President’s Page

 

Cautious Optimism

The Philippines is currently demonstrating promising economic strides. In 2013, we reported a GDP increase of 7.2% after a gain of 6.8% in 2012, the fastest two-year acceleration since the 1950s.

Perhaps this figure is a sign of a new phase of robust growth. It is proof of our economic resilience despite the devastating challenges that beset the country during the year, such as a series of strong earthquakes and super typhoon Yolanda (Haiyan), which temporarily crippled the Visayas region. Some of our properties acquired minimal damage from these calamities, but repairs were quickly initiated and it was business as usual.

Our Philippine tourist arrivals are consistent with the overall worldwide trend, which shows a renewed interest in travel despite a recovering but relatively slow global economy. According to the Department of Tourism (DOT) record, nearly 4.7 million tourists visited the country in 2013. The figure is up by 9.56% from 2012.

South Koreans accounted for 25% of our arrivals, making them our top international source market, next overall to our local guests. Japan and China followed closely. However, there was a notable decline in Taiwanese arrivals, which dropped 35% due to the Taipei-Manila conflict over a Taiwanese fisherman who was shot in Philippine waters. In 2013, the looming lack of resolution over the hostage-taking incident in Manila resulted in continuing negative press from the Hong Kong government, with diplomatic tensions signaling an all-time high when Hong Kong threatened to ban Philippine government officials’ passports. The year also heralded heightened tensions in the West Philippine Sea, with China’s territorial claims causing instability in the region. The Greater China Region (China-Hong Kong-Taiwan) used to be one of our main feeder markets (ranked second), but political and territorial disputes have hampered our access to this market.

We are therefore approaching the current business climate with cautious optimism. Yes, the GDP and tourism numbers are up, but it is too soon to tell whether this new positive growth is sustainable. For our particular industry, it has yet to reflect encouraging developments.

We are using green and blue as our theme colors for this year because both are colors of life—of hope, vibrancy and prosperity. The choice reflects renewed buoyancy and enthusiasm among the Waterfront Group.

Despite the challenges in 2013, our performance remains steady. Gross revenue is at PhP1.98billion. Because of cost-efficiency measures we were able to reduce costs and expenses to 4% from PhP1.52billion in 2012 to PhP1.46billion in 2013. Thus, giving the Group to edge out a greater GOP compared to last year, up 9% from PhP476.06million to PhP517.6million.

On October 15, 2013, the group suffered damages on property and equipment due to the 7.2 magnitude earthquake. These losses were recognized for both Waterfront Cebu City Hotel & Casino and Waterfront

Airport Hotel & Casino resulting to a net loss of PhP65.33 million versus last year’s net income of Php9.01million.

Total room revenue is at PhP548.22million; F&B revenue is at PhP499.75million.

Moving forward, the company will continue to use proven strategies to increase performance.

We will continue to enhance our product in order to boost guest satisfaction. Our overall GSI this year is 4.41 (out of 5; 5 being the highest rating), considered a “high good” rating in the industry. The recently renovated Waterfront Cebu City Hotel & Casino lobby is delivering positive results: food covers increased by 4.86%; Lobby Lounge revenue is up by 28.28% and the average check has jumped by 22.33%. Our biggest product improvement in 2013 is the Manila Pavilion Hotel (MPH) renovation. We have just completed the next phase of our PhP500millionproject, which is the renovation of our Deluxe Rooms. Along with our refreshed Ambassador Club Rooms and Suites, Executive Suites and Premier Rooms and Suites, the Deluxe category adds to the new look and feel of the hotel, contributing significantly to guest satisfaction and allowing us to be more competitive in our category in the Manila Bay area. Currently, the renovated rooms and suites, all redesigned by internationally acclaimed architect Sonia Santiago-Olivares, make up 50% of the total room inventory at MPH. With better design and amenities in our MPH property, we will be able to charge more per room and therefore increase revenue. We expect the rise in revenue to be reflected in the following year, but it is already beginning to express a significant trend in the 2013 figures: Average Room Rate (ARR) made the biggest leap in the group with a 49% growth rate, from PhP1,447 in 2012 to PhP2,159 in 2013; RevPAR is up by 31%, from PhP730 in 2012 to PhP958 in 2013.

The third phase of the MPH renovation program which started on June 2014 has a total project cost of PhP152 million. This time the renovation will involve the Superior Rooms and banquet facilities, to be designed by the prestigious A. Ilustre and Associates architectural firm.

On the soft side, we continue to train our Peers according to the highest standards. We do this nationwide and across all properties. The group achieved a Training Index of 122.35 hours per person for 2013, exceeding the target of 70 hours per person by 75%.

We constantly find ways to streamline costs. We focus on our largest cost centers, manpower and electricity cost. Our most recent improvement is the acquisition of brand new state-of-the-art chillers from Cofely International. Our old chillers were inefficient with 50% energy wastage. Our new chillers are 100% energy-efficient, releasing commensurate output with very little wastage. This tremendous increase in energy efficiency is certain to produce big savings. It also assures us of sustainability and long-term profitability. As the machines were acquired in 2013, we expect to feel the benefits in the following year. The Philippines is known for having one of the highest electricity costs in the world, and with little prospect of improvement in this area, we are now assured that one of our main cost centers will be insulated in the coming years.

We enhance our revenue by improving our different distribution networks, online and offline. Online, we are a Philippine leader, being awarded multiple times as a top producer by Agoda and Expedia. We won the 2013 Agoda Gold Circle Award for WCCH, WAHC and MPH and this we have done for two years consecutively. WCCH is Expedia’s most engaged hotel partner for 2013 and the top-producing hotel by room nights in the four-star category.

E-commerce is still enjoying a global surge and shows no signs of slowing down as more consumers opt to transact and book their stays online. Online revenue currently contributes an average of 23% to our total hotel rooms’ revenue across all properties. The overall online revenue for all properties is at PhP124.8million. For each property, WCCH contributed 45.2%; WAHC contributed 20.4%; WIHD contributed 9.5%; MPH contributed 17.6%; and G Hotel contributed 7.3% to the total hotel group online revenue. The significant values in online percentage contribution indicate a shifting pattern of consumer behavior and our online channels’ continued dominance as an important revenue generator. Through our online channels, there has also been a growth in our Average Room Rate (ARR) of 11%, from PhP2,131 in 2012 to PhP2,361 in 2013.

In the coming years, we will maintain our lead and harness our online potential by revamping our webpage, adding more capabilities to it and by enhancing our online web sweep. We are planning to innovate by introducing new online products, and ways to reach our customer through the web.

We continue to streamline procedures in our Central Reservations Office (CRO). Our CRO received an increased number of calls in 2013. Performance grew by 14%, from 115,735 calls in 2012 to 131,917 calls in 2013 through our local and international 1-800 numbers.

We believe that as the world gets more connected we can harness the potential of technologically enhanced service systems. Our online and offline systems must become more integrated and efficient so we are able to properly interact with our market and become more profitable through innovation and efficiency.

All of the abovementioned measures build the relevance of the Waterfront name, thereby unlocking value for your shares.

We thank you—our directors, shareholders, Peers and partners—for your continued faith in our company and brand. We are dedicated to building on our initial gains to guarantee strong value for the coming years.

RENATO B. MAGADIA
CHAIRMAN OF THE BOARD

Waterfront Philippines, Inc.