PhilWeb’s new offices at the Alphaland Southgate Tower, on the corner of Chino Roces Avenue and EDSA in Magallanes, Makati City
ABOUT US
PhilWeb Corporation is the first and largest (by market capitalization) listed Internet company in the Philippines. We are the dominant technology-based gaming firm in the country and a principal technology enabler to the Bureau of Internal Revenue, in their efforts to increase tax collections, and to Philippine Amusement and Gaming Corporation (PAGCOR), the regulatory agency for all games of chance. PhilWeb Corporation delivers world-class, innovative, fair, safe, entertaining and legal technology-based gaming products to the Filipino public, and we develop emerging, gaming-based revenue streams for various agencies of the Philippine government. The Company today serves over 50,000 customers a day through our nationwide network of online cafĂŠs, sports betting kiosks and mobile games. We are a lean organization, with less than 170 employees at the end of 2009, but a highly productive one. In the last five years since your Company entered the gaming business, we have generated P181 billion in Gross Bets.
This is just the beginning.
P H I LW E B C O R P O R AT I O N
table of contents
2009 Annual Report 5
Letter to Shareholders
9
Corporate Governance and CSR
10
PAGCOR E-Games
12
Big Game, Inc.
13
BPO Casinos
14
PAGCOR HomePlay
15
Basketball Jackpot
16
MegaSportsWorld
17
Roulette Combo
18
Instant Premyo sa Resibo
19
Bid Wars
20
Acentic
22
Press Quotes
24
Executive Officers
26
Board of Directors
30
Statement of Management’s Responsibility
31
Report of Independent Auditors
33
Consolidated Statements of Financial Position
33
Consolidated Statements of Comprehensive Income
35
Consolidated Statements of Changes in Equity
36
Cash Flows
38
Notes to the Consolidated Financial Statements
2009 ANNUAL REPORT
Letter to Shareholders 2009
DENNIS O. VALDES
ROBERTO V. ONGPIN
PHILWEB PRESIDENT
PHILWEB CHAIRMAN
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Letter to Shareholders 2009
Dear Valued Shareholders, It is with great pleasure that we look back at the events of 2009. Our revenue and earnings growth rates accelerated to the point that your company, PhilWeb Corporation, is now a certified blue chip company. With several years of solid performance behind us, we have entered a phase in our corporate history where we are positioned to take a quantum leap forward into 2010. Once again, our revenue exhibited remarkable growth, hitting a total of P818 million, 82% higher than the previous year. All of revenue divisions, our PAGCOR e-Games Cafés, our Internet Sports Betting Stations and our mobile gaming division, performed well. All these products combined to produce a Net Income of P551 million, once again a record for our Company. The growth vs. 2008 Net Income was 89%, an acceleration unmatched in any of our previous years. We note that Net Income growth is outpacing Revenue growth, which means that we are holding down the growth of total costs as we improve our different businesses.
818 450 133
2006
We continue to invest in researching what items are important to our players in terms of improving their overall café experience. Not only do we continuously upgrade our software and train our Gaming Assistants, we have also improved our chairs and converted computers to LCD displays, and we are now even encouraging café operators to put ATM machines inside their cafés.
2007
2008
2009
REVENUE (PESOS MILLIONS)
A brief look into the performance of our revenue divisions shows strengths all around. As we predicted last year, our core business, the PAGCOR e-Games Café, or PEGS, was stellar. We opened 50 cafés in 2009, more outlets than we had opened at any other time in our history, a sign of entrepreneurs’ acceptance of this product as a good business to invest in. Not only did we open more cafés, the ones we opened tended to be larger and more lavish than the previous openings, a sign that our new café operators are willing to risk more on their new businesses and are learning to market themselves more aggressively. Many existing PEGS also refurbished and expanded, such that overall, the average café’s turnover continued to increase. Many of our new cafés were opened outside Metro Manila, showing the strength of the overall Philippine economy as countryside gamers proved to have the disposable income to entertain themselves in our outlets.
+82%
267
551
+89% 292 223 116
2006
2007
2008
2009
NET INCOME (PESOS MILLIONS)
As in previous years, month-on-month PEGS revenue increased steadily throughout the year, except for a slight pause in September due to the effects of Typhoon Ondoy. By November, the revenue growth had recovered and December was our best month ever, in terms of Gross Bets and total Casino Win.
2009 ANNUAL REPORT
5
Letter to Shareholders 2009
171
121
+41%
76 44
2006
2007
2008
2009
PAGCOR e-Games Cafés
35 516
+126% 61 102
231
75 121 41 2006
2007
2008
CORE NET INCOME (WITHOUT EQUITY IN ISM)
2009
Our other businesses continued to do well and contributed significantly to the overall company’s performance. Basketball Jackpot launched a new variant, NBA Ending, based on games in that league. As the NBA has over 1,300 games a year, compared to less than 300 for the PBA, PBL and UAAP combined, we have been able to offer our patrons who like playing “ending” a daily game, rather than the limited variety available from PBA. As a result, our 185 Internet Sports Betting Stations or ISBS are increasing their average bet volumes. We are continuously looking for ways to improve our operators’ sales by offering them more products to sell. In the last half of 2009, we negotiated with Mega Sports World and Pagcor to make the former’s sportsbet offerings available on our ISBS terminals. An agreement was hammered out to offer the MSW product in eight of our Big Game outlets for the Pacquiao vs. Cotto fight on November 14, 2009. In five days, we sold over P1 million of bets and garnered a nice profit. In January 2010, a final contract was signed allowing us to distribute MSW throughout our PEGS and ISBS network. We have high hopes that MSW will be a high performing product for us in 2010. With all our PEGS and ISBS divisions doing so well, our total remittances to PAGCOR, the Philippine Amusement and Gaming Corporation, for their revenue share in these businesses increased dramatically in 2009, to a total of P1.04 billion, an increase of 81% versus the previous year. It is interesting to note that our total remittances to PAGCOR are equivalent to 3.2% of PAGCOR’s total revenue, which comes from its 13 land-based casinos, 22 VIP slot machine clubs, 153 bingo halls and various other businesses. A key difference, of course, is that the revenue we remit to PAGCOR does not entail any operating expenses on their part. Therefore, it flows directly to their Net Income. Our mobile gaming division continues to grow as well. In September 2009, we launched a new and improved version of our long-running Premyo Sa Resibo raffle, which we operate on behalf of the Bureau of Internal Revenue. The new Instant Premyo Sa Resibo allows entrants the opportunity to know within seconds whether they have won a million pesos, a new car or one of many consolation prizes. Instant Premyo Sa Resibo has breathed new life into the franchise as entrants renewed their interest in texting in their official receipts to enter the instant raffle. We have also launched a new game, Bid Wars, which is a reverse auction—in effect, the lowest bid wins, provided that bid is unique or unmatched by any other texter. The product is still in its infancy but has already attracted a core group of die-hard enthusiasts. We account for our Core Net Income, or the income just from our core gaming businesses, distinctly from total company Net Income. The difference is that Net Income includes the contributions from our equity investments, principally the
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Letter to Shareholders 2009 24% of PSE listed ISM Communications Corporation that we own. In 2009, Core Net Income totaled P516 million, an increase vs. 2008 of 126%. The contributions from our equity investment in ISM Communications Corporation slowed to P35 million, down from P61 million in 2008. ISM’s core asset is its 77.7% investment in Eastern Communications, the oldest telecommunications company in the country, and decreases in dividends from Eastern’s foreign investments slowed the income stream from that asset. Nevertheless, ISM continues to be a major component of our Company’s balance sheet. Our investment in ISM has a book value of P813 million or P0.0175 per share, but at the end of December 2009, ISM’s stock price was at P0.065 per share. The total increase in the market value of our investment in ISM versus its historical cost is a staggering P2.2 billion pesos. More importantly, ISM now a key partner of our Company in our international expansion. In January 2010, ISM and PhilWeb invested equally in a Hong Kongbased company, Host Union International Limited, which in turn purchased 65% of Acentic GmbH for Euro 19.5 million or approximately P1.3 billion. Acentic will be our platform for international expansion. Acentic today is an international provider of digital television services and high speed Internet access to hotels. They currently have a network of 200,000 rooms, in many of the world’s leading hotel chains including Accor, Intercontinental Hotel Group, Hilton, Hyatt, Marriott, and other brands throughout more than 30 countries in Europe, the Middle East and Africa.
“Through Acentic, we have a base to expand beyond the Philippine market and take that quantum leap into worldwide expansion.”
Acentic is a perfect fit to the information technology and telecommunications business of ISM as well as the gaming expertise of PhilWeb. Our entry into Acentic will enable them to grow beyond their predominantly European base and enter the booming Asia-Pacific region, the fastest growing hotel market in the world. More signficantly, the substantial number of hotel rooms currently under contract to Acentic provides our Company with enormous opportunities to expand our gaming business, today limited to the Philippine market, to many other major countries principally in Europe and the Middle East. Through Acentic, we have an instant platform of over 200,000 rooms in Europe as a market for our Internet gaming offerings. Through Acentic, we have a base to expand beyond the Philippine market and take that quantum leap into worldwide expansion. We had an excellent 2009 but are even more excited about our prospects for 2010. In the past few months we have formed three new subsidiaries, which together with Acentic, will form our foundation for growth. The first two new subsidiaries are PhilWeb International Gaming Corporation and PhilWeb Mobile Lottery Corporation. The former is the legal vehicle we are using to explore new markets, primarily in Asia, while the latter houses our efforts to get into the lottery business. Many of the projects in these entities will 2009 ANNUAL REPORT
7
Letter to Shareholders 2009
be more disclosed once the appropriate contracts have been signed. The last new subsidiary is PhilWeb Homeplay, Inc. This entity was recently granted by Pagcor the permit to operate the first truly online casino in the country, http:// www.pagcorhomeplay.com. Our new online casino was launched in January 2010 and is already attracting a number of players from around the country. We have every reason to believe that Home Play will match the performance of our PEGS network within a year. Our consistent and aggressive management performance over the past years, coupled with the exciting new possibilities that lie ahead of us, have propelled our stock price nicely in 2009. We started the year at a price of P0.028 per share. In August, we changed the par value of our shares from one centavo to one peso per share, thus opening the gates for foreign institutional investors, who had previously been held back from investing in “penny� stocks, to invest in our Company. After the SEC approval of our new par value, share prices more than tripled, to a high of P18.75 per share, pushing our total market capitalization past P23 billion.
PhilWeb Stock Price Performance Daily Average, adjusted for par change
Stock Price for 2009
P20.00
P16.00
P12.00
P8.00
P4.00
P0.0
J
F
M
A
M
J
J
A
S
O
N
D
We believe the market will continue to push our prices even higher, once our Acentic and other new businesses start up early in 2010. Indeed we are looking forward to setting new milestones as we continue our progress towards growing PhilWeb beyond our borders. In closing, thank you very much to all of you, our faithful and dedicated stockholders. Your support throughout the years has always encouraged us to strive to bring our Company to higher and higher levels of profit. We look forward to continuing to do this for you in 2010 and the years beyond. 22 February 2010
Roberto V. Ongpin Chairman
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Dennis O. Valdes President
Corporate governance and social responsibility
Your company recognizes that its primary responsibility is to its stakeholders. This responsibility extends beyond financial results, and covers its social responsibility to the community at large. As such, PhilWeb has expanded the sphere of its corporate governance and social responsibility to extend to the following areas: PhilWeb commits to conducting its business according to the highest ethical standards. Integrity is of paramount importance and we commit to undertake our operations with transparency and a sense of accountability. PhilWeb will seek involvements in the communities where it does business, for the upliftment of the less fortunate as well as the betterment of these communities. PhilWeb recognizes that education can change lives and will support education programs, particularly, but not exclusively, education in information technology and communications. PhilWeb will prioritize supporting its direct stakeholders, including its stockholders, its employees and its community of customers, suppliers and others with whom it does business. By being a responsible corporate citizen, we are confident that we can be a positive force among our stakeholders. As PhilWeb grows and delivers profits to its shareholders, it also amasses resources that can make a huge difference in the lives of the less privileged. In 2010, your company will actively explore ways in which it can intervene in a positive way. PhilWeb will report to its shareholders the progress of such activities in a small but adequate way. Your company believes that engaging in, for instance, philanthropy just for the sake of publicity is at best an empty gesture. Therefore, it will not seek to over-publicize its programs.
2009 ANNUAL REPORT
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Pagcor e-Games
In 2009, PAGCOR e-Games (PEGS) achieved new heights in all areas of operations. Network size, number of players and total bet volumes exceeded previous levels, leading to record profits and unprecedented growth for your Company. We ended the year with 171 cafés in our network, a 41% jump from the 121 cafés in 2008 and more than double the network size of 76 in 2007. Of the 50 cafés opened in 2009, 29 were opened by first-time operators, almost the same number of new operators that joined the network in 2008. Expansion branches accounted for the remaining entrants, a 62.5% increase from the 2008 level, as existing operators realized the growth potential of the business. PEGS widened its nationwide footprint. Pioneering branches were opened in Albay, Bataan, Bohol, Bukidnon, Cotabato, Dipolog, Las Piñas, Mandaluyong, Muntinlupa, Negros Occidental, Negros Oriental, Nueva Vizcaya and Surigao. This expansion was consistent with our strategy to explore opportunities outside Metro Manila. It also complemented our efforts to increase PEGS visibility, which we believe is necessary to attract the attention of consumers who are not yet aware of our gaming and entertainment offerings. With more cafés in operation, the total amount of gross bets rose dramatically, reaching P75.2 billion in 2009, a 60% increase from the previous year’s P47.2 billion. The big difference between the growth rates of total bet volumes and café openings is a noteworthy indicator: it implies that despite the opening of more branches, new cafés are realizing their growth from new players, and are not cannibalizing existing cafés within the network.
Casino Win Casino Win in 2009 reached P2.67 billion, a 82% spike from the previous year’s P1.47B. This major improvement came from the increased number of players shifting to slots from table games. This came about as a result of the PEGS Marketing Team’s continuing campaigns to wean players away from baccarat, which has a relatively low Casino Win rate, to slots, which have a higher house advantage. A high percentage of players choosing baccarat is typical of Asian gambling markets. From a high of over 50% baccarat players at the beginning of the business, we have managed to drive baccarat players to less than 40% for most of 2009. This campaign was worth P94 million of pesos in additional Casino Win at the end of the year. Winning percentages are largely determined by which games players choose to play. Games with high payout rates, such as baccarat, have correspondingly low Casino Win rates, between 1% and 1.5%. In contrast, slot machines and roulettes have Casino win rates near 5%.
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Pagcor e-Games
Total session count rose by 73.6% to 7.6 million, from 4.43 million in 2008. Marketing activities such as the 2009 PEGS bus tour in Visayas and Mindanao led to considerable gains. The four-month bus tour caused a 7.8% increase in sessions in the cafés covered by the bus tour. Also as a direct result of these, earnings grew by P59M in May and June compared to projected levels. As a result of these efforts, all parties involved in running the PEGS cafés saw a substantial increase in revenues. These parties include the Bureau of Internal Revenue, which receives a 5% franchise tax on all gaming revenues of PAGCOR; the café operator, who takes 28% of Casino Wins; and PAGCOR and PhilWeb. Our PEGS operators today earn a nationwide average of P348,000 a month in commissions. Assuming an average monthly operating expense of P150,000, the operator stands to make net income of roughly P200,000 per month. Average Casino Wins and Average Operators Commissions vary across geographical locations, with those in the NCR recording Average Casino Wins of as much as P2.1 million, compared to P1.22 million in Mindanao, P1.03 million in Luzon, and P608,500 in the Visayas. Average Operators Commissions are P591,000 in the NCR; P287,700 in Luzon; P170,000 in the Visayas, and P343,000 in Mindanao. Since the average investment for a PEGS is from P1.2m to P1.5m, the operator can recover his investments in 12-13 months. Location, of course, is a major determinant of performance. PEGS located in the National Capital Region typically have a shorter payback period compared to those in the provinces, where the payback period can run from 1.5-2 years.
Our PEGS operators today earn a nationwide average of P348,000 a month in commissions.
Capacity-building and service upgrades More resources were deployed to improve the service capability of PEGS operators, who are small and medium entrepreneurs involved in a variety of businesses. These were undertaken with the goal of ensuring quality, integrity of service and reliability. Customer service for PEGS operators was improved through a variety of measures. A dedicated PEGS hotline (338-3388) was established to assist all operators needing technical assistance. A toll-free number was likewise set up for provincial cafés (1-800-10-PHILWEB) to improve access to service. Regular advisories on PEGS maintenance activities were issued, field support was improved, with regular equipment checks and inspections proactively undertaken by PhilWeb as part of its service to PEGS operators, as well as a strengthening of physical and Internet security.
2009 ANNUAL REPORT
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Big game, Inc.
Big Game, Inc. (BGI), the flagship operator and development laboratory for the entire PAGCOR e-Games network, blazed new trails in 2009. A wholly-owned subsidiary of PhilWeb, acquired in 2005, BGI has maintained a steep growth curve and has a pipeline of projects to ensure its continued profitability. Revenue zoomed to P100.4 million—nearly double the P55.9 million recorded the previous year. BGI was the first PAGCOR e-Games operator, starting out with four cafes in 2004, growing to 17 cafes in 2009. BGI realizes that the comfort and convenience of players, especially high rollers, is of paramount importance to the continued growth of the business. High rollers can account for as much as 70% of revenues of a café’s operations, and typically deposit P5,000 or more in a single session—with gross bets running into the hundreds of thousands. BGI thus continuously focuses on the upkeep and renovation of its sites, with the end-view of providing its customers an excellent gaming experience. The BGI café along Timog Ave in Quezon City is the largest in the network and is a showcase of gaming and entertainment options. It has 63 terminals, eight of which are Big Lounge booths, for its high rollers. BGI’s Morato relaunched in February 2010 with 56 seats, also with six Big Lounge booths. With its 59-seat Mindanao branch, BGI now has three of the largest sites in the PEGS network. Delighting customers is BGI’s main focus. It continually expands its service offerings, especially those targeting high rollers. Light snacks such as chips and pastries and an assortment of drinks are served to high rollers for free. Because player convenience is always important, BGI added more Gaming Assistants so that players will get the attention they deserve. ATM’s have also been installed in certain sites so that the players will have easy and secure access to cash. Moreover, bandwidth downtimes have been reduced to near zero, ensuring players of uninterrupted hours of gaming. BGI values its repeat customers and has put in place a loyalty program to keep them coming back. Those who join the program earn points from player buy-ins, which can be exchanged for gift items. To keep customers interested, BGI raffled off a million pesos worth of prizes to its program participants. Raffle tickets could only be bought for points. The main prize was a Toyota Vios, leading to a very strong demand for the tickets. Going forward, BGI will continue to up the ante in the e-Games business, with bigger sites, more offerings and better service, all designed to enhance high rollers’ gaming experience and ensure the growth of the business.
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BPO Casinos
PhilWeb has taken its first important step to international expansion by securing a business process outsourcing contract to manage online casinos on behalf of a foreign principal. Your Company’s experience in online casino management and stature as a reputable, listed public company has attracted several proposals for partnership and cooperation in the online casino field. We have chosen to work first with Digital Union, N.V. (DUNV), a group of investors in the technology sector. DUNV, which holds a Curaçao gaming license, has contracted PhilWeb to manage and operate several of its online casinos, targetting different markets, in Asia. DUNV has given PhilWeb wide latitude to determine the business model and strategies for these casinos, and cooperates closely to develop the products. Asian gambling markets, particularly online, are still relatively new, and much smaller than those in the U.S. or Europe. Nevertheless, they are the fastestgrowing, especially as Asia fully embraces the computer. On behalf of DUNV, PhilWeb has first launched Casinoypi (www.casinoypi.com), a casino targetting overseas Filipinos. Casinoypi’s strength is that it targets a very specific community, who are quite social and respond well to highly adapted messages. As PhilWeb develops the back-end management, payment platforms, marketing, and other key resources and skills, it will launch other casino sites. PhilWeb believes it can penetrate and grow the regional market by offering a wide variety of secure and easy payment options, which has been a stumbling block for other online casinos in the region. It also brings its experience in the PAGCOR business to the table, as a valuable advantage in all aspects of operations and familiarity with regulatory environments. The long-term goal is to build casinos uniquely adapted to Asian markets, all under a single infrastructure umbrella to maximize economies of scale and build powerful regional brands.
2009 ANNUAL REPORT
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PAGCOR HOMEPLAY
PAGCOR HomePlay, the first pure online casino in the Philippines, was launched in January 2010 after years of development. This was a landmark event for your Company, which had proposed this product since the very beginning of its relationship with PAGCOR. PAGCOR HomePlay targets higher-value players, who would rather play on their own computers instead of going to a PAGCOR e-Games Café. In effect, the majority of these players come from the upper classes, and are unlikely to spend time playing in public venues. PhilWeb’s research shows that few of our existing café players have computers at home, and this suggested that there is a large underserved segment of players in the country. With an estimated 5m personal computers in the country, and computer sales booming due to the effect of technology of lowering prices (paralleled by the rapid growth of broadband), PhilWeb believes the HomePlay market could eventually be as much as three times larger than the café market. PAGCOR HomePlay (www.pagcorhomeplay.com) is restricted to the Philippines only, and cannot be accessed from anywhere else in the world. Strict registration requirements ensure that only qualified adults can play, in accordance with PAGCOR’s rules. The Homeplay product differs from the café product in one major sense, which is payment platforms. The advantage of the café model is that it is a cash-overthe-counter business. Online, we needed to provide as many payment options as possible, given that credit card penetration in the country is still languishing in the single digits. Unlike online casinos elsewhere in the world, we could not rely almost completely on credit cards. Instead, we have had to develop unique and creative solutions. PAGCOR HomePlay customers can deposit online or over-the-counter in affiliated banks, over-the-counter at remittance centers, money transfer agents, and even pawnshops and payment centers. They can also use existing electronic money such as Globe’s Gcash, Smart’s Smart Money and the international Click2Pay. We will soon launch E-PINs that can be purchased through nationwide retailers such as convenience stores and internet cafés. Credit cards, can of course be used as well. The initial results have been encouraging. As predicted, the site is attracting customers who deposit higher amounts, up to three times the average deposit in the cafés. In addition, they tend to keep their money in the account rather than withdrawing it after every session. As a result, while Gross Win as a percentage of Gross Bets is comparable to the cafés, the online Gross Win as a percentage of deposits is significantly higher, as players roll their money longer in the system. Home players also tend to play longer sessions, as they are comfortable in their own place; this has a significant positive effect on House Win.
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Basketball Jackpot
Our Sports Betting operation, represented by Basketball Jackpot or BJ, continued to grow last year. BJ ended 2009 with 185 betting kiosks, compared to 150 in 2008. BJ continues to attract potential operators, who value the kiosk’s low start-up cost and simple requirements. Operators need only 4 square meters of space, a computer, printer, scanner and an internet connection to start a BJ kiosk business. From this simple set-up, BJ kiosk operators can accept bets for the popular basketball “ending” game for local basketball games such as PBA, UAAP etc. In early 2009, PAGCOR also approved accepting “ending” bets for NBA games. As a result, the number of games that customers can bet on grew from 300 local games to over 1300 games, giving Philweb more profit opportunities. Another revenue-increasing strategy was to increase the number of betting variations that punters could choose from. Variants now in existence are Last 2, Last 3, Quarter Ending and a progressive jackpot game called Last 2 Jackpot Special (L2JS). All these variants are simple and appealing to the mass market. In Last 2, a punter chooses a two-digit combination from 00-99. The winning two-digit combination is determined through the ending numbers of the final scores of a basketball game. Thus, if Team A won with 93 points against Team B with 90 points, the winning ending combination would be 3-0. A small P10 bet can win up to P800. Quarter Ending basically has the same mechanics as Last 2 except that it is the winning two digit combination for any of the 1st to 3rd Quarters of a basketball match. Last 3 is essentially, Last 2 with a kicker number. The winning Last 3 combination is derived from the Last 2 digits combination plus the last digit of the total points made by the highest scorer of the game. Last 3 is made more exciting since a P10 wager can win P5000. The latest offering, L2JS is the combination of Q2, Q3 and Last 2 to make a 6-digit wager. A P10 bet can win a jackpot prize of P100,000. If no one wins the jackpot for the game, a portion of all the bets will be added to the pot, so that the succeeding game’s jackpot is increased. If a bettor guesses only the Last 2 digits correctly, he is entitled to a consolation prize of P500. To increase revenues in 2010, as well as to take advantage of the growing network of betting kiosks, more games (not necessarily basketball-related) will be added to the current mix. This will entice regular patrons, who love these low-wager types of games, to frequent our kiosks even on non-basketball game days.
2009 ANNUAL REPORT
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MegaSportsWorld
Globally, sportsbetting accounts for a huge chunk of all gambling revenue. In the Philippines, however, legal sportsbetting is still in its infancy. This is partly due to the virtual monopoly of Filipinos’ attention traditionally held by basketball. However, in recent years, emerging sports heroes such as Manny Pacquiao and Efren “Bata” Reyes have captivated the nation. Realizing the potential in this growing sports interest of Filipinos, PhilWeb recently partnered with Megasportsworld (MSW) to offer sportsbetting via our network of PEGS cafes. MSW is a sportsbook fully licensed and regulated by Pagcor to ensure high standards of service and fair play. The first PEGS operator to adopt the sportsbetting terminals in the café was our subsidiary, Big Game, Inc. It was initially launched for the Pacquiao-Cotto fight match. Manny Pacquiao provided the first big burst of bets from both regular customers and walk-ins in the café. The procedure for betting is simple. A customer, or “punter”, chooses from a list of sports events, game formats and their corresponding odds. Once the punter is ready to make a bet, he hands his money to the cashier. The cashier then enters the bet into the system and prints out a ticket. This ticket serves as the claim stub should the customer win. All Big Game, Inc. outlets are now able to offer betting on a full range of sports the whole year round. These outlets accept bets for basketball (PBA and NBA), UFC, American Football, European Football, Baseball, Motorsports, among others. Specialty bets and celebrity bets will also be introduced to attract nonsports fans.
PhilWeb and MegaSportsWorld signed a cooperative agreement to offer Pacquiao-Cotto bets in selected Pagcor e-Games outlets. (L-R) PhilWeb AVP Ferdimark Mariano, president Dennis Valdes, MegaSportsWorld president Francis Uy and consultant Dick Pynegar.
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Roulette combo
Roulette Combo is an exciting addition to our sportsbetting lineup in 2010. This is a new game jointly developed by PhilWeb and PAGCOR, and will be offered to the market at our Internet Sports Betting Stations and Basketball Jackpot kiosks. Roulette Combo is a four-number combination game based on the results of four roulette wheels that will be spun simultaneously. The daily draws will be shown at all ISBS kiosks via web streaming. Bettors will choose four numbers based on the 38 numbers found on a roulette wheel. The roulette wheel will then be spun four times and the bettor who guesses the numbers in exact order wins the jackpot prize. Consolation prizes will also be given to those who guess the last three numbers in exact order or the last two in exact order. Each bet costs P10. To illustrate, if the winning combination is 10, 30, 22, 7, the bettor should be able to guess the exact numbers in the right order (10, 30, 22, 7) to win the P1 million jackpot prize. The bettor who guesses the last three digits (30,22 and 7) wins P10,000 while those who get the last two digits correct (22, 7) wins P8,000. Three draws will be held daily: 11AM, 4PM and 8:30PM. Roulette Combo will resonate well with those players who like to make small bets on number combinations. It is expected to create revenue streams for Basketball Jackpot operators, especially when there are no basketball games. It is expected to further enhance the earnings of Basketball Jackpot operators and increase business activity in the kiosks.
2009 ANNUAL REPORT
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instant premyo sa resibo
In 2009, we renewed our partnership with the Bureau of Internal Revenue (BIR), and introduced an expanded and improved version of the raffle program, to encouraging results. Instant Premyo Sa Resibo or IPSR, is the centerpiece of PhilWeb’s mobile gaming platform, and demonstrates how partnerships can be leveraged to achieve results. PSR was relaunched as IPSR to renew customers’ interest. IPSR tells subscribers instantly if they have won, unlike PSR, where the raffle was held weekly. More and bigger prizes are offered, including a brand new car and a Grand Prize of P1 million. Minor cash prizes of P5,000 and P30 cell phone load are also given. The procedure is exactly the same as PSR, in fact the customer does not have to learn anything new to participate. We also introduced the PSR Card, a new variant of IPSR. This barangay-based promotion offers a PSR card to subscribers. The card enrols them in Instant Premyo sa Resibo for a one-year period. Once the card is activated, entries are automatically generated twice a month for a period of 12 months, using only one receipt. The PSR card price is P100. All in all, your Company processed more than 20 million IPSR entries in 2009, bringing the total to 160 million entries since the program was started in 2006. Gross revenues for Premyo Sa Resibo hit P36 million in 2009. Premyo Sa Resibo continues to be an important source of data for the BIR in identifying tax evaders. It also contributes to PhilWeb’s Corporate Social Responsibility efforts.
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BidWars
Bid Wars is an SMS-based reverse auction game. Players text in a bid for an item, and the lowest unique bid at the end of the week wins the chance to purchase the item at bid price. The key is the word unique. The moment someone else matches your bid, it is no longer unique and thus cannot win, and you must bet a different amount. A bidder generally wins the right to buy an item for a fraction of its retail price. We have auctioned laptop computers worth P60,000 for less than P500, and brand new mobile phones retailing at P30,000 for less than P300.00. Over 21,000 participants took part in Bid Wars in 2009, and 265,000 hits were recorded. Items auctioned in 2009 included an Apple MacBook, an Apple iPod, MP4 players, TV sets, mobile phones, portable DVDs, personal gaming devices, and digital cameras. The base of players and participation continues to grow throughout the months, aided by our stronger marketing and promotion efforts. A partnership with U92FM radio station helped increase awareness for the program. We expect to see greater participation as we undertake more promotional efforts in 2010.
Some prizes won in BidWars in 2009
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Acentic
To sustain its growth momentum, your company has set its sights beyond the Philippines. In line with a strategy to enlarge its global footprint, PhilWeb and its subsidiary, ISM Communications Corp., purchased a 65% stake in German information technology firm Acentic GmbH for P1.3 billion. PhilWeb used internally-generated funds to acquire this equity. Acentic is the product of the 2003 merger of four interactive TV (“iTV”) companies—Prodac, VMS, Ciscom and Granada Business Technology. Following this, PhilWeb and ISM are set to launch Acentic Asia, a subsidiary of Acentic, which is envisioned to serve as Acentic’s gateway to Asia. We are confident that there are strong synergies between PhilWeb and Acentic. Acentic is one of Europe’s leading providers of in-room entertainment. It offers digital and Internet protocol (IP) converged services to hotels, tourism outfits and healthcare facilities. Its digital television services and high-speed Internet access are found in many of the world’s leading hotel rooms including Accor, Dorint, Intercontinental Hotel Group, Hilton, Hyatt, Marriott, Mövenpick and Starwood, in more than 30 countries across Europe, the Middle East and Africa. Acentic is the number two operator by room base across Europe, the market leader in Germany and the second largest in the United Kingdom. The UK, which accounted for 67% of Acentic’s EBITDA in 2009, is by far the most profitable market for hotels in Europe due to its greater number of group-based hotels which have a broader supply of entertainment systems, allowing for more pullthrough revenues and related margins. Acentic has approximately 1,300 hotels and 200,000 hotel rooms under contract across Europe, the Middle East and Africa, which will serve as an instant platform for PhilWeb’s gaming offerings. Acentic also has operating subsidiaries in 8 European markets—UK, Germany, France, Poland, Italy, Spain, Netherlands and Austria, a good take-off point for PhilWeb’s growth plans.
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Acentic
To date, Europe is still the largest geographical market for the hotel industry with 6.6 million rooms, compared to the America’s 6.5 million rooms and the AsiaPacific region’s 4.5 million rooms. The European pay-TV industry is a fragmented market with no dominant leader. Aside from Acentic, the other large operators include Quadriga, Locatel, and Otrum. PhilWeb can look forward to a strong and stable revenue base with Acentic’s long-term contracts with the world’s leading hotel chains. Currently, 38% of the base operating revenue is guaranteed and for the past year, new businesses contracted had a guaranteed average 55% of operating revenue. Majority of contracts are renewed at maturity, highlighting the strength of Acentic’s commercial relationships. In the year ending 2009, Acentic was on track to post an EBITDA of €10M, from revenues of €46M. Through the years, Acentic has demonstrated technological leadership through its innovative products such as the Acentic Panorama. Over 71% of Acentic’s installed base uses digital systems. The remaining analogue systems will be converted to digital, therefore providing enhanced margins through the superior digital guest offering. This will require significant capital expenditures over the next two years. Acentic’s growth was also made possible by the proven ability of its executives to integrate a number of underperforming businesses, reduce costs while maintaining high levels of customer service, and develop market-leading technologies to support future growth. This partnership will definitely enhance the revenues and growth potentials of both PhilWeb and Acentic, whose combined expertise should lead to more gaming possibilities across Asia and Europe.
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PRESS QUOTES
PhilWeb forms P1-B subsidiary for overseas gaming initiatives Philippine Star, 23 November 2009, page B-11 By Zinnia B. De La Peña Listed online technology and gaming firm Philweb Corp. has put up a P1 billion company that will take charge of its proposed gaming initiatives abroad. Documents filed with the Securities and Exchange Commission (SEC) show that the new unit, PhilWeb International Gaming Corp. (PIGC), shall engage in “international gaming ventures including all forms of gaming which are legal in countries in which it will operate.”
PhilWeb puts up unit for overseas expansion Philippine Daily Inquirer, 25 November 2009, page B-4 By Doris C. Dumlao THE COUNTRY’S BIGGEST online technology firm PhilWeb Corp. yesterday unveiled plans to operate foreign government franchised gaming businesses outside the Philippines beginning next year. PhilWeb has incorporated a wholly owned subsidiary, PhilWeb International Gaming Corp., capitalized at P1 billion, to handle the overseas expansion program.
Ongpin group acquires control of UK web firm Daily Tribune, 24 December 2009, page 8 PhilWeb Corp. (WEB) and ISM Communications Corp. (ISM) reported to the Philippine Stock Exchange that its jointly owned Hong Kong special purpose vehicle (SPV) has entered into a binding agreement with Global Innovations Partners (GI Partners), a private equity firm based in the United Kingdom (UK), for the acquisition of the of a controlling 65 percent stake in Acentic GmbH (Acentic), a limited liability company registered in Germany but headquartered in the UK.
PhilWeb’s profits almost double to P552M BusinessWorld, 8 January 2010, page 7 By E.N.J. David Listed technology firm PhilWeb Corp. reported yesterday that its net income rose by almost 90% in 2009 due to higher revenues from its core gaming operations and its investment in another technology firm, ISM Corp. In a statement PhilWeb President Dennis O. Valdes said the company was able to log in an unaudited net income of P552 million in 2009. In 2008, PhilWeb’s core net income stood at P229.5 million.
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PRESS QUOTES
PhilWeb reports 89% increase in unaudited income in 2009 to P552M Manila Bulletin, 8 January 2010, page B-2 By James A. Loyola PhilWeb Corporation, the country’s first and largest listed online technology firm, announced yesterday that its unaudited net income for 2009 surged 89 percent to P552 million compared to profits earned in 2008. The firm disclosed to the Philippine Stock Exchange that the bulk of these profits came from core operations in gaming, which contributed a total of P523 million, 126 percent better than the previous year.
Pagcor rolls out RP’s first Internet-based casino service Philippine Daily Inquirer, 18 January 2010, page B-4 By Doris C. Dumlao THE STATE-OWNED PHILIPPINE Amusement and Gaming Corp. has rolled out its first Internet-based casino gaming service powered by a unit of publicly listed online gaming firm PhilWeb Corp. The casino gaming website www.egamesonline.com.ph, is operated by PhilWeb Homeplay Inc. and will offer traditional casino games like blackjack, baccarat, roulette and slots to Filipino players who are 21 years of age or older.
Pagcor, PhilWeb launch new Internet casino website Manila Bulletin, 18 January 2010, page B-2 The Philippine Amusement and Gaming Corporation ( Pagcor) has launched its latest gaming service, www.egamesonline.com.ph, the first Internet-based casino gaming website. E-games Online is operated by PhilWeb Homeplay Inc., a subsidiary of PhilWeb Corp., and will offer traditional casino games like blackjack, baccarat, roulette, and slots to Filipino players that are 21 or older.
Pagcor, PhilWeb launch new Internet casino site Philippine Star, 18 January 2010, page B-3 The Philippine Amusement and Gaming Corporation ( Pagcor) has announced the launched of its latest gaming service, www.egamesonline.com.ph, the first Internet-based casino gaming website. E-games Online is operated by PhilWeb Homeplay Inc., a subsidiary of PhilWeb Corp. It will offer traditional casino games like blackjack, baccarat, roulette, and slots to Filipino players who are 21 years old or older.
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Management
Executive Officers Roberto V. Ongpin Chairman Ray C. Espinosa Vice Chairman Eric O. Recto Vice Chairman Dennis O. Valdes President
Senior Executives Oliver R. Go, Senior Vice President, Casino Gerardo A. Balderrama, Senior Vice President, Lottery Antonio K. Garcia, Senior Vice President, Sports Betting and Mobile Rafael G. Ongpin, Senior Vice President, New Business Development and Marketing Cliburn Anthony A. Orbe, Vice President, Legal Zaldy M. Prieto, Vice President and Chief Financial Officer Scott A. Sproule, Chief Technical Adviser Jhanice B. Barlis, Assistant Vice President, Sports Betting Operations Ferdimark L. Mariano, Assistant Vice President, BigGame, Inc. Operations Josephine A. Manalo, Assistant to the Chairman Michelle S. Ongpin, Assistant to the Chairman Melecio A. Santiago Jr., Senior Manager, Internal Audit
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Management
Seated: Zaldy Prieto, Dennis Valdes, Anthony Orbe Standing: Ferdimark Mariano, Oliver Go, Jhanice Barlis, Rafael Ongpin, Mazy Tayamen, Scott Sproule, Gerardo Balderrama, Antonio Garcia
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Board of directors
Roberto V. Ongpin was elected chairman of PhilWeb in January 2000, the year he founded the Company. He is chairman of ISM Communications Corporations, Eastern Telecommunications Corporation, Developing Countries Investment Corporation, Alphaland Corporation, Atok-Big Wedge Co., Inc., Acentic GmbH; non-executive director of Forum Energy PLC (UK); director of San Miguel Corporation, Petron Corporation, Araneta Properties, Inc., Shangri-la Asia (Hong Kong); and Deputy Chairman of the South China Morning Post (Hong Kong). He was formerly chairman and managing partner of SyCip Gorres Velayo & Co. from 1964 to 1979 and Minister of Trade and Industry of the Republic of the Philippines from 1979 to 1986. Mr. Ongpin graduated cum laude in Business Administration from the Ateneo de Manila University, is a certified public accountant and has an MBA from Harvard University.
Eric O. Recto was elected vice chairman on July 28, 2006 and director of the Company in March 2005. He previously served as president of the Company. He is vice chairman of Alphaland Corporation and Atok-Big Wedge Co., Inc., president of Petron Corporation. He is a member of the board for Acentic GmbH and an independent director of the Philippine National Bank and the PNOC Energy Development Corporation and Metro Pacific Investment Corporation. He is also a director of Maynilad Water Services, Inc. Before that, he was Undersecretary of the Department of Finance of the Philippine Government in charge of handling both the International Finance Group and the Privatization Office. Before his work with the government, he was CFO of Alaska Milk Corporation and prior to that, Belle Corporation. Mr. Recto has a degree in Industrial Engineering from the University of the Philippines as well as an MBA from the Johnson School, Cornell University.
Ray C. Espinosa was elected vice chairman of the Company on June 20, 2006. He is a director of the Philippine Long Distance Telephone Company (PLDT), vice-chairman of the PLDT Beneficial Trust Fund, president and CEO of ePLDT, Inc., chairman of the various subsidiaries of ePLDT, Inc., director and corporate secretary of Cyber Bay Corp., and director and chairman of the Audit and Nomination Committee of Lepanto Consolidated Mining Company. He was a partner of SyCip Salazar Hernandez & Gatmaitan from 1982 to 2000, foreign associate at Convington and Burling (Washington, D.C., U.S.A.) from 1987 to 1988, and law lecturer at the Ateneo de Manila School of Law from 1983 to 1985 and 1989. He is a member of the Integrated Bar of the Philippines and has a Master of Laws degree from the University of Michigan Law School.
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Board of directors
Dennis O. Valdes was elected a director of the Company in July 2006. He is the president of PhilWeb Corporation, a director of ISM Communications Corp. and Alphaland Corporation, and a treasurer of Atok-Big Wedge Co., Inc. His previous work experience includes ten years with the Inquirer Group of Companies, as a director of the newspaper, and also expanding their Internet, printing and ink-making operations. Prior to that he spent six years with The NutraSweet Company developing their businesses in Asia. He is a certified public accountant, graduated magna cum laude in Business Administration and Accountancy from the University of the Philippines and has an MBA from the Kellogg School of Management, Northwestern University.
Tomas I. Alcantara was elected a director of the Company in May 2002. He is chairman and president of Aldevinco, Alsons Consolidated Resources, Inc., Alto Power Management Corp., director of DBP-Daiwa Securities Corp., Manila Economic and Cultural Office, Petronas Energy (Phils.) Inc., and the Public Estates Authority, among others. He was formerly an Undersecretary of the Department of Trade and Industry.
Ramon S. Ang was elected a director of the Company in November 2001. He is currently vice chairman, president and COO of San Miguel Corporation, chairman and CEO of Petron Corporation and vice chairman of the Manila Electric Company (MERALCO). He holds the positions of chairman, president or director of over 35 companies related to or subsidiaries of San Miguel Corporation, and is also the chairman of Liberty Telecoms Holdings, The Purefoods-Hormel Company, Inc., Philippine Diamond Hotel & Resort, Inc., Magnolia, Inc. and Cyber Bay Corporation. He was previously CEO of Paper Industries Corporation of the Philippines (PICOP) and executive managing director of Northern Cement Corporation, among others. He has a BS degree in Mechanical Engineering from Far Eastern University.
Benito R. Araneta was elected a director of the Company in March 2003. He is chairman and CEO of the Araneta Properties, Inc., chairman and president of Boie, Inc., PhilippineAmerican Drug Co., chairman of Boie-Takeda Chemicals, Inc., and Philcomsat Holdings, director of Southeast Asia Cement Corp., Honda Philippines, Inc., and The Professional Group, among others.
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Board of directors
Robert Creager was elected a director of the Company on January 4, 2010. He is currently a member of the Board of Supervisors of Acentic GmbH a company registered in Germany but headquartered in the U.K. which was acquired by PhilWeb and ISM Communications Corporation in December 2009. Acentic is an international provider of digital and internet protocol converged services to hotels, tourism facilities and healthcare premises, as well as high-speed Internet access (HSIA) in many of the world’s leading hotel chains including Accor, Dorint, Intercontinental Hotel Group, Hilton, Hyatt, Maritim, Marriott, Movenpick and Starwood in more than 30 countries in Europe, Middle East and Africa. Mr. Creager was the founder of MagiNet Corporation, a provider of in-room interactive television and Internet access services for the hospitality industry. He also served as the executive vice president of TVU Networks Corporation and was formerly the CEO of AMG Media Vision Inc.
Craig Ehrlich was elected director of the Company in May 2002. He is the former longtime chairman of the GSM Association (GSMA), the global trade association representing more than 700 2nd and 3rd generation network operators and over 180 manufacturers and suppliers, serving more than 3.5 billion customers across 218 countries and territories. He is a board member of the International Telecommunications Union (ITU), Hutchison Telecommunication Group, Bharti Airtel, India’s largest (by market capitalization) company, chairman of Kbro, Taiwan’s largest cable TV company, and founding chairman of Novare Technologies Ltd., a Hong Kong software development company. He was former group managing director of Sunday Communications Limited, a Hong Kong mobile operator. In the Philippines, he is director and vice chairman of ISM Communications Corporation. Mr. Ehrlich, a Hong Kong resident since 1987, holds a B.A degree from the University of California Los Angeles, a master’s degree from Occidental College and a postgraduate fellowship with the Coro Foundation.
Mariano L. Galicia, Jr. was elected a director of the Company in December 2005. He is currently the group vice president of ePLDT, Inc. He was formerly a senior vice president of Fort Bonifacio Development Corp., group vice-president for corporate services of Metro Pacific Corp., human resources director of Johnson & Johnson (Phils.) Inc., Jansen Pharmaceuticals and J&J Medical Phils., Inc. and group manager of Del Monte Philippines, Inc. / Del Monte International Inc. He has a Bachelor of Science degree from the University of the Philippines.
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Board of directors
Mario J. Locsin was elected director of the Company in January 2000. He is president and COO of Eastern Telecommunications Philippines, Inc., president of Aeropartners, Inc., and Inpilcom, Inc., and treasurer of Hideco Sugar Milling Co., Inc. He is a director of ISM Communications Corporation. In the past, he served as a director of Belle Corporation, APC Group, Southwest Resources, Philippine Long Distance Telephone Co. and Pilipino Telephone Co., as well as director, executive vice president and COO of Philippine Airlines.
Mario A. Oreta was elected director of the Company in March 2005. He is president of alphaland Corporation, director of Atok-Big Wedge Co., Inc. and manages his own law firm, which he set up in 1978. He was previously a managing partner of Tanjuatco, Oreta, Factoran and Berenguer, and Oreta, Suarez and Narvasa. He is a member of the Philippine Bar.
Rafael B. Ortigas was elected director of the Company in April 2002. He is executive vice president of Sagitro, Inc. and Itogon-Suyoc Resources, Inc., vice president of Leafar Commercial Corporation, chairman, president and director of Rising Sons of 3K, Inc., chairman and director of CK3K, Inc. and GSC-3KCK, Inc. and director of Vinmer Realty, Inc., Concrete Aggregates Corp., director and treasurer of Creative Trade Center Services, Inc. and vice president and director of ISM Communications Corporation and delegate general partner of Ortigas and Company, Ltd. Partnership.
George Tan was elected director of the Company on June 20, 2006. He is senior vice president of ePLDT, Inc., and president and CEO of Digital Paradise, Inc., operator of Netopia, the largest chain of internet cafes in the Philippines. He was executive vice president and chief finance officer of William, Gothong and Aboitiz, Inc. from 1998 to 1999. He was an associate professor and held various key positions in the Asian Institute of Management from 1989 to 1997. He is a certified public accountant and has a Master’s degree with (Distinction) in Business Management from the Asian Institute of Management.
Delfin J. Wenceslao, Jr. was elected a director of the Company in May 2004. He is presently the chairman and president of D.M. Wenceslao & Associates, Inc. and Fabricom Manufacturing Corporation, chairman of Philippine Ecopanel, Inc. and Mandaue Land Consortium, Inc., president and director of Bay Dredging, Inc. and Bay Resources and Development Corporation, managing director of R-I Consortium and director of Belle Bay City Corporation.
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Statement of
Management’s Responsibility
Statement of Management’s Responsibility The management of PhilWeb Corporation is responsible for all information and representations contained in the consolidated financial statements for the years ended December 31, 2009 and December 31, 2008. The consolidated financial statements have been prepared in conformity with Philippine Financial Reporting Standards and reflect amounts that are based on the best estimates and informed judgment of management with appropriate consideration to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded, assets are safeguarded against unauthorized use or disposition and liabilities are recognized. The management likewise discloses to the Company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial data; (ii) material weakness in the internal controls; and (iii) any fraud that involves management or other employees who exercise significant roles in the internal controls. The Board of Directors reviews the consolidated financial statements before such statements are approved and submitted to the stockholders of the company. KPMG – Manabat Sanagustin & Co., the independent auditors appointed by the stockholders, has examined the financial statements of the Company in the accordance with Philippines Standards in Auditing and has expressed its opinion on the fairness of presentation upon completion of such examination, in its report to the Board of Directors and stockholders.
ROBERTO V. ONGPIN Chairman
Dennis O. Valdes President
PhilWeb Corporation, The PentHouse, Alphaland Southgate Tower, 2258 Chino Roces Avenue corner Edsa, Makati City, Philippines 1232 (632) 338-5599/www.philweb.com.ph
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Report of Independent Auditors
Manabat Sanagustin & Co., CPAs The KPMG Center, 9/F 6787 Ayala Avenue Makati City, 1226, Metro Manila, Philippines Branches: Subic . Cebu . Bacolod . Iloilo
Telephone Fax Internet E-mail
+63(2) 885 7000 +63(2) 894 1985 www.kpmg.com.ph manila@kpmg.com.ph
PRC-BOA Registration No. 0003 SEC Accreditation No. 0004-FR-2 BSP Accredited
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders PhilWeb Corporation We have audited the accompanying consolidated financial statements of PhilWeb Corporation and Subsidiaries, which comprise the consolidated statements of financial position as at December 31, 2009 and 2008, and the consolidated statements of comprehensive income, changes in equity and cash flows for each of the three years in the period ended December 31, 2009, and notes, comprising a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Philippine Financial Reporting Standards. This responsibility includes: designing, implementing, and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditors consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Manabat Sanagustin & Co., CPAs, a Philippine partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative.
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Report of Independent Auditors
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of PhilWeb corporation and Subsidiaries as of December 31, 2009 and 2008, and their consolidated financial performance and their consolidated cash flows for each of the three years in the period ended December 31, 2009 in accordance with Philippine Financial Reporting Standards.
February 12, 2010 Makati City, Metro Manila
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CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
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CASH FLOWS
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Legal Counsels Andres Marcelo Padernal Guerrero & Paras Castillo Laman Tan Pantaleon & San Jose Law Offices Ponferrada Orbe & Altubar Rondain & Mendiola Independent Public Accountants KPMG Manabat Sanagustin & Co. Banks Asia United Bank Bank of Commerce Bank of the Philippine Islands Banco de Oro Unibank Development Bank of the Philippines Metropolitan Bank and Trust Company Philippine National Bank Security Bank & Trust Corporation Sterling Bank of Asia Union Bank of the Philippines United Coconut Planters Bank Stock Transfer Service Agent RCBC (Rizal Commercial Banking Corporation) Stock Transfer Department PHILWEB CORPORATION IS LISTED ON THE PHILIPPINE STOCK EXCHANGE. TICKER SYMBOL: WEB