LETTER TO OUR SHAREHOLDERS
2001 was a banner year in terms of profitability for the company despite the prevailing political and economic uncertainties. Mabuhay Vinyl Corporation has emerged from the continuing challenges a much stronger and financially sound company, ending the year with a bottom line of P212 million, inclusive of P142 million as extraordinary gains from the sale of the company's investment in Philippine Resins Industries, Inc. (PRII) and its PVC business. The success was driven in part by (1) the sustained high production volume by the lligan chlor-alkali manufacturing facility at a time when locally-produced caustic was more competitively priced than the imported, and (2) higher than planned output by the Sta. Rosa premium bleach plant in response to better than expected demand. Likewise, corporate-wide cost management initiatives resulted in lower operating expenses.
Net income from continuing operations for the year of P70.6 million was a remarkable reversal from last year's loss of P15.8 million. The profit was realized by concentrating on chlor-alkali as the company's core business. The decision made Mabuhay commit its resources to the expansion of its chlor-alkali operations and the improvement of its logistic capability. These twin moves will enable your company to pursue market opportunities for chlorine and its derivatives, hydrochloric acid and sodium hypochlorite, which continue to grow to the present time.
During the year, the company moved out completely from the polyvinyl chloride (PVC) business. In April, it divested itself of its 49% equity in the Greenfield PVC resin project of PRII. At the same time, PVC operations in lligan were permanently closed. It was crucial to our profitability as it resulted in the reduction of huge financial charges on borrowings to support the PVC operations. At the same time, plowing back resources into the company contributed significantly by way of interest income.
The cessation of PVC operations forced the company to rationalize its manpower complement. At the end of 2001, total workforce stood at 190.
Your management is pleased to report that this year's CBA negotiations with supervisory and rank-and-file employees were concluded in record time. The agreement with the rank-and-file was doubly meaningful, since it did not require any DOLE intervention as in past negotiations.
In April and August, MVC declared cash dividends amounting to P380.7 million.
Growth in a competitive environment such as ours depends to a large extent on maintaining industry leadership. To stay ahead, your company in December signed a purchase agreement with Chlorine Engineers for the supply of an ion-exchange membrane chlor- alkali plant, using the state-of-the-art BITAC technology that it co-developed with Tosoh Corporation. Since Mabuhay is partnering with a highly reputable supplier, the project is expected to be completed by the second quarter of 2003 - on schedule, performance guarantee realized and no cost overruns.
Outlook for 2002
While expected to be a difficult year for the industry the outlook is still viewed with optimism.
The Philippines presents an encouraging economic picture. In 2001, the Arroyo administration was able to achieve its goal of stabilizing the economy and registering a modest growth of 3.4% in gross domestic product, surpassing most forecasts. This achievement serves as the basis for setting new directions in 2002. The President and her economic managers are now aiming for more aggressive growth, viz., a 4.0% to 4.5% expansion in GDP, buoyed by several factors: (1) strong expectations of U.S. economic recovery in the second half of the year, as well as further strengthening of the European economy, (2) rising consumer and business confidence, leading to bigger consumption expenditures, and (3) our government's commitment to institute policies that are geared to the pursuit of sustainable development, fiscal restraint, structural reforms and good governance.
There is a strong sense that the economy will become robust, with agriculture, manufacturing and services continuing to expand, as government does its best to further boost consumer confidence, intensify export initiatives, create a better environment for investment, reduce cost of borrowing and allow more relaxed budget expenditure programs. The measures outlined by the government will indeed have a very positive impact on the entire economy, underpinning greater consumption of goods and heightened demand for various services. Along the way will be bigger demand for basic chemicals that can offset the negative effect of depressed world market prices for caustic soda, a major product of your company which is still on a slide and may last a few more quarters until global inventory returns from high to normal. Unfortunately, the correction in inventory position is not expected to take place soon, because of the apparent recovery in the demand of chlorine, a co-product with caustic, for PVC resin use.
In response to this scenario, your company will bank on its long history of leadership in the chlor-alkali industry, capitalizing on its operational flexibility as both importer and manufacturer. To do so, we will provide the necessary capital expenditures to keep our manufacturing facilities in top condition and enhance our logistical capability, so that we will be better prepared once there is an upturn in demand. And when it unfolds, your company will be ready with both strategic and tactical moves, through investment it has made and will continue to make, to ride the crest of the economic momentum.
It is not enough that financial resources are poured in. More importantly, management and labor would work together implementing improvements and/or innovations in all phases of operations to be in step with the expected acceleration of economic activity.
We acknowledge with gratitude the valuable contribution of our Board of Directors in steering the company to a position ready to face the challenges confronting the manufacturing sector.
We are proud of our employees for their dedication, tenacity, patience and understanding. We thank them for helping us attain our objective of producing extraordinary results.
Finally, to our stockholders, many thanks for your support. We likewise recognize the loyalty and patronage of our customers and the sincere help of our suppliers and banking institutions as partners of Mabuhay. We are confident that with the continued support of all our stakeholders, Mabuhay will succeed even in an increasingly challenging market.
RICARDO P. GUEVARA
Chairman, President and Chief Executive Officer
EDWIN LL. UMALI
Executive Vice President & Chief Operating Officer
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REVIEW OF OPERATIONS
MARKETING
The chlor-alkali business posted strong sales growth in 2001. Despite the discontinuance of the PVC business in the early part of the year, the company attained P1.060 billion, inclusive of first quarter PVC sales, in total revenues. To a great extent, this is attributable to favorable caustic soda prices.
During the year, sales revenue from caustic soda sales grew by 44%, from hydrochloric acid by 23% and from liquid chlorine by 25%, while sodium hypochlorite sales continued to set records by hitting 54% growth.
Our non-traditional businesses, which included selling caustic soda pearls, PVC valves and salt, as well as providing logistic services, increased by 34%.
Your company continues to be the biggest local producer of chlor-alkali products and the largest supplier of caustic soda in the country.
MANUFACTURING
Actual production output in 2001 exceeded both the actual figures for 2000 and the projected figures for 2001. The manufacturing facilities ran at high load under very stable operating conditions.
The demand for chlor-alkali was so strong that the annual plant maintenance shutdown, originally scheduled for May, had to be moved to August.
The commissioning of the lligan Sodium Hypochlorite Plant in early 2001 paved the way for the expansion of our Visayas-Mindanao market. The plant now supplies the Vis-Min market with sodium hypo that has a quality comparable to what the MPBP Sta. Rosa plant produces.
FINANCE
With a net income after tax of P212.8 million, the company was able to erase the loss of the previous year. Income from continuing operations amounted to P70.6 million, the balance coming from the divestment of shares in Philippine Resins Industries, Inc., amounting to P141.0 million, and from the sale of the PVC business which netted P1.2 million.
The company earned a significant amount of interest income – P17.9 million, net of P27.6 million interest expenses - owing mostly to the disposal of the PVC business, which relieved the company of borrowings to finance the importation of high-value VCM as basic raw material for the shutdown plant.
Non-traditional businesses such as trading of caustic soda pearl and salt, and logistics services, also made a significant contribution to the bottom line with P11.1 million, as compared to P5.5 million during the previous year.
As a result of higher profits, the board of directors declared cash dividends in April and August at P0.20 and P0.30 per share, respectively. Total cash distributed to stockholders amounted to P380.7 million.
The company ended the year in very sound financial position. The current ratio was 5.87 against 1.47 a year ago, and earnings per share was P.280 compared to P.022 loss per share in the previous year.
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PROJECTS
Environmental Management System
With the assistance of the Industrial Initiatives for a Sustainable Environment, the documentation work for the Environmental Management System was completed. Program objectives and operational control procedures are now being implemented, improving those already in place and aligning them to the requirements of ISO 14000.
Ion Exchange Membrane NaoH Expansion Project
Your Company is proceeding with the acquisition of equipment for a new plant
employing state-of-the-art ion exchange membrane technology that our suppliers,
Chlorine Engineers, co-developed with Tosoh Corporation. Total investment is
estimated at P360 million. The plant will add 8,000 MTPY of caustic soda and
22,000 MTPY of hydrochloric acid to the company's production capacity. The project
is expected to be on-stream by the second quarter of 2003.
The Environmental Clearance Certificate for the project, as well as the future retrofitting of the Diaphragm Cell Plant into Ion Exchange Membrane Process, was released by the Department of Environment and Natural Resources on December 26, 2001.
Our application for incentives with the Board of Investments for this project has been approved, but your company is requesting further improvement on the incentives granted. As it is, the project is eligible for an income tax holiday of three years.
Acquisition of Hydrochloric Acid Tanker
To address the growth of the HCl market, it is absolutely essential that our present logistics capability be augmented. A new vessel needed for the supplementary capacity is under consideration. The new tanker will take care of the output of the IEM plant when completed.
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CORPORATE SOCIAL RESPONSIBILITY
MVC continues to support the community hosting our plant in lligan. It allowed plant facilities to be used for activities that redound to the benefit of the community it belongs to, most especially the children of the families in the community.
Programs supported by the company included the Pamaskong Handog sa Kabataan last
Christmas, which staged activities around the plant lagoon. Gifts were provided
by the company and supplemented by the employees themselves in the spirit of
volunteerism.
The company also facilitated a surprise visit by two national storytelling champions sponsored by the Museo Pambata and the National Commission on Culture and the Arts, to enhance the children's love of books and inspire teachers to use storytelling in teaching.
A catechism program for the children of Tonggo was carried out by the company in partnership with the Judge Guillermo B. Guevara Foundation.
To improve health and sanitation, nutrition, hygiene and infant care, your company conducted, with the Mindanao Sanitarium and Hospital, free medical and dental services for the residents of Purok 13.
SAFETY, HEALTH AND ENVIRONMENT
We support the Clean Air Act (RA 8749) by practicing solid waste management through waste segregation and recycling, and sponsoring tree planting by our employees, who are members of the Industrial Peace Council and the Council of Solidarity.
HUMAN RESOURCES DEVELOPMENT
The year in review was outstanding in terms of industrial peace.
With the closing of the PVC plant in the early part of the year, it was necessary to rationalize the manpower complement. A special separation plan was offered and accepted by a total of 90 employees.
The five-year CBA of the Mabuhay Vinyl Supervisory Union and the Mabuhay Vinyl Employees Union-SPFL expired in October, 2001. Formal CBA negotiations with the supervisory group started in September and was concluded with dispatch in two meetings. We made history with our rank-and-file negotiations, which were completed in only six sessions. CBA signing ceremonies were held in lligan on October 8, 2001 for the supervisory union and on December 7, 2001 for the rank-and-file union.
QUALITY MANAGEMENT SYSTEM
The quality management system at the lligan Plant underwent surveillance visits by SGS-International Certification Services, while Luzon, Cebu and Davao operations were visited by TUV Management Service GmbH for a similar purpose. Our success in passing these surveillance visits confirms that your company maintains the requirements of the ISO 9002 quality systems.
AWARDS AND RECOGNITION
Some of the awards and recognition received by our company included:
- The Don Emilio Abello Energy Efficiency Award, received from the Department of Energy and ENMAP on December 5, 2001.
- An added "star" as a "child-friendly" firm by ECOP, for actively encouraging suppliers and subcontractors to be child-friendly. MVC is now a 3-star child-friendly company.
- Named number 3 in the power customer, industry category, by the National Power Corporation's Genco 5 Sales and Commercial Relations Division.
- Named preferred supplier by some multinational companies.
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