MESSAGE FROM THE MANAGEMENT
We are pleased to present Mabuhay Vinyl’s
annual report for 2008, an extremely
challenging year for the global economy. After
posting a three-decade high of 7.2% in 2007,
the country’s economic growth slowed down to 4.6%.
Increases in the prices of oil and commodity pushed up the
inflation rate to 8% from 3.9% year-on-year. The peso
depreciated to over P47:$1 by end-2008 from P44:$ at the
beginning of the year despite record-high OFW remittances.
The financial crisis, which started in the US, triggered a
worldwide economic downturn as demand for goods
dramatically declined late in the fourth quarter. Destocking
of inventory was the mood of the time – from motor vehicles
to chemicals to retail goods.
America’s recession has spread worldwide like wildfire and
it was apparent no country was able to decouple from the
dismal performance of the US economy. The once-booming
Asian economies that included China, Japan, South Korea,
Taiwan, Singapore, most of ASEAN member nations, and
even India were not spared from the fury of the global
financial meltdown.
We started the year on a high note, mindful of the goals set
in our 2008 Annual Business Plan and very much focused
on completing within project cost the retrofitting of the
Diaphragm Cell Process Chlor-alkali Plant to Ion Exchange
Membrane Process by the third quarter. The seamless
transition remained our top priority.
Two months into 2008, we were on track on what we had
set to accomplish. Unfortunately, fortuitous developments
derailed our ambitious work plan. The operation of the
old diaphragm cell process plant unexpectedly faltered,
adversely affecting the adequacy and timeliness of delivery
of MVC products, particularly hydrochloric acid. An accident
that damaged our IEM2 rectifier-transformer while it was
about to leave the container port in Misamis Oriental not
only cost MVC additional expenses, but also delayed the
completion of the project.
In spite of these adversities, 2008 was an eventful year for
MVC. In August, we successfully started the commercial
operation of the close to P500-million IEM2 Project. We
celebrated this milestone event in October 2008 with the
Honorable Elmer C. Hernandez, DTI Undersecretary and Vice
Chairman and Managing Head of the Board of Investments as
guest of honor in the formal plant inauguration. Also gracing
the occasion were Honorable Lawrence Ll. Cruz, Mayor of
the City of Iligan; and Mr. Toshifumi Inami, General Manager
of Mitsubishi Corporation, Manila Branch, and President of
the Japanese Chamber of Commerce and Industry of the Philippines.
The realization of this project reaffirmed MVC’s leadership in
the industry and solidified its position as the only domestic
producer of caustic soda and liquid chlorine. The new plant,
which utilizes the technology co-developed by Chlorine
Engineers and Tosoh Corporation of Japan, is also a
showcase of how Filipino and Japanese companies can
work together harmoniously to achieve a common goal. MVC
has remained steadfast in its corporate vision and mission
of supplying the country with quality products through
continuous improvements of its production facilities.
In September 2008, MVC stockholders approved the
creation of a landholding company which shall become the
repository of all our real estate properties. This company
was registered with the SEC under the corporate name MVC
Properties, Inc. in November. Once operational, this will
allow additional foreign investments into the company.
Amid all these, developments in the chlor-alkali industry were
continuing to unravel. As a result of the economic downturn,
demand in the US for chlorine and its derivatives plunged,
forcing plants to cut production. This, in turn, tightened
caustic soda supply and rapidly nudged up caustic soda
prices. On the other hand, chlorine demand in Asia had
likewise started to soften but the holding of the Beijing
Olympics and the shortfall in the US boosted demand for
caustic soda. This drove caustic soda prices up to almost
$600/DMT in Asia before demand fell in September. Against
this backdrop, domestic demand remained healthy for most
of the year though weak demand in the steel, semiconductor
and electronics sectors affected the sales of hydrochloric
acid.
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The Year in Review
Pressure on our profitability was felt from March to
August when MVC was virtually dependent on its small
8,000 MTPY IEM1 caustic soda plant to meet market
demand. The old Diaphragm Process Plant was hardly
producing while importations could not be relied upon
due to scarcity of supply. Conditions were so severe
that an allocation scheme for deliveries of caustic soda,
HCl and liquid chlorine had to be strictly observed. The
increased cost of raw materials, energy and logistics also
affected the volume of products we sold.
On the one hand, the import price of caustic soda
steadily increased to about $600 in August-September
from $300 in January 2008. Consequently, selling prices
were raised at levels higher than budget to partially cover
the rising costs. The close to P500-million investment
in the IEM2 Project meant to enhance our overall
competitiveness resulted in a substantial increase in
depreciation expense. Moreover, the financing cost for
the P350-million loan component of the IEM2 Project
dampened further our earning capability.
Net sales fell slightly by P4.70 million from 2007 to
P1.31 billion with gross profit down by P23.45 million to
P343.20 million. However, we posted in 2008 a dramatic
rebound in our income before tax of P51.42 million from
a loss of P17.97 million because of the tax abatement
and/or similar non-recurring expense. Our net income
was up at P38.0 million from a loss of P45.3 million in
2007.
Outlook for 2009
Factoring in the current global economic climate and the
consensus that an upturn is not expected until 2010, we
expect limited chlorine production in the Asian region
and that supply of caustic soda will range from balance
to tight. We see higher caustic soda prices for most of
the year but still subject to some volatility as the world
economy struggles to recuperate.
On the domestic side, we saw weaker demand during
the first quarter of 2009, particularly in the electronics,
metal processing and steel sectors. However, other
sectors in the economy have remained resilient. We
also expect that inventory destocking in export-oriented
factories have already been completed and production
operations will soon commence. Other sources of
economic growth will have to come from the agriculture
sector and remittances from OFWs.
In a world characterized by volatility, your company
depends on its long history and experience to weather
this storm and emerge stronger. We see that the key is to
accurately identify and manage costs, ensure that every
risk taken has commensurate reward, and develop our
people to be well-positioned for growth in the future.
MVC is now better equipped in the way it operates, more
responsible in its dealings, and consistently focused to
deliver results. While the uncertainties continue to linger,
your company remains hopeful that we will hurdle the
obstacles that lie ahead, with the continuing trust and
support of the Board and with an enlightened human
resource by its side.
EVELYN L. VILLANUEVA
Chairperson and Chief Executive Officer
EDWIN LL. UMALI
President & Chief Operating Officer
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Review of Operations
MVC started the year filled with optimism and
hope that 2008 will usher in a new era of
competitiveness and growth for the company.
Focused on its goal of enhancing customer
satisfaction, the company’s plans for the year centered on
the planned shutdown of its old diaphragm cell plant and
the installation, commissioning and commercial operation
of its new Ion Exchange Membrane plant. This transition
is expected to increase MVC’s production capacity of
Ion Membrane-grade caustic. Thus we adopted this as
our central theme as it affects the company’s operations,
marketing and production strategies for the entire year.
Several unforeseen and fortuitous events occurred in both
our local operations and in the international front that
significantly affected the company’s performance.
Marketing Operations
At the start of the year, the collapse of the housing and
automotive markets in the US caused a rapid and severe
decline in demand for chlorine, which is the principal
ingredient in making PVC pipes, power cables and other
derivatives. Most chlor-alkali producers were thus forced to
reduce operating rates to about 50% to 60%. To supplement
their caustic soda needs, they turned to imported material
supplied from Asia. This consequently drove up prices up
to around $1,000/DMT in the US West Coast and almost
$600/DMT in Asia. This was a favorable development for the
company as rising prices abroad allowed MVC to increase
caustic soda selling prices and cope with the rising cost of
production and distribution.
With the rising prices of all commodities, inflation surged
to as high as 12.4% in August. In this environment, MVC
managed to post sales revenues of P1.31 billion, almost flat
from 2007 levels, principally due to surging caustic soda
prices. However volumes fell as rising inflation left consumers
with limited purchasing power.
Caustic soda sales volume was in line with expectations at
the start of the year. However, competition caught up and
penetrated MVC’s markets even as the cost of imported
material was rising steadily and rapidly, making long-term
supply contracts risky. Nevertheless, significantly higher
volume sold to the energy sector and other industries made
up for the volume lost to competition.
While regional caustic soda prices were increasing, MVC
could not fully benefit from the situation. This was due to
existing supply contracts that were fixed earlier at lower
prices. Local production could also not be maximized due to
operational limitations with our old diaphragm plant, which
was eventually shut down and decommissioned.
Sales of HCl, a product that is 100% locally sourced, were
limited during the first three quarters due to operational
issues with our old diaphragm plant which had to be shut
down ahead of schedule.
Once the IEM2 Plant was onstream, HCl product availability
increased, leading to improved sales volume. However,
this was still not enough to offset the shortfall as the global
economic crisis kicked in and caused demand to soften,
particularly in the electronics, steel and metal industries.
On a positive note, we are looking forward to a renewed
surge in the metal and specialty chemical manufacturing
sectors as well as in the mining, geothermal and independent
power plants that started in the last quarter of 2008.
Limited production output also resulted in a drop in sales of
liquid chlorine. This was further exacerbated by the availability
of low-priced imported material supplied by traders to large
water utility companies. These unfavorable developments
forced MVC to sell at a marginal price to maintain its grip on
its market share.
Sodium hypochlorite sales, on the other hand, continued to
perform well. The larger requirement of consumer bleach for
household care has increased total market demand. Sales,
however, slowed down toward the latter part of the year due
to the shifting schedule on deliveries implemented by a major
bleach repacker. Sales in emerging markets in Visayas and
Mindanao, as well as the realization of forecast volume of our
regular traders and other bleach manufacturers, on the other
hand, cushioned the fall.
Manufacturing Operations
Iligan manufacturing operations revolved around the goal of
completing the IEM2 Project on time and within budget while
at the same time minimizing the impact of the unavoidable
shutdown to our customers. This means that the changeover
period must be completed at the shortest time possible.
While the Diaphragm Cell Plant was scheduled for a
permanent shutdown in July 2008 to pave the way for
the IEM2 Plant installation, the DCP had started to exhibit
unstable operation and had to be operated on low load early
in the year. Finally the plant had shut itself down by the end
of May 2008.
Changeover operations began immediately and
commissioning of the new IEM2 Plant started on August 18,
2008. Commissioning proceeded smoothly with the load
slowly raised to the rated plant load of 16KA. Commissioning
and performance guarantee tests were concluded in just six
days. The new IEM2 Plant heralded a new era for MVC as it
now uses an all-ion exchange membrane process technology
that is at par with the world’s best. The benefi ts of the new
technology were felt as immediate as the first ton of caustic
soda was produced. The IEM 2 used less electricity, and
steam and salt and raised our reliability to unprecedented
levels.
The IEM2 Plant not only reduced the use of materials and
energy, it also simplified plant operations and lessened our
dependence on manual labor. Consequently, it led to a
rationalization of our workforce as some positions became
redundant. This reduced our headcount by 12 people.
Finance Operations
MVC recorded net sales of P1.31 billion in 2008, nearly the
same as the previous year’s level.
However, while cost of sales was less than what was
budgeted, it was still higher than the previous year at P0.97
billion. Rising cost of inputs, such as electricity and imported
finished products, pushed up the cost of production for the
year.
The company ended the year with a gross margin of P343
million compared to last year’s P367 million. Net income
before tax was P51.4 million.
While the company maintained its efforts to keep cost low,
operating expenses were higher due to the unprecedented
rise in fuel prices. By the time the prices had settled to more
realistic levels by yearend, they already diminished our early
gains. This came at a time when demand for manufactured
products weakened as consumers tried to conserve their
resources and companies prepared for rougher days
ahead.
Expectedly, interest and financing charges during the year
were higher mainly due to the payment of interest for the
term loan MVC availed to partly fund the new IEM plant.
In hindsight, MVC may have been fortunate to have retrofitted
its aging diaphragm plant ahead of the global financial crisis
as it was able to fully secure its funding requirements for the
project at favorable terms. The company continues to enjoy
the support of its creditors and has sufficient working capital
to fund its operations.
Risk Management
MVC places importance in managing risk inherent in its day-to-
day business operations. It seeks to have a reasonable
balance between the risk it must take and the expectant
reward from taking this risk.
This policy is not limited to taking insurance policies for the
company’s plant property, assets, products and marine
tankers. It also applies to medium- and long-term sales
agreements with customers to ensure that the company has
the material to support such agreements. This also covers
long-term purchase contracts with suppliers and financial
transactions with long term implications.
Corporate Governance
MVC continues to enhance its corporate governance
structure to improve effi ciency and keep pace with the
changing business environment while at the same time
promoting transparency and compliance with applicable
laws.
In 2002, the company adopted its Manual on Corporate
Governance (MCG) which institutionalized principles of good
governance. Among the key components of the Manual are
the following:
a. Composition, Qualifications and Duties of
the Corporation’s Board of Directors, Committees
and Officers;
b. Role of the Compliance Officer;
c. Creation of Nominations and Audit Committees;
d. Role of the Internal and External Auditors; and
e. Shareholders’ Rights and Benefits.
Consistent with its responsibilities, MVC significantly acts in
accordance with its MCG. The Board Committees, including
the Nominations and Audit Committees, have consistently
complied with their duties and responsibilities under the
MCG. Our vision, mission and corporate values continue
to provide clear corporate mindset and direction for our
directors, officers and employees.
Safety, Health and the Environment
MVC continues to further enhance its performance in the
fields of safety, health and the environment from its internal
operations to its supply chain and other stakeholders.
As a testament to our commitment in protecting the
environment, our Environmental Management System
successfully passed the fi rst ISO 14000:2004 surveillance
audit conducted by TUV-SUD. We were likewise granted the
continued use of the Responsible Care logo by the Samahan
sa Pilipinas ng mga Industriyang Kimika.
Our programs on safety health and the environment were
likewise recognized by various government agencies. The
Department of Environment and Natural Resources’ Industrial
Ecowatch program upgraded MVC’s rating from “good” to
“very good” after consistently improving its compliance with
environmental standards and using fully functional monitoring
equipment. The Pollution Control Association of the
Philippines, Inc. conferred to MVC the “Success Story
Environmental Award” during its 28th National Convention.
Complementing this feat was the Department of Energy’s
recognition of MVC’s energy conservation programs.
MVC takes pride in continuously putting Safety, Health and
the Environment a prime consideration in its day-to-day
operations. This will be a mandate and a responsibility that
the company will always take into heart and action.
Corporate Social Responsibility
The company takes an active role in making sure that it is a
responsible partner in society and in the community where
it operates. We perform our corporate social responsibility
(CSR) through our modest contributions in various activities
that include cooperative development, livelihood programs,
dental and medical missions, environmental and solid waste
management programs, advocacy activities and donations
to various institutions.
In Brgy. San Miguel, Bauan Batangas, MVC conducted
a “Back to School” activity at the Day Care Center and a
Children’s Summer Reading Enhancement Workshop in
Iligan.
In partnership with the Philippine Business for Social
Progress, MVC participated in the formal turnover of four
classroom buildings, providing scholarships for 56 orphans
and livelihood projects to landslide survivors in Guinsaugon,
St. Bernard, Leyte.
A showcase livelihood program is MVC’s support of
the projects of Timoga Multi-purpose Cooperative, an
organization of urban poor families in Brgy. Buru-un, Iligan
City. The project started with one 200-liter drum of hypo
product on consignment basis in 1996. The volume has
now ballooned to more than 200 times and provided many
families with a regular source of income.
All these initiatives gave MVC employees and its business
partners opportunities to make a positive impact on
communities and to society in general – as its way of putting
a heart into its business.
Investing in the Future: IEM2 Plant
The Ion Exchange Membrane (IEM) 2 Plant is proof of MVC’s unwavering faith in the Philippine economy and our long-term
commitment to serve the country’s chlor-alkali market in a competitive and sustainable manner.
The IEM2 Plant has a capacity of up to 24,000 dry metric tons of caustic soda per year with the attendant production facilities for hydrochloric acid and liquid chlorine.
At the heart of the process are two sets of n-BiTAC electrolyzers jointly developed by Chlorine Engineers Corporation and Tosoh Corporation of Japan – the latest and most modern technology available in the world for the production of caustic soda. More than a concrete manifestation of MVC’s commitment, the IEM2 Plant signifi cantly improves production effi ciency by reducing salt, power and steam consumption which enables MVC to produce caustic soda of world-class quality.
The electrolyzers use a special synthetic material (membrane) to separate the anodes and cathodes. This makes the technology more environment-friendly as it does not use asbestos-based diaphragms or mercury anodes present in the old technology it
replaced.
In addition, the IEM2 Plant raises plant reliability significantly and requires shorter maintenance cycles.
Sustainability Report
MVC is committed to the preservation of resources and the protection of the environment as an essential part of its manufacturing and business practices. As such, we have a documented Environmental Management System (EMS) that is communicated, implemented and accessible to all stakeholders. We have likewise initiated programs that will efficiently control and minimize waste, and prevent pollution in the production, storage and distribution of our products and raw materials.
Among our many initiatives, the reduction in greenhouse gases emission is one of the company’s contributions to addressing climate change. We monitor our CO2 emissions and have implemented strategies for its reduction. These strategies are included in other plans such as energy conservation.
Our total annual CO2 emission has been greatly reduced since 2000. This was mainly due to the conversion of the Diaphragm Cell Plant (DCP) to an Ion Exchange Membrane Plant (IEM), which has lower steam consumption due to the production of higher concentration cell liquor caustic soda from the electrolyzers.
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Corporate Highlights
Customer Satisfaction
Green Cross Inc. (GCI) recognized MVC “for achieving 100%
on-time delivery” and “for achieving 100% conformance
to GCI’S specifi cations” in 2008. These recognitions were
given during GCI’s 1st Annual Supplier Quality Award.
MVC President Edwin Ll. Umali received the certifi cations/
awards.
Quality Management System
In 2008, MVC’s Iligan Plant and its Commercial Operations
in Manila, Cebu and Davao, including the Mabuhay Premium
Bleach Plant in Laguna have successfully merge their Quality
Managment Systems into one. MVC’s integrated QMS was
certifi ed in March 2008 by SGS to be in complaince with ISO
9001: 2000. This certifi cation covers MVC entire operations
including its manufacturing sites and nationwide logistic and
distribution.
Developing Talent
Duke E. Visitacion, an Engineering Assistant at MVC, is
the recipient of Iligan City-Lanao del Norte’s Outstanding
Employee Award. This is the fourth consecutive year
that an MVC employee was chosen as the region’s best
employee, proof that the company develops and nurtures its
employees to become more effective in today’s competitive
environment.
Livelihood Projects
The Timoga Multi-purpose Cooperative, an organization of
urban poor families in Brgy. Buru-un, Iligan City started with
one drum of sodium hypochlorite which they repacked into
one-liter bottles and sold to passing trucks. The program has
now grown by more than 200 times and provides members
with a steady stream of income and introduced liquid bleach
to far-flung areas.
Corporate Social Responsibility
“Back to School” activity in Brgy. San Miguel Day Care Center
in Bauan, Batangas which benefited 30 school children
This was actively participated by MVC employees, together
with barangay officials and supported by the Mayor’s Office.
Environmental Protection
The Pollution Control Association of the Philippines, Inc.
conferred to MVC its Success Story - Environmental
Award during its 28th National Convention. The award is in
recognition of MVC’s programs in protecting the environment
and conserving resources through adoption of environment friendly
technologies.
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