Mr. Chairman, honorable members of the Board, fellow stockholders, our friends in media, my colleagues in Cebu Holdings, good morning.
In today's increasingly competitive global market, it is a company's quick, yet calculated ability to adapt to change and take advantage of opportunities that spells out success.
In recent years, tourism and information technology have emerged as opportunities which present enormous potential for economic growth in the region.
Primarily because of these two industries, Cebu was ranked eighth in the Top 10 Asian cities of the Future by the Finance Direct Investment (fDi) magazine of the Financial Times Group. With the growing interest in the area, developers see a five to seven year boom cycle in the real estate industry, anticipated to peak in two years.
Cebu Holdings is about to embark on another year in its almost 20-year history. As a major player in the local real estate sector, your Company was one of the pioneers which helped catalyze the present-day positioning of Cebu as an investment destination in the country. Our ability to analyze and shift our business mix in response to these market trends will ensure faster growth and offer higher returns to shareholders.
In the past year, we have intensified our efforts to capitalize on the twin-win industries of tourism and ICT, resulting in a remarkable performance for the Company.
Financial and Operating Results
In 2007, the Company's earnings from operations improved to all-time high performance with revenues of 1.28 billion pesos, 24 percent higher than that of the previous year's. Consolidated net income, also exceeded the 2006 figure by 22 percent, reaching 251.8 million pesos, the highest bottom line since the Company's inception.
Robust sales of commercial and residential lots, as well as increased GLA in retail and leasing operations resulted in impressive bottom lines for the Company's core businesses.
At Cebu business Park, the Company's flagship project, one commercial lot was booked for sale and one was reserved in 2007. Build-up also continues with the completion of the Pioneer House, Cebu I.T. Tower, Security Bank and Lexmark's 8-storey building. More structures are underway with the construction of Lexmark's 23-storey building, Creativo, RCBC Bank, Tower Palace, and the lagoon redevelopment at Ayala Center Cebu.
The Company's product lines also continue to enjoy leadership in the markets they serve.
In the residential front, the Company launched in partnership with Coastal Highpoint Ventures, Inc. its best-seller, Amara, in 2005. Two years and three phases later, it continues to lead in market sales, consistently surpassing targets within weeks from being offered to the public.
In 2007, lots offered in phase 2 were sold out. Phase 3 was also launched in the fourth quarter of the year and 58 percent of the inventory was taken up at yearend 2007. Residential sales at Amara contributed 222 million pesos, or 17 percent of the CHI's total revenue from the sale of the eight remaining lots in phase 2 and 40 lots in phase 3 and prior year's sale computed based on percentage completion. To date 86 percent of lots at phase three have already been sold, and only 12 lots remain in the inventory.
2007 also saw unprecedented growth for the 76-percent owned subsidiary, Cebu Property Ventures and Development Corporation. CPVDC's flagship project, Asiatown IT Park, has seen bullish lot sales and infrastructure build-up to address the increasing demand of office space from local and multinational IT and IT-enabled service firms. As of end of 2007, various locators at AITP registered a combined GLA of over 66,500 square meters, generating 11,637 jobs, up from 6,067 in 2006.
Ayala Center Cebu registered a gross revenue of 427.7 million pesos, seven percent higher than that of the previous year's, as a result of higher sales per square meter, rental rate increases, and remarkable lease occupancy.
High disposable income, as a result of the growth of jobs among young professionals, as well as growth in tourism, has prompted aggressive expansion in the retail front. Average traffic count has increased by 19 percent to almost 75,000 a day.
In 2007, we opened the expansion building at Ayala Center Cebu which has increased gross leasable area at the mall up to over 86,000 square meters. We also continually evaluate our mix of merchants to ensure that we are the preferred shopping and lifestyle destination of the markets we serve.
Success is translated to shareholder value
To ensure the Company's sustained success, we continue to strengthen our organization by optimizing the use of human capital, streamlining processes and empowering our people to achieve the goals we have set.
A basic tool in our operations is the Balanced Scorecard (BSC), a strategic management system, which translates strategy into action, with each member of the organization connecting to the value delivery chain and contributing to the attainment of the Company's corporate goals across four perspectives --- financial, customer, internal business process and learning and growth
In the financial quadrant, this is reflected in the company's sustained revenue growth, which then translates to strong stock fundamentals for our shareholders.
The growth across our various business lines is translated in a Total Shareholder Return (TSR) of 13.2 percent for the previous year. Stock price increased from a closing of 3.20 pesos per share in 2006, to 3.60 pesos per share in 2007. This is 10 times its value five years ago. In December 18 of last year, we declared a cash dividend of five centavos per share for stockholders of record as of December 4, 2007, or a total of 96 million pesos.
The Company's financial position also continues to grow stronger with its balance sheet reflecting total assets of 5.3 billion pesos, equity level amounting to 3.7 billion pesos, and bank debt of only 330 million pesos as of end of 2007.
In the customer quadrant, our performance is reflected in above average satisfaction ratings from both our internal and external customers, as well as continued patronage and repeat purchases of our various projects.
Since customer is always first, we have set up various feedback mechanisms, such at the Total Customer Satisfaction Management System, to ensure that customer needs are heard and addressed at the soonest possible opportunity. We also regularly conduct External Customer Surveys to gauge customer perception. In these surveys conducted, Amara buyers gave a customer satisfaction rating of 8.58 out of 10. For Ayala Center Cebu, merchants gave a customer satisfaction rating of 8.0, while a mystery shoppers' survey generated a rating of 7.6 out of 10. Our Property Management Division was also rated an average of 8.4 by homeowners and office building tenants. Indeed, the best advertisement for our products is the testimony of our satisfied customers.
To improve our internal business processes, we have acquired and maintained conformity with the three international standards on Quality, Environment and Occupational Health and Safety, making CHI the first full-line real estate company in the Philippines to attain such distinction. This ensures the efficiency and effectiveness of our systems and products as the Company takes its place among globally-competitive organizations. Furthermore, our modern technology infrastructure that is in place brings our internal business process up to speed.
The streamlining of our processes has brought about energy efficiency, as well as cost savings and emissions reduction. In 2007, the Company saved 753,410 kilowatt hours or an equivalent of 4.9 million pesos. Water consumption and greenhouse gas emissions were also significantly reduced, reaching the targets we have set in our environmental programs. On solid waste management, Ayala Center Cebu achieved a significant reduction of both recyclable and residual solid waste while Cebu Business Park registered an increase because of build up.
The Company puts the human resources in its priority list, being the underlying strategic factor of success in business. Behavioral and competency programs were drawn up to ensure that every member of the team is qualified and properly equipped to achieve set goals. To promote a work-life balance, employee volunteerism is encouraged and wellness programs, which include sports, cultural and social activities, are sponsored by the Company. The impact of these programs was reflected in our Organizational Climate Survey for 2007, which yielded favorable responses from employees, indicating a 94 percent satisfaction on communication and work environment, 93 percent job satisfaction, and 89 percent for workplace innovation.
In 2007 we also increased our social initiatives to help improve the communities we interact and do business with. These include various community relations projects along the lines of environment, education and entrepreneurship which strengthen our commitment as a responsible corporate citizen.
Employee volunteers organized a tutorial program at Barangay Hipodromo, teaching 30 graders to hone their reading, writing and comprehension skills. Volunteers also collected book donations and helped furnish the school's library. With our partner, Coastal Highpoint Ventures, Inc., we formally turned over a fully-furnished, three-classroom building to Catarman Elementary School in February 2007.
As a neighbor of choice, we have always adhered to the principle of “teaching a man to fish”. In providing assistance to our neighboring barangays, we actively support their various livelihood programs. These include “Kwarta sa Basura” and the Mega Moms of Barangay Luz and also Barangay Hipodromo's vermi composting project. We also initiated a Skills Inventory and Skills Training Program to assist qualified residents of our fenceline barangays in getting employment within Cebu Business Park.
Furthermore, our active involvement and leadership in the business community and various socio-civic organizations maximized our contribution to the economy of Cebu and to the larger community. We actively promote public-private partnership, and we have extended our agenda to include the larger community instrumental in shaping Cebu's favorable business climate. CHI strengthened its involvement in the business community leadership when yours truly served as president of the Cebu Chamber of Commerce and Industry, leading the organization to the Hall of Fame after it was cited as Most Outstanding Chamber for three consecutive years.
Starting in 2007, the Company sought to adopt Triple Bottom Line (TBL) Reporting to measure the Company's performance, not only financially, but in terms of its environmental and social relevance. This ensures the viability of our growth as a company, and imposes accountability as a responsible corporate citizen in our physical and social environs.
To document these endeavors in the economic, environmental and social aspects, we are releasing our first-ever integrated annual and sustainability report. This is prepared based on the Global Reporting Initiative G3 guidelines at C level application. GRI is an organization that utilizes multi-stakeholder process for creating and reviewing a set of sustainability reporting performance indicators.
This is the most respected and most widely adopted set of guidelines for public reporting on corporate social responsibility and sustainability performance, and is also the most widely referenced framework by international investor groups for sustainability reporting.
Upon the report's registration tomorrow, CHI becomes the third company in the country to adopt a GRI-compliant sustainability report, after the Asian Development Bank and Ayala Land. This will also be the first integrated annual and sustainability report in the country.
Our business processes that conform to global standards have not only strengthened our efforts towards sustainability, but have made our systems more effective and efficient, thus reducing expense and contributing more to the company's bottom line.
These global standards define the way we conduct our business –-- from determining trends and market needs, and then translating these into innovative products in all of the company's business lines, thus delivering what the market needs to the delight of the customers.
To guarantee open and transparent communication of our processes which are a requisite for sustained growth and building investor confidence, we continue to adhere to the highest standards of corporate governance. With all the above initiatives, we seek to promote a deeper understanding and meaning and of the company's long-term value creation process.
Prospects for 2008 and beyond
We ended 2007 with a strong financial portfolio and a pipeline of exciting and innovative projects, focusing on growth across all segments.
For 2008, we are projecting P962 million in capital expenditures for 2008, 88 percent higher than the P511 million that we spent last year.
Our retail businesses will continue to take the bulk of our investments with the on-going lagoon redevelopment scheduled to be completed and opened by the second semester of 2008. This will add more than 8,800 square meters of gross leasable area to accommodate even more shops which will cater to the evolving lifestyle of the market. A major re-planning is also underway, focusing on the 9-hectare property where Ayala Center sits on to ensure value optimization of this key strategic area in Cebu Business Park.
In the real estate business group, we will also be launching succeeding phases in seaside residential project, Amara by the 3rd quarter of 2008, taking advantage of its continued market leadership and the increasing interest in real estate purchasing, particularly from the OFW market.
For office leasing, CPVDC's eBloc Tower is scheduled to be completed by the third quarter of this year. The horizontal development of phase two of Asiatown IT Park covering five hectares of raw land is expected to start in 2008.
In summary, 2007 was another very good year for the Company. We achieved strong financial and operating results and extended our leadership in our business lines with innovative market strides and internally strengthening our management systems. We have further strengthened our external relationships by actively engaging in our social and business communities, ultimately becoming more relevant as a responsible corporate citizen.
We are also confident for 2008 and beyond with an exciting number of projects in the pipeline, as well as our continued efforts to strengthen our process and equip our team. All these are geared towards optimizing the Company's relevance and contribution to our various stakeholders and to the larger community.
I am proud and grateful for the dedication and commitment shown by my colleagues at CHI, the guidance provided by our Board of Directors, and the continued support of our loyal shareholders. Confident of this collective commitment, we look forward to the opportunities and challenges of 2008 and beyond.
Thank you and good morning.
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