Dear Stakeholders,

We are living in such uncertain times. Natural disasters more than ever provide evidence of the existential threat from climate change and the need for urgent action. The UN Environment Programme's 2022 Emissions Gap Report states that “wide-ranging, large-scale, rapid, and systemic transformation is now essential to achieve the temperature goal of the Paris Agreement.” The consensus and feasibility to limit global warming to the 1.5 degree target is increasingly challenged.

We are fortunate to finally see the worst of COVID-19 pandemic behind us. We are, however, moving ahead with a backdrop of pessimism and uncertainty driven by deteriorating geopolitical pressures that is worsening a global economic slowdown. Economic managers are challenged to address high inflationary conditions and have responded by raising interest rates. The days to access cheap financing are gone for the foreseeable future. The Russian invasion of Ukraine and the worsening US-China relations are driving geopolitical concerns and are leading to a more divided fragmented world. At home, we are not spared by the higher prices of electricity, imported fuel and basic commodities made worse by the reduced value of the Philippine Peso. It is not a pretty picture to say the least.

If we pause to figure out how to best move forward, we like to think that more than ever, FPH's mission to forge collaborative pathways for a decarbonized and regenerative future is even more relevant. Aligning the business models and profit engines of FPH's underlying investments with a common mission and purpose is an effective way to align, engage and inspire our talent within our organization to move ahead with optimism despite uncertainties.

Reaching Safe Harbor

While we know where we want to go, the challenge is how we will advance. We will continue to experience dramatic fluctuations in temperatures and deal with emerging ecological anomalies until we reach that safe harbor. Arriving at the point of safety will require a collaborative and organized effort where behavioral and systemic changes are not only planned but also implemented.

In the Philippines, the government is responding by pursuing a policy thrust, which we welcome and support, to develop more renewable energy (RE) and eventually transition our country away from fossil fuels. The government emphasized this trajectory in 2022 when it released the Renewable Energy Market Rules—the manual of guidelines that establishes the basic rules, requirements, and procedures governing the operations of the Renewable Energy Market (REM).

The government also continues to implement the Green Energy Option Program (GEOP), which encourages commercial and industrial consumers to select RE as their energy source. To provide consumers with more RE options, the government is likewise exploring new energy sources such as nuclear, hydrogen, and offshore wind.

These, together with other initiatives of the current administration, will help grow and diversify the country's clean energy sources, giving consumers a wider array of choices to meet their needs.

But given the intermittence of RE, investments in natural gas as a transition fuel are being made to hasten the move away from coal.

These balanced decarbonization plans of the national government align well with our mission. We are taking action to make this mission a reality throughout our various businesses, which are set to lead the industry as major contributors to green energy.

In Step with Decarbonization

In 2022, FPH and its subsidiaries forged on and made progress on their respective operations as the economy began to bounce back from the COVID-19 pandemic.

First Gen Corporation (First Gen), our power subsidiary, continues to build on the infrastructure that will allow our country to import enough liquefied natural gas (LNG) and assure the continued operations of the Philippines' natural gas plants in the midst of the impending depletion of gas supply from the Malampaya field. The LNG infrastructure, which First Gen is constructing with partner Tokyo Gas, therefore, will play a vital role in preventing power shortages over the next few years that would cripple our economy.

In July 2023, First Gen will commence operations of its floating storage regasification unit (FSRU), BW Batangas,. The FSRU is an integral part of our LNG project and will provide LNG storage and regasification services. Concurrent to pursuing its natural gas projects, First Gen continues its program to expand its RE capacities, particularly geothermal and hydro. In 2023, it will start the construction of the 100- to 120-megawatt (MW) Aya Pumped Storage Hydropower Project in Nueva Ecija, while continuing the pre-development activities for its run-of-river projects in Mindanao.

Meanwhile, its geothermal power unit, Energy Development Corporation (EDC) inaugurated the 3.6-MW Mindanao-3 Geothermal Binary Power Plant in Kidapawan City in April 2022. EDC's other geothermal plants—the 28.9-MW Palayan Bayan Binary Project, the 20-MW Tanawon Geothermal Power Plant, and the 28-MW Mahanagdong Geothermal Brine Optimization Plant—are progressing as scheduled. These projects will expand the country's supply of clean, reliable, and stable power.

First Gen is committed to expanding its clean energy portfolio to lead the country's clean energy transition by delivering up to 13 gigawatts (GW) of new clean and renewable power by 2030. Through this endeavor, we will significantly contribute to the country's decarbonization.

While large-scale infrastructure will facilitate the importation and use of natural gas for transitioning to a clean energy future, utilities will be equally important in influencing the wider use of green energy.

First Philec Inc. (First Philec) has recently delivered more efficient and sustainable transformers to the market. As our primary manufacturing and energy solutions business, First Philec is developing super green transformers made of fully recyclable and biodegradable materials and powered by naturally sourced oil for commercial distribution. We aim to inspire our customers and other players in the field to pursue this direction in green energy.

First Philec aims to fast-track its co-creation initiatives as it diversifies its product portfolio while expanding its market presence. First Philec plans to achieve these objectives by:

• expanding its product portfolio and technical solutions, which will help address the emerging developments influenced by recent industry trends;
• seizing opportunities in the US market by providing solutions to impacts arising from global supply chain challenges;
• continuously co-developing business solutions with its customers to further address their pain points and cater to growing market demands; and
• mitigating the impact of supply chain interruption and inflation on the business.

FP Island Energy Corp. (FP Island), a wholly owned FPH subsidiary, is likewise helping the government accelerate its electrification program. Through the DOE's Qualified Third Party (QTP) program, FP Island has ventured into microgrid solutions that now provide electricity to underserved rural communities in three islands of Camarines Sur—Quinalasag, Lahuy, and Haponan. From a combination of renewable energy resources such as solar and battery storage, as well as from conventional energy sources, FP Island generates and distributes uninterrupted or 24/7 electricity service to an estimated 16,000 residents in the three islands. FP Island hopes to scale up this QTP initiative by testing it in more underserved areas of the Philippines.

FPH's non-energy businesses are closely linked with the mission of regeneration, where enhancing the quality of life requires services that tap into various aspects of national development.

Rockwell Land has firmly established its brand as a leading premium lifestyle community developer in the Philippines. It continues to deliver on its vision to create admired communities beyond the ordinary.

Residential and commercial spaces will be vital in nurturing daily life for individuals and families alike. By leveraging its brand name, Rockwell Land has accelerated its expansion in key geographical areas outside the metro, aiming to address congestion in the National Capital Region while at the same time creating spaces that are more inclusive, walkable, and environment-friendly.

In 2022, Rockwell launched a record PHP29.1 billion of highly marketable projects, including residential developments Edades West in the Rockwell Center Makati, the Bencab in the Rockwell Center Nepo in Pampanga, the Bel-Air in the Rockwell Center Bacolod, and Terreno South in Batangas.

Our industrial real estate arm, First Philippine Industrial Park (FPIP), will continue to attract world-class locators and advance the economy through local job creation while remaining true to its goals of elevating industry, community, and the environment. FPIP has built a thriving industrial park that is home to over 150 multinational locators and a workforce of almost 80,000 Filipinos.

To continue FPIP's robust ecosystem and support its transformation into a resilient job-centered community, FPIP's business model has expanded. From being a park developer, it has now become both a developer and a solutions provider that offers a comprehensive and innovative one-stop-shop menu of products and services, catering not only to the locators but also to their employees. FPIP now builds dormitories, events and training sites, and areas for commercial and retail establishments, while it continues to operate its more traditional lines of business in land and ready-built factory leasing, park management, and provision of water and wastewater servicing.

Construction will also have its role to play through First Balfour Inc. (First Balfour). FPH supports infrastructure that not only aims to meet the energy needs of the country but also establishes public works that allow for efficient movement and flow of utilities.

First Balfour is well-positioned for growth given its stellar performance in delivering quality solutions to its clientele and its proven expertise in bridge construction and tunnel boring. It showcased this expertise through its initial ventures in constructing the 8.5-kilometer (km) Cebu-Cordova Link Expressway (CCLEX), now the longest bridge in the country; and the 7.3-km Novaliches-Balara Aqueduct 4 project using the tunnel-boring machine (TBM) Dalisay. The aqueduct project marked the first use of a TBM to complete a tunnel in a busy metropolis in the country, thereby avoiding traffic disruption.

First Balfour, along with Hong Kong-based partner Leighton Asia, is likewise participating in the North-South Commuter Railway (NSCR) Project, which will formally break ground in the first half of 2023. The NSCR segment contracted to First Balfour involves civil engineering, tunnel construction, and building works for a railway spanning a little over six kilometers.

First Balfour has also developed competencies that will enable it to participate in developing climate-resilient infrastructures and open renewed opportunities in key markets, such as power and energy and water infrastructure.

We at FPH likewise see the growing potential of our healthcare and education businesses. The productivity and success of any project ultimately depend on the workforce that puts it into motion. By ensuring that people are equipped with the proper skills through talent development and by staying healthy through quality healthcare, we cultivate a workforce that is capable of meeting the demands of a growing economy.

With this being said, FPH certainly hit its stride in 2022. We have made significant progress in our plans, which allow us to sustain our business and continue our mission.

In December 2022, FPH signed a definitive agreement to purchase the local subsidiary of Medical Services of America (MSA), a provider of a comprehensive range of cardio-pulmonary services and equipment for hospitals and home-care patients.

MSA is the newest addition to FPH's fledgling healthcare group. This group now consists of the Asian Eye Institute (AEI), a world-class eye and research center and provider of a comprehensive range of eye care services; Pi Health Inc., a contract research organization focused on providing clinical research services; and Pi Health Manufacturing and Distribution Services Inc., a distributor of optical products. With MSA's addition, FPH now has a platform to deliver new products and services aimed at improving the country's healthcare system and, ultimately, the health and wellness of Filipinos.

The FPH Board has assessed the need for a services sector to catalyze the accomplishment of our mission. This growing business segment will be part of our regular Integrated Report starting next year.

Financial Performance

FPH closed the year 2022 with a record-high consolidated attributable Recurring Net Income (RNI) of PHP12.8 billion, up by 27% or PHP2.7 billion from PHP10.1 billion in 2021. The increase was driven by improved earnings across the conglomerate's core business groups, with power generation, energy solutions, and real estate showing significant growth.

All Hands on Deck

The aforementioned are all achievements by the company, but FPH's mission—To forge collaborative pathways for a decarbonized and regenerative future—requires all hands on deck. While FPH forges on with its mission, we hope to catalyze and enable action not only from our direct stakeholders but also from other groups that each hold its own responsibility toward addressing the climate crisis.

In the following areas, we recognize the power that collaboration brings to our projects and operations:

Joint venture partnerships allow FPH to pick up on global best practices in the energy industry and policymaking. As the pace of each country in accomplishing NDCs and in meeting climate-related targets varies, our partnerships will become the source of our best practices to speed up movement along the Philippines' own decarbonization pathway.

In implementing possible solutions to climate issues, the global financial facilities will fund projects crucial to the decarbonization plan. Our related industries each carry with them their own significant demands, which will require large-scale action and infrastructure to meet.

Suppliers who collaborate closely with FPH build on the capacity to meet customer demands and carry out orders efficiently. A responsible business will always draw back to the quality of our suppliers and procurement, which is why we align our values with them.

While the government supports renewable energy through its national plan, government partnerships, specifically with the DOE and the Department of Environment and Natural Resources (DENR), also allow FPH to gain more insights into the effects of climate change in Philippine communities and expand our environmental stewardship and conservation efforts. The DENR, for instance, has finalized its Environmental and Natural Resources Framework, with support from stakeholders that included FPH. The framework has taken on a regenerative approach to improving the local economy while, at the same time, protecting ecosystems and taking care of the well-being of communities.

Behind the implementation of our services are our people. Our workforce is the hand that puts the mission of decarbonization and regeneration into motion in each subsidiary. Attracting and developing talents enhance the outputs of our businesses. On a broader scale, building a more capable workforce in the country also attracts investments that invigorate the economy.

Lastly, competitors must also be inspired to move toward adopting green energy. The industry has a number of players, each with its own environmental and social impacts. FPH aims to influence the direction and practices of both the energy and non-energy sectors to adopt measures that directly contribute to decarbonization.

The groups that have worked with us at FPH over the past decades remind me that we cannot do this alone. In addressing the climate crisis, collaboration is fundamental in order to close the gap between aspirational targets and the world's current standing. With each year that passes, FPH must move with urgency and enhanced capacity alongside other stakeholders.

FPH is set to lead this move, borne by optimism that its actions up to this point have been steadily improving as opportunities open up. The solutions are in sight, and we are working toward them.