Dear stakeholders,

The year 2023 depicts a picture of irony. While the climate crisis rages on, we at FPH made significant headway on our decarbonized and regenerative mission. We continued to execute our strategic and operational initiatives and delivered solid financial results. It’s a disorienting, uncomfortable reality where we have achievements worth being proud of, and yet we are set against the backdrop of persistent environmental, social and economic threats.
 
Every year, new horrors are brought to life: wildfires raging in the West; super typhoons battering those like us in archipelagic countries; and record-breaking temperatures scorching the globe. Sadly, the most vulnerable populations are unfairly hit the hardest.

This growing climate threat has catapulted humanity into “the era of global boiling”— borrowing the words of UN Secretary-General António Guterres. May 2023 presented the highest heat index on record for the year, with several days classified as “dangerous” by PAGASA (Philippine Atmospheric, Geophysical and Astronomical Services Administration). Several locales experienced scorching heat indexes in the 42 to 51 degree Celsius range. The country was then hit by Super Typhoon Egay (international name Doksuri) in July, battering the agricultural sector in the northern Philippines with gusty winds of up to 240 kilometers per hour.

In the face of multiple crises, pursuing our mission at times feels frustratingly like Sisyphus’ tiresome and unending task of pushing a boulder up a steep hill only for it to drop back down and then having to start over. UN Secretary-General Guterres’ message reminds us that while there is progress, current practices are not enough to address the climate crisis. Scientists have long been warning us of the irreversible progression and what actions must be taken to prevent further catastrophe. We actually know what needs to get done. This is precisely the reason why we at FPH have taken painstaking effort to position our business plans to be aligned with our mission. There is a silver lining here as we increasingly realize that there are many exciting opportunities that are opening up for our businesses in power, real estate, construction, manufacturing and energy solutions, healthcare and education. 

Stepping Up Our Game To Secure A Clean And Renewable Energy FuturE

Climate solutions must be tailored to a country’s individual context. Our unique scenario makes us ask: how do we decarbonize in a just manner while addressing the need for energy security?

Countries like the Philippines are constrained with limited fossil fuel reserves. Malampaya gas has been in decline and our country’s coal needs are mostly imported from Indonesia. If you turn it on its head, these constraints can be seen as an ironic blessing given Government’s policy to decarbonize the country’s energy needs. Abundant renewable sources of energy — be it geothermal, solar, wind, or hydro – can be increasingly tapped subject to properly designed policies and incentives. Intermittent solar and wind combined with battery storage is just one of many logical solutions as their costs to build drop making them even more affordable. 

As reported in last year’s annual report, the Department of Energy updated in 2023 the Philippine Energy Plan 2020 to 2040 (PEP) that targets a 35 percent renewable energy share by 2030 and as much as 50 percent share by 2040 (based on its Clean Energy Scenario). For FPH power subsidiary, First Gen, to make a difference, it needs to grow its portfolio by almost four times from the current 3.5 GW to as much as 13 GW by 2030. Given the Government’s coal moratorium, supply growth will come primarily from renewable energy combined with flexible gas-fired plants. This is entirely consistent with First Gen’s existing portfolio and organizational capabilities. And even if the Government’s 2030 forecast seems optimistic, First Gen nonetheless needs to possess the capabilities to pursue numerous projects simultaneously to address the growing market needs. In other words, we need to be ready when opportunities present themselves.

Some of First Gen’s key challenges and opportunities are as follows:

• First Gen’s gas-fired fleet will be reaching critical milestones in the next few years with the expiry of its power sales contracts with Meralco. San Gabriel’s 414 MW contract       expired in February 2023 while Santa Rita’s 1,000 MW and San Lorenzo’s 500 MW contracts expire in 2025 and  2027 respectively.  
• First Gen’s long-term fuel supply needs will be addressed with the completion of its LNG import terminal. Our power plants will continue to operate even with the decline of       natural gas supply from Malampaya. With the eventual expiry of its power sales agreements, First Gen is now more solidly positioned to contract the output of its power       plants. 
• First Gen’s geothermal subsidiary, Energy Development Corporation (EDC), is scaling up its well drilling campaign. This will supplement the steam requirements for its       expanding power generation fleet to deliver the increasing demand for 24-hour baseload renewables.
• First Gen competed for and won the bidding for the 165-MW Casecnan hydroelectric plant which was part of the Government’s privatization program. 

After more than ten years of planning and development work, First Gen completed the construction and commissioning of its landmark liquefied natural gas (LNG) regasification terminal in the First Gen Clean Energy Complex in Batangas City. First Gen’s current fleet of Santa Rita, San Lorenzo, San Gabriel and Avion have been tested to run simultaneously on Malampaya and regasified LNG to ensure continuous electricity production. The combined 1,500 MW of capacity of Santa Rita and San Lorenzo comprising six 250 MW units have the added unique technical benefit of being triple-fuel capable (with Malampaya, LNG or liquid fuel). LNG will also pave the way for the potential expansion of the 1,200 MW Santa Maria project to address the country’s future power needs. First Gen successfully received its first LNG cargo at Subic in August 2023 and completed subsequent LNG deliveries in its Batangas complex in December 2023 and February 2024. First Gen continues to have discussions with key suppliers for succeeding LNG cargoes to supplement Malampaya. The assets in the First Gen Clean Energy Complex are designed for resilience making it valuable for the country’s energy security.
  
We are also reinforcing our ability to supply 24-hour baseload renewable energy through First Gen subsidiary, Energy Development Corporation (EDC). Significant effort is being undertaken by EDC to increase its geothermal energy capacity through a major 40-well drilling campaign over the next three years till 2026.  An increased sense of urgency will require EDC to mobilize six drilling rigs to be conducted simultaneously. It is also building 83 MW of new geothermal power plants and 40 Mwh of Battery Energy Storage System to be commissioned in 2024 in anticipation of the increased steam production.

In addition, First Gen increased its ability to supply renewable energy to its growing customer base when it won the competitive bid for the 165 MW Casecnan hydro power plant in May.  In November, it closed a Php20 billion term loan with BDO and BPI to partially finance the $526 million acquisition cost. The project was successfully turned over by PSALM to First Gen in February 2024. The Casecnan plant and First Gen’s 135 MW Pantabangan-Masiway hydroelectric plant perform synergistically by making use of the large water storage capacity of the Pantabangan reservoir. A plan to construct the 100 MW Aya pumped storage hydroelectric plant in the same area will create a unique and flexible 400 MW total combined hydroelectric facility that will benefit First Gen’s growing renewable energy portfolio.

Our capability to grow our clean energy portfolio requires integrating different technologies across varying energy sources to enhance the overall value of a portfolio. Geothermal energy, together with solar, wind, and hydroelectric energy sources, must be harnessed in a way that protects the environment at the same time.

Based on available data, First Gen is the leading producer of renewable energy in the Philippines in terms of energy generated. In 2023, our renewable energy portfolio alone generated 7,680.4GWh of RE, which mostly came from our geothermal capacity which is the only renewable energy source that can run 24/7. 

While we are committed to increasing our renewable portfolio, we are familiar with the challenges to expand renewables such as intermittent solar and wind on a stand-alone basis. It was so important for First Gen to invest in the LNG regasification terminal to secure the fuel needs of our gas portfolio to deliver low carbon electricity to our customers whenever they need it. This unique combination of geothermal with gas technology as part of our portfolio will provide a clear pathway for First Gen to invest in intermittent solar and wind projects as part of a growing renewable-focused portfolio. This is a unique value proposition that we offer our customers.

REGENERATION ON THE RISE

Regenerative practices that lead to an improved lifestyle is a key element of our mission. As we answer the call for cleaner, reliable power, we will address other pillars of societal development craving for a higher quality of living in our growing non-power investments.

Let’s begin with Rockwell Land with the recovery of its business units exceeding its pre-pandemic levels. Rockwell is capitalizing on the strength of its brand to expand geographically.  It has made strides in cultivating quality living in its developments outside Metro Manila and is building a larger landbank to sustain its growth. Apart from helping to decongest the urban capital, this will bring the best practices of our real estate development experience to more communities in economically advancing areas of the country such as Cebu City, Mactan, Bacolod City, Angeles City, Laguna, Batangas and Bulacan. The cumulative economic progress that our country has experienced through the years has opened up the opportunity for potential customers to aspire and afford a Rockwell developed and curated community. 

Rockwell launched PHP16 billion worth of projects, including its new Rockwell IPI joint venture in Cebu City and a new horizontal development phase at Rockwell South in Carmelray, a much-awaited first premium horizontal project of Rockwell in Laguna that covers over 60 hectares of land. Completed projects include Arton West, a 1.9-hectare property nestled on a hill in Katipunan and comprising 80% open space, and East Bay Fordham, the first residential tower developed by Rockwell Primaries East Bay in Sucat.

This is followed by First Philippine Industrial Park (FPIP), which for over 20 years, has been committed to providing quality jobs to Filipinos by attracting export and domestic manufacturing facilities. FPIP is home to 155 locators from Japan, the US, Europe, and other parts of the world; and a workforce of over 70,000 employees. In 2023, FPIP welcomed two new industrial locators and five new commercial locators. FPIP also closed multiple deals including locator renewals covering two hectares, 1.75 hectares of additional land leased, and 2.4 hectares of land sold. FPIP now has 18.5 hectares of ready-built factories, 14.8 hectares of which are currently under lease contracts. 

First Balfour builds infrastructure that will support the growing economy. The North-South Commuter Railway project is one example of providing much-needed transportation to developing locales.

First Balfour completed various projects, including the Batangas Combined Cycle Power Plant (BCCP), the McConnell Dowell LNG, Manila Water’s East Bay Water Treatment Plant, the NGCP Hermosa-San Jose Overhead transmission line, and St. Luke’s Medical Center-Quezon City Pivot Building.

First Balfour’s order backlog also significantly increased, from PHP6.5 billion to over PHP30 billion. First Balfour is currently working to deliver on this backlog while actively pursuing planned infrastructure projects in the construction markets it serves, namely: transportation, power and energy, high-value buildings, and water. T1 Rentals, First Balfour’s equipment leasing unit, is also continuing the expansion of equipment rental and transport to take advantage of infrastructure opportunities and growth in market share.

First Philec continues to enjoy significant market share domestically. It also made significant strides in the US market. It shipped and installed over 900 transformers in eight US states. First Philec has also developed its own smart meters and has been shortlisted by Meralco as a supplier for its Advanced Metering Infrastructure project. First Philec is hoping to penetrate the electric vehicle (EV) and energy storage segments in the future and is currently building in-house product and design capabilities. Additionally, First Philec partnered with Nascent Technologies, a local expert in energy storage solutions, to establish an Energy Storage Lab for developing new energy storage systems and testing Lithium-Carbon battery samples.

We are also growing our healthcare and education businesses. The acquisition of The Medical Services of America - Philippines synergizes with our existing healthcare businesses in providing accessible solutions nationwide. Meanwhile, First College continues to develop talented individuals who can contribute to national development.

FINANCIAL PERFORMANCE

For the year ended December 31, 2023, the Consolidated Net Income of the FPH Group reached PHP29.1 billion, higher by PHP5.2 billion or 22% compared to PHP23.9 billion in 2022. The significant growth is largely due to the upturn in the  operating results of the power generation and real estate sectors.

The Net Income Attributable to FPH amounted to PHP15.1 billion, higher by PHP2.4 billion or 19% compared to last year driven by the stronger operating earnings coupled with one-off proceeds from construction delays and insurance claims this 2023. The corresponding Recurring Net Income (RNI) attributable to FPH grew by PHP1.0 billion or 8% to PHP13.8 billion, a record-high RNI for FPH. 

• First Gen’s attributable net income of PHP17.4 grew by PHP3.2 billion or 23% mainly driven by EDC’s higher earnings contribution as it benefited from higher average Wholesale       Electricity Spot Market (WESM) rates and contract prices on its electricity sales in 2023. These favorable price variances were further supplemented by the improved full-year       results of Burgos Wind following a better wind regime and the decline in replacement power purchases due to higher generation of the geothermal plants following fewer       outages. The gas plants likewise registered improved earnings in 2023, largely reflecting San Gabriel plant’s higher capacity and O&M fees after the recovery from a deration       that occurred in 2022. 
• Rockwell Land’s attributable net income of PHP3.1 billion was higher by PHP811 million or 35% on the back of the strong performance of the Residential Development segment       driven by the growth in revenues from the completion of Arton West, increased project accomplishments from Balmori Suites, 32 Sanson – Sillion, Rockwell South, and Nara       residences and lots, as well as the higher sales booking from Proscenium, Arton, Edades West, and Rockwell Center-Bacolod.  The Commercial Leasing segment likewise       surpassed last year’s performance brought about by higher average rental rates and leased spaces for both retail and office areas, particularly in Proscenium and Balmori       Retail. 
• First Philec, Inc. closed the year with a net income of PHP1.0 billion, at par with last year’s results, reflecting steady revenues from its sale of electrical transformers and new products in 2023. 
• The FPIP group’s net income declined by PHP45 million or 20.5%, from PHP220 million in 2022 to PHP175 million this year, as the higher revenues from recurring sources and       the gain recognized from a land sale were weighed down by the higher operating and finance expenses in 2023.
• First Balfour Group reported a consolidated  net loss of PHP159 million for 2023, a reversal of PHP685 million or 130% from a PHP526 million net income in 2022, due to the weaker bottom line of First Balfour on account of lower margins reported from ongoing construction projects coupled with higher finance expenses, and of Thermaprime due to the reduction of drilling rigs in service during the period.
• The Healthcare Group registered a combined net income of PHP7 million, a turnaround of PHP111 million or 107% from a net loss of PHP104 million in 2022, mostly reflecting the positive incremental contribution of The MSA (Philippines), a company acquired by FPH in 2023,  complemented by the improved results of Asian Eye from better margins and absence of one-off losses.

The Confidence to Continue On

We live in exciting times by aligning our business plans with our decarbonized and regenerative mission. This clarity of purpose gives us a clear sense of direction in how we manage FPH’s portfolio in power, real estate, construction, manufacturing and energy solutions, and the newer healthcare and education sectors. The success of our initiatives can only succeed by being conscious about strengthening the distinctive capabilities of our people, our system and being aligned with strong partners. Our mission is far from being easy, but we are comforted knowing that the message of revitalizing life amid a seemingly bleak future resonates with the talented individuals we work with.

What FPH has achieved in 2023 is far from the end of our efforts. We hope that our stakeholders will continue to share in this journey energized by our behavior and actions toward a future worth fighting for. Thank you for all your support. Let’s all continue to be “Powered by Good”.