COVER SHEET

for
SEC FORM 17-A
SEC Registration Number

P W - 0 0 0 0 0 3 4 3

COMPANY NAME

L T G R O U P , I N C .

PRINCIPAL OFFICE (No. / Street / Barangay / City / Town / Province)

1 1 t h F l . , U n i t 3 B e n c h T o w e r ,
3 0 t h S t . c o r n e r R i z a l D r i v e
C r e s c e n t P a r k W e s t 5 B o n i f a c i o
G l o b a l C I t y , T a g u i g C i t y

Secondary License Type, If

Form Type Department requiring the report Applicable

1 7 - A S E C N / A

COMPANY INFORMATION
Company’s Email Address Company’s Telephone Number Mobile Number

info@ltg.com.ph (632) 8808-1266 +639278375844

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

377 May 5 December 31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation
Name of Contact Person Email Address Telephone Number/s Mobile Number
Jose Gabriel D. Olives josegabriel.olives@ltg.com.ph N/A N/A

CONTACT PERSON’s ADDRESS

11th Floor, Unit 3 Bench Tower, 30th St. corner Rizal Drive Crescent Park West 5
Bonifacio Global City, Taguig City

NOTE 1: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported
to the Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of
the new contact person designated.
2: All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s
records with the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall
not excuse the corporation from liability for its deficiencies.

1
 SEC FORM 17-A

TABLE OF CONTENTS

Page No.
PART I BUSINESS AND GENERAL INFORMATION

Item 1 Business 5
Item 2 Properties 49
Item 3 Legal Proceedings 55
Item 4 Submission of Matters to a Vote of Security Holders 57

PART II OPERATIONAL AND FINANCIAL INFORMATION

Item 5 Market for Registrant's Common Equity and Related

Stockholders Matters 58
Item 6 Management’s Discussion and Analysis or Plan of 60
Operations
Item 7 Financial Statements 75
Item 8 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 75

PART III CONTROL AND COMPENSATION INFORMATION

Item 9 Directors and Executive Officers 76

Item 10 Executive Compensation 83
Item 11 Security Ownership of Certain Beneficial Owners and
Management 84
Item 12 Certain Relationships and Related Transactions 85

PART IV CORPORATE GOVERNANCE AND SUSTAINABILITY

REPORT

Item 13 Corporate Governance Report 85

Item 14 Sustainability Report 85

PART V EXHIBITS AND SCHEDULES

Item 15 Exhibits and Reports on SEC Form 17-C 86

SIGNATURES 87

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND

SUPPLEMENTARY SCHEDULES 88

2
 SECURITIES AND EXCHANGE COMMISSION

SEC FORM 17-A

ANNUAL REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION

CODE AND SECTION 141 OF CORPORATION CODE OF THE PHILIPPINES

1. For the calendar year ended December 31, 2021

2. SEC Identification Number PW-343

3. BIR Tax Identification No. 121-145-650-000

4. Exact name of registrant as specified in its charter LT Group, Inc.

5. Philippines 6. (SEC Use Only)

Province, Country or other jurisdiction of Industry Classification Code:
incorporation or organization

7. 11th Floor Unit 3 Bench Tower, 30th St. corner Rizal drive Crescent Park West 5 Bonifacio
Global City Taguig City 1634
Address of principal office Postal Code

8. (632) 8808-1266
Registrant's telephone number, including area code

9. N/A
Former name, former address, and former fiscal year, if changed since last report.

10. Securities registered pursuant to Sections 8 and 12 of the SRC, or 4 and 8 of the RSA

Number of Shares of Common Stock

Title of Each Class Outstanding and Amount of Debt Outstanding

Common shares, P1.00 par value 10,821,388,889

11. Are any or all of these securities listed on a Stock Exchange?

Yes [✓] No [ ]

Name of Stock Exchange: Philippine Stock Exchange

Class of securities listed: Common shares

10,821,388,889 common shares have been listed with the Philippine Stock Exchange

3
12. Check whether the registrant:

(a) has filed all reports required to be filed by Section 17 of the SRC and SRC Rule 17 thereunder
or Section 11 of the Revised Securities Act (RSA) and RSA Rule 11(a)-1 thereunder and
Sections 26 and 141 of The Corporation Code of the Philippines during the preceding 12
months (or for such shorter period that the registrant was required to file such reports).

Yes [✓] No [ ]

(b) has been subject to such filing requirements for the past 90 days.

Yes [✓] No [ ]

13. Aggregate market value of the voting stock held by non-affiliates of the registrant:
P
=27,456,401,610 as of December 31, 2021.

APPLICABLE ONLY TO ISSUERS INVOLVED IN

INSOLVENCY/SUSPENSION OF PAYMENT PROCEEDINGS
DURING THE PRECEDING FIVE YEARS

14. Check whether the issuer has filed all documents and reports required to be filed by Section 17 of
the Code subsequent to the distribution of securities under a plan confirmed by a court or the
commission.

Yes [ ] No [ ] Not applicable

DOCUMENTS INCORPORATED BY REFERENCE

15. If any of the following documents are incorporated by reference, briefly describe them and
identify the part of SEC Form 17-A into which the document is incorporated:

(a) Any annual report to security holders; 2021 Audited Consolidated Financial Statements
of LT Group, Inc. and Subsidiaries

(b) Any information statement filed pursuant to SRC Rule 20; Not applicable

(c) Any prospectus filed pursuant to SRC Rule 8.1. Not applicable

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 PART I – BUSINESS AND GENERAL INFORMATION

Item 1. Business

Corporate History

LT Group, Inc. (“LTG” or the “Company”) was incorporated in the Philippines and registered with the
Philippine Securities and Exchange Commission (SEC) on May 25, 1937 under the name “The Manila
Wine Merchants, Inc. to engage in the trading business. On November 17, 1947, the Company’s shares of
stock were listed in the Philippine Stock Exchange (PSE). The Company’s corporate life is 50 years from
the date of incorporation and was extended for another 50 years from and after May 27, 1987. On
September 22, 1995, the Philippine SEC approved the change in Company’s name to “Asian Pacific Equity
Corporation” and the change in its primary purpose to that of a holding company. On July 30, 1999, the
Company acquired Twin Ace Holdings Corp., now known as Tanduay Distillers, Inc. (TDI), a producer of
distilled spirits, through a share swap with Tangent Holdings Corporation (“Tangent” or the “Parent
Company”). The share swap resulted in LTG wholly owning TDI and Tangent increasing its ownership in
LTG to 97.0%. On November 10, 1999, the Philippine SEC approved the change in the Company’s
corporate name from “Asian Pacific Equity Corporation” to “Tanduay Holdings, Inc”. On September 24,
2012, LTG’s stockholders approved the amendment in its Articles of Incorporation and By-Laws to reflect
the change in its corporate name from “Tanduay Holdings, Inc.” to “LT Group, Inc.” which was approved
by the Philippine SEC on September 28, 2012. The Company’s primary purpose is to engage in the
acquisition by purchase, exchange, assignment, gift or otherwise; and to hold, own and use for investment
or otherwise; and to sell, assign, transfer, exchange, lease, let, develop, mortgage, enjoy and dispose of any
and all properties of every kind and description and wherever situated, as to and to the extent permitted by
law.

After a series of restructuring activities in 2012 and 2013, LTG has expanded and diversified its investments
to include the beverages, tobacco, property development and banking businesses, all belonging to Mr. Lucio
C. Tan and his family and assignees (collectively referred to as the “Controlling Shareholders”). These
business segments in which LTG and subsidiaries (collectively referred to as “the Group”) operate are
described in Note 4 to the consolidated financial statements.
As of December 31, 2021 and 2020, LTG was 74.36%-owned by its ultimate parent company, Tangent,
which was also incorporated in the Philippines.
The official business address of the head office is at 11th Floor, Unit 3 Bench Tower, 30th St. Corner Rizal
Drive Crescent Park West 5 Bonifacio Global City, Taguig City.
The Company has interests in the following businesses:

• Distilled Spirits—the Company conducts its distilled spirits business through its 100%-owned
subsidiary TDI. TDI is the third-largest distilled spirits producer in the Philippines according to
Nielsen Philippines, with an approximate 27% share of the Philippine spirits market in 2021.

• Beverages— the Company conducts its beverage business through its 99.9%-owned subsidiary,
Asia Brewery, Incorporated (ABI). ABI is one of the Philippines’ leading beverage
manufacturers, producing energy drinks, bottled water, and soymilk.

• Tobacco—the Company conducts its tobacco business through its 99.6% ownership in Fortune
Tobacco Corporation (FTC), which in turn owns 49.6% of PMFTC. PMFTC is the leading
tobacco manufacturer and distributor in the Philippines with an estimated 62% market share in the
year 2021.

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 • Banking—the Company conducts its banking business through Philippine National Bank (PNB).
PNB is the country’s first universal bank and is currently listed in the Philippine Stock Exchange
(PSE). The Company’s indirect ownership in PNB is approximately 56.47%. PNB is one of the
largest local private commercial banks in terms of assets, net loans and receivables, capital and
deposits.

• Property Development— the Company conducts its property development business through
Paramount Landequities, Inc. and Saturn Holdings, Inc., with an effective indirect ownership of
99.6% in Eton Properties Philippines, Inc. (Eton). Eton has a diverse portfolio of property
development projects in various areas throughout the Philippines, primarily in Metro Manila and
surrounding areas, and access to the large land bank of the Lucio Tan Companies. Eton’s project
portfolio mainly comprises residential real estate projects (including large-scale township projects.
Eton also develops and leases out commercial properties to retail and BPO tenants.

Description of Subsidiaries

Distilled Spirits
Tanduay Distillers, Inc. (TDI)
TDI was incorporated in the Philippines on May 10, 1988 and is primarily engaged in, operates, conducts,
and maintains the business of manufacturing, compounding, bottling, importing, exporting, buying, selling
or otherwise dealing in, at wholesale and retail, such finished goods as rhum, brandy, whiskey, gin and other
liquor products, and any and all equipment, materials, supplies used and/or employed in or related to the
manufacture of such finished goods.

The following companies are majority owned by TDI:

• Asian Alcohol Corporation (AAC) – 95%

AAC is a domestic corporation registered with the Philippine Securities and Exchange Commission
(SEC) on September 27, 1973. The company is primarily involved in the manufacture of refined
and/or denatured alcohol and in the production of fodder yeast, and to market, sell, distribute, and
generally deal in any or all of such liquids or products.

• Absolut Distillers, Inc. (ADI) – 96%

ADI was incorporated in the Philippines on September 14, 1990, to engage in, operate, conduct and
maintain the business of manufacturing, distilling, importing, exporting, buying, selling or otherwise
deal in chemicals including but not limited to alcohol, molasses, bioethanol, biogas and biomass for
renewable energy at wholesale and retail and to engage in the business of generating, transmitting
and or distributing renewable energy derived from solar power for lighting and power purposes.

• Tanduay Brands International, Inc. (TBI) – 100%

On May 6, 2003, TBI was incorporated in the Philippines to handle the marketing of TDI’s products.
On December 20, 2016, LTG sold its 100% ownership interest in TBI to TDI. In October 2017, the
Company started its commercial operations and opened its first store “Tanduay” in Century Park
Hotel in Manila.

Beverage
Asia Brewery, Incorporated (ABI)
ABI. was incorporated in the Philippines on March 28, 1979. The company is primarily engaged in the
business of manufacturing, selling, importing, exporting and assembly of all kinds of products, supplies, dies,
tools, appliances, plants and machineries.

6
 The following companies are 100%-owned by ABI:

• Agua Vida Systems, Inc. (AVSI)

AVSI was incorporated in the Philippines on August 15, 1994. Its primary business is the
distribution and refilling of purified water and water dispensers for use primarily in homes and
offices.

• Waterich Resources Corp. (WRC)

WRC was incorporated in the Philippines on September 25, 1997. Its primary business is the toll
manufacturing for ABI of Absolute Pure Distilled Drinking Water and Summit Water.

• Packageworld, Inc. (PWI)

PWI was incorporated in the Philippines on January 15, 1998. Its primary business is the
manufacturing of corrugated cartons and trade the same on a wholesale basis.

• Interbev Philippines, Inc. (IPI)

IPI was incorporated in the Philippines on April 28, 2003. Its primary business is the production
and distribution of Cobra and energy drinks.

• AB Nutribev Corp. (ABNC)

ABNC was incorporated in the Philippines on April 22, 2014. Its primary business is the
manufacturing and trading of dairy and soy milk-based beverages.

• Asia Pacific Beverages Pte. Ltd. (APBPL)

APBPL was incorporated on August 21, 2014 under the laws of Singapore. It was established as an
investment holding company for business opportunities in the region. ABPBL acquired 90% of Asia
Pacific Beverages Myanmar Co. Ltd. (APBM) in April 2017. APBM is a company incorporated in
the Republic of the Union of Myanmar. APBM’s primary purpose is to manufacture, market, sell and
distribute non-alcoholic ready-to-drink beverage products in Myanmar.

In February 2012, ABI, in partnership with Corporacion Empresarial Pascual S. L. of Spain, also formed ABI
Pascual Holdings Pte. Ltd., a jointly controlled entity organized and domiciled in Singapore. In November of
that year, the joint venture established ABI Pascual Foods Incorporated (APFI), an operating company in the
Philippines engaged in the marketing and distribution of yogurt products in the country.

Tobacco
Fortune Tobacco Corporation (FTC)
FTC was incorporated in the Philippines on April 29, 1965. The Company was organized primarily to engage
in cigarette manufacturing, selling, importing and exporting. FTC was responsible for introducing some of
the most successful local cigarette brands in the Philippines, including the Fortune, Champion and Hope
menthol brands. Prior to the creation of PMFTC, FTC was the largest domestic tobacco business in the
Philippines.

FTC currently has an effective 49.6% stake in PMFTC, the business combination between the Philippine
operations of Philip Morris International and the operations of FTC. The brands currently produced by
PMFTC include the FTC brands and Philip Morris’ Marlboro.

Banking
Philippine National Bank (PNB)
PNB was incorporated in the Philippines on July 22, 1916. PNB is the country’s first universal bank and
the fourth largest private local commercial bank in terms of assets as of December 31, 2021. PNB has
celebrated its Centennial Year of serving the Filipino people in July 2016. For 100 years, PNB stands proud
as an institution of stability and security for many Filipinos. With its century of banking history and
experience, PNB is poised to move forward to becoming a more dynamic, innovative and service-focused

7
bank, providing service excellence to Filipinos all over the world. PNB provides a full range of banking
and other financial services to diversified customer bases including government entities, large corporate,
middle market, SME and retail customers, with PNB having the distinction of being one of the only five
authorized Government depository banks in the Philippines. The current PNB is a result of the merger
between PNB and Allied Banking Corp., which was completed on February 9, 2013.

The following companies are owned by PNB:

Principal Place of Percentage of

Business/Country of Functional Ownership
Industry Incorporation Currency Direct Indirect
Subsidiaries
Allied Integrated Holdings, Inc. (AIHI) Holding Company Philippines Php 100.00 –
PNB Capital and Investment Corporation (PNB Capital) Investment - do - Php 100.00 –
PNB Securities, Inc. (PNB Securities) Securities Brokerage - do - Php 100.00 –
PNB Corporation – Guam (a) Remittance USA USD 100.00 –
PNB International Investments Corporation (PNB IIC) Investment - do - USD 100.00 –
PNB Remittance Centers, Inc. (PNB RCI) (b) Remittance - do - USD – 100.00
PNB Remittance Co. (Nevada) (c) Remittance -do- USD – 100.00
PNB RCI Holding Co. Ltd. (PNB RHCL) Holding Company - do - USD – 100.00
PNB Remittance Co. (Canada) (d) Remittance Canada CAD – 100.00
PNB Europe PLC Banking United Kingdom GBP 100.00 –
Allied Commercial Bank (ACB) Banking China CNY 99.04 –
PNB-Mizuho Leasing and Finance Corporation (PMLFC) Leasing/Financing Philippines Php 75.00 –
PNB-Mizuho Equipment Rentals Corporation (e) Rental - do - Php – 75.00
PNB Global Remittance & Financial Co. (HK) Ltd. Remittance Hong Kong HKD 100.00 –
(PNB GRF)
Allied Banking Corporation (Hong Kong) Limited (ABCHKL) Banking - do - HKD 51.00 –
ACR Nominees Limited (f) Service - do - HKD – 51.00
Oceanic Holding (BVI) Ltd. Holding Company British Virgin Islands USD 27.78 –
Associate
Allianz-PNB Life Insurance, Inc. (APLII) Insurance - do - Php 44.00 –
(a)
Ceased operations on June 30, 2012 and license status became dormant thereafter
(b)
Owned through PNB IIC
(c)
Owned through PNB RCI
(d)
Owned through PNB RHCL
(e)
Owned through PMLFC
(f)
Owned through ABCHKL

Bank Holding Companies

On February 11, 2013, LTG’s Board of Directors (BOD) approved the acquisition of indirect ownership in
the merged PNB through the investment in the 27 holding companies which have collective ownership
interest in PNB of 59.83% (collectively referred to as “Bank Holding Companies”). LTG’s acquisition was
effected by way of subscription to the increase in authorized capital shares of 22 Bank Holding Companies
direct buy-out of shares of 5 Bank Holding Companies. As of December 31, 2021, LTG has majority
ownership over the Bank Holding Companies which translates to an indirect 56.47% ownership of PNB.

The following are the 27 bank holding companies:

1. Allmark Holdings Corporation
2. Dunmore Development Corp.
3. Kenrock Holdings Corp.
4. Leadway Holdings, Inc.
5. Multiple Star Holdings Corporation
6. Pioneer Holdings Equities, Inc.
7. Donfar Management Ltd.
8. Fast Return Enterprises, Ltd.
9. Mavelstone International Ltd.
10. Uttermost Success, Ltd.
11. Ivory Holdings, Inc.
12. Merit Holdings & Equities Corporation
13. True Success Profits Ltd.
14. Key Landmark Investments Ltd.
15. Fragile Touch Investment, Ltd.
16. Caravan Holdings Corporation
17. Solar Holdings Corporation
18. All Seasons Realty Corporation

8
 19. Dynaworld Holdings, Inc.
20. Fil-Care Holdings, Inc.
21. Kentwood Development Corporation
22. La Vida Development Corporation
23. Profound Holdings, Inc.
24. Purple Crystal Holdings, Inc.
25. Safeway Holdings Corporation
26. Society Holdings Corporation
27. Total Holdings Corporation

Property Development
Saturn Holdings, Inc. (Saturn)
Saturn Holdings, Inc. was incorporated in the Philippines on February 18, 1997. Saturn’s primary purpose is
to engage in the purchase, retention, possession or in any other manner to acquire legally constituted within
or outside the Philippines and to issue shares of stocks, bonds, or other obligations for the payment of articles
or properties acquired by the corporation or for other legal consideration, all to the extent permitted by law.

Paramount Landequities, Inc. (Paramount)

Paramount was incorporated in the Philippines on July 25, 1988. Its primary purpose is that of a real estate
development company.

Eton Properties Philippines, Inc. (ETON)

Eton was incorporated and registered in the Philippines on April 2, 1971 under the name “Balabac Oil
Exploration & Drilling Co., Inc.” to engage in oil exploration and mineral development projects in the
Philippines. It became a holding company on August 19, 1996 and included real estate development and oil
exploration as its secondary purposes. However, on February 21, 2007, the Company changed its name to
Eton Properties Philippines, Inc. with real estate development as its primary business.

The following companies are 100%-owned by ETON:

• Belton Communities, Inc. (BCI)

BCI was incorporated and registered with the SEC on November 5, 2007 and is engaged to deal and
engage in land or real estate business.

• Eton City, Inc. (ECI)

ECI was incorporated and registered with the SEC on October 8, 2008 and is engaged to own, use,
improve, develop, subdivide, sell, exchange, lease and hold for investment or otherwise, real estate
of all kinds, including buildings, houses, apartments and other structures.

• Eton Hotels and Leisure, Inc. (EHLI) ( formerly FirstHomes, Inc. (FHI)
On October 15, 2010, FHI was incorporated and registered with Philippine SEC as a wholly owned
subsidiary of Eton and is engaged in real estate development.

• Eton Properties Management Corporation (EPMC)

EPMC was incorporated and registered with the SEC on November 25, 2011 to manage, operate,
lease, in whole or in part, real estate of all kinds, including buildings, houses, apartments and other
structures of the Corporation or of other persons provided that they shall not engage as property
manager of a real estate investment trust. EPMC has started its commercial operations in 2016.

9
Products

Distilled Spirits
Rum Products
1. Tanduay Five Years Fine Dark Rhum
2. Tanduay Rhum 65 Fine Dark Rhum (“Rhum 65”)
3. Tanduay E.S.Q. Fine Dark Rhum (“E.S.Q.”)
4. Tanduay White Premium Rhum
5. Tanduay Superior Dark Rhum
6. Tanduay Rhum Light
7. Boracay Rum
8. Tanduay Asian Rum Gold
9. Tanduay Asian Rum Silver
10. Tanduay 1854 Rhum
11. Tanduay Select
12. Tanduay CLX Rum
13. Tanduay Cane Spirit
14. Tanduay Centennial Rhum
15. Especia Spiced Rhum
16. Tanduay Double Rum
17. Tanduay Rum Dark
Gin Products
1. London Gin
2. Gin Kapitan
3. Gin Kapitan Light
4. Ginto Barrel Gin
Vodka Products
1. Cossack Vodka Red
2. Cossack Vodka Blue
3. Mardi Gras Vodka Schnapps
Whiskey Products
1. Embassy Whiskey
Cocktails
1. Tanduay Cocktails
2. Barman
Medicinal Wine
1. Vino Agila

Bioethanol
The Company’s distillery subsidiaries, ADI and AAC, are registered with the Sugar Regulatory
Administration (SRA) as bioethanol producers with a registered capacity per year of 30 million liters each.
Under RA 9367 of 2006, otherwise known as the Biofuels Law, all liquid fuels for motors and engines sold
in the Philippines shall contain locally-source biofuels components. Effective 2010, the mandated blend of
bioethanol by volume into all gasoline fuel distributed and sold by local oil companies is 10%.

ADI started commercial operation of its bioethanol plant in 2016. AACs bioethanol plant is still non-
operational

Solar Power
ADI operates a 2-megawatt solar power generating facility, licensed under RA 9513, also known as the
“Renewable Energy Act of 2008”. The entire electric power generated by ADIs solar power system is sold to
the National Grid Corporation of the Philippines (NGCP) at the approved Feed-In-Tariff rate of PhP8.69 per
kilowatt-hour under a 25-year solar energy supply contract.

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Other Products
The Company’s distillery companies also manufacture and sell denatured alcohol, liquid carbon dioxide and
dry ice which are the main by-products from the distillation process.

Beverage
Energy Drinks
1. Cobra
Drinking Water
1. Absolute Pure Distilled Drinking Water
2. Summit Natural Drinking Water
3. Summit Still
4. Summit Sparkling Water
Beer
1. Heineken
2. Tiger Black
3. Tiger Crystal
4. Colt 45 Malt Liquor
5. Beer na Beer
6. Asahi Super Dry
7. Brew Kettle
Alcopop
1. Tanduay Ice
2. Tanduay Ice Zero
3. Tanduay Ice Signature Vodka
4. Spritz Hard Seltzer
Others
1. Vitamilk
2. Sunkist carbonated soft drinks
3. Nestea ready-to-drink iced tea
Commercial Glass
Packaging Materials
1. Corrugated cartons
2. Metal crowns
APFI products include:
1. Pascual Yogurt
2. Pascual Chocolate Pudding
APBM products sold in Myanmar include:
1. Sunkist carbonated soft drinks
2. Sunkist juice drink
3. Air Soda

Tobacco
FTC has no products in the market but its associate, PMFTC has the following cigarette products:
1. Marlboro
2. Fortune
3. Philip Morris
4. Jackpot
5. More
6. Hope
7. Champion
8. Mark
9. Boss
10. Chesterfield

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Banking
PNB provides a full range of banking and financial services to large corporate, middle-market, small
medium enterprises (SMEs) and retail customers, including OFWs, as well as to the Philippine National
Government, national government agencies (NGAs), local government units (LGUs) and GOCCs in the
Philippines. PNB’s principal commercial banking activities include the following:

1. Deposit taking
2. Lending
3. Trade financing
4. Foreign exchange dealings
5. Bills discounting
6. Fund transfers/remittance servicing
7. Asset management
8. Treasury operations
9. Comprehensive trust services
10. Retail banking
11. Other related financial services

Property Development
Completed Developments:

High-rise
1. Eton Baypark Manila
2. Eton Parkview Greenbelt
3. Eton Emerald Lofts
4. Eton Residences Greenbelt
5. One Archers Place
6. Belton Place
7. 8 Adriatico
8. Eton Tower Makati
Mid-rise
1. The Manors at North Belton Communities
Residential Subdivisions
1. South Lake Village at Eton City
2. Riverbend at Eton City
3. West Wing Residences at North Belton Communities
4. 68 Roces
5. Tiera Bela
6. Villagewalk
7. West Wing Residences at Eton City
8. West Wing Villas
Commercial
1. Centris Walk
2. Centris Walk Extension
3. Centris Steel Parking Buildings
4. Centris Station
5. Green Podium
6. Eton Square Ortigas
BPO Office
1. Cyberpod Centris One
2. Cyberpod Centris Two
3. Cyberpod Centris Three
4. Cyberpod Centris Five
5. Eton Cyberpod Corinthian

12
Mixed Use
1. WestEnd Square
Events Venue
1. Elements at Centris
Serviced Residences
1. Mini Suites at Eton Tower Makati

Ongoing Developments:

Mixed Use
1. WestEnd Square
BPO Office
1. NXTower I
Commercial
1. Eton City Square

Distribution method of the products

Distilled Spirits

Liquor Products
As of December 31, 2021, TDI serves more than 215,000 points of sale throughout the Philippines through
fifteen (15) exclusive distributors, who in turn may work with a large number of sub-distributors. TDI has
generally maintained good business relationships with its distributors since 1988. TDI’s distributors
operated 40 sales offices and 48 warehouses located throughout the Philippines. TDI through TBI employs
in-house sales staffs who provide marketing and general administrative support to TDI’s distributors. TDI’s
products are transported from the production facilities to distributors’ warehouses by third party
transportation companies for the account of the distributors.

Bioethanol and distillery by-products

These are either delivered by distillery tankers to the customers or picked-up by the customers at the
distillery plants.

Beverage
ABI markets, sells and distributes its products throughout the Philippines through 13 exclusive major
distributors. ABI’s exclusive distributors have a network of 39 sales offices, 20 warehouses and 12 depots.
This extensive network assures product availability to ABI consumers and also provides ABI expeditious
nationwide placement of new products. ABI’s products are transported to distributors’ warehouses by third
party transportation companies, with the costs for the account of such distributors.

Tobacco
PMFTC distributes through wholesalers and retailers directly to approximately 295,000 points of sale
throughout the Philippines. PMFTC segments its distribution into two separate channels:

(i) key accounts—including hypermarkets and supermarkets, tobacconists, convenience stores and
gasoline stations; and
(ii) general trade—including sari-sari stores, market stalls, kiosks and eateries.

Banking
PNB, through its Head Office and 670 domestic branches/offices, 1,731 ATM’s nationwide and 70 overseas
branches, representative offices, remittance centers and subsidiaries, provides a full range of banking and
financial services to large corporate, middle-market, small medium enterprises (SMEs) and retail
customers, including OFWs, as well as to the Philippine National Government, national government
agencies (NGAs), local government units (LGUs) and GOCCs in the Philippines. PNB’s principal
commercial banking activities include deposit-taking, lending, trade financing, foreign exchange dealings,

13
bills discounting, fund transfers/remittance servicing, asset management, treasury operations,
comprehensive trust services, retail banking and other related financial services.
Its banking activities are undertaken through the following groups within the Bank, namely:

Retail Banking Sector

The core business of Retail Banking Sector (RBS) principally focuses on the Bank’s deposit-taking
activities by offering a wide array of deposit products and services such as peso accounts and its variants
like interest-bearing savings and time deposit accounts, current accounts, and US dollar and other third-
foreign currency accounts. The Sector also provides its broad customer base with other retail products like
credit cards, consumer loans, remittance services, and other bank services. While the main purpose is the
generation of lower cost funding for the Bank’s operations, RBS also concentrates on the cross-selling of
trust products, treasury products, and bancassurance products (both life and non-life) to existing customers
as well as referrals of customers by transforming its domestic and overseas branch distribution channels
into a sales-focused organization.

Cards Banking Solutions Group

The Cards Banking Solutions Group (CBSG) under RBS provides convenient, safe, and secure cashless
payment solutions in the form of card products. It likewise extends installment loans that caters to the
Bank’s diverse retail and corporate clients with varying payment needs. CBSG is also responsible in forging
new partnerships, onboarding additional merchants and strengthening its relationship for in-store and online
promotions as well as installment programs to ensure that the customers get the best experience in using
PNB cards.

Retail Lending Group

The Retail Lending Group (RLG) was established in mid-2019 under the umbrella of RBS. It serves as
the Bank’s full consumer lending arm following the full integration of its wholly-owned thrift bank
subsidiary, PNB Savings Bank, into the Parent Bank in March 2020. RLG is at the forefront of providing
housing loans, home flexi-loans, and auto/car loans to the retail clients of the Bank through its extensive
domestic branch network. In addition, the group extends consumer financing solutions to the buyers of its
accredited car dealers and real estate developers in the country.

International Banking and Remittance Group

The International Banking and Remittance Group (IBRG) covers the Bank’s overseas offices across Asia,
Middle East, North America, and Europe. As part of RBS, the Group ensures that overseas Filipinos are
provided with an array of services to suit their needs - from convenient and safe remittance to full banking
services in selected jurisdictions, bills payment, deposit account opening, corporate credit and trade, and
consumer financing with the Own a Philippine Home Loan (OPHL), which makes it easier even for non-
Filipinos to acquire their dream homes in the Philippines. IBRG is also responsible for establishing and
strengthening partnerships with remittance agents and tie-ups to further extend the Bank’s market reach
beyond its brick-and-mortar presence worldwide.

Institutional Banking Sector

The Institutional Banking Sector (IBS) is responsible for the establishment, expansion, and overall
management of banking relationships with large corporate clients and government entities under its
Corporate Banking Group as well as middle market and small and medium-sized entities (SME) customers
through its Commercial Banking Group. IBS is also complemented by the Institutional Transaction Banking
Group (ITBG) which assists the Sector in capturing the entire value chains of the Bank’s anchor clients by
offering a comprehensive network of tailor fit, end-to-end financial solutions. Through ITBG, clients are
provided with cash management, innovative solutions, credit programs, and trade products.

In 2020, IBS repositioned its Deal Execution Team to the Structuring and Execution Division (SED) as the
Sector’s priorities shifted from deal-making to remedial management amidst the impact of the COVID-19
pandemic. SED’s primary objectives are to triage COVID-impacted accounts, assist on accounts that
require more intensive workouts and cash flow analysis, and serve as specialists for new regulations.

14
Global Banking and Markets Sector
The Global Banking and Markets Sector (GBMS) oversees the management of the Bank’s liquidity and
regulatory reserves as well as the risk positions on interest rates and foreign exchange arising from the daily
inherent operations in deposit-taking and lending, and from proprietary trading. Likewise, GBMS provides
a wide range of banking products and services to corporates, governments, financial institutions, and high
net worth individuals. Its functions also include carrying forward the Bank’s wealth management
proposition, providing corporate and middle market clients with access to the financial markets, and
building partnerships with multinationals, financial institutions, and non-bank financial institutions by
offering them banking solutions to address their needs and help attain their objectives.

Trust Banking Group

The Trust Banking Group (TBG) provides a full range of Trust, Agency, and Fiduciary products and
services designed to serve a broad spectrum of market segments. Its personal trust products and services
include personal management trust, investment management, estate planning, guardianship, life insurance
trust, and escrow. Corporate trust services and products include corporate trusteeship, securitization,
portfolio management, administration of employee benefit plans, pension and retirement plans, and trust
indenture services. Other fiduciary services include roles such as bond registrar, collecting and paying
agent, loan facility agent, escrow agent, share transfer agent, and receiving bank. TBG manages thirteen
Philippine Peso and US dollar-denominated Unit Investment Trust Funds. These include money market
funds, bond funds, balanced funds, local equity funds and global equity feeder funds.

Digital Innovations Group

The Digital Innovations Group is tasked to drive the consumer digital strategy of PNB, working with
business lines and subsidiaries, support groups and Information Technology Group (ITG) to provide
innovative digital experiences and products for retail consumers. The group provides end-to-end digital
business and product development, covering market scoping and assessment, ideation of business models,
customer experience definition, and coordination with marketing and business groups to promote the
acquisition of digital customers and usage of digital products. It is likewise tasked to execute, deliver and
implement digital products and solutions, and manages and provides support to the Bank’s mobile, internet
banking and other digital platforms, in coordination with PNB ITG and external solutions providers.

Property Development
The Company markets its projects to residential market segments, office locators and commercial tenants
through internal and external sales and marketing channels. For its leasing business, the Company employs
a dedicated team who coordinates with business entities for leasing opportunities in the company’s various
projects.

Status of any publicly announced new product or services

Distilled spirits
There were no publicly announced new projects for the distilled spirits, bioethanol and power and property
development segments.

Beverage
In 2021, ABI launched Vitamilk Double Milky, expanding its multi-serve soymilk offerings. ABI also
introduced V-Soy, a premium line of soymilk made from all –natural, plant-based ingredients that unlock a
rich taste and pleasant aroma fit for those with sophisticated tastes.

Cobra added Immuniplus+ to its formulation addressing consumers’ need for increased protection amidst the
surging COVID-19 pandemic.

Rounding up the additions to ABI’s product portfolio in 2021 is the introduction of the first hard seltzer in
the Philippines, Spritz, a blend of sparkling water and alcohol with a refreshing fruity flavor.

15
Banking
The Bank has launched the following products and services in 2021:

a. PNB Global Feeder Funds

Two new global feeder funds, namely the PNB World Perspectives Equity Feeder Fund and the PNB
US Equity Sustainability Leaders Feeder Fund will allow Filipino investors to invest in US and other
globally-traded shares of stocks to further diversify their investments.

b. PNB PERA Bond Fund

In support of the BSP’s bid to grow the Personal Equity Retirement Account (PERA), PNB, as a
product provider, launched its first digital PERA fund, the PNB PERA Bond Fund. Established via
Republic Act 9505 (PERA Act of 2008), PERA is a voluntary retirement program that allows investors
to accumulate additional funds for retirement. It supplements the national government’s pension
programs like the GSIS or SSS as well as the retirement programs of private companies.

c. PNB Singapore Mobile App

The PNB Singapore Mobile App makes banking easier for Filipinos in Singapore. The app enables a
fully-automated remittance process for all registered clients and potential clients (subject to one-time
onsite Know-Your-Customer) based in Singapore. Users can register in three easy steps and send
money to any Philippine-based bank account, to electronic money issuers (including GCash and other
service providers), and to over 7,000 cash pick-up locations nationwide. Users can avail of real-time
crediting to PNB accounts, authorized payout partners, and all major banks and non-banks in the
Philippines.

Tobacco
In 2021, the following were the product innovations and upgrades:
1. Chesterfield Menthol 100 (New Product Launch)
2. Chesterfield Remix Cool (New Product Launch)
3. Chesterfield Full Flavor (New Product Launch)
4. Fortune Menthol Special Green (New Product Launch)
5. Marlboro Sustainability (Limited Pack Edition)
6. Marlboro Vista (New Product Launch)
7. Marlboro Black Menthol Mega 100 (New Product Launch)

Competitive business condition/position in the industry

Distilled Spirits

Liquor Products
The Philippine liquor market increased by 0.9% in 2021 based on the retail audit of Nielsen with Vismin
outgrowing the other regions with its +8.8% growth. With its strong performance in the Vismin region, TDI
gained 1.3ppts to end the year with 27% national market share. TDI posted a strong performance in Visayas
(+6% in volume). In Mindanao, TDI had a 2.8% increase in volume of sales resulting in a decrease in
market share by +2 ppts due to faster decline in volume of sales of competitors.

Bio-Ethanol Fuel
There are presently fifteen registered local bioethanol producers in the country with a total registered
capacity of 455 million liters (ML) per year. In 2021, only 13 bioethanol producers (AAC was the latest
inclusion) with a combined capacity of 380 ML were operational as against the country’s total ethanol
requirement of around 550ML. Due to the shortage in local bioethanol supply, oil companies were being
allowed to import bio-ethanol to cover the deficiency. The intent of the law however is that all locally
produced ethanol must be consumed first before any importation is allowed. Presently, the Department of
Energy controls the importation of ethanol through the Notice of Value of Bioethanol Importation Allowed
(NAVBI).The increase in ethanol production created a huge demand for locally produced molasses
resulting to higher prices.

16
Beverage
ABI competes against leading Philippine and international beverage brands across all of its product
categories. Its main competitors for each product category include the following:
• Energy drinks - ABI competes with Pepsico’s Sting energy drink, Coca-Cola’s Thunder, and Extra
Joss, Lipovitan and others;
• Bottled water - ABI’s main competitors are Philippine Spring Water Resources’ Nature’s Spring
and Coca-Cola’s Wilkins, among others; and
• Soymilk - ABI competes with Vitasoy, Lactasoy and Soyfresh.
• Beer – ABI competes mainly with San Miguel Beer, San Mig Light, Red Horse Beer, San Miguel
Premium All-Malt Beer and Gold Eagle Beer, all of which are brands of the San Miguel
Corporation; and
• Alcopop - ABI’s main competitors include Antonov, Vodka Ice, Smirnoff and Infinit.

Tobacco
PMFTC’s main competitors are JTI Philippines and Associated Anglo-American Tobacco (AAATC). JTI
offers a number of well-known brands such as Mighty, Winston, Camel and Mevius. Key brands of AAATC,
a local manufacturer, are Winnsboro and Dallas.

Banking
In the Philippines, the Bank faces competition in all its principal areas of business, from both Philippine
(private and government-owned) and foreign banks, as well as finance companies, mutual funds and
investment banks. The competition that the Bank faces from both domestic and foreign banks was in part a
result of the liberalization of the banking industry with the entry of foreign banks under Republic Act (R.A.)
7721 in 1994 and R.A. 10641 in 2014, as well as the recent mergers and consolidations in the banking
industry. As of the latest available data from the BSP, there were 46 universal and commercial banks, of
which 17 are private domestic banks, 3 are government banks and 26 are branches or subsidiaries of foreign
banks. Some competitor banks have greater financial resources, wider networks and greater market share
than PNB. Said banks also offer a wider range of commercial banking services and products; have larger
lending limits; and stronger balance sheets than PNB. To maintain its market position in the industry, the
Bank offers diverse products and services, invests in technology, leverages on the synergies within the
Lucio Tan Group of Companies and with its government customers, as well as builds on relationships with
the Bank’s other key customers.

The Bank also faces competition in its operations overseas. In particular, the Bank’s stronghold in the
remittance business in 17 countries in North America, Europe, the Middle East and Asia is being challenged
by competitor banks and non-banks. As of December 31, 2021, the Bank has a distribution network of 670
domestic branches and offices and 1,713 ATMs nationwide. The Bank is one of the largest local private
commercial banks in the Philippines in terms of consolidated total assets, net loans and receivables, capital
and deposits as well as with regard to branch network. In addition, it has the widest international footprint
among Philippine banks spanning Asia, Europe, the Middle East and North America with its overseas
branches, representative offices, remittance centers and subsidiaries.

Property Development
Location is the main differentiator for Eton’s projects. As showcased in its various developments, location
played a major role in land development. All of the Company’s residential, township, commercial centers
and BPO offices are set in prime locations in the country’s major cities and growth areas, offering more
value for communities surrounding the project, outsourcing firms and office locators and retail tenants.
Ayala Land, Megaworld, Filinvest Land and Robinsons Land are the Company’s main competitors.

17
Raw Materials and Principal Suppliers

Distilled Spirits

• Alcohol
TDI uses ethyl alcohol, which is distilled from sugarcane molasses. In 2021 TDI imported most of
its alcohol requirements due to high cost of locally produced alcohol. AAC and ADI now provides
only around 7% of TDI’s requirement.

Alcohol is delivered directly to the plant by tankers. The quality of alcohol is checked prior to
acceptance. In 2021, alcohol accounted for 44% of product cost while excise tax accounted for 51%
of the total costs. The tax is paid upon withdrawal of the full goods from the production sites.

The distillery companies obtain their molasses from sugar mills and traders. Major suppliers are
Universal Robina Corporation, Victorias Milling Corporation, Binalbagan Sugar Company, LYL
Marketing, Shuurmans & Van Ginneken Phils., Inc., Grandcane Company, Inc., and Tate & Lyle
Corp.

• Sugar
This is added when deemed necessary to enhance the taste and aroma of a particular product.

• Water
The plants use significant amounts of demineralized water for blending liquor products. The water
is supplied by the local utility. Each plant has its own water storage and demineralization facilities.

• Flavoring Agents
For some products, essences and other flavoring agents are added to attain the desired color, flavor
and aroma as well as to reinforce the natural quality of rum as derived from molasses and ageing
in oak barrels.

• Bottles
TDI’s liquor products are packaged in glass bottles. Glass bottles account for approximately 14%
of cost of goods sold for TDI’s products. The cost is managed in part by recycling the bottles. TDI
maintains a network of secondhand bottle dealers across the nation that retrieve the bottles from
the market and sell them back to TDI. The cost of the secondhand bottles including the cost of
cleaning is 50% lower than the cost of purchasing new bottles.

• Caps
All products are sealed with tamper-proof resealable aluminum caps, which average at 3% of total
product cost.

• Labels
The labels being used are made from imported base coated paper. Label cost accounts for 1% of
product cost.

There are no long-term purchase commitments as purchases are made through purchase orders on a per
need basis from a list of accredited suppliers.

18
Beverage
The Company has a wide network of suppliers, both local and foreign. ABI’s energy drinks consist of a
base of flavor concentrate, which is diluted with water and sweetened with sugar. Carbon dioxide is then
added to provide carbonation. ABI’s energy drink concentrates are sourced primarily from well-known
international suppliers. Sugar is procured from third-party and related party local suppliers including
Victorias Milling Corporation, generally under supply contracts of up to one year. ABI also purchases
carbon dioxide and other additives from local producers. Water is sourced from sources near ABI’s
production plants.

Quality of water is the primary ingredient in the water bottling business of ABI. Water is sourced primarily
from sites near the bottling plants and undergoes several purifying steps to ensure it meets standards.

ABI manufactures the majority of the bottles used for its beverage products. These are manufactured at
ABI’s Cabuyao plant in Laguna. Bottling and packaging materials, including aluminum closures, crowns
and corrugated cartons are produced by ABI’s subsidiary, PWI, which purchases any required raw materials
from multiple suppliers in the Philippines and internationally.

Tobacco

FTC’s main source of income is dividends from PMFTC.

FTC has no long-term purchase commitments as purchases are made through purchase orders on a per need
basis from a list of accredited suppliers.

With the expiration of the CMA between FTC and JTI, the Company no longer buys raw materials.

Banking

This is not applicable for banks.

Property Development
The Company has a wide network of suppliers, both local and foreign.

Dependence on one or two major customers

Distilled Spirits

Liquor Products
TDI markets, sells, and distributes its products throughout the Philippines. In the year ended December 31,
2021, sales volume in the Visayas and Mindanao regions accounted for approximately 49% and 51% of
TDI’s gross sales volume, respectively. TDI attributes its leading position in the distilled spirits industry to
strong brand equity, utilization of diverse marketing channels and an established distribution network.

TDI presently buys most of its alcohol from a network of suppliers locally and abroad due to high cost of
locally produced alcohol.

Bioethanol
ADIs principal customers for its bioethanol are local oil companies on a purchase order basis and there
are no long-term supply commitments/ arrangements.

Beverage
ABI has stable relationships with its 13 exclusive distributors for its beverage business. For its commercial
glass business, ABI supplies to several established beverage and food manufacturers in the Philippines. In
both its beverage and commercial glass businesses, ABI’s financial well-being is not dependent on only
one or two major customers.

19
Tobacco
PMFTC directly sells its products primarily to local wholesalers, which then sell products to retailers or
directly to adult consumers. These wholesalers are typically family-owned and operated local stores, such
as sari-sari stores, that are also a source of goods for smaller traditional retailers such as kiosks, eateries
and sidewalk vendors. Such stores and vendors often sell cigarettes to adult consumers by the stick as
opposed to selling by the pack. Due to their presence across a wide network of localities and their financial
capacity, these wholesalers offer a means for manufacturers such as PMFTC to reach a large number of
retailers and customers without having to sell to each individual point of sale.

Banking
PNB offers a wide range of financial services in the Philippines. The Bank has foreign operations and has
a stronghold in the remittance business in 17 countries in North America, Europe, the Middle East and Asia
thus, its financial well-being is not dependent on only one or two major customers.

Property Development
The Company has a wide customer base and is not dependent on one or a limited number of customers.

Transactions with and/or dependence on related parties

The Company has various transactions with its subsidiaries and associates and other related parties. These
are enumerated in detail in Note 22 of the Notes to Consolidated Financial Statements.

Patents, trademarks, licenses, franchises, concessions, royalty agreements or labor contracts

Distilled Spirits
All product names, devices and logos used by TDI are registered with or are covered by a pending
Application for Registration with the Intellectual Property Office of the Philippines.

TDIs bottling and distillery plants have current Environmental Compliance Certificate issued by the DENR.
TDI has a license to operate from the Bureau of Food and Drugs and all liquor products currently being
produced are registered with the Bureau of Food and Drugs and the BIR.

TDI has existing agreement with London Birmingham Distillers, Ltd. London, England for the use of the
London Gin brand.

ADI and AAC are registered with the Sugar Regulatory Administration as producer of bioethanol.

ADI entered into a 25-year solar energy service contract with the DOE for the right to explore solar energy
resources in agreed areas in Lian, Batangas, renewable for another 25 years at the option of the parties.

ADI’s bioethanol and solar power plant are registered with the Board of Investments (BOI) under the
Omnibus Investment Code of 1987.

TDI and its subsidiaries have existing service agreements with two (2) service contracting agencies and two
(2) labor cooperatives.

Beverage
ABI has caused the registration with the Philippine Intellectual Property Office of a variety of marks
including “Asia Brewery, Inc.,” the ABI logo, Cobra Energy Drink, Absolute Pure Distilled Drinking
Water, Summit Water, Creamy Delight, Colt 45, Beer na Beer, Manila Beer Light, and Brew Kettle. These
exclusive distribution licenses are registered with the IPO and the equivalent regulatory agencies in various
other countries.

20
ABI and its subsidiaries have existing license agreements with Switzerland’s Nestle, the U.S.’s Sunkist
Growers, Inc., Thailand’s Green Spot Company Limited, Netherland’s Heineken Brouwerijen B.V., and
Singapore’s Heineken Asia Pacific Pte. Ltd. for the manufacture and distribution of Nestea, Sunkist,
Vitamilk, Heineken and Tiger Crystal and Tiger Black, respectively.

Tobacco
Under the terms of the business combination, both FTC and PMPMI transferred the intellectual property
rights to their local brands to PMFTC. PMI has licensed its international trademarks to PMFTC for so long
as the business combination exists and for which PMFTC makes regular royalty payments to PMI.

Banking
The Bank’s operations are not dependent on any patents, trademarks, copyrights, franchises, concessions,
and royalty agreements.

Property Development
The trademark of the following names and devices were approved by the Intellectual Property Office (IPO):

Year Names and/or Devices

2008 a. Eton City
b. Eton corporate name and device
c. The Eton Residences Greenbelt
d. Eton Baypark Manila
e. Eton Centris
f. Move-in Ready labels
2009 a. The Makati of the South
b. Eton Emerald Lofts
2011 a. Centris Walk
b. Eton Tower Makati
c. Riverbend
d. Eton Parkview Greenbelt
e. Southlake Village
f. Eton Cyberpod
g. Centris Station
h. 8 Adriatico
i. Belton Place
j. E-life
k. West Wing Villas
l. Green Podium
m. Aurora Heights Residences
n. West Wing Residences
o. One Archers Place
p. 68 Roces
2012 a. West Wing Tropics
b. One Centris Place
2016 a. The Mini Suites
b. Eton WestEnd Square
2017 a. Station Alley at Centris
b. Arcada
c. Eton Nexus Tower
d. NXTower
e. Eton “NXT” Tower
f. The Courtyard at Eton City

21
In 2018, the following names and devices were applied with the IPO:

a. Centris Cyberpod l. Cyberpod Three

b. Centris Elements m. Cyberpod Five
c. Cyberpod Centris n. Eton Centris with different graphical
d. Cyberpod Centris One representations
e. Cyberpod Centris Two o. Centris Walk with different graphical
f. Cyberpod Centris Three representation
g. Cyberpod Centris Five p. Centris Station with different
h. Eton Cyberpod Corinthian graphical representation
i. Elements at Centris q. Eton City with different graphical
j. Cyberpod One representation
k. Cyberpod Two

Eton corporate name and device, Eton Residences Greenbelt, and Eton Baypark Manila were reapplied with
the IPO.

These trademarks shall be valid for a period of ten (10) years from notice of approval.

Need for any government approval of principal products

Distilled Spirits & Beverages

The approval of the Food & Drugs Administration and Bureau of Internal Revenue is required before selling
and/or advertising a new product. In addition, all new products must be registered with the BIR prior to
production. ADI and AAC are registered bio-ethanol producers with the Sugar Regulatory Administration.

Tobacco
The company files with the BIR its Manufacturer’s declaration for the production of its products.

Banking
Generally, e-banking products and services require Bangko Sentral ng Pilipinas (BSP) approval. New
deposit products require notification to the BSP. The Bank has complied with the aforementioned BSP
requirements.

Property Development
The Company complies with all government agencies in securing licenses to sell, development permits,
Environmental Compliance Certificate (ECC) and all other mandated requirements of the industry.

Effect of existing or probable governmental regulations on the business

Distilled Spirits
The increase in value-added and excise taxes will affect manufacturing costs, which may require increase in
selling prices. Higher selling prices can lower volume of sales.

The foreign alcohol market, coupled with new technologies on alcohol production and lower tariffs, can make
the price of imported alcohol cheaper than those produced locally.

TDI and its subsidiaries are subject to various laws promulgated to protect the environment such as the
Environment Impact Statement System (EIS), Clean Air Act, Clean Water Act Law, Laguna Lake
Development Act. Compliance with these laws is mandatory for the continued operation of TDI and its
subsidiaries.

The pricing for local bioethanol products is based on the reference rate as set by the SRA.

22
Beverage
Regulatory decisions or changes in the legal and regulatory requirements in a number of areas related to
the beverage industry may have adverse effect on ABI’s business. In particular, governmental bodies may
subject ABI to actions such as product recall, seizure of products and other sanctions, any of which could
have an adverse effect on ABI’s sales. Any of these and other legal or regulatory changes could materially
and adversely affect ABI’s financial condition and results of operations.

ABI’s products are subject to value added taxes (“VAT”). Any increases in VAT may reduce the overall
consumption of ABI’s products. Beer and other alcoholic beverages of ABHP, including alcopop products
such as Tanduay Ice, are subject to an excise tax in addition to VAT. Starting January 2018, a tax on sugar-
sweetened beverages was imposed, subjecting several ABI products – Cobra, Sunkist, and Nestea – to
excise taxes. Any increases in the rate and scope of excise taxes imposed by the taxing authorities may
likewise reduce consumption.

There is no guarantee that the increased taxes can be shouldered by ABI; subsequently, it may be passed
on by ABI to its consumers, which may result in lower demand for its products and have an adverse effect
on ABI’s business, financial condition and results of operations

Tobacco
On December 19, 2012, President Benigno Aquino III signed R.A. 10351 into law which modified the
applicable excise tax rates on alcohol and tobacco products, including cigarettes effective January 1, 2013.

During the first year of R.A. 10351’s implementation, high-priced cigarettes were taxed at a rate of P
=25.00
per pack and low-priced cigarettes will be taxed at P=12.00 per pack. In the second year, the rates were
increased to P
=27.00 and P =17.00 per pack, respectively. In 2015, the high-priced cigarettes were taxed at
=28.00 per pack and the low-priced cigarettes at P
P =21.00 per pack. Said rates were increased in 2016 at
=29.00 and P
P =25.00 per pack, respectively. In 2017, all cigarettes were taxed with a unitary rate of P
=30.00
per pack.

On December 19, 2017, the President of the Philippines signed into law Republic Act (RA) No. 10963 or
the Tax Reform for Acceleration and Inclusion (TRAIN), which increased the unitary excise tax higher
than the RA 10351. The excise tax rate per pack was at P
= 32.50 from January until June 2018, P =35.00 until
December 2019, P
= 37.50 until 2021, then P
= 40.00 until 2023, with an increase of four percent annually from
2023 onwards.

From the regulatory standpoint, Executive Order No. 26 (Providing for the establishment of smoke-free
environments in public and enclosed places) was also signed by the President and became effective last
July 23, 2017.

On December 19, 2017, the President Rodrigo Duterte signed into law R.A. No. 10963 or the Tax Reform
for Acceleration and Inclusion (TRAIN), which increased the unitary excise tax. The excise tax rate per
pack was at P
=32.50 from January until June 2018, P
=35.00 from July 2018 until December 2019.

On July 25, 2019, President Rodrigo Duterte signed into law R.A. No. 11346, which further increased the
excise tax on tobacco products to P
=45.00 from January 2020 until December 2020, then P =50.00 from
January 2021 until December 2021, P=55.00 from January 2022 until December 2022, P=60.00 from January
2023 until December 2023, with an increase of 5 percent annually from 2024 onwards.

Banking
The Philippines’ banking industry is highly regulated by the BSP (Bangko Sentral ng Pilipinas). The bank
through its compliance division ensures adoption and adherence to recent regulatory pronouncements and
rulings.

23
Property Development
The Company strictly complies with, and adheres to, existing and probable government regulations in the
conduct of its business.

Research and development activities

The research and development activities of the Group for the past three years did not amount to a significant
percentage of revenues.

Costs and effects of compliance with environmental laws

Distilled Spirits
TDI regards occupational health and safety as one of its most important corporate and social responsibilities
and it is TDI’s corporate policy to comply with existing environmental laws and regulations. TDI maintains
various environmental protection systems which have been favorably cited by the environmental regulators.
Since TDI’s operations are subject to a broad range of health, safety and environmental laws and
regulations, TDI convenes a quarterly strategic meeting among its department leaders to review, discuss
and develop goals surrounding health, safety and environmental compliance and awareness.

Environmental Management Facilities

TDI places critical importance on environmental protection. To further this aim, TDI invests in facilities
which it believes will reduce the impact of its operations on the environment, as well as reduce its operating
costs. On November 22, 2012, the Federation of Philippine Industries named Tanduay as the most
outstanding company in the Philippines in relation to its optimum use and recycling of resources.

Bottle Recycling
A major component of TDI’s operations is the retrieval of secondhand bottles and the reuse of these bottles
in TDI’s production process. The cost of a used bottle, including washing costs, is approximately 50% less
than the cost of a new bottle. Apart from the reduced cost, TDI also benefits from the reduced waste in
reusing bottles as a bottle can be reused an average of three to four times. TDI relies on a nationwide
network of junk shops throughout the Philippines for purchasing secondhand bottles. Repurchasing bottles
also helps TDI in marketing its products, as customers can sell their bottles after consuming the contents.
TDI has also invested in automated bottle washing facilities in all its bottling plants.

Wastewater Treatment Plants

Bottling Plants
TDI has wastewater treatment facilities in all its bottling plants that screen, collect and neutralize all wastes
from the bottling process before these are discharged. The wastes generally emanate from the bottle
washing process that uses certain chemicals to thoroughly clean the bottles. Philippine regulatory agencies
such as the DENR and Laguna Lake Development Authority (LLDA) conduct annual inspections of TDI’s
wastewater treatment process.

Distillation Plants
Wastewater is collected in lagoons where it undergoes a treatment process to minimize adverse effects on
the environment. Treated wastewater, along with other distillery wastes, is also usable as liquid fertilizer.
ADI has wastewater treatment digestor and methane gas collector that reduces carbon emissions and serves
as secondary source of power for the distillation plant.

ADI has also installed a Biomenthanated Spent Wash Evaporation plant that will be used for the evaporation
of wastewater in its Batangas distillation plant. The project aims to save on liquid fertilization costs.

24
Beverage
ABI regards occupational health and safety as one of its important corporate and social responsibilities.
ABI’s policy is to comply with existing environmental laws and regulations. ABI has made significant
investments in its physical facilities to comply with its environmental policy, including investments in
environmental protection systems, such as wastewater treatment which have been cited favorably by
environmental regulators. Since ABI’s operations are subject to a broad range of safety, health and
environmental laws and regulations, ABI convenes a quarterly strategic program among its department
leaders to review, discuss and develop goals surrounding health, safety and environmental compliance and
awareness. ABI has also appointed a safety compliance officer for its operations and facilities.

Tobacco
PMFTC’s goal is to manufacture quality products while recognizing performance in environmental, health
and safety (EHS) as an integral part of the business. Therefore, PMFTC is committed to reduce the
environmental impact of its activities and promote the sustainability of the environment (upon which it
depends), to prevent occupational injuries and illnesses in the workplace by addressing any foreseeable
hazards while improving and protecting its physical assets, and to comply with all laws and regulations
related to EHS.

PMFTC has continuously allocated significant investments in EHS improvements and upgrades in its
Batangas factory, and Marikina facilities. Rigorous monitoring and reporting systems are put in place in
parallel to training to all employees, resulting in maintaining the certification by Bureau Vertias of the
Batangas and Marikina factories as compliant in accordance with ISO 9001 (Quality), ISO 45001
(Environment) AND ISO 45001 (Occupational Safety & Health).

Banking
This is not applicable to banks.

Property Development
The Company’s development plans provide for full compliance with environmental safety and protection
in accordance with law. The Company provides the necessary sewage systems and ecological enhancements
such as open space landscaping with greenery.

The Company complies with the various government approvals such as ECC, development permit and
licenses to sell, among others, and incurs expenses for complying with the environment laws. This consists
mainly of payments of government regulatory fees which are standard in the industry and are minimal.

Human Resources and Labor Matters

LTG had 28 regular monthly employees as of December 31, 2021. The total workforce of the Group
inclusive of contractual employees was as follows:

Distilled Spirits 2,037

Beverage 4,088
Tobacco 53
Banking 8,656
Property development 381
Total 15,215

Distilled Spirits
TDI has 1,597 employees as of December 31, 2021. With the exception of the Cagayan De Oro Plant, all
regular daily employees of the TDI plants are unionized. TDI-Cabuyao’s regular daily employees has a
Collective Bargaining Agreement (CBA) with the NAGKAKAISANG LAKAS MANGGAGAWA NG
TDI-FSM, which is effective up to 2022. TDI Negros’ regular daily employees assigned in its bottling
operations has a CBA with the Labor Union of Tanduay Employees (LUTE) effective up to 2022.

AAC has 200 employees with no existing Union.

25
As of December 31, 2021, ADI has 240 employees. ADI's registered labor union is Absolut Distillers, Inc.
Employees Union-Olalia-KMU. Current CBA is effective up to 2024.

TDI and subsidiaries expect to maintain its average number of employees in the next (12) twelve months.

There are no supplemental benefits or incentive arrangements that the Group has or will have with its
employees.

Beverage
As of December 31, 2021, approximately out of the 4,088 (including contractual employees) ABI and its
subsidiaries directly employed 3,030 people, of which about 76% were employed in manufacturing and
logistics, 19% had general and administrative functions, 4% were in sales and distribution, and 1% were in
marketing.

ABI and its subsidiaries generally employ a number of outsourced laborers from third-party service
providers. ABI contracts with these manpower and services firms for the supply of additional laborers.

ABI is a party to a collective bargaining agreement (CBA) for its employees at its Cabuyao and El Salvador
plants. The CBA with its Cabuyao employees was signed on July 12, 2019 and was effective until December
31, 2021. Negotiations for a new CBA is underway. The CBA for ABI’s El Salvador plant has been
concluded effective February 16, 2022.

ABI believes that its relations with both its unionized and non-unionized employees are good. ABI has not
experienced any work stoppages due to industrial disputes since 1999.

Tobacco
FTC had 53 regular monthly employees as of December 31, 2021. Effective January 1, 2012, FTC ceased
to have daily (regular or casual) employees because of the business combination of FTC and PMPMI
effective on February 25, 2010.

Banking
The banking group has a total of 8,656 employees as of December 31, 2021. Comprised of 4,644 officers
(121 – Vice President and up and 4,523 – Senior Assistant Vice President to Assistant Manager) and 4,012
rank and file employees. The Bank shall continue to pursue selective and purposive hiring strictly based
on business requirements. The Bank has embarked on a number of initiatives to improve operational
efficiency.

With regard to the Collective Bargaining Agreement (CBA), the Bank’s regular rank and file employees
are represented by a Union. Total union membership is 3,495 out of 4,012 rank and file employees or 87%
of the total rank and file population. The CBA has been renewed for a two-year period from July 1, 2020
to June 30, 2022.

The Bank has not suffered any strikes, and the Management of the Bank considers its relations with its
employees and the Union as harmonious and mutually beneficial. Industrial peace is continuously being
enjoyed by both Management and the organized Union.

26
Property Development
The Company had 381 and 379 employees at the close of the calendar year December 31, 2021 and 2020,
respectively. The breakdown of the Company employees as of December 31, 2021, according to type are
as follows:

Executive 27
Managers 49
Officers 74
Supervisors 84
Rank and File 147
Total 381

The Company will continue to hire qualified and competent employees for the next twelve months to
support its plans and programs to achieve revenue, growth and efficiency targets. The Company’s
employees do not belong to any labor union or federation.

At present, its employees receive compensation and benefits in accordance with the Labor Code of the
Philippines.

Major risk/s and Procedures Being Taken to Address the Risks

Distilled Spirits

Market / Competitor Risk

TDI’s core consumer base for its products are lower-income consumers. Customers are classified into
“economy” and “standard” markets, with monthly income levels of up to P =10,000 and P=100,000,
respectively. According to the 2006 Philippine National Statistics Coordination Board (NSCB) Family
Expenditure Survey and a 2009 Usage, Attitude and Image Survey conducted by the Philippine Survey
Research Council, this consumer base comprises approximately 80% of the Philippine population and
likewise accounts for approximately 90% of liquor consumption. The preferences of these consumers
change for various reasons driven largely by demographics, social trends in leisure activities and health
effects. Entry of new competitive and substitute products to address these customers’ preferences may
adversely affect the business prospects of TDI if it does not adapt or respond to these changes.

In addition, the market of TDI is highly sensitive to price changes given the purchasing power and
disposable income of its customers. Any adverse change in the economic environment of the Philippines
may affect the purchasing power of the consumers and adversely affect TDI’s financial position and
performance.

TDI responds to customer preferences by continuing to monitor market trends and consumer needs to
identify potential opportunities. Its existing product portfolio covers all major liquor categories and price
ranges enabling it to respond quickly to any change in consumer preference. Development of new products
and brands is continuously being undertaken to address the current and emerging requirements of the
customers.

Raw Material Supply Risk

The main raw material that TDI and subsidiaries use for the production of its liquor products and bioethanol
is molasses which is subject to price volatility caused by changes in global supply and demand, weather
conditions, agricultural uncertainty or governmental controls. A shortage in the local supply of molasses
and the volatility in its price may adversely affect the operations and financial performance of TDI and its
subsidiaries.

TDI addresses this risk by regularly monitoring its molasses and alcohol requirements. At the start of each
annual sugar milling season, TDI normally negotiates with major sugar millers for the purchase in advance
of the mill’s molasses output at agreed upon prices and terms. It also imports ethyl alcohol in the event that

27
the local supply is not sufficient or if prices are not favorable. Furthermore, TDI’s parent company owns a
30.9% stake in Victorias Milling Company, Inc. (VMC) as of December 31, 2021. VMC is the largest
sugar producer in the Philippines and currently one of TDI’s major supplier of molasses.

Furthermore, the acquisition of AAC and ADI was designed to control alcohol cost and minimize the
chances of a shortage in supply. Adequate storage facilities have been constructed to enable TDI to buy
and stock molasses at the time when sugar centrals are at their production peaks. To address any disruption
in supply from AAC and ADI, TDI also maintains a network of local and foreign alcohol suppliers.

Credit Risk
TDI relies on 16 exclusive distributors for the sale of its liquor products. Any disruption or deterioration
in the credit worthiness of these distributors may adversely affect their ability to satisfy their obligations to
TDI.

The operations and financial condition of distributors are monitored daily and directly supervised by TDI’s
sales and marketing group. Credit dealings with these distributors for the past twenty years have been
generally satisfactory and TDI does not expect any deterioration in credit worthiness. The 16 distributors
also have a wide range of retail outlets and there is no significant concentration of risk with any
counterparty.

Trademark Infringement Risk

TDI’s image and sales may be affected by counterfeit products with inferior quality. Its new product
development efforts may also be hampered by the unavailability of certain desired brand names. TDI
safeguards its brand names, trademarks and other intellectual property rights by registering them with the
IPO and in all countries where it sells or plans to sell its products. Brand names for future development are
also being registered in advance of use to ensure that these are available once TDI decides to use them.
Except for companies belonging to the LT Group, TDI also does not license any third party to use its brand
names and trademarks.

The risk of counterfeiting is constantly being monitored and legal action is undertaken against any violators.
The use of tamper proof caps is also seen as a major deterrent to counterfeiting.

Regulatory Risk
TDI is subject to extensive regulatory requirements regarding production, distribution, marketing,
advertising and labeling both in the Philippines and in the countries where it distributes its products.
Specifically, in the Philippines, these include the Bureau of Food and Drugs, Department of Environment
and Natural Resources, Bureau of Internal Revenue and Intellectual Property Office.

Decisions and changes in the legal and regulatory environment in the domestic market and in the countries
in which it operates or seeks to operate could limit its business activities or increase its operating costs. The
government may impose regulations such as increases in sales or specific taxes which may materially and
adversely affect TDI’s operations and financial performance.

To address regulatory risks like the imposition of higher excise taxes, TDI would increase its selling prices
and make efforts to reduce costs. Other regulatory risks are managed through close monitoring and
coordination with the regulatory agencies on the application and renewal of permits. TDI closely liaises
with appropriate regulatory agencies to anticipate any potential problems and directional shifts in policy.
TDI is a member of the Distilled Spirits Association of the Philippines and the Bioethanol Producers
Association which acts as the medium for the presentation of the industry position in case of major changes
in regulations.

Safety, health and environmental laws risk

The operation of TDI’s existing and future plants are subject to a broad range of safety, health and
environmental laws and regulations. These laws and regulations impose controls on air and water
discharges, on the storage, handling, employee exposure to hazardous substances and other aspects of the

28
operations of these facilities and businesses. TDI has incurred, and expects to continue to incur, operating
costs to comply with such laws and regulations. The discharge of hazardous substances or other pollutants
into the air, soil or water may cause TDI to be liable to third parties, the Philippine government or to the
local government units with jurisdiction over the areas where TDI’s facilities are located. TDI may be
required to incur costs to remedy the damage caused by such discharges or pay fines or other penalties for
non-compliance.

There is no assurance that TDI will not become involved in future litigation or other proceedings or be held
responsible in any such future litigation or proceedings relating to safety, health and environmental matters,
the costs of which could be material. Clean-up and remediation costs of the sites in which its facilities are
located and related litigation could materially and adversely affect TDI’s cash flow, results of operations
and financial condition.

It is the policy of TDI to comply with existing environmental laws and regulations. A major portion of its
investment in physical facilities was allocated to environmental protection systems which have been
favorably cited as compliant by the environmental regulators.

Counterfeiting risk
TDI’s success is partly driven by the public’s perception of its various brands. Any fault in the processing
or manufacturing, either deliberately or accidentally, of the products may give rise to product liability
claims. These claims may adversely affect the reputation and the financial performance of TDI.

The risk of counterfeiting is constantly being monitored and legal action is undertaken against any violators.
The use of tamper proof caps also helps prevent counterfeiting. All brand names, devices, marks and logos
are registered in the Philippines and foreign markets.

The Quality Program of TDI ensures that its people and physical processes strictly comply with prescribed
product and process standards. It has a Customer Complaint System that gathers, analyzes and corrects all
defects noted in its products. Employees are directed to be observant of any defects in the Company’s
products on display in sales outlets and buy the items with defects and surrender these to TDI for
reprocessing.

Last July 21, 2014, Tanduay Cabuyao Plant successfully passed the ISO 9001:2008 Certification Audit while
the Negros Plant was certified last December 31, 2014. This was an achievement for Tanduay since the
Company was able to certify 2 plants in a year. ISO 9001:2008 specifies requirements for a quality
management system where an organization needs to demonstrate its ability to consistently provide product
that meets customer and applicable statutory and regulatory requirements and aims to enhance customer
satisfaction through the effective application of the system including processes for continues improvement of
the system and the assurance of conformity to customer and applicable statutory and regulatory requirements.

Beverage

Market / Competitor Risk

The substantial majority of ABI’s customers in the Philippines belong to the lower socio-economic classes,
where discretionary income is limited. Accordingly, the market for beverages such as energy drinks, beer
and other ABI products is price elastic. If ABI raises the prices of its products, sales volumes will likely
decline, and the decline may not be offset by the increase in prices, which may result in a lower level of net
sales.

The ability of ABI to successfully launch new products and maintain demand for its existing products
depends on the acceptance of these products by consumers, as well as the purchasing power of consumers.
Consumer preferences may shift because of a variety of reasons, including changes in demographic and
social trends or changes in leisure activity patterns.

29
To address such risks, ABI expects younger consumers to be a key driver of the demand for ABI’s products
and its growth, notably for energy drinks and alcopops. ABI plans to focus its product development and
marketing efforts in these segments on such consumers. ABI intends to use marketing channels such as
social media to improve product communication with its target customers.

In addition, ABI has the most diverse beverage portfolio in the Philippines and is one of the few beverage
companies in the Philippines with a well-established and leading presence across multiple segments in the
beverage industry. ABI believes that its ability to offer a strong portfolio of brands across multiple
categories is a key competitive advantage and allows for significant leverage over its distributors.

Raw Material Supply Risk

The manufacture of ABI’s products depends on raw materials that ABI sources from third-party and related
suppliers. Sugar used to produce energy drinks and other sweetened beverages is generally purchased under
supply contracts of up to one year. Hops and barley used in beer production are primarily sourced abroad.
Raw materials used by ABI and its related companies are subject to price volatility caused by changes in
global supply and demand, foreign exchange rate fluctuations, weather conditions and governmental
controls.

ABI addresses this risk by actively monitoring the availability and prices of raw materials. ABI may also
shift to alternative raw materials used in the production of its products. Apart from these, ABI also monitors
the market for hedging opportunities to lock in the price of raw materials such as bunker fuel used in the
production of commercial bottles.

Regulatory Risk
Regulatory decisions or changes in the legal and regulatory requirements in a number of areas related to
the beverage industry may have adverse effect on ABI’s business. Governmental bodies may subject ABI
to actions such as product recall, seizure of products and other sanctions, any of which could have an
adverse effect on ABI’s sales. Also, any increases in excise taxes or VAT may reduce overall consumption
and demand for ABI’s products, as consumers prioritize basic necessities in view of higher living costs.

ABI may increase its selling prices and make efforts to reduce costs to address such risks. Close monitoring
and coordination with the regulatory agencies on the application and renewal of permits are implemented
to manage other regulatory risks.

Safety, health and environmental laws risk

Various environmental laws and regulations govern the operations of ABI including the management of
solid wastes, water and air quality, toxic substances and hazardous wastes at ABI’s breweries. Non-
compliance with the legal requirements or violations of prescribed standards and limits under these laws
could expose ABI to potential liabilities, including both administrative penalties in the form of fines and
criminal liability. Violations of environmental laws could also result in the suspension and/or revocation
of permits or licenses held by ABI or required suspension or closure of operations.

Strict compliance with environmental laws and regulations is continuously implemented by ABI to address
the risk.

The tobacco or cigarette industry generally has the following risks:

Market / Competitor Risk

PMFTC competes primarily on the basis of product quality, brand recognition, brand loyalty, taste,
innovation, packaging, service, marketing, advertising and price. Although PMFTC has historically been
able to maintain its leadership position in the Philippine tobacco market, the Company believes that the
market landscape is constantly evolving, and market players can gain or lose market share very quickly.

30
The competitive environment and PMFTC’s competitive position can be significantly influenced by erosion
of consumer confidence, competitors’ introduction of lower-priced products or innovative products, as well
as product regulation that diminishes the ability to differentiate tobacco products.
To address the risk, PMFTC employs improvement in product penetration and distribution channels that
will further strengthen its leadership position in the Philippine cigarette market. In addition, PMFTC will
continue to focus on consumer research to assess adult consumer insight, trends, behavior and preferences
in order to develop marketing campaigns that improve customer engagement.

Regulatory Risk
Tax regimes, including excise taxes, sales taxes and import duties, can disproportionately affect the retail
price of manufactured cigarettes versus other tobacco products. The Company believes that general
increases in cigarette taxes are expected to continue to have an adverse impact on PMFTC’s sales of
cigarettes, such as a possible decline in the overall sales volume of its products or a shift in adult consumer
preferences from manufactured cigarettes to other tobacco products, from purchases of high-end tobacco
products to low-end products, from purchases of local tobacco products to legal cross-border purchases of
lower priced products, or the purchases of illicit products, whether counterfeit or deemed contraband items.

PMFTC closely liaises with appropriate regulatory agencies to anticipate any potential problems and
directional shifts in policy. PMFTC is a member of the Philippine Tobacco Institute which acts as the
medium for the presentation of the industry position in case of major changes in regulations.

Safety, health and environmental laws risk

PMFTC’s existing and future operations are subject to a broad range of occupation safety and health
standards, and environmental laws and regulations. These laws and regulations impose controls on air and
water discharges, on storage, handling, employee exposure to hazardous substances and other aspects of
the operations of PMFTC’s facilities. Failure to properly manage the environmental risks and the
operational, health and safety laws and regulations to which PMFTC is subject could also have a negative
impact on its reputation.

It is the policy of the company to comply with existing environmental laws and regulations. PMFTC expects
to incur operating costs to comply with such laws and regulations. PMFTC has continuously allocated
significant investment in environmental, health and safety improvements and upgrades.

Counterfeiting risk
The risk of counterfeiting is constantly being monitored and legal action will be undertaken against any
violators. All brand names, marks and logos are registered in the Philippines and foreign markets.

Banking
As a financial institution with various allied undertakings with an international footprint, PNB continues to
comply with an evolving and regulatory and legislative framework in each of the jurisdictions in which it
operates. The nature and the impact of future changes in laws and regulations are not always predictable.
These changes have implications on the way business is conducted and corresponding potential impact to
capital and liquidity.

Effective risk management is essential to consistent and sustainable performance for all the Bank’s
stakeholders and is therefore a central part of the financial and operational management of the PNB Group.
PNB adds value to clients and therefore the communities in which it operates, generating returns for
stockholders by taking and managing risk.

Through its Risk Management Framework, the Bank manages enterprise-wide risks, with the objective of
maximizing risk-adjusted returns while remaining within its risk appetite. The BOD of the Bank plays a
pivotal role and has the ultimate responsibility in bank governance through their focus on two factors that
will ultimately determine the success of the Bank, viz: (1) responsibility for the Bank’s strategic objectives;
and (2) assurance that such will be executed by choice of talents.

31
Strong independent oversight has been established at all levels within the Bank. The Bank’s BOD has
delegated specific responsibilities to various Board Committees, which are integral to PNB’s risk
governance framework and allow executive management, through management committees, to evaluate the
risks inherent in the business and to manage them effectively.

There are eight (8) Board Committees:

• Board Audit & Compliance Committee (BACC)
• Board Information Technology Governance Committee (BITGC)
• Board Oversight Related Party Transaction Committee (BORC)
• Board Strategy & Policy Committee (BSPC)
• Corporate Governance and Sustainability Committee (CorGov)
• Executive Committee (EXCOM)
• Risk Oversight Committee (ROC)
• Trust Committee (TrustCom)

A sound, robust and effective Enterprise Risk Management (ERM) coupled with global best practices were
recognized as a necessity and are the prime responsibility of the BOD and senior management. The
approach to risk is founded on strong corporate governance practices that are intended to strengthen the
enterprise risk management of PNB, while positioning the Group to manage the changing regulatory
environment in an effective and efficient manner.

Approved by the BOD in 2020, the Management Risk Committee (MRC) was created as a forum ensuring
that the Bank’s Enterprise Risk Management Framework (ERMF) is operationalized and that Senior
Management has an enterprise-level view of all material risks and that risk-mitigating actions properly
determined and effectively executed.

Mainly composed of the Bank’s Sector and Group heads, the MRC will be responsible for reviewing and
monitoring enterprise level risks and assessing risk responses proposed or taken by the relevant risk owner,
and for providing inputs to the ERMF process. The committee shall periodically assess that the Bank’s risk
appetite statements are aligned with the business strategy and the overall objectives.

The approach to managing risk is outlined in the Bank’s ERMF which creates the context for setting
policies, standards, and establishing the right practices throughout the Group. It defines the risk
management processes and sets out the activities, tools, and organizational structure to ensure material risks
are identified, measured, monitored and managed.

PNB’s ERMF, with regular reviews and updates, has served the Bank well and has been resilient through
economic cycles. The organization has placed a strong reliance on this risk governance framework and the
three lines-of-defense model, which are fundamental to PNB’s aspiration to be world-class at managing
risk.

While the first line of defense in risk management lies primarily on the Bank’s risk taking units as well as
the Bank’s support units, the Risk Management Group is primarily responsible for the monitoring of risk
management functions to ensure that a robust risk-oriented organization is maintained.

The risk management framework of the Bank is under the direct oversight of the Chief Risk Officer (CRO)
who reports directly to the ROC. The CRO is supported by Division Heads with specialized risk
management functions to ensure that a robust organization is maintained. The Risk Management Group is
independent from the business lines and organized into the following divisions: Credit Risk Division,
BASEL/ICAAP/Operational Risk Management Division, Market & ALM Division, Business Continuity
Management and Vendor Risk Monitoring Division, Data Privacy & Technology Risk Management
Division, Trust Risk Division, Business Intelligence & Warehouse Division, Model Validation Division
and Administrative & Support Department.

32
Each division monitors the implementation of the processes and procedures that support the policies for
risk management applicable to the organization. These board approved policies clearly define the kinds of
risks to be managed, set forth the organizational structure and provide appropriate training necessary to
manage and control risks.

The Bank’s governance policies also provide for the validation, audits & compliance testing, to measure
the effectiveness and suitability of the risk management structure. The Risk Management Group also
functions as the Secretariat to both the ROC and the MRC which meets monthly to discuss the immediate
previous month’s total risk profile according to the material risks defined by the Bank in its internal capital
adequacy assessment process (ICAAP) document.

Further, each risk division engages with all levels of the organization among its business and support
groups. This ensures that the risk management and monitoring is embedded at origination.

The risk management system and the directors’ criteria for assessing its effectiveness are revisited on an
annual basis and limit settings are discussed with the business units and presented to the ROC for
endorsement for final BOD Approval.

In line with the integration of the BSP required ICAAP and risk management processes, PNB currently
monitors 10 Material Risks (3 for Pillar 1 and 8 for Pillar 2). These material risks are as follows:

Pillar 1 Risks:
• Credit Risk (includes Counterparty and Country Risks);
• Market Risk; and
• Operational Risk.

Pillar 2 Risks:
• Credit Concentration Risk;
• Interest Rate Risk in Banking Book (IRRBB);
• Liquidity Risk;
• Reputational Risk;
• Strategic Business Risk;
• Information Security/ Cyber Security / Data Privacy Risk; and

33
 • Information Technology Risk
• Human Resource Risk

Pillar 1 Risk Weighted Assets are computed based on the guidelines set forth in BSP Circular No. 538,
Series of 2006 using the Standard Approach for Credit and Market Risks and Basic Indicator Approach for
Operational Risks. Discussions that follow below are for Pillar 1 Risks with specific discussions relating to
Pillar 2 risks mentioned above:

Risk Categories and Definitions

We broadly classify and define risks into the following categories and manage the risks according to their
characteristics. These are monitored accordingly under the enterprise ICAAP 2021 program:

Risk Category Risk Definition Risk Monitoring Risk Management Tools

Process
Credit Risk Credit risk is the risk to earnings Loan Portfolio Trend Analysis (Portfolio /
(including or capital that arises from an Analysis Past Due and NPL Levels
Credit obligor/s, customer/s or Credit Dashboards Regulatory and Internal
Concentration counterparty’s failure to perform Credit Review Limits
Risks and and meet the terms of its contract. Credit Model Stress Testing
Counterparty Validation Rapid Portfolio Review
Risks) Credit concentration risk arises CRR Migration
from excessive exposures to Movement of Portfolio
individual counterparties, groups Concentrations and
of related counterparties and Demographics Review
groups of counterparties with Large Exposure Report
similar characteristics (e.g., Counterparty Limits
counterparties in specific Monitoring
geographical locations, economic Adequacy of Loan Loss
or industry sector). Its potential Reserves Review
loss implications are large enough Specialized Credit
relative to a bank’s capital, total Monitoring (Power, Real
assets, or overall risk level, to Estate)
threaten a financial institution’s
health or ability to maintain its
core operations. It is inherent in a
bank's assets, liabilities or off-
balance sheet items, through the
execution or processing of
transactions (either product or
service), or through a
combination of exposures across
these broad categories. The
potential for loss reflects the size
of the position and the extent of
loss given a particular adverse
circumstance. (BSP MORB Sec
301.6, Series of 2009; BCBS)
Market Risk Market risk is the risk to earnings Value at Risk VaR Limits
or capital arising from adverse Utilization Stop Loss Limits
movements in factors that affect Results of Marking Management Triggers
the market value of financial to Market Duration Report
instruments, products and Risks Sensitivity/ ROP Exposure Limit
transactions in an institution’s Duration Report Limit to Structured
overall portfolio, both on or off- Products

34
Risk Category Risk Definition Risk Monitoring Risk Management Tools
Process
balance sheet and contingent Exposure to Exception Report on
financial contracts. Market risk Derivative/ Traders’ Limit
arises from market-making, Structured Products Exception Report on Rate
dealing and position taking in Tolerance
interest rate, foreign exchange, Stress Testing
equity, and commodities market. BSP Uniform Stress Testing
(BSP Cir. No. 544, Series of
2006)
Liquidity Risk Liquidity risk is generally defined Funding Liquidity MCO Limits
as the current and prospective Plan Liquid Assets Monitoring
risk to earnings or capital arising Liquidity Ratios Stress testing
from an FI’s inability to meet its Large Fund Large Fund Provider
obligations when they come due. Providers Analysis
Liquidity risk includes the Maximum Contingency Planning
inability to manage unplanned Cumulative
decreases or changes in funding Outflow (MCO)
sources. Liquidity risk also arises Liquid Gap
from the failure to recognize or Analysis
address changes in market
conditions that affect the Bank’s
ability to liquidate assets quickly
and with minimal loss in value.
(BSP Cir. No. 510/545).
Interest Rate Interest rate risk is the current and Interest Rate Gap EAR Limits
Risk in the prospective risk to earnings or Analysis Balance Sheet Profiling
Banking Books capital arising from movements Earnings at Risk Repricing Gap Analysis
(IRRBB) in interest rates. It arises from (EaR) Measurement Cashflow based Economic
differences between the timing of Cashflow based Value of Equity (EVE)
rate changes and the timing of Economic Value of Stress testing
cash flows (repricing risk); from Equity BSP Uniform Stress Testing
changing rate relationships
among different yield curves
affecting financial institution (FI)
activities (basis risk); from
changing rate relationships across
the spectrum of maturities (yield
curve risk); and from interest-
related options embedded in FI
products (options risk). The
amount at risk is a function of the
magnitude and direction of
interest rate changes and the size
and maturity structure of the
mismatch position. (BSP Circ
1044, Series of 2019)
Operational Operational Risk refers to the risk Risk Identification Internal Control
Risk of loss resulting from inadequate Risk Measurement Board Approved Operating
or failed internal processes, Risk Evaluation Policies and Procedures
people and systems; or from (i.e. Analysis of Manuals
external events. This definition Risk) Board Approved Product
includes Legal Risk but excludes Risk Management Manuals
Strategic and Reputational Risk. (i.e. Monitor, Loss Events Report (LER)

35
Risk Category Risk Definition Risk Monitoring Risk Management Tools
Process
Operational Risk is inherent in all Control or Mitigate Risk and Control Self-
activities, products and services, Risk) Assessment (RCSA)
and cuts across multiple activities Key Risk Indicators (KRI)
and business lines within the Monitoring of Pillar Business Continuity
financial institution and across II Risks fall under Management (BCM)
the different entities in a banking the purview of Statistical Analysis
group or conglomerate where the Operational Risk
financial institution belongs. Management:
(BSP Circular 900, dated 18 Risk Identification
January 2016) – Risk Maps
Risk Measurement
and Analysis –
ICAAP Risk
Assessment
Included in the Operational Risks:
Reputational Reputational risk is the current Risk Identification Account Closures Report
Risk and prospective impact on Risk Measurement Consolidated Complaints
earnings or capital arising from Risk Evaluation Report
negative public opinion. This (i.e. Analysis of Mystery Caller/Shopper
affects the Bank’s ability to Risk) Evaluation/ Risk Mitigation
establish new relationships or Risk Management of negative media coverage
services or continue servicing (i.e. Monitor, Public Relations Campaign
existing relationships. This risk Control or Mitigate Profiling on the mobile and
may expose the Bank to Risk) internet banking users
litigation, financial loss, or a Review of Stock Price
decline in its customer base. In Monitoring of Pillar performance
extreme cases, the Bank loses its II Risks fall under Fraud Management
reputation and may suffer a run the purview of Program
on deposits. (BSP Cir. No. 510, Operational Risk Social Media Management
dated 03 Feb 2006). Reputational Management: Framework
Risk also covers Customer Risk Identification Social Media Risk
Franchise Risk and Consumer – Risk Maps Management
Protection Risk. Customer Risk Measurement Use of Social Media metrics
Franchise Risk is defined in the and Analysis – Media monitoring tool
Bank’s Policy on ICAAP, as the ICAAP Risk Screening and Recruitment
failure to find, attract, and win Assessment Process of Personnel
new clients, nurture and retain Internal Audit Risk Based
those the Bank already has, and Major Factors Work Program
entice former clients back into the considered: Compliance Testing and
fold as well as the failure to meet Products Review
client’s expectation in delivering Technology
the Bank’s products and services. People
Consumer Protection Risk is Policies and
defined as failure of the bank to Processes
deliver its mandate to provide Stakeholders
appropriate service and protection (including customer
to its financial consumers. and regulators)
Strategic Strategic business risk is the Regular ALCO Financial
Business Risks current and prospective impact on Updates
earnings or capital arising from Seminars and Economic
adverse business decisions, briefings
improper implementation of

36
Risk Category Risk Definition Risk Monitoring Risk Management Tools
Process
decisions, or lack of Banking industry reports
responsiveness to industry and industry research
changes. This risk is a function of studies
the compatibility of the firm’s Research Division’s
strategic goals, the business economic reports and
strategies developed to achieve forecasting and equities
those goals, the resources reports
deployed against these goals, and Management Profitability
the quality of implementation. Reports
(BSP Cir. No. 510, dated 03 Feb Compliance Updates on
2006). new, revised regulations
Retail Bank / Corporate
Bank / Retail Lending
weekly updates on
performance/ volume levels
Annual Strategic Planning
Exercise
Information Information Security (Infosec) Incident Reporting
Security/ Cyber risk is the risk to organizational Management
Security Risk operations (including mission, Information Security Policy
functions, image, and reputation), Formulation
organizational assets, and Risk Assessment
individuals due to the potential Information Security
for unauthorized access, use, Management System
disclosure, disruption, Implementation
modification or destruction of Continuous InfoSec / cyber
information or information assets risk awareness campaigns
that will compromise the Network Security
Confidentiality, Integrity, and Protection
Availability (CIA). This covers Limits on Access Privileges
data or information being Scanning of outbound and
processed, in storage or in transit. inbound digital traffic
Cyber Risk is the risk associated
with financial loss, disruption or
damage to the reputation of an
organization from failure,
unauthorized or erroneous use of
its information systems. (NIST IR
7298 Revision 2, Glossary of Key
Information Security Terms, Page
Numbers 98 & 100)
Data Privacy Data Privacy Risks are those that Installation of firewalls,
Risk could lead to the unauthorized IPS/IDS, enterprise security
collection, use, disclosure or solution (anti-virus for
access of personal data. It endpoint, email and
includes risks that the internet).
confidentiality, integrity and Enterprise–wide
availability of personal data will Implementation of the
not be maintained, or the risk that Information Security
processing will violate the rights Management Systems
of data subjects or the privacy
principles (transparency,

37
Risk Category Risk Definition Risk Monitoring Risk Management Tools
Process
legitimacy and proportionality). Education / InfoSec
Consequently, the data privacy Awareness is also
risks may negatively impact the constantly conducted
Bank's reputation and may result Conduct of internal and 3rd
to noncompliance issue and party vulnerability
financial losses. (Data Privacy assessments and penetration
Act of 2012 or RA 10173). testing (to include social
engineering tests) and
follow through on
remediation of threats and
risks
Implementing the
enterprise-wide data privacy
risk management
framework which complies
with both domestic and
global requirements
Institutionalization of data
protection culture within the
group through regular
awareness programs
Information Information Technology Risk is Risk Identification Risk Awareness Campaigns
Technology any potential adverse outcome, Risk Measurement IT Risk Assessments
Risk damage, loss, violation, failure or Risk Evaluation Formal Project
disruption associated with the use (i.e. Analysis of Management Program
of or reliance on computer Risk) adoption
hardware, software, devices, Risk Management Vulnerability Assessment
systems, applications and (i.e. Monitor, and Penetration Testing
networks. (BSP Circular 808) It Control or Mitigate Maintenance and upgrades
is also a business risk that is Risk) of disaster recovery sites
associated with the use, Business Users / IT joint
ownership, operation, engagement for problem
involvement, influence and resolution
adoption of IT within the Bank Technology Operations
[2]. It consists of IT-related Management Policies &
events that could potentially Guidelines
impact the business. IT Risk IT Risk Monitoring
includes Information Security IT Risk Assessment
Risk that could result from non- Project Risk Assessment
preservation of any or all of the
domains of information security;
that is, confidentiality, integrity
and availability of information
asset. (ISACA Risk IT
Framework).
Human Human Resource Risk covers the Risk Identification Institutionalize policies
Resource Risk Bank’s risk of financial loss due Risk Measurement covering
to the inadequate training, Risk Evaluation Talent
inexperience or illegal activities (i.e. Analysis of Acquisition/Retention and
of risk-taking behavior of Risk) Career Management;
personnel. This risk is closely Risk Management Remuneration Management;
related to operations risk and its (i.e. Monitor,

38
 Risk Category Risk Definition Risk Monitoring Risk Management Tools
Process
internal control aspects. It Control or Mitigate Performance Appraisal
highlights the human side of risk- Risk) System
taking and the role and adequacy covering the following main
of code of conduct, personnel tools:
policies, training and
development programs, ability to Sourcing and Screening of
recruit and retain employees Candidates
through adequate compensation General Qualification
and benefits and ability to sustain Requirements for
adequate workforce through Applicants
succession planning. Screening and Pre-
employment Assessment
Exams
Selection Interviews
Candidate Matching –
ensuring “job fit” through
person/position review
Competitive compensation
and employee benefits;
Compliance with Labor
Law on payment of benefits
and salaries
Institutionalize the Bank’s
Performance Appraisal
System (e.g., targets versus
achievements)
Provide training and/or
issue guidelines to ensure
that the process is done
objectively.

Regulatory Capital Requirements under BASEL III – PILLAR 1 Capital Adequacy Ratio

The Bank’s Capital Adequacy Ratio as of December 31, 2021 stood at 13.66% on a consolidated basis
while the Risk Weighted Assets (RWA) as of the end of 2021 amounted to Php 804.903 billion composed
of Php 677.704 billion (Credit Risk Weighted Assets – CRWA), Php 53.792 billion (Market Risk Weighted
Assets – MRWA) and Php73.407 billion (Operations Risk Weighted Assets – ORWA).

The Bank’s total regulatory requirements for the four (4) quarters for 2021 are as follows:
Weighted Exposures
Consolidated
(As of End of Every Quarter of 2021)
(Amounts in P millions) Dec 31 Sept 30 June 30 Mar 31
CRWA 677,704 676,924 677,889 702,240
MRWA 53,792 64,442 58,107 47,445
ORWA 73,407 73,407 73,407 73,407
Total Risk-Weighted Asset 804,903 814,773 809,403 823,092
Common Equity Tier 1 Ratio 12.96% 12.06% 11.82% 14.11%
Capital Conservation Buffer 6.96% 6.06% 5.82% 8.11%
Total Capital Adequacy Ratio 13.66% 12.75% 12.52% 14.77%

39
 Presented below is the full reconciliation of all regulatory capital elements back to the balance sheet in the
audited financial statements as at December 31, 2021 attributable to the Bank (amounts in Php thousands):

Accounting
differences and Balance in audited
Accounts Balance in FRP other adjustments financial statements

Capital stock P61,030,594 P– P61,030,594

Additional paid-in capital 32,106,560 – 32,106,560
Surplus reserves 5,147,871 (431) 5,147,440
Surplus 59,842,132 2,327,261 62,169,393
Net unrealized loss on available-for-Sale
investments 3,847,727 (4,551,464) (703,737)
Remeasurement losses on retirement plan (3,014,084) 289,017 (2,725,067)
Accumulated translation adjustment 761,920 741,476 1,503,396
Other equity reserves 390,517 – 390,517
Share in aggregate reserves on life
insurance policies – (626,394) (626,394)
TOTAL P160,113,237 (P1,820,535) P158,292,702

Credit Risk-Weighted Assets as of December 31, 2021

The Bank adopts the standardized approach in quantifying the risk-weighted assets. Credit risk exposures
are risk weighted based on third party credit assessments of Fitch, Moody’s, Standard & Poor’s and
PhilRatings agencies. The ratings of these agencies are mapped in accordance with the BSP’s standards.
The following are the consolidated credit exposures of the Bank and the corresponding risk weights:

Exposure, Exposures
Net of covered by Net
In P Millions 0% 20% 50% 75% 100% 150%
Specific Credit Risk Exposure
Provision Mitigants*
Cash & Cash Items
27,501 – 27,501 27,458 43 – – – –
Due from BSP
161,019 – 161,019 161,019 – – – – –
Due from Other Banks
28,731 – 28,731 – 14,011 14,030 – 689 –
Financial Asset at
FVPL – – – – – – – – –
Available for Sale
1,428 – 1,428 – – – – 1,428 –
Held to Maturity
(HTM) 90,176 4,653 85,523 18,286 7,846 50,342 – 9,049 –
Unquoted Debt
Securities – – – – – – – – –
Loans & Receivables
628,470 4,806 623,664 621 70,013 54,626 – 470,982 27,421
Loans and
Receivables Arising
from Repurchase
Agreements,
Securities Lending
and Borrowing
Transactions 15,797 – 15,797 15,797 – – – – –
Sales Contracts
Receivable 4,470 – 4,470 – – – – 4,074 396
Real & Other
Properties Acquired 8,810 – 8,810 – – – – – 8,810

40
 Exposure, Exposures
Net of covered by Net
In P Millions 0% 20% 50% 75% 100% 150%
Specific Credit Risk Exposure
Provision Mitigants*
Other Assets
27,054 – 27,054 – – – – 27,054 –
Total On-Balance
Sheet Asset 993,456 9,459 983,997 223,181 91,913 118,999 – 513,276 36,627
Total Risk Weighted
Asset - On-Balance
Sheet – – – – 18,383 59,499 – 513,276 54,940
Total Risk Weighted
Asset - Off-Balance
Sheet Asset – – – – – 609 – 28,480 –
Counterparty Risk
Weighted Asset in
Banking Book – – – – – 446 – – –
Counterparty Risk
Weighted Asset in
Trading Book – – – – – 1,774 – 297 –
* Credit Risk Mitigants used are cash, guarantees and warrants.

Market Risk-Weighted Assets as of December 31, 2021

The Bank’s regulatory capital requirements for market risks of the trading portfolio are determined using
the standardized approach (“TSA”). Under this approach, interest rate exposures are charged both for
specific risks and general market risk. The general market risk charge for trading and Fair Value through
Other Comprehensive Income (FVOCI) portfolio is calculated based on the instrument’s coupon and
remaining maturity with risk weights ranging from 0% for items with very low market risk (i.e., tenor of
less than 30 days) to a high of 12.5% for high risk-items (i.e., tenor greater than 20 years) while capital
requirements for specific risk are also calculated for exposures with risk weights ranging from 0% to 8%
depending on the issuer’s credit rating. On the other hand, equities portfolio is charged 8% for both specific
and general market risk while foreign exchange (FX) exposures are charged 8% for general market risks
only.

Capital Requirements by Market Risk Type under the Standardized Approach

Market Risk Weighted

(Amounts in P Million) Capital Charge Adjusted Capital Charge Exposures
(b) (c)
(a) b= a*125% 1/ c= b*10 2/
Interest Rate Exposures 3,663.643 4,579.554 45,795.542
Specific Risk 1,375.964 1,719.956 17,199.556
General Market Risk 2,287.678 2,859.599 28,595.985
Equity Exposures 0.807 1.009 10.089
Foreign Exchange Exposures 638.873 798.591 7,985.914
Total 4,303.32 5,379.15 53,791.55
Notes:
1/ Capital charge is multiplied by 125% to be consistent with BSP required minimum Capital Adequacy Ratio
(CAR) of 10%, which is 25% higher than the Basel minimum of 8%.

2/ Adjusted capital charge is multiplied by 10 (i.e. the reciprocal of the minimum capital ratio of 10%)

41
The following are the Bank’s exposure with assigned market risk capital charge.

Interest Rate Exposures consist of specific risk and general market risk.

Specific Risk

Specific Risk which reflects the type of issuer of the combined portfolio of financial assets designated at
Fair Value through Profit or Loss (FVTPL) and FVOCI is Php 152,575.826 billion and is composed of
securities with various tenors that are subjected to risk weight ranging from 0% to 8%. Five percent (5%)
of these securities are issued by Republic of the Philippines (ROP) while 7% is attributable to debt securities
rated AAA to BBB- issued by other entities. The remaining portfolio consists of all other debt securities
that are issued by other entities. Eight percent (8%) of this combined portfolio is composed of USD-
denominated debt securities issued by the Philippines with applicable risk weight of 0.25% to 1.6%. On
the other hand, the Bank’s holding in peso denominated securities which are estimated at seventy two
percent (72%) of the portfolio have zero risk weight.

Part IV.1a INTEREST RATE EXPOSURES – SPECIFIC RISK (Amounts in P million)

Risk Weight
Positions
0.00% 0.25% 1.00% 1.60% 8.00% Total
PHP-denominated
debt securities issued Long
109,120.159
by the Philippine
National Government
Short
(NG) and BSP
FCY-denominated
Long 1,582.059 5,391.339
debt securities issued
by the Philippine
NG/BSP Short
Debt
securities/derivatives Long 8,089.895 1,661.566 1,750.094
with credit rating
BBB- and above
issued by other Short
sovereigns
Debt
securities/derivatives Long 5,135.862 993.301 5,029.002
with credit rating of
AAA to BBB-issued Short
by other entities
All other debt
securities/derivatives Long 13,822.549
that are below BBB-
and unrated Short

Long 109,120.159 13,225.757 4,236.926 12,170.434 13,822.549 –

Subtotal
Short – – – – – –
Risk Weighted
Exposures [Sum of
long and short
– 33.064 42.369 194.727 1,105.804 1,375.964
positions times the
risk weight]
Specific Risk Capital
Charge for Credit-
Linked Notes and
Similar Products
Specific Risk Capital
Charge for Credit
Default Swaps and
Total Return Swaps

42
 Part IV.1a INTEREST RATE EXPOSURES – SPECIFIC RISK (Amounts in P million)
Risk Weight
Positions
0.00% 0.25% 1.00% 1.60% 8.00% Total
SPECIFIC RISK
CAPITAL CHARGE
FOR DEBT
SECURITIES AND
– 33.064 42.369 194.727 1,105.804 1,375.964
DEBT
DERIVATIVES

General Market Risk – Peso

The Bank’s total General Market Risk of its Peso debt securities and interest rate derivative exposure is
Php109,323.096 million. In terms of weighted positions, the greater portion (21%) of the Bank’s capital
charge comes from the Over 4 years to 5 years bucket at Php 23,325.873 million as well as Over 2 years to
3 years bucket (19%) at Php 21,033.495 million or a combined capital charge of Php 1,009.548 million.
The remaining weighted positions (59%) are distributed over the remaining buckets.

Currency: PESO
PART IV.1d GENERAL MARKET RISK (Amounts in P million)
Debt Securities & Debt
Derivatives/Interest Rate Risk
Time Bands Weighted Positions
Derivatives Weight
Zone
Total Individual Positions
Coupon 3% or Coupon less than
Long Short Long Short
more 3%
1 1 month or less 1 month or less 50,671.088 46,178.141 0.00% 0.000 0.000
Over 1M to 3M Over 1M to 3M 32,359.919 12,772.534 0.20% 64.720 25.545
Over 3M to 6M Over 3M to 6M 21,988.436 6,930.285 0.40% 87.954 27.721
Over 6M to 12M Over 6M to 12M 5,888.388 4,636.520 0.70% 41.219 32.456
2 Over 1Y to 2Y Over 1.0Y to 1.9Y 9,941.224 0.000 1.25% 124.265 0.000
Over 2Y to 3Y Over 1.9Y to 2.8Y 21,033.495 0.000 1.75% 368.086 0.000
Over 3Y to 4Y Over 2.8Y to 3.6Y 4,971.915 0.000 2.25% 111.868 0.000
3 Over 4Y to 5Y Over 3.6Y to 4.3Y 23,325.873 0.000 2.75% 641.462 0.000
Over 5Y to 7Y Over 4.3Y to 5.7Y 9,620.855 0.000 3.25% 312.678 0.000
Over 7Y to 10Y Over 5.7Y to 7.3Y 1.520 0.000 3.75% 0.057 0.000
Over 10Y to 15Y Over 7.3Y to 9.3Y 34.121 0.000 4.50% 1.535 0.000
Over 15Y to 20Y Over 9.3Y to 10.6Y 3.742 0.000 5.25% 0.196 0.000
Over 20Y Over 10.6Y to 12Y 0.000 0.000 6.00% 0.000 0.000
Over 12Y to 20Y 0.000 0.000 8.00% 0.000 0.000
Over 20Y 0.000 0.000 12.50% 0.000 0.000
Total 179,840.577 70,517.481 1.754.040 85.722
Overall Net Open Position 1,668.318
Vertical Disallowance 8.572
Horizontal Disallowance 0.00
TOTAL GENERAL MARKET RISK CAPITAL CHARGE 1,676.890

General Market Risk – US Dollar

The capital charge on the Bank’s General Market Risk from dollar-denominated exposures is Php 545.379
million. The exposure is concentrated under the Over 5 year to 7 years’ time bucket with risk weight of
3.25% resulting in a capital charge of Php 220.026 million. The balance is distributed across other time
buckets up to over 20 years with capital charge ranging from Php 0.154 million to PHP 109.669 million.

43
 Currency: USD
PART IV.1d GENERAL MARKET RISK (Amounts in P0.000 million)
Debt Securities & Debt
Derivatives/Interest Rate Risk
Time Bands Weighted Positions
Derivatives Weight
Zone
Total Individual Positions
Coupon 3% or Coupon less than
Long Short Long Short
more 3%
1 1 month or less 1 month or less 49,995.661 12,450.216 0.00% 0.000 0.000
Over 1M to 3M Over 1M to 3M 17,495.995 32,359.919 0.20% 34.992 64.720
Over 3M to 6M Over 3M to 6M 10,056.972 18,712.625 0.40% 40.228 74.851
Over 6M to 12M Over 6M to 12M 5,032.415 257.275 0.70% 35.227 1.801
2 Over 1Y to 2Y Over 1.0Y to 1.9Y 7,135.330 0.000 1.25% 89.192 0.000
Over 2Y to 3Y Over 1.9Y to 2.8Y 4,183.566 0.000 1.75% 73.212 0.000
Over 3Y to 4Y Over 2.8Y to 3.6Y 4,874.164 0.000 2.25% 109.669 0.000
3 Over 4Y to 5Y Over 3.6Y to 4.3Y 2,559.936 0.000 2.75% 70.398 0.000
Over 5Y to 7Y Over 4.3Y to 5.7Y 6,770.021 0.000 3.25% 220.026 0.000
Over 7Y to 10Y Over 5.7Y to 7.3Y 59.517 0.000 3.75% 2.232 0.000
Over 10Y to 15Y Over 7.3Y to 9.3Y 3.416 0.000 4.50% 0.154 0.000
Over 15Y to 20Y Over 9.3Y to 10.6Y 189.674 0.000 5.25% 9.958 0.000
Over 20Y Over 10.6Y to 12Y 4.764 0.000 6.00% 0.286 0.000
Over 12Y to 20Y 0.000 0.000 8.00% 0.000 0.000
Over 20Y 9.416 0.000 12.50% 1.177 0.000
Total 108,370.848 63,780.036 686.750 141.371
Overall Net Open Position 545.379
Vertical Disallowance 7.702
Horizontal Disallowance 56.664
TOTAL GENERAL MARKET RISK CAPITAL CHARGE 609.745

General Market Risk – Third currencies

The Bank is likewise exposed to various third currencies contracts most of them are in less than 30 days
thus carries a 0% risk weight. The combined general market risk charge for contracts in Australian Dollar
(AUD), Singaporean Dollar (SGD), Hong Kong Dollar (HKD), New Zealand Dollar (NZD), Euro (EUR),
and Pound Sterling (GBP) is Php 1.043 million with risk weight of 0.20%.

PART IV.1d GENERAL MARKET RISK (Amounts in P million)

Total Debt Securities Total
& Debt General
Derivatives/Interest Weighted Horizontal Market
Rate Derivatives Positions Overall dis Risk
Time Risk Net Open Vertical dis allowance Capital
Currency Bands Long Short Weight Long Short Position allowance within Charge
1 month or
AUD – – 0.00% – –
less
Over 1M
– 18.257 0.20% – 0.036
to 3M
TOTAL – 18.257 – 0.036 0.036 – – 0.036

1 month or
SGD – 255.057 0.00% – –
less
Over 1M
– 37.295 0.20% – 0.075
to 3M
TOTAL – 292.352 – 0.075 0.075 – – 0.075

1 month or
JPY – 471.526 0.00% – –
less
Over 1M
– – 0.20% – –
to 3M
TOTAL – 471.526 – – – – – –

44
PART IV.1d GENERAL MARKET RISK (Amounts in P million)
Total Debt Securities Total
& Debt General
Derivatives/Interest Weighted Horizontal Market
Rate Derivatives Positions Overall dis Risk
Time Risk Net Open Vertical dis allowance Capital
Currency Bands Long Short Weight Long Short Position allowance within Charge
1 month or
HKD – 0.00% – –
less
Over 1M
– 142.078 0.20% – 0.284
to 3M
TOTAL – 142.078 – 0.284 0.284 – – 0.284

1 month or
KRW 204.082 204.082 0.00% – –
less
Over 1M
– 0.20% –
to 3M
TOTAL 204.082 204.082 –

1 month or
NZD 0.00% – –
less
Over 1M
– 13.894 0.20% – 0.028
to 3M
TOTAL 13.894 – 0.028 0.028 – – 0.028

1 month or
EUR – 28.776 0.00% – –
less
Over 1M
– 173.264 0.20% – 0.346
to 3M
TOTAL – 202,040 – 0.346 0.346 – – 0.346
1 month or
GBP – – 0.00% – –
less
Over 1M
– 136.795 0.20% – 0.274
to 3M
TOTAL – 136.795 – 0.274 0.274 – – 0.274
1 month or
CAD – 61.199 0.00% – –
less
Over 1M
– – 0.20% – –
to 3M
TOTAL – 61.199 – – – – – –

TOTAL THIRD
1.043
CURRENCIES

45
Equity Exposures

The Bank’s holdings are in the form of preferred stocks traded in the Philippine Stock Exchange, with 8%
risk weight both for specific and general market risk. The Bank’s capital charge for equity weighted
positions is Php 807.122 million or total risk-weighted equity exposures of Php 10,089.021 million.

Stock Markets
Item Nature of Item Positions
Philippines
Long –
A.1 Common Stocks
Short –
Long 5,044.511
A.9 Others
Short –
A.10 TOTAL Long 5,044,511
Short –
B. Gross (long plus short) positions (A.10) 5,044.511
C. Risk Weights 8%
D. Specific risk capital (B. times C.) 403.561
E. Net long or short positions 5,044.511
F. Risk Weights 8%
G. General market risk capital charges (E. times F.) 403.561
H. Total Capital Charge For Equity Exposures (sum of D. and G.) 807.122
I. Adjusted Capital Charge For Equity Exposures (H. times 125%) 1,008.902
J. TOTAL RISK-WEIGHTED EQUITY EXPOSURES (I. X 10) 10,089.021

Foreign Exchange Exposures

The Bank’s exposure to FX Risk carries a capital charge of Php 7,985.914 million. This includes
Php 6,476.873million arising from exposure in Non-Deliverable Forwards (NDFs) which carries a 4% risk
weight while Php1,509.041 million is from FX Exposures with 8% risk weight in FX assets and FX
liabilities in USD, and third currencies not limited to Japanese Yen (JPY), Swiss Franc (CHF), Pound
Sterling (GBP), EUR, CAD, AUD, Singapore Dollar (SGD) and other minor currencies.

Part IV. 3 FOREIGN EXCHANGE EXPOSURES (as of December 31, 2021)

Closing Rate USD/P: 50.999
In Million
In Million USD Equivalent
Pesos
Net Delta-
Total Net Total Net
Net Long/(Short) Position Weighted
Long/(Short) Long/(Short)
Nature of Item Currency (excluding options) Positions of
Positions Position
FX Options
Subsidiaries
Banks
/Affiliates
1 2 3 4=1+2+3 5
Currency
A.1 U.S. Dollar USD 15.687 5.219 20.905 1,066.152
A.2 Japanese Yen JPY 3.014 0.365 3.379 172.329
A.3 Swiss Franc CHF 0.368 0.000 0.368 18.759
A.4 Pound Sterling GBP 0.073 (0.031) 0.041 2.106
A.5 Euro EUR 0.937 0.038 0.974 49.683
A.6 Canadian Dollar CAD 0.080 0.000 0.080 4.085
A.7 Australian Dollar AUD 0.022 0.000 0.022 1.106
A.8 Singapore Dollar SGD 2.476 0.000 2.476 126.269
A.9 Foreign currencies not separately
specified above
Arab Emirates Dirham AED 0.049 0.049 2.494
Bahrain Dinar BHD 0.002 0.002 0.097
Brunei Dollar BND 0.001 0.000 0.024
Yuan Renminbi CNY (0.067) -0.067 -3.428
Hongkong Dollar HKD 0.618 0.357 0.975 49.715
Korean Won KRW 0.035 0.035 1.806
Malaysian Ringgit MYR 0.001 0.001 0.035

46
 Part IV. 3 FOREIGN EXCHANGE EXPOSURES (as of December 31, 2021)
Closing Rate USD/P: 50.999
In Million
In Million USD Equivalent
Pesos
Net Delta-
Total Net Total Net
Net Long/(Short) Position Weighted
Long/(Short) Long/(Short)
Nature of Item Currency (excluding options) Positions of
Positions Position
FX Options
Subsidiaries
Banks
/Affiliates
1 2 3 4=1+2+3 5
Norwegian Krone NOK 0.000 0.000 0.000
New Zealand Dollar NZD (0.013) -0.013 -0.641
Saudi Riyal SAR 0.209 0.209 10.656
Thai Baht THB 0.028 0.028 1.414
Taiwan Dollar TWD 0.045 0.045 2.293
Indo Rupiah INR 0.000 0.000 0.017
A.10 Sum of net long positions 1,509.041
A.11 Sum of net short positions (4.069)
B. Overall net open positions 1/ 1,509.041
C. Risk Weight 8%
D. Total Capital Charge for Foreign Exchange Exposures (B. times C.) 120.723
E. Adjusted Capital Charge for Foreign Exchange Exposures (D. times 125%) 150.904
F. Total Risk-Weighted Foreign Exchange Exposures, Excluding Incremental Risk-Weighted Foreign
1,509.041
Exchange Exposures Arising from NDF Transactions (E. times 10)
G. INCREMENTAL RISK-WEIGHTED FOREIGN EXCHANGE EXPOSURES ARISING FROM NDF
6,476.873
TRANSACTIONS (Part IV.3A, Item F.)
H. TOTAL RISK WEIGHTED FOREIGN EXCHANGE EXPOSURES (Sum of F. and G.) 7,985.914

Operational Risk – Weighted Assets

The Bank uses the Basic Indicator Approach in quantifying the risk-weighted assets for Operational Risk.
Under the Basic Indicator Approach, the Bank is required to hold capital for operational risk equal to the
average over the previous three years of a fixed percentage (15% for this approach) of positive annual gross
income (figures in respect of any year in which annual gross income was negative or zero are excluded).

(Amounts in P Million) Capital Requirement

Consolidated as of December 31, 2021 Gross Income (15% x Gross Income)
2018 (Year 3) 32,473 4,871
2019 (Year 2) 41,827 6,274
2020 (Last Year) 43,151 6,473
Average for 3 Years 5,872
Adjusted Capital Charge Average x 125% 7,341
Total Operational Risk Weighted
73,407
Asset

Property Development

Competitor Risk
The Philippine real estate development industry is highly competitive. The Company believes that it is a
strong competitor in this industry due to its product offerings and the location of its projects. The Company
strives to provide real estate developments which are innovative and customer-focused to ensure that
requirements of its clients are fulfilled on all fronts. Likewise, the Company believes that the prime
locations of its developments allow it to effectively compete in the industry and this will continue in the
coming years due to the Company’s significant landholdings in prime locations within and outside of Metro
Manila.

47
Market Risk
Currently, majority of the Company’s commercial spaces are leased-out to entities in the BPO industry.
Should the country experience a slowdown in performance and growth of this sector of the economy, the
Company is exposed to the risk of lower occupancy, reduction in rental rates and late or non-payment of
rentals.

While forecast for the BPO industry remains bullish, the industry is sensitive to changes in government
policies particularly with respect to the tax holidays it currently enjoys. Political uncertainty and peace and
order problems may likewise affect the growth of this industry as experienced in the past. Despite this, the
outlook for the BPO industry continues to be positive as the country remains to be one of top BPO
destinations in the world.

The Company’s residential sales on the other hand is exposed to the cyclical nature of the real estate
industry. As seen in the past, the real estate industry has the tendency to expand and contract depending on
the movement of interest rate and the confidence in the Philippine economy.

Regulatory Risk
The Company operates in a highly regulated environment and it is affected by the development and
application of regulations in the Philippines. The development of condominium projects, subdivision and
other residential projects is subject to a wide range of government regulations, which, while varying from
one locality to another, typically include zoning considerations as well as the requirements to procure a
variety of environmental and construction-related permits.

The Company closely monitors all government regulatory requirements and institute measures to strictly
comply with them.

Credit Risk
The Company is exposed to credit risk from its leasing and residential sales. To manage the credit risk
from residential sales, the Company has ceased to offer in-house financing to its buyers. Instead, buyers
are encouraged to either pay in cash, avail of a deferred cash payment term or secure financing from banks
to finance their property acquisition.

Credit risk from leasing, on the other hand, is minimal given the profile of the Company’s tenants. The
terms of the Company’s leases are likewise structured to mitigate credit risks.

Financial Risk
Fluctuations in interest rates, changes in Government borrowing patterns and Government regulations could
have a material adverse effect in the Company’s and its customers’ ability to obtain financing. Higher
interest rates make it more expensive for the Company to borrow funds to finance its ongoing projects or
to obtain financing for new projects. In addition, the Company’s access to capital and its cost of financing
are also affected by restrictions, such as single borrower limits, imposed by Bangko Sentral of the
Philippines (BSP) on bank lending. These could materially and adversely affect the Company’s business,
financial condition and results of operations.

In order to reduce its earnings volatility, the Company has targeted to significantly increase revenues from
recurring sources primarily through rentals from its BPO properties and retail malls. The Company believes
this will complement its overall growth strategy by providing recurring cash flows to support its
development capital expenditure requirements.

Data Privacy Risk

Data Privacy Risk is an operational risk involving the possible unauthorized access, disclosure and/or
destruction by the Company’s employees and consultants of sensitive personal information belonging to
the Company’s clients, suppliers, consultants and employees. The Data Privacy Act of 2012 (Republic Act
10173) requires that due protection and caution must be employed by the Company in handling such
sensitive personal information.

48
To manage this risk, the Company ensures that adequate physical, organizational, and system controls on
processes involving the gathering, access, processing, storage and destruction of customers’ sensitive
personal information are in place. Likewise, continuous improvement on the Company’s existing
information security is implemented to prevent misuse of personal data. The culture of data protection is
also institutionalized within the Company through continuous awareness programs and campaigns.

The Company has also appointed the Data Protection Officer (DPO) to strengthen management of risks
relating to the confidentiality and integrity of information while ensuring strict measures to enhance
cybersecurity and in compliance with Data Privacy Act of 2012 (Republic Act 10173) and its related
regulations on data privacy and security. More details about the Eton Privacy Policy including DPO
contact information is available in the company website at https://eton.com.ph/privacy-policy.

Item 2. Properties

Distilled Spirits

TDI and its subsidiaries own the following real estate properties:

Location Area (sqm) Present Use

Owned by TDI
Quiapo, Manila 26,587 Office
Makati City 71 Investment/Condo
Talisay, Neg. Occ. 3,813 Bottle Storage
Davao City 3,000 Investment

Owned by AAC
Pulupandan, Neg. Occ. 119,082 Distillation Plant
San Mateo, Rizal 11,401 Investment
Talisay, Batangas 139,299 Investment
Tanza, Cavite 53,156 Investment

Owned by ADI
Ayala Ave., Makati City 89 Investment/Condo
Lian, Batangas 91,722 Distillation Plant

49
The following are the leased properties of TDI and its subsidiaries:

Monthly Lease Expiry

Location Present Use Area (sqm) Rental Date
Leased by TDI
Cabuyao, Laguna Production Plant 170,887 2,155,881 2033

Pinamucan, Batangas Land rental 18,522 367,500 2033

Calaca, Batangas Tank rental 555,915 2033
Murcia, Neg. Occ. Production Plant 51,448 322,615 2033

El Salvador, Mis. Or. Production Plant 108,843 755,395 2033

Leased by ADI
Lian, Batangas Distillation Plant 50,000 50,000 2029
Totals 399,700 4,207,306

Except for the Distillation Plant in Lian Batangas, all lease contracts have a term of fifteen years.

TDIs bottling plant and equipment are located in Cabuyao, Laguna, Murcia, Negros Occidental and El
Salvador, Misamis Oriental. The plant equipment and storage facilities are all in good condition. TDIs land
in Quiapo, Manila is presently mortgaged to PNB as collateral to TDIs credit line.

AACs distillery plant is located at Pulupandan, Negros Occidental. AAC owns the buildings, machinery and
equipment and other structures in it. AAC also has alcohol, molasses and alcohol ageing storage, power
generation and wastewater treatment facilities at Pulupandan. Office furniture and fixtures and office
equipment are found in its offices in Bacolod and Pulupandan. Lands owned by AAC are located in
Pulupandan and Cebu. The Plant and equipment located in Negros plant and the storage facilities are all in
good condition.

ADIs distillery plant is in Lian, Batangas. ADI has two distillation plants that produces ethyl alcohol. It also
has a 100 kiloliters per day (KLPD) Dehydration Plant started its operation, that is composed of Classical
Twin Bed Molecular Sieves which removes water from rectified spirit to produce bioethanol. Likewise, it
has alcohol and molasses storage, power generation and wastewater treatment facilities. In 2015, a two (2)
megawatt solar power generating facility was also put up in ADIs plant. All transportation equipment owned
by ADI are in good condition. The land, building, and building improvements is under mortgage at Philippine
National Bank.

Beverage

ABI and its subsidiaries own the following real estate properties:

Location
Area (sqm) Present Use
Owned by ABI
Bacoor, Cavite 459 Investment property
Cabuyao, Laguna 302 Investment property
Camarines Norte 3,215 Investment property
General Trias, Cavite 3,200 Investment property
Poblacion, Iloilo 3,782 Investment property

Owned by IPI
Toril, Davao City 75,734 Production Plant

50
The following are the leased properties of ABI and its subsidiaries:

Area Monthly
Location Present Use (sqm) Rental Lease Expiry Date
Leased by ABI
Ayala Ave., Makati City Head Office 1,677 1,067,092 August 2022
Cabuyao, Laguna Production Plant 542,989 2,079,771 March 2022
El Salvador, Mis. Or. Production Plant 1,063,103 275,932 December 2022

Leased by IPI
San Fernando, Pampanga Production Plant 85,000 729,304 December 2021

Leased by PWI
Cabuyao, Laguna Production Plant 82,600 588,610 December 2021

Leased by APBM
Myanmar Production Plant 9,318 US$27,790 December 2036
Myanmar Warehouse 2,602 6,672 June 2022
Myanmar Warehouse 2,007 6,505 November 2022
Myanmar Staff House 372 3,831 February 2022

All lease contracts are renewable at the end of the lease term. In addition to monthly rentals, ABI pays
Real Property Taxes on the El Salvador, Misamis Oriental Plant.

The plant and equipment are located at the following areas:

Location Condition
Cabuyao plant In good condition
El Salvador plant In good condition
Davao plant In good condition
Pampanga plant In good condition
Myanmar In good condition

51
Tobacco

The following comprises properties of FTC:

LOCATION AREA (sq. m) Present Use

Brgy. Punta, Calamba, Laguna 49,701 Investment
Bacoor, Cavite 132,294 Investment
Balagtas, Int.Malate, Manila 5,084 Investment
Brgy. Niugan, Cabuyao, Laguna 469,758 Investment
Cabuyao, Laguna 17,438 Investment
Dna Natividad, Quezon Ave., Quezon City 800 Investment
Dna. Natividad, Quezon Ave., Quezon City 1,626 Investment
Dna. Natividad, Quezon Ave., Quezon City 800 Investment
Dna. Natividad, Quezon Ave., Quezon City 1,118 Investment
Concepcion, Marikina 313 Investment
Tagdalit St., Brgy.Manresa, Quezon City 5,165 Warehouse Bldg.
Mandaue City 1,025 Investment
Baybay, Roxas City 2,396 Investment
Baybay, Roxas City 80 Investment
Filinvest Homes, Pagsanjan Cainta, Rizal 474 Investment
Marikina Greenheights, Brgy. Nangka 225 Investment
Antipolo, Rizal 400 Investment
Bo. Mayamot, Antipolo, Rizal 311 Investment
Pasay City 2,222 Investment

FTC leases its office located in Brgy. Kapitolyo, Pasig with a montly rental of P2,000,000 and lease contract
will expire on December 31, 2022.

All properties are in good condition and are not covered by any existing mortagages, liens or
encumbrances.

Banking
PNB’s corporate headquarters is located at the PNB Financial Center southwest side of Roxas Boulevard,
Pasay City, Metro Manila, bounded on the west side by the Pres. Diosdado P. Macapagal Boulevard and
on the north side by the World Trade Center building. The Bank leases the premises occupying its Head
Office and also houses some of PNB’s domestic subsidiaries.

Disclosed in Exhibit I is the list of Bank-owned properties as of December 31, 2021.

The Bank leases the premises occupied by some of its branches. Lease contracts are generally for periods
ranging from one year up to 30 years based on original tenor and are renewable upon mutual agreement of
both parties under certain terms and conditions.

Disclosed in Exhibit II is the list of Bank’s branches that are under lease as of December 31, 2021.

The Bank does not have any current plans to acquire any property within the next twelve (12) months.

Information related to Property and Equipment is shown under Note 12 of the Audited Financial Statements
of the Bank and Subsidiaries.

52
Property Development
The Company’s investment properties consist of:

Description Location
Buildings Eton Centris, Quezon Ave., Cor. EDSA, Diliman, Quezon City;
Eton Cyberpod Corinthian, Ortigas Ctr., Pasig City (land under lease
agreement)

WestEnd Square, Yakal St., cor. Malugay St., Makati City

Eton Square Ortigas, Oritgas Avenue, San Juan City

Office condominium unit 6th Floor, Sagittarius Condominium, H. V. dela Costa Street, Salcedo
Village, Makati City
Residential unit Ocean Villa, Ternate, Cavite

Land EDSA Cor. Quezon Avenue, Diliman, Quezon City;

Meralco Avenue, Brgy. Ugong, Pasig City
Emerald Ruby, Ortigas, Pasig City
Roxas Blvd. Cor. Cuneta Avenue., San Rafael, Pasay City
Corta Street, Addition Hills, San Juan, Metro Manila
Brgy. Malitlit, Sta. Rosa City, Laguna,
Mactan Island Cebu,
Loyola Heights, Quezon City

The above properties are owned by the Company and are in good condition. These properties are not
covered by any existing mortgage, liens or encumbrances except for the structures at Eton Cyberpod
Corinthian and a portion of the land in Brgy. Malitlit, Sta. Rosa City, Laguna.

The Company also entered into various lease agreements as follows:

a. Lease agreements with third parties for the lease of parcels of land in Ortigas Avenue, Quezon
City where one of the Parent Company’s projects is located. The lease agreement shall be for
the period of 20 years which commenced on January 1, 2011 renewable for another 20 years at
the option of the lessee, the Parent Company, with lease payment subject to 5% escalation
annually.

b. Lease agreement for the lease of parcels of land in San Juan City where one of the
Parent Company’s projects is located. The lease agreement shall be for the period of 15 years
commencing on June 1, 2017 renewable at the option of the lessor with lease payment subject
to 5% escalation annually.

53
The Company’s real estate properties consist of :

ETON PROPERTIES PHILIPPINES, INC.

Eton Baypark Manila Corner Roxas Boulevard and Kalaw Street, Manila City
Eton Parkview Greenbelt Gamboa St., Greenbelt, Makati City
Eton Residences Greenbelt Legaspi St., Greenbelt, Makati City
Corner of Emerald Avenue, Sapphire and Garnet Streets,
Eton Emerald Lofts Ortigas Center, Pasig City
One Archers Place Taft Avenue beside De La Salle University, Manila City
68 Roces Don Alejandro Roces Avenue, Quezon City
Belton Place Yakal St., cor. Malugay St., Makati City
8 Adriatico Pedro Gil corner Bocobo Extension, Manila City
Corner Dela Rosa and V.A. Rufino Streets (formerly Herrera
Eton Tower Makati Street) in Legazpi Village, Makati City
Tierrabela Sta. Rosa, Laguna
Riverbend Sta. Rosa, Laguna
Land Manggahan, Pasig City

BELTON COMMUNITIES, INC.

NBC Manors Quirino Highway, Quezon City
West Wing Residences
@ Eton City Eton City, Sta. Rosa, Laguna
West Wing Residences @
NBC Quirino Highway, Quezon City
West Wing Villas @ NBC Quirino Highway, Quezon City

ETON CITY INC.

South Lake Village Sta. Rosa, Laguna
Riverbend Sta. Rosa, Laguna
Tierrabela Sta. Rosa, Laguna
Village Walk Sta. Rosa, Laguna
Land Sta. Rosa, Laguna

Eton Emerald Lofts, NBC Manors and West Wing Residences at NBC are under a joint venture arrangement
with the Company as the project developer. The Company acts as both landowner and developer with
respect to its other developments. All properties listed above are in good condition and are not covered by
any mortgage, liens or encumbrances except for certain undeveloped land located in Sta. Rosa, Laguna and
an office building in EDSA corner Ortigas Avenue, Quezon City are used as collateral for a loan secured
from Philippine National Bank.

The Company’s property and equipment, which consist of transportation equipment, furniture, fixtures and
equipment, and leasehold improvements, are mainly used in operations and are located in the main office
in Allied Bank Center, 6754 Ayala Avenue, Makati City, Metro Manila, Philippines.

54
The Company entered into a renewable cancellable lease agreement with PNB, which generally provides
for a fixed monthly rent for the Group’s office spaces. In 2021, PNB assigned all the rights and interests
in the lease agreement to PNB Holdings Corporation. In the same year, the Group and PNB Holdings
Corporation executed a lease agreement to increase the lease payments beginning 2021. As a result, the
Group recognized gain on lease contract modification amounting to P=2.6 million.

Item 3. Legal Proceedings

Distilled Spirits
In the ordinary course of business, TDI is contingently liable for lawsuits and claims, which are either pending
with the courts or are being contested, the outcomes of which are not presently determinable. In the opinion
of the Group’s management and legal counsel, the eventual liability under these lawsuits and claims, if any,
would not have a material or adverse effect on the Group’s financial position and results of operations.

Trademark Infringement Suit

To date, the pending legal proceedings to which TDI is a party thereto is the P =100 million civil
infringementsuit filed against TDI last August 2003 by Ginebra San Miguel, Inc. (GSMI) for the launching
of Ginebra Kapitan, a gin product that allegedly has a “confusing similarity” with GSMI’s principal gin
product. On September 23, 2003, the Mandaluyong Regional Trial Court (RTC) issued a TRO preventing
TDI from manufacturing, selling and advertising Ginebra Kapitan.

On November 11, 2003, the Court of Appeals issued a 60-day TRO versus the Mandaluyong RTC,
effectively allowing TDI to resume making and selling Ginebra Kapitan. The Court of Appeals however
subsequently affirmed the Mandaluyong RTC TRO on January 9, 2004. On January 28, 2004, the Company
filed a motion for reconsideration with the Court of Appeals. The Court of Appeals denied the TDI motion
for reconsideration on July 2, 2004. On December 28, 2004, TDI then filed a petition for review on
certiorari before the Supreme Court. On August 17, 2009, the Supreme Court reversed the decision of the
Court of Appeals and nullified the writ of preliminary injunction issued by the Mandaluyong RTC. GSMI
filed a motion for reconsideration but the Supreme Court denied the GSMIs motion with finality on
November 25, 2009.

On July 25, 2012, the Mandaluyong RTC issued its decision in favor of TDI and dismissing the instant
complaint for trademark infringement and unfair competition for lack of merit. GSMI filed a Motion for
Reconsideration with the Mandaluyong RTC on September 3, 2012. On October 5, 2012, the Mandaluyong
RTC denied the Motion for Reconsideration of GSMI. GSMI filed an appeal with the Court of Appeals
(CA). On August 15, 2013, the CA rendered a decision in favor of GSMI ordering TDI to recall all gin
products bearing the Ginebra brand name, cease and desist from using GINEBRA in any of its gin products,
pay GSMI 50% of the gross sales of GINEBRA KAPITAN and P =2 million as exemplary fees. TDI filed its
appeal on October 18, 2013. On November 22, 2013, the CA sustained its decision in favor of GSMI.

On December 18, 2013, the Company filed a petition before the Supreme Court questioning the decision
of the CA. In 2014, the Company filed a motion for reconsideration with the Court of Appeals. But such
motion was denied. On September 29, 2015 the Company filed another petition for review before the
Supreme Court. The Company is currently waiting for the Supreme Court’s resolution as of December 31,
2021.

55
Opposition to Registration of Brand Name
On August 9, 2006, GSMI also filed an opposition to TDIs application for registration of the brand name
Ginebra Kapitan with the Intellectual Property Office (IPO). The Bureau of Legal Affairs (BLA) of the IPO
ruled on April 23, 2008 that the word “GINEBRA” is a generic term that is not capable of exclusive
appropriation. The decision paved the way for the registration with the IPO of TDI’s brand name
“GINEBRA KAPITAN”. GSMI sought for the reconsideration of this April 23, 2008 Decision of the BLA,
which motion was however denied in a Resolution dated March 4, 2009. From this denial, GSMI filed an
appeal memorandum with the Office of the Director General of the IPO raising as an issue, among others,
the damage it would sustain with the registration of the mark GINEBRA KAPITAN.

On September 24, 2013, the Office of the Director General of IPO promulgated a Decision affirming the
ruling of the BLA of the IPO, which in effect gave due course to the application that was filed by TDI for
the registration of the aforesaid brand name. GSMI thereafter filed a Petition for Review with the Court of
Appeals, seeking for the reversal of said September 24, 2013 Decision.

On July 23, 2014, the Court of Appeals (13th Division) granted the petition of GSMI, consequently
reversing and setting aside the Decision of the Office of the Director General of the IPO.

On August 22, 2014, TDI filed a Motion for Reconsideration with the Court of Appeals. On November 13,
2014, the Court of Appeals sustained its decision dated July 23, 2014. On December 12, 2014, TDI filed a
Petition for Review with the Supreme Court to reverse the decision of Court of Appeals and reinstate the
findings of IPO. TDI is currently awaiting Supreme Court’s decision as of December 31, 2021.

Beverage
ABI maintains a legal department whose main function is to pursue collection cases and handle litigation
arising from labor disputes. As of December 31, 2021, ABI does not have any significant legal proceedings
either against it or in pursuit of another party besides those arising from the ordinary course of business.

Tobacco

Sandiganbayan case against Tan Companies

On June 6, 2011, a motion was submitted by the Government seeking to include PMFTC and its
directors/officers as additional defendants in the forfeiture case pending before the Sandiganbayan against
Mr. Lucio C. Tan, FTC, et al. since 1987. The Government claims that by transferring the assets owned by
FTC to PMFTC as a result of the business combination, the FTC assets have been removed beyond the
reach of the Government and the court. The Sandiganbayan denied this motion with finality in August 2011,
ruling that they are not necessary or indispensable parties under the law. In a decision in June 2012, the
Sandiganbayan also dismissed the forfeiture case against all the defendants for failure of the Government
to prove that the assets that formed the subject of the case were ill-gotten wealth. The Government’s motion
for reconsideration was likewise denied in September 2012. On October 29, 2014, FTC received a
resolution from the Supreme Court requiring it to submit its memorandum which was subsequently filed
on January 30, 2015.

Banking
The Bank is a party to various legal proceedings which arise in the ordinary course of its operations. The
Bank and its legal counsel believe that any losses arising from these contingencies, which are not
specifically provided for, will not have a material adverse effect on the Consolidated Financial Statements.

56
Property Development
The Company does not have any pending legal proceeding as of calendar year 2021.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year
covered by this report.

57
 PART II - OPERATIONAL AND FINANCIAL INFORMATION

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

(a) Market Price of and Dividends on Registrant’s Common Equity and Related Stockholder Matters.

1. Market Information

The principal market for the registrant's common equity is the Philippine Stock Exchange.

STOCK PRICES
CLOSE HIGH LOW
2019
1st Quarter 16.10 17.60 14.60
2nd Quarter 15.20 17.20 14.68
3rd Quarter 13.94 16.40 13.40
4th Quarter 11.98 14.40 11.00

2020
1st Quarter 8.30 12.24 5.50
2nd Quarter 8.00 9.77 7.11
3rd Quarter 9.00 9.05 7.11
4th Quarter 13.10 14.08 8.64

2021
1st Quarter 13.50 15.50 12.50
2nd Quarter 12.90 14.10 12.70
3rd Quarter 10.10 13.00 8.50
4th Quarter 9.90 11.30 9.03

2022
March 18, 2022* 9.30 9.47 9.11
*Latest practicable trading date

2. Holders

The number of shareholders of record as of December 31, 2021 was 377. Common shares outstanding as
of December 31, 2021 were 10,821,388,889. The top 20 stockholders as of December 31, 2021 are as
follows:

Stockholders’ Name No. of Common % to Total

Shares Held
Tangent Holdings Corp. 8,046,318,193 74.3557
PCD Nominee Corporation (Filipino) 1,006,643,643 9.3024
PCD Nominee Corporation (Non-Filipino) 1,006,558,363 9.3016
Dragon Castle Holdings Ltd. 198,535,900 1.8347
Hinner Resources Ltd. 157,195,600 1.4526
Advance Goal Ltd. 152,812,600 1.4121
Absolute Classic Ltd. 95,811,000 0.8854
Conqueror Vision Ltd. 81,913,000 0.7570
Conway Equities, Inc. 35,000,000 0.3234
Pan Asia Securities Corp. 24,481,600 0.2262
Goldlabel Equities Corp. 5,039,800 0.0466
All Seasons Realty Corp. 4,974,794 0.0460

58
 Dragonstar Management Corp. 1,773,900 0.0164
Kentron Holdings & Equities Corp. 569,800 0.0053
Luys Securities Co., Inc. 501,000 0.0046
Mandarin Securities Corp. 358,000 0.0033
Atlas Agricultural & Mercantile & Dev. 299,475 0.0028
Honorio Poblador Jr. 295,230 0.0027
Donald J.D. Nye 272,250 0.0025
Anil Amarnani ITF: Anika Amarnani 170,000 0.0016

* LTG has no preferred shares.

3. Dividends
a.) Dividend declarations

BOD Approval Date Amount of Dividend Per Share Record Date Payment Date
Regular Special
April 10, 2019 =0.15
P =0.15
P April 29, 2019 May 8, 2019
May 22, 2020 0.15 0.28 June 8, 2020 June 17, 2020
August 14, 2020 - 0.23 September 2, 2020 September 8, 2020
November 23, 2020 - 0.15 December 9, 2020 December 14, 2020
March 17, 2021 0.15 0.09 March 31, 2021 April 12, 2021
June 11, 2021 - 0.24 June 25, 2021 July 7, 2021
November 19, 2021 - 0.60 December 6, 2021 December 13, 2021

b.) Restrictions that limit the ability to pay dividends on common equity or that are likely to happen
in the future.

a. “To declare dividends out of the surplus profits when such profit shall, in the opinion of the
directors, warrant the same.” (par. 3, Article V (Duties of directors, Amended By-Laws).

b. “ In lieu of closing the stock transfer book of the Corporation, The Board of Directors may fix in
advance an appropriate date consistent with the relevant regulations as may have been issued by
the Securities and Exchange Commission and/or the Philippine Stock Exchange, preceding the
date of any annual or special meeting of the stockholders or the date for the allotment or rights,
or the date when any change or conversion or exchange of capital stock shall go into effect, or a
date in connection with obtaining the consent of stockholders for any purpose, as record date for
the determination of the stockholders entitled to vote, to notice at any such meeting and
adjournment thereof, or to any such allotment of rights, or to give such consent, as the case may
be notwithstanding any transfer of any stock on the books of the Corporation after such record
date fixed as aforesaid, provided, however, that for purposes of declaring dividends, The Board
of Directors may fix in advance a date to be determined in accordance with law, for the payment
or distribution of such dividend as a record date for the determination of stockholders entitled to
such dividend.”(par C, Article XIX( Transfer of Stock, Amended By-Laws).

4. Recent Sales of Unregistered Securities (For the Past Three Years)

There was no recorded sale of unregistered securities during the past three years.

59
ITEM 6. Management’s Discussion and Analysis or Plan of Operation

RESULTS OF OPERATIONS

The following discussion and analysis of the Group’s financial condition and results of operations should
be read in conjunction with the consolidated financial statements as at December 31, 2021, 2020 and 2019
included in this report.

2021 vs 2020

CONSOLIDATED RESULTS OF OPERATIONS

(In millions) 2021 2020

Revenues =91,173
P =94,428
P
Cost of Sales 42,957 42,859
Equity in Net Earnings of Associates and Joint Ventures 18,021 17,615
Operating Expenses 42,227 49,948
Operating Income 24,011 19,236
Other income-net 3,252 2,351
Income Before Income Tax 27,262 21,587
Total Net Income 20,861 22,326
Net Income Attributable to Equity Holders of the Parent Company 20,246 21,022

LT Group, Inc. (LTG) posted a consolidated net income of P =20.9 billion for the year ended
December 31, 2021, lower than the P
=22.3 billion net income reported for the same period last year.

The consolidated net income attributable to equity holders of LTG was P =20.2 billion for 2021, 3.7% lower
than 2020’s P=21.0 billion. The banking segment’s net income increased from P =2.8 billion for the twelve
months ended December 31, 2020 to P =34.0 billion in the same period of 2021. Part of the bank’s income
included a P=33.4 billion gain for PNB Holdings Corporation (PHC) related transaction (which comprised
of the gain on remeasurement of the retained interest in PHC of P =16.5 billion; and gain on loss of control
over PHC as a subsidiary of P=16.9 billion in accordance with PFRS 10, Consolidated Financial Statements),
that was eliminated at the consolidated level because PHC is still owned and controlled ultimately by LTG.
LTG’s share of the gain, at P=18.9 billion was eliminated from LTG’s attributable net income from PNB,
bringing the bank’s 2021 contribution to P =308 million. The property development segment’s net
income was P =550 million in 2021, lower than 2020’s P =802 million. The beverage segment’s net income of
=475 million in 2021 was lower compared to the reported income of P
P =591 million in the same period last
year. This was partly offset by the improvements in the operating results of the tobacco and distilled spirits
segments. The tobacco segment’s net income was P =17.5 billion for 2021, 3.6% higher than 2020’s
=16.9 billion. Distilled spirits segment’s net income was P
P =1.2 billion, higher than the P =1.1 billion
recognized for the period ended December 31, 2020. Equity in net earnings from VMC amounted to
=258 million.
P

Consolidated revenues amounted to P=91.2 billion for the year ended December 31, 2021, P
=3.2 billion lower
than the P
=94.4 billion earned in 2020 mainly on account of the decreased revenues in the banking and
property development segments, partially offset by the higher distilled spirits and beverage segments
revenues.

Cost of sales and services were flat at P

=42.9 billion year-on-year (y-o-y).

Operating expenses amounted to P =42.2 billion in 2021 from P=49.9 billion in 2020 or a 15.5% decrease.
This was as a result of lower general and administrative expenses by 15.8%, from P=47.9 billion in 2020 to

60
P40.3 billion in 2021 and is mainly due to the reduction in provisions for impairment and credit losses by
=
the banking segment. Selling expenses decreased to P=1.9 billion in 2021 from P
=2.1 billion in 2020 as lower
advertising and related expenses were incurred.

SEGMENT OPERATIONS

Banking

The banking segment’s net income was P

=34.0 billion in 2021, higher than the P
=2.8 billion recorded in 2020.

Interest income in the current period of P

=42.4 billion was 9.7% lower compared to the same period last year
on account of lower yields on loans and receivables, trading and investment securities, deposit with banks
and interbank receivables. Total interest expense’s significant reduction of 32.1% or P =3.6 billion was
primarily due to the decline in the levels of high-cost deposits as compared to last year. Net interest income
of P
=34.8 billion was 2.7% lower y-o-y as net interest margin declined to 3.1% from 3.3%.

Net service fees and commission income increased to P =5.3 billion in 2021 compared to 2020’s P
=3.7 billion
due to higher loan-related and deposit-related fees, as well as significant bancassurance and underwriting
fees recognized during the year.

Trading and investment securities and net foreign exchange gains were lower at P =1.5 billion in 2021
compared to 2020’s P =4.3 billion mainly due to the decline in net gains on trading and investments securities
and loss on sale of non-financial assets.

Other income was higher at P=36.9 billion for 2021 mainly due to the recognition of the P
=33.4 billion gain
recognized for PHC related transaction (which comprised of the gain on remeasurement of the retained
interest in PHC of P
=16.5 billion; and gain on loss of control over PHC as a subsidiary of P
=16.9 billion in
accordance with PFRS 10, Consolidated Financial Statements).

Operating expenses decreased by 17.8% to P =36.7 billion from P

=44.6 billion due to lower provisions for
impairment, credit and other losses by P
=6.2 billion compared last year.

Tobacco

The tobacco segment’s net income was at P =17.5 billion for 2021, 3.6% higher than 2020’s P
=16.9 billion
largely due to recognized equity in net earnings from PMFTC (FTC’s 49.6% owned associate).

Distilled Spirits

The distilled spirits segment posted a net income of P

=1.2 billion in 2021, higher than the P
=1.1 billion
reported last year.

Net revenues increased by 6.7% y-o-y to P

=26.7 billion in 2021 mainly due to the improvement in the sales
volume of bioethanol coupled with higher selling prices of liquor products.

Cost of sales increased by 9.8% to P=23.5 billion in the current period as against P
=21.4 billion in the same
period last year primarily due to higher sales volume and higher excise taxes. Gross profit margin was at
12.2% in 2021, lower than the 14.7% in 2020 due to higher liquor production costs and lower gross profit
margin on bioethanol products as a result of lower average selling prices.

Operating expenses were lower at P =1.5 billion in 2021 compared P

=1.8 billion in 2020 as lower advertising,
other selling-related and administrative expenses were incurred in the current period.

61
Property Development

The property development segment reported a net income of P

=550 million in 2021, lower than the
=802 million last year.
P

Rental revenues for the current period accounted for P

=1.6 billion or 92.2% of revenues, representing an
8.2% decline as compared to the previous year, due to lower occupancy for retail and residential. Real
estate sales were 78.7% lower y-o-y to P
=137 million.

Operating expenses were higher by 16.3% from P =742 million in 2020 to P

=863 million in 2021 as general
and administrative expenses incurred increased.

Beverage

The beverage segment’s net income was lower at P

=475 million for the year ended December 31, 2021 from
=591 million in 2020.
P

Revenues of the beverage segment were higher at P=13.9 billion in 2021 compared to 2020’s P =13.3 billion,
largely on account of alcoholic beverage sales. Sales volume on Cobra Energy drink were higher while
bottled water and Vitamilk soymilk registered lower sales volumes. Sales continue to be adversely affected
by the various forms of lockdowns imposed since March 2020 up to the current period. Overall gross profit
margin declined to 23.5% from 26.0% as a result of higher input costs, such as sugar and fuel, and shift in
sales mix.

Operating expenses of P
=2.4 billion in 2021 was higher than the P
=2.3 billion in 2020 due to higher marketing
and depreciation expenses.

2020 vs 2019

CONSOLIDATED RESULTS OF OPERATIONS

(In millions) 2020 2019

Revenues =94,428
P =94,151
P
Cost of Sales 42,859 46,802
Equity in Net Earnings of Associates and Joint Ventures 17,615 14,813
Operating Expenses 49,948 34,608
Operating Income 19,236 27,554
Other income-net 2,351 3,589
Income Before Income Tax 21,587 31,143
Total Net Income 22,326 27,566
Net Income Attributable to Equity Holders of the Parent Company 21,022 23,118

LT Group, Inc. (LTG) posted consolidated net income of P =22.3 billion for the year ended December 31,
2020, 19.0% lower than the P
=27.6 billion reported for 2019.

The consolidated net income attributable to equity holders of LTG was P =21.0 billion for 2020, 9.1% lower
than 2019’s P=23.1 billion. This was on account of the decline in the operating results of the banking and
property development segments, which offset the improvements in the net incomes of the tobacco, distilled
spirits and beverage segments. The banking segment’s net income decreased from P =9.9 billion for the year
ended December 31, 2019 to P =2.8 billion in the same period of 2020. Property development segment’s net
income was P =802 million in 2020 and P =900 million for 2019. The tobacco segment’s net income increased
by P
=1.3 billion from P
=15.6 billion in 2019 to P =16.9 billion in 2020. Distilled spirits segment’s net income

62
was P =676 million for 2019. The beverage segment’s net income
=1.1 billion significantly better than the P
of P
=591 million in 2020 was higher compared to the reported income of P =398 million in 2019. Equity in
net earnings in VMC amounted to P =264 million.

Consolidated revenues amounted to P =94.4 billion for the year ended December 31, 2020 slightly higher
than the P
=94.2 billion earned in 2019 mainly on account of the increased revenues in the distilled spirits
segment which outweighs the decline in all other business segments revenues.

Cost of sales and services decreased by 8.4% from P =46.8 billion for the year ended December 31, 2019
to P
=42.9 billion in the same period in 2020, primarily attributable to the lower interest expense incurred on
deposits and other borrowings by the banking segment, lower sales volume by the beverage segment and
decline in sales of the property development segment.

Operating expenses amounted to P =49.9 billion in 2020 from P=34.6 billion in 2019 or an increase of 44.3%.
This was as a result of higher general and administrative expenses by 51.6%, from P =31.6 billion in 2019 to
=47.9 billion in 2020 and is mainly due to the additional provisions for impairment and credit losses for the
P
anticipated impact of the Corona Virus Disease 2019 (COVID-19) pandemic to the bank’s loan portfolio.
Selling expenses slightly decreased to P=2.1 billion in 2020 from P=3.0 billion in 2019 as lower advertising
and related expenses were incurred.

SEGMENT OPERATIONS

Tobacco

The tobacco segment’s net income was P =16.9 billion for the year ended December 31, 2020, higher than
the P
=15.6 billion for 2019 primarily on account of the increase in equity in net earnings from PMFTC
(FTC’s 49.6% owned associate) from P =15.4 billion in 2019 to P
=17.1 billion in 2020.

Banking

The banking segment’s net income was P =2.8 billion in 2020, lower than the P
=9.9 billion recorded in 2019
as the bank recognized significant provisions for impairment, credit and other losses of P=16.9 billion for
2020. On the other hand, there was a substantial improvement in the 2020’s net interest income and net
gains from trading and investment securities.

Interest income in the current period of P

=47.0 billion was 7.1% lower compared last year on account of the
net decrease in interest income from loans and receivables, trading and investment securities and interbank
receivables. Total interest expense’s significant reduction of 38.7% or P =7.0 billion was primarily due to
the decline in interest expense from high-cost deposit liabilities, bills and acceptances payable and other
borrowings partially offset by the increase in interest from bonds payable. This resulted to net interest
income of P =35.8 billion, 10.6% higher year-on-year.

Net service fees and commission income were lower at P

=3.7 billion in 2020 compared to 2019’s P
=4.2 billion
due to lower volume of banking transactions and waived fees on bank transfers and overseas remittances
in compliance with Bayanihan to Heal as One Act.

Trading and investment securities and net foreign exchange gains were higher at P =4.3 billion in 2020
compared to 2019’s P
=2.2 billion as the bank took advantage to dispose of securities with high fair market
values.

Operating expenses increased by 56.7% mainly due to larger provisions for impairment, credit and other
losses amounting to P=16.9 billion in 2020 in anticipation of the impact of the COVID-19 pandemic to the
bank’s loan portfolio compared to P=2.9 billion that was provided in 2019.

63
Distilled Spirits

The distilled spirits segment posted a net income of P =1.1 billion for the year ended December 31, 2020,
significantly greater than the P
=676 million reported in 2019.

Net revenues were higher by 29.8% y-o-y to P

=25.0 billion in 2020 mainly due to higher pricing and
improvement in the sales volume of liquor.

Cost of sales increased by 32.9% to P

=21.4 billion in 2020 as against P
=16.1 billion in 2019, primarily due to
sales volume and higher excise taxes. Gross profit margin was at 14.7% in 2020 lower than the 16.7% in
2019.

Operating expenses were lower at P=1.8 billion in 2020 compared P

=2.2 billion in 2019 as lower advertising
and other related expenses were incurred.

Property Development

The property development segment reported a net income of P

=802 million in 2020 lower than the
=900 million in 2019.
P

Rental revenue for 2020 accounted for P=1.8 billion or 73.3% of revenues, representing an 2.9% growth over
the same period in 2019, as lease contracts were renewed at higher rates for the BPO offices. On the other
hand, real estate sales were 54.9% lower y-o-y to P=642 million.

Operating expenses were lower by 19.3% from P =919 million in 2019 to P =742 million in 2020 as
commissions, advertising and promotional expenses and general and administrative expenses decreased.

Beverage

The beverage segment’s net income was higher at P

=591 million for the year ended December 31, 2020 from
=398 million for 2019.
P

Revenues of the beverage segment were lower at P =13.3 billion in 2020 compared to 2019’s P
=15.9 billion
largely on account of lower sales volume from bottled water and the packaging business. Overall gross
profit margin declined to 26.0% from 26.9% as a result of the unfavorable sales mix.

Operating expenses decreased by 10.1% to P=2.3 billion in 2020 from P

=2.6 billion in 2019 on account of
lower advertising and promotional expenses.

In 2020, ABI stopped recording share in losses of its affiliate ABHP as recognition of losses should only
be to the extent of investment cost and is consistent with the changes in the plan for the alcoholic beverage
business. Equity in net losses from ABHP recognized in 2019 amounted to P =717 million.

64
2019 vs 2018

CONSOLIDATED RESULTS OF OPERATIONS

(In millions) 2019 2018

Revenues =94,151
P =75,559
P
Cost of Sales 46,802 35,965
Equity in Net Earnings of Associates and Joint Ventures 14,813 7,967
Operating Expenses 34,608 31,003
Operating Income 27,554 16,558
Other income-net 3,589 8,990
Income Before Income Tax 31,143 25,548
Total Net Income 27,566 20,558
Net Income Attributable to Equity Holders of the Parent Company 23,118 16,195

LT Group, Inc. (LTG) reported a consolidated net income attributable to equity holders of P =23.1 billion for
the year ended December 31, 2019, 42.7% higher than the P =16.2 billion recorded for the same in 2018.
This was on account of the improvement in the operating results of the tobacco, banking and property
development segments, which more than offset the lower net income of the distilled spirits and beverage
segments. The tobacco segment’s net income increased by P =6.8 billion from P =8.8 billion in 2018 to
=15.6 billion in 2019. The banking segment’s net income improved by 1.6% from P
P =9.8 billion for 2018 to
=9.9 billion in 2019 on account of the recorded increase in the bank’s core income comprising primarily of
P
net interest income and net service fees and commission. Property development segment’s net income was
=900 million, 87.9% higher than the P
P =479 million in 2018. Distilled spirits segment’s net income was
=676 million, 25.6% less than the P
P =909 million recognized for the period ended December 31, 2018. The
beverage segment’s net income decreased to P =398 million in the current period from P
=421 million in 2018.
Equitized earnings from the 30.9% owned VMC contributed P =251 million in 2019 compared to
=247 million in 2018.
P

Consolidated revenues amounted to P =94.2 billion for the year ended December 31, 2019, 24.6% more than
the P
=75.6 billion recognized in 2018 as banking, beverage and distilled spirits revenues increased.

Cost of sales and services increased by 30.1% from P =36.0 billion for 2018 to P =46.8 billion in 2019,
primarily attributable to higher interest expense incurred in deposit liabilities and increased cost of sales of
the distilled spirits and beverage segments due to higher volume and raw materials cost.

Operating expenses amounted to P =35.7 billion in 2019 from P=32.5 billion in 2018 or an increase of 9.9%.
This was as a result of increased general and administrative expenses by 9.8%, from P =29.8 billion in 2018
to P
=32.7 billion in 2019 and higher selling expenses by 11.5%.

SEGMENT OPERATIONS

Tobacco

The tobacco segment’s net income was P =15.6 billion for the year ended December 31, 2019, significantly
higher than the P
=8.8 billion for 2018 on account of the increase in equity in net earnings from PMFTC
(49.6% owned associate) from P =15.4 billion in 2019. PMFTC’s income increased
=8.5 billion in 2018 to P
due to favorable mix with premium Marlboro accounting for a higher portion of sales volume and price
increases implemented in late August 2019.

65
Banking

The banking segment’s net income was P

=9.9 billion for the year ended December 31, 2019 higher than the
=9.8 billion recorded in 2018.
P

Interest income from banking operations was at P =50.5 billion in 2019, 40.3% higher than the
=36.0 billion earned in 2018, mainly on account of the expansion in loans, interbank loans and trading and
P
investment securities portfolios. Interest expense was at P
=18.2 billion for the period ended December 31,
2019, up 101.5% from P =9.0 billion in 2018 primarily due to growth in deposit liabilities and other
borrowings resulting to a net interest income of P
=32.4 billion, 19.9% higher year-on-year.

Net service fees and commission income improved from 2018’s P

=3.5 billion to P
=4.2 billion in 2019 driven
by the growth in deposit and credit card related fees.

Trading and investment securities and net foreign exchange gains were higher at P
=2.2 billion in 2019
compared to 2018’s P =1.1 billion. On the other hand, miscellaneous income decreased by 72.2% to
=2.1 billion from P
P =7.4 billion, due to lower gain from the sale of ROPA.

Operating expenses increased by 12.7% as growth in revenues particularly in interest income and trading
gains translated to higher business taxes and other related administrative expenses.

Distilled Spirits

The distilled spirits segment posted a net income of P

=676 million for the year ended December 31, 2019,
lower than the net income of P=909 million reported in 2018.

Net revenues were higher by 6.3% y-o-y to P

=19.3 billion in 2019 mainly due to the improvement in liquor
and bioethanol revenues.

Cost of sales increased by 8.2% to P

=16.1 billion in 2019 as against P
=14.8 billion in 2018 primarily due to
higher volume and raw material costs. Gross profit margin was lower at 16.7% in 2019 compared to 18.1%
in 2018.

Operating expenses were higher at P

=2.2 billion in 2019 from P
=2.1 billion in 2018, due to higher advertising,
repairs and maintenance and other administrative expenses.

Property Development

The property development segment reported a net income of P

=900 million for the year 2019, 87.9% greater
than the P
=479 million for 2018.

Leasing revenues in 2019 accounted for P =1.7 billion or 54.5% of revenues, representing a 14.2% increase
compared to 2018, as lease contracts were renewed at higher rates for the BPO offices as well as the
additional retail space at Eton Square Ortigas that was completed in 2018. Real estate sales were 16.4%
lower y-o-y to P=1.4 billion, but gross profit margin improved to 53% from 29%.

=919 million in 2019 compared to 2018’s P

Operating expenses were slightly lower at P =947 million.

66
Beverage

The beverage segment’s net income was lower by 5.5% to P

=398 million for the year ended December 31,
2019 from P
=421 million in the same period last year.

Revenues of the beverage segment were higher by 5.5% to P =15.9 billion in 2019 from P
=15.1 billion in 2018.
This was driven by the growth in revenues in energy drinks, bottled water and soymilk. Overall gross profit
margin was flat at 27%.

Operating expenses increased by 9.5% to P =2.6 billion in 2019 from P =2.4 billion in 2018 on account of
higher advertising, personnel, outside services, selling materials and freight and handling expenses.

FINANCIAL CONDITION

2021
The Company’s consolidated Total Assets as of December 31, 2021 and December 31, 2020 amounted to
=1.3 trillion and P
P =1.4 trillion, respectively. Current Assets decreased by 5.6% or P
=38.3 billion and
Noncurrent Assets were lower by P =3.0 billion or 0.4%.

The consolidated Current Assets decreased by 5.6% from P =684.8 billion as of December 31, 2020 to
=646.5 billion. Cash and Cash Equivalents decreased from P
P =304.1 billion as of end-2020 to P
=265.1 billion
as of December 31, 2021 on account of lower Due from BSP, Interbank Loans Receivables and Securities
under Agreement to Resell of the banking segment. Financial Assets at Fair Value through Profit or Loss
decreased from P =23.9 billion to P
=11.2 billion due to disposals and lower fair values. Assets of disposal
=7.9 billion due to sale of the bank’s remaining stake in PNB
group classified as held for sale declined by P
Gen. Current portion of Financial Assets at Fair Value through Other Comprehensive income (FVTOCI)
and Financial Assets at amortized cost increased due to purchases and reclassifications. Due from related
parties increased from P
=2.0 billion to P=7.7 billion as of end-2021 due mainly on the advances made to the
ultimate parent company - Tangent. Inventories as of December 31, 2021 amounted to P =14.3 billion, 8.4%
higher than end-2020 due to increased inventory levels of the distilled spirits and beverage segments.

The 0.4% decrease in consolidated Noncurrent Assets was mainly due to the movements in the Noncurrent
portion of Financial Assets at Amortized Cost and Financial Assets at FVTOCI. Financial Assets at
Amortized Cost were lower by P =11.5 billion on account of disposal of various investment securities, net of
purchases made as of December 31, 2021. The noncurrent portion of Financial Assets at FVTOCI were
lower at P=71.5 billion versus end-2020 of P =76.6 billion due to disposal of various securities, net of
purchases, decline in the fair values and reclassifications to current portion of the investments. Deferred
income tax assets decreased mainly due to enactment of the Corporate Recovery and Tax Incentives for
Enterprises (CREATE) Act, which lowers the regular corporate income tax rate from 30% to 25%.
Investment in associates and joint ventures decreased on account of higher dividends received from PMFTC
over the equitized earnings in the current period. Property, plant and equipment and Investment properties
were higher by P =2.6 billion and P
=1.6 billion, respectively, due to acquisitions made by the group for the
current period.

Consolidated Total Liabilities decreased by 4.5% to P

=1.0 trillion as of December 31, 2021 from P
=1.1 trillion
as of December 31, 2020. This was on account of the decrease in Total Current Liabilities by 2.7% from
=953.5 billion in December 31, 2020 to P
P =928.2 billion as of the end of the current period and decline in
Noncurrent Liabilities by 16.6% from P =144.0 billion to P
=120.0 billion.

Current portion of Bills and Acceptances Payable decreased by 31.8% brought by net settlements of
short-term interbank borrowing and repurchase agreement. Current portion of long-term debts were lower
by 75.2% as the bank paid currently maturing bonds. Liabilities of disposal group classified as held for
=6.4 billion due to the sale of the bank’s remaining stake in PNB Gen. Accounts payable
sale decreased by P
and accrued expenses decreased due to payments made as of December 31, 2021. Short-term debts as of
December 31, 2021 amounted to P =3.9 billion, 16.9% lower than end-2020 on account of payments made

67
by ABI. Other current liabilities and Income tax payable were lower due to payments made in current
period. Financial liabilities at fair value through profit or loss increased to P
=892 million mainly due to
mark-to-market adjustments for the period.

The decrease in the Noncurrent Liabilities was on account of the bank’s lower levels of Noncurrent Deposit
Liabilities from P
=58.4 billion as of end-2020 to P
=38.5 billion as of December 31, 2021 as well as lower
Noncurrent portion of Bills and Acceptances Payable from P =14.2 billion as of end-2020 to P
=3.2 billion as
of end-2021 brought by net settlements of interbank borrowing and repurchase agreements. Accrued
retirement benefits decreased due to remeasurements of liabilities and various settlements during the year.
Long-term debts-net of current portion increased by P
=3.8 billion due to remeasurement and reclassification
on bond debts by the banking segment. Other noncurrent liabilities increased due to various accruals made
for the period.

LTG’s consolidated Total Equity improved by 3.1% to P=263.5 billion as of December 31, 2021, on account
of the net increase in the retained earnings brought about by the income earned for the period ended
December 31, 2021 of P =20.2 billion less dividends declared amounting to P =11.7 billion. Other
comprehensive income decreased due to the lower fair values of Financial Assets at FVTOCI.

2020
The Company’s consolidated Total Assets as of December 31, 2020 and 2019 amounted to P =1.4 trillion and
=1.3 trillion, respectively. Current Assets increased by 29.9% or P
P =157.7 billion and Noncurrent Assets
were lower by P =70.4 billion or 9.5%.

The consolidated Current Assets increased by 29.9% from P =527.1 billion as of December 31, 2019 to
=684.8 billion as of end-2020. Cash and Cash Equivalents increased level from P
P =184.9 billion as of
end-2019 to P =304.1 billion as of December 31, 2020 on account of higher Due from BSP, Interbank Loans
Receivables, Securities Held Under Agreement to Resell and Due from Other banks of the banking segment.
Financial Assets at Fair Value through Other Comprehensive income increased due to purchases of various
securities, net of disposal. Financial Assets at Amortized Cost-current increased due to reclassification of
currently maturing investments. Current portion of Loans and Receivables declined by P =37.9 billion from
end-2019 balance of P =260.9 billion on account of lower current loans receivables by the banking segment.
Inventories as of December 31, 2020 amounted to P =13.2 billion, 8.0% higher than end-2019 due to higher
ending inventory levels of the distilled spirits segment. On December 11 and October 9, 2020, PNB
approved the sale of all its shareholdings in PNB General Insurers Co., Inc. (PNB Gen) to Alliedbankers
Insurance Corporation, an affiliate. As a result, the Group reclassified all the assets and liabilities of PNB
Gen to ‘Assets of disposal group classified as held for sale’ and ‘Liabilities of disposal group classified as
held for sale’, respectively, in the consolidated statement of financial position

The 9.5% decrease in consolidated Noncurrent Assets was mainly due to the movements in the Noncurrent
portion of Loans and Receivables, Financial Assets FVTOCI, Financial Assets at Amortized Cost, as well
as Investment in associates and joint ventures. Noncurrent portion of Loans and Receivables amounted to
=393.6 billion, P
P =17.7 billion lower than end-2019 level on account of the banking segments net paydowns
of loans and receivables and additional provision for impairment, credit and other losses. Financial Assets
at FVTOCI and Financial Assets at Amortized Cost were lower by P =33.9 billion and P =20.2 billion,
respectively on account of disposal of various investment securities, net of purchases made as of December
31, 2020. Investment in associates and joint venture decline of P =3.5 billion was due to higher dividends
received from PMFTC than equitized earnings in 2020. Other noncurrent assets were lower at P =6.0 billion
as of end-2020. Deferred income tax assets (DTA) were higher by P =6.5 billion, from P
=2.4 billion as of
end-2019 to P=8.9 billion as of December 31, 2020 as additional DTA was recognized on allowance for
expected credit losses, for which the bank has the benefit of tax deductions against future taxable income
only upon actual write-offs.

68
Consolidated Total Liabilities increased by 8.5% to P
=1.1 trillion as of December 31, 2020 from P
=1.0 trillion
as of December 31, 2019. This was on account of the increase in Total Current Liabilities by 8.8% from
=876.7 billion in December 31, 2019 to P
P =953.5 billion as of the end-2020 and higher Noncurrent Liabilities
by 6.6% from P =135.2 billion to P
=144.0 billion.

Current portion of the banking segment’s Deposit Liabilities amounted to P =822.1 billion as of
December 31, 2020, 6.5% higher than end-2019. Current portion of Bills and Acceptances Payable
increased by 40.8% brought by increase in the level of interbank borrowing and repurchase agreements.
Accounts payable and accrued expenses were lower due to the settlements made in 2020. Short-term debts
as of December 31, 2020 amounted to P =4.7 billion, 8.0% lower than end-2019 on account of payments
made by the parent company. Current portion of long-term debts outstanding of P=1.0 billion as of December
=14.5 billion as of December 31, 2020 to recognize the bank’s maturing bonds
31, 2019 increased to P
payable. Other current liabilities decreased from P=18.8 billion as of end-2019 to P
=10.2 billion as of end-
2020 due to settlements made. Financial liabilities at fair value through profit or loss increased to
=701 million mainly from the increase in the volume of transactions for the period. Income tax payable
P
was higher by 46.0% versus the December 31, 2019 level due to the income tax provisions made in 2020.

The increase in the Noncurrent Liabilities was on account of the higher Noncurrent Deposit Liabilities,
Bills and Acceptances Payable net of current portion by P=12.3 billion and P=10.0 billion, respectively as of
December 31, 2020, as the bank had higher levels of deposit and bills and acceptances payable were higher
due to increased interbank borrowings and repurchased agreements transactions. Long-term debts net of
current portion decreased by P
=16.4 billion due mainly on the reclassification from noncurrent to current of
the maturing bonds payable. Other Noncurrent liabilities increased by 75.6% to P=5.5 billion as of December
31, 2020 from P=3.1 billion due to various accruals in 2020. Accrued retirement benefits increased due to
accruals made for the year 2020.

LTG’s consolidated Total Equity slightly increased by 0.6% to P =255.5 billion as of December 31, 2020, on
account of the net increase in the retained earnings brought about by the income earned for the period ended
December 31, 2020 of P =21.0 billion less dividends declared and paid amounting to P =8.8 billion, which
offset the decrease in the other comprehensive income due to lower net unrealized gain in fair value of
investments and payment to fully settle the Preferred shares of subsidiaries issued to Parent company
amounting to P=8.5 billion.

2019
The Company’s consolidated Total Assets as of December 31, 2019 and December 31, 2018 amounted to
=1.3 trillion and P
P =1.1 trillion, respectively. Current Assets increased by 15.0% or P
=68.8 billion and
Noncurrent Assets were higher by P =99.3 billion or 15.5%.

The increase in consolidated Current Assets by 15.0% from P =458.4 billion as of December 31, 2018 to
=527.1 billion was primarily due to higher Cash and Cash Equivalents level from P
P =177.0 billion as of end-
2018 to P =184.9 billion as of December 31, 2019 on account of higher deposits received, Loans and
Receivables – Current Portion of the banking segment. Current portion of Loans and Receivables was
greater than end-2018 level by 24.2% at P =260.9 billion as the banking segment was able to lend out more
corporate loans in 2019. Financial Assets at Fair Value through Other Comprehensive Income (FVTOCI)
and Financial Assets at Fair Value through Profit or Loss increased due to acquisitions in 2019 and
favorable hike in the fair values of the various investment portfolio. Inventories as of December 31, 2019
amounted to P=12.2 billion, 7.0% lower than end-2018 due to lower ending inventory levels of the property
development and distilled spirits segments. Other Current Assets amounted to P =11.4 billion as of December
31, 2019, 8.6% increase from P =10.5 billion as of December 31, 2018.

The 15.5% increase in consolidated Noncurrent Assets was mainly due to the movements in the Noncurrent
portion of Loans and Receivables and Financial Assets at FVTOCI. Noncurrent portion of Loans and
Receivables were higher by P =22.6 billion due to the growth in booked loans by the banking segment.
Financial Assets at FVTOCI were higher by P =62.4 billion on account of acquisitions of various investment
securities made as of December 31, 2019. Investments in associates and joint ventures increased by 34.2%

69
on account of equitized earnings recorded for the year ended December 2019. Property, plant and
equipment – at cost was higher by P =4.3 billion due to various acquisitions during the year 2019 and
recognition of Right of Use of Assets. Investment properties were higher by 7.6% due to various
acquisitions during the year 2019. Deferred income tax assets were higher by 24.0% on account of
adjustments on temporary tax differences recorded in 2019. Other noncurrent assets were higher by P =1.1
billion, from P
=6.4 billion as of end-2018 to P
=7.5 billion as of December 31, 2019.

Consolidated Total Liabilities increased by 16.8% to P =1.0 trillion as of December 31, 2019 from
=866.6 billion as of December 31, 2018. This was on account of the increase in Total Current Liabilities
P
by 13.0% from P =775.8 billion in December 31, 2018 to P =876.7 billion as of end-2019 and increase in
Noncurrent Liabilities of 48.9% from P
=90.8 billion to P
=135.2 billion.

Current portion of the banking segment’s Deposit Liabilities amounted to P =772.1 billion as of
December 31, 2019, 14.8% higher than end-2018 balance. Accounts Payable and Accrued Expenses
increased to P
=26.7 billion or 17.5% higher than P =22.7 billion as of December 31, 2018 due to the various
accruals in 2019. Short-term debts as of December 31, 2019 amounted to P =5.2 billion, 151.2% higher than
end-2018 on account of availments by the beverage segment and parent company. Current portion of long-
term debts outstanding of P =91 million as of December 31, 2018 increased to P =1.0 billion as of December
31, 2019 due to reclassification from noncurrent to current for the nearly maturing debt and recognition of
current portion of lease liability along with the recording of the right of use of asset account for the adoption
of PFRS 16 - Leases. Other current liabilities increased from P =16.5 billion as of end-2018 to P =18.8 billion
in current period due to additional accrual of transactions during the year 2019. Current portion of Bills
and Acceptances Payable decreased by 14.4% due to settlement of interbank loans from the BSP and local
banks. Current Financial Liabilities at Fair Value through Profit or Loss were lower by 47.8% to P =246
million as of end-2019. Income tax payable was lower by 31.8% versus the December 31, 2018 level due
to the income tax payments made in 2019. Current portion of Due to related parties decreased from P =80
million to P
=65 million as payments were made in 2019.

The increase in the Noncurrent Liabilities was on account of the higher Long-Term debts net of current
portion of the banking segment by P =53.0 billion as of December 31, 2019, as the bank issued fixed-rate
bonds and Euro Medium Term Notes (EMTN) partially offset by Noncurrent Bills and Acceptances Payable
which decreased by P =5.4 billion. Other Noncurrent liabilities declined by 37.1% to P=3.1 billion as of
December 31, 2019 from P =5.0 billion due to various settlements in 2019.

LTG’s consolidated Total Equity grew 9.9% to P =254.0 billion as of December 31, 2019, on account of the
increase in Retained Earnings coming from the net earnings in 2019 and increase in the other
comprehensive income from the unrealized gain in fair value of investments. The increase in the
noncontrolling interests were relative to the increase in the other comprehensive income and issuance of
stock rights by the banking segment. This was partially offset by the partial redemption of the Preferred
shares of subsidiaries issued to Parent company amounting to P =9.5 billion.

KEY PERFORMANCE INDICATORS

LTG uses the following major performance measures. The analyses are based on comparisons and
measurements on financial data of the current period against the same period of the previous year. The
discussion on the computed key performance indicators can be found in the “Results of Operations” in the
MD&A above.

1.) Gross Profit Ratio

Gross profit ratio in 2021 was 52.9% versus 54.6% in 2020.

70
 2.) Return on Equity

Consolidated Net Income Attributable to Equity Holders of the Parent Company for 2021 amounted
=20.2 billion; lower by 3.7% from last year’s P
to P =21.0 billion. Ratio of net income to equity is
10.7% in 2021 and 11.3% in 2020.

3.) Current Ratio

Current Ratio for 2021 is 0.70:1 while last year’s was 0.72:1.

4.) Debt-to-equity ratio

Debt-to-equity ratio for 2021 is 3.98:1 as compared to last year’s 4.30:1.

5.) Earnings per share

Earnings per share attributable to holders of the parent company for 2021 is P
=1.87 and P
=1.94 in
2020.

The manner by which LTG calculates the indicators above is as follows:

Gross profit ratio = Gross profit/Net sales

Return on Equity = Net Income Attributable to Equity Holders of the LTG/Stockholders’
equity
Current Ratio = Current assets/Current liabilities
Debt-to-equity ratio = Total liabilities/Total equity
Earnings per share = Net income attributable to holders of the parent company/weighted
average number of shares

OTHER MATTERS

(i) The COVID-19 pandemic has affected the overall economy since the government declared an
Enhanced Community Quarantine (ECQ) starting mid-March 2020. This affected the industries
that LTG operates in particularly the bank, tobacco and the alcoholic and non-alcoholic businesses.
Interest rate fluctuations may likewise affect the different businesses of the Group. Aside from
this, there are no other trends or any known demands, commitments, events or uncertainties that
will result in or that are reasonably likely to result in the Group’s increasing or decreasing liquidity
in any material way. The Group is not in default or breach of any note, loan, lease or other
indebtedness or financing arrangement requiring it to make payments. The Company does not have
any liquidity problems.

(ii) There are no events that will trigger direct or contingent financial obligation that is material to LTG,
including any default or acceleration of an obligation.

(iii) There are no known material off-balance sheet transactions, arrangements, obligations (including
contingent obligations), and other relationships of LTG with unconsolidated entities or other
persons created during the reporting period.

(iv) The Group has various on-going and planned capital expenditure projects as follows:

Distilled spirits

TDI has major capex on bottling lines and replenishment of pallets inventory.

Asian Alcohol Corporation (AAC) Bio-Ethanol is already operating, there are plans to upgrade
and rehabilitate the steam and power generation facilities.

71
Absolut Distillers Inc. has a long range plans to invest in Sugar Mills to boost bioethanol
production.

Beverage

ABI continuously makes investments that enhance production safety, improve manufacturing
efficiency, and improve the impact of its production processes to the environment.

Apart from investments in the production process, ABI is in the process of re-fleeting its delivery
trucks and upgrading its handling equipment to better control its repairs and maintenance costs and
ensure safety in the transport of materials and products.

Investments in returnable containers were also made to replace bottles and crates used in the
production of Cobra, Vitamilk and alcoholic beverages in returnable glass format.

International Bottled Water Association Certificate of Membership

ABI’s bottled water plant in Cabuyao has been a member of the International Bottled Water
Association (IBWA) since it started its bottled water business in 1992. IBWA in reference to U.S.
FDA regulations of the Code of Federal Regulations prescribes the Good Manufacturing Practices
for Processing and Bottling of Bottled Drinking Water. This includes specific design and
performance requirements for determining whether the facilities, methods, practices, and controls
used in the processing, bottling, holding and shipping of bottled drinking water are in conformance
with or are operated or administered in conformity with good manufacturing practices to assure
that bottled drinking water is safe and has been processed, bottled, held and transported under
sanitary conditions.

ISO 9001:2015 Quality Management System Certification

ISO is a standard setting body that provides requirements, specifications, guidelines or
characteristics that ensure that products and services are safe, reliable and are of good quality. To
be ISO 9001:2015 certified, an organization must demonstrate its ability to consistently provide
products that meets customer and applicable statutory and regulatory requirements. ABI’s
manufacturing sites were re-certified in 2019 with validity through 2022 and 2023.

HACCP Certification
Hazard Analysis and Critical Control Point (HACCP) is a systematic preventive approach to food
safety, which addresses physical, chemical, and biological hazards rather than finished product
inspection. HACCP is used in the food industry to identify potential food safety hazards, so that
key actions, known as Critical Control Points (CCPs) can be created to reduce or eliminate the
risks. With its increasing adoption worldwide, HACCP helps the food and beverage industry to put
in place, an effective integrated food safety management system, which drives growth in
productivity, safety and traceability. ABI’s bottled water plant and soy milk plants are HACCP
certified through 2023.

Food Safety System Certification

Food Safety System Certification (FSSC 22000) contains a complete certification Scheme for Food
Safety Management Systems based on existing standards for certification (ISO 22000, ISO 22003
and technical specifications for sector PRPs). FSSC 22000 is a Global Food Safety Initiative
(GFSI) recognized standard. GFSI recognition demonstrates that the FSSC 22000 Scheme meets
the highest standards globally, leading to international food industry acceptance. Furthermore, the
FSSC 22000 Scheme is widely accepted by accreditation bodies worldwide and supported by
essential stakeholders like FoodDrinkEurope and the Consumer Brands Association. ABI’s
alcoholic beverage plant in Cabuyao is FSSC certified through 2023.

72
 National Sanitation Foundation (NSF) International Certificate of Compliance
NSF International protects and improves global human health. Manufacturers, regulators and
consumers look to NSF to facilitate the development of public health standards and provide
certifications that help protect food, water, consumer products and the environment. From
extensive product testing and material analyses to plant inspections, every aspect of a product's
development is thoroughly evaluated before it can earn NSF Certification. ABI’s Cabuyao and Sta.
Rosa bottled water plants are NSF certified through 2022.

HALAL Product Certification

Halal is an Arabic word that means permissible. A Halal certified product means that the product
is permissible or acceptable in accordance with Islamic law. In order for products to receive this
certification, they must be from an acceptable source such as a cow or chicken and slaughtered
according to Islamic laws. Offering Halal certified products allows Muslim consumers to be
confident that the products they use are in alignment with their culture and beliefs. Absolute,
Summit and locally produced Vitamilk are HALAL certified products.

Safety Seal Certification

The Safety Seal Certification is a voluntary certification scheme that affirms that an establishment
is compliant with the minimum public health standards set by the government. The Department of
Labor and Employment issues the Safety Seal for manufacturing, construction sites, utilities,
information and communication companies, warehouses and information technology - business
process management establishments. The Safety Seal for ABI and PWI’s manufacturing facilities
in Cabuyao was issued on November 2, 2021. IPI and ABN’s Cabuyao plants were issued Safety
Seals on November 3, 2021.

(v) The Group recognizes the COVID-19 pandemic effect on the overall Philippine economy. Interest
rate fluctuations may likewise affect the different businesses of the Group. Apart from this, there are
no known other trends, events or uncertainties that have had or that are reasonably expected to have
a material favorable or unfavorable impact on net sales, revenue or income from continuing
operations.

(vi) There are no significant elements of income or loss that did not arise from the Company’s
continuing operations.

(vii) The causes for any material change from period to period which shall include vertical and
horizontal analyses of any material item;

Results of our Horizontal (H) and Vertical (V) analyses showed the following material changes
(+/- 5% and above) as of and for the years ended December 31, 2021 and 2020 (negative movement
in parenthesis):

1. Cash and cash equivalents – H, (13%)

2. Financial assets at fair value through profit or loss – H, (53%)
3. Financial assets at fair value through other comprehensive income (FVTOCI) - current – H, 27%
4. Financial assets at amortized cost – current – H, 14%
5. Due from related parties – H, 293%
6. Inventories – H, 8%
7. Other current assets – H, (6%)
8. Assets of disposal group classified as held for sale – H, (100%)
9. Financial assets at FVTOCI - noncurrent – H, (7%)
10. Financial assets at amortized cost – noncurrent – H, (21%)
11. Investment in associates and joint ventures – H, (7%)
12. Property, plant and equipment at cost – net – H, 18%
13. Investment properties – H, 5%
14. Deferred income tax assets – H, (29%)

73
 15. Other noncurrent assets- H, (5%)
16. Financial liabilities at fair value through profit or loss – current – H, 27%
17. Bills and acceptances payable - current – H, (32%)
18. Short-term debts – H, (17%)
19. Accounts payable and accrued expenses – H, (13%)
20. Income tax payable – H, (62%)
21. Long-term debts-current – H, (75%)
22. Other current liabilities – H, (8%)
23. Liabilities of disposal group classified as held for sale – H, (100%)
24. Deposit liabilities – noncurrent – H, (34%)
25. Bills and acceptances payable - noncurrent – H, (78%)
26. Long-term debt – net of current portion – H, 7%
27. Accrued retirement benefits – H, (25%)
28. Other noncurrent liabilities- H, 64%
29. Other comprehensive income – H, (30%)
30. Reserves of disposal group classified as held for sale – H, (100%)
31. Retained earnings- H, 7%
32. Noncontrolling interests – H, 5%
33. Banking revenue – H, (10%)
34. Beverage revenue – H, 8%
35. Distilled spirits revenue – H, 7%
36. Property development revenue – H, (15%)
37. Selling expenses – H, (7%)
38. General and administrative expenses – V, (6%); H, (16%)
39. Finance costs – H, 7%
40. Foreign exchange gains – net – H, 9%
41. Others-net – H, 45%
42. Provision for income tax – current – H, (31%)
43. Provision for income tax – deferred – V, 10%; H, (135%)
44. Net income- continuing operations – H, (6%)
45. Net income- discontinued operations – H, (70%)
46. Total Net Income – H, (7%)
47. Net income attributable to noncontrolling interests – H, (53%)

The causes for these material changes in the balance sheet and income statement accounts are all
explained in the Management’s Discussion and Analysis (MDA) –Results of Operations and Financial
Condition above.

(viii) There are no seasonal aspects that have a material effect on the financial condition or results of
operations of LTG.

74
 A. Information on Independent Accountant and other Related Matters

(1) External Audit Fees and Services

a.) Audit and Audit-Related Fees

1. The Audit of the Group’s annual financial statements and other services that are
normally provided by the external auditor in connection with statutory and regulatory
filings or engagements for 2021 and 2020.

2021 2020
LT Group, Inc. =1,320,000
P =1,320,000
P
Distilled Spirits 3,102,000 3,147,000
Beverage 5,000,000 5,000,000
Tobacco 550,000 550,000
Banking 22,383,000 20,740,000
Property Development 2,450,000 2,450,000
Total =34,805,000
P =33,207,000
P

Other assurance and related services by the external auditor that are reasonably
related to the performance of the audit or review of the registrants’ financial
statements:

none

b.) Tax Fees

none

c.) All Other Fees

LT Group, Inc. and its subsidiaries incurred P=1,916,500 and P

=6,332,500 in 2021 and
2020, respectively for consultancy services engagement.

d.) The audit committee’s approval policies and procedures for the above services:

Upon recommendation and approval of the audit committee, the appointment of the
external auditor is being confirmed in the annual stockholders’ meeting. On the other hand,
financial statements should be approved by the Board of Directors before these are
released.

Item 7. Financial Statements

The consolidated financial statements and schedules listed in the accompanying Index to Financial
Statements and Supplementary Schedules are filed as part of this Form 17-A.

Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures

There are no changes in and disagreements with accountants on any accounting and financial disclosures
during the past two years ended December 31, 2021 or during any subsequent interim period.

75
 PART III – CONTROL AND COMPENSATION INFORMATION

Item 9. Directors and Executive Officers

1. Directors

Name Age Citizenship Business Experience/Other Position/Term of

Directorship within the Office/Period Served
Last five (5) years
Lucio C. Tan 87 Filipino Chairman of Absolut Distillers, Inc., Chairman/ 1Year/
Alliedbankers Insiéranse Corporation, July 2,1999 to present
Allianz PNB Life Insurance, Air
Philippines Corporation, Asia
Brewery, Inc., Asian Alcohol
Corporation, Basic Holdings
Corporation, Buona Sorte Holdings,
Inc., Eton Properties Philippines, Inc.,
Fortune Tobacco Corporation,
Foremost Farms, Inc., Grandspan
Development Corporation, Himmel
Industries, Inc., Mabuhay Maritime
Express Transport, Inc., MacroAsia
Corporation, Philippine Airlines, Inc.,
PMFTC Inc., Progressive Farms, Inc.,
PAL Holdings, Inc., Tanduay
Distillers, Inc., Tanduay Brands
International, Inc., Tangent Holdings
Corporation, The Charter House, Inc.,
Trustmark Holdings Corporation,
University of the East, Zuma Holdings
and Management Corporation. He is
also a Director of Philippine National
Bank.
Carmen K. Tan 81 Filipino Vice Chairman of Philippine Airlines, Vice Chairman/ 1
Inc. and Director of Air Philippines Year/ October 23,
Corporation, Asia Brewery, Inc., 2020 to present
Buona Sorte Holdings, Inc., Foremost
Farms, Inc., Dynamic Holdings, Ltd, Director/ 1 Year/
Eton City, Inc., Fortune Tobacco May 5, 2010 to
Corporation, Himmel Industries, Inc., present
MacroAsia Corporation, PAL
Holdings, Inc., Philippine National
Bank, PMFTC Inc., Progressive
Farms, Inc., Tanduay Distillers, Inc.,
Manufacturing Services and Trade
Corporation, Sipalay Trading
Corporation, Saturn Holdings, Inc.,
Tangent Holdings Corporation,
Trustmark Holdings Corporation and
Zuma Holdings and Management
Corporation.

76
Karlu T. Say 52 Filipino Founder and Director of Dong-A Director/ 1 Year/
Pharma Phils., Inc., Director and Chief May 5, 2021 to and
Operating Officer of Eton Properties present
Philippines, Inc., PNB Holdings
Corporation, Director of
Alliedbankers Insurance Corporation.
Michael G. Tan 56 Filipino Director, President and Chief President/ 1 Year/ 05
Operating Officer of Asia Brewery, May 5, 2010 to
Inc.; Director of Tangent Holdings present (Director since
Corp., MacroAsia Corporation, February 21, 2003)
Philippine National Bank, Eton
Properties Philippines, Inc., PMFTC
Inc., Tanduay Distillers, Inc.,
Victorias Milling Company, Inc.,
Maranaw Hotel (Century Park Hotel),
and Pan-Asia Securities Corp.
Lucio C. Tan, III 29 Filipino Director, President and Chief Director/ 1 Year/
Operating Officer of Tanduay December 17, 2019 to
Distillers, Inc. and Director of present
PMFTC, Inc., Fortune Landequities
and Resources, Inc., MacroAsia
Corporation, PAL Holdings, Inc.,
Philippine Airlines, Inc., Air
Philippines Corporation, and
Philippine National Bank.
Vivienne K. Tan 54 Filipino Director of Philippine National Bank Director/ 1 Year/
and Air Philippines Corporation, May 7, 2019 to
Member of the Board of Trustees of present
University of the East and University
of the East Ramon Magsaysay
Memorial Medical Center, Founding
Chairperson of Entrepreneurs School
of Asia and Founding Trustee of
Philippine Center for Entrepreneurship
(Go Negosyo).
Juanita T. Tan 79 Filipino Director of Asia Brewery, Inc., Eton Director/ 1 Year/
Lee Properties Philippines, Inc., and May 2, 2012 to
Tanduay Distillers, Inc.; Director and present
Corporate Secretary of Fortune
Tobacco Corporation, Corporate Assistant Corporate
Secretary of Absolut Distillers, Inc., Secretary/ 1 Year/
Asian Alcohol Corporation, The September 13, 2000 to
Charter House, Inc., Foremost Farms, September 17, 2012
Inc., Grandspan Development
Corporation, Himmel Industries, Inc., Treasurer/ 1 year/
Landcom Realty Corporation, PMFTC April 8, 2014 to
Inc., Progressive Farms, Inc. and Total present
Bulk Corporation; Assistant Corporate
Secretary of Basic Holdings
Corporation; Treasurer of PAL
Holdings, Inc. and Philippine Airlines,
Inc., and a member of the Board of
Trustees of the University of the East.

77
Johnip G. Cua 65 Filipino Former President of Procter & Gamble Independent Director /
Philippines, Inc., currently the 1 Year/ 08 May 2018
Chairman of the Board of Trustees of to present
the P&Gers Fund, Inc. and Xavier
School, Inc., and the Chairman &
President of Taibrews Corporation. He
is an Independent Director of First
Aviation Academy, Century Pacific
Food, Inc., PhilPlans First, Inc., Eton
Properties Philippines, Inc., ALI-Eton
Property Development Corporation,
Asia Brewery, Inc., Tanduay Distillers,
Inc., MacroAsia Corporation,
Macroasia Properties Development
Corporation, MacroAsia Catering
Services, Inc., MacroAsia Airport
Services Corporation, Macroasia
SATS Food Industries Corporation,
PAL Holdings, Inc. and Philippine
Airlines, Inc. He is also a member of
the Board of Directors of Interbake
Marketing Corporation, Teambake
Marketing Corporation, Bakerson
Corporation, Lartizan Corporation,
Allied Botanical Corporation, and
Zenori Corporation.
Mary G. Ng 69 Filipino Chief Executive Officer of H&E Independent Director /
Group of Companies; an Independent 1 Year/
Director of Alliedbankers Insurance May 7, 2019 to
Corporation and Eton Properties present
Philippines, Inc.; Honorary President
of the Packaging Institute of the
Philippines, the Philippine Plastics
Industry Association, Inc., and the
Association of Volunteer Fire Chiefs
and Firefighters of the Philippines;
First woman Chairman of the ASEAN
Federation of Plastic Industries
(AFPI); Executive Vice President of
Federation of Filipino-Chinese
Chamber of Commerce and
Industries; Tripartite Board member of
the Department of Labor and
Employment; Board member of
Technical Educational and Skills
Development Authority (TESDA);
Vice President of the Philippine Piak O
Eng Chamber of Commerce and
Philippine Piak O Eng Uy’s
Association; and Director of Philippine
Dongshi Townmate Association, Inc.

78
 Wilfrido E. 85 Filipino Tax Counsel of Quiason Makalintal Independent Director/
Sanchez Barot Torres Ibarra Sison & Damaso 1 year/July 31, 2012 to
Law Offices; Independent Director of present
EEI Corporation, House of
Investments, Inc., JVR Foundation,
Inc., Kawasaki Motor Corporation,
Magellan Capital Holdings
Corporation, Transnational Financial
Services, Inc., Eton Properties
Philippines, Inc., Asia Brewery, Inc.,
Philippine National Bank, and
Tanduay Distillers, Inc.; Director of
Asiabest Group International, Inc.
(ABG), Asian Institute of Management
(AIM), EMCOR, Inc., Gokongwei
Brothers Foundation, J-DEL
Investments and Management
Corporation, K-Servico, Inc.
Florencia G. 75 Filipino Independent Director of PNB Capital Independent Director/
Tarriela and Investment Corporation, PNB 1 year/August 09,
International Investments Corporation 2012 to present
and Eton Properties Philippines, Inc.;
Director/Vice President of Tarriela
Management Company and
Director/Vice President/Assistant
Treasurer of Gozon Development
Corporation; Board of Advisor of
Philippine National Bank; Member
of the Board of Trustees of Financial
Executives of the Philippines
(FINEX),Tulay sa Pag-unlad, Inc.
(TSPI) Development Corporation,
TSPI MBA, Philippine Bible Society
and Makati Garden Club; and a former
Undersecretary of Finance.

2. Executive Officers

Name/Position Age Citizenship Current Affiliations and Business Term of Office/

Experiences in the last 5 years Period Served
Lucio C. Tan/ 87 Filipino See above 1 Year/July 2, 1999 to
Chairman present
Carmen K. Tan/ 81 Filipino See above 1 Year/October 23,
Vice Chairman 2020 to present
Michael G. Tan/ 56 Filipino See above 1 Year/May 5, 2010 to
President and Chief present
Operating Officer
Juanita T. Tan Lee/ 79 Filipino See above 1 Year/April 8, 2014 to
Treasurer present

79
 Ma. Cecilia L. 69 Filipino Corporate Secretary of Asia Brewery, 1 Year/March 31, 1998
Pesayco/ Inc., PAL Holdings, Inc., Trustmark to present
Corporate Secretary Holdings Corporation, Zuma
Holdings and Management
Corporation. She is likewise the Chief
Legal Counsel of the Tan Yan Kee
Foundation.
Jose Gabriel D. 75 Filipino Former Senior Vice President – 1 Year/August 09,
Olives/ Finance & Chief Financial Officer of 2012 to present
Chief Financial Philippine Airlines, Inc., and Former
Officer and Chief Chief Finance Officer of Asia
Risk Officer Brewery, Inc.
Dioscoro Teodorico 67 Filipino Former Chief Audit Executive of 1 Year/July 11, 2017 to
L. Lim/Chief Audit Philippine National Bank. present
Executive
Nestor C. Mendones/ 67 Filipino Senior Vice President-Finance and 1 Year/August 09,
Deputy Chief Chief Finance Officer of Tanduay 2012 to present
Financial Officer Distillers, Inc.
Marivic T. Moya/ 61 Filipino Corporate Secretary of Philippine 1 Year/June 09, 2014
Assistant Corporate Airlines, Inc., Cavite Business to present
Secretary and Resources, Inc. MacroAsia Catering
Compliance Officer Services Inc., MacroAsia Airport
Services Corporation, and Watergy
Business Solutions Inc., Director and
Corporate Secretary of MacroAsia
Properties Development Corporation,
MacroAsia Air Taxi Services, Inc.,
and MacroAsia Mining Corporation

Independent Directors and their qualifications:

1. Johnip G. Cua, elected as Independent Director since May 8, 2018.

Term of office – 1 year

Period served – 4 years

Educational attainment:
Bachelor of Science in Chemical Engineer, University of the Philippines

Positions held in the last 5 years:

- P&Gers Fund, Inc. – Chairman of the Board of Trustees
- Xavier School, Inc. – Chairman of the Board of Trustees
- Taibrews Corporation – Chairman and President
- Century Pacific Food, Inc. – Independent Director
- First Aviation Academy – Independent Director
- PhilPlans First, Inc. – Independent Director
- Asia Brewery, Inc. – Independent Director
- ALI Eton Property Development Corporation – Independent Director
- Eton Properties Philippines, Inc. – Independent Director
- MacroAsia Corp. – Independent Director
- MacroAsia Catering Services, Inc. – Independent Director
- MacroAsia Airport Services Corp. – Independent Director
- MacroAsia Properties Development Corporation – Independent Director
- MacroAsia SATS Food Industries Corporation – Independent Director

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 - PAL Holdings, Inc. – Independent Director
- Philippine Airlines, Inc. – Independent Director
- Tanduay Distillers, Inc. – Independent Director
- Interbake Marketing Corp. – Director
- Teambake Marketing Corp. – Director
- Bakerson Corp. – Director
- Lartizan Corp. – Director
- Allied Botanical Corp. – Director
- Xavier School Educational & Trust Fund – Member of the Board of Trustees

2. Mary G. Ng, elected as Independent Director since May 7, 2019.

Term of office – 1 year

Period served – 3 year

Positions held in the last 5 years:

- Chief Executive Officer of H&E Group of Companies
- Alliedbankers Insurance Corporation – Independent Director
- Eton Properties Philippines, Inc. – Independent Director
- Honorary President of the Packaging Institute of the Philippines, the Philippine Plastic
Industrial Association of the Philippines
- Association of Volunteer Fire Chiefs and Firefighters of the Philippines – Honorary
President
- First woman Chairman of the ASEAN Federation of Plastic Industries (AFPI)
- Executive Vice President of Federation of Filipino-Chinese Chamber of Commerce
and Industries
- Tripartite Board member of the Department of Labor and Employment
- Board member of Technical Educational and Skills Development Authority (TESDA)
- Vice President of the Philippine Piak O Eng Chamber of Commerce and Philippine
Piak O Eng Uy’s Association
- Director of Philippine Dongshi Townmate Association, Inc.

3. Wilfrido E. Sanchez, elected as an Independent Director since July 31, 2012.

Term of office – 1 year

Period served – 10 years

Educational attainment:
Bachelor of Arts, Ateneo de Manila University
Bachelor of Laws, Ateneo de Manila University
Master of Laws, Yale Law School

Positions held in the last 5 years:

- Quiason Makalintal Barot Torres & Ibarra Law Offices – Tax Counsel
- Asia Brewery, Inc. – Independent Director
- EEI Corporation – Independent Director
- Eton Properties Philippines, Inc. – Independent Director
- House of Investments, Inc. –Independent Director
- JVR Foundation, Inc. – Independent Director
- Kawasaki Motor Corp. – Independent Director
- Magellan Capital Holdings Corp. – Independent Director
- Philippine National Bank – Independent Director
- Tanduay Distillers, Inc. – Independent Director
- Transnational Financial Services, Inc. – Independent Director
- Asiabest Group International – Director

81
 - Asian Institute Management – Director
- EMCOR Inc. – Director
- Gokongwei Brothers Foundation – Director
- J-DEL Investments and Management Corporation – Director
- K Servico, Inc. – Director

4. Florencia G. Tarriela, elected as Independent Director since August 9, 2012.

Term of office – 1 year

Period served – 10 years

Educational Attainment:
BSBA major in Economics, University of the Philippines
Master of Arts in Economics, University of California, Los Angeles (UCLA), USA
(Topped the Master’s Comprehensive Exams and completed the M.A. Degree with an “A”
average in three Quarters)

Positions held in the last 5 years:

- PNB Capital and Investment Corporation – Director
- PNB International Investments Corp. – Director
- Eton Properties Philippines Inc. – Independent Director
- Tarriela Management Company - Director/Vice President
- Gozon Development Corporation - Director/Vice President/Assistant Treasurer
- Philippine National Bank – Board of Advisor
- Trustee of Tulay sa Pag-unlad, Inc. (TSPI) Development Corporation - Trustee
- TSPI MBA - Trustee
- Financial Executive Institute of the Philippines (FINEX) – Trustee
- Philippine Bible Society – Trustee
- Makati Garden Club – Trustee

The Independent Directors are duly qualified and suffer from no disqualification under Section
11(5) of the Code of Corporate Governance. Independent director refers to a person other than an
officer or employee of the corporation, its parent or subsidiaries, or any other individual having any
relationship with the corporation, which would interfere with the exercise of independent judgment
in carrying out the responsibilities of a director. This means that apart from the director’s fees and
shareholdings, he should be independent of management and free from any business or other
relationship which could materially interfere with the exercise of his independent judgment (SEC
Memorandum Circular No. 2, Code of Corporate Governance).

4. Significant Employees

All employees of the Group are similarly situated and expected to contribute for the betterment of
the Company.

5. Family Relationship

Dr. Lucio C. Tan, married to Ms. Carmen K. Tan, is the father of Ms. Karlu T. Say, Mr. Michael
G. Tan and Ms. Vivienne K. Tan, and the grandfather of Mr. Lucio C. Tan III.

6. Involvement in Certain Legal Proceedings during the past 5 years

The Directors and Executive Officers of LTG are not involved in (a) any bankruptcy petition by or
against any business of which such person was a general partner or executive officer either at the
time of the bankruptcy or within two years prior to that time; (b) any conviction by final judgment
in a criminal proceeding, domestic or foreign, or being subject to a pending criminal proceeding,

82
 domestic or foreign, excluding traffic violations and other minor offenses; (c) being subject to any
order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, domestic or foreign, permanently or temporarily enjoining, barring,
suspending or otherwise limiting his involvement in any type of business, securities, commodities
or banking activities; and (d) being found by a domestic or foreign court of competent jurisdiction
(in a civil action), the Commission or comparable foreign body, or a domestic or foreign Exchange
or other organized trading market or self-regulatory organization, to have violated a securities or
commodities law or regulation, and the judgment has not been reversed, suspended, or vacated.

Item 10. Executive Compensation

The following compensation was given to officers and directors for the reporting year.

Summary Compensation Table

Annual Compensation

Year Salary Bonus Others*

Four (4) most 2022 =8,844,000
P =737,000
P =3,179,000
P
highly (Estimate)
compensated
executive officers
(see below)
2021 8,040,000 670,000 2,890,000
2020 8,040,000 670,000 2,830,000
All other officers 2022 440,000 36,666 7,480,000
and directors as a (Estimate)
group unnamed
2021 400,000 33,333 6,800,000
2020 1,200,000 100,000 6,670,000

The following constitute LTG’s four (4) most highly compensated executive officers (on a consolidated
basis):

1. Mr. Lucio C. Tan is the Chairman of the Board of Directors and Chief Executive Officer (CEO).
2. Mr. Michael Tan is the President and Chief Operating Officer.
3. Atty. Ma. Cecilia L. Pesayco is the Corporate Secretary.
4. Ms. Juanita T. Tan Lee is the Treasurer.

a) Standard Arrangements – The Directors of LTG receive a Director’s allowance of P30,000.00 a

month and a per diem of P25,000.00 for every board meeting and P15,000.00 for every committee
meeting attended. Other than the stated allowance and the per diem of the Directors, there are no
other standard arrangements to which the Directors of LTG are compensated, or are to be
compensated, directly or indirectly, for any services provided as a Director, including any
additional amounts payable for Committee participation or special assignments, for the last
completed fiscal year and the ensuing year.

b) Other Arrangements – None

c) Employment contract or compensatory plan or arrangement – None

Warrants and Options Outstanding: Repricing

a.) There are no outstanding warrants or options held by LTG’s CEO, the named executive officers, and
all officers and directors as a group.

83
 b.) This is not applicable since there are no outstanding warrants or options held by LTG’s CEO,
executive officers and all officers and directors as a group.

Item 11. Security Ownership of Certain Beneficial Owners and Management as of December 31,
2021.

1. Security Ownership of Certain Record and Beneficial Owners of more than 5%

Title of Name and Address of Name of Beneficial Citizenship No. of Shares Percent
Class Record Owner and Ownership and of Class
relationship with relationship with
Issuer Record Owner
Common Tangent Holdings Lucio C. Tan Filipino 8,046,318,193/ 74.36%
Corporation (THC) Record Owner
Unit 3, 11/F, Bench Majority
Tower, 30th Street Shareholder
corner Rizal Drive,
Crescent Park West,
Bonifacio Global City,
Taguig City

Controlling
Stockholder
Each shareholder of the Company is entitled to vote only to the extent of the number of shares registered in his/her/its
name. The Board of Directors of THC, comprised of Dr. Lucio C. Tan, Ms. Carmen K. Tan, Ms. Sheila T. Pascual
and Messrs. Harry C. Tan, and Michael G. Tan, has the right to vote or direct the voting or disposition of LTG’s
shares held by THC.

2. Security Ownership of Management as of December 31, 2021

Title of Name of Beneficial owner Amount and Nature of Citizenship Percent of

Class Beneficial Ownership Beneficial
Ownership
Common Lucio C. Tan 2,200 R (direct) Filipino Nil
Common Carmen K. Tan 2,200 R (direct) Filipino Nil
Common Karlu T. Say 1,000 R (direct) and Filipino Nil
530,000 (indirect)
Common Michael G. Tan 1,151,996 R (direct) Filipino Nil
Common Lucio C. Tan III 1,100 R (direct) Filipino Nil
Common Vivienne K. Tan 1,000 R (direct) Filipino Nil
Common Juanita T. Tan Lee 1,100 R (direct) Filipino Nil
Common Johnip G. Cua 1,000 R (direct) Filipino Nil
Common Mary G. Ng 1,000 R (direct) Filipino Nil
Common Wilfrido E. Sanchez 1,000 R (direct) Filipino Nil
Common Florencia G. Tarriela 1,000 R (direct) Filipino Nil
Common Ma. Cecilia L. Pesayco 2,200 R (direct) Filipino Nil
N/A Jose Gabriel D. Olives None N/A Filipino N/A

84
 N/A Dioscoro Teodorico L. Lim None N/A Filipino N/A
N/A Nestor C. Mendones None N/A Filipino N/A
N/A Marivic T. Moya None N/A Filipino N/A

Security ownership of all directors and officers as a group unnamed is 1,696,796 representing 0% of LTG’s
total outstanding capital stock.

*There are no additional shares which the listed beneficial and record owners have the right to acquire
within 30 days from any warrants, options, rights and conversion privileges or similar obligations or
otherwise.

3. Voting Trust Holders of 5% or more

There are no voting trust holders of 5% or more of the common shares.

4. Changes in Control
None

Item 12. Certain Relationships and Related Transactions

The Group, in their regular conduct of business, have entered into transactions with associates and other
related parties principally consisting of purchase and sale of inventories, advances, management, leasing
and administrative service agreements. Sales and purchases of goods and services to and from related
parties are made on an arm’s length basis and at current market prices at the time of the transactions.

There are no other transactions undertaken or to be undertaken by the Group in which any director or
executive officer, any nominee for election as director, any beneficial owner of more than 5% of the
Company’s outstanding shares (direct or indirect) or any member of his immediately family was involved
or had a direct or indirect material interest.

The Group’s employees are required to promptly disclose any business and family-related transactions with
the Group to ensure that potential conflicts of interest are surfaced and brought to the attention of
management.

The effects of the related party transactions on the financial statements have been identified in Note 22 of
the Notes to Consolidated Financial Statements.

PART IV – CORPORATE GOVERNANCE AND SUSTAINABILITY REPORT

Item 13. Corporate Governance Report

This will be filed separately.

Item 14. Sustainability Report

Please refer to the attached 2021 Sustainability Report.

85
 PART V – EXHIBITS AND SCHEDULES

Item 15. Exhibits and Reports on SEC Form 17-C

a. Exhibits - see accompanying Index to Exhibits (page 88)

The other exhibits, as indicated in the Index to Exhibits are either not applicable to the Group
or require no answer

b. Reports on SEC Form 17-C

SEC Form 17-C (Current Reports), which has been filed during the year, is no longer filed as
part of the exhibits.

LIST OF ITEMS REPORTED UNDER SEC FORM 17-C

(from January 2021 to December 2021)

Date of Report Subject Matter Disclosed

January 22, 2021 Material Information: PMFTC, Inc. merged with Philip Morris
Manufacturing Philippines Inc.
February 9, 2021 Calling of the Annual Stockholders’ Meeting
March 15, 2021 Approval of the Audited Consolidated Financial Statements for the Year
2020
March 17, 2021 Declaration of Regular Cash Dividend of P =0.15 per share and Special Cash
Dividend of P =0.09 per share to all its Stockholders as of March 31, 2021
March 19, 2021 Press Release: LTG Reports 2020 Unaudited Attributable Net Income of
Php21.0 Billion, 9% Lower than 2019’s Php23.1 Billion.
May 5, 2021 Result of Annual Stockholders’ Meeting and Organizational Meeting of the
Board of Directors
May 5, 2021 Press Release: Outlook for 2021
May 11, 2021 Press Release: LTG Reports First Quarter 2021 Attributable Net Income of
Php6.49 Billion, 4% Higher than 1Q20’s Php6.21 Billion.
June 11, 2021 Declaration of Special cash dividend of P =0.24 per share to all stockholders of
record as of June 25, 2021
August 11, 2021 Press Release: LTG Reports First Half 2021 Attributable Net Income of
Php3.73 Billion, 63% Lower than 1H20’s Php10.03 Billion
October 12, 2021 Appointment of Mr. Wilfrido E. Sanchez as Lead Independent Director of
the Company
October 12, 2021 Creation of Risk Management Committee
November 12, 2021 Press Release: LTG Reports an Attributable Net Income of Php9.95Billion
for the First Nine Months of 2021, 38% Lower than 9M20’s Php16.10
Billion
November 19, 2021 Declaration of Special cash dividend of P =0.60 per share to all stockholders of
record as of December 6, 2021

86
 SIGNATURES

Pursuant to the reqLrirements of Section l7 of the Securities Regulation Code (SRC) and Section l4l
of the Corporation Code, this report is sienfl6pr issuer by the undersigned thereunto duly
authorized in the City of Makati on Thfltffllhe .

'k-t*-
Lucio C. Tan
Deputy Chief Financial Officer

and Chief Operating Officer I Accounting Officer

D. Olives Ma. Ceci

SUBSCRIBED AND SWORN to before me this MAR I 5 2021 affiants exhibiting

to me their Passports/SSS ID, as follows:

NAMES PASSPORT NO. DATE OF ISSUE PLACE OF ISSUE

[,ucio C. Tan 768788

P8 I I 6-Nov-21 Manila, Philippines
Michael G. Tan P66472428 l4-Apr-21 PE Singapore
Jose Cabriel D. Olives P77693944 02-Jul-18 Manila, Philippines
Nestor C. Mendones P3 I 039038 06-Sep-l 9 NCR West, Philippine
SusanT. Lee P36335848 25-Oct-19 NCR West, Philippine
Ma. Cecilia L. Pesayco SSS lD: 03-5684103-6

Doc. No.
Page No.
Book No.
Series of2022 for MakaU City
No.35358
PIR No. -3-2022lMakati City
IBP No.00104
6lF 6794 MakatiCity
MCLE Compliance
Commission No. M-16 December 2022
87
 LT GROUP, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY SCHEDULES
SEC FORM 17-A

Page

CONSOLIDATED FINANCIAL STATEMENTS

Statement of Management’s Responsibility for Financial Statements 89

Cover Sheet 90
Report of Independent Auditors 91-95
Consolidated Statements of Financial Position as of December 31, 2021 and 2020 96-97
Consolidated Statements of Income for the Years Ended December 31, 2021, 2020 and 98-99
2019
Consolidated Statements of Comprehensive Income for the Years Ended December 31, 100
2021, 2020, and 2019
Consolidated Statement of Changes in Equity for the Years Ended December 31, 2021, 101-102
2020 and 2019
Consolidated Statements of Cash Flows for Years Ended December 31, 2021, 2020, and 103-104
2019
Notes to Consolidated Financial Statements 105-252

SUPPLEMENTARY SCHEDULES

Report of Independent Public Auditors on Supplementary Schedules 253

A. Financial Assets 254-263
B. Amounts Receivable from Directors, Officers, Employees, Related Parties, and 264
Principal Stockholders (Other than Related Parties)
C. Amounts Receivable from Related Parties which are Eliminated during the 265
Consolidation of Financial Statements
D. Intangible Assets and Other Assets 266
E. Long-term debts 267
F. Indebtedness to Related Parties 268
G. Guarantees of Securities of Other Issuers 269
H. Capital Stock 270
I. Reconciliation of Retained Earnings (Sec 11) 271
J. Map Showing the Relationships Between and Among the Company and its
Ultimate Parent Company, Middle Parent, Subsidiaries or Co-subsidiaries,
Associates, Wherever Located or Registered 272
K. Index to Exhibits 273

Report of Independent Public Auditors on Components of Financial Soundness

Indicators 274
ANNEX 68-E Schedule of Financial Soundness Indicators as of December 31, 2021 275

* These schedules which are required by part IV(e) of SRC Rule 68, have been omitted because they are
either not required, not applicable or the information required to be presented is included in the
Consolidated Financial Statements.

88
 LT GRouP, INC.
@
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS

The management of LT Group, Inc. is responsible for the preparation and fair presentation of the
consolidated financial statements including the schedules attached therein, for each of the three years
ended December 31,2021, in accordance with the prescribed financial reporting framework indicated
therein, and for such internal control as management determines is necessary to enable the preparation
of the consolidated financial statements that are free from material misstatement, whether due to fraud
or error.

ln preparing the consolidated financial statements, management is responsible for assessing the
Company's ability to continue as a going concern. disclosing, as applicable rratters related to going
concern and using the going concern basis of accounting unless management either intends to
liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Directors is responsible for overseeing the Company's financial reporting process.

The Board of Directors reviews and approves the consolidated financial statements including the
schedules attached therein, and submits the same to the stockholders or members.

SyCip Gorres Velayo & Co., the independent auditor appointed by the stockholders, has audited the
consolidated financial statements of the company in accordance with Philippine Standards on
Auditing, and in its report to the stockholders or members, has expressed its opinion on the fairness of
presentation upon completion of such audit.

fbllowing:

"hT:
Chairman and
Chief Executive Officer
ichael G. Tan
President
D. Olives

SUBSCRIBED AND SWORN to before me this MAR I 5 Zgll at Makati City,

affiants exhibiting to me their Passport numbers, as follows:

Name Passport No. Date Issue Place of Issue

Lucio C. Tan P8r768788 11t1612021 Manila, Philippines

MichaelG. Tan P66472428 0411412021 PE, Singapore
Jose Gabriel D. Olives P7769394A 07102120t8 Manila, Philippi

oo".*o. ffi
Pase No. W for Makati City
so;kNo.m{[I No. 35358
S"ri., of 20i- PTR No. i3-2022/Makati City
IBP No.00104
6/1 675a Aya( MakatiCity
MCLf Compliance No.' 31-2019
2022
89 Crescent Park West 5, Bonifacio Global City, Taguig City
11th Floor Unit 3 , Bench Tower, 30th St. corner Rizal Drive,
 COVER SHEET
for
AUDITED FINANCIAL STATEMENTS

SEC Registration Number

P W - 0 0 0 0 0 3 4 3

COMPANY NAME

L T G R O U P , I N C . A N D

S U B S I D I A R I E S

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province )

1 1 t h F l o o r , U n i t 3 B e n c h

T o w e r , 3 0 t h S t . c o r n e r R i z a l

D r i v e C r e s c e n t P a r k W e s t 5

B o n i f a c i o G l o b a l C i t y ,

T a g u i g C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

1 7 - A N / A N / A

COMPANY INFORMATION
Company’s Email Address Company’s Telephone Number Mobile Number

info@ltg.com.ph (02) 8808-1266 +639278375844

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

377 May 5 December 31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation
Name of Contact Person Email Address Telephone Number/s Mobile Number

Jose Gabriel D. Olives josegabriel.olives@ltg.com.ph 8808-1266 N/A

CONTACT PERSON’s ADDRESS

11th Floor, Unit 3 Bench Tower, 30th St. corner Rizal Drive Crescent Park West 5 Bonifacio Global
City, Taguig City
NOTE 1 : In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the Commission within
thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person designated.
2 : All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation’s records with
the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from liability for its
deficiencies.

90 *SGVFS162724*
 SyCip Gorres Velayo & Co. Tel: (632) 8891 0307
6760 Ayala Avenue Fax: (632) 8819 0872
1226 Makati City ey.com/ph
Philippines

INDEPENDENT AUDITOR’S REPORT

The Stockholders and the Board of Directors

LT Group, Inc.
11th Floor, Unit 3 Bench Tower
30th St. corner Rizal Drive Crescent Park West 5,
Bonifacio Global City, Taguig City

Opinion

We have audited the consolidated financial statements of LT Group, Inc. and its subsidiaries (the Group),
which comprise the consolidated statements of financial position as at December 31, 2021 and 2020, and the
consolidated statements of income, consolidated statements of comprehensive income, consolidated statements
of changes in equity and consolidated statements of cash flows for each of the three years in the period ended
December 31, 2021, and notes to the consolidated financial statements, including a summary of significant
accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the
consolidated financial position of the Group as at December 31, 2021 and 2020, and its consolidated financial
performance and its consolidated cash flows for each of the three years in the period ended December 31, 2021
in accordance with Philippine Financial Reporting Standards (PFRSs).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities
under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the Group in accordance with the Code of
Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements
that are relevant to our audit of the consolidated financial statements in the Philippines, and we have fulfilled
our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe
that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit
of the consolidated financial statements of the current period. These matters were addressed in the context of
our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. For each matter below, our description of how our audit
addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the
Consolidated Financial Statements section of our report, including in relation to these matters. Accordingly,
our audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the consolidated financial statements. The results of our audit procedures, including
the procedures performed to address the matters below, provide the basis for our audit opinion on the
accompanying consolidated financial statements.

91 *SGVFS162724*
A member firm of Ernst & Young Global Limited
 -2-

Adequacy of Allowance for Credit Losses on Finance Receivables

Philippine National Bank’s (PNB, a subsidiary) application of the expected credit losses (ECL) model in
calculating the allowance for credit losses on finance receivables (shown as part of “Loans and receivables”) is
significant to our audit as it involves the exercise of significant management judgment. Key areas of judgment
include: segmenting PNB’s credit risk exposures; determining the method to estimate ECL; defining default;
identifying exposures with significant deterioration in credit quality; determining assumptions to be used in the
ECL model such as the counterparty credit risk rating, the expected life of the financial asset, expected
recoveries from defaulted accounts, and impact of any financial support and credit enhancements extended by
any party; and incorporating forward-looking information, including the impact of the coronavirus pandemic,
in calculating ECL.
Allowance for credit losses on finance receivables as of December 31, 2021 and the provision for credit losses
in 2021 amounted to P=39.3 billion and =
P11.0 billion, respectively.

The disclosures related to the allowance for credit losses on finance receivables are included in Notes 8
and 32 of the financial statements.

Audit Response
We obtained an understanding of the board approved methodologies and models used for PNB’s different
credit exposures and assessed whether these considered the requirements of PFRS 9, Financial Instruments, to
reflect an unbiased and probability-weighted outcome, and to consider time value of money and the best
available forward-looking information.

We (a) assessed PNB’s segmentation of its credit risk exposures based on homogeneity of credit risk
characteristics; (b) tested the definition of default and significant increase in credit risk criteria against
historical analysis of accounts, credit risk management policies and practices in place, and management’s
assessment of the impact of the coronavirus pandemic on the counterparties; (c) tested PNB’s application of
internal credit risk rating system, including the impact of the coronavirus pandemic on the borrowers, by
reviewing the ratings of sample credit exposures; (d) assessed whether expected life is different from the
contractual life by testing the maturity dates reflected in PNB’s records and considering management’s
assumptions regarding future collections, advances, extensions, renewals and modifications; (e) tested loss
given default by inspecting historical recoveries and related costs, write-offs and collateral violations, and the
effects of any financial support and credit enhancements provided by any party; (f) tested exposure at default
considering outstanding commitments and repayment scheme; (g) evaluated the forward-looking information
used for overlay through corroboration of publicly available information and our understanding of PNB’s
lending portfolios and broader industry knowledge, including the impact of the coronavirus pandemic; and (h)
tested the effective interest rate used in discounting the expected loss.

Further, we compared the data used in the ECL models by reconciling data from source system reports to the
data warehouse and from the data warehouse to the loss allowance analysis/models and financial reporting
systems. To the extent that the loss allowance analysis is based on credit exposures that have been
disaggregated into subsets of debt financial assets with similar risk characteristics, we traced or re-performed
the disaggregation from source systems to the loss allowance analysis. We also assessed the assumptions used
where there are missing or insufficient data.

We recalculated impairment provisions on a sample basis. We involved our internal specialists in the
performance of the above procedures.

We reviewed the completeness of the disclosures made in the financial statements.

92 *SGVFS162724*
A member firm of Ernst & Young Global Limited
 -3-

Recognition of Deferred Tax Assets

As of December 31, 2021, the deferred tax assets of PNB amounted to P =5.8 billion. The recognition of
deferred tax assets is significant to our audit because the assessment process is complex and involves judgment
and is based on assumptions that are affected by expected future market or economic conditions and the
expected performance of PNB. The estimation uncertainty on PNB’s expected performance has increased as a
result of uncertainties brought about by the coronavirus pandemic.

The disclosures in relation to deferred income taxes are included in Note 29 to the consolidated financial
statements.

Audit response
We evaluated the management’s assessment on the availability of future taxable income in reference to
financial forecast and tax strategies. We evaluated management’s forecast by comparing the loan portfolio and
deposit growth rates to the historical performance of PNB and the industry, including future market
circumstances and taking into consideration the impact associated with the coronavirus pandemic. We also
reviewed the timing of the reversal of future taxable and deductible temporary differences.

Accounting for Investment in PMFTC, Inc.

The Group has an investment in PMFTC. Inc. (PMFTC, an associate) that is accounted for under the equity
method. For the year ended December 31, 2021, the Group’s share in the net income of PMFTC amounted to
=17.6 billion and accounts for 84% of the Group’s consolidated net income. This matter is significant to our
P
audit because of the materiality of the amount being equitized to the Group.

The disclosures in relation to the Group’s investment in PMFTC are included in Note 11 to the consolidated
financial statements.

Audit Response
We sent instructions to the statutory auditor of PMFTC to perform an audit of the relevant financial
information of PMFTC for the purpose of the Group’s consolidated financial statements. These audit
instructions cover their scope of work, risk assessment procedures, audit strategy and reporting responsibilities.
We discussed with the statutory auditor of PMFTC about their key audit areas, planning and execution of audit
procedures, significant areas of estimation and judgment, and results of their work for the year ended
December 31, 2021. We reviewed the working papers of the statutory auditor of PMFTC, focusing on the
procedures performed on key audit areas. We discussed with PMFTC’s statutory auditor the results of their
audit. We also obtained the financial information of PMFTC as of and for the year ended December 31, 2021
and recomputed the Group’s share in net income for the year then ended.

Other Information

Management is responsible for the other information. The other information comprises the information
included in the SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and Annual Report for
the year ended December 31, 2021, but does not include the consolidated financial statements and our
auditor’s report thereon. The SEC Form 20-IS (Definitive Information Statement), SEC Form 17-A and
Annual Report for the year ended December 31, 2021 are expected to be made available to us after the date of
this auditor’s report.

Our opinion on the consolidated financial statements does not cover the other information and we will not
express any form of assurance conclusion thereon.

93 *SGVFS162724*
A member firm of Ernst & Young Global Limited
 -4-

In connection with our audits of the consolidated financial statements, our responsibility is to read the other
information identified above when it becomes available and, in doing so, consider whether the other
information is materially inconsistent with the consolidated financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial
Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in
accordance with PFRSs, and for such internal control as management determines is necessary to enable the
preparation of consolidated financial statements that are free from material misstatement, whether due to fraud
or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or
has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a
whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could
reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated
financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional
skepticism throughout the audit. We also:

 Identify and assess the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence
that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 Obtain an understanding of internal control relevant to the audit 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 Group’s internal control.

 Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates
and related disclosures made by management.

94 *SGVFS162724*
A member firm of Ernst & Young Global Limited
 -5-

 Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based
on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that
may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a
material uncertainty exists, we are required to draw attention in our auditor’s report to the related
disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report.
However, future events or conditions may cause the Group to cease to continue as a going concern.
 Evaluate the overall presentation, structure and content of the consolidated financial statements, including
the disclosures, and whether the consolidated financial statements represent the underlying transactions
and events in a manner that achieves fair presentation.

 Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business
activities within the Group to express an opinion on the consolidated financial statements. We are
responsible for the direction, supervision and performance of the audit. We remain solely responsible for
our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and
timing of the audit and significant audit findings, including any significant deficiencies in internal control that
we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters that
may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of
most significance in the audit of the consolidated financial statements of the current period and are therefore
the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should
not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.

The engagement partner on the audit resulting in this independent auditor’s report is Aileen L. Saringan.

SYCIP GORRES VELAYO & CO.

Aileen L. Saringan
Partner
CPA Certificate No. 72557
Tax Identification No. 102-089-397
BOA/PRC Reg. No. 0001, August 25, 2021, valid until April 15, 2024
SEC Partner Accreditation No. 0096-AR-5 (Group A)
July 25, 2019, valid until July 24, 2022
SEC Firm Accreditation No. 0001-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
BIR Accreditation No. 08-001998-058-2020, December 3, 2020, valid until December 2, 2023
PTR No. 8854363, January 3, 2022, Makati City

March 15, 2022

95 *SGVFS162724*
A member firm of Ernst & Young Global Limited
LT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Amounts in Thousands)

December 31
2021 2020
ASSETS
Current Assets
Cash and cash equivalents (Note 5) P
=265,139,174 =304,061,222
P
Financial assets at fair value through profit or loss (FVTPL)
[Notes 6 and 21] 11,205,269 23,858,324
Financial assets at fair value through other comprehensive income
(FVTOCI) [Notes 7 and 17] 75,800,753 59,680,618
Financial assets at amortized cost (Notes 7 and 17) 45,931,953 40,216,142
Loans and receivables (Notes 8 and 17) 216,143,944 223,006,163
Inventories (Note 9) 14,286,523 13,175,605
Due from related parties (Note 22) 7,685,534 1,954,502
Other current assets (Note 10) 10,298,762 10,908,904
646,491,912 676,861,480
Assets of disposal group classified as held for sale (Note 37)  7,945,945
Total Current Assets 646,491,912 684,807,425
Noncurrent Assets
Loans and receivables - net of current portion (Notes 8 and 17) 407,515,357 393,592,324
Financial assets at FVTOCI (Notes 7 and 17) 71,468,657 76,644,306
Financial assets at amortized cost (Notes 7 and 17) 43,523,890 55,019,851
Investments in associates and joint ventures (Note 11) 22,208,309 23,777,783
Property, plant and equipment (Note 12):
At appraised values 60,468,871 59,918,473
At cost 13,642,782 11,586,799
Investment properties (Note 13) 34,447,353 32,837,375
Deferred income tax assets - net (Note 29) 6,291,847 8,889,031
Other noncurrent assets (Notes 14, 23 and 37) 5,777,386 6,049,087
Total Noncurrent Assets 665,344,452 668,315,029
TOTAL ASSETS P
=1,311,836,364 =1,353,122,454
P

LIABILITIES AND EQUITY

Current Liabilities
Deposit liabilities (Note 15) P
=842,061,358 =822,131,355
P
Financial liabilities at FVTPL (Notes 16 and 21) 891,531 701,239
Bills and acceptances payable (Note 17) 49,780,354 72,978,082
Accounts payable and accrued expenses (Note 18) 18,115,661 20,849,044
Short-term debts (Note 19) 3,940,000 4,740,000
Current portion of long-term debts (Note 19) 3,597,299 14,527,082
Income tax payable 381,539 1,008,067
Due to related parties (Note 22) 65,325 65,325
Other current liabilities (Notes 20 and 37) 9,381,064 10,180,106
928,214,131 947,180,300
Liabilities of disposal group classified as held for sale (Note 37)  6,353,964
Total Current Liabilities (Carried Forward) 928,214,131 953,534,264

96 *SGVFS162724*
 -2-

December 31
2021 2020
Total Current Liabilities (Brought Forward) P
=928,214,131 =953,534,264
P
Noncurrent Liabilities
Deposit liabilities - net of current portion (Note 15) 38,508,755 58,380,208
Bills and acceptances payable (Note 17) 3,173,443 14,181,368
Long-term debts - net of current portion (Note 19) 59,046,035 55,215,562
Net retirement benefits liability (Note 23) 1,817,657 2,418,637
Deferred income tax liabilities - net (Note 29) 8,499,173 8,327,412
Other noncurrent liabilities (Note 20) 9,040,491 5,526,724
Total Noncurrent Liabilities 120,085,554 144,049,911
Total Liabilities 1,048,299,685 1,097,584,175
Equity
Attributable to equity holders of the Company (Notes 1, 7, 12, 23,
24, 30 and 36):
Capital stock 10,821,389 10,821,389
Capital in excess of par 35,906,231 35,906,231
Other comprehensive income, net of deferred
income tax effect 14,410,914 15,056,237
Other equity reserves (5,959,881) (2,058,370)
Reserves of disposal group classified as held for sale (Note 37)  88,616
Retained earnings 134,905,274 125,612,353
Shares of stock of the Company held by subsidiaries (12,519) (12,519)
190,071,408 185,413,937
Non-controlling interests (Notes 1, 7, 12 and 30) 73,465,271 70,124,342
Total Equity 263,536,679 255,538,279
TOTAL LIABILITIES AND EQUITY P
=1,311,836,364 =1,353,122,454
P

See accompanying Notes to Consolidated Financial Statements.

97 *SGVFS162724*
LT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except for Basic/Diluted Earnings Per Share)

Years Ended December 31

2021 2020 2019
REVENUE (Note 24)
Banking P
=49,319,441 =54,800,902
P =56,522,642
P
Distilled spirits 26,648,772 25,000,110 19,261,735
Beverage 13,173,729 12,227,532 15,234,051
Property development 2,031,373 2,399,390 3,132,431
91,173,315 94,427,934 94,150,859
COST OF GOODS SOLD AND SERVICES
(Note 24) 42,957,014 42,858,864 46,802,440
GROSS INCOME 48,216,301 51,569,070 47,348,419
EQUITY IN NET EARNINGS OF ASSOCIATES
AND JOINT VENTURES (Note 11) 18,021,180 17,614,907 14,813,251
66,237,481 69,183,977 62,161,670
OPERATING EXPENSES
Selling expenses (Note 25) 1,905,020 2,051,114 3,011,424
General and administrative expenses (Note 26) 40,321,877 47,897,268 31,596,421
42,226,897 49,948,382 34,607,845
OPERATING INCOME 24,010,584 19,235,595 27,553,825
OTHER INCOME (CHARGES)
Foreign exchange gains - net 816,015 747,095 1,049,965
Finance costs (Note 27) (364,873) (341,467) (450,841)
Finance income (Note 27) 41,663 42,421 146,253
Others - net (Note 28) 2,758,831 1,902,969 2,843,597
3,251,636 2,351,018 3,588,974
INCOME BEFORE INCOME TAX 27,262,220 21,586,613 31,142,799
PROVISION FOR (BENEFIT FROM)
INCOME TAX (Note 29)
Current 4,112,063 5,976,621 4,192,172
Deferred 2,309,683 (6,648,541) (513,537)
6,421,746 (671,920) 3,678,635
NET INCOME FROM CONTINUING
OPERATIONS 20,840,474 22,258,533 27,464,164
NET INCOME FROM DISCONTINUED
OPERATIONS (Note 37) 20,615 67,583 101,593
NET INCOME P
=20,861,089 =22,326,116
P =27,565,757
P

(Forward)

98 *SGVFS162724*
 -2-

Years Ended December 31

2021 2020 2019

NET INCOME ATTRIBUTABLE TO:

Equity holders of the Company P
=20,246,467 =21,021,996
P =23,117,524
P
Non-controlling interests 614,622 1,304,120 4,448,233
P
=20,861,089 =22,326,116
P =27,565,757
P
Basic/Diluted Earnings Per Share Attributable to
Equity Holders of the Company (Note 31) P
=1.87 =1.94
P =2.14
P
Basic/Diluted Earnings Per Share Attributable to
Equity Holders of the Company from
Continuing Operations (Note 31) P
=1.87 =1.94
P =2.13
P

See accompanying Notes to Consolidated Financial Statements.

99 *SGVFS162724*
LT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in Thousands)

Years Ended December 31

2021 2020 2019

NET INCOME =20,861,089

P =22,326,116
P =27,565,757
P

OTHER COMPREHENSIVE INCOME (LOSS)

Other comprehensive income (loss) to be reclassified to
profit or loss in subsequent periods:
Net changes in fair value of financial assets at
FVTOCI, net of tax (Note 7) (3,178,301) (734,748) 2,260,682
Translation adjustments 684,700 (275,320) (916,208)
Net other comprehensive income (loss) to be
reclassified to profit or loss in subsequent periods (2,493,601) (1,010,068) 1,344,474
Other comprehensive income (loss) not to be
reclassified to profit or loss in subsequent periods:
Share in aggregate gains (losses) on life insurance
policies 412,444 (1,051,118) –
Net changes in fair value of financial assets at
FVTOCI (Note 7) (971,776) (1,616,606) 4,974,003
Income tax effect 242,944 484,982 (1,492,201)
(728,832) (1,131,624) 3,481,802
Remeasurement gains (losses) on defined
benefit plans (Note 23) 573,756 (1,516,399) (1,448,458)
Income tax effect (143,439) 454,920 276,868
430,317 (1,061,479) (1,171,590)
Share in remeasurement gain on defined
benefit plans of associates (Note 11) 290,433 203,269 1,001,641
Net revaluation increase on
property, plant and equipment (Note 12) 1,569,183 39,444 858,633
Income tax effect (392,296) (11,833) (257,590)
1,176,887 27,611 601,043
Net other comprehensive income (loss) not to be
reclassified to profit or loss in subsequent periods 1,581,249 (3,013,341) 3,912,896

OTHER COMPREHENSIVE INCOME (LOSS),

NET OF TAX (912,352) (4,023,409) 5,257,370

TOTAL COMPREHENSIVE INCOME =19,948,737

P =18,302,707
P =32,823,127
P

TOTAL COMPREHENSIVE INCOME

ATTRIBUTABLE TO:
Equity holders of the Company =20,618,903
P =18,286,014
P =26,501,864
P
Non-controlling interests (670,166) 16,693 6,321,263
=19,948,737
P =18,302,707
P =32,823,127
P

See accompanying Notes to Consolidated Financial Statements.

100 *SGVFS162724*
LT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2021, 2020 AND 2019
(Amounts in Thousands)

Attributable to Equity Holders of the Company (Notes 1, 7, 12, 23, 24, 30 and 36)
Other Comprehensive Income (Loss)
Preferred Reserves of Net Revaluation Remeasurement Total Other Shares
Shares of Disposal Changes in Remeasurement Increment Gains on Comprehensive of Stock Non-
Subsidiaries Group Financial Gains (Losses) on Property, Defined Income (Loss), of the controlling
Capital Issued Other Classified as Cumulative Assets at on Defined Plant and Benefit Plans Net of Deferred Company Interests
Capital in Excess to Parent Equity Held for Translation FVTOCI Benefit Plans Equipment of an Associate Income Tax Retained Held by (Notes 2, 7,
Stock of Par Company Reserves Sale Adjustments (Note 7) (Note 23) (Note 12) (Note 11) Effect Earnings Subsidiaries Total 12 and 30) Total

BALANCES AT
JANUARY 1, 2019 =10,821,389
P =35,906,231
P =18,060,000
P =804,095
P P−
= =1,152,659 P
P =1,682,196 (P
= 337,998) =12,689,666
P =202,066
P =15,388,589
P P91,998,914
= (P
= 12,519) =
P172,966,699 =58,223,689
P =231,190,388
P
Net income for the year – – – – − – – – – – – 23,117,524 – 23,117,524 4,448,233 27,565,757
Other comprehensive income (loss) – – – − − (460,107) 2,937,249 (865,709) 771,266 1,001,641 3,384,340 − – 3,384,340 1,873,030 5,257,370
Total comprehensive income (loss) for the year – – – – − (460,107) 2,937,249 (865,709) 771,266 1,001,641 3,384,340 23,117,524 – 26,501,864 6,321,263 32,823,127
Cash dividends declared – – – – − – – – – – – (3,326,908) – (3,326,908) (3,372) (3,330,280)
Early redemption of preferred shares – – (9,521,163) – − – – – – – − – – (9,521,163) – (9,521,163)
Increase in noncontrolling interest without loss of
control – – – – − – – – – – – – – – 2,539,185 2,539,185
Other equity reserve – – – 220,558 – – – – – – – 215,915 – 436,473 5,265 441,738
Effect of change in accounting
policy on borrowing costs (Note 2) – – – – − – – – – – – (135,424) – (135,424) − (135,424)
Transfer of portion of revaluation increment on property,
plant and equipment realized through depreciation
and disposal – – – – − – – – (734,614) – (734,614) 734,614 – – – –

BALANCES AT
DECEMBER 31, 2019 10,821,389 35,906,231 8,538,837 1,024,653 − 692,552 4,619,445 (1,203,707) 12,726,318 1,203,707 18,038,315 112,604,635 (12,519) 186,921,541 67,086,030 254,007,571
Net income for the year – – – – − – – – – – – 21,021,996 – 21,021,996 1,304,120 22,326,116
Other comprehensive income (loss) – – – (593,566) − (147,788) (1,780,973) (718,599) 301,675 203,269 (2,142,416) − – (2,735,982) (1,287,427) (4,023,409)
Total comprehensive income (loss)
for the year – – – (593,566) – (147,788) (1,780,973) (718,599) 301,675 203,269 (2,142,416) 21,021,996 – 18,286,014 16,693 18,302,707
Cash dividends declared – – – – – – – – – – – (8,765,324) – (8,765,324) (85,645) (8,850,969)
Early redemption of preferred shares – – (8,538,837) – – – – – – – – – – (8,538,837) – (8,538,837)
Increase in noncontrolling interest without loss of
control – – – – – – – – – – – – – – 2,376,784 2,376,784
Other equity reserve – – – (2,489,457) – – – – – – – – – (2,489,457) 336,283 (2,153,174)
Effect of disposal group classified as held for sale – – – – 88,616 – (29,209) (59,407) – – (88,616) – – – 394,197 394,197
Transfer of portion of revaluation increment on property,
plant and equipment realized through depreciation
and disposal – – – – – – – – (751,046) – (751,046) 751,046 – – – –

BALANCES AT
DECEMBER 31, 2020 10,821,389 35,906,231 – (2,058,370) 88,616 544,764 2,809,263 (1,981,713) 12,276,947 1,406,976 15,056,237 125,612,353 (12,519) 185,413,937 70,124,342 255,538,279

(Forward)

101 *SGVFSM005869*
 -2-

Attributable to Equity Holders of the Company (Notes 1, 7, 12, 23, 24, 30 and 36)
Other Comprehensive Income (Loss)
Preferred Reserves of Revaluation Remeasurement Total Other Shares
Shares of Disposal Net Changes Remeasurement Increment Gains on Comprehensive of Stock Non-
Subsidiaries Group in Financial Gains (Losses) on Property, Defined Income (Loss), of the controlling
Capital Issued Other Classified as Cumulative Assets on Defined Plant and Benefit Plans Net of Deferred Company Interests
Capital in Excess to Parent Equity Held for Translation at FVTOCI Benefit Plans Equipment of an Associate Income Tax Retained Held by (Notes 1, 7,
Stock of Par Company Reserves Sale Adjustments (Note 7) (Note 23) (Note 12) (Note 11) Effect Earnings Subsidiaries Total 12 and 30) Total

BALANCES AT
DECEMBER 31, 2020 =10,821,389
P =35,906,231
P P–
= (P
= 2,058,370) =88,616
P =544,764
P =2,809,263
P (P
= 1,981,713) =
P12,276,947 =1,406,976
P =15,056,237
P =125,612,353
P (P
= 12,519) =185,413,937
P =70,124,342
P =255,538,279
P
Net income for the year – – – – – – – – – – – 20,246,467 – 20,246,467 614,622 20,861,089
Other comprehensive income (loss) – – – 284,205 – 342,761 (2,271,272) 305,525 1,420,784 290,433 88,231 – – 372,436 (1,284,788) (912,352)
Total comprehensive income (loss)
for the year – – – 284,205 – 342,761 (2,271,272) 305,525 1,420,784 290,433 88,231 20,246,467 – 20,618,903 (670,166) 19,948,737
Cash dividends declared – – – – – – – – – – – (11,687,100) – (11,687,100) – (11,687,100)
Increase in noncontrolling interest without loss
of control – – – – – – – – – – – – – – 441,157 441,157
Other equity reserve – – – (4,185,716) – – – – – – – – – (4,185,716) 3,569,938 (615,778)
Reversal of reserves of disposal group
classified as held for sale – – – – (88,616) – – – – – – – – (88,616) – (88,616)
Transfer of portion of revaluation increment on
property, plant and equipment realized
through depreciation and disposal – – – – – – – – (733,554) – (733,554) 733,554 – – – –

BALANCES AT
DECEMBER 31, 2021 =10,821,389
P =35,906,231
P =–
P (P
= 5,959,881) =–
P =887,525
P =537,991
P (P
= 1,676,188) P
=12,964,177 =1,697,409
P =14,410,914
P =134,905,274
P (P
= 12,519) =190,071,408
P =73,465,271
P =263,536,679
P

See accompanying Notes to Consolidated Financial Statements.

102 *SGVFS162724*
LT GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in Thousands)

Years Ended December 31

2021 2020 2019
CASH FLOWS FROM OPERATING
ACTIVITIES
Income before income tax from continuing operations P
=27,262,220 =21,586,613
P =31,142,799
P
Income before income tax from discontinued
operations (Note 37) 20,615 88,001 120,272
Income before income tax 27,282,835 21,674,614 31,263,071
Adjustments for:
Equity in net earnings of associates (Note 11) (18,021,180) (17,614,907) (14,857,739)
Provision for losses (Notes 8 and 26) 10,816,497 16,883,793 2,862,442
Depreciation and amortization
(Notes 12, 13 and 14) 5,741,054 5,677,820 5,235,817
Movement in accrued retirement benefits
(Note 23) 492,593 (583,714) (1,153,690)
Finance costs (Note 27) 364,873 341,467 450,841
Gain on disposal of other noncurrent assets
(Notes 12, 13 and 28)  (196,019) (829,758)
Finance income (Note 27) (41,663) (42,421) (146,253)
Dividend income (Note 28) (5,679) (5,679) (145,704)
Share in losses of joint venture (Notes 11 and 28)   44,488
Mark-to-market gain on financial assets at
FVTPL (Note 28)   (10,018)
Operating income before changes in working capital 26,629,330 26,134,954 22,713,497
Decrease (increase) in:
Financial assets at FVTPL 12,653,055 (10,388,944) (2,675,012)
Receivables (17,880,364) 38,698,806 (76,418,419)
Inventories (1,110,918) (978,734) 628,416
Other current assets 8,556,087 (7,081,387) (899,998)
Increase (decrease) in:
Deposit liabilities 58,550 62,272,608 92,702,273
Financial liabilities at FVTPL 190,292 455,620 (225,029)
Accounts payable and accrued expenses (1,935,196) (4,554,291) 3,878,633
Other current and noncurrent liabilities (3,043,155) (204,012) 17,638,100
Cash generated from operations 24,117,681 104,354,620 57,342,461
Income taxes paid, including creditable
withholding and final taxes (4,738,591) (5,679,490) (4,016,112)
Interest paid (619,856) (1,241,781) (348,849)
Interest received 44,716 41,683 183,812
Dividends received (Notes 11, 22 and 28) 5,679 5,679 201,880
Net cash from operating activities 18,809,629 97,480,711 53,363,192
(Forward)

103 *SGVFS162724*
 -2-

Years Ended December 31

2021 2020 2019
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of:
Financial assets at FVTOCI (Note 7) (P
=224,263,439) (P
=169,859,472) (P
=100,926,015)
Financial assets at amortized cost (34,009,921) (56,130,885) (81,024,195)
Property, plant and equipment (Note 12) (7,136,148) (4,879,544) (7,324,348)
Software (Note 14) (283,472) (283,472) (659,818)
Investment properties (Note 13) (1,609,978) (205,934) (2,557,645)
Investment in joint venture and associates (Note 11) 20,003,098 20,707,865 8,818,578
Proceeds from sale of:
Financial assets at FVTOCI (Note 7) 249,268,857 220,296,251 33,742,338
Other assets (Notes 12 and 13) 652,329 1,299,817 (810,809)
Advances (extended to) received from affiliates (5,731,032) 74,934 (804)
Net cash from (used in) investing activities (3,109,706) 11,019,560 (150,742,718)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from availment of:
Bill and acceptance payable (Note 17) 237,327,616 168,973,402 1,465,130,227
Short-term debts (Note 19) − 1,850,000 3,100,000
Long-term debts (Note 19) − − 51,899,720
Proceeds from issuance of stocks − − 11,850,316
Payments of:
Bill and acceptance payable (Note 17) (271,058,488) (145,443,067) (1,422,555,288)
Dividends (Note 30) (11,687,100) (8,850,969) (3,330,741)
Long-term debts (Note 19) (7,099,310) (2,826,812) –
Short-term debts (Note 19) (800,000) (2,260,000) −
Principal portion of lease liabilities (1,304,689) (794,735) (775,341)
Net cash from (used in) financing activities (54,621,971) 10,647,819 105,318,893

NET INCREASE (DECREASE) IN CASH AND

CASH EQUIVALENTS (38,922,048) 119,148,090 7,939,367
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 304,061,222 184,913,132 176,973,765
CASH AND CASH EQUIVALENTS
AT END OF YEAR (Note 5) P
=265,139,174 =304,061,222
P =184,913,132
P

See accompanying Notes to Consolidated Financial Statements.

104 *SGVFS162724*
LT GROUP, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except for Par Value Per Share and Basic/Diluted Earnings Per Share)

1. Corporate Information and Authorization for Issue of the Consolidated Financial Statements
Corporate Information
LT Group, Inc. (“LTG” or the “Company”) is a stock corporation incorporated in the Philippines and
registered with the Philippine Securities and Exchange Commission (SEC) on May 27, 1937 to engage
in the trading business. On November 17, 1947, the Company’s shares of stock were listed
in the Philippine Stock Exchange (PSE). The Company’s corporate life is 50 years from the date
of incorporation and was extended for another 50 years from and after May 27, 1987.
On September 22, 1995, the Philippine SEC approved the change in the Company’s primary purpose
to that of a holding company. On July 30, 1999, the Company acquired Twin Ace Holdings Corp., now
known as Tanduay Distillers, Inc. (TDI), a producer of distilled spirits, through a share swap with
Tangent Holdings Corporation (“Tangent” or the “Parent Company”). The share swap resulted in LTG
wholly owning TDI and Tangent increasing its ownership in LTG to 97.0%. The Company’s primary
purpose is to engage in the acquisition by purchase, exchange, assignment, gift or otherwise; and to
hold, own and use for investment or otherwise; and to sell, assign, transfer, exchange, lease, let,
develop, mortgage, enjoy and dispose of, any and all properties of every kind and description and
wherever situated, as to and to the extent permitted by law.

After a series of restructuring activities in 2012 and 2013, LTG has expanded and diversified its
investments to include the beverages, tobacco, property development and banking businesses,
all belonging to Mr. Lucio C. Tan and his family and assignees (collectively referred to as the
“Controlling Shareholders”). These business segments in which LTG and subsidiaries (collectively
referred to as “the Group”) operate are described in Note 4 to the consolidated financial statements.
As of December 31, 2021 and 2020, LTG is 74.36%-owned by its ultimate parent company, Tangent,
which is also incorporated in the Philippines.
The official business address of the Head Office is 11th Floor, Unit 3 Bench Tower, 30th St. Corner
Rizal Drive Crescent Park West 5, Bonifacio Global City, Taguig City.
Authorization for Issue of the Consolidated Financial Statements
The consolidated financial statements as at December 31, 2021 and 2020 and for each of the three years
in the period ended December 31, 2021 were authorized for issue by the Board of Directors (BOD) on
March 15, 2022.

2. Summary of Significant Accounting and Financial Reporting Policies

Basis of Preparation
The consolidated financial statements have been prepared under the historical cost basis, except for
financial assets and liabilities at fair value through profit or loss (FVTPL) and financial assets at fair
value through other comprehensive income (FVTOCI) that have been measured at fair value, and land
and land improvements, plant buildings and building improvements, and machineries and equipment
that have been measured at revalued amounts. The consolidated financial statements are presented in
Philippine peso (Peso), the functional and presentation currency of LTG. All values are rounded to the
nearest thousand Peso, except when otherwise indicated.

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The accompanying consolidated financial statements have been prepared under the going concern
assumption. The Group believes that its businesses would remain relevant despite challenges posed by
the COVID-19 pandemic. Despite the adverse impact of the COVID-19 pandemic on short-term
business results, long-term prospects remain attractive.

Statement of Compliance
The consolidated financial statements of the Group have been prepared in accordance with Philippine
Financial Reporting Standards (PFRSs). PFRSs include statements named PFRSs, Philippine
Accounting Standards (PAS) and Philippine Interpretations of International Financial Reporting
Interpretations Committee (IFRIC) issued by Financial Reporting Standards Council (FRSC).

Basis of Consolidation
The consolidated financial statements include the financial statements of LTG and the following
subsidiaries:
Percentage of Ownership
2021 2020 2019 Country of
Direct Indirect Direct Indirect Direct Indirect Incorporation
Distilled Spirits
Tanduay Distillers, Inc. (TDI) and subsidiaries 100.0  100.0  100.0  Philippines
Absolut Distillers, Inc. (ADI)  96.0  96.0  96.0 Philippines
Asian Alcohol Corporation (AAC)  95.0  95.0  95.0 Philippines
Tanduay Brands International, Inc. (TBI)(1)  100.0  100.0  100.0 Philippines
Beverages
Asia Brewery, Incorporated (ABI) and subsidiaries 99.9  99.9  99.9  Philippines
Agua Vida Systems, Inc.  99.9  99.9  99.9 Philippines
Interbev Philippines, Inc.  99.9  99.9  99.9 Philippines
Waterich Resources Corp.  99.9  99.9  99.9 Philippines
Packageworld, Inc.  99.9  99.9  99.9 Philippines
AB Nutribev Corp.  99.9  99.9  99.9 Philippines
Asia Pacific Beverage Pte. Ltd. (APB Singapore)  99.9  99.9  99.9 Singapore
Asia Pacific Beverages Myanmar
Company Limited (APB Myanmar) (2)  90.0  90.0  90.0 Myanmar
Tobacco
Shareholdings, Inc. (Shareholdings) 97.7  97.7  97.7  Philippines
Fortune Tobacco Corporation (FTC) 82.7 16.9 82.7 16.9 82.7 16.9 Philippines
Property Development
Saturn Holdings, Inc. 100.0  100.0  100.0  Philippines
Paramount Landequities, Inc. (PLI) and Subsidiaries 100.0  100.0  100.0  Philippines
Eton Properties Philippines, Inc. (Eton)  99.6  99.6  99.6 Philippines
Belton Communities, Inc. (BCI)  99.6  99.6  99.6 Philippines
Eton City, Inc. (ECI)  99.6  99.6  99.6 Philippines
FirstHomes, Inc. (FHI)  99.6  99.6  99.6 Philippines
Eton Properties Management Corporation
(EPMC)  99.6  99.6  99.6 Philippines
Banking
Bank Holding Companies (Note 22) (3) 80-100  80-100  80-100  Various
Philippine National Bank (PNB) and Subsidiaries(4)  56.5  56.5  56.5 Philippines
PNB Capital and Investment Corporation
(PNB Capital)  56.5  56.5  56.5 Philippines
PNB Securities, Inc. (PNB Securities)  56.5  56.5  56.5 Philippines
PNB Forex, Inc.  56.5  56.5  56.5 Philippines
PNB Holdings Corporation
(PNB Holdings) (5)  56.5  56.5  56.5 Philippines
PNB General Insurers, Inc.
(PNB Gen)  56.5  56.5  56.5 Philippines
PNB Corporation - Guam United States of
(PNB Guam)  56.5  56.5  56.5 America (USA)
PNB International Investments Corporation
(PNB IIC)  56.5  56.5  56.5 USA
PNB Remittance Centers, Inc.
(PNB RCI)  56.5  56.5  56.5 USA
PNB RCI Holding Co. Ltd.  56.5  56.5  56.5 USA
PNB Remittance Co. (Canada)  56.5  56.5  56.5 Canada

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Percentage of Ownership
2021 2020 2019 Country of
Direct Indirect Direct Indirect Direct Indirect Incorporation
PNB Europe PLC  56.5  56.5  56.5 United Kingdom
PNB Global Remittance & Financial Co. (HK)
Ltd. (PNB GRF)  56.5  56.5  56.5 Hong Kong
Japan-PNB Leasing and Finance Corporation
(Japan-PNB Leasing)  50.8  50.8  50.8 Philippines
Japan - PNB Equipment Rentals Corporation  50.8  50.8  50.8 Philippines
PNB Savings Bank  56.5  56.5  56.5 Philippines
Allied Bank Philippines (UK) Plc (ABUK)  56.5  56.5  56.5 United Kingdom
Allied Commercial Bank (ACB)  55.9  55.9  55.9 Republic of China
Allianz-PNB Life Insurance, Inc. (APLII)   
(formerly PNB LII)  44.0  44.0  44.0 Philippines
Allied Leasing and Finance Corporation (ALFC)  57.2  57.2  57.2 Philippines
Allied Banking Corporation (Hongkong) Limited
(ABCHKL)  51.0  51.0  51.0 Hong Kong
ACR Nominees Limited  51.0  51.0  51.0 Hong Kong
Oceanic Holdings (BVI) Ltd. (OHBVI)  27.8  27.8  27.8 USA
Mabuhay Global Holding Company Pte. Ltd.
(MGHCPL) (6)   100.0  100.0  Singapore
Mabuhay Digital Technologies, Inc. (MDTI) 100.0   100.0  100.0 Philippines
Mabuhay Digital Philippines, Inc. (MDPI) 100.0   100.0  100.0 Philippines
Asia’s Emerging Dragon Corporation 60.0 40.0 60.0 40.0 60.0 40.0 Philippines
(1) Incorporated on May 6, 2003 to handle the marketing of TDI’s products in the export market, TBI started its commercial operations in October 2017.
On December 20, 2016, the Company sold its 100% ownership interest in TBI to TDI through an execution of a Deed of Sale of Shares of Stocks.
(2) On March 16, 2015, the Joint Venture Agreement was entered into by Asia Pacific Beverages Pte. Ltd., a subsidiary of ABI, and Aung Maw Thein
(NICK), a citizen of the Union of Myanmar, to establish a private company limited by shares which will manufacture, market, sell and distribute non-
alcoholic ready-to-drink or powdered mix beverage products in Myanmar. On March 26, 2016, APB Singapore and NICK incorporated APB Myanmar
under the laws of Myanmar, owning 90% and 10% of the shares, respectively. Its commercial operations formally commenced on April 1, 2017.
(3) As of December 31, 2021, 2020 and 2019, the Bank Holding Companies consist of 27 entities with aggregate direct ownership interest of 59.83% in PNB,
of which 20 companies are incorporated in the Philippines and seven (7) companies are incorporated in the British Virgin Islands (see Note 22).
(4) Represents the effective ownership interest of LTG through the collective ownership of the Bank Holding Companies in the merged PNB.
(5) In 2021, PNB declared its 51% ownership interest in PNB Holdings as property dividends to its stockholders. Effective ownership of the Group after the
declaration of property dividends is stil at 56.5% (i.e., 28.8% indirect ownership through the Bank Holding Companies and 27.7% indirect ownership
through PNB).
(6) Incorporated on May 17, 2018, MGHCPL holds direct ownership interest in MDTI, incorporated on September 28, 2018, to offer shared services for
technology infrastructure across the Group, and MDPI, incorporated on November 7, 2018 to engage business of electronic money, including payment
and remittance services. In 2021, the Company acquired the 100% ownership interest in MDTI and MDPI from MGHCPL.

Subsidiaries are entities over which the Company has control. Specifically, the Group controls an
investee if and only if the Group has:

 power over the investee (i.e., existing rights that give it the current ability to direct the relevant
activities of the investee);
 exposure, or rights, to variable returns from its involvement with the investee, and
 the ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an investee,
including:

 the contractual arrangement with the other vote holders of the investee
 rights arising from other contractual arrangements
 the Group’s voting rights and potential voting rights

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins
when the Group obtains control over the subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the
year are included or excluded in the consolidated financial statements from the date the Group gains
control or until the date the Group ceases to control the subsidiary.

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Consolidated financial statements are prepared using uniform accounting policies for like transactions
and other events in similar circumstances. Adjustments, where necessary, are made to ensure
consistency with the policies adopted by the Group.

Intercompany transactions, balances and unrealized gains on transactions between group companies are
eliminated. Unrealized losses are also eliminated and are considered as an impairment indicator of the
assets transferred.

Non-controlling interests
Non-controlling interests represent equity in subsidiaries not attributable, directly or indirectly, to the
equity holders of LTG and subsidiaries. Non-controlling interests represents the portion of profit or loss
and the net assets not held by the Group. Transactions with non-controlling interests are accounted for
as equity transactions.

Non-controlling interests shares in losses even if the losses exceed the non-controlling equity interests
in the subsidiary.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction. If the Group loses control over a subsidiary, it derecognizes assets (including
goodwill) and liabilities of the subsidiary, the carrying amount of any non-controlling interest and the
cumulative translation differences recorded in equity; recognizes the fair value of the consideration
received, the fair value of any investment retained, and any retained earnings or deficit in consolidated
statement of income; and reclassifies the parent’s share of components previously recognized in OCI
to profit or loss or retained earnings, as appropriate.

Business Combination and Goodwill

Business combinations are accounted for using the acquisition method. As of the acquisition date, the
acquirer shall recognize, separately from goodwill, the identifiable assets acquired, the liabilities
assumed and any non-controlling interest in the acquiree. The cost of an acquisition is measured as the
aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of
any non-controlling interest in the acquiree. For each business combination, the acquirer has the option
to measure the non-controlling interest in the acquiree either at fair value or at the proportionate share
of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.

When a business is acquired, the financial assets and financial liabilities assumed are assessed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.

If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Group as an acquirer shall report in its consolidated financial
statements provisional amounts for the items for which the accounting is incomplete. During the
measurement period, the Group as an acquirer shall retrospectively adjust the provisional amounts
recognized at the acquisition date to reflect new information obtained about facts and circumstances
that existed as of the acquisition date and, if known, would have affected the measurement of the
amounts recognized as of that date. During the measurement period, the Group as an acquirer shall
also recognize additional assets or liabilities if new information is obtained about facts and
circumstances that existed as of the acquisition date and, if known, would have resulted in the
recognition of those assets and liabilities as of that date. The measurement period ends as soon as the
Group as an acquirer receives the information it was seeking about facts and circumstances that existed
as of the acquisition date or learns that more information is not obtainable. However, the measurement
period shall not exceed one year from the acquisition date.

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If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date
through profit or loss.

Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed
to be an asset or liability will be recognized in accordance with PFRS 9 either in consolidated statement
of income or as a charge to other comprehensive income. If the contingent consideration is classified
as equity, it shall not be remeasured until it is finally settled within equity. Goodwill is initially
measured at cost being the excess of the aggregate of the consideration transferred and the amount
recognized for non-controlling interest over the fair values of net identifiable assets acquired and
liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary
acquired, the difference is recognized in consolidated statement of income.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group’s cash-generating units (CGU) that are expected to benefit from
the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those
units.

Where goodwill forms part of a CGU and part of the operation within that unit is disposed of, the
goodwill associated with the operation disposed of is included in the carrying amount of the operation
when determining the gain or loss on disposal of the operation. Goodwill disposed of in this
circumstance is measured based on the relative values of the operation disposed of and the portion of
the CGU retained.

A CGU to which goodwill has been allocated shall be tested for impairment annually, and whenever
there is an indication that the unit may be impaired, by comparing the carrying amount of the unit,
including the goodwill, with the recoverable amount of the unit. If the recoverable amount of the unit
exceeds the carrying amount of the unit, the unit and the goodwill allocated to that unit shall be regarded
as not impaired. If the carrying amount of the unit exceeds the recoverable amount of the unit, the
Group shall recognize the impairment loss. Impairment losses relating to goodwill cannot be reversed
in subsequent periods.

The Group performs its impairment test of goodwill on an annual basis every December 31 or earlier
whenever events or changes in circumstances indicate that goodwill may be impaired.

Common control business combinations

Where there are business combinations involving entities that are ultimately controlled by the same
ultimate parent (i.e., Controlling Shareholders) before and after the business combination and that the
control is not transitory (“business combinations under common control”), the Group accounts for such
business combinations in accordance with the guidance provided by the Philippine Interpretations
Committee Q&A No. 2011-02, PFRS 3.2 - Common Control Business Combinations. The purchase
method of accounting is used, if the transaction was deemed to have substance from the perspective of
the reporting entity. In determining whether the business combination has substance, factors such as
the underlying purpose of the business combination and the involvement of parties other than the
combining entities such as the non-controlling interest, shall be considered. In cases where the
transaction has no commercial substance, the business combination is accounted for using the pooling
of interest method.

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In applying the pooling-of-interests method, the Group follows the Philippine Interpretations
Committee Q&A No. 2012-01, PFRS 3.2 - Application of the Pooling of Interest Method for Business
Combinations of Entities under Common Control in Consolidated Financial Statements, which
provides the following guidance:

 The assets and liabilities of the combining entities are reflected in the consolidated financial
statements at their carrying amounts. No adjustments are made to reflect fair values, or recognize
any new assets or liabilities, at the date of the combination. The only adjustments that are made
are those adjustments to harmonize accounting policies.
 No new goodwill is recognized as a result of the combination. The only goodwill that is recognized
is any existing goodwill relating to either of the combining entities. Any difference between the
consideration paid or transferred and the equity acquired is reflected within equity as other equity
reserve, i.e., either contribution or distribution of equity.
 The consolidated statement of income reflects the results of the combining entities for the full year,
irrespective of when the combination took place.
 As a policy, comparatives are presented as if the entities had always been combined.

Noncurrent Assets and Disposal Group Held for Sale and Discontinued Operations
The Group classifies noncurrent assets and disposal group as held for sale if their carrying amounts will
be recovered principally through a sale transaction. As such, noncurrent assets and disposal groups are
measured at the lower of their carrying amounts and fair value less costs to sell (i.e., the incremental costs
directly attributable to the sale, excluding finance costs and income taxes).

The Group regards the criteria for held for sale classification as met only when:

 the Group has initiated an active program to locate a buyer;

 the Group is committed to the plan to sell the asset or disposal group, which should be available
for immediate sale in its present condition;
 the sale is highly probable (i.e, expected to happen within one year from the date of the
classification); and
 actions required to complete the plan indicate that it is unlikely that the plan will be significantly
changed or withdrawn.

The Group presents separately the assets and liabilities of disposal group classified as held for sale in the
consolidated statement of financial position.

The Group classifies a disposal group as discontinued operation if it is a component of the Group that
either has been disposed of, or is classified as held for sale, and:

 represents a separate major line of business or geographical area of operations;

 is part of a single coordinated plan to dispose of a separate major line of business or geographical area
of operations; or
 is a subsidiary acquired exclusively with a view to resale.

The Group excludes discontinued operations from the results of continuing operations and presents them
as a single amount as profit or loss after tax from discontinued operations in the consolidated statement
of income.

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If the above criteria are no longer met, the Group ceases to classify the asset or disposal group as held for
sale. In such cases, the Group measures such asset or disposal group at the lower of its:

 carrying amount before it was classified as held for sale, adjusted for any depreciation, amortization
or revaluations that would have been recognized had it not been classified as such; and
 recoverable amount at the date of the subsequent decision not to sell.

The Group also amends financial statements for the periods since classification as held for sale if the asset
or disposal group that ceases to be classified as held for sale is a subsidiary, joint operation, joint venture,
associate, or a portion of an interest in a joint venture or an associate. Accordingly, for all periods
presented, the Group reclassifies and includes in income from continuing operations the results of
operations of the asset or disposal group previously presented in discontinued operations.

Changes in Accounting Policies and Disclosures

The accounting policies adopted are consistent with those of the previous financial year, except for the
adoption of the amendments to existing standards effective as at January 1, 2021. The Group has not
early adopted any standard, interpretation or amendment that has been issued but is not yet effective.
Unless otherwise indicated, adoption of these amendments to existing standards did not have an impact
on the consolidated financial statements of the Group.

 Amendment to PFRS 16, COVID-19-related Rent Concessions beyond 30 June 2021

The amendment provides relief to lessees from applying the PFRS 16 requirement on lease
modifications to rent concessions arising as a direct consequence of the COVID-19 pandemic. A
lessee may elect not to assess whether a rent concession from a lessor is a lease modification if it
meets all of the following criteria:

o The rent concession is a direct consequence of COVID-19;

o The change in lease payments results in a revised lease consideration that is substantially the
same as, or less than, the lease consideration immediately preceding the change;
o Any reduction in lease payments affects only payments originally due on or before
June 30, 2022; and
o There is no substantive change to other terms and conditions of the lease.

A lessee that applies this practical expedient will account for any change in lease payments resulting
from the COVID-19 related rent concession in the same way it would account for a change that is
not a lease modification, i.e., as a variable lease payment.

The amendment is effective for annual reporting periods beginning on or after April 1, 2021. Early
adoption is permitted.

The Group adopted the amendment beginning April 1, 2021. The Group adopted the amendments
beginning January 1, 2020. The amendments did not have a material impact on the Group.

 Amendments to PFRS 9, PAS 39, PFRS 7, PFRS 4 and PFRS 16, Interest Rate Benchmark Reform
- Phase 2

The amendments provide the following temporary reliefs which address the financial reporting
effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free
interest rate (RFR):
o Practical expedient for changes in the basis for determining the contractual cash flows as a
result of IBOR reform

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o Relief from discontinuing hedging relationships

o Relief from the separately identifiable requirement when an RFR instrument is designated as a
hedge of a risk component

The Group shall also disclose information about:

o The nature and extent of risks to which the entity is exposed arising from financial instruments
subject to IBOR reform, and how the entity manages those risks; and
o Their progress in completing the transition to alternative benchmark rates, and how the entity
is managing that transition

The Group adopted the amendments beginning January 1, 2021. The amendments did not have a
material impact on the Group.

 Adoption of PIC Q&A 2018-12-H, PFRS 15, Accounting for Common Usage Service (CUSA)
Charges

On February 14, 2018, PIC Q&A 2018-12-H was issued providing guidance on accounting for
common usage service which concludes that real estate developers are generally acting as principal
for CUSA charges. Under SEC MC No. 3-2019, the adoption of PIC Q&A No. 2018-12-H was
deferred until December 31, 2020. After the deferral period, real estate companies will adopt
PIC Q&A No. 2018-12-H and any subsequent amendments thereto retrospectively or as the SEC
will later prescribe.

The property development segment previously availed of the reliefs provided by the SEC and have
accounted for the related revenue net of costs and expenses. The property development segment
assessed itself as principal for CUSA and air-conditioning charges, and as an agent for electricity
and water usage. Accordingly, the property development segment presented the revenue from
provision of CUSA and air conditioning services and its related costs on a gross basis as part of
“Other income - net” and “Cost of rental income”, respectively.

As at January 1, 2021, the Group adopted PIC Q&A 2018-12-H prospectively. Based on the group’s
evaluation, the effect in the 2020 and 2019 consolidated statements of income is not significant.
Accordingly, the effect of the adoption were not reflected in those years. The adoption did not
impact the consolidated statements of financial position and consolidated statements of cash flows.

 Adoption of PIC Q&A 2018-14, Accounting for Cancellation of Real Estate Sales (as amended by
PIC Q&A 2020-05)

On June 27, 2018, PIC Q&A 2018-14 was issued providing guidance on accounting for cancellation
of real estate sales. Under SEC MC No. 3-2019, the adoption of PIC Q&A No. 2018-14 was
deferred until December 31, 2020. After the deferral period, real estate companies should adopt
PIC Q&A No. 2018-14 and any subsequent amendments thereto retrospectively or as the SEC will
later prescribe.

On November 11, 2020, PIC Q&A 2020-05 was issued which supersedes PIC Q&A 2018-14. This
PIC Q&A adds a new approach where the cancellation is accounted for as a modification of the
contract (i.e., from non-cancellable to being cancellable). Under this approach, revenues and related
costs previously recognized shall be reversed in the period of cancellation and the inventory shall
be reinstated at cost. PIC Q&A 2020-05 will have to be applied prospectively from approval date
of the FRSC which was November 11, 2020.

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The adoption of this PIC Q&A did not impact the consolidated financial statements of the Group
since its property development segment records the repossessed inventory at cost and the fair
market value less cost to repossess approximates the amount of the cost of repossessed inventory
at the date of repossession. As the Group has been reporting repossessed inventories as allowed
under approach 1, there is no change in accounting upon adoption of the PIC Q&A.

Future Changes in Accounting Policies

Pronouncements issued but not yet effective are listed below. Unless otherwise indicated, the Group
does not expect that the future adoption of the said pronouncements will have a significant impact on
the consolidated financial statements. The Group intends to adopt the following pronouncements when
they become effective.

Effective beginning on or after January 1, 2022

 Amendments to PFRS 3, Reference to the Conceptual Framework

The amendments are intended to replace a reference to the Framework for the Preparation and
Presentation of Financial Statements, issued in 1989, with a reference to the Conceptual Framework
for Financial Reporting issued in March 2018 without significantly changing its requirements. The
amendments added an exception to the recognition principle of PFRS 3, Business Combinations to
avoid the issue of potential ‘day 2’gains or losses arising for liabilities and contingent liabilities
that would be within the scope of PAS 37, Provisions, Contingent Liabilities and Contingent Assets
or Philippine-IFRIC 21, Levies, if incurred separately. At the same time, the amendments add a
new paragraph to PFRS 3 to clarify that contingent assets do not qualify for recognition at the
acquisition date.

The amendments are effective for annual reporting periods beginning on or after January 1, 2022
and apply prospectively. The amendments are not expected to have a material impact on the Group.

 Amendments to PAS 16, Plant and Equipment: Proceeds before Intended Use

The amendments prohibit entities deducting from the cost of an item of property, plant and
equipment, any proceeds from selling items produced while bringing that asset to the location and
condition necessary for it to be capable of operating in the manner intended by management.
Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those
items, in profit or loss.

The amendment is effective for annual reporting periods beginning on or after January 1, 2022 and
must be applied retrospectively to items of property, plant and equipment made available for use
on or after the beginning of the earliest period presented when the entity first applies the
amendment.

The amendments are not expected to have a material impact on the Group.

 Amendments to PAS 37, Onerous Contracts - Costs of Fulfilling a Contract

The amendments specify which costs an entity needs to include when assessing whether a contract
is onerous or loss-making. The amendments apply a “directly related cost approach”. The costs that
relate directly to a contract to provide goods or services include both incremental costs and an
allocation of costs directly related to contract activities. General and administrative costs do not
relate directly to a contract and are excluded unless they are explicitly chargeable to the
counterparty under the contract.

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The amendments are effective for annual reporting periods beginning on or after January 1, 2022.
The Group will apply these amendments to contracts for which it has not yet fulfilled all its
obligations at the beginning of the annual reporting period in which it first applies the amendments.
The amendments are not expected to have a material impact on the Group.

 Annual Improvements to PFRSs 2018-2020 Cycle

o Amendments to PFRS 1, First-time Adoption of Philippines Financial Reporting Standards,

Subsidiary as a first-time adopter

The amendment permits a subsidiary that elects to apply paragraph D16(a) of PFRS 1 to
measure cumulative translation differences using the amounts reported by the parent, based on
the parent’s date of transition to PFRS. This amendment is also applied to an associate or joint
venture that elects to apply paragraph D16(a) of PFRS 1.

The amendment is effective for annual reporting periods beginning on or after

January 1, 2022 with earlier adoption permitted. The amendments are not expected to have a
material impact on the Group.

o Amendments to PFRS 9, Financial Instruments, Fees in the ’10 per cent’ test for derecognition
of financial liabilities

The amendment clarifies the fees that an entity includes when assessing whether the terms of
a new or modified financial liability are substantially different from the terms of the original
financial liability. These fees include only those paid or received between the borrower and the
lender, including fees paid or received by either the borrower or lender on the other’s behalf.
An entity applies the amendment to financial liabilities that are modified or exchanged on or
after the beginning of the annual reporting period in which the entity first applies the
amendment.

The amendment is effective for annual reporting periods beginning on or after

January 1, 2022 with earlier adoption permitted. The Group will apply the amendments to
financial liabilities that are modified or exchanged on or after the beginning of the annual
reporting period in which the entity first applies the amendment. The amendments are not
expected to have a material impact on the Group.

o Amendments to PAS 41, Agriculture, Taxation in fair value measurements

The amendment removes the requirement in paragraph 22 of PAS 41 that entities exclude cash
flows for taxation when measuring the fair value of assets within the scope of
PAS 41.

An entity applies the amendment prospectively to fair value measurements on or after the
beginning of the first annual reporting period beginning on or after January 1, 2022 with earlier
adoption permitted. The amendments are not expected to have a material impact on the Group.

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Effective beginning on or after January 1, 2023

 Amendments to PAS 12, Deferred Tax related to Assets and Liabilities arising from a Single
Transaction

The amendments narrow the scope of the initial recognition exception under PAS 12, so that it no
longer applies to transactions that give rise to equal taxable and deductible temporary differences.

The amendments also clarify that where payments that settle a liability are deductible for tax
purposes, it is a matter of judgement (having considered the applicable tax law) whether such
deductions are attributable for tax purposes to the liability recognized in the financial statements
(and interest expense) or to the related asset component (and interest expense).

An entity applies the amendments to transactions that occur on or after the beginning of the earliest
comparative period presented for annual reporting periods on or after January 1, 2023. The
amendments are not expected to have a material impact on the Group.

 Amendments to PAS 8, Definition of Accounting Estimates

The amendments introduce a new definition of accounting estimates and clarify the distinction
between changes in accounting estimates and changes in accounting policies and the correction of
errors. Also, the amendments clarify that the effects on an accounting estimate of a change in an
input or a change in a measurement technique are changes in accounting estimates if they do not
result from the correction of prior period errors.

An entity applies the amendments to changes in accounting policies and changes in accounting
estimates that occur on or after January 1, 2023 with earlier adoption permitted. The amendments
are not expected to have a material impact on the Group.

 Amendments to PAS 1 and PFRS Practice Statement 2, Disclosure of Accounting Policies

The amendments provide guidance and examples to help entities apply materiality judgements to
accounting policy disclosures. The amendments aim to help entities provide accounting policy
disclosures that are more useful by:

o Replacing the requirement for entities to disclose their ‘significant’ accounting policies with a
requirement to disclose their ‘material’ accounting policies, and
o Adding guidance on how entities apply the concept of materiality in making decisions about
accounting policy disclosures

The amendments to the Practice Statement provide non-mandatory guidance. Meanwhile, the
amendments to PAS 1 are effective for annual periods beginning on or after January 1, 2023. Early
application is permitted as long as this fact is disclosed. The amendments are not expected to have
a material impact on the Group.

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Effective beginning on or after January 1, 2024

 Adoption of the Deferred of Certain Provisions of PIC Q&A 2018-12, PFRS 15 Implementation
Issues Affecting the Real Estate Industry (as amended by PIC Q&As 2020-04

On February 14, 2018, the PIC issued PIC Q&A 2018-12 which provides guidance on some
implementation issues of PFRS 15 affecting the real estate industry. On October 25, 2018 and
February 8, 2019, the Philippine SEC issued SEC Memorandum Circular No. 14, Series of 2018,
and SEC Memorandum Circular No. 3, Series of 2019, respectively, providing relief to the real
estate industry by deferring the application of the following provisions of the above PIC Q&A for
a period of 3 years until December 31, 2020. On December 15, 2020, the Philippine SEC issued
SEC Memorandum Circular No. 34, Series of 2020, which further extended the deferral of certain
provisions of this PIC Q&A until December 31, 2023.

A summary of the PIC Q&A provisions covered by the SEC deferral follows:

Deferral Period
a. Assessing if the transaction price includes a significant financing Until
component as discussed in PIC Q&A 2018-12-D (as amended by PIC December 31, 2023
Q&A 2020-04)
b. Treatment of land in the determination of the POC discussed in PIC Until
Q&A 2018-12-E December 31, 2023

In November 2020, the PIC issued the following Q&As which provide additional guidance on the
real estate industry issues covered by the above SEC deferrals:

 PIC Q&A 2020-04 on determining whether the transaction price includes a significant
financing component.
 PIC Q&A 2020-02 on determining which uninstalled materials should not be included in
calculating the POC.

On July 8, 2021, the SEC issued SEC MC No. 8, series of 2021 amending the transition provision
of the above PIC Q&A providing real estate companies the accounting policy option of applying
either the full retrospective approach or modified retrospective approach. With this, real estate
companies are finally able to fully comply with PFRS 15 and revert to full PFRS financial reporting
for the calendar year 2021.

After the deferral period, real estate companies have an accounting policy option of applying either
the full retrospective approach or modified retrospective approach as provided under SEC MC
No. 8-2021.

The property development segment availed of the SEC relief to defer the above specific provision
of PIC Q&A No. 2018-12-D (as amended by PIC Q&A 2020-04) in determining whether the
transaction price includes a significant financing component. Had this provision been adopted, the
mismatch between the POC of the real estate projects and right to an amount of consideration based
on the schedule of payments provided for in the contract to sell might constitute a significant
financing component. In case of the presence of significant financing component, the guidance
should have been applied retrospectively and would have resulted in restatement of prior year
financial statements in case a full retrospective approach is applied. Depending on the approach of
adoption, the adoption of this guidance would have impacted interest income, interest expense,

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revenue from real estate sales, contract assets, provision for deferred income tax, deferred tax asset
or liability for all years presented (full retrospective approach), and the opening balance of retained
earnings (full retrospective approach and modified retrospective approach).

Based on the Group’s evaluation, the effect of the SEC relief to the consolidated financial
statements is not significant.

 Amendments to PAS 1, Classification of Liabilities as Current or Non-current

The amendments clarify paragraphs 69 to 76 of PAS 1, Presentation of Financial Statements, to

specify the requirements for classifying liabilities as current or non-current. The amendments
clarify:

o What is meant by a right to defer settlement

o That a right to defer must exist at the end of the reporting period
o That classification is unaffected by the likelihood that an entity will exercise its deferral right
o That only if an embedded derivative in a convertible liability is itself an equity instrument
would the terms of a liability not impact its classification

The amendments are effective for annual reporting periods beginning on or after
January 1, 2023 and must be applied retrospectively. However, in November 2021, the International
Accounting Standards Board (IASB) tentatively decided to defer the effective date to no earlier
than January 1, 2024.

Effective beginning on or after January 1, 2025

 PFRS 17, Insurance Contracts

PFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition
and measurement, presentation and disclosure. Once effective, PFRS 17 will replace PFRS 4,
Insurance Contracts. This new standard on insurance contracts applies to all types of insurance
contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities
that issue them, as well as to certain guarantees and financial instruments with discretionary
participation features. A few scope exceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that is
more useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are largely
based on grandfathering previous local accounting policies, PFRS 17 provides a comprehensive
model for insurance contracts, covering all relevant accounting aspects. The core of PFRS 17 is the
general model, supplemented by:
o A specific adaptation for contracts with direct participation features (the variable fee approach)
o A simplified approach (the premium allocation approach) mainly for short-duration contracts

On December 15, 2021, the FRSC amended the mandatory effective date of PFRS 17 from
January 1, 2023 to January 1, 2025. This is consistent with Circular Letter No. 2020-62 issued by
the Insurance Commission which deferred the implementation of PFRS 17 by two (2) years after
its effective date as decided by the IASB.

PFRS 17 is effective for reporting periods beginning on or after January 1, 2025, with comparative
figures required. Early application is permitted. The adoption will not materially affect the Group.

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Deferred effectivity

 Amendments to PFRS 10, Consolidated Financial Statements, and PAS 28, Sale or Contribution
of Assets between an Investor and its Associate or Joint Venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of
control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments
clarify that a full gain or loss is recognized when a transfer to an associate or joint venture involves
a business as defined in PFRS 3. Any gain or loss resulting from the sale or contribution of assets
that does not constitute a business, however, is recognized only to the extent of unrelated investors’
interests in the associate or joint venture.

On January 13, 2016, the FRSC deferred the original effective date of January 1, 2016 of the said
amendments until the IASB completes its broader review of the research project on equity
accounting that may result in the simplification of accounting for such transactions and of other
aspects of accounting for associates and joint ventures.

The Group continues to assess the impact of the above new and amended accounting standards and
Interpretations effective subsequent to 2021 on the Group’s financial statements in the period of initial
application. Additional disclosures required by these amendments will be included in the consolidated
financial statements when these amendments are adopted.

Significant Accounting Policies Applicable to the Group

Current versus Noncurrent Classification

The Group presents assets and liabilities in the consolidated statement of financial position based on
current/noncurrent classification. An asset is current when it is:

 expected to be realized or intended to be sold or consumed in normal operating cycle;

 held primarily for the purpose of trading;
 expected to be realized within 12 months after the reporting period; or
 cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at
least 12 months after the reporting period.

All other assets are classified as noncurrent.

A liability is current when:

 it is expected to be settled in normal operating cycle;

 it is held primarily for the purpose of trading;
 it is due to be settled within 12 months after the reporting period; or
 there is no unconditional right to defer the settlement of the liability for at least 12 months after the
reporting period.

Deferred income tax assets and liabilities are classified as noncurrent assets and liabilities.

Fair Value Measurement

The Group measures certain financial instruments and nonfinancial assets at fair value at each balance
sheet date. Also, fair values of financial instruments measured at amortized cost and investment
properties carried at cost are disclosed in Note 34.

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Fair value is the price that the Group would receive to sell an asset or pay to transfer a liability in an
orderly transaction between market participants at the measurement date (i.e., an exit price). The fair
value measurement is based on the presumption that these transactions take place either:

 in the principal market for the asset or liability; or

 in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Group. The Group measures
the fair value of an asset or a liability using the assumptions that market participants would use when
pricing the asset or liability, assuming that market participants act in their economic best interest. If an
asset or a liability measured at fair value has both bid and ask prices, the Group uses the price within
the bid-ask spread, which is the most representative of fair value in the circumstances.

For nonfinancial assets, the Group measures their fair value considering a market participant’s ability
to generate economic benefits by using an asset in its highest and best use or by selling it to another
market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient
data are available to measure fair value, maximizing the use of relevant observable inputs and
minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the lowest
Level of input that is significant to the fair value measurement as a whole:

 Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
 Level 2 - Valuation techniques for which the lowest level of input that is significant to the fair
value measurement is directly or indirectly observable.
 Level 3 - Valuation techniques for which the lowest level of input that is significant to the fair
value measurement is unobservable.

For assets and liabilities that are recognized in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between Levels in the hierarchy by
re-assessing categorization (based on the lowest level of input that is significant to the fair value
measurement as a whole) at the end of each reporting period.

External valuers are involved for valuation of significant assets, such as properties and financial assets
at FVTPL and financial assets at FVTOCI. Involvement of external valuers is decided upon annually
by the respective segment management after discussion with and approval by the audit committee.
Selection criteria include market knowledge, reputation, independence and whether professional
standards are maintained. Management decides, after discussions with the Group’s external valuers,
which valuation techniques and inputs to use for each case.

At each reporting date, management analyses the movements in the values of assets and liabilities which
are required to be re-measured or re-assessed as per the Group’s accounting policies. For this analysis,
management verifies the major inputs applied in the latest valuation by agreeing the information in the
valuation computation to contracts and other relevant documents.

For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on
the basis of the nature, characteristics and risks of the asset or liability and the level of fair value
hierarchy, as explained above.

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Cash and Cash Equivalents

Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments
that are readily convertible to known amounts of cash with original maturities of three months or less
from dates of acquisition, and that are subject to an insignificant risk of change in value.

For purposes of reporting cash flows, cash and cash equivalents include cash and other cash items
(COCI), amounts due from BSP and other banks, interbank loans receivable and securities held under
agreements to resell that are convertible to known amounts of cash, with original maturities of three
months or less from dates of placements and that are subject to an insignificant risk of changes in fair
value. Due from BSP includes statutory reserves required by the BSP, which the Group considers as
cash equivalents wherein drawings can be made to meet cash requirements.

Financial Instruments - Initial Recognition

Date of recognition
The Group recognizes purchases or sales of financial assets that require delivery of assets within the
time frame established by regulation or convention in the marketplace on settlement date (i.e., the date
that an asset is delivered to or by the Group), while derivatives are recognized on trade date (i.e., the
date that the Group commits to purchase or sell). The Group recognizes deposits, amounts due to banks
and customers and loans when cash is received by the Group or advanced to the borrowers.

Initial recognition of financial instruments

All financial instruments are initially recognized at fair value. Except for financial instruments at
FVTPL, the initial measurement of financial instruments includes transaction costs.

Financial Instruments - Classification and Subsequent Measurement

The Group classifies and measures financial assets at FVTPL unless these are measured at FVTOCI or
at amortized cost. The classification of financial assets depends on the contractual terms and the
business model for managing those financial assets.

The Group first assesses the contractual terms of financial assets to identify whether they pass the
contractual cash flows test (‘solely payments of principal and interest’ or SPPI test). For the purpose
of the SPPI test, principal is defined as the fair value of the financial asset at initial recognition and may
change over the life of the financial asset (for example, if there are repayments of principal or
amortization of the premium or discount). The most significant elements of interest within a lending
arrangement are typically the consideration for the time value of money and credit risk. In contrast,
contractual terms that introduce a more than insignificant exposure to risks or volatility in the
contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual
cash flows that are SPPI. In such cases, the financial asset is required to be measured at FVTPL. Only
financial assets that pass the SPPI test are eligible to be measured at FVTOCI or at amortized cost.

The Group determines its business model at the level that best reflects how it manages groups of
financial assets to achieve its business objective. The Group’s business model is not assessed on an
instrument-by-instrument basis, but at a higher level of aggregated portfolios. If cash flows after initial
recognition are realized in a way that is different from the Group’s original expectations, the Group
does not change the classification of the remaining financial assets held in that business model, but
incorporates such information when assessing newly originated or newly purchased financial assets
going forward.

For financial liabilities, the Group classifies them as either financial liabilities at FVTPL or financial
liabilities at amortized cost.

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Financial assets at FVTPL

Financial assets at FVTPL include the following:

 Financial assets held for trading - those acquired for the purpose of selling or repurchasing in the
near term;
 Derivative instruments - contracts entered into by the Group (such as currency forwards, currency
swaps, interest rate swaps and warrants) as a service to customers and as a means of reducing or
managing their respective financial risk exposures, as well as for trading purposes;
 Financial assets that are not SPPI, irrespective of the business model; or
 Debt financial assets designated upon initial recognition at FVTPL - those assets where the Group
applied the fair value option at initial recognition if doing so eliminates or significantly reduces an
accounting mismatch

The Group carries financial assets at FVTPL in the consolidated statement of financial position at fair
value. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair
value is negative. The Group recognizes any gains or losses arising from changes in fair values of
financial assets at FVTPL directly in the consolidated statement of income under ‘Trading and
investment securities gains - net’, except for currency forwards and currency swaps, where fair value
changes are included under ‘Foreign exchange gains - net’.

Financial assets at FVTOCI

Financial assets at FVTOCI include debt and equity securities, which are subsequently measured at fair
value. The Group recognizes the unrealized gains and losses arising from the fair valuation of financial
assets at FVTOCI, net of tax, in the consolidated statement of comprehensive income as ‘Net change
in unrealized gain (loss) on financial assets at FVTOCI, net of tax’.

Debt securities at FVTOCI are those that meet both of the following conditions:

 the asset is held within a business model whose objective is to hold the financial asset in order to
both collect contractual cash flows and sell the financial asset; and
 the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI
on the outstanding principal amount.

The Group reports the effective yield component of debt securities at FVTOCI, as well as the impact
of restatement on foreign currency-denominated debt securities at FVTOCI, in the consolidated
statement of income. When the debt securities at FVTOCI are disposed of, the cumulative gain or loss
previously recognized in OCI is recognized as ‘Trading and securities gain (loss) - net’ in the
consolidated statement of income. The Group recognizes the expected credit losses (ECL) arising from
impairment of such financial assets in OCI with a corresponding charge to ‘Provision for impairment,
credit and other losses’ in the consolidated statement of income.

Equity securities designated at FVTOCI are those that the Group made an irrevocable election at initial
recognition to present in OCI the subsequent changes in fair value. The Group recognizes the dividends
earned on holding the equity securities at FVTOCI in the consolidated statement of income when the
right to payment has been established. Gains and losses on disposal of these equity securities at
FVTOCI are never recycled to profit or loss, but the cumulative gain or loss previously recognized in
the OCI is reclassified to ‘Retained earnings’ or any other appropriate equity account upon disposal.
The Group does not subject equity securities at FVTOCI to impairment assessment.

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Financial assets at amortized cost

Financial assets at amortized cost are debt financial assets that meet both of the following conditions:

 the asset is held within a business model whose objective is to hold the financial asset in order to
collect contractual cash flows; and
 the contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI
on the outstanding principal amount.

This accounting policy relates to the statement of financial position captions ‘Due from Bangko Sentral
ng Pilipinas (BSP)’, ‘Due from other banks’, ‘Interbank loans receivable’, ‘Securities held under
agreements to resell’, ‘Investment securities at amortized cost’, and ‘Loans and receivables’.

The Group subsequently measures financial assets at amortized cost using the effective interest method
of amortization, less allowance for credit losses. The Group includes the amortization in ‘Interest
income’, and the ECL arising from impairment of such financial assets in ‘Provision for impairment,
credit and other losses’ in the consolidated statement of income.

Financial liabilities at amortized cost

The Group classifies issued financial instruments or their components which are not designated at
FVTPL, as financial liabilities at amortized cost under ‘Deposit liabilities’, ‘Bills and acceptances
payable’, ‘Bonds payable’ or other appropriate financial liability accounts. The substance of the
contractual arrangement for these instruments results in the Group having an obligation either to deliver
cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of
a fixed amount of cash or another financial asset for a fixed number of own equity shares.
The components of issued financial instruments that contain both liability and equity elements are
accounted for separately, with the equity component being assigned the residual amount after deducting
from the instrument as a whole the amount separately determined as the fair value of the liability
component on the date of issue.

The Group subsequently measures financial liabilities at amortized cost using the effective interest
method of amortization.

Repurchase and reverse repurchase agreements

The Group does not derecognize from the statement of financial position securities sold under
agreements to repurchase at a specified future date (‘repos’). Instead, the Group recognizes the
corresponding cash received, including accrued interest, as a loan to the Group, reflecting the economic
substance of such transaction.

Conversely, the Group does not recognize securities purchased under agreements to resell at a specified
future date (‘reverse repos’). The Group is not permitted to sell or repledge the securities in the absence
of default by the owner of the collateral. The Group recognizes the corresponding cash paid, including
accrued interest, as a loan to the counterparty. The difference between the purchase price and resale
price is treated as interest income and is accrued over the life of the agreement using the effective
interest method.

Reclassification of financial instruments

Subsequent to initial recognition, the Group may reclassify its financial assets only when there is a
change in the business models for managing these financial assets. Reclassification of financial
liabilities is not allowed.

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Derecognition of Financial Assets and Liabilities

Financial assets
The Group derecognizes a financial asset (or, where applicable, a part of a financial asset or part of a
group of financial assets) when:

 the rights to receive cash flows from the asset have expired;
 the Group retains the right to receive cash flows from the asset, but has assumed an obligation to
pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or
 the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred
substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the
risk and rewards of the asset but has transferred control over the asset.

Where the Group has transferred its rights to receive cash flows from an asset or has entered into a
pass-through arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control over the asset, the Group recognizes the asset only to the
extent of its continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of original carrying amount of the asset
and the maximum amount of consideration that the Group could be required to repay.

Financial assets are written off either partially or in their entirety only when the Group has stopped
pursuing recovery. If a write-off is later recovered, any amounts formerly charged are credited to
‘Recoveries’ under ‘Miscellaneous Income’ in the consolidated statements of income.

Financial liabilities
The Group derecognizes a financial liability when the obligation under the liability is discharged or
cancelled or has expired. Where an existing financial liability is replaced by another from the same
lender on substantially different terms, or the terms of an existing liability are substantially modified,
the Group treats such an exchange or modification as a derecognition of the original liability and
recognition of a new liability, and Group recognizes the difference in the respective carrying amounts
in the consolidated statement of income.

Impairment of Financial Assets

ECL methodology
The Group’s loss impairment method on financial instruments applies a forward-looking ECL
approach, which covers all loans and other debt financial assets not held at FVTPL, together with loan
commitments and financial guarantee contracts. The ECL allowance is based on the credit losses
expected to arise on a 12-month duration if there has been no significant increase in credit risk (SICR)
of the financial instrument since origination (12-month ECL). Otherwise, if an SICR is observed, then
the Group extends its ECL estimation until the end of the life of the financial instrument (Lifetime
ECL). Both Lifetime ECLs and 12-month ECLs are calculated on either an individual basis or a
collective basis, depending on the nature of the underlying portfolio of financial instruments.

Staging assessment
The Group categorizes financial instruments subject to the ECL methodology into three stages:

 Stage 1 - comprised of all non-impaired financial instruments which have not experienced an SICR
since initial recognition. The Group recognizes 12-month ECL for Stage 1 financial instruments.
 Stage 2 - comprised of all non-impaired financial instruments which have experienced an SICR
since initial recognition. The Group recognizes Lifetime ECL for Stage 2 financial instruments.

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 Stage 3 - comprised of financial instruments which have objective evidence of impairment as a

result of one or more loss events that have occurred after initial recognition with a negative impact
on their estimated future cash flows. The Group recognizes Lifetime ECL for Stage 3
(credit-impaired) financial instruments.

Definition of “default” and “cure”

The Group considers default to have occurred when:

 the obligor is past due for more than 90 days on any material credit obligation to the Group; or
 the obligor is unlikely to pay its credit obligations to the Group in full, without recourse by the
Group to actions such as realizing collateral, as applicable.

The Group no longer considers an instrument to be in default when it no longer meets any of the default
criteria and has exhibited satisfactory and acceptable track record for six consecutive payment periods,
subject to applicable rules and regulations of the BSP.

Determining SICR
At each reporting date, the Group assesses whether the credit risk on a loan or credit exposure has
increased significantly since initial recognition. The Group’s assessment of SICR involves looking at
both the qualitative and quantitative elements, as well as if the loan or credit exposure is unpaid for at
least 30 days (“backstop”).

The Group assesses SICR on loans or credit exposures having potential credit weaknesses based on
current and/or forward-looking information that warrant management’s close attention. Such
weaknesses, if left uncorrected, may affect the repayment of these exposures. The loan or credit
exposure also exhibits SICR if there are adverse or foreseen adverse economic or market conditions
that may affect the counterparty’s ability to meet the scheduled repayments in the future.

The Group looks at the quantitative element through statistical models or credit ratings process or
scoring process that captures certain information, which the Group considers as relevant in assessing
changes in credit risk. The Group also looks at the number of notches downgrade of credit risk rating
(CRR) or certain thresholds for the probabilities of default being generated from statistical models to
determine whether SICR has occurred subsequent to initial recognition date.

Transfer between stages

The Group transfers credit exposures from Stage 1 to Stage 2 if there is an SICR from initial recognition
date. In subsequent reporting periods, if the credit risk of the financial instrument improves such that
there is no longer an SICR since initial recognition, then the Group reverts them to Stage 1.

The Group transfers credit exposures from Stage 3 (non-performing) to Stage 1 (performing) when
there is sufficient evidence to support their full collection. Such exposures should exhibit both of the
following indicators:

 quantitative - characterized by payments made within an observation period; and

 qualitative - pertain to the results of assessment of the borrower’s financial capacity.

Generally, the Group considers that full collection is probable when payments of interest and/or
principal are received for at least six months.

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Modified or restructured loans and other credit exposures

In certain circumstances, the Group modifies the original terms and conditions of a credit exposure to
form a new loan agreement or payment schedule, which may be provided depending on the borrower’s
current or expected financial difficulties. Modifications may include, but are not limited to, change in
interest rate and terms, principal amount, maturity date and schedule of periodic payments.

If modifications are considered by the Group as substantial based on qualitative factors, the loan is
derecognized as discussed under Financial Instruments - Derecognition.

If a loan or credit exposure has been renegotiated or modified without this resulting in derecognition,
the Group records a modification gain or loss, to the extent that an impairment loss has not already been
recorded, based on the change in cash flows discounted at the loan’s original effective interest rate
(EIR). The Group also assesses whether there has been a SICR by comparing the risk of default at
reporting date based on modified terms, and the risk of default at initial recognition date based on
original terms. Derecognition decisions and classification between Stages 2 and 3 are determined on a
case-by-case basis.

Purchased or originated credit-impaired loans

The Group considers a loan as credit-impaired on purchase or origination if there is evidence of
impairment at the time of initial recognition (i.e., acquired/purchased at a deep discounted price). The
Group recognizes the cumulative changes in Lifetime ECL since initial recognition as a loss allowance
for purchased or originated credit-impaired loan.

Measurement of ECL
ECLs are generally measured based on the risk of default over one of two different time horizons,
depending on whether there has been SICR since initial recognition. ECL calculations are based on the
following components:

 Probability of default (PD) - an estimate of the likelihood that a borrower will default on its
obligations over the next 12 months for Stage 1 or over the remaining life of the credit exposure
for Stages 2 and 3.
 Loss-given-default (LGD) - an estimate of the loss arising in case where default occurs at a given
time. It is based on the difference between the contractual cash flows due and those that the Group
would expect to receive, including from any collateral.
 Exposure-at-default (EAD) - an estimate of the exposure at a future/default date taking into account
expected changes in the exposure after the reporting date, including repayments of principal and
interest, expected drawdown on committed facilities and accrued interest from missed payments.
 Discount rate - represents the rate to be used to discount an expected loss to present value at the
reporting date using the original EIR determined at initial recognition.

In measuring ECL, the Group considers forward-looking information depending on the credit exposure.
The Group applies experienced credit judgment, which is essential in assessing the soundness of
forward-looking information and in ensuring that these are adequately supported. Forward-looking
macroeconomic information and scenarios consider:

 factors that may affect the general economic or market conditions in which the Group operates,
such as gross domestic product growth rates, foreign exchange rates, inflation rate, among others;
 changes in government policies, rules and regulations, such as adjustments to policy rates;
 other factors pertinent to the Group, including the proper identification and mitigation of risks such
as incidences of loan defaults or losses.

125 *SGVFS162724*
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The Group also measures ECL by evaluating a range of possible outcomes and using reasonable and
supportable pieces of information that are available without undue cost or effort at the reporting date
about past events, current conditions and forecasts of future economic conditions.

The Group applies a simplified ECL approach for its other loans and receivables wherein the Group
uses a provisioning matrix that considers historical changes in the behavior of the portfolio to product
conditions over the span of a given observation period.

Offsetting of Financial Instruments

Financial instruments are offset and the net amount reported in the consolidated statement of financial
position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and
there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
The Group assesses that it has a currently enforceable right of offset if the right is not contingent on a
future event, and is legally enforceable in the normal course of business, event of default, and event of
insolvency or bankruptcy of the Group and all of the counterparties.

Investments in Associates and Joint Ventures

Investment in associates pertains to entities over which the Group has significant influence but not
control. Investment in joint ventures pertains to the Group’s interest in joint ventures, which are jointly
controlled entities, whereby the venturers have a contractual arrangement that establishes joint control
over the economic activities of the entities. The joint venture arrangements requires unanimous
agreement for financial and operating decisions among the venturers. The Group recognizes its
investments in associates and joint ventures using the equity method.

Under the equity method, the investments in associates and joint ventures are carried in the consolidated
statement of financial position at cost plus post-acquisition changes in the Group’s share of the net
assets of the associates and joint ventures. The Group’s share in the associates’ and joint ventures’
post-acquisition profits or losses is recognized in the consolidated statement of income, and its share of
post-acquisition movements in the associates’ and joint ventures’ equity reserves is recognized directly
in other comprehensive income. When the Group’s share of losses in the associate and joint venture
equals or exceeds its interest in the associate and joint venture, including any other unsecured
receivables, the Group does not recognize further losses, unless it has incurred legal or constructive
obligations or made payments on behalf of the associate and joint venture. Profits and losses resulting
from transactions between the Group and the associates and joint ventures are eliminated to the extent
of the interest in the associates and joint ventures.

Where necessary, adjustments are made to the financial statements of the associates and joint ventures
to bring the accounting policies used in line with those used by the Group.

For additional acquisitions resulting to a significant influence over an associate whose original
investments were previously held at fair value through other comprehensive income, the changes in fair
value previously recognized are reversed through equity reserves to bring the asset back to
its original cost. The difference between the sum of consideration and the share of fair value of net
assets at date the investment becomes an associate is recognized as goodwill which is retained in the
carrying value of the investment or a gain in consolidated net income under “Equity in net earnings of
associates”.

Upon loss of significant influence over the associate or upon loss of joint control on the jointly
controlled entity, the Group measures and recognizes any retained investment at its fair value. Any
difference between the carrying amount of the associates and joint ventures upon loss of significant
influence and the fair value of the retained investment and proceeds from disposal is recognized either
in consolidated statement of income or in consolidated statement of comprehensive income.

126 *SGVFS162724*
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Other Current Assets

Prepayments are expenses paid in advance and recorded as asset before they are utilized. This account
comprises mainly of prepaid importation charges and excise tax, prepaid rentals and insurance
premiums and other prepaid items, and creditable withholding tax. Prepaid rentals and insurance
premiums and other prepaid items are apportioned over the period covered by the payment and charged
to the appropriate accounts in the consolidated statement of income when incurred.

Prepaid importation charges are applied to respective asset accounts, i.e., inventories and equipment,
as part of their direct cost once importation is complete. Prepaid excise taxes are applied to inventory
as part of its cost once related raw material item is consumed in the production. Creditable withholding
tax is deducted from income tax payable on the same year the revenue was recognized.

Property, Plant and Equipment

Property, plant and equipment, other than land and land improvements, plant buildings and building
improvements, and machineries and equipment, are stated at cost less accumulated depreciation and
amortization and any impairment in value.

The initial cost of property, plant and equipment consists of its purchase price and any directly
attributable costs of bringing the asset to its working condition and location for its intended use and any
estimated cost of dismantling and removing the property, plant and equipment item and restoring the
site on which it is located to the extent that the Group had recognized the obligation of that cost. Such
cost includes the cost of replacing part of the property, plant and equipment if the recognition criteria
are met. When significant parts of property, plant and equipment are required to be replaced in intervals,
the Group recognizes such parts as individual assets with specific useful lives and depreciation,
respectively. Likewise, when a major inspection is performed, its cost is recognized in the carrying
amount of property, plant and equipment as a replacement if the recognition criteria are satisfied.

All other repair and maintenance costs are expensed in the consolidated statement of income as
incurred. Borrowing costs incurred during the construction of a qualifying asset is likewise included in
the initial cost of property, plant and equipment.

Land and land improvements, plant buildings and building improvements, and machineries and
equipment are stated at revalued amounts based on a valuation performed by professionally qualified,
accredited and independent appraisers. Revaluation is made every three to five years such that the
carrying amount does not differ materially from that which would be determined using fair value at the
end of reporting period. For subsequent revaluations, the accumulated depreciation at the date of
revaluation is restated proportionately with the change in the gross carrying amount of the asset so that
the carrying amount of the asset after revaluation equals the revalued amount. Any resulting increase
in the asset’s carrying amount as a result of the revaluation is credited directly to “Revaluation
increment on property, plant and equipment, net of related deferred income tax effect” (presented as
part of “Other comprehensive income” in the equity section of the consolidated statement of financial
position).

Any resulting decrease is directly charged against any related revaluation increment to the extent that
the decrease does not exceed the amount of the revaluation increment in respect of the same asset.
Further, the revaluation increment of depreciable property, plant and equipment is transferred to
retained earnings as the asset is used by the Group. The amount of the revaluation increment transferred
would be the difference between the depreciation and amortization based on the revalued carrying
amount of the asset and depreciation and amortization based on the asset’s original cost. In case the
asset is retired or disposed of, the related remaining revaluation increment is transferred directly to
retained earnings. Transfers from revaluation increment to retained earnings are not made through
profit or loss.

127 *SGVFS162724*
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Construction in progress consists of properties in the course of construction for production or

administrative purposes, which are carried at cost less any recognized impairment loss. This includes
cost of construction and equipment, and other direct costs. Construction in progress is not depreciated
until such time that the relevant assets are completed and put into operational use.

Returnable containers (i.e., returnable bottles and crates) are stated at cost less accumulated
depreciation and any impairment in value. Cost of manufactured containers comprises materials used
and applicable allocation of fixed and variable labor and overhead cost. Amortization of returnable
containers is included under “Selling expenses” account in the consolidated statement of
comprehensive income.

Deposit value for the containers loaned to customer is included as part of “Trade payable” under
“Accounts payable and accrued expenses” account in the consolidated statement of financial position.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the
total cost of the item is depreciated separately.

Depreciation and amortization are computed using the straight-line method over the following
estimated useful lives of the assets:
Number of Years
At appraisal values:
Land improvements 5 - 15
Plant buildings and building improvements 8 - 50
Machineries and equipment 5 - 30
Office and administration buildings 20 - 40
Leasehold improvements 3 - 30 or lease term, whichever is shorter
Transportation equipment 2-5
Returnable containers 5-7
Furniture, fixtures and other equipment 3 - 20

The estimated useful lives and depreciation and amortization method are reviewed periodically to
ensure that the periods and method of depreciation and amortization are consistent with the expected
pattern of economic benefits from items of property, plant and equipment.

Depreciation or amortization of an item of property, plant and equipment begins when it becomes
available for use, i.e., when it is in the location and condition necessary for it to be capable of operating
in the manner intended by management. Depreciation or amortization ceases at the earlier of the date
that the item is classified as held for sale (or included in a disposal group that is classified as held for
sale) in accordance with PFRS 5 and the date the item is derecognized.

When assets are sold or retired, their cost and accumulated depreciation and amortization and any
impairment in value are removed from the accounts, and any gain or loss resulting from their disposal
is recognized in the consolidated statement of income.

Fully depreciated property, plant and equipment are retained in the accounts until they are no longer in
use and no further depreciation and amortization is charged to current operations.

The Group recognizes ROU assets at the commencement date of the lease (i.e., the date the underlying
asset is available for use). ROU assets are initially measured at cost, less any accumulated depreciation
and impairment losses, and adjusted for any remeasurement of lease liabilities. The initial cost of ROU

128 *SGVFS162724*
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assets includes the amount of lease liabilities recognized, initial direct costs incurred, lease payments
made at or before the commencement date less any lease incentives received and estimate of costs to
be incurred by the lessee in dismantling and removing the underlying asset, restoring the site on which
it is located or restoring the underlying asset to the condition required by the terms and conditions of
the lease, unless those costs are incurred to produce inventories.

Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of the lease
term, the recognized ROU assets are depreciated on a straight-line basis over the shorter of their
estimated useful life and lease term, as follows:

Estimated useful life

ROU assets - branch premises 1 - 25
ROU assets - land 10 - 40
ROU assets - warehouse 5 - 15
ROU assets - warehouse equipment 5 - 15

ROU assets are subject to impairment.

Investment Properties
Investment properties are initially measured at cost, including certain transaction costs. Investment
properties acquired through a nonmonetary asset exchange is measured initially at fair value unless the
exchange lacks commercial substance or the fair value of neither the asset received nor the asset given
up is reliably measurable. Any gain or loss on the exchange is recognized in “Net gains on sale or
exchange of assets” and presented in the “Others” account in the consolidated statement of income.
Foreclosed properties are classified under “Investment properties” upon:

a. entry of judgment in case of judicial foreclosure;

b. execution of the Sheriff’s Certificate of Sale in case of extra-judicial foreclosure; or
c. notarization of the Deed of Dacion in case of payment in kind (dacion en pago).

Expenditures incurred after the investment properties have been put into operations, such as repairs and
maintenance costs, are normally charged against current operations in the period in which the costs are
incurred.

Subsequent to initial recognition, depreciable investment properties are stated at cost less accumulated
depreciation and any accumulated impairment in value. Depreciation is calculated on a straight-line
basis using the estimated useful life from the time of acquisition of the investment properties.

The estimated useful life of the depreciable investment properties which generally include building and
improvements ranges from 5 to 50 years.

Investment properties are derecognized when they have either been disposed of or when the investment
properties are permanently withdrawn from use and no future benefit is expected from its disposal.
Any gains or losses on the retirement or disposal of an investment property are recognized in the
consolidated statement of income in “Others” in the year of retirement or disposal.

Transfers are made to investment property only when there is a change in use evidenced by cessation
of owner-occupation or of construction or development, or commencement of an operating lease to
another party. Transfers are made from investment property when, and only when, there is a change in
use, evidenced by commencement of owner-occupation or commencement of development with a view
to sale.

129 *SGVFS162724*
 - 26 -

Investment properties also include ROU assets involving real properties that are subleased to other
entities.

For those ROU assets that qualify as investment properties, i.e., those land and buildings that are
subleased by the Company, these are classified under investment properties in accordance with
paragraph 48 of PFRS 16. Consistent with the Group’s policy regarding the measurement of investment
properties, these assets are subsequently measured at cost less amortization and impairment in value.

Other Properties Acquired

Other properties acquired include chattel mortgage properties acquired in settlement of loan
receivables. These are carried at cost, which is the fair value at recognition date, less accumulated
depreciation and any impairment in value.

The Group applies the cost model in accounting for other properties acquired. Depreciation is
computed on a straight-line basis over the estimated useful life of five years. The estimated useful life
and the depreciation method are reviewed periodically to ensure that the period and the method of
depreciation are consistent with the expected pattern of economic benefits from items of other
properties acquired.

The carrying values of other properties acquired are reviewed for impairment when events or changes
in circumstances indicate that the carrying value may not be recoverable. If any such indication exists
and where the carrying values exceed the estimated recoverable amount, the assets are written down to
their recoverable amounts.

Intangible Assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible
assets acquired in a business combination is its fair value as at the date of acquisition. Following initial
recognition, intangible assets are carried at cost less any accumulated amortization and any accumulated
impairment losses. Internally generated intangible assets, excluding capitalized development costs, are
not capitalized and expenditure is reflected in the consolidated statement of income in the year in which
the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with
finite lives are amortized over the useful/economic life and assessed for impairment whenever there is
an indication that the intangible assets may be impaired. The amortization period and the amortization
method for an intangible asset with a finite useful life are reviewed at least at the end of the reporting
period. Changes in the expected useful life or the expected pattern of consumption of future economic
benefits embodied in the asset is accounted for by changing the amortization period or method,
as appropriate, and treated as changes in accounting estimates. The amortization expense on intangible
assets with finite lives is recognized in the consolidated statement of income in the expense category
consistent with the function of the intangible asset.

Intangibles with finite lives

Software costs, included in “Other noncurrent assets”, are capitalized on the basis of the cost incurred
to acquire and bring to use the specific software. These costs are amortized over five years on a
straight-line basis.

Customer relationship intangibles (CRI) and core deposits intangibles (CDI) are the intangible assets
acquired by the Group through business combination. The Group initially measures these intangible
assets at their fair values at the date of acquisition. The fair value of these intangible assets reflects
expectations about the probability that the expected future economic benefits embodied in the asset
will flow to the Group.

130 *SGVFS162724*
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Following initial recognition, intangibles with finite lives are measured at cost less accumulated
amortization and any accumulated impairment losses.

Costs associated with maintaining the computer software programs are recognized as expense when
incurred.

Impairment of Noncurrent Nonfinancial Assets

Property, plant and equipment, investment properties, other properties, investments in associates and
joint ventures, and software costs
At each reporting date, the Group assesses whether there is any indication that its nonfinancial assets
may be impaired. When an indicator of impairment exists or when an annual impairment testing for an
asset is required, the Group makes a formal estimate of recoverable amount. Recoverable amount is the
higher of an asset’s (or cash-generating units’) fair value less costs to sell and its value in use and is
determined for an individual asset, unless the asset does not generate cash inflows that are largely
independent of those from other assets or groups of assets, in which case the recoverable amount is
assessed as part of the cash-generating unit to which it belongs. Where the carrying amount of an asset
(or cash-generating unit) exceeds its recoverable amount, the asset (or cash-generating unit) is
considered impaired and is written down to its recoverable amount. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset
(or cash-generating unit).

An impairment loss is charged to operations or to the revaluation increment for assets carried at
revalued amount, in the year in which it arises.

An assessment is made at each reporting date as to whether there is any indication that previously
recognized impairment losses may no longer exist or may have decreased. If such indication exists, the
recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has
been a change in the estimates used to determine the asset’s recoverable amount since the last
impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its
recoverable amount. That increased amount cannot exceed the carrying amount that would have been
determined, net of accumulated depreciation and amortization, had no impairment loss been recognized
for the asset in prior years. Such reversal is recognized in the consolidated statement of income unless
the asset is carried at a revalued amount, in which case the reversal is treated as a revaluation increase.
After such a reversal, the depreciation or amortization expense is adjusted in future years to allocate
the asset’s revised carrying amount, less any residual value, on a systematic basis over its remaining
life.

Goodwill
Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances
indicate that the carrying value may be impaired.

Impairment is determined for goodwill by assessing the recoverable amount of the cash-generating unit
(or group of cash-generating units) to which the goodwill relates. Where the recoverable amount of the
cash-generating unit (or group of cash-generating units) is less than the carrying amount of the
cash-generating unit (or group of cash-generating units) to which goodwill has been allocated (or to the
aggregate carrying amount of a group of cash-generating units to which the goodwill relates but cannot
be allocated), an impairment loss is recognized immediately in the consolidated statement of income.
Impairment losses relating to goodwill cannot be reversed for subsequent increases in its recoverable
amount in future periods. The Group performs its annual impairment test of goodwill at the end of the
reporting period.

131 *SGVFS162724*
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Revenue
Revenue is recognized upon transfer of services to the customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for those services.

Refer to the significant accounting policies generally applicable to the consumer products, banking and
property development for the specific recognition criteria that must also be met before revenue is
recognized.

Costs and Expenses

Costs and expenses are recognized in the consolidated statement of income when a decrease in future
economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be
measured reliably.

Selling and general and administrative expenses

Selling expenses are costs incurred to sell or distribute merchandise, it includes advertising and
promotions and freight and handling, among others. General and administrative expenses constitute
costs of administering the business. Selling and general and administrative expenses are expensed as
incurred.

Taxes and licenses

Taxes and licenses include all other taxes, local and national, including gross receipts taxes (GRT),
documentary stamp taxes, real estate taxes, licenses and permit fees and are recognized as costs and
expenses when incurred.

Retirement Benefits
The net defined benefit liability or asset is the aggregate of the present value of the defined benefit
obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted
for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present
value of any economic benefits available in the form of refunds from the plan or reductions in future
contributions to the plan.

The cost of providing benefits under the defined benefit plans is actuarially determined using the
projected unit credit method.

Defined benefit costs comprise the following:

 service cost
 net interest on the net defined benefit liability or asset
 remeasurements of net defined benefit liability or asset

Service costs which include current service costs, past service costs and gains or losses on non-routine
settlements are recognized as expense in consolidated statement of income. Past service costs are
recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by
independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the net defined
benefit liability or asset that arises from the passage of time which is determined by applying the
discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the
net defined benefit liability or asset is recognized as expense or income in consolidated statement of
income.

132 *SGVFS162724*
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Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the
effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately
in other comprehensive income in the period in which they arise. Remeasurements are not reclassified
to profit or loss in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurance
policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the
Group. Fair value of plan assets is based on market price information. When no market price is
available, the fair value of plan assets is estimated by discounting expected future cash flows using a
discount rate that reflects both the risk associated with the plan assets and the maturity or expected
disposal date of those assets (or, if they have no maturity, the expected period until the settlement of
the related obligations).

If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the
measurement of the resulting defined benefit asset is limited to the present value of economic benefits
available in the form of refund from the plan or reduction in future contribution to the plan.

The Group’s right to be reimbursed of some or all of the expenditure required to settle a defined benefit
obligation is recognized as a separate asset at fair value when and only when reimbursement is virtually
certain.

Employee leave entitlement

Employee entitlements to annual leave are recognized as a liability when they are accrued to the
employees. The undiscounted liability for leave expected to be settled wholly before twelve months
after the end of the annual reporting period is recognized for services rendered by employees up to the
end of the reporting period.

Share-based Payment
Employees of the Group receive remuneration in the form of share-based payments, where employees
render services as consideration for equity instruments. The Group determines the cost of equity-settled
transactions at fair value at the date when the grant is made, and recognizes as ‘Compensation and
fringe benefits’, together with a corresponding increase in equity (‘Other equity reserves’), over the
period in which the service is fulfilled. The cumulative expense recognized for equity-settled
transactions at each reporting date until the vesting date reflects to the extent to which the vesting period
has expired and the Group’s best estimate of the number of equity instruments that will ultimately vest.
The expense or credit in the statement of income for a period represents the movement in the cumulative
expense recognized as at the beginning and end of the period.

Borrowing Costs
Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or
production of a qualifying asset. Capitalization of borrowing costs commences when the activities
necessary to prepare the asset for intended use are in progress and expenditures and borrowing costs
are being incurred. Borrowing costs are capitalized until the asset is available for their intended use.
Capitalization ceases when pre-selling of real estate inventories under construction commences.
If the resulting carrying amount of the asset exceeds its recoverable amount, an impairment loss is
recognized. Borrowing costs include interest charges and other costs incurred in connection with the
borrowing of funds, as well as exchange differences arising from foreign currency borrowings used to
finance these projects, to the extent that they are regarded as an adjustment to interest costs. All other
borrowing costs are expensed as incurred.

133 *SGVFS162724*
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The interest capitalized is calculated using the Group’s weighted average cost of borrowings after
adjusting for borrowings associated with specific developments. Where borrowings are associated with
specific developments, the amounts capitalized is the gross interest incurred on those borrowings less
any investment income arising on their temporary investment.

The capitalization of finance costs is suspended if there are prolonged periods when development
activity is interrupted. Interest is also capitalized on the purchase cost of a site of property acquired
specifically for redevelopment but only where activities necessary to prepare the asset for
redevelopment are in progress.

Debt Issue Costs

Issuance, underwriting and other related expenses incurred in connection with the issuance of debt
instruments (other than debt instruments designated at FVTPL) are deferred and amortized over the
terms of the instruments using the effective interest method. Unamortized debt issuance costs are
included in the measurement of the related carrying value of the debt instruments in the consolidated
statement of financial position.

Leases
The Group determines at contract inception whether a contract is, or contains, a lease by assessing
whether the contract conveys the right to control the use of an identified asset for a period of time in
exchange for consideration.

Group as a lessee
The Group applies a single recognition and measurement approach for all leases, except for short-term
leases and leases of low-value assets. The Group recognizes right-of-use assets representing the right
to use the underlying assets and lease liabilities to make lease payments.

 Right-of-use assets

At the commencement date of the lease (i.e, the date the underlying asset is available for use), the
Group recognizes right-of-use assets measured at cost. The cost of right-of-use assets includes the
amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or
before the commencement date less any lease incentives received. Subsequent to initial recognition,
the Group measures the right-of-use assets at cost less any accumulated depreciation and
impairment losses, and adjusted for any remeasurement of lease liabilities.

The Group presents the right-of-use assets in ‘Property, plant and equipment’ and subjects it to
impairment in line with the Group’s policy on impairment of nonfinancial assets.

 Lease liabilities

At the commencement date of the lease, the Group recognizes lease liabilities measured at the
present value of lease payments to be made over the lease term discounted using the Group’s
incremental borrowing rate, which is the rate of interest that the Group would have to pay to borrow
over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar
value to the right-of-use asset in a similar economic environment. The lease payments include
fixed payments, any variable lease payments that depend on an index or a rate, and any amounts
expected to be paid under residual value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by the Group and payments of
penalties for terminating the lease, if the lease term reflects exercising the option to terminate.
Variable lease payments that do not depend on an index or a rate are recognized as expenses in the
period in which the event or condition that triggers the payment occurs.

134 *SGVFS162724*
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After the commencement date of the lease, the Group measures the lease liabilities by increasing
the carrying amount to reflect interest on the lease liabilities (recorded in ‘Cost of banking
services’), reducing the carrying amount to reflect the lease payments made, and remeasuring the
carrying amount to reflect any reassessment or lease modifications, or to reflect revised in-
substance fixed lease payments.

 Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its leases that have a lease term
of 12 months or less from the commencement date and do not contain a purchase option, and the
leases of low-value assets recognition exemption to its leases of ATM offsite locations and other
equipment that are considered of low value (i.e., below = P250,000). Lease payments on short-term
leases and leases of low-value assets are recognized as expense under ‘Occupancy and equipment-
related costs’ on a straight-line basis over the lease term.

Group as a lessor
For finance leases where the Group transfers substantially all the risks and rewards incidental to
ownership of the leased item, the Group recognizes a lease receivable in the statement of financial
position at an amount equivalent to the net investment (asset cost) in the lease. The Group includes all
income resulting from the receivable in ‘Interest income on loans and receivables’ in the statement of
income.

The residual value of leased assets, which approximates the amount of guaranty deposit paid by the
lessee at the inception of the lease, is the estimated proceeds from the sale of the leased asset at the end
of the lease term. At the end of the lease term, the residual value of the leased asset is generally applied
against the guaranty deposit of the lessee when the lessee decides to buy the leased asset.

In operating leases where the Group does not transfer substantially all the risks and rewards incidental
to ownership of an asset, the Group recognizes rental income on a straight-line basis over the lease
terms. The Group adds back the initial direct costs incurred in negotiating and arranging an operating
lease to the carrying amount of the leased asset and recognizes them as rental income over the lease
term on the same basis. The Group recognizes contingent rents as revenue in the period in which they
are earned.

Foreign Currency-denominated Transaction and Translation

The Group’s consolidated financial statements are presented in Philippine peso, which is also
LTG’s functional currency. Each of the subsidiaries determines its own functional currency and items
included in the consolidated financial statements of each entity are measured using that functional
currency.

Transactions in foreign currencies are initially recorded by the individual entities in the Group in their
respective functional currencies at the foreign exchange rates prevailing at the dates of the transactions.
Outstanding monetary assets and liabilities denominated in foreign currencies are translated using the
closing foreign exchange rate prevailing at the reporting date. All differences are charged to profit or
loss in the consolidated statement of income.

Nonmonetary items that are measured in terms of historical cost in a foreign currency are translated
using the exchange rate as at the dates of initial transactions. Nonmonetary items measured at fair value
in a foreign currency are translated using the exchange rates at the date when the fair value was
determined.

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Foreign Currency Deposit Unit (FCDU) and Overseas Subsidiaries

As of reporting date, the assets and liabilities of foreign subsidiaries, with functional currencies other
than the functional currency of the Group, are translated into the presentation currency of the Group
using the closing foreign exchange rate prevailing at the reporting date, and their respective income and
expenses are translated at the monthly weighted average exchange rates for the year. The exchange
differences arising on the translation are recognized in other comprehensive income. On disposal of a
foreign operation, the component of other comprehensive income relating to that particular foreign
operation shall be recognized in consolidated statement of income.

Income Taxes
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the amount
expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to
compute the amount are those that are enacted or substantively enacted at the end of reporting period.

Deferred income tax

Deferred income tax is recognized on all temporary differences at the end of reporting period between
the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax assets are recognized for all deductible temporary differences, carryforward
benefits of unused tax credits from excess of minimum corporate income tax (MCIT) over regular
corporate income tax (RCIT) and unused net operating loss carryover (NOLCO), to the extent that
it is probable that sufficient future taxable profits will be available against which the deductible
temporary differences, carryforward benefits of unused tax credits from excess of MCIT over RCIT
and unused NOLCO can be utilized. Deferred income tax liabilities are recognized for all taxable
temporary differences.

Deferred income tax, however, is not recognized when it arises from the initial recognition of an asset
or liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit or loss nor taxable profit or loss.

Deferred income tax liabilities are not provided on non-taxable temporary differences associated with
investments in domestic subsidiaries, associates and interest in joint ventures. With respect to
investments in other subsidiaries, associates and interests in joint ventures, deferred income tax
liabilities are recognized except when the timing of the reversal of the temporary difference can be
controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient future taxable profits will be available
to allow all or part of the deferred income tax assets to be utilized. Unrecognized deferred income tax
assets are reassessed at each reporting period and are recognized to the extent that it has become
probable that sufficient future taxable profits will allow the deferred income tax assets to be recovered.
It is probable that sufficient future taxable profits will be available against which a deductible temporary
difference can be utilized when there are sufficient taxable temporary difference relating to the same
taxation authority and the same taxable entity which are expected to reverse in the same period as the
expected reversal of the deductible temporary difference. In such circumstances, the deferred income
tax asset is recognized in the period in which the deductible temporary difference arises.

Deferred income taxes relating to items recognized directly in OCI are also recognized in OCI and not
in the consolidated statement of income.

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Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are
expected to apply to the period when the asset is realized or the liability is settled, based on tax rates
(and tax laws) that have been enacted or substantively enacted at the end of reporting period.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not in
consolidated statement of income. Deferred tax items are recognized in correlation to the underlying
transaction either in other comprehensive income or directly in equity.

Value-added Tax (VAT)

Revenues, expenses, and assets are recognized net of the amount of VAT, if applicable.

When VAT from sales of goods and/or services (output VAT) exceeds VAT passed on from purchases
of goods or services (input VAT), the excess is recognized as payable in the consolidated statement of
financial position. When VAT passed on from purchases of goods or services (input VAT) exceeds
VAT from sales of goods and/or services (output VAT), the excess is recognized as an asset in the
consolidated statement of financial position to the extent of the recoverable amount.

The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of
“Other current assets” or “Accounts payable and accrued expenses” in the consolidated statement of
financial position.

Provisions and Contingencies

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of
a past event, it is probable that an outflow of resources embodying economic benefits will be required
to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect
of the time value of money is material, provisions are determined by discounting the expected future
cash flows at a pre-tax rate that reflects current market assessments of the time value of money and,
where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognized as
interest expense. When the Group expects a provision or loss to be reimbursed, the reimbursement is
recognized as a separate asset only when the reimbursement is virtually certain and its amount is
estimable. The expense relating to any provision is presented in the consolidated statement of income,
net of any reimbursement.

Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed
unless the possibility of an outflow of resources embodying economic benefits is remote. Contingent
assets are not recognized in the consolidated financial statements but disclosed when an inflow of
economic benefits is probable. Contingent assets are assessed continually to ensure that developments
are appropriately reflected in the consolidated financial statements. If it has become virtually certain
that an inflow of economic benefits will arise, the asset and the related income are recognized in the
consolidated financial statements.

Equity
Capital stock is measured at par value for all shares issued by the Group. When the Group issue more
than one class of stock, a separate account is maintained for each class of stock and the number of
shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown
in equity as a deduction from proceeds, net of tax.

Capital in excess of par is the portion of the paid-in capital representing excess over the par or stated
value.

137 *SGVFS162724*
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Preferred shares of subsidiaries issued to Parent Company are own-equity instruments by the Bank
Holding Companies that are issued to Tangent (see Note 30).

Other equity reserves include effect of transactions with non-controlling interest and equity adjustments
arising from business combination under common control and other group restructuring transactions.

Other comprehensive income (loss) comprises items of income and expense (including items previously
presented under the consolidated statement of changes in equity) that are not recognized in the
consolidated statement of income for the year in accordance with PFRSs. Other comprehensive income
(loss) of the Group includes cumulative translation adjustments, net changes in fair values of financial
assets at FVTOCI, remeasurement gains (losses) on defined benefit plans, revaluation increment in
property, plant and equipment and share in other comprehensive income of associates.

Retained earnings represent the cumulative balance of net income or loss, dividend distributions, prior
period adjustments, effects of the changes in accounting policies and other capital adjustments.
Unappropriated retained earnings represent that portion which can be declared as dividends to
stockholders after adjustments for any unrealized items which are considered not available for dividend
declaration. Appropriated retained earnings represent that portion which has been restricted and
therefore is not available for any dividend declaration.

Treasury shares are owned equity instruments that are reacquired. Where any member of the Group
purchases the Company’s capital stock (presented as “Shares of stock of the Company held by
subsidiaries”), the consideration paid, including any directly attributable incremental costs (net of
related taxes), is deducted from equity until the shares are cancelled, reissued or disposed of. Where
such shares are subsequently sold or reissued, any consideration received, net of any directly
attributable incremental transactions costs and the related income tax effect, is included in equity
attributable to the equity holders of the Company.

Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income for the period attributable to
common shareholders by the weighted average number of common shares outstanding during the
period after giving retroactive effect to stock dividends declared and stock rights exercised during the
period, if any.

Diluted EPS is calculated by dividing the aggregate of net income attributable to common shareholders
by the weighted average number of common shares outstanding during the period adjusted for the
effects of any dilutive shares.

Dividends on Common Shares

Cash dividends on common shares are recognized as a liability and deducted from equity when
approved by the BOD of the Company. Stock dividends are treated as transfers from retained earnings
to capital stock. Dividends for the year that are approved after the end of reporting period are dealt with
as a non-adjusting event after the end of reporting period.

Events After the Reporting Period

Events after the end of reporting period that provides additional information about the Group’s position
at the end of reporting period (adjusting event) are reflected in the consolidated financial statements.
Events after the end of reporting period that are not adjusting events, if any, are disclosed when material
to the consolidated financial statements.

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Segment Reporting
The Group’s operating segments are organized and managed separately according to the nature of the
products and services provided, with each segment representing a strategic business unit that offers
different products and serves different markets. Financial information on operating segments is
presented in Note 4 to the consolidated financial statements.

Significant Accounting Policies Generally Applicable to Banking

Banking Revenue
Revenue from contracts with customers is recognized upon transfer of services to the customer at an
amount that reflects the consideration to which the banking segment expects to be entitled in exchange
for those services.

The banking segment assesses its revenue arrangements against specific criteria in order to determine
if it is acting as principal or agent. The banking segment has concluded that it is acting as a principal
in all of its revenue arrangements except for brokerage transactions. The following specific recognition
criteria must also be met before revenue is recognized within the scope of PFRS 15:

Service fees and commission income

The banking segment earns fee and commission income from diverse range of services it provides to
its customers. Fee income can be divided into the following two categories:

a) Fee income earned from services that are provided over a certain period of time
The banking segment accrues fees earned for the provision of services over a period of time. These
fees include investment fund fees, custodian fees, fiduciary fees, credit-related fees, trust fees,
portfolio and other management fees, and advisory fees.

b) Bancassurance fees
The banking segment recognizes non-refundable access fees on a straight-line basis over the term
of the period of the provision of the access. Milestone fees or variable and fixed earn-out fees are
recognized in reference to the stage of achievement of the milestones.

c) Fee income from providing transaction services

The banking segment recognizes the fees arising from negotiating or participating in the negotiation
of a transaction for a third party, such as the arrangement of the acquisition of shares or other
securities or the purchase or sale of businesses, only upon completion of the underlying transaction.
For fees or components of fees that are linked to a certain performance, the banking segment
recognizes revenue after fulfilling the corresponding criteria. These fees include underwriting fees,
corporate finance fees, remittance fees, brokerage fees, commissions, deposit-related and other
credit-related fees.

The banking segment recognizes loan syndication fees as revenue when the syndication has been
completed and the banking segment retains no part of the loans for itself or retains part at the same
EIR as the other participants.

Interchange fee and revenue from rewards redeemed

The banking segment takes up as income the interchange fees under ‘Service fees and commission
income’ upon receipt from member establishments of charges arising from credit availments by the
banking segment’s cardholders. These discounts are computed based on certain agreed rates and are
deducted from amounts remitted to the member establishments.

139 *SGVFS162724*
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The banking segment operates a loyalty points program which allows customers to accumulate points
when they purchase from member establishments using the issued card of the banking segment. The
points can then be redeemed for free products subject to a minimum number of points being redeemed.

The banking segment allocates a portion of the consideration received from discounts earned and
interchange fees from credit cards to the reward points based on the estimated stand-alone selling prices.
The banking segment defers the amount allocated to the loyalty program and recognizes revenue only
when the loyalty points are redeemed or the likelihood of the credit cardholder redeeming the loyalty
points becomes remote. The banking segment includes the deferred balance under ‘Other liabilities’ in
the consolidated statement of financial position.

Commissions on credit cards

The banking segment recognizes commissions earned as revenue upon receipt from member
establishments of charges arising from credit availments by credit cardholders. These commissions are
computed based on certain agreed rates and are deducted from amounts remittable to member
establishments.

Other income
The banking segment recognizes income from sale of properties upon completion of the earning process
upon transfer of control and when the collectability of the sales price is reasonably assured.

The following are revenue streams of the banking segment, which are covered by accounting standards
other than PFRS 15:

Interest income
Interest on interest-bearing financial assets at FVTPL and held-for-trading investments is recognized
based on contractual rate. Interest on financial instruments measured at amortized cost and FVTOCI
are recognized based on effective interest method of accounting to calculates the amortized cost of a
financial asset or a financial liability and allocate the interest income or interest expense.

The banking segment records interest income using the EIR, which is the rate that exactly discounts
estimated future cash payments or receipts through the expected life of the financial instrument or a
shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability.
In calculating EIR, the banking segment considers all contractual terms of the financial instrument (for
example, prepayment options), and includes any fees or incremental costs that are directly attributable
to the instrument and are an integral part of the EIR, but not future credit losses. The banking segment
adjusts the carrying amount of the financial instrument through ‘Interest income’ in the consolidated
statement of income based on the original EIR.

When a financial asset becomes credit-impaired and is, therefore, regarded as Stage 3, the banking
segment calculates interest income by applying the EIR to the net amortized cost of the financial asset.
If the financial asset cures and is no longer credit-impaired, the banking segment reverts to calculating
interest income on a gross basis.

Commitment fees
The banking segment defers the commitment fees for loans that are likely to be drawn down (together
with any incremental costs) and includes them as part of the EIR of the loan. These are amortized using
EIR and recognized as revenue over the expected life of the loan.

Commissions on installment credit sales

The banking segment records the purchases by the credit cardholders, collectible on installment basis,
at the cost of the items purchased plus certain percentage of cost. The banking segment recognizes the

140 *SGVFS162724*
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excess over cost as ‘Unearned and other deferred income’, which is shown as a deduction from ‘Loans
and receivables’ in the consolidated statement of financial position. The banking segment amortizes
and recognizes as revenue the unearned and other deferred income over the installment terms using the
effective interest method.

Insurance premiums and commissions on reinsurance

Gross insurance written premiums comprise the total premiums receivable for the whole period of cover
provided by contracts entered into during the accounting period. Premiums include any adjustments
arising in the accounting period for premiums receivable in respect of business written in prior periods.
The banking segment recognizes premiums from short-duration insurance contracts and reinsurance
commissions as revenue over the period of the contracts using the 24th method, except for marine cargo
where the provision for unearned premiums pertain to the premiums for the last two months of the year.
The banking segment recognizes in the consolidated statement of income for the period the net changes
in provisions for unearned premiums and deferred reinsurance premiums.

Dividend income
The banking segment recognizes dividend income when the Group’s right to receive payment is
established.

Trading and investment securities gains - net

The banking segment recognizes in ‘Trading and investment securities gains - net’ the results arising
from trading activities, all gains and losses from changes in fair value of financial assets and financial
liabilities at FVTPL, and gains and losses from disposal of debt securities at FVTOCI.

Rental income
The banking segment accounts for rental income arising on leased properties on a straight-line basis
over the lease terms of ongoing leases, which is recorded in the consolidated statement of income under
‘Miscellaneous income’.

Income on direct financing leases and receivables financed

The banking segment recognizes income on direct financing leases and receivables financed using the
effective interest method and any unearned discounts are shown as deduction against ‘Loans and
receivables’.

Unearned discounts are amortized over the term of the note or lease using the effective interest method
and consist of:

 transaction and finance fees on finance leases and loans and receivables financed with long-term
maturities; and
 excess of the aggregate lease rentals plus the estimated residual value of the leased equipment over
its cost.

Financial Guarantees and Undrawn Loan Commitments

The Group gives loan commitments and financial guarantees consisting of letters of credit, letters of
guarantees, and acceptances.

Financial guarantees are contracts that require the Group as issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in
accordance with the terms of a debt instrument. The Group initially recognizes financial guarantees on
trade receivables at fair value under ‘Bills and acceptances payable’ or ‘Other liabilities’ in the
consolidated statement of financial position.

141 *SGVFS162724*
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Subsequent to initial recognition, the Group measures these financial guarantees at the higher of:

 the initial fair value less any cumulative amount of income or amortization recognized in the
consolidated statement of income; and
 the ECL determined under PFRS 9.

Undrawn loan commitments and letters of credit are commitments under which, over the duration of
the commitment, the Group is required to provide a loan with pre-specified terms to the customer.

The nominal contractual value of financial guarantees and undrawn loan commitments, where the loan
agreed to be provided is on market terms, are not recorded in the consolidated statement of financial
position.

The Group estimates the expected portion of the undrawn loan commitments that will be drawn over
their expected life. The ECL related to financial guarantees and loan commitments without outstanding
drawn amounts is recognized in ‘Allowance for credit losses’ under ‘Loans and receivables’.

Fiduciary Activities
The Group excludes from these financial statements the assets and income arising from fiduciary
activities, together with related undertakings to return such assets to customers, where the Group acts
in a fiduciary capacity such as nominee, trustee or agent.

Significant Accounting Policies Generally Applicable to Consumer Products

Sale of Consumer Goods

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group
and the amount of revenue can be measured reliably. The Group assesses its revenue arrangements
against specific criteria in order to determine if it is acting as principal or agent. The Group has
concluded that it is acting as a principal in all of its revenue arrangements.

The Group enters into a marketing and distributorship agreement in which the Group undertakes to sell
the products specified including its quantity indicated in an approved purchased order exclusively to
the marketing distributors. No other promised goods or services was specified in the contract or
provided based on the customary business practice. This is considered as one performance obligation;
hence, no allocation of transaction price is needed. The Group recognizes revenue at a point in time,
once the goods are delivered.

 Sale of goods
Revenue from sale of goods is recognized at a point in time, once the goods are sold and delivered.

 Sale of commercial bottles

Revenue from sale of commercial bottles is recognized at a point in time, once goods are sold and
delivered.

 Revenue from services and tolling fees

Revenue from services and tolling fees is recognized by the Group at a point in time when the
services have been rendered.

Cost of Consumer Goods Sold

Cost of consumer goods sold is recognized as expense where the related goods are sold.

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Consumer Goods Inventories

Inventories are valued at the lower of cost and net realizable value (NRV). Costs incurred in bringing
the inventory to its present location and condition are accounted for as follows:

Finished goods and work in process include direct materials, direct labor, and manufacturing overhead
costs. Raw materials include purchase cost. The cost of these inventories is determined using the
following:

Distilled Spirits Beverage

Finished goods Moving-average Weighted-average
Work in process Moving-average Weighted-average
Raw materials and materials and supplies Moving-average Moving-average

NRV of finished goods is the estimated selling price less the estimated costs of marketing and
distribution. NRV of work in process is the estimated selling price less estimated costs of completion
and the estimated costs necessary to make the sale. For raw materials and materials and supplies,
NRV is current replacement cost.

Significant Accounting Policies Generally Applicable to Property Development

Property Development Revenue and Cost Recognition

Real estate sales
The Group derives its real estate sales from sale of residential lots and condominium units. Revenue
from the sale of these real estate projects under pre-completion stage are recognized over time during
the construction period (or percentage of completion) since based on the terms and conditions of its
contract with the buyers, the Group’s performance does not create an asset with an alternative use and
the Group has an enforceable right to payment for performance completed to date.

In measuring the progress of its performance obligation over time, the Group uses the output method.
This method measures progress based on the physical proportion of work done on the real estate project
which requires technical determination by the Group’s project engineers. Based on the monthly project
accomplishment report approved by the site project manager which integrates the surveys of
performance to date of the construction activities.

Rental income
Rental income under non-cancellable leases of investment properties is recognized in the consolidated
statement of income on a straight-line basis over the lease term or based on the terms of the lease
contract or certain percentage of the gross revenue of the tenants, as applicable.

Charges and expenses recoverable from tenants

Income arising from expenses recharged to tenants in “Other income” account is recognized in the
period in which the compensation becomes receivable.

Cost of real estate sales

Cost of real estate sales is recognized consistent with the revenue recognition method applied. Cost of
subdivision land and condominium units sold before the completion of the development is determined
on the basis of the acquisition cost of the land plus its full development costs, which include estimated
costs for future development works, as determined by the Group’s in-house technical staff.

The cost of real estate sales recognized in the consolidated statement of income on disposal is
determined with reference to the specific costs incurred on the property, allocated to saleable area based
on relative size and takes into account the percentage-of-completion used for revenue recognition
purposes.

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Costs to obtain contract

The incremental costs of obtaining a contract with a customer are recognized as an asset if the Group
expects to recover them. The Group has determined that commissions paid to brokers and marketing
agents on the sale of pre-completed real estate units are deferred when recovery is reasonably expected
and are charged to expense in the period in which the related revenue is recognized as earned.
Commission expense is included in the “Selling expenses” account in the consolidated statement of
income.

Costs incurred prior to obtaining contract with customer are not capitalized but are expensed as
incurred.

Cost of rental income

Cost of rental income is recognized in relation to the leasing activities of the Group. This includes
general, administrative and selling expenses allocated to the leasing activities, rental expense on the
property leased to tenants and depreciation of the investment properties.

Rooms and other operated departments

Revenue from room rentals and other ancillary services are recognized at point in time or when the
services are rendered. Revenue from other ancillary services include, among others, business center
related services and car rentals, food packages, laundry service, telephone service, and spa/gym
services.

Costs of services
Costs of services include expenses incurred by the Group for the generation of revenue from room
rentals and other ancillary services. Costs of services are expensed as incurred.

Real Estate Inventories

Real estate inventories consist of subdivision land, residential houses and lots and condominium units
for sale and development. These are properties acquired or being constructed for sale in the ordinary
course of business rather than to be held for rental or capital appreciation. These are held as inventory
and are measured at the lower of cost and net realizable value (NRV).

Cost includes: (a) acquisition cost of subdivision land; (b) amounts paid to contractors for construction
and development of subdivision land, residential houses and lots and condominium units; (c) planning
and design costs, cost of site preparation, professional fees for legal services, property transfer taxes,
construction overheads and other related costs; and (d) borrowing costs capitalized prior to start of
pre-selling activities for the real estate project.

NRV is the estimated selling price in the ordinary course of the business, based on market prices at the
reporting date, less estimated costs of completion and the estimated costs of sale. The carrying amount
of inventories is reduced through the use of allowance account and the amount of loss is charged to
profit or loss.

The cost of inventory recognized in profit or loss on disposal is determined with reference to the specific
costs incurred on the property sold and an allocation of any non-specific costs. The total costs are
allocated pro-rata based on the relative size of the property sold.

Customers’ Deposits including Excess of Collections over Recognized Receivables

Customers’ deposits represent payments from buyers of property development segment which will be
applied against the related contracts receivables. This account also includes the excess of collections
over the recognized contracts receivables, which is based on the revenue recognition policy of the
Group.

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Security Deposits
Security deposits, included in the “Other current liabilities” and “Other noncurrent liabilities” accounts
in the liabilities section of the consolidated statement of financial position, are measured initially at fair
value and are subsequently measured at amortized cost using the effective interest method.

3. Significant Judgments, Accounting Estimates and Assumptions

The preparation of the consolidated financial statements requires the Group to exercise judgments,
make accounting estimates and use assumptions that affect the reported amounts of assets, liabilities,
income and expenses and disclosure of contingent assets and contingent liabilities. Future events may
occur which will cause the assumptions used in arriving at the accounting estimates to change. The
effects of any change in accounting estimates are reflected in the consolidated financial statements as
they become reasonably determinable.
Accounting estimates and judgments are continually evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable under the
circumstances.

Judgments
In the process of applying the Group’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effects on amounts
recognized in the consolidated financial statements:
Classification of financial assets
The Group classifies its financial assets depending on the results of the SPPI tests and on the business
model used for managing those financial assets.

When performing the SPPI test, the Group applies judgment and evaluates relevant factors and
characteristics such as the behavior and nature of contractual cash flows, its original currency
denomination, the timing and frequency of interest rate repricing, contingent events that would alter
the amount and/or timing of cash flows, leverage features, prepayment or extension options and other
features that may modify the consideration for the time value of money.

As a second step, the Group performs business model assessment to reflect how financial assets are
managed in order to generate net cash inflows based on the following factors:

 Business objectives and strategies for holding financial assets

 Performance measures and benchmarks being used to evaluate the Group’s key management
personnel accountable to the financial assets
 Attendant risks and the tools applied in managing them
 Compensation structure, including whether based on fair value changes of the investments managed
or on the generated cash flows from transactions
 Frequency and timing of disposals

In applying judgment, the Group also considers the circumstances surrounding the transaction as well
as the prudential requirements of the BSP.

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Determination of functional currency

PAS 21, The Effects of Changes in Foreign Exchange Rates, requires the Group to use its judgment to
determine the functional currency of the Group, including its foreign operations, such that it most
faithfully represents the economic effects of the underlying transactions, events and conditions that are
relevant to each entity or reporting unit.

In making this judgment, the Group considers the following:

 the currency that mainly influences prices for financial instruments and services (this will often be
the currency in which prices for its financial instruments and services are denominated and settled);
 the currency in which funds from financing activities are generated; and
 the currency in which receipts from operating activities are usually retained.

Revenue recognition on real estate sales

Revenue recognition under PFRS 15 involves the application of significant judgment and estimation in
the: (a) identification of the contract for sale of real estate property that would meet the requirements
of PFRS 15; (b) assessment of the probability that the entity will collect the consideration from the
buyer; (c) determination of the transaction price; (d) application of the output/input method as the
measure of progress in determining real estate revenue; (e) determination of the actual costs incurred
as cost of goods sold; and (f) recognition of cost to obtain a contract.

a) Existence of a contract
The Group’s primary document for a contract with a customer is a signed contract to sell. In
addition, part of the assessment process of the Group before revenue recognition is to assess the
probability that the Group will collect the consideration to which it will be entitled in exchange for
the real estate property that will be transferred to the customer. In evaluating whether collectability
of an amount of consideration is probable, an entity considers the significance of the customer’s
initial payments in relation to the total contract price. Collectability is also assessed by considering
factors such as past history customer, age and pricing of the property. Management regularly
evaluates the historical cancellations and back-outs if it would still support its current threshold of
customers’ equity before commencing revenue recognition.

b) Revenue recognition method and measure of progress

The Group concluded that revenue for real estate sales is to be recognized over time because
(a) the Group’s performance does not create an asset with an alternative use and; (b) the Group has
an enforceable right for performance completed to date. The promised property is specifically
identified in the contract and the contractual restriction on the Group’s ability to direct the promised
property for another use is substantive. This is because the property promised to the customer is
not interchangeable with other properties without breaching the contract and without incurring
significant costs that otherwise would not have been incurred in relation to that contract. In addition,
under the current legal framework, the customer is contractually obliged to make payments to the
developer up to the performance completed to date.

The Group has determined that the output method used in measuring the progress of the
performance obligation faithfully depicts the Group’s performance in transferring control of real
estate development to the customer.

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c) Identifying performance obligation

The Group has various contracts to sell covering residential lots and condominium units. The Group
concluded that there is one performance obligation in each of these contracts because:
(i) for residential lots, the developer integrates the plots it sells with the associated infrastructure to
be able to transfer the serviced land promised in the contract; (ii) for the contract covering
condominium units, the developer has the obligation to deliver the house or condominium unit duly
constructed on a specific lot and fully integrated into the serviced land in accordance with the
approved plan. Included also in this performance obligation is the Group’s service to transfer the
title of the real estate unit to the customer.

Revenue recognition on sale of consumer goods

Revenue recognition under PFRS 15 involves the application of significant judgment and estimation in
the: (a) identification of the contract for sale of goods that would meet the requirements of PFRS 15;
(b) assessment of performance obligation and the probability that the entity will collect the
consideration from the buyer; (c) determining method to estimate variable consideration and assessing
the constraint. (d) recognition of revenue as the Group satisfies the performance obligation.

a) Existence of a contract
The Group’s primary document for a contract with a customer for each type of revenue
stream is:

 Sale of goods. The Group determined that an approved purchase order related to a signed
marketing and distributorship agreement qualifies as a contract provided that each of the party’s
rights regarding the goods to be transferred is clearly identified including the product
specification and payment terms.

 Sale of commercial bottles. The Group determined that an approved purchase order with terms
clearly identified including the product specification and payment terms qualifies as a contract.

The Group also considers the probability that it will be able to collect the consideration to which it
will be entitled in exchange for the goods sold or services rendered in determining if a contract
exists.

b) Determining the method to estimate variable consideration and assessing the constraint
The Group includes some or all the amounts of variable consideration estimated but only to the
extent that it is highly probable that a significant reversal in the amount of cumulative revenue
recognized will not occur when the uncertainty associated with the variable consideration is
subsequently resolved. The Group considers both the likelihood and magnitude of the revenue
reversal in evaluating the extent of variable consideration the Group will be subjected to constraint.

Factors such as the following are considered:

 high susceptibility to factors outside the Group’s influence;

 timing of the resolution of the uncertainty, and
 having a large number and broad range of possible outcomes.

Contracts from sale of goods and commercial bottles allow the customer to return spoiled or
damaged goods which will be segregated and replaced. No adjustment to the amount originally
billed to the customer. The right of return will be constrained since the amount of consideration is
highly susceptible to factors outside of the Group’s influence and the contract has a large number
and broad range of possible consideration amounts.

147 *SGVFS162724*
 - 44 -

c) Recognition of revenue as the Group satisfies the performance obligation

The Group recognizes its revenue for all revenue streams at a point in time, where the goods are
sold and delivered and when services were already rendered.

Operating lease commitments - the Group as lessor

The Group has entered into commercial property leases on its investment properties and certain motor
vehicles and items of machinery. The Group has determined, based on an evaluation of the terms and
conditions of the lease agreements (i.e., the lease does not transfer ownership of the asset to the lessee
by the end of the lease term, the lessee has no option to purchase the asset at a price that is expected to
be sufficiently lower than the fair value at the date the option is exercisable and the lease term is not
for the major part of the asset’s economic life), that it retains all the significant risks and rewards of
ownership of these properties and so accounts for these leases as operating leases (see Note 37).

Determination of lease term for lease contracts with renewal and termination options
The Group determines the lease term as the non-cancellable term of the lease, together with any periods
covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods
covered by an option to terminate the lease, if it is reasonably certain not to be exercised.

The Group has several lease contracts that include extension and termination options. The Group
applies judgment in evaluating whether it is reasonably certain whether or not to exercise the option to
renew or terminate the lease. That is, it considers all relevant factors that create an economic incentive
for it to exercise either the renewal or termination. After the commencement date, the Group reassesses
the lease term if there is a significant event or change in circumstances that is within its control that
affects its ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of
significant leasehold improvements or significant customization of the leased asset).

Determination of taxable profit, tax bases, unused tax losses, unused tax credits and tax rates
Upon adoption of the Philippine Interpretation IFRIC 23, the Group has assessed whether it has any
uncertain tax position. The Group applies significant judgement in identifying uncertainties over its
income tax treatments. Since the Group operates in a complex multinational environment, it assessed
whether the Interpretation had an impact on its consolidated financial statements. The Group
determined, based on its tax assessment, in consultation with its tax counsel, that it is probable that its
uncertain tax treatments (including those for the subsidiaries) will be accepted by the taxation
authorities. Accordingly, the interpretation did not have significant impact on the consolidated financial
statements of the Group.

Classification of properties
The Group determines whether a property is classified as real estate inventory, investment property or
owner-occupied property. In making its judgment, the Group considers whether the property generates
cash flow largely independent of the other assets held by an entity.

Real estate inventory comprises of property that is held for sale in the ordinary course of business.
Principally, this is residential property that the Group develops and intends to sell before or on
completion of construction. Investment property comprises land and buildings (principally offices,
commercial and retail property) which are not occupied substantially for use by, or in the operations of
the Group, nor for sale in the ordinary course of business, but are held primarily to earn rental income
and for capital appreciation. Owner-occupied properties classified and presented as property, plant and
equipment, generate cash flows that are attributable not only to property but also to the other assets
used in the production or supply process.

148 *SGVFS162724*
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Some properties comprise a portion that is held to earn rentals or for capital appreciation and another
portion that is held for use in the production or supply of goods or services or for administrative
purposes. If these portions cannot be sold separately as of the financial reporting date, the property is
accounted for as investment property only if an insignificant portion is held for use in the production
or supply of goods or services or for administrative purposes. Judgment is applied in determining
whether ancillary services are so significant that a property does not qualify as investment property.
The Group considers each property separately in making its judgment.

Determination of fair value of financial instruments

When the fair values of financial assets and financial liabilities recorded in the consolidated statement
of financial position cannot be derived from active markets, the Group uses valuation techniques and
mathematical models. The Group derives the inputs to these models from observable markets where
possible, otherwise, a degree of judgment is required in establishing fair values. The judgments include
considerations of liquidity and model inputs such as correlation and volatility for longer-dated
derivatives.

Contingencies
The Group is currently involved in legal proceedings. The estimate of the probable cost for the
resolution of claims has been developed in consultation with the aid of the outside legal counsels
handling the Group’s defense in these matters and is based upon an analysis of potential results.
Management does not believe that the outcome of these matters will affect the results of operations. It
is probable, however, that future results of operations could be materially affected by changes in the
estimates or in the effectiveness of the strategies relating to the proceedings (Note 37).

Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation uncertainties at the end
of reporting period, that have a significant risk of causing a material adjustment to the carrying amounts
of assets and liabilities within the next financial year are as follows:

Provision for expected credit losses of financial assets

For banking segment, the Group’s ECL calculations are mainly derived from outputs of complex
statistical models and expert judgment, with a number of underlying assumptions regarding the choice
of variable inputs as well as their independencies. The Group considers the following elements of the
ECL models, among others, as significant accounting judgments and estimates:

 Segmentation of the portfolio, where the appropriate ECL approach and/or model is used, including
whether assessments should be done individually or collectively.
 Quantitative and qualitative criteria for determining whether there has been SICR as at a given
reporting date and the corresponding transfers between stages.
 Determination of expected life of the financial asset and expected recoveries from defaulted
accounts.
 Development of ECL models, including the various formulas and the choice of inputs
 Determination of correlations and interdependencies between risk factors, macroeconomic
scenarios and economic inputs, such as inflation, policy rates and collateral values, and the resulting
impact to PDs, LGDs and EADs.
 Selection of forward-looking information and determination of probability weightings to derive the
ECL.

The ongoing COVID-19 outbreak is widely expected to adversely affect the global economy and
financial markets for the foreseeable future. The economic impact of COVID-19 depends on the
mutation of the virus and the response of the authorities and the global community. The situation

149 *SGVFS162724*
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continues to evolve and the impact on the global and Philippine economy and the related government
responses and measures depend on future developments that are highly uncertain. In light of the
COVID-19 pandemic, the Group reviewed the conduct of its impairment assessment and ECL
methodologies. The Group revisited the segmentation of its portfolio based on industry vulnerability
and resiliency assessment. The Group also reassessed the framework for macroeconomic overlay,
incorporating pandemic scenarios to ensure that changes in economic conditions are captured in the
ECL calculations. In assessing forecast conditions to estimate the PDs and LGDs, the Group also
considered the significant government measures and plans to support affected and/or vulnerable
entities, as well as the impact on the collateral values.

For the other segments, provision matrix was used to calculate ECLs. The provision rates are based on
days past due for groupings of various customer segments that have similar loss patterns (i.e., by
geography, product type, customer type and rating, property collaterals and coverage by letters of credit
and other forms of credit insurance).

The assessment of the correlation between historical observed default rates, forecast economic
conditions (i.e., gross domestic product and inflation rate) and ECLs is a significant estimate.
The amount of ECLs is sensitive to changes in circumstances and of forecast economic conditions.
The Group’s historical credit loss experience and forecast of economic conditions may also not be
representative of the customer’s actual default in the future.

Refer to Notes 8 and 14 for the carrying values of loans and receivables and receivables from Special
Purpose Vehicle (SPV), respectively.

Recognition of deferred income tax assets

Deferred tax assets are recognized for all unused tax losses and temporary differences to the extent that
it is probable that future taxable profit will be available against which the losses can be utilized.
Significant management judgment is required to determine the amount of deferred tax assets that can
be recognized, based upon the availability of future taxable income in reference to financial forecast
and tax strategies. The Group takes into consideration the loan portfolio and deposit growth rates. As
the COVID-19 pandemic affected the Group’s normal operations, the Group reassessed its business
plan, as well as tax strategies, in the next three to five years, considering various economic scenarios
including recovery outlook, effect of the pandemic on specific industries and trade, travel restrictions,
and government relief efforts.

Details of the Group’s recognized and unrecognized deferred income tax assets is disclosed in Note 29.

Present value of lease liabilities

The Group cannot readily determine the interest rate implicit in the lease, therefore, it uses its
incremental borrowing rate to measure lease liabilities. The incremental borrowing rate reflects what
the Group ‘would have to pay’, which requires estimation when no observable rates are available (such
as for subsidiaries that do not enter into financing transactions) or when they need to be adjusted to
reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s
functional currency).

The Group estimates the incremental borrowing rate using observable inputs (such as market interest
rates) when available and is required to make certain entity-specific adjustments (such as the
subsidiary’s stand-alone credit rating, or to reflect the terms and conditions of the lease).

The carrying amount of lease liabilities as of December 31, 2021 and 2020 is disclosed in Note 37.

150 *SGVFS162724*
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Present value of retirement obligation

The Group determines the cost of defined benefit pension plan and other post-employment benefits
using actuarial valuations, which involve making assumptions about discount rates, future salary
increases, mortality rates and employee turnover. Due to the long-term nature of these plans, such
estimates are subject to significant uncertainty. The Group reviews all assumptions at each reporting
date.

The discount rate is based on zero-coupon yield of government bonds with remaining maturity
approximating the estimated average duration of benefit payment. Future salary increases are based on
the Group’s policy considering the prevailing inflation rate. The mortality rate used is based on publicly
available mortality table modified accordingly with estimates of mortality improvements. The
employee turnover is based on the Group’s most recent experience.

The fair value of plan assets is based on market price information. When no market price is available,
the Group estimates the fair value of plan assets by discounting expected future cash flows using a
discount rate that reflects both the risk associated with the plan assets and the maturity or expected
disposal date of those assets.

The present value of retirement obligation and fair value of plan assets are disclosed in Note 23.

Revenue and cost recognition on real estate sales

The Group’s revenue and cost recognition policies on real estate sales require management to make use
of estimates and assumptions that may affect the reported amounts of revenue and costs. The Group’s
revenue and cost of real estate sales are recognized based on the percentage of completion which is
measured principally on the basis of the estimated completion of a physical proportion of the contract
work.

The Group recognized revenue from real estate sales amounting to P =0.1 billion, =
P0.6 billion and
P1.4 billion and cost of real estate sales amounting to =
= P0.05 billion, P
=0.2 billion and P
=0.6 billion in
2021, 2020 and 2019, respectively (see Note 24).

Measurement of NRV of inventories

The Group’s estimates of the NRV of its consumer goods inventories and materials and supplies are
based on the most reliable evidence available at the time the estimates are made, of the amount that the
inventories are expected to be realized. These estimates consider the fluctuations of price or cost
directly relating to events occurring after the end of the period to the extent that such events confirm
conditions existing at the end of the period. A new assessment is made of NRV in each subsequent
period. When the circumstances that previously caused inventories to be written down below cost no
longer exist or when there is a clear evidence of an increase in NRV because of change in economic
circumstances, the amount of the write-down is reversed so that the new carrying amount is the lower
of the cost and the revised NRV.

With respect to the Group’s real estate inventories, the Group adjusts the cost of its real estate
inventories to NRV based on its assessment of the recoverability of cost of the inventories. NRV for
completed real estate inventories is assessed with reference to market conditions and prices existing at
the reporting date and is determined by the Group in the light of recent market transactions. NRV in
respect of real estate inventories under construction is assessed with reference to market prices at the
reporting date for similar completed property, less estimated costs to complete construction and less
estimated costs to sell. The amount and timing of recorded expenses for any period would differ if
different judgments were made or different estimates were utilized.

151 *SGVFS162724*
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The Group’s inventories carried at cost as of December 31, 2021 and 2020 amounted to P =13.1 billion
and P=11.9 billion, respectively. Certain materials and supplies amounting to P =1.2 billion and
=1.3 billion as of December 31, 2021 and 2020, respectively, are carried at NRV (see Note 9).
P

Valuation of property, plant and equipment under revaluation basis

The Group’s land and land improvements, plant buildings and building improvements, and machineries
and equipment are carried at revalued amounts, which approximate their fair values at the date of the
revaluation, less any subsequent accumulated depreciation and amortization and accumulated
impairment losses. The valuations of property, plant and equipment are performed by independent
appraisers. Revaluations are made every three to five years to ensure that the carrying amounts do not
differ materially from those which would be determined using fair values at the end of reporting period.

Property, plant and equipment at appraised values amounted to P

=60.5 billion and =
P59.9 billion as of
December 31, 2021 and 2020, respectively (see Note 12).

Estimation of useful lives of property, plant and equipment and investment properties
The Group estimates the useful lives and residual values of property, plant and equipment and
investment properties based on internal technical evaluation and experience with similar assets.
Estimated useful lives and residual values of property, plant and equipment and investment properties
are reviewed periodically and updated if expectations differ from previous estimates due to physical
wear and tear, technical and commercial obsolescence and other limits on the use of the assets. It is
possible, however, that future results of operations could be materially affected by changes in the
amounts and timing of recorded expenses brought about by changes in the factors mentioned above.
A reduction in the estimated useful life of any item of property, plant and equipment and investment
properties would increase the recorded depreciation expenses and decrease the carrying value of
property, plant and equipment and investment properties. In 2021 and 2020, there were no significant
changes made in the useful lives and residual values of the property, plant and equipment and
investment properties (see Notes 12 and 13).

The total carrying amount of depreciable property, plant and equipment as of December 31, 2021 and
2020 amounted to = P25.0 billion and =P29.7 billion, respectively (see Note 12). The carrying amount of
depreciable investment properties as of December 31, 2021 and 2020 amounted to P =14.1 billion and
=9.9 billion, respectively (see Note 13).
P

Assessment of impairment of nonfinancial assets and estimation of recoverable amount

The Group assesses impairment on its investments in joint ventures and associates whenever events or
changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Among
others, the Group considers the following triggers for an impairment review on its investments in joint
ventures and associates:
 deteriorating or poor financial condition;
 recurring net losses; and
 significant changes on the technological, market, economic, or legal environment which had an
adverse effect on the subsidiary or associate during the period or in the near future, in which the
subsidiary or associate operates.

The Group also assesses impairment on its property, plant and equipment, investment properties and
chattel properties, and intangibles with finite useful lives and considers the following impairment
indicators:
 significant underperformance relative to expected historical or projected future operating results;
 significant changes in the manner of use of the acquired assets or the strategy for overall business;
and
 significant negative industry or economic trends.

152 *SGVFS162724*
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Except for investment properties and land and building where recoverable amount is determined based
on fair value less cost to sell, the recoverable amount of all other nonfinancial assets is determined
based on the asset’s value-in-use (VIU), which considers the present value of estimated future cash
flows expected to be generated from the continued use of the asset or group of assets. The VIU
calculation is most sensitive to the following assumptions: production volume, price, exchange rates,
capital expenditures, and long-term growth-rates.

The carrying values of the Group’s investments in joint ventures and associates, property, plant and
equipment, investment properties, intangible assets, and other nonfinancial assets are disclosed in
Notes 11, 12, 13 and 14, respectively.

Assessment of whether the Company’s purchase of fixed assets and inventories from AB HPI constitute
an acquisition of business or asset
The Company determined that the purchase of fixed assets and inventories from AB HPI constitutes an
acquisition of group of assets since (a) the Company did not acquire control over any processes needed
to manufacture the existing products of AB HPI nor did it acquire an organized workforce; and
(b) the Company did not obtain any carryover rights to produce and sell the existing products of AB
HPI as of December 31, 2020.

Refer to Note 11 for the details of the purchase of fixed assets and inventories from AB HPI.

4. Segment Information

The Group’s operating businesses are organized and managed separately according to the nature of the
products and services provided, with each segment representing a strategic business unit that offers
different products and serves different markets.

The Group’s identified operating segments classified as business groups, which are consistent with the
segments reported to LTG’s BOD, its Chief Operating Decision Maker (CODM), are as follows:

 Banking, provides full range of banking and other financial services to corporate, middle-market
and retail customers, the National Government (NG), local government units (LGUs) and
government-owned and controlled corporations (GOCCs) and various government agencies,
including deposit-taking, lending, bills discounting, foreign exchange dealing, investment banking,
fund transfers or remittance servicing and full range of retail banking and trust services and other
insurance services. The Group conducts its banking business through PNB and its subsidiaries.

 Distilled Spirits, which is involved in manufacturing, compounding, bottling, importing, buying

and selling of rum, spirit beverages, liquor and bioethanol products. The Group conducts its
distilled spirits business through TDI and its subsidiaries.

 Beverage, which is engaged in brewing and soft drinks and bottled water manufacturing in the
Philippines. It also operates other plants, which includes commercial glass division and corrugated
cartons and metal closures production facility, to support the requirements of its brewing, bottled
water, non-beer products operations and to act as a service contractor and enter into service
agreements for the supply of services. The Group conducts its beverage business through ABI and
its subsidiaries, associate and joint venture.

153 *SGVFS162724*
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 Tobacco, which is a supplier and manufacturer of cigarettes, casings, tobacco, packaging, labels
and filters. The Group conducts its tobacco business through FTC’s interest in PMFTC, Inc.
(PMFTC).

 Property Development, which is engaged in ownership, development, leasing and management of

residential properties, including but not limited to, all kinds of housing projects, commercial,
industrial, urban or other kinds of real property; acquisition, purchasing, development and selling
of subdivision lots. The Group conducts its property development business through Eton and its
subsidiaries.
 Others, consist of various holding companies (LTG, AEDC, Paramount, Saturn, Shareholdings,
and Bank Holding Companies) that provide financing for working capital and capital expenditure
requirements of the operating businesses of the Group.

The BOD of LTG reviews the operating results of the business units to make decisions on resource
allocation and assesses performance. Segment revenue and segment expenses are measured in
accordance with PFRSs. The presentation and classification of segment revenues and segment expenses
are consistent with the consolidated statements of income. Finance costs (including interest expense)
and income taxes are managed per business segment.

The Group’s assets are located mainly in the Philippines. The Group operates and derives principally
all of its revenue from domestic operations. The Group’s banking segment operates in key cities in the
USA, Canada, Western Europe, Middle East and Asia. The distribution of assets and revenues of the
banking segment outside the Philippines constitute 0.2% and 2.8% as of December 31, 2021,
respectively, and 17.4% and 2.5% as of December 31, 2020 of the Group’s consolidated assets and
revenues, respectively.

Further, the measurement of the segments is the same as those described in the summary of significant
accounting and financial reporting policies. TDI’s investment property is adjusted at the consolidated
level to carry it at cost in accordance with the Group’s policy. Certain assets and liabilities of PNB are
also adjusted at the consolidated level of LTG to reflect the original carrying values prior to the merger
of PNB and ABC.

Segment assets are resources owned and segment liabilities are obligations incurred by each of the
operating segments excluding intersegment balances which are eliminated.

Segment revenue and expenses are those directly attributable to the segment except that intersegment
revenue and expense are eliminated only at the consolidated level. Transfer prices between operating
segments are on an arm’s length basis in a manner similar to transactions with third parties.

The components of capital expenditures reported to the CODM are the acquisitions of property, plant
and equipment during the period.

The Group’s distilled spirits segment derives revenue from two major distributors which averaged 92%,
99% and 79% of the segment’s total revenue in 2021, 2020 and 2019, respectively. The other segments
of the Group have no significant customer that contributes 10% or more of their segment revenues.

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The following tables present the information about the Group’s operating segments:
For the year ended December 31, 2021:
Eliminations,
Property Adjustments
Banking Distilled Spirits Beverage Tobacco Development and Others Total
(In Thousands)
Segment revenue:
External customers =49,319,441
P =26,648,772
P =13,173,729
P P-
= P888,536
= P1,142,837
= =91,173,315
P
Inter-segment 154,880 65,018 748,650 - 863,347 (1,831,895) -
49,474,321 26,713,790 13,922,379 - 1,751,883 (689,058) 91,173,315
Cost of goods sold and services 8,608,926 23,465,492 10,652,572 - 779,198 (549,174) 42,957,014
Gross profit 40,865,395 3,248,298 3,269,807 - 972,685 (139,884) 48,216,301
Equity in net earnings of associates and joint
ventures 50,789 - 46,781 17,600,810 - 322,800 18,021,180
40,916,184 3,248,298 3,316,588 17,600,810 972,685 182,916 66,237,481
Selling expenses - 842,796 1,036,698 - 25,526 - 1,905,020
General and administrative expenses 36,693,181 682,797 1,388,128 168,043 837,843 551,885 40,321,877
Operating income 4,223,003 1,722,705 891,762 17,432,767 109,316 (368,969) 24,010,584
Foreign exchange gains - net 743,549 37,257 6,064 14,616 4,150 10,379 816,015
Finance income - 10,538 7,518 42,808 8,235 (27,436) 41,663
Finance costs - (94,714) (201,616) - (257,231) 188,688 (364,873)
Others - net 35,336,752 (67,018) (18,196) 5,532 798,561 (33,296,800) 2,758,831
Income before income tax 40,303,304 1,608,768 685,532 17,495,723 663,031 (33,494,138) 27,262,220
Provision for (benefit from) income tax 5,545,194 366,508 210,358 (7,227) 112,849 194,064 6,421,746
Segment profit from:
Continuing operations 34,758,110 1,242,260 475,174 17,502,950 550,182 (33,688,202) 20,840,474
Discontinued operations (735,365) - - - - 755,980 20,615
=34,022,745
P =1,242,260
P =475,174
P =17,502,950
P =550,182
P (P
=32,932,222) =20,861,089
P
Segment profit attributable to:
Equity holders of the Company =33,963,333
P =1,237,830
P =469,268
P =17,502,950
P =550,182
P (P
=33,477,096) =20,246,467
P
Non-controlling interests 59,412 4,430 5,906 - - 544,874 614,622
Depreciation and amortization expense 2,673,644 624,415 1,796,937 46,925 412,243 186,890 5,741,054

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Other financial information of the operating segments as of December 31, 2021 is as follows:

Eliminations,
Property Adjustments
Banking Distilled Spirits Beverage Tobacco Development and Others Total
(In Thousands)
Assets:
Current assets P599,353,375
= 16,754,953 17,796,934 14,286,955 9,744,300 (11,444,605) 646,491,912
Noncurrent assets 586,057,462 10,778,690 15,785,928 14,945,127 22,702,015 15,075,230 665,344,452
=1,185,410,837
P 27,533,643 33,582,862 29,232,082 32,446,315 3,630,625 1,311,836,364

Liabilities:
Current liabilities P925,534,374
= 5,406,099 8,058,760 307,572 6,542,370 (17,635,044) 928,214,131
Noncurrent liabilities 105,783,546 1,024,560 1,314,949 88,735 6,680,286 5,193,478 120,085,554
=1,031,317,920
P 6,430,659 9,373,709 396,307 13,222,656 (12,441,566) 1,048,299,685
Investments in associates and
joint ventures =2,468,107
P - 103,527 11,729,777 - 7,906,898 22,208,309
Equity attributable to:
Equity holders of the Company 150,873,774 20,893,287 24,171,404 28,835,775 19,223,659 (53,926,491) 190,071,408
Non-controlling interests 3,219,143 209,697 37,749 - - 69,998,682 73,465,271
Additions to noncurrent assets:
Property, plant and equipment 21,231,002 9,413,571 14,528,673 85,530 1,008,420 27,844,457 74,111,653
Investment properties 9,633,839 245,728 14,002 2,108,595 21,291,373 1,153,816 34,447,353
Short-term debts - 895,000 3,940,000 - - (895,000) 3,940,000
Long-term debts 57,148,812 390,497 584,163 - 6,644,964 (2,125,102) 62,643,334

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For the year ended December 31, 2020:

Eliminations,
Property Adjustments
Banking Distilled Spirits Beverage Tobacco Development and Others Total
(In Thousands)
Segment revenue:
External customers =54,800,902
P =25,000,110
P =12,227,532
P P–
= =2,399,390
P =–
P =94,427,934
P
Inter-segment 172,341 31,674 1,052,637 – – (1,256,652) –
54,973,243 25,031,784 13,280,169 – 2,399,390 (1,256,652) 94,427,934
Cost of goods sold and services 12,113,434 21,361,215 9,829,697 – 706,116 (1,151,598) 42,858,864
Gross profit 42,859,809 3,670,569 3,450,472 – 1,693,274 (105,054) 51,569,070
Equity in net earnings of associates and joint
ventures 88,476 – 35,575 17,106,456 – 384,400 17,614,907
42,948,285 3,670,569 3,486,047 17,106,456 1,693,274 279,346 69,183,977
Selling expenses – 1,030,449 988,609 – 32,056 – 2,051,114
General and administrative expenses 44,655,737 765,772 1,335,837 172,095 710,002 257,825 47,897,268
Operating income (1,707,452) 1,874,348 1,161,601 16,934,361 951,216 21,521 19,235,595
Foreign exchange gains - net 919,555 (43,043) (21,535) (97,786) (4,293) (5,803) 747,095
Finance income – 1,146 21,390 56,642 19,847 (56,604) 42,421
Finance costs – (97,293) (185,900) – (272,686) 214,412 (341,467)
Others - net 1,684,400 (203,438) (74,511) 31,551 469,738 (4,771) 1,902,969
Income before income tax 896,503 1,531,720 901,045 16,924,768 1,163,822 168,755 21,586,613
Provision for (benefit from) income tax (1,798,238) 414,164 310,299 31,448 361,721 8,686 (671,920)
Segment profit from:
Continuing operations 2,694,741 1,117,556 590,746 16,893,320 802,101 160,069 22,258,533
Discontinued operations 67,583 – – – – – 67,583
=2,762,324
P =1,117,556
P =590,746
P =16,893,320
P =802,101
P =160,069
P =22,326,116
P
Segment profit attributable to:
Equity holders of the Company =2,751,489
P =1,103,128
P =583,793
P =16,893,320
P =802,101
P (P
=1,111,835) =21,021,996
P
Non-controlling interests 10,835 14,428 6,953 – – 1,271,904 1,304,120
Depreciation and amortization expense 3,047,381 564,556 1,613,481 50,702 404,088 (2,389) 5,677,819

157 *SGVFS162724*
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Other financial information of the operating segments as of December 31, 2020 is as follows:

Eliminations,
Property Adjustments
Banking Distilled Spirits Beverage Tobacco Development and Others Total
(In Thousands)
Assets:
Current assets P644,182,968
= =15,205,078
P P17,743,633
= P5,627,322
= P8,832,453
= (P
=6,784,029) P684,807,425
=
Noncurrent assets 599,009,724 9,263,659 16,304,213 18,062,891 22,989,484 2,685,058 668,315,029
=1,243,192,692
P =24,468,737
P =34,047,846
P =23,690,213
P =31,821,937
P (P
=4,098,971) =1,353,122,454
P
Liabilities:
Current liabilities P946,187,119
= =5,042,772
P P8,894,934
= =296,163
P P5,555,961
= (P
=12,442,685) P953,534,264
=
Noncurrent liabilities 136,649,515 769,034 1,669,777 89,023 7,624,513 (2,751,951) 144,049,911
=1,082,836,634
P =5,811,806
P =10,564,711
P =385,186
P =13,180,474
P (P
=15,194,636) =1,097,584,175
P
Investments in associates and
joint ventures =2,310,410
P =–
P =56,746
P =14,558,923
P =–
P =6,851,704
P =23,777,783
P
Equity attributable to:
Equity holders of the Company 157,154,782 18,463,080 23,440,873 23,305,027 18,641,464 (55,591,289) 185,413,937
Non-controlling interests 3,201,276 193,849 42,262 – – 66,686,955 70,124,342
Additions to noncurrent assets:
Property, plant and equipment 2,545,427 768,244 2,557,243 35,937 56,933 5,342 5,969,126
Investment properties 86,693 – – – 906,080 – 992,773
Short-term debts – 400,000 4,740,000 – – (400,000) 4,740,000
Long-term debts 65,422,351 383,404 591,373 – 6,585,776 (3,240,260) 69,742,644

158 *SGVFS162724*
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For the year ended December 31, 2019:

Eliminations,
Property Adjustments
Banking Distilled Spirits Beverage Tobacco Development and Others Total
(In Thousands)
Segment revenue:
External customers =56,522,642
P =19,261,735
P =15,234,051
P P–
= =3,132,431
P =-
P =94,150,859
P
Inter-segment 249,877 17,460 696,240 – – (963,577) –
56,772,519 19,279,195 15,930,291 – 3,132,431 (963,577) 94,150,859
Cost of goods sold and services 19,143,478 16,068,978 11,643,204 – 1,107,876 (1,161,096) 46,802,440
Gross profit 37,629,041 3,210,217 4,287,087 – 2,024,555 197,519 47,348,419
Equity in net earnings (loss) of associates
and joint ventures (97,608) – (725,985) 15,396,194 – 240,650 14,813,251
37,531,433 3,210,217 3,561,102 15,396,194 2,024,555 438,169 62,161,670
Selling expenses – 1,561,758 1,338,050 – 111,616 – 3,011,424
General and administrative expenses 28,503,520 661,940 1,248,334 205,045 807,684 169,898 31,596,421
Operating income 9,027,913 986,519 974,718 15,191,149 1,105,255 268,271 27,553,825
Foreign exchange gains (losses) - net 1,105,903 1,599 6,064 (51,889) (2,228) (9,484) 1,049,965
Finance income − 1,060 27,006 369,459 105,948 (357,220) 146,253
Finance costs − (98,948) (166,018) – (364,340) 178,465 (450,841)
Others - net 2,155,167 (9,900) 96,036 150,900 434,107 17,287 2,843,597
Income before income tax 12,288,983 880,330 937,806 15,659,619 1,278,742 97,319 31,142,799
Provision for income tax 2,452,307 204,549 539,567 98,530 378,358 5,324 3,678,635
Segment profit
Continuing operations 9,836,676 675,781 398,239 15,561,089 900,384 91,995 27,464,164
Discontinued operations 101,593 – – – – – 101,593
=9,938,269
P =675,781
P =398,239
P =15,561,089
P =900,384
P =91,995
P =27,565,757
P
Segment profit attributable to:
Equity holders of the Company =9,858,543
P =666,507
P =399,380
P =15,561,089
P =900,384
P (P
=4,268,379) =23,117,524
P
Non-controlling interests 79,726 9,274 (1,141) – – 4,360,374 4,448,233
Depreciation and amortization expense 2,660,409 575,294 1,546,624 38,220 386,300 28,971 5,235,818

159 *SGVFS162724*
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Other financial information of the operating segments as of December 31, 2019 is as follows:

Eliminations,
Property Adjustments
Banking Distilled Spirits Beverage Tobacco Development and Others Total
(In Thousands)
Assets:
Current assets P488,857,140
= =12,923,043
P P16,840,868
= P5,180,278
= P9,237,156
= (P
=5,902,547) P527,135,938
=
Noncurrent assets 665,367,850 9,193,536 15,700,574 22,718,539 22,590,537 3,123,579 738,694,615
=1,154,224,990
P =22,116,579
P =32,541,442
P =27,898,817
P =31,827,693
P (P
=2,778,968) =1,265,830,553
P
Liabilities:
Current liabilities P865,580,704
= =3,719,389
P P7,764,522
= =1,317,834
P P7,743,432
= (P
=9,464,258) P876,661,623
=
Noncurrent liabilities 129,363,371 875,491 1,606,108 103,082 6,248,863 (3,035,556) 135,161,359
=994,944,075
P =4,594,880
P =9,370,630
P =1,420,916
P =13,992,295
P (P
=12,499,814) =1,011,822,982
P
Investments in associates and
joint ventures =2,605,473
P =–
P =21,171
P =19,193,993
P =–
P =5,433,641
P =27,254,278
P
Equity attributable to:
Equity holders of the Company 156,398,876 17,341,825 23,133,222 26,477,901 17,835,398 (54,265,681) 186,921,541
Non-controlling interests 2,882,039 179,874 37,590 – – 63,986,527 67,086,030
Additions to noncurrent assets:
Property, plant and equipment 2,761,203 2,878,969 794,790 80,689 20,526 (32,479) 6,503,698
Investment properties 967,611 5,814 – – 1,651,591 2,111 2,627,127
Short-term debts – 200,000 2,850,000 – – 2,100,000 5,150,000
Long-term debts 68,421,487 433,209 596,589 – 6,764,380 (3,646,209) 72,569,456

160 *SGVFS162724*
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5. Cash and Cash Equivalents

Cash and cash equivalents consist of:

2021 2020
(In Thousands)
Cash and other cash items P
=29,012,418 =26,678,312
P
Cash equivalents:
Due from BSP 161,001,912 202,129,356
Interbank loans receivables* 32,106,088 39,700,981
Due from other banks 27,222,083 19,733,300
Securities held under agreements to resell 15,796,673 15,819,273
=
P265,139,174 =304,061,222
P
*net of allowance for ECL

a. Cash and other cash items consist of cash on hand and in banks and short-term investments.
Cash in banks earn interest at bank deposit rates. Cash equivalents represent money market
placements made for varying periods depending on the immediate cash requirements of the Group.

b. Due from BSP is composed of interest-bearing short-term placements with BSP and a demand
deposit account to support the regular operations of PNB, which consists of:

2021 2020
(In Thousands)
Demand deposit P
=81,273,307 =80,029,356
P
Term deposit facility (TDF) 79,728,605 122,100,000
P
=161,001,912 =202,129,356
P

TDFs bear annual interest rates ranging from 1.50% to 1.88% in 2021 and 1.62% to 3.80% in 2020.

c. Interbank loans receivables bear annual interest ranging from 1.0% to 2.0% in 2021 for
peso-denominated interbank loans receivables and from 0.0% to 1.5% and from 0.0% to 2.2% in
2021 and 2020, respectively, for foreign currency-denominated interbank loans receivables.

d. Securities held under agreements to resell bear interest ranging from 1.50% to 2.50%, from and
2.00% to 3.25% in 2021 and 2020, respectively.

The fair value of the treasury bills pledged under these agreements as of December 31, 2021 and
2020 amounted to = P15.8 billion and =P16.5 billion, respectively, for the Group (Note 33).

e. Interest earned on cash and other cash items and cash equivalents are presented under “Banking
revenue” and “Finance income”, respectively (see Notes 24 and 27).

161 *SGVFS162724*
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6. Financial Assets at FVTPL

Financial assets at FVTPL consist of:

2021 2020
(In Thousands)
Government securities P
=7,956,013 =18,136,391
P
Private debt securities 1,841,548 4,296,100
Derivative assets (Notes 21 and 33) 1,365,051 370,653
Unit investment trust fund (UITF) 37,612 35,554
Equity securities 5,045 1,019,626
P
=11,205,269 =23,858,324
P

The effective interest rates of debt securities at FVTPL range from:

2021 2020
Government securities 1.4% - 9.5% 2.6% - 8.0%
Private debt securities 4.9% - 6.9% 4.9% - 7.0%

7. Financial Assets at FVTOCI and Financial Assets at Amortized Cost

Financial Assets at FVTOCI

This account consists of:

2021 2020
(in thousands)
Government securities (Note 17) P
=120,764,925 =111,351,402
P
Other debt securities 23,115,480 21,418,534
Equity securities:
Quoted 2,052,667 2,352,669
Unquoted 1,336,338 1,202,319
147,269,410 136,324,924
Noncurrent portion (71,468,657) (76,644,306)
P
=75,800,753 =59,680,618
P

a. For the years ended December 31, 2021, 2020 and 2019, the nominal interest rates of government
securities range from 0.1% to 18.3%, 0.2% to 18.3% and 0.2% to 18.3%, respectively.

b. For the years ended December 31, 2021, 2020 and 2019, the nominal interest rates of private debt
securities range from 0.4% to 6.9%, 2.0% to 6.9% and 3.5% to 6.9%, respectively.

c. As of December 31, 2021 and 2020, the fair value of financial assets at FVTOCI in the form of
government and private bonds pledged to fulfill its collateral requirements with securities sold
under repurchase agreement transactions with foreign banks amounted to P =32.8 billion and
=44.6 billion, respectively (see Note 17). The counterparties have an obligation to return the
P
securities to PNB once the obligations have been settled. In case of default, the foreign banks have
the right to hold the securities and sell them as settlement of the repurchase agreement.

162 *SGVFS162724*
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d. Other debt securities consist of notes issued by private entities. As of December 31, 2021 and 2020,
the ECL on debt securities at FVOCI (included in ‘Net unrealized gain (loss) on financial assets at
FVOCI’) amounted to P =131.5 million and P =67.4 million, respectively. Movements in ECL on debt
securities at FVOCI are mostly driven by movements in the corresponding gross figures.

The net unrealized gains on financial assets at FVTOCI amounted to =

P3.1 billion for the Group, net of
deferred income tax effect amounting to = P413.1 million and =
P412.9 million in 2021 and 2020,
respectively.

Financial Assets at Amortized Cost

This account consists of:

2021 2020
Private debt securities P
=59,144,715 =56,504,757
P
Government securities 34,133,294 42,713,634
93,278,009 99,218,391
Less allowance for expected credit losses (3,822,166) (3,982,398)
89,455,843 95,235,993
Noncurrent portion (43,523,890) (55,019,851)
P
=45,931,953 =40,216,142
P

In 2021 and 2020, movements in allowance for expected credit losses on investment securities at
amortized cost are mostly driven by newly originated assets which remained in Stage 1.

As of December 31, 2021 and 2020, the carrying value of investment securities at amortized cost in the
form of government bonds pledged to fulfill its collateral requirements with securities sold under
repurchase agreements transactions amounted to P =5.3 billion and = P26.1 billion, respectively
(see Note 17).

8. Loans and Receivables

Loans and receivables consist of:

2021 2020
(In Thousands)
Finance receivables (Notes 17 and 22) P
=644,557,364 =630,805,715
P
Trade receivables 15,651,207 17,097,546
Other receivables 3,312,442 3,421,422
663,521,013 651,324,683
Allowance for credit losses (39,861,712) (34,726,196)
623,659,301 616,598,487
Noncurrent portion (407,515,357) (393,592,324)
P
=216,143,944 =223,006,163
P

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Finance Receivables

2021 2020
(In Thousands)
Receivables from customers:
Loans and discounts = 597,979,601
P =585,526,367
P
Customers’ liabilities on acceptances, letters of
credit and trust receipts 15,425,196 11,235,946
Credit card receivables 11,407,608 12,530,569
Bills purchased (Note 20) 1,364,543 1,832,423
Lease contract receivable 2,628,289 3,014,003
628,805,237 614,139,308
Other receivables:
Accrued interest receivable 6,053,656 6,812,491
Sales contract receivables 6,029,384 6,548,301
Accounts receivable 4,191,402 4,338,698
Miscellaneous 595,929 431,704
16,870,371 18,131,194
645,675,608 632,270,502
Unearned and other deferred income (1,118,244) (1,464,787)
644,557,364 630,805,715
Allowance for credit losses (39,340,761) (34,411,405)
605,216,603 596,394,310
Noncurrent portion (407,515,357) (392,960,220)
=
P197,701,246 =203,434,090
P

a. Lease contract receivable

An analysis of the Group’s lease contract receivable as of December 31 is presented as follows:

2021 2020
(In Thousands)
Gross investment in lease contract receivable
Due within one year =
P1,245,258 =
P1,377,666
Due beyond one year but not over five years 643,821 906,513
Due beyond five years 14,344 31,845
1,903,423 2,316,024

Residual value of leased equipment

Due within one year =
P505,784 =374,959
P
Due beyond one year but not over five years 219,082 323,020
724,866 697,979
Total lease contract receivable =
P2,628,289 =3,014,003
P

b. Interest income on loans and receivables amounted to P

=34.2 billion, P
=37.2 billion and =
P39.6 billion
in 2021, 2020 and 2019, respectively.

164 *SGVFS162724*
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As of December 31, 2021 and 2020, 69.4% and 68.8%, respectively, of the total receivable from
customers of PNB were subject to interest repricing. As of December 31, 2021 and 2020, 68.3%
and 68.7%, respectively, of the total receivables from customers of PNB were subject to interest
repricing. Remaining receivables carry annual fixed interest rates ranging from 1.0% to 9.0% in
2021, from 1.1% to 9.0% in 2020 and from 1.0% to 9.0% in 2019 for foreign currency-denominated
receivables, and from 1.1% to 31.5% in 2021, from 1.1% to 21.0% in 2020 and from 1.5% to 19.4%
in 2019 for peso-denominated receivables.

Sales contract receivables bear fixed interest rate per annum ranging from 3.3% to 21.0% in 2021,
2020 and 2019.

The reconciliation of allowance for the receivables from customers of the Banking segment are shown
below.
2021 2020
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Corporate Loans
Beginning Balance =
P437,633 =
P690,482 =
P18,092,141 =
P19,220,256 =
P1,351,699 =
P862,403 =
P5,838,830 =
P8,052,932
Newly originated assets which
remained in Stage 1 at yearend 535,724 – − 535,724 248,412 – − 248,412
Newly originated assets which
moved to Stages 2 and 3 at
yearend – 1,295,838 5,541,119 6,836,957 – 311,136 255,094 566,230
Transfers to Stage 1 1,416,274 (92,256) (1,324,018) – 127,422 (104,193) (23,229) –
Transfers to Stage 2 (21,414) 977,643 (956,229) − (49,891) 74,188 (24,297) −
Transfers to Stage 3 (39,357) (97,569) 136,926 – (201,545) (65,790) 267,335 –
Accounts charged off – – (1,100) (1,100) – – − –
Provisions (reversals) 1,485,158 1,699,323 6,332,823 9,517,304 (741,893) (77,013) 12,041,160 11,222,254
Effect of collections and other
movements (3,001,267) (1,506,392) (5,989,454) (10,497,113) (296,571) (310,249) (262,752) (869,572)
Ending Balance 812,751 2,967,069 21,832,208 25,612,028 437,633 690,482 18,092,141 19,220,256
LGU
Beginning Balance 24,040 1,737 24,916 50,693 30,089 11,092 26,469 67,650
Newly originated assets which
remained in Stage 1 at yearend 7 – – 7 2,399 – – 2,399
Reversals 22,642 3,902 2,296 28,840 (1,196) (1,226) – (2,422)
Effect of collections and other
movements (46,424) 4,993 40,586 (845) (7,252) (8,129) (1,553) (16,934)
Ending Balance 265 10,632 67,798 78,695 24,040 1,737 24,916 50,693
Credit Cards
Beginning Balance 38,224 26,246 2,523,198 2,587,668 37,867 41,397 1,526,487 1,605,751
Newly originated assets which
remained in Stage 1 at yearend 3,159 – – 3,159 4,272 – – 4,272
Newly originated assets which
moved to Stages 2 and 3 at
yearend – 2,430 18,756 21,186 – 3,017 33,363 36,380
Transfers to Stage 1 39,251 (6,432) (32,819) – 14,459 (8,245) (6,214) –
Transfers to Stage 2 (2,254) 5,721 (3,467) – (631) 701 (70) –
Transfers to Stage 3 (9,135) (9,282) 18,417 – (5,473) (28,914) 34,387 –
Accounts charged off – – (1,399,465) (1,399,465) (1,077) (4,023) (603,693) (608,793)
Provisions (98,840) 17,705 1,085,746 1,004,611 61,271 21,095 1,495,684 1,578,050
Effect of collections and other
movements 91,067 (9,702) 109,403 190,768 (72,464) 1,218 43,254 (27,992)
Ending Balance 61,472 26,686 2,319,769 2,407,927 38,224 26,246 2,523,198 2,587,668
Retail SMEs
Beginning Balance 361,274 20,786 1,426,132 1,808,192 377,435 73,581 1,031,436 1,482,452
Newly originated assets which
remained in Stage 1 at yearend 91,610 – – 91,610 2,609 – – 2,609
Newly originated assets which
moved to Stages 2 and 3 at
yearend – 2,308 37,201 39,509 – 1,482 171 1,653
Transfers to Stage 1 7,502 (1,634) (5,868) – 13,826 (706) (13,120) –
Transfers to Stage 2 (351) 2,151 (1,800) – (20,257) 31,634 (11,377) –
Transfers to Stage 3 (5,680) (6,204) 11,884 – (3,530) (3,036) 6,566 –
Accounts charged off – – – – – – (2,477) (2,477)
Provisions (reversals) 13,693 (1,617) 42,831 54,907 249,043 (7,814) 305,381 546,610
Effect of collections and other
movements (292,980) 212 132,875 (159,893) (257,852) (74,355) 109,552 (222,655)
Ending Balance 175,068 16,002 1,643,255 1,834,325 361,274 20,786 1,426,132 1,808,192

(Forward)

165 *SGVFS162724*
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2021 2020
Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total
Housing Loans
Beginning Balance =
P99,896 =
P107,786 =
P2,166,204 =
P2,373,886 =
P889,425 =
P547,589 =
P114,407 =
P1,551,421
Newly originated assets which
remained in Stage 1 at yearend 11,385 – – 11,385 1,048 – – 1,048
Newly originated assets which
moved to Stages 2 and 3 at
yearend – 6,605 8,083 14,688 – 7,586 42,555 50,141
Transfers to Stage 1 395,713 (45,005) (350,708) – 24,929 (6,896) (18,033) –
Transfers to Stage 2 (2,061) 35,012 (32,951) – (1,780) 5,252 (3,472) –
Transfers to Stage 3 (11,394) (53,478) 64,872 – (5,524) (12,767) 18,291 –
Accounts charged off – – − − – – − −
Provisions (reversals) 391,794 (7,381) (888,382) (503,969) (66,831) 83,538 1,109,858 1,126,565
Effect of collections and other
movements (628,380) 10,828 2,154,328 1,536,776 (741,371) (516,516) 2,899,354 1,641,467
Ending Balance 256,953 54,367 3,121,446 3,432,766 99,896 107,786 4,162,960 4,370,642
Auto Loans
Beginning Balance 146,165 43,152 843,487 1,032,804 154,130 45,312 44,401 243,843
Newly originated assets which
remained in Stage 1 at yearend 1,466 − – 1,466 540 − – 540
Newly originated assets which
moved to Stages 2 and 3 at
yearend – 182 4,029 4,211 – 872 13,885 14,757
Transfers to Stage 1 58,625 (2,965) (55,660) – 4,234 (800) (3,434) –
Transfers to Stage 2 (113) 8,396 (8,283) – (1,876) 2,199 (323) –
Transfers to Stage 3 (615) (3,229) 3,844 – (4,139) (3,506) 7,645 –
Accounts charged off – – (9,133) (9,133) – – (1,488) (1,488)
Provisions (reversals) 73,402 6,628 (708,378) (628,348) (6,271) 2,916 770,300 766,945
Effect of collections and other
movements (269,934) (49,998) 1,397,678 1,077,746 (453) (3,841) 12,501 8,207
Ending Balance 8,996 2,166 1,467,584 1,478,746 146,165 43,152 843,487 1,032,804
Other Loans
Beginning Balance 72,427 59,443 1,922,895 2,054,765 8,924 62,189 998,074 1,069,187
Newly originated assets which
remained in Stage 1 at yearend 12,738 – – 12,738 7,017 – – 7,017
Newly originated assets which
moved to Stages 2 and 3 at
yearend – 207 53,913 54,120 – 7,649 101,603 109,252
Transfers to Stage 1 222,313 (12,979) (209,334) – 10,769 (2,287) (8,482) –
Transfers to Stage 2 (875) 90,473 (89,598) – (958) 15,050 (14,092) –
Transfers to Stage 3 (4,109) (20,370) 24,479 – (1,817) (7,764) 9,581 –
Accounts charged off – – (20,328) (20,328) – – (136,732) (136,732)
Provisions (reversals) (131,066) (583) (333,647) (465,296) (26,947) 29,844 (141,644) (138,747)
Effect of collections and other
movements 71,512 (107,955) (632,348) (668,791) 75,439 (45,238) 1,114,587 1,144,788
Ending Balance 242,940 8,236 716,032 967,208 72,427 59,443 1,922,895 2,054,765
Other Receivables
Beginning Balance 69,326 19,486 3,197,574 3,286,386 77,497 21,915 4,240,580 4,339,992
Newly originated assets which
remained in Stage 1 at yearend 1,505 – − 1,505 2,449 – − 2,449
Newly originated assets which
moved to Stages 2 and 3 at
yearend – 429 13,226 13,655 – 922 20,632 21,554
Transfers to Stage 1 1,295 (15) (1,280) – 186 (23) (163) –
Transfers to Stage 2 (967) 22,649 (21,682) – (1,739) 1,741 (2) –
Transfers to Stage 3 (12,748) (67,882) 80,630 – (51,149) (2,811) 53,960 –
Accounts charged off – – (9,287) (9,287) – – 336 336
Provisions (reversals) (598,194) (13,427) 131,248 (480,373) 44,946 12,167 674,107 731,220
Effect of collections and other
movements 621,290 72,119 23,771 717,180 (2,864) (14,425) (1,791,877) (1,809,166)
Ending Balance 81,507 33,359 3,414,200 3,529,066 69,326 19,486 3,197,573 3,286,385
Total Loans and Receivables
Beginning Balance 1,248,985 969,118 30,196,547 32,414,650 2,927,066 1,665,478 13,820,684 18,413,228
Newly originated assets which
remained in Stage 1 at yearend 657,594 − − 657,594 268,746 − − 268,746
Newly originated assets which
moved to Stages 2 and 3 at
yearend − 1,307,999 5,676,327 6,984,326 − 332,664 467,303 799,967
Transfers to Stage 1 2,140,973 (161,286) (1,979,687) − 195,825 (123,150) (72,675) −
Transfers to Stage 2 (28,035) 1,142,045 (1,114,010) − (77,132) 130,765 (53,633) −
Transfers to Stage 3 (83,038) (258,014) 341,052 − (273,177) (124,588) 397,765 −
Accounts charged off − − (1,439,313) (1,439,313) (1,077) (4,023) (744,054) (749,154)
Provisions (reversals) 1,158,589 1,704,550 5,664,537 8,527,676 (487,878) 63,507 16,254,846 15,830,475
Effect of collections and other
movements (3,455,116) (1,585,895) (2,763,161) (7,804,172) (1,303,388) (971,535) 2,123,066 (151,857)
Ending Balance =
P1,639,952 =
P3,118,517 = P34,582,292 =
P39,340,761 =
P1,248,985 =
P969,118 P =32,193,302 =34,411,405
P

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Trade Receivables
Trade receivables consist of:

2021 2020
(In Thousands)
Consumer goods P
=15,591,720 =15,615,021
P
Contract receivables 59,487 1,168,440
Lease receivables  314,085
15,651,207 17,097,546
Allowance for credit losses (246,122) (303,551)
15,405,085 16,793,995
Noncurrent portion of contract receivables  (632,104)
P
=15,405,085 =16,161,891
P

Trade receivables on consumer goods pertain to receivables from various customers of distilled spirits,
beverages and tobacco segments, which are noninterest-bearing and generally have 30 to 90 days’
terms.

Other Receivables
Other receivables are due and demandable and include accrued interest receivable pertaining to interest
earned on cash and cash equivalents and unpaid utility charges to tenants and receivables from sale of
various assets.

Movements of Allowance for Credit Losses

Details and movements of allowance for credit losses as follows:

December 31, 2021

Finance Trade Other
Receivables Receivables Receivables Total
(In Thousands)
Balance at beginning of year =
P34,411,405 =
P303,551 =
P11,240 =
P34,726,196
Provisions during the year (Note 26)
Continuing operations 11,047,912 10,264 274,829 11,333,005
Accounts charged off, transfers and others (6,118,556) (67,693) (11,240) (6,197,489)
Balance at end of year =39,340,761
P =246,122
P =274,829
P =39,861,712
P

December 31, 2020

Finance Trade Other
Receivables Receivables Receivables Total
(In Thousands)
Balance at beginning of year P18,413,228
= =322,710
P =11,240
P =18,747,178
P
Provisions during the year (Note 26)
Continuing operations 15,830,475 17,274 − 15,847,749
Discontinued operations 30,280 − − 30,280
Reversals during the year (12,132) (33,841) − (45,973)
Accounts charged off, transfers and others 409,722 (2,592) − 407,130
Effect of discontinued operations (260,168) − − (260,168)
Balance at end of year =
P34,411,405 =
P303,551 =
P11,240 =
P34,726,196

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9. Inventories

Inventories consist of:

2021 2020
(In Thousands)
At Cost:
Consumer goods:
Alcohol P
=4,819,501 =4,001,287
P
Beverage 2,904,499 2,427,870
7,724,000 6,429,157
Real estate inventories:
Condominium and residential units for sale 422,183 419,238
Land held for future development 217,542 217,542
Subdivision land under development 3,758,806 3,745,583
4,398,531 4,382,363
Fuel, materials and supplies 974,767 1,096,490
13,097,298 11,908,010
At NRV - Materials and supplies 1,189,225 1,267,595
P
=14,286,523 =13,175,605
P

Allowance for inventory obsolescence on materials and supplies amounted to P

=4.1 million as of
December 31, 2021 and 2020.

a. Components of the consumer goods inventories are as follows:

2021 2020
(In Thousands)
Finished goods =
P1,206,369 =873,625
P
Work in process 1,536,504 1,362,453
Raw materials 4,981,127 4,193,079
=
P7,724,000 =6,429,157
P

Cost of consumer goods inventories recognized as expenses under cost of goods sold amounted to
=14.6 billion, =
P P14.1 billion and =
P14.3 billion in 2021, 2020 and 2019, respectively (see Note 24).

b. Movements in real estate inventories are set out below:

2021 2020
(In Thousands)
Balance at beginning of year P
=4,382,363 =4,602,630
P
Construction/development costs incurred 71,222 19,257
Disposals and others (55,053) (239,524)
Balance at end of year P
=4,398,531 =4,382,363
P

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10. Other Current Assets

2021 2020
(In Thousands)
Prepaid expenses P
=2,658,143 P2,074,966
=
Creditable withholding taxes (CWT) 1,876,158 2,589,436
Input VAT 1,644,556 1,800,352
Advances to suppliers 1,507,586 1,770,204
Deferred charges 1,065,090 856,788
Excise tax 649,482 779,123
Miscellaneous cash and other cash items 201,956 29,246
Stationeries, office supplies and stamps on hand 87,476 81,110
Others 608,315 927,679
P
=10,298,762 =10,908,904
P

a. CWTs pertain mainly to the amounts withheld from income derived from sale of consumer goods
and real estate inventories. The CWTs can be applied against any income tax liability of a company
in the Group to which the CWTs relate.

b. Prepaid expenses include prepaid importation charges amounting to = P1,221.5 million and
=945.6 million as of December 31, 2021 and 2020, respectively. Prepaid importation charges
P
pertain to the purchases of raw materials by the distilled spirits.

c. Advances to suppliers pertain to deposits made for raw material purchases and are applied upon
delivery of the related inventories.

d. Excise tax pertains to advance tax payments to the Bureau of Internal Revenue (BIR) on sale of
alcoholic beverages.

e. Others include interoffice floats and advances to contractors.

11. Investment in Associates and Joint Ventures

Investments in Associates and Joint Ventures

The Group has the power to participate in the financial and operating policy decisions of PMFTC,
Victorias Milling Company, Inc. (VMC), AB HPI, and APLII. The Group also has 50% interest in
ABI Pascual Holdings Private Limited (ABI Pascual Holdings) and ALI-Eton Property Development
Corporation (AEPDC) which are jointly controlled entities.

Ownership Amount
2021 2020 2021 2020
(In Thousands)
Associates:
PMFTC 49.6% 49.6% P
=10,883,513 =13,741,750
P
VMC 30.9% 30.9% 3,340,834 3,153,972
APLII 44.0% 44.0% 2,468,107 2,310,410
AB HPI 50.0% 50.0%  −
(Forward) 

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Ownership Amount
2021 2020 2021 2020
Joint Ventures:
AEPDC 50.0% 50.0% P
=5,412,328 =4,514,905
P
ABI Pascual Holdings 50.0% 50.0% 103,527 56,746
P
=22,208,309 =23,777,783
P

Equity in net earnings (losses) consists of:

2021 2020 2019

(In Thousands)
PMFTC P
=17,600,810 =16,932,501
P =15,936,195
P
Others 420,370 682,406 (1,122,944)
18,021,180 17,614,907 14,813,251

Investment in PMFTC
Details of investment in PMFTC are as follows:

2021 2020
(In Thousands)
Acquisition cost P
=13,483,541 =13,483,541
P
Accumulated equity in net earnings:
Balance at beginning of year (110,881) 4,708,603
Equity in net earnings 17,600,810 16,932,501
Cash dividends (Note 22) (20,749,480) (21,751,985)
Balance at end of year (3,259,551) (110,881)
Accumulated share in other comprehensive income 659,523 369,090
P
=10,883,513 =13,741,750
P

On February 25, 2010, FTC and PMPMI combined their respective domestic business operations by
transferring selected assets and liabilities to PMFTC in accordance with the provisions of the
Asset Purchase Agreement (APA) between FTC and its related parties and PMPMI. The establishment
of PMFTC allows FTC and PMPMI to benefit from their respective, complementary brand portfolios
as well as cost synergies from the resulting integration of manufacturing, distribution and procurement,
and the further development and advancement of tobacco industry growing in the Philippines.
FTC and PMPMI hold equal economic interest in PMFTC. Since PMPMI has majority of the members
of the BOD, it has control over PMFTC. FTC considers PMFTC as an associate.

As a result of FTC’s divestment of its cigarette business to PMFTC, FTC initially recognized the
investment amounting to = P13.5 billion, representing the fair value of the net assets contributed by FTC,
net of unrealized gain of =P5.1 billion. The transaction was accounted for similar to a contribution in a
joint venture based on Standing Interpretations Committee (SIC) Interpretation 13, Jointly Controlled
Entities-Non-Monetary Contributions by Venturers, where FTC recognized only that portion of the gain
which is attributable to the interests of PMPMI amounting to P =5.1 billion in 2010. The portion
attributable to FTC is being recognized once the related assets and liabilities are realized, disposed or
settled. FTC recognized a gain of about = P293.0 million each year starting 2011 until 2017 and an
outright loss of P
=2.0 billion in 2010, which are included in the “Equity in net earnings” in these periods.
Further, as a result of the transfer of selected assets and liabilities, portion of the revaluation increment
on FTC’s property, plant and equipment amounting to = P1.9 billion was transferred to retained earnings.

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Also, as a result of the transaction, FTC has obtained the right to sell (put option) its interest in PMFTC
to PMPMI, except in certain circumstances, during the period from February 25, 2015 through
February 24, 2018, at an agreed-upon value. On December 10, 2013, the BOD of LTG approved the
waiver by FTC of its rights under the Exit Rights Agreement entered into with PMI and confirmed the
execution of the Termination Agreement.

Summarized financial information of PMFTC, based on its financial statements as of December 31, are
set out below:

2021 2020
(In Thousands)
Current assets P
=50,381,367 =45,515,749
P
Noncurrent assets 29,622,125 26,952,835
Current liabilities 22,236,683 14,791,824
Noncurrent liabilities 5,253,090 5,713,996
Equity 52,513,719 51,962,764
Equity interest of the Parent Company 49.6% 49.6%
Share in net assets of the acquiree 26,046,805 25,773,531
Acquisition-related fair value adjustments,
adjustments relating to differences in accounting
policies and others (15,163,292) (12,031,781)
Carrying value of investment P
=10,883,513 P13,741,750
=

Summarized financial information of PMFTC, based on its financial statements as at December 31,
2021 and 2020 and reconciliation with the carrying amount of the investment in consolidated financial
statements are set out below:

2021 2020 2019

(In Thousands)
Revenue P
=172,762,533 = P174,956,574 =P170,872,448
Costs and expenses (127,882,015) (125,822,537) (126,819,405)
Income before income tax 44,880,518 49,134,037 44,053,043
Provision for income tax (9,661,727) (14,911,929) (13,252,072)
Net income 35,218,791 34,222,108 30,800,971
Other comprehensive income (loss) 585,549 (63,186) (35,854)
Total comprehensive income P
=35,804,340 = P34,158,922 P =30,765,117
Group’s share of total comprehensive
income for the year =
P17,758,953 =
P16,942,825 =16,305,060
P

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Investment in VMC
Details of investment in VMC are as follows:

2021 2020
(In Thousands)
Acquisition cost P
=1,459,768 =1,459,768
P
Accumulated equity in net earnings:
Balance at beginning of year 1,654,091 1,390,291
Equity in net earnings 258,376 263,800
Cash dividends (Note 22) (84,736) 
Balance at end of year 1,827,731 1,654,091
Share in remeasurement gain on defined benefit plans (5,125) (18,347)
Balance of convertible notes 58,460 58,460
P
=3,340,834 =3,153,972
P

On February 15, 2016, VMC approved the acquisition of its own shares. The sale agreement had been
executed on February 18, 2016 and led to the acquisition of 300.0 million treasury shares. This resulted
in an increase in the Parent Company’s percentage of ownership from 22.5% to 25.1%. On the same
date, the Group, through FTC, acquired additional shares of stock of VMC amounting to P =660.3 million
resulting to an increase in the Group’s effective ownership in VMC to 30.2%.

On May 23, 2017, portions of the convertible notes amounting to = P58.94 million were converted to
shares of stock of VMC resulting to an increase in the Group’s percentage of ownership to 30.9% as of
December 31, 2017.

The summarized financial information of VMC as of August 31, 2021 and 2020 and reconciliation with
the carrying amount of the investment in consolidated financial statements are set out below:

2021 2020
(In Thousands)
Current assets P
=3,851,240 =
P3,137,861
Noncurrent assets 6,498,798 6,420,198
Current liabilities 588,046 543,262
Noncurrent liabilities 862,428 944,259
Equity 8,899,564 8,070,538
Equity interest of the Parent Company 30.9% 30.9%
Share in net assets of the acquiree 2,749,965 2,493,796
Fair value adjustments and others 590,869 660,176
Carrying value of investment P
=3,340,834 =3,153,972
P

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Summarized statements of comprehensive income of VMC for the years ended August 31 are as
follows:

2021 2020 2019

(In Thousands)
Revenue P
=7,468,247 P7,437,424
= P6,343,290
=
Costs and expenses (6,607,202) (6,431,233) (5,296,131)
Income before income tax 861,045 1,006,191 1,047,159
Provision for income tax (74,809) (152,468) (234,308)
Net income 786,236 853,723 812,851
Other comprehensive income (loss) 42,790 (26,009) (3,285)
Total comprehensive income P
=829,026 =827,714
P =809,566
P
Group’s share of total comprehensive
income for the year P
=256,169 =255,764
P =250,156
P

Investment in APLII
On December 21, 2015, PNB entered into a 15-year exclusive partnership with Allianz SE under the
following arrangements, subject to regulatory approvals:

 Allianz SE will acquire 12,750 shares representing 51% stockholdings of APLII and will have
management control over the new joint venture company;
 The new joint venture company will operate under the name of “Allianz-PNB Life Insurance, Inc.”;
 A 15-year distribution agreement which will provide Allianz an exclusive access to the branch
network of PNB and PNB Savings Bank.

The sale of APLII was completed on June 6, 2016 for a total consideration of US$66.0 million
(P
=3.1 billion). Pursuant to the sale of APLII, PNB also entered into a distribution agreement with APLII
where PNB will allow APLII to have exclusive access to the distribution network of PNB and its
subsidiary, PNB Savings Bank, over a period of 15 years. Both the share purchase agreement and
distribution agreement have provisions referring to one another, making the distribution agreement an
integral component of the sale transaction. Accordingly, the purchase consideration of US$66.0 million
(P
=3.1 billion) was allocated between the sale of the 51% interest in APLII and the Exclusive
Distribution Rights (EDR) amounting to US$44.9 million (P =2.1 billion) and US$21.1 million
(P
=1.0 billion), respectively.

PNB will also receive variable annual and fixed bonus earn-out payments based on milestones achieved
over the 15-year term of the distribution agreement.

The Group recognized gain on sale of the 51% interest in APLII amounting to = P400.3 million, net of
taxes and transaction costs amounting to P
=276.7 million and =P153.3 million, respectively. The deferred
revenue amounting to = P976.2 million allocated to the EDR was presented as “Other deferred revenue”
and will be amortized to income over 15 years from date of sale (see Note 20). Amortization amounting
to =
P36.5 million was recognized in 2016 (see Note 28). Prior to the sale of shares to Allianz SE,
PNB acquired additional 15% stockholdings from the minority shareholders for a consideration
amounting to =P292.4 million between June 2, 2016 and June 5, 2016.

Consequently, PNB accounted for its remaining 44% ownership interest in APLII as an associate.
At the date of loss of control, PNB’s investment in APLII was remeasured to =
P2.7 billion based on the
fair value of its retained equity. PNB recognized gain on remeasurement amounting to = P1.6 billion in
the 2016 consolidated statement of income.

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The fair value of the retained equity was based on a combination of the income approach and market
approach.

On September 21, 2016, the Philippine SEC approved the amendment of PNB Life Insurance, Inc.’s
article of incorporation to reflect the change in corporate name to Allianz-PNB Life Insurance, Inc.

Summarized financial information of APLII as of December 31, 2021 and 2020 follows:

2021 2020
(In thousands)
Current assets P
=2,189,208 P1,697,490
=
Noncurrent assets 76,895,902 50,584,277
Current liabilities 3,217,567 2,636,733
Noncurrent liabilities 73,827,220 47,905,927
Equity 2,040,323 1,739,107
Equity interest of the Parent Company 44% 44%
Share in net assets of the acquiree 897,742 765,207
Premium on acquisition 1,570,365 1,545,203
Carrying value of investment P
=2,468,107 =2,310,410
P

Summarized statements of total comprehensive income of APLII for the year ended December 31 are
as follows:

2021 2020
(In Thousands)
Revenue P
=3,732,388 P3,132,745
=
Costs and expenses (3,624,691) (2,846,825)
Net income (loss) 107,697 285,920
Other comprehensive income  297,096
Total comprehensive income P
=107,697 =583,016
P

Group’s share of total comprehensive income for the year P

=47,387 =
P256,527

Investment in AB HPI
On May 6, 2016, AB HPI was incorporated and registered with the Philippine SEC for 1,000 authorized
shares at P
=1,000 par value per share under the name of Broncobrew, Incorporated (Broncobrew).
The Philippine SEC approved the change in corporate name of Broncobrew to AB Heineken Philippines
Inc. on July 12, 2016.

On May 30, 2016, the Group, through ABI, fully paid its initial subscription to 250 common shares at
1,000 par value per share purchased additional 250 common shares at issue price of P =4,750,000.
On November 15, 2016, the Group purchased additional 782,400 common shares at P =1,000 par value
per share out of the proposed increase in the authorized capital stock of AB HPI. The Group’s
subscription to AB HPI represents 50% ownership interest.

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In accordance with the Shareholders’ Agreement entered into by the Group and Heineken International
B.V. on May 27, 2016, the Group sold nonmonetary assets, (i.e., inventories, returnable containers and
brands), to AB HPI for a total consideration of P
=782.4 million. The nonmonetary assets were sold at
their carrying amounts, except for the brands which resulted to a gain of P
=46.3 million. The Group also
recognized the investment amounting to = P1,843.6 million representing 50% of the fair value of
AB HPI’s net assets.

On March 20, 2020, the Group made additional capital infusion amounting to =
P31.3 million to support
the operations of AB HPI.

On December 21, 2020, the Group entered into an amended Shareholders’ Agreement
contemporaneously with the Termination Deed with Heineken and AB HPI, to wind down the business
and operations of AB HPI effective on December 31, 2020. The amended Shareholders’ Agreement
was entered into to amend, restate and eventually terminate the Shareholders’ Agreement entered into
on May 27, 2016 in its entirety, including the other agreements covered by the said agreement.

Furthermore, in accordance with the Termination Deed, the Group acquired fixed assets, including beer
equipment, inventories and spare parts, from AB Heineken for proceeds totaling to P =1.6 billion.
The Group accounted for the purchase of these assets as an acquisition of group of assets and recognized
these assets based on their acquisition cost.

On December 22, 2020, additional capital infusion amounting to =

P361.1 million was made to cover for
AB HPI’s outstanding debts, winding up and maintenance costs, consultant fees and taxes.

Details of the investment in an associate as of December 31 are as follows:

2021 2020
(In Thousands)
Acquisition cost:
Beginning balance P
=1,179,754 =787,400
P
Additional investments  392,354
Balance at end of year 1,179,754 1,179,754
Accumulated equity in net earnings:
Balance at the beginning of the year (1,196,585) (1,229,143)
Share in net loss of an associate  32,558
Balance at end of year (1,196,585) (1,196,585)
Excess of share in net losses in an associate over the
cost of investment in an associate P
=16,831 =16,831
P

In 2021 and 2020, the Group recorded a provision for excess of share in net losses of the associate over
the cost of investment in and advance to an associate amounting to P
=16.8 million and P =441.7 million,
respectively. This was recorded as part of “Other noncurrent liabilities” account on the consolidated
balance sheet.

Pursuant to the Termination Deed, ABI recorded reversal of share in net losses of AB HPI to the extent
of its legal obligation to further contribute in case of insufficient funding of AB HPI to settle its
liabilities in 2020, proportionate to its ownership in AB HPI, amounting to =
P32.6 million.

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The reconciliation of the net assets of the foregoing material associate to the carrying amount of the
interest in this associate recognized in the consolidated balance sheets is as follows:

2021 2020
Net assets P
=13,425 =13,425
P
Proportionate ownership 50% 50%
P
=6,713 =6,713
P

Summarized financial information of AB HPI as of December 31, 2021 and 2020 and reconciliation
with the carrying amount of the investment in consolidated financial statements are set out below:

2021 2020
(In Thousands)
Current assets P
=935,967 =935,967
P
Current liabilities 922,542 922,542
Equity P
=13,425 =13,425
P

Summarized statements of comprehensive income of AB HPI for the years ended December 31
are as follows:

2021 2020
(In Thousands)
Revenue P=789,518 P2,668,605
=
Costs and expenses (1,545,082) (3,810,276)
Total comprehensive loss P=755,564 =1,141,671
P
Group’s share of total comprehensive loss for the year P
=− =−
P

Investment in AEPDC
On January 21, 2016, the Company entered into an agreement with Ayala Land Inc. (ALI) to jointly
develop a project along the C5 corridor. The project is envisioned to be a township development that
spans portion of Pasig City and Quezon City. On April 15, 2016, the Company infused = P20.0 million
to the joint project with ALI.

On July 5, 2017, the Company subscribed to additional 25,200,000 common shares and 226,800,000
preferred shares from AEPDC’s increase in authorized capital stock for a consideration totaling to
=252.0 million.
P

On November 20, 2017, the Company made additional capital infusion amounting to = P370.0 million
for the joint venture’s initial purchase of land in exchange for 370,000,000 common shares.

In 2018, the Company made additional capital infusion totaling to P

=1.5 billion for the joint venture’s
project planning and development and direct operating expenses.

On July 16 and November 19, 2019, the Company infused additional capital totaling to P=1,195.0 million
for subscription of remaining unsubscribed shares and for increase in authorized capital stock.

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On April 28 and July 27, 2020, the Company infused additional capital totaling = P1,083.5 million for
the joint venture’s capital expenditure on construction projects and working capital.

Details of the investment in a joint venture as of December 31 are as follows:

2021 2020
(In Thousands)
Acquisition cost:
Balance at beginning of year = 4,454,500
P =
P3,371,000
Additional capital infusion during the year 833,000 1,083,500
Balance at end of year 5,287,500 4,454,500
Accumulated equity in net earnings:
Balance at the beginning of the year 60,405 (58,647)
Share in net income (loss) of a joint venture* 64,423 119,052
Balance at end of year 124,828 60,405
Ending balance P
=5,412,328 =4,514,905
P
*Includes catch-up adjustment of share in net loss in 2019

Summarized financial information of AEPDC as of December 31, 2021 and 2020 follows:

2021 2020
(In thousands)
Current assets P
=13,677,474 =12,838,898
P
Noncurrent assets 4,506,255 3,985,368
Current liabilities 6,249,887 8,394,044
Noncurrent liabilities 862,949 3,390,318
Equity 11,070,893 5,039,904

Summarized statements of total comprehensive income of AEPDC for the year ended December 31 are
as follows:

2021 2020
(In Thousands)
Revenue =
P844,572 =
P974,411
Costs and expenses (690,112) (629,969)
Income before income tax 154,460 344,442
Provision for income tax (25,614) (103,243)
Total comprehensive income (loss) P
=128,846 =
P241,199
Group’s share of total comprehensive income (loss) for
the year P
=64,423 =120,599
P

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Investment in ABI Pascual Holdings

On February 15, 2012, ABI and Corporation Empresarial Pascual, S. L. (CEP), an entity organized and
existing under the laws of Spain, agreed to form ABI Pascual Holdings, a jointly controlled entity
organized and domiciled in Singapore. In accordance with the Agreement, ABI and CEP
(the “venturers”) will hold 50% interest in ABI Pascual Holdings. Further, the arrangement requires
unanimous agreement for financial and operating decisions among venturers.

On November 21, 2012, ABI Pascual Holdings created ABI Pascual Foods Incorporated (ABI Pascual
Foods), an operating company, incorporated and domiciled in the Philippines, that will develop a
business of marketing and distributing certain agreed products. As part of the joint venture agreement,
the venturers also agreed to execute a product distribution agreement.

As of December 31, 2012, ABI has an investment in ABI Pascual Holdings amounting to =
P20.1 million,
while ABI Pascual Holdings has an investment in ABI Pascual Foods amounting to P =40.2 million.
The joint venture has started operations in September 2013.

The Group determined that its advances to ABI Pascual Foods represents the Group’s long-term interest
in ABI Pascual Holdings and its subsidiary that, in substance, form part of the Group’s net investment
in the joint venture.

The summarized financial information of ABI Pascual Holdings as of December 31 follows:

2021 2020
(In thousands)
Current assets P
=529,034 =529,034
P
Noncurrent assets 3,151 3,151
Current liabilities 404,092 404,092
Noncurrent liabilities 13,285 13,285
Total equity 114,808 114,808

The summarized statements of comprehensive income of ABI Pascual Holdings for the years ended
December 31 are as follows:

2021 2020
(In Thousands)
Revenue P
=398,464 =385,710
P
Costs and expenses 274,241 288,875
Income before income tax 124,223 96,835
Provision for income tax 30,937 9,192
Net loss 93,286 87,643
Other comprehensive income 7,731 3,184
Total comprehensive income P
=101,017 =90,827
P

Group’s share of total comprehensive income

for the year P
=39,566 =35,575
P

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Disclosures on Subsidiary with Material Non-controlling Interest

Following is the financial information of PNB, which has material non-controlling interests of 43.53%
as of and for the years ended December 31:

2021 2020 2019

(In Thousands)
Accumulated balances of material
non-controlling interest P
=2,694,741 =3,201,276
P =2,882,038
P
Net income allocated to material
non-controlling interest 59,412 10,835 79,726
Total comprehensive income (loss) allocated
to material non-controlling interest 282,293 319,237 (14,705)

On February 9, 2013, PNB acquired 100% of the voting common stock of ABC. PNB accounted for
the business combination with ABC under the acquisition method of PFRS 3. In the LTG consolidated
financial statements, the merger of PNB and ABC and the acquisition of PNB through the Bank Holding
Companies are accounted for under the pooling-of-interests method. Thus, the summarized financial
information of PNB below is based on the amounts in the consolidated financial statements of
PNB prepared under the pooling-of-interests method before the Group’s intercompany eliminations.

Statements of Comprehensive Income:

2021 2020 2019

(In Thousands)
Revenue P
=49,474,321 P54,973,243
= P56,772,519
=
Cost of services (8,608,926) (12,113,434) (19,143,478)
General and administrative expenses (34,172,945) (44,655,737) (28,503,520)
Foreign exchange gains - net 743,549 919,555 1,105,903
Other income - net 32,867,305 1,772,876 2,057,559
Income before income tax 40,303,304 896,503 12,288,983
Benefit from (provision for) income tax (5,545,194) 1,798,238 (2,452,307)
Net income from continuing operations 34,758,110 2,694,741 9,836,676
Net income (loss) from discontinued
operations (735,365) 67,583 101,593
Net income 34,022,745 2,762,324 9,938,269
Other comprehensive income (loss) (2,052,906) (2,023,525) 4,821,405
Total comprehensive income P
=31,969,839 =738,799
P =14,759,674
P

Net income attributable to:

Equity holders of the Parent Company P
=33,963,333 =2,751,489
P =9,858,543
P
Non-controlling interests 59,412 10,835 79,726
Total comprehensive income (loss)
attributable to:
Equity holders of the Parent Company 31,687,546 756,023 14,774,379
Non-controlling interests 282,293 (17,224) (14,705)
Dividends declared to non-controlling
interests 4,705 19,161 3,372

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Statements of Financial Position:

2021 2020
(In Thousands)
Current assets P
=599,353,375 =644,182,968
P
Noncurrent assets 586,057,462 599,009,724
Current liabilities 925,534,374 946,187,119
Noncurrent liabilities 105,783,546 136,649,515
Equity attributable to:
Equity holders of the Parent Company 150,873,774 157,154,782
Non-controlling interest 3,219,143 3,201,276

Statements of Cash Flows:

2021 2020 2019

(In Thousands)
Operating P
=18,675,489 = P97,190,366 =P22,079,130
Investing (6,878,382) (6,726,929) (66,100,996)
Financing (51,527,513) 30,464,746 51,891,720
Net increase (decrease) in cash and cash
equivalents (P
=39,730,406) P
=120,928,183 =7,869,854
P

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12. Property, Plant and Equipment

December 31, 2021

At Appraised Values At Cost

Plant Office and Furniture,
Land Buildings and Administration Fixtures and
and Land Building Machineries Buildings and Transportation Returnable Other Construction Right-of-Use
Improvements Improvements and Equipment Subtotal Improvements Equipment Containers Equipment in Progress Subtotal Assets Total
(In Thousands)
Cost
Balance at beginning of year = 40,574,827
P = 20,576,200
P = 25,039,674
P = 86,190,701
P = 8,249,265
P = 3,082,311
P = 5,294,316
P = 14,228,945
P = 1,144,170
P = 31,999,007
P P3,746,868 =
= P121,936,576
Additions/transfers (Note 13) 3,472,964 579,792 1,865,674 5,918,430 176,372 80,699 592,364 1,082,956 514,910 2,447,301 3,431,709 11,797,440
Net increment in appraised value 523,755 245,635 391,120 1,160,510 − − − − − − − 1,160,510
Disposals/transfers/others (Note 28) − (9,175,538) (1,325,959) (10,501,497) (3,174,255) (51,915) (58,323) (7,573,439) (952,417) (11,810,349) (371,138) (22,682,984)
Balance at end of year 44,571,546 12,226,089 25,970,509 82,768,144 5,251,382 3,111,095 5,828,357 7,738,462 706,663 22,635,959 6,807,439 112,211,542
Accumulated Depreciation,
Amortization and Impairment
Losses
Balance at beginning of year 2,038,064 7,318,915 16,915,249 26,272,228 5,220,113 2,167,104 3,805,343 11,629,876 − 22,822,436 1,336,640 50,431,304
Depreciation and amortization − 393,456 1,087,971 1,481,427 1,796,880 513,160 281,914 104,146 − 2,696,100 643,849 4,821,376
Disposals/transfers/others (Note 28) 543,175 (419,738) (5,577,819) (5,454,382) (6,495,274) (149,200) 124,362 (5,082,650) − (11,602,762) (95,647) (17,152,792)
Balance at end of year 2,581,239 7,292,633 12,425,401 22,299,273 521,719 2,531,064 4,211,619 6,651,372 − 13,915,774 1,884,842 38,099,889
Net Book Value 41,990,307 4,933,456 13,545,108 60,468,871 4,729,663 580,031 1,616,738 1,087,090 706,663 8,720,185 4,922,597 74,111,653

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December 31, 2020

At Appraised Values At Cost

Plant Office and Furniture,
Land Buildings and Administration Fixtures and
and Land Building Machineries Buildings and Transportation Returnable Other Construction Right-of-Use
Improvements Improvements and Equipment Subtotal Improvements Equipment Containers Equipment in Progress Subtotal Assets Total
(In Thousands)
Cost
Balance at beginning of year =40,731,214
P =21,913,754
P =28,578,363
P =91,223,331
P =7,656,583
P =2,773,472
P =4,607,717
P =13,611,341
P =1,382,293
P =30,031,406
P =3,588,074
P =124,842,811
P
Additions/transfers (Note 13) 24,854 592,817 1,615,261 2,232,932 447,903 329,106 686,599 1,238,638 132,653 2,834,899 157,573 5,225,404
Net decrement in appraised value (799,156) (477,644) (5,552,997) (6,829,797) − − − − − − − (6,829,797)
Disposals/transfers/others (Note 28) 617,915 (1,452,727) 399,047 (435,765) 151,018 (20,267) − (574,765) (370,776) (814,790) 67,054 (1,183,501)
Effect of disposal group classified as
held for sale (Note 37) − − − − (6,239) − − (46,269) − (52,508) (65,833) (118,341)
Balance at end of year 40,574,827 20,576,200 25,039,674 86,190,701 8,249,265 3,082,311 5,294,316 14,228,945 1,144,170 31,999,007 3,746,868 121,936,576
Accumulated Depreciation,
Amortization and Impairment
Losses
Balance at beginning of year 2,212,172 7,962,240 21,237,008 31,411,420 4,546,841 1,939,265 3,476,141 10,915,688 − 20,877,935 654,329 52,943,684
Depreciation and amortization 93,187 598,694 987,154 1,679,035 451,302 233,069 304,809 757,716 − 1,746,896 1,233,524 4,659,455
Net decrement in appraised value (885,602) (399,247) (5,569,390) (6,854,239) − − − − − − − (6,854,239)
Disposals/transfers/others (Note 28) 618,307 (842,772) 260,477 36,012 227,787 (5,230) 24,393 (3,316) − 243,634 (527,337) (247,691)
Effect of disposal group classified as −
held for sale (Note 37) − − − − (5,817) − − (40,212) (46,029) (23,876) (69,905)
Balance at end of year 2,038,064 7,318,915 16,915,249 26,272,228 5,220,113 2,167,104 3,805,343 11,629,876 − 22,822,436 1,336,640 50,431,304
Net Book Value =38,536,763
P =13,257,285
P =8,124,425
P =59,918,473
P =3,029,152
P =915,207
P =1,488,973
P =2,599,069
P =1,144,170
P =9,176,571
P =2,410,228
P =71,505,272
P

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Right-of-use assets

December 31, 2021

Plant
Buildings and
Land and Land Building Machineries
Bank Premises Improvements Improvements and Equipment Total

Cost
Balance at beginning of year P2,402,908
= = 1,219,878
P P74,544
= = 49,538
P P3,746,868
=
Additions/transfers 3,352,354 25,836 53,519  3,431,709
Transfers/others (371,138)    (371,138)
Balance at end of year 5,384,124 1,245,714 128,063 49,538 6,807,439
Accumulated Depreciation,
Amortization and Impairment
Losses
Balance at beginning of year 1,176,303 115,605 22,258 22,474 1,336,640
Depreciation and amortization 564,168 41,784 26,232 11,665 643,849
Transfers/others (95,647)    (95,647)
Balance at end of year 1,644,824 157,389 48,490 34,139 1,884,842
Net Book Value P
= 3,739,300 P
= 1,088,325 = 79,573
P = 15,399
P = 4,922,597
P

December 31, 2020

Plant
Buildings and
Land and Land Building Machineries
Bank Premises Improvements Improvements and Equipment Total
Cost
Balance at beginning of year =2,279,267
P =1,185,608
P =73,661
P =49,538
P =3,588,074
P
Additions/transfers 122,420 34,270 883  157,573
Transfers/others 67,054    67,054
Effect of disposal group classified as
held for sale (Note 37) (65,833)    (65,833)
Balance at end of year 2,402,908 1,219,878 74,544 49,538 3,746,868
Accumulated Depreciation,
Amortization and Impairment
Losses
Balance at beginning of year 568,067 70,542 4,911 10,809 654,329
Depreciation and amortization 1,159,449 45,063 17,347 11,665 1,233,524
Transfers/others (527,337)    (527,337)
Effect of disposal group classified as
held for sale (Note 37) (23,876)    (23,876)
Balance at end of year 1,176,303 115,605 22,258 22,474 1,336,640
Net Book Value =1,226,605
P =1,104,273
P =52,286
P =27,064
P =2,410,228
P

Revaluation of Land and Land Improvements, Plant Buildings and Machineries and Equipment
The corresponding fair values of land and land improvements, plant buildings and building
improvements, and machineries and equipment are determined based on valuation performed by
Philippine SEC-accredited and independent appraisers. The fair value of the land was determined using
the market data approach based on available market evidence and the fair values for land improvements,
plant buildings, and machineries and equipment were derived using the depreciated replacement cost.
The dates of the latest appraisal valuations were December 31, 2021, 2020, and 2018 (see Note 34).

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Movements in revaluation increment, net of deferred income tax effect, are as follows:

2021 2020
(In Thousands)
Revaluation increment on the property, plant and
equipment, net of deferred income tax effect:
Balance at beginning of year P
=20,207,236 =20,930,672
P
Net revaluation increase 1,176,887 27,610
Transfer of portion of revaluation increment on
property, plant and equipment realized
through depreciation and disposal (733,554) (751,046)
Balance at end of year P
=20,650,569 =20,207,236
P
Attributable to:
Equity holders of the Company P
=12,964,177 =12,276,947
P
Non-controlling interests 7,686,392 7,930,289
P
=20,650,569 =20,207,236
P

If land and land improvements, plant buildings and building improvements, and machineries and
equipment were measured using the cost model, the carrying amount would be as follows:

2021 2020
(In Thousands)
Cost
Land and land improvements P9,425,784
= P8,989,134
=
Plant buildings and improvements 21,019,350 17,730,503
Machineries and equipment 32,328,420 34,756,304
62,773,554 61,475,941
Accumulated depreciation
Land and land improvements (3,863,021) (3,574,926)
Plant buildings and improvements (13,080,488) (11,058,925)
Machineries and equipment (14,490,043) (15,791,097)
(31,433,550) (30,424,948)
=
P31,340,004 =31,050,993
P

Depreciation
Depreciation of property, plant and equipment charged to operations is as follows:

2021 2020 2019

(In Thousands)
Continuing operations:
Cost of goods sold and services
(Note 24) =
P1,718,078 =1,611,117
P =1,490,522
P
Selling expenses (Note 25) 476,052 328,123 292,805
General and administrative expenses
(Note 26) 2,627,246 2,720,215 2,548,348
P
=4,821,376 =4,659,455
P =4,331,675
P

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As of December 31, 2021 and 2020, the Group’s “Construction in progress” under the “Property, plant
and equipment” account pertains to AAC’s major rehabilitation of plant facilities and PNB’s
construction of building.

Out of the total additions in 2021 and 2020, P

=34.4 million and =
P154.3 million remain to be unpaid as
of December 31, 2021 and 2020, respectively, which represent non-cash investing activities.

Certain property and equipment of the Group with carrying amount of P

=92.6 million are temporarily
idle as of December 31, 2021 and 2020, respectively.

Borrowing Costs
Unamortized capitalized borrowing costs amounted to = P9.2 million and P=9.9 million as of
December 31, 2021 and 2020, respectively. The average capitalization rate used to determine the
amount of borrowing costs eligible for capitalization was 4.5% in 2015. There was no borrowing cost
capitalized in 2021, 2020 and 2019.

13. Investment Properties

Movements of the Group’s investment properties are as follows (in thousands):

December 31, 2021
Buildings and Residential Construction
Land Improvements Unit in Progress Total
Cost
Balance at beginning of year P
=22,151,980 P
=14,845,043 P
=42,096 P
=3,322,539 P
=40,361,658
Additions 280,030 304,609 5,839,117 644,309 7,068,065
Disposals/transfers/others (3,588,873) (1,472,926) − − (5,061,799)
Balance at end of year 18,843,137 13,676,726 5,881,213 3,966,848 42,367,924
Accumulated Depreciation and
Impairment Losses
Balance at beginning of year 2,501,903 4,981,889 40,491 − 7,524,283
Depreciation − 326,229 122,510 − 448,739
Disposals/transfers/others − (52,451) − − (52,451)
Balance at end of year 2,501,903 5,255,667 163,001 − 7,920,571
Net Book Value =
P16,341,234 =
P8,421,059 P
=5,718,212 =
P3,966,848 =
P34,447,353

December 31, 2020

Buildings and Residential Construction
Land Improvements Unit in Progress Total
Cost
Balance at beginning of year =22,150,005
P =14,830,264
P =42,096
P =2,464,471
P =39,486,836
P
Additions 55,430 79,275 − 858,068 992,773
Disposals/transfers/others (53,455) (64,496) − − (117,951)
Balance at end of year 22,151,980 14,845,043 42,096 3,322,539 40,361,658
Accumulated Depreciation and
Impairment Losses
Balance at beginning of year 2,501,903 4,313,001 40,491 − 6,855,395
Depreciation − 556,356 − − 556,356
Disposals/transfers/others − 112,532 − − 112,532
Balance at end of year 2,501,903 4,981,889 40,491 − 7,524,283
Net Book Value =19,650,077
P =9,863,154
P =1,605
P =3,322,539
P =32,837,375
P

The Group’s investment properties consist of parcels of land for appreciation, residential and
condominium units for lease and for sale, and real properties foreclosed or acquired in settlement of
loans which are all valued at cost. Foreclosed investment properties still subject to redemption period
by the borrowers amounted to P =229.8 million and P=181.2 million as of December 31, 2021 and 2020,
respectively. The Group is exerting continuing efforts to dispose these properties.

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In 2016, the Group reclassified certain properties from “property, plant and equipment” to “Investment
property” with aggregate carrying amount of P =4.7 billion. These properties mainly consist of the office
spaces in the Allied Bank Center in Makati City leased out and land in Buendia, Makati City being held
for future development.

As of December 31, 2021 and 2020, the Group’s “Construction in progress” under the “Investment
property” account pertains to the construction of building intended for leasing and which is expected
to be completed in 2025.

Fair Values of Investment Properties

Below are the fair values of the investment properties as of December 31, 2021, which were determined
by professionally qualified, SEC-accredited and independent appraisers based on market values
(in thousands):

Property Approach Fair Value Valuation Report Date

Land Market approach =37,297,522
P December 31, 2021
Building and
improvements Market approach 20,036,189 December 31, 2021
=57,333,711
P

The estimated fair value of the land and building and improvements was arrived at using the Market
Approach. In this approach, the value of the land and building were based on sales and listings of
comparable property registered within the vicinity. The approach requires the adjustments of
comparable property by reducing reasonable comparative sales and listings to a common denominator.

The valuations were performed by Philippine SEC-accredited and independent valuer. The valuation
model used in accordance with that recommended by the International Valuation Standards Council
has been applied. These valuation models are consistent with the principles in PFRS 13.

The fair values of land and building and improvements were updated to reflect the value of comparable
property registered within the vicinity as of December 31, 2021.

The fair value of investment properties of the Group was determined using acceptable valuation
approaches and both observable and unobservable inputs (see Note 34).

Rent Income and Direct Operating Expenses of Investment Properties

Rental income and direct operating expenses arising from the investment properties of property
development segment amounted to = P1,893.7 million and =
P724.1 million in 2021, =P1,757.7 million and
=
P466.6 million in 2020 and P =1,707.8 million and P =444.1 million in 2019, respectively (see
Note 24). Rental income of the banking segment on its investment properties is presented under “Other
income (charges)” (see Note 28).

Depreciation of investment properties charged to operations follows:

2021 2020 2019

(In Thousands)
Cost of rental income (Note 24) P
=295,588 =296,517
P =400,369
P
General and administrative expenses
(Note 26) 153,151 259,839 127,654
P
=448,739 =556,356
P =528,023
P

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14. Other Noncurrent Assets

Other noncurrent assets consist of:

2021 2020
(In Thousands)
Software costs P
=2,538,411 =2,680,548
P
Deferred charges 1,065,090 859,031
Prepaid excise taxes (Note 37) 801,820 801,820
Creditable withholding taxes 449,842 396,550
Net retirement plan assets (Note 23) 268,910 249,437
Distribution network access 229,401 243,738
Chattel properties - net 227,187 115,356
Goodwill 163,735 163,735
Advances to suppliers 147,016 207,828
Deferred input VAT 136,399 496,205
Refundable and security deposits 8,370 206,931
Others - net 1,220,637 941,915
7,256,818 7,363,094
Allowance for probable losses (1,479,432) (1,314,007)
P
=5,777,386 =6,049,087
P

a. Movements in software costs are as follows:

2021 2020
(In Thousands)
Balance at beginning of year P
=2,680,548 =2,326,055
P
Additions 661,544 786,764
Amortization (Note 26) (461,630) (418,958)
Effect of disposal group classified as held for sale 
(Note 37)  (5,134)
Other adjustments (342,051) (8,179)
Balance at end of year =
P2,538,411 =
P2,680,548

Additions to software costs pertain primarily to the upgrade of the core banking system of the
banking segment.

b. In 2018, the Group reclassified the prepaid excise taxes of TDI from “Other current assets” to
“Other noncurrent assets” in light of the Court of Tax Appeals decision dated February 7, 2019.

c. Deferred input VAT arises mainly from the acquisition of capital goods.

d. The distribution network access, which was acquired on March 31, 2017, covers APB Myanmar’s
relations with Myanmar Distribution Group, its exclusive distributor.

e. Refundable deposits consist principally of amounts paid by the property development segment to
its utility providers for service applications and guarantee deposit to Makati Commercial Estate
Association (MACEA) for plans processing, monitoring fee and development charge of the
Group’s projects. Deposits paid to utility companies will be refunded upon termination of the
service contract while guarantee deposit paid to MACEA will be refunded upon project completion.

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f. The Group recognized goodwill which pertains mainly to ADI amounting to P =144.7 million,
respectively. As of December 31, 2021 and 2020, the Group performed its annual impairment
testing of goodwill related to its CGUs, ADI.

The recoverable amount of ADI is determined based on value-in-use calculations using cash flow
projections from financial budgets approved by management covering a five-year period.
The projected cash flows have been updated to reflect the increase in demand for products based
on TDI’s projected sales volume increase, selling price increase and cost and expenses increase.
The pre-tax discount rate applied to the cash flow projection is 10.5% and 9.8% in 2021 and 2020,
respectively. The growth rate used to extrapolate the cash flows of until beyond the five-year period
is 6.0% as of December 31, 2021 and 6.5% as of December 31, 2020. Management assessed that
this growth rate is comparable with the average growth for the industry in which ADI operates.
Management believes that no reasonably possible change in any of the above key assumptions
would cause the carrying value of ADI to exceed its recoverable amount, which is based on
value-in-use. As of December 31, 2021 and 2020, the recoverable amount of ADI is higher than
its carrying value.

g. As of December 31, 2021 and 2020, accumulated depreciation on chattel mortgage properties
acquired by the Group in settlement of loans amounted to P =241.8 million and P
=140.1 million,
respectively. As of December 31, 2021 and 2020, the total recoverable value of certain chattel
mortgage properties of PNB that were impaired is at =
P0.9 million.

h. The Group has receivable from an SPV amounting to P =500 million. This represents fully
provisioned subordinated notes received by the Group from Golden Dragon Star Equities and its
assignee, Opal Portfolio Investing, Inc. (an SPV), relative to the sale of certain non-performing
assets of the Group.

i. Miscellaneous assets mainly pertain to interoffice floats. The bank provided allowance for probable
losses on floats which are long outstanding.

j. Movements in the allowance for probable losses on non-current assets follow:

2021 2020
(In Thousands)
Balance at beginning of year P
=1,314,007 =1,058,123
P
Provisions:
Continuing operations (Note 28) 165,425 677,089
Discontinued operation  (527)
Transfers and others  (391,085)
Effect of discontinued operations  (29,593)
P
=1,479,432 =1,314,007
P

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15. Deposit Liabilities

2021 2020
(In Thousands)
Demand =
P216,367,830 =199,770,048
P
Savings 484,227,339 415,835,439
Time 179,974,944 264,906,076
880,570,113 880,511,563
Presented as noncurrent (38,508,755) (58,380,208)
=
P842,061,358 =822,131,355
P

Of the total deposit liabilities of the Group, P

=28.6 billion and P
=30.0 billion are non-interest bearing as
of December 31, 2021 and 2020, respectively. Annual interest rates of the remaining deposit liabilities
follow:

2021 2020
Foreign-currency denominated deposit liabilities 0.01% to 3.00% 0.01% to 4.75%
Peso-denominated deposit liabilities 0.10% to 6.75% 0.10% to 10.00%

Under existing BSP regulations, non-FCDU deposit liabilities of PNB is subject to reserves equivalent
to 12.00%. As of December 31, 2021 and 2020, available reserves booked under “Due from BSP”
amounted to P=81.3 billion and =
P80.0 billion, respectively (see Note 5).

Long-term Negotiable Certificates of Time Deposits (LTNCDs)

Time deposit of the Group includes the following LTNCDs:
Interest Carrying Value
Repayment
Issue Date Maturity Date Face Value Coupon Rate Terms 2021 2020
October 11, 2019 April 11, 2025 =4,600,000
P 4.38% Quarterly P
=4,578,946 P4,573,124
=
February 27, 2019 August 27, 2024 8,220,000 5.75% Quarterly 8,187,523 8,176,616
October 26, 2017 April 26, 2023 6,350,000 3.88% Quarterly 6,339,910 6,332,653
April 27, 2017 October 27, 2022 3,765,000 3.75% Quarterly 3,761,261 3,756,911
December 6, 2016 June 6, 2022 5,380,000 3.25% Quarterly 5,377,750 5,372,730
=1,274,175,000
P P
=28,245,390 =28,212,034
P

Other significant terms and conditions of the above LTNCDs follow:

a. Issue price at 100.00% of the face value of each LTNCD.

b. The LTNCDs bear interest rate per annum on its principal amount from and including the
Issue Date thereof, up to but excluding the Early Redemption Date or Maturity Date (as the case
may be). Interest in respect of the LTNCD will be calculated on an annual basis and will be paid
in arrears quarterly on the last day of each successive Interest Period.

c. Unless earlier redeemed, the LTNCDs shall be redeemed by PNB on maturity date at an amount
equal to one hundred percent (100%) of the aggregate issue price thereof, plus any accrued and
unpaid interest thereon. The LTNCDs may not be redeemed at the option of the holders.

d. The LTNCDs constitute direct, unconditional, unsecured, and unsubordinated obligations of PNB,
enforceable according to the related Terms and Conditions, and shall at all times rank paripassu
and without any preference or priority among themselves and at least paripassu with all other
present and future direct, unconditional, unsecured, and unsubordinated obligations of the Issuer,
except for any obligation enjoying a statutory preference or priority established under Philippine
laws.

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e. Subject to the “Events of Default” in the Terms and Conditions, the LTNCDs cannot be
pre-terminated at the instance of any CD Holder before Maturity Date. In the case of an event of
default, none of the CD Holders may accelerate the CDs on behalf of other CD Holders, and a CD
Holder may only collect from PNB to the extent of his holdings in the CDs. However, PNB may,
subject to the General Banking Law of 2000, Section X233.9 of the Manual of Regulations for
Banks, Circular No. 304 Series of 2001 of the BSP and other related circulars and issuances, as
may be amended from time to time, redeem all and not only part of the outstanding CDs on any
Interest Payment Date prior to Maturity Date, at an Early Redemption Amount equal to the Issue
Price plus interest accrued and unpaid up to but excluding the Early Redemption Date.

f. The LTNCDs are insured by the PDIC up to a maximum amount of = P0.5 million subject to
applicable laws, rules and regulations, as the same may be amended from time to time.

g. Each Holder, by accepting the LTNCDs, irrevocably agrees and acknowledges that: (a) it may not
exercise or claim any right of set-off in respect of any amount owed to it by PNB arising under or
in connection with the LTNCDs; and (b) it shall, to the fullest extent permitted by applicable law,
waive and be deemed to have waived all such rights of set-off.

Interest expense on deposit liabilities presented under “Cost of banking services” amounted to
=4.8 billion, =
P P7.3 billion and P
=13.6 billion in 2021, 2020 and 2019, respectively (see Note 24).

In 2021, 2020 and 2019, interest expense on LTNCDs of the Group includes amortization of transaction
costs amounting to P =33.4 million, P =59.9 million and P=40.5 million, respectively. Unamortized
transaction costs of the LTNCDs amounted to = P69.6 million and = P103.0 million as of
December 31, 2021 and 2020, respectively.

16. Financial Liabilities at Fair Value through Profit or Loss (FVTPL)

Financial liabilities at fair value through profit or loss consist of derivatives liabilities amounting
to =
P891.5 million and = P701.2 million as of December 31, 2021 and 2020, respectively (see Notes 21
and 33).

17. Bills and Acceptances Payable

Bills and acceptances payable consist of:

2021 2020
(In Thousands)
Bills payable to:
BSP and local banks P
=37,482,381 =33,116,145
P
Foreign banks 8,263,434 50,482,387
Others 98,086 
45,843,901 83,598,532
Acceptances outstanding 7,109,896 3,560,918
52,953,797 87,159,450
Presented as noncurrent (3,173,443) (14,181,368)
P
=49,780,354 =72,978,082
P

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Annual interest rates are shown below:

2021 2020 2019

Foreign currency-denominated borrowings 0.1% to 1.2% 0.1% to 4.4% 0.2% to 4.4%
Peso-denominated borrowings 1.0% to 2.0% 4.0% to 6.5% 4.0% to 5.4%

As of December 31, 2021 and 2020, bills payable with a carrying amount of P =38.5 billion and
=69.9 billion are secured by a pledge of financial assets at FVTOCI with fair values of P
P =32.8 billion
and P
=44.6 billion, respectively, and investment securities at amortized cost with carrying values of
=5.3 billion and =
P P26.1 billion, respectively, and fair values of P=5.6 billion and =P27.6 billion,
respectively (see Note 7).

Interest expense on bills payable is included under “Cost of banking services” amounting to
=0.5 billion in 2021, =
P P2.9 billion in 2020 and =
P2.2 billion in 2019 (see Note 24).

18. Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of:

2021 2020
(In Thousands)

Trade payables =
P3,154,756 =
P7,821,737
Nontrade payables 506,615 637,021
Accrued expenses:
Other benefits - monetary value of leave credits 2,358,716 1,859,275
Purchase of materials and supplies and others 2,154,293 2,253,204
PDIC insurance premiums 1,191,720 832,069
Project development costs 1,167,420 1,290,090
Advertising and promotional expenses 985,735 905,604
Taxes and licenses 905,539 979,412
Accrued nterest 816,859 1,071,842
Information technology-related expenses 665,191 331,627
Retention payable 613,124 1,538,458
Rent and utilities payable 178 185,695
Due to government agencies 457,006 223,225
Output VAT 395,637 151,801
Other payables 2,742,872 767,984
P
=18,115,661 =20,849,044
P

Trade Payables
Trade payables are non-interest bearing and are normally settled on 30 to 60 days terms. Trade payables
arise mostly from trade purchases of the banking group and purchases of inventories, which include
raw materials and indirect materials (i.e., packaging materials) and supplies, for use in manufacturing
and other operations.

Trade payables also include importation charges related to raw materials purchases, as well as
occasional acquisitions of production equipment and spare parts.

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Retention Payable
Retention payable is the amount deducted from the total billing of the contractor which will be paid
upon completion of the contracted services of Eton.

Accrued Project Development Costs

Accrued project development costs represent costs incurred by the Property Development segment in
the development and construction of real estate projects.

Other Payables
Other payables include outside services, travel and transportation, employee benefits, management,
director and other professional fees of the Group which are not individually material

19. Short-term and Long-term Debts

Short-term Debts
As of December 31, 2021 and 2020, outstanding unsecured short-term debts amounted to
=3,940.0 million and =
P P4,740.0 million, respectively. The loans, which are subject to annual interest
rates ranging from 3.3% to 5.0% in 2021 and 3.7% to 7.0% in 2020, are payable lump-sum on various
dates within one year and subject to renewal upon agreement by the Group and counterparty banks.

Long-term Debts

2021 2020
(In Thousands)
Bonds payable P
=53,383,421 =64,056,335
P
Lease liabilities (Note 37) 5,144,046 2,775,256
Unsecured term loans 4,115,867 2,911,053
62,643,334 69,742,644
Current portion (3,597,299) (14,527,082)
=
P59,046,035 =55,215,562
P

PNB’s Bonds Payable

The fixed rate medium term senior notes are drawdowns from PNB’s Medium Term Note Programme
(the MTN Programme), which was established on April 13, 2018 with an initial nominal size of US$1.0
billion. On June 14, 2019, PNB increased the size of its MTN Programme to US$2.0 billion. Both
issued fixed rate medium term senior notes are listed in the Singapore Exchange Securities Trading
Limited.

The fixed rate bonds represent PNB’s maiden issuance of Philippine peso-denominated bonds in
Philippine Dealing & Exchange Corp.

As of December 31, 2021 and 2020, the unamortized transaction cost of bonds payable amounted to
=168.7 million and =
P P252.2 million. Amortization of transaction costs amounting to =
P83.5 million and
=169.5 million was charged to ‘Interest expenses - bonds payable’ in the consolidated statement of
P
income (Note 19).

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Unsecured term loans of Eton

On January 28, 2013, Eton entered into an unsecured term loan agreement with Banco de Oro (BDO)
amounting to P =2.0 billion to finance the construction of Eton projects. The term loan bears a nominal
interest rate of 5.53% and will mature on January 26, 2018. Principal repayments will start one year
from the date of availment and are due annually while interest payments are due quarterly starting
April 28, 2014. Effective on October 28, 2013, Eton and BDO agreed to the new interest rate of 4.75%.
Eton settled the outstanding loans upon their maturity in January 2018.

In 2016, Eton entered into an unsecured term loan agreement with Asia United Bank (AUB) amounting
to =
P1.5 billion, to finance the construction of Eton’s projects. The term loan bears a nominal interest
rate of 5% and will mature on September 28, 2023. Principal repayments will commence two years
from the date of availment and are due quarterly while interest payments are due quarterly starting
December 28, 2016.

In 2018, Eton entered into an unsecured term loan agreement with Bank of the Philippine Islands (BPI)
amounting to P =5.0 billion to finance the construction of the Eton’s projects. On July 31, 2018,
=0.5 billion was initially drawn and an additional P
P =1.0 billion on September 26, 2018. The term loan
with BPI has a nominal rate of 6.8% and 7.9% for the first and second drawdown, respectively. In
2021 and 2020, Eton availed loan drawdowns totaling to P =1,700.0 million and =
P1,800.0 million,
respectively, with a nominal rate of 5% for each of the drawdown. Principal repayments will commence
a year from the date of initial borrowing and due quarterly, while interest payments are due quarterly.

Finance costs
Interest recognized on short-term and long-term debts, except for subordinated debts, are presented under
“Finance costs” in the consolidated statements of income (see Note 27). Interest costs from subordinated
debts are included in the “Cost of banking services” (see Note 24).

Compliance with debt covenants

As of December 31, 2021 and 2020, the Group has complied with the financial and non-financial
covenants of its long-term debts.

20. Other Liabilities

2021 2020
(In Thousands)
Customers’ deposits P
=1,475,684 =997,714
P
Deferred revenue 1,391,578 1,136,585
Dormant credits 1,303,713 1,258,502
Managers’ checks and demand drafts outstanding 1,256,121 1,302,745
Provisions (Note 37) 1,095,325 979,067
Payable to landowners 1,061,191 1,061,191
Bills purchased - contra (Note 8) 1,053,517 1,548,226
Due to Treasurer of the Philippines 882,769 675,835
Deposit on lease contracts 593,903 878,193
Interoffice floats 537,628 537,628
Tenants’ rental deposits 411,502 428,191
Margin deposits and cash letters of credit 325,829 329,432
Withholding taxes payable 309,897 265,884
(Forward)

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2021 2020
(In Thousands)
Advance rentals P
=217,857 =71,607
P
Due to other banks 213,257 537,116
Payment order payable 196,718 263,959
Miscellaneous tax securities 131,875 223,204
Others 5,963,191 3,211,751
18,421,555 15,706,830
Noncurrent portion (9,040,491) (5,526,724)
P
=9,381,064 =10,180,106
P

Payables to Landowners
In various dates in 2014, Eton executed a =
P1,061.2 million promissory note, subject to interest rate of
PDSTF 3 years plus 0.50% spread, to various landowners in relation to its purchase of land located in
Laguna with total purchase price of P
=1.3 billion. In June 2017, the payment of the various promissory
notes were extended for another three years.

Interest expense related to payables to landowners amounted to = P50.3 million and =

P62.7 million, net of
capitalized portion of =
P10.1 million and =P13.5 million in 2020 and 2019, respectively (nil in 2021) [see
Notes 12, 13 and 27].

Customers’ Deposits
Customers’ deposits represent payments from buyers of residential units which will be applied against
the corresponding contracts receivables which are recognized based on the revenue recognition policy
of the Group. This account includes the excess of collections over the recognized receivables amounting
to =
P995.1 million and =
P997.7 million as of December 31, 2021 and 2020, respectively.

Deposits and Deferred Credits

Other liabilities of the property development segment include tenants’ rental deposits, advance rentals
and other deferred credits. Security deposits pertain to the amounts paid by the tenants at the inception
of the lease which is refundable at the end of the lease term. Advance rentals pertain to deposits from
tenants which will be applied against receivables either at the beginning or at the end of lease term
depending on the lease contract. Deferred credits represent the excess of the principal amount of the
security deposits over its fair value. Amortization of deferred credits is included in “Rental income” in
the consolidated statements of income (see Note 14).

Others
Other liabilities pertains to banking segment’s liabilities which include insurance contract liabilities,
accounts payable, bills purchased - contra, remittance-related payables, overages, advance rentals and
sundry accounts.

21. Derivative Financial Instruments

The table in the next page show the fair values of derivative financial instruments entered into by the
Group, recorded as derivative assets or derivative liabilities (included under “Financial assets and
liabilities at FVTPL”) , together with the notional amounts. The notional amount is the amount of a
derivative’s underlying asset, reference rate or index and is the basis upon which changes in the value
of derivatives are measured. The notional amounts indicate the volume of transactions outstanding as
of December 31, 2021 and 2020 and are not indicative of either market risk or credit risk (amounts in
thousands, except average forward rate).

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December 31, 2021 December 31, 2020

Average Average
Forward Notional Forward Notional
Assets Liabilities Rate Amount* Assets Liabilities Rate Amount*
(In Thousands)
Freestanding derivatives:
Currency forwards
BUY:
USD P
= 1,355,660 P
= 274 51.00 P
= 3,861,673 =3,819
P =556,154
P 48.02 =
P3,088,554
JPY − − − − − − − −
HKD − − − − 163 − 0.13 1,584,875
CNY − − − − − − − −
GBP 47 16 1.35 6,325 − 186 1.35 800
EUR 6 5 1.13 12,645 11 30 1.22 8,216
SGD 31 – 0.74 1 − − − −
AUD − − − − 2,373 − 0.76 68,028
PHP – 1,544 1.00 1,788,750 123 − 1.00 2,401,273
SELL:
USD 990 887,819 51.00 1,374,345 212,405 120 48.02 877,320
CAD 141 11 0.78 2,125 91 84 0.78 9,461
GBP 30 884 1.35 8,500 1,163 − 1.35 2,500
HKD 1,714 108 0.13 2,217,580 19 51 0.13 726,829
EUR 2 153 1.13 19,443 − 3,823 1.22 16,700
JPY 6,124 9 0.01 1,080,000 12 665 0.01 1,170,000
SGD 16 436 0.74 1,400 − 440 0.75 708
AUD – 228 0.72 500 − 200 0.76 400
NZD – 36 0.68 400 63 − 0.71 350
PHP 290 8 1.00 509,708 3 23 1.00 7,023
Interest rate swaps – – – – 150,408 139,463 − −
P
= 1,365,051 P
= 891,531 =370,653
P =701,239
P
* The notional amounts pertain to the original currency except for the embedded derivatives, which represent the equivalent to USD
amount.

The table below shows the rollforward analysis of net derivatives assets (liabilities):

2021 2020
(In Thousands)
Balance at beginning of year
Derivative assets =
P370,653 =373,040
P
Derivative liabilities 701,239 245,619
(330,586) 127,421
Changes in fair value
Currency forwards and spots* 805,748 (459,964)
Interest rate swaps and warrants** (23,472) (2,532)
782,276 (462,496)
Availments 21,830 4,489
Balance at end of year
Derivative assets 1,365,051 370,653
Derivative liabilities 891,531 701,239
= 473,520
P (P
=330,586)
* Presented as part of “Foreign exchange gains”.
** Presented as part of “Trading and investment securities gains-net”

The changes in fair value of the derivatives are included in “Trading and securities gains - net”
presented as part of “Banking revenues” in the consolidated statements of income (see Note 24).

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22. Related Party Transactions

The Company has transacted with its subsidiaries, associates and other related parties as follows:

Parent Company, Subsidiaries,

Associates and Joint Ventures
Parent Company Associates
Tangent APLII
AB HPI
Subsidiaries PMFTC
TDI and Subsidiaries VMC
AAC
ADI Joint Ventures
TBI ABI Pascual Holdings
ABI and Subsidiaries ABI Pascual Foods
AB Nutribev AEPDC
Agua Vida Systems, Inc.
Asia Pacific Beverage Pte Ltd Entities Under Common Control
Asia Pacific Beverages Myanmar Company Limited Ascot Holdings, Inc.
Interbev Basic Holdings Corporation
Packageworld Billinge Investments Limited
Waterich Bright Able Holdings Ltd.
FTC Complete Best Development Ltd.
Shareholdings Cormack Investments Ltd
Saturn Cosmic Holdings Corp.
Paramount and Subsidiaries Cube Factor Holdings, Inc.
Eton Dyzum Distillery Inc.
BCI Foremost Farms Inc.
ECI Grand Cargo and Warehousing Services., Inc.
EPMC Grandspan Development Corp.
FHI Grandway Konstruct, Inc.
Bank Holding Companies: Harmonic Holdings Corp.
All Seasons Realty Corp. Heritage Holdings Corp.
Allmark Holdings Corp. Hibersham Assets Ltd.
Caravan Holdings, Corp. High Above Properties Ltd.
Dunmore Development Corp. Himmel Industries Inc.
Dynaworld Holdings Inc. In Shape Group Ltd.
Fil-Care Holdings Inc. Lapu Lapu Packaging
Ivory Holdings, Inc. Link Great International Ltd.
Kenrock Holdings Corp. Lucky Travel Corporation
Kentwood Development Corp. Maxell Holdings, Corp.
La Vida Development Corp. Negros Biochem Corporation
Leadway Holdings, Inc. Networks Holdings & Equities, Inc.
Merit Holdings & Equities Corp. Orient Legend Developments Ltd.
Multiple Star Holdings Corp. Penick Group Limited
Pioneer Holdings & Equities, Inc. Philippine Airlines, Inc.
Profound Holdings Inc. Pol Holdings, Inc.
Purple Crystal Holdings, Inc. Polima International Limited
Safeway Holdings & Equities Inc. Proton Realty & Development Corporation
Society Holdings Corp. Rapid Movers & Forwarders Co. Inc.
Solar Holdings Corp. Sierra Holdings & Equities, Inc.
Total Holdings Corp. Step Dragon Co. Limited
Donfar Management Ltd. Trustmark Holdings Corporation
Fast Return Enterprises Ltd. Upright Profits Ltd.
Fragile Touch Investments Ltd.
Key Landmark Investments Ltd.
Mavelstone International Ltd.
True Success Profits Ltd.
Uttermost Success, Ltd.
PNB and Subsidiaries
Mabuhay Digital Philippines, Inc.
Mabuhay Digital Technologies, Inc.

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The consolidated statements of income include the following revenue and other income-related (costs and
other expenses) account balances arising from transactions with related parties:

Nature 2021 2020 2019

(In Thousands)
Dividend income =20,749,480
P =21,751,985
P =9,778,726
P
Purchases of inventories (794,530) (427,183) (547,273)
Associates
Sales − 418,772 516,812
Leases 35,100 35,100 35,100
Banking revenue - interest on
loans and receivables 575,833 1,895,183 1,255,819
Rent income 35,719 28,001 17,968
Entities Under Interest income on loans and
Common Control advances 51,737 22,688 23,090
Sales of consumer products 7,405 7,331 30,656
Other income 86,856 96,523 73,199
Freight and handling (8,676) (17,517) (13,802)
Purchases of inventories (6,785) (6,479) (6,336)
Management and professional fees (558,372) (558,372) (581,793)
Cost of banking services - interest
Entities Under expense on deposit liabilities (211,108) (99,403) (246,104)
Common Control Outside services − (71,771) (71,668)
Rent expense − (23,710) (23,698)
Cost of goods sold and services (866) (1,213) (2,035)
Advertising expense − − (130)
Short-term employee benefits (460,711) (587,077) (572,547)
Key Management
Post-employment benefits (50,629) (70,204) (77,652)

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The consolidated statements of financial position include the following asset (liability) account balances with related parties:

Amount/Volume Outstanding Balance

Financial Statement Account Terms and Conditions 2021 2020 2021 2020
(In Thousands)

Due to related parties On demand; non-interest bearing P

=− P−
= (P
= 15,325) (P
=15,325)
Parent Company
Due from related parties 120 days term; 2.5% interest per annum 5,729,300 − 6,238,300 509,000
Other receivables - dividends Payable monthly 20,749,480 21,751,985 − −
Associates
Trade receivables - do - − 418,772 121,253 141,405
Nontrade receivables - do - − 258,057 8,928 8,928
Account payable and other 30 to 60 days terms; non-interest bearing
liabilities 794,530 (427,183) − (352,912)
Secured by hold-out on deposits, government
securities, real estate and mortgage trust indenture;
Unimpaired; With interest rates ranging from 2.20%
to 9.70% with maturity terms ranging from 60 days
to 12 years and payment terms of ranging from
monthly to quarterly payments; with aggregate
Finance receivables allowance for credit losses of P
=9.6 billion 575,833 1,895,183 57,580,429 41,772,870
Trade receivables - do - 7,405 7,331 21,665 19,456
Entities Under Other receivables - do - 86,856 96,523 27,480 11,675
Common Control Due from related parties On demand; non-interest bearing 1,732 100,000 1,447,234 1,445,502
Advances to suppliers - do - 866 (2,525) 501 501
With annual rates ranging from 0.10% to 1.50% and
maturity ranging from 30 days to
Deposit liabilities 365 days 15,060,480 5,918,653 36,117,192 21,056,712
Account payable and other
liabilitites 30 to 90 days terms; non-interest bearing (139,703) (37,852) 478,265 (338,562)
Due to related parties On demand; non-interest bearing − − (50,000) (50,000)
Other payables 30 to 90 days terms; non-interest bearing − − − −

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As of December 31, 2021 and 2020, the outstanding related party balances are unsecured and settlement
occurs in cash, unless otherwise indicated. The Group has not recorded any impairment of receivables
relating to amounts owed by related parties. This assessment is undertaken each financial year through
examining the financial position of the related parties and the market in which these related parties
operate.

Other terms and conditions related to the above related party balances and transactions are as follows:

Transactions with Tangent, parent company

 In December 2021, Tangent obtained interest-bearing loans from the Group totaling =
P5.7 billion
with a term of 120 days.

 In 2021 and 2020, the Group declared cash dividends to stockholders of which P
=8.7 billion and
=6.5 billion, respectively were paid to Tangent.
P

Transactions with Associates

 Dividend income from PMFTC amounted to =

P20.7 billion in 2021 and P
=21.8 billion in 2020
(see Note 11).

 The Group purchases raw materials such as raw and refined sugar and molasses from VMC.

 ABI entered into an operating lease agreement with AB HPI to lease portions of its two breweries,
in Cabuyao, Laguna and El Salvador, Misamis Oriental, subject to the terms and conditions of an
asset lease agreement signed last November 15, 2016. The lease has a fixed yearly increase as
specified in the contract.

 ABI sold inventories to AB HPI aside from the nonmonetary assets sold on November 15, 2016,
including work in progress, amounting to =
P423.3 million. In 2021 and 2020, ABI rendered services
in favor of AB HPI related to supplies, both imported and locally-purchased, advertising expense,
promotions, professional fees, engineering fee and shared expenses in the plant.

In 2020, in accordance with the Termination Deed, ABI acquired fixed assets, including beer
equipment, inventories and spare parts, from AB HPI for purchase price totaling to =
P1.6 billion.

Transactions with Entities under Common Control

 Due to related parties include cash advances provided to the Group to support its working capital
requirements.

 Several subsidiaries of the Group entered into management services agreements with
Basic Holdings Corporation for certain considerations. Management fees are recorded under
“Outside services” in “Cost of goods sold” and “Professional fees” in the “General and
administrative expenses”.

 The property development segment purchases parcels of land from other related parties for use in
its various projects.

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 Several entities under common control maintain peso and foreign currency denominated deposits
and short-term and long-term loans with PNB. Interest income and financing charges related to
these transactions are reported under “Banking revenue” and “Cost of banking services”,
respectively (see Note 24).

23. Retirement Benefits

The Group has funded, noncontributory defined benefit retirement plans, administered by a trustee,
covering all of its permanent employees. As of December 31, 2021 and 2020, the Group is in
compliance with Article 287 of the Labor Code, as amended by Republic Act No. 7641.

Details of the Group’s net retirement plan assets and liabilities are as follows:

2021 2020
(In Thousands)
Net retirement plan assets:
FTC P
=256,485 =241,252
P
LTG 1,940 6,068
TBI 10,485 2,117
P
=268,910 =249,437
P

Net retirement benefits liabilities:

PNB and subsidiaries P
=920,581 =1,206,350
P
ABI and subsidiaries 640,422 984,644
Eton and subsidiaries 141,134 143,733
ADI 46,556 39,661
AAC 56,184 38,628
TDI 12,780 5,621
P
=1,817,657 =2,418,637
P

200 *SGVFS162724*
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The following tables summarize the components of net retirement plan assets and net retirement benefits liability recognized in the consolidated statements of
financial position, the net benefit expenses recognized in the consolidated statements of income and the remeasurement losses (gains) recognized in consolidated
statements of comprehensive income.

Net retirement plan assets:

2021 2020 2019

Defined Net Defined Net Defined Net
Benefit Fair Value of Retirement Benefit Fair Value of Retirement Benefit Fair Value of Retirement
Obligations Plan Assets Plan Assets Obligations Plan Assets Plan Assets Obligations Plan Assets Plan Assets
(In Thousands)
Beginning balance P
=125,747 (P
= 375,184) (P
= 249,437) P157,751
= (P
=417,710) (P
=259,959) =201,030
P (P
=481,494) (P
=280,464)
Change in status of retirement plan − − − (62,878) 65,525 2,647 − − −
Net retirement benefits expense (income) in
profit or loss:
Current service cost 6,577 − 6,577 16,934 (1,465) 15,469 10,478 (1,380) 9,098
Net interest cost 4,851 (14,520) (9,669) 5,040 (16,381) (11,341) 7,389 (26,178) (18,789)
11,428 (14,520) (3,092) 21,974 (17,846) 4,128 17,867 (27,558) (9,691)
Contributions − (8,030) (8,030) − (8,030) (8,030) (655) (3,620) (4,275)
Benefits paid (4,835) 4,835 − − − − (3,995) 3,995 −
Remeasurement losses (gains) in other
comprehensive income - actuarial changes
arising from changes in:
Financial assumptions 4,256 − 4,256 19,040 − 19,040 32,296 − 32,296
Demographic assumptions − 11,088 11,088 − 894 894 − (8,841) (8,841)
Experience adjustments (25,510) 1,815 (23,695) (10,140) 1,983 (8,157) 11,927 (911) 11,016
(21,254) 12,903 (8,351) 8,900 2,877 11,777 44,223 (9,752) 34,471
Ending balance =
P111,086 (P
=379,996) (P
=268,910) =125,747
P (P
=375,184) (P
=249,437) =258,470
P (P
=518,429) (P
=259,959)

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Net retirement benefits liabilities:

2021 2020 2019

Defined Accrued Defined Accrued Defined Accrued
Benefit Fair Value of Retirement Benefit Fair Value of Retirement Benefit Fair Value of Retirement
Obligations Plan Assets Benefits Obligations Plan Assets Benefits Obligations Plan Assets Benefits
(In Thousands)

Beginning balance =
P11,130,110 (P
=8,711,473) =
P2,418,637 =11,334,593
P (P
=9,634,850) =1,699,743
P =9,239,745
P (P
=7,601,607) =1,638,138
P
Change in status of retirement plan − − − 62,878 (65,525) (2,647) − − −
Net retirement benefits cost in profit or loss:
Current service cost 970,694 − 970,694 832,107 − 832,107 625,316 − 625,316
Net interest cost 385,429 (300,486) 84,943 445,783 (325,044) 120,739 542,042 (431,789) 110,253
Past service cost − − − 25,454 − 25,454 3,774 − 3,774
1,356,123 (300,486) 1,055,637 1,303,344 (325,044) 978,300 1,171,132 (431,789) 739,343
Contributions (750,120) (209,028) (959,148) − (1,117,108) (1,117,108) (1,000) (1,904,683) (1,905,683)
Benefits paid from plan assets (686,967) 686,967 − (537,982) 537,982 − (419,579) 419,579 −
Benefits paid directly from book reserves − − − (1,440) − (1,440) (20,590) − (20,590)
Settlement benefits paid directly by the − − − −
Company − − − (6,092) (6,092)
Remeasurement losses (gains) in other
comprehensive income - actuarial changes
arising from changes in:
Financial assumptions (647,100) − (647,100) 1,052,016 − 1,052,016 1,322,604 − 1,322,604
Demographic assumptions − − - (55,142) − (55,142) (26,893) − (26,893)
Experience adjustments (294,650) 244,281 (50,369) (243,410) 128,580 (114,830) 69,174 (116,350) (47,176)
(941,750) 244,281 (697,469) 753,464 128,580 882,044 1,364,885 (116,350) 1,248,535
Effect of disposal group classified as held for − − −
sale − − − (62,899) 48,736 (14,163)
Ending balance =
P10,107,396 (P
=8,289,739) =
P1,817,657 =12,845,866
P (P
=10,427,229) =2,418,637
P =11,334,593
P (P
=9,634,850) =1,699,743
P

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The fair value of plan assets as of December 31 is as follows:

2021 2020
(In Thousands)
Cash and cash equivalents P
=3,934,168 =4,030,216
P
Receivables 84,364 230,309
Equity investments:
Financial institutions 1,017,676 748,372
Other 953,003 844,956
Debt investments:
Investment in private debt securities 587,954 2,542,429
Investments in government securities 2,011,167 1,745,693
Others 81,403 660,440
Fair value of plan assets P
=8,669,735 =10,802,415
P

The major categories of plan assets as a percentage of the fair value of total plan assets are as follows:
2021 2020
Cash and cash equivalents 45% 37%
Receivables 1% 2%
Equity investments 23% 15%
Debt investments 30% 40%
Others 1% 6%
Fair value of plan assets 100% 100%

The overall investment policy and strategy of the Group’s defined benefit plans is guided by the
objective of achieving an investment return which, together with contributions, ensures that there will
be sufficient assets to pay pension benefits as they fall due while also mitigating the various risk of the
plans. The plan assets have diverse investments and do not have concentration risk.
The Group’s defined pension plan are funded through the contributions made by the Group to the trust.
The principal assumptions used in determining pension benefit obligations for the Group’s plans as of
January 1 are shown below:
2021 2020 2019
Discount rate 3.45%-7.37% 3.4%-3.8% 4.7%-5.1%
Future salary increases 3.0%-10.0% 3.0%-10.0% 4.0%-8.0%

As of December 31, 2021, the discount and future salary increase rates are 4.7%-5.1% and 4-8%,
respectively.
The sensitivity analysis below has been determined based on reasonably possible changes of each
significant assumption on the defined benefit obligations as of the end of the reporting period, assuming
all other assumptions were held constant (in thousands):
2021 2020
Increase (Decrease) Increase (Decrease)
in Present in Present
Change in Value of Defined Change in Value of Defined
rate Benefit Obligations rate Benefit Obligations
Discount rates 0.50% (P
=729,343) 0.50% (P
=788,245)
-0.50% 799,196 -0.50% 854,060
Future salary increases 1.00% 895,656 1.00% 986,359
-1.00% (785,500) -1.00% (537,972)

203 *SGVFS162724*
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Full actuarial valuations were performed to test the sensitivity of the defined benefit obligation to a 1%
increment in salary increase rate, 0.5% decrement in the discount rate and a 10% improvement in the
employee turnover rate. The results also provide a good estimate of the sensitivity of the defined benefit
obligation to a 1% decrement in salary increase rate, 0.5% increment in the discount rate and a 10%
increase in the employee turnover rate but with reverse impact.

The Group employs asset-liability matching strategies to maximize investment returns at the least risk
to reduce contribution requirements while maintaining a stable retirement plan. Retirement plans are
invested to ensure that liquid funds are available when benefits become due, to minimize losses due to
investment pre-terminations and maximize opportunities for higher potential returns at the least risk.

The current plan asset of the Group is allocated to cover benefit payments in the order of their proximity
to the present time. Expected benefit payments are projected and classified into short-term or long-
term liabilities. Investment instruments that would match the liabilities are identified. This strategy
minimizes the possibility of the asset-liability match being distorted due to the Group’s failure to
contribute in accordance with its general funding strategy.

Shown below is the maturity analysis of the undiscounted benefit payments of the Group
(in thousands):

2021 2020
One year and less =
P1,585,137 =1,569,917
P
More than one year up to five years 5,321,019 4,807,642
More than five years up to 10 years 4,981,493 4,801,580
More than 10 years up to 15 years 4,702,291 4,081,876
More than 15 years 52,357,497 51,558,308

The Group expects to contribute P=1.3 billion to the defined benefit pension plan in 2022. The average
duration of the defined benefit obligations at the end of the reporting period range from 14.0 years as
of December 31, 2021 and 2020.

Transactions with Retirement Plans

Management of the retirement funds of the banking segment is handled by the PNB Trust Banking
Group (TBG). The fair value of the plan assets as of December 31, 2021 and 2020 for the Group
includes investments in the PNB shares of stock with fair value amounting to P =165.2 million and
=250.2 million classified as financial assets at FVTPL. No limitations and restrictions are provided
P
and voting rights over these shares are exercised by a trust officer or any of its designated alternate
officer of TBG.

As of December 31, 2021 and 2020, financial assets at FVTPL and at amortized costs include
government and private debt securities and various funds. Deposits with other banks pertain to Special
Deposit Accounts placement with BSP.

The retirement funds of the other companies in the Group are maintained by PNB, as the trustee bank.
PNB’s retirement funds have no investments in debt or equity securities of the companies in the Group.

204 *SGVFS162724*
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24. Revenue and Cost of Goods Sold and Services

Revenue consist of:

2021 2020 2019

(In Thousands)
Banking revenue (Note 5) P49,319,441
= P54,800,902
= P56,522,642
=
Sale of consumer goods 39,822,501 37,227,642 34,495,786
Rental income (Note 13) 1,893,706 1,757,701 1,707,833
Real estate sales 137,667 641,689 1,424,598
=91,173,315
P =94,427,934
P =94,150,859
P

Disaggregated revenue information

Set out below is the disaggregation of the Group’s revenues from contracts with customers and revenues
not covered under PFRS 15 for the year ended December 31, 2021 (in thousands):

Goods/Services Services Revenues

transferred at a transferred outside the scope
point in time over time of PFRS 15 Total
Sale of consumer goods =39,822,501
P =−
P P−
= =39,822,501
P
Service fees and commission
income 6,340,326 − − 6,340,326
Real estate sales − 137,667 − 137,667
Interest income − − 42,247,543 42,247,543
Rental income − − 1,893,706 1,893,706
Trading and securities gains - net − − 731,572 731,572
=46,162,827
P =137,667
P =44,872,821
P =91,173,315
P

Banking revenue consists of:

2021 2020 2019

(In Thousands)
Interest income on:
Loans and receivables =
P34,157,780 =
P37,180,110 =39,618,364
P
Trading and investment securities
(Note 21) 6,913,237 7,162,523 9,357,556
Deposits with banks and others 1,093,275 2,192,050 635,086
Interbank loans receivable 83,251 244,007 668,211
42,247,543 46,778,690 50,279,217
Service fees and commission income 6,340,326 4,684,572 5,176,406
Trading and securities gains - net 731,572 3,337,640 1,067,019
=49,319,441
P =
P54,800,902 =56,522,642
P

Sale of consumer goods consists of:

2021 2020 2019

(In Thousands)
Gross sales =
P42,421,388 =
P39,638,196 =37,323,117
P
Less sales returns, discounts and
allowances 2,598,887 2,410,554 2,827,331
=39,822,501
P =
P37,227,642 =34,495,786
P

205 *SGVFS162724*
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Cost of goods sold and services consists of:

2021 2020 2019

(In Thousands)
Cost of consumer goods sold:
Materials used and changes in
inventories (Note 9) P14,580,312
= =14,071,399
P =14,326,602
P
Taxes and licenses 11,385,173 9,874,192 6,141,929
Depreciation and amortization
(Notes 12, 13 and 14) 2,147,685 1,589,194 1,578,423
Fuel and power 1,293,306 1,037,620 1,192,723
Personnel costs 1,240,849 1,094,204 959,764
Freight and handling 1,031,483 499,292 435,428
Communication, light and water 551,256 562,574 820,024
Repairs and maintenance 525,384 480,955 512,175
Outside services 507,311 471,877 501,097
Others 341,850 425,294 530,317
33,604,609 30,106,601 26,998,482
Cost of banking services 8,573,207 12,046,147 18,696,082
Cost of real estate sales (Note 9) 55,053 239,524 663,789
Cost of rental income (Note 13) 724,145 466,592 444,087
Cost of goods sold and services =42,957,014
P =42,858,864
P =46,802,440
P

Other expenses include insurance, utilities and outside services which are individually not significant
as to amounts.

Cost of banking services consist of:

2021 2020 2019

(In Thousands)
Interest expense on:
Deposit liabilities (Note 15) =4,778,047
P =7,311,731
P =13,577,503
P
Bills payable and other borrowings
(Notes 7 and 17) 511,921 846,642 2,184,918
Bonds payable 2,231,863 2,904,528 1,945,497
7,521,831 11,062,901 17,707,918
Services fees and commission expense 1,051,376 983,246 988,164
=8,573,207
P =12,046,147
P =18,696,082
P

25. Selling Expenses

2021 2020 2019

(In Thousands)
Advertising and promotions P896,479
= P719,197
= =1,458,151
P
Depreciation and amortization (Note 12) 476,052 328,123 292,805
Personnel costs 151,125 143,312 130,180
Management, consulting and
professional fees 107,910 109,230 170,507
Royalties 78,149 60,439 72,239
Commissions 23,594 28,568 101,545
Communication, light and water 16,542 15,009 14,271
(Forward)

206 *SGVFS162724*
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2021 2020 2019

(In Thousands)
Materials and consumables =15,139
P =19,820
P P37,901
=
Fuel and oil 2,656 2,287 28,939
Freight and handling  526,280 560,738
Others 137,374 98,849 144,148
=1,905,020
P =2,051,114
P =3,011,424
P

Others include occupancy fees, repairs and maintenance, insurance, donations, membership and
subscription dues, which are individually not significant as to amounts.

26. General and Administrative Expenses

2021 2020 2019

(In Thousands)
Personnel costs P10,924,480
= =11,057,462
P =10,265,619
P
Provision for credit losses (Note 8) 11,333,005 15,878,029 2,921,197
Taxes and licenses 4,499,491 4,993,514 5,108,681
Depreciation and amortization
(Notes 12, 13 and 14) 3,110,725 3,413,200 3,186,759
Insurance 2,014,664 1,853,290 1,874,045
Outside services 1,888,113 1,823,620 1,849,011
Information technology 1,304,930 1,448,623 811,574
Occupancy 1,067,404 1,000,948 1,023,915
Management, consulting and
professional fees 936,946 993,329 1,030,234
Marketing and promotional 719,070 738,387 1,137,757
Litigation 395,386 37,271 326,588
Travel and transportation 383,935 375,254 449,091
Materials and consumables 318,241 304,952 286,716
Communication, light and water 208,541 216,714 310,958
Repairs and maintenance 173,200 164,065 230,192
Freight and handling 42,418 30,973 78,884
Fuel and oil 21,517 20,333 30,438
Loss on loan modifications  1,587,605 −
Others 979,811 1,959,699 674,762
=40,321,877
P =47,897,268
P =31,596,421
P

‘Loss on loan modifications’ pertains to the adjustment for the changes in expected cash flows of credit
exposures, as a result of modifications in the original terms and conditions of the loan which include, but
not limited to, changes in interest rates, principal amount, maturity date, and payment terms. In 2020, PNB
accommodated modifications in the terms and conditions of certain loans of borrowers, which have been
directly impacted by the COVID-19 pandemic. The loss is computed as the difference between the gross
carrying amount of the loan and the present value of the modified contractual cash flows, discounted at the
original effective interest rate of the loan. Subsequent accretion to interest income in 2021 and 2020
amounted to = P525.7 million and = P901.7 million, respectively.

Others include expense items mainly relating to banking operations, which are individually not significant
as to amounts.

207 *SGVFS162724*
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27. Finance Costs and Finance Income

Details of finance costs and finance income (other than the banking segment) are as follows:

2021 2020 2019

(In Thousands)
Finance costs (Note 19):
Short-term debts =201,616
P =185,900
P =166,018
P
Unsecured term loan and notes payable
(Note 20) 163,257 155,567 284,823
P364,873
= P341,467
= P450,841
=
Finance income:
Cash and other cash items (Note 5) =41,663
P =37,892
P =138,630
P
Interest-bearing contracts receivable (Note 8) − 4,529 7,623
=41,663
P =42,421
P =146,253
P

28. Other Income (Charges)

2021 2020 2019

(In Thousands)
Rental income and dues (Note 13) =1,357,043
P =664,229
P P892,391
=
Rooms and other operated departments 220,186 205,183 181,862
Income from assets acquired 183,173 258,708 100,214
Management fees 163,322 31,916 24,170
Recoveries from charged off assets 85,164 203,750 76,362
Dividend income 69,015 51,815 145,704
Net gains (losses) on sale or exchange of assets (19,979) 196,019 814,920
Provision for probable losses (Notes 14 and 38) 165,425 677,089 −
Marketing allowance and income from wire −
transfers 241,353 344,090
Reversal of provision for expected credit loss −
(Note 8) (45,974) (142,017)
Gain on retirement − 17,853 14,838
Mark-to-market gain on financial assets
designated at FVTPL (Note 6) − − 17,800
Others 535,482 (598,972) 373,263
=2,758,831
P =1,902,969
P =2,843,597
P

a. Rental income and dues significantly pertain to income arising from charges and expenses
recharged to tenants. Loss on cancelled contracts represents the loss incurred by the Group as a
result of cancellation of contracts to sell by the buyer or the Group in general.

b. Net gains on sale or exchange of assets include sale of investment properties of the banking segment
in 2021, 2020 and 2019 amounting to = P15.2 million, =P11.7 million and =
P48.6 million, respectively.

c. Others include income and expense items mainly relating to banking operations, which are individually
not significant as to amounts.

208 *SGVFS162724*
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29. Income Taxes

Income taxes include the corporate income tax, which is discussed below, and final taxes paid, which
represents final withholding tax on gross interest income from government securities and other deposit
substitutes and income from the FCDU transactions. These income taxes, as well as the deferred tax
benefits and provisions, are presented as “Provision for income tax” in the consolidated statements of
income.

Under Philippine tax laws, PNB and its certain subsidiaries are subject to percentage and other taxes
(presented as “Taxes and Licenses” in the consolidated statements of income) as well as income taxes.
Percentage and other taxes paid consist principally of gross receipts tax and documentary stamp tax.

FCDU offshore income (income from non-residents) is tax-exempt while gross onshore income
(income from residents) is generally subject to 10% income tax. In addition, interest income on deposit
placement with other FCDUs and offshore banking units (OBUs) is taxed at 7.50%. Republic Act
No. 9294, an act restoring the tax exemption of OBUs and FCDUs, provides that the income derived
by the FCDU from foreign currency transactions with non-residents, OBUs, local commercial banks
including branches of foreign banks is tax-exempt while interest income on foreign currency loans from
residents other than OBUs or other depository banks under the expanded system is subject to 10%
income tax.

a. Details of the Group’s deferred income tax assets and liabilities as of December 31 follow:
2021 2020
Net Net Net Net
Deferred Deferred Deferred Deferred
Income Tax Income Tax Income Tax Income Tax
Assets(1) Liabilities(2) Assets(3) Liabilities(4)
(In Thousands)
Recognized directly in the
consolidated statements of income:
Deferred income tax assets on:
Allowance for impairment loss on:
Receivables =
P8,562,723 =
P104,593 P=11,150,369 P93,393
=
Inventories 31,488 10,538 4,273 10,742
Property, plant and equipment 4,976 − − −
Allowance for probable losses on excise taxes  104,164 − 87,899
Accumulated depreciation on investment
properties 495,884 − 729,869 −
Unrealized losses on:
Inventories on hand − 4,656 − 7,199
Sale of property to a subsidiary 395,542 5,491 384,523 4,529
Deferred rent income 129,050 10,599 130,213 13,481
Net retirement benefits liabilities 121,399 214,275 912,507 289,093
Reserves and others 51,981 288,314 545,126 343,402
Advance rentals − 21,744 − 17,747
Accrued expenses 469,714 14,879 580,572 25,965
Difference between accounting and tax carrying
amount of property, plant and equipment − − 30,289 −
Unamortized past service cost 7,316 7,479 9,009 4,793
Unrealized forex losses − 1,160 5,067 2,996
Difference between right-of-use assets and
lease liabilities 80,425 75,592 7,458 79,489
10,350,498 863,484 14,489,275 980,728
(Forward)

209 *SGVFS162724*
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2021 2020
Net Net Net Net
Deferred Deferred Deferred Deferred
Income Tax Income Tax Income Tax Income Tax
Assets(1) Liabilities(2) Assets(3) Liabilities(4)
(In Thousands)
Deferred income tax liabilities on:
Fair value gain on investment properties (P
=918,043) =− (P
P =1,043,165) =−
P
Excess of fair values over carrying values of
property, plant and equipment acquired
through business combination (210,574) (36,556) (329,723) (33,472)
Gain on re-measurement of a previously held
interest (246,651) − (246,651) −
Unrealized foreign exchange gains (346,586) (2,582) (97,033) (153)
Borrowing cost capitalized to property, plant,
and equipment (73,703) (175,087) (2,983) (171,826)
Deferred rental income (42,073) (60,116)  (91,488)
Difference between tax and book basis of
accounting for real estate transactions − (61,631) (3,157) (111,376)
Unamortized debt cost (2,325) (1,048) − (4,751)
Gain on asset share swap − (443,110) − (443,110)
Net retirement plan assets (3,380) (99,624) (1,912) (116,336)
Net changes in fair values of FVTPL
financial assets (51,247) (34,527) (56,931) (7)
Others (605,606) (30,217) (110,388) (19,270)
(2,500,188) (944,498) (1,891,943) (991,789)
7,850,310 (81,014) 12,597,332 (11,061)
Recognized directly in equity:
Deferred income tax assets on:
Remeasurement losses on retirement benefits 6,713 40,478 5,233 56,304
Deferred income tax liabilities on:
Revaluation increment on property, plant and
equipment (1,536,629) (8,395,132) (3,711,174) (8,309,673)
Remeasurement gains on defined benefit
plans (28,547) (21,460) (2,360) (16,502)
Unrealized gains on changes in fair value of
financial assets at FVTOCI − (42,045) − (46,480)
(1,565,176) (8,458,637) (3,713,534) (8,372,655)
(1,558,463) (8,418,159) (3,708,301) (8,316,351)
=
P6,291,847 (P
=8,499,173) =
P8,889,031 (P
=8,327,412)
(1)
Pertain to IPI, PWI, ABNC, AVSI, ADI, Eton and PNB
(2)
Pertain to LTG, Saturn, PLI, AAC, TDI, ABI and FTC
(3)
Pertain to IPI, ADI, Eton and PNB
(4)
Pertain to LTG, Saturn, PLI, AAC, TDI, ABI, PWI and FTC

210 *SGVFS162724*
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Details of the Group’s net deferred income tax assets and liabilities are as follows:

2021 2020
(In Thousands)
Net deferred income tax assets:
PNB and subsidiaries P
=5,806,384 =8,437,787
P
Eton and subsidiaries 395,542 393,256
Bank holding companies 59,340 1,526
ABI and subsidiaries 21,026 38,382
TDI and subsidiaries 9,555 18,080
P
=6,291,847 =8,889,031
P

Net deferred income tax liabilities:

PNB and subsidiaries P
=7,310,014 =7,305,940
P
Paramount 443,110 443,110
TDI and subsidiaries 393,072 327,321
ABI and subsidiaries 115,531 106,537
FTC 88,735 89,023
Eton and subsidiaries 105,877 35,724
Saturn 3,035 3,035
LTG 5,278 1,009
Bank holding companies 34,521 15,713
P
=8,499,173 =8,327,412
P

b. Provision for current income tax consists of:

2021 2020 2019

(In Thousands)
RCIT P
=2,660,808 =4,481,774
P P2,711,115
=
MCIT 14,197 2,080 2,251
Final tax 1,437,058 1,513,953 1,497,703
Provision for current income tax P
=4,112,063 =5,997,807
P =4,211,069
P

c. As of December 31, 2021 and 2020, the Group has not recognized deferred income tax assets on
certain deductible temporary differences such as NOLCO, excess MCIT and other items based on
the assessment that sufficient taxable profit will not be available to allow the deferred income tax
assets to be utilized as follows:

2021 2020
(In Thousands)
Net retirement benefits liability P
=1,199,030 =1,213,544
P
Allowance for credit losses 14,507,309 509,482
Derivative liabilities 891,346 558,220
Unamortized past service cost 2,541,881 338,594
NOLCO 1,485,229 704,639
Excess MCIT 27,593 30,422
Allowance for inventory obsolescence 16,848 −
Others 380,049 190,070

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Details of the Group’s NOLCO follow (in thousands):

Expiry
Year Incurred Amount Applied Expired Balance Year
2014 =48,163
P =−
P (P
=48,163) =−
P N/A
2018 217,439 − (217,439) − 2021
2019 157,938 − − 157,938 2022
2020 281,099 − − 281,099 2025
2021 − 1,046,192 − 1,046,192 2026
=704,639
P =1,046,192
P (P
=265,602) =1,485,229
P

On September 30, 2020, the BIR issues Revenue Regulations No. 25-2020 implementing
Section 4(bbbb) of “Bayanihan to Recover As One Act” which states that the NOLCO incurred for
taxable years 2020 and 2021 can be carried over and claimed as a deduction from gross income for
the next five (5) consecutive taxable years immediately following the year of such loss.

As of December 31, 2021, the Group has incurred NOLCO in taxable years 2021 and 2020 which
can be claimed as deduction from the regular taxable income for the next five (5) consecutive
taxable years pursuant to the Bayanihan to Recover As One Act

Details of the Group’s MCIT follow (in thousands):

Expiry
Year Incurred Amount Applied Expired Balance Year
2018 =3,404
P =–
P (P
=3,404) =−
P 2021
2019 925 – − 925 2022
2020 26,093 – – 26,093 2023
2021 – 525 – 525 2024
=30,422
P =525
P (P
=3,404) =27,593
P

d. A reconciliation of the Group’s provision for income tax computed based on income before income
tax at the statutory income tax rates to the provision for income tax shown in the consolidated
statements of income is as follows:

2021 2020 2019

(In Thousands)
Provision for income tax at statutory
income tax rate from:
Continuing operations P
=6,815,555 =6,475,984
P =9,342,840
P
Discontinued operations  26,400 36,082
6,815,555 6,502,384 9,378,922
Adjustments resulting from:
Non-deductible expenses 8,694,202 5,936,027 1,803,030
Equity in net earnings of associates (4,505,295) (5,284,472) (1,539,675)
Nontaxable income (3,524,312) (643,033) (3,743,152)
Income subjected to final tax (2,581,817) (6,424,101) (1,151,482)
(Forward)

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2021 2020 2019

(In Thousands)
NOLCO and other deductible
temporary differences for which no
deferred income tax assets were
recognized in current year P
=2,592,694 (P
=582,527) (P
=916,440)
Change in tax rate (77,224) − −
Effect of availment of ITH (35,963) (47,490) (51,911)
Difference of itemized deduction
against 40% of taxable income − − (53,648)
Non-deductible deficiency taxes − − 25,904
Application of NOLCO and other
deductible temporary differences for
which no deferred income tax assets
were recognized in prior years − − (24,949)
Others (956,094) (108,290) (29,285)
Provision for income tax P
=6,421,746 (P
=651,502) =3,697,314
P

e. Impact of CREATE Law

Applying the provisions of the CREATE Law, the Group is subjected to lower regular corporate
income tax rate of 25.00% effective July 1, 2020. The following are the impact of CREATE in the
2021 financial statements of the Group:

 Based on the provisions of Revenue Regulations (RR) No. 5-2021 dated April 8, 2021 issued
by the BIR, the transitory RCIT and MCIT rates applicable to the Group for the taxable year
2020 is 27.50% and 1.50%, respectively. This resulted in reduction in the current income tax
due for the taxable year 2020 amounting to P=374.0 million for the Group. The reduced amounts
were reflected in the 2020 Annual Income Tax Returns filed in 2021. For financial reporting
purposes, such reductions in the 2020 current income taxes were recognized in the 2021
financial statements as reduction to 2021 income tax expense.

 The deferred tax assets as of December 31, 2021 were also remeasured using the lower RCIT
rate of 25.00%. The net decrease in the deferred tax balances amounting to =P508.1 million for
the Group, reduced the provision for deferred tax by P=507.8 million for the Group, and other
comprehensive income by = P0.3 million for the Group.

There were no tax-related contingent liabilities and contingent assets arising from the changes in
the tax rates due to CREATE Act.

30. Equity

Capital Stock
Authorized and issued capital stock of the Company are as follows:

Authorized capital stock at P

=1 par value
At beginning and end of year 25,000,000,000 shares
Issued capital stock at P
=1 par value:
At beginning and end of year =10,821,388,889
P

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a. Capital stock is held by a total of 373 and 374 stockholders as of December 31, 2020 and 2019,
respectively.

b. Track record of registration:

Number of Shares
Date Licensed Issue/Offer Price
August 1948 100,000 =1.00
P
November 1958 500,000 1.00
December 1961 1,000,000 1.00
March 1966 2,000,000 1.00
March 1966 6,000,000 1.00
October 1995 247,500,000 1.00
October 2011 398,138,889 4.22
April 2013 1,840,000,000 20.50

In April 2013, LTG issued 1,840.0 million shares for P =37.7 billion, where excess over par value
amounting to P=35.9 billion was recorded as capital in excess of par. Stock issue costs amounting to
=1.1 billion were charged against capital in excess of par in 2013. Other offering-related expenses
P
amounting to =P59.0 million were charged directly to “General and administrative expenses”.

Retained Earnings and Dividends

a. The Company’s BOD approved the declaration and distribution of the following cash dividends:

Dividend
Date of declaration Date of record Date of payment per share Amount
2021:
November 19, 2021 December 6, 2021 December 13, 2021 P0.60
= =
P6,492,833,333
June 11, 2021 June 25, 2021 July 7, 2021 0.24 2,597,133,333
March 17, 2021 March 31, 2021 April 12, 2021 0.24 2,597,133,334
=11,687,100,000
P
2020:
November 23, 2020 December 9, 2020 December 14, 2020 P0.15
= P1,623,208,334
=
August 14, 2020 September 2, 2020 September 8, 2020 0.23 2,488,919,445
May 22, 2020 June 8, 2020 June 17, 2020 0.43 4,653,197,222
=8,765,325,001
P
2019:
April 10, 2019 April 29, 2019 May 8, 2019 0.31 =3,326,908,000
P

b. Retained earnings include undistributed earnings amounting to = P141.7 billion, =

P98.1 billion and
=76.4 billion as of December 31, 2021, 2020 and 2019, respectively, representing accumulated
P
earnings of subsidiaries and equity in net earnings of associates and joint ventures, which are not
available for dividend declaration until received in the form of dividends from the combining
entities and associates. Retained earnings available for dividend declaration as at
December 31, 2021 amounted to = P41.8 billion.

Retained earnings are further restricted for the payment of dividends to the extent of the cost of the
shares held in treasury (shares of stock of the company held by subsidiaries), unrealized foreign
exchange gains except those attributable to cash and cash equivalents, fair value adjustment or
gains arising from mark-to-market valuation, deferred income tax assets recognized that reduced
the income tax expense and increased net income and retained earnings, and other unrealized gains
or adjustments as of December 31, 2021 and 2020.

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Preferred Shares of Subsidiaries issued to Parent Company

On March 20, 2013, the respective BOD’s and stockholders of various Bank Holding Companies
approved the increase in their authorized capital stocks comprising of common shares and preferred
shares with par value of =
P1.00 per share. The preferred shares were subscribed by Tangent through
conversion of its advances into investments in certain Bank Holding Companies (see Note 22).

Upon approval of the Philippine SEC of the increase in authorized capital stock of Bank Holding
Companies on various dates in October, November and December 2013, preferred shares amounting to
=7.4 billion presented under “Preferred shares of subsidiary issued to Parent Company” were issued to
P
Tangent. Unissued preferred shares amounting to P =6.0 billion which are pending approval of the
Philippine SEC are presented under “Deposit for future stock subscription” as of December 31, 2013.
Upon approval of the Philippine SEC on various dates in 2014, the remaining preferred shares of = P6.0
billion and additional conversion of advances to preferred shares during the year of =
P4.7 billion were
issued to Tangent.

In 2020, preferred shares of the subsidiary issued to Tangent amounting to P

=18.1 billion were redeemed.

The preferred shares have the following features: non-voting, non-cumulative and non-participating as
to dividends, non-redeemable for a period of seven years from the issuance and redeemable at the option
of the Bank Holding Companies after seven years from the issuance thereof.

Other Equity Reserves

Other equity reserves as at December 31 consist of:

2021 2020
(In Thousands)
Equity adjustments arising from business
combination under common control (Note 1) P
=445,113 =445,113
P
Equity adjustments from sale of the Company’s
shares of stock held by a subsidiary (6,448,518) (2,262,606)
Equity adjustment in aggregate reserves on life
insurance policies (309,361) (593,566)
Effect of transaction with non-controlling interest 66,658 66,658
Effect of sale of a subsidiary to Company 99,655 99,655
Effect of sale of direct interest in a subsidiary 186,572 186,376
(P
=5,959,881) (P
=2,058,370)

Shares of Stock of the Company Held by Subsidiaries

Shares held by subsidiaries include 4.9 million shares owned by All Seasons amounting to
=12.5 million as of December 31, 2020 and 2019 and 76.5 million shares owned by Saturn amounting
P
to =
P150.9 million as of December 31, 2011. On July 25, 2012, the shares of stocks owned by Saturn
were sold to Tangent at =
P4.50 per share. As a result, the excess of the selling price over the cost of the
treasury shares amounting to =
P193.2 million is presented as an addition to other equity reserves.

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Non-controlling Interests
Below are the changes in non-controlling interests:

2021 2020 2019

(In Thousands)
Balance as of January 1 P
=70,124,342 P=67,086,030 =58,223,689
P
Net income attributable to non-controlling
interests 614,622 1,304,120 4,448,233
Share in other comprehensive income, net of
deferred income tax effect:
Net change in aggregate reserves on life
insurance policies 128,239 (457,555) −
Remeasurement gains (losses) on defined
benefit plans (Notes 2 and 23) 124,792 (342,880) (305,881)
Revaluation increment on property plant
and equipment (243,897) (274,064) (170,223)
Cumulative translation adjustments 341,939 (127,530) (456,101)
Net changes in financial assets at FVOCI
(Note 7) (1,635,861) (85,398) 2,805,235
Reserves of disposal group classified as held
for sale  394,197 –
Dividends received  (85,645) (3,372)
Acquisition of shares of subsidiaries from the
Controlling Shareholders 441,157 2,376,784 2,539,185
Other equity reserves 3,569,938 336,283 5,265
Balance as of December 31 P
=73,465,271 =70,124,342
P =67,086,030
P

31. Basic/Diluted Earnings Per Share

The following tables reflect the net income and share data used in the earnings per share computations:

Basic/diluted earnings per share were calculated as follows:

2021 2020 2019

(In Thousands)
Net income attributable to equity holders of the
Company P
=20,246,467 =
P21,021,996 =23,117,524
P
Divided by weighted-average number of shares 10,821,389 10,821,389 10,821,389
Basic/diluted EPS for net income attributable to
equity holders of the Company P
=1.87 =1.94
P =2.14
P

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Earnings per share attributable to equity holders of the Group from continuing operations:

2021 2020 2019

(In Thousands)
Net income from continuing operations
attributable to equity holders of the
Company P
=20,234,820 =
P20,983,832 =23,060,154
P
Divided by weighted-average number of shares 10,821,389 10,821,389 10,821,389
Basic/diluted EPS for net income from
continuing operations attributable to equity
holders of the Company P
=1.87 =1.94
P =2.13
P

There are no potential common shares with dilutive effect on the basic earnings per share in 2021, 2020
and 2019.

32. Financial Risk Management Objectives and Policies

The Group’s financial risk management strategies are handled on a group-wide basis, side by side with
those of the other related companies within the Group. The Group’s management and the BOD of the
various companies comprising the Group review and approve policies for managing these risks.
Management closely monitors the funds and financial transactions of the Group.

Financial Risk Management Objectives and Policies of the Banking Segment

Risk Management Strategies

The Group’s banking activities are principally related to the development, delivery, servicing and use
of financial instruments. Risk is inherent in these activities but it is managed through a process of
ongoing identification, measurement and monitoring, subject to risk limits and other controls.
This process of risk management is critical to the Group’s banking segment continuing profitability.

The Group monitors its processes associated with the following overall risk categories:
 Credit Risk
 Market Risk
 Liquidity Risk
 Operational Risk

Further, the Group is also cognizant of the need to address various other risks through the primary
divisions presented above. The following are also taken into consideration as part of the overall
Enterprise Risk Management (ERM) Framework:

 Interest Rate Risk in Banking Book (IRRBB)

 Strategic Business Risk
 Reputational Risk
 Credit Concentration Risk
 Cyber Security Risk

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The banking segment’s BOD has overall responsibility for the establishment and oversight of the
Group’s risk management framework. As delegated by the banking segment’s BOD, the Risk Oversight
Committee (ROC) is mandated to set risk appetite, approve frameworks, policies and processes for
managing risk, and accept risks beyond the approval discretion provided to management. The ROC
advises on the overall current and future risk appetite and strategy and assists in overseeing the
implementation of those strategies and business plans by the banking segment’s senior management.

The Risk Management Group (RMG) provides the legwork for the ROC in its role of formulating the
risk management strategy, the development and maintenance of the internal risk management
framework, and the definition of the governing risk management principles. The RMG provides
assistance to the Assets and Liabilities Committee (ALCO) on capital management and the Board
Policy Committee on the management of regulatory capital.

The mandate of the RMG involves:

 implementing the risk management framework of identifying, measuring, controlling and

monitoring the various risk taking activities of the Group, inherent in all financial institutions;
 providing services to the risk-taking units and personnel in the implementation of risk mitigation
strategies; and
 establishing recommended limits based on the results of its analysis of exposures.

Credit Risk
For the banking segment, credit risk is the non-recovery of credit exposures (on-and-off balance sheet
exposures). Managing credit risk also involves monitoring of migration risk, concentration risk,
country risk and settlement risk. The banking segment manages its credit risk at various levels
(i.e., strategic level, portfolio level down to individual transaction).

The credit risk management of the entire loan portfolio is under the direct oversight of the ROC and
Executive Committee. Credit risk assessment of individual borrower is performed by the business
sector, remedial sector and credit management sector. Risk management is embedded in the entire
credit process, i.e., from credit origination to remedial management (if needed).

Among the tools used by the bank segment in identifying, assessing and managing credit risk include:

 Documented credit policies and procedures: sound credit granting process, risk asset acceptance
criteria, target market and approving authorities;
 System for administration and monitoring of exposure;
 Pre-approval review of loan proposals;
 Post approval review of implemented loans;
 Work out system for managing problem credits;
 Regular review of the sufficiency of valuation reserves;
 Monitoring of the adequacy of capital for credit risk via the Capital Adequacy Ratio (CAR) report;
 Monitoring of breaches in regulatory and internal limits;
 Credit Risk Management Dashboard;
 Diversification;
 Internal Risk Rating System for corporate accounts;
 Credit Scoring for retail accounts; and
 Active loan portfolio management undertaken to determine the quality of the loan portfolio and
identify the following:
a. portfolio growth
b. movement of loan portfolio

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c. adequacy of loan loss reserves

d. trend of nonperforming loans (NPLs)
e. concentration risk (per classified account, per industry, clean exposure, large exposure,
contingent exposure, currency, security, facility, demographic, etc.)

The bank segment follows the BOD approved policy on the generic classification of loans based on the
type of borrowers and the purpose of the loan.

Credit-related commitments
The exposures represent guarantees, standby letters of credit (LCs) issued by PNB and
documentary/commercial LCs which are written undertakings by PNB.

To mitigate this risk PNB requires hard collaterals, as discussed under Collateral and other credit
enhancement, for standby LCs lines while commercial LCs are collateralized by the underlying
shipments of goods to which they relate.

Derivative financial instruments

Credit risk arising from derivative financial instruments is, at any time, limited to those with positive
fair values, as recorded in the consolidated statement of financial position.

Collateral and other credit enhancement

As a general rule, character is the single most important consideration in granting loans. However,
collaterals are requested to mitigate risk. The loan value and type of collateral required depend on the
assessment of the credit risk of the borrower or counterparty. The banking segment follows guidelines
on the acceptability of types of collateral and valuation parameters.

The main types of collateral obtained are as follows:

 For corporate accounts - deposit hold outs, guarantees, securities, physical collaterals (e.g., real
estate, chattels, inventory, etc.); as a general rule, commercial, industrial and residential lots are
preferred
 For retail lending - mortgages on residential properties and vehicles financed
 For securities lending and reverse repurchase transactions - cash or securities

The disposal of the foreclosed properties is handled by the Asset Management Sector which adheres to
the general policy of disposing assets at the highest possible market value.

Management regularly monitors the market value of the collateral and requests additional collateral in
accordance with the underlying agreement. The existing market value of the collateral is considered
during the review of the adequacy of the allowance for credit losses. Generally, collateral is not held
over loans and advances to banks except for reverse repurchase agreements. The banking segment is
not permitted to sell or repledge the collateral held over loans and advances to counterparty banks and
BSP in the absence of default by the owner of the collateral.

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Maximum exposure to credit risk after collateral held or other credit enhancements
An analysis of the maximum exposure to credit risk after taking into account any collateral held or
other credit enhancements for the Group’s banking segment is shown below:

2021
Financial
Maximum Fair Value of Net Effect of
Exposure Collateral Exposure Collateral
(In Millions)
Securities held under agreements to resell P
=15,797 P
=15,800 =
P P
=15,797
Loans and receivables:
Receivables from customers*:
Corporates 527,719 247,962 429,892 97,827
Local government units (LGU) 4,241 − 4,241 −
Credit Cards 10,749 − 10,749 −
Retail small and medium enterprises (SME) 7,523 6,972 5,716 1,807
Housing Loans 27,485 7,264 25,913 1,572
Auto Loans 7,286 6,739 3,946 3,340
Others 7,887 7,711 6,632 1,255
Other receivables 13,339  13,339 −
P
=622,026 P
=292,448 P
=500,428 P
=121,598
*Receivables from customers exclude residual value of the leased asset (Note 8).

2020
Financial
Maximum Fair Value of Net Effect of
Exposure Collateral Exposure Collateral
(In Millions)
Securities held under agreements to resell =15,819
P =16,499
P =–
P =15,819
P
Loans and receivables:
Receivables from customers*:
Corporates 505,180 193,781 412,862 92,318
LGU 6,372 – 6,372 –
Credit Cards 9,943 – 9,943 –
Retail SME 10,631 9,884 6,123 4,508
Housing Loans 22,738 5,586 19,267 3,471
Auto Loans 10,055 4,907 7,119 2,936
Others 19,871 17,974 14,025 5,846
Other receivables 14,507 – 14,507 –
=615,116
P =248,631
P =490,218
P =124,898
P
*Receivables from customers exclude residual value of the leased asset (Note 8).

The maximum credit risk, without taking into account the fair value of any collateral and netting
agreements, is limited to the amounts on the statement of financial position plus commitments to
customers such as unused commercial letters of credit, outstanding guarantees and others as disclosed
in Note 37 to the financial statements.

Excessive risk concentration

The banking segment’s credit risk concentrations can arise whenever a significant number of borrowers
have similar characteristics. The banking segment analyzes the credit risk concentration to an individual
borrower, related group of accounts, industry, geographic, internal rating buckets, currency, term and
security. For risk concentration monitoring purposes, the financial assets are broadly categorized into
(1) loans and receivables and (2) trading and financial investment securities. To mitigate risk
concentration, the banking segment constantly checks for breaches in regulatory and internal limits.
Clear escalation process and override procedures are in place, whereby any excess in limits are covered
by appropriate approving authority to regularize and monitor breaches in limits.

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a. Limit per Client or Counterparty

For each CRR, the banking segment sets limits per client or counterparty based on the regulatory
Single Borrowers Limit.

For trading and investment securities, the banking segment limits investments to government issues
and securities issued by entities with high-quality investment ratings.
b. Geographic Concentration
The table below shows the banking segment’s credit risk exposures, before taking into account any
collateral held or other credit enhancements, categorized by geographic location:

2021 2020
(In Millions)
Philippines P
=934,529 =970,054
P
Asia (excluding the Philippines) 109,521 92,583
USA and Canada 46,294 35,404
Other European Union Countries 9,434 11,606
United Kingdom 9,632 18,198
Middle East 1,069 1,797
Oceania 637 613
P
=1,111,116 =
P1,130,255

c. Concentration by Industry
The table below show the industry sector analysis of the banking segment’s financial assets at
amounts before taking into account the fair value of the loan collateral held or other credit
enhancements:
2021
Trading and Other
Loans and investment financial
receivables* securities assets*** Total
(In Millions)
Primary target industry:
Financial intermediaries P
=118,588 P
=43,483 P
=53,561 P
=215,632
Wholesale and retail 86,189 – – 86,189
Electricity, gas and water P
=68,666 P
=10,303 P
=– P
=78,969
Transport, storage and
–
communication 51,708 4 51,712
Manufacturing 47,944 130 – 48,074
Public administration and defense 8,270 – – 8,270
Agriculture, hunting and forestry 6,383 – – 6,383
Secondary target industry:
Government P
=4,241 P
=159,001 P
=182,319 P
=345,561
Real estate, renting and business
activities 95,635 13,730 – 109,365
Construction 26,369 – – 26,369
Others** 92,235 41,961 396 134,592
P
=606,228 P
=268,612 P
=236,276 P
=1,111,116
* Loans and receivables exclude residual value of the leased asset (Note 8).
** Others include the following sectors - Other community, social and personal services, private household, hotel and restaurant,
education, mining and quarrying, and health and social work.
*** Other financial assets include the following financial assets: “Due from BSP”, “Due from other banks”, “Interbank loans
receivable”, “Securities held under agreements to resell” and other financial assets booked under “Other Assets”.

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2020
Trading and Other
Loans and investment financial
receivables* securities assets*** Total
(In Millions)
Primary target industry:
Financial intermediaries =
P91,848 =
P41,346 =
P60,169 =
P193,363
Wholesale and retail 82,953 − − 82,953
Electricity, gas and water 72,566 4,081 − 76,647
Transport, storage and
communication 54,836 51 − 54,887
Manufacturing 46,797 1,579 − 48,376
Public administration and defense 12,463 − − 12,463
Agriculture, hunting and forestry 9,056 − − 9,056
Secondary target industry:
Government 5,714 170,983 217,089 393,786
Real estate, renting and business
activities 97,007 14,858 − 111,865
Construction 34,184 − − 34,184
Others** 92,570 19,880 225 112,675
=
P599,994 =
P252,778 =
P277,483 =
P1,130,255
* Loans and receivables exclude residual value of the leased asset (Note 8).
** Others include the following sectors - Other community, social and personal services, private household, hotel and restaurant,
education, mining and quarrying, and health and social work.
*** Other financial assets include the following financial assets: “Due from BSP”, “Due from other banks”, “Interbank loans
receivable”, “Securities held under agreements to resell” and other financial assets booked under “Other Assets”.

The internal limit of the banking segment based on the Philippine Standard Industry Classification
sub-industry is 12% for priority industry, 8% for regular industry, 30% for power industry and 25% for
activities of holding companies versus total loan portfolio.

Credit quality per class of financial assets

In 2018, the banking segment re-evaluated the segmentation of its loan portfolio so that it is grouped
based on the underlying risk characteristics that are expected to respond in a similar manner to
macroeconomic factors and forward looking conditions. Moreover, the banking segment has aligned
the portfolio segmentation to sound practice guidelines of internal ratings-based banks.

Generally, the banking segment’s exposures can be categorized as either Non-Retail and Retail.
Non-Retail segment of the banking segment may be defined as debt obligation of a sovereign, financial
intuition, corporation, partnership, or proprietorship. In particular, the banking segment’s Non-retail
portfolio segments are as follows: Sovereigns, Financial Institutions, Specialised Lending (e.g., Project
Finance), Large Corporates, Middle Market and Commercial SME, GOCCs, LGUs. Retail exposures
are exposures to individual person or persons or to a small business and are not usually managed on an
individual basis but as groups of exposures with similar risk characteristics. This includes Credit Cards,
Consumer Loans and Retail SME, among others.

Loans and Receivables

The credit quality of Non-Retail portfolio is evaluated and monitored using external ratings and internal
credit risk rating system. The banking segment maintains a two-dimensional risk rating structure: that
is, there is a borrower risk rating (BRR) and a facility risk rating (FRR).

The banking segment uses a single scale with 26 risk grades for all its borrower risk rating models. The
26-risk grade internal default masterscale is a representation of a common measure of relative default
risk associated with the obligors/counterparties. The internal default masterscale is mapped to a global
rating scale.

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FRR, on the other hand, assesses potential loss of the banking segment in case of default, which
considers collateral type and level of collateralization of the facility. The FRR has 9-grades, i.e., FRR
A to FRR I.

The CRR or final credit risk rating shall be expressed in alphanumeric terms, e.g., CRR 1A which is a
combination of the general creditworthiness of the borrower (BRR 1) and the potential loss of the
banking segment in the event of the borrower’s default (FRR A).

The credit quality and corresponding BRRs of the banking segment’s receivables from customers are
defined below:
Credit quality 26-grade CRR system
High BRR 1 Excellent
Borrower has an exceptionally strong capacity to meet its financial commitments. No
S&P Equivalent Global existing disruptions or future disruptions are highly unlikely. Probability of going into
Rating: default in the coming year is very minimal/low.
AAA to BBB-
BRR 2 Very Strong
Borrower has a very strong capacity to meet its financial commitments. No existing
disruptions or future disruptions are unlikely. It differs from BRR 1 borrowers only to a
small degree. Probability of going into default in the coming year is very minimal/low.

BRR 3 Strong
Borrower has a strong capacity to meet its financial commitments. No existing disruptions
or future disruptions are unlikely. However, adverse economic conditions or changing
circumstances could lead to somewhat lesser capacity to meet financial obligations than in
higher-rated borrowers. Probability of going into default in the coming year is very
minimal/low.

BRR 4-6 Good

Borrower has an adequate capacity to meet its financial commitments in the normal course
of its business. With identified disruptions from external factors but company has or will
likely overcome. Default possibility is minimal/low.

BRR 7-9 Satisfactory

Borrower under this rating scale basically possesses the characteristics of borrowers rated
as BRR 4 to BRR 6 with slightly lesser quality. Default possibility is minimal/low.

BRR 10-12 Adequate

Borrower has an adequate capacity to meet its financial commitments under the normal
course of business. However, adverse economic conditions and changing circumstances
are more likely to weaken the borrower's capacity to meet its financial commitments.
Default possibility is minimal/low.

Standard BRR 13-15 Average

Borrower still has the capacity to meet its financial commitments and withstand normal
S&P Equivalent Global business cycles, however, any prolonged unfavorable economic and/or market conditions
Rating: would create an immediate deterioration beyond acceptable levels. With identified
BB+ to BB- disruptions from external forces, impact on the borrower is uncertain. Default is a
possibility.

BRR 16-18 Acceptable

Borrower under this rating scale basically possesses the characteristics of borrowers rated
as BRR 13 to BRR 15 with slightly lesser quality. Default is a possibility.

BRR 19-20 Vulnerable

Borrower is less vulnerable in the near term than other low-rated borrowers. However, it
faces major ongoing uncertainties and exposure to adverse business, financial or economic
conditions that could lead to the borrower's inadequate capacity to meet its financial
commitment. Default is a possibility.

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Credit quality 26-grade CRR system

Substandard BRR 21-22 Weak
Borrower is more vulnerable than the borrowers rated BRR 19 and BRR 20 but the
S&P Equivalent Global borrower currently has the capacity to meet its financial commitments. Adverse business,
Rating: financial, or economic conditions will likely impair the borrower’s capacity or willingness
B+ to CCC- to meet its financial commitments. Default is more than a possibility.

BRR 23-25 Watchlist

Borrower is currently vulnerable and is dependent upon favorable business, financial, and
economic conditions to meet its financial commitments. Borrower may already be
experiencing losses and impaired capital in the case of BRR 25.

Impaired BRR 26 Default

Default will be a general default. Borrower will fail to pay all or substantially all of its
S&P Equivalent Global obligations as they come due.
Rating:
D

For the Retail segment of the portfolio, such as Retail SME, Credit Cards, Housing and Auto Loans,
credit scoring is being used in evaluating the creditworthiness of the borrower.
The table below shows the credit quality of the banking segment’s receivables from customers, gross
of allowance for credit losses and unearned and other deferred income, but net of residual values of
leased assets, as of December 31:

2021
Stage 1 Stage 2 Stage 3 Total
(In Millions)
Subject to CRR
Non-Retail - Corporate
High P
=213,839 P
=– P
=– P
=213,839
Standard 224,477 3,844 − 228,321
Substandard 40,872 18,770 − 59,642
Impaired − − 47,479 47,479
479,188 22,614 47,479 549,281

Subject to Scoring & Unrated

Non-Retail P
=10,136 P
=158 P
=2,367 P
=12,661
Corporate 5,919 110 2,299 8,328
LGU 4,217 48 68 4,333
Retail 42,252 987 16,909 60,148
Auto Loans 5,943 163 2,733 8,839
Housing Loans 20,048 487 10,429 30,964
Retail SME 5,792 68 1,328 7,188
Credit Card 10,469 269 2,419 13,157
Others 6,168 375 1,186 7,729
58,556 1,520 20,462 80,538
P
=537,744 P
=24,134 P
=67,941 P
=629,819

2020
Stage 1 Stage 2 Stage 3 Total
(In Millions)
Subject to CRR
Non-Retail - Corporate
High =147,485
P =84
P P−
= =147,569
P
Standard 252,549 11,015 − 263,564
Substandard 46,658 18,884 − 65,542
Impaired 95 297 50,516 50,908
446,787 30,280 50,516 527,583
(Forward)

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2020
Stage 1 Stage 2 Stage 3 Total
(In Millions)
Subject to Scoring & Unrated
Non-Retail =8,077
P P7
= =25
P =8,109
P
Corporate 1,687 − − 1,687
LGU 6,390 7 25 6,422
Retail 40,640 2,161 15,326 58,127
Auto Loans 7,792 600 2,693 11,085
Housing Loans 16,040 1,042 8,073 25,155
Retail SME 7,609 319 1,428 9,356
Credit Card 9,199 200 3,132 12,531
Others 14,239 1,532 5,338 21,109
62,956 3,700 20,689 87,345
=509,743
P =33,980
P =71,205
P =614,928
P

The analysis of past due status of receivables from customers that are subject to scoring and unrated
follows:

2021
Less than More than
30 days 31 to 90 days 91 to 180 days 180 days Total
(In Millions)

LGU P
=– P
=– P
=– P
=25 P
=25
Credit Card 2 77 264 2,093 2,436
Retail SME 293 147 73 965 1,478
Housing Loans 464 366 798 9,454 11,082
Auto Loans 107 112 180 2,500 2,899
Others 247 107 112 1,543 2,009
Total P
=1,113 P
=809 P
=1,427 P
=16,580 P
=19,929

2020
Less than More than
30 days 31 to 90 days 91 to 180 days 180 days Total
(In Millions)

LGU =25
P =−
P =−
P =−
P =25
P
Credit Card 6 103 1,150 1,930 3,189
Retail SME 1,017 57 118 472 1,664
Housing Loans 171 24 50 8,755 9,000
Auto Loans 252 65 103 2,863 3,283
Others 1,914 58 67 5,190 7,229
Total =3,385
P =307
P =1,488
P =19,210
P =24,390
P

Trading and Investment Securities and Other Financial Assets

In ensuring quality investment portfolio, PNB uses the credit risk rating based on the external ratings
of eligible external credit rating institutions (i.e., Moody’s Investors Service) as follows:

Aaa to Aa3 - fixed income are judged to be of high quality and are subject to very low credit risk, but
their susceptibility to long-term risks appears somewhat greater.

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A1 to A3 - fixed income obligations are considered upper-medium grade and are subject to low credit
risk, but have elements present that suggest a susceptibility to impairment over the long term.

Baa1 and below - represents those investments which fall under any of the following grade:

 Baa1, Baa2, Baa3 - fixed income obligations are subject to moderate credit risk. They are
considered medium grade and as such protective elements may be lacking or may be
characteristically unreliable.
 Ba1, Ba2, Ba3 - obligations are judged to have speculative elements and are subject to substantial
credit risk.
 B1, B2, B3 - obligations are considered speculative and are subject to high credit risk.
 Caa1, Caa2, Caa3 - are judged to be of poor standing and are subject to very high credit risk.
 Ca - are highly speculative and are likely in, or very near, default, with some prospect of recovery
of principal and interest.
 C - are the lowest rated class of bonds and are typically in default, with little prospect for recovery
of principal or interest.

Below are the financial assets of the banking segment, excluding receivables from customers, which
are monitored using external ratings.

December 31, 2021

Rated
Aaa to Baa1 and
Aa3 A1 to A3 below Subtotal Unrated Total
(In Millions)

Due from BSP1/ P

=− P
=− P
=− P
=− P
=161,002 P
=161,002
Due from other banks 3,267 17,610 4,274 25,151 2,082 27,233
Interbank loans receivables 1,840 24,082 1,224 27,146 4,967 32,113
Securities held under agreements to
resell − − − − 15,797 15,797
Financial assets at FVTOCI
Government securities 6,882 2,789 110,624 120,295 159 120,454
Private debt securities 577 − 590 1,167 21,948 23,115
Quoted equity securities − − 48 48 559 607
Unquoted equity securities − − 406 406 23,404 23,810
Investment securities at amortized
cost:
Government securities 128 201 33,748 34,077 237 34,314
Private debt securities 670 26,131 2,804 29,605 29,358 58,963
Financial asset at amortized cost:
Others2/ − − − − 16,870 16,870
1/
‘Due from BSP’ is composed of interest-earning short-term placements with the BSP and a demand deposit account to support the regular operations of
PNB.
2/
Loans and receivables - Others is composed of accrued interest receivable, accounts receivable, sales contracts receivable and other miscellaneous
receivables, net of allowances (see Note 8)

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December 31, 2020

Rated
Baa1 and
Aaa to Aa3 A1 to A3 below Subtotal Unrated Total
(In Millions)
Due from BSP1/ =−
P =−
P =−
P =−
P =202,129
P =202,129
P
Due from other banks 5,814 10,124 1,792 17,730 2,003 19,733
Interbank loans receivables 13,867 24,308 1,526 39,701 − 39,701
Securities held under agreements to
resell − − − − 15,819 15,819
Financial assets at FVTOCI
Government securities 85 − 90,824 90,909 20,442 111,351
Private debt securities 405 3,232 1,976 5,613 15,806 21,419
Quoted equity securities − − 119 119 588 707
Unquoted equity securities − − 421 421 321 742
Investment securities at amortized
cost:
Government securities 120 188 42,541 42,849 227 43,076
Private debt securities 1,114 25,551 7,650 34,315 22,190 56,505
Financial asset at amortized cost:
Others4/ − − − − 17,813 17,813
1/ ‘Due from BSP’ is composed of interest-earning short-term placements with the BSP and a demand deposit account to support the regular operations of
PNB.
2/ Loans and receivables - Others is composed of accrued interest receivable, accounts receivable, sales contracts receivable and other miscellaneous
receivables, net of allowances (see Note 8)

Liquidity Risk and Funding Management

The banking segment’s liquidity management involves maintaining funding capacity to accommodate
fluctuations in asset and liability levels due to changes in the banking segment’s business operations or
unanticipated events created by customer behavior or capital market conditions. The banking segment
seeks to ensure liquidity through a combination of active management of liabilities, a liquid asset
portfolio composed substantially of deposits in primary and secondary reserves, and the securing of
money market lines and the maintenance of repurchase facilities to address any unexpected liquidity
situations.

Liquidity risk is monitored and controlled primarily by a gap analysis of maturities of relevant assets
and liabilities reflected in the maximum cumulative outflow (MCO) report, as well as an analysis of
available liquid assets. The MCO focuses on a 12-month period wherein the 12-month cumulative
outflow is compared to the acceptable MCO limit set by the BOD. Furthermore, an internal liquidity
ratio has been set to determine sufficiency of liquid assets over deposit liabilities.

Liquidity is monitored by the banking segment on a daily basis through the Treasury Group. Likewise,
the RMG monitors the static liquidity via the MCO under normal and stressed scenarios.

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The table below shows the banking segment’s financial assets and financial liabilities’ liquidity
information which includes coupon cash flows categorized based on the expected date on which the
asset will be realized and the liability will be settled. For other assets, the analysis into maturity
grouping is based on the remaining period from the end of the reporting period to the contractual
maturity date or if earlier, the expected date the assets will be realized.

December 31, 2021

More than More than More than
Up to 1 1 Month to 3 Months to 6 Months to Beyond
Month 3 Months 6 Months 1 Year 1 year Total
(In Millions)

Financial Assets
COCI P
= 27,553 P
=– P
=– P
=– P
=– P
= 27,553
Due from BSP and other banks 198,068 – – – – 198,068
Interbank loans receivable 19,806 10,716 1,067 568 – 32,157
Securities held under agreements to
resell 15,803 – – – – 15,803
Financial assets at FVTPL:
Government securities 57 18 35 11,386 4,781 16,277
Private debt securities  18 176 31 2,580 2,805
Equity securities 17 – 12 24 1,515 1,568
Derivative assets:
Gross contractual receivable 61,532 14,897 7,910 4,590 13 88,942
Gross contractual payable (60,680) (14,705) (7,645) (4,535) – (87,565)
852 192 265 55 13 1,377
Financial Assets at FVTOCI:
Government securities 78,745 4,637 3,109 1,614 148,755 236,860
Private debt securities 3,445 1,412 8,989 854 45,107 59,807
Equity securities – 8 8 23,006 1,749 24,771
Investment securities at amortized
cost
Government securities 6,362 215 6,969 6,158 54,936 74,640
Private debt securities 5,270 2,318 25,945 33,115 61,667 128,315
Financial assets at amortized cost:
Receivables from customers 90,898 79,058 45,428 19,183 528,784 763,351
Other receivables 5,776 194 749 163 9,786 16,668
Other assets 136 – – 1 14 151
Total financial assets P
= 452,788 P
= 98,786 P
= 92,752 P
= 96,158 P
= 859,687 P
= 1,600,171

Financial Liabilities
Deposit liabilities:
Demand P
= 219,091 P
=– P
=– P
=– P
=– P
= 219,091
Savings 332,015 – – – – 332,015
Time and LTNCDs 184,258 98,415 19,410 22,530 30,400 355,013
Financial liabilities at FVTPL:
Derivative liabilities:
Gross contractual payable 20,905 30,667 17,595 255 – 69,422
Gross contractual receivable (20,620) (30,260) (17,395) (255) – (68,530)
285 407 200 – – 892
Bills and acceptances payable 26,965 7,654 13,197 210 3,207 51,233
Bonds payable – – 952 952 55,263 57,167
Accrued interest payable and accrued
other expenses payable 773 420 439 75 1,030 2,737
Other liabilities 6,023 1,092 277 314 2,389 10,095
Total financial liabilities P
= 769,410 P
= 107,988 P
= 34,475 P
= 24,081 P
= 92,289 P
= 1,028,243

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December 31, 2020

More than More than More than
Up to 1 1 Month to 3 Months to 6 Months to Beyond
Month 3 Months 6 Months 1 Year 1 year Total
(In Millions)

Financial Assets
COCI P25,136
= P–
= P–
= P–
= P–
= P25,136
=
Due from BSP and other banks 227,072 − − − − 227,072
Interbank loans receivable 33,212 4,405 10 748 1,128 39,503
Securities held under agreements to
resell 15,825 − − − − 15,825
Financial assets at FVTPL:
Government securities 77 180 219 365 21,496 22,337
Private debt securities – 19 79 98 5,098 5,294
Equity securities 8 17 5 22 1,156 1,208
Investment in UITFs 3 −  − − 3
Derivative assets:
Gross contractual receivable 44,836 9,158 354 28 143 54,519
Gross contractual payable (44,728) (9,045) (347) (36) (165) (54,321)
108 113 7 (8) (22) 198
Financial Assets at FVTOCI:
Government securities 46,310 4,117 499 4,497 66,559 121,982
Private debt securities 507 424 1,486 3,328 18,901 24,646
Equity securities − 8 8 16 1,008 1,040
Investment securities at amortized
cost
Government securities 4,877 743 5,578 2,249 32,109 45,556
Private debt securities 133 3,995 4,245 16,981 43,692 69,046
Financial assets at amortized cost:
Receivables from customers 95,695 77,648 33,398 23,273 484,755 714,769
Other receivables 9,815 186 703 188 7,507 18,399
Other assets 84 − − 2 14 100
Total financial assets =458,862
P =91,855
P 46,237 =51,759
P =683,401
P =1,332,114
P

Financial Liabilities
Deposit liabilities:
Demand =203,250
P =–
P =–
P =–
P =–
P =203,250
P
Savings 291,773 – – – – 291,773
Time and LTNCDs 218,590 93,746 15,130 17,667 60,033 405,166
Financial liabilities at FVTPL:
Derivative liabilities:
Gross contractual payable 35,770 12,482 11,301 1,517 122 61,192
Gross contractual receivable (35,497) (12,426) (11,063) (1,476) (165) (60,627)
273 56 238 41 (43) 565
Bills and acceptances payable 45,293 25,985 237 1,553 14,242 87,310
Bonds payable – 218 15,148 1,057 58,700 75,123
Accrued interest payable and accrued
other expenses payable 222 668 416 501 775 2,582
Other liabilities 9,342 208 509 461 1,878 12,398
Total financial liabilities =768,743
P =120,881
P =31,678
P =21,280
P =135,585
P =1,078,167
P

Market Risks
Market risk is the risk to earnings or capital arising from adverse movements in factors that affect the
market value of instruments, products, and transactions in an institutions’ overall portfolio. Market risk
arises from market making, dealing, and position taking in interest rate, foreign exchange and equity
markets.

The succeeding sections provide discussion on the impact of market risk on the banking segment’s
trading and structural portfolios.

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Trading market risk

Trading market risk exists in the banking segment as the values of its trading positions are sensitive to
changes in market rates such as interest rates, foreign exchange rates and equity prices. PNB is exposed
to trading market risk in the course of market making as well as from taking advantage of market
opportunities. For internal monitoring of the risk in the trading portfolio, the banking segment uses the
Value-at-Risk (VaR) as a primary risk measurement tool. It adopts both the Parametric VaR
methodology and Historical Simulation methodology (with 99% confidence level) models were
validated by an external independent validator. Volatilities used in the parametric are updated on a
daily basis and are based on historical data for a rolling 261-day period while yields and prices in the
historical VaR approach are also updated daily. The RMG reports the VaR utilization and breaches to
limits to the risk taking personnel on a daily basis and to the ALCO and ROC on a monthly basis.
All risk reports discussed in the ROC meeting are noted by the banking segment’s BOD. The VaR
figures are back-tested to validate the robustness of the VaR model. Results of backtesting on a rolling
one year period are also reported to the ROC. Below are the objectives and limitations of the VaR
methodology, VaR assumptions/parameters, backtesting, stress testing and VaR limits.

a. Objectives and limitations of the VaR methodology

The VaR models are designed to measure market risk in a normal market environment.
The models assume that any changes occurring in the risk factors affecting the normal market
environment will follow a normal distribution. The use of VaR has limitations because it is based
on historical volatilities in market prices and assumes that future price movements will follow a
statistical distribution. Due to the fact that VaR relies heavily on historical data to provide
information and may not clearly predict the future changes and modifications of the risk factors,
the probability of large market moves may be under estimated if changes in risk factors fail to align
with the normal distribution assumption. VaR may also be under- or over- estimated due to the
assumptions placed on risk factors and the relationship between such factors for specific
instruments. Even though positions may change throughout the day, the VaR only represents the
risk of the portfolios at the close of each business day, and it does not account for any losses that
may occur beyond the 99.00% confidence level.

b. VaR assumptions/parameters
VaR estimates the potential loss on the current portfolio assuming a specified time horizon and
level of confidence at 99.00%. The use of a 99.00% confidence level means that, within a one day
horizon, losses exceeding the VaR figure should occur, on average, not more than once every one
hundred days.

c. Backtesting
The validity of the assumptions underlying the banking segment’s VaR models can only be checked
by appropriate backtesting procedures. Backtesting is a formal statistical framework that consists
of verifying that actual losses are within the projected VaR approximations. The banking segment
adopts both the clean backtesting and dirty backtesting approaches approach in backtesting. Clean
backtesting, consists of comparing the VaR estimates with some hypothetical P&L values of the
portfolio, having kept its composition unchanged. In this case, the same portfolio is repriced or
marked-to-market at the end of the time interval and the hypothetical P&L is then compared with
the VaR. The other method, called dirty backtesting, consists of comparing the VaR estimates with
the actual P&L values at the end of the time horizon. This method, however, may pose a problem
if the portfolio has changed drastically because of trading activities between the beginning and the
end of the time horizon since VaR models assume that the portfolio is "frozen" over the horizon.
The banking segment uses the regulatory 3-zone (green, yellow and red) boundaries in evaluating
the backtesting results. For the years 2016 and 2015, the number of observations which fell outside
the VaR is within the allowable number of exceptions in the green and yellow zones to conclude
that there is no problem with the quality and accuracy of the VaR models at 99.00% confidence

230 *SGVFS162724*
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level. Nonetheless, closer monitoring and regular review of the model’s parameters and
assumptions are being conducted.

d. Stress Testing
To complement the VaR approximations, the banking segment conducts stress testing on a
quarterly basis, the results of which are being reported to the banking segment’s BOD. Scenarios
used in the conduct of stress test are event driven and represent the worst one-off event of a specific
risk factor. Results of stress testing are analyzed in terms of the impact to earnings and capital.

e. VaR Limits
Since VaR is an integral part of the banking segment’s market risk management, VaR limits have
been established annually for all financial trading activities and exposures. Calculated VaR
compared against the VaR limits are monitored. Limits are based on the tolerable risk appetite of
the banking segment. VaR is computed on an undiversified basis; hence, the banking segment does
not consider the correlation effects of the three trading portfolios.

Foreign Interest Equities

Trading Portfolio Exchange* Rate Price Total VaR**
(In Millions)
December 29, 2021 P3.67
= =87.21
P =42.28
P P133.17
=
Average Daily 6.93 401.78 39.50 448.21
Highest 24.90 670.75 48.48 701.79
Lowest 0.88 87.21 23.49 133.17
December 29, 2020 =9.85
P =491.44
P =22.92
P =524.21
P
Average Daily 9.92 245.63 28.16 283.71
Highest 26.22 608.54 36.81 671.57
Lowest 1.40 46.64 22.92 70.96
* FX VaR is the bankwide foreign exchange risk
** The high and low for the total portfolio may not equal the sum of the individual components as the highs and lows of the individual
trading portfolios may have occurred on different trading days

Structural Market Risk of the Banking Segment

Non-trading Market Risk

Interest rate risk
The banking segment seeks to ensure that exposure to fluctuations in interest rates are kept within
acceptable limits. Interest margins may increase as a result of such changes but may be reduced or may
create losses in the event that unexpected movements arise.

Repricing mismatches will expose the banking segment to interest rate risk. PNB measures the
sensitivity of its assets and liabilities to interest rate fluctuations by way of a “repricing gap” analysis
using the repricing characteristics of its financial instrument positions tempered with approved
assumptions. To evaluate earnings exposure, interest rate sensitive liabilities in each time band are
subtracted from the corresponding interest rate assets to produce a “repricing gap” for that time band.
The difference in the amount of assets and liabilities maturing or being repriced over a one year period
would then give the banking segment an indication of the extent to which it is exposed to the risk of
potential changes in net interest income. A negative gap occurs when the amount of interest rate
sensitive liabilities exceeds the amount of interest rate sensitive assets. Vice versa, positive gap occurs
when the amount of interest rate sensitive assets exceeds the amount of interest rate sensitive liabilities.

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During a period of rising interest rates, a company with a positive gap is better positioned because the
company’s assets are refinanced at increasingly higher interest rates increasing the net interest margin
of the company over time. During a period of falling interest rates, a company with a positive gap
would show assets repricing at a faster rate than one with a negative gap, which may restrain the growth
of its net income or result in a decline in net interest income.

For risk management purposes, the loan accounts are assessed based on next repricing date, thus as an
example, if a loan account is scheduled to reprice three years from year-end report date, slotting of the
account will be based on the date of interest repricing. Deposits with no specific maturity dates are
excluded in the one-year repricing gap except for the portion of volatile regular savings deposits which
are assumed to be withdrawn during the one year period and assumed to be replaced by a higher deposit
rate.

The Group uses the Earnings at Risk (EaR) methodology to measure the likely interest margin
compression in case of adverse change in interest rates given the Group repricing gap. The repricing
gap covering the one-year period is multiplied by an assumed change in interest rates to yield an
approximation of the change in net interest income that would result from such an interest rate
movement. The Group BOD sets a limit on the level of EaR exposure tolerable to the Group. EaR
exposure and compliance to the EaR limit is monitored monthly by the RMG and subject to a quarterly
stress test.

The following table sets forth the repricing gap position of the banking segment:
2021
More than More than More than
Up to 1 1 Month to 3 Months to 6 Months to Beyond
Month 3 Months 6 Months 1 Year 1 year Total
(In Millions)
Financial Assets*
Due from BSP and other banks = 125,574
P = 12,581
P = 4,001
P = 7,196
P = 38,758
P = 188,110
P
Interbank loans receivable and
securities held under agreements
to resell 34,549 10,772 1,466 1,115 − 47,902
Receivables from customers and
other receivables - gross** 128,716 64,305 18,405 30,948 103,945 346,319
Total financial assets 288,839 87,658 23,872 39,259 142,703 582,331

Financial Liabilities*
Deposit liabilities:
Savings 135,672 68,263 23,806 49,986 220,894 498,621
Time*** 93,532 43,040 4,788 3,236 7,134 151,730
Bonds payable − − − − 53,383 53,383
Bills and acceptances payable 42,931 8,030 44 260 1,689 52,954
Total financial liabilities = 272,135
P = 119,333
P = 28,638
P = 53,482
P = 283,100
P = 756,688
P

Repricing gap = 16,704

P (P
= 31,676) (P
= 4,566) (P
= 14,222) (P
= 140,397) (P
= 174,157)
Cumulative gap 16,704 (14,972) (19,537) (33,760) (174,156)
* Financial instruments that are not subject to repricing/rollforward were excluded.
** Receivables from customers excludes residual value of leased assets (Note 8).
***Excludes LTNCD.

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2020
More than More than More than
Up to 1 1 Month to 3 Months to 6 Months to Beyond
Month 3 Months 6 Months 1 Year 1 year Total
(In Millions)
Financial Assets*
Due from BSP and other banks =138,408
P =1,393
P =441
P =461
P =81,324
P =222,027
P
Interbank loans receivable and
securities held under
agreements to resell 49,389 4,272 1,107 751 − 55,519
Receivables from customers and
other receivables - gross** 118,843 79,871 18,557 15,140 129,524 361,935
Total financial assets =306,640
P =85,536
P =20,105
P =16,352
P =210,848
P =639,481
P

Financial Liabilities*
Deposit liabilities:
Savings P
=79,342 P
=46,277 P
=13,998 P
=20,351 P
=265,643 P
=425,611
Time*** 158,209 60,634 5,073 4,600 8,179 236,695
Bonds payable − − 13,853 − 50,204 64,057
Bills and acceptances payable 53,199 32,134 354 225 1,248 87,160
Total financial liabilities =290,750
P =139,045
P =33,278
P =25,176
P =325,274
P =813,523
P

Repricing gap =15,890

P (P
=53,509) (P
=13,173) (P
=8,824) (P
=114,426) (P
=174,042)
Cumulative gap 15,890 (37,617) (50,790) (59,612) (174,038) −
* Financial instruments that are not subject to repricing/rollforward were excluded.
** Receivables from customers excludes residual value of leased assets (Note 8).
***Excludes LTNCD.

The following table sets forth, for the year indicated, the impact of changes in interest rates on the
banking segment’s repricing gap for the years ended December 31:
2021 2020
Income Before Income Before
Income Tax Equity Income Tax Equity
(In Millions)
+50bps (P
=76) (P
=76) (P
=189) (P
=189)
-50bps 76 76 189 189
+100bps (152) (152) (378) (378)
-100bps 152 152 378 378

As one of the long-term goals in the risk management process, the banking segment has also
implemented the adoption of the economic value approach in measuring the impact of the interest rate
risk in the banking books to complement the earnings at risk approach using the modified duration
approach. Cognizant of this requirement, the PNB has undertaken the initial activities such as
identification of the business requirement and design of templates for each account and the inclusion
of this requirement in the Asset Liability Management business requirement definition.

Foreign currency risk

Foreign exchange is the risk to earnings or capital arising from changes in foreign exchange rates. The
banking segment takes on exposure to effects of fluctuations in the prevailing foreign currency
exchange rates on its financials and cash flows.

Foreign currency liabilities generally consist of foreign currency deposits in PNB’s FCDU books,
accounts made in the Philippines or which are generated from remittances to the Philippines by Filipino
expatriates and overseas Filipino workers who retain for their own benefit or for the benefit of a third
party, foreign currency deposit accounts with PNB and foreign currency-denominated borrowings
appearing in the regular books of PNB.

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Foreign currency deposits are generally used to fund PNB’s foreign currency-denominated loan and
investment portfolio in the FCDU. Banks are required by the BSP to match the foreign currency
liabilities with the foreign currency assets held through FCDUs. In addition, the BSP requires a 30.00%
liquidity reserve on all foreign currency liabilities held through FCDUs. Outside the FCDU, PNB has
additional foreign currency assets and liabilities in its foreign branch network.

The banking segment’s policy is to maintain foreign currency exposure within acceptable limits and
within existing regulatory guidelines. The banking segment believes that its profile of foreign currency
exposure on its assets and liabilities is within conservative limits for a financial institution engaged in
the type of business in which the banking segment is involved.

The table below summarizes the banking segment’s exposure to foreign exchange rate risk. Included
in the table are the financial assets and liabilities at carrying amounts, categorized by currency (amounts
in Philippine peso equivalent).

December 31, 2021 December 31, 2020

USD Others* Total USD Others Total
(In Millions)
Assets
COCI and due from BSP P
=215 P
=494 P
=709 =151
P =467
P =618
P
Due from other banks 14,160 4,403 18,563 10,191 5,296 15,487
Interbank loans and securities
held under agreements to
resell 1,824 2,314 4,138 4,135 430 4,565
Loans and receivables 27,523 11,002 38,525 24,026 11,426 35,452
Financial Assets at FVTPL 171 2 173 177 − 177
Financial Assets at FVTOCI 520 1,570 2,090 1,948 1,302 3,250
Financial assets at amortized
cost 134 175 309 126 1,085 1,211
Other assets 17,128 1,224 18,352 11,342 1,175 12,517
Total assets 61,675 21,184 82,859 52,096 21,181 73,277

Liabilities
Deposit liabilities 8,006 7,778 15,784 7,198 7,474 14,672
Derivative liabilities    7 7 14
Bills and acceptances payable 49,118 277 49,395 62,015 286 62,301
Accrued taxes, interest and other
expenses 53 14 67 95 10 105
Other liabilities 1,115 2,211 3,326 3,952 2,011 5,963
Total liabilities 58,292 10,280 68,572 73,267 9,788 83,055
Net Exposure P
=3,383 P
=10,904 P
=14,287 (P
=21,171) =11,393
P (P
=9,778)
* Other currencies include UAE Dirham (AED,) Australia dollar (AUD), Bahrain dollar (BHD), Brunei dollar (BND), Canada dollar (CAD), Swiss franc
(CHF), China Yuan (CNY), Denmark kroner (DKK), Euro (EUR), UK pound (GBP), Hong Kong dollar (HKD), Indonesia rupiah (IDR), Japanese yen (JPY),
New Zealand dollar (NZD), PHP, Saudi Arabia riyal (SAR), Sweden kroner (SEK), Singapore dollar (SGD), South Korean won (SKW), Thailand baht (THB)
and Taiwan dollar (TWD).

Information relating to the banking segment’s currency derivatives is contained in Note 21.

Financial Risk Management Objectives and Policies of the Companies in the Group other than
the Banking Segment

Risk Management Strategies

The Group’s principal financial instruments comprise of short-term and long-term debts and COCI.
The main purpose of these financial instruments is to ensure adequate funds for the Group’s operations
and capital expansion. Excess funds are invested in available-for-sale financial assets with a view to
liquidate these to meet various operational requirements when needed. The Group has various other
financial assets and financial liabilities such as receivables and accounts payable and accrued expenses
which arise directly from its operations.

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The main risks arising from the use of financial instruments are credit risk, liquidity risk and market
risks (consisting of foreign exchange risk, interest rate risk and equity price risk).

Credit Risk
The Group manages its credit risk by transacting with counterparties of good financial condition and
selecting investment grade securities. The Group trades only with recognized, creditworthy third
parties. In addition, receivable balances are monitored on an on-going basis with the result
that the Group’s exposure to bad debts is not significant. Management closely monitors the fund and
financial condition of the Group.

In addition, credit risk of property development segment is managed primarily through analysis of
receivables on a continuous basis. The credit risk for contracts receivables is mitigated as the Group
has the right to cancel the sales contract without the risk for any court action and can take possession
of the subject property in case of refusal by the buyer to pay on time the contracts receivables due. This
risk is further mitigated because the corresponding title to the property sold under this arrangement is
transferred to the buyers only upon full payment of the contract price.

Concentration risk
Concentrations arise when a number of counterparties are engaged in similar business activities having
similar economic features that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions. Concentrations indicate the relative
sensitivity of the Group’s performance to developments affecting a particular industry or geographical
location. Such credit risk concentrations, if not properly managed, may cause significant losses that
could threaten the Group’s financial strength and undermine public confidence. Concentration risk per
business segment could arise on the following:

 Distilled spirits segment’s annual sales pertain mainly to two trusted parties with sales to them
comprising about 84% of the total segment revenue.
 Beverage segment annual sales pertain mainly to 13 parties with sales to them comprising about
100% of the total beverage sales.
 Tobacco and property development segments are not exposed to concentration risk because it has
diverse base of counterparties.

Credit quality per class of financial assets

“Standard grade” accounts consist of financial assets from trusted parties with good financial condition.
“Substandard grade” accounts, on the other hand, are financial assets from other counterparties with
relatively low defaults. The Group did not regard any financial asset as “high grade” in view of the
erratic cash flows or uncertainty associated with the financial instruments. “Past due but not impaired”
are items with history of frequent default, nevertheless, the amount due are still collectible. Lastly,
“Impaired financial assets” are those that are long-outstanding and have been provided with allowance
for doubtful accounts.

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Set out below is the information about the credit risk exposure on the Company’s financial assets using
provision matrix (in millions):

As of December 31, 2021:

Trade and other receivables
Cash in Due from Days past due
related
< 30 days 30-60 days 61-90 days > 90 days
Banks parties Current Total
Expected credit loss 0.13% - 0.13% - 0.13% - 0.13% - 5.00% -
rate % % 82.00% 78.9% 36.00% 93.06% 47.00%
Estimated total gross
carrying amount at
default = 265.1
P = 7,685.5
P = 6,760.4
P = 2,160.7
P = 2,335.4
P = 1,398.3
P = 2,996.4 =
P P15,651.2
Expected credit loss = 
P =
P = 0.5
P = 10.0
P = 8.4
P = 36.6
P = 190.6
P P246.1
=

As of December 31, 2020:

Trade and other receivables
Cash in Due from Days past due
banks related parties Current < 30 days 30-60 days 61-90 days > 90 days Total
Expected credit loss rate % % 0.13% - 0.13% - 0.13% - 0.13% - 5.00% -
82.00% 78.9% 36.00% 93.06% 47.00%
Estimated total gross
carrying amount at
default =1,542.6
P =1,954.5
P =7,737.1
P =2,472.8
P =2,672.8
P =1,600.3
P =3,429.3 =
P P17,912.3
Expected credit loss =
P =
P =0.6
P =12.3
P =10.4
P =45.2
P =235.0
P P303.6
=

Liquidity Risk and Funding Management

Liquidity risk is generally defined as the current and prospective risk to earnings or capital arising from
the Group’s inability to meet its obligations when they come due without incurring unacceptable losses
or costs.

The Group’s objective is to maintain a balance between continuity of funding and sourcing flexibility
through the use of available financial instruments. The Group manages its liquidity profile to meet its
working and capital expenditure requirements and service debt obligations. As part of the liquidity risk
management program, the Group regularly evaluates and considers the maturity of its financial assets
(e.g., trade receivables, other financial assets) and resorts to short-term borrowings whenever its
available cash or matured placements is not enough to meet its daily working capital requirements. To
ensure availability of short-term borrowings, the Group maintains credit lines with banks on a
continuing basis.

The Group relies on budgeting and forecasting techniques to monitor cash flow concerns. The Group
also keeps its liquidity risk minimum by prepaying, to the extent possible, interest bearing debt using
operating cash flows.

The following tables show the maturity profile of the Group’s other financial liabilities (undiscounted
amounts of principal and related interest) as well as the financial assets used for liquidity management
(in millions):
2021 2020
Less than 1 to less than Less than 1 to less than
one year 3 years Total one year 3 years Total
Cash and other cash items P
=265 =
P P
= 265 =
P1,542 =
P P
=1,542
Trade receivables 15,405  15,405 16,794  16,794
Other receivables 3,312  3,312 3,421  3,421
Due from related parties 7,686  7,686 1,955  1,955
Refundable deposits 181  181 181  181
Financial assets at FVTPL 11  11 33  33
P
= 26,860 =
P P
= 26,860 =23,926
P =
P =23,926
P

236 *SGVFS162724*
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2021 2020
Less than 1 to less than Less than 1 to less than
one year 3 years Total one year 3 years Total
Short term debts P= 3,940 =
P P
= 3,940 =4,740
P =
P =4,740
P
Accounts payable and other
liabilities* 16,357  16,357 9,893  9,893
Long-term debts 3,597 59,046 62,643 565 3,755 4,320
Due to related parties 65  65 65  65
Other liabilities 18,422  18,422 1,561 1,676 3,237
P
= 42,381 P
= 59,046 P
= 101,427 =16,824
P =5,431
P =22,255
P
*Excluding non-financial liabilities amounting to =
P1,758 million and =
P223.2 million as of December 31, 2021 and 2020, respectively.

Market Risks of the Group other than the Banking Segment

The Group’s operating, investing, and financing activities are directly affected by changes in foreign
exchange rates and interest rates. Increasing market fluctuations in these variables may result in
significant equity, cash flow and profit volatility risks for the Group. For this reason, the Group seeks
to manage and control these risks primarily through its regular operating and financing activities.

Management of financial market risk is a key priority for the Group. The Group generally applies
sensitivity analysis in assessing and monitoring its market risks. Sensitivity analysis enables
management to identify the risk position of the Group as well as provide an approximate quantification
of the risk exposures. Estimates provided for foreign exchange risk, cash flow interest rate risk, price
interest rate risk and equity price risk are based on the historical volatility for each market factor, with
adjustments being made to arrive at what the Group considers to be reasonably possible.

Equity price risk

Equity price risk is the risk that the fair value of equities will decrease as a result of changes in the
levels of equity indices and value of individual stocks. In 2021, 2020 and 2019, changes in fair value
of equity instruments held as equity instruments at FVTOCI due to a reasonable possible change in
equity interest, with all other variables held constant, will increase profit by P =108.8 million,
=209.7 million and =
P P310.4 million, respectively, if equity prices will increase by 5.3%, 14.8% and
19.4%, respectively. An equal change in the opposite direction would have decrease equity by the same
amount.

Interest rate risk

Interest rate risk arises from the possibility that changes in interest rates would unfavorably affect future
cash flows from financial instruments. As of December 31, 2021 and 2020, the Group’s long-term debts
are not exposed to the risk in changes in market interest rates since the debts are issued at fixed rates.
Fixed rate financial instruments are subject to fair value interest rate risk while floating rate financial
instruments are subject to cash flow interest rate risk. Repricing of floating rate financial instruments
is mostly at interval of three months or six months.

Foreign currency risk

The non-banking segment of the Group is not significantly affected by foreign currency risk since the
Group has no significant foreign currency transactions.

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33. Offsetting of Financial Assets and Financial Liabilities

The Group is required to disclose information about rights of offset and related arrangements (such as
collateral posting requirements) for financial instruments under an enforceable master netting
agreements or similar arrangements. The effects of these arrangements are disclosed in the succeeding
tables.

Financial assets

December 31, 2021

Effect of remaining rights of
Net amount set-off (including rights to set
Gross presented off financial collateral) that
amounts in the do not meet PAS 32
Gross offset in consolidated offsetting
Financial assets carrying accordance statement of criteria
recognized at Amounts with the financial Financial Fair value of
end of reporting (before offsetting position instrument Financial Net exposure
period by type offsetting) criteria [a-b] s collateral [c-d]
[a] [b] [c] [d] [e]
(In Thousands)
Derivative assets
(Notes 6 and 21) P
=88,929,845 (P
= 87,564,794) P
=1,365,051 P
=240,111 =
P P
=1,605,162
Securities sold under
agreements to
repurchase
(Note 8) 15,796,673 – 15,796,673 – (15,800,317) –
P
=104,726,518 (P
= 87,564,794) P
=17,161,724 P
=240,111 (P
= 15,800,317) P
=1,605,162

December 31, 2020

Effect of remaining rights of
Net amount set-off (including rights to set
Gross presented off financial collateral) that
amounts in the do not meet PAS 32
Gross offset in consolidated offsetting
Financial assets carrying accordance statement of criteria
recognized at Amounts with the financial Fair value of
end of reporting (before offsetting position Financial Financial Net exposure
period by type offsetting) criteria [a-b] instruments collateral [c-d]
[a] [b] [c] [d] [e]
(In Thousands)
Derivative assets
(Notes 6 and 21) =58,317,718 (P
P =57,947,065) =370,653
P (P
=58,699) =–
P =311,954
P
Securities sold under
agreements to
repurchase
(Note 8) 15,819,273 – 15,819,273 – (16,499,434) –
P74,136,991 (P
= =57,947,065) P16,189,926
= (P
=58,699) (P
=16,499,434) =311,954
P

238 *SGVFS162724*
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Financial liabilities

December 31, 2021

Net amount Effect of remaining rights of
Gross presented set-off (including rights to set
amounts in the off financial collateral) that
Gross offset in consolidated do not meet PAS 32 offsetting
Financial assets carrying accordance statement of criteria
recognized at Amounts with the financial Fair value of
end of reporting (before offsetting position Financial Financial Net exposure
period by type offsetting) criteria [a-b] instruments collateral [c-d]
[a] [b] [c] [d] [e]
(In Thousands)
Derivative liabilities
(Notes 16 and 21) P
=70,313,430 (P
= 69,421,899) P
=891,531 P
=49,120 P
=- P
=842,411
Securities sold under
agreements to
repurchase
(Note 8)* 38,494,178 – 38,494,178 – (30,619,104) –
Total P
=108,807,608 (P
= 69,421,899) P
=39,385,709 P
=49,120 (P
= 30,619,104) P
=842,411
* Included in bills and acceptances payable in the consolidated statement of financial position.

December 31, 2020

Net amount Effect of remaining rights of
Gross presented set-off (including rights to set
amounts in the off financial collateral) that
Gross offset in consolidated do not meet PAS 32 offsetting
Financial assets carrying accordance statement of criteria
recognized at Amounts with the financial Fair value of
end of reporting (before offsetting position Financial Financial Net exposure
period by type offsetting) criteria [a-b] instruments collateral [c-d]
[a] [b] [c] [d] [e]
(In Thousands)
Derivative liabilities
(Notes 16 and 21) =65,641,080 (P
P =64,939,841) =701,239
P (P
=85,540) =
P =615,699
P
Securities sold under
agreements to
repurchase (Note 17)* 69,906,979 – 69,906,979 – (72,585,497) –
Total =135,548,059 (P
P =64,939,841) =
P70,608,218 (P
=85,540) (P
=72,585,497) =615,699
P
* Included in bills and acceptances payable in the consolidated statement of financial position.

The amounts disclosed in column (d) include those rights to set-off amounts that are only enforceable
and exercisable in the event of default, insolvency or bankruptcy. This includes amounts related to
financial collateral both received and pledged, whether cash or non-cash collateral, excluding the extent
of over-collateralization.

34. Fair Value Measurement

The Group has assets and liabilities that are measured at fair value on a recurring and non-recurring
basis in the consolidated statements of financial position after initial recognition. Recurring fair value
measurements are those that another PFRSs requires or permits to be recognized in the consolidated
statements of financial position at the end of each reporting period. These include financial assets and
liabilities at FVTPL and FVTOCI. Non-recurring fair value measurements are those that another
PFRSs requires or permits to be recognized in the consolidated statement of financial position in
particular circumstances. These include land and land improvements, buildings and building
improvements and machineries and equipment measured at revalued amount and investment properties
measured at cost but with fair value measurement disclosure.

239 *SGVFS162724*
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The Group’s management determines the policies and procedures for both recurring and non-recurring
fair value measurement.

External valuers are involved for valuation of significant assets, such as investment properties, land
and land improvements, plant buildings and building improvements and machineries and equipment.
Involvement of external valuers is decided upon annually by management. Selection criteria include
market knowledge, reputation, independence and whether professional standards are maintained.
Management decides, after discussions with the Group’s external valuers, which valuation techniques
and inputs to use for each case.

At each reporting date, management analyses the movements in the values of assets and liabilities which
are required to be re-measured or re-assessed as per the Group’s accounting policies. For this analysis,
management verifies the major inputs applied in the latest valuation by agreeing the information in the
valuation computation to contracts and other relevant documents with relevant external sources to
determine whether the change is reasonable.

As of December 31, 2021 and 2020, the carrying values of the Group’s financial assets and liabilities
approximate their respective fair values, except for the following financial instruments:
December 31, 2021 December, 31, 2020
Carrying Value Fair Value Carrying Value Fair Value
(In Thousands)
Financial Assets:
Financial assets at amortized cost =89,455,843
P =94,871,927
P =95,235,993
P =99,368,418
P
Loans and receivables:
Receivables from customers 597,979,601 635,709,624 585,855,937 622,821,007
P687,435,444
= P730,581,551
= P681,091,930
= P722,189,425
=
Financial Liabilities:
Financial liabilities at amortized cost:
Deposit liabilities:
Time deposits =151,729,554
P =151,729,554
P =236,694,042
P =236,694,042
P
Bills payables 45,843,901 45,860,995 83,598,532 83,600,018
Long-term debts:
Unsecured term loan 4,115,867 4,115,867 2,911,053 2,911,053
Bonds payable 53,383,421 54,724,962 64,056,335 67,728,954
LTNCD 28,245,390 28,314,622 28,212,034 28,541,261
Other liabilities:
Payable to landowners 1,061,191 1,061,191 1,061,191 1,061,191
Tenants’ rental deposits 411,502 411,502 428,191 428,191
=284,790,826
P =286,218,693
P =416,961,378
P =420,964,710
P

The methods and assumptions used by the Group in estimating the fair value of the financial instruments
are:

Cash equivalents - Carrying amounts approximate fair values due to the relatively short-term maturity
of these investments.

Debt securities - Fair values are generally based upon quoted market prices. If the market prices are
not readily available, fair values are obtained from independent parties offering pricing services,
estimated using adjusted quoted market prices of comparable investments or using the discounted cash
flow methodology.

Equity securities - fair values of quoted equity securities are based on quoted market prices. While fair
values of unquoted equity securities are the same as the carrying value since the fair value could not be
reliably determined due to the unpredictable nature of future cash flows and the lack of suitable methods
of arriving at a reliable fair value.

240 *SGVFS162724*
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Loans and receivables - For loans with fixed interest rates, fair values are estimated by discounted cash
flow methodology, using the Group’s current market lending rates for similar types of loans. For loans
with floating interest rates, with repricing frequencies on a quarterly basis, the Group assumes that the
carrying amount approximates fair value.

Liabilities - Except for time deposit liabilities, subordinated debt, bonds payable, unsecured term loans,
notes payable, payable to landowners, tenants’ rental deposits and advance rentals, the carrying values
approximate fair values due to either the presence of a demand feature or the relatively short-term
maturities of these liabilities.

Derivative instruments - Fair values are estimated based on quoted market prices or acceptable
valuation models.

Time deposit liabilities, bills payable with long term maturity and subordinated debt including
designated at FVTPL - Fair value is determined using the discounted cash flow methodology.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of assets and
liabilities by valuation technique. These levels are based in the inputs that are used to determine the
fair value and can be summarized in:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value
are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are
not based on observable market data.

The Group held the following assets and liabilities measured at fair value and at cost but which fair
values are disclosed and their corresponding level in fair value hierarchy:

December 31, 2021

Level 1 Level 2 Level 3 Total
(In Thousands)

Assets measured at fair value:

Financial Assets
Financial assets at FVTPL:
Held-for-trading:
Government securities P
=3,309,163 P
=4,646,850 P
=– P
=7,956,013
Derivative assets 949,208 892,340 – 1,841,548
Private debt securities – 1,365,051 – 1,365,051
Equity securities 5,045 – – 5,045
Designated at FVTPL:
Investment in UITFs – 37,612 – 37,612
= 4,263,416
P = 6,941,853
P =–
P =11,205,269
P
Financial assets at FVTOCI:
Government securities =63,357,650
P =57,407,275
P =–
P =120,764,925
P
Private debt securities 252,902 500,259 22,362,318 23,115,479
Equity securities** 903,611 1,149,056 – 2,052,667
=64,514,163
P =59,056,590
P =22,362,318
P =145,933,071
P

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December 31, 2021

Level 1 Level 2 Level 3 Total
(In Thousands)
Non-financial assets
Property, plant and equipment***
Land and land improvements P–
= P–
= =41,990,307
P =41,990,307
P
Plant buildings and building improvements – – 4,933,456 4,933,456
Machineries and equipment – – 13,545,108 13,545,108
=–
P =–
P =60,468,871
P =60,468,871
P
Liabilities measured at fair value:
Financial liabilities
Financial liabilities at FVTPL:
Designated at FVTPL:
Derivative liabilities =–
P =891,531
P =–
P =891,531
P
Assets for which fair values are disclosed:
Financial Assets
Financial assets at amortized cost 17,676,548 77,195,379 – 94,871,927
Loans and receivables:
Receivables from customers 635,709,624 635,709,624
P
= 17,676,548 P
= 78,086,910 P635,709,624
= P731,473,082
=
Non-financial Assets
Investment properties***
Land P
=– P
=– P
= 26,914,713 P
= 26,914,713
Buildings and improvements – – 3,030,859 3,030,859
P
=– P
=– P
= 29,945,572 P
= 29,945,572
Liabilities for which fair values are disclosed:
Financial liabilities
Financial liabilities at amortized cost:
Deposit liabilities:
Time deposits P
=– P
=– P
=151,729,554 P
= 151,729,554
Long term debts:
Bills payable – – 45,860,995 45,860,995
Unsecured term loan – – 4,115,867 4,115,867
Bonds payable 38,997,788 15,727,174 – 54,724,962
LTNCD – 28,314,622 – 28,314,622
Other liabilities:
Payable to landowners – – 1,061,191 1,061,191
Tenants’ rental deposits – – 411,502 411,502
=38,997,788
P =44,041,796
P =
P203,179,109 =286,218,693
P
* Excludes cash component
** Excludes unquoted available-for-sale securities
*** Based on the fair values from appraisal reports which are different from their carrying amounts which are carried at cost.

December 31, 2020

Level 1 Level 2 Level 3 Total
(In Thousands)

Assets measured at fair value:

Financial Assets
Financial assets at FVTPL:
Held-for-trading:
Government securities =17,657,777
P =478,614
P =–
P =18,136,391
P
Derivative assets – 370,653 – 370,653
Private debt securities 3,198,949 1,097,151 – 4,296,100
Equity securities 1,019,626 – – 1,019,626
Designated at FVTPL:
Investment in UITFs – 35,554 – 35,554
=21,876,352
P =1,981,972
P =
P =23,858,324
P

Financial assets at FVTOCI:

Government securities =67,513,412
P =43,333,354
P =–
P =110,846,766
P
Private debt securities 9,773,253 11,645,281 – 21,418,534
Equity securities** 302,340 540,109 607,603 1,450,052
=77,589,005
P =55,518,744
P =607,603
P =133,715,352
P

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December 31, 2020

Level 1 Level 2 Level 3 Total
(In Thousands)
Non-financial assets
Property, plant and equipment***
Land and land improvements =–
P =–
P =38,269,468
P =38,269,468
P
Plant buildings and building improvements – – 13,408,573 13,408,573
Machineries and equipment – – 8,240,432 8,240,432
=–
P =–
P =59,918,473
P =59,918,473
P
Liabilities measured at fair value:
Financial liabilities
Financial liabilities at FVTPL:
Designated at FVTPL:
Derivative liabilities =–
P =701,239
P =–
P =701,239
P
Assets for which fair values are disclosed:
Financial Assets
Financial assets at amortized cost =
P12,712,144 =
P86,656,274 =–
P =
P99,368,418
Loans and receivables:
Receivables from customers – – 622,821,007 622,821,007
=12,712,144
P =
P86,656,274 =
P622,821,007 =
P722,189,425
Non-financial Assets
Investment properties***
Land =–
P =–
P =26,970,597
P =26,970,597
P
Buildings and improvements – – 3,947,077 3,947,077
=–
P =–
P =30,917,674
P =30,917,674
P
Liabilities for which fair values are disclosed:
Financial liabilities
Financial liabilities at amortized cost:
Deposit liabilities:
Time deposits =–
P =–
P =
P236,694,042 =236,694,042
P
Long term debts:
Bills payable – – 83,600,018 83,600,018
Unsecured term loan – – 2,911,053 2,911,053
Bonds payable 38,225,468 29,503,486 – 67,728,954
LTNCD – 28,541,261 – 28,541,261
Other liabilities:
Payable to landowners – – 1,061,191 1,061,191
Tenants’ rental deposits – – 428,191 428,191
=38,225,468
P =58,044,747
P =
P324,694,495 =420,964,710
P
* Excludes cash component
** Excludes unquoted available-for-sale securities
*** Based on the fair values from appraisal reports which are different from their carrying amounts which are carried at cost.

When fair values of listed equity and debt securities, as well as publicly traded derivatives at the
reporting date are based on quoted market prices or binding dealer price quotations, without any
deduction for transaction costs, the instruments are included within Level 1 of the hierarchy.

The unquoted debt securities fair values are estimated based on the market data approach that makes
use of market multiples derived from a set of comparable. Multiples were determined that is most
relevant to assessing the value of the unquoted securities (e.g., earnings, book value). The selection of
the appropriate multiple within the range is based on qualitative and quantitative factors specific to the
measurement.

For all other financial instruments, fair value is determined using valuation techniques. Valuation
techniques include net present value techniques, comparison to similar instruments for which market
observable prices exist and other revaluation models.

Significant input used in determining fair values of financial instruments under Level 2 comprises of
interpolated market rates of benchmark securities. For investments in UITFs, fair values are determined
based on published NAVPU as of reporting date.

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As of December 31, 2021 and 2020, there were no transfers between Level 1 and Level 2 fair value
measurements, and no transfers into and out of level 3 fair value measurements.

The table below summarizes the valuation techniques used and the significant unobservable inputs
valuation for each type of property, plant and equipment and investment properties held by the Group:

Valuation Significant
Techniques Unobservable Inputs Range of Estimates
Property, plant and equipment:
Land and land improvements Market Data Approach Price per square meter =6,000 - =
P P6,200
Plant buildings and building
improvements
Building Replaceable Fixed Asset Replacement cost P4,287 - =
= P10,000
Valuation Approach Estimated total floor area 24 - 1548 sq.m
Building improvements Replaceable Fixed Asset Replacement cost =2.8 million - P
P =26.5
Valuation Approach Estimated number of million
components
315 - 723 components
Machineries and equipment Replaceable Fixed Asset Replacement cost =3,200 - =
P P8.6 million
Valuation Approach Estimated number of
components 465 - 1,162 components
Investment properties:
Land Market Data Approach Price per square meter, =800 - P
P =100,000
size, location, shape, time
element and corner
influence
Land and building Market Data Approach New Reproduction Cost
and Replacement Cost
Approach

Significant favorable (unfavorable) adjustments to the aforementioned factors based on the professional
judgment of the independent appraisers would increase (decrease) the fair value of land. Significant
increases (decreases) in the current replacement cost would result in significantly higher (lower)
appraised values whereas significant increase (decrease) in the remaining useful life of the property,
plant and equipment over their total useful life would result in significantly higher (lower) appraised
values.

Description of the valuation techniques and significant unobservable inputs used in the valuation of the
Group’s property, plant and equipment and investment properties are as follows:

Description
Valuation Techniques
Market Data Approach A process of comparing the subject property being appraised to similar
comparable properties recently sold or being offered for sale.
Replaceable Fixed Asset Valuation This method requires an analysis of the buildings and other land
Approach improvements by breaking them down into major components. Bills of
quantities for each component using the appropriate basic unit are
prepared and related to the unit cost for each component developed on
the basis of current costs of materials, labor, plant and equipment
prevailing in the locality to arrive at the direct costs of the components.
Accrued depreciation was based on the observed condition.
Replacement Cost Approach It is an estimate of the investment required to duplicate the property in
its present condition. It is reached by estimating the value of the
building “as if new” and then deducting the depreciated cost.
Fundamental to the Cost Approach is the estimate of Reproduction
Cost New of the improvements.

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Description
Valuation Techniques
Reproduction Cost New The cost to create a virtual replica of the existing structure, employing
the same design and similar building materials.
Size Size of lot in terms of area. Evaluate if the lot size of property or
comparable conforms to the average cut of the lots in the area and
estimate the impact of lot size differences on land value.
Shape Particular form or configuration of the lot. A highly irregular shape
limits the usable area whereas an ideal lot configuration maximizes the
usable area of the lot which is associated in designing an improvement
which conforms with the highest and best use of the property.
Location Location of comparative properties whether on a main road, or
secondary road. Road width could also be a consideration if data is
available. As a rule, properties located along a main road are superior
to properties located along a secondary road.
Time Element “An adjustment for market conditions is made if general property
values have appreciated or depreciated since the transaction dates due
to inflation or deflation or a change in investors’ perceptions of the
market over time”. In which case, the current data is superior to
historic data.
Discount Generally, asking prices in ads posted for sale are negotiable.
Discount is the amount the seller or developer is willing to deduct from
the posted selling price if the transaction will be in cash or equivalent.
Corner influence Bounded by two (2) roads.

35. Notes to Consolidated Statements of Cash Flows

Cash Flows from Financing Activities

The changes in liabilities arising from financing activities in 2021 and 2020 follow:

2021
Beginning Net cash Ending
balance flows Others balance
Bills and acceptances payable =87,159,450
P (P
=36,426,226) =2,220,573
P =52,953,797
P
Bonds payable 64,056,335 (13,870,000) 3,197,086 53,383,421
Lease liabilities 2,775,256 (1,304,689) 3,673,479 5,144,046
=153,991,041
P (P
=51,600,915) =9,091,138
P =111,481,264
P

2020
Beginning Net cash Ending
balance flows Others balance
Bills and acceptances payable =55,963,290
P =32,255,780
P (P
=1,059,619) =87,159,451
P
Bonds payable 66,615,078 – (2,558,743) 64,056,335
Lease liabilities 3,247,876 (794,735) 322,115 2,775,256
=125,826,244
P =31,461,045
P (P
=3,296,247) =153,991,042
P

Others include the effects of foreign exchange revaluations, amortization of transaction costs, and
accretion of interest.

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Non-cash Transactions
The Group applied creditable withholding taxes against its income tax payable amounting to
=1.6 billion, =
P P2.8 billion and P
=1.3 billion in 2021, 2020 and 2019, respectively.

The Group acquired investment properties through foreclosure and rescission amounting to
=0.5 billion, =
P P0.1 billion, and =
P1.0 billion in 2021, 2020 and 2019, respectively.

Non-cash Investing Activities

As of December 31, 2021 and 2020, unpaid additions to property, plant and equipment amounted to
=34.4 million and =
P P154.3 million, respectively, which is included as part of “Accounts payable and
accrued expenses”.

36. Capital Management

The main thrust of the Group’s capital management policy is to ensure that the Group complies with
externally imposed capital requirements, maintains a good credit standing and has a sound capital ratio
to be able to support its business and maximize the value of its shareholders equity. The Group is also
required to maintain debt-to-equity ratios to comply with certain loan agreements and covenants in
2021 and 2020.

The Group’s dividend declaration is dependent on the availability of earnings and operating
requirements. The Group manages its capital structure and makes adjustment to it, in light of changes
in economic conditions. To maintain or adjust capital structure, the Group may adjust the
dividend payment to shareholders, return capital to shareholders or issue new shares. No change were
made in the objectives, policies or processes in 2021 and 2020.

The Group considers its total equity reflected in the consolidated statements of financial position as its
capital. The Group monitors its use of capital and the Group’s capital adequacy by using leverage ratios,
specifically, debt ratio (total debt/total equity and total debt) and debt-to-equity ratio (total debt/total
equity). Included as debt are the Group’s total liabilities while equity pertains to total equity as shown
in the consolidated statements of financial position.

The table below shows the leverage ratios of the Group:

2021 2020
(In Thousands, except ratios)
Total liabilities P
=1,048,299,685 =1,097,584,175
P
Total equity 263,536,679 255,538,279
Total liabilities and equity P
=1,311,836,364 =1,353,122,454
P
Debt ratio 0.80:1 0.81:1
Debt-to-equity ratio 3.98:1 4.30:1

Regulatory Qualifying Capital for the Banking Segment

Under existing BSP regulations, the determination of PNB’s compliance with regulatory requirements
and ratios is based on the amount of PNB’s unimpaired capital (regulatory net worth) reported to the
BSP, which is determined on the basis of regulatory policies, which differ from PFRSs in some respects.

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In addition, the risk-based capital ratio of a bank, expressed as a percentage of qualifying capital to
risk-weighted assets, should not be less than 10.00% for both solo basis (head office and branches) and
consolidated basis (parent bank and subsidiaries engaged in financial allied undertakings but excluding
insurance companies). Qualifying capital and risk-weighted assets are computed based on BSP
regulations. Risk-weighted assets consist of total assets less cash on hand, due from BSP, loans covered
by hold-out on or assignment of deposits, loans or acceptances under letters of credit to the extent
covered by margin deposits and other non-risk items determined by the MB of the BSP.

PNB and its individually regulated subsidiaries/operations have complied with all externally imposed
capital requirement throughout the year.

On January 15, 2013, the BSP issued Circular No. 781, Basel III Implementing Guidelines on Minimum
Capital Requirements, which provides the implementing guidelines on the revised risk-based capital
adequacy framework particularly on the minimum capital and disclosure requirements for universal
banks and commercial banks, as well as their subsidiary banks and quasi-banks, in accordance with the
Basel III standards. The circular is effective on January 1, 2014.

The Circular No. 781 sets out a minimum Common Equity Tier 1 (CET1) ratio of 6.0% and Tier 1
capital ratio of 7.5%. It also introduces a capital conservation buffer of 2.5% comprised of CET1
capital. The BSP’s existing requirement for Total CAR remains unchanged at 10% and these ratios
shall be maintained at all times.

Further, existing capital instruments as of December 31, 2010 which do not meet the eligibility criteria
for capital instruments under the revised capital framework shall no longer be recognized as capital
upon the effectivity of Basel III. Capital instruments issued under BSP Circular Nos. 709 and 716 (the
circulars amending the definition of qualifying capital particularly on Hybrid Tier 1 and Lower Tier 2
capitals), starting January 1, 2011 and before the effectivity of BSP Circular No. 781, shall be
recognized as qualifying capital until December 31, 2015. In addition to changes in minimum capital
requirements, this Circular also requires various regulatory adjustments in the calculation of qualifying
capital.

The Group has taken into consideration the impact of the foregoing requirements on the banking
segment to ensure that the appropriate level and quality of capital are maintained on an ongoing basis.

Internal Capital Adequacy Assessment Process (ICAAP) Implementation

In compliance with BSP Circular 639, PNB has adopted its live ICAAP Document for 2011 to 2013.
However, the BOD and the Management recognized that ICAAP is beyond compliance, i.e., it is about
how to effectively run PNB’s operations by ensuring that PNB maintains at all times an appropriate
level and quality of capital to meet its business objective and commensurate to its risk profile. In line
with its ICAAP principles, PNB shall maintain a capital level that will not only meet the BSP CAR
requirement but will also cover all material risks that it may encounter in the course of its business.
The ICAAP process highlights close integration of capital planning/strategic management with risk
management. PNB has in place a risk management framework that involves a collaborative process
for assessing and managing identified Pillar 1 and Pillar 2 risks. PNB complies with the required annual
submission of updated ICAAP.

BSP also requires the Basel III Leverage Ratio (BLR), which is designed to act as a supplementary
measure to the risk-based capital requirements. BLR intends to restrict the build-up of leverage in the
banking sector to avoid destabilizing deleveraging processes, which can damage the broader financial
system and the economy. Likewise, it reinforces the risk-based requirements with a simple, non-risk
based “backstop” measure. BLR is computed as the capital measure (Tier 1 capital) divided by the
total exposure measure and should not be less than 5.00%.

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Capital build-up plan

In 2021, PNB prepared its capital build-up plan which aims to increase its qualifying capital for the
succeeding three years. Further, while PNB is executing its capital build-up plan, it intends to apply
the regulatory reliefs provided under BSP Memoranda M-2021-055 and M-2021-056 in calculating its
CAR in 2022.

37. Leases, Provision and Contingencies and Other Matters

Leases
The Group as lessor
The Group entered into lease agreements with third parties covering its investment property portfolio,
certain motor vehicles and items of machinery. These leases generally provide for either (a) fixed
monthly rent, or (b) minimum rent or a certain percentage of gross revenues, whichever is higher. The
Group records rental income on a straight-line basis over less non-cancellable lease term. Any
difference between the calculated rental income and amount actually received is recognized as
“Deferred rent” (see Note 8).

The Group has tenants’ rental deposits and advance rentals which are presented under “Other
noncurrent liabilities”. Tenants’ rental deposits pertain to the amounts paid by the tenants at the
inception of the lease which is refundable at the end of the lease term. Advance rentals pertain to
deposits from tenants which will be applied against receivables either at the beginning or at the end of
lease term depending on the lease contract.

In May and November 2020, Eton granted discounts to its lessees totaling to =
P107.2 million.

Future minimum rental receivables under non-cancellable operating leases as of December 31 are as
follows:

2021 2020
(In Thousands)
Within one year P
=1,467,172 =1,437,821
P
After one year but not more than five years 3,012,918 2,981,337
More than five years 48,036 208,351
P
=4,528,126 =4,627,509
P

The Group as lessee

The Group has entered into commercial leases for its branch sites/premises, land where the related
investment property or property, plant and equipment is build/constructed, warehouse and warehouse
equipment, ATM offsite location and other equipment. These non-cancellable leases have lease terms
of 1 to 40 years. Most of these lease contracts include escalation clauses, an annual rent increase of
2.00% to 10.00%. The Group ROU asset is composed of the PNB’s branch sites and its subsidiaries
offices under lease arrangements.

The Group has several lease contracts that include extension and termination options. These options
are negotiated by management to provide flexibility in managing the leased-asset portfolio and align
with the Group’s business needs. Management exercises judgement in determining whether these
extension and termination options are reasonably certain to be exercised.

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Rent expense charged against current operations (included in ‘Occupancy’ in the consolidated
statements of income) amounted to = P251.5 million, =
P580.6 million and =
P581.1 million in 2021, 2020
and 2019, respectively, for the Group, of which =
P223.2 million, =
P532.9 million and P
=454.1 million in
2021, 2020, and 2019, respectively, pertain to the PNB. Rent expense in 2021 and 2020 pertains to
expenses from short-term leases and leases of low-value assets.

As of December 31, 2021 and 2020, the Group has no contingent rent payable.

As of December 31, 2021, the carrying amounts of ‘Lease liabilities’ are as follows:

Balance at beginning of year =2,775,256

P
Additions 3,462,536
Interest expense 210,943
Payments (1,304,689)
=5,144,046
P

Future minimum lease receivables under finance leases are as follows:

2021 2020
(In Thousands)
Within one year P
=1,232,961 =1,364,058
P
Beyond one year but not more than five years 643,821 906,513
More than five years 14,344 31,845
Total 1,891,126 2,302,416
Less amounts representing finance charges 13,770 13,770
Present value of minimum lease payments P
=1,877,356 =2,288,646
P

Trust Operations
Securities and other properties held by PNB in fiduciary or agency capacities for its customers are not
included in the accompanying statements of financial position since these are not assets of PNB. Such
assets held in trust were carried at a value of P
=143.3 billion and P
=154.4 billion as of December 31, 2021
and 2020, respectively. In connection with the trust functions of PNB, government securities
amounting to P =1.6 billion and P
=1.9 billion (included under ‘Financial assets at amortized cost’) as of
December 31, 2021 and 2020, respectively, are deposited with the BSP in compliance with trust
regulations.

In compliance with existing banking regulations, PNB transferred from surplus to surplus reserves the
amounts of =P23.2 million, =
P20.4 million and =
P21.4 million in 2021, 2020 and 2019, respectively, which
correspond to 10% of the net income realized in the preceding years from its trust, investment
management and other fiduciary business until such related surplus reserve constitutes 20% of its
regulatory capital.

Provisions and Contingencies

In the normal course of business, the Group makes various commitments and incurs certain contingent
liabilities that are not presented in the consolidated financial statements including several suits and
claims which remain unsettled. No specific disclosures on such unsettled assets and claims are made
because any such specific disclosures would prejudice the Group’s position with the other parties with
whom it is in dispute. Such exemption from disclosures is allowed under PAS 37, Provisions,
Contingent Liabilities and Contingent Assets. The Group and its legal counsel believe that any losses
arising from these contingencies which are not specifically provided for will not have a material adverse
effect on the financial statements.

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Excise Tax Refund Claim

The new excise tax law or RA 10351 became effective on January 1, 2013, and increased the excise
tax rates of, among others, distilled spirits. Another change that was brought in by the new law is the
shift in the tax burden of distilled spirits from raw materials to the finished product.

To implement the said law, the Secretary of Finance issued Revenue Regulations No. 17-2012
(RR 17-2012), which, in one of its transitory provisions, disallowed the tax crediting of the excise taxes
that were already paid under the old law on the raw materials inventory by end of the year 2012 or by
the effectivity of RA 10351 in favor of the excise taxes due on the finished goods inventory.

The Commissioner of Internal Revenue issued on January 9, 2013 Revenue Memorandum Circular
(RMC) No. 3-2013. This RMC sought to clarify further certain provisions of RR No. 17-2012 but in
effect extended the imposition of the excise tax on both the (1) ethyl alcohol as raw materials in the
production of compounded liquors and (2) the manufactured finished product. Per the RMC, both ethyl
alcohol and compounded liquor are considered as distinct distilled spirits products and are thus separate
taxable items under the new law. This interpretation of the law was however modified with the issuance
of RMC No. 18-2013. The new RMC allowed the non-payment of excise tax on ethyl alcohol that were
purchased after the issuance of RMC No. 3-2013 to be used as raw materials in the manufacture of
compounded liquors provided certain requirements such as posting of surety bonds are complied with.
RMC No. 18-2013, however, still maintained that taxes previously paid on the raw materials, i.e., ethyl
alcohol/ethanol inventory, at the time of the effectivity of the new excise tax law are still not subject to
refund/tax credit to the manufacturers.

Under RR No. 17-2012, the amount of excise tax that was disallowed for tax credit was =P725.8 million.
Said amount represented taxes paid previously on raw materials and were not allowed to be deducted
from the excise taxes that became due on the finished goods as taxed under the new law. TDI is
contesting the disallowance of the tax credit and is undertaking appropriate legal measures to obtain a
favorable outcome.

TDI has paid a total of =

P45.9 million in excise taxes for the raw materials that were purchased/imported
for purposes of compounding during the subsistence of RMC No. 3-2013. TDI also would claim this
amount on the basis that the RMC was issued without basis and beyond the authority granted by law to
the administrative agency.

On February 8, 2019, TDI received the decision of the Court of Tax Appeals (CTA) Second Division
denying TDI’s claim for refund since TDI failed to prove that there is actual payment of the excise tax
being claimed. On February 22, 2019, TDI filed a Motion for Reconsideration. On July 28, 2019, the
motion was denied by the CTA Second Division. TDI filed a Petition for Review to the CTA En Banc
on August 1, 2019. On October 28, 2020, the petition was denied, affirming the decisions and
resolutions made by CTA Second Division. On November 16, 2020, a Motion for Reconsideration was
filed by the legal counsel before the CTA En Banc which was also denied on March 22, 2021 for lack
of merit.

On July 29, 2021, TDI filed a Petition for Review on Certiorari at the Supreme Court. As of March 15,
2022, TDI is awaiting for the Supreme Court’s decision.

Assets and Liabilities of Disposal Group Classified as Held for Sale and Discontinued Operations
On various dates in 2020, the respective BODs of PNB and PNB Holdings approved the sale of all their
holdings in PNB Gen for cash. As a result, the Group reclassified all the assets and liabilities of PNB
Gen to ‘Assets of disposal group classified as held for sale’ and ‘Liabilities of disposal group classified
as held for sale’, respectively, in the consolidated statement of financial position as of December 31,
2020. The business of PNB Gen represented the entirety of the PNB’s non-life insurance business.

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The results of PNB Gen were previously presented in the ‘Others’ section of the business segment
disclosure.
The results of operation of PNB Gen are presented below:
2021 2020 2019
Interest Income on
Loans and receivables =35
P =202
P =275
P
Investment securities at amortized cost and
FVOCI 19,830 81,734 67,708
Deposits with banks and others 34 5,087 17,453
19,899 87,023 85,436
Interest Expense on
Lease liabilities 530 2,698 128
Net Interest Income 19,369 84,325 85,308
Net Service Fees and Commission Income 110 19,718 7,460
Insurance premium 202,543 955,640 1,151,704
Insurance benefits and claims 143,605 716,820 909,974
Net Insurance Premium 58,938 238,820 241,730
Other Income
Foreign exchange gains (losses) - net 1,804 (2,878) 15
Trading and investment securities gains - net − 9,123 94
Total Operating Income 80,221 349,108 334,607
Operating Expenses
Compensation and fringe benefits 37,040 152,265 133,896
Depreciation and amortization 6,592 28,862 8,901
Provision for (reversal of) credit losses 1,174 29,781 (324)
Occupancy and equipment-related costs 903 1,910 17,074
Taxes and licenses 290 4,750 4,878
Miscellaneous 8,832 43,539 49,910
Total Operating Expenses 54,831 261,107 214,335
Income Before Income Tax 25,390 88,001 120,272
Provision for Income Tax 4,775 20,418 18,679
Net Income from Discontinued Operations =20,615
P =67,583
P =101,593
P

Net Insurance Premium

This account consists of:
2021 2020 2019
Net insurance premiums
Gross earned premium P385,904
= P2,385,857
= P2,764,108
=
Reinsurer’s share of gross earned premiums (183,361) (1,430,217) (1,612,404)
202,543 955,640 1,151,704
Less net insurance benefits and claims
Gross insurance contract benefits and
claims paid 207,003 2,241,488 1,598,129
Reinsurer’s share of gross insurance
contract benefits and claims paid (130,493) (1,983,736) (1,262,884)
Gross change in insurance contract liabilities 48,017 1,410,172 (65,571)
Reinsurer’s share of change in insurance
contract liabilities 19,078 (951,104) 640,300
143,605 716,820 909,974
=58,938
P =238,820
P =241,730
P

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The major classes of assets and liabilities of PNB Gen classified as disposal group as of December 31,
2020 follow:

Assets
Due from other banks =164,894
P
Financial assets at FVTPL 1,387
Financial assets at FVOCI 1,183,355
Investment securities at amortized cost 788,430
Loans and other receivables - net 4,232,047
Deferred reinsurance premium 901,623
Property and equipment - net 48,436
Deferred tax assets 36,475
Intangible assets - net 5,134
Other assets 584,164
=7,945,945
P
Liabilities
Accrued taxes, interest and other expenses =269,100
P
Insurance contract liabilities 4,360,733
Reserved for unearned reinsurance premium 1,196,273
Accounts payable 142,513
Other liabilities 385,345
=6,353,964
P
Net assets of disposal group held for sale =1,591,981
P
Amounts included in accumulated OCI:
Remeasurement gain on retirement plan P59,407
=
Net unrealized gain on financial assets at FVOCI 29,209
=88,616
P

Net cash flows of PNB Gen follow:

2021 2020 2019

Net cash flows from operating activities (P
=36,288) (P
=27,016) (P
=298,984)
Net cash flows from investing activities 18,740 (242,063) (8,619)
Net cash flows from financing activities (1,912) (22,648) 292,789
(P
=19,460) (P
=291,727) (P
=14,814)

252 *SGVFS162724*
 SyCip Gorres Velayo & Co. Tel: (632) 8891 0307
6760 Ayala Avenue Fax: (632) 8819 0872
1226 Makati City ey.com/ph
Philippines

INDEPENDENT AUDITOR’S REPORT

ON SUPPLEMENTARY SCHEDULES

The Stockholders and the Board of Directors

LT Group, Inc.
11th Floor, Unit 3 Bench Tower
30th St. corner Rizal Drive Crescent Park West 5
Bonifacio Global City, Taguig City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of LT Group, Inc. and Subsidiaries as at December 31, 2021 and 2020 and for each of the
three years in the period ended December 31, 2021, included in this Form 17-A, and have issued our
report thereon dated March 15, 2022. Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedules listed in the Index to the
Consolidated Financial Statements and Supplementary Schedules are the responsibility of the Group’s
management. These schedules are presented for purposes of complying with the Revised Securities
Regulation Code Rule 68, and are not part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in the audit of the basic consolidated
financial statements and, in our opinion, fairly state, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Aileen L. Saringan
Partner
CPA Certificate No. 72557
Tax Identification No. 102-089-397
BOA/PRC Reg. No. 0001, August 25, 2021, valid until April 15, 2024
SEC Partner Accreditation No. 0096-AR-5 (Group A)
July 25, 2019, valid until July 24, 2022
SEC Firm Accreditation No. 0001-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
BIR Accreditation No. 08-001998-058-2020, December 3, 2020, valid until December 2, 2023
PTR No. 8854363, January 3, 2022, Makati City

March 15, 2022

253 *SGVFS162724*
A member firm of Ernst & Young Global Limited
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE A. – Financial Assets
DECEMBER 31, 2021
(in thousands Php)
(1) Financial Assets at Fair Value through Profit or Loss
(Amounts in thousands except for Number of Shares)
Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Government securities
Treasury Bills - 5,224,542 5,166,008 -
Republic of the Philippines (ROP) Bonds - 1,213,970 1,248,319 22,339
Retail Treasury Bonds - 1,174,922 1,193,972 133,664
Fixed Rate Treasury Notes - 354,824 347,714 305,028
- 7,968,257 7,956,012 461,031

Private debt securities

Petron 827,030 703,880 703,881 50,491
Sm Prime Holdings Inc. - 501,950 512,615 24,431
San Miguel Global Power Holdings Corp - 280,950 293,496 22,702
Del Monte 367,504 3,537 169,572 2,764
Vista Land & Lifestyle - 148,000 149,323 67,045
Ayala Land Inc - 12,550 12,661 861
1,194,534 1,650,867 1,841,549 168,293

Equity securities
San Miguel Corp - Pref 2I 25,970 1,909 2,069 -
San Miguel Corp - Pref 2H 26,000 1,937 1,976 -
GT Capital Pref Series B 1,000 824 1,000 -
52,970 4,670 5,045 -

254
 Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Derivatives
JPMorgan Chase Bank Manila - 18,566,096 338,684 -
Security Bank Corporation - 10,454,795 218,735 -
Banco de Oro Universal Bank - 15,707,692 186,715 -
Rizal Commercial Banking Corporation - 3,215,397 100,358 -
Standard Chartered Bank Manila - 7,250,298 88,207 -
Metropolitan Bank & Trust Company - 3,416,933 60,485 -
Deutsche Bank AG London - 3,059,940 56,331 -
Bank of the Philippine Islands - 4,589,910 45,433 -
Hongkong and Shanghai Banking Corp. - 2,219,082 44,966 -
Hongkong
East West Banking Corporation - 3,569,930 41,762 -
Deutsche Bank AG Manila Branch - 2,243,956 35,265 -
Union Bank of the Philippines - 2,549,950 31,473 -
Hongkong and Shanghai Banking Corp. - 2,804,945 30,080 -
Manila
UBS AG Zurich - 1,656,802 20,757 -
JPMorgan Chase Bank Singapore - 1,761,169 20,328 -
Asia United Bank - 1,019,980 17,878 -
Internationale Nederlanden Bank Manila - 713,986 15,292 -
Australia and New Zealand Bank- - 254,995 4,915 -
Melbourne
Allied Bank Hongkong - - 3,011 -
Australia and New Zealand Bank- Manila - 1,274,977 2,206 -
Chinatrust Commercial Bank - 356,993 825 -
(Philippines) Corp.
Bank of Commerce - 815,984 650 -
Bangko Sentral ng Pilipinas - 509,990 290 -
China Banking Corporation - 305,994 89 -
Land Bank of the Philippines - 203,996 87 -
Xchanged Inc. - 12,750 66 -
Philippine Bank of Communication - 101,998 48 -
Philippine National Bank- Singapore - 5,100 39 -
255
 Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Citibank N.A. Manila Branch - 101,998 38 -
United Coconut Planters Bank - 25,500 20 -
Wells Fargo Bank N.A. - 15,104 16 -
Philippine National Bank- Europe PLC - 2,888 2 -
Republic of the Philippines - 13,210 0 -
Goldman Sachs International - 137,678 - -
- 88,940,015 1,365,051 -

Investment in UITFs
Prime Peso MMF - 31,751 37,612 -
Total Financial Assets at Fair Value
through Profit or Loss 1,247,504 98,563,809 11,205,269 629,324

(2) Financial Assets at Fair Value through Other Comprehensive Income

(Amounts in thousands except for Number of Shares)
Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Government securities
Retail Treasury Bonds - 42,491,000 41,520,843 1,012,704
Bangko Sentral ng Pilipinas - 38,208,000 38,194,821 317,105
Fixed Rate Treasury Notes - 23,671,592 23,539,859 633,153
Treasury Bills - 6,652,264 6,650,954 273,336
Republic of the Philippines (ROP) Bonds - 4,131,644 4,343,418 138,995
Kingdom of Saudi Arabia - 1,376,973 1,478,374 15,730
Power Sector Asset Liabilities - 1,172,977 1,381,661 1,517
Management (PSALM)
China National Offshore Oil Corp. Ltd - 1,291,856 1,310,779 14,432
Republic of Indonesia - 901,091 925,047 8,854
US Treasury Notes - 436,347 436,123 1,316

256
Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Treasury Bills - Singapore - 301,575 301,575 -
Treasury Gilts - 159,179 294,542 -
US Government - 254,997 253,112 1,517
Small Business Loan Asset-backed - 152,742 5,807 -
Securities
- 121,202,235 120,636,914 2,418,659

Private debt securities

Aboitiz Power Corporation - 562,300 574,621 29,665
AC Energy Finance International Limited - 2,700,397 2,748,740 141,004
Ayala Land Inc - 563,590 590,995 40,243
Banco De Oro - 560,734 572,072 24,994
Bank of the Philippine Island - 150,447 156,392 1,256
Energy Development Corp - 9,640 9,864 850
Export-Import Bank of Korea - 560,989 577,330 2,617
First Pacific Company Limited - 501,932 528,533 4,991
Hutchison Whampoa Limited - 1,216,836 1,265,434 3,577
International Container Terminal Services - 4,431,405 4,752,549 136,141
Inc.
Megaworld Corporation - 860,000 873,537 46,040
Metropolitan Bank & Trust Company - 3,000,000 3,021,200 189,000
Petron Corporation - 2,186,786 2,258,601 64,391
Rizal Commercial Banking Corporation - 362,093 372,855 7,865
San Miguel Corporporation - 2,644,850 2,598,018 82,472
Sinopec Corp - 1,283,339 1,304,049 34,818
SM Investments Corporation - 212,387 225,171 9,333
SM Prime Holdings - 15,000 15,602 945
South Luzon Tollway Corporation - 153,340 153,381 8,132
State Bank of India - 433,492 433,994 12,148
STI Education - 50,000 47,085 2,904
Union Bank - 34,679 35,454 201
- 22,494,236 23,115,477 843,587

257
 Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Equity securities
Allied Banker Insurance 200,000 20,000 20,000 -
Alphaland Balesin Island Resort Corp. 1 2,500 2,500 -
Apo Golf & Country Club 1 100 315 -
APTRUDEV - 1,500 - -
Bacnotan Steel Industries - - - -
Baguio City Country Club 1 60 4,051 -
Bancnet, Inc. 49,999 5,000 5,000 -
BAP Credit Guaranty Corp. 29,800 1,138 1,138 -
BAYANTEL - 8 - -
Bayantel 31% Tranche B. CONV EQTY - 14,851 - -
83997SHS BOD APPRVL 112414
BULAWAN MINING (BUMICO) 2,500,000 20,492 - -
Camp John Hay 3 650 250 -
Camp John Hay Golf Club 3 160 500 -
Capitol Hills Golf and Country Club, Inc. 11 412 700 -
-CHGCCI
Cebu Country Club, Inc. 1 29 8,000 -
Club Filipino 31 103 300 -
CRUZ TEL CO. - 1,500 - -
Development Academy Of the Philippnes 30 3,450 4,500 -
Eagle Ridge Golf & Country Club - 1,800 425 -
EASTRIDGE GOLF COURSE & 2 500 - -
VILLAGE (A)
Evercrest Golf 2 1,000 1,000 -
Evercrest Golf Club-A - - - -
Fairways & Bluewater Resort 294 359,695 49,200 -
FASTECH SYNERGY - 8,519 - -
Fil-Am Resources - 27 - -
Forest Hills Golf and Country Club 1 170 170 -
Heavenly Garden Dev't Corp. 5,000 500 500 -
ILIGAN GOLF & COUNTRY CLUB 1 1 - -

258
 Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Iloilo Golf & Country Club - 88 14 -
Inco Mining - 2 - -
Infanta Minerals - 10 - -
Investment in Management Account - - 48,575 -
Lepanto Consolidated Mining Co."A" 4,973 1 1 -
Lepanto Consolidated Mining Co."B" 1,776 0 0 -
LGU Guarante Corp - - - -
LGU Guarantee Corporation 100,000 10,000 2 -
Luisita Golf & Country Club - 840 250 -
Makati Sports Club-A 1 210 750 -
Manila Electric Cooperative 2,873 89 1 -
Manila Golf & Country Club Inc- 104 39,107 407,000 -
Corporate
Manila Polo Club - 2,600 22,819 -
Manila Southwoods Golf & Country Club 1 850 1,754 -
A
Manila Southwoods Golf & Country Club 2 3,500 4,182 -
B
MARIKUDO COUNTRY CLUB OF - 18 - -
ILOILO CITY
Mimosa Golf & Country Club 1 827 400 -
Mount Malarayat Golf Club-C 17 35,380 4,500 -
Mount Malarayat I 18 1,512 600 -
Negros Occidental Golf & Country Club 1 100 150 -
Northern Tel Co. 1,800 18 - -
Orchard Golf & Country Club 2 2,200 1,400 -
PA Alvarez Perpetual Notes 1 386,250 406,151 -
PAL Holdings Inc. - 49,944 27,194 -
PAL Holdings Inc. - 99 99 -
Paper Ind.Corp. of the Phils. - 19 - -
Phil Tel Corp (Piltel) - 10 - -
Phil. Electric Corp Shares - 95 - -

259
 Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Phil.Oil Dev't Co., Inc. - 13 - -
Philex Mining 151 - 1 -
Philippine Central Depository Inc. 3,855 23 36 -
Philippine Clearing House Corporation 42,000 4,200 2,101 -
Philippine Columbian Association 1 40 40 -
Philippine Dealing System 73,000 7,300 14,813 -
Philippine Depository & Trust Corp. 153,562 13,361 31,943 -
Philippine Long Distance Company 2,879 44 1 -
Philippine Overseas Drilling & Oil 695,625 31 7 -
Development
Philippine Racing Club 30,331,103 319,083 174,707 -
PICOP Resources 19,021,252 55,356 - -
PLDT Communation & Energy Veture 20 9 - -
PLDT Preferred Shares - 1,084 - -
Primo Oleo Chemicals - 66,382 66,382 -
Proton Chemical Industries Common 44,419 - - -
Shares
PT&T 5,000,000 - - -
Pueblo De Oro Golf Country Club 2 1,411 718 -
Puerto Azul Sports & Beach Club - 170 600 -
Quezon City Sports Club 1 32 600 -
RETELCO 20 5 - -
Riviera Golf & Country Club 4 2,627 533 -
Rural Bank of Ibajay 1 11 16 -
Santa Elena Golf & Country Club 6 5,452 18,000 -
Sierra Grande Country Club, Inc. 100 32 32 -
Small Business Guarantee 400,000 - - -
Southern Iloilo Telephone Co. 1 2 - -
Subic Bay Golf & Country Club - 950 - -
Subic Bay Yatch Club 58 93,000 14,500 -

260
 Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Tagaytay Highlands 268 950 254,626 -
Tagaytay Midlands 1 500 950 -
Tayud Golf & Country Club - 6 - -
Ternate Dev't Corporation 2 170 170 -
Universal Rightfield Prop. Inc. - 69 - -
Valley Golf & Country Club 1 231 9,506 -
Victoria Golf & Country Club - 110 120 -
Wack Wack Golf & Country Club 18 26,653 176,000 -
Wack Wack Golf & Country Club 8 218,337 488,500 -
Western Minolco Corp. - 17 - -
323,381,338 2,248,876 3,431,565 -

Total Financial Assets at Fair Value 323,381,338 145,945,347 147,183,957 3,262,246

Through Other Comprehensive Income

261
(3) Financial Assets at Amortized Cost
(Amounts in thousands except for Number of Shares)
Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
Government securities
Bangko Sentral ng Pilipinas - 203,996 255,523 8,753
China National Offshore Oil Corp - 203,996 200,671 7,752
Limited
Federal Reserve - - 5,870 -
Fixed Rate Treasury Notes - 10,553,409 11,107,779 593,605
Home Guaranty Corp - 1,490 1,490 86
Landbank of the Phils - 198,422 180,605 35,272
Power Sector Assets and Liabilities - 625,248 743,470 18,229
Management Corporation
Republic of Indonesia - 8,246,186 8,281,153 256,493
Republic of the Philippines (ROP) Bonds - 6,202,600 6,607,499 123,377
Retail Treasury Bonds - 6,172,915 6,615,011 332,349
Treasury Bills - 59,940 59,545 15,137
US Treasury Notes - 127,498 127,949 1,176
- 32,595,700 34,186,565 1,392,229

Private debt securities

AC Energy Finance International Limited - 611,988 612,585 82,548
Agricultural Bank of China LTD HK - 10,199,800 10,178,852 53,036
AT&T Inc. - 815,984 816,826 21,885
Ayala Land Inc - 641,900 640,677 43,114
Banco de Oro - 3,273,218 3,271,514 92,947
Bank of China - 12,902,747 12,893,841 68,965
Bank of the Philippine Island - 1,035,280 1,092,691 4,196
China Constuction Bank - 1,529,970 1,528,556 21,647
Export- Import Bank of Korea - 458,991 461,004 11,300
Filinvest Development Cayman Islands - 1,784,965 1,776,992 72,910
Filinvest Land Inc - 1,200,270 1,200,322 61,670

262
 Name of Issuing Entity and Number of Principal Amount of Amount shown in the Income received and
Association of each Issue Shares Bonds and Notes Balance Sheet based on accrued
bid prices on the balance
sheet date
First Pacific Company Limited- Capital - 451,341 449,229 103,344
First Pacific Company Limited- Tresury - - 14 20,439
Hutchison Whampao - 1,029,160 1,029,573 24,526
ICICI Bank Limited - 892,992 894,770 25,458
Industrial & Commercial Bank of China - 1,529,970 1,529,523 9,294
Limited Sydney
International Container Terminal Services - 151,467 152,925 5,729
Inc.
Jollibee Foods Corporation - 5,038,701 5,022,627 189,847
Korea Development Bank - 203,996 209,294 4,599
Rizal Commercial Banking Corp - 1,654,306 1,656,803 62,158
Security Bank Corporation Comm - 150,345 153,098 5,063
Sinopec Corp - 1,480,501 1,507,523 18,879
SM Prime Holdings - 300,000 299,999 15,505
Union Bank - 2,883,483 2,890,756 83,452
Vista Land and Lifescapes - 5,000,000 4,999,284 405,000
55,221,375 55,269,278 1,507,511

Total Investment Securities

at Amortized Cost - 87,817,075 89,455,843 2,899,740

263
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE B. – Amounts Receivable from Directors, Officers, Employees, Related Parties and Principal Stockholders (Other than Related Parties)
DECEMBER 31, 2021
(in thousands Php)

Balance at
beginning of Amounts Amounts Balance at end
Name and Designation of Debtor period Additions collected written off Current Non-current of period
Related party:
Tangent Holdings Corporation 509,000 5,754,300 - - 6,263,300 - 6,263,300
509,000 5,754,300 - - 6,263,300 - 6,263,300

Other than the above related party, all amounts receivable from Directors, Officers, Employees, other Related Parties and Principal Stockholders
pertained to purchases subject to usual terms, for ordinary travel and expense advances and for other such items arose in the ordinary course of business
were excluded.

264
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE C. – Amounts Receivable from Related Parties which are eliminated during the consolidation of financial statements
DECEMBER 31, 2021
(in thousands Php)

Balance at
beginning of Amounts Amounts Balance at end
Name and Designation of Debtor period Additions collected written off Current Non-current of period
Allmark Holdings Corp. 7,535 - - - 7,535 - 7,535
Caravan Holdings Corp. 12,830 - - - 12,830 - 12,830
Fil-Care Holdings, Inc. 12,930 - - - 12,930 - 12,930
Ivory Holdings, Inc. 8,945 - - - 8,945 - 8,945
Kenrock Holdings Corp. 14,110 - - - 14,110 - 14,110
Leadway Holdings, Inc. 36,500 - (36,500) - - - -
LT Group, Inc. - 306,000 - - 306,000 - 306,000
Mabuhay Digital Philippines Inc. - 22,417 - - 22,417 - 22,417
Mabuhay Digital Technologies, Inc. - 1,902 - - 1,902 - 1,902
Society Holdings Corp. 9,600 - - - 9,600 - 9,600
Solar Holdings Corp. 20,300 - - - 20,300 - 20,300
Tanduay Distillers, Inc. 950,315 - (23) - 950,292 - 950,292
1,073,065 330,319 (36,523) - 1,366,861 - 1,366,861

265
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE D. – Intangible Assets – Other Assets
DECEMBER 31, 2021
(in thousands Php)

Description Beginning Additions Charged to Disposals Other Ending

at cost costs and changes, Balance
balance
expenses additions
(deductions)

Goodwill =163,735
P − − − − =163,735
P

Software 2,680,548 659,954 (632,370) − (169,721) 2,538,411

Intangibles are presented in “Other noncurrent assets” in the consolidated balance sheets.

266
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE E. – Long term debts
DECEMBER 31, 2021
(in thousands Php)

Title of Issue and type of Amount authorized by indenture Amount shown under caption Amount shown under caption
obligation “Current portion of long-term “Long-term debts net of current
debts” in related balance sheet portion” in related balance sheet

1. Bonds payable =-
P =53,383,421
P

2. Lease liabilities (PFRS 16) 2,745,407 2,398,639

3. Unsecured term loan 851,892 3,263,975

TOTAL P
=3,597,299 P
=59,046,035

267
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE F. – Indebtedness to Related Parties (Long-term Loans from Related Parties)
DECEMBER 31, 2021
(in thousands Php)

Name of related party (i) Balance at beginning of period Balance at end of period

NONE

268
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE G. – Guarantees of Securities of Other Issuers
DECEMBER 31, 2021
(in thousands Php)

Name of issuing entity of securities Total amount of guaranteed and

guaranteed by the Company for which Title of issue of each class of securities outstanding Amount owned by person for which Nature of guarantee
this statement is filed guaranteed (i) statements if filed (ii)

NONE

269
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE H - Capital Stock
DECEMBER 31, 2021

Number of Number of Number of shares Number of shares Directors, Others

Title of Issue Shares Shares Issued Reserved for Held by related Officers and
Authorized And Outstanding as Options, Warrants, Parties Employees
Shown under Conversions,
Related Balance and Other Rights
Sheet caption

Common Stock 25,000,000,000 10,821,388,889 - 8,046,318,193 1,696,796 2,773,373,900

270
 LT GROUP, INC.
SCHEDULE I - Reconciliation of Parent Company Retained Earnings
Available for Dividend Declaration
As of DECEMBER 31, 2021

RETAINED EARNINGS AVAILABLE FOR DIVIDEND

DECLARATION AS AT DECEMBER 31, 2020 P
=41,518,400,299
Add: Net income actually earned during the year
Net income closed to retained earnings 11,959,879,091
Provision for deferred income tax assets 2,431,877
Less: Dividend declarations during the year (11,687,100,000)
275,210,968
RETAINED EARNINGS AVAILABLE FOR DIVIDEND
DECLARATION AS AT DECEMBER 31, 2021 P
=41,793,611,267

Note: In accordance with SEC Financial Reporting Bulletin No. 14, the reconciliation is based on the separate/parent
company financial statements of LT Group, Inc.

271
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE J – Map Showing the Relationships Between and Among the Company and its Ultimate Parent Company, Middle Parent, Subsidiaries or Co-
subsidiaries, Associates, Wherever Located or Registered
DECEMBER 31, 2021

272
 LT GROUP, INC. AND SUBSIDIARIES
SCHEDULE K – Index to Exhibits
SEC FORM 17-A

Page
(1) Publication of Notice re: Filing *
(2) Underwriting Agreement *
(3) Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession *
(4) Articles of Incorporation and By-laws *
(5) Instruments Defining The Rights of Security Holders, Including Indentures *
(6) Opinion Re: Legality *
(7) Opinion Re: Tax Matters *
(8) Voting Trust Agreement *
(9) Material Contracts *
(10) Annual Report to Security Holders, FORM 17-Q or Quarterly Reports To Security
Holders *
(11) Material Foreign Patents *
(12) Letter Re: Unaudited Interim Financial Information *
(13) Letter Re: Change in Certifying Accountant *
(14) Letter Re: Director Resignation *
(15) Letter Re: Change In Accounting Principles *
(16) Report Furnished To Security Holders *
(17) Other Documents Or Statements To Security Holders *
(18) Subsidiaries Of The Registrant 276
(19) Published Report Regarding Matters Submitted To Vote Of Security Holders *
(20) Consents Of Experts and Independent Counsel *
(21) Power of Attorney *
(22) Statement Of Eligibility Of Trustee *
(23) Exhibits to be Filed With Bond Issues *
(24) Exhibits to be Filed With Stock Options Issues *
(25) Exhibits to be Filed by Investment Companies *
(26) Copy of Board of Investment Certificate in the case of Board of Investment Registered
Companies *
(27) Authorization to Commission to Access Registrant’s Bank Accounts *
(28) Additional Exhibits *
(29) Copy of the Board Resolution approving the securities offering and authorizing the filing
of the registration statement *
(30) Duly verified resolution of the issuer’s Board of Directors *

*These exhibits are either not applicable to the Group or require no answer.

273
 SyCip Gorres Velayo & Co. Tel: (632) 8891 0307
6760 Ayala Avenue Fax: (632) 8819 0872
1226 Makati City ey.com/ph
Philippines

INDEPENDENT AUDITOR’S REPORT ON

COMPONENTS OF FINANCIAL SOUNDNESS INDICATORS

The Stockholders and the Board of Directors

LT Group, Inc.
11th Floor, Unit 3 Bench Tower
30th St. corner Rizal Drive Crescent Park West 5
Bonifacio Global City, Taguig City

We have audited in accordance with Philippine Standards on Auditing, the consolidated financial
statements of LT Group, Inc. and Subsidiaries (the Group) as at December 31, 2021 and 2020 and for
each of the three years in the period ended December 31, 2021, and have issued our report thereon dated
March 15, 2022. Our audits were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The Supplementary Schedule on Financial Soundness Indicators,
including their definitions, formulas, calculation, and their appropriateness or usefulness to the intended
users, are the responsibility of the Group’s management. These financial soundness indicators are not
measures of operating performance defined by Philippine Financial Reporting Standards (PFRSs) and
may not be comparable to similarly titled measures presented by other companies. This schedule is
presented for the purpose of complying with the Revised Securities Regulation Code Rule 68 issued by
the Securities and Exchange Commission, and is not a required part of the basic consolidated financial
statements prepared in accordance with PFRSs. The components of these financial soundness indicators
have been traced to the Group’s consolidated financial statements as at December 31, 2021 and 2020 and
for each of the three years in the period ended December 31, 2021 and no material exceptions were noted.

SYCIP GORRES VELAYO & CO.

Aileen L. Saringan
Partner
CPA Certificate No. 72557
Tax Identification No. 102-089-397
BOA/PRC Reg. No. 0001, August 25, 2021, valid until April 15, 2024
SEC Partner Accreditation No. 0096-AR-5 (Group A)
July 25, 2019, valid until July 24, 2022
SEC Firm Accreditation No. 0001-SEC (Group A)
Valid to cover audit of 2021 to 2025 financial statements of SEC covered institutions
BIR Accreditation No. 08-001998-058-2020, December 3, 2020, valid until December 2, 2023
PTR No. 8854363, January 3, 2022, Makati City

March 15, 2022

274 *SGVFS162724*
A member firm of Ernst & Young Global Limited
 LT GROUP, INC. AND SUBSIDIARIES
ANNEX 68-E
SCHEDULE OF FINANCIAL SOUNDNESS INDICATORS
as of December 31, 2021 and 2020

Ratio Formula 2021 2020

Current ratio Current Assets / Current

Liabilities 0.70 0.72

(Current Assets – Inventories –

Acid test ratio Prepaid Expenses) / Current 0.68 0.72
Liabilities

(Net income after tax +

Solvency ratios Depreciation) / (Short term debt 0.40 0.38
+ Long-term Debt)

(Short term debt + Long-term

Debt-to-equity ratio Debt) / Equity attributable to 0.35 0.40
equity holders of the Parent
Company

Asset-to-equity ratio Total Assets / Total Equity 4.98 5.30

Interest rate coverage ratio EBITDA / Interest expense 91.45 80.85

Net income attributable to equity

Return on equity holders of the Company / Equity 0.107 0.113
attributable to equity holders of
the Parent Company

Net income attributable to equity

Return on asset holders of the Parent Company / 0.015 0.016
Total Assets

Net income attributable to equity

Net profit margin holders of the Parent Company / 0.22 0.22
Revenues

275
 EXHIBIT 18 Subsidiaries of the Registrant

LT GROUP, Inc. has the following subsidiaries as of December 31, 2021:

Distilled Spirits Jurisdiction

1. TDI and subsidiaries Philippines

a. Absolut Distillers, Inc.
b. Asian Alcohol Corp
c. Tanduay Brands Int’l Inc.

Beverages

ABI and subsidiaries Philippines

a. Agua Vida Systems, Inc.
b. Interbev Philippines, Inc.
c. Waterich Resources Corporation
d. Packageworld, Inc.
e. AB Nutribev, Inc.
f. Asia Pacific Beverage Pte. Ltd.

Tobacco

Fortune Tobacco Corp. Philippines

Banking
a. PNB and subsidiaries (see page 7) Philippines
b. Bank Holding Companies (see page 8) Philippines

Property Development

a. Saturn Philippines
b. Paramount Philippines
1. Eton Philippines
i. Belton Communities, Inc. (BCI)
ii. Eton City, Inc. (ECI)
iii. FirstHomes, Inc. (FHI)

276
SUSTAINABILITY REPORT 2021
Averting Difficulties
Table of Contents
Message from the Chairman ....................................................................................................................... 4
Message from the President ....................................................................................................................... 5
2021 Highlights ........................................................................................................................................... 7
Our Business Strategy ............................................................................................................................... 10
Our Long-term Strategic Objectives ............................................................................................................... 10
Vision ................................................................................................................................................ 10
Mission .............................................................................................................................................. 10
The LT Group, Inc. logo ...................................................................................................................... 10
Our Organizational Profile ......................................................................................................................... 11
Our Businesses ................................................................................................................................................. 12
Beverages .......................................................................................................................................... 12
Property Development ...................................................................................................................... 12
Tobacco ............................................................................................................................................. 12
Banking ............................................................................................................................................. 13
Distilled Spirits ................................................................................................................................... 13
Our Corporate Structure .................................................................................................................................. 14
Our Markets and Geographical Reach ........................................................................................................... 15
Governance ............................................................................................................................................... 17
Corporate Governance .................................................................................................................................... 17
Organizational Chart ....................................................................................................................................... 18
Supply Chain Management ............................................................................................................................. 19
Membership of Associations ........................................................................................................................... 21
About this Report ...................................................................................................................................... 23
Reporting Scope and Boundary....................................................................................................................... 23
Economic Performance Boundary .................................................................................................................. 23
Reporting Approach ......................................................................................................................................... 24
Sustainability Reporting Guidelines and Standards ....................................................................................... 24
Stakeholder Engagement Mechanisms .......................................................................................................... 24
Sustainability Report Feedback ....................................................................................................................... 25
Our Approach to Materiality ........................................................................................................................... 25
Materiality Matrix ............................................................................................................................................ 26
Our Key Material Topics .................................................................................................................................. 27

SUSTAINABILITY REPORT 2021 2

 Unique Material Topics across Subsidiaries ................................................................................................... 29
Our Strategy and Performance.................................................................................................................. 30
Economics and Governance ............................................................................................................................ 31
Economic Performance ..................................................................................................................... 31
Socioeconomic Compliance ............................................................................................................... 32
Risk Management.............................................................................................................................. 34
Anti-Corruption ................................................................................................................................. 35
Environment ..................................................................................................................................................... 38
Water Management .......................................................................................................................... 38
Managing Waste ............................................................................................................................... 40
Energy efficiency and emissions ........................................................................................................ 43
Climate Change ................................................................................................................................. 47
Employees......................................................................................................................................................... 50
Employment ...................................................................................................................................... 50
Safety and Well-being ....................................................................................................................... 55
Customers ......................................................................................................................................................... 57
Marketing and Labeling ..................................................................................................................... 57
Customer Health and Safety .............................................................................................................. 58
Customer Engagement and Satisfaction ............................................................................................ 58
Digital Transformation and Innovation .............................................................................................. 60
Customer Data Privacy and Security .................................................................................................. 62
Society ............................................................................................................................................................... 63
Community Relations and Initiatives ................................................................................................. 63
LTG's Unique Key material topic ..................................................................................................................... 67
Illicit Trade .................................................................................................................................................... 67
Appendix ................................................................................................................................................... 69
GRI Content Index ............................................................................................................................................ 69
Task Force on Climate-related Financial Disclosures (TCFD) Content Index ................................................ 76

SUSTAINABILITY REPORT 2021 3

Message from the Chairman

In these unprecedented times, we have seen the critical role that businesses like ours play in the
lives of many Filipinos. With the COVID-19 pandemic and other calamities worldwide, our
commitment to help in rebuilding the Philippine economy and uplifting our fellowmen remains
stronger than ever. And as we transition to a post-pandemic world, we will continue to work
together by leveraging on each other’s strengths and synergies in our journey to a sustainable
future.

This year, despite some challenges, we have remained optimistic and motivated to improving the
way we work and giving back more to the communities we operate in. Our theme for this year’s
sustainability report, ‘Averting Difficulties’, captures our commitment to perseverance and
resiliency, creating shared value and stability despite shared crises.

With the gradual reopening of the global economy, we shall continue our transformative growth
and steady on forward to making our businesses more sustainable. We are determined to continue
doing our best for our people, our partners, and the communities.

With a renewed sense of purpose, we will continue to rise to the challenges of the future safe in
knowing that a brighter tomorrow is nearly at hand.

Dr. Lucio C. Tan

Chairman and Chief Executive Officer

SUSTAINABILITY REPORT 2021 4

Message from the President

Sustainability is an essential aspect of the way we work and operate at LT Group, Inc. It is not just
a buzzword to us but an important element in our strategy into the future of our business. We
work hard to execute our mission and vision while contributing positively to the economy and
society. Now in the third year of our sustainability journey, our commitment to embedding
sustainability remains strong as we create shared value and shared successes for our stakeholders.
Albeit presented by challenges this year, we were able to efficiently balance the interests of the
business alongside that of our stakeholders, shareholders, customers, suppliers, partners, the
government and the community.

Despite the challenges in some business areas this year, we were able to avert difficulty and are
continuing our efforts to incorporate sustainability practices in our businesses. Our outlook for
2021 allowed us to manage the financial aspect of our companies positively despite some
challenges driven by the pandemic’s continued economic impact. Our 2021 total revenue is
Php112.81 billion, a decrease of 1.7% from the previous year’s total revenue. Of this amount, we
spent Php103.66 billion on operating costs, employee wages and benefits, payment to
government and providers of capital, and community investments.

We have successfully continued to decrease our consumption of resources. Our water

consumption for 2021 has dropped to 7,037.64ML, and we have successfully reduced our waste
generated to 6.06KT. Although the overall resource reduction in our operations was due to
pandemic-led restrictions, we are picking up on the lessons learned from this experience to
strengthen our drive to decrease our consumption of resources and generation of waste. We
understand the value this would bring to our businesses and the positive impact on our
environment and society. We have also continued our commitment to reforestation, resulting in
86,748 tree seedlings planted.

This year, we are proud to have provided continuous fair employment opportunities for our 12,951
employees, composed of 48% male and 52% female. We do our best to provide stability to our
employees: job security and a safe, healthy workplace. We have implemented alternative work
arrangements for our employees in response to the pandemic, and we are looking at ways to
incorporate such in our regular work arrangements moving forward. We also value gender balance
and protect workers’ rights so that all our employees have equitable access to opportunities for
success, regardless of gender or affiliation.

We support the Philippines’ battle to COVID-19 pandemic through our continuous collaboration
with communities, hospitals and frontliners. We have donated 42,000 doses of COVID-19 vaccines,
15,000 pieces of disposable face masks, 3,500 pairs of examination gloves, 30 thermometers, and
30 gallons of rubbing alcohol to the areas that most needed it. We have donated 13,000 liters of

SUSTAINABILITY REPORT 2021 5

beverages for frontliners across multiple hospitals in the country. We have also provided 150 sacks
of rice and 30,000 relief food packs for quarantined families.

We reaffirm our deep commitment to saving the environment and helping the communities we
operate in as we work to deliver positive change for our customers, employees, investors, and
community.

Through collective action, we can face tomorrow with a certainty that whatever challenges it may
hold, we will be able to brace through it and look to a brighter, sustainable future.

Michael G. Tan
President and Chief Operating Officer

SUSTAINABILITY REPORT 2021 6

2021 Highlights
Economics and Governance
Direct economic value Gender balance
generated LTG Board of Directors
in billion Pesos

45% Male
55%
Female
114.77
113.03

112.81

100%
of our employees, business partners and governance body
members know of our anti-corruption policies
2019 2020 2021

Environment
Water withdrawal Waste generated and disposed
in megaliters (ML) in kilotons (KT)
9,138.67 ML

402.55 KT
7,795.68 ML

7,037.64 ML

8.76 KT

6.06 KT

2019 2020 2021 2019 2020 2021

SUSTAINABILITY REPORT 2021 7

Overall energy consumption
in gigajoules (GJ)

174.93 million GJ
169.77 million GJ

155.99 million GJ

86,748 tree seedlings planted

2019 2020 2021

Employees
Total employee workforce Gender balance
Total employee workforce

48% 52%
13,169

12,951
12,388

Male Female

2019 2020 2021

38%
of our employees are covered by a
Collective Bargaining Agreement

SUSTAINABILITY REPORT 2021 8

Society
Anti-COVID-19 Campaign

42,000
doses of COVID-19 Vaccines
15,000
pieces of disposable face masks donated

30 3,500
pairs of examination gloves donated
Thermometers donated

30 gallons
150 rubbing alcohol donated
sacks of rice were donated to quarantined
families and residents of Sta. Fe, Nueva Vizcaya

30,000
13,000 relief food packs distributed

liters of bottled water and beverages donated to

frontliners and parties across seven hospitals

20
boxes of Food Supplement Syrup donated

SUSTAINABILITY REPORT 2021 9

Our Business Strategy
Our Long-term Strategic Objectives

Vision

To be a world-class conglomerate at the forefront of Philippine economic growth,

successfully maintaining a strong presence and dominant position in key Philippine
industries while ensuring continuous benefits to its consumers, communities, employees,
business partners and shareholders.

Mission

Anchored to its Vision, the LT Group, Inc. commits:

- To increase stockholder values through long-term growth in its major business
groups.
- To continuously improve the value of its products and services and to provide
consumers with more and better choices.
- To build the largest, most effective distribution network and widest customer
reach in the Philippines.
- To leverage on synergies between its various businesses to continuously improve
revenues and cost structure.
- To enhance the welfare of our employees and the communities where we live and
work.

The Vision and Mission Statements are reviewed and approved annually by the Board of
Directors. The latest reviews were on February 9, 2021 and February 8, 2022.

The LT Group, Inc. logo

The LT Group, Inc. logo is a symbol of strength and solidarity,

the essence of our logo. The clean balanced lines and curves
are central elements that form a mystical symmetrical tree.
Drawn in an Eastern-Oriental style, it gives hint to the
Company’s Chinese heritage.

Tree is life. Life is growth. Like a tree, a company with firm

roots, properly nurtured, will continuously grow and give
value.

The tree’s trunk is upright, and the branches spread out, a

symbolic consolidation of the subsidiaries and stakeholders
within two circles — the inner circle for continuity, the outer
circle for solidarity.

SUSTAINABILITY REPORT 2021 10

Our Organizational Profile

LT Group, Inc. (LTG or the Company) is a stock corporation incorporated in the Philippines and registered
with the Philippine Securities and Exchange Commission (SEC) on May 27, 1937 to engage in the trading
business. On November 17, 1947, the Company’s shares of stock were listed in the Philippine Stock
Exchange (PSE). The Company’s corporate life is 50 years from the date of incorporation and was extended
for another 50 years from and after May 27, 1987. On September 22, 1995, the Philippine SEC approved
the change in the Company’s primary purpose to that of a holding company. On July 30, 1999, the Company
acquired Twin Ace Holdings Corporation, now known as Tanduay Distillers, Inc. (Tanduay), a producer of
distilled spirits, through a share swap with Tangent Holdings Corporation (Tangent). The share swap
resulted in LTG wholly owning Tanduay and Tangent increasing its ownership in LTG to 97%. The Company’s
primary purpose is to engage in the acquisition by purchase, exchange, assignment, gift or otherwise; and
to hold, own and use for investment or otherwise; and to sell, assign, transfer, exchange, lease, let, develop,
mortgage, enjoy and dispose of any and all properties of every kind and description and wherever situated,
as to and to the extent permitted by law.

After a series of restructuring activities in 2012 and 2013, LTG has expanded and diversified its investments
to include the beverages, tobacco, property development and banking businesses, all belonging to Dr. Lucio
C. Tan and his family and assignees. These business segments that are comprised of the subsidiaries, as
well as LTG, are collectively referred to as the “Group” in this report.

As of December 31, 2021, LTG is 74.36%-owned by its ultimate parent company, Tangent, which is also
incorporated in the Philippines.

The official business address of the head office is 11th Floor, Unit 3 Bench Tower, 30th St. Corner Rizal Drive
Crescent Park West 5, Bonifacio Global City, Taguig City.

Our Group’s diversified portfolio of consumer-focused businesses is well-positioned to benefit from broad-
based growth in the Philippine economy. The Group is guided by its over-all aim to be a leading and
innovative player in all businesses it is engaged in, continuously improving the value of its products and
services. Building its synergistic opportunities between its current businesses, we aim to develop the widest
and most effective distribution network in the country.

SUSTAINABILITY REPORT 2021 11

Our Businesses

Beverages

Asia Brewery, Inc. (Asia Brewery) began operating as a beer company in 1982 with the inauguration of its
first brewery in Cabuyao, Laguna. It has since diversified to become one of the largest beverage groups in
the country offering both alcoholic and non-alcoholic beverages and yogurt as well as glass bottle and
packaging materials manufacturing. Asia Brewery has leading brands in several categories which include
Asahi, Brew Kettle, Colt 45, Heineken and Tiger (beer); Tanduay Ice (alcopop); Spritz (hard seltzer); Cobra
(energy drink); Absolute and Summit (bottled water); V-Soy and Vitamilk (soymilk drink); Sunkist (soft
drink); Nestea (ready-to-drink tea); and Pascual (yogurt).

Property Development

Eton Properties Philippines, Inc. (Eton) was established in 2007 as the real estate arm of the Group. Eton
carries a diversified portfolio and is involved in both the development and sale of residential subdivisions,
high-rise towers and mid-rise buildings as well as in the development and leasing of condominiums, offices,
commercial spaces, serviced residences, and land.

Tobacco

In 2010, Philip Morris Philippines Manufacturing Inc. (PMPMI) and Fortune Tobacco Corporation (FTC)
entered into an agreement to combine their businesses and formed PMFTC Inc. (PMFTC). PMPMI traces its
roots from the licensing agreement entered into by Philip Morris International with La Suerte Cigar and

SUSTAINABILITY REPORT 2021 12

Cigarette Factory to manufacture and sell Marlboro in 1955. Meanwhile, FTC was established in 1965 by
Dr. Lucio C. Tan to produce cigarettes for the Philippine market. FTC achieved market success early on and
was responsible for introducing some of the most successful local cigarette brands in the Philippines,
including the Fortune, Champion and Hope menthol brands. Prior to the creation of PMFTC, FTC was the
largest domestic tobacco company in the Philippines.

Today PMFTC has a diverse portfolio of international and domestic brands covering all price points in the
Philippines. PMFTC manufactures 6 out of the top 10 brands available in the market today.

Banking

Philippine National Bank (PNB or the Bank), the country’s first universal bank, is one of the largest privately-
owned Philippine commercial banks. PNB was established by the Government of the Philippines in 1916
and became fully privatized in 2007. As an instrument of economic development, PNB led the industry
through the years with its agricultural modernization program and trade finance support for the country’s
agricultural exports. In addition, the Bank pioneered efforts in the Overseas Filipino Worker (OFW)
remittance business and introduced many innovations such as Bank on Wheels, computerized banking,
Automated Teller Machine (ATM) banking, mobile money changing, domestic traveler’s checks, electronic
filing and payment system for large taxpayers, and Unit Investment Trust Fund (UITF) ATMs. PNB has the
largest number of overseas offices and one of the largest domestic branch networks among local banks.

Distilled Spirits

Tanduay Distillers, Inc. (Tanduay) is a leading distilled spirits producer in the Philippines which started in
1854. Tanduay produces rum as well as other distilled spirits. The brand and assets of Tanduay Distillery,

SUSTAINABILITY REPORT 2021 13

Inc. were acquired by Dr. Lucio Tan in 1988 from Elizalde & Company, Inc. In 2020, Tanduay was named by
Drinks International as the World’s Number One Rum based on sales volume and was announced as
number four among all distilled spirits.

Tanduay diversified into the production and sale of bioethanol in 2016.

Our Corporate Structure

123

1
Owns 50% less 1 share
2
Voting control at 59.83%
3
At 30.17% as of end-2016; increase in stake from conversion of convertible notes

SUSTAINABILITY REPORT 2021 14

Our Markets and Geographical Reach
As a Group, we are able to reach and serve numerous customers and markets across the Philippines and
around the world. The diversity of our products and services, coupled with the excellence that we maintain,
ensures the continued patronage of our customers and stakeholders.

LT Group, Inc.

LTG, as the parent/holding company, is domiciled and operates within the Philippines.

Asia Brewery, Inc.

Asia Brewery markets, sells and distributes its products throughout the Philippines through 13 exclusive
major distributors. Asia Brewery’s exclusive distributors have a network of 39 sales offices, 20 warehouses
and 12 depots. This extensive network assures product availability to Asia Brewery consumers and also
provides the business with an expeditious nationwide placement of new products. Asia Brewery’s products
are transported to distributors’ warehouses by third-party transportation companies, with the costs for the
account of such distributors. Asia Brewery, through its subsidiary Asia Pacific Beverages Pte Ltd., also has
operations in Myanmar.

Eton Properties Philippines, Inc.

Eton has a full range of projects including offices, commercial spaces, serviced residences, and residential
developments in key cities in Metro Manila, Laguna, and Cebu. Eton markets its projects to residential
market segments, office locators, and commercial tenants through internal and external sales and
marketing channels.

Philippine National Bank

The Bank provides a full range of banking and other financial services to its customers through its Head
Office, 670 domestic branches/offices and 70 overseas branches, representative offices, remittance
centers, and subsidiaries in 17 locations in the United States, Canada, Europe, the Middle East, and Asia &
Oceania.

The Bank’s customers include corporations, small and medium markets, retail customers, the National
Government, local government units, government-owned and controlled corporations, and various
government agencies.

SUSTAINABILITY REPORT 2021 15

Tanduay Distillers, Inc.

Tanduay serves more than 215,000 points of sale throughout the Philippines through 15 exclusive
distributors, who in turn work with a large number of sub-distributors. Tanduay has generally maintained
good business relationships with its distributors since 1988. Tanduay’s distributors operate 40 sales offices
and 48 warehouses located throughout the Philippines. Tanduay through Tanduay Brands International,
Inc. employs in-house sales staff who provide marketing and general administrative support to Tanduay’s
distributors. Tanduay’s products are transported from the production facilities to distributors’ warehouses
by third-party transportation companies for the account of the distributors.

In 2021, Tanduay was noted to have 99% market share of rum in the Philippines and 27% in the distilled
spirits industry per Nielsen Market Survey. Tanduay Rhum has also been ranked as the number one rum in
the world in terms of volume by Drinks International.

SUSTAINABILITY REPORT 2021 16

Governance
Corporate Governance
To assist the Board of Directors in its oversight function over LTG and its subsidiaries, the Group has five (5)
Committees—the Audit Committee, the Risk Management Committee, the Executive Committee, the
Nomination and Compensation Committee, and the Corporate Governance Committee. Created to address
specific mandates and tasks, these Committees oversee company operations and ensure that transactions
are entered into with fairness and transparency in compliance with our principles on good governance.

In 2021, as a response to our changing needs and the dynamic business landscape within which we operate
in, our Audit and Risk Management Committee was formally split, with Board approval, into two (2)
separate Committees—the Audit Committee and the Risk Committee. The Group’s Audit Committee is
composed of five (5) Directors with Mr. Johnip G. Cua as Chairman, and Ms. Juanita T. Tan Lee, Ms. Florencia
G. Tarriela, Mr. Wilfrido E. Sanchez, and Ms. Mary G. Ng as its members. Out of the five (5) Committee
members, four (4), including the Chairman, are Independent Directors. The Audit Committee was created
to assist the Board in the fulfilment of its oversight responsibilities over the financial reporting process, the
system of internal control, the audit process, and the Group’s process for monitoring compliance with laws
and regulations. On the other hand, the Group’s new Risk Committee is composed of five (5) Directors with
Ms. Mary G. Ng as Chairman, and Mr. Johnip G. Cua, Ms. Juanita T. Tan Lee, Ms. Florencia G. Tarriela, and
Mr. Wilfrido E. Sanchez as its members. Four (4) are Independent Directors, including the Chairman. The
Risk Committee is tasked with the overseeing the management of the Group’s financial and non-financial
risks including related party transactions towards improving the way we operate and informing our
strategy.

The Executive Committee is composed of seven (7) Directors with Dr. Lucio C. Tan as Chairman and Ms.
Karlu T. Say, Mr. Michael G. Tan, Ms. Vivienne K. Tan, Ms. Juanita T. Tan Lee, Mr. Johnip G. Cua, and Ms.
Florencia G. Tarriela as its members. As provided in its Charter, the Committee is vested with the powers
of the Board only insofar as managing the business and affairs of the Company. However, it is excluded
from exercising any powers which are expressly reserved to the Board of Directors under the laws of the
Philippines, the corporate By- Laws and the Group’s Revised Corporate Governance Manual.

The Group’s Nomination and Compensation Committee is composed of six (6) Directors with Dr. Lucio C.
Tan as Chairman, and Ms. Karlu T. Say, Mr. Michael G. Tan, Ms. Juanita T. Tan Lee, Ms. Mary G. Ng and Mr.
Wilfrido E. Sanchez as its members. The Committee meets at least once a year in compliance with its charter
for purposes of ensuring a formal and transparent Board nomination process in selecting, compensating,
monitoring and, when necessary, replacing key executives as well as overseeing succession planning.

The Group believes that good corporate governance is vital in its pursuit of becoming a world-class
conglomerate, able to stay “at the forefront of the Philippine economic growth and successfully maintaining
a strong presence and dominant position in key Philippine industries while ensuring continuous benefits to
its consumers, communities, employees, business partners and shareholders.” To do so, it has created a
Corporate Governance Committee composed of five (5) Directors with Ms. Florencia G. Tarriela as its
Chairman and Mr. Michael G. Tan, Ms. Juanita T. Tan Lee, Mr. Johnip G. Cua and Mr. Wilfrido E. Sanchez as
its members. The Committee was created precisely to oversee the periodic performance evaluation of the
Board, its committees, and the executive management, among others. It must make sure, through these

SUSTAINABILITY REPORT 2021 17

periodic evaluations, that a Director is capable of fulfilling and has been adequately carrying out his duties
and responsibilities as such. Pursuant to the Group’s Revised Manual on Corporate Governance, the
Committee meets at least twice a year or as often as may be necessary.

As of this reporting period, there has been no significant changes to the Group’s size, structure, and
ownership.

Organizational Chart

SUSTAINABILITY REPORT 2021 18

Supply Chain Management
The Group is engaged in a wide range of industries and sectors. We maintain quality and excellence in our
products and services through a reliable supply chain. As of this reporting period, there has been no
significant changes to the Group’s supply chain.

Asia Brewery, Inc.

Asia Brewery’s energy drink concentrates are sourced primarily from well-known international suppliers.
Sugar is procured from third and related parties and local suppliers including Victorias Milling Company,
Inc., generally under supply contracts of up to one year. Asia Brewery also purchases carbon dioxide and
other additives from local producers. Quality water is the primary ingredient in the water bottling business
of Asia Brewery. Water is sourced primarily from sites near the bottling plants and undergoes several
purifying steps to ensure it meets standards.

Asia Brewery manufactures the majority of the bottles used for its beverage products using recycled glass
cullet and recycles old crates to make new ones. These are manufactured at Asia Brewery’s Cabuyao plant
in Laguna. Bottling and packaging materials, including aluminum closures, crowns and corrugated cartons
are produced by Asia Brewery’s subsidiary, Packageworld, Inc., which sources any required raw materials
from multiple suppliers in the Philippines and internationally.

As of 2019, we have a total of 1,067 local and international suppliers. Over the last couple of years, we have
steadily increased our local supplier base, which comprise most of our suppliers at 85%, along the way
supporting local businesses. Our local suppliers are primarily based in Metro Manila, Pampanga,
CALABARZON, Negros Occidental, Bukidnon and Surigao. Our international suppliers, comprising 15% of
our overall supplier base, are in Thailand, China, Malaysia, Singapore, the United States of America, South
Korea, Taiwan, Germany, Australia, Turkey, Canada, and France.

Eton Properties Philippines, Inc.

Eton has a wide network of local suppliers. Most suppliers and contractors are based in the National Capital
Region. For the construction of its buildings, a dedicated department conducts canvassing and bidding and
enforces an accreditation process for all contractors. All items for procurement likewise must undergo the
canvassing, bidding, and accreditation process before being recommended for purchase. All suppliers must
have complete regulatory registration and incorporation documents to be accredited.

Philippine National Bank

PNB has developed its Outsourcing and Vendor Management Policy consistent with existing statutory,
regulatory, and supervisory requirements. This policy sets out the framework for engaging with suppliers,
along with the responsibilities of the Board of Directors and Management Committee in the review and
evaluation of all new and existing outsourcing arrangement and vendor relationships. Dedicated vendor
relationship managers, who actively build and maintain commercial relationships with vendors and service
providers, are appointed across all Business Units. PNB employs a comprehensive onboarding process
which encompasses risk assessment, elaborate due diligence procedures, contract structuring and review,
and continuous monitoring and oversight. Committees have also been organized for the effective
management of relationships with third parties. As with any aspect of the Bank’s business, PNB believes

SUSTAINABILITY REPORT 2021 19

that continuous monitoring and appraisal of performance is important to evaluate the overall effectiveness
of the vendor relationship and the consistency of the relationship with the Bank’s strategic goals.
Mechanisms are in place for the development of relevant performance metrics, vendor performance
management, and competency evaluation.

The Bank’s Procurement Committee, which is composed of senior management officers from different
sectors, convene regularly to review and deliberate on all bids of accredited suppliers and vendors. The
Bank, through the Corporate Services Division, follows this process: (1) sourcing from accredited suppliers
and vendors; (2) canvassing and bidding; (3) review/assessment of bids; (4) and awarding of contracts.
However, there are also instances when non-accredited suppliers and vendors are engaged by the
Corporate Services Division. This is only allowed when the purchase/sourcing is seasonal/occasional, one-
time, or considered an emergency. To ensure consistency of standard and specification across all our offices
and branches, the Bank sources its purchases and services from Metro Manila-based suppliers and vendors.
Some purchases and services, however, are sourced from local suppliers and vendors (province-based and
overseas based) to minimize logistical costs.

Tanduay Distillers, Inc.

Tanduay uses ethyl alcohol, which is distilled from sugarcane molasses. Tanduay obtains ethyl alcohol from
its two subsidiaries, Asian Alcohol Corporation and Absolut Distillers, Inc., and foreign suppliers.

The distillery companies obtain their molasses from sugar mills and traders. Major suppliers are Universal
Robina Corporation, Victorias Milling Company, Inc., Binalbagan Sugar Company, LYL Marketing,
Shuurmans & Van Ginneken Phils., Inc., Grandcane Company, Inc., and Tate & Lyle Corporation.

SUSTAINABILITY REPORT 2021 20

Membership of Associations

Asia Brewery, Inc.

Asia Brewery is a member of the People Management Association of the Philippines (PMAP), the Employers
Confederation of the Philippines (ECOP), the Philippine Society for Training and Development (PSTD), and
the Semiconductor and Electronics Industries in the Philippines (SEIPI). Asia Brewery's EHS Officers are
members of the Advocates, Leaders and Professionals in Environment, Safety and Health (ALPrESH)
formerly known as Association of Safety, Health and Environment Officers of Laguna, Inc. (AOSHEOLI). Asia
Brewery is also a member of the Cabuyao River Protection Advocates (CaRPA) organization where Dr.
Alberto D. Rivera, Asia Brewery Senior Vice President/Supply Chain Head, currently serves as president.
Asia Brewery’s bottled water plant in Cabuyao has been a member of the International Bottled Water
Association (IBWA) since it started its bottled water business in 1992.

Eton Properties Philippines, Inc.

Eton is a member of the Credit Management Association of the Philippines (CMAP), the Philippine
Association of National Advertisers (PANA), the Subdivision and Housing Developers Association (SHDA),
the Chamber of Real Estate Brokers’ Association (CREBA), the Philippine Tour Operators Association, Inc.,
the Executive Housekeepers Association of the Philippines, the Association of Credit Executives in the
Tourism Industry, Inc., Employers Confederation of the Philippines (ECOP) and the Philippine Society for
Training and Development (PSTD).

For SHDA, we view membership as strategic and desirable for Eton because it keeps us abreast on current
developments in the Housing sector, plus it gives us an avenue, as developer, to air our issues with our
regulator, the Department of Human Settlements and Urban Development (DHSUD) [formerly the Housing
and Land Use Regulatory Board (HLURB)], and lobby for changes in regulations adversely affecting Eton as
developer.

Philippine National Bank

PNB has the following industry memberships: ACI Philippines; Association of Certified Fraud Examiners;
Association of Certified Public Accountants in Commerce; Association of AML Officers (AMLO); Association
of Bank Compliance Officers (ABCOMP); Agusan Chamber; Asian Bankers Institute; Asian Bankers
Association; Bankers Institute of the Philippines; Bankers Association of the Philippines; Bank Marketing
Association of the Philippines; Bank Security Management Association; British Chamber of Commerce in
the Philippines; Business for Sustainable Development (BSD); Credit Management Association of the
Philippines; Credit Card Association of the Philippines; Executives Finance Management Association;
Federation of the Philippine Industries, Inc.; Financial Executive Institute of the Philippines; Financial
Technology of the Philippines; Good Governance Advocates and Practitioners of the Philippines (GGAPP);
Information Systems, Audit and Control Association; Institute of Corporate Directors; Institute of Internal
Auditors of the Philippines; Integrated Bar of the Philippines; International Association for Business
Communicators (IABC); Japanese Chamber; Korean Chamber; Mabuhay Miles; Makati Commercial Estate
Association, Inc.; Management Association of the Philippines; Money Market Association of the Philippines,
Inc; People Management Association of the Philippines; Philippine Association of National Advertisers, Inc.;

SUSTAINABILITY REPORT 2021 21

Philippine Chamber of Commerce and Industries, Inc.; Philippine Business Coalition for Women
Empowerment; Philippine Payments Management, Inc.; Public Relations Society of the Philippines (PRSP);
Rotary Club; Tax Management Association of the Philippines; The Financial Markets Association, Inc.; Trust
Officers Association of the Philippines; Women’s Business World.

Tanduay Distillers, Inc.

Tanduay is a member of the Employers Confederation of the Philippines (ECOP) and the Distilled Spirits
Association of the Philippines (DSAP). Its distillery subsidiaries are members of the Center for Alcohol
Research and Development Foundation, Inc. (CARD) and the Bioethanol Producers Association. These
associations serve as the medium for presenting the industry position in case of major changes in
regulations.

SUSTAINABILITY REPORT 2021 22

About this Report
Reporting Scope and Boundary
We started our sustainability reporting journey in 2019 as part of our efforts to drive further our thrust
towards a more sustainable business model and in alignment with the SEC Memorandum Circular no. 4
series of 2019. This memorandum provides guidelines that assists publicly listed companies (PLCs) like us
in assessing and managing our non-financial performance across economic, environmental and social
aspects that would enable us to measure and monitor our contributions towards achieving universal
sustainability targets.

We believe that sustainable development practices are integral to our journey as a Group. It allows us to
not only save on resources that enable operational efficiency, but it also helps us build a better, brighter
future for generations ahead.

As in previous years, our 2021 Sustainability Report features our sustainability performance for the year
ended December 31, 2021, unless otherwise indicated. The information presented herein complements
our Annual Report for the same period.

This sustainability report covers LTG, as the holding company, and our subsidiaries operating within the
Philippines, composed of Asia Brewery, Eton, PNB and Tanduay. PNB will, however, not be covered in full
detail in this report as the Bank has prepared its own sustainability report containing fuller disclosures on
our banking business to complement this report. PMFTC will also not be covered in full detail in this report
as it was not included in the materiality assessment process. It is under the management of Philip Morris
International Inc. (PMI) and will be included in PMI’s sustainability report.

Our readers may observe differences in material topics and context as our Group is engaged in various
industries including beverages, property development, tobacco, banking and distilled spirits. To address
these differences and to offer a better understanding, we have consolidated these material topics for the
Group and provided a separate listing of unique material topics per subsidiary.

All financial data and general business information in this report have been disclosed in our 2021 Annual
Report. No external assurance has been sought for the non-financial disclosures presented in this report.
We have, however, conducted internal review and verification procedures to ensure the accuracy of non-
financial information presented in this report.

Economic Performance Boundary

The economic performance data presented in this report is from the consolidated financial statements as
of and for the year ended December 31, 2021 covering LTG, as the parent company, and all its subsidiaries
and associates operating in the Philippines and abroad. For more information, please refer to the 2021 LTG
Annual Report.

SUSTAINABILITY REPORT 2021 23

Reporting Approach
We developed a framework using the principle of Materiality to determine our key material topics and
came up with a long list of potential material topics gathered from internal and external sources. We
prioritized these according to input from internal stakeholders via both quantitative and qualitative metrics
to identify which material topics have the capacity to impact the Group and our operations, and its impact
to our various stakeholders.

Sustainability Reporting Guidelines and Standards

This report has been prepared in accordance with the Global Reporting Initiative (GRI) Standards: Core
option, and the sustainability reporting guide provided by the Philippine SEC in Memorandum Circular No.
4, Series of 2019. This report is also aligned with the 17 United Nations (UN) Sustainable Development
Goals (SDGs) to further our commitment in contributing to the global sustainable development agenda.

Stakeholder Engagement Mechanisms

Our Board of Directors is tasked with identifying our stakeholders in the communities where the Group
operates in or those that are directly affected by our operations. The Board then formulates a clear policy
of accurate, timely and effective communication with identified stakeholders. Our stakeholders include our
stockholders, employees, customers, trade partners, joint venture partners, suppliers, government and
regulatory bodies and instrumentalities, and communities where the Group operates in for both business
and non-business programs.

We engage with our stakeholders in through a number of ways including but not limited to:
1. Annual Shareholders' Meeting
2. Annual Press Briefing
3. Quarterly Analysts' Briefing
4. Consultation Meetings with the Congress
5. Investors' Conference (as needed)
6. Private Meetings (as needed)
7. Conference Calls (as needed)
8. Plant Visits (as requested)

The Group also maintains open communications with the investing community to promote greater
understanding of our businesses. Reports to the SEC and PSE are disclosed on time, and are available for
viewing and downloading in the Group’s website. There is also a dedicated Investor Relations Officer and
the Group may also be corresponded with through email and/or telephone calls.

Across our subsidiaries, Asia Brewery maintains a Customer Complaint Report and conducts a regular
Customer Satisfaction Survey. Eton’s Property Management Group and Customer Support Team manage
on-site concerns and concerns from existing clients, respectively. PNB’s Customer Experience Division
manages all client concerns and complaints through a variety of channels 24 hours a day, 7 days a week.
Tanduay maintains a number of channels including their website, email address, phone numbers and social
media profiles through which customers may relay any issues and concerns.

The key topics and concerns raised during the Annual Shareholders' Meeting, Annual Press Briefing and
Quarterly Analysts' Briefings are related to the financial results of the Group, future plans of operations,

SUSTAINABILITY REPORT 2021 24

and other significant changes on the operations of the Group. As for the meetings with the government,
significant updates on regulatory compliance, especially on taxes, are discussed.

Sustainability Report Feedback

To help us achieve our goal of improving our sustainability reporting practices, we would appreciate your
comments, feedback, and suggestions. You may contact us at sustainability@ltg.com.ph.

Our Approach to Materiality

In 2019, we conducted a materiality assessment process to determine material sustainability topics to our
business. We reviewed a variety of sources and conducted workshops to assess and determine the most
critical material topics that have the highest capacity to impact the Group, internally, and its stakeholders,
externally.

Scan Prioritize Validate

•Global standards, •Collected data •Meeting and
issues and mega analyzed discussion with
trends that affect quantitatively key management
the industries we and qualitatively executives on
are engaged in •List of identified prioritized
•Regulatory potential material topics to
requirements material topics see alignment
•Material topics voted according with group
identified by our to order of strategy
peers importance to
•Media coverage stakeholders and
around the impact on and of
Group and the business
potential
material topics
identified
•Review of
internal policies
and board papers
identifying
potential
material topics

From a long list of 44 material topics, we were able to prioritize 17 material topics and these were validated
by key Management Officers.

For 2021, after a series of discussions and consultations with key Management Officers, the same 17
material topics remain to be the most important to the Group and our stakeholders.

SUSTAINABILITY REPORT 2021 25

Materiality Matrix
Our materiality matrix shows the 17 key material topics that were identified to have the most significant
impact and stakeholder interest.

CATEGORY KEY MATERIAL TOPIC CATEGORY KEY MATERIAL TOPIC

ECONOMICS AND GOVERNANCE Economic Performance ENVIRONMENT Water Management

ECONOMICS AND GOVERNANCE Socioeconomic Compliance SOCIETY Community Relations and Initiatives

ECONOMICS AND GOVERNANCE Risk Management EMPLOYEES Safety and Well-being

EMPLOYEES Employment ENVIRONMENT Managing Waste

ECONOMICS AND GOVERNANCE Anti-Corruption ENVIRONMENT Energy Efficiency and Emissions

CUSTOMERS Marketing and Labeling ENVIRONMENT Climate Change

CUSTOMERS Customer Health and Safety CUSTOMERS Digital Transformation and Innovation

CUSTOMERS Customer Engagement and Satisfaction CUSTOMERS Customer Data Privacy and Security

ECONOMICS AND GOVERNANCE Illicit Trade

SUSTAINABILITY REPORT 2021 26

Our Key Material Topics

Material Topic Relevant SDGs

1 Economic Performance
Maintaining profitability to return a dividend and re-
invest in products and services. This also covers stable
revenues in the midst of political and economic
uncertainties, market competition, pressure from
regulatory bodies and employing strategies to increase
market share.
2 Socioeconomic Compliance
Complying with socioeconomic laws and regulations, as
well as regulatory changes in both financial and non-
financial reporting.
3 Risk Management
Managing risks that may greatly impact the Group’s
operations and performance. This includes systems and
policies in place to address potential credit, market,
interest rate, liquidity, security, reputation and other
risks relevant to the operations of its subsidiaries.
4 Employment
Attracting and retaining highly capable individuals to
support high performance, covering employee wages
and other forms of compensation such as bonuses and
executive remuneration, as well as fostering gender
equality in the workplace.
5 Anti-Corruption
Demonstrating integrity, transparency, governance,
and responsible business practices, as expected by the
marketplace, international norms and stakeholders.
6 Marketing and Labeling
Providing customers access to accurate and adequate
information on the positive and negative economic,
environmental and social impacts of the products and
services they use–both from a product and service
labeling and a marketing communications perspective.
This also includes communication of customer
protection policies and laws.
7 Customer Health and Safety
Protecting and promoting health and safety of our
customers through assurance of product quality,
effective safety risk management and promotion of a
safety culture. This also refers to ensuring that products
are free from toxic or hazardous contents that may
endanger customer safety.

SUSTAINABILITY REPORT 2021 27

8 Customer Engagement and Satisfaction
Meeting customer expectations and needs in delivery of
our products, services and experiences. This also
ensures that customer complaints are recorded,
monitored, resolved and reported to regulatory bodies,
as applicable.
9 Illicit Trade
Implementing policies and measures to ensure the
security of aspects in the supply chain which could be
most susceptible to illegal trading and counterfeiting.
This entails full cooperation with law enforcement
agencies, and engagement with policymakers for a
more effective and balanced regulation.
10 Water Management
Optimizing the use of water resources, including
management of water treatment of drinking water,
industrial water, sewage or wastewater, water
resources and flood protection.
11 Community Relations and Initiatives
Maintaining our social license to operate through
engagements with the community.

12 Safety and Well-being

Protecting and promoting health, safety and well-being
of our employees and contractors through effective
safety risk management and promoting a safety
culture.
13 Managing Waste
Managing and minimizing waste, including responsible
waste management by resource reduction, reuse,
recycling and reprocessing, waste treatment and waste
disposal.
14 Energy Efficiency and Emissions
Managing and minimizing energy use, increasing
efficiency measures, and using low-carbon emission
energy sources.
15 Climate Change
Ensuring that the Group is prepared to anticipate,
address and recover from impacts of climate change
that might pose risks to the workforce, cause disruption
to operations and/or loss of property.
16 Digital Transformation and Innovation
Implementing digitalization of products and services to
streamline customer experience. This also refers to
other innovations that capitalize on current trends on
blockchain, artificial intelligence, etc. This also includes
cybersecurity and cyber resilience measures within the
Group.

SUSTAINABILITY REPORT 2021 28

 17 Customer Data Privacy and Security
Managing the privacy of customer information and
ensuring personal information is secure against fraud
and theft.

Unique Material Topics across Subsidiaries

Our materiality assessment process allowed us to determine unique key material topics for our subsidiaries.
Although we did not include specific disclosures for these material topics in this report, we have included
them here for information.

Material Topic Relevant SDGs

Asia Brewery and PNB
Learning and Development
Developing our workforce capabilities, skills and
competencies to create a positive and sustainable
organizational culture.
Asia Brewery and Tanduay
Environmental Compliance
Complying with environmental laws and regulations.

Asia Brewery
Greenhouse Gas Emissions
Managing and minimizing emissions to free the air of
pollutants – including carbon and other greenhouse gases
(GHGs).
Labor/Management Relations
Using consultative practices with employees and their
representatives, including communicating significant
operational changes.
PNB
Indirect Economic Impact
Supporting infrastructure investments and public services
that are additional consequences of the direct impact of
financial transactions and the flow of money between PNB
and its stakeholders.
Tanduay
Materials Stewardship
Using materials efficiently and judiciously, whether
renewable or non-renewable, necessary for the provision of
products and services.
Supply Chain Management
Supporting local suppliers, or those owned by women or
members of vulnerable groups and assessing procurement
practices that may cause or contribute to negative impacts
in the supply chain.

SUSTAINABILITY REPORT 2021 29

Our Strategy and Performance
In the following sections, you will find out more about our sustainability journey in 2021. The disclosures
have been divided into five categories: Economics and Governance, Environment, Employees, Customers
and Society – with the corresponding key material topics contained therein.

SUSTAINABILITY REPORT 2021 30

Economics and Governance
Economics and Governance

Economic Performance

We continued to maintain a guarded outlook to ensure our businesses' viability

despite the global COVID-19 pandemic. Our commitment and strong
foundations helped us remain resilient and kept us on track to our mission to
shared value creation and long-term growth.

For 2021, we reported total economic value generation at Php112.81 billion, a decrease of 1.7% compared
to last year. Our total direct economic value distribution is at Php103.66 billion, an increase of 2.4%. Of this
value, Php50.72 billion went to operating costs, Php12.32 billion to employee wages and benefits, Php19.91
billion for payments to government, Php20.63 billion for payments to providers of capital and Php0.081
billion in community investments. As of the end of the current reporting period, the economic value
retained is at Php9.15 billion.

Direct economic value generated Direct economic value distributed

in billion Pesos in billion Pesos

101.26 103.66
113.03 114.77 112.81
88.89

2019 2020 2021 2019 2020 2021

Direct economic value distributed (in Pesos)

2019 2020 2021
Operating costs 39,525,175,222.34 46,868,358,299.45 50,722,493,580.47
Employee wages and benefits 11,355,563,625.72 12,294,976,981.91 12,316,454,296.29
Payments to government 15,444,345,059.13 20,844,610,731.79 19,912,173,628.71
Payments to providers of capital 22,473,831,107.24 21,152,939,722.28 20,625,180,497.49
Community investments 88,926,713.08 97,332,438.72 81,326,782.00
Total direct economic value distributed 88,887,841,727.51 101,258,218,174.15 103,657,628,784.96
Total economic value generated 113,025,097,439.59 114,766,428,692.40 112,811,003,716.19
Economic value retained 24,137,255,712.08 13,508,210,518.25 9,153,374,931.23

SUSTAINABILITY REPORT 2021 31

Socioeconomic Compliance

We ensure that all our policies are thoroughly reviewed and approved by our respective
board committees in our subsidiaries, consistent with our practice of good corporate
governance. Our Board of Directors is responsible for the regular review and oversight of
the policies we implement across the Group. Together with our Compliance Officer and
Corporate Secretary, our Corporate Governance Committee is primarily responsible for all
compliance matters to ensure that we consistently comply with all conditions set by Philippine regulatory
bodies and legislation and international standards.

Our Manual on Corporate Governance, which contains our Code of Business Conduct and Ethics, mandates
that all personnel, regardless of rank or seniority, abide by government laws, rules and regulations. We
cascade our Manual to all current and new employees as part of their onboarding and refresher. The
management also ensures that the Manual is readily available on our corporate website for easy reference.

A thorough review process vets the integrity and accuracy of our filings as we do our best to avoid penalties
and other sanctions due to late submissions of our documents on or before the deadline. After submission,
we look at best practices to replicate and evaluate areas that can be improved and learned from in our
reporting practice to make the next reporting cycle more efficient. We also take immediate action to effect
corrective measures from regulators on possible issues and concerns. In compliance with the SEC
recommendations on good governance as provided in the Integrated Annual Corporate Governance
Report, we conducted our annual performance self-assessment for Members of the Board and Committees
this year, covering 2020 and 2021. It allows us to see how effective our current corporate governance
mechanism is, assess the Group’s efficiency to meet compliance requirements, and develop solutions to
improve weak areas.

Further, we strictly adhere to the regulatory submission requirements of the different regulatory agencies
such as the Securities and Exchange Commission (SEC), the Philippine Stock Exchange (PSE) and the Bureau
of Internal Revenue (BIR). The Corporate Governance Committee gives their proper guidance and advice
to effectively practice good corporate governance, regular updates about the status of filings with agencies,
and improvements made by the Group. The management asks guidance from the said Committee when
unforeseen or unavoidable circumstances delay our submissions of the regulatory requirements.

Eton mandates that our people comply with all laws and regulations under the Eton Code of Business
Conduct and Ethics. For grievances, we have a whistleblower policy where a whistleblower may submit a
written report to the Office of the Compliance Officer. The Compliance Office shall then investigate the
alleged violation of the Company rules, regulations and policies. All reports shall be treated in confidence
and discussed with the Audit Committee for recommendation and action. If grievance mechanism relates
to socio-economic compliance, it is different from employee grievance mechanism handled by HR or Legal.
We also have an Executive Committee headed by the COO and EVP.

In compliance with BSP Circular 1085, PNB recently developed its Sustainability Policy and 3-Year Transition
Plan. Tasks or activities are identified and determined for implementation in the Years 2021-2023. In the
enterprise-wide Sustainability Policy, a significant sustainability pillar of the Bank is governance which
covers compliance or adherence of the Bank in all policies, laws and regulations ESG-related or otherwise
in areas where the Bank has a presence. The Sustainability Policy also identifies tasks indicated in the 3-
Year Sustainability Transition Plan of the Bank, which includes identifying, assessing and creating an
inventory of ESG-related laws and policies in areas or communities where the Bank has a presence in the

SUSTAINABILITY REPORT 2021 32

country and overseas. We are developing and implementing procedures and controls to detect potential
compliance issues regarding E&S legal/regulatory requirements. The Sustainability Transition Plan also
reports violations and fines incurred by the Bank on relevant E&S regulations and laws in the country and
abroad to the Corporate Sustainability Unit (CSU) for reporting to the Corporate Governance and
Sustainability Committee.

We commit to providing a safe, respectful and collaborative work environment for our employees,
cultivating personal and professional growth by educating our employees on our Sustainability Policy to
encourage and inspire them to contribute positively to their communities. All employees of PNB have a
practical skill set as they are required to take skills and development programs relevant to their existing
functions and target roles. PNB’s hiring process shall be based on the candidate’s skills and competencies
to provide equal opportunities for successful candidates. Promotions are also given to qualified employees
based on performance, potentials and aspirations regardless of their gender and background. The policy
promotes diversity, inclusion, and gender equality in employment and the workplace.

We will ensure the continuity of our business through strategic succession planning. We will also support
companies and initiatives that foster and enable economic and inclusive growth, environmental protection,
social development and nation-building. The program and activities related to our commitment to our
clients will also raise awareness on sustainability and the Bank’s sustainability thrusts through various
information dissemination channels.

We align our plans, programs and activities to the international best practices and standards such as the
FATF International Standards on anti-money laundering and combating the financing terrorism and UN
Sustainability Development Goals. The Group practices transparency and accountability in all areas of our
operations. We have also integrated sustainability principles in our enterprise risk and management
system, which requires reporting our progress on our Sustainability initiatives to the Board of Directors at
least quarterly. If also necessary, we will update our PNB Sustainability Policy annually.

We also educate and ensure that our suppliers, vendors, outsourced personnel and third-party service
providers meet our sustainability policy and standards. Lastly, for our environment, we are committed to
reducing the environmental impact of our operations through efficient use and management of natural
and artificial resources, adapting eco-friendly technologies, and supporting businesses and projects that
are compliant with environmental laws and regulations and contribute to the protection and conservation
of the environment through sustainable financing and strategic partnerships.

At Tanduay, the Corporate Governance Committee consistently reminds the business units/ departments
responsible for ensuring compliance with the regulatory agencies to aim for a perfect score. As a result of
the Tanduay’s efforts toward good corporate governance, its score in the ASEAN Corporate Governance
Scorecard increased to 72.80 from 53.89 in 2017. Moving forward, we shall continue to comply with further
recommendations of the regulatory agencies.

In 2021, we noted no major incident of non-compliance with laws and regulations in the social and
economic areas across the Group. All non-compliance issues are dealt with immediately for resolution
through the appropriate channels. In the next reporting period, we commit to ensure that no incidents of
noncompliance are recorded and that any incident that may arise is resolved immediately.

SUSTAINABILITY REPORT 2021 33

Risk Management

Risk management is as an essential element that helps organizations like ours identify,
assess and control threats to our operations. We use a holistic approach in managing our
risks and come up with dynamic strategies and plans that are aligned to our organizational
thrust of being a leader in the sectors we do business in. We ensure that our risk
management systems remain relevant and dynamic by proactively identifying and managing
risks that could impact how we create value for our stakeholders and foster sustainability. Across the
Group, we comply with all applicable rules and regulations including the Code of Corporate Governance of
the Philippine Securities and Exchange Commission (SEC) which covers the mitigation of various risks
present in our businesses.

Across the Group, our Code of Business Conduct and Ethics represents the principles and values that all
stakeholders must uphold. The grievances or concerns regarding risk management is overseen by our Chief
Risk Officer. The reporting party may utilize the Whistle-Blower policy channel if any risk incidence
represents a violation. In our commitment to upholding the highest standards of conduct, our Internal Audit
review may also highlight any noncompliance by existing operations. We assess circumstances and relevant
risks and take a proactive approach across risk aspects that could negatively impact our businesses.

At LTG, our Enterprise Risk Management (ERM) System helps us mitigate risks in security, operations,
reputation, compliance, fraud, law, disaster recovery and others. Our ERM System is regularly updated to
address emerging risks coming from volatile market conditions and the ever-changing business landscape
based on the Enterprise Risk Management - Integrated Framework of the Committee of Sponsoring
Organizations of the Treadway Commission (COSO). Our Chief Risk Officer is responsible for overseeing
risks, including continued compliance with SEC regulations on implementing risk management activities.
We also conduct Internal Audit activities to our ERM System and its implementation as part of our 3-year
risk-based audit cycle. In October 2021, LTG created a separate Audit Committee and Risk Management
Committee tasked to handle respective audit and risk issues. The creation of these committees complies
with the recommendations of the SEC and is in pursuit of good governance.

The Risk Management Committee (RMC) has a charter stating that the Committee shall have Risk Oversight
and Related Party Transactions (RPTs) Functions. It is the duty and responsibility of the Committee to
monitor the risk environment of the Group and to provide direction for the activities to mitigate to an
acceptable level which may affect the ability to achieve its goals. Further, the said Committee is responsible
for reviewing and ensuring that RPTs entered into are not undertaken on more favorable economic terms
with such related parties than similar transactions with non- Related Parties under similar circumstances.

The Risk Oversight Committee (ROC) of PNB is the highest governing body with risk management function
in our banking business. PNB’s Board Risk Oversight Committee (ROC) is mandated to set risk appetite;
approve frameworks, policies, plans, programs, awareness testing exercises and processes for managing
risk; and accept risks beyond the approval discretion provided to Management. Our Risk Management
Policy at PNB covers a range of key areas including a comprehensive risk management approach; a detailed
structure of limits, guidelines, and other parameters used to govern risk-taking; a clear delineation of lines
of responsibilities for managing risk; an adequate system for measuring risk; effective internal controls and
a comprehensive monitoring and risk-reporting process; and adherence to standards and regulations.

SUSTAINABILITY REPORT 2021 34

ROC membership is composed of at least six (6) members of the Board of Directors, majority of whom are
Independent Directors including the Chairperson. The Chairperson shall not be the Chairperson of the
Board of Directors, or any other Board Committee. The members shall possess a range of expertise as well
as adequate knowledge of the Bank’s risk exposures. They must also meet the requirements of the
Securities and Exchange Commission (SEC), the Bangko Sentral ng Pilipinas (BSP) and other applicable laws,
rules, and regulations.

In our Retail Banking Sector, a process of assessing potential risk is engaged to determine whether a
relationship with a particular client or entity is amenable and does not pose significant risk as per our
Customer Risk Rating (CRR) Policy, crafted in compliance with the Anti-Money Laundering Act of 2001 (RA
no. 9160).

We continue to improve the process as we go along and as the need arises. For instance, in October 2021,
we further enhanced the risk management process for high-risk accounts with balances of more than
Php5M on top of the periodic review of accounts. The Branch Head and Relationship Officer must set an
online meeting (if face-to-face is not feasible) after performing Enhanced Due Diligence and review of
transactions. It is also part of the Region Head’s oversight function to ensure that the
review/assessment/updating of HR accounts and the compliance to the quarterly certification is being
done.

In June 2020, we required additional information during customer onboarding if the source of fund is
allotment. To enhance our customer due diligence, we are capturing the remitter name, its relationship to
the account holder, and the expected monthly remittance. Our ERM Framework, reviewed and updated in
2021, provides the overall guidance in the risk management functions and articulates our philosophy that
risk management resides at all levels.

For continuous improvement, we continue to improve the policies and procedures as we go along and as
the need arises. For instance, in May 2021, one of the key changes made to our Money Laundering and
Terrorist Financing and Prevention Program (MTPP) includes a policy devised for the management of
Operators of Payment Systems (OPS) and Non-Bank Electronic Money Issuers (EMIs). This includes the list
of documentaries evidence to be obtained, approvals to be secured given that the customer segment will
have a default risk classification of high risk, and process for ongoing monitoring.

In addition to this, we updated the policy for the management of real estate companies in November 2021.
In particular, the process for the customer segment's ongoing monitoring was enhanced to include
performing of reverse screening of the list of duly registered real estate companies against PNB's own
customer base to determine if the appropriate tagging and due diligence has been applied.

Anti-Corruption

We understand the threat that corruption poses on our businesses and stakeholders. As
we continue to commit to fair and equitable business practices, we affirm that we comply
with all applicable laws and regulations on anti-corruption. Our employees are bound not
to foster corruption through our robust policies and regular training.

SUSTAINABILITY REPORT 2021 35

Guided by our Group-wide Code of Business Conduct and Ethics, we strictly do not condone any act of
bribery or corruption with government officials to facilitate transactions or obtain favors. The Code further
ensures that all our Directors, Officers, and employees comply with all government rules, laws and
regulations and conduct themselves in a way that avoids conflicts of interest. To supplement the Code, we
have a Group-wide Whistle-Blower Policy and Non-Retaliation Policy in place. Any suspected incidents of
corruption may also be reported through our established reporting channels and are treated with utmost
confidentiality with a safeguard against retaliation. The Code provides a platform for employees to report
suspected corruption to their immediate supervisor, who shall determine the existence of reasonable
ground to escalate the matter. Directors and Officers shall report suspected and verified corruption cases
to the Chairman of the Corporate Governance Committee, who, alongside the Committee, metes out
appropriate sanctions. Alternatively, employees may also anonymously report unethical and corrupt
activities.

At LTG, any known or suspected misconduct or violation of the policy are reported to Directors, Officers,
and the Chairman of the Corporate Governance Committee. We also update our Code of Business Conduct
and Ethics to ensure that our current company practices are written as policies. The updates in the Code
include the procedure on handling reports and protecting whistleblowers against any possible act of
retaliation (i.e. suspension, demotion, harassment, discrimination, or loss of benefits). Our Board conducts
regular reviews of the Code to ensure its continued relevance and implements updates on time. For the
past years, there have been no reports of any known or suspected misconduct or violation of the Company's
Policy. In November 2021, LTG conducted its Annual Self-Assessment covering 2020-2021 to ensure that
Directors remain aware of the policies, their duties and responsibilities. We also started drafting a separate
Manual to govern the conduct of its employees.

To maintain ethical conduct, Asia Brewery maintains a Labor Management Council and a Committee on
Right Ethics (CORE) which help manage cases of misconduct and corruption in accordance with the
Company’s Code of Conduct. Asia Brewery’s Executive Committee and AVP for Human Resources manage
and monitor the ethical conduct of business in all operations. ABI also uses its Human Resource’s “Speak
Up” Hotline in receiving reports of misconduct and corruption as well as the Failure Mode, and Effect
Analysis (FMEA) as a Risk Assessment Tool for grievance handling.

Eton maintains a Code of Business Conduct and Ethics that it shall not condone any act of bribery or
corruption of government officials to facilitate transactions or obtain favors. Eton’s HR Employee Manual
also provides comprehensive information about violations on bribery and the no-gift policy. Our Audit &
Risk Committee is responsible to ensure the integrity of the Company's accounting and financial reporting
systems, including the independent audit, and that appropriate systems of control are in place, in particular,
systems for monitoring risk, financial control, and compliance with the law, rules, regulations and the
Manual. As stated in our Code of Business Conduct and Ethics, Eton follows a whistleblower policy,
reporting and investigation procedures and non-retaliation policy.

Approved by the Board of Directors, PNB’s Office Decorum that includes the Anti-bribery and Corruption,
Policy on Soliciting and Receiving Gifts and Whistleblowing Policy ensure that employees conduct
themselves ethically. PNB ensures that all policies are disseminated and discussed during the employee
orientation. We also regularly disseminate good governance reminders and conduct whistleblower
webinars and seminars. Employees who violate the policies are sanctioned in accordance with the Bank's
Code of Conduct. We also have a Fact-Finding Committee aligned with the Bank's Code of Conduct to report
any violations via proper avenue. As part of our commitment and consistent monitoring, we evaluate our
measures through Performance Appraisal Report for Officers which includes "adherence to ethical

SUSTAINABILITY REPORT 2021 36

behavior." The Grievance Machinery and regular Labor Management Council of PNB aim to address the
misunderstanding, dispute, or controversy arising from the interpretation, application and implementation
of any provision of the Collective Bargaining Agreement between the union and the Bank and any covered
employee.

In 2021, our anti-corruption policies and related procedures have been communicated to 100% of all our
employees, business partners and governance body members. There are 27.7% of our employees and 21%
of our governing body members who have received anti-corruption training.

Our ability to keep our workforce committed against corruption is critical in maintaining our record of zero
reported cases of suspected and actual corruption for the current reporting period. In 2022, we continue
to ensure that we strictly enforce our policies and campaigns to prevent corruption and promote ethical
behavior.

SUSTAINABILITY REPORT 2021 37

Environment
Environment

Water Management

We value water’s vital role in supporting the maintenance, sustenance and

quality of life of every living creature. The country’s water resources’ significant
issue is the rising water demand with limited supplies leading to water scarcity.
Water scarcity also happens due to population growth, economic
development, climate change and pollution. With the alarming progress of
climate change and the current depletion of water supply that supports the continuous growth of society,
we strive to strictly implement measures and guidelines to our subsidiaries, thereby managing our impacts
and contribution to our water resources.

At LTG, we are not aware of any significant impact we have caused on our water resources. Guided by the
policies set by the building management, we implement a periodic check of water pipes within the premises
on which we have the responsibilities to oversee. We are also in the process of formalizing our advocacy
on judicious use of water through disseminating internal memoranda to all employees and incorporating
this as part of our code. We also aim to utilize the water discharged from the Sewage Treatment Plant (STP)
through water recycling.

Asia Brewery’s primary water source is groundwater. We operate and observe sustainable water
withdrawal practices and strict monitoring of water consumption and wastewater management through
our Water Treatment Process and Wastewater Treatment Process. We also regulate our activities through
the timely submission of our reports to regulators and ensuring that our deep wells have the necessary
permits for installation and maintenance. We implement our activities with strict compliance to regulatory
requirements from the Local Government Units (LGUs), the Water Code of the Philippines and its other
related regulations set by the National Water Resources Boards (NWRB), Department of Environment and
National Resources (DENR), and Laguna Lake Development Authority (LLDA). We also follow the
International Bottled Water Association (IBWA) mandated industry standards. We continuously ensure
that all our manufacturing sites have extensive knowledge on identifying our water-related impacts and
concerns through the use of our Failure Mode and Effect Analysis - Risk Assessment tool.

At Eton, we strictly monitor the impact of water use on our entire operations in accordance with our Water
Supply Document Code. We source our water primarily through third-party water distributors with a small
percentage from groundwater sources. We also take responsibility on our water use where 70% of our
wastewater from our properties go through our STPs to treat our wastewater before being discharged to
the respective municipal drainage systems. We adhere to the implementing policies and procedures on STP
maintenance based on DENR guidelines. Beyond compliance, we also acknowledge the need for a system
to identify water-related impacts. At Eton, the assessment of water-related impacts or concerns is part of
the KRA of the Building Engineer done through a daily checklist monitoring. In our commitment to address
our water-related impacts and communicating it to our stakeholders, we conduct stakeholder engagement
activities through our established channels for vendors and third-party partners. We commit to comply
with all policies and procedures set by DENR and other government agencies. We extend our environmental
responsibility and our water conservation campaign among our tenants and residents through regular

SUSTAINABILITY REPORT 2021 38

advisories and reminders on checking for leaking faucets and showerheads and turning them off when not
in use.

The water sources of PNB are from third-party water distributors. We use water to operate the centralized
air conditioning system, maintain the cleanliness of the toilets, and provide drinking stations at the general
dining area. We recognize the potential impact of our wastewater to our water sources. Our head office
in Pasay treats its wastewater using its own STP in compliance with the parameters set by DENR and LLDA
before it is discharged in Manila Bay. We also adopt guidelines and cost-effective measures to manage our
water usage. PNB has two storage tanks that can support our operation and services for two (2) days during
water interruption. With this initiative, the air conditioning system on most building parts and the comfort
room usage will not be affected in case of no water supply. The flushing mechanisms of our water closets
are also adjusted to reduce the volume of water used. During the implementation of Maynilad of the water
rationing, the bank also coordinates with all the personnel and tenants of the PNB Financial Center to help
conserve water especially during the distributor’s implementation of water rationing.

At our Makati office, the effluent water is treated in the STP of our third-party water distributor. We ensure
that we monitor and conserve our water consumption, and regularly communicate with the building
administrator of our Makati office to track our water consumption. We regularly advise our offices to check
our flushing mechanisms and the adjustment of water pressure to reduce the volume of water
consumption within the premises of PNB.

The primary source of water of Tanduay’s operations is groundwater through deep wells. We regulate and
monitor the volume consumed by our operations and conduct our business in accordance with the NWRB’s
permit. We monitor and report monthly our water consumption on all points-of use of our business using
sub-meters. Our Cabuyao plant, an ISO 9001 Certified Plant, regularly monitors water use to assess if
consumption vs. production ratio (Water Use Ratio) is within the target for efficient water utilization since
there are indicators of groundwater depletion in some areas in Cabuyao per NWRB’s groundwater leveling.
Tanduay is committed to deliver exceptional service by setting its WUR targets. In 2022, we target to reduce
our WUR by 2.5%, then reduced by 5% from 2023 and 10% from 2027. Generally, WUR targets are set
higher every year for continual improvement. The Year-to-Date Value of WUR shall be acquired and EHS
committee will agree on the new and lower target in the following year. The EHS committee will perform
root cause analysis and corrective action to meet the target the following month if there are three
consecutive months of failed WUR.

We are also mindful of our impacts, thereby we strictly comply with DENR General Effluent Standard in
treating our wastewater in wastewater treatment facilities before releasing to receiving water body. We
have plans to re-lay out our pipes to reduce leakages and unnecessary discharges of water. We also ensure
that our liquid chemical and other hazardous wastes are hauled by accredited third party contractor and
are treated properly by requiring a Certificate of Treatment. We partner with NGOs like Cabuyao River
Protection Advocates, LGU and DENR-EMB to improve and protect the water quality of receiving water

SUSTAINABILITY REPORT 2021 39

 bodies. We regularly engage in activities such as
Total water withdrawal river and creek clean-up, Community
from all sources (in megaliters) Environmental Education, recycling of failed
Groundwater Third-party water
demineralized water as water for gardening, adopt-
a-river initiative, installation of trash catchment
10,000 mechanism, and education of the community
regarding environmental stewardship.
9,000 3,245.70
ML Across the Group, in 2021, our total water
8,000
withdrawal was 7,037.64 megaliters (ML), where
1,158.04
ML
6,072.83 ML is from groundwater sources and
7,000
964.81 964.81 ML is from third-party water suppliers.
6,637.64 ML
6,000 While there is an overall 10% decrease in our water
ML
5,892.97 consumption compared to 2020, our Tanduay
ML Cabuyao Plant has not been affected by lockdown
5,000
this year, hence the increase in water consumption
4,000 and products. The 17% decrease in our use of water
from our third-party water providers were due to
6,072.83
3,000
ML the COVID-19 pandemic, the temporary closure of
our offices during the lockdowns, and the
2,000 implementation of work-from-home and
alternative work schedule arrangements.
1,000

0
2019 2020 2021

Managing Waste

Climate Change has affected all countries worldwide due to the

great concentration of greenhouse gases (GHG) in the
atmosphere from human activities. At LTG, we aim to find
solutions for climate change including the efficient management
of our waste generated from our operations. Across the Group,
we conduct our waste management activities in compliance with the laws and regulations set by DENR for
hazardous waste and the LGU for non-hazardous waste.

We continue to promote our Group-wide programs which help us lessen and ensure that we dispose of our
waste in ways that do not cause any harm to the environment. We also promote the use of electronic
communication and documents for internal memos to lessen paper waste, repurposing scratch papers for
second use as well as two-sided printing. The building management where LTG rents is responsible for the
waste we generate, while DENR accredited third-party contractors handle the management of hazardous
and non-hazardous waste of our subsidiaries. While we do not have formal commitment, goals and targets
yet concerning waste management, we consistently promote reducing, reusing, and recycling of waste to
our employees. Our Human Resource team is in the process of integrating our efforts on managing waste
into the Group’s code for employees. Future housekeeping rules on the use of resources will also be put in
place.

SUSTAINABILITY REPORT 2021 40

Asia Brewery’s Environment, Health, and Safety Policy (EHS) ensure to efficient waste management of our
waste. Eton and Tanduay have solid waste management plans and documents to ensure that the programs
and initiatives are appropriately planned and implemented. We also have Pollution Control Officers across
our businesses to monitor and assess business requirements and compliance with the law.

In 2021, Asia Brewery’s Medical Team started monitoring the quantity of clinical waste generated from our
COVID-19 testing facility which is hauled by DENR-accredited service providers for proper treatment &
disposal. ABI’s solid waste increased by 14% in 2021 due to an increase in production volume mainly
contributed by our glass and bottled water plants as well as an uptake in waste generation at our alcoholic
segment operations. We evaluate our effectiveness through performance evaluation and monitoring of
group or individual key performance indicators that are reviewed every mid-year review, typically on every
month of June.

At Eton, in compliance with DENR, LLDA and LGU requirements, we continuously practice proper waste
segregation by providing trash bins intended for biodegradable, non-biodegradable, & recyclable waste in
different strategical areas in our office premises. We are also committed to continuously inform and remind
our residents and tenants to follow proper waste segregation and disposal. In relation to reducing our paper
waste in our offices, we plan to roll out our digitize system and processes. To further demonstrate our
progress, we expect to generate a database for qualitative and quantitative information in developing our
timeline in achieving our goals and targets. To better convey our purpose and challenge ourselves to
outperform our growth in Eton, we target 20% total office waste reduction in 2022. In 2025, we target a
40% total office waste reduction supported by the full implementation of our property management
software and our paperless operations. In the long-term, we target 15% additional waste reduction through
enhancing our recycling program within the property.

The commitment of PNB in managing and

Hazardous and non- controlling waste is reflected in our
significant investments on trainings and
hazardous waste generated seminars for our Pollution Control Officers
(in kilotons) as well as disposal and/or recycling
initiatives and laboratory testing of
450
402.55 wastewater effluent to ensure compliance
400 with DENR laws and regulations. At the PNB
Financial Center in Pasay, an outsourced
350
contractor handles our solid waste while our
300 Makati Center practices segregation of solid
waste through recyclable, non-recyclable,
250
and hazardous waste. Similar with LTG, the
200 building management handles the disposal
of solid waste from our PNB Makati Center.
150
PNB centers dispose their hazardous waste
100 through a government accredited third-
50
party hauler.
8.76 KT 6.06 KT
0 At Tanduay, we demonstrate our
2019 2020 2021 commitment in managing our waste
through requiring all our plants to comply

SUSTAINABILITY REPORT 2021 41

with the Environmental Compliance Certificate (ECC) conditions. Our plants contract a third-party service
provider and the LGU to haul our solid waste. We also ensure that a government accredited third-party
handles our plant’s hazardous waste. Part of our approach to monitor our waste generation also involves
developing targets. We target to reduce the waste from Tanduay by 10% in 2022, 15% in 2025 and 20% in
2027.

In 2021, there is a significant decrease of total hazardous and non-hazardous wastes due to impact of foot
traffic and work from home of set up and IATF protocols for establishments.

HAZARDOUS AND NON-HAZARDOUS WASTE BY DISPOSAL METHOD

(IN KILOTONS)
WASTE DISPOSAL 2019 2020 2021
METHOD
HAZARDOUS WASTE
DEEP WELL INJECTION - 0.1490 0.230
INCINERATION - 0.0003 0.0005
LANDFILL - 0.0049 0.0047
ON-SITE STORAGE 0.0201 0.0060 0.197
OTHER (HAULED BY 0.0243 - -
THIRD-PARTY
CONTRACTOR)
RECOVERY 0.0048 0.0018 0.003
RECYCLING 0.0032 0.0312 0.009
TOTAL HAZARDOUS 0.0524 0.1932 0.4442
WASTE DISPOSED
NON-HAZARDOUS
WASTE
LANDFILL 388.43 3.40 2.92
ON-SITE STORAGE 0.000734 0.00002 0.00289
OTHER (HAULED BY 10.35 2.91 0.659
THIRD-PARTY
CONTRACTOR)
RECYCLING 3.72 2.26 2.036
TOTAL NON-HAZARDOUS 402.50 8.57 5.62
WASTE DISPOSED
TOTAL OF ALL WASTE 402.55 8.76 6.06
DISPOSED

SUSTAINABILITY REPORT 2021 42

Energy efficiency and emissions
Energy efficiency and conservation measures throughout the
Group create enormous opportunities that help us reduce our
overall environmental footprint, increase awareness among our
stakeholders on environment-friendly practices, and allow us to
achieve operational efficiency. We continuously strive to make an
impact from our actions and straightforward solutions in achieving energy
efficiency in our businesses.

As part of the LTG’s energy-saving efforts, we consistently advocate for

responsible and judicious use of electricity to our employees. We implement cost-reduction efforts through
maintaining the temperature of our air-conditioning units at 25 degrees Celsius, turning on equipment only
when necessary and promoting the use of company car service and carpooling among its employees for
their commute. To strengthen our commitment, we are in the process of developing monitoring plans for
our consumption levels of energy and petrol and carbon footprint reduction through formalizing a policy
and disseminating internal memoranda to reinforce energy-conscious behavior among our employees.
Similar with LTG, PNB Pasay and Makati implement energy efficiency measures to save energy within the
PNB Offices.

Asia Brewery aims to continuously achieve energy efficiency for our beverage and packaging manufacturing
plants. All Asia Brewery manufacturing plants (Beverage and Packaging Division) timely submit annual
Energy Efficiency and Utilization Reports in compliance with the Department of Energy (DOE) ’s regulations.
We also implement an Energy Management System (EMS) Policy and EMS Management Action Plan (MAP)
for our Beverage Division Manufacturing and Packaging Division Manufacturing Plants to comply with the
ISO 50001:2018 requirement. We aim to decrease our electricity consumption down by 3% in 2022 and
2% in 2025. For our long-term targets, we plan to install a 10-Megawatt Solar Farm for our Cabuyao Luzon
Plant, a 1.75 Megawatt Solar Farm for ELSA Mindanao Plant and a 2 Megawatt Solar Farm for Davao
Mindanao Plant.

Eton’s Power/Energy Management Document and Generator Set Operation and Maintenance Document
allow us to understand, evaluate and manage our energy efficiency programs. With the partial
implementation of intelligent metering, our goal in 2022 is to have 5% total savings in our electric
consumption. By 2025, with the full implementation of intelligent metering and installation of solar panels
for all elevator machine rooms, we aim for 20% total savings in our electrical consumption. Our continuing
energy efficiency programs seek to achieve 25% total savings in our electrical consumption in five to 10
years.

Despite the increase in production, we continuously monitor our energy consumption and emissions at
Tanduay through our energy use ratio (EUR)4 that is unique for each plant. Our Pollution Control Officer for
each plant has the necessary tools to monitor the EUR per plant location. Each plant prepares an
Environmental KPI Report submitted to our Group Safety, Environment and Risk Management (GSERM)
Department. Any positive or negative deviation from the set EUR target is determined and explained,
leading to mitigation or conservation measures. If EUR is higher than the target for a reason beyond the
control of the Safety Officer and the Plant Management, the EUR Target will be less stringent than the

4
Energy Use Ratio (EUR) – Average total amount of electricity and fuel consumed on-site from all sources
converted to mega joules (MJ) for every liter of product produced.

SUSTAINABILITY REPORT 2021 43

previous year or be maintained depending on the data. Our air emission, a by-product of our energy
producing equipment, is also being monitored and complied with DENR laws and regulations. We are also
planning to use the Energy Regulatory Commission’s implementation of Retail Competition and Open
Access (RCOP) to achieve lower
electricity cost. Likewise, AAC is in
Total energy consumption within the the process of establishing an
organization (in gigajoules) Energy Efficiency and Conservation
200,000,000 Management Plan in compliance
180,000,000 169,777,519.39 GJ
174,932,496.29 GJ with the requirements of R.A.
160,000,000 155,986,669.83 GJ 11285 (Energy Efficiency and
140,000,000 Conservation Act). We also
120,000,000 recognize the need to take
100,000,000 responsibility on the areas of our
80,000,000 operations that have opportunities
60,000,000 for energy conservation and
40,000,000 improvement for energy efficiency
20,000,000
through technological and process
0
innovations. We will also evaluate
2019 2020 2021
the effectiveness of our goals and
targets through our energy audit
Total fuel consumption within the and conduct of Air Emission and
Ambient Air Test. Through our
organization from non-renewable established Complaint Verification
sources (in gigajoules) and Investigation Procedure
200,000,000
conducted by AAC CRO in
180,000,000 169,088,299.87 GJ
174,396,229.93 GJ coordination with the Barangay
160,000,000 155,433,852.28 GJ Captains, we closely monitor the
140,000,000 impacts of air emissions in the
120,000,000 affected communities.
100,000,000
80,000,000 In 2021, our total energy
60,000,000 consumption across the Group is
40,000,000
174.93 million gigajoules (GJ), an
20,000,000
increase of 11% from 2020
0
2019 2020 2021
brought by Tanduay’s overall
increase in production resulting to
increase in overall energy consumption. Our total fuel consumption from non-renewable sources is 174.39
million GJ, while our total electricity consumption is 0.536 million GJ (148.96 million kilowatt hours).

TOTAL FUEL CONSUMPTION WITHIN THE ORGANIZATION FROM NON-RENEWABLE SOURCES

(IN GIGAJOULES)
FUEL TYPE 2019 2020 2021
BUNKER FUEL 599,979.60 579,955.16 560,374.21
COAL 335,643.28 321,705.02 377,318.52
DIESEL 11,384.51 11,972.65 16,265.14
GASOLINE 2,500,380.63 1,621,950.00 246,741.00
LIQUEFIED PETROLEUM GAS 165,640,911.86 152,898,269.46 173,195,531.06
TOTAL FUEL CONSUMPTION 169,088,299.87 155,433,852.28 174,396,229.93

SUSTAINABILITY REPORT 2021 44

 Total electricity consumption
within the organization
(in kilowatt hours)
191,449,864.81 kWh
192,000,000

160,000,000 153,560,428.08 kWh

148,962,876.83 kWh

128,000,000

96,000,000

64,000,000

32,000,000

0
2019 2020 2021

TOTAL ELECTRICITY CONSUMPTION BY AREA OF OPERATION

(IN KILOWATT HOURS)
AREA OF OPERATION 2019 2020 2021
LUZON AND VISAYAS 179,483,621.92 141,077,062.08 125,203,178.62
MINDANAO 11,966,242.89 12,483,366.00 23,759,698.21
TOTAL ELECTRICITY CONSUMPTION 191,449,864.81 153,560,428.08 148,962,876.83

The Group’s efforts on managing our energy consumption and emissions seek to inculcate the significance
of sustainability in battling climate change.

Given the impacts of our operations to climate change, we track our emissions using the international
standard of GHG Protocol which uses the following scopes measured in tonnes of CO2e5:

Scope 1 (Stationary Combustion) - Data on the quantity of fuel consumed at each site for stationary
machinery and equipment (such as generators, boilers, furnaces, burners, turbines, heaters, incinerators,
engines, flares, etc.) owned or controlled by the Company for the period 1 January to 31 December 2021.

Scope 1 (Mobile Combustion) - Data on the amount of fuel consumed by the mobile machinery and
equipment (transportation devices such as automobiles, trucks, buses, trains, airplanes, boats, ships,
barges, vessels, etc.) owned or controlled by the Company for the period 1 January to 31 December 2021.

5
Carbon dioxide equivalent is a measure used to compare the emissions from various greenhouse gases based
upon their global warming potential (OECD)

SUSTAINABILITY REPORT 2021 45

 Scope 2 (Indirect Energy Consumption) - Data on the quantity of purchased electricity, heating and cooling
consumed at each site for the period 1 January to 31 December 2021.

Scope 1 (Stationary Combustion, tonnes of CO2 e)

In 2020, the total Scope 1
Diesel emissions of the group
2021 77,031.64 converted to 74,125.47
LPG tonnes of CO2 e compared
2020 74,125.47 to 77,122.56 tonnes of CO2 e
Natural
gas in 2021. The 4% increase
2019 77,122.56 from 2020 was primarily
Other
driven by Tanduay’s
increase on the use of coal
instead of bunker fuel for savings.

Scope 1 (Mobile Combustion, tonnes of CO2 e)

Another driver of emissions

2021 702.27
is the fuel consumed by our
Diesel
businesses’ mobile
2020 487.93 Petrol machinery and equipment.
The Group’s emissions from
2019 736.53
LPG our mobile combustion
increased by 44%, from
487.93 tonnes of CO2 e in
2020 to 702.27 tonnes of CO2 e in 2021. The increase in the emission was mainly from the increased overall
diesel consumption for forklifts, trucks, etc. due to Tanduay’s increased production in 2021.

Scope 2 (Indirect Energy Consumption, tonnes of CO2 e)

Electricity is an important
resource in our operations
2021 107,695.14 especially on our
2020 110,208.36
manufacturing and bottling
137,158.32 businesses.
2019

SUSTAINABILITY REPORT 2021 46

 We are also closely
Total carbon footprint monitoring our carbon
(Tonnes of CO2e) footprint across the group.
215,017.41 All the reduction efforts
210,000 across the Group result to
184,821.76 185,429.06
190,000
reducing our total carbon
170,000
150,000 footprint.
130,000
110,000
90,000
70,000
50,000
30,000
10,000
2019 2020 2021

Climate Change

The Philippines is a developing country that is vulnerable to climate change. It resulted in

rising sea levels and extreme weather events such as super typhoons, more heavy rains,
more intense heat, prolonged severe droughts, and consequently enormous losses in lives,
livelihoods and properties. The immense impacts of climate change also include annual
losses in GDP, threats to biodiversity and food security, public health risks, and
endangerment of vulnerable groups. Throughout our business, we recognize that climate change is a
daunting challenge to our operations. With the support of our people, we commit to climate action through
the implementation of policies and measures across our operations alongside continuous development and
study of climate responsive measures for the future.

As part of our commitment to finding solutions to climate change, we consistently implement our
sustainability initiatives led by our Asia Brewery Sustainability Program "AMORES" - Asia Brewery
Manufacturing Operations, Resources and Environment Sustainability Team. At Asia Brewery, we initiate
the Manufacturing Continuity Program (MCP) as part of our Business Continuity Plan headed by the
Business Unit and Functional Heads. Our MCP seeks to prepare for and operate after a wide variety of
potential events or incidents, including natural and physical threats, facility threats, technology threats,
operational threats, and social threats. It also includes the prevention, preparedness, response, and
recovery that can reduce employee’s exposure to health and safety risks, operations downtime, and
financial loss. Annually, we conduct a risk assessment review and reporting to our Executive Committee to
report on risks and opportunities posed by climate change that can significantly impact our operations. We
also use Business Impact Analysis to evaluate the effectiveness of our measures to manage climate change.
Our Risk Assessment Categories and Risk Managing Options provide us information on how we can manage
our goals and targets involving climate change. Balancing our contributions to manage climate change
impacts, we plan to shrink wrap (external packaging) our carton boxes and shift to solar energy use.
Likewise, LTG is committed to proactive approach to doing business including the continuous review of our
risks and opportunities including but not limited to the aspect of climate change.

Eton’s climate initiatives are embedded throughout our business policies. To manage the impacts of our
properties, we promote the use of clean and renewable energy in our office buildings in Eton Centris,

SUSTAINABILITY REPORT 2021 47

Quezon City and Eton WestEnd Square through MPower of MERALCO, use of LED lights and variable
refrigerant flow system air conditioning.

At PNB, we see that the climate change directly impacts our customers, the stability of the banking system,
and the overall economy which may eventually contribute to future financial crises and a more challenging
business environment. It is for this reason that we put together a Sustainability Policy and 3-Year
Sustainability Transition Plan in compliance with relevant laws and regulations. The Bank's 3-Year Transition
Plan also includes ESG-related activities that focus on climate change (i.e. qualitative and quantitative
climate scenario analysis, and others). The board oversight on sustainability is currently under the
Corporate Governance Committee, while the risk oversight function with the environment and social (E&S)
risks is with the Board Risk Oversight Committee.

PNB’s enterprise-wide Sustainability Policy includes the Bank's statements on dealing or handling business
clients with high E&S risks, subject to enhanced due diligence and close monitoring. The policy also
reiterated that we will not support or finance illegal businesses or industries that will cause harmful effects
on the environment and society in general.

The policy also states that: (1) the Bank commits to fund or support projects and activities that will
contribute to the achievement of the Sustainable Development Goals (SDGs); (2) the Bank will not support
or involve itself in any business or activity that is illegal and which might cause harm, directly or indirectly,
to people and the environment; (3) the Bank will subject to enhanced due diligence and close monitoring
high-risk businesses and activities that are considered to have harmful effects or negative impacts on the
society and the environment; (4) the Bank will only support existing businesses with high E&S risk levels
provided they have the necessary government approvals and permits, passed the ESG screening of the
Bank, and submitted their mitigation action plans to address environmental and social risks; (5) the Bank
commits to educate its customers and other stakeholder to align them with PNB's sustainability thrusts.
The complete exclusion list and enhanced due diligence list of the Bank are included in the Bank's Board-
approved Sustainability Finance Framework.

Our Incident Management Crisis Resolution Procedure (QMS-IMP-B-P-1000) in Tanduay helps us identify
the climate risks and opportunities that have financial impacts in our operations, such as warehousing
activities. The impending super typhoons or flooding may affect our raw materials, logistics and delivery
time. Consequently, the unavailability of materials may cause price hike and may lead to interruption in our
operations. If we consider these risks, we must maintain a buffer stock for continuous supply of raw
materials. For the opportunities, the costs of these materials may be pegged at a lower price compared to
times after the disaster.

We ensure that we comply with DENR guidelines to ensure that our emissions are within the allowable
threshold values. We continue to invest on the use of alternative diesel fuel such as low-sulfur fuel oil for
some boilers in compliance with local regulatory requirements. Trees can capture carbon and draw down
emissions from the atmosphere. Vital to mitigating climate change impacts, Tanduay undertakes tree-
planting activities as part of our corporate social initiative.

Due to unprecedented challenges of the pandemic which affected the efficiency of our operations, we
moved the mapping and measurement of our CO2 emissions in the beginning of 2022. In 2023, we will
conduct data gathering on our average CO2 emissions. After the completion of this activity, we will
implement CO2 monitoring procedures in 2024 and reduction measures in 2025.

SUSTAINABILITY REPORT 2021 48

At Asian Alcohol Corporation (AAC), one of Tanduay’s subsidiaries, our policies, and programs to address
the impact of climate change is integrated in our Environmental Management Plan (EMP) and the
Emergency Preparedness Response Policy (EPRP). We ensure that our EMP includes emergency
preparedness and response plan following the Environmental Impact Statement (EIS) System. It is also our
priority to equip our emergency response team with the necessary training. The accelerating effects
of climate change drive AAC to transform our business through generating biogas as a replacement to
coal/bunker used in the generation of steam and power required by the operations; producing Bioethanol
as renewable energy; participating on LGU and DENR’s greening programs and managing a Mangrove area
in Patic, Pulupandan. We constantly track and evaluate the effectiveness of our climate change measures
using tools and mechanisms such as GHG emission, EMP, and EPRP.

AAC’s Environmental Impact Assessment identifies climate related risks and mitigating measures and
response procedures in compliance with the company’s Environmental Compliance Certificate (ECC).

Climate change poses risks in our ethanol and alcohol production. The changes in climate conditions affect
the growth of our agricultural raw materials (molasses). Alcohol production is water intensive process and
requires extraction of large volumes of water. Due to scarcity of water and raw materials brought by
changing climate conditions, the cost of production will increase requiring capital for sourcing other sources
of water. Occurrence of flooding may also be observed due to increased rainfall in the area. Significantly,
whether it is direct or indirect (through the value chain), climate change may increase or decrease our
capital and operational costs, demand for product and services, and capital availability and investment
opportunities.

SUSTAINABILITY REPORT 2021 49

Employees
Employees

Employment
Sustainable employment is the enduring, mutually beneficial and purposeful
working engagement between employer and employees wherein the needs of
both parties are clearly defined, balanced and accommodated through a
flexible and adaptive relationship. Our employment and employee welfare
policies are based on labor laws, industry practice and collective bargaining
agreement with rank-and-file employees union. We continuously demonstrate our commitment to creating
a work environment that fosters a sense of community and a fervent desire to serve the greater good. We
remain steadfast in our commitment to gender equality, diversity and inclusion in the workplace.

The Group has hiring, transfers, promotions, employee benefits, resignation, separation, and learning and
development policies. These policies are assessed and updated regularly by Management. We abide by the
provisions of the Labor Code of the Philippines and the General Labor Standards of the Department of Labor
and Employment (DOLE), which conducts regular inspections and evaluations of our adherence to the law
and labor standards.

Our development of the Employee Handbook is in the pipeline, which shall cover policies on vacation, sick
leave, and employment attendance. To be included also are policies and health protocols in response to
COVID-19. Our efforts in COVID-19 response are also complemented by the recently approved business
continuity plan, which is under community quarantine protocols and safety against the coronavirus.

Our Code of Business Conduct and Ethics serves as the principal guide for all Directors, Officers, and
employees of our businesses concerning professional and ethical conduct, consistent with the SEC’s
requirements and industry-recognized standards. Moreover, a Whistle-Blower Policy is incorporated into
the Code, enabling us to ensure that all instances of misconduct and unethical activity can be reported
anonymously and without fear of retaliation. Throughout the Group, we have a grievance procedure that
expeditiously addresses employee grievances, misconduct, disagreements, or controversies involving
covered and non-covered workers.

We enhance our Anti-Sexual Harassment Policy and Whistleblower Policy for the protection of our
employees of all gender by expanding the definition of what constitutes the act of harassment. We also
added anti-retaliation provisions to extend programs, webinars, and even interns through whistleblowing
channels. We continue to update and strengthen these policies to their relevance and make sure they are
well communicated.

We take our commitment to support gender equality and inclusion to the next level by renewing our
membership with the Philippine Business Coalition for Women (PBCWE) and signing the UN Women
Empowerment Principles (UN WEP) organized by the UN Women Asia and the Pacific and Women Business
Council Philippines March 31, 2021. Launched in 2010 by UN Women and UN Global Compact, the Women
Empowerment Principles or WEPs is a roadmap to business sustainability and growth. It is a framework of
seven principles that guide companies to promote transformative change towards gender equality and
women empowerment in the workplace, marketplace, and community. These principles will guide

SUSTAINABILITY REPORT 2021 50

companies in evaluating and assessing their policies, projects, and practices and identifying areas for
improvement.

Our gender equality and diversity and inclusion (D&I) practices remain strong as a Group, with women
accounting for much of our combined workforce. In 2021, we had 12,951 employees, of which 6,790 are
women, which comprise around 52.43% of the total workforce. Of our 819 new hires, 314 are women. The
current employee turnover rate is 8.06%, while our hiring rate is 6.32%.

On November 22, 2021, PNB and other representatives from Vietnam, Indonesia, & Myanmar shared
stories, programs, and experiences on how Gender Equality is advancing in their respective workplaces.
The program formed part of the 2021 ADB Asia and the Pacific Virtual Gender Forum. This development
came on the heels of the Bank’s recent recognition from Asia money as ‘Leader for Women’ in 2020 and
2021 and from LinkedIn as ‘Best Company for Professionals to Grow their Careers’ for 2021. In October
2021, we were honored by a joint program of the European Union and UN Women as Champion for
Transparency and Reporting in the UN Women 2021 Philippines Women’s Empowerment Principles (WEPs)
Awards for including gender data and indicators in our reporting.

We hope to go further and improve our gender equality and inclusion policies and practices and align with
global standards such as the Sustainable Development Goals on Gender Equality and the UN Women
Empowerment Principles. We hope to integrate gender equality and inclusion principles in our business
and operations by using a gender lens in financing projects and businesses of clients.

Total number of Number of employees by

employees gender
14,000 12,951
13,169 14,000
12,388
12,000 7,019
12,000 6,790
6,600
10,000 10,000

8,000 8,000

6,000
6,000
5,788 6,150 6,161
4,000
4,000
2,000
2,000
0
0 2019 2020 2021
2019 2020 2021
Male Female

SUSTAINABILITY REPORT 2021 51

 NUMBER OF EMPLOYEES BY AGE GROUP AND GENDER
Gender & Age 2019 Total 2020 Total 2021 Total
Male
Under 30 1,691 1,736 1,585
30 to 50 3,349 3,636 3,737
Over 50 748 778 8,39
Female
Under 30 2,235 2,260 1,963
30 to 50 3,202 3,638 3,656
Over 50 1,163 1,121 1,171
Total 12,388 13,169 12,951

Total number of new NEW HIRES BY AGE GROUP

AGE GROUP 2019 2020 2021
hires UNDER 30 1,142 644 471
30 TO 50 456 609 322
1,800
OVER 50 27 61 26
1,625 TOTAL NUMBER OF NEW HIRES 1,625 1,314 819
1,600

1,400
NEW HIRES BY GENDER
1,314 GENDER 2019 2020 2021
MALE 1,007 581 505
1,200
FEMALE 618 718 314
TOTAL NUMBER OF NEW
1,625 1314 819
1,000 HIRES
RATE OF NEW HIRES (%) 13.12% 9.98% 6.32%
819
800

NEW HIRES BY REGION

600 REGION 2019 2020 2021
LUZON 1,360 1160 685
400 VISAYAS 113 51 54
MINDANAO 152 88 80
TOTAL NEW HIRES 1,625 1314 819
200

0
2019 2020 2021

SUSTAINABILITY REPORT 2021 52

Employment by Category/ Rank6

Number of employees by employment category/rank

(LTG, Asia Brewery, Eton & Tanduay only)
3,500
3,035 3,166
3,000 2,735
2,500
2,000
1,500
1,000 749 711 733
500 244 220 235 132 161
110
-
Rank and File Supervisors Managers Officers

2019 2020 2021

Number of employees
by employment category/rank Total number of
(for PNB only)6 employee turnovers
10,000 1,400

9,000 454
468 456 1,200 1,148
8,000
1,044
7,000 1,000
4,237
6,000 3,850 4,188

5,000 800 772

4,000
600
3,000

2,000 4,232 4,380 4,012 400

1,000
200
0
2019 2020 2021
0
Rank and File Managers Officers 2019 2020 2021

6
PNB’s employee breakdown by category has been separated from the Group-wide figures as PNB has no
corresponding rank for the Supervisor category.

SUSTAINABILITY REPORT 2021 53

EMPLOYEE TURNOVER BY GENDER EMPLOYEE TURNOVER BY AGE
GENDER 2019 2020 2021 AGE GROUP 2019 2020 2021
MALE 667 370 491
UNDER 30 YEARS
FEMALE 481 402 553 509 322 423
OLD
TOTAL TURNOVER 1,148 772 1,044
RATE OF TURNOVER (%) 9.27% 5.86% 8.06% 30 TO 50 YEARS
458 280 409
OLD
OVER 50 YEARS
EMPLOYEE TURNOVER BY REGION 181 170 212
OLD
REGION 2019 2020 2021
TOTAL
LUZON 972 656 873 1,148 772 1,044
TURNOVER
VISAYAS 111 50 72
MINDANAO 65 66 99
TOTAL TURNOVER 1,148 772 1,044

NUMBER OF EMPLOYEES AVAILING PARENTAL LEAVES

GENDER 2019 2020 2021
MALE
EMPLOYEES ENTITLED TO PARENTAL LEAVE 491 657 769
EMPLOYEES AVAILING 41 36 26
OF PARENTAL LEAVE
FEMALE
EMPLOYEES ENTITLED TO PARENTAL LEAVE 305 330 360
EMPLOYEES AVAILING OF PARENTAL LEAVE 185 154 163

NUMBER OF EMPLOYEES RETURNING TO WORK AFTER PARENTAL LEAVE

GENDER 2019 2020 2021
MALE
EMPLOYEES DUE TO RETURN AFTER PARENTAL LEAVE 39 36 26
EMPLOYEES THAT RETURNED TO WORK AFTER PARENTAL 39 36 26
LEAVE
RETURN TO WORK RATE (%) 100% 100% 100%
FEMALE
EMPLOYEES DUE TO RETURN AFTER PARENTAL LEAVE 173 147 159
EMPLOYEES THAT RETURNED TO WORK AFTER PARENTAL 173 147 159
LEAVE
RETURN TO WORK RATE (%) 100% 100% 100%

NUMBER OF EMPLOYEES RETURNING TO WORK FROM PARENTAL LEAVE STILL EMPLOYED 12

MONTHS AFTER RETURN
GENDER 2019 2020 2021
MALE
EMPLOYEES RETURNING FROM PARENTAL LEAVE IN PRIOR PERIODS 16 23 22
EMPLOYEES RETAINED 12 MONTHS AFTER RETURNING TO WORK 23 22
16
FOLLOWING PARENTAL LEAVE
RETENTION RATE (%) 100% 100% 100%
FEMALE
EMPLOYEES RETURNING FROM PARENTAL LEAVE IN PRIOR PERIODS 166 140 150
EMPLOYEES RETAINED 12 MONTHS AFTER RETURNING TO WORK 140 150
166
FOLLOWING PARENTAL LEAVE
RETENTION RATE (%) 100% 100% 100%

SUSTAINABILITY REPORT 2021 54

Safety and Well-being

The safety and well-being of our employees is of the utmost importance to our
organization. We provide our staff with a safe and secure working environment
so that they may continue their daily operations despite global business
disruptions. Consequently, we can ensure that our employees have stable
employment and that their families live in safe and healthy environments.

As part of our commitment to excellent corporate governance and compliance with DOLE regulations, our
policies regarding the health, safety, and welfare of our employees are designed to protect each employee's
rights and access to humane working conditions. We conduct regular reviews and evaluations of these
policies to assess the effectiveness and implement updates when needed. Occupational safety and health
committees regularly meet throughout the Group to manage work-related hazards, including investigation
and incident reporting. DOLE’s guidelines on the Notification and Keeping of Records of Accidents and
Occupational Illnesses (Rule 1050, Occupational Safety and Health Standards, As Amended 1989, DOLE)
guide the said reporting of the Group. We also ensure that we cover our employees across the Group by a
healthcare plan covering occupational health services.

To raise continuous awareness on Occupational Safety and Health (OSH), we conduct regular training
programs across the Group through our respective subsidiaries’ Safety Officers, health providers,
government agency partners, and third-party providers. As part of our ongoing response to the ongoing
pandemic, we have implemented the following measures: safety protocols like wearing masks, using
alcohol, social distancing, and others for employees required to report to work in the office; skeletal work
arrangements for those needed to report to work with the provision of a shuttle/service; a daily health
check questionnaire for those working from home; and providing the full round of COVID-19 vaccines for
our employees and third parties for free, including booster shots which are currently underway.

Across the Group, we provide Health Maintenance Organization (HMO) coverage to facilitate our
employees’ access to non-occupational medical and healthcare services. This enables our employees’
access to medical clinics, doctors and nurses for in-person or teleconsultations. We also continue to send
and promote infographics and health tips/protocols. This is constantly done to keep personnel informed of
the latest Department of Health announcements, standards and processes. Additionally, we promote
mental health and stress management on a periodic basis via email-based publications.

Our subsidiaries implement a system and process for employees to report work-related hazards and
hazardous situations. Asia Brewery identifies work-related risks through unsafe acts and unsafe conditions
from near-miss reports. On the other hand, our employees at Eton are being encouraged to report
dangerous conditions and actions, including health and safety policy violators. PNB created an Occupational
Safety, Health, and Family Welfare Committee (OSHFWC) in compliance with the requirements of the law.
OSHFWC has been active for the past years in assisting PNB in health and safety measures and protocols
amid the COVID-19 Pandemic. We also elevate any reports on work hazards from HRG subject to formal
reportorial requirements and an agenda item during OSHFWC meetings. Our Safety Officers at Tanduay are
always available to receive reports regarding unsafe acts and conditions. We conduct investigations after
we receive reports through multiple channels. In addition to this, we have placed DOLE hotlines in
noticeable areas for easier access. During the mandatory seminar, all officers and employees have been
made aware of unsafe reporting, and hazardous conditions are covered by an anti-retaliation policy, as per
DOLE policy.

SUSTAINABILITY REPORT 2021 55

At Eton, we continue to conduct trainings on OSH, Basic Occupational Safety and Health (BOSH), and
Construction Safety and Health (COSH). In our property management offices, we have implemented a work
permitting system with a job hazard analysis in compliance with DOLE requirements and occupational
safety and health standards as reflected in our Group-wide policy. We have OSH physicians and nurses at
our sites, while Emergency Medical Services (EMS) with ambulatory services are available for our site
offices. Our OSH physician and nurses conducting health info-sessions, and employees can access health
care services through them.

At PNB, our Occupational Safety, Health, and Family Welfare Committee (OSHFWC) has been spearheading
the implementation of health and safety measures and protocols in our banking business. With their
efforts, a recent inspection by DOLE has shown that we are compliant with OSH standards, which include a
Fire Safety Inspection Certificate (FSIC). Extensive training is provided to our employees for accreditation
as first aiders and safety officers. We also have a Family Welfare Program through DOLE which provided an
orientation seminar last June 2021.

In 2021, we did not record any instances of high-consequence work-related injuries.7 We will continue to
intensify our efforts to ensure health and safety in the workplace to maintain this record in the next
reporting period.

2019 2020 2021

OHS Management System
Number of % Number of % Number of %
coverage
employees employees employees
Covered by occupational health and safety management system
Regular employees 9,265 75 9,561 73 9,415 73
Contract workers8 360 100 258 94 213 98
Covered by occupational health and safety management system that has been internally audited
Regular employees 8,850 96 9,163 96 8,962 95
Contract workers 360 100 258 100 213 100
Covered by occupational health and safety management system that has been audited or certified by an external party
Regular employees 8,610 97 9,073 99 0
Contract workers - - - - - -

2019 2020 2021

Work-related injuries Number Rate Number Rate Number Rate
of cases of cases of cases
For regular employees
Fatalities as a result of work-related injuries - - - - - -
High-consequence work-related injuries (excluding - - - - - -
fatalities)
Recordable work-related injuries 49 5.82 28 3.13 27 2.42
Number of hours worked (hours) 8,413,664.10 8,933,465 11,153,077
For contract workers
Fatalities as a result of work-related injury - - - - - -
High-consequence work-related injuries (excluding - - - - - -
fatalities)
Recordable work-related injuries 15 5.49 17 4.76 17 3.31
Number of hours worked (hours) 2,730,632 3,572,376 5,128,914

7
A high-consequence work-related injury is a work-related injury that results in a fatality or in an injury from which
the worker cannot, does not, or is not expected to recover fully to pre-injury health status within 6 months.

8
Contract workers are not employees of the organization but whose work and/or workplace is controlled by the
organization.

SUSTAINABILITY REPORT 2021 56

Customers
Customers

Marketing and Labeling

Trust is essential to everything that we do. Our strict adherence in observing fair and
responsible marketing practices through transparent and readily accessible information for
our brands and services is a testament to our commitment to serving the 'informed
consumer' as we look to new ways for improvement.

Asia Brewery's New Product Development (NPD), Manufacturing Change Control (MCC), and Stock Aging
Management (SAM) continue to guide our beverages business when introducing, managing, executing, and
implementing changes in raw materials, packaging, operations, promotional activities, and product
campaigns of our products. These policies enable us to cover different aspects of how we market and label
our products to consumers at different stages including information on sourcing, content, safe use, and
proper disposal. These policies also help ensure our compliance with the guidelines set by the Philippine
Food and Drug Administration (FDA), the Philippine Ad Standards Council (ASC), and the Department of
Trade and Industry (DTI).

At Eton, our Marketing team serves as our brand guardians in our property development business. They
continue to ensure that all our marketing-related materials are aligned with our branding guidelines and
are compliant with all applicable laws and regulations as set by DHSUD (formerly HLURB) and DTI, among
others. We review our branding guidelines on a regular basis to reflect emerging trends in industry branding
and to ensure that our brand logos and product names are duly registered with the Intellectual Property
Office of the Philippines (IPO).

At PNB, our brand playbook remains to be our primary guide for marketing and brand management in our
banking business, alongside Group-wide policies we adopt, as approved by our Board Strategy and Policy
Committee. Our Social Media Framework is also in place to help us manage reputational risk within our
social media platforms. We continue to ensure that all our marketing tools have undergone internal reviews
and have the necessary permits from regulators.

Our Brand Guidance Policy at Tanduay remains to be our main guide for branding in our distilled spirits
business. Together with our Quality Policy and Quality Management System (QMS), we continue to ensure
that all mandatory requirements set by regulatory bodies such as the ASC, the IPO, and the FDA are met
including those of importing countries. Throughout the year, we conduct regular product assessments and
evaluations to maintain the highest levels of compliance and to be able to look for new and innovative ways
in strengthening brand equity in existing and emerging markets.

In 2021, we have recorded zero incidents of non-compliance with laws and regulations on marketing and
labeling. Our commitment to fair and responsible marketing practices remains firm and we hope to
maintain this in future periods.

SUSTAINABILITY REPORT 2021 57

Customer Health and Safety

As one of our top priorities, we continue to uphold the highest possible

standards in customer health and safety. By observing the highest quality and
safety standards, we ensure that all our products and services are safe and
positively contribute to the sustainable lifestyles of our customers.

ABI’s Food Safety and Quality Policy is our principal guideline to ensure customer health and safety through
food safety, quality excellence, and continual improvement in our beverages business. Our Food Safety and
Quality Management System adheres to international standards and local rules on food safety and quality
management. The policy is reviewed annually for continuing stability and applicability to our business goals
and objectives. We continuously improve and assess the policy's effectiveness through analysis of our goals
and objectives, customer feedback, and maintenance of management systems via third-party certification
agencies. Our overall commitment follows local and international customer standard requirements as set
by the FDA, the National Sanitation Foundation (NSF), and the IBWA as well as our continued compliance
with our ISO 9001:2015 Quality Management System and Halal certification.

At Eton, we have already started implementation of our newly created Safety and Security Manual. With
our Environment, Health, Safety and Security (EHSS) Committee at the helm, our property development
business takes on the challenge of raising the standard in safety and security as we brace forward to a post-
pandemic society. We continue to ensure that our employees complete needed trainings and have access
to healthcare coverage and vaccinations, alongside their families, to ensure that both them and our
customers are equally protected and safe. We maintain safety seals certified by local government units in
our commercial properties and we continue to strictly implement all necessary health precautionary
measures.

At Tanduay, our Quality Policy and Quality Management System (QMS) continue to help ensure that quality
products are free from harmful agents for our customers. Our distilled spirits business guarantees safety
for our customers by adhering to a number of quality and satisfaction indices including the Liquid Quality
Index, Package Quality Index, and Customer Service Index. We also strictly adhere to the policies set out by
the FDA.

In 2021, we recorded zero incidents of non-compliance with regulations on customer health and safety.
We continue to reinforce our commitment to ensuring customer health and safety across all our products
and services and we will do our best to maintain zero cases in the next reporting period.

Customer Engagement and Satisfaction

Our businesses provide a wide range of services and products that impact the lives of Filipinos. One of the
cornerstones of our operations is the overall satisfaction of our customers as we pay close attention to the
markets we serve and understand and continuously adapt to our customers' changing needs.

At Asia Brewery, we center our efforts at meeting customer satisfaction and stakeholder expectations
primarily in food safety, quality excellence and continuous improvement through our Food Safety and
Quality Policy, which we review annually to adapt to our goals and objectives as informed by stakeholder
engagement and customer feedback alongside regular reviews of our management systems by third-party

SUSTAINABILITY REPORT 2021 58

certification bodies. Additionally, we also conduct complaint validation and corrective action management
for all noted customer concerns.

Eton's mission and vision statement serve as our main guide in dealing with clients. We have policies and
procedures in handling customer requests based on real estate industry practices and applicable laws. Our
Customer Support team handles existing client concerns, while our Property Management Group handles
on-site servicing. We ensure that the processing of client requests is resolved no more than 45 days. In
2021, we continued gathering service feedback from our existing property owners and residential leasing
clients through online and written surveys which provided us information on our clients’ satisfaction and
specific needs.

At PNB, we adhere to the highest service standards and uphold a culture of fair and responsible dealings in
the conduct of its business through ethical business practices. To promote quality-driven culture, PNB has
programs across all client touchpoints – from account opening to administration and termination- that
guarantee customer engagement and satisfaction.

Our dedicated Customer Experience Division (CED) implements a Consumer Protection Policy in response
to the feedback mechanism requirement of BSP Circular No. 1048 (Financial Consumer Protection). The
CED also rolled out the “After Call Survey for 8573-8888” project, which allows us to quantitatively measure
our Customer Service Representatives’ service delivery and Net Promoter Score. The result of the survey
forms part of the monthly scorecard of the employees. Our Consumer Assistance Management System also
provides channels to our customers to report grievances. We consolidate complaints and report monthly
to Management and Risk Management Committee and quarterly to the BSP.

Our Retail Banking Sector has geared its improvement activities towards customer engagement and
satisfaction, enabling clients to open an account and update their records without going to the branch. We
have also ensured that customers can now receive SMS and electronic mail notifications for over-the-
counter debit transactions amounting to Php10,000.00 and above. We also measure our client satisfaction
through our monthly customer complaints report which provides us quantitative information on the
complaints we receive.

Our Institutional and Global Banking Sector maintains good relationship with customers by providing value-
creating services and ensuring all needs and concerns are addressed. We are in constant dialogue with our
customers through regular meetings where relevant matters are discussed including digitalization,
innovative and competitive solutions and pricing, delivery channels, supply chain finance, industry outlook,
macro-economic outlook, and opportunities for synergy. We also organize customer events including
roundtable discussions on megatrends like building Environmental, Social and Governance (ESG) awareness
and capacity building. Amidst the challenges of pandemic, we continuously communicate with our clients
through various means such as phone calls, email, MS Teams, Zoom, among others.

While all our PNB sectors have their respective goals and targets, the uniform goal is to consistently serve
all clients well. We continuously aim to ensure the longevity of our relationship with our customers to
increase customer engagement measured by positive feedback and increased client business flows.

At Tanduay, we remain committed to deliver exceptional service to all customers. In our efforts to
continually raise the standard of our service, we strictly comply with our policies and procedures related to
complaints handling as well as constant engagement with our customers using our social media and

SUSTAINABILITY REPORT 2021 59

marketing promotions. We also build trust and nurture relationships between our salespeople and
customers throughout the year.

Digital Transformation and Innovation

Over the years, digital transformation has been an important agenda for every large
corporation. Across the Group, we understand the importance of creating strategic and
organizational capabilities that can enable us to compete successfully in the digital game.
We acknowledge the need to innovate and give our stakeholders the convenience of digital
services. We also commit to streamlining the way we work as we use unified email and
online collaboration systems that allow our people the flexibility to work on-site or from home, thereby,
ensuring continued operations.

At LTG, we have already completed the computerization of our accounting system, in compliance with BIR
regulatory guidelines. We have also moved most of our seminars and meetings to digital platforms to
ensure that mandatory events are completed on time, maximizing the use of our available digital tools. Our
journey towards digital transformation has also helped us organize our Vaccination Program for the entire
conglomerate—from planning to implementation and data analysis. For 2022, we will prioritize the drafting
of policy and procedures to manage and embed digital transformation and innovations into our operations.

As Asia Brewery moves towards centralized reporting, our business process automation team works to
continuously create innovation to automate our workflow. This will allow us to drive business analytics
forward allowing for a dynamic approach to management. Our aim is to allow our people the ability to carry
out their duties, whether at home or on-site, which would enable the least amount of disruption to our
operations and high levels of protection for our people in the age of COVID-19.

At Eton, we have completed the implementation of our Property Management System, which allows us to
digitally manage our property portfolio. This enables for more efficient operations that would greatly
benefit our customers. Alongside this, we have also implemented improvements to our cybersecurity
infrastructure to ensure that information about our business and clients are secured and protected.

We continue to improve our ways in PNB through our Transformation Journey that outlines the roadmap
towards modernization in People and Culture, Digital Infrastructure, Applications, and Transformation
Governance. Our Bank adheres to the BSP Policy on Electronic Banking and Financial Services and related
regulations such as Guidelines on Electronic Payments, Operations on Payment Systems, and Consumer
Protection. We aligned with the BSP Digital Payment Transformation Roadmap, which operates under the
National Retail Payment System (NRPS).

We also participate in the InstaPay and PESONet interbank fund transfer ecosystem and is also on track to
engage in the other NRPS services, including Person to Merchant and Person to Business payment streams.
Another BSP framework that our Bank participates in is the Open Finance Framework, where financial
institutions can share data with the consent of their customers to optimize services in the areas of Product
and Service Information, Account Onboarding, and Account and Transaction Information.

As of December 2021, we have a total of 1,586 automated teller machines (ATMs), 165 cash accept
machines (CAMs), and 6,603 point-of-sales (POS) terminals for the 24-hour banking convenience of our

SUSTAINABILITY REPORT 2021 60

customers. We increased the number of our ATMs and CAMs to make it easy and fast for our customers to
access their funds. We reduced the number of our POS terminals as the pandemic impacted the businesses
of our clients.

  2019 2020 2021

ATMs 1,577 1,578 1,586
CAMs 81 144 165
POS Terminals 100 7,120 6,603
Source: Digital Innovations Group, PNB

We continue to automate our Bank forms, shift our customers to e-SOA, and migrate our existing customers
to the Bank’s digital channels. As of December 2021, we have increased the number of our enrolled digital
users by 8 percent from the same period last year.

Digital Banking % Inc./Dec.

(Mobile and Internet) 2019 2020 2021 (CY2021 vs. CY2020)
Enrolled Users    528,146    749,564    805,906 8%
New Enrollments    188,813    221,418      56,342 -75%

We launched a new mobile banking platform called “PNB Digital” in February 2021, intending to improve
user experience. Our PNB Digital App’s initial roll-out offers mobile banking app users the most used. These
include viewing account balances and transaction history, fund transfer between PNB accounts and other
local banks with an option to transfer via an account QR Code, and bill payment to common utilities and
credit cards. These most frequently used features are presented through an intuitive and updated user
interface.

Our drive to undergo digital transformation and the need to ensure that the security controls are in place
in the system made cyber security management a major business imperative for us. As such, we have taken
great measures to strengthen the security features of our Digital App with the introduction of PNB Mobile
Key for both login and transactions.

In addition, our Bank plans to leverage the inherent security advantages of our digital mobile app to address
recent exposure to phishing incidents involving the Bank’s internet banking system. As a result of this
initiative, core payments and transfer functions (e.g., InstaPay, PESONet, bills payment, and intrabank fund
transfers) will only be available on the mobile app. At the same time, the internet banking facility will be
rebranded as an account inquiry, investment, and acquisition portal for UITF customers and applications
for credit card products.

We also continue to raise awareness and educate our customers to make them cyber-secure through the
release of email advisories and our different social media platforms.   

At Tanduay, alongside our implementation of the Enterprise Resource Planning system, we continue to look
at more avenues for digital transformation to better serve our customers.

SUSTAINABILITY REPORT 2021 61

Customer Data Privacy and Security

Our commitment to ensuring the protection of customer data remains robust. Our Group-
wide Data Privacy Policy, compliant with the Data Privacy Act of 2012 and professional
standards, contains our framework for collecting, storing and processing personal data from
an individual. This policy details the measures on how we responsibly use information and
how we implement security features and restrictions for enhanced data security and
continued protection. The policy is subjected to an independent review and evaluation by our Internal Audit
within its 3-year risk-based cycle. Our Group’s Data Privacy Officer (DPO) leads our efforts in protecting
customer data privacy and security and is responsible for our compliance to relevant privacy and protection
requirements. Our Data Privacy Manual is also available on our website for perusal of both our internal and
external stakeholders.

At Asia Brewery, our Data Classification Policy is already ongoing review and is expected to be adopted in
2022. This policy will apply to all data or information created, collected, stored, or processed by our
beverages business in both electronic and non-electronic formats. To ensure appropriate action in
minimizing associated risks in the event of a data breach or an information security incident, our Incident
Management Policy and our Information Security Incident Policy and Procedure are in place which utilizes
various information systems in compliance with relevant statutory, legal, and contractual requirements.

At Eton, we continue to review and evaluate our Data Privacy Manual to address emerging issues on
security and privacy in our property business. Our Data Protection Officer works closely with our Legal
Department and leads our efforts at ensuring that our employees are aware of and compliant with all data
privacy and security policies and regulations, that all data privacy concerns are resolved in a timely manner,
and that all required documentation obtained from our clients are handled responsibly.

At PNB, our Enterprise Data Privacy Policy features our framework for ensuring that customer data remains
safe and protected in our banking business. Our Data Privacy and Technology Risk Management Division
(DPTRMD), led by our DPO, spearheads our efforts in upholding data privacy standards and procedures by
providing trainings on data privacy, information and cyber security, and other relevant topics as part of our
learning and development programs. Our Data Privacy Manual for PNB Overseas branches is also in place
to ensure overseas branches' compliance with applicable data privacy legislation in their respective areas
of operation.

SUSTAINABILITY REPORT 2021 62

Society
Society

Community Relations and Initiatives

At the heart of what we do, we strive to create shared value and

make a positive difference in the lives of those around us. We
believe that true success empowers others to live better lives and
have a greater sense of purpose. This transformation is made
possible through the Tan Yan Kee Foundation, Inc. (TYKFI), the
Group’s primary corporate social responsibility (CSR) arm. TYKFI allows us to
pursue and advocate for health services, education, social welfare and the
environment for close to 35 years. The partner of TYKFI is mainly composed of
our subsidiaries which support the organization’s programs and other social
initiatives and conduct activities that directly help communities and support government initiatives.

The COVID-19 pandemic has affected people across the world, and the Philippines is one of the worst-hit
countries. The virus has claimed the lives of thousands of Filipinos and drastically affected the country's
economic growth. To lessen the impact of the virus and contribute to the recovery of the nation, we have
extended assistance to local communities whenever opportunities arise. Despite the face-to-face limits
enforced by IATF, lockdowns and social distancing measures, the long-term scholarship program, pocket
livelihood projects, and donation programs continue. Through our continued Anti COVID-19 Campaign,
LTG, TYKFI and the larger Group augmented government efforts in response to the COVID-19 pandemic
through vaccination projects and medical supplies donations, which benefited our employees and various
communities and public health institutions nationwide. As of November 2021, we have donated over
42,000 doses of COVID-19 vaccines to different communities nationwide. With TYKFI at the helm, we are
also able to vaccinate 357 employees from our sister companies in collaboration with project partners, the
Zuellig Pharma medical team and the Philippine National Red Cross. TYKFI also donated medical supplies to
Ospital ng Maynila and Sta. Ana Hospital. The donation to each hospital included 15 gallons of alcohol,
7,500 pieces of disposable face masks, 1,750 pairs of examination gloves, 15 thermometers, and 10 boxes
of Lola Remedios® Food Supplement Syrup. We also were able to distribute over 150 sacks of rice to
quarantined families and residents of Sta. Fe, Nueva Vizcaya.

We remain committed to enabling access to equitable education opportunities for deserving students, skills
upgrading for educators and professionals, and activities that foster social cohesion through the various
scholarships and education activities we maintain, which include the following:
• Our TYKFI College Scholarship Project, specifically designed for students of Agriculture and
Forestry, currently has five (5) new scholars studying forestry at the University of the Philippines
Los Baños (UPLB) and six (6) continuing scholars studying agriculture and agricultural engineering
at the Nueva Vizcaya State University.
• The UE-TYKFI Scholarship Program, a partnership between TYKFI and the University of the East
granting academic scholarships for deserving college students, has benefited over 1,500 scholars
in over 23 school years. In 2021, we had 91 continuing scholars and two (2) grantees under the
program.

SUSTAINABILITY REPORT 2021 63

 • Providing free private school education for deserving high school students from marginalized
farming families in Sta. Teresita’s Academy in Aritao, Nueva Vizcaya, the TYKFI-STA Scholarship
Program for Farmers’ Children currently has 142 scholars from grades 7 to 12.
• Launched in 2016 in partnership with the Foundation for Liberty and Prosperity (FLP), the TYKFI-
FLP Legal Scholarship Program for selected junior and senior year law students who are at the top
of their class currently has 21 scholars across various law schools in the country.
• TYKFI together with Asia Brewery continues its Medical Specialty Scholarship Program to help
Filipino doctors finish specialty training abroad with one (1) doctor finishing the program in 2021.
• We also continued our regular school supplies distribution and food distribution projects. In 2021,
our School Supplies Distribution Project distributed 19 printing machines, 172 bottles of ink, and
500 reams of bond paper to five (5) elementary schools in the provinces of Ilocos Sur and Nueva
Vizcaya benefiting around 800 schoolchildren. Our Food Distribution Project extended over 16,895
kilograms of free rice to the families of 1,117 pupils and teachers from adopted schools in Nueva
Vizcaya.
• The Tan Yan Kee Library continues to conduct online classes and virtual information dissemination
activities through the Tank Yan Kee Library Online Summer Class. We held online summer classes
from May to June which benefited 30 children and their parents. The videos we sent on COVID-19,
healthy habits, and various other subjects designed for children aged three to 12 years also remain
accessible through our social media platforms including Facebook.

We have also continued our programs and projects to promote social welfare with the help of our partners,
keeping true to our commitment of helping develop communities and improving quality of life, protecting
biodiversity and the environment, and being of aid to those in need. Our activities this year included the
following:
• TYKFI’s Food Security Program and the TYKFI-Eton Masaganang Palayan Project help address the
issue of food security in the country and support the government’s thrust to curb it. We are able
to provide livelihood opportunities for farmers and market vendors and at the same time provide
training and wellness programs. In 2021, we distributed Palay seeds and fertilizer to farms in Aritao
Nueva Vizcaya. We were also able to harvest around 30,000 kilograms of vegetables and conducted
over 40 weekly operations which linked farm-fresh produce from our farmers and partner farms
reaching over 500 employees and their families and thousands of other customers.
• To foster community and equitable access to food, TYKFI, in partnership with Philippine Airlines,
held community pantries for our outsourced service personnel, residents and COVID-19 patients
confined at the Hospicio de San Jose. We were able to distribute over 234 kilograms of vegetables,
275 kilograms of rice, and 30 boxes of Lola Remedios® Food Supplement Syrup. In collaboration
with Asia Brewery, Allianz PNB Life Insurance, Inc., Eton, and PNB, also conducted a food security
response activity for outsourced personnel working across the Group which enabled them to
purchase affordable food packs at Php 20 a bundle.
• Through the Dr. Lucio C. Tan Legacy Forest Project, our flagship reforestation program in
partnership with PMFTC covering Barangay R.A. Padilla in Carranglan, Nueva Ecija and the UPLB
Laguna-Quezon Land Grant (LQLG), we were able to plant 77,748 seedlings of Alibangbang, Narra,
and Sampaloc this year. We were also able to start planting around 3,000 seedlings of Falcata in
Tanay, Rizal.
• We also maintain a number of agroforestry projects. At our Fortune Farm in Carranglan, Nueva
Ecija, we continue to plant assorted vegetables, crops and fruit trees.

SUSTAINABILITY REPORT 2021 64

 • This year, we also continued with our Mangrove Rehabilitation Projects in Barangay Las-Ud in Santa
Cruz, Ilocos Sur and in Boracay, Aklan providing livelihood for farmers, fishermen and their families
by planting and maintaining mangroves in their respective areas.
• Through our HOPE Caravan, we were able to respond to various needs by different communities
all over the country. In partnership with MacroAsia Corporation and PNB, we were able to
distribute over 30,000 food packs and 13,000 liters of beverages to frontliners and patients across
seven (7) hospitals in Metro Manila. We were also able to distribute food packs and water to over
4,000 families in Marikina, Quezon City, and Nueva Vizcaya during the onslaught of Typhoon
Ulysses. In collaboration with Tanduay, we were able to distribute over 500 bottles of water and
150 pieces of cooking ware to residents of Tagbilaran, Bohol as part of our early response efforts
to Typhoon Odette.
• The TYKFI-Eton Joint Housing Assistance Project completed the construction and turnover of four
(4) houses for the farming families of four (4) scholars under the TYKFI-STA Scholarship Project in
Aritao, Nueva Vizcaya.

At Asia Brewery, our Asia Brewery Manufacturing Operations Resources & Environment Sustainability
(AMORES) project continues to lead our sustainable initiatives at our beverages business. We have
partnered with WWF in their Philippines’ flagship program, “Corporates for a Better Planet Initiative,” which
aims to provide an actionable framework for organizations to operate sustainably within the paradigm of
the climate crisis. The program has a three to four-month implementation process that is expected to yield
a Scenario Analysis Report for the Science Based Targets initiative (SBTi) and Initial Sustainability
Assessments.

At Eton, efforts for 2021 are a combination of direct initiatives as an integral part of nation-building and
continuing efforts of goodwill coursed through TYKFI. Our commitment to sustaining the livelihood of the
farmers whom we supported through the “Masaganang Palayan Project” in the last two years have also
aligned us with the communities in which our businesses operate. Since May 2021, we have changed our
events venue, Centris Elements in Eton Centris, Quezon City, into a vaccination facility to aid the local
government in inoculating the majority of its population to expedite the return to normalcy and support
the recovery of the national economy.

As we expand, we make certain that no one is left behind. In addition, we have formed a partnership with
the Bureau of Corrections and the art gallery Puesto Manila to provide artists-in-prison with a platform to
display their work. We have put their artworks on display at our properties to attract a wider audience.
Together with TYKFI, we conducted an outreach program in Hospicio de San Jose to give rice from
the “Masaganang Palayan Project” and fresh produce from the Lucio Tan Legacy Forest Project.

The commitment of PNB is driven by the Bank’s aspirations to make a positive contribution to sustainability
efforts and agenda. As proof of its commitment to embedding sustainability in its business DNA, PNB
recently developed its sustainability policy statement and 3-Year Sustainability Transition Plan. The Bank
believes that sustainability starts from within by helping its employees gain access to relevant training to
build skills and capabilities that are critical to success. In addition to its commitments to its employees, the
Bank’s sustainability policy also includes its obligations to its customers/clients, external communities,
vendors/suppliers, outsourced personnel and Third-Party Service Providers, shareholders, regulators, and
even to the environment. The Bank commits to educating its internal and external stakeholders and
encouraging them to align with PNB’s sustainability thrust and performance standards through this

SUSTAINABILITY REPORT 2021 65

policy. For a complete list of our initiatives at PNB which focus on the economy, environment, and society,
please refer to the 2021 PNB Annual Report.

At Tanduay, we continue our partnership with Dualtech Training Center to train their students for 18
months, under the Technical Education and Skills Development Authority ’s (TESDA) dual training system.
As part of DENR’s National Greening Program under the Tayo ang Kalikasan (TAK) platform, Tanduay
subsidiary ADI continues to maintain our adopted five (5) hectares of upland plantation in Barangay Puting
Kahoy in Lian, Batangas for restoration, rehabilitation, and development. ADI has also adopted a portion of
the Palico-Lian River under DENR’s Adopt-an-Estero/Waterbody Program and continued our Tilapia
Fingerlings Dispersal project in the Palico-Lian riverbank to help improve marine ecosystems and promote
the livelihood of local communities. We also continue to give farmers in Lian, Batangas and neighboring
towns free access to our distillery effluent from our distillery for use as fertilizer, which ADI delivers to their
fields through trucks. We were also able to donate rubbing alcohol and provide assistance to community
disinfection efforts of the LGU and larger community of Lian, Batangas.

Community Relations and Initiatives 2019 2020 2021 In 2021, despite the
(Group) challenging circumstances
Total number of operations with 66 38 55 faced by the Group and our
implemented local community businesses, 67% of our local
engagement, impact assessments and/or operations continued to
development programs implement community
Total number of operations 74 57 82 initiatives.
Percentage of operations with 89% 67% 67%
implemented local community
engagement, impact assessments and/or
development programs

SUSTAINABILITY REPORT 2021 66

Unique Key material issue
LTG’s Unique Key Material Topic

Illicit Trade

Across the Group, our fight against illicit trade and all related practices and activities remains
strong. With the cigarette industry seeing an uptake in the levels of illicit trade in the
country, the collective action between the Philippine government and stakeholders in the
cigarette industry reined in illicit trade levels in the country, with a Euromonitor survey
projecting illegal trade to hover between 10.8% to 13.9% from 2018 to 2021. Furthermore,
a recent survey on the prevalence of illicit cigarettes conducted by Kantar in 2021 showed that Mindanao
accounts for the highest incidence in illegal packs (19.0%), with Luzon (4.9%) and Visayas (1.3%) a distant
second and third, respectively. In addition to this, the price gap between illicit and legitimate cigarettes
ranges from 66% to 200%. Since illegal cigarettes are cheaper than PMFTC's low-priced brands, they
become an attractive alternative for legal age smokers, particularly the youth and those with low income.
The legislated annual increase of excise taxes on tobacco products further widens price gaps and makes
illicit cigarettes even more attractive.

The Group maintains its bilateral relations and close cooperation with other countries to fight against illicit
trade. PMFTC supports the objectives and the principles of the WHO Framework Convention on Tobacco
Control (FCTC) Protocol to Eliminate Illicit Trade in Tobacco Products. It works closely with other affiliates
of PMI and contacts in other countries to share intelligence and resources to fight illicit trade. The company
supports the Philippine government and other foreign governments' active monitoring, investigation, and
enforcement to address illegal trade, including counterfeit PMI/PMFTC brands.

In line with this, the Group educates and conducts campaigns informing employees, customers, and other
stakeholders. PMFTC regularly engages various internal and external stakeholders to raise awareness
about the illegal cigarette trade problem, including capacity-building training to spot illicit cigarettes. The
Company provides all new employees and partner retailers with a briefing on illegal trade. There is
continuing education and information campaign directed at law enforcement agencies focusing on the illicit
trade in cigarettes. PMFTC runs anti-illicit trade information campaigns through seminars and social media
through partner trade and retailer organizations wherein it educates retailers and consumers about the
varieties of illicit cigarettes and the repercussions of purchasing them. The ultimate objective is to make
the sale of contraband cigarettes unacceptably commonplace. There have been at least 42 training sessions
with 1,197 attendees including retailers, law enforcement officers and internal stakeholders.

We also have programs designed to support the enactment of legislation at the local and national level in
fighting illicit trade. We channel our efforts to fight the diversion of our products by continuously improving
measures to secure the supply chain with all stakeholders. We collaborate with affected parties to share
our knowledge gained through continuous research, analysis, and communication on illicit trade issues and
consequences. With the proliferation of unregistered cigarette manufacturing facilities, the Philippine
government passed Republic Act Nos. 11346 and 11467, increasing the penalties on unlawful possession
of articles subject to excise tax such as tobacco products.

The Group has partnered with Government agencies and other parties with a Memoranda of Agreement
to fight illegal trade. The PMFTC is part of a multi-sectoral movement called "Fight IT (Illicit Trade)" led by

SUSTAINABILITY REPORT 2021 67

the Federation of Philippine Industries (FPI) to curb unfair trade and secure national revenues and protect
legitimate players in the domestic market. PMFTC is also a founding member of the Alibaba Anti-
Counterfeiting Alliance, ultimately aiming to take down sellers peddling counterfeit products. The sectors
that support the Fight IT movement share common issues of smuggling and illicit trade in their industries.
These industries are rice, sugar, corn, palm oil, tobacco, steel, cement, and ceramic tiles.

The industry works closely with various government enforcement agencies such as the Bureau of Internal
Revenue (BIR), Bureau of Customs (BOC), National Bureau of Investigation (NBI), and the Philippine National
Police (PNP) to address illicit cigarette trade in the country. There are also talks with government agencies
and private e-commerce platforms to take down online resellers of illegal combustible and heated tobacco
products. Based on internal monitoring and news articles, there have been 185 enforcements by
government agencies relating to illicit tobacco products. The government seized approximately 439 million
sticks and 21 machine components and shut down two factories manufacturing illicit cigarettes.

PMI Asia regional office entered a Memorandum of Understanding with the US Department of Homeland
Security for information sharing and engaged with United Nations Office on Drugs and Crime - WCO
Container Control Programme (CCP) for training with more than 50 customs officials in Asia, including the
Philippines. The company's objective is to limit illicit trade incidence to manageable levels at the affiliate
level and globally through other PMI affiliates. Accordingly, PMI has established a program called PMI
IMPACT, which is a global grant initiative of Philip Morris International to support public, private, and non-
governmental organizations to develop and implement projects against illegal trade and related crimes. A
council of independent experts evaluates and selects project proposals for the award of grants by PMI. The
initiative was launched in 2016 by PMI, which pledged USD 100 million to fund the first three rounds of
grants. To date, PMI IMPACT has allocated a combined USD 48 million to implement 60 projects in 30
countries as part of the initiative's first and second funding rounds. However, we also allocate resources
and tools to secure our supply chain and ensure that customers undergo proper due diligence. Adequate
volumes are delivered by demand through continuous stakeholders' engagements and extending
operational support and assistance whenever feasible and appropriate.

SUSTAINABILITY REPORT 2021 68

Appendix
GRI Content Index
GRI Standard Disclosure Page No. Omissions
GRI 101: Foundation 2016
(GRI 101 does not include any disclosures)
General Disclosures
GRI 102: Organizational Profile
General GRI 102 - 1 Name of the organization 11 -
Disclosures GRI 102 - 2 Activities, brands, products, 11-14
-
2016 and services
GRI 102 - 3 Location of headquarters 11 -
GRI 102 - 4 Location of operations 15-16 -
GRI 102 - 5 Ownership and legal form 11-14 -
GRI 102 - 6 Markets served 15-16 -
GRI 102 - 7 Scale of the organization 15-16, 31,
-
50-54
GRI 102 - 8 Information on employees and 8, 50-54
-
other workers
GRI 102 - 9 Supply chain 19-20 -
GRI 102 - 10 Significant changes to the 19-20
organization and its supply -
chain
GRI 102 - 11 Precautionary Principle or 34-35
-
approach
GRI 102 - 12 External initiatives 24 -
GRI 102 - 13 Membership of associations 21-22 -
Strategy
GRI 102 - 14 Statement from senior 4-6
-
decision-maker
Ethics and Integrity
GRI 102 - 16 Values, principles, standards, 10, 17-18,
-
and norms of behavior 34-35
GRI 102 - 17 Mechanisms for advice and 35-37
-
concerns about ethics
Governance
GRI 102 - 18 Governance structure 17-18 -
GRI 102 - 22 Composition of the highest 17
governance body and its -
committee
GRI 102 - 23 Chair of the highest 17-18
-
governance body
GRI 102 - 26 Role of highest governance 10, 17-18
body in setting purpose, -
values, and strategy
Stakeholder Engagement
GRI 102 - 40 List of stakeholder groups 24 -

SUSTAINABILITY REPORT 2021 69

GRI 102 - 41 Collective bargaining 8, 37, 50
-
agreements
GRI 102 - 42 Identifying and selecting 24
-
stakeholders
GRI 102 - 43 Approach to stakeholder 24-25, 58-60
-
engagement
GRI 102 - 44 Key topics and concerns raised 24-25 -
Reporting Practice
GRI 102 - 45 Entities included in the 23
consolidated financial -
statements
GRI 102 - 46 Defining report content and 23-26
-
topic Boundaries
GRI 102 - 47 List of material topics 27-29 -
GRI 102 - 48 Restatements of information For 2021, we restated the
following prior-period metrics
due to refinements in data
reporting:
• Total economic value
distributed is restated from
PhP102,673,861,842.42 to
PhP101,258,218,174.15 for
2020, along with the
following:
▪ Total payments to
providers of capital from
Php22,568,583,390.55 to
Php21,152,939,722.28
• Total water withdrawal from
all sources in megaliters (ML)
is restated from 7,701.65 ML
to 7,795.68 ML for 2020
• Total electricity consumption
in kilowatt hours (kWh) is
restated from 155,430,749
kWh to 153,560,438.08 kWh
for 2020
• Liquefied petroleum gas
consumption in gigajoules
(GJ) is restated from
152,526,216.26 to
152,898,269.46 GJ for 2020
• Diesel consumption in
gigajoules (GJ) is restated
from 8,590.29 GJ to
11,972.65 GJ for 2020
• Number of new hires by
gender for male and female
from 585 to 581 and 729 to
718, respectively.
• Number of new hires by age
group under 30 and over 50

SUSTAINABILITY REPORT 2021 70

 from 644 to 645 and 61 to
45, respectively.
• Number of new hires by
region for Luzon, Visayas and
Mindanao from 1,173 to
1,160, 52 to 51, and 89 to 88,
respectively.
• Total waste generated in
kilotons (KT) from 104.20 to
8.76 KT for 2020 including
the following:
▪ Total non-hazardous
waste generated from
104.01 to 8.57 KT
▪ Landfill non-hazardous
waste generated from
98.84 to 3.40 KT
• Number of regular
employees covered by
occupational health and
safety that has been audited
or certified by an external
party is restated from 9,074
to 9,073 employees for 2020
GRI 102 - 49 Changes in reporting For 2021, we have started
reporting on our Scope 1
(stationary and mobile
combustion) and Scope 2
(indirect energy consumption)
emissions and our total carbon
footprint in tonnes of CO2
equivalent (tCO2e), with
corresponding three-year data
(2019-2021). To further reflect
the change, the Energy
Efficiency material topic has
been renamed Energy Efficiency
and Emissions.

There are no further significant

changes to scope, boundary or
measurement methods from
LTG’s 2020 sustainability report.
GRI 102 - 50 Reporting period 23
GRI 102 - 51 Date of most recent report - 2020

GRI 102 - 52 Reporting cycle 23 -

GRI 102 - 53 Contact point for questions 25
-
regarding the report
GRI 102 - 54 Claims of reporting in 25
accordance with the GRI -
Standards

SUSTAINABILITY REPORT 2021 71

 GRI 102 - 55 GRI content index 69-76 -
GRI 102 - 56 External assurance 23 -
Material Topics
GRI 201: Economic Performance 2016
GRI 103: GRI 103 - 1 Explanation of the material 23, 27, 31
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 31
-
and its components
GRI 201: GRI 201 - 1 Direct economic value 31
Economic generated and distributed
-
Performance
2016
GRI 419: Socioeconomic Compliance 2016
GRI 103: GRI 103 - 1 Explanation of the material 27, 32
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 32-33
-
and its components
GRI 103 - 3 Evaluation of the management 32-33
-
approach
GRI 419: GRI 419 - 1 Non-compliance with laws and 33
Socioeconomic regulations in the social and
-
Compliance economic area
2016
Risk Management
GRI 103: GRI 103 - 1 Explanation of the material 27, 34-35
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 34-35
-
and its components
GRI 103 - 3 Evaluation of the management 34-35
-
approach
GRI 102: GRI 102 - 11 Precautionary principle or 34-35, 47-49
General approach
-
Disclosures
2016
GRI 205: Anti-Corruption 2016
GRI 103: GRI 103 - 1 Explanation of the material 27, 35-37
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 35-37
-
and its components
GRI 103 - 3 Evaluation of the management 35-37
-
approach
GRI 205: Anti- GRI 205 - 2 Communication and training 35-37
Corruption about anti-corruption policies -
2016 and procedures
GRI 205 - 3 Confirmed incidents of 37
-
corruption and actions taken
GRI 303: Water and Effluents 2018
GRI 103: GRI 103 - 1 Explanation of the material 28, 38-40
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 38-40
-
and its components

SUSTAINABILITY REPORT 2021 72

 GRI 103 - 3 Evaluation of the management 38-40
-
approach
GRI 303: Water GRI 303 - 1 Interactions with water as a 38-40
-
and Effluents shared resource
2018 GRI 303 - 2 Management of water 38-40
-
discharge-related impacts
GRI 303 - 3 Water withdrawal 40 -
GRI 306: Effluents and Waste 2016
GRI 103: GRI 103 - 1 Explanation of the material 28, 40-42
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 40-42
-
and its components
GRI 103 - 3 Evaluation of the management 40-42
-
approach
GRI 306: GRI 306 - 3 Waste by type and disposal 42
Effluents and method -
Waste 2016
GRI 302: Energy 2016
GRI 103: GRI 103 - 1 Explanation of the material 28, 43-47
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 43-37
-
and its components
GRI 103 - 3 Evaluation of the management 43-47
-
approach
GRI 302: GRI 302 - 1 Energy consumption within the 44-47
-
Energy 2016 organization
Climate Change
GRI 103: GRI 103 - 1 Explanation of the material 28, 47-49
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 47-49
-
and its components
GRI 103 - 3 Evaluation of the management 47-49
-
approach
GRI 201: GRI 201 - 2 Financial implications and 47-49
Economic other risks and opportunities
-
Performance due to climate change
2016
GRI 401: Employment 2016
GRI 103: GRI 103 - 1 Explanation of the material 27, 50-54
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 50-54
-
and its components
GRI 103 - 3 Evaluation of the management 50-54
-
approach
GRI 401: GRI 401 - 1 New employee hires and 52-54
-
Employment employee turnover
2016 GRI 401 - 2 Benefits provided to full-time 50-51
employees that are not
-
provided to temporary or part-
time employees
GRI 401 - 3 Parental leave 54 -

SUSTAINABILITY REPORT 2021 73

 GRI 403: Occupational Health and Safety 2018
GRI 103: GRI 103 - 1 Explanation of the material 28, 55-56
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 55-56
-
and its components
GRI 103 - 3 Evaluation of the management 55-56
-
approach
GRI 403: GRI 403 - 1 Occupational health and safety 55-56
-
Occupational management system
Health and GRI 403 - 2 Hazard identification, risk 55-56
Safety 2018 assessment, and incident -
investigation
GRI 403 - 3 Occupational health services 55-56 -
GRI 403 - 4 Worker participation, 55-56
consultation, and
-
communication on
occupational health and safety
GRI 403 - 5 Worker training on 55-56
-
occupational health and safety
GRI 403 - 6 Promotion of worker health 50-51, 55-56 -
GRI 403 - 7 Prevention and mitigation of 55-56
occupational health and safety
-
impacts directly linked by
business relationships
GRI 403 - 8 Workers covered by an 56
occupational health and safety -
management system
GRI 403 - 9 Work-related injuries 56
GRI 417: Marketing and Labeling 2016
GRI 103: GRI 103 - 1 Explanation of the material 28, 57
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 57
-
and its components
GRI 103 - 3 Evaluation of the management 57
-
approach
GRI 417: GRI 417 - 1 Requirements for product and 57
Marketing and service information and -
Labeling 2016 labeling
GRI 417 - 2 Incidents of non-compliance 57
concerning product and service -
information and labeling
GRI 417 - 3 Incidents of non-compliance 57
concerning marketing -
communications
GRI 416: Customer Health and Safety 2016
GRI 103: GRI 103 - 1 Explanation of the material 27, 58
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 58
-
and its components
GRI 103 - 3 Evaluation of the management 58
-
approach

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GRI 416: GRI 416 - 1 Assessment of the health and 58
Customer safety impacts of product and -
Health and service categories
Safety 2016 GRI 416 - 2 Incidents of non-compliance 58
concerning the health and
-
safety impacts of products and
services
Customer Engagement and Satisfaction
GRI 103: GRI 103 - 1 Explanation of the material 28, 58-60
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 58-60
-
and its components
GRI 103 - 3 Evaluation of the management 58-60
-
approach
GRI 102: GRI 102 - 43 Approach to stakeholder 24-25, 58-60
-
General engagement
Standard GRI 102 - 44 Key topics and concerns raised 24
Disclosures -
2016
Digital Transformation and Innovation
GRI 103: GRI 103 - 1 Explanation of the material 28, 60-61
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 60-61
-
and its components
GRI 418: Customer Privacy 2016
GRI 103: GRI 103 - 1 Explanation of the material 29, 62
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 62
-
and its components
GRI 103 - 3 Evaluation of the management 62
-
approach
GRI 418: GRI 418 - 1 Substantiated complaints 62
Customer concerning breaches of
-
Privacy 2016 customer privacy and losses of
customer data
GRI 413: Local Communities 2016
GRI 103: GRI 103 - 1 Explanation of the material 28, 63-66
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 63-66
-
and its components
GRI 413: Local GRI 413 - 1 Operations with local 63-66
Communities community engagement,
-
2016 impact assessments, and
development programs
GRI 413 - 2 Operations with significant 63-66
actual and potential negative -
impacts on local communities
Illicit Trade
GRI 103: GRI 103 - 1 Explanation of the material 28, 67-68
-
Management topic and its boundary
Approach 2016 GRI 103 - 2 The management approach 67-68
-
and its components

SUSTAINABILITY REPORT 2021 75

Task Force on Climate-related Financial Disclosures (TCFD) Content Index

LTG SR Disclosure Content

Recommended Disclosures
(Page No.)
Governance
Disclose the organization’s governance around climate-related risks and opportunities.
a) Describe the board’s oversight of climate related risks and 17, 25, 34-35, 47-49
opportunities.
b) Describe management’s role in assessing and managing 17, 25, 34-35, 47-49
climate-related risks and opportunities.
Strategy
Disclose the actual and potential impacts of climate-related risks and opportunities on the
organization’s business, strategy, and financial planning where such information is material.
a) Describe the climate-related risks and opportunities the Still being studied
organization has identified over the short, medium, and long
term.
b) Describe the impact of climate-related risks and 38-49
opportunities on the organization’s businesses, strategy, and
financial planning.
c) Describe the resilience of the organization’s strategy, taking 38-49
into consideration different climate-related scenarios,
including a 2°C or lower scenario.
Risk Management
Disclose how the organization identifies, assesses, and manages climate-related risks.
a) Describe the organization’s processes for identifying and 17, 34-35
assessing climate-related risks.
b) Describe the organization’s processes for managing climate- 34-35, 38-49
related risks.
c) Describe how processes for identifying, assessing, and 17, 34-35, 38-49
managing climate-related risks are integrated into the
organization’s overall risk management.
Metrics and Targets
Disclose the metrics and targets used to assess and manage relevant climate-related risks and
opportunities where such information is material.
a) Describe the metrics used by the organization to assess 34-35, 38-49
climate-related risks and opportunities in line with its
strategy and risk management process.
b) Disclose Scope 1, Scope 2, and if appropriate, Scope 3 43-47
greenhouse gas (GHG) emissions, and the related risks.
c) Describe the targets used by the organization to manage Processes are still to be set up for
climate-related risks and opportunities and performance the future reporting of this metric
against targets.

SUSTAINABILITY REPORT 2021 76