Cebu Holdings, Inc.
President’s Report 2006

Mr. Chairman, members of the Board, our valued stockholders, our friends in media, fellow employees of Cebu Holdings, good morning.

In 2006, we delivered results, living up to our mission of being the premier real estate company in Cebu, in creating and providing market-driven products of enduring value through a customer-focused and highly-motivated team of professionals.
           
Our efforts resulted in very significant profits and unprecedented market appreciation which we hope will ensure your continued trust and confidence as we strive to improve the quality of life of the communities in the markets which we serve.

It is my pleasure to announce that in 2006, Cebu Holdings Inc. breached the one billion peso mark in revenue. This was coupled by an income growth of 76 percent to 207 million pesos --- a 10-year high in the company’s books.

With this figures, investor confidence in your company soared, resulting in a Total Shareholder Return (TSR) of 195.7 percent while trading volume in 2006 increased by 119 percent compared to the previous year’s level.

The year-on-year appreciation of CHI’s stock price was 191 percent, relatively high compared to the Philippine Stock Exchange Index and the Philippine Property Index.

We attribute our performance in the past year to achievements of the key result areas across the four perspectives of our strategic management system, the Balanced Score Card, the central focus of which is the strategic planning and execution.  Namely, these are: financial, customer, internal business process and learning and growth perspectives.

Allow me to further state the highlights of last year’s performance:

Slide --- Learning and Growth Perspective: Harnessing People Development Potentials for Growth

To achieve the company’s vision, we concentrated on developing a highly-talented team committed to learning and innovation.

Early on we had recognized the value of maximizing the potential of each employee in the company. In CHI, talent is our most important resource. With the right training and clear-cut strategic guidelines, here lies an essential key in achieving success.

We take pride in the fact that we have developed a unique climate of innovation and collaboration within our 135-strong CHI organization, which allows us to adapt extremely well to a changing environment.

Confident in the capability and dynamism of our team, we also invested in various career development, skills training and organizational wellness programs in 2006.

Today we have a lean, flat, proficient team that approaches challenges in a multi-disciplinary method that encourages teamwork and fresh ideas in arriving at the solution.  Everyone is able to connect to our value delivery chain which starts from identifying customer needs to delivery or satisfying the need.

Taking it a step further, we also developed a Competency Program to equip the company in charting succession, recruitment and skills upgrading while ensuring parallel mindset within the team.

Slide --- Internal Business Process Perspective: Improving Operational Efficiencies

While focusing on our people resource, we also strengthened our internal business processes and systems to meet global standards and hit a level which is three times the excellence requirements by being the first full-line real estate company in the country to be certified to the three ISO standards for quality, environment and health and safety.

The company acquired its certification to these three standards in April of last year, and in the last quarter, not only passed the surveillance audit but also gained approval of auditors from Certification International for the continued improvement of our systems.

The Systems, Applications & Products (SAP), one of our main internal business processes, has helped synchronize financial processes and records, improving the efficiency of collection of sales and rentals. Last year, your company achieved 99 percent and 94 percent collection efficiency for real estate and retail operations, respectively.

Of worthy note are the efforts of our Property Management Division in implementing cost-saving measures in managing your company’s properties, resulting in savings of about P2 million.

Slide --- Customer Perspective: Achieving Customer Satisfaction

While enhancing our team and processes, we maximized operational efficiencies thus attaining our financial objectives, without sacrificing customer satisfaction.

In fact, in 2006 we scored higher than targets in retaining the loyalty of our valued customers, as well as acquiring new buyers for our various projects, while maintaining dominance in the markets we serve.

For the Real Estate Development Group, aside from maintaining bullish sales with the launch of the second phase of Amara, your company also received high marks for customer satisfaction in an external customer survey.

In the retail front, Ayala Center Cebu posted higher than target sales increase. In 2006, the mall also maintained dominance in its primary markets and has continued to attract other market segments such as foreign and domestic tourists.

The Property Management team also exceeded targets in customer surveys. With their proven track record as the industry leader, the group successfully renewed its property management contracts with residential and office buildings, and landed a property management contract with the City Sports Club Cebu, which is run by the club’s proprietary members.

The Total Customer Satisfaction Management System (TCS/MS), our tool in monitoring and handling customer concerns, recorded a 25 percent drop in recorded customer complaints from January to December 2006 and a year –on-year decrease of 2.95 percent compared to 2005.  Also last year, the system recorded a significant improvement in response time with an increasing number of complaints resolved within the day.

Last year, your company also institutionalized the Annual Customer Service Excellence Awards, a special recognition to organic and outsourced personnel who have consistently rendered exemplary performance or performed service beyond the line of duty, as commended by our customers.

Slide --- Financial Perspective

All these enhancements have helped us fulfill our commitment to you, our shareholders, to increase the market value of your company.

Because of its impressive performance, CHI’s share price value appreciated by almost three-fold in the stock market, an increase in market capitalization to 6.14 billion from a year-ago level of 2.11 billion.

Overall, your company posted a 50 percent growth in revenues and a 76 percent growth in net income after tax in 2006.  This significantly higher increase in income versus revenue indicates your company’s efficiency in operation as well as in implementing cost-saving measures.

In the residential front, Phase 2 of seaside subdivision Amara was launched in July of last year. Within the first three days, 46 percent of 87 lots moved and by year-end, all Phase 2 lots were committed to buyers proving that Amara, as a strong brand, remained unshaken in its firm position as market leader.

Revenue derived from residential lot sales is 923 percent higher than that of 2005.

Also in 2006, the two remaining condominium units at Park Tower 2 were sold, contributing P18.4 million to revenue.

In retail, Ayala Center Cebu continues to show excellent performance, with a revenue of P398 million.

Ayala Food and Entertainment Center (AFEC) and theatre operations under the company’s wholly-owned subsidiary, Cebu Leisure Company, Inc.(CLCI) reported a P100 million in contribution to CHI’s revenues.

The sale of two lots in Cebu Business Park contributed P76.9 million to revenue, posting a 125 percent growth in commercial land sales over the previous year.

In Asiatown IT Park, flagship project of subsidiary Cebu Property Ventures Development Corporation, seven lots were sold by the final quarter, posting sales of P173.5 million. This was a major contributor to CPVDC’s bottom line which grew by 153 percent compared to that of the previous year.

Another P27 million was contributed to your company’s bottomline by the hotel operations in Cebu City Marriott Hotel, a joint  project with Ayala Hotels, Inc. and CHI’s subsidiary, Cebu Insular Hotels Inc. (CIHI).

CHI’s expertise in building master-planned communities is balanced by its commitment to build enduring and beneficial relationships with its stakeholders.

By continuing to build projects, systems, communities and relationships, CHI is better able to adapt to changing business realities, gain customer loyalty, bottomline success and investor confidence, as we create value for our stakeholders.

With your company’s increasing investment and growing portfolio of projects, investor confidence was reflected in the significant 191-percent increase in the value of CHI’s stocks in the market from a closing of P1.10 per share in December 2005 to P3.20 per share by the end of 2006.

We paid a total 96 million pesos to you, our shareholders, through cash dividends at a rate of P0.05 per share to shareholders on record as of October 13, 2006.

Looking Forward

Our 2006 performance serves as a good foundation for the successful implementation of our growth strategy in the coming years.

Our current projects are aimed at capitalizing on growth possibilities in Cebu especially in the areas of information technology (IT) and leisure facilities and services.

Finishing up construction is the expansion building at Ayala Center Cebu, and we just started mobilization on the lagoon redevelopment which will bring in more than 13,000 square meters of additional leasable area.

The mall’s construction of its expansion building and the launching of its lagoon redevelopment increased interest in Cebu Business Park as the prime business district, as evidenced by the growing build-up in the area.

With the continuing robust take-up of lots at Amara, we are also looking at the launching of future phases to meet the high market demand of this real estate best-seller.

We are confident that this company and our people are well positioned to meet the challenges of 2007 and beyond, as we embark on the trail-blazing growth of our current projects while taking advantage of the opportunities that will emerge.

I would like to thank each member of team CHI who I know have been working long hours to contribute to the past year’s success.

I would like to give a special acknowledgement to my predecessor, Mr. Rene Almendras for his steadfast stewardship of the team for the past five years.  Of course, the combined wisdom and support of the board of directors, headed by our Chairman, Mr. Jaime I. Ayala,  are largely responsible for the success we are reaping today.

I would also like to express my appreciation to the exceedingly enthusiastic market, the public and of course, for the invaluable support of all our stakeholders.

It is with your continued trust and confidence in our plans and abilities that we forge on to face the challenges of the coming years.

Thank you and good day.