell L. Yu, Richard L. Haosen, Manuel Delfin Jr., Ian Norman E. Dato, Arlene C. Keh, Willibaldo J. Uy, Raul Fortunato R. Rocha, Anthony Vincent S. Sotto. Seated (L-R): Ben Chan Wei Beng, Januario Jesus Gregorio B. Atencio III, Mariano D. Martinez Jr., Luis N. Yu Jr., Dominic J. Picone MARIANO D. MARTINEZ JR. Chairman of the Board JANUARIO JESUS GREGORIO B. ATENCIO III President and CEO LUIS N. YU JR. Director and Chairman Emeritus ANTHONY VINCENT S. SOTTO Director WILLIBALDO J. UY Independent Director ARLENE C. KEH Independent Director LOWELL L. YU Director RAUL FORTUNATO R. ROCHA Director RICHARD L. HAOSEN Director IAN NORMAN E. DATO Director MANUEL DELFIN JR. Director BEN CHAN WEI BENG Director DOMINIC J. PICONE Director

15 FINANCIAL HIGHLIGHTS Creating Tremendous Shareholder Value Total Sales in number of units Total Revenues in PHP billion Gross Profit in PHP billion Net Income after tax, in PHP billion Net Margin after tax Current Ratio Total Assets in PHP billion Total Equity in PHP billion Retained Earnings in PHP million Return on Equity Total Receivables in PHP billion Collection Efficiency

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